Summary
Guidewire's fiscal fourth quarter of 2021 showed a business still shifting toward the cloud. Total revenue was $229.4 million for the quarter, down 5.8% from the prior-year quarter. Full-year revenue was $743.3 million, essentially flat. Gross profit was $129.3 million in the quarter, down 17.0% from a year earlier. Full-year gross profit was $368.2 million, down 8.9%. Gross margin was 56.4% in the quarter, down 7.6 percentage points. For the full year, gross margin was 49.5%, down 4.9 percentage points. Subscription revenue grew while license revenue fell, and higher cloud operations costs weighed on gross profit.
Profitability swung hard on a GAAP basis. The quarter produced an operating loss of $0.08 million, against operating income a year earlier. The full-year operating loss widened to $105.6 million. GAAP net loss was $1.0 million in the quarter and $66.5 million for the fiscal year. GAAP net loss per share for the full year was $0.79. Operating expenses rose across research and development, sales and marketing, and general and administrative functions, and the company kept investing in cloud operations and technical support staff.
Cash generation held up. Operating cash flow was $108.4 million in the quarter, up 1.1% from a year earlier. Full-year operating cash flow was $111.6 million, down 1.3% from the prior year. Capital expenditures were $6.6 million in the quarter, up 173.6%, and $19.0 million for the full year, down 11.1%. Deferred revenue was $145.9 million, up 9.7%. Remaining performance obligations were $844.0 million, up 43.6%. The company also reported free cash flow of $82.7 million for fiscal 2021 and ARR of $582 million as of July 31, 2021, with ARR growth of 13% for the year, or 12% on a constant currency basis.
Management pointed to a record 17 core cloud deals in the fourth quarter, 16 of them for InsuranceSuite. Guidance for the first quarter of fiscal 2022 puts ARR between $586 million and $590 million and total revenue between $162 million and $166 million. GAAP operating loss for that quarter is expected between $(60) million and $(56) million, or $(27) million to $(23) million on a non-GAAP basis. For the full fiscal year 2022, the outlook calls for ARR of $657 million to $667 million, revenue of $780 million to $790 million, a GAAP operating loss of $(180) million to $(170) million, a non-GAAP operating loss of $(38) million to $(28) million, and operating cash flow of $30 million to $40 million.
The risk list remains long. COVID-19 has disrupted operations and contributed to lower ARR growth rates, services revenue and margins, operating cash flow, and the value of strategic investments. Sales cycles lengthened, and new sales are being delayed rather than lost, with implementations rescheduled or stretched over longer periods. Guidewire also flags reliance on a small number of large customers, intense competition, the cloud transition, data security breach risk, the lower gross margins that services revenue produces, and challenges in international operations. The company expects subscription arrangements to make up a majority of new sales, which should lift ARR but keeps pressure on near-term revenue and margins.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2021 | Q3 FY2021 | QoQ | Q4 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $229.4M | $164.0M | +39.9% | $243.7M | -5.8% |
| Gross profit | $129.3M | $71.9M | +79.8% | $155.9M | -17.0% |
| Gross margin | 56.4% | 43.9% | +12.5 pp | 64.0% | -7.6 pp |
| Research & development | $59.5M | $54.2M | +9.9% | $52.2M | +14.0% |
| Sales & marketing | $43.8M | $40.9M | +7.2% | $36.8M | +18.9% |
| General & administrative | $26.1M | $23.7M | +10.0% | $22.5M | +16.0% |
| Total operating expenses | $129.4M | $118.7M | +9.0% | $111.5M | +16.0% |
| Operating income (loss) | -$84.0K | -$46.8M | +99.8% | $44.3M | -100.2% |
| Operating margin | -0.0% | -28.6% | +28.5 pp | 18.2% | -18.2 pp |
| Net income (loss) | -$1.0M | -$36.6M | +97.2% | $38.8M | -102.7% |
| Net margin | -0.5% | -22.3% | +21.9 pp | 15.9% | -16.4 pp |
| Diluted EPS | -$0.01 | -$0.44 | +$0.43 | $0.47 | -$0.48 |
| Customers | 350 | — | — | 340 | +2.9% |
Risks
The COVID-19 pandemic adversely affected fiscal year 2021 results, including ARR growth rates, services revenue, and margins. MD&A states ARR grew 13% in fiscal year 2021, or 12% on a constant currency basis, but the pandemic continued to delay new orders and services engagements and lengthen sales cycles.
The shift to cloud-based subscription offerings requires significant investment and ratable revenue recognition, pressuring margins. Subscription and support gross margin was 35% in fiscal year 2021 versus 42% in fiscal year 2020, and total gross margin decreased to 49.5% in fiscal year 2021 from 54.5% in fiscal year 2020.
Subscription and support revenue produces lower gross margins than license revenue, and services gross margin was negative in both fiscal years 2021 and 2020. As cloud transition continues, subscription revenue is expected to increase as a percentage of total revenue, which may further erode overall gross and operating margins.
A relatively small number of P&C insurance customers account for a significant portion of revenue and ARR. The ten largest customers accounted for 28% of fiscal year 2021 revenue and 27% of total ARR at July 31, 2021, so loss of any key customer would significantly harm results.
Sales and implementation cycles are lengthy and variable, and MD&A states the sales cycle has lengthened due to the COVID-19 pandemic. Delays in new orders and professional services engagements can push revenue recognition further out and make forecasting difficult.
Seasonal sales patterns concentrate new orders in the fourth fiscal quarter, and ASC 606 upfront recognition for multi-year term licenses creates comparability challenges. MD&A notes the first fiscal quarter of 2021 benefited from a five-year renewal of a single license agreement, creating a challenging comparable for the first fiscal quarter of 2022.
The market for P&C insurance software and cloud services is intensely competitive, including from insurtech and cloud-native entrants. New competitors can develop cloud solutions without legacy migration costs, which may increase pricing pressure and require greater research and development spending.
Future success depends on attracting, integrating, and retaining highly skilled employees, particularly cloud operations, sales, and software engineering personnel. Competition for qualified personnel is intense in the San Francisco Bay Area, and hybrid work may affect recruiting and retention.
The transition to a hybrid in-person and remote workforce introduces operational, cybersecurity, culture, and retention risks. The company expects to incur costs to facilitate permanent remote work and update offices for more collaborative workspaces.
As of July 31, 2021, $400.0 million aggregate principal amount of 1.25% Convertible Senior Notes due 2025 was outstanding. Conversion or a fundamental change repurchase could require significant cash, and adoption of ASU 2020-06 requiring the if-converted method could adversely affect diluted earnings per share.
In August 2021, the company announced the acquisition of HazardHub, Inc., which is expected to be dilutive. Acquisitions may divert management attention, disrupt operations, and delay revenue recognition from acquired or bundled services and products.
International sales and operations subject the company to currency fluctuations, regulatory compliance, and geopolitical risks. Fiscal year 2021 revenue from customers outside the United States was $271.1 million, and the company has entities with functional currencies including the Argentine Peso, Euro, and British Pound.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from Guidewire Software, Inc.'s SEC filings for Q4 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.