Summary
Guidewire reported $359.1 million of revenue for the fiscal 2026 second quarter, up 24.0% from the same quarter a year earlier. Subscription and support revenue did the heavy lifting at $237.2 million, a 33% increase, and services revenue rose 30% to $62.4 million. License revenue slipped 7% to $59.5 million as carriers kept trading on-premise term licenses for cloud subscriptions. Annual recurring revenue stood at $1,121 million as of January 31, 2026, compared with $1,041 million as of July 31, 2025, which the company described as 22% growth year over year. Remaining performance obligations reached $3.50 billion, up 66.7%, a sign that large multi-year commitments keep landing.
Profitability improved across the board. Gross profit was $231.5 million, up 29.2%, and gross margin climbed to 64.5% from 61.9%. Operating income of $38.4 million rose 227.9%, which pushed operating margin to 10.7% from 4.0%. Net income was $60.1 million and diluted earnings per share was $0.70, both swinging to a profit from losses a year earlier. Two items flatter the comparison. The prior-year quarter absorbed $53.3 million of expense tied to retiring part of the 2025 convertible notes, and this quarter booked a $26.9 million foreign currency gain. Non-GAAP net income was $100.7 million, with non-GAAP diluted earnings per share of $1.17.
Operating cash flow was $112.0 million for the quarter, up 30.3%, while capital expenditures were $3.3 million, up 315.7%. Free cash flow, which the company reports as a non-GAAP measure and defines as operating cash flow less purchases of property and equipment and capitalized software development costs, was $105.7 million. The six-month picture is thinner because the October quarter absorbs annual bonus payouts and heavier sales commissions: year-to-date operating cash flow was $44.6 million, up 88.5%. Deferred revenue closed the quarter at $312.6 million, up 16.7%. Cash, cash equivalents and investments totaled $1,351.4 million at January 31, 2026, down from $1,483.2 million at July 31, 2025, after $148.2 million went out for share repurchases in the first half.
Management raised its full fiscal year outlook. For the third quarter of fiscal 2026 it guided to ending ARR of $1,144 million to $1,150 million and non-GAAP operating income of $59 million to $65 million. For the full fiscal year 2026 it guided to ending ARR of $1,229 million to $1,237 million and non-GAAP operating income of $293 million to $303 million.
The risk list is familiar. Guidewire leans on a relatively small number of large customers that hold substantial negotiating leverage, and its sales, product development and implementation cycles are long and complex. Competition, the evolving regulation of artificial intelligence and machine learning, and long-term pricing commitments built on cost estimates that can change all appear in the filing. Seasonality cuts both ways. The January quarter usually has fewer billable days because of calendar year-end holidays in the United States and Europe, which pressures services margins, and the fourth quarter brings its own vacation effect. Hiring stayed brisk: research and development headcount was 1,340 against 1,144 a year earlier, professional services 947 against 802, sales and marketing 547 against 496, and cloud operations and technical support 651 against 591. Guidewire also authorized a new $500 million share repurchase program in January 2026, with $490 million remaining, and repurchased 740,995 shares at an average price of $199.99 during the quarter. The company paid $33.3 million, net of acquired cash, for the ProNav acquisition.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $359.1M | $332.6M | +8.0% | $289.5M | +24.0% |
| Gross profit | $231.5M | $209.5M | +10.5% | $179.2M | +29.2% |
| Gross margin | 64.5% | 63.0% | +1.5 pp | 61.9% | +2.6 pp |
| Research & development | $83.3M | $78.3M | +6.4% | $70.3M | +18.6% |
| Sales & marketing | $61.5M | $64.3M | -4.3% | $55.5M | +10.9% |
| General & administrative | $48.3M | $48.5M | -0.4% | $41.7M | +15.8% |
| Total operating expenses | $193.1M | $191.0M | +1.1% | $167.4M | +15.3% |
| Operating income (loss) | $38.4M | $18.5M | +108.0% | $11.7M | +227.9% |
| Operating margin | 10.7% | 5.5% | +5.1 pp | 4.0% | +6.6 pp |
| Net income (loss) | $60.1M | $31.3M | +92.0% | -$37.3M | +261.3% |
| Net margin | 16.7% | 9.4% | +7.3 pp | -12.9% | +29.6 pp |
| Diluted EPS | $0.70 | $0.36 | +$0.34 | -$0.45 | +$1.15 |
Risks
Revenue and ARR depend on a relatively small number of P&C insurance customers. The ten largest customers accounted for 20% of revenue in fiscal 2025 and 22% in fiscal 2024, and the ten largest customers based on ARR accounted for 20% of total ARR at July 31, 2025. These customers have substantial negotiating leverage and consolidation among P&C insurers may further concentrate the customer base.
Sales and implementation cycles are lengthy and variable, with implementation and testing typically lasting six to 24 months or longer. Delays or failures to meet customer expectations can result in monetary credits, reduced fees, revenue reversals, contract renegotiations, or refusal to pay contractually obligated fees.
Competitors and new entrants may use AI technologies to compete with or disrupt portions of Guidewire's business, and existing or potential customers may leverage AI to develop their own solutions. Guidewire expects increased investment will be required to continuously improve its use of AI technologies.
Guidewire uses AI in its offerings and workforce, which may result in regulatory scrutiny, litigation, confidentiality or cybersecurity risks, privacy concerns, and intellectual property claims. AI tools may also generate factually inaccurate or flawed content or code substantially similar to proprietary or open source code.
Future growth depends on expanding adoption of cloud-based subscription offerings and migrating existing term license customers to subscription services. Subscription revenue is recognized ratably, which can lower initial-period revenue, and the timing of customer transitions can negatively affect forecasting.
Guidewire may need to change pricing in response to market demands, inflation, tariffs, interest rates, or increased costs. Contracts are often multi-year, and the company has been required, and may again be required, to reduce average selling prices and ARR or agree to ramps that delay reaching fully ramped ARR.
The market for Guidewire's products is intensely competitive and rapidly evolving, with competitors including small independent firms, cloud-based vendors, horizontal software vendors, and technology consulting firms. Many prospective customers operate entrenched legacy systems, and competitive pressures may prevent Guidewire from acquiring and maintaining the customer base necessary to increase revenue and profitability.
Subscription and support revenue produces lower gross margins than license revenue, and services revenue produces significantly lower gross margin and has at times been negative. A shift in revenue mix toward subscription and services could adversely affect overall gross and operating margins.
Competition for qualified personnel is intense, particularly in the San Francisco Bay Area, and Guidewire operates a hybrid and geographically distributed workforce. The loss of several sales people within a short period could negatively impact sales efforts.
Global events, inflation, tariffs, high interest rates, geopolitical conflicts, and financial instability have adversely affected and may continue to affect Guidewire's business. These conditions can decrease or delay technology spending, lengthen sales cycles, and impact customers' DWP, which is a pricing basis for many products.
Guidewire must comply with current and evolving local data privacy and cybersecurity laws in all jurisdictions where it has customers. AI regulation is uncertain, and increasing sustainability disclosure requirements in jurisdictions such as Europe, California, and Australia may increase compliance costs and complexity.
Guidewire's cloud-based products store and transmit customer data, including personal data. Security incidents or breaches could result in litigation, breach of contract claims, indemnity obligations, reputational harm, and other liabilities.
As of January 31, 2026, Guidewire had $690.0 million aggregate principal amount of 2029 Convertible Senior Notes outstanding and a $300.0 million senior revolving credit facility. The notes may require cash settlement upon conversion or repurchase upon a fundamental change, and the credit facility contains restrictive and financial covenants.
Guidewire generally sees increased new orders in its fourth fiscal quarter ending July 31, and a significantly higher percentage of annual license revenue and cash receipts has historically been recognized in that quarter. Subscription revenue is recognized ratably, which may reduce seasonality over time but in the near term can impact quarter-over-quarter and year-over-year comparisons.
SaaS KPIs
All quarters →ARR
Free Cash Flow
Non-GAAP Income from Operations
ARR Growth
Summary, forecast, risks and KPIs are extracted from Guidewire Software, Inc.'s SEC filings for Q2 FY2026 (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.