Guidewire GWRE FY2026 10-K Earnings: 72.7% Cloud Gross Margin, $202M Profit Swing
Listen to this report
The Hook
Guidewire Software $GWRE just closed its first genuinely profitable year: $149.9M of operating income in fiscal 2026, against a $52.6M operating loss two years earlier. A $202.4M swing. Almost all of it sits in one row of a table most readers scroll past.
Between fiscal 2024 and fiscal 2026, Guidewire's subscription and support revenue grew by $421.8M. The cost of delivering it grew by $60.4M. Eighty six cents of every incremental cloud dollar fell straight to gross profit. Subscription and support gross profit rose $361.4M against a total company gross profit increase of $364.0M: 99.3% of the gain, from a line that is 65.8% of revenue.
Here is what makes it interesting rather than merely good. Over those same two years the revenue mix moved away from Guidewire's highest-margin product. Term license revenue carries a 99.2% gross margin, and it shrank, from $250.2M to $234.6M. Subscription and support carries 72.7%. Hold each line's fiscal 2024 margin constant and apply fiscal 2026's mix, and blended gross margin should have fallen 3.3 points. It rose 4.7. The cloud line beat an eight-point-per-dollar quality downgrade in what the company sells and still expanded the margin.
Company Snapshot
Guidewire sells the core system of record to property and casualty insurers: policy administration, billing and claims, plus rating, underwriting, digital and analytics modules, delivered on its own Guidewire Cloud Platform. Contracts are priced mostly off direct written premium managed on the platform. Initial subscription terms run five years, sometimes seven or longer, and revenue is recognized ratably. The remaining term license business is the on-premise installed base, still migrating.
This analysis is built on the Form 10-K for fiscal year 2026, filed 2026-09-11 for the year ended 2026-07-31. Guidewire's fiscal year ends July 31, not December 31, so fiscal 2026 covers August 2025 through July 2026 and every "FY" label below means that.
One note on which net income line to use. Guidewire tags its income statement bottom line as us-gaap:ProfitLoss, not us-gaap:NetIncomeLoss, and it foots exactly in all three years (pretax income less the tax provision). A NetIncomeLoss fact of negative $4.7M does exist for FY2024 against ProfitLoss of negative $6.1M, but it comes from the DEF 14A proxy statement filed 2024-11-01, not from any 10-K. Every net income figure here is ProfitLoss from the annual report.
The Financial Story
The three-year frame. Revenue up 50.5% in two years, and the operating line crossed zero in the middle of it.
| USD thousands | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Revenue | 980,497 | 1,202,459 | 1,475,363 |
| Gross profit | 583,361 | 752,053 | 947,368 |
| Gross margin | 59.5% | 62.5% | 64.2% |
| Operating expenses | 635,934 | 710,985 | 797,494 |
| Operating income (loss) | (52,573) | 41,068 | 149,874 |
| Operating margin | (5.4%) | 3.4% | 10.2% |
| Net income (loss) | (6,103) | 69,804 | 139,283 |
| Diluted EPS | (0.07) | 0.81 | 1.63 |
The swing foots cleanly: gross profit up 364,007, operating expenses up 161,560, operating income up 202,447. Nothing else is in it. No restructuring, no impairment, no gain on sale.
Where the gross profit came from. Guidewire discloses revenue, cost of revenue and gross profit separately for each of its three lines. Split it out and the answer is unambiguous.
| USD thousands | FY2024 | FY2025 | FY2026 | 2-yr change |
|---|---|---|---|---|
| Subscription and support revenue | 549,087 | 731,296 | 970,885 | +421,798 |
| Cost of subscription and support | 204,794 | 235,106 | 265,203 | +60,409 |
| Subscription and support gross profit | 344,293 | 496,190 | 705,682 | +361,389 |
| Subscription and support gross margin | 62.7% | 67.9% | 72.7% | +10.0 pts |
| License gross profit | 245,640 | 248,311 | 232,596 | (13,044) |
| Services gross profit | (6,572) | 7,552 | 9,090 | +15,662 |
| Total gross profit | 583,361 | 752,053 | 947,368 | +364,007 |
Subscription and support revenue grew 76.8% over two years. The cost of delivering it grew 29.5%. That gap is the whole company. Incremental gross margin on the cloud line was 85.7% over two years and 87.4% in FY2026 alone, against a standing margin of 72.7%, which is what a fixed-cost platform looks like once the build is paid for and the volume arrives.
Management names the components. Cost of subscription and support rose $30.1M in FY2026: cloud infrastructure up $14.6M, personnel up $8.9M, amortization of acquired intangibles up $2.0M, royalties up $1.7M. The headcount tells the same story. Cloud operations and technical support employees went from 606 to 670, up 10.6%, while the revenue they carry rose 32.8%. Revenue per cloud operations employee went from $1.21M to $1.45M.
The mix headwind, quantified. License revenue is the on-premise term business, and at a 99.2% gross margin it is the most profitable revenue Guidewire has. It is also the revenue that is supposed to disappear.
| Share of total revenue | FY2024 | FY2025 | FY2026 | Gross margin FY2026 |
|---|---|---|---|---|
| Subscription and support | 56.0% | 60.8% | 65.8% | 72.7% |
| License | 25.5% | 21.0% | 15.9% | 99.2% |
| Services | 18.5% | 18.2% | 18.3% | 3.4% |
Apply FY2024's margin for each line to FY2026's revenue mix and blended gross margin computes to 56.2%, against FY2024's actual 59.5%. The mix shift alone was worth negative 3.3 points; margin improvement inside the lines was worth positive 8.0 points; the two net to the reported plus 4.7. This decomposition is derived from the filing's own disaggregated revenue and cost of revenue tables.
Guidewire says as much itself, in the MD&A: it expects gross margins to keep improving because gains in subscription and services margin "will more than offset the negative impact of revenue shifts away from high margin license revenue." The company is telling you it is climbing a down escalator. The numbers say it is winning.
The ASC 606 timing runs against the headline, not for it. It is natural to assume a term-license-to-subscription shift flatters reported growth. Here it does the opposite, and the filing states the mechanism plainly. Term license revenue "for the committed term of the customer agreement is generally fully recognized upon delivery of the software or at the beginning of the renewal term," while subscription revenue is recognized ratably over five to seven years. Converting a customer means giving up a multi-year lump in exchange for a monthly trickle. The 10-K's own words: "the revenue we recognize in the initial fiscal year of an order is lower, deferred revenue is higher, and our total reported revenue growth may be adversely affected in the near term due to the ratable nature of these arrangements."
The contracted backlog confirms it. Deferred revenue rose 27.3% to $438.8M. Remaining performance obligations stood at approximately $4.3B at July 31, 2026, roughly 2.9 times a full year of revenue. Annual recurring revenue, the company's own non-GAAP run-rate metric disclosed in the MD&A, was $1,237M at year end, up 19% on both a reported and constant-currency basis.
That last figure is worth sitting with honestly. Revenue grew 23% while the forward run rate grew 19%. FY2026's reported growth is partly older cohorts reaching what management calls "the fully ramped annual fees after the initial committed term." The catch-up is real revenue, but it is catch-up.
The tax line flipped for a reason that is not a valuation allowance. The obvious suspect for a net income jump is a valuation-allowance release. It did not happen. Guidewire's valuation allowance increased, from $66.3M to $75.1M, an $8.8M addition. What actually happened is that the company ran out of losses to use.
| USD thousands | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Pretax income (loss) | (26,838) | 49,395 | 164,117 |
Income tax charged (IncomeTaxExpenseBenefit) | (20,735) | (20,409) | 24,834 |
Cash income taxes paid (IncomeTaxesPaidNet) | 8,919 | 7,557 | 13,171 |
| US federal, state and local NOL carryforwards | 128,400 | 62,800 | 14,200 |
Tax charged is not tax paid, and in FY2025 they had opposite signs. Guidewire reported a $20.4M tax benefit on the income statement that year while writing $7.6M of actual checks to tax authorities. In FY2026 it recorded a $24.8M charge and paid $13.2M in cash, so the charge is 1.89 times the cash. Add the company's own non-GAAP tax provision of $86.4M and there are three defensible tax numbers for one year, spanning a 6.6x range.
The federal, state and local net operating loss carryforward fell from $128.4M to $14.2M in two years, an 88.9% drawdown. The effective rate went from negative 41% to 15.1%. The MD&A attributes the FY2026 change to higher US pretax income, smaller stock-compensation deductions, and reduced foreign-derived intangible income deductions and research credits following H.R. 1, enacted July 4, 2025. Federal research credit carryforwards of $106.8M and California credits of $78.1M remain, so the rate should stay below statutory, but the free ride on prior losses is over.
Stock compensation is larger than the profit. Guidewire expensed $181.8M of stock-based compensation in FY2026, against $149.9M of GAAP operating income. It is 12.3% of revenue, down from 14.9% in FY2024 only because revenue grew faster.
| USD thousands | FY2025 | FY2026 |
|---|---|---|
| GAAP operating income | 41,068 | 149,874 |
| Stock-based compensation | 161,556 | 181,799 |
| Amortization of intangibles | 5,444 | 6,701 |
| Acquisition consideration holdback | 177 | 1,510 |
| Non-GAAP operating income | 208,245 | 339,884 |
| GAAP diluted EPS | $0.81 | $1.63 |
| Non-GAAP diluted EPS | $2.51 | $3.43 |
Stock compensation is 95.7% of the $190.0M gap between GAAP and non-GAAP operating income, and $2.13 of the $3.43 of non-GAAP EPS. On the numbers Guidewire itself publishes, the adjusted profit is mostly a decision not to count a real expense.
The buyback and the deficit. FY2026 was the first year Guidewire repurchased stock at scale: 4,085,350 shares at an average price of $148.41, $606.3M in cash, $609.4M charged to equity including roughly $3.1M of Inflation Reduction Act excise tax. The September 2022 program of $400M completed in December 2025; a new $500M program authorized in January 2026 had $31.9M left at year end.
The share count fell 3.0%, from 84,530,418 to 81,992,467. Retiring 4.09 million shares moved the count by 2.54 million because roughly 1.55 million new shares went out to employees over the same year. Nearly two of every five shares bought were replacing shares issued.
And the accumulated deficit, which is where the repurchase was charged, went from negative $554.2M to negative $1,024.4M. Guidewire earned $139.3M and its accumulated deficit got $470.1M deeper. Total stockholders' equity fell from $1,457.2M to $1,193.7M in a profitable year.
Cash is the strongest line, with an asterisk. Operating cash flow was $389.7M, up 29.5%. Capital expenditure was $12.1M and capitalized software development $19.0M, giving free cash flow of $358.7M, against GAAP net income of $139.3M.
| USD thousands | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Operating cash flow | 195,748 | 300,867 | 389,716 |
| Purchases of property and equipment | (6,362) | (5,741) | (12,056) |
| Capitalized software development | (12,165) | (14,714) | (19,003) |
| Free cash flow | 177,221 | 280,412 | 358,657 |
| Free cash flow less stock compensation | 30,761 | 118,856 | 176,858 |
The asterisk: free cash flow adds back the $181.8M of stock compensation. Charge it and the figure is $176.9M, less than half the headline. To Guidewire's credit, it is not propping up earnings by capitalizing development either. It expensed $340.1M of research and development and capitalized $19.0M, a capitalization rate of 5.3%, which is low for enterprise software.
Cash, equivalents and investments ended at $1,215.3M against $1,483.2M a year earlier, the decline being the buyback. Against $678.1M of convertible senior notes (the 1.25% 2029 notes, effective rate 1.8%, conversion price about $244.65 per share), net cash is about $537.2M. A $300M revolving facility is undrawn.
Valuation
Guidewire closed at $153.00 on 2026-09-14, a market capitalisation of about $12.54B on 81,992,467 shares, down roughly 39.5% over 52 weeks (price and market data: stockanalysis.com, 2026-09-14; not from the filing). Netting the $537.2M of net cash off gives an enterprise value near $12.01B.
| Multiple | On | Value |
|---|---|---|
| EV / revenue | 1,475.4M | 8.1x |
| EV / ARR | 1,237M | 9.7x |
| EV / free cash flow | 358.7M | 33.5x |
| P/E, GAAP diluted | $1.63 | 93.9x |
| P/E, non-GAAP diluted | $3.43 | 44.6x |
| Free cash flow yield | on market cap | 2.9% |
Scenario DCF. Ten years in two stages off FY2026 free cash flow of $358.7M, net cash added back, 81,992,467 shares. Assumptions stated, not smuggled.
| Case | Years 1-5 | Years 6-10 | Terminal | Discount rate | Implied value |
|---|---|---|---|---|---|
| Bear | 8% | 4% | 2.5% | 10.5% | about $80 |
| Base | 15% | 9% | 3.0% | 9.5% | about $146 |
| Bull | 22% | 13% | 3.5% | 9.0% | about $254 |
| Base, stock comp charged as a cash cost | 15% | 9% | 3.0% | 9.5% | about $75 |
At $153 the market is paying a little above the base case and well below the bull case. The last row is the one that matters most: run identical assumptions on free cash flow after deducting stock compensation rather than adding it back, and the same model returns about $75. The distance between $146 and $75 is not a forecasting disagreement. It is entirely a judgement about whether $181.8M of annual share issuance is an expense.
Re-rating grid. What the stock is worth at other multiples of its own numbers, holding net cash constant:
| Multiple | Implied share price |
|---|---|
| 6x ARR | about $97 |
| 8x ARR | about $127 |
| 10x ARR | about $157 |
| 12x ARR | about $188 |
| 25x free cash flow | about $116 |
| 35x free cash flow | about $160 |
For context on where expectations sit: company guidance issued with the fourth-quarter results on 2026-09-03 put FY2027 ARR at $1.45B to $1.46B, roughly 18% constant-currency growth at the midpoint, subscription and support revenue at $1.240B to $1.246B, non-GAAP operating income at $403M to $423M and operating cash flow at $445M to $465M. Sell-side consensus averages a $204.66 target across 22 analysts, median $218, range $137 to $258 (guidance and consensus: company statements and public sources reported 2026-09, not from the 10-K). Both sit above the base case above; a bull case requires the top-line growth to hold as the license base finishes running off.
Framing: these are implied values under stated assumptions, not price targets, and not investment advice.
Risks
The concentration is disclosed and it is real: Guidewire's ten largest customers accounted for 20% of total ARR at July 31, 2026, in an industry with few buyers and long, extensive evaluation cycles. The filing names the negotiating leverage that follows, including having been "required to, and may again be required to, reduce the average selling price and ARR of our products."
The mechanical risk is the one the numbers make visible. License revenue is $234.6M of essentially pure gross profit and it is designed to shrink; support revenue has fallen in each of the two years this filing presents, $71.6M to $63.9M to $55.1M, as on-premise customers migrate and their support fees fold into subscription. Roughly $232.6M of gross profit is scheduled to erode, and subscription margin expansion has to keep covering it. Management says explicitly that it expects subscription and support gross margin to keep improving but "at a slower rate than in recent years."
Below that: the cloud cost base is largely third-party infrastructure, which is a price Guidewire does not set; seasonality concentrates orders and cash collection in the July quarter, so a single large renewal slipping distorts a year; and services, at 18.3% of revenue, ran a 3.4% gross margin and lost money as recently as FY2024, so it is a delivery channel rather than a profit line.
Two items sit below the operating line and should not be mistaken for operations. Interest income of $48.6M is 32% of operating income and falls with rates and with the cash balance, which just dropped $268M on buybacks. And FY2025's comparatives include a $53.6M expense on retiring part of the 2025 convertible notes, which is why the FY2025 base looks lower than the business was.
Subsequent events are quiet: on 2026-09-03 Guidewire signed a 90-month lease for its San Mateo headquarters commencing July 1, 2027, with minimum payments of about $41.5M.
The Bottom Line
Guidewire spent roughly a decade rebuilding a licensed, on-premise insurance platform as a cloud service, and fiscal 2026 is the first year the income statement shows what that was for. The mechanism is narrow and checkable: subscription and support gross margin, 62.7% to 72.7% in two years, delivering 99.3% of the company's gross profit growth while the revenue mix moved toward the lower-margin product. That is the operating leverage of a platform whose fixed cost is already sunk.
What to watch is whether the two offsets keep behaving. The $234.6M license line is high-margin revenue on a runway to zero, and subscription margin has to out-run it while management guides to a slower rate of improvement. And on the capital side, a company that earns $139M, generates $359M of reported free cash flow, and still deepens its accumulated deficit by $470M is telling you where the cash goes: $606M to buy back 4.09 million shares, of which 1.55 million were immediately re-issued to employees. Whether that is capital return or treadmill depends on a number that appears nowhere in the headline results, which is the point.
Every figure in this analysis comes from Guidewire Software's SEC filings, primarily the FY2026 Form 10-K filed 2026-09-11, read through the RoboSystems SEC Shared Repository. Market price, guidance and consensus figures are labelled where used and are not from the filing.