Summary: Guidewire reported a solid QQ2 2024 quarter with meaningful progress on its cloud-first strategy and partner-led services transformation. ARR reached $800 million, enabling Guidewire to raise its ARR guidance for FY2024 to a range of $852–$862 million and project total revenue of $957–$967 million. Management highlighted a robust cloud sequence (11 cloud deals in the quarter, including four Tier 1 deals) and a growing SI ecosystem that is shifting a greater portion of implementation revenue to partners, with total revenue constraints largely driven by lower subcontracted work rather than weaker demand. On a GAAP basis, quarterly operating income was negative at -$12.4 million, but the company emphasized non-GAAP profitability momentum, driven by a subscription and support gross margin of 65% and improving cloud margins. Management also underscored the acceleration of cloud updates (three releases per year) and the ability to layer in analytics and data offerings atop Guidewire Cloud Platform, positioning the company for greater long-term margin expansion and higher ARR around $1 billion in the medium term. Key takeaways for investors include the durability of Guidewire’s P&C software platform, the strategic shift toward SI-led services, and the importance of monitoring cloud adoption, SI partner performance, DWP-based pricing tailwinds, and macro inflation dynamics as drivers of future ARR and margin trajectory.
Key Performance Indicators
Revenue
240.90M
QoQ: 16.15% | YoY:3.56%
Gross Profit
142.41M
59.11% margin
QoQ: 26.82% | YoY:15.34%
Operating Income
-12.41M
QoQ: 63.26% | YoY:46.55%
Net Income
9.69M
QoQ: 135.78% | YoY:205.42%
EPS
0.12
QoQ: 136.36% | YoY:209.09%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $241.0M in QQ2 2024; YoY +3.56%, QoQ +16.15% (per reported metrics). - Gross Profit: $142.406M; gross margin 59.1% (0.591). YoY gross profit up 15.34%; QoQ +26.82%. - Operating Income (GAAP): -$12.41M; operating margin -5.15%. - Net Income: $9.687M; net margin 4.02%. EPS: $0.12; diluted $0.12. - ARR: $800M (as of QQ2 2024). - Subscription & Support gross margin: 65% (up from 57% YoY). - Overall gross margin: 63%. - Services gross margin: -11% (negative; includes severance charges ~-$3.0M). - Free Cash Flow (FCF): $63.893M; Operating Cash Flow: $69.251M. - Cash, cash equivalents & investments: $~$351.2M (per quarterly balance) with net cash provided by operating activities of $69.3M in the quarter. - Total debt: $437.107M; Net debt: $85.918M. - Guidanced FY2024 ranges updated: ARR $852–$862M; Total Revenue $957–$967M; Services Revenue ~$175M; Operating Income $82–$92M; Cash Flow from Operations $120–$140M. - Q3 2024 guidance: ARR $815–$820M; Revenue $228–$234M; Gross Margin 61–62%; Op Income $4–$10M.
Financial Highlights
- Revenue: $241.0M in QQ2 2024; YoY +3.56%, QoQ +16.15% (per reported metrics). - Gross Profit: $142.406M; gross margin 59.1% (0.591). YoY gross profit up 15.34%; QoQ +26.82%. - Operating Income (GAAP): -$12.41M; operating margin -5.15%. - Net Income: $9.687M; net margin 4.02%. EPS: $0.12; diluted $0.12. - ARR: $800M (as of QQ2 2024). - Subscription & Support gross margin: 65% (up from 57% YoY). - Overall gross margin: 63%. - Services gross margin: -11% (negative; includes severance charges ~-$3.0M). - Free Cash Flow (FCF): $63.893M; Operating Cash Flow: $69.251M. - Cash, cash equivalents & investments: $~$351.2M (per quarterly balance) with net cash provided by operating activities of $69.3M in the quarter. - Total debt: $437.107M; Net debt: $85.918M. - Guidanced FY2024 ranges updated: ARR $852–$862M; Total Revenue $957–$967M; Services Revenue ~$175M; Operating Income $82–$92M; Cash Flow from Operations $120–$140M. - Q3 2024 guidance: ARR $815–$820M; Revenue $228–$234M; Gross Margin 61–62%; Op Income $4–$10M.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
240.90M
3.56%
16.15%
Gross Profit
142.41M
15.34%
26.82%
Operating Income
-12.41M
46.55%
63.26%
Net Income
9.69M
205.42%
135.78%
EPS
0.12
209.09%
136.36%
Key Financial Ratios
currentRatio
3.4
grossProfitMargin
59.1%
operatingProfitMargin
-5.03%
netProfitMargin
4.02%
returnOnAssets
0.48%
returnOnEquity
0.77%
debtEquityRatio
0.35
operatingCashFlowPerShare
$0.84
freeCashFlowPerShare
$0.78
priceToBookRatio
7.3
priceEarningsRatio
236.73
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Cloud momentum and ARR formation: Management emphasized ARR reaching $800M and raised FY2024 ARR guidance to $852–$862M. They highlighted 11 cloud deals in Q2, including four Tier 1 deals, and a continued push to migrate larger insurers to InsuranceSuite and Guidewire Cloud Platform. - SI ecosystem transformation: Management discussed shifting a majority of implementation revenue to System Integrators (SIs) to improve long-term gross margins and scale, with approximately 24,000 consultants in the Guidewire SI ecosystem and more than 200 partners; cloud certifications rose 33% YoY to ~9,000. - Cloud updates and data analytics: The firm highlighted hundreds of cloud updates across customer deployments and the plan for three cloud updates per year, enabling customers to receive continuous innovations. They stressed the ability to layer analytics and data offerings (e.g., HazardHub) on the platform to improve decision-making and outcomes. - Margin and profitability trajectory: Subscriptions gross margin expanded to 65% YoY; overall gross margin rose to 63% despite a negative services gross margin of -11% (due to subcontracting in early cloud programs and severance). The company expects services gross margin to improve to 5–8% as the mix shifts toward SI-driven engagements. - Business mix and demand durability: The executives described sustainable demand for Guidewire Cloud and a long-term modernization cycle for insurers, with strong pipeline and a belief that cloud adoption remains a strategic, decade-long decision for most customers. - Inflation and pricing tailwinds: The management noted DWP-based pricing improvements (direct written premium) as premiums rise, which acts as a tailwind for Guidewire’s fees, while acknowledging macro inflation pressures as a backdrop to customer investment decisions.
ARR of $800 million, which was above our outlook range.
— Jeffrey Cooper
Record sales activity quarter for us in Q2, with 11 cloud deals, including four Tier 1 deals, and 70% of cloud customers in production.
— Mike Rosenbaum
Forward Guidance
- ARR guidance raised to $852–$862 million for FY2024, signaling confidence in ongoing cloud demand and cross-sell opportunities within the InsuranceSuite and Cloud Platform ecosystem. - Total revenue guidance tightened modestly to $957–$967 million (midpoint down ~ $19M), reflecting a downward adjustment to services revenue given a gradual transition away from subcontracting and toward SI-led delivery. - Services revenue expected to be roughly $175 million for FY2024; Subscription & Support gross margins guided to 64–65%; Services gross margins expected to be 5–8%; Total gross margin around 62% for the full year. - Operating income target maintained at $82–$92 million, as improved cloud margins offset the lower services margin. - Cash flow from operations raised to $120–$140 million, supported by higher collections and cloud-margin efficiency. - Q3 guidance: ARR $815–$820 million; Total revenue $228–$234 million; Subscription & Support revenue around $134 million; Services revenue around $42 million; Total gross margin 61–62%; Operating income $4–$10 million. - Key risk factors: execution risk in accelerating SI-led delivery; potential volatility in services mix impacting near-term gross margins; macroeconomic uncertainty (inflation, premium dynamics) affecting insurer IT budgets; potential delays in cloud migrations given long-cycle deals; competition from other cloud-enabled core systems players. - Assessment: Given ARR growth, cloud momentum, and a clear plan to shift Services toward SI-led engagements, Guidewire’s FY2024 trajectory remains favorable, with the potential for further margin improvement as the SI model scales and cloud efficiency improves.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
GWRE Focus
59.11%
-5.03%
0.77%
236.73%
DSGX
75.20%
28.10%
2.64%
62.60%
MANH
54.80%
25.70%
21.90%
71.38%
TYL
41.40%
14.40%
2.16%
78.40%
QTWO
47.50%
-7.37%
-2.72%
-69.32%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Overall we view Guidewire’s QQ2 2024 performance as positive, with meaningful progress on the cloud migration, ARR growth, and the evolution toward an SI-led services model that should support longer-term gross margin expansion and higher cash flow. The company’s raised FY2024 ARR guidance and sustained cloud deal momentum are key positives, but near-term profitability hinges on the pace of SI-led implementation and containment of services margin volatility. Investors should monitor: (1) pipeline progression and win-rate sustainability for cloud deals, (2) SI partner onboarding, certifications, and capacity to deliver without eroding margins, (3) DWP-based pricing dynamics and any acceleration in true-ups, and (4) macro insurance pricing cycles and inflationary environment impacting insurer IT budgets. Given the path to a potentially ~$1B ARR and progressive margin improvement as the SI model scales and cloud efficiency improves, the stock presents a compelling long-term opportunity for investors tolerant of a cloud-transition cycle and related execution risk, with a current bias toward a constructive stance on Guidewire’s equity. (All figures in USD).
Key Investment Factors
Growth Potential
- Large addressable market in P&C insurance modernization; continued migration of Tier 1 insurers to Guidewire Cloud; attach of analytics (HazardHub, Predictive Analytics, BI) to core workflows; expanding marketplace applications and certified integrations; potential to achieve $1B ARR as ramp deals close and backlog converts.
Profitability Risk
- Execution risk from accelerating SI-led service delivery and potential gap between Guidewire-owned programs and SI-led engagements; longer-term migration cycles for some Tier 1 insurers; dependence on SI partners for implementation velocity and margins; potential volatility from pricing via DWP true-ups tied to premium cycles; competitive pressure from peers (e.g., Duck Creek).
Financial Position
- Strong liquidity profile with cash, cash equivalents and investments in the vicinity of hundreds of millions; robust operating cash flow ($69.3M in QQ2); free cash flow ~$63.9M; total debt ~$437M with net debt ~$85.9M; improved subscription gross margins (65%) and healthier overall gross margins (63%) amid cloud transition; projected FY2024 operating income in the $82–$92M range and ~$120–$140M in operating cash flow.
SWOT Analysis
Strengths
Cloud-first strategy with rapid release cadence (three updates per year) supports ongoing innovation delivery.
Strong ARR build to $800M in QQ2 2024 and raised FY2024 ARR guidance to $852–$862M.
Robust gross margins in subscription and support (65%) and overall gross margin (63%).
Broad adoption and pipeline for InsuranceSuite Cloud and data analytics offerings (HazardHub, Predictive Analytics).
Global footprint with growing Eurozone momentum and new Tier 1 cloud migrations.
Market leadership in P&C core systems, defensible platform with ecosystem leverage.
Weaknesses
GAAP operating income negative in QQ2 (-$12.4M) despite positive non-GAAP profitability momentum.
Services gross margin negative (-11%) driven by early cloud programs and subcontracting; transition to SI-led services expected to take time.
Near-term revenue risk from lower subcontracted services revenue; backlog and ramp risk as SI-led delivery scales.
opportunitieseOf course, if mis-typo:
opportunities you can replace with:
Opportunities
Increased cloud-adjacent monetization via data analytics (HazardHub, Predictive Analytics, BI) attached to core workflows.
Expanded geographic reach (Europe, Asia-Pacific) and regional SI partnerships to accelerate migration and cross-sell.
Marketplace app growth and certified integrations to boost add-on adoption.
Tier 1 insurer migrations and broader market adoption of Guidewire Cloud to sustain ARR growth and margin expansion.
Potential strategic acquisitions to accelerate cloud capability or expand analytics ecosystem.
Threats
Intense competition from other insurance software platforms (e.g., Duck Creek) and potential market share erosion if cloud value prop weakens.
Macro headwinds affecting insurer IT budgets and inflation dynamics impacting premium growth and DWP-based pricing tailwinds may decelerate ARR progression.
Execution risk in the transition of services to a predominantly SI-led model, including potential churn if SI delivery is delayed or sub-optimal.
Long-cycle nature of Tier 1 insurer migrations could delay realization of revenue and margin improvements.