0001528396-25-000244
SEC filingGuidewire's Q1 FY26 revenue grew 27% YoY to $333M, driven by subscription revenue (+36%). Gross margin improved to 63% from 60% due to cloud efficiencies.
In the first quarter of fiscal 2026 (three months ended October 31, 2025), Guidewire reported total revenue of $332.6 million, a 27% increase from $262.9 million in the same period last year. The growth was led by subscription revenue, which rose 36% to $207.5 million, reflecting continued migration to cloud-based subscriptions and new customer wins. Gross profit increased 32% to $209.5 million, and gross margin expanded to 63% from 60%, driven by higher-margin subscription revenue and operational efficiencies in cloud services. Operating income turned positive at $18.5 million, compared to a loss of $4.7 million in the prior year, as revenue growth outpaced expense increases. Net income was $31.3 million, up from $9.1 million, and diluted EPS was $0.36 versus $0.11.
Subscription and support revenue, which represents 67% of total revenue, grew 31% to $222.2 million. Within this, subscription revenue increased 36% to $207.5 million, while support revenue declined 13% to $14.7 million due to customers migrating from term licenses to subscriptions. License revenue rose 12% to $42.0 million, primarily from an annual renewal of a multi-year term license. Services revenue increased 23% to $68.5 million, driven by higher utilization of services employees and new implementation projects. Gross margins by segment: subscription and support 71%, license 98%, and services 14%. The overall gross margin improvement was supported by cloud operations efficiencies and better services utilization.
Management expects subscription revenue to continue growing as a significant majority of new sales are cloud-based, though ratable recognition will cause revenue growth to lag order growth. The company anticipates subscription and support gross margin to continue improving, albeit at a slower pace, and services gross margin to improve with efficiencies. Operating expenses are expected to increase in absolute dollars but decline as a percentage of revenue due to slower hiring. Cash flow from operations is expected to be positive on an annual basis, despite quarterly fluctuations from bonus payments and seasonality. No specific numerical guidance was provided for future periods.
As of October 31, 2025, Guidewire held $492.0 million in cash and cash equivalents, $519.9 million in short-term investments, and $397.4 million in long-term investments, totaling $1.41 billion in cash and marketable securities. Total assets were $2.64 billion. The company's convertible senior notes (2029 notes) had a net carrying value of $675.4 million, with no current portion. Stockholders' equity stood at $1.53 billion, up from $1.46 billion at July 31, 2025, driven by net income and stock-based compensation.
The Notes disclose no material change in contractual obligations and commitments since the fiscal year ended July 31, 2025. The aggregate amount of consideration allocated to remaining performance obligations (RPO) was approximately $3.2 billion as of October 31, 2025. Subscription services are typically satisfied over five years, while support and professional services are generally satisfied within one year. Deferred revenue totaled $256.0 million, down from $344.8 million at July 31, 2025.
Guidewire did not repurchase any shares during the quarter; $138.2 million remained available under the $400.0 million share repurchase program authorized in September 2022. No dividends were declared or paid. The company's debt consists solely of the $690.0 million principal amount of 1.25% convertible senior notes due 2029, with unamortized issuance costs of $14.6 million. The revolving credit facility of $300.0 million had no outstanding borrowings. Capital expenditures (property and equipment) were $4.9 million, and capitalized software development costs were $5.1 million.
The company operates as a single reportable segment. Revenue by geography for the three months ended October 31, 2025: United States $214.0M, Canada $43.2M, Other Americas $4.1M, EMEA $46.6M, APAC $24.7M. Revenue by product type: Subscription and support $222.2M, License $42.0M, Services $68.5M. No single customer accounted for 10% or more of revenue.
The company reported net income of $31.3M but operating cash flow was negative $67.4M, a significant divergence. This was largely due to large working capital outflows: deferred revenue decreased $88.8M, accrued employee compensation decreased $69.6M, and unbilled AR increased $31.5M. Depreciation and stock-based compensation were the main non-cash add-backs. Capital expenditures rose to $10.0M (PPE $4.9M, capitalized software $5.1M), indicating continued investment. There were no share repurchases or dividends, so free cash flow (if calculated) would be deeply negative. The investing cash flow was also negative due to net purchases of securities. Overall, cash generation from operations is weak, relying on working capital swings, and capex adds to cash burn.