Q2 2024 Guidewire Software Inc Earnings Call
Operator: Greetings. Welcome to Guidewire's second quarter 2024 financial results. At this time, all participants are in a listen-only mode.
Greetings and welcome to the Guidewire second quarter 2024 financial results Conference call. At this time all participants are in a listen only mode a question.
Operator: 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 telephone. Please note this conference is being recorded. I'll now turn the conference over to your host, Alex Hughes, Vice President of Regulation. You may begin. Thank you, Shamali.
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. Please note. This conference is being recorded I will now turn the conference over to your host Alex Hughes, Vice President of Investor Relations you may begin.
Thank you she Molly I'm, Alex Hughes, Vice President of Investor Relations and with me today is Mike Rosenbaum, Chief Executive Officer, and Jeff Cooper, Chief Financial Officer, a 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.
Alex Hughes: I'm Alex Hughes, Vice President of Investor Relations, and with me today are Mike Rosenbaum, Chief Executive Officer, and Jeff Cooper, Chief Financial Officer. A complete disclosure of our results can be found in our press release issued today, as well as in our related Form 8K, filed with the SEC, both of which are available on the Investor Relations section of our website. This call is being recorded, and a replay will be available following the conclusion of this call.
Today's call is being recorded and a replay will be available. Following the conclusion of this call statements made on this call include forward looking ones regarding our financial results products customer demand operations, the impact of local national and geopolitical events on our business and other matters. These statements are subject to risks uncertainties and assumptions are based on managements.
Alex Hughes: Statements made on this call include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national, and 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 and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and risk factors and documents we file with the SEC in our most recent annual report on Form 10K and our prior and forthcoming quarterly reports on Form 10Q filed and 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 certain non-GAAP financial measures to provide additional information to investors. All commentary on margins, profitability, and expenses is on a non-GAAP basis unless stated otherwise.
Current expectations as of today and should not be relied upon as representing our views as of any subsequent date.
Please refer to the press release and risk factors and documents, we file with the SEC and our most recent annual report on Form 10-K, and our prior and forthcoming quarterly reports on Form 10-Q filed and 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.
We'll refer to certain non-GAAP financial measures to provide additional information to investors all commentary on margins profitability and expenses are on a non-GAAP basis unless stated otherwise.
Alex Hughes: 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 IRA website. And with that, I'll now turn the call over to Mike. Thank you, Alex. Good afternoon, and thanks, everybody, for joining us today.
Conciliation 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 and with that I'll now turn the call over to Mike <unk>.
Mike: Thank you Alex good afternoon, and thanks, everybody for joining today I'm pleased to report another strong quarter with continued momentum in both sales activity and operational performance.
Michael George Rosenbaum: I'm pleased to report another strong quarter with continued momentum in both sales activity and operational performance. Our results in Q2 put us in a great position halfway through our fiscal year, driven by outstanding execution and progress across sales, customer success, finance, product, and engineering. We reached $800 million in ARR in the quarter, and our performance through the halfway point allows us to raise our ARR guidance for the fiscal year.
Mike: Our results in Q2 put us in a great position halfway through our fiscal year, driven by outstanding execution and progress across sales customer success finance product and engineering.
Mike: We reached 800 million in a or are in the quarter and our performance through the halfway point puts us allows us excuse me to raise our guide for the fiscal year. Our continued sales momentum is clear validation of the investments we have made in our cloud platform. The approach we have taken to cloud.
Michael George Rosenbaum: Our continued sales momentum is clear validation of the investments we have made in our cloud platform. The approach we have taken to cloud updates and cloud services enables us to deliver a new level of agility to our customers in the P&C industry and will unlock the innovation the industry requires to continue to transform and evolve. Our suite of insurance products is winning in the market, gaining momentum, and continuing to fuel a very durable and successful business. Increasing market confidence in our cloud strategy was reflected in record sales results in the second quarter, with continued strength in the Americas and improved momentum in Europe. Overall, we closed 11 cloud deals in the quarter. Ten of these were InsuranceWeek cloud deals, including three in the EMEA region.
Mike: <unk> and cloud services enable us to deliver a new level of agility to our customers in the P&C industry and will unlock the innovation the industry requires to continue to transform and evolve.
Mike: Our suite of insurance products are winning in the market gaining momentum and continuing to fuel a very durable and successful business ink.
Mike: Increasing market confidence in our cloud strategy was reflected in record sales results in the second quarter.
Mike: With continued strength in the Americas and improved momentum in Europe. Overall, we closed 11 cloud deals in the quarter 10 of these or insurance suite cloud deals, including three in the EMEA region.
Michael George Rosenbaum: We were thrilled to close four tier one deals and saw a healthy distribution of demand across migrations, expansions, and net new customers, indicating good traction in each of our core growth opportunities. Some of the takeaways were... Migration activity picked up at larger insurers with three migrations in the quarter, including a Tier 1 Commercial and Personal Lines insurer based in the United States who elected to migrate their insurance suite and another Tier 1 European insurer who will migrate their claims center implementation. We also continue to attract net new customers, adding three more insurers in the quarter.
Mike: We were thrilled to close four tier one deals and saw a healthy distribution of demand across migrations expansions and net new customers, indicating good traction in each of our core growth opportunities some of the takeaways were.
Mike: Migration activity picked up at larger insurers with three migrations in the quarter, including a tier one commercial and personal lines insurer based in the United States.
Mike: We elected to migrate insurance suite and another tier one European insurer, who will migrate their claim center implementation.
Mike: We also continue to attract net new customers, adding three more insurers in the quarter.
Michael George Rosenbaum: This included a rapidly growing newcomer to the home insurance market who adopted Guidewire Cloud Platform for its scale and ability to embed analytics and core workflows, as well as a significant state insurer in workers' compensation who adopted Guidewire Cloud Platform for the maturity of our platform, our roadmap, and the strength of our ecosystem. With the foundation of Guidewire Cloud Platform now clearly established, we are better positioned to layer on additional data and analytics offerings, as well as core policy, underwriting, and claims workflows. These capabilities improve customer performance and business outcomes, and it's exciting to see them continue to take shape. Cloud expansion activity also remains strong as customers look to build on their initial success with Guidewire Cloud by moving new lines of business and modules to the platform.
Mike: This included a rapidly growing newcomer to the home insurance market, who adopted Guidewire cloud platform for its scale and ability to embed analytics in court workflows as well as a significant state insurer and workers' compensation that adopted Guidewire cloud platform for the maturity of our platform our road map and the string.
Mike: Our ecosystem.
Mike: With the foundation of Guidewire cloud platform now clearly established we are better positioned to layer on additional data and analytics offerings and core policy underwriting and claims workflows. These capabilities improve customer performance and business outcomes and it's exciting to see them continue to take shape.
Mike: Cloud expansion activity also remained strong as customers look to build on their initial success with guidewire cloud by moving new lines of business and modules to the platform.
Michael George Rosenbaum: Turning to cloud and company operations, we continue to improve and optimize our performance around deployments, utilization, and platform efficiency. We now have nearly 70% of our cloud customers in production and have conducted hundreds of updates to customers' implementations on our cloud platform over the last few releases. This new cloud update capability is starkly different from the upgrade experience of our past.
Mike: Turning to cloud and company operations, we continue to improve and optimize our performance around deployments utilization and platform efficiency.
Mike: We now have nearly 70% of our cloud customers in production and have conducted hundreds of updates to customers implementations on our cloud platform over the last few releases. This new cloud updated capability is starkly different than the upgrade experience of our past it marks a material change in the <unk>.
Michael George Rosenbaum: It marks a material change in the ongoing relationship between Guidewire and our customers and creates the framework for us to constantly deliver innovation to our customers and the industry we serve. We also continue to drive improved cloud operations efficiency, which is improving cloud margins. Subscription and support gross margin improved eight points year over year in the second quarter to 65 percent.
Mike: Going relationship between Guidewire, and our customers and creates the framework for us to constantly deliver innovation to our customers and the industry we serve.
Mike: We also continued to drive improved cloud operations efficiency, which is improving cloud margins subscription and support gross margin improved eight points year over year in the second quarter to 65%. This gives us increasing confidence that we have the right approach the right team and the experience in play.
Michael George Rosenbaum: This gives us increasing confidence that we have the right approach, the right team, and the experience in place to support our growth and financial objectives through A Billion in ARR. In addition to our work to shift our product and customer base to the cloud, we are working to better position Guidewire to achieve our long-term goals by transforming the services side of our business. We have invested in our SI partner ecosystem to ensure that we are not capacity constrained as our industry adopts the cloud. As our partners take on an increasing share of the prime work, the Guidewire services team will focus on a targeted portfolio of programs and strategic roles in customer programs. Our strategic focus is for the vast majority of implementation revenue to be delivered by our SI ecosystem and for our services revenue to be less than 20% of Guidewire revenue. The result will be a more powerful software-oriented business model, better overall long-term growth margins, and a better structure to serve the P&C industry. In the second quarter, we saw lower than expected services revenue, and this shortfall impacts our full-year total revenue guidance, which Jeff will discuss.
Mike: To support our growth and financial objectives through a billion and a R. R.
Mike: In addition to our work to shift our product and customer base to cloud, we're working to better positioned guidewire to achieve our long term model by transforming the services side of our business. We have invested in our Si partner ecosystem to ensure that we are not capacity constrained as our industry adopt cloud.
Mike: As our partners take on an increasing share of the prime work. The Guidewire services team will focus on a targeted portfolio of programs and strategic roles in customer programs. Our strategic focus is for the vast majority of implementation revenue to be delivered by our SRA ecosystem and for.
Mike: Our services revenue to be less than 20% of Guidewire revenue.
Mike: The result will be a more powerful software oriented business model better overall long term gross margins and a better structure to serve the P&C industry.
Mike: In the second quarter, we saw lower than expected services revenue and this shortfall impacts our full year total revenue guidance, which Jeff will cover but to be clear lowering services revenue is not correlated in any way to the overall demand. We are seeing we add the most value to the P&C industry by running a world.
Michael George Rosenbaum: But to be clear, lowering services revenue is not correlated in any way to the overall demand we are seeing. We add the most value to the P&C industry by running a world-class cloud platform that can be integrated and configured for our customers by a market-leading and global ecosystem of SIs that is enabled every day by the Guidewire professional services team. This strategy is working well, and I was pleased to see Guidewire's partner ecosystem continue to expand meaningfully in the quarter. We finished Q2 with 24,000 consultants now in the Guidewire SI ecosystem. And there remains a strong uptake in those getting Guidewire cloud-certified. Cloud certifications increased 33% year-over-year to nearly 9,000.
Class cloud platform that can be integrated and configured for our customers by a market, leading and global ecosystem of S is that it has enabled everyday by the Guidewire professional services team. This strategy is working well and I was pleased to see Guidewire as partner ecosystem continued to expand meaningfully in the.
Mike: Quarter, We finished Q2 with 24000 consultants now in the Guidewire S ecosystem.
Mike: And there remains a strong uptake in those getting Guidewire cloud certified cloud certifications increased 33% year over year to nearly 9000. We also added 15 solution partners in the second quarter, bringing the total to over 200.
Michael George Rosenbaum: We also added 15 solution partners in the second quarter, bringing the total to over 200. Here, we are working with partners to drive greater content and coverage across geographies and technologies, and this drives greater utility to customers and will further drive adoption. We want customers to choose Guidewire but also the value-driving ecosystem we are building around our platform. In summary, it was a great quarter and a great first half, and our teams continue to execute well across the key pillars of our strategy.
Mike: Here, we are working with partners to drive greater content in coverage across Geos and technologies and this drives greater utility to customers and will further drive adoption, we want customers to choose guidewire, but also the value driving ecosystem. We are building around our platform in summary, it was a great quarter and a gray.
Mike: First half and our teams continued to execute well across the key pillars of our strategy demand for Guidewire cloud platform and our suite of insurance applications remained strong we continue to drive greater efficiency gains and cloud operations, our cloud platform and the company overall, we are progressing through our services transformation to better serve.
Jeffrey Elliott Cooper: Demand for Guidewire Cloud Platform and our suite of insurance applications remains strong. We continue to drive greater efficiency gains in cloud operations, our cloud platform, and the company overall. We are progressing through a services transformation to better serve the enormous opportunity we see and further position us to grow into our long-term model. I'll now turn the call over to Jeff.
Mike: The enormous opportunity, we see and further position us to grow into our long term model I'll now turn the call over to Jeff.
Jeffrey Elliott Cooper: Thanks, Mike. The financial highlights in the quarter included better-than-expected ARR, 65% subscription and support gross margins, and robust operating income and cash flow from operations. I will touch on these points as I go through the details. Starting with ARR, strong sales activity in the quarter led to ARR of $800 million, which was above our outlook range. Total revenue was $241 million.
Jeff: Thanks, Mike.
Jeff: The financial highlights in the quarter included better than expected air are 65% subscription and support gross margins and robust operating income and cash flow from operations.
Jeff: I'll touch on these points as they go through the details.
Jeff: Starting with our strong sales activity in the quarter led to <unk> of 800 million, which was above our outlook range total revenue was $241 million.
Jeffrey Elliott Cooper: Subscription and support revenue was largely in line with our expectations, and licensed revenue benefited from DWP true-up activities. As a reminder, we generally price our software as basis points of direct written premium or DWP. So when a customer sees their DWP grow, we often see their fees increase in the form of DWP true-ups. Services revenue was lower than expectations, so we saw our partners take the lead in more cloud programs. Early in our cloud transition, we led most of the cloud programs and then often subcontracted much of the work to SIs at a low margin, or, in some cases, a negative margin. This approach allowed us to maintain control and, at the same time, train our partner community. By design, we are now transitioning away from this approach. We are pleased with our partner's ability to step up and lead cloud programs and our progress to decrease reliance on subcontractors. As a result, we saw services revenue from subcontracted work decline in Q2 by approximately 12 million year-over-year, and the cost of subcontractors declined by 14 million year-over-year.
Jeff: Subscription and support revenue was largely in line with our expectations and license revenue benefited from DWP true up activity.
Jeff: As a reminder, we generally price our software as basis points of direct written premium or DWP.
Jeff: So when a customer sees their DWP grow we often see their fees increase in the form of DWP true ups.
Jeff: Services revenue was lower than expectations. So we saw our partners take the lead and more cloud programs.
Jeff: Early in our cloud transition, we led most of the cloud programs and then often subcontracted much of the work to size at a low margin or in some cases negative margin.
Jeff: This approach allowed us to maintain control and at the same time train our partner community.
By design, we are now transitioning away from this approach we.
Jeff: We are pleased with our partner's ability to step up and lead card programs and our progress to decrease reliance on subcontractors. As a result, we saw services revenue from subcontracted work decline in Q2 by approximately $12 million year over year.
Jeff: And the cost of subcontractors declined by $14 million year over year.
Jeffrey Elliott Cooper: We have adjusted our model to reflect the fact that this transition is occurring faster than we originally estimated, and it'll take a bit more time to build a backlog of Guidewire-owned programs to offset the decline in subcontracted revenue. I will touch on this more when I discuss our outlook. Turning to profitability for the second quarter, which we will discuss on a non-GAAP basis, gross profit was $151 million.
Jeff: We have adjusted our model to reflect the fact that this transition is occurring faster than we originally estimated and it'll take a bit more time to build a backlog of guidewire owned programs to offset the decline in sub contracted revenue.
Jeff: I will touch on this more when I discuss our outlook.
Jeff: Turning to profitability for the second quarter, which we will discuss on a non-GAAP basis gross profit was $151 million.
Jeffrey Elliott Cooper: This result benefited from overall strength and subscription and support margins combined with higher than expected term license revenue, which carries a high gross margin. This strength more than offset the service's gross profits shortfall. Overall gross margin was 63% compared with 57% a year ago. Subscription and support gross margin was 65%, which compares favorably to 57% a year ago and continues to track ahead of our expectations due to increased cloud infrastructure efficiency. With respect to services, gross profit was negative $4.2 million, and this included approximately $3 million in severance charges. Services' gross margin was negative 11%.
Jeff: This result benefited from overall strength in subscription and support margins combined with higher than expected term license revenue.
Jeff: Which carries a high gross margin.
Jeff: This strength more than offset the service's gross profit shortfall.
Jeff: Overall gross margin was 63% compared with 57% a year ago.
Jeff: Subscription and support gross margin was 65%, which compares favorably to 57% a year ago.
Jeff: This continues to track ahead of our expectations due to increased cloud infrastructure efficiency.
Jeff: With respect to services gross profit was negative $4 2 million and this included approximately 3 million in severance charges.
Services gross margin was negative 11%.
Jeffrey Elliott Cooper: Overall operating profit was $26 million in the second quarter. This was better than expected, as cloud efficiency and lower operating expenses more than offset the lower services gross profit. We continue to be thrilled with the Operating Profit and Operating Margin momentum. Overall stock-based compensation was $36 million, up 1% from Q2 last year. We ended the quarter with $933 million in cash, cash equivalents, and investments.
Jeff: Overall operating profit was $26 million in the second quarter. This was better than expected as cloud efficiency and lower operating expenses more than offset the lower services gross profit.
We continue to be thrilled with the operating profit and operating margin momentum.
Jeff: Overall stock based compensation was $36 million up 1% from Q2 of last year.
Jeff: We ended the quarter with $933 million in cash cash equivalents and investments.
Jeff: Operating cash flow of 69 million for the quarter was a great result, and benefited from better than expected collections.
Jeffrey Elliott Cooper: Operating cash flow of $69 million for the quarter was a great result and benefited from better than expected collections. Now, let me go through our outlook for the fiscal year 2024. Starting with the top line, we are pleased to be in a position to increase our outlook for ARR to between $852 and $862 million. We continue to see strong sales momentum and an improving competitive position as this industry continues to modernize in the cloud. We now expect total revenue to be between $957 and $967 million. This is a $19 million downward adjustment at the midpoint, which is driven by a $20 million downward adjustment to our services revenue expectations.
Speaker Change: Now let me go through our outlook for fiscal year 'twenty 'twenty four.
Speaker Change: Starting with the top line, we are pleased to be in a position to increase our outlook for <unk> to between 852 and $862 million.
Speaker Change: We continue to see strong sales momentum and an improving competitive position as this industry continues to modernize and the cloud.
We now expect total revenue to be between 957 and $967 million.
Speaker Change: This is a $19 million downward adjustment at the midpoint, which is driven by a $20 million downward adjustment to our services revenue expectations.
Speaker Change: As Mike noted, we have a robust ecosystem of implementation partners and we have invested in that ecosystem to ensure that collectively we can execute on the cloud demand.
Speaker Change: So we are moderating our services revenue expectations, but we continue to see high levels of demand for Guidewire cloud.
Jeffrey Elliott Cooper: As Mike noted, we have a robust ecosystem of implementation partners, and we have invested in that ecosystem to ensure that collectively, we can execute on the cloud demand. So we are moderating our services revenue expectation, but we continue to see high levels of demand for Guidewire Cloud. Services revenue is now expected to be approximately $175 million, and our expectations for other components of revenue are largely unchanged.
Speaker Change: Services revenue is now expected to be approximately $175 million and our expectations for our other components of revenue was largely unchanged.
Speaker Change: Turning to margins and profitability, which we will discuss on a non-GAAP basis, we now expect subscription and support gross margins to be between 64 and 65%.
Speaker Change: As we mentioned last quarter. This puts us ahead of schedule with respect to hitting our FY 'twenty five target of 63% to 65%.
Speaker Change: It is clear that the product investments, we have made and the hard work of the teams focused on efficiency are having the desired impact on scalability and product gross margins.
Jeffrey Elliott Cooper: Turning to margins and profitability, which we will discuss on a non-GAAP basis, we now expect subscription and support gross margins to be between 64% and 65%. As we mentioned last quarter, this puts us ahead of schedule with respect to hitting our FY25 target of 63 to 65 percent. It is clear that the product investments we have made and the hard work of the teams focused on efficiency are having the desired impact on scalability and product gross margin. We are tempering our services gross margin expectations on a lower revenue base and now expect services margins to be between 5 and 8 percent. As a result, we expect overall gross margins to be approximately 62% for the full year. With respect to operating income, we are maintaining our outlook of between $82 million and $92 million for the fiscal year as better-than-expected cloud gross margins and operating expenses offset the adjustment in services gross profit. We expect stock-based compensation to be approximately $147 million, representing a 3% growth rate year-over-year.
Speaker Change: We are tempering our services gross margin expectations on a lower revenue base and now expect services margins to be between five and 8%.
Speaker Change: As a result, we expect overall gross margins to be approximately 62% for the full year.
Speaker Change: With respect to operating income we are maintaining our outlook of between 82 and $92 million for the fiscal year as.
Speaker Change: Better than expected cloud gross margins and operating expenses offset the adjustment in services gross profit.
Speaker Change: We expect stock based compensation to be approximately $147 million, representing a 3% growth rate year over year.
Speaker Change: We are also increasing our cash flow from operations expectations to between 120 and $140 million for the fiscal year.
Speaker Change: Our collections cadence cloud margins and cost discipline gives us confidence to increase our outlook there.
Speaker Change: Turning to our outlook for Q3, we expect air artist finish between 815 and $820 million.
Speaker Change: Our outlook for total revenue is between 228 and $234 million.
Speaker Change: We expect subscription and support revenue of approximately 134 million and services revenue of approximately $42 million.
Speaker Change: We expect subscription and support margins of approximately 64% services margins in the mid single digits and total gross margins of between 61 and 62%.
Speaker Change: Our outlook for operating income is between four and $10 million.
Jeffrey Elliott Cooper: We are also increasing our cash flow from operations expectations to between $120 million and $140 million for the fiscal year. Our collections cadence, cloud margins, and cost discipline give us confidence to increase our outlook there. Turning to our outlook for Q3, we expect ARR to finish between $815 and $820 million.
Speaker Change: With that we will open the call for questions.
Speaker Change: Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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Alex Hughes: Our first question comes from the line of Alex I'd go.
Speaker Change: Global live with J P. Morgan. Please proceed with your question.
Alex Hughes: Thank you and Hi, Mike Hi, Jeff Congratulations with the results in.
Alex Hughes: I wanted to ask you about your.
Alex Hughes: Because it can look see into pipeline, obviously, increasing air or for the year.
Speaker Change: It was very encouraging but could you maybe talk about.
Jeffrey Elliott Cooper: Our outlook for total revenue is between $228 and $234 million. We expect subscription and support revenue of approximately $134 million and services revenue of approximately $42 million. We expect subscription and support margins of approximately 64 percent, services margins in the mid-single digits, and total gross margins of between 61 and 62 percent. Our outlook for operating income is between $4 and $10 million.
Speaker Change: What are you seeing.
Speaker Change: Second half of the year panning out.
Speaker Change: Yes sure.
Speaker Change: Great question. Thank you very much yes, we feel very very good about the business right now you.
Speaker Change: Certainly.
Speaker Change: Win rates competitive win rates our view as you know the deal cycles are very long in the industry and so we have a lot of forward visibility and that gives us.
Speaker Change: Some confidence to increase the guidance that we set out at the beginning of the year and certainly the pipeline the number of deals and the quality of those deals are are you know are the other data that backs up the perspective that we can that we can raise those rates those that guidance and I would just.
Operator: With that, we will open the call for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is in the question. You may press star two if you would like to remove your question. The participant is using speaker equipment.
Speaker Change: Like the other part of it is that you know the close rates and win rates continue to be solid and give us more and more confidence in the you know the demand for the product and our ability to I guess, just differentiate ourselves and earn the trust of our customers and win those deals. So that we feel very very good about the.
Alexei Mihaylovich Gogolev: It may be necessary to pick up your handset before pressing the start button. Our first question comes from the line of Alexei Gogolev. Alexei Gogolev from J.P. Morgan, please proceed with your questions. Thank you and congratulations on the results.
Speaker Change: Second half yeah, and the only thing I would add is as the first half was really tremendous from an overall sales activity perspective, and Mike alluded that this in his prepared remarks, but you know Q2 was a record sales activity quarter for us for our Q2. So we're seeing really healthy linearity in the year, which also helps inform our outlook.
Michael George Rosenbaum: I wanted to ask you about your visibility into the pipeline, obviously increasing ARR over the years is very encouraging, but could you maybe talk about that? how you're seeing the second half of the year. Yes, sir. Great question.
Speaker Change: Yeah.
Speaker Change: And Mike just to clarify do you feel do you still feel confident about the 1 billion 2025 and our outlook.
Michael George Rosenbaum: Thank you very much. Yeah, we feel very, very good about the business right now. You know, certainly, win rates, competitive win rates, are our view. As you know, the deal cycles are very long in the industry.
Yeah, we do.
Speaker Change: And as I've said this often the deals are.
Mike: We work on our last longer than a year. So certainly we have a picture of what next year might look like in a certain amount of pipeline that we measure and track very carefully and as we've discussed many many times the backlog the E. R. Our backlog related to the ramp deals that we've closed in prior years still.
Michael George Rosenbaum: And so we have a lot of forward visibility, and that gives us some confidence to increase the guidance that we set out at the beginning of the year. And certainly, the pipeline, the number of deals, and the quality of those deals are data that backs up the perspective that we can raise that guidance. And I would just say, the other part of this is that, you know, the close rates and win rates continue to be solid and give us more and more confidence in the demand for the product and our ability to, I guess, just differentiate ourselves and earn the trust of our customers and win those deals. So we feel very, very good about the second half.
Mike: So that gives us confidence that the you know the structure that we put in place at the beginning of this fiscal year and the and the objective of 1 billion and are are we feel confident.
Mike: Perfect.
Mike: My second question was about was about the Si.
Mike: Partnerships.
Mike: I was wondering if you could elaborate a little bit more about which gets size have been gaining.
Mike: Gaining share within your partnerships I remember Ikea conference.
Mike: Big focus on Accenture I'm right, there and yet they're names that you would highlight.
Michael George Rosenbaum: Yeah, the only thing I would add is that the first half was really tremendous from an overall sales activity perspective. And Mike alluded to this in his prepared remarks, but, you know, Q2 was a record sales activity quarter for us. So we're seeing really healthy linearity this year, which also helps inform our outlook. And Mike, just to clarify, do you still feel confident about the 1 billion 2025 ARR outlook? Yeah, we do!
Speaker Change: Probably not appropriate to comment on who's gaining what share I would just say that we've seen a broad based interest in working with us to expand and really dig into the the cloud offering and to be prepared.
Speaker Change: To step up either on the migration side or on the net new implementation side and.
Michael George Rosenbaum: As I said, often the deals that we work on last longer than a year. So certainly, we have a picture of what next year might look like based on a certain amount of pipeline that we measure and track very carefully. And as we've discussed many, many times, the ARR backlog related to the RAMP deals that we closed in prior years still exists. So that gives us confidence that the structure that we put in place at the beginning of this fiscal year and the objective of a billion in ARR we feel confident in. And my second question was about the SI partnership. I was wondering if you could elaborate a little bit more about which SIs have been gaining share within your partnerships. I remember at your conference you focused on Accenture. Are there any other names that you would highlight?
Speaker Change: And be aligned with us about preparedness to implement Guidewire cloud. So that's not limited to any one particular.
Speaker Change: Partner, but like I said real broad based interest in stepping up and and going to market with and being prepared to implement guidewire and that's a very positive signal for us. That's one of the reasons, we talk about the cloud certifications in the total consultants in the ecosystem certainly if you. If you think back to connections you can see.
Speaker Change: You know the partners that showed up there and showed up there in a big way and we're just incredibly excited too.
Speaker Change: It's a partner with all of them honestly and it would be a little bit inappropriate for me to talk about who's gaining wallet share. So a broad based support and we're excited to keep growing I would say the other thing I mean, rejecting myself in the middle of my answer is like I really believe and we really believe in the concept of growing the overall pie.
Michael George Rosenbaum: It's probably not appropriate to comment on who's gaining what share, but I would just say that we've seen broad interest in working with us to expand and really dig into the cloud offering and be prepared to step up either on the migration side or on the net new implementation side and be aligned with us about preparedness to implement Guidewire Cloud. So that's not limited to any one particular partner.
Speaker Change: That is guidewire and the potential for Guidewire and so that does exactly that points to an opportunity for many many sides to work with us and grow businesses around Guidewire, and we're really seeing that and it's exciting to see.
Michael George Rosenbaum: But like I said, there is a real broad interest in stepping up and going to market with and being prepared to implement Guidewire. And that's a very positive signal for us. That's one of the reasons we talk about the cloud certifications and the total consultants in the ecosystem.
Speaker Change: Okay.
Speaker Change: Amazing Thank you very much Mike.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from the line of Kevin Kumar with Goldman Sachs. Please proceed with your question.
Kevin Kumar: Hi, Thanks for taking my question, Mike I wanted to ask about kind of the growth would be the guidewire marketplace. It looks like the number of apps and partnerships have grown significantly and curious what the adoption trends look like and anything you can share that highlights the value that's being delivered to customers just given the breadth of solutions that are being offered.
Michael George Rosenbaum: Certainly, if you think back to connections, you can see the partners that showed up there and showed up there in a big way. And we're just incredibly excited to partner with all of them, honestly. And it would be a little bit inappropriate for me to talk about who's gaining what share.
Mike: Yeah. It's a great question you know we do we do track adoption, we look at how things are being either tried deployed into test environments are deployed into production I think that there is a there obviously is a bit of a relationship between the cycle times associated with the implementation.
Michael George Rosenbaum: So broad-based support, and we're excited to keep growing. I would say the other thing I'm interjecting myself into the middle of my answer is like, I really believe, and we really believe in the concept of growing the overall pie that is Guidewire and the potential for Guidewire. And so that exactly points to an opportunity for many, many SIs to work with us and grow businesses around Guidewire. And we're really seeing that, and it's exciting to see. It is amazing.
Efforts and then follow on activity around what customers are going to do with the applications are due with the implementation in those marketplace applications. After they get into production you know, it's it's somewhat you know you want to focus directly on the task at hand, when you're trying to get live on a new core implementation and then you sort of say in phase.
Mike: Two you start to look at these out these marketplace applications, but certainly we are seeing an uptick in the adoption.
Alexei Mihaylovich Gogolev: Thank you very much. Thank you. Our next question comes from the line of Kevin Kumar with Goldman Sachs. Please proceed with your question.
Mike: Of these of these applications I don't know if I'm prepared at this moment to give any specific statistics, but it's something that we could maybe look at adding down the line just to give you a sense, but we're happy with it I think you know partners for US are also excited to deepen their relationship with us and work with us to.
Kevin Kumar: Hi, thanks for taking my question. Mike, I wanted to ask about the kind of growth of the Guidewire marketplace. It looks like the number of apps and partnerships has grown significantly. I'm curious what the adoption trends have looked like and anything you can share that highlights the value that's being delivered to customers, just given the breadth of solutions that are being offered. Yeah, it's a great question. You know, we do track adoption.
Mike: Make sure that the offerings are a certified to work effectively with our cloud and our cloud uptake process and that helps create confidence with our customers that these are that these applications can be deployed efficiently and manage sufficiently.
Michael George Rosenbaum: We look at how things are being either tried, you know, deployed into test environments, or deployed into production. I think that there is, obviously, a bit of a relationship between the cycle times associated with the implementation efforts and then follow-on activity around what customers are going to do with the applications or do with the implementation and those marketplace applications after they get into production. You know, it's somewhat difficult to focus directly on the task at hand when you're trying to get live on a new core implementation.
Mike: <unk> maintained and just as I said in the prepared remarks add to the overall value of the implementation. So you know overall this has been a real focus for us as we shifted to cloud just because you know this is not unique to guidewire, but sort of cloud based platforms. Like this are easier to integrate too and it makes it easier for the partner ecosystem to augment that.
Mike: Value of the core application, we're excited to see that continue to grow.
Mike: Yeah, that's great and maybe one for Jeff on the services or and I understand kind of the revenue impact.
Michael George Rosenbaum: And then, sort of, in phase two, you start to look at these marketplace applications. But certainly, we are seeing an uptick in the adoption of these applications. I don't know if I'm prepared at this moment to give you any specific statistics, but it's something that we could maybe look at adding down the line just to give you a sense. But we're happy with it.
Shifting more towards your size.
Mike: And maybe some near term margin pressure as Youre, making progress there, but I guess, how are you thinking about kind of sustainable margin profile of that or maybe longer term I think you've talked about mid teens in the past but.
Mike: Is that still kind of how youre thinking about it perhaps at a smaller insurance services team.
Speaker Change: Yeah, I mean, absolutely I think this is going to look like a reversion almost to where we were pre cloud as we.
Michael George Rosenbaum: I think, you know, partners for us are also excited to deepen the relationship with us and work with us to make sure that the offerings are certified to work effectively with our cloud and our cloud update process. And that helps create confidence with our customers that these applications can be deployed efficiently, managed efficiently, and maintained. And just as I said, the prepared remarks add to the overall value of the implementation.
Speaker Change: Focus more on.
Speaker Change: You know targeted services that are done by our personnel and deliver it at an attractive margin early.
Speaker Change: Early in the cloud transition, we very much leaned into leading program is in a much more active role then was traditional for us.
Speaker Change: I think that's to be expected when there's new capabilities that we're releasing into the marketplace as the overall ecosystem is still learning those capabilities and how to Ah you know how to implement and run those programs in and now we're turning back to the.
Kevin Kumar: So, you know, overall, this has been a real focus for us as we shifted to the cloud, just because, you know, and this is not unique to guidewire, but sort of cloud-based platforms like this are easier to integrate into. And it makes it easier for the partner ecosystem to augment the value of the core application. We're excited to see that continue to grow. That's great.
Speaker Change: <unk>, we had free cloud, where the Si ecosystem will take the lead in most of those engagements and the overall you know different revenue components of that means less subcontracted revenue, where word priming deals and sub contracting out to work. There was also some discounting that was happening in an area in the early days of the cloud transition that created carved from license revenue.
Kevin Kumar: And maybe one for Jeff on services or to understand kind of the revenue impact as you shift more towards your SIs and maybe some near-term margin pressure as you're making progress there. But I guess, how are you thinking about the sustainable margin profile of that org, maybe longer term? I think I think you've talked about mid teams in the past, but you know, is that still kind of how you're thinking about it, perhaps with a smaller internal services team?
Speaker Change: Canoe that flowed through services, and that's becoming less and less noise in our financial model, which will make it easier to forecast and predict going forward, but we're very much kind of working through that transition. This year. I think the net result is you know really positive outcome, where we have a robust ecosystem that can help us deliver on that.
Speaker Change: The cloud demand that we're all excited to see.
Speaker Change: Great. Thank you.
Jeffrey Elliott Cooper: I mean, absolutely, I think this is going to look like a reversion almost to where we were pre-cloud as we focus more on targeted services that are done by our personnel and delivered at an attractive margin. Early in the cloud transition, we very much lean into leading programs in a much more active role than was traditional for us, and I think that's to be expected when there are new capabilities that we're releasing to the marketplace, as the overall ecosystem is still learning those capabilities and how to, you know, implement and run those programs. And now we're turning back to the orientation we had pre-cloud, where the SI ecosystem will take the lead in most of those engagements. And the overall, you know, different revenue components of that mean less subcontracted revenue where we're priming deals and subcontracting out the work.
Thank you. Our next question comes from the line of Ken Wong with Oppenheimer.
Ken Wong: Please proceed with your question.
Ken Wong: Great Fantastic.
Ken Wong: Jeff You mentioned earlier, some DWP true ups just wanted to understand what drove that I mean, I think we all see the sort of big increases and insurance premiums across a range of states is that something that could potentially trigger that type of an action and then and then Mike on that same point I think.
Mike: Think about these big step up in premiums I guess would you characterize that as healthy for your customer end market for Guidewire would love any thoughts in terms of how to how to think about those moving pieces.
Yeah.
Speaker Change: Yeah, so yeah, so absolutely.
Mike: As premiums grow and the industry, we price on basis points of direct written premiums so that will create a bit of a tailwind for us.
Mike: When we can enforce those true ups can can vary contract. The contract. So that's something we spent a lot of time modeling out and assessing.
Mike: But absolutely that is a tailwind for us.
Jeffrey Elliott Cooper: There was also some discounting that was happening in the early days of the cloud transition that created carbohydrates from license revenue that flowed through services, and that's becoming less and less noise in the financial model, which will make it easier to forecast and predict going forward, but we're very much kind of working through that transition this year. I think the net result is, you know, a really positive outcome where we have a robust ecosystem that can help us deliver on it. The Clouds of Man that we're all excited about.
Speaker Change: Yes, I appreciate the question I would say absolutely. This is healthy I think it may be.
Speaker Change: What are perceived as unfortunate.
Speaker Change: If you're a consumer.
Speaker Change: But understanding the actual risks and the actual amount of risk that you are taking in whatever particular endeavor. You are looking to insure is very important and there was an imbalance in the industry for a period of time and as we've said on these calls a number of times the.
Speaker Change: Industry is designed to assess that imbalance worked through that imbalance change rates increased premiums. So that it can get back into a healthy state and I think we are seeing that.
Ken Wong: Great, thank you. Thank you. Our next question comes from the line of Ken Wong with Oppenheimer. Please proceed with your, Jeff, you mentioned earlier some kind of DWP true-ups. Just wanted to understand what drove that. I mean, I think we all see the sort of big increases in insurance premiums across a range of states. Is that something that could potentially trigger that type of action?
Speaker Change: Unfold and that is a healthy thing like I said, it's probably not it's certainly not enjoyable.
Speaker Change: If you're if the premium on that.
If the risk associated with your home or your car.
Speaker Change: Seemed to be more than it was but that's just a fact of life and I think you can see that in the data you see that in our risk characteristics that we helped the industry assess.
With our products like hazard hub, and I think that it will help all of us make better decisions about the risks, we're taking with a truer more accurate sense of how much it costs to ensure that risk and so yeah. It's nice to see that you know the process unfold a guide wire participates that is just as.
Jeffrey Elliott Cooper: And then, Mike, on that same point, as you think about these big step-ups in premiums, I guess, would you characterize that as healthy for your customer end market, for Guidewire? Yeah, absolutely. As premiums grow in the industry, we price on basis points of direct written premiums. So that will create a bit of a tailwind for us. You know, when we can enforce those true-ups can vary from contract to contract.
Speaker Change: As Jeff described but I do think in general it's a healthy thing for the industry and for each of the state regulation regulatory agencies to work through with industry partners and get to a more inbound and a more balanced insurance market.
Michael George Rosenbaum: So that's something we spent a lot of time modeling out and assessing. But absolutely, that is a tailwind for us. You know, and yeah, I appreciate the question. I would say absolutely that this is healthy.
Speaker Change: Got it I appreciate the really thoughtful response and if I can just sneak a quick one in on just the partner side I think you mentioned partners, leading services at a faster pace than expected how much of that is just then their ability to take the baton from you guys earlier than anticipated versus I know Diego has been working to stream.
Michael George Rosenbaum: I think it may be, you know, sort of perceived as unfortunate if you're a consumer, but understanding the actual risk and the actual amount of risk that you are taking in whatever particular endeavor you are looking to ensure is very important. And there was an imbalance in the industry for a period of time. And as we've said on these calls a number of times, the industry is designed to assess that imbalance, work through that imbalance, change rates, and increase premiums so that it can get back into a healthy state. And I think we are seeing that unfold. And that is a good thing.
Speaker Change: While the whole deployment process, how much of it might be just they're able to kind of you guys are able to kind of ramp your customers up a lot quicker.
Speaker Change: Well I think for sure there is a part of this that you know.
We had to work very hard to ensure that the product was ready to be implemented by partners and Diego and team have done a phenomenal job with this you know that that's great to see and partially driving this I also think as you know as we've talked about this as kind of all part of the overall plan for.
Michael George Rosenbaum: Like I said, it's probably not – it's certainly not enjoyable if you're – if the premium on the – you know, if the risk associated with your home or your car is deemed to be more than it was, but that's just a fact of life. And I think you can – you see that in the data. You see that in the risk characteristics that we help the industry assess with our products like Hazard Hub. And I think that it will help all of us make better decisions about the risks we're taking with a truer, more accurate sense of how much it costs to ensure that risk. And so, yeah, it's nice to see that, you know, process unfold. Guidewire participates in that, as Jeff described, but I do think, in general, it's a healthy thing for the industry and for each of the state regulatory agencies to work through with industry partners and get to a more imbalanced – a more balanced insurance market. I got it.
Speaker Change: For the company and focusing our services organization on really the strategic implementation, the new product introductions and they're really expert type of work that are that you know we think we can add unique and differentiated value relative to maybe like one of our general partner.
Speaker Change: And the ecosystem and so we're just this is simply not seeing that strategy.
Speaker Change: To come to fruition, a little bit faster than we might've expected when we when we scoped out the at the beginning of the year, but it's very much in line with where we want ahead as a company.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you.
Ken Wong: I appreciate the really thoughtful response. And if I can just sneak a quick one in on just the partner side, I think you mentioned partners leading services at a faster pace than expected. How much of that is just them, their ability to take the baton from you guys earlier than anticipated versus, I know Diego has been working to streamline the whole deployment process. How much of it might be just they're able to kind of, you guys are able to kind of just ramp your customers up a lot quicker? Well, I think for sure there's a part of this that, you know, we had to work very hard to ensure that the product was ready to be implemented by partners, and Diego and his team have done a phenomenal job with this.
Speaker Change: Thank you. Our next question comes from the line of Rishi <unk> with RBC capital markets. Please proceed with your question.
Rishi: Hey, Thanks. This is Richard polling on for racing jewelry and thanks for taking my question.
Rishi: So first one for me is just on on.
Rishi: Some of the.
Rishi: Services side, you mentioned a couple of times they have to call that.
Rishi: You know you accelerated kind of this roadmap here with transitioning the services and I know you've mentioned it on past calls a lot. So just kind of want to understand was there anything in particular that drove.
Rishi: Drove the decision to accelerate that and then the second part of that question is just on the gross margin side, it sounds like going to be a little bit pressured this year, but as we think about that recovering to those pre cloud our margin levels as any timeframe for kind of when we should expect that thanks.
Ken Wong: You know, that's great to see and partially driving this. I also think it's, you know, as we've talked about, this is kind of all part of the overall plan for the company in focusing our services organization on really the strategic implementations, the new product introductions, and the really expert type of work that we think we can add unique and differentiated value relative to maybe like one of our general partners in the ecosystem. And so we're just seeing that strategy sort of come to fruition a little bit faster than we might have expected when we scoped out the beginning of the year. But it's very much in line with where we want to head as a company. I got it.
Speaker Change: Yeah no. Thanks for the question are you on the on the urgency around driving this shift I think it was largely a reflection of we had been working to enable some of these early cloud programs and doing that in a posture that was often very low or negative margin.
Speaker Change: And so there clearly was some of the urgency around this was returning to a more sustainable long term margin profile for our services business.
Speaker Change: And we think that this is the right posture to take in order to do that.
Speaker Change: So that that that's kind of what drove the urgency and then as you think about long term.
Rishi Nitya Jaluria: Thank you very much. Thank you. Thank you. Our next question comes from the line of Rishi Jaluria with RBC Capital Markets. Hey, thanks. This is Richard pulling on for Rishi Jaluria.
Speaker Change: Where we are we are working through that transition we have capacity to do a bit more services revenue. Then then we expect to see this year and as we kind of look ahead and get to a bit higher utilization rates, we think kind of returning the services organization into a sustainable.
Rishi Nitya Jaluria: Thanks for taking my question. So, the first one for me is just on some of the services side. You mentioned a couple of times throughout the call that you accelerated kind of this roadmap here with transitioning the services, and I know you've mentioned it on past calls a lot. So just kind of want to understand, was there anything in particular that drove the decision to accelerate that? And then the second part of that question is just on the growth margin side. It sounds like it's going to be a little bit pressured this year, but as we think about it recovering to those pre-cloud margin levels, is there any time frame for kind of when we should expect that?
Speaker Change: Kind of low double digit margin profile feels about right. We could we could certainly do better than that if if if if.
Speaker Change: If we have a particularly strong year, but that that feels like the right profile to shoot for mid to long term.
Speaker Change: Thank you and then just a follow up it sounds like.
Speaker Change: Just based on what we're hearing the traction on the data analytics portfolio seems to be doing pretty well, especially our solutions like.
Speaker Change: Predict and hazard had but I guess, just any update there on what you're seeing from customers in and any areas, where you think there is maybe room for better attach rates. So some of that portfolio.
Jeffrey Elliott Cooper: Thanks for the question. You know, on the urgency around driving this shift, I think it was largely a reflection of how we had been working to enable some of these early cloud programs and doing that in a posture that was often very low or negative margin. And so there clearly was some of the urgency around returning to a more sustainable long-term margin profile for our services business, and we think that this is the right posture to take in order to do that.
Speaker Change: Yeah.
Speaker Change: Yes. Thanks for the question. It's certainly one of the things we talk about every week is driving those attach rates and making sure that we're positioning the products together and it's nice to hear you know that European ear hearing that we certainly are to that's you know what we called it out in the description of some of the deals that we were able to.
Speaker Change: Get across the finish line this quarter.
Speaker Change: It's just really the added benefit of thinking about the insurance suite applications in conjunction with analytics and really putting the analytics in front of the users at the point of decision.
Jeffrey Elliott Cooper: So that's kind of what drove the urgency. You know, we are working through that transition. We have capacity to do a bit more services revenue than we expect to see this year. And as we kind of look ahead and get to a bit higher utilization rates, we think kind of returning the services organization to a sustainable kind of low double-digit margin profile feels about right. We could certainly do better than that if we have a particularly strong year, but that feels like the right profile to shoot for in the long term.
Speaker Change: Such that they can practically add value to the business operations efficiency and decision quality that we're able to deliver with the products. It's really great to see so yes, we're continuing to drive those attach rates.
Speaker Change: You know and you know maybe well we expect them to.
Speaker Change: Generally you know.
Slowly improve as we as we proceed throughout the year better better positioning the products and we will see how that goes through the second half of the year, but certainly very satisfied with the momentum and the progress that we've made and the hazard upside or like we're really very excited about just the general use case that even beyond the guidewire customer base as we think Theres a lot of.
Michael George Rosenbaum: And then just to follow up, it sounds like, just based on what we're hearing, the traction on the data analytics portfolio seems to be doing pretty well, especially solutions like Predict and Hazard Hub. So I guess just any update there on what you're seeing from customers and any areas where you think there's maybe room for better attach rates to some of that portfolio? Thanks.
Speaker Change: There's a lot of companies out there that could benefit from you know theres sort of flexibility and they you know the sort of ease of access to a very significant amount of data and a risk profiling that we can provide.
Michael George Rosenbaum: Yeah, thanks for the question. It's certainly one of the things we talk about every week, driving those attach rates and making sure that we're positioning the products together. And it's nice to hear, you know, that you're hearing that. We certainly are too. That's, you know, what we called out in the description of some of the deals that we were able to get across the finish line this quarter: just really, you know, the added benefit of thinking about the insurance suite applications in conjunction with analytics and really putting, you know, the analytics in front of the users at the point of decision such that they can It's really great to see them.
Speaker Change: Ride with that solution and so we're excited not just to drive the attach to the to the deals that we're doing for insurance suite in the core applications, but also thinking beyond our typical sort of focus area in terms of the market and figuring out ways that we can expose us to a broader audience because we're.
Speaker Change: We're just very very excited about what that product can do for the insurance industry.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of backroom with William Blair. Please proceed with your question.
William Blair: Hey, guys.
William Blair: I don't want to believe you're the point here on services and I think it's a pretty clear positive, but maybe another way of asking it to you is is there any kind of entire guidewire decision or is the ecosystem kind of coming to you and validating.
Michael George Rosenbaum: So, yeah, we're continuing to drive those attach rates, you know, and, you know, maybe we expect them to, you know, generally, and slowly improve as we proceed throughout the year, better position the products, and we'll see how that goes in the second half of the year, but certainly very satisfied with the momentum and the progress that we've made. On the hazard hub side, we're really very excited about just the general use case and even beyond the Guidewire customer base, as we think there are a lot of companies out there that could benefit from this sort of flexibility and this sort of ease of access, too. It's a very significant amount of data and risk profiling that we can provide with that solution, and so we're excited not just to drive the revenue attached to the deals that we're doing for insurance suite and the core applications, but also to think beyond our typical sort of focus area in terms of the market and figure out ways that we can expose this to a broader audience because we're just very, very excited about what that product can do for the insurance Great Thanks for taking my questions.
William Blair: The market opportunity is resonating and theres capacity for that and maybe what that means as we think about kind of the relationships that that those assays have with larger institutions. As we think about transitioning any more of these these core books of business from from some of the larger insurance carriers.
William Blair: I think the answer certainly both you know that the that our position in the market and you know if you just think of us purely as one of the players one of the options to choose when you're gonna do a guidewire implementation you know the more capacity as more demand in that market. It creates an opportunity.
William Blair: It may it makes for a better more efficient implementation market.
William Blair: And so there could be like a supply side driver behind the competitiveness of Guidewire services relative to partners also like I said like we're engineering that to occur.
Dylan Tyler Becker: Thank you. Thank you. Our next question comes from the line of Dylan Becker with William Blair. Please proceed with your... Hey guys.
William Blair: So it's partially our choice, but certainly I you know I think that our win rate and the momentum and success of the insurance suite application wins.
Michael George Rosenbaum: I don't want to believe the point here on services, as I think it's a pretty clear positive, but maybe another way of asking it, too, is, is this kind of an entire Guidewire decision, or is the ecosystem kind of coming to you and validating that the market opportunity is resonating and there's capacity for that, and maybe what that means as we think about kind of the relationship that those SIs have with larger institutions as we think about transitioning maybe more of these, these core books of business from, from some of the larger insurers. I think the answer is certainly both, you know, that our position in the market, you know, if you just think of us purely as one of the players, one of the options to choose when you're going to do a Guidewire implementation, you know, the more capacity, the more demand in that market, it creates an opportunity, you know, it makes for a better, more efficient implementation market, you know, and so there could be like a supply side driver behind the competitiveness of Guidewire services relative to partners.
William Blair: Making it clear that Guidewire is the AR platform in the company to partner with if you want to participate in this industry transformation and so I think you'll see a lot of that in the outcome this quarter.
Speaker Change: Okay got it that makes sense and then going back to Mike maybe sticking with you on the equilibrium dynamic too so seeing a lot of improvement on that loss ratio side can you remind us what impact that has on capacity to invest right. Like is this is this kind of incentivizing the initiative of maybe not accelerating but.
Speaker Change: <unk> net investment cadence or is this something that could go.
Mike: As an insurance carrier to rest on their laurels and say Hey, I went through the thick of it at least some of those pressures near term it doesn't seem like the latter but wanted to stress test it.
Speaker Change: No I really don't think it is the ladder and this is something that we have spent a lot of time thinking about talking to customers about very carefully you know honestly. This has been one of the highlights for me in terms of our perspective about the role we play in the industry.
Michael George Rosenbaum: Also, like I said, we're engineering that to occur, and so it's partially our choice, but certainly, I think that our win rate and the momentum and success of the insurance suite application wins are making it clear that Guidewire is the platform and the company to partner with if you want to participate in this industry transformation, and so I think you see a lot of that in the outcome this quarter. Okay, I got it.
Speaker Change: And how long term it really is you know.
Speaker Change: Most of our customers have been in business for let's say more than 50, sometimes hundreds and in some cases almost 200 years. They have seen these cycles before and they know how to work through them in the decision that they make about their core systems partner is very often a decade led.
Michael George Rosenbaum: That makes sense. And then, going back to, Mike, maybe sticking with you on the equilibrium dynamic too, so we see a lot of improvement on that loss ratio side. Could you remind us what impact that has on capacity to invest, right? Like, is this kind of incentivizing the initiative of maybe not accelerating but continuing that investment cadence? Or is this something that could cause an insurance carrier to rest on their laurels and say, hey, all right, we're through the thick of it, at least some of those pressures near term? Doesn't seem like the latter, but I wanted to stress test it.
Speaker Change: <unk> decision this isn't something that there you know just changing out every couple of years based on the profitability of the insurance side of their business, but it's something that they can really take a long term view around this was great for us and that it enabled us to continue to see healthy demand through what was a very difficult time.
For the industry from a profitability perspective.
Speaker Change: You know, it's it's nice to see that the industry is recovering and pushing the rates through the system and like I said getting back to more of an equilibrium state.
Michael George Rosenbaum: Thanks. No, I really don't think it is the latter. And this is something that we have spent a lot of time thinking about, talking to customers about very carefully. You know, honestly, this has been one of the highlights for me in terms of our perspective on the role we play in the industry and how long term it really is. You know, most of our customers have been in business for, let's say, more than 50, sometimes 100, and, in some cases, almost 200 years. They have seen these cycles before, and they know how to work through them.
Speaker Change: I don't think that that can hurt guide wires demand I think we saw that we.
Speaker Change: We saw healthy demand when it was tough and as things improve I don't think that that's going to hurt by causing people to arrest.
I think that there is a growing understanding that agility that technology flexibility and agility is very very important for remaining competitive remaining up to date with prices remaining as efficient as possible with respect to claims processing and submission management.
Michael George Rosenbaum: And the decision that they make about their core systems partner is very often a decade-level decision. This isn't something that they're changing out every couple of years based on the profitability of the insurance side of their business, but it's something that they can really take a long-term view on. This was great for us in that it enabled us to continue to see healthy demand through what was a very difficult time for the industry from a profitability perspective. It's nice to see that the industry is recovering and pushing rates through the system and, like I said, getting back to more of an equilibrium state. And I don't think that that can hurt Guidewire's demand.
Speaker Change: And underwriting like these things are not changing and that is resonating with these are these prospects and with these customers and I think that we're going to continue to see demand grow.
Speaker Change: So anyway. Thanks for the question are created.
Speaker Change: Yeah. It makes perfect sense. Thanks, Mike.
Speaker Change: Thank you. Our next question comes from the line of Michael turn with Wells Fargo. Please proceed with your question.
Michael James Turrin: Hey, great. Thanks, I appreciate you taking the questions that the commentary it was pretty consistent the press release mentioned 11 cloud deals maybe you could just level set for us how you'd score cloud progress for fiscal 'twenty, five thus far and the mix of what you're seeing there and how it all stacks up relative to where your expectations were heading into the year.
Michael George Rosenbaum: I think we saw healthy demand when it was tough, and as things improve, I don't think that it's going to hurt by causing people to rest. I think that there is a growing understanding that agility, that technology, flexibility, and agility, is very, very important for remaining competitive, remaining up to date with prices, and remaining as efficient as possible with respect to claims processing and submission management and underwriting. These things are not changing, and that is responding with these prospects and with these customers, and I think that we're going to continue to see demand grow. So, anyway, thanks for the question. I appreciate it.
Michael James Turrin: We're very happy with the progress so far this year as Jeff mentioned driving linearity into our business has been a focus of ours for the past few years is not relying on massive Q4s to carry the day on the fiscal year and we have done.
Michael James Turrin: On a phenomenal job driving a rigor into the organization. So that we're hitting our targets in Q1, and Q2 and Q3 in Q4 and being where we are at this point in the fiscal year.
Michael James Turrin: Yeah, makes perfect sense. Thanks, Mike. Thank you. Our next question comes from the line of Michael Turrin with Wells Fargo. Hey, great.
Michael James Turrin: It just feels very good right.
Michael James Turrin: Waiting steady demand, we're able to get those deals are through the process and closed and are in a healthy way and.
Michael James Turrin: Thanks. I appreciate you taking the questions. The commentary is pretty consistent.
Michael George Rosenbaum: The press release mentions 11 cloud deals. Maybe you can just level set for us how you'd score cloud progress for Fiscal 25 thus far and the mix of what you're seeing there and how it all stacks up relative to where your expectations were heading into the year. We're very happy with the progress so far this year. As Jeff mentioned, driving linearity into our business has been a focus of ours for the past few years, not relying on massive Q4s to carry the day in the fiscal year. And we have done a phenomenal job driving rigor into the organization so that we're hitting our targets in Q1, in Q2, in Q3, in Q4. And being where we are at this point in the fiscal year, it just feels very good, right?
Michael James Turrin: And we feel we feel great about that.
Michael James Turrin: And that's that's you know kudos I guess to us.
Michael James Turrin: So it's appropriate to say in terms of driving Ah just operational rigor in the business, but it also speaks to the demand for the products that we're seeing and the demand for the product category in general in the insurance industry and all of those things are you know tell.
Michael James Turrin: Tell me you know like this has been a really really good start.
Michael James Turrin: To the year and we're in a good position halfway through.
Michael James Turrin: Thanks for that Jeff the cash flow targets moved up for the year, even with the services revenue shortfall maybe.
Jeff: Speak to your ability to manage to free cash flow even at some of the contribution there shifts a bit thanks.
Michael George Rosenbaum: We're creating steady demand. We're able to get those deals through the process and closed in a healthy way. And we feel great about that.
Jeff: Yeah.
Jeff: I think we touched on touch on this a bit at the analyst day and we're just at this pretty exciting inflection point in this cloud transition, where we're starting to see that part of the model.
Jeffrey Elliott Cooper: You know, and that's, you know, kudos, I guess, to us, if that's appropriate to say, in terms of driving just operational rigor in the business. But it also speaks to the demand for the products that we're seeing and the demand for the product category in general in the insurance industry. And all those things tell me, you know, like, this has been a really, really good start to the year, and we're in a good position halfway through. Thanks for that. Jeff, the cash flow targets moved up for the year, even with the services revenue shortfall. Maybe that speaks to your ability to manage free cash flow, even as some of the contribution there shifts a bit. Thanks.
Jeff: Really flex so that's great to see.
Jeff: Collections has been really strong.
Jeff: The overall cloud gross margin profile has been really strong and all of those dynamics just give us a lot of confidence into the cash flow forecast for this year and then as we think about executing to some of those longer term targets as well. So in general just off to a great start are ahead of ahead of where I expect it to be mid way through the year.
Jeff: And that gives us confidence to raise target of it.
Speaker Change: All helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Matt Van.
Matthew David VanVliet: <unk>. Please proceed with your question.
Matthew David VanVliet: Yeah. Good afternoon, thanks for taking my questions there.
Jeffrey Elliott Cooper: Yeah, I think we touched on this a bit at analyst day, and we're just at this pretty exciting inflection point in this cloud transition where, youtube.com, The overall cloud gross margin profile has been really strong, and all of those dynamics just give us a lot of confidence in the cash flow forecast for this year and as we think about executing on some of those longer-term targets as well. So, in general, we are just off to a great start ahead of where I expected to be midway through the year, and that gives us confidence to raise the target a bit. All very helpful. Thank you. Thank you.
Matthew David VanVliet: Mike You mentioned that you signed a number of new partners. This quarter I'm curious as you look across the global landscape are there pockets of.
Matthew David VanVliet: B the regions or maybe a specific areas of markets where.
Matthew David VanVliet: Where do you feel like you still need to.
Matthew David VanVliet: <unk> deepened in the roster of partners that you have there, especially now as you're looking to put as much of the services mix on those partners as possible.
Mike: Yeah. It's a good question you know, we think a lot about our progress in North America, our progress in Europe, but then you know in specific countries and our project progress in Asia Pacific and so I think as we you know as we think about where should.
Matthew David VanVliet: Our next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question. Yeah, good afternoon.
Michael George Rosenbaum: Thanks for taking the questions. Mike, you mentioned that you signed a number of new partners this quarter. I'm curious, as you look across the global landscape, are there pockets of either regions or maybe specific areas of markets where you feel like you still need to deepen the roster of partners that you have there, especially now as you're looking to put as much of the services mix on those partners as possible? Yeah, it's a good question.
Mike: We'd be growing over the next five years faster.
Certainly there are some specific countries, where we have an opportunity to better optimize our approach not just in our products and go to market, but as you know to your point around the partners that we're working with and how we're showing up in each of those particular markets.
Michael George Rosenbaum: You know, we think a lot about our progress in North America, our progress in Europe, but then, you know, in specific countries, and our progress in the Asia Pacific. And so I think as we think about where we should be growing faster over the next five years, certainly there are some specific countries where we have an opportunity to better optimize our approach, not just in our product and how we go to market, but, to your point, around the partners that we're working with and how we're showing up in each of those particular markets. And it's sort of, it's an interesting game for us to play. It's like, it's very, very efficient if we imagine that our approach that's working very well in North America should logically work everywhere in the world, but it doesn't always work out that way, right?
Mike: And it's sort of it's a.
Mike: It's an interesting game for you know for us to play it's like it's very very efficient if we imagine that our approach that's working very well in North America should logically work everywhere in the world, but it doesn't always work out that way right and so it's up to us to.
Mike: Get out there and figure out you know what does the market say in Germany need from Guidewire and who can we be working with in each particular country in.
Mike: In such a way as the customers in any particular country or getting exactly what they need from the combination of guide wire and our AR and our systems integrator partners. So so for sure. There is some optimization that I expect we will put into this you know the strategic plan for our organization.
Michael George Rosenbaum: And so it's up to us to get out there and figure out, you know, what the market says in Germany needs from Guidewire, and who we can work with in each particular country in such a way that the customers in any particular country are getting exactly what they need from the combination of Guidewire and our systems integrator partners. So, for sure, there is some optimization that I expect we will put into this, you know, the strategic plan for our organization and execute over the next few years and enable us to grow a little bit faster in the countries where we see a bigger DWP and insurance opportunity than what we've been able to capitalize on so far. Okay, very helpful.
Mike: Asian and execute over the next few years and enable us to grow a little bit faster in the countries, where we see a bigger DWP and insurance offer opportunity than what we've been able to capitalize on so far.
Mike: Okay very helpful. And then when you I guess when you look at maybe some of your customers that have adopted hazard hub in some of the other sort of more advanced data driven products out there.
Mike: From a wallet share perspective, how much of that can can be captured or how much did those products sort of capture and some of the customers that are really leaning into that and then how.
Michael George Rosenbaum: And then when you, I guess when you look at maybe some of your customers that have adopted Hazard Hub and some of the other sort of more advanced data-driven products out there, from a wallet share perspective, you know, how much of that can be captured? Or how much do those products sort of capture in some of the customers that are really leaning into that? And then how, if at all, are you sort of incentivizing the go-to-market team to get that more penetrated into customers as a huge point of differentiation? Yeah, it's a great question. I will be honest; I tend not to think about the analytics opportunity in terms of WalletShare but instead think about it in terms of the business impacts that we can help create for the insurance industry that we serve.
Mike: If at all are you are you sort of incentivizing them to go to market team to get that more penetrated in customers as a huge point of differentiation.
Speaker Change: Yeah. It's a great question I'll be honest I tend not to think about the analytics opportunity in terms of wallet share, but instead think about it in terms of the business the impacts that we can help create.
Speaker Change: For our in it for the insurance industry that we serve.
Speaker Change: We see a pretty significant opportunity for the industry to improve the efficiency.
Michael George Rosenbaum: You know, we see a pretty significant opportunity for the industry to improve efficiency, honestly, across the board, both in claims and also in underwriting and also in pricing. And so there's a business benefit, there's an efficiency gain that can be unlocked through data and through analytics. And so, you know, we think that by, you know, delivering value and creating an opportunity for our insurance customers to create a better system, we can partake in the value creation that we facilitate, as opposed to thinking of it as sort of like, you know, how much are you paying for who, and can you ship some of that to Guidewire? That's not actually how we think about it.
Speaker Change: You know honestly across the board both in claims but also in underwriting is also a pricing and so theres a business benefit there's an efficiency gain that can be unlocked through data and through analytics and so you know, we think that by delivering value and creating an opportunity for.
For our insurance customers to create a better system, we can partake in the value creation that we facilitate.
Speaker Change: As opposed to thinking of it as sort of like you know how much are you paying for who and can you ship some of that to guide wire that's not actually how do we think about it certainly something like hazard hub has the potential to be added to and drive better decisions inefficiencies.
Michael George Rosenbaum: Certainly, something like HazardHub has the potential to be added to and drive better decisions and efficiencies, you know, all across the industry. And that's how we think about it. In terms of the incentive structure, you know, we have, you know, we have a number of different incentives that we have. We have all the logical structures in place with our sales organization to ensure that the teams are incented to work together and position the different products across the spectrum. And, you know, we continue to tweak and optimize those things, but, you know, we're certainly incentivizing our organization to work effectively together and position those solutions side by side. And Hazard Hub in particular is really interesting, right?
Speaker Change: All across the industry and that's how we think about it in terms of the incentive structure we have.
Speaker Change: You know all the logical.
Speaker Change: The structures in place with our sales organization to ensure that the teams are incentive to work together and position the different products across the spectrum and we know we continue to tweak and optimize those things, but you know, we're certainly incentivizing our organizations to work effectively together.
And position those solution side by side.
Speaker Change: And hazard hub in particular is really interesting right because that has more of an organic growth market motion.
Speaker Change: We can land.
Michael George Rosenbaum: Because that has more of an organic growth market motion where we can land on, have them test out the product, and then grow as they see success. And so, you know, that does come with a little bit more of an inside sales motion initially selling into our installed base and then building some of that muscle, which is great for us, right? Because we intend to have more of those types of products over time. Great, thank you. Thank you. Our next question comes from the line about Parker Lane with Stiefel. Please proceed with your question. Yeah, hi guys.
Speaker Change: Have them test out the products and then grow as they see success and so you know that does come with a little bit more of an inside sales motion initially selling into our installed base and in building some of that muscle, which is great for us right because we intend to have more of those types of products overtime.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Parker Lein with Stifel. Please proceed with your question.
Parker Lein: Yeah, Hi, guys. Thanks for taking the question here, Mike I wanted to focus in on the three net new customers you announced during the quarter.
Parker Lein: There's anything interesting you would call out about the processes or mix of our systems are in place. There that you guys are replacing.
Michael George Rosenbaum: Thanks for taking the question here. Mike, I wanted to focus in on the three net new customers you announced during the quarter to see if there's anything interesting you would call out about the processes or mix of systems that were in place there that you guys are replacing. Yeah, thanks.
Mike: Yeah. Thanks I appreciate the question very much so one I won't call out specifically is.
We we are we have the opportunity to work with somebody.
Michael George Rosenbaum: I appreciate the question very much. So one I want to call out specifically is, You know, we have the opportunity to work with somebody, so we work with an industry partner who has a very, very bold vision about how they're going to grow and take advantage of what they see as a real disruption in the industry, and they basically needed a system that was going to allow them to scale very, very significantly and had outgrown the sort of solutions that they chose to get started with. And so it's a pretty minor shift, I would say, but it is a replacement for some, you know, solutions that are targeted at smaller sort of getting-started insurance companies. But it was great to see just the vision that they have and be able to, you know, earn the right to be chosen as the platform that they were going to use to scale their ambition, as I say, to take advantage of what they see as a pretty significant disruption in the market in the United States. And so that was a very, very exciting win for us.
Work with an industry partner, who has a very very bold vision about how theyre going to grow and take advantage of what they see as a real disruption in the industry and they needed. They basically need it's a system that was going to allow them to scale very very significantly.
Mike: And yeah and had outgrown the sort of solutions that they chose to get started with and so it's a pretty minor shift I would say, but it is a replacement of some you know solutions that are targeted at smaller sort of getting started insurance companies, but it was great to see just the vision that they have and be.
Mike: Able to be to earn the right to be chosen as the platform that they were going to use.
Mike: To scale into their their ambition as I say to take advantage of what they see as a pretty significant disruption.
Mike: In the market in the United States and so that that's a that was a very very exciting win for us.
Michael George Rosenbaum: The other one that I would call out is just... One of the fields that, You know, we won it and lost it and won it and lost it, and it lasted over two years, and we went through all the processes that you could possibly go through to make sure that they, you know, that we were the absolute right choice. This was a specialty lines and commercial insurance solution that we were able to step up and prove that we were the right choice for this company. And we were just incredibly excited to get this win and get this deal closed, and I think it will end up being a very significant and strategic partner for us, especially because it's going to be a proof point for us on commercial lines insurance and the specialty markets that we're going to be able to support for this partner, or for this customer, excuse me. So that was the other one that I would call out. We were just very, very excited to get over the finish line this quarter. I got it.
Mike: Other one that I would call out is just.
One of the deals that.
Mike: You know we.
Mike: One it and what's it in one lawsuit that lasted over two years and we went through all of the all of the processes that you could possibly go through to make sure that they you know that we were the absolute right choice. This was a this was a.
Mike: Specialty lines in commercial insurance solution.
Mike: We were able to step up and prove that we were the right choice for this company and we were just incredibly excited to get this win and get this deal closed and I think it will end up being a very significant and strategic partner for us, especially because it's going to be a proof point for us.
Mike: <unk> lines insurance in the specialty markets that we're gonna be able to support for this for this for this partner or with its customer excuse me. So that was the other one that I would call out that we were just very very excited to get over the finish line this quarter.
Speaker Change: Got it very helpful. And then Mike you know, we're pretty far along in the alphabet here of releases and you accelerated the timeline of launches last year are you seeing a notable pickup in how quickly customers are coming back to the well to discuss expansion opportunities.
Michael George Rosenbaum: And then, Mike, you know, we're pretty far along in the alphabet of releases here, and you accelerated the timeline of launches last year. Are you seeing a notable pickup in, you know, how quickly customers are coming back to the well to discuss expansion opportunities? And how would you compare that to the early days of the cloud launch? Well, so two parts to the answer. I would say we are working very hard to earn the trust of our cloud customers and prove that we can very effectively support them as we provide these updates. And so, you know, I don't know if you guys can understand this.
Speaker Change: I guess, how would you compare that to the early days of the cloud launch.
Mike: Well, so two parts to the answer I would say we are.
Mike: Working very hard to earn the trust of our cloud customers and prove that we can very effectively support them as.
Mike: As we provide these updates and so you know I don't know if you guys can understand this is like there they were a little nervous when we first said hey, we're going to go to three releases a year and we're going to.
Michael George Rosenbaum: It's like they were a little nervous when we first said, hey, we're going to go to three releases a year, and we're going to orient the releases such that you can take them every time just because their experience with upgrades in the past was pretty significant. It seemed like it was going to take a lot of time, and they had to pause a lot of the projects in order to be able to absorb those upgrades. But what we've shown and what we are working through and proving with them is that we can do these updates very, very easily and with very minimal disruption to their operations. And that enables them to get the benefits of what we're putting into each one of these releases.
Mike: Orient the releases such that you can take them every time, just because their experience with update upgrades in the past was pretty significant like it was going to take a lot of time and they had to pause a lot of the projects in order to be able to absorb those upgrades, but what we've shown and what we are working through improving with them is that we can do these up.
Mike: <unk> see.
Mike: Very very easily and with very minimal disruption to their operations and that enables them to get the benefits of what we're putting in each one of these releases and that's just the Super positive sign is that this is working for US. It was always part of the plan, but its now.
Michael George Rosenbaum: And that's just a super positive sign that this is working for us. It was always part of the plan, but it's now, you know, a reality, and we are earning their trust, and they are starting to really get excited about what they're going to be able to do with this new operating model that we can support. And so, you know, that's one of the, you know, that's just, a great achievement for our organization.
Reality and they are a we are earning their trust and they are starting to really get.
Mike: We get excited about what they're going to be able to do with this new operating model that we can support and so you know that that's one of the yeah. That's that's just it's a great achievement for our organization and honestly I think for the industry.
Michael George Rosenbaum: And honestly, I think for the industry, you know, there's... You know, this is a different way to operate a core system in the industry, and I think it's, over the next decade, it's really going to prove to be incredibly valuable for every single one of our customers, is that, you know, we're going to be able to make change, we're going to be able to add innovation, we're going to be able to deliver it to them in a time frame that, you know, makes a difference, versus what they were going to be able to do before, and in terms of whether or not this all creates more demand, more expansion opportunity, I would say, probably, like, generally, yes. I don't know if I could point to anything specific, but certainly, velocity around these projects creates success.
Mike: There's.
Mike: This is a different way to operate a core system in the industry and I think it's over the next decade, it's really going to prove to be incredibly valuable for every single one of our customers is that we're gonna be able to make change we're gonna be able to add innovation and we're gonna be able to deliver it to them in a timeframe that you know makes a difference.
Mike: Versus what they were going to be able to do before and in terms of whether or not this all creates more demand more expansion opportunity I would say probably like generally yes, I don't know if I could point to anything specific but certainly velocity around these are these projects Cree.
Mike: Create success the velocity creates success and the success creates the opportunity for us to add the next line of business and you know do another deal that expands the scope of the program and certainly we have some implementations that are going that way and going very well and we continue to add to them. So generally yes, but you know mostly I would say.
Michael George Rosenbaum: Velocity creates success, and success creates the opportunity for us to add the next line of business and, you know, do another deal that expands the scope of the program. And certainly, we have some implementations that are going that way and are going very well, and we continue to add to them. So, generally, yes, but, you know, mostly, I would say the big news is that we're able to establish ourselves in this upgrade cadence in a very positive way. Got it. It makes sense. I appreciate the feedback.
The Big news is that we're able to establish ourselves in this upgrade cadence in a very positive way.
Speaker Change: Got it makes sense I appreciate the feedback thanks.
Speaker Change: Yes, thanks for the question.
Thank you. Our next question comes from the line of Joe <unk>.
Joseph D. Vruwink: Baird. Please proceed with your question.
Joseph D. Vruwink: Oh, great. Thanks for taking my question I know you've addressed the macro a couple of times and this is a bit of a macro question, but in the last couple of years. It's been this spring into summer timeframe, where customers have ended up deploying their it budgets and a little bit of a different way than maybe you were thinking I think one.
Joseph D. Vruwink: Yeah, thanks for the question. Thank you. Our next question comes from the line of Joe Vruwink with Baird. Please proceed with your question. Great, thanks for taking my question. I know you've addressed the macro a couple times, and this is a bit of a macro question, but in the last couple years, it's been this spring into summer time frame where customers have ended up deploying their IT budgets in a little bit of a different way than maybe you were thinking. I think one year it was smaller initial contracts, another year it was maybe the pace and timing around just ACV. As we sit here today, are you just not seeing any of the same maybe preemptive patterns that would suggest something similar is on the horizon? And ultimately, you know, when you see where DWP is being allocated in the IT budget, do you really participate in those areas? Yeah, I would do that.
Joseph D. Vruwink: It was smaller initial contracts another year. It was maybe the pace and timing around just ACB as we sit here today or are you just not seeing any of the same may be preemptive patterns that would suggest something similar is on the horizon and ultimately.
Joseph D. Vruwink: You see where DWP is being allocated in the budget you you're really participate in those areas.
Speaker Change: Yeah, I would I am.
Speaker Change: You certainly can't count your chickens before they hatch and you have to execute and we have to continue to stay vigilant and follow through on the potential that we see in our pipeline and our plans are but we don't see a you know in the you know in the deals that we're working on right now.
Michael George Rosenbaum: I am. You certainly can't count your chickens before they hatch, and you have to execute, and we have to continue to stay vigilant and follow through on, you know, the potential that we see in our pipeline and our plans, but we don't see, you know, in the, you know, in the deals that we're working on right now, anything like you're describing right now. You know, we've learned a lot over the past few years about how to structure deals, what to expect in terms of timing and the things that we need to do to validate the demand and to ensure that we win the process and then get the deal successfully contracted. And we've gotten better and better and better across the organization.
Speaker Change: Now.
Speaker Change: Anything like you're describing right now you know we we've I think we've learned a lot over the past few years about how to structure deals what to expect in terms of timing and the things that we need to do to validate the demand and to ensure that we win the process and then get the deal successfully.
Tracked it and we've gotten better and better and better at not across the organization.
Speaker Change: More and more of the organization has successfully prosecuted cloud deals and that's certainly helpful.
Speaker Change: So yeah.
I definitely don't want you to I don't want to send the signal that we're not.
Michael George Rosenbaum: You know, more and more of the organization has successfully closed cloud deals, and that's certainly helpful. And so, yeah, I definitely don't want you to, I don't want to send the signal that we're not appropriately anxious about all the things that you just described, but we do have very good visibility into the rest of this year and even into next year. And we feel good about the guidance that we've set, and you know, that confidence allowed us to increase it slightly right now. And just to add, I mean, we talk a lot about macro, but we also feel really good about the micro, right? Kind of like where guidewire is in terms of cloud maturity.
Speaker Change: Appropriately anxious about all the things that you just described but we do have very good visibility into the rest of this year and even into next year and we feel good about the guidance that we've that we've set and you know that confidence allowed us to increase it slightly right now.
Speaker Change: And just to add I mean, we talk a lot about macro but we also feel really good about the micro right kind of the where guidewire is in terms of cloud maturity and what we're seeing with momentum in the industry and the reference ability of the customer cohorts are adopting cloud all of that builds into a demand.
Speaker Change: Environment that is more almost more driven by the micro dynamics that are specific to guidewire versus some of the larger macro dynamics that we see.
Jeffrey Elliott Cooper: And what we're seeing with momentum in the industry and the referenceability of the customer cohorts that are adopting cloud, all of that builds into a demand environment that is more, almost more driven by the micro dynamics that are specific to guidewire versus some of the larger macro. Okay, that's great. And then I don't have Dylan's reservation.
Speaker Change: Okay, that's great.
Speaker Change: And then.
Speaker Change: I don't know doing this reservation, so I won't belabor the services point, but.
Speaker Change: When I think about Guidewire and getting our cloud certification.
That's not an easy process, it's pretty rigorous and it takes a fair amount of time and so having the right capacity in place, which seems to be the messaging today that strikes me as a pretty big deal.
Joseph D. Vruwink: So I will belabor the services point. But, you know, when I think about Guidewire and getting a cloud certification, I mean, that's not an easy process. It's pretty rigorous, and it takes a fair amount of time.
Speaker Change: Do you actually think that the Si community.
Speaker Change: It doesn't sound like it's been a bottleneck to any deal flow, but do you actually think it could become an amplifier of your activity and actually maybe are helping you bring in to more.
Michael George Rosenbaum: And so having the right capacity in place, which seems to be the messaging today, strikes me as a pretty big deal. Do you actually think that the SI community, it doesn't sound like it's been a bottleneck to any deal flow, but do you actually think it could become an amplifier of your activity and actually maybe helping you bring in some more big accounts, more engagements, and so it ultimately, you know, helps demand going forward? Yeah, I would agree. I definitely don't think it's been a bottleneck.
Speaker Change: Big accounts more engagements and so at Els and ultimately helps demand going forward.
Speaker Change: Yeah, I would agree with I definitely don't think it's been a bottleneck and I certainly hope that it is an amplifier of demand for Guidewire and I I believe I believe very strongly in what I described in the prepared remarks that we are going to serve this industry.
Michael George Rosenbaum: And I certainly hope that it will be an amplifier of demand for Guidewire. And I believe very strongly in what I described in the prepared remarks, that we are going to serve this industry most effectively as a great software with a great cloud platform that updates and delivers innovation to our customers through an ecosystem of partners on the implementation side, but also on the solution side, that it's not just Guidewire, that it's an ecosystem that we are creating and nurturing and investing in, that together is going to help the industry evolve and transform, and, in And I certainly hope that that creates demand for Guidewire. I think logically, it should be.
Speaker Change: <unk>, most effectively as a with great software with a great cloud platform that updates and delivers innovation to our customers through an ecosystem.
Speaker Change: Some of partners on the implementation side, but also on the solution side that it's not just guide wire that it's an ecosystem that we are creating and nurturing and investing in that together is going to help the industry evolve and transform and in the process create a better <unk>.
Speaker Change: I N C insurance industry and I, certainly hope that that creates demand for Guidewire I think logically it should.
Joseph D. Vruwink: And I think, honestly, I don't want to pretend like this is net new, right? This has, this has been the strategy of the company. And I think that this uniquely differentiates us as a software provider to the PNC industry. We are certainly not the only company that approaches it this way. But I would say we are the only company that approaches it this aggressively, right? That really nurtures the partner ecosystem as a mechanism for expanding our reach most effectively. And I think that this is playing out to our advantage right now, and I hope it will continue. That's great. Thank you very much.
Speaker Change: And I think honestly I don't want to pretend like this is net new right. This has this has been the strategy of the company and I think that this uniquely differentiates us as a software provider to the P&C industry. We are certainly not the only company that approaches it.
Speaker Change: This way, but I would say we are the only company that approaches at this.
Speaker Change: Aggressively right that really nurtures the partner ecosystem as a mechanism for expanding our reach most effectively and I think that that is playing out to our advantage right now and I hope it will continue.
Speaker Change: That's great. Thank you very much.
Alex: Thank you. Our next question comes from the line of Alex. This is Alex Sklar with Raymond James. Please proceed with your questions. Great, thank you.
Speaker Change: Thank you. Our next question comes from the line of Alex Sklar with Raymond James. Please proceed with your question.
Great. Thank you Mike It sounds like the record second quarter and the momentum you've called out as coming from both the demand side with carriers underwriting result, and execution Saddam Guidewire as part can you just give a little bit more color, though on the improvements you alluded to in migration conversations I think you called up conversion rates being a little bit better exiting 'twenty three.
Michael George Rosenbaum: Mike, it sounds like the record second quarter in the momentum you called out is coming from both the demand side with carriers' underwriting results and the execution side on Guidewire's part. Can you just give a little bit more color, though, on the improvements you alluded to in the migration conversations? I think you called out conversion rates being a little bit better, exiting 23 and going into 24. How notable a change is that for the last few quarters?
Speaker Change: The 24 hour notable change is that for the last few quarters.
Michael George Rosenbaum: Well, I think there are a couple of things that are driving an improvement in migration velocity. You know, we are getting a lot more proof points under our belt, and so with 70% of our cloud customers now in production, that creates more references, that creates more experience, that creates more confidence in the existing on-prem customer base to recognize that this is, you know, honestly, the safest path forward. So, that certainly helps. I think that we've also invested quite a lot in the tools necessary to do these transitions more and more efficiently. We've also invested pretty significantly in migration practices, specifically focused with our SIs around driving these projects so that it doesn't have to be just Guidewire, but there's actually, like, a whole group of options that we can bring to bear around helping a customer do the migration. And I think all those things come together and help us, you know, result in the increase in velocity that we see in migrations.
Speaker Change: Well I think Theres a couple of things that are driving an improvement in our migration velocity is we are getting a lot more proof points under our belt, so with 70% of our cloud customers now in production and that creates more references that creates more experience that creates more coughing.
Speaker Change: In the the existing on Prem customer base to recognize that this is a you know honestly the safest path forward. So that certainly helps I think that we've also invested quite a lot in the tooling necessary to do these transitions.
Speaker Change: More and more efficiently. We've also invested pretty significantly in migration practices, specifically focused with our size around driving.
Speaker Change: These projects so that it doesn't have to be just guidewire, but there's actually like a whole group of options that we can bring to bear around helping a customer do the migration and I think all of those things come together and help us in <unk>.
Speaker Change: Result in the increase in velocity that we see in the migrations.
Michael George Rosenbaum: You know, there's still, you know, that all that being said is there are a lot of things that factor into this decision for an insurance company, and, you know, solving that equation for every single one is going to take us years, but we're completely focused on leaving no customer behind and ensuring that we can make this happen successfully. For every single one of our existing customers, but it is, you know, based on a pretty significant amount of investment and focus that we put into this over the past couple of years, and we're seeing that start to pay off now. Okay, great. Thanks for that, Kyler.
Speaker Change: Well you know that all of that being said is there's a lot of things that factor into the decision for an insurance company and you know solving that equation for every single one is going to take us years, but were.
Speaker Change: Completely focus on leaving no customer behind and ensuring that we can make this happen successfully for every single one of our existing customers, but it is based on a pretty significant amount of investment and focus that we put into this over the past couple of years and we're seeing that start to pay off now.
Speaker Change: Okay, great. Thanks for that color, maybe just a quick follow up for you Jeff we're halfway through the fiscal year any notable changes in terms of like the shape or the slope of bookings from a ramp perspective relative to last year.
Jeffrey Elliott Cooper: Maybe just a quick follow up for you, Jeff. We're halfway through the fiscal year. Any notable changes in terms of like the shape or the slope of bookings from a RAND perspective relative to last year? From an overall ramp perspective, no material change.
Jeff: From an overall ramp perspective no.
Jeff: No material change I mean, we're seeing good linearity in the overall bookings, but when you look at the ramps that are embedded into the cloud deals no no change I mean, the one thing we are saying is we're seeing a little bit more DWP true up bookings activity. Those don't can't come with ranch right. That's kind of a onetime event, but when you look at the cloud deals.
Jeffrey Elliott Cooper: I mean, we're seeing good linearity in the overall bookings, but when you look at the ramps that are embedded into the cloud deals, no, no change. I mean, the one thing we are seeing is that we're seeing a little bit more DWP TrueRoute booking activity. Those don't come with ramps, right?
Jeff: Nothing to call out.
Speaker Change: Great. Thank you both.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Aaron comes in with citizens JMP. Please proceed with your question.
Jeffrey Elliott Cooper: That's kind of a one-time event. But when you look at the cloud deals, there's nothing to call out. Great, thank you both. Thank you.
Great. Thank you guys for the questions, Mike you've talked about the four tier one deals in the quarter. So stepping back when you think about the pace of cloud transitions over the coming years, specifically at tier ones do you see a potential tipping point, whereas the largest players start moving to the cloud at an increased pace isn't this is more of a long slog, but it might take five.
Jeffrey Elliott Cooper: Our next question comes from the line of Aaron Kimson with Citizens JMP. Please proceed with your question. Great, thank you guys for the questions. Mike, you talked about the four tier one deals in the quarter.
Speaker Change: Yes.
Well.
Aaron Jacob Kimson: So stepping back, when you think about the pace of cloud transitions over the coming years, specifically at tier one, do you see a potential tipping point where the largest players start moving to the cloud at an increased pace or see this as more of a long haul that might take 5-10 plus years? Well, I think it's gonna be, It's hard to say.
Speaker Change: I think it's going to be.
Speaker Change: It's hard to say.
I don't imagine that there's going to be any magic thing that causes it all to shift suddenly just because the decision for an individual carrier.
Michael George Rosenbaum: You know, I don't imagine that there's going to be any magic thing that causes it all to shift suddenly, just because the decision for an individual carrier has a lot of other factors that weigh into the decision and the timing. And in many circumstances, at least verbally, we have alignment about the overall intention to get to the cloud. I probably haven't said it in a number of quarters, but very often the conversation is, "This is just a matter of when, not if." But we have to solve that equation for each and every one of those companies.
Speaker Change: It has a lot of other factors that weigh into the decision on the timing.
Speaker Change: And in many circumstances.
Speaker Change: At least verbally we we have alignment about the overall intention to get to cloud you know there you know.
I, probably haven't said it in a number of quarters, but very often the conversation is this is just a matter of when not if.
Speaker Change: But you know we have to solve that equation for each and every one of those those companies you know like I said a second ago is this is just adding up a whole bunch of factors to continue to add that continue to add in.
Michael George Rosenbaum: Like I said a second ago, this is just adding up a whole bunch of factors to continue to add incentives and increase the likeliness of those companies making the decision in any particular quarter to begin that transition. And it's our readiness, it's the number of customers and the amount of experience that we have, it's the amount of value that we're able to put into the product, and what they can do with it now relative to when they first evaluated it. That just keeps improving release over release over release.
Speaker Change: Incentive and increase the likelihood is of those companies, making the decision in any particular quarter.
Speaker Change: To begin that transition and you know it's our readiness.
Speaker Change: The number of customers in the amount of experience that we have it's the amount of value that we're able to put into the product and what they can do with it now relative to you know when they first evaluated that just keeps improving release over released over release and I think all those things just add up and then are there those things are comparing to.
Michael George Rosenbaum: I think all those things just add up, and then those things are compared to the internal objectives of that company and what they have on their docket in any particular quarter or year, and then they make that decision. And you have to understand, we're having that conversation with each and every one of our customers, maybe not continuously, but probably at least once a quarter, maybe twice a year, just checking in and making sure that they're up to date on what we can do, and we're up to date on what their objectives are. So yeah, hopefully that gives you a sense of why I say that this is going to be a slow and steady wins the race, and there isn't going to be some magical thing that causes it all to tip in one particular quarter. That's really helpful.
Speaker Change: The internal objectives of that company and what they have on their docket in any particular quarter or year and then they make that decision and you got to you got to understand like we're having that conversation with each and every one of our customers.
Speaker Change: Maybe not continuously but probably at least a once a quarter or you know maybe once or twice a year just checking in and making sure that we're that they're up to date on what we can do and we're up to date on what their objectives are so yeah. Hopefully that gives you a perspective of why I say that this is going to be a slow and steady wins the race and there isn't going to be some.
Speaker Change: Magical thing that causes it all to tip, one particular quarter.
Speaker Change: That's really helpful. Thank you and then just maybe quickly on capital allocation. So you still have about $138 million on your share repurchase program, having bought back any stock in the prior two quarters at analyst day, you talked about potentially keeping more than $400 million of strategic cash the cash at least 400 of them.
Aaron Jacob Kimson: And then, Jeff, maybe quickly on capital allocation. So, you still have about $138 million in your share repurchase program, and haven't bought back any stock in the prior two quarters. That analyst that you talked about potentially keeping more than $400 million of strategic cash, at least $400 of run-the-business cash. You know, you have the convert, but your stock price at the close today, that'll be settled in stock.
Speaker Change: The business cash.
Speaker Change: But your stock price at the close today that'll be settled in stock. So how do you think about a scenario where you would utilize the remainder of your repurchase program. If there is one.
Jeffrey Elliott Cooper: So, how do you think about a scenario where you would utilize the remainder of your repurchase program if there is one? Yeah, look, I think you laid it out nicely. We're in a mode where we think that there's an interesting time for us to be, potentially, a little bit more strategic around M&A. It's, you know, obviously, a lot of thought goes into those types of processes, and we will be very disciplined. But that is becoming a bit more interesting for us on the Convert side. We do have that maturity out there.
Speaker Change: Yeah look I think you you laid it out nicely.
Speaker Change: We're in a mode where.
Speaker Change: We think that there is an interesting time for us to be potentially be a little bit more strategic around M&A.
Obviously, a lot of thought goes into those types of processes and.
Speaker Change: We will be very disciplined but that is becoming a bit more interesting for us on the convert side. We do have that maturity out. There you are right we might shut it settle in shares we might settle that in cash doing that share settlement.
Jeffrey Elliott Cooper: You're right, we might settle in shares, we might settle that in cash, doing that share settlement as well. And so those are a number of things that we're thinking about. We do still have some capacity in our share repurchase program.
Speaker Change: As well and so those are those are a number of things that we're thinking about.
Speaker Change: We do still have some capacity on our on our share repurchase program.
Jeffrey Elliott Cooper: But I think right now, we've, we felt like it's a good time for us to reserve a little bit more dry powder. Understandable, thank you. Thank you, and our next question comes from the line of Tyler Radke with Citibank. Please proceed with your question. Hey, this is Peter on the line for Tyler Radke.
But I think right now we we felt like it's it's a good time for us to reserve a little bit more dry powder on the balance sheet.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you and our next question comes from the line of Tyler Radke with Citi Bank.
Tyler Maverick Radke: Proceed with your question.
Tyler Maverick Radke: Hey, this is Peter on the line for Tyler Radke.
Tyler Maverick Radke: Thanks for taking the question. I just had one question here on the macro, more on the topic of inflation and the impact that's had on things expenses. I was just interested in customer scrutiny when making investment decisions. Have things gotten better over the past 90 days? And then, if things haven't gotten better, what's really contributed to their recent success and migration wins?
Peter: Thanks for taking the question I just had a one question here on the macro more on the topic of inflation and the impact that's had on expenses.
Peter: I was just interested on a customer's journey on making investment decisions have been gotten better over the past 90 days and then as things have gotten a better what's really contribute to their recent success.
Peter: Thanks.
Yeah. Thanks for the question Yeah. So.
Michael George Rosenbaum: Thanks. Yeah, thanks for the question. Yeah, definitely, we've seen this.
Speaker Change: But definitely we have seen this it's on the on the mines and on the physical financial outcomes of almost every insurance company in the world.
Michael George Rosenbaum: It's on the minds and on the, you know, fiscal financial outcomes of almost every insurance company in the world. But it's been nice to see that everybody has, for the most part, taken a very long-term perspective about the approach to adjusting for inflation and claims expense and passing these changes through to premium adjustments. And for the most part, I would say that it hasn't dramatically changed our perspective on the IT investments associated with core system migrations and core system modernizations. You know, like I said a few minutes ago, these are 10-year, at least, decisions for these companies. They're picking a partner and executing a project that's going to, they expect, last them over a decade, so they can make long-term decisions about the... You know, the point in time at which they're going to begin that transformation and partner with something like Guidewire to do that.
But.
Speaker Change: It's been nice to see that everybody has you know for the most part taken a very long term perspective about the approach to adjusting for inflation and claims expense in passing these changes through to premium adjustments and for the most part I would say that hasnt dramatically changed.
Speaker Change: Our perspective on the it investments associated with core system migrations and a core system modernizations.
Speaker Change: Like I said a few minutes ago. These are 10 years at least decisions for these companies, they're picking a partner in executing a project thats going to.
Speaker Change: They expect to last them over a decade and so they can make long term decisions about the.
Speaker Change: You know that the point in time in which they're going to begin that transformation and partner with something like Guidewire to do that so so for sure you know the you know the like slowdown in inflation and stabilization of the claims expense creates more confidence in the year to year.
Michael George Rosenbaum: So for sure, you know, the slowdown in inflation and stabilization of the claims expense creates more confidence in the year-to-year business model at an insurance company, and that definitely doesn't hurt their ability to green light a modernization project. But generally, we were able to, we saw, we saw them push straight through in a lot of cases this adjustment and still green light projects to modernize with Guidewire.
Speaker Change: Business model at an insurance company and that definitely doesn't hurt their ability to green light a modernization project, but generally we were able we saw.
Speaker Change: We saw them push straight through and a lot of cases, this adjustment and still greenlight projects to modernize with Guidewire and that was really great to see.
Michael George Rosenbaum: And that was really great to see. But it will be nice, I think, and everyone will be very happy to see a more stable inflationary environment over the next couple of years. And I hope, knock on wood, that that actually comes true. But it certainly will help the industry, and I think it will, therefore, help Guidewire.
Speaker Change: But it will be nice I think and everyone will be very happy to see a more stable inflationary environment over the next couple of years and I suppose knock on wood that that actually comes true, but it certainly will help the industry and I think will therefore help guide wire.
Michael George Rosenbaum: Great. Thanks for the question. Hey, thank you very much. OK.
Speaker Change: Great. Thanks for the question.
Speaker Change: Hey, Thank you very much.
Speaker Change: Okay. Thank you.
Operator: Thank you. I just wanted to say I appreciate the time, everybody. Thanks for joining us on the call. We had just a very, very strong start to the fiscal year.
Speaker Change: Just wanted to say I appreciate the time everybody. Thanks for joining in the call. We had a just a very very strong start to the fiscal year, we feel great about the prospects for the rest of this fiscal and look forward to connecting with you all over the next few months. So thank you very much.
Operator: We feel great about the prospects for the rest of this fiscal year and look forward to connecting with you all over the next few months. So, thank you very much. And this concludes today's conference, and you may disconnect your line. Thank you for your participation. Goodbye. Copyright 2020, New Thinking Allowed Foundation. All Rights Reserved. No part of this recording may be reproduced. Copyright 2020, New Thinking Allowed Foundation, [inaudible]
Speaker Change: And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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