Guidewire Software’s (NYSE:GWRE) Q3 CY2025: Beats On Revenue
Insurance software provider Guidewire Software (NYSE:GWRE) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 26.5% year on year to $332.6 million. Guidance for next quarter’s revenue was better than expected at $342 million at the midpoint, 1.5% above analysts’ estimates. Its non-GAAP profit of $0.66 per share was 7.5% above analysts’ consensus estimates.
Revenue: $332.6 million vs analyst estimates of $318 million (26.5% year-on-year growth, 4.6% beat)
Adjusted EPS: $0.66 vs analyst estimates of $0.61 (7.5% beat)
Adjusted Operating Income: $63.43 million vs analyst estimates of $51.06 million (19.1% margin, 24.2% beat)
The company lifted its revenue guidance for the full year to $1.41 billion at the midpoint from $1.40 billion, a 1.1% increase
Operating Margin: 5.6%, up from -1.8% in the same quarter last year
Free Cash Flow was -$77.36 million, down from $237.7 million in the previous quarter
Annual Recurring Revenue: $1.06 billion vs analyst estimates of $1.05 billion (21.6% year-on-year growth, 1.1% beat)
Billings: $243.9 million at quarter end, up 19.1% year on year
Market Capitalization: $18.26 billion
With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE:GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Guidewire Software grew its sales at a 11% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds. Luckily, there are other things to like about Guidewire Software.
Guidewire Software Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Guidewire Software’s annualized revenue growth of 17.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Guidewire Software Year-On-Year Revenue Growth
This quarter, Guidewire Software reported robust year-on-year revenue growth of 26.5%, and its $332.6 million of revenue topped Wall Street estimates by 4.6%. Company management is currently guiding for a 18.1% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 14% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Guidewire Software’s ARR punched in at $1.06 billion in Q3, and over the last four quarters, its growth was solid as it averaged 17.7% year-on-year increases. This alternate topline metric grew slower than total sales, which likely means that the recurring portions of the business are growing slower than less predictable, choppier ones such as implementation fees. If this continues, the quality of its revenue base could decline.
Guidewire Software Annual Recurring Revenue
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Guidewire Software is extremely efficient at acquiring new customers, and its CAC payback period checked in at 16.7 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Guidewire Software more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
It was encouraging to see Guidewire Software beat analysts’ revenue expectations this quarter. We were also glad its revenue guidance for next quarter slightly exceeded Wall Street’s estimates. On the other hand, its billings missed. Zooming out, we think this was a mixed quarter. The stock traded up 4.9% to $226.40 immediately following the results.
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