Q4 2024 Guidewire Software Inc Earnings Call

[inaudible] and his son, Michael Cooper, and his son, Michael Cooper, and his son, Michael Cooper, and his son, Michael Cooper, and his son, Michael Cooper, and his son,

Alex Hughes: Thanks, Paul I'm, Alex Hughes, Vice President Investor Relations and with me today is Mike Rosenbaum, Chief Executive Officer, Jeff Cooper, Chief Financial Officer, and John Mullen, President and Chief revenue Officer, who is joining us to provide a year end recap of adoption activity a complete disclosure of our results can be found in our press release issued today as well as in our related.

Alex Hughes: Form 8-K furnished to the SEC both of which are available on the Investor Relations section of our website.

Speaker Change: Today's call is being recorded and a replay will be available following the conclusion of the call.

Speaker Change: Statements made on this call include forward looking ones regarding our financial results outlook and targets, our future business momentum relating to our products cloud deals customer demand operations, the impact of local national and geopolitical events on our business, our associate business plan and strategy. Among other matters. These statements are subject to risks uncertainties and.

Speaker Change: Functions 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.

Speaker Change: You should refer to our press release and the risk factors and documents, we file with the SEC, including our most recent quarterly reports on Form 10-Q, and our prior and forthcoming annual report on Form 10-K 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.

Speaker Change: Yeah.

Speaker Change: We also will refer to non-GAAP.

Speaker Change: Financial measures to provide additional information to investors all commentary on margins profitability and expenses are on a non-GAAP basis, unless stated otherwise our reconciliation of non-GAAP to GAAP measures is provided in our press release.

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

Mike: Thank you Alex good afternoon, and thanks, everyone for joining today I'm thrilled to have the opportunity to report stellar fourth quarter results capping off what was an incredible year for Guidewire and our community of customers and partners. This quarter marked five years of Guidewire for me and the results in the quarter and fiscal year feel like a clear valve.

Speaker Change: <unk> of the hard work and determination everyone here has contributed to our cloud transformation.

Speaker Change: We have now established a consistent track record of customer program success with our cloud applications and we are seeing the maturity and reliability of our cloud platform continue to drive demand from new and existing customers. The reference ability of customers choosing guidewire cloud platform continues to grow and that reputation.

Speaker Change: <unk> continues to drive demand, new sales and adoption and ultimately customer program success and the associated insurance outcomes, the P&C industry demands.

Speaker Change: The market momentum. We've established is clearly reflected in strong E. R. R and fully ramped are our growth.

Speaker Change: <unk> was up 14% on a year well fully ramped they are our accelerated to 19% as we continue to sign larger deals with more significant fully grant values.

John Bonn: We closed 16 cloud deals in the quarter and 42 for the year, John Bonn, Our President will go into more detail on cloud adoption.

John Bonn: I'll, just say that the strength across these metrics as a result of the combined efforts of every single member of our global organization.

John Bonn: This quarter and this year position us well to achieve our $1 billion are our target this fiscal year.

Speaker Change: As we continue to drive cloud adoption. We are also seeing greater leverage in our cloud model Guidewire cloud platform is demonstrating greater scale inefficiency with subscription and support gross margins, increasing 10 points to over 65% for the year.

Speaker Change: We feel very confident in our objective to achieve our long term margin targets as we continue to scale the platform.

Speaker Change: We are also continually driving better overall company operational discipline and efficiency generating non-GAAP operating profit of nearly $100 million in operating cash flow of nearly $200 million.

Speaker Change: We also expect to be GAAP profitable in fiscal 2025. These outcomes clearly demonstrate the power of the software as a service business model, we have created here.

Forward, we are excited to enter the new fiscal year with momentum we continue to see acceleration in the number of conversations around cloud cloud transitions and modernizations customers realize that they need greater agility in their core operations and based on our track record of Iraq.

Corey: Sure Corey.

Speaker Change: Okay.

Speaker Change: From alternatives.

Speaker Change: Yeah.

Speaker Change: As a result, our pipeline continues to build and it's very healthy going into the year.

Speaker Change: In November we will be back in Nashville to hold our annual customer conference connections, which was attended by 3000 members. The broader Guidewire community. This will give us another valuable opportunity to showcase the latest innovation.

Speaker Change: That's one.

Speaker Change: Ample customer success.

Speaker Change: Thanks Kim.

Speaker Change: This past year in these last five years, sometimes seem like a remarkable achievement.

Speaker Change: Taken American defining off premise vertical software leader and re platform did become a vertical software as a service leader.

Speaker Change: I have spoken to many people.

Speaker Change: Yes.

Speaker Change: This achievement and our success was somewhat surprising but looking back now it all looks pretty logical to me. We made a straightforward plan that made sense required nothing miraculous and focused on execution, all while ensuring that every single customer who chose to trust us never doubted their decision we are not and will never be <unk>.

Speaker Change: But we will continue to prioritize our customers and the programs. They run on our platform. We will continue to optimize our technical decisions for the long term and we will strive every day to earn the trust our customers place in US we are right now very well aligned with our customers and in a unique position to help shape the future of the industry. We serve we continue to.

Speaker Change: Executing the fashion, we have demonstrated over the past few years and I'm confident we will continue to hit the forward looking objectives, we set for ourselves with that I'll hand, it over to John to provide a year end perspective on the insurance industry and discuss in more detail around customer adoption and success on the Guidewire cloud platform.

John Bonn: Thanks, Mike Good afternoon, everyone.

John Bonn: Been a very successful year Guidewire, we have the pleasure of serving a customer base that is both critical and resilient.

John Bonn: This year, we saw property and casualty insurance navigate convergence.

Convergence of pressures and continue to evolve with both the agility and precision with which they respond to inflation the evolution of risk in the world and the increased expectation of consumers and businesses.

John Bonn: We remain very confident in the durability of our relationship with the market and optimistic regarding the pace of change that we can help drive with and for P&C industry.

Speaker Change: Reflecting on the 42 cloud deals we did for the year, we call. It 13 insurance suite cloud deals in Q4.

Speaker Change: Bringing our total insurance suite cloud deals for the year 37.

Speaker Change: We also closed three insurance now deals in the quarter.

Speaker Change: What we're seeing is the positive effect of a portfolio approach that is delivering a healthy balance across the business.

Speaker Change: We've been working hard to drive specific plans and Accountabilities and the markets region country and line of business and with specific carriers across all deal types.

Speaker Change: We added four net new customers in Q4 and saw continued strong win rates with insurers looking to modernize their core systems.

Speaker Change: A superregional personal lines carrier elected to adopt our full suite and broad selection of our data products in order to standardize on a modern core system and facilitate their growth ambitions.

Speaker Change: Argonaut managed services a leader in excess and surplus selected claim center to consolidate multiple claims systems and improve operational efficiency.

Speaker Change: Our track record and commitment to customer success were key factors in their decision.

Speaker Change: Preferred mutual a personal and commercial lines carrier in the northeast of the U S selected the full suite to leverage the Guidewire cloud platform and as digital capabilities.

Speaker Change: And finally pro holdings, a single state non standard auto NGA headquartered in Miami, Florida selected insurance now and predict to modernize their core with an emphasis on claims.

Speaker Change: I like these net new wins, because they exemplify our ability to execute and compete across a broad range of carrier size and complexity.

Speaker Change: It was also a strong quarter for cloud migration activity with a total of seven insurance suite cloud migrations.

Five of the insurance suite migration is included very meaningful expansion beyond the scope of work we were addressing on Prem.

Speaker Change: One of the themes in the quarter was our customers' willingness to make bigger commitments on Guidewire cloud, which was a key driver of our 19% fully ramped AOR growth.

Speaker Change: Notable in the quarter when deals had initiated as a single product discussion and evolved into broader full suite outcomes.

Speaker Change: For example, a tier one commercial insurers significantly expanded adoption of Guidewire cloud platform for its scalability total cost of ownership and platform unity across policy billing and claims.

Speaker Change: The reference ability of our relationships and the power of full suite and data is resonating in the market.

Speaker Change: We saw healthy sales activity in both Asia Pac and EMEA for the year, our strength in North America really delivered in Q4.

Speaker Change: Looking at global deals like by Tier Q4 was fairly balanced with three tier one deals seven tier two deals and the remainder coming from tier three and four.

Speaker Change: Turning to our ecosystem, we are seeing continued momentum there.

Speaker Change: There are now over 25000 professionals from 38 S is working with us today and in the fourth quarter. The number of cloud certified partner professionals from these firms increased 22% year over year to 9500.

Speaker Change: The pace of uptake on our ski release training with this community affirms the ESI shared commitment to the model.

Speaker Change: Similarly, our solution partner community continues to expand Guidewire marketplace now has over 215 technology partners.

Speaker Change: Finally, we saw strong results on customer programs in Q4, we achieved seven initial cloud go lives on Guidewire cloud platform in the quarter.

Speaker Change: We are seeing as expected significant increases in the number of cloud updates throughout the year, which speaks to the growing efficiency of our platform inside the customer environment.

Services organization achieved higher than expected revenue and gross margins in the quarter.

Speaker Change: He has been working hard to improve predictability and while we have more work to do Q4 was a positive step forward.

Speaker Change: So customer outcomes is our primary objective our services organization in collaboration with our Si partners have worked well together in this last year, it could drive pace and predictability care community.

In summary fiscal year 'twenty four demonstrated strong execution and we look ahead to fiscal year 'twenty five confident in our ability to continue to build momentum with that I'll hand, it over to Jeff.

Thanks, John.

Jeff: Financial highlight of the quarter was the incredible combination of 19% constant currency fully ramped are our growth and 20% cash flow from operations margin.

Jeff: Our ability to deliver durable profitable growth is a testament to the value that we deliver to the industry with that let me jump into the details fourth quarter air or ended at 872 million up 14% year over year on a constant currency basis ahead of our expectations. As a reminder, we measure air or on a constant currency basis throughout the year and then update <unk>.

Jeff: Our four year end FX rates.

Jeff: Making this update impacted air or by negative 8 million, resulting in <unk> of $864 million.

Jeff: Fully wrapped a R R, which is defined as the fully ramped annual price outlined in our customer contracts grew 19% year over year on a constant currency basis.

Jeff: This is a tremendous result.

Jeff: That reflects a lot of hard work, we are winning in the market and executing well across the entire organization.

Jeff: Total cloudy or our which includes air or for all of our cloud products and for customers that have contracted to move to the cloud grew 28% year over year and comprised 66% of total a R. R.

Jeff: Total revenue for the year was 980 million ahead of our expectations due to stronger performance across all components of revenue.

Jeff: The strength continues to be visible in subscription revenue, which was 477 million up 36% year over year.

Jeff: It's exciting to see the progression of our subscription revenue line.

Jeff: Which finished the year at just under 50% of total revenue.

Jeff: Subscription and support revenue was 549 billion up 28% year over year.

Jeff: Since revenue is 250 million down 6% year over year as we continue to migrate our on premise customers to our cloud.

Jeff: At the start of FY 'twenty four.

Jeff: We thought that this decline this would decline closer to 10% year over year, but we benefited from stronger than expected true ups during the year.

Jeff: Services revenue finished at 181 million down 14% year over year as we transition more implementation work to our Si partners and we minimized our reliance on subcontractors.

Jeff: Services revenue in Q4 was $51 million up from our low of $38 million in Q2.

Jeff: We are pleased with how we finished the year and expect modest year over year growth in services revenue in fiscal year 2025.

Jeff: Turning to profitability for the fiscal year, which we will discuss on a non-GAAP basis gross profit was 618 million. This was up 25% year over year.

Jeff: Overall gross margin was 63% compared to 55% a year ago.

Ascription support gross margin was 65, 5% and over 10 percentage point increase.

Jeff: The investments we made in our cloud platform is showing up in a much more efficient cloud operations function as we deliver the indias industry, leading cloud service at an increasingly attractive gross margin profile.

Jeff: Services margin gross margin was 7% compared with just below breakeven a year ago, notably in Q4 versus gross margin was 14% as we exit the year closer to our longer term margin expectations for this business.

Jeff: Operating income was $99 5 million, which was just above the midpoint of our outlook.

Jeff: The positive impact of higher than expected revenue was offset by the impact of the employee bonus accrual, which was higher than our expectations due to outperformance of key financial targets.

Overall stock based compensation was $146 million for the year up two 5%.

Jeff: Operating cash flow ended the year at $196 million.

Jeff: We noted at the analyst day last year that we were at an exciting inflection point in profitability and cash flow and our progress on cash flow from operations and free cash flow significantly surpassed our expectations on stronger than expected collections.

Jeff: We ended the quarter with $1 1 billion in cash cash equivalents and investments.

Jeff: We also have 400 million in convertible debt that matures in March and we expect to settle in cash.

Now, let me turn to our outlook.

Jeff: For fiscal 2025, we expect air are of between 995 million to 1.005 billion, representing 16% constant currency growth at the midpoint.

Jeff: Updating our forecast model to reflect current FX rates has had an approximately $9 million negative impact on our fiscal 'twenty five outlook.

Jeff: Total revenue for the year is expected to be between 1.135 and 1.149 billion.

Jeff: We expect subscription revenue will be approximately $642 million, representing 34% growth.

Jeff: Maintaining this strong growth rate is a reflection of the strength of the cloud deals we signed in fiscal 'twenty four.

Jeff: Support revenue will decline by about three or $4 million year over year. As a result of the continued migration of our installed base to the cloud, resulting in approximately $710 million in subscription and support revenue.

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

Jeff: We expect license revenue to decline a bit due to steady progress on cloud migrations, which was partially offset by contract true ups in our on Prem customer base.

Jeff: Our outlet for service or even our services revenue was approximately $190 million.

Jeff: We expect total gross margins for the year to be approximately 65% subscription and support gross margins to be approximately 68% and professional services gross margin to be approximately 12%.

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

Jeff: With respect to operating income, we expect a non-GAAP operating income of between 157 and $171 million for the fiscal year.

Jeff: We also expect GAAP operating income of between negative $4 million in positive $10 million.

Jeff: Given the strength in the business, we were able to deliver on our profitability goals and in many cases raised our targets. While also increasing some spend in our operating expenses, most notably in R&D as we invest in the significant opportunities we see in front of us to help insurers take advantage of modern applications to engage innovate and grow.

Speaker Change: I expect R&D spend to grow around 14% in fiscal 'twenty, five sales and marketing should grow a bit less than that and G&A should grow in the mid to upper single digits.

Speaker Change: Cash flow from operations in fiscal 2025 is expected to be between 220 in $250 million.

Speaker Change: Our capex expectations for the year are between 20, and 25 million, including approximately $12 million in capitalized software development costs and $7 million and office build out projects in India.

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

Speaker Change: Given the strong sales activity in Q4, we did not have many deals slip into Q1. So we expect typical seasonality in our first quarter, which impacts sequential are our growth expectations.

Speaker Change: We expect subscription and support revenue of approximately 167 million and services revenue of approximately $50 million.

Speaker Change: We expect subscription and support margin between 67%, 68% and.

Speaker Change: Services margins were around 11% and total gross margins of approximately 61%.

Speaker Change: Also annual employee bonuses and commission expenses related to Q4 sales are paid out in Q1, which impacts cash flow.

Speaker Change: As a result, we expect Q1 cash flow from operations to follow a similar pattern to what we experienced last year.

Speaker Change: In summary, we are incredibly proud of the year, we had in FY 'twenty four and we're on track to meet or exceed the targets that we established during my first analyst day as CFO back in October of 2020, and we look forward to seeing many of you at our analyst day. This coming October 10th in New York with that let's open the call for <unk>.

Speaker Change: Yeah.

Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Speaker Change: Far too if you'd like to remove your question from the queue for participants using speaker equipment, it might be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please while we poll for questions.

Speaker Change: Thank you. Our first question is from Ken Wong with Oppenheimer and company. Please proceed with your question.

Ken Wong: Great. Thank you for taking my question.

Ken Wong: First one for either Mike or John can.

Ken Wong: Can you provide a little color on the on the context of some of these fully ramped deals are we seeing this across the board with customers or these kind of one off large deals would you say that these are typically kind of flatter upfront and steepen the back or a fairly linear just any.

Speaker Change: Any color to help us think through the dynamics it would be fantastic.

Ken Wong: Yeah.

Speaker Change: Sure Let me, let me touch on our real briefly and then I'll, let John comment. The first thing is it is that I don't want you to read anything into this with respect to ramps.

John Bonn: We're seeing pretty normal ramp structures and activity and we will be able to provide a little bit more detail around that at analyst day, but relative to the commentary we provided a year ago around the ramp structures and the corresponding impact on IRR.

John Bonn: You shouldn't read anything into this we just had a phenomenal.

John Bonn: Order from a bookings perspective with great deals across the board.

Speaker Change: They were.

Speaker Change: Reasonably sized and so that creates a total deal value that drives a fully ramped number that's very healthy.

Speaker Change: Super proud of the team and the execution and it kind of to me indicates the strength in the business. That's the way to that that's the only thing I'd like you to read into it.

Speaker Change: Just you know very very successful outcome with a bunch of great deals in the quarter that drove that that drove that fully ramped number anything to add John I'll, just add that in if I look at the if I look at the last quarter. There are two dimensions to it the first one is.

John Bonn: Certainly in some cases, it's larger lines of business, but maybe more important is covering other areas additional areas of scope. The team is getting much more attuned to listening for in solving business problems rather than addressing just the initial scope for consideration and as we do that the power of the suite is pulling in more.

John Bonn: Conversations and that was pretty prevalent actually in these Q4 deals.

Operator: Greetings and welcome to the Guidewire 4th Quarter in Fiscal and Full Year Fiscal 2024 Financial Results Conference call. At this time, all participants are now listening only mode. If anyone should require operators' assistance during the conference, please press star zero on your telephone keypad.

Operator: A brief question and answer session will follow formal presentation. As a reminder, this call has been recorded.

John Bonn: Perfect and then just a quick one for Jeff maybe call. It kind of also building on the fully ramped number.

Jeff: Adding to about 16% in fiscal 'twenty five I guess, when we kind of compare that with a 19% fully ramped number I guess would it be wrong for us to assume that there is potentially an acceleration in the future or what's the right way to read that fully ramp versus what we're looking at in 'twenty five.

Alex Hughes: I would now like to turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you, Alex. You may begin. Thanks, Paul. I'm Alex Hughes, Vice President of Investor Relations.

Yeah.

Speaker Change: Yeah, the fully ramped outcome certainly it gives us confidence as we look at the durability of the growth.

Alex Hughes: With me today is Mike Rosenbaum, Chief Executive Officer, Jeff Cooper, Chief Financial Officer, and John Mullen, President and Chief Revenue Officer, who is joining us to provide a year-end recap of adoption activity. A complete disclosure of our results can be found in our press release issue today, as well as in our related form A.K, furnished to the SEC, both of which are available in the Investor Relations section of our website. Today's call is being recorded and a replay will be available following the conclusion of the call.

Speaker Change: You know I'm not I'm not sure I would model an acceleration above kind of that 16% range, but I do think it kind of creates.

A bit more for us in a bit more visibility into to the durability of kind of thinking about mid teens a bit on the overall IRR growth side.

Okay. Thank you Jeff.

Ken Wong: Thanks, Ken.

Alex Hughes: Statements made on this call include forward-looking ones regarding our financial results, outlook and targets, our future business momentum relating to our products, cloud deals, customer demand, operations, the impact of local, national and geopolitical events on our business, our associate business plan and strategy, among 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 day.

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

Michael Cooper: Hey, great.

Michael: So congrats on that close to the year I guess the first question is just maybe micro John Youre seeing a series of a tailwind that or it seems a bit better than what we're getting across software. So I'd just love to hear your commentary on your perspective on the overall demand environment, where you sit in terms of cloud momentum and overall competitive.

Alex Hughes: Please refer to our press release and risk factors and documents we file with the SEC, career and most recent quarterly reports on Form 10Q and our prior and forthcoming annual report on Form 10K filed and to be filed with the SEC for information on risks, uncertainties and assumptions that may cause actual results that differ materially from those set forth in such statements. We also refer to non-GAAP financial measures to provide additional information to investors, all commentary and margins, profitability and expenses are on a non-GAAP basis unless stated otherwise. A reconciliation of non-GAAP the GAAP measures is provided in our press release. Reconciliation and additional data are also posted in a supplement on our IRR website.

Speaker Change: M X alongside just do it you've taken on and observe what the what the end of year.

Speaker Change: Sure. Thanks for the question, there's certainly a lot of things that feel like there.

Speaker Change: Helping us right now.

Speaker Change: First is the industry. We serve is very very durable prime.

Speaker Change: Premiums are growing up across the insurance industry and that does with our pricing cost trucks are contract construct creates some lift to our a R. R. Just based on DWP, increasing Ah I also think we are.

Speaker Change: Distancing ourselves from alternatives and it's really a in my opinion just based on the track record of success that we had been able to establish with our cloud products over the past five or six years.

Mike Rosenbaum: And with that, I'm now turning the call over to Mike. Thank you, Alex. Good afternoon and thanks everyone for joining today.

Speaker Change: We are.

Mike Rosenbaum: I'm thrilled to have the opportunity to report stellar fourth-quarter results, capping off what was an incredible year for Guidewire and our community of customers and partners. This quarter marked five years of Guidewire for me and the results in the quarter and fiscal year feel like a clear validation of the hard work and determination everyone here has contributed to our cloud transformation. We have now established a consistent track record of customer program success with our cloud applications and we are seeing the maturity and reliability of our cloud platform continue to drive demand from new and existing customers.

Speaker Change: You know, it's still a competitive market and we still compete fiercely for every single deal.

Speaker Change: But we are winning our fair share of those deals and I think that factors into the outperformance.

Speaker Change: In the quarters. We're also seeing just a I guess I'd call. It a conversion strength and that the deals that we're working on are.

Mike Rosenbaum: The reference ability of customers choosing Guidewire cloud platform continues to grow and that reputation continues to drive demand, new sales and adoption and ultimately customer program success and the associated insurance outcomes, the P and C industry demand. The market momentum we have established is clearly reflected in strong ARR and fully ramped ARR growth. ARR was up 14% on the year, while fully ramped ARR accelerated to 19% as we continue to sign larger deals with more significant fully ramped values.

Speaker Change: The opportunities that we're looking at in a particular quarter or closing.

Speaker Change: You know more frequently than we might have expected a couple of years ago, which I think speaks to the trust and confidence in the platform and the programs and the in the whole community just collectively our ability to land these programs and make sure that they're successful at all contributes to the lyft and the Uh huh.

Speaker Change: Incredible success that we had in the quarter. So that's my take and I'm sure John has some more to add to it.

Speaker Change: The.

John Bonn: While the industry is large by surface area small by community and to Mikes point really the reference ability.

John Bonn: Of the programs that we've been driving has provided a nice ability for that conversion rate, but I think the biggest I think the biggest tailwind. We face is that chapter of moving from defending our cloud platform to really scaling and solving business problems with the cloud platform and certainly the industry has a tight.

Mike Rosenbaum: We close 16 cloud deals in the quarter and 42 for the year. The market across these metrics is a result of the combined efforts of every single member of our global organization. The results this quarter and this year position us well to achieve our $1 billion ARR target this fiscal year. As we continue to drive cloud adoption, we are also seeing greater leverage in our cloud model. Guidewire Cloud Platform is demonstrating greater scale and efficiency with subscription and support gross margins increasing 10 points to over 65% for the year.

John Bonn: Regions of I T needs and business needs are no longer two different dimensions. They are merging together every day and we're in a really good spot to help navigate that and that's really what I think we saw over the course of this year.

John Bonn: That's all Super helpful commentary, Jeff, you're you're leading with cash flow and in the press release, you can't help but notice the cash flow margin.

Speaker Change: Fiscal 'twenty five looks like it's also running ahead of target model. So maybe you can I don't want to steal any thunder ahead of a bigger investor session, you're hosting but maybe speak to just the increasing focus on cash flow and what you're seeing that's driving that the good conversion there. Thanks.

Mike Rosenbaum: We feel very confident in our objective to achieve our long-term margin targets as we continue to scale the platform. We are also continually driving better overall company operational discipline and efficiency generating non gap operating profit of nearly $100 million and operating cash flow of nearly 200 million. We also expect to be gap profitable in fiscal 2025.

Speaker Change: Yeah, I mean, we're we're really pleased with how the model is inflicting from an overall cash flow perspective, obviously I kind of think at the end of the day. That's that's the primary metric that software companies are measured on and so I'm. We're pleased with that kind of some of the interesting dynamics that are that we're noticing or some of the timing.

Mike Rosenbaum: These outcomes clearly demonstrate the power of the software as a service business model we have created here. Looking forward, we are excited to answer the new fiscal year with momentum. We continue to see acceleration in the number of conversations around cloud cloud transitions and modernizations. Customers realize that they need greater agility in their operations and based on our track record of reference or risk. We are distancing ourselves from alternatives. As a result, our pipeline continues to build and is very healthy going into the year.

Speaker Change: Revenue elements are that.

That created a bit of a difference between non-GAAP operating income and some of the cash flow dynamics, and we'll talk about that a little bit more at analyst day, but that that underpins the power of our model, but it's certainly this has been a focus of ours for a number of years and as we kind of.

Speaker Change: <unk>, how we think about our long term model. We've always had this part of the journey and in the back of our minds and it's nice to see it come to realization and it.

Speaker Change: We will be continuing to monitor the targets against the targets that we have out there that we still think are very appropriate targets and.

Mike Rosenbaum: In November, we will be back in Nashville to hold our annual customer conference connections. This is attended by 3000 members of the broader guidewire community. This will give us another valuable opportunity to showcase the latest innovation in our platform unlike samples of customer success.

Speaker Change: And we will talk about that a bit more at analyst day.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question is from Alexia <unk> with J P. Morgan. Please proceed with your question.

Speaker Change: Yeah.

Alexia: Hi, everyone. My question, congratulations with the five year anniversary and hope you managed to Fi telcos parking dis.

Mike Rosenbaum: In the past year and these last five years, sometimes seem like a remarkable achievement. We have taken a market defining on-premise vertical software leader and re-platformed to become a vertical software as a service leader. I have spoken to many people in this achievement and our success was somewhat surprising. But looking back now, it all looks pretty logical to me. We made a straightforward plan that made sense required nothing miraculous and focused on execution all the while ensuring that every single customer who chose to trust us never doubted their decision.

Speaker Change: Can I ask you a bit more about the.

Alexia: Demand environment, especially around commercial lines, because I've seen some data from.

Speaker Change: Council of insurance agents.

Speaker Change: You were talking about some.

Speaker Change: Softness in commercial PMC.

Are you seeing anything of that sort or.

Ah you win.

Speaker Change: Winning more market share.

Speaker Change: Which is not reflecting in.

Mike Rosenbaum: We are not and will never be perfect, but we will continue to prioritize our customers and the programs they run on our platform. We will continue to optimize our technical decisions for the long term and we will strive every day to earn the trust our customers place in us. We are right now very well aligned with our customers and in a unique position to help shape the future of the industry we serve. We continue to execute in the fashion we have demonstrated over the past few years and I'm confident we will continue to hit the forward looking objectives we set for ourselves.

Speaker Change: The dynamics that we're seeing for Ya.

Speaker Change: Yeah, let's see I'm going to thank you for the compliment I appreciate it very much and I'll, let John answer the question about commercial lines alright, So so alexia.

John Bonn: The potential softening in the market on commercial lines attributable in large part to large commercial and large property, we think that excess and surplus specialty and middle market is still a very it's still a very very dynamic rate environment.

Speaker Change: That that is an industry commentary what I'll also say that as we go forward we're finding.

John Mullen: With that, I will hand it over to John to provide a year-unperspective on the insurance industry and discuss in more detail around customer adoption and success on the guide wire cloud platform. Thanks, Mike. Good afternoon, everyone. It's been a very successful year at Guidewire. We have the pleasure of serving a customer base that is both critical and resilient. This year, we saw property and casualty insurance navigate conversions, conversions of pressures and continue to evolve with both the agility and precision with which they respond to inflation, the evolution of risk in the world, and the increased expectation of consumers and businesses.

Speaker Change: Really good success with our commercial lines opportunities London market has set a really good pace for us a large commercial in North America excess in surplus and specialty have all been really solid for us and the only thing I would say in addition to that is these decisions of getting to enterprise data and decisions and getting too.

Speaker Change: Large scale durable core processing is a decision that that goes beyond hard and soft market evolution.

Speaker Change: What is very critical is these ensure these large commercial carriers in commercial in general they really are everyday tuning their ability to make price make product changes enter and exit markets and make the right rating decisions and it's very difficult to make that decision without operating on a modern core platform. So we feel good.

John Mullen: We remain very confident in the durability of our relationship with the market and optimistic regarding the pace and change that we can help drive with and for the TNC industry. Reflecting on the 42 cloud deals we did for the year, we closed 13 insurance suite cloud deals in Q4, bringing our total insurance suite cloud deals to the year 37. We also closed three insurance now deals in the quarter. What we are seeing is the positive effect of a portfolio approach that is delivering a healthy balance across the business.

Speaker Change: Good about our ability to help navigate the ebbs and flows of hard and soft markets and we're really tuned into where we think the opportunities are to move faster.

Speaker Change: Thank you John and Jeff.

Speaker Change: Jeff just a quick question for you.

John Mullen: We've been working hard to drive specific plans and accountability in the markets, region, country, and line of business, and with specific carriers across all deal types. We added four net new customers in Q4 and saw continued strong wind rates with insurers looking to modernize their core systems. A super regional personal lines carrier elected to adopt our full suite and broad selection of our data products in order to standardize on a modern core system and facilitate their growth ambitions.

Speaker Change: Can you elaborate on the benefits from the AWS contract gross margins going forward. Thank you.

Speaker Change: Time, we spoke you mentioned that there was some frontloaded R&D investment.

Speaker Change: As it sort of fades away do you expect more benefits to gross margins.

Speaker Change: Yeah look I think you know we have a long standing partnership with AWS I'm not going to get into the particulars of that arrangement, but but we do we do have certain incentives and in that contract that we realize over or the contract I think the big and there's an element of that that that that plays into how we think about the March.

John Mullen: Argonaut managed services, a leader in excess and surplus, selected claim center to consolidate multiple claim systems and improve operational efficiency. Our track record and committed to customer success were key factors in their decision. For third mutual, a personal and commercial line carrier in the northeast of the US selected the full suite to leverage the guide wire cloud platform and its digital capabilities. And finally, Pearl Holdings, a single state non-standard auto-MGA had quartered in Miami, Florida, selected insurance now and predict to modernize their core with an emphasis on claims.

Speaker Change: And expansion, but the largest part of the overall margin expansion as the investments we've made in Guidewire cloud platform and the efficiencies that we're realizing as a result of that so.

Speaker Change: You know I wouldn't want to focus too much on kind of the particulars of that arrangement and focus more on the engineering teams delivered to enable our margins.

John Mullen: I highlight these net new winds because they exemplify our ability to execute and compete across a broad range of carrier size and complexity. It was also a strong quarter for cloud migration activity with a total of seven insurance suite cloud migrations. Five of the insurance suite migrations included very meaningful expansions beyond the scope of work we were addressing on print. One of the themes in the quarter was our customers willingness to make bigger commitments on guide wire cloud which was a key driver of our 19 percent fully ramped ARR growth.

Speaker Change: Yeah.

Speaker Change: Thank you very much.

Speaker Change: Thanks, a lot.

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

Kevin Kumar: Hi, Thanks for taking my questions.

Kevin Kumar: Wanted to ask you about just overall migration activity, how would you characterize kind of momentum there are you seeing kind of interest from customers.

Our on premise.

Is that starting to build.

Speaker Change: How do you think that plays out as we head into fiscal 'twenty five.

Speaker Change: Yeah. Thanks for the question I would describe it is steadily improving.

John Mullen: Notable in the quarter was deals that initiated as a single product discussion and evolved into broader full suite outcomes. For example, a tier one commercial insurance significantly expanded the adoption of guide wire cloud platform for its scalability, total cost of ownership, and platform unity across policy billing and claims. The reference ability of our relationships and the power of full suite and data is resonating in the market. We saw a healthy sales activity in both Asia-Pac and a mayor for the year. Our strength in North America really delivered in Q4. Looking at global deals by tier, Q4 was fairly balanced with three tier one deals, seven tier two deals, and the remainder coming from tier three and four.

Speaker Change: Improving slash steadily building.

Speaker Change: Yeah, I think again it has to do this has to do with the track record of success. The reliability. We've demonstrated the success stories the customers that have moved the concept that they're not and no longer.

Speaker Change: No.

Speaker Change: Breaking new ground from an it perspective, when they think about migration to Guidewire cloud. It's much more a question of when it makes sense for their business and planning that with those customers and so you know you see that build you know it's one of the really nice things about guide wires that we have this incredible customer base.

Speaker Change: And it's an opportunity for us to grow air or it's an opportunity for help to for us to help those customers get more agile.

John Mullen: Furniture ecosystem. We are seeing continued momentum. There are now over 25,000 professionals from 38 size working with us today. And in the fourth quarter, the number of cloud certified partner professionals from these firms increased 22% year-over-year to 9,500. The pace of uptake on our ski release training with this community affirms the size shared commitment to the model. Similarly, our solution partner community continues to expand. Guidewire marketplace now has over 215 technology partners.

Speaker Change: This resonates it doesn't it's not all going to come in one year.

Speaker Change: It's going to get spaced out over the course of many years and we're up for that challenge and you know and I and so yeah. It is steadily building and we're very we're pretty happy with where it is right now and especially the balance between migration activity and net new you know either customers, specifically or the net new use.

Speaker Change: Cases for existing customers that we pair to when migration all of those components of the business are going very well for us right now.

John Mullen: Finally, we saw strong results on customer programs in Q4. We achieved seven initial cloud go-lives on guidewire cloud platform in the quarter. We are seeing, as expected, significant increases in the number of cloud updates throughout the year, which speaks to the growing efficiency of our platform inside the customer environment. The services organization achieved higher than expected revenue and gross margin in the quarter. The team has been working hard to improve predictability.

Speaker Change: That's great and maybe one for Jeff on the premium true ups. You know you talked about some of the impact of the license revenue, but I'm just.

Jeff: Curious kind of how how is that true up affecting the model more broadly in terms of.

Our revenue anything you can share to help kind of give context.

John Mullen: And while we have more work to do, Q4 was a positive step forward. Successful customer outcomes is our primary objective for our services organization in collaboration with our SI partners have worked well together in this last year to drive pace and predictability for our community.

Speaker Change: Kind of how that's impacting the broader model.

Jeff: Yeah, No we saw a healthy backdrop of both CPI and DWP true ups this year.

Speaker Change: It added.

Speaker Change: Couple of percentage points to overall IRR growth above and beyond what we would see an atypical year.

John Mullen: In summary, fiscal year 24 demonstrates strong execution and we look ahead to fiscal year 25 confident our ability to continue to build momentum.

Speaker Change: And we expect it to be you know.

Jeff Cooper: With that, I'll hand over to Jeff. Thanks, John. The financial highlight of the quarter was the incredible combination of 19 percent cost and currency fully ramped ARR growth and 20 percent cash flow from operations margin. Our ability to deliver durable, profitable growth is a testament to the value that we deliver to the industry.

Speaker Change: A pretty resilient looking into next year.

Speaker Change: It would remain at slightly elevated levels.

Speaker Change: It was balanced right I mean, I think if you look at the overall true up activity there was proportionally more coming from the on Prem installed base.

Speaker Change: But given now the scale of our or in the cloud. We also saw a healthy amount coming from the cloud installed base and so on an absolute dollars. It was pretty balanced between both on private cloud.

Jeff Cooper: With that, let me jump into the details. Quart quarter ARR ended at $872 million up 14 percent year over year on a cost and currency basis ahead of our expectations. As a reminder, we measure ARR in a cost and currency basis throughout the year and then update ARR for year and FX rates. Making this update impacted ARR by negative 8 million resulting in ARR of 864 million. Fully ramped ARR, which is defined as the fully ramped annual price outlined in our customer contracts grew 19 percent year over year on a cost and currency basis.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: Got it.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question is from Dylan Becker with William Blair. Please proceed with your question.

Dylan Becker: Hey, guys I appreciate the question here, maybe going back to Jeff and John the points on <unk>.

Dylan Becker: Fully ramped or are seeing larger deals and seeing more full suite adoption is that a function, it's probably a little bit of both but.

Speaker Change: Of increased willingness from those tier one carriers, you maybe look to adopt a bit more piecemeal or is that a step function change in how they're looking at the ecosystem.

Jeff Cooper: This is a tremendous result that reflects a lot of hard work. We're winning in the market and executing well across the entire organization. Total cloud ARR, which includes ARR for all of our cloud products and for customers that have contracted to move to the cloud through 28 percent year over year and comprise 66 percent of total ARR. Total revenue for the year was 980 million ahead of our expectations to the stronger performance across all components of revenue.

Speaker Change: John you made a point of kind of better sales targeting being able to expand that scope and sure its a little bit of both but maybe some additional color there.

John Bonn: I would say this is just.

John Bonn: Continued progression in terms of how we're selling I wouldn't I wouldn't attribute it to tier one activity.

John Bonn: But we have seen some tier one activity healthy tier two activity it's.

Jeff Cooper: File strength continues to be visible in subscription revenue, which was 477 million up 36 percent year over year. It's exciting to see the progression of our subscription revenue line, which finished the year at just under 50 percent of total revenue. Subscription and support revenue was 549 million up 28 percent year over year. License revenues 250 million down 6 percent year over year as we continue to migrate our on-premise customers to our cloud.

John Bonn: It's just I think John noted this the team has done a really good job when.

John Bonn: When we look at our migration, maybe expanding a little bit beyond the initial on Prem footprint and I think that there is an understanding of the maturity of the platform that is giving comfort to customers and making some of these larger and longer any commitments.

Speaker Change: I don't know if there's anything you want it now.

Jeff Cooper: At the start of FY 24, we thought that this would decline closer to 10 percent year over year, but we benefited from stronger than expected true ups during the year. Services revenue finished at 181 million down 14% year-over-year as we've transitioned more implementation work to our SI partners and we minimize our reliance on subcontractors. Services revenue in Q4 was 51 million, up from our low of 38 million in Q2.

Speaker Change: The the ability for customers to call each other prospects and customers that call each other and have a very very deep conversations.

Speaker Change: About what's the right pace and cadence of programs to bite off and what's the value of of the suite is really what's driving it I wouldn't I would reiterate what Jeff said I don't think its tier specific at this point the tier ones are still very much a bespoke shoulder to shoulder conversation about what's the right size and fit for them.

Jeff Cooper: We were pleased with how we finished the year and expect modest year-over-year growth in services revenue in fiscal year 2025.

Speaker Change: Okay, great. Thank you guys and then maybe for Mike as well too Kevin there.

Jeff Cooper: Turning to profitability for the fiscal year, which we'll discuss on a non-gap basis, growth profit was 618 million. This was up 25% year-over-year. Overall growth margin was 63% compared to 55% a year ago. So, Scripture and support growth margin was 65.5% and over 10% at the point increase. Investments we made in our cloud platform are showing up in a much more efficient cloud operations function as we deliver the industry leading cloud service and an increasingly attractive growth margin profile.

Mike: But I mean, there's a step function of drivers for adoption here, but another one that we should kind of think that.

Speaker Change: I don't know if that's coming up in your conversations plays around the fact that that's.

Speaker Change: Labor is massively constrained right as we think about what the ecosystem is looking like is that something that's coming up in conversations quite yet as they're thinking about that kind of capacity or that skill gap as an additional driver of that.

Jeff Cooper: Services margin, growth margin was 7% compared with just below break even a year ago, notably in Q4 versus growth margin was 14% as we exit the year closer to our longer term margin expectations for this business. Operating income was 99.5 million, which was just above the midpoint of our outlook. The positive impact of higher than expected revenue was offset by the impact of the employee bonus accrual, which was higher than our expectations due to outperformance of key financial targets.

Speaker Change: Core system modernization efforts okay.

Speaker Change: Yes.

Speaker Change: Youre, describing certainly comes up.

Speaker Change: I think it comes up sometimes in the context of attracting.

Speaker Change: Attracting younger people to come work in the industry in providing systems for them there.

Speaker Change: Now.

Speaker Change: Aligns to our expectations, let's say about how computers should work in our computer system should work that comes up I think it also comes up with their perspective of your development teams and what are you asking them to work on and are you being able to retain the people that are capable of maintaining the legacy sits.

Jeff Cooper: Overall, stock base compensation was 146 million for the year up to 1.5%. Operating cash flow into the year at 196 million. We noted at the analyst date last year that we were at an exciting inflection point and profitability in cash flow and our progress on cash flow from operations and free cash flow significantly surpassed our expectations on stronger than expected collections. We ended the quarter with 1.1 billion in cash cash equivalence and investments. We also have 400 million in convertible debt that be sure is in March and we expect to settle in cash.

Speaker Change: So they've been running some times for 2030 years.

Speaker Change: This certainly comes up I mean, the whole industry is constantly trying to get more efficient and get more done with the existing <unk>.

Speaker Change: Folks that they have so that they can operate the company more effectively and I think you know the IC agility.

Speaker Change: The operational efficiency that data and insights that we can help provide it helps in all of those areas and so you know.

Speaker Change: For sure it's a component along with a number of others that factors into the overall push to modernize the industry.

Jeff Cooper: Now let me turn to our outlook for fiscal 2025. We expect ARR of between 995 million to 1.005 billion representing 16% constant currency growth at the midpoint. Updating our forecast model to reflect current effects rates has had an approximately $9 million negative impact on our fiscal 25 outlook. The revenue for the year is expected to be between 1.135 and 1.149 billion. We expect subscription revenue will be approximately 642 million representing 34% growth.

Speaker Change: Thank you our next question Thanks, a lot.

Speaker Change: Our next question is from Rishi Galeria with RBC. Please proceed with your question.

Rishi Galeria: Oh wonderful thanks, so much for taking my questions nice to see.

Rishi Galeria: Continued momentum on the cloud transition two for me first I wanted to maybe think about you know.

Speaker Change: Now that you have some time of customers being live on Guidewire cloud platform, maybe potentially getting towards that fully ramped level. What have you seen in terms of customer spending behavior from customers that are fully migrated over to guidewire cloud platform, especially in terms of their own propensity.

Jeff Cooper: Maintaining this strong growth rate is a reflection of the strength of the cloud deals we signed in fiscal 24. The port revenue will decline by about 3 or 4 million year over year as a result of the continued migration of our installed base to the cloud, resulting in approximately 710 million in subscription and support revenue. As a reminder, support revenue attaches to term license customers for cloud customer support activities are included in the subscription fee.

Speaker Change: The spend thinking about.

Speaker Change: Their expansion for example, if we were to look at <unk> for on premise Guidewire insurance suite cloud customers, how would those compare to NR on kind of a fully ramped basis for similar customers as theyre on insurance with cloud and then I've got a quick follow up.

Jeff Cooper: We expect license revenue to decline a bit due to study progress on cloud migrations, which is partially offset by contract through ups in our on-prem customer base. Aralic for services revenue is approximately 190 million. We expect total gross margins for the year to be approximately 65%, subscription and support gross margins to be approximately 68%, and professional services gross margin to be approximately 12%. We are pleased with this progression as we work to continue to drive margin improvement.

Yes, I mean, I'm not going to get into that or are the different cohorts. I mean, I think we have seen a healthy <unk>.

Speaker Change: Expansion within the within the cloud install base some of that is coming in the form of.

Speaker Change: How they build and in the Guidewire cloud platform and requirements for different environments that increase what we call platform spend.

Jeff Cooper: With respect to operating income, we expect a non-gap operating income, between 157 and 171 million for the fiscal year. We also expect gap operating income of between negative 4 million and positive 10 million. Given the strength in the business, we are able to deliver on our profitability goals, and in many cases raise our targets while also increasing some spend in our operating expenses, most notably in R&D, as we invest in the significant opportunities we see in front of us to help ensure is take advantage of modern applications to engage in a vacant grow.

Speaker Change: Within within Guidewire some of that May come in the form of attach of of different product sets within our data and analytics suite I think it's still pretty early.

Speaker Change: To make any judgments on on that overall attach rate, but that's something we're watching.

Speaker Change: And then.

Speaker Change: You know as we've obviously seen some direct written premium expansion as well that that flows into how we think about net renewal rates for the cloud installed base. So you know I think that there's more potential there and in the cloud, especially as you start to think about the marketplace and how that presents itself in the future than there was on Prem.

Jeff Cooper: I expect R&D spend to grow around 14% in fiscal 25, sales and marketing should grow a bit less than that, and GNA should grow in the mid to upper single digits. Cash flow from operations in fiscal 2025 is expected to be between 220 and 250 million. Our Catholic expectations for the year between 20 and 25 million, including approximately 12 million in capitalized software development costs, and 7 million in office build out projects in India.

Speaker Change: But probably too early to make any sort of a real comparisons.

Speaker Change: It's progressing.

Speaker Change: It's progressing very well.

Speaker Change: Component of our business model I think is going to is going very well I won't say, it's like exactly according to plan and we don't track it that closely but it's exactly what I would expect.

Speaker Change: Has to do with.

Speaker Change: Honestly the track record of success, if we make these customers successful, they're going to want to do more with us they're going to find other.

Speaker Change: Core system use cases that are going to make sense to expand that.

Jeff Cooper: Our Q1 Outlook can be found in our earnings press release, but let me provide a bit more color. Given the strong sales activity in Q4, we did not have many deals slip into Q1, so we expect typical seasonality in our first quarter, which impacts sequential ARR growth expectations. We expect subscription and support revenue of approximately 167 million and services revenue of approximately 50 million. We expect subscription support margin between 67 and 68% and services margins of around 11% and total gross margins of approximately 61%.

Speaker Change: It is based off of the success, we can drive with the program, but also the relationship with the various applications within insurance suite, Jeff mentioned, the other add on opportunities with platform with partners with data with analytics I think this will increasingly be a part of the story going forward.

Speaker Change: Right now.

Jeff: It's going it's going according to plan.

Speaker Change: So it's an insightful question I think it's early but it is going very well.

Speaker Change: Alright got it that's really helpful guys. Thank you and then.

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

Speaker Change: Mike in your prepared remarks, you called out some of the success Youre seeing on the insurance now side can you maybe talk to I guess number one you've seen what seems to be improving momentum with insurance now over really the past year or so what's driving that.

Jeff Cooper: In summary, we are incredibly proud of the year we had an FY24, and we are on track to meet or exceed the targets that we established during my first analyst day as CFO back in October of 2020.

Speaker Change: Both from an industry and maybe product perspective.

Speaker Change: Then number two is there a glide path or what would it look like for maybe insurance, who land on insurance now, but over time might get big enough that insurance suite cloud is actually the right solution what is that actual upgrade our onramp path look like thanks.

Jeff Cooper: And we look forward to seeing many of you at our analyst day this coming October 10 in New York.

Operator: With that, let's open the call for questions. Thank you.

Speaker Change: Yes, so we have you know us.

Speaker Change: Strategic question that we looked at years ago, when we embarked on our cloud transformation is what should be the core strategy with insurance now in insurance suite and we chose to maintain both of those applications to do our best to make sure that they were leveraging common infrastructure as much as.

Ken Wong: Our first question is from Ken Wong with Oppenheimer and company. Please proceed with your question. Great, thank you for taking my question. This first one for either Mike or John. Can you provide a little color on the context of some of these fully ramped deals? Are we seeing this across the board with customers or the kind of one off large deals? Would you say that these are typically kind of flatter up front and steep in the back or fairly vineyards? Just any color to help us think through the dynamics would be fantastic.

Speaker Change: Possible and continue to invest in both.

Speaker Change: Merrily this has to do with our commitment to the customer base, who is very happy with the insurance now product. There's a good a sort of cohort of insurance companies in North America, where insurance now is a very very good fit and we're very competitive when we find an opportunity in that sweet spot.

Speaker Change: It's a great product you know, it's a great business unit within the company.

Speaker Change: With respect to.

Speaker Change: I would say like it's acceleration over the past couple of years. It has to do with us being very very clear about our commitment to it and our investment in it and making sure that it's mark.

Mike Rosenbaum: Sure, let me touch on it real briefly and then I'll let you on comment. The first thing is that I don't want you to read anything into this with respect to ramps. You know, we're seeing pretty normal ramp structures and activity and we'll be able to provide a little bit more detail around that at analyst day, but relative to the commentary we provided a year ago around the ramp structures and the corresponding impact on ARR.

Speaker Change: You know, beating competitors and that you had deals I mean thats what it comes down to with respect to an onramp to insurance suite I would say, we really we tried to focus a lot on landing the customer on the right platform to begin with and there isn't a you shouldn't imagine a strategy that we have like start with insurance now and move to insurance.

Mike Rosenbaum: You shouldn't read anything into this. We just had a phenomenal quarter from a bookings perspective with great deals across the board. They were, you know, reasonably sized and so that creates a total deal value that drives a fully ramped number that's very healthy. Super proud of the team and the execution and kind of to me indicates the strength in the business. That's the way that that's the only thing I'd like you to read into it. Just, you know, very, very successful outcome with a bunch of people. They're great deals in the quarter that drove that, that drove that fully ramped number.

Speaker Change: We just because it's a pretty significant implementation on either one of those things and so we would like to get that correct from the very beginning where we do have a and opportunity to add more value is around you know.

Speaker Change: The additional analytics and data offerings like I mentioned, we can move the infrastructure for over to Guidewire cloud platform and create a little bit more margin for us and just run the service more efficiently and that's beneficial to us it is beneficial to our insurance now customers.

Speaker Change: That's basically you know what's going on is we're committed to these customers and we're committed to ensuring that this is successful and it's working pretty well for us.

John Mullen: Anything to add, John? If I look at the, if I look at the last quarter, there are two dimensions to it. The first one is certainly in some cases it's larger lines of business, but maybe more important is covering other areas, additional areas of scope. The team is getting much more attuned to listening for and solving business problems rather than addressing just the initial scope for consideration. And as we do that, the power of the suite is pulling in more conversations, and that was pretty prevalent actually in these cute deals. Perfect.

Speaker Change: Wonderful thank you.

Rajiv: Thanks Rajiv.

Speaker Change #100: Thank you. Our next question is from Parker Lane with Stifel. Please proceed with your question.

Parker Lane: Yeah, Hi, guys. Thanks for taking the question good to see the momentum with the net new customers I think it was four during the quarter.

John Bonn: John at any common themes in those customers.

John Bonn: Talked about during the prepared remarks, either in terms of the <unk>.

Speaker Change #102: Systems, Youre, replacing more common challenges that they face.

Jeff Cooper: And then just a quick one for for Jeff, maybe cost kind of also building on the fully ramped number, you know, guiding to about 16% in fiscal 25. I guess when we kind of compare that with the 19% fully ramped number.

John Bonn: The decision to move with Guidewire.

Speaker Change #103: I think the I think the first common theme is that we've been talking to them for a long time.

Speaker Change #103: These are these are our customers that we stay close to them. We've been talking to are talking to all of those wins net new wins for quite some time building relationship and understanding the business problems that.

Jeff Cooper: I guess what if you wrong for us to assume that there's potentially an acceleration in the future, or what's the right way to read that fully ramp versus what we're looking at in 25? Yeah, the fully ramped outcome certainly gives us confidence as we look at the durability of the growth. You know, I'm not, I'm not sure I would model in accelerations above kind of that 16% range, but I do think it kind of creates a bit more for us and a bit more visibility into the durability of kind of, you know, taking above the teams a bit on on the overall our growth set.

Speaker Change #103: The the thematic really is around opportunity business opportunity for growth in the <unk> and the need to move faster and the ability to get in and out of markets with the right products the right product definitions the right rates.

Speaker Change #103: Not really that really has is what's bringing the conversation to the table.

In a couple of cases in the quarter as I mentioned in the prepared remarks, those lead to well it was often a claims conversation or a billing conversation take two specific cases, those expanded very quickly to be sweet conversations and the reason for that really is around the confidence of execution and the confidence of that early.

Ken Wong: Okay, thank you Jeff.

Operator: Thanks again.

Michael Turin: Our next question is from Michael Turin with Wells Fargo. Please proceed with your question. Hey, great. Thanks, congrats on that close of year. I guess the first question is just maybe micro John, you're seeing a series of of tailwinds that are. It seems a bit better than what we're getting across software, so I just love to hear commentary on your perspective on the overall demand environment where you fit in terms of cloud momentum and overall competitive dynamics alongside just what you've taken and observed with the with the end of your.

Speaker Change #103: Commitment so I'd say the two major themes are one the pressure or the pressure to compete at speed is very real and so being close and close to the customers and being in a right time and place to have those conversations because of how close we stay to them was a really important theme for the quarter and the year and then the <unk>.

Speaker Change #104: Piece was really around because of the confidence of the platform today, the ability to expand I bring that up because in that expansion. Obviously has a displacement of some in some cases relatively modern implementations of systems that you would that you would see maybe a couple of years ago or a couple of years old.

John Mullen: Sure, thanks for the question. There's certainly a lot of things that feel like they're, you know, healthiness, right? You know, first is the industry we serve is very, very durable. Premiums are grown up across the insurance industry and that does with our pricing constructs, our contract constructs creates some lift to our ARR just based on DWP increasing. I also think we are distancing ourselves from alternatives and it's really a, in my opinion, just based on the track record of success that we have been able to establish with our cloud products over the past five or six years.

Speaker Change #104: We feel really good now about our ability to constantly address those just those displacements and execution in the sales cycle.

Speaker Change #105: Got it very helpful. Thank you.

Speaker Change #106: Thank you.

Speaker Change #106: Thank you. Our next question is from Joe Brewing with Baird. Please proceed with your question.

Joe Brewing: Hi, great. Thanks for taking my questions.

Joe Brewing: The difference between 19% growth in fully ramped they are or in the 16% growth you're talking about a coronary gallon the implication or the net new value that booked in fourth Q.

John Mullen: We are, you know, there's still a competitive market and we still compete fiercely for every single deal, but we are winning our fair share of those deals and I think that factors into the out performance in the quarters. We're also seeing, you know, just a, I guess I call it a conversion strength in that the deals that we're working on, the opportunities that we're looking at in a particular quarter are closing, you know, more frequently than we might have expected a couple of years ago, which I think speaks to the trust and confidence in the platform and the programs in the, in the whole community. You know, just collectively our ability to land these programs and make sure that they're successful. It all contributes to the lift and the, you know, the incredible success that we had in the quarter.

Speaker Change #108: Very far above your original plan it would seen and I wanted to put a finer point on what drove that John just named account and you're getting more full suite deals. Thank you.

Speaker Change #109: Originally pencil in that some of these deals in <unk> or maybe modules and alcohol suites I think win rates came up did that skew more favorable and you ended up grabbing some deals maybe you werent expecting and then I wanted to ask just any of the deals perhaps close a bit earlier so theirs.

Speaker Change #110: Simply a timing factor behind that that's working with strength.

Speaker Change #111: Yes, I think you you highlighted a couple of the key components, Oh, I don't think that.

John Mullen: So that's might take and I'm sure John has some more to add to it. Well, the industry is large by surface area, it's small by community and to Mike's point really the reference ability of the programs that we've been driving has provided a nice ability for that conversion rate. But I think the biggest, if I think the biggest tailwind we face is that chapter of moving from defending a cloud platform to really scaling and solving business problems with a cloud platform.

Speaker Change #112: We had a we had a very strong Q4 and you know we sometimes use the word run the table internally and we did our best to run the table, but I don't think there was anything there is certainly nothing that surprised us to say Oh man I didn't think that was going to close until Q1 or Q2. So it was pretty pretty typical and in that fashion.

Speaker Change #112: We are just seeing a willingness whereas two years ago, we werent seeing this willingness.

Speaker Change #112: We're seeing kind of starting small a little bit more and see how it goes and then make a big commitment I think we're seeing a bit more willingness to make a big commitment at the outset.

John Mullen: As certainly the industry has a tight convergence of it needs and business needs are no longer two different dimensions, they're merging together every day and we're in a really good spot to help navigate that and that's really what I think we saw over the course of this year.

Speaker Change #112: I think from an insurer's perspective, they can put the most muscle behind the negotiation and that outcome, but they feel confident that the platform that we have is ready to support those big programs that we're seeing that willingness more today than certainly where two years ago. We saw this last Q4.

Jeff Cooper: That's all super helpful commentary Jeff, you're, you're leading with cash flow and in the press release can't help but notice the cash flow margin for fiscal 25 looks like it's also running ahead of target model. So maybe you can, I don't want to feel any thunder ahead of a bigger investor session or hosting, but maybe speak to just the increasing focus on cash flow and what you're seeing that's driving the good conversion there.

Speaker Change #112: But we didn't want to assume that was a trend right because that was a very big quarter for us, but we backed it up with another another very strong Q4.

Speaker Change #113: That's great and then.

Speaker Change #113: What.

Speaker Change #114: But one thing I wanted to reconcile so bigger average deals and customers going all in upfront.

Jeff Cooper: Thanks. Yeah, I mean, we're really pleased with how the model is inflecting from an overall cash flow perspective. Obviously, I kind of think at the end of the day that's the primary metric that software companies are measured on. And so, you know, we're pleased with that. Some of the interesting dynamics that are that we're noticing are some of the timing of revenue elements that create a bit of a difference between non gap operating income and some of the cash flow dynamics and we'll talk about that a little bit more at analyst day, but that that underpins the power of our model.

Speaker Change #115: I think a lot of folks here that and think it's a it's a bigger carrier that's doing it but I think I heard this right 13 of the 16 cloud deals. This quarter came from tiers, two three or four so I'm just wondering if maybe that the strategy you've outlined is actually resonating more.

Speaker Change #116: Down market than maybe it has up until this point and does that actually drive even better reference ability for you going forward Yeah, you're nine share is well established and tier one and two but are you starting to see the needle move more meaningfully down markets.

Jeff Cooper: But certainly, this has been a focus of ours for a number of years and we kind of established how we think about our long term model. We've always had this part of the journey in the back of our mind and it's nice to see it come to realization and you know, we'll be continuing to monitor the targets against the targets that we have out there that we still think are very appropriate targets and we'll talk about that a bit more.

Michael Turin: Thank you.

Speaker Change #117: But I'd say number one tier twos, a big span of carrier. So there's tier two can.

Speaker Change #118: Can be split into kind of three or four different segments within it so.

Speaker Change #118: So happy that in those tier two deals we talked about that two of them sit towards the higher end of the tier two.

Alexei Gogolev: Our next question is from Alexei Gogolev with J.P. Morgan. Please proceed with your question. Hi everyone. Mike Thank you a bit more about the demand environment, especially around commercial lines because I've seen some data from Council of Insurance Agents. They were talking about some softness and commercial PMC. Are you seeing anything of that sort or are you winning more market share which is not reflecting in sort of the dynamic that we're seeing for you? Hey, Alexei, I'm going to thank you for the compliment.

Speaker Change #118: So that's that's good it's resonating at that tier two level, it's resonating down market.

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Speaker Change #118: How then do we think about tier one and I would say tier one still still works very specifically as.

Speaker Change #118: Its own proof points very specific proof points getting in and doing proofs of concept and digging in deep technically.

Speaker Change #118: The thing that has that has resonated since the day I got here is the deeper a customer goes the better we come out in the analysis and so tier two is has got a lot of reference ability and even at this point some movement of professionals across carriers, whereas that is not just reference ability, but portability of relationship which is.

Speaker Change #118: Powerful and more and more as we dig in deeper with the tier ones and we're running proofs of concept and very specific deep conversations on it. We're now very importantly, well past the technical proof points and as Mike said in the prepared in the earlier answer we're really into what's the best business timing the best business outcome for.

John Mullen: I appreciate it very much and I'll let John answer any question about commercial lines. All right, so Alexei, what the potential softening in the market on commercial lines attributable in large part to large commercial and large property, we think that excess and surplus specialty and middle market is still a very dynamic rate environment. That is an industry commentary. What I'll also say that as we go forward, we're finding really good success with our commercial lines, opportunities, London market as that are really good pace for us.

Mike: The backlog of work that they might have in other arena and also for the business drivers that they want to put in the marketplace.

Mike: So it's moving well.

Mike: Tier two is a very portable conversation across all parts of tier two tier one again still very specific to each tier one carrier.

Speaker Change #119: That's great. Thank you very much.

Speaker Change #119: Yeah.

Thank you. Our next question is from Alex Sklar with Raymond James. Please proceed with your question.

John Mullen: Large commercial in North America, excess and surplus specialty have all been really solid for us. And the only thing I would say in addition to that is these decisions of getting to enterprise data and decisions and getting to large scale durable core processing is a decision that goes beyond hard and soft market evolution. What is very critical is these insert these large commercial carriers and commercial in general, they really are every day tuning their ability to make price, make product changes, enter and exit markets and make the right rating decisions.

Alex Sklar: Great. Thank you John first one for you just following up on billings question on the tier one customers in but maybe asking it a slightly different way has anything changed in terms of the conversations there, indicating more of a willingness from the top to standardize across all commercial lines of business are all personal lines of business or does it still feel.

Speaker Change #121: Like its a pretty separate line of business by line of business decision. Thanks.

Speaker Change #122: It's it's very specifically still a line of business by line of business conversation.

Speaker Change #123: And and we're okay with that because we know the depth of proof point, we're gonna have to dig in those improve it out and expand from there, which gives us tremendous amount of long term opportunity but.

John Mullen: And it's very difficult to make that decision without operating on a modern core platform. So we feel good about our ability to help navigate the ebbs and flows of hard and soft markets, and we're really tuned into where we think the opportunities are going faster.

John Mullen: Thank you, John.

Speaker Change #123: For good or bad and it is I think good because it allows us to go deeper it's very specific to lines of business or specific products.

Jeff Cooper: And Jeff, just a quick question for you. Can you elaborate on the benefits from the AWF contract to gross margins going forward? The last thing we spoke you mentioned that there was some front-loaded R&D investment as it sort of fades away to more benefits to gross margins. Yeah, look, I think we have a long-standing partnership with AWS. I'm not going to get into the particulars of that arrangement, but we do have certain incentives in that contract that we realize over the contract.

Speaker Change #123: Okay, great. Thanks, and then Jeff one for you just the smoothing of quarterly bookings is something that you've kind of had a lot of success with over this past year land.

Jeff: Landing earlier in the year upfront any change to how youre thinking about seasonality as we go into this upcoming year.

Jeff: Yeah, we had a we did a lot of work on that and then we had a blowout Q4, so does that mean.

Look I think we saw and it's pretty typical linearity for us.

Jeff: Certainly the team did a did a lot of work in Q1, and Q2 and Q3 to put us in a very strong position.

Jeff Cooper: I think the big, and there's an element of that that plays into how we think about the margin expansion, but the largest part of the overall margin expansion is the investments we've made in guide wire cloud platform and the efficiency that we're realizing as a result of that. So you know, I wouldn't want to focus too much on kind of the particulars of that arrangement and focus more on the engineering team delivered to enable our markets.

Jeff: And so you know I I think we're continuing to work hard to make sure that we don't rely on on herculean in Q4s.

Jeff: Given the size of our sales team in the vertical that we focus on I think the team is doing a really good job. So I would expect kind of you know.

Jeff: As I look at this year similar with at all.

Speaker Change #124: I'll add one point to linearity as it is.

In large part been due to the execution of the team and focusing on our smoothing, but the real benefit of linearity is timing more of our financial activities up to our customers and the markets financial activities.

Alexei Gogolev: Thank you very much. Thank you, Alexei. Thank you.

Kevin Kumar: Our next question is from Kevin Kumar with Goldman Sachs. Please proceed with your question. Hi, thanks for taking my questions. Mike wanted to ask you about just overall migration activity. How would you characterize kind of momentum there? Are you seeing kind of interest from customers, you know, who are on on premise? You know, is that starting to build, you know, how do you think that plays out, you know, as we head into the fiscal 25?

Speaker Change #124: Allowing for our Q2 to become an increasingly important quarter for us times us better for planning when we look at ourselves through the customers' lens.

Speaker Change #125: Alright, Thank you both for that.

Speaker Change #125: Yeah.

Speaker Change #126: Thank you. Our next question is from Matt Vanvliet with BTG. Please proceed with your question.

Mike Rosenbaum: Yeah, thanks for the question. I would describe it as steadily improving slash steadily building. I think, again, it has to do this has to do with the track record of success, the reliability we demonstrated, the success stories, the customers that have moved, the, you know, the concept that they're not no longer, you know, breaking new ground from an IT perspective when they think about migration to guide war cloud. It's much more a question of when it makes sense for their business and planning that with those customers.

Matt VanVliet: Hey, good afternoon, thanks for taking the question.

Matt VanVliet: Just wanted to touch on the partner community, especially on the services side of it.

Matt VanVliet: Our conversations continue to to talk about improving relationship there and a lot better communication back and forth, but I guess, John where do you feel like you're at in terms of the plan you've implemented.

John Bonn: Knowing both sides of the house now very well is there still more work to be done or is it just a matter of continuing to execute on the plans in place and it just.

John Bonn: Just sort of incremental changes here and there.

John Bonn: Yes.

Mike Rosenbaum: And so, you know, you see that build, you know, it's one of the really nice things about guide wires that we have this incredible customer base. And it's an opportunity for us to grow ARR. It's an opportunity for help to for us to help those customers get more agile. You know, this resonates, it doesn't, it's not all going to come in one year, you know, it's going to get spaced out over the course of many years and we're up for that challenge.

John Bonn: Thanks for the question.

John Bonn: The work ahead is.

John Bonn: If you look at it from a distance it is very much more of the same but if you dig into regional specificity. It becomes is the next round of focus for us which is Europe.

John Bonn: Europe, and Asia Pacific, Japan in particular had very specific and different needs and some different requirements of partnership there and so we're working very specifically now with our managing directors in each region to make sure that we've got the right. The right strategic plan for go to market and also the right services have plan for collaboration.

Mike Rosenbaum: And, you know, and so yeah, it's steadily building and we're very, we're pretty happy with where it is right now, and especially the balance between migration activity and net new, you know, either customers, specifically, or the net new use cases for existing customers that we pair to a migration. All those components of the business are going very well for us right now.

John Bonn: The piece that I don't think changes at all is the foundational elements of how we work together on programs and how we continue to invest in making sure that the Si can sit in that driver's seat of the program to bring scale and increased scale and predictability to the community. So more of the same but really pleased with how that progressed over this last year.

Jeff Cooper: That's great.

Jeff Cooper: And maybe one for Jeff on the premium true ups, you know, you talked about some of the impact of the license revenue, but just curious kind of how, how that true up is affecting the model more broadly in terms of, you know, ARR revenue, anything you can share to help kind of give context to kind of how that's impacting the broader model. Yeah, don't we saw, you know, a healthy backdrop of CPI and DWP true ups this year, it added, you know, a couple percentage points to overall ARR growth above and beyond what we would see in a typical year.

Speaker Change #128: Yep very helpful. And then maybe dovetailing a little bit on the the ability to expand more quickly as more customers are on Gw's C. P.

Speaker Change #129: When we look at it from sort of the marketplace and some of your technology partners out there.

Speaker Change #130: How are you balancing that element of cultivating a lot more partners getting into very specific use cases, or even very regionally dip.

Speaker Change #131: Dependent items versus building out more of that internally now.

Now that you have the majority of your customers either on are on the path to being on essentially one version of the platform.

Jeff Cooper: And we expect it to be, you know, a pretty resilient looking into next year that that would remain at that slightly elevated levels. It was balanced, right? I mean, I think if you look at the overall true up activity, there was proportionally more coming from the on prem install base. But given now the scale of our ARR and the cloud, we also saw a healthy amount coming from the cloud install base and so on an absolute dollars, it was pretty balanced between both on prem that cloud.

Speaker Change #131: Yeah.

Speaker Change #132: Yeah. This is a it's a tough strategic question I think the way I think about this is that we want to create.

Kevin Kumar: Great. Thank you.

Speaker Change #132: The ecosystem that our customers would want from us as a vendor right they want to have choices.

Speaker Change #132: They want to have Guidewire produced something that has.

Speaker Change #132: A degree of openness to it that enables people to connect safely and securely and reliably into the cloud system that we serve and then we also will have objectives about what we build in what we sell and what we deliver first party.

Dylan Becker: Our next question is from Dylan Becker with William Blair. Please proceed with your question. Thank you. I appreciate the question here. Maybe going back to Jeff and John, the point on Holy Ramp ARR, seeing larger deals and seeing more full suite adoption. Is that a function? It's probably a little bit of both, but of increased willingness from those tier one carriers who maybe look to adopt a bit more piece mail. Is that a step function change in how they're looking at the ecosystem? Or I think John, you made a point of kind of better sales targeting being able to expand that scope. I'm sure it's a little bit of both, but maybe some additional color there.

Speaker Change #132: And there'll be no we're not going to be able to do everything we are certainly going to do more we are like I said, we're in a really good position strategically to provide more and more value to our customer base in this industry and it will have a.

Speaker Change #132: Our product strategy that we will attempt to be open about.

Speaker Change #132: And maybe from time to time, there will be overlap with with partners, but you basically want to have that dynamic. If you are a customer of guidewire and thats, how I try to think about how we should approach the building that ecosystem now.

Dylan Becker: I would say, you know, this is just continued progression in terms of how we're selling. I wouldn't attribute it to, you know, tier one activity, but we have seen, you know, some tier one activity, healthy tier two activity. It's just, you know, I think John noted this. The team has done a really good job when we look at a migration, maybe expanding a little bit beyond the initial on-prem footprint. And I think that there's an understanding of the maturity of a platform that is getting comfort to customers and making some of these larger and longer-ade commitments.

Speaker Change #132: And at the end of the day, if we keep creating a call.

Speaker Change #132: Call It a community of customers on our cloud that's going to create it.

Speaker Change #132: Very large opportunity for ensure tax and technology partners to connect into Guidewire and build applications that integrate with us and I think that that's going to be great for our whole ecosystem and so that's how I think about it. It's a complicated thing to you know to manage and work through every single use case.

Speaker Change #132: But at a high level, that's how we're approaching it.

Dylan Becker: Some others in that you wonder. The ability for customers to call each other prospects and customers to call each other and have very, very deep conversations about what's the right pace and cadence of programs to bite off and what's the value of the suite is really what's driving it. I would reiterate what Jeff said. I don't think it's tier specific at this point. The tier ones are still very much of the spoke shoulder to shoulder conversation about what's the right size and fit for them.

Speaker Change #133: Alright, great. Thank you.

Speaker Change #133: Yeah.

Speaker Change #133: Yeah.

Speaker Change #134: Thank you. Our next question is from Aaron Kimpton with citizens JMP. Please proceed with your question.

Aaron Kimpton: Great. Thanks for the questions what is fair to classify the current state of the P&C end market is a bit of a golden age for your customers or simultaneously and a robust hard markets and have high interest rates III in basketball. So how do you think about the sustainability of the end market strength as it flows through to Guidewire in both the hard market teams and if we start.

Mike Rosenbaum: Okay, great. Thank you guys. And then maybe for Mike as well, too, given that there is, I mean, there's a step function of drivers for adoption here, but another one that we picked up to. I don't know if this is coming up in your conversations, but it's around the fact that that labor is massively constrained, right, as we think about what the ecosystem is looking like. Is that something that's coming up in conversations quite yet?

Mike Rosenbaum: Is there it thinking about that kind of capacity or that skill step as an additional driver of that course is the modernization efforts? Thank you. Well, you're describing certainly comes up, you know, I think it comes up sometimes in the context of attracting younger people to come work in the industry and providing systems for them that are, you know, aligns to their expectations, let's say, about how computers should work, you know, computer systems should work.

Speaker Change #135: To see rate cuts.

Speaker Change #135: Yeah.

Speaker Change #137: I'd say that.

Speaker Change #138: And the thing I love about serving this industry is how durable is and John said, you know there's going to be hard markets, there's going to be softer markets theres going to be changes fundamentally what I wanted to deliver to this industry is agility I wantto enable.

Mike Rosenbaum: That comes up. I think it also comes up with the perspective of, you know, your development teams and what are you asking them to work on and are you able to retain the people that are capable of maintaining the legacy systems that they've been running for some time for 20, 30 years. So, you know, this certainly comes up. I mean, the whole industry is constantly trying to get more efficient and get more done with the existing folks that they have so that they can operate the company more effectively.

Speaker Change #138: Them to operate their companies.

Speaker Change #138: More efficiently make decisions faster adjust to changing dynamics as quickly as they need to and core systems and Guidewire provided core systems can do that in a unique way.

Speaker Change #138: That's what I, that's what I see and that's what's nice about serving this market is that there is a need for this and this industry is very durable so I don't.

Speaker Change #139: Things may be going in a positive direction for the insurance industry. The outlook may be improving but that I don't want people to think that we imagine a day in which all of that reverses right. I. Just think that there is such a huge opportunity to help modernize this industry and the industry is going to.

To operate and grow steadily over I would imagine at least the next 10 to 20 years. It creates a very good it just creates a great opportunity for guidewire, whether or not the current kind.

Mike Rosenbaum: And I think, you know, the IT agility, you know, the operational efficiency, the data and insights that we can help provide, it helps in all those areas. And so, you know, for sure, it's a component along with the number of others that factors into the just overall push to modernize the industry.

Speaker Change #139: Kind of conditions right now are great.

Speaker Change #140: That's wonderful right, but you know I still think that this whether.

Speaker Change #140: Whether or not its interest rates or a risk score premium there.

This industry is just going to stay durable and it's going to continue to need to be modernized and so that's how I think about making plans for guidewire is how do we serve this industry for the next 10 or 20 years.

Rishi Jaluria: Thank you. Our next question is from Rishi Jaluria with RBC. Please proceed with your question.

Speaker Change #141: That's really helpful. Thank you and then the second question I have now been $9 five months since you've talked about wanting to be more opportunistic around M&A. Yes, you spoke today on last quarter pretty pointedly about organic product investments. What are you seeing in private market valuation expectations and has your outlook on organic versus then.

Rishi Jaluria: Oh wonderful. Thanks so much for taking my questions. Nice to see continued momentum on the cloud transition. Two for me, first, I wanted to maybe think about now that you have some time of customers being live on guidewire cloud platform, maybe potentially getting towards that fully ramp level. What have you seen in terms of customer spending behavior from customers that have fully migrated over the guidewire cloud platform, especially in terms of their own propensity to spend thinking about their expansion.

Speaker Change #142: Organic investment changed over the last few quarters. Thank you.

Speaker Change #143: Yeah, we are.

Certainly.

Speaker Change #143: In a position to be able to consider.

Speaker Change #144: M&A more seriously than we have in the past, but the strength of our business improving and the customer base increasing it.

Rishi Jaluria: For example, if we were to look at NRR for on-premise guidewire or insurance to cloud customers, how would those compare to NRR on kind of a fully ramp basis for similar customers as they're on insurance to cloud. And then I've got a quick follow up. Yeah, I mean, I'm not going to get into the NRR, the different cohorts. I mean, I think we have seen healthy expansion within the cloud install base.

Speaker Change #144: You know just the durability of our business improving.

Speaker Change #144: It more and more possible for us to approach inorganic grew.

Speaker Change #144: Growth Okay, but we are also very careful we want to ensure that we get the right price and we get the right technology and we get the right culture, and we get the right team and it fits in with Guidewire and so we I think we have something very special and guide wire right now in terms of just a software company and looking at.

Speaker Change #144: The overall landscape and I don't want to put that at risk and so we're gonna be very careful. So yes. We are more open to it and we are looking more aggressively but I'm also pretty picky. We are also pretty picky and we want to make sure that we do it correctly and I also want people to understand that you know I.

Rishi Jaluria: Some of that may come in the form of attach of different product sets within our data analytics. We I think it's still pretty early to make any judgments on that overall attach rate, but that's something we're watching. And then we've obviously seen some direct written premium expansion as well that flows into how we think about net renewal rates for the cloud install base. So I think that there's more potential there in the cloud, especially as you start to think about the marketplace and how that presents itself in the future than there was on-prem, but probably too early to make any sort of real comparisons.

Speaker Change #144: I have a high degree of confidence that we can build product at Guidewire. We can execute we have proven over the past five years that we can build software and execute effectively and so you know we may choose in certain categories to build product organically and that'll take us a little while to build it but well I have a high degree of confidence.

Speaker Change #144: Execute so I guess, that's how that's how I would think about it I don't don't put me on a clock.

Speaker Change #144: To do M&A.

Speaker Change #144: We're open to it but we're not it's not necessary for us to reach our long term ambitions.

Rishi Jaluria: It's progressing. I mean, that is progression very well. This component of our business model, I think, is going very well. I won't say it's like exactly according to plan and we don't track it that closely, but it's exactly what I would expect. You know, and it has to do with honestly the track record of success. If we make these customers successful, they're going to want to do more with us. They're going to find other core system use cases that are going to make sense to expand that.

Speaker Change #145: Great. Thanks, Mike.

Speaker Change #146: Thank you.

Speaker Change #147: Thank you there are no further questions at this time I think I'd like to hand, the floor back over to Mike Rosenbaum for any closing comments.

Speaker Change #148: I just wanted to say are you now.

Mike Rosenbaum: Everybody at Guidewire, who put in all the work to deliver a great year I appreciate everybody joining us on the call today and look forward to seeing you if possible at our analyst day in New York or maybe connections little bit later in the year. So thanks for joining everybody.

Rishi Jaluria: You know, it's based off of the success we can drive with the program, but also the relationship of the various applications within insurance suite. Jeff mentioned the other add-on opportunities with platform, with partners, with data, with analytics. I think this will increasingly be a part of the story going forward. And right now, it's going sort of according to plan. So it's an insightful question, I think it's early, but it is going very well. All right, God, that's really helpful guys. Thank you.

Speaker Change #150: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Mike Rosenbaum: Yeah.

Mike Rosenbaum: And then Mike and your preparation marks you called out some of the success you're seeing on the insurance now side. Can you maybe talk to, I guess, number one, you've seen, you know, what seems to be improving momentum with insurance now over really the past, you know, years. So what's driving that, you know, both from an industry and maybe product perspective. And then number two, is there a blind path or what would it look like?

Mike Rosenbaum: Like for maybe insurers who land on insurance now, but over time might get big enough that insurance to be cloud is actually the right solution. What does that actual upgrade or on rampant look like? Thanks. Yeah, so we have, you know, that strategic question that we looked at years ago when we embarked on the cloud transformation is what should be the core strategy with insurance now insurance suite. And we chose to maintain both of those applications to do our best to make sure that they were leveraging common infrastructure as much as possible and continue to invest in both, you know, primarily this has to do with our commitment to the customer base who is very happy with the insurance now product.

Mike Rosenbaum: There's a good, you know, sort of cohort of insurance companies in North America where insurance now is a very, very good fit and we're very competitive when we, you know, find an opportunity in that sweet spot. So it's a great product, you know, it's a great business unit within the company. With respect to, you know, I would say like it's acceleration over the past couple of years, it has to do with us being very, very clear about our commitment to it and our investment in it and making sure that it's more, you know, out, you know, beat competitors in that deal.

Mike Rosenbaum: I mean, that's what it comes down to with respect to an on ramp to insurance suite. I would say we prime, really we try to focus a lot on landing the customer on the right platform to begin with. And there isn't, you shouldn't imagine the strategy that we have of like start with insurance now and move to insurance suite just because it's a pretty significant implementation on either one of those things.

Mike Rosenbaum: And so we would like to get that correct from the very beginning where we do have an opportunity to add more value is around, you know, the additional analytics and data offerings. Like I mentioned, we can move the infrastructure from over to guide our cloud platform and create a little bit more margin for us and just run the service more efficiently and that's beneficial to us. It's beneficial to our insurance now customers, you know, but that's basically, you know, what's going on is we're committed to these customers and we're committed to ensuring that this is successful and it's working pretty well for us.

Mike Rosenbaum: Wonderful. Thank you.

Parker Lane: Our next question is from Parker Lane, which people please proceed with your question. Yeah, guys, thanks for taking the question. Good to see the momentum with the net new customers.

Mike Rosenbaum: I think it was ordering the quarter. Mike and John, any common themes on those customers that you talked about during the prepared remarks, either in terms of, you know, the systems you're replacing or common challenges that they face that persistently has the decision to move with guideware. I think the first common theme is that we've been talking to them for a long time. These are customers that we stay close to. We've been talking to all of those wins, new wins for quite some time, building relationship and understanding the business problems.

Mike Rosenbaum: The thematic really is around opportunity, business opportunity for growth and the need to move faster and the ability to get in and out of markets with the right products, the right product definitions, the right rates. And that really has is what's bringing the conversation to the table. In a couple of cases in the quarter, as I mentioned in the prepared remarks, those led to, well, it was often a claims conversation or a billing conversation and take two specific cases, those expanded very quickly to be sweet conversations.

Mike Rosenbaum: And the reason for that really is around the confidence of execution and the confidence of that early commitment. So I think the two major themes are one, the pressure to compete at speed is very real. And so being close to the customers and being in a right time and place to have those conversations, because of how close we stayed with them, was a really important theme for the quarter and the year.

Mike Rosenbaum: And then the second piece was really around because of the confidence of the platform today, the ability to expand. And I bring that up because in that expansion obviously has a displacement of some, in some cases, relatively modern implementations of systems that you would, that you would see maybe a couple of years ago or a couple of years old. We feel really good now about our ability to confidently address those, those displacements and execution in and the fail cycle.

Mike Rosenbaum: Very helpful.

Joe Brewing: Thank you.

Joe Brewing: Our next question is from Joe Brewing with Beard. Please proceed with your question. Great. Thanks for taking the questions. The difference between 19% growth and fully ramped ARR and the 16% growth you're talking about a quarter ago, it's the implication for the net new value that booked in 4Q. That's just very far above your original plan. It would seem an island that put a finer point on what drove that, you know, John just made the comment that you're getting more full sweet deals.

Joe Brewing: Did you originally pencil in that some of these deals in 4Q were maybe modules and not full sweet. I think when rates came up, did that skew more favorable and you ended up grabbing some deals maybe you weren't expecting it. And then I wanted to ask just to any of the deals perhaps close a bit earlier. So there's simply a timing factor behind the 4Q's ranks. Yes, I think you highlighted a couple of the key components.

Joe Brewing: I don't think that we had a very strong Q4 and we sometimes use the word run the table internally and we did our best to run the table, but I don't think there was anything. There was certainly nothing that surprised us to say, oh man, I didn't think that was going to close until Q1 or Q2. So it's pretty typical in that fashion. And we are just seeing a willingness, whereas two years ago we weren't seeing this willingness.

Joe Brewing: We're seeing kind of starting small a little bit more and see how it goes and then make a big commitment. I think we're seeing a bit more willingness to make a big commitment at the outset. I think from an insurance perspective, they can put the most muscle behind the negotiation in that outcome. But they feel confident that the platform that we have is ready to support those big programs, and we're seeing that willingness more today than certainly were two years ago.

Joe Brewing: We saw this last Q4, but we didn't want to assume that was a trend, right? Because that was a very big quarter for us, but we backed it up with another very strong Q4. That's great. And then what? One thing I wanted to reconcile. So bigger average deals and customers going all in upfront. I think a lot of folks hear that and think of it's a bigger carrier that's doing it. But I think I heard this right, 13 of the 16 clad deals this quarter came from tiers two through four.

Joe Brewing: So I'm just wondering if maybe the the strategy outline is actually resonating more down market than maybe it has up into this point. And does that actually drive even better reference ability for you going forward? You know, your nine shares well established in tier one and two. But are you starting to see the needle move more meaningfully down markets? But I'd say number one, tier two is a big span of carriers.

Joe Brewing: So there's, you know, tier two can be split into, you know, kind of three or four different segments within it. So happy that in those tier two deals we talked about that, you know, two of them sit towards the higher end of the tier two. So that's, that's good. It's resonating at that tier two level. It's resonating down market. The how then do we think about tier one? And I would say tier one still still works very specifically as its own proof points, very specific proof points, getting in and doing proofs of concept and digging in deep technically.

Joe Brewing: The thing that has that has resonated since the day I got here is the deeper a customer goes, the better we come out in the analysis. And so tier two is, is got a lot of reference ability. And even at this point, some movement of professionals across carriers, where that is not just reference ability but portability of relationship, which is really powerful. And more and more as we dig in deeper with the tier ones and we're running proofs of concept and very specific deep conversations on it, we're now very importantly well past the technical proof points.

Joe Brewing: And as Mike said in the prepare in the earlier answer, we're really into what's the best business timing, the best business outcome for the backlog of work that they might have in other arena. And also for the business drivers that they want to put in the marketplace. So it's moving well. Tier two is a very portable conversation across all parts of tier two, tier one, again still very specific to each tier one carrier. That's great.

Mike Rosenbaum: Thank you very much.

John Mullen: Thank you. Our next question is from Alex Clark with Raymond James. Please pursue your question. Great. Thank you. John, first one for you, just following up on Dylan's question on the tier one customers. And but maybe asking it slightly different way. Has anything changed in terms of the conversation there, indicating more of a willingness from the top to standardize across all commercial lines of business or all personal lines of business? It still feels like it's a pretty separate line of business by line of business decision.

John Mullen: Thanks. It's very specifically still a line of business by line of business conversation. And we're okay with that because we know the depth of proof point. We're going to have to dig in those and prove it out and expand from there, which feels this tremendous amount of long-term opportunity. But- for good or for bad, and it is I think good because it allows us to go deeper. It's very specific to lines of business or specific products.

Jeff Cooper: Okay, great, thanks. And then Jeff, one for you, just the smoothing of quarterly bookings is something that you've kind of had a lot of success with over this past year, landing earlier in the year up front. Any change to how you're thinking about seasonality as we go into this upcoming year? Yeah, we did a lot of work on that. And then we had to blow out Q4. So I mean, look, I think we thought it's pretty typical in the year for us.

Jeff Cooper: Certainly the team did a lot of work in Q1, Q2, and Q3 to put us in a very strong position. And so, you know, I think we're worth continuing to work hard to make sure that we don't rely on on percoli and Q4's given the size of our sales team and the vertical that we focused on. I think the team is doing a really good job. So I would expect kind of, you know, as I look at this year, similar way.

Jeff Cooper: I'll have one point to linearity is it's it's in large part, then due to the execution of the team and focusing on our smoothing, but the real benefit of linearity is timing more of our financial activities up to our customers in the markets financial activities, allowing for our Q2 to become an increasingly important quarter for us times us up better for planning when we look at ourselves through the customer's lens. Thank you both for that.

Matt VanVleet: Thank you.

John Mullen: Our next question is from Matt VanVleet with BTIG. Please proceed with your question. Hey, good afternoon. Thanks for taking the question. I guess one of the touch on the partner community, especially on the services side of it. Our conversations continue to talk about improving relationship there and a lot better communication back and forth, but I guess John, where do you feel like you're at in terms of the plan you've implemented? Obviously knowing both sides of the house now very well. Is there some more work to be done or is it just a matter of continuing to execute on the plans in place and just sort of incremental changes here and there?

John Mullen: Yeah, the thanks for the question. The work ahead is if you look at it from a distance is very much more of the same, but if you dig into regional specificity, it becomes the next round of focus for us, which is Europe and Asia Pacific, Japan in particular have very specific and different needs and some different requirements of partnership there. And so we're working very specifically now with our managing directors in each region to make sure that we've got the right the right strategic plan for go to market and also the right services plan for collaboration.

John Mullen: The piece that I don't think changes at all is the foundational elements of how we work together on programs and how we continue to invest and making sure that the size can sit in that driver's seat of the program to bring scale and increase scale and predictability of the community. So more of the same, but really pleased with how that progressed over this last year.

John Mullen: Yeah, very helpful. And then maybe telling a little bit on the ability to expand more quickly as more customers are on GWCP when we look at it from sort of the marketplace and some of your technology partners out there. How are you balancing that element of cultivating a lot more partners getting into very specific use cases or even very regionally? The dependent items versus building out more of that internally now that you have the majority of your customers either on or on the path to being on essentially one version of the platform.

John Mullen: Yeah, this is a tough strategic question, and I think the way I think about this is that we want to create the ecosystem that our customers would want from us as a vendor, right? They want to have choices. They want to have guide wire produce something that has a degree of openness to it that enables people to connect safely and securely and reliably into the cloud system that we serve. And then we also will have objectives about what we build and what we sell and what we deliver first party.

John Mullen: And there'll be, you know, we're not going to be able to do everything. We are certainly going to do more. We are, you know, we're in, like I said, we're in a really good position strategically to provide more and more value to our customer base in this industry and we'll have a, you know, a product strategy that we will attempt to be open about. And maybe from time to time there will be overlap with partners, but you basically want to have that dynamic.

John Mullen: If you are a customer of guide wire, and that's how I try to think about how we should approach the building that ecosystem. You know, and at the end of the day, if we keep creating a, you know, call it a community of customers on our cloud, that's going to create a. Very large opportunity for insure tax and technology partners to connect into guide wire and build applications that integrate with us.

John Mullen: And I think that's that that's going to be great for our whole ecosystem. And so that's how I think about it. It's a complicated thing to, you know, to manage and and work through every single use case, but at a high level, that's how we're approaching it.

John Mullen: All right. Great.

Operator: Thank you.

Aaron Kimson: Our next question is from Aaron Kimson with Citizens JMP. Please proceed with your question. Great. Thanks for the questions. Would it be fair to classify the current state of the PNC on market as a bit of a golden age for your customers or simultaneously in a robust hard market and have high interest rates to reinvest the flow. So, so how do you think about the sustainability of the on market strength as opposed to guide wire on both the hard market fees and if we start to see red cuts.

Aaron Kimson: Yeah, I would say that the thing I love about serving this industry is how durable is and John said, you know, that there's going to be hard markets. There's going to be softer markets. There's going to be changes.

Mike Rosenbaum: And finally, what I wanted to deliver to this industry is agility. I want to enable them to operate their companies more efficiently, make decisions faster, adjust changing dynamics as quickly as they need to and core systems. And you know, guide wire provided core systems can do that in a unique way. That's what I that's what I see and that's what's nice about serving this market is that there is a need for this and this industry is very durable.

Mike Rosenbaum: So, I don't, you know, yeah, things may be going in a positive direction for the insurance industry, the outlook may be improving, but that I don't want people to think that we imagine a day in which all that reverses, right. I just think that there's such a huge opportunity to help modernize this industry and the industry is going to continue to operate and grow steadily over. I would imagine, at least the next 10 to 20 years, it creates a very, it's just creates a great opportunity for guide wire, whether or not the current, you know, kind of conditions right now are great.

Mike Rosenbaum: That's wonderful, right. But, you know, I still think that, you know, this whether or not it's interest rates or risk or premium and this industry is just going to stay durable. And it's going to continue to need to be modernized and so that's how I think about making plans for guide wire is how do we serve this industry for the next 10 to 20 years. Thank you. That's really helpful. Thank you.

Jeff Cooper: And then the second question I have, it's now been nine and a half months since you talked about wanting to be more opportunistic around M&A. Yeah, you spoke today on last quarter pretty pointedly about organic product investments. What are you seeing in private market valuation expectations and has your outlook on organic versus in organic investment changed over the last few quarters? Thank you. Yeah, we are.

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