Summary
Guidewire Software reported first-quarter fiscal 2022 revenue of $165.9 million, down 2.3% from the prior-year quarter. Gross profit was $62.8 million, down 20.4%, and gross margin was 37.8%, down from the prior-year quarter. The company posted a GAAP operating loss of $65.4 million, a net loss of $51.3 million, and diluted EPS of -$0.62. The revenue decline reflected a sharp drop in license revenue, while subscription and support revenue grew. The company said subscription revenue grew over 50% year-over-year. Management described the quarter as a strong start with record first-quarter deal activity. Most new sales and implementations are for InsuranceSuite via Guidewire Cloud, and the company expects subscriptions to remain a majority of new arrangements.
Cash generation was negative. Operating cash flow was -$107.0 million, down from the prior-year quarter. Capital expenditures were $3.3 million, up 74.8%. Deferred revenue was $116.3 million, up 6.3%. Remaining performance obligations were $881.0 million, up 63.5%. The company said the operating cash use was driven by annual bonus payments and other working capital changes. It also completed the Hazard Hub acquisition during the quarter. The company repurchased 226,172 shares at an average price of $116.12 for $26.3 million. Headcount grew in cloud operations and technical support to 634 employees, while professional services headcount fell to 659. Research and development headcount was 871, sales and marketing was 457, and general and administrative was 410.
ARR was $594 million as of October 31, 2021, compared with $582 million as of July 31, 2021. Management guided second-quarter ARR to $613 million to $616 million and full-year ARR to $659 million to $669 million. It guided second-quarter non-GAAP operating loss to $(15) million to $(11) million and full-year non-GAAP operating loss to $(58) million to $(48) million. The company also issued full-year operating cash flow guidance. The guidance implies continued investment in cloud operations and sales and marketing. The company said it expects research and development expenses to increase in absolute dollars as it hires and develops cloud solutions. It also expects sales and marketing expenses to increase. The company said it expects gross margins to decline in the short term due to mix between license and subscription revenue.
The company faces several risks. Guidewire said its sales cycle has lengthened due to COVID-19. It depends on a relatively small number of large customers for a substantial portion of revenue. It also faces intense competition, risks from its cloud transition, and the fact that services revenue produces lower gross margins than license, subscription and support revenue. The company said COVID-19 continued to affect ARR and services revenue in fiscal 2022. It also flagged foreign exchange and general economic risks. The company said services revenue could decrease further as it leverages system integrator partners. More than 450 insurers run on Guidewire, and the company has completed more than 1,000 successful projects.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $165.9M | $229.4M | -27.7% | $169.8M | -2.3% |
| Gross profit | $62.8M | $129.3M | -51.5% | $78.8M | -20.4% |
| Gross margin | 37.8% | 56.4% | -18.5 pp | 46.4% | -8.6 pp |
| Research & development | $59.9M | $59.5M | +0.7% | $52.6M | +13.9% |
| Sales & marketing | $43.6M | $43.8M | -0.4% | $36.6M | +19.1% |
| General & administrative | $24.6M | $26.1M | -5.7% | $21.2M | +16.0% |
| Total operating expenses | $128.1M | $129.4M | -1.0% | $110.4M | +16.0% |
| Operating income (loss) | -$65.4M | -$84.0K | -77729.8% | -$31.6M | -106.9% |
| Operating margin | -39.4% | -0.0% | -39.4 pp | -18.6% | -20.8 pp |
| Net income (loss) | -$51.3M | -$1.0M | -4868.6% | -$20.2M | -154.0% |
| Net margin | -30.9% | -0.5% | -30.4 pp | -11.9% | -19.0 pp |
| Diluted EPS | -$0.62 | -$0.01 | -$0.61 | -$0.24 | -$0.38 |
Risks
COVID-19 has adversely affected and may continue to affect business, with MD&A citing decreases in ARR growth rates, services revenue and margins, operating cash flow, and potentially higher employee attrition. Sales and implementation cycles have lengthened and new orders may be delayed.
Transition to cloud-based subscription offerings shifts revenue to ratable recognition, which the company expects to reduce near-term reported revenue growth, increase deferred revenue, and increase costs. In FY2022 Q1 total revenue decreased 2.3% and deferred revenue increased 6.3% year over year.
Subscription and support revenue produces lower gross margin than license revenue, and services gross margin was negative. As subscription revenue grows as a percentage of total revenue, overall gross margin declined to 37.8% in FY2022 Q1 from 46.4% in the prior-year quarter, and the company expects gross margins to decline in the short term.
Sales and implementation cycles are lengthy, unpredictable, and involve significant customer evaluation and negotiation. COVID-19 caused sales cycles to lengthen, and MD&A states many customers remain remote, which may continue to delay new orders and professional services engagements.
A relatively small number of P&C insurance customers account for a significant portion of revenue and ARR. The ten largest customers were 28% of FY2021 revenue, and the ten largest by ARR were 27% of total ARR at July 31, 2021.
The company faces intense competition for skilled personnel, particularly in the San Francisco Bay Area, and the shift to a hybrid workforce may affect recruitment, retention, corporate culture, and collaboration. COVID-19 has increased attrition and decreased available candidates for open positions.
The August 2021 acquisition of HazardHub may be initially dilutive and involves integration risks, including retaining key personnel and customers. MD&A notes acquisition consideration holdback costs in FY2022 Q1 associated with the HazardHub acquisition.
The company has substantial convertible senior notes due 2025 outstanding, requiring significant cash for interest and potential repurchases or conversions. A default or forced cash settlement could adversely affect liquidity and dilute stockholders.
A significantly higher percentage of annual license revenue is historically recognized in the fourth fiscal quarter due to sales incentives, and the first quarter of FY2021 benefited from a five-year license renewal that created a challenging comparable for FY2022 Q1. The company also typically uses more cash in the first fiscal quarter for bonus payments, with operating cash flow of negative $107.0 million in FY2022 Q1, down from negative $15.7 million in the prior-year quarter.
SaaS KPIs
All quarters →ARR
Free Cash Flow
Summary, forecast, risks and KPIs are extracted from Guidewire Software, Inc.'s SEC filings for Q1 FY2022 (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.