Q2 2022 Guidewire Software Inc Earnings Call
Greetings and welcome to the Guidewire second quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your tell.
Phone keypad as a reminder, this conference is being recorded I would now like to turn conference over to your host Alex Hughes V. P of Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to Guidewire Software's earnings Conference call for the second quarter of fiscal year 2022 ended on January 31.
My name is Alex Hughes, Vice President Investor Relations and with me on the call is Mike Rosenbaum, Chief Executive Officer, and Jeff Cooper, Chief Financial Officer.
Bleat disclosure of our results can be found in our press release issued today as well as in our related form 8-K furnished to the SEC both of which are available on our Investor Relations section of our website.
Today's call is being recorded and a replay will be available following the conclusion of the call.
Statements made on this call include forward looking ones regarding our financial results products customer demand operations and the impact of COVID-19 on our business and other matters. These statements are subject to risks uncertainties and assumptions and are based on management's current expectations as of today.
Not be relied upon as representing our views of any subsequent date. Please refer to the press release and risk factors and documents, we file with the SEC, including our most recent annual report on Form 10-K , and our quarterly report on Form 10-Q to be filed with the SEC for information on risks uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.
We will also refer to non-GAAP financial measures to provide additional information to investors a reconciliation of non-GAAP to GAAP measures is provided in our press release reconciliations and additional data are also posted in the supplement on our IR website with that I'll now turn the call over to Mike.
Thanks, Alex good afternoon, and thanks, everybody for joining us today.
I want to start by briefly commenting on the war in Ukraine.
<unk> has very little financial exposure to this tragedy, but I believe that understates the actual impact on our company. We have a number of Ukrainian citizens in our company with family in Ukraine, and we have a very strategic development center in Krakow, Poland, where the tide to Ukraine are very direct let's.
Let's say that for them. The situation is unconscionable is an understatement it's.
It's just impossible for people to operate effectively when they have friends and family sleeping and bomb shelters and fighting in a war.
I lived in Belgium from 1986 to 89, and while there I had an opportunity to travel to Moscow, Saint Petersburg East Berlin Prague in Budapest.
I was in the Navy I was part of a U S visit this evermore.
Weather.
The Russian Northern Lea is base. So for me this dramatic regression in Russian relations startling.
I hope that we can find a peaceful resolution to this conflict quickly.
And we are glad to play whatever role, we can and the sacrifice required to see this concluded.
This is not the world, we want for our teams and for their families and for our friends in Ukraine.
So with that I'll turn it over to business.
Before I get into the details of the quarter I want to briefly touch on three reasons why I'm excited about guidewire as future.
First we have a market leading position, providing a mission critical service and a very resilient large global property and casualty insurance market.
We have broad support to fundamentally transform and enhance our value proposition by transforming the company from a software provider to a cloud service provider.
Third we are steadily effectively and successfully executing on this very difficult cloud transformation. These.
These three facts continued to support our confidence and optimism about the long term potential for guidewire to be a source of consistent durable and profitable growth.
And this quarter is a great reflection of that potential.
We saw continued sales momentum for Guidewire cloud and cloud products overall again make up over 90% of our new sales in the quarter strong sales activity drove Q2, <unk> above the high end of our guidance range with a growth of 19% year over year.
There were a few key takeaways from the quarter first I want to start with sales.
Saw continued cloud momentum across new logos cloud migrations and expansions with continued success with tier one and tier two insurers in total we closed 11 cloud deals in the quarter. This included four net new customers with wins in both tier one and tier two insurers.
New customers selected full insurance suite cloud.
A tier one global insurer based in New York selected insurance suite cloud for an initial project covering their renters insurance, one and a tier two superregional insurer based in Tampa, Florida selected insurance suite cloud to support personal and commercial lines across 16 states.
Additionally, we added a new claim center cloud customer and a new insurance now customer.
Gration activity for insurance suite cloud was also very strong we closed four cloud migrations in the quarter, including both tier one and tier two insurers a tier one insurer with major lines across business personal and specialty well migrate its north American renters line to insurance suite cloud and work.
Safety and insurance Board a tier two insurer is adopting policy center cloud and billing center cloud to power the workers' compensation insurance. It provides to over 350000 employers throughout Ontario, Canada.
In addition to these four cloud migrations core expansion activity was also healthy with existing cloud customers, increasing their cloud footprint across new lines and new modules.
There were three core cloud expansions to tier one insurers one of which was CNA insurance and a tier two insurer church mutual insurance company.
We also continue to see a great deal of activity with our data and analytics offerings.
We had just under 20 standalone deals for data and analytics products, the majority of which came from hazard hub.
We're very excited about the momentum we are seeing there and the opportunity for further growth.
Many of the hazard how deals are small at the outset with an opportunity to grow but we did see six deals that were over 100000 of <unk> in the quarter, which is a strong signal for hazard hubs potential.
Overall, I'm thrilled with our continued sales momentum.
As I've discussed before the ultimate measure of our progress as customer success with our products and the incredibly complex programs. Our products support we continue to make progress on boarding and supporting the volume of cloud deals, we've closed and operationally scaling guidewire cloud.
To put our progress in perspective, we've closed over 100 cloud deals from over 100 customers, including 70 deals for insurance suite cloud since moving to a cloud model.
It's created a portfolio of transformation program is comprised of some of the largest most complex insurers in the world. We are energized by the fact that we have deployed over 50 of these programs in production environments with nearly 20 insurance suite cloud customer having at least one initial go a lot.
I'm also pleased to see that even our tier one customers have not only deployed guidewire cloud, but have done so based on updates to our new releases.
This is exciting progress and more importantly, it's validating the premise of the investments we have made in our cloud platform and approach.
Things are going well overall, but I continually feel the need to reiterate that these programs are complex and often difficult. Our organization is learning from each program and improving our approach our systems in our platform with each new cloud release, we are investing in these programs to ensure that they are successful and will continue to prioritize customer success above all.
Els.
Successfully migrating customers to our cloud platform will create a company capable of delivering significantly more value to the P&C industry and serve as a powerful reference is more insurers look to modernize but given the complexity and the importance of this work it's appropriate to recognize that we will always prioritize success overseas.
Switching gears to our ecosystem we.
We continue to see a growing and energized partner community is an important dimension of our strategy given that as I, just said moving a core systems to the cloud is a large and complex project and a strong partner ecosystem enables the scale necessary for these projects.
At the end of Q2, our Si partners were engaged in 80% of our cloud projects. The number of Si consultants grew to 16800 up 39% year over year.
Specifically cloud certified consultants grew more than 200% to over 3600, reflecting the increasing strength and momentum we are seeing in guidewire cloud.
We saw similar strength from our solution partners with the number of partners, increasing 38% year over year to 146 large solution partner ecosystem can speed up insurers time to innovation and deployment on Guidewire.
Finally, I'm very excited to have welcomed John Mullen to our leadership team.
John joined last month, as President and Chief revenue Officer, and lead our global sales delivery services and customer success organizations.
He brings to guide where our deep experience in our industry and a complete understanding of our customers' motivations and objectives based on 25 years of experience leading growth team that cap Gemini, including the North American and insurance business unit.
John will be instrumental in further unifying our approach to customer engagement with a strategic and consultative mindset and approach with that I'll turn it over to Jeff.
Thanks, Mike I'll start with a summary of our second quarter results before turning to our outlook.
Second quarter air or ended at $620 million up 19% year over year or 18% on a constant currency basis.
As a reminder, we report are on a constant currency basis during the year and then update currency exchange rates at year end.
This growth rate benefited from strong new sales activity and growth in E. R. R from cloud deals sold in prior periods.
Total revenue was $204 6 million ahead.
Ahead of our expectations due to stronger performance across all components of revenue.
Filed strength continues to be visible in subscription revenue, which was $62 9 million up 64% year over year.
Subscription and support revenue was $84 3 million up 42% year over year.
License revenue was $69 8 million down 10% when compared to Q2 last year.
<unk> revenue was $50 5 million up 19%.
Turning to profitability for the second quarter, which we will discuss on a non-GAAP basis.
Profit was $108 6 million.
Overall gross margin was 53% compared to 56% a year ago.
The year over year decline was driven by the revenue mix shift towards subscription and support revenue and away from higher margin term license revenue.
Subscription and support gross margin was 47% compared to 43% a year ago.
We benefited from cloud infrastructure cost controls, we put in place post Q1.
We also benefited from a onetime $1 3 million dollar credit from our cloud service provider that we originally expected to fall in the third quarter from an accounting perspective.
Around 800000 of this credit impacted cost of subscription and support revenue.
And the remainder benefited operating expenses, primarily R&D spending.
Services gross margin was 3% compared to negative 2% a year ago due to higher higher billable utilization.
Overall operating income was $3 million.
Exceeding our guidance range due to higher than expected total revenue.
Savings related to slower than expected hiring.
The $1.3 million credit I just mentioned.
Delayed internal project spend and.
And some exchange rate benefit due to the dollar strengthening against the euro.
We ended the quarter with $1 1 billion in cash cash equivalents and investments.
We also completed our $200 million share repurchase program in the quarter buying back 96000 shares for $11 million.
Turning to our outlook I will discuss the full year outlook, and then I'll discuss our expectations for the third quarter.
For the full year, we are increasing our outlook for air are to be between 664 and $670 million to reflect our second quarter outperformance and continued optimism.
This outlook reflects the removal of 3 million and a R. R from Russian customers as we are halting all operations in Russia.
For our usual approach or air or assumes foreign currency exchange rates as of the end of our last fiscal year.
The last couple of years exchange rates had benefited a R. R at year end.
If current exchange rates remain unchanged there would be a negative impact of approximately 9 million to our a R. R at year end.
We are also increasing our outlook for total revenue, which we now expect to be between 784 and $792 million.
We expect our subscription revenue to be a couple of million dollars higher than prior expectations, approximately $254 million and overall subscription and support revenue closer to $337 million.
Representing 51% and 34% year over year growth respectively.
It is great to see this annual growth acceleration.
Expectations for license revenue and services revenue remain unchanged.
We continue to expect total gross margin for the year to be around 50%.
This assumes approximately 44% subscription and support gross margins.
The team has made a lot of progress since the last earnings call putting in controls on our cloud infrastructure costs, which is beneficial to subscription and support gross margins.
However, this is offset by some of the earlier cloud migration projects, taking a bit more effort than we originally expected and this is impacting services gross margins.
We now expect services gross margins for the year to be closer to breakeven.
Our commitment to customer success has been a hallmark of Guidewire success over the years and we remain 100% committed to ensuring all cloud customers achieve successful outcomes.
With respect to operating income, we expect an operating loss of between 50% and $42 million for the fiscal year.
This adjustment reflects the upward revenue adjustment I previously mentioned it also benefits from some lower operational expenses largely related to slower hiring and some expense benefit from current exchange rates.
While our second quarter cash flow from operations was negatively impacted by the timing of collections.
Our annual cash flow from operations expectations are unchanged.
Turning to the outlook for the quarter, we expect <unk> to be between 632 and $635 million.
Total revenue is expected to be between 186 and $190 million.
Subscription revenue is expected to be approximately 65 million and subscription and support revenue is expected to be approximately $85 million.
We recognize our ratable revenue daily and Q3 has three fewer days in Q3 than Q2, which impacts sequential growth.
Services revenue is expected to be approximately $51 million.
We expect subscription and support gross margins of approximately 43% and total gross margins of 44%.
non-GAAP operating loss is expected to be between 29 and $25 million.
In summary, it was a strong Q2, we are proud of what the team has accomplished and we are excited to see our cloud strategy playing out.
Operator, you can now open the call for questions.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It.
It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from line of Matt Vanvliet with BTG. Please proceed with your question.
Yeah. Thanks for taking the question guys nice job on the quarter.
So as you look at the overall macro demand environment here.
You know are you seeing them I guess any divergence between overall kind of a desire to modernize around them.
On the technology stack here and then what what Youre actually seeing in terms of cloud migrations. So maybe asked slightly differently is the overall market continuing to trend in a positive direction and youre seeing cloud.
Demand sort of equate that and seeing a lot of customers now are fully entertaining the idea of migrating.
Hey, Thanks for the question I think the simple answer is yes, we continue to see the overall market trend positively.
You just see a a wide range of business objectives that all fundamentally depend on agility.
And the.
The insurance companies that we support all sort of recognize that agility comes from the modernization of core systems or call. It the migration of those court systems to cloud and getting those systems on the latest release of Guidewire all of those things create.
More flexibility more agility more ability to just effectively meet their business objectives, and whether that means launching new product lines or.
Instantiating, new digital interfaces and digital channels, new paths to market through partnerships.
And then there is also pretty significant efforts underway to.
Modernize operations through analytics, and data and making better decisions. So that you know the operational efficiency of the overall company.
A company can be improved all of those things in the insurance industry sort of stemmed from our accelerated by a modern core platform is and so all those things you add them together and it sort of points towards.
Just a steady and continual improvement in the market.
The overall demand you know, Jeff and I have been talking about this for a long time I think that the.
And the market was a bit on pause wow. The major systems vendors are you now move to the cloud, but I think that that approach to cloud is now well understood and well accepted and are gaining traction and so that just overall trends are positive.
Alright, great.
No. That's very helpful. And then obviously you know a lot.
What beyond just sort of the movement of of of troops in Russia, and Ukraine, but you know the the cyber security environment. I think is has gained a little bit more in terms of the headlines as well in terms of what's been happening.
Both proactively in some areas and then a sort of a I guess attack basis is that impacting any conversations you are having around the science business.
I guess, maybe how has that been progressing so far this year and has this created any additional demand.
Yes, it's a great question certainly.
Incredibly unfortunate situation in Ukraine has caused everybody to step up their guard so to speak as it relates to cyber activity and that you know.
The company hasn't done that they need to immediately this is you know pretty unprecedented I suppose in terms of a global event like this.
Where it's a it's very clear that cyber attacks are a component of the dynamic that's playing out militarily and that's extremely interesting and.
Not just guidewire, obviously in our science efforts, but the numbers and numbers of people have commented on this.
You know I was the CEO of the company I will tell you that cyber risk is on the top of my mind. It's on the top of our Board's mind, it's something that we pay a significant amount of attention to.
And I expect every CEO in the world is thinking about this more and more as we proceed that.
He is a risk right and that creates a potential for an insurance market to exist for science to support that insurance market and four.
<unk> insurance market growth to create growth in demand.
For science.
But it's a little interesting is like such a dynamic risk category.
Yeah.
Not clear yet how exactly that will manifest in terms of true underwrites, it and how it's underwritten.
But for sure in the long run I think that this will be a major line or insurance carriers and a big growth driver for science.
But it is just so dynamic right now that I think different different companies are taking different approaches to how they are how they take advantage of the underwriting opportunity I suppose that exists based on that risk.
But when I think about the long run.
Just in terms of how much of the value of companies are wrapped up in digital assets and data and.
And how much risk there really is to protect them from cyber attack.
I am I am confident that it will drive demand for science over the long run.
Well, thanks, Yeah, an interesting question.
Great. Thank you.
Our next question comes from the line of Jackson Ader with JP Morgan. Please proceed with your question.
Great. Good evening guys. Thanks for taking my questions. The first is really just a follow up on on the Russia and and.
Ukraine War I mean.
You mentioned that you have the the office footprint in Poland.
Can you just clarify how many people are there what functions generally and then any.
Yeah I mean.
The plans in place at the moment.
Sure sure. So I'd say R&D, it's an R&D location with about 100 people, it's driving a important part of our R&D organization and we feel very very confident and very I'm really bullish on that market as a source of talent for us off.
Lee, it's a trying circumstance for them and we've been doing everything that we can to support them, especially around our humanitarian efforts and.
Supporting people, who are being evacuated from Ukraine, that's been very very important to that team.
You know in it but you know I don't I don't think that in the long run. This has a negative impact on guidewire in the short run we got to do what it's what's necessary for our employees and for their families and for their friends.
Just what's what's morally correct.
You know where theyre, putting their priorities over the short period of time, we're all obviously hopeful that this war ends as quickly as it possibly can but that's basically the size of the the effort in in Krakow actually in Poland.
And we're very actually I would say if they're listening very proud of the work and the stance that they have taken to this and we're proud to have the opportunity to support them.
Okay.
That's great does that help answer your question I just want to make sure. It does.
I was just looking for more detail it feels.
A little later khalaf.
Cause something more towards the business, but.
The delayed hiring and the delaying of of some internal projects, Jeff I think he mentioned.
Helping margin.
Curious what the.
The projects, obviously that guide wires choice, but the delayed hiring at that because of the tight labor market or are you.
Yeah.
On some of the hiring efforts no no yeah no. We're full steam ahead in terms of our hiring efforts.
And in fact, we've been investing in some of our talent attraction functions in order to better support that I think.
It is as high as it has been a tight market, especially for the types of talent profile that we're looking for them and so that has impacted our hiring plans a little bit, but you know I would say no.
No no change to our overall hiring plans and then on the project side. Those are still projects that we expect to complete for the most part the internal projects that I referenced in the fiscal year. We just didn't get it started on them as quickly as we originally thought.
Okay, Alright, great. Thank you.
Our next question comes from Peter Heckmann with D. A Davidson. Please proceed with your question.
Hey, good afternoon. Thanks for taking my question just in terms of the cloud deal can you remind us a little bit about.
Net new versus versus into out migration is kind of a mix that we've seen over the last four quarters, and and and and talk a little bit about you know the relative complexity of some of those are on premise to a cloud deals whether there you see hitting your expectations or you're finding them a bit more complex.
Yeah Super Super question, so over the past four quarters I would say overall.
50, 50, right is in terms of net new versus cloud migrations and then.
With respect to complexity.
I think that.
And this is nothing special about Guidewire. It all has to do with what you're replacing you know so.
To the extent that you're replacing something the new system has to map to sort of one for one.
The functionality procedures capabilities of the system Youre, replacing those.
Those things you know.
Based on how complex. The system is that you are replacing are complicated.
When we do net new.
Either new customer or existing customer, but a new line those things are very straightforward and so you know I would say that the complexity of a migration and a replacement.
Our system is complicated in an equal to or slightly above what we expect the.
The complexity of our net new line of business or a net new instantiation of something that Guidewire cloud we can support.
Is surprising all of us with how smooth them fast it goes right to win into net new line. There is a lot of great technology here that can accelerate those types of projects. So that's kind of the feedback that we get is these things like I said in the prepared remarks. These things are very very complicated.
And there has to be done very carefully and they have to be done very completely.
You know and sometimes they are slow and they take a little bit longer than we thought or we wont, but on the net new side.
Which is.
A significant portion of the demand things are going quite well and we were pleasantly surprised by how quickly we can execute on those kinds of projects and I think somewhat.
You know if you give me two seconds to go a little long on this answer.
You know this is an interesting characteristic of guidewire strategically, which is that we can be a platform for these companies to do the vast majority of their core system processing, the big lines of business that they need to support.
And run their companies, but also on the very same platform provide them a a mechanism to innovate and be agile and launch new product lines and integrate the existing product lines into new channels. All on that same core system.
And I think that's a unique characteristic of the value proposition. We we provide for our insurance customers. So hopefully that helps and thanks for the question.
Yeah. Thanks for the insights and then just in terms of if I heard you correctly of the hundred cloud deals closed 70 work for insurance suite and I think he said 20 clients have at least one module live.
What type of timeframe, but we should we be expecting for all 70 of those to have at least one module line are we looking out a year, maybe two two and a half years.
No I would say you should bring that in a little bit you know probably stretches out at the most a year and a half and but the majority within a year you know things are ramping up a lot for us in our operations with our services and partners and there's a lot coming online over the next six.
<unk>.
But you shouldn't think about it as a two two and a half year timeline, it's more one one and a half year timeline for the majority of those of that counts.
Okay. That's good to hear thanks.
Yes. Thank you.
Our next question comes from Ken Wong with Guggenheim Securities. Please proceed with your question.
Great.
A question I think probably probably for Jeff I believe last quarter, you guys mentioned, having kind of planned for for higher churn of up head count and didn't see it just wondering any update there as far as that that trade activity.
Yeah, we're we're still really pleased with our overall employee attrition rate I think it is trending below kind of what we see in a lot of our peer group in the valley here.
That being said we did you know we had modeled some higher attrition. This year, we didn't see that as we'd expected in Q1, we have seen a little bit of increase in attrition in some key elements are.
Within product development in some areas of the organization.
You know, we're talking a percentage point or two higher than than what we saw previously so it's something we're clearly watching.
And you know I already mentioned, how we're buttressing some of our talent attraction efforts to make sure that we can fill those those seats and keep hiring aggressively.
But still trending to start trending positively so more in line with how we adjusted our model post Q1.
Got it.
And then just as we think about the kind of the higher confidence and in our.
Our run rate.
That modest uptick as a sort of an interpretation that you guys feel better about the business is that more just a byproduct of hey, we're another quarter along sell further further along the kind of closer to the goalposts are or is there actually some I know, it's only three months, but incremental change in terms of either conversion or kind of conversations are further along and you have a higher.
The higher likelihood of clothing would just love a sense for kind of what are what what else youre seeing underneath that that might be pushing some of those numbers higher.
Yes, so clearly we've done a much better job this year with respect to linearity and you see that in the first half results. So that is playing out very positively and something that was a was a push for us this year.
As we inspect pipeline and look at the back half of the year.
Given where we are today, we feel very confident that pipeline coverage is there. The activity is high the deals are all there for US obviously as you know our history Q4 for US is always a very significant event and so that is out there on the horizon and cause causes us to be a little bit cautious as we are.
Good visibility into these deals, but but Q4 is still a couple of quarters away. So.
So I think that's how we're thinking about it we did layer in some unexpected churn related to the Russian customers had that not been there obviously would have raised our outlook a little bit more.
Okay perfect. Thanks, a lot.
Our next question comes from Michael <unk> with Wells Fargo. Please proceed with your question.
Hey, there. Thanks, good afternoon I appreciate you taking the questions.
Maybe given given the the fiscal Q2 upside on just the headline numbers revenue and operating income.
It looks like you beat.
More in Q2 than maybe the midpoint of the full year outlook, what would carry through and so I know there was a comment around 3 million tied to Russia and I. Appreciate the context of the Q4 commentary, Jeff just made as well but.
Anything else, we should just be mindful of as you pace towards the end of the fiscal year given.
The Q2 upside was more pronounced but maybe you didn't carry through on the on the full year guide just yet.
Yeah, I mean look I think we're trying to monitor a number of things going on.
And so as we inspect the year. The first half has been very promising in terms of our ability to drive better linearity.
But the big mountain to climb as always the back half of the year and so we feel very good about all the activity that we're seeing there and so I wouldn't necessarily read anything into that other than that there was this unexpected impact of $3 million or they are are they came out of the number.
But absent that you know we feel very good about where we are for the first half of the year and it just gives us increasing confidence for us to hit our targets for the full year and you know slightly raised those targets.
I wouldn't say, it's always it's always hard for us to pouch. When a deal is going to fall Q2 was a very good outcome for us.
Then we often get the question is did we pull forward deals and we don't really think about it like that I mean these are long complex arrangements and so we were very pleased with the activity that we were able to get over the finish line in Q2.
You know at the beginning of Q2 some of those deals may we may have thought would have closed in Q3, so happy to see the team work and get those deals over the finish line, but we always think about the business on a on an annual cadence.
And then think about activity in pipeline and in that way.
That all makes sense, the so with $1 1 billion on the balance sheet.
Buyback program you mentioned came to completion how are you thinking about just capital allocation from here or is this an environment, where you could have some appetite for tuck ins that help supplement some of the emerging categories of risk given the broader pullback you're seeing in valuations or.
Maybe just some context around the optionality you're preserving there. Thank you.
Sure Great question Yeah.
Consistent with what we've said before as you know we're we're open to looking for nice acquisitions as a as I mentioned things are going very well for us so far with hazard hub.
Quite pleased.
With the interest that exists in the in the customer base and even outside of the customer base for that for that products. We're very happy with that and gives us a little bit of confidence to be looking at things as you say we.
Expect valuations to be a little or maybe a whole lot more reasonable and as we build confidence in our cloud transformation and the success our success in selling at our success in deploying it are just feeling more and more confident that that.
That future is assured for us.
That gives me more confidence that we can look more strategically.
Hey, you know what at other things that we could add to the to the product portfolio of Guidewire. So I feel great about the position and the Optionality It gives us.
And also the overall strategic positioning of the company and our ability to sort of execute on this one data point at least under my watch so far of Patrick hub. So all those things are pretty positive.
And hopefully that gives you enough context to understand how I'm thinking about this.
That's helpful. Thank you.
Our next question comes from the line of <unk> <unk> with William Blair. Please proceed with your question.
Hey, guys its dealing on for Bev on Ah Congrats on the quarter and thanks again for taking my questions.
Maybe two from a higher level for me first as you guys think about the value from a carrier perspective, right from from automation and straight through processing being unlocked and enabled by better leveraging data you've announced studio a number of partnerships with data providers.
And a number of wins here in the quarter I think you highlighted earlier how.
Big of a focal point is this for carriers as they're thinking about their operational efficiency and maybe how that contributes to some of their modernization initiatives as well.
It's a great question I'd say some of the carriers that we work with this as a top priority.
Other carriers, it's less of a priority and they're focused on other things.
Thank you.
There's a few of our customers that are just extremely focused on this and see a very very big potential.
For it there's others that are more focused on call it customer engagement and growing the topline and.
Sort of think about a customer experience in a less automated way.
And so their strategy is somewhat different but.
But I think the potential certainly exists in the overall industry.
You know for I would say small percentage based operational improvements, but when you multiply it by the size of the industry that pretty dramatic.
Improvements in the overall in the way the industry works overall and those are the things that we see from these customers.
Customers, especially on the claim side, who.
Who are interested in in just just really honing in on.
The data points in the analysis and the models that they can apply to the workflows that drive the claims operations because there's a there's potential there I think to get a lot more efficient.
So it's a bit of a mixture.
And I would guess and this is just I don't know if it's a guess maybe it's an informed projection.
As this starts to unfold and you see more success from some carriers, you'll see as as that gets proven it'll get.
Pulled in to the rest of the environments based on the success of these programs.
Got it that's super helpful and it actually kind of leads into my my second question as well so looking at the the other side of that equation right from a revenue optimization perspective.
I think a key focal point at the conference last fall was around kind of enabling embedded insurance right. So kind of a lot of carriers talking about digital experiences purchases, becoming more digitally focused enabled I guess, how how are you guys kind of thinking of positioning the cloud platform today is enabling this opportunity for carriers.
Whether established or kind of new providers to capitalize on an embedded insurance within the point of consumption, how that's more efficient maybe than the legacy systems available today and then how this could maybe serve as a as an overall incremental kind of driver of premium growth. Thanks, guys.
Okay Super Super question, and I'll give you the technical side of it and the business side of it next the technical side of it is guidewire cloud supports the ability to create products faster.
And adjust those products more quickly.
And then the API is necessary to embed those quote flows so to speak.
Involving getting a price and actually committing yourself to ensure those products those apis get generated much more seamlessly and automatically so that these kinds of initiatives are much faster and easier to execute on so that's like the technical side of how Guidewire cloud helps a carrier with these kinds of things.
But the fundamental I.
I guess the business opportunity for insurance company I think is pretty profound.
There's a lot of projections around how people expect auto and motor lines to change over the next decade.
Just in terms of where people where households were drivers.
Here insurance, and whether or not it happens with the sale of the car whether it happens the way it does today at least in the U S market.
Sort of separated from that that car purchase.
But that that same idea can apply to a whole bunch of different things.
You know, there's like vertical markets for small commercial insurance you can think of different companies playing a more significant role in the distribution of insurance products to small businesses as they get started or as they get loans or as they you know theres just this opportunity I think with digitally.
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With digital agility with the ability to embed these things technically and all these other business process flows that make the distribution of insurance a lot more efficient a lot more effective and so these things are very very exciting.
Exciting for a lot of our customers and like I said these things all come down to it.
Agility and <unk>.
I I, often don't tell people as like a D is great right. But then you got to look at how expensive. It is to execute that idea before you can assess whether the idea is going to work and.
And so if you can make the cost to you know.
Attempts that idea with the Nike project you can do a lot more experiments you can you can just think about the approach that you take to your business in a very different way when you have a greater degree of I T agility and that's exactly what we're trying to do with Guidewire cloud.
With new things like our advanced product designer and our new digital digital layers that are embedded in the cloud products. All designed to make these experiments in these new ideas a lot more easy for companies to execute on.
Thanks.
I really appreciate that question.
Yeah very helpful. Thanks, again for taking the questions guys and congrats on the core.
Thank you.
Our next question comes from Parker Lane with Stifel. Please proceed with your question.
Hi, guys. Its massage notice on for Parker Congrats on the quarter for starters I just wanted to dig a little deeper on hazard hub I know you mentioned, there's a few nice announcements standalone deals in the quarter can you just talk a little bit more about the conversations around that and then what the kind of competitive market.
As for Hazard club and then additionally, if there's room for upsell into those.
Siloed glands, or if they're just going to remain hazard up customers shortly.
Sure. Thanks for the question so.
With respect to.
Property data.
Somewhat my perspective is.
The more you have it the easier it is to access.
The higher the quality the better you're going to be the better job you're gonna be at assessing the risks in the underwriting price.
A risk and a very very significant number of companies in the world can.
Could benefit from more fluid more up to date more accurate more robust data as it as it relates to property risk.
And you know that.
The acquisition thesis was that this was a really good product really good company and then we could plug it into a distribution team at Guidewire that had embedded relationships with a whole bunch of different.
Insurance companies and.
Just to accelerate the sales and so far that's playing out.
It really well.
The feedback from the customers excuse me the feedback from our sales team and then and then next the feedback from the customers has so far been very positives in it and it gives us a lot of confidence.
As it relates to the competitive.
It's a reasonably competitive space.
But you know this is a really interesting data assets to put together.
The team at hazard hub did a really really good job over a number of years.
Putting together the very you know think of this is like really really hard nitty gritty work associated with taking disparate data sets and putting them together and matching them and going out finding the.
The datasets that they need in order to predict certain risks and really just really fallen in love with that that domain in such a way as they can put together something that is a really really robust.
Incomplete.
The other side of it which I think is very interesting is this is all API based I talked about this a little bit before is that the idea isn't so much as a complete solution that does everything but it's a it's a point solution that you can embed anywhere you needed to be embedded.
And because it's all based on this idea of an API the companies can use it wherever they want and however, they want and that's also very interesting. So those are all the characteristics that I think I'll give you a little bit more color about why I think we're seeing the.
Why do we have the positive quarter and why we had the.
Why are we expect.
And hope for continued success there.
Yeah, that's really helpful. Thanks, and then just as a follow up thinking about the partner ecosystem really grown over the last two years, especially over the last year and still.
Last two quarters.
Is that something that we should continue to see growing.
At this pace or will it kind of.
Kind of hampered.
Tampered down a little bit.
What are the expectations for this ecosystem if you will.
Yeah, I certainly hope we will continue to see it grow and the reason is.
Fundamentally what we are doing with Guidewire cloud is we are making guidewire cloud easier to integrate two okay. So if you think.
What's the level of effort for Guidewire in a partner to do to build an integration together and it's X, okay, and if we can draw ex <unk>.
Down to a turn of ex or maybe someday, even 100 of X there could be thousands more partnerships that makes sense for us to build and launch together.
And so the the the expense necessary because I got all connected back to a previous answer I gave about doing experiments right and how much it costs to do an experiment.
When two companies launch a partnership together.
Bit of a risk that both companies are taking right. How much demand is there for in guide wires customer base for this partner solution is it worth me doing an investment to build an integration of the Guidewire in order to penetrate guide wires customer base I don't know that as a risk. So if the cost to do that integration pie you gotta be real.
Confident that it's going to pay off before you can justify building that integration, but as we bring the cost of doing that integration down and down and down and down it makes the equation much easier for people to solve and you say well you know guidewire as a great insurance customer base they've got this many customers on cloud I can afford to do.
Do a lightweight integrations with Guidewire cloud see what the demand is and you'll see a lot more partnerships a lot more partner applications available on our marketplace. I think this is a pattern that you see in a number of other enterprise software ecosystems and it is certainly something that I expect we will be able to emulate here.
And as you know as we mature our cloud offering and the integration expense comes down and down and down as we get more cloud customers net installed base of endpoints that those partners can connect to goes up and up and up and up it just creates a healthy dynamic that will cause the ecosystem to grow.
So that's how I see it and hopefully it helps to answer your question.
Awesome. Thanks, Yeah, that's really helpful.
Yep. Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Mike Rosenbaum for closing remarks.
Hey, I just wanted to thank everybody for participating in the call today, we're obviously thrilled with our continued cloud momentum across new existing and existing customers and with tier one and tier two insurers. Its a great validation of the strategy and gives us increasing confidence in the long term opportunity here and so we look forward to catching up.
Further with many of you throughout the quarter. So thanks very much have a great evening.
This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.
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