Summary
Guidewire's fiscal 2024 second quarter showed steady top-line growth and a sharp improvement in profitability. Total revenue was $240.9 million, up 3.6% from the prior-year quarter. For the six months ended January 31, 2024, revenue was $448.3 million, up 4.8%. Gross profit rose 15.3% to $142.4 million in the quarter, and gross margin was 59.1%, up 6.0 percentage points. Year-to-date gross profit was $254.7 million, up 30.2%, with a gross margin of 56.8%, up 11.1 percentage points. The company reported a GAAP operating loss of $12.4 million, narrower than the prior-year quarter. GAAP net income was $9.7 million, compared with a net loss a year earlier. Diluted EPS was $0.12, compared with a loss per share a year earlier. On a year-to-date basis, the operating loss narrowed to $46.2 million, the net loss narrowed to $17.4 million, and diluted EPS was -$0.21, an improvement from the prior-year period. Operating margin was -5.2%, up 4.8 percentage points, and year-to-date operating margin was -10.3%, up 12.5 percentage points.
Cash generation improved markedly. Operating cash flow was $69.3 million in the quarter, up sharply from the prior-year quarter. For the six months, operating cash flow was -$2.8 million, an improvement from the prior-year period. Capital expenditures were $3.0 million in the quarter, up 124.5%, and $4.0 million year to date, up 106.0%. Deferred revenue was $199.2 million, up 31.0% from the prior-year quarter. Remaining performance obligations, or RPO, were $1.50 billion, up 25.0%. Free cash flow, a non-GAAP measure, was $63.9 million for the quarter. For the six months, free cash flow was -$12.9 million, compared with -$94.3 million in the prior-year period. Cash, cash equivalents, and investments were $932.7 million at January 31, 2024, compared with $927.5 million at July 31, 2023.
Operational momentum centered on cloud deals. Guidewire closed eleven cloud deals in the quarter, including migrations, expansions, and net-new customers. Annual recurring revenue was $800 million as of January 31, 2024, compared with $763 million as of July 31, 2023. Non-GAAP subscription and support gross margin was 65% in the quarter. Non-GAAP income from operations was $25.7 million, compared with $15.1 million in the prior-year quarter. Non-GAAP net income was $39.1 million, and non-GAAP diluted EPS was $0.46. Headcount at January 31, 2024 included 1,087 research and development employees, compared with 1,002 a year earlier, and 595 cloud operations and technical support employees, compared with 649 a year earlier.
For the third quarter of fiscal 2024, guidance calls for ARR between $815 million and $820 million and non-GAAP operating income between $4 million and $10 million. For the full fiscal year 2024, guidance is ARR between $852 million and $862 million and non-GAAP operating income between $82 million and $92 million.
The quarter's revenue outlook change for fiscal 2024 stems from lower expected services revenue. Guidewire said its SI partners are leading more cloud engagements at a faster pace than originally expected. That shift pressures services revenue, which carries lower gross margins than subscription and support. The company maintained its profitability outlook, citing strong subscription and support gross margin and operating expense discipline. Risks include lengthy sales cycles, reliance on a relatively small number of large customers, the transition to cloud subscriptions, data security breaches, and uncertainty around artificial intelligence and machine learning regulation. Global events such as the wars between Israel and Hamas and between Russia and Ukraine, high inflation, and bank failures could also affect results. Three customers in Argentina represent approximately $5 million of ARR as of January 31, 2024, and government restrictions limit their ability to send U.S. dollars out of the country. Severance payments of $3.3 million affected free cash flow in the six months ended January 31, 2024.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $240.9M | $207.4M | +16.1% | $232.6M | +3.6% |
| Gross profit | $142.4M | $112.3M | +26.8% | $123.5M | +15.3% |
| Gross margin | 59.1% | 54.1% | +5.0 pp | 53.1% | +6.0 pp |
| Research & development | $65.5M | $62.5M | +4.8% | $61.7M | +6.1% |
| Sales & marketing | $49.2M | $44.6M | +10.3% | $44.8M | +9.8% |
| General & administrative | $40.2M | $39.0M | +3.0% | $40.2M | -0.0% |
| Total operating expenses | $154.8M | $146.1M | +6.0% | $146.7M | +5.5% |
| Operating income (loss) | -$12.4M | -$33.8M | +63.3% | -$23.2M | +46.5% |
| Operating margin | -5.2% | -16.3% | +11.1 pp | -10.0% | +4.8 pp |
| Net income (loss) | $9.7M | -$27.1M | +135.8% | -$9.2M | +205.4% |
| Net margin | 4.0% | -13.1% | +17.1 pp | -4.0% | +8.0 pp |
| Diluted EPS | $0.12 | -$0.33 | +$0.45 | -$0.11 | +$0.23 |
Risks
Guidewire is investing in machine learning and generative AI features and faces significant competition and an evolving regulatory landscape. The filing warns that AI technologies may trigger new regulatory scrutiny, intellectual property infringement claims, and reputational harm if outputs are inaccurate or controversial.
The company continues migrating customers from term licenses to cloud subscriptions, which requires considerable investment and shifts revenue to ratable recognition. Subscription revenue increased by $27.1 million during the three months ended January 31, 2024 compared to the same period a year ago, while term license revenue decreased by $2.0 million, and the filing warns this transition can pressure gross and operating margins and complicate forecasting.
Revenue and ARR depend on a relatively small number of P&C insurance customers. The filing states the ten largest customers accounted for 23% of revenue in each of fiscal 2022 and 2023, and the ten largest by ARR accounted for 24% of total ARR at July 31, 2023, giving these customers substantial negotiating leverage.
Sales and implementation cycles are lengthy and variable, often six to 24 months or longer, and depend on factors outside the company's control. The filing warns that customers have significant negotiating power, which can lead to contractual complexity, delayed revenue, penalties, and increased services costs.
Global events including wars, inflation, bank failures, and supply chain issues have caused and may continue to cause economic volatility, longer sales cycles, and customer payment delays. The filing specifically notes three Argentina customers representing approximately $6.5 million of accounts receivable and approximately $5 million of ARR as of January 31, 2024 face government restrictions on sending U.S. dollars out of the country.
The market for Guidewire's products is intensely competitive, including from insurtech companies, horizontal software vendors, and entrenched legacy systems. The filing warns competitors may use evolving AI technologies such as generative AI, and new cloud-native competitors may emerge without the cost of maintaining or migrating existing solutions.
The company faces intense competition for qualified personnel, especially in the San Francisco Bay Area, and has transitioned to a hybrid workforce that may hurt recruitment, retention, collaboration, and culture. The filing also notes a reduction-in-force during the quarter and severance payments of $3.3 million in the six months ended January 31, 2024.
As of January 31, 2024, $400.0 million principal amount of 1.25% Convertible Senior Notes due 2025 was outstanding. The filing warns the company may not have sufficient cash to settle conversions or repurchase notes upon a fundamental change, and the if-converted method may negatively affect reported diluted EPS in periods of net income.
Subscription and support revenue produces lower gross margins than license revenue, and services gross margin was negative in fiscal 2023 and 2022. The filing warns that as cloud transition continues, subscription revenue increasing as a percentage of total revenue may adversely affect overall gross and operating margins.
A significantly higher percentage of annual license revenue and cash receipts has historically been recognized in the fourth fiscal quarter ending July 31 due to sales incentives. The filing warns that subscription ratable recognition and large multi-year term license transactions can cause significant quarterly fluctuations and make forecasting difficult.
The company relies on SI partners to lead more new subscription implementation and migration projects, and services revenue decreased by $15.6 million during the three months ended January 31, 2024 compared to the same period a year ago. The filing warns that failure to maintain high-quality implementation and support services, or to ensure SIs provide the same, could harm business and growth prospects.
Customers are P&C insurers that have experienced and will likely experience losses from catastrophes, terrorism, and climate-related events. The filing warns such losses may cause customers to postpone purchases and professional service engagements or discontinue existing projects, preventing customer base expansion.
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 Q2 FY2024 (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.