Summary
Guidewire Software reported first-quarter fiscal 2021 revenue of $169.8 million, up 8.1% from $157.0 million in the prior-year quarter. Gross profit rose 3.5% to $78.8 million, but gross margin slipped to 46.4% from 48.5%, a decline of 2.1 percentage points. The top line expanded, yet the profit picture worsened. Operating loss was $31.6 million, compared with $24.6 million a year earlier, and operating margin fell to negative 18.6% from negative 15.7%. Net loss was $20.2 million, compared with $15.0 million, and diluted loss per share widened to $0.24 from $0.18.
Non-GAAP results show a different view. Non-GAAP income from operations was $2.8 million, compared with $7.1 million in the prior-year quarter. Non-GAAP net income was $14.4 million, or $0.17 per diluted share, compared with $11.0 million, or $0.13 per diluted share. The gap between GAAP and non-GAAP profitability reflects charges that the company excludes, such as stock-based compensation and amortization of intangibles.
Cash flow and backlog offered mixed signals. Operating cash flow was negative $15.7 million, up 13.4% from negative $18.1 million in the prior-year quarter. Capital expenditures were $1.9 million, down 80.2% from $9.6 million. Free cash flow, a non-GAAP measure, was negative $20.2 million. Deferred revenue rose 2.1% to $109.35 million from $107.12 million. Remaining performance obligations jumped 41.8% to $539.0 million from $380.0 million. Annual recurring revenue was $513 million as of October 31, 2020, compared with $514 million as of July 31, 2020. The filing said COVID-19 continued to affect ARR and services revenue.
Operationally, Guidewire used its Connections customer conference to announce Banff, a release tied to its bi-annual cloud release cadence and expanded cloud-native services. Management pointed to customer activity and enthusiasm for the Guidewire Cloud Platform. Most new sales and implementations are for InsuranceSuite via Guidewire Cloud, which is delivered as a service and supports multiple releases a year. The company also continued to invest in cloud operations. Its cloud operations and technical support headcount reached 475 at October 31, 2020, up from 251 a year earlier, while professional services headcount fell to 699 from 760. Research and development headcount rose to 810 from 724. These shifts reflect the company's push toward subscription and cloud delivery.
Guidance frames the next steps. For the second quarter of fiscal 2021, Guidewire guided ARR to $518 million to $521 million and non-GAAP operating income to a loss of $5 million to $1 million. For the full fiscal year 2021, it guided ARR to $560 million to $571 million and non-GAAP operating income to a range that runs from a loss of $5 million to income of $5 million. The company also issued a full-year operating cash flow outlook. The non-GAAP operating guidance excludes stock-based compensation and amortization of intangibles.
Risks remain substantial. COVID-19 continues to disrupt sales visits and implementation engagements, and the company said new orders are delayed rather than cancelled. Services revenue and margins face pressure from remote work, lower travel, and investments in cloud migrations. The first quarter included a five-year term license deal that added license revenue upfront, which may overshadow the usual seasonal benefit in the second quarter and create a difficult comparison for the first quarter of fiscal 2022. Guidewire also faces long sales cycles, reliance on a small number of large customers, intense competition, and the challenge of moving customers from term licenses to subscription contracts. Subscription revenue is recognized ratably, so growth in orders does not immediately translate into reported revenue. The company said it expects challenges related to COVID-19 to continue through fiscal year 2021 or possibly longer. The cloud transition and the ongoing pandemic will keep both revenue growth and profitability under pressure in the near term.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $169.8M | $243.7M | -30.3% | $157.0M | +8.1% |
| Gross profit | $78.8M | $155.9M | -49.4% | $76.2M | +3.5% |
| Gross margin | 46.4% | 64.0% | -17.5 pp | 48.5% | -2.1 pp |
| Research & development | $52.6M | $52.2M | +0.7% | $46.5M | +13.2% |
| Sales & marketing | $36.6M | $36.8M | -0.5% | $33.0M | +11.0% |
| General & administrative | $21.2M | $22.5M | -5.7% | $21.2M | -0.3% |
| Total operating expenses | $110.4M | $111.5M | -1.0% | $100.8M | +9.6% |
| Operating income (loss) | -$31.6M | $44.3M | -171.3% | -$24.6M | -28.5% |
| Operating margin | -18.6% | 18.2% | -36.8 pp | -15.7% | -2.9 pp |
| Net income (loss) | -$20.2M | $38.8M | -152.1% | -$15.0M | -34.7% |
| Net margin | -11.9% | 15.9% | -27.8 pp | -9.6% | -2.3 pp |
| Diluted EPS | -$0.24 | $0.47 | -$0.71 | -$0.18 | -$0.06 |
Risks
COVID-19 has impacted day-to-day operations and delayed new orders and professional services engagements. MD&A states ARR was $513 million as of October 31, 2020, compared to $514 million as of July 31, 2020, and the economic impact is expected to continue through FY2021 or longer.
Sales and implementation cycles are lengthy and variable, and COVID-19 has caused sales and implementation cycles to lengthen. This could cause significant time and resources to be spent before revenue is generated.
A relatively small number of P&C insurance customers account for a substantial portion of revenue and ARR. The ten largest customers accounted for 31% of revenue in each of fiscal years 2020, 2019, and 2018 and 29% of total ARR in fiscal year 2020.
Transition to cloud-based subscription offerings requires considerable investment and ratable revenue recognition, which lowers near-term revenue and pressures margins. MD&A notes subscription and support gross margin declined and total gross margin was down 2.1 pp in FY2021 Q1 versus FY2020 Q1.
Revenue mix shift toward lower-margin subscription/support and services revenue, plus cloud operations investments and negative services gross margin, could adversely affect overall gross and operating margins. FY2021 Q1 operating margin was down 2.9 pp and operating loss widened.
Seasonal sales patterns and large multi-year term license renewals cause fluctuations. MD&A states a five-year term license deal in FY2021 Q1 created higher revenue growth and a challenging comparable for FY2022 Q1.
Cloud services involve storing and transmitting customer data, including personal data. A breach could lead to litigation and liability, and privacy regulations such as the CCPA, the likely-passing CPRA, and the EU Privacy Shield invalidation impose compliance costs.
$400.0 million of 1.25% Convertible Senior Notes due 2025 may require cash settlement or repurchase under certain conditions. ASU 2020-06 will require the if-converted method and could adversely affect diluted EPS.
Board authorized up to $200.0 million share repurchase program in October 2020. Repurchases could increase stock price volatility and diminish cash reserves, and the program may be suspended or discontinued.
SaaS KPIs
All quarters →Free Cash Flow
Non-GAAP Income from Operations
Annual Recurring Revenue (ARR)
Summary, forecast, risks and KPIs are extracted from Guidewire Software, Inc.'s SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.