Q4 2023 Guidewire Software Inc Earnings Call

Greetings and welcome to the Guidewire fourth quarter and full year fiscal 2023 financial results conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Minder This conference is being recorded.

Now my pleasure to introduce your host Alexey <unk>, Vice President Investor Relations. Thank you you may begin.

Thank you operator, good afternoon, everyone I'm, Alex Hughes, Vice President Investor Relations and with me today is Mike Rosenbaum, Chief Executive Officer, and Jeff Cooper, Chief Financial Officer.

The complete 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 the 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 the call include forward looking ones regarding our financial results products customer demand operations the impact of local national geopolitical events 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 should not be relied upon.

As representing our views of any subsequent date, please refer to the press release and the risk factors and documents, we file with the SEC, including our most recent quarterly report on Form 10-Q, and our prior and forthcoming annual reports on Form 10-K filed in to be filed with the SEC for information on risks and uncertainties and assumptions.

That may cause actual results to differ materially.

From those set forth in such statements.

We also will refer to certain non-GAAP financial measures to provide additional information to investors all commentary on margins profitability and expenses on a non-GAAP basis unless stated otherwise are.

A reconciliation of non-GAAP to GAAP measures is provided in our press release.

Reconciliations and additional data are also posted in the supplemental on our IR website with that I'll now turn the call over to Mike.

Yes.

Thank you Alex good afternoon, and thanks, everyone for joining today I want to start the call by expressing our sincere appreciation to everyone on the Guidewire team for all their hard work and determination.

Last few years pivot.

Pivoting a software company, leading its category to a new cloud delivery model was never going to be easy but.

But I think that if we're being honest, sometimes it felt harder than expected, but the culture of this company and the determined approach to steady and daily progress all contributed to an culminated in what ended up being a fabulous result for us this fiscal year.

The fourth quarter sales results were unprecedented and validate that we are very clearly on the right track. We are steadily building a franchise that will have a lasting and positive impact on the P&C insurance industry and will produce the durable profitable long term growth that is commensurate with the vertical market leader.

We closed 17 cloud deals in the quarter, bringing our total for the year to 37.

We finished the year at 763 million, an IRR of 15% and just under $900 million in falling ramps are are up 17%.

And something that I'm, particularly proud of we finished the year at a positive operating margin significantly ahead of our plan.

Underlying these results is a growing acceptance in the industry that the cloud solution. We have built is the logical next generation platform capable of supporting the P&C industry's requirements goals and aspirations.

We are uniquely positioned to be the industry's innovation platform and are now working with carriers of all sizes all over the world to help them engage with customers in new and more efficient ways to innovate and respond to market dynamics quickly with new products and distribution channels and to optimize their operations to help manage through.

Through a very challenging business dynamic.

The financial results this fiscal year, clearly demonstrate our market position and sensitive conclusion to what I would say, what's our cloud transformation. We are very clearly now the leading cloud platforms, serving our industry in this position affords us the opportunity to redirect our focus towards the products and innovation that enable insurers.

First you engage innovate and grow efficiently.

As I said it was an incredible and two an incredible year and I want to call out several key takeaways that are important for us strategically.

First we saw broad based strength for insurance suite on the Guidewire cloud platform.

We made notable progress upmarket with tier one insurers we saw momentum in all key geographies and continued to see balanced momentum in both new logos and on Prem to cloud migrations.

The sales success. This quarter is a great validation of our platform and ego censored ecosystem centered approach and bolsters, our confidence and our go forward position in the market.

Sales highlights in the quarter include phenomenal progress with tier one insurers closing 11 tier one deals. This quarter. This includes a win a progressive insurance one of the leading insurance brands in North America, where our partnership is specific to their non personal auto lines of business and a full suite win at.

Allstate, Canada.

Based on this success this quarter, we now have some form of core systems relationship with 13 of the top 15 insurers globally, including 12 with Guidewire cloud and with exciting potential to expand these relationships overtime. This fact validates the strategic focus that we have always placed on this specific segment.

In the market and it's very demanding and unique set of requirements.

We also drove further global expansion of GW C. P with three wins in Europe , and two in our Asia Pacific market.

This international success was highlighted by a major commitment from IAG, a leading Australian insurer to adopt policy center on Guidewire cloud platform. This is a tremendous validation of our platform approach and combined with the local insurance content required to ensure guidewire is the right choice in every key market.

We serve.

As I have mentioned in previous calls we continue to see signals from the market that there is opportunity for us in competitive takeouts.

And in Q4, we completed an agreement with West Bend mutual insurance to move their claims processes to claim center on the Guidewire cloud platform competitive displacements are rare in our industry and I believe our recent momentum in this area speaks to our track record strength of platform and growing market alignment.

Two our vision and finally, it was great to see insurance now also achieve a competitive takeout at a tier three insurer, which represented its largest win in the last five years.

As I mentioned in last quarter's call P&C insurers are working through a challenging and complex environment that has stress almost every insurance company in the world the decision to embark on our core transformation in the midst of this market dynamic is consequential and I believe supports the fact that our relationship with these carriers.

It is highly strategic and expect it to last decades. It was very gratifying to see so many of the deals we were working on this quarter close and I look forward to driving the follow through expected of US based on the trust they have placed in our company.

Turning to adoption, we continue to make progress in cloud deployments with 13 go lives on Guidewire cloud platform in the quarter and we enter our new fiscal year positioned for continued success.

Supporting this momentum is a healthy and growing ecosystem of size, who continue to be valuable partners as we transition the industry to cloud we finished the quarter with over 23000 Guidewire consultants in our systems integrator ecosystem and over 8000 of these are now cloud certified a total that grew 53% this fiscal year <unk>.

Generally we continue to drive more efficiency in our cloud product and company overall, Jeff will talk more about this in a minute, but the significant improvements we are driving in cloud efficiency, along with better operating leverage means we crossed back into positive operating margin this year.

Worked at Diego to Bali, and our development teams are doing to not only ensure we're building out a secure and reliable service, but also beat their efficiency targets was tremendous this is a meaningful milestone that we were able to achieve ahead of plan and it gives us increased confidence that we will continue to grow steadily grow into.

Our target model.

Finally, our pipeline entering fiscal 'twenty four as healthy as we continue to enhance the capability of our platform with each release as we continue to grow our ecosystem of partner applications on our marketplace. As we continue to hone our analytics and data offerings the value proposition, we offer to our customers improves and our competitive position improve.

This sets us up well for the new year and gives us a clear path to our fiscal 'twenty five targets of 1 billion and a R. R and 14% non-GAAP operating margin, Jeff will talk more about our deal dynamics and how they translate to air are in fully ramped are are coming at a tremendous out of a.

<unk> Q4, we feel great about the business our pipeline the success customers are seeing in our platform.

And how we are tracking towards our long term targets.

Last comment before turning it over to Jeff.

While we are proud of the work we have done to put us in a position to hit our financial targets. We are more proud of the potential we've created to meaningfully and positively impact the industry we serve.

Our position as the leading cloud platforms or the P&C industry affords us the opportunity to know amplify our focus on the business processes and decisions that drive improved insurance outcomes.

We can legitimately improve the efficiency of the broader industry, which ultimately helps people families incorporations better manage and transfer risk I'm very excited about this potential and I'm confident in saying on behalf of everyone. At Guidewire that we're all motivated to continue driving this mission forward with that.

I'll turn it over to Jeff to discuss the financials.

Thanks, Mike.

Fourth quarter air or ended at $761 4 million up 15% year over year on a constant currency basis and ahead of our expectations.

As a reminder, we measure are on a constant currency basis throughout the year and then update air are for year end FX rates.

Making this update modestly impacted <unk> by $1 1 million, resulting in <unk> $762 5 million.

This outcome was ahead of our expectations due to very strong sales activity in the quarter as Mike noted. This Q4 saw a tremendous execution and was our largest quarter ever.

Fully ramped a R R, which is defined as the fully ramped annual price outlined in our customer contracts grew 17% year over year on a constant currency basis.

This is a meaningful acceleration compared with 14% growth last year and again as a reflection of the better than expected Q4 sales activity.

Total cloud a R. R, which includes <unk> for all of our cloud products and for customers that are contracted to move to the cloud grew 28% year over year and comprised 59% of total IRR.

Total revenue for the year was 905 million ahead of our expectations due to stronger performance across all components of revenue.

Notably cloud strength continues to be visible in subscription revenue, which was $352 million up 36% year over year.

It is exciting to see the progression of our subscription revenue line.

In 2018, our subscription revenue was just over $30 million, primarily from acquired products sensor.

Since that point, we have delivered a five year CAGR of 60%.

Subscription and support revenue was $430 million or 25% year over year.

Turning to profitability for the fiscal year, which we will discuss on a non-GAAP basis gross profit was $495 million.

This was up 18% year over year.

Overall gross margin was 55% compared to 52% a year ago subscription and support gross margin was 55% and eight percentage point increase over last year driven by margin improvement all our subscription line.

We are delivering on the expected benefits associated with running our cloud platform at scale.

Services gross margin was just under breakeven compared to positive three 5% a year ago.

Notably in Q4 services gross margin was positive 10, 5% compared to negative six 4% a year ago.

This is due to the multi quarter strategy that we have been talking about for some time that includes moving away from fixed bid arrangements law.

Lowering our reliance on subcontractors.

And increasing overall services utilization rates.

We are pleased with our progress here and expect this to continue into FY 'twenty four and beyond.

Operating income was $11 7 million better than our guidance range due to higher than expected total revenue strong expense management.

And better than expected services gross profit.

Overall stock based compensation was $143 million for the year up 4% and a little higher than our expectations due to low employee attrition levels.

Share repurchase activity in 2023 more than offset the effects of stock based compensation dilution.

Total shares issued and outstanding ended at $81 4 million compared with $84 1 million ended last year.

For the year, we bought 4 million shares at an average price of $64 78 per share.

Operating cash flow ended the year at 38 million, we're pleased with our collections in the quarter. We ended the quarter with $927 5 million in cash cash equivalents and investments.

After multiple years of strategic investment in our business to drive our industry's adoption of cloud core systems, a key priority in 2023 was to drive efficiency and margin expansion we.

We are pleased to see strong progress with key profitability measures this year.

We are confident in the long term cash generation potential as we've established our cloud leadership and accelerated our market leading position.

Now, let me turn to our outlook.

For fiscal 2024, we expect <unk> of between 846% and $858 million, representing 12% constant currency at the midpoint.

In FY 'twenty, five we expect our growth to accelerate to 16% to 17%.

The driving force behind these growth rates are committed ramps embedded into our cloud contracts.

As I've already noted fully ramped <unk> grew 17% this year.

This is the highest growth on this metric since 2019.

When we look at the shape of the ramps for deals sold in fiscal 2023, we see a pronounced acceleration of annual fees in year, three which is our fiscal 'twenty 'twenty five.

Total revenue for the year is expected to be between 976 and $986 million.

We expect that subscription revenue will be approximately $471 million, representing 34% growth.

Support revenue will decline by about $8 million year over year as a result of the continued migration of our installed base to cloud, resulting in approximately $541 million in subscription and support revenue.

As a reminder, support revenue attaches to term license customers for cloud customer support activities are included in the subscription fee.

Okay.

We expect license revenue to decline to decline due to steady progress on cloud migrations.

Our outlook for services revenue was approximately $200 million.

We are shifting more services work to our partners, who have made large investments to align them with our cloud approach.

This approach allows us to work together with our partners to standardize this industry on Guidewire cloud platform.

We expect higher gross margins for the year to be approximately 60% subscription and support gross margins to be approximately 59% and professional services gross margins to be approximately 15%.

We are pleased with this progression as we work to continue to drive margin improvement.

With respect to operating income, we expect an operating income of between 62 and $72 million for the fiscal year we.

We expect growth in operating expenses to continue to be muted in fiscal year 2024.

Cash flow from operations in fiscal 2024 is expected to be between 95 and $125 million.

Our capex expectations for the year are between 20 and $25 million.

Including $15 million in capitalized software development costs.

Our Q1 outlook can be found in our earnings press release, but let me provide a bit more color.

Given the strong sales activity in Q4, we did not have many deal slip into Q1. So we expect typical seasonality for our first quarter, which impacts sequential <unk> growth expectations.

We expect subscription and support revenue of approximately $123 million and services revenue of approximately $43 million.

Also annual employee bonuses and commission expenses related to Q4 sales are paid out in Q1, which impacts cash flow as a result, we expect cash flow from operations to follow a similar pattern to what we experienced last year.

Finally, let me make a comment about our FY 'twenty five targets that we have been tracking for some time now.

We will address this in more detail at our analyst day, but I wanted to make a comment quickly here.

As Mike noted, we remain focused on achieving our target of $1 billion in IRR and the strength of Q4 sales activity demonstrates the path to achieving that goal.

Total revenue is also tracking to our prior range on.

On the margin side, we're progressing a bit ahead of plan that we discussed the last analyst day, and our expectations for subscription and support gross margin total gross margins operating margins and cash flow from operations margins for fiscal 2025 are now expected to finish closer to the high end of the previously discussed ranges.

We are thrilled with the progress we made in FY2023 to allow us to deliver increasing confidence towards our long term targets.

We have built a tremendous cloud company at Guidewire and I want to give special thanks to the finance team for helping Guidewire manage through what has been a complicated business model transition in summary, we're proud of what the team was able to accomplish in fiscal 'twenty three and are excited for what fiscal 'twenty 'twenty four will bring with that let's open the call to questions.

Thank you.

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One moment, please while we poll for questions.

Thank you. Our first question is from Dylan Becker with William Blair. Please proceed with your question.

Hey, guys, great job here, and Mike and Jeff It seems like it sounds really clear on the model transition I guess, maybe starting.

With Jess.

The encouraging sales activity here, there's still some moving parts and I appreciate the color on kind of the 25 targets I guess can you help us kind of give a sense of whats instilling confidence.

Relative to the time based outcomes of the ramped activity it sounded like subscriptions very healthy maybe a little bit of an offset on the services front, but just kind of level set some of the puts and takes relative to the guide and outlook for 2025.

Yes, absolutely.

Thrilled with the activity we saw in Q4.

And as you know we are cloud contracts typically contained multiple years of committed fees and the contracts. We call. These ramps right. So the shape of these ramps can be impacted by a number of factors.

Including our insurers rollout schedule their implementation strategy and the business case to potentially support that investment.

We noted last quarter that we were thrilled with the activity and what we're seeing in the environment and our ability to transact with some of these ramps, we're taking a little bit more time to develop.

Ultimately I I really care, the most about getting to an attractive fully ramped value and I was thrilled with the activity that we saw in the quarter to drive to that outcome that also is what underpins.

Our fully ramped <unk> growth of 17% and so as we inspected.

Our cohort analysis and the deals that underpin the activity in Q4.

We did see a little bit of a slower developed and that had an impact in how we.

And our outlook for how much of our ore will come off of the backlog in FY 'twenty four.

But we also see a material acceleration in FY 'twenty, five giving us really good line of sight and some of those longer term targets that we talked about so.

In general just thrilled with the activity to set us up the foundation for as we think about FY 'twenty, four and FY 'twenty five.

Great. Okay. That's super helpful. Thanks, Jeff.

Maybe switching over to you and to kind of from a foundational level right. The idea what an intelligent core and embedded analytics can look like and how that forces a shift in Andes underwriting models, you called out an emphasis on product innovation, but how does that shift the strategic importance of what a core system can look like versus maybe what it was in the traditional sense.

And how that incentivize has changed from both a carrier perspective, but also kind of fuels your ongoing innovation roadmap there as well. Thank you guys.

Thanks, Bill Great question, and I think it lines up very much to what we what I was talking about in the script in terms of carriers being aligned with our strategic vision for the platform and where we're taking guidewire.

I think if you if you think about just the most basic maybe barring definition of watercolor platform needs to be needs to be a system of record database for policy claims and bills.

But we see an opportunity to do so much more.

With that platform.

<unk> really doing anything innovative.

With add on insurance company necessitates a connection to that core system of record and so it's not just analytics its integration.

It's the digital interfaces that they need to be able to build to connect customers to connect the agents to connect brokers.

Also workflow systems to drive better efficiency and automation and obviously as you say its analytics and embedding intelligence into the system.

We've worked incredibly hard to ensure that any piece of data any business process youre running on this core platform. We're capturing every transaction where starring every change every single thing that's happening on our platform is stored in our data platform available to these companies to be able to run the operational analytics that they need.

Need to be able to run just to do business to be able to connect into the financial systems to be able to use to do business and to do the complex sort of multi period.

Period over period.

<unk>.

And deep analytics that really basically allow them to make better insurance decisions.

All of that.

To be easier and easier and easier for our customers in this industry to harness and leverage and like I said, it like Brian and more efficient better insurance industry. We think we've done that with this platform and we're starting to see.

That I don't know attitude that reality picked up and the demand that we see for the product and the execution that we saw in Q4 in this fiscal year.

So really do like the question.

Because we think that the industry is going to get smarter and get more efficient and we're excited to be part of it.

Terrific. Thank you guys I appreciate it and congrats again on a solid very solid equal.

Thanks, a lot.

Thank you. Our next question is from Kevin Kumar with Goldman Sachs. Please proceed with your question.

Hi, Thanks for taking the question Mike on.

On your comment on displacing other vendors I think thats two quarters in a row that you've called that out asset curious is there a specific pain point or some common themes thats catalyzing. These modernizations and do you view this as durable theme going forward.

Okay.

Yes, thanks for the question.

It's very dependent I would say part of it is just a.

A bit of frustration.

With incumbent vendors and its not specifically one is like.

There is multiple.

There is multiple installed vendors, where this is coming up.

I'd say theres a bit of frustration associated with this but maybe that frustration is better understood in the context too.

What I'd say alignment to our innovation vision and the track record that we have been able to establish with our platform and with the successful production implementations that are now live and running on the system I think if I think about my four years at Guidewire Theres been an absolute change.

And the perspective around painting, a vision and partnering with companies to go ahead and sell it and get through the project to get it implemented and get it live and get it running.

But this is now much more something that is becoming the norm.

Something that we're feeling very confident and it's something that the systems integrators are feeling very confident in and alignment to that vision helps sort of juxtaposed to the experience that these companies might be having with other vendors and so.

It is a couple of quarters in a row that we're seeing this we called it out because we thought it was important to start.

Identify that this is a reasonable redefinition of how we think about total addressable market.

Right.

In one case, you could think of Guidewire is only targeting what you might call legacy systems, but if you open that up broaden our perspective too.

Systems that are.

Already kind of a modernized but not modernize the guidewire that's a significant.

Positive change for us and so every quarter that we see these examples.

We're very very excited about it and.

Excited to tell you, but more excited to welcome other customers to the fold into the Guidewire ecosystem.

Great. That's really helpful. And then I wanted to ask about the <unk>.

Gration acceleration specialization, that's being rolled out to your partners I guess, what's the implication there in terms of TCE to migrate and in general are you feeling more confident in terms of the pipeline of migrations.

Yeah.

We're definitely feeling more confident about.

Identifying all of the things that we need to do to ensure that the that these projects go smoothly and what we're excited about it.

Pending that expertise that learning to the Si ecosystem, so that we have a broader.

Group of people sort of more horsepower that we can bring to bear in successfully executing these migrations.

I wouldn't necessarily say that it is going to change the pipeline or the run rate of that business for us we work hard to do that it's more so.

The signal that I think you should see is we're confident enough in these programs to now start to extend it to the partners and build that specialization with these specific partners. So that we can ensure.

Like I said, we've had enough horsepower to meet the demand as.

As we go forward to the next few years really.

It's been it's been great to see the balance in the bookings for us over the past couple of quarters between new business and new deals and then also the migration of our customer base, which is progressing very well so.

So yes glad that you picked up on that.

That program I guess that we've launched this quarter.

Thanks, and congrats on the quarter.

Hey, Thanks, a lot.

Thank you. Our next question is from Parker Lane with Stifel. Please proceed with your question.

Yeah, Hi, guys. Thanks for taking my questions.

You know, Mike and Jeff in the context of 17 cloud deals 13 go lives here it looks like the outlook for 2024 physical is fairly conservative is that primarily a reflection of the pronounced acceleration of ramps and 25 or is there something else you're baking in there. Thanks.

Yes, I think it's two things.

Like Jeff said, we have very good visibility into what internally we call. The waterfall like contracted <unk> that'll flow into the model based on agreements that we've already done.

Jeff Jeff explaining that.

<unk> of the ramps that we've already completed already contracted give us pretty good visibility.

Into what we should expect in 'twenty four what should we expect the 25 and beyond then we may add to that a projection based on our pipeline we see.

For fiscal 'twenty four.

But what's really critical if you really want I think if you really want to understand how powerful the businesses and how.

Right. We're doing right now is you've got to look at the 17% growth in fully ramped IRR and we looked at hey are we still confident in the fiscal 'twenty five targets and based on the flow of the <unk> coming in off the ramps in fiscal 'twenty five we felt comfortable that we can stick with that and then we could guide to.

That effectively signal that acceleration in <unk> growth.

Year to year, so that's what's driving it.

It may be a unique business that we have so much visibility into the out years of these committed contract what we do but it is the nature of the.

The relationships that we sign up for <unk>.

<unk>.

It was it was a great great year for us on bookings and it was nice to be able to get these deals signed and to be able to add as much fully ramped <unk>. This year as we get.

Got it very helpful and Jeff just one for you here a quick one.

It's a solid profit outlook for next year more reflection of the improvements you made on subscription and support gross margins.

Services are a combination of both.

But the services organization returning back to positive margin in Q4, I think we have a very solid plan to continue to drive that margin moving forward I almost think this year as we look at the services business, we're pushing a lot of work to our partners. We think that that is healthy we want to do the very strategic high value work and as we <unk>.

Managed that business, we're going to manage more too.

Yeah.

Gross profit dollar basis. So if the revenue is a little bit below our expectations that came in above our $30 million gross profit dollar that's implied into our guide that's a good outcome for guidewire, so, but we feel confident in that.

The organization's ability to contribute which is great.

Makes sense. Thanks, again, guys congrats on the quarter.

Thank you. Thank you.

Thank you. Our next question is from Matt Vanvliet with <unk>. Please proceed with your question.

Yeah, Hi, good afternoon, thanks for taking the question.

I guess following up a little bit on that last point.

Looking at the overall margin profile.

Obviously with the fully ramped deals impacting more of a FY 'twenty five maybe that that is sort of the underlying answer that you get more cloud efficiencies as you get more and more of those deals wrapped up but.

Are there any specific levels or or key indicators in your book to point us to.

Really expanding the gross margin on the cloud business, realizing those efficiencies of scale and being able to truly wind down.

Some of the support costs on the legacy business or is it a little too early to tell given.

Some complexity around the mix shift as it happens from more of your customers migrating.

I'm going to take a quick pass at this and I'll, let Jeff add to it.

Expanding margins in my view are.

Going to happen by.

Selling more cloud continuing to sell more cloud deals continuing to ramp those deals over time into the fully ramp values as you say.

And executing as we have been continuously to improve the efficiency of the.

The cloud platform. So it's both of those things. So we're increasing top line against a fixed head count expense and we manage very carefully and we're continuously optimizing the way that we are using these services such that the platform becomes more efficient each.

Period each release, so the two of those things combined are what drive.

The improved margins I don't want people to think that we're dependent on these.

I think what did you say retiring.

The first phase or let's say legacy versions of the cloud, we're going to work with those customers to migrate them to our Guidewire cloud platform, but as I've said I think in previous calls and in other quarters.

Our targets are not dependent on those transitions.

We can we can achieve we're going to we're going to do right by those customers and we're going to manage through that with them.

But we're going to be able to we're going to be able to grow into these margins and execute through these engineering projects the efficiency efficiencies, we need to hit those targets, that's the way I see it.

Yeah, and I'd, just add I mean look I think as we manage through this transition.

Outset, we.

Folks ready to make sure that the early cohorts were successful and now as we're scaling the platform. We can leverage that investment. So we don't need to add incremental cloud operations head count because we've hired ahead of that demand curve and now we're seeing the scale benefits that we had planned for.

In general this is playing out kind of the way the way we thought it would now that the other thing that is embedded in here is is that <unk> follows.

<unk> cash collection cycles, and so we have this dynamic that we talked about where.

We're seeing a really healthy step up in FY 'twenty five when we look at the cohort of the deal sold in FY2023 secret subscription revenue normalizes that under ASC 606, and so we are seeing very healthy and durable subscription revenue growth in the midpoint of our guide implies kind of continued 30 plus percent subscription.

<unk> growth, which is also obviously contributing to the margin expansion story.

Okay very helpful and John .

This is Ben Ben.

And the head of the sales organization here for quite a while now.

Anything you can point to that has been as you look back kind of a.

A meaningful shift in either.

Either the process or just flat out execution.

And then you touched on kind of the continued expansion of the Si partnerships.

Would you credit him with with with much of that or is it really just a maturation of the industry they've been investing in the guidewire practice for a long time and he's just sort of enhance that.

Anything you'd highlight that he is really kind of brought to the table that is has been a sea change for guidewire.

Yes.

Yes, John has been an incredible addition to the leadership team here.

I would also say that David Leiker, who joined US has been an incredible addition, Michael Mahoney spent an incredible addition to the leadership team we feel great about.

The customer components.

Our of our team and I will now and it also gave a lot of credit to Cristina Colby Who's our chief customer officer, and what she's done.

To ensure that we've driven the fall through around making sure that these projects are successful.

I feel good.

Sorry about this team and the innovation and the energy.

This team has brought to the company.

It's for sure their contribution it's also.

Part of it for sure driven by the maturation of the product and the general improved increased experience that we have as a organization and ecosystem around what it takes to be successful with these projects.

I think we've talked numbers at times about the conversations that we have with.

With these insurance buyers starting now exactly wanting to be on the vanguard of these new programs and wanting to kind of wait until they see the success of other companies who are charting the course ahead of them well that maybe is starting to kick in right as youre seeing.

Number is in the.

Triple digits now of Guidewire cloud customers.

And.

Tien tsin that maybe not 100, yet, but growing every every quarter by over a dozen.

Successful production go lives that experience helps us sell that experience helps gain the confidence we need to get these deals cross the finish line.

So certainly it's John and the rest of the team that we've added but it's also a lot of things that contribute to that success.

And I would I would just highlight one additional thing that I think.

John has helped.

Think about and it's reflected in somewhat in the prepared remarks.

Scribing, where we are as a company is we have an opportunity now to.

Two to think more deeply about and focus our attention around.

The insurance specific value that we can embed into our products into our solutions into our platform. We spent a huge amount of time and effort around building a platform that was going to work worldwide that was going to be.

Successful secure reliable and that was going to enable us to scale this thing efficiently.

And really run the top tier one tier two tier three insurers all over the world on our platform and.

That's never done I don't want to I don't want to get ahead of myself and say we're finished because we're not but it's got to the point now where we can start to refocus our attention around one innovation we can bring.

To help run claims processes more efficiently to underwrite risks more effectively to embed analytics more effectively harnessed the data and analytics that the system is creating and John has really helped bring that expertise around the insurance industry and what can really move the needle for insurance carriers.

Worldwide. He has really helped us see that.

And so I just like I said I'll just sum it up by saying I feel great about the team and it's like a lot of these factors contributing to the success that we saw in the quarter.

Great. Thank you.

Thank you. Our next question is from Ken Wong with Oppenheimer. Please proceed with your question.

Great. Thank you for taking my question.

Mike I just wanted to maybe touch on one of the trends you guys called out last quarter in terms of.

AAR, pushing a little bit to the right and some of that caused by by some kind of DWP visibility across your customers and you guys didn't really mentioned it this quarter is it fair to assume that perhaps some of that has started to fade or.

And then any update on that front.

Sure Yeah, so we definitely.

Definitely are continuing to work through and deal with it.

Very challenging environment for the insurance industry.

That still exists we called it out in Q3, we touched on it a bit I touched on it a tiny bit in this quarter. We did however, see an exceptional.

<unk> result in the quarter.

And what I would chalk that up to the idea that the insurance companies can see the investment in guidewire stretching way beyond.

The immediate economic conditions that they're operating through right now and even in some cases thinking about guidewire as a mechanism for deals.

Dealing with these challenges more effectively if they have an agile reliable core system that is not holding them back, but instead, enabling them to connect with customers in different ways to open up new channels to brokers operate their claims processes more effectively.

It is still a challenge.

Yes.

I would say it does have an impact on the types of deals and the structures of the deals that we are negotiating and closing with these companies.

But we were able to have as I said, an exceptional outcome in the quarter.

And so both bolt things can be true.

So thats reality I suppose in the insurance industry still exists and we're working with our with our customers very carefully to help them navigate this ken the only thing I would add is last quarter, we talked about being cautiously optimistic about our ability to transact through this environment I think coming out of Q4, we're obviously thrilled with our ability.

Transact, but we did see and we talked about this in the prepared remarks, we are seeing some of these ramps taking a little bit longer than what we had seen historically to materialize into meaningful IRR that how does that impact in FY 'twenty five more so than FY 'twenty for us. So we are continuing to see that theme that we kind of introduced last quarter a bit, but obviously thrilled with.

Our ability to transact in the quarter got it got it great to see the fantastic results in this tough environment and then as Jeff just quickly on subscription and support gross margin.

Five again, a nice step up from where you guys are closing out and let me sorry, 24 from where you guys are closing out fiscal 'twenty three I.

I guess when I look at the exit trajectory you guys are at 58.

Can you maybe walk us through some of the puts and takes in.

Yes.

Why would it be higher building off of what was a very strong Q4 number.

Yes, obviously.

'twenty three delivered a lot of margin expansion.

Over the last 18 months. This has been a huge focus for us.

I think we've executed quite well.

There is a variety of things that we've kind of taken advantage of to kind of have that move in 'twenty. Three as we look ahead to 'twenty four we have a lot of deals that were transacted and so.

We will start to see those customers and you're using the platform, we're seeing our existing customers start to use the platform in a bit more scale. So so we're we have that flowing through our model.

Combined with the overall revenue growth but.

I think as we look ahead. We're plot we're proud of the trajectory we're seeing in 'twenty, four and how that sets us up for kind of both our near term and long term targets.

Got it okay. Thanks, guys. Thank you so much.

Thank you.

Thank you. Our next question is from Michael <unk> with Wells Fargo. Please proceed with your question.

Hey, Thanks. This is David on your on for Michael.

Tonight, just one from me great to see the meaningful cash in the balance sheet with the seasonally strong for Q can you guys remind us the best way to think about capital allocation pecking order at this point in the cycle. Thank you.

Yes look I mean, we are we benefit from having a very strong balance sheet our customers appreciate.

These are long term consequential decisions that our customers customers are making so they certainly appreciate seeing a well capitalized company that they can partner with.

We've talked about this in the past we've talked about what do we really need is a minimum cash balance to support running the operations of the business and we've talked about that kind of in that kind of $4 million to $500 million range, we have been doing some share repurchase activity.

And then we obviously think over the long term, we are a logical acquirer in our space. So.

Maintain some cash for strategic cash that's how we that's how we think about it.

And we're in an environment now where we feel very good about where we are in the cloud transition.

So it's possible that you could see us be a bit more strategic and start thinking about M&A a bit more although we will continue to be.

Price disciplined and cautious with respect to M&A.

Great. Congrats thank you.

Thank you.

Thank you. Our next question is from Michael Funk with Bank of America. Please proceed with your question.

Yes. Thank you for the question Tonight, maybe a two parter if I could.

You mentioned earlier that are fewer deals slipped into into <unk> and that contributed to the guidance.

Four one Q maybe.

Maybe also in addition to answering that question I think anything unique happened there.

Talk about the pipeline.

Size of deals in the pipeline how.

How far along in the pipeline those are and then how that contributes to the confidence in guidance for the year.

Yes, sure Mike We said it was a it was a very strong close for us in Q4.

It's just relative to the percentages that you would normally expect in terms of deals closing, which.

Validates and a lot of ways, our vision and team and execution. So.

This was phenomenal.

Sometimes you end up with with deals slipping into the first quarter.

Software companies and when you have a great Q4, you have fewer deals slip into Q1, so that factors into slightly into the Q1 <unk>.

Perspective.

That's like better news right you want to close the deals early not bad news.

Speaking to the pipeline.

We are we have a.

A lot of confidence in the visibility that we have for the fiscal year.

The position that we're in now.

It is only strengthening as I described in my prepared remarks, we feel good about the product that we think we're good about customer success, we feel good about the track record feel good about the competitive position all of those things.

Are pointing in the right direction, we've worked real hard over the past couple of years too.

Drive a more linear business throughout the year, so pulling as much of the the.

The deals earlier in the fiscal year as we possibly can.

And that also gives us.

Just building confidence I'd say in our ability to project, how we're going to do.

But the other thing to keep in mind is like there is a percentage of what we close that flows into this year's IRR, but a significant amount we closed like Jeff talked about flows via ramps into fully ramped IRR over the next few years.

I'm increasingly thinking about guidewire as a multi year business and that's just the way we transact with our customers and this is the way we think about investing the way we think about running the company.

These are decades long relationships that were establishing in the.

The durability of the relationships really speaks to that and so.

It's like it's almost like.

Yes, we can talk about Q1, but we're also talking about the fiscal year and then we're also talking about fiscal year 'twenty five and that's why we.

We've had a lot of we feel very good sense of confidence in the business and how it's how we're executing right now.

And why we think it's appropriate.

We think it's reasonable for us to project that acceleration in <unk> in fiscal 'twenty five.

So hopefully that gives you enough of a sense of how confident we are in the business right now.

Thank you very much.

I appreciate it.

Thank you there are no further questions at this time I would like to hand, the floor back over to Mike Rosenbaum for any closing comments.

I just wanted to say thanks to everybody for participating in the call today.

We're as it.

It was an exceptional Q4 for us an exceptional fiscal year, we're real excited about the prospects of the business going forward and I just wanted to say hopefully we will see all of you at our.

Connections event in analyst day.

That is coming up in November we will see you in.

Nashville looking forward to hosting everybody seen everybody in person if you can make it so thanks very much.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.