GWRE Q1 Earnings Call: Cloud Platform Drives Growth, Misses Revenue Expectations, Raises Guidance

Yahoo

04-06-2025

Insurance industry-focused software maker Guidewire (NYSE:GWRE) fell short of the market's revenue expectations in Q1 CY2025, but sales rose 22% year on year to $293.5 million. Its non-GAAP EPS of $0.88 per share was 88.1% above analysts' consensus estimates.
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Revenue: $293.5 million (22% year-on-year growth)
Adjusted EPS: $0.88 vs analyst estimates of $0.47 (88.1% beat)
Adjusted Operating Income: $46.06 million vs analyst estimates of $39.63 million (15.7% margin, 16.2% beat)
Revenue Guidance for Q2 CY2025 is $336 million at the midpoint, above analyst estimates of $332.2 million
Operating Margin: 1.5%, up from -6.9% in the same quarter last year
Annual Recurring Revenue: $960 million at quarter end, up 15.9% year on year
Billings: $289.3 million at quarter end, up 27.8% year on year
Market Capitalization: $18.3 billion
Guidewire's first quarter results reflected significant customer adoption of its cloud platform and broad-based momentum across the property and casualty insurance industry. CEO Mike Rosenbaum highlighted, 'We closed 17 cloud deals, 14 for at least one of our InsuranceSuite applications, and three for InsuranceNow.' Management attributed the progress to strong execution, particularly among large insurers, and pointed to international traction in Canada, Asia Pacific, and Europe. In addition to robust cloud migrations and expansions, the company's recent acquisition of Quanti was cited as a strategic move to enhance its pricing and rating technology capabilities. The quarter also saw notable customer go-lives, including Cincinnati Insurance Company and Santa Lucia, further validating Guidewire's cloud strategy.
Looking ahead, Guidewire's increased guidance is underpinned by expectations for continued growth in annual recurring revenue and accelerated adoption of its cloud offerings. Management believes that investments in product innovation, such as Guidewire Industry Intelligence and generative AI use cases, will expand the platform's relevance for both large and smaller insurers. CFO Jeff Cooper stated the company expects to maintain upper-teens annual recurring revenue growth, driven by larger, longer-term customer commitments and record-low attrition. CEO Rosenbaum emphasized the importance of international markets, with a $60 million investment planned for Japan, signaling a long-term commitment to global expansion. However, management acknowledged that execution in the upcoming quarter is critical, given the high concentration of sales activity and variability in large deal timing.
Management attributed the quarter's performance to strength in cloud adoption, successful execution in large and international markets, and early traction with advanced analytics products.
Cloud adoption momentum: Guidewire continued to see increased demand for its cloud platform, with 17 new cloud deals and a strong mix of migrations, expansions, and net new wins. Management emphasized that Tier 1 and Tier 2 insurers are increasingly replacing legacy systems to enable faster product launches and business agility.
Expansion of InsuranceNow: The company reported three net new InsuranceNow wins, including two of the largest ever on the product. CEO Rosenbaum attributed this success to improvements in the product and closer integration with Guidewire's cloud platform, making it more competitive in the lower tiers of the insurance market.
International growth and investment: Guidewire highlighted notable cloud expansion in Canada, APAC, and EMEA, and announced a $60 million investment in Japan over five years to deepen local operations and partnerships. Management views this as a strategic move to capture growing demand from Japanese insurers amid evolving regulations and market dynamics.
Advanced analytics and AI initiatives: The first sale of Guidewire Industry Intelligence, a predictive analytics model embedded in the claims workflow, was positioned as an initial step toward monetizing cloud-based industry data. Management also discussed generative AI use cases in claims processing, underwriting, and developer productivity, as key areas of customer interest.
Quanti acquisition integration: The addition of Quanti's pricing and rating technology is expected to enhance Guidewire's ability to support more agile actuarial and pricing strategies. The integration is underway, with management noting its applicability for both large and small insurers looking to modernize pricing processes.
Guidewire's outlook is shaped by expectations for continued cloud deal momentum, product innovation, and international expansion, tempered by execution risks in large deal timing and ongoing investments.
Cloud platform expansion: Management expects sustained demand for Guidewire Cloud Platform, especially as more insurers pursue core system modernization to improve agility. The company sees ongoing migrations and expansions as a key source of recurring revenue growth.
Product innovation and analytics: Guidewire plans to broaden adoption of Industry Intelligence and AI-driven tools, aiming to create value for insurers lacking in-house data resources. The rollout of new predictive models and integration of Quanti's capabilities are expected to differentiate Guidewire's platform and drive incremental revenue opportunities.
International market commitments: The company's investment in Japan and expansion across Europe and Asia-Pacific are intended to capture market share as global insurers seek compliant, modern technology solutions. However, management cautioned that large deal timing and the pace of international adoption could cause variability in quarterly results.
In the coming quarters, the StockStory team will monitor (1) continued growth in annual recurring revenue as Guidewire targets the $1 billion milestone, (2) customer adoption and expansion of Guidewire Industry Intelligence and other analytics tools, and (3) execution of the $60 million investment in Japan and resulting traction with local insurers. We will also track the integration of Quanti's technology and progress in cloud deal momentum globally.
Guidewire currently trades at a forward price-to-sales ratio of 14.4×. At this valuation, is it a buy or sell post earnings? Find out in our full research report (it's free).
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