Summary
Guidewire's fiscal 2025 second quarter, ended January 31, 2025, produced $289.48 million in revenue, up 20.2% from the prior-year quarter. Gross profit was $179.15 million, up 25.8%. Operating income was $11.72 million, up 194.5%, swinging to a profit from a loss. Net loss was $37.28 million, down 484.8%, swinging to a loss. Diluted EPS was -$0.45, down 475.0%. Gross margin was 61.9%, up 2.8 percentage points. Operating margin was 4.0%, up 9.2 percentage points.
The company signed 12 cloud deals in the quarter. ARR was $918.1 million as of January 31, 2025, compared with $864.0 million as of July 31, 2024. Operating cash flow was $85.99 million, up 24.2%. Capital expenditures were $0.79 million, down 73.6%. Free cash flow, a non-GAAP measure, was $82.3 million. Deferred revenue was $267.96 million, up 34.5%. Remaining performance obligations were $2.10 billion, up 40.0%. Non-GAAP income from operations was $53.9 million, compared with $25.7 million. Non-GAAP net income was $43.9 million, compared with $39.1 million. Non-GAAP diluted EPS was $0.51, compared with $0.46.
Management issued guidance for the third quarter of fiscal 2025. Ending ARR is expected between $942 million and $947 million. Total revenue is expected between $283 million and $289 million. Non-GAAP operating income is expected between $36 million and $42 million. For the full fiscal year 2025, management guided ending ARR between $1,000 million and $1,010 million. Total revenue is expected between $1,164 million and $1,174 million. Non-GAAP operating income is expected between $175 million and $185 million. Operating cash flow is expected between $230 million and $260 million. The company raised its full-year 2025 outlook.
The quarter showed a mix shift. Subscription and support revenue grew, while license revenue fell and services revenue rose. Support revenue decreased and term license revenue decreased. Subscription revenue growth lags order growth because revenue is recognized ratably. License revenue declines as customers migrate to subscription services. Services gross margin can swing with subcontractor use and project investments. Cloud infrastructure costs rose. Foreign exchange drove higher expense. The debt retirement expense is non-deductible for tax purposes. The company expects subscription and support gross margin to continue to improve, though at a slower rate than in fiscal year 2024. It expects services gross margin to improve over time, but quarterly results may fluctuate. License gross margins are expected to remain stable, but gross profit should decline as customers migrate to subscription services.
Risks remain. Guidewire faces lengthy sales cycles, reliance on a small number of large customers, and global economic volatility. Inflation, high interest rates, geopolitical conflicts, and supply chain issues can affect customer spending. The company also cites competition, AI regulation, cybersecurity, and data breaches. Seasonality matters. The second fiscal quarter usually has fewer billable days, which pressures services gross margins. The cloud transition continues to reshape revenue and margin profiles. The company had 591 cloud operations and technical support employees and 802 professional services employees at January 31, 2025, compared with 595 and 770 a year earlier. Research and development headcount was 1,144, compared with 1,087. Management expects research and development, sales and marketing, and general and administrative expenses to increase in absolute dollars but decrease as a percentage of revenue as hiring slows.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2025 | Q1 FY2025 | QoQ | Q2 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $289.5M | $262.9M | +10.1% | $240.9M | +20.2% |
| Gross profit | $179.2M | $158.4M | +13.1% | $142.4M | +25.8% |
| Gross margin | 61.9% | 60.3% | +1.6 pp | 59.1% | +2.8 pp |
| Research & development | $70.3M | $68.9M | +2.0% | $65.5M | +7.3% |
| Sales & marketing | $55.5M | $51.5M | +7.7% | $49.2M | +12.8% |
| General & administrative | $41.7M | $42.8M | -2.4% | $40.2M | +3.8% |
| Total operating expenses | $167.4M | $163.1M | +2.6% | $154.8M | +8.1% |
| Operating income (loss) | $11.7M | -$4.7M | +348.4% | -$12.4M | +194.5% |
| Operating margin | 4.0% | -1.8% | +5.8 pp | -5.2% | +9.2 pp |
| Net income (loss) | -$37.3M | $9.1M | -507.9% | $9.7M | -484.8% |
| Net margin | -12.9% | 3.5% | -16.4 pp | 4.0% | -16.9 pp |
| Diluted EPS | -$0.45 | $0.11 | -$0.56 | $0.12 | -$0.57 |
Risks
The company is incorporating machine learning and generative AI into its products and workforce, facing evolving regulation, intellectual property uncertainty, and potential defects or inaccurate outputs. Risk factors note significant competition and regulatory scrutiny around these technologies.
Migration from term licenses to cloud subscriptions is a key strategy, but ratable revenue recognition lowers initial revenue and may magnify seasonality. Term license revenue decreased $7.3 million in Q2 FY2025 and $3.9 million year to date as customers migrated, while subscription and support was 61% of Q2 revenue.
Revenue and ARR depend on a relatively small number of P&C insurance customers. The ten largest customers accounted for 22% of total ARR at July 31, 2024, and 23% and 22% of revenue in fiscal 2023 and 2024, respectively.
Sales and implementation cycles are lengthy and variable, often lasting six to 24 months or longer, with significant customer negotiating power and potential penalties for missed implementation or service levels. MD&A notes extended evaluation periods, especially for cloud-first purchases.
Large P&C insurer customers have substantial negotiating leverage and may require reduced average selling prices, steeper ARR ramps, or additional features. The company has been required, and may again be required, to reduce average selling prices and ARR.
Customers have no obligation to renew term licenses or subscriptions, may cancel under certain circumstances, and some have perpetual buyout rights. A decline in renewals or expansions would harm future revenue and profitability.
As of January 31, 2025, $869.1 million principal of convertible notes was outstanding, including $179.1 million due March 2025, and the 2025 notes are currently convertible. The company recorded $53.3 million of expense in Q2 FY2025 related to retirement of a portion of the 2025 notes, contributing to a net loss.
Subscription and support revenue has lower gross margin than license revenue, and services gross margin was negative in fiscal 2024 and 2023. Services gross profit was negative $2.3 million in Q2 FY2025, and mix shift toward subscriptions and services can pressure overall margins.
Cloud offerings rely on third-party services including AWS and Okta, and any material disruption or failure could cause outages or delays. Risk factors also cite the CrowdStrike incident as an example of information technology system vulnerability.
P&C insurer customers face losses from catastrophes, climate change, geopolitical conflicts, and industry consolidation, which may cause them to postpone purchases or reduce spending. Global events have adversely affected ARR growth rates, services revenue, and margins.
SaaS KPIs
All quarters →ARR
Free Cash Flow
Non-GAAP Income from Operations
Summary, forecast, risks and KPIs are extracted from Guidewire Software, Inc.'s SEC filings for Q2 FY2025 (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 1, 2026.