Guidewire Earnings: Good Results Show Momentum Building With Impressive Tier 1 Deals

Wide-moat Guidewire GWRE reported good fourth-quarter results featuring upside to revenue and profitability, while providing a solid outlook for fiscal 2024. Management expressed confidence in the firm’s progress and rightly so, as Guidewire continues to win replacement deals against competitors even for more modern installations. This is consistent with last quarter and is an emerging trend that could have a meaningful long-term impact if it persists. We are also impressed with significant deal activity at the largest insurers. Based on results and guidance, we slightly raised our estimates and are therefore raising our fair value estimate to $91 per share from $88 previously. We continue to see Guidewire as the primary winner as the property-casualty insurance industry continues to modernize and see consistent momentum in Tier 1 insurers selecting the platform.

We are impressed with Guidewire’s ability to displace incumbent software vendors. We think the Guidewire platform is attracting new customers and motivating existing customers to migrate. Fourth-quarter revenue grew 10% year over year as reported to $270 million, compared with the high end of guidance at $265 million. Importantly, subscription revenue grew 35% year over year to $98 million. The company closed a staggering 11 deals with Tier 1 insurers and executed 13 go-lives on the Guidewire platform. Annually recurring revenue grew 15% for the year as reported to $761 million, while fully ramped ARR grew 17% year over year, which we think is a good sign for revenue over the next year or two.

We are impressed with the firm’s execution on profitability and see results as supporting our forecast for meaningful annual margin gains. The non-GAAP operating margin was 16.6% for the quarter, compared with 2.2% last year. This is better than expected as gross margins continue to improve from the cloud delivery platform and professional services.