Q3 2025 Guidewire Software Inc Earnings Call
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Improving the maturity and robustness of our platform and validating our long standing strategy to focus on the unique demands of this segment of the market.
Our sales success resulted in a IRR of $960 million, allowing us to raise our full year outlook.
We are solidly on track to exceed 1 billion in <unk>. This year, which was a collective ambition, we established a number of years ago.
We will be thrilled to surpasses milestones, but more excited about the overall momentum in the business.
Our growth this quarter was broad based and multi dimensional with nine cloud migrations five net new deals and three expansions.
I'm also excited about the traction we've established with insurance now this quarter, we closed three net new insurance now wins, including two of the largest ever on this product are success with insurance now highlights our ability to effectively serve insurers across all segments and tiers.
Additionally, our international momentum continues to build with a significant cloud expansion in Canada and cloud wins in APAC and EMEA.
With respect to the deals we closed in the quarter I'd like to point out a few encouraging themes.
We continue to see insurers looking to replace rigid systems with more agile platforms that allow them to deploy new products and lines of business faster.
Vance product designer along with pre integrated solutions from our marketplace were key to winning multiple deals this quarter, including several large insurers in the United States with a great new win in Latin America.
Our consistent positive reference ability continues to spur both expansion activity and new cloud wins. This included a tier one personal lines insurer in the United States, who after successfully deploying claim center on cloud is now expanding to insurance suite.
We also had great new expansion wins in Europe, and I was pleased to see our new cloud win in Japan, where the success of another local cloud project played a key role and.
And finally the work we did previously to establish a large framework deal with Zurich group is now paying off where we executed two more deals one with Zurich, Switzerland, who adopted policy center and billing center as well as a multibillion dollar subsidiary who adopted the full insurance suite.
We also continue to make progress with our data and analytics offerings. In Q3, we secured our first guidewire industry intelligence sale. This is a new prebuilt market validated predictive model embedded directly into our claim center workflow.
This is a model trained and validated based on contributed Anonymised data and only possible based on our cloud deployments. This.
This is a first important step towards what we believe will ultimately not just be a great source of new revenue.
But more so and added an unique benefit associated with running on our cloud platform.
A second highlight from the quarter is the continued momentum across our customer success cloud ops and professional services orgs, which is helping to drive excellent platform reference ability. We add another 10 customers go live on Guidewire cloud platform in the quarter, including Santa Lucia Spain's leading family.
Protection insurer and Cincinnati insurance company, the flagship subsidiary of Cincinnati financial.
The last few months.
Have also been busy for us in the marketing and international event front in March we kicked off the first of three regional insurance forums in Paris welcoming more than 200 attendees from customers and prospects across 16 countries. This gathering our largest ever in Europe focused on discussing the future.
There are insurance and exploring ways. The industry can continue to innovate and improve several customers shared their experiences, including Leigh Dainty commercial claims director at RSA insurance, who described how RSA has moved to Guidewire cloud has streamlined claims processing improved transparency and.
Positioned RSA ahead of its peers in the U K.
Speaker Change: We also heard from a law a multiline insurer headquartered in Switzerland, who spoke about how guidewire cloud as driven better service and increased efficiency and it's K two program, where over 99% straight through processing.
Speaker Change: And be safe, our Polish micro insurance specialists shared how they utilize advanced product designer to rapidly launch a new product in four days fulfilling a critical commitment to their distribution partner.
Speaker Change: The forum was an opportunity for us to reaffirm our commitment to the European market, our commitment to partnering with European marketplace providers to drive local innovation and our commitment to maintaining a rigorous comply but to maintaining rigorous compliance with evolving European regulations like solvency two G D.
Speaker Change: P R and Dora.
Speaker Change: In May we hosted two more regional insurance forums, one in Tokyo in one in Sydney welcoming more than 150, and 170 attendees, respectively, making them also our largest ever events in these regions at the Tokyo Forum, we announced a major step forward in our commitment to the Japanese market.
Speaker Change: An investment of approximately $60 million over the next five years that extends and enhances our existing local operations talent innovation and partnerships.
Speaker Change: We were also excited to hear from our first cloud customer in Japan, who shared how they are using guidewire cloud to drive innovation and modernize their operations.
Speaker Change: At our forum in Sydney, Neil Morgan COO of IAG shared a powerful story about the role of technology in crisis. After a series of severe weather events in Auckland IAG faced a surge of 48000 claims including 4000 written off vehicles.
Speaker Change: One team member using Guidewire claim center integrated with an intelligent automation tool to build a bot that cut claim processing time from 20 minutes to just 90 seconds or change that freed up teams to focus on supporting customers when it mattered most.
Speaker Change: Together these three events demonstrated how we're delivering on our global strategy through deep local partnerships innovation and track record of execution excellence.
Speaker Change: But for me the real highlight of the past few months was a developer summit, we held in Bangalore, India.
Speaker Change: We put on our first developer event last year in Bangalore, and we're surprised that the positive reception and interest. This year, we were blown away with over 1500 developers attending from nearly 60 partners and customers.
Speaker Change: The size of this event is something I think worth, noting we talk about the scale of our partner community and the scale of our certified ecosystem of developers and Guidewire professionals, but to see 500 people all come together in one room to learn and enhance their careers and ability to support guidewire programs more effectively was inspiring.
Speaker Change: Every attendee was encouraged to bring a laptop and we had the opportunity to share in a very hands on keyboards sort of way the new platform advancements and features with the technical practitioners really driving the innovation and execution in our community, we shared new capabilities around upgrades safe development for insurance suite.
Speaker Change: <unk>, new migration technology to support upgrades to our advanced product designer, new components and capabilities in our future of front end web experience platform, New AI co Gen capabilities supporting do trop integration applications and go through extensions, we shared new approaches to full cycle busy.
Speaker Change: This intelligence with our cloud data platform data studio and explore dashboard and reporting suite.
Speaker Change: As well as the ability to use all of this to easily generate test and deploy predictive models on our platform.
Speaker Change: Finally, and maybe most interesting in the long term, we showed developers where we're headed in terms of supporting virtual cloud based instances of guidewire. They can use to develop against our complete cloud platform or even host custom applications and workloads all on the Guidewire cloud platform.
Speaker Change: I have been very focused lately on the potential positive impacts generative AI will have on guidewire in the insurance industry and I think generally this invent event encapsulated a lot of the potential for increased program velocity that might provide a boost to guidewire, but more so the innovation agenda in the insurance industry.
Speaker Change: And in the midst of all of this we completed our acquisition of quantity.
Speaker Change: Our cutting edge provider of pricing and rating technology based in Poland.
Speaker Change: Since closing the acquisition, we've been hard at work planning the integration of quantity into our broader technology portfolio and expect to share more specific plans about this area of our product strategy in future calls and.
Speaker Change: In summary, Q3 was a historic quarter for Guidewire and highlight strong market momentum across every tier and every region of the P&C industry insurers all over the world are increasingly recognizing the maturity flexibility improving capabilities of Guidewire cloud platform I could not be more pleased with our.
Speaker Change: TJ position heading into our Q4 as I think we are well placed to continue our cloud transformation and mission to support efforts to modernize empower innovation in our industry. So with that I'll turn it over to Jeff to discuss the financials in more detail.
Jeff: Thanks, Mike we had an incredible Q3, and we look forward to building on this positive momentum.
Jeff: Strong demand for our cloud offering helped <unk> finished at $960 million ahead of expectations.
Jeff: Additionally, as Mike noted, we had a strong sales quarter, both in terms of deal counts and deal sizes.
Jeff: It is clear as our market our cloud market leadership position is now established that insurers are more willing to make large commitments.
Jeff: This is a strong vote of confidence and we aspire to exceed customer expectations and drive successful outcomes with this critical work.
Jeff: Total revenue was 294 million up 22% year over year and above the high end of our outlook.
Jeff: Subscription and support revenue finished Q3 at 182 million, reflecting 32% year over year growth and our continued insurance suite cloud momentum.
Jeff: Services revenue finished at 54 million and benefited from strong services bookings that translated into higher utilization rates.
Jeff: Turning to profitability for the third quarter, which we will discuss on a non-GAAP basis gross profit was $192 million, representing 27% year over year growth.
Jeff: Overall gross margin was 65% subscription and support gross margin was 71% compared to 66% a year ago.
Jeff: In the quarter, we benefited from approximately $4 million in credits from our cloud service provider, which positively impacted our gross margin.
Jeff: Or generally and I know I've been saying this for a while I am thrilled with our progress progression on the gross margin line and the benefits of the platform investments that are now being realized to a healthy degree.
Jeff: Services gross margin was 13% compared to 10% a year ago.
Jeff: We are very pleased with our profitability progression in our services or.
Jeff: Most importantly, the services org in combination with our partners and our customers continues to deliver successful outcomes in the form of go lives and cloud updates.
Jeff: This is foundational to our long term success.
Jeff: We finished Q3 with operating profit of $46 million. This finished ahead of our expectations, primarily due to higher revenue and higher gross profit than expectations last quarter. We mentioned that we expected some hiring acceleration in the back half of the year and we have seen this materialize.
Jeff: This growth includes our new employees from the acquisition of quantity.
Jeff: We are excited about adding the team at quanta to accelerate our ambition and the pricing domain. This acquisition added an immaterial amount of IRR in the quarter and 23 employees.
Jeff: With the majority of the new employees located in Poland.
Jeff: As you May know Poland was already an important development center for us and we now have over 140 employees in Poland. We're excited about the expertise that we're adding and the fit with our existing product development motion our respective teams are already working well together.
Jeff: We ended the quarter with over $1 2 billion in cash cash equivalents and investments.
Jeff: Operating cash flow ended the quarter at 32 million, which was ahead of our expectations due to strong collections in the quarter.
Jeff: We settled at maturity, our 2025 converts which resulted in a 100 million dollar cash outlay, including accrued interest.
Jeff: And we realized net share accretion of approximately 26000 shares as the shares issued to bondholders upon maturity or lessen the shares we received from the call spread we purchased in 2018 in conjunction with issuing our 2025 converts.
Jeff: Now let me go through our updated outlook for fiscal year 2025.
Jeff: Starting with the top line given our strong performance year to date, we are raising our outlook to 1.012 billion to $1.0 billion to $2 billion, which reflects growth of 17% to 18% year over year.
Jeff: In addition to higher sales momentum, we're also seeing record low air our attrition percentages and record high IRR ramping activity.
Jeff: As a reminder, our outlook assumes foreign currency exchange rates as of the end of our last fiscal year, and we update our exchange rates at year end.
Jeff: If we update air are today based on current exchange rates, then we would see an approximately $8 million positive adjustment.
Jeff: We'll certainly quantify this at year end, we will continue to monitor FX rates throughout the remainder of the fiscal year.
Jeff: For total revenue in fiscal 2025, we now expect between 1.1 dollars 78, and 1.186 billion, we expect approximately $660 million of subscription revenue and $724 million in subscription and support revenue.
Jeff: Given higher than expected services bookings year to date, we now expect services revenue to be approximately $215 million.
Jeff: Turning to margins and profitability, which we will discuss on a non-GAAP basis. We now expect subscription support gross margin to be between 69% and 70% for the year in.
Jeff: In Q4, we are expecting 68% subscription and support gross margins as we are seeing the impacts of recent go live events and we do not expect to realize any material credits from our cloud service provider.
Jeff: In general we remain a bit ahead of schedule as we work towards our longer term margin targets and continue to feel confident in our gross margin progression.
Jeff: Our FY 'twenty five expectations for services margin and total gross margins remained unchanged at 12% and 65% respectively.
Jeff: We are lifting our outlook for operating income primarily as a result.
Jeff: Of our revenue outlook, we expect GAAP operating income of between 20, and 28 million and non-GAAP operating income of between 187 and $195 million for the fiscal year.
Jeff: We expect stock based compensation to be approximately $162 million, representing 11% year over year growth.
Jeff: This is a bit higher than our prior forecast due to the acquisition of quantity and lower employee attrition and our model assumes.
Jeff: We are increasing our outlook for cash flow from operations for the year to be between 255 and $275 million due to stronger than expected revenue and collections combined with strong expense discipline.
Jeff: In summary, it was a fantastic third quarter and we are excited for Q4, Alex you can now open the call for questions.
Alex: Thanks, Kevin Okay, everyone. We'll go to questions now for those of you in the panel or do you want to ask a question just raise.
Alex: Raise your hand and the zoom.
Jeff: Jim.
Speaker Change: And with that our first question is going to come from Alexia <unk> of JP Morgan.
Jeff: Okay.
Speaker Change: Thank you Alex.
Speaker Change: Jeff My congratulations with amazing results.
Speaker Change: It has now become a almost like a tradition for you to provide your view on OUI ramp there our outlook.
Speaker Change: During Q earnings you think you've done that.
Jeff: Two years in a row.
Jeff: Would you be able to share your thoughts this year would you expect the free rent there.
Speaker Change: Yeah. So thanks, Alexia momentum is really strong and we feel great about our position going into Q4. As you know Q4 is always critical as we close out the year and calculate fully around there are results and I think most folks understand kind of how important Q4 is.
Speaker Change: That said I feel confident that we can see fully around there or grow at levels consistent with what we've seen more recently.
Speaker Change: As a reminder, we grew fully ramp there are 17% and 19% on a constant currency basis in fiscal 'twenty, three and fiscal 'twenty four respectively.
Speaker Change: So you know kind of maintaining that upper teens level of fully ramped a our growth.
Speaker Change: Feels like where.
Speaker Change: We're heading in that direction, but I just want to make sure I add that.
Speaker Change: Q4 is always our largest sales quarter.
Speaker Change: Will they ramp they are in particular depends on larger commitments multiyear commitments and those large deals can can be very binary in nature and so we have a range of outcomes that can be quite quite wide as we model out different scenarios, but kind of getting into that maintaining upper teens fully re.
Speaker Change: They are our growth will be a tremendous outcome for us to do that three years in a row and that's our that's the direction we're working towards.
Speaker Change: Thank you very much Jeff and Mike.
Speaker Change: Can I ask you a question about the Japanese market it seems that youre progressing really well.
Jeff: What is the.
Jeff: Secret sauce with is helping you to win cloud deals in that market and how are those customers.
Jeff: Ewing U S software.
Jeff: Yes. Thanks for the question I appreciate it because the trip to Japan. This quarter in the event that I described it was a real highlight for us.
Jeff: It was also exciting for us to be able to announce this financial commitment to the region I think that's probably the key word I think we see a tremendous opportunity in the Japanese market both directly for direct written premium and serving the customers as they operate primarily in that market, but you also have some very concentrated.
Jeff: Big multinational players that we have relationships with all over the world and we want to make sure that we are serving those customers effectively in every geography in which they in which they operate insurance businesses I think the key word is commitment we're committed to this market for the long haul.
Jeff: Can't say whatever it takes but that's the attitude is we're going to show up we're going to show up with the best possible platform and we're going to make the investments necessary to ensure that that platform is fit for purpose.
Jeff: What those companies need for the next 10 2030 years of their existence in the Japanese market and I think we're uniquely positioned to do that I don't think that theres any other P&C platform core system platform that is that is.
Jeff: Honestly capable of serving the market the way Guidewire is it takes a very significant investment for us too.
Jeff: Show up year after year after year and deliver this for them, but we're going to do it and I think that that's what was behind that that press release and the commitment that we made it's also about delivering successfully right. It's about being there with those partners as they do these projects and ensuring especially.
Jeff: Now with cloud that.
Jeff: You know that these that we have the follow through and that its successful the Japanese market doesn't move as fast as other markets, but when they move they move with determination and I intend to ensure that guidewire is positioned to be there when they're ready and like I said I won't I don't want to be the P&C platform for Japan for the next 2030 years.
Jeff: Okay.
Speaker Change: Thank you for the sensor only yes.
Jeff: Yes. Thank you.
Jeff: Thanks, a lot I think Sarah.
Speaker Change: Our next question comes from Adam Hotchkiss at Goldman Sachs.
Jeff: Okay.
Adam Hotchkiss: Great. Thanks, so much for taking the questions guys.
Adam Hotchkiss: I guess just to start I know when we had it in the past talked about fiscal 'twenty five AOR guidance. It felt like you had messaged that the AOR cadence was substantially.
Adam Hotchkiss: Substantially weighted towards Q4 given your.
Adam Hotchkiss: Visibility on the backlog and when that was coming live in the total IRR, obviously with the with the Q3 outperformance would be just good to understand whether there was any pull forward from Q4 relative peer relative to your expectations.
Adam Hotchkiss: Or if it was just a stronger quarter given more demand at the top of the funnel would appreciate any color there. Thank you.
Adam Hotchkiss: Yeah, I'll give you my perspective quickly and then Jeff can chime in if he wants.
Adam Hotchkiss: It was obviously a good.
Adam Hotchkiss: Great Q3, and you know, but we have momentum across every tier and every component of the business right now we feel good about the the potential in Q4 and that relates to being able to pass through.
Adam Hotchkiss: A portion of the outperform in Q3 into the increased guidance for Q4, and so I just would say like we feel we've got a lot of work to do we need to execute and execute these transactions and it's a very very big quarter for us, but generally we feel great about the momentum.
Adam Hotchkiss: So yeah, let me actually John's here, and we pointed that out in the beginning of the call. He is here and I'll give you a perspective on the Q4 outlook and I'll just add that Mike mentioned that the quarter was broad based multi dimensional I think it's really about execution I I'll comment that the team is the team as the quarter came to a close.
Speaker Change: The execution I would've expect a couple of the deals to find their way into Q4 quite frankly, but David Laker and his team sales team around the globe and the solution Advisory team just did a really good job of executing all the way up to the last minute of the quarter and making sure that what was available within the quarter stayed within the quarter. So I don't I didn't see or.
Speaker Change: Feel any any pull forward, nor any singular outsized event, yes, and just to pile on there a little bit from how we modeled it Adam This is John hit it on the habits.
Speaker Change: My view and kind of how I was expecting in the quarter play out and there were some of these deals and I expect it to slide into Q4, and we're just seeing very high close rates and very strong execution. So we saw a bit less of that so kind of not not necessarily pull forwards, but those deals didnt kind of naturally pass into Q4.
Speaker Change: Alright, Thanks, Adam.
Speaker Change: We're now going to go to Dylan Becker of William Blair.
Dylan Becker: Hey, gentlemen, I appreciate the question and congrats on the terrific results here, maybe Mike or John for you I know, Jeff called out kind of the larger contracts.
Speaker Change: And we've seen kind of a validation of the platform starting to play lay out here I wonder to what extent are your conversations starting to have that kind of a more holistic.
Speaker Change: Consolidation type of story around it where you can be kind of that singular end to end vendor to help solve a lot of that kind of disparate legacy complexity that we become so accustomed to knowing here.
Speaker Change: Great Phil and thanks for the question.
Speaker Change: What I would I would harken back to the conversation on proof points now with many of these with many of these carriers with that first cloud proof point and the cloud updates that follow fast behind that it really opens up this conversation around what's the next line of business. What's next geography, What's next segment of business to go after.
Speaker Change: In the quarter, we saw we saw what would amount to two I think pretty critical strategic takeouts of what would've been more modern competitors and in place to that question, you're asking which is earning the right to broaden the broadened the reach of the conversation to get warm introductions into other lines of business in other segments.
Speaker Change: In other geographies is proving out.
Speaker Change: In a few cases it starts to become very much a conversation about at some point in the future what does a what doesn't align destination look like for Guidewire is really part of the strategic fabric of that carriers planning going forward and more and more we're having those conversations and more and more.
Speaker Change: Putting the teams in place in the geographies to meet the meet those carriers, where they are to have that conversation. So it's a good point, we're seeing some momentum there it's still a long long way to go a lot of opportunity and a lot of hard work ahead.
Mike: Sure No I appreciate the color there John maybe for you Mike.
Speaker Change: There's been a lot of talk around different insurance segment as well, so you're right with the hardening rate environment inflationary pressures that are being put on consumers and risk exposure, how do you think about.
Speaker Change: The opportunity for a system like Guidewire to help kind of narrow what seems to be maybe a widening coverage gap to help solve that problem and maybe how that plays into another lever of potential kind of premium growth from an industry perspective.
Speaker Change: Yeah. It's a great question I think with the word I like to.
Mike: Use with respect to this question is agility.
Mike: More agility that we can provide insurance companies and the developers actuaries teams that are thinking about how do they structure their products, how do they take their products to market how are they pricing their products and how it what kinds of rate structures are they applying to these products.
Mike: And able to do that faster is going to enable the insurance industry to learn more about how to best clothes that coverage gap had a breath. That's take this like incredible financial instrument to market as effectively as possible and we are seeing a pretty significant shifts towards excess in specialty and all away from admittedly.
Mike: Lines and this is also kind of puts pressure on the technology structures within these insurance companies and so when we can provide a platform that basically takes that risk that technology execution risk out of the equation. It allows those companies to just execute like insurance companies and it allows us to play a role honestly that makes a lot of people pretty.
Mike: We're excited here at Guidewire around bringing insurance to every every business homeowner state locale in the world that needs it and that's pretty exciting. So you know I think that you know behind what we call like the reference ability and the success stories of all these cloud implementations, there's a degree of agility that we're delivering.
Mike: That is genuinely new and unique in the industry and that's going to continue to help.
Mike: Close the coverage gap that you described and so that's a big part of it.
Mike: Thanks for the question.
Speaker Change: Thanks, John Our next question is going to come from Ken Wong of Oppenheimer and company.
Speaker Change: Yeah.
Mike: Great question for.
Mike: John or Mike I think earlier, it was mentioned record low attrition record high ramping activity.
Speaker Change: How much of that do you think of the dynamic of your.
Mike: Your core market, just really leaning into modernizing versus perhaps internal initiatives and execution that you guys have been have been laying the groundwork on.
Speaker Change: Let me, let me give me a quick answer and then I'll, let John comment on it I would say, they're kind of separate the ramp activity is associated with the success of prior years and just the follow through the agreements kind of flowing into the business model. The most important thing of Guidewire.
Mike: As customer success, it's ensuring that no matter, what we're doing everything that we can possibly do to ensure that these programs are successful.
Mike: This is an incredibly terrible industry with an incredibly durable use case and if we can deliver software that works on a platform that works, we're going to end up with a durable revenue stream supporting that value for a customer that's the most important thing in our company and it will it has been part of the company since day, one it will be part of the company forever.
Mike: <unk>.
Mike: And that's what my take on what's driving that that that financial measure.
Mike: The we oftentimes talk about the maturing cloud platform, but sometimes we don't talk enough about the maturing cloud operations and the professionals and the teams that work every day to be as responsive as possible around the world.
Mike: To work with customers solve issues and unlock new opportunities and our ability to work with run the core systems of these companies and that team's development and cloud ops customer success and our technical advisory team has really come a long way and working closer and closer with customers to remove any daylight between interpretation of issue.
Mike: He has an opportunity to solve problems and thats really helped a ton in maintaining alignment on that on the attrition rate.
Mike: Got it fantastic.
Mike: Jeff just in terms of the pace of investments talked up how second half will continue.
Mike: The the investment levels. How are you thinking about going forward are you guys, CND ROI, where it might make sense to extend the investment cycle or is this more of a kind of a one year catch up after years of putting investments in the cloud platform.
Mike: Yes, I mean, I think that this year has played out pretty consistently with how we planned although the hiring was a little bit more back end weighted than we originally expected the.
Mike: The addition of the quantity team is exciting for us is.
Mike: The pricing ambition has been something we've been thinking about for a long time.
Mike: We certainly see very healthy backdrop for investment as we look at our market.
Mike: The way we've thought about this and approach. This is that we already have the largest investments in the industry. We have the biggest engineering team we have the biggest and most professional sales team and we are appropriately resource to address the market opportunity in front of us and still deliver new products and capabilities to the market we still found.
Mike: <unk> believe that we're always assessing our plans in this.
Mike: This quarter is when we do a kind of a deeper dive into how we think about some of the long range planning and we'll assess kind of how we think about our investment posture, but as of now.
Mike: Messages is as you think through how we've talked about our longer term goals. Historically, we feel very confident that we can.
Mike: Operate and kind of meet the moment, while kind of maintaining the existing investment profiles that we've talked about previously.
Mike: I appreciate the color there.
Speaker Change: Alright, Thanks, Ken and just a reminder for those on the panel I think you want to ask a question raise your hand.
Speaker Change: Our next question comes from Michael Turin at Wells Fargo.
Speaker Change: Thanks, Hi, it's David on ground for a microphone Tonight, you guys touched on the Gen II possibilities in prepared remarks, and the benefits that could trickle down to Guidewire is there anything specific worth highlighting here that has resonated most with customers as of today. Thanks.
Speaker Change: Ah as opposed to call out particular features I would say.
Speaker Change: <unk>.
Speaker Change: We're taking a very broad call. It a broad based broad spectrum approach to facilitating generative AI use cases across the product suite across claim center across policy Center.
Speaker Change: Numerous opportunities in the claims workflow for applying and building and applying these features to improve process efficiency for.
Speaker Change: For insurance companies. There's also like a very clear use case around what's called submission intake and the triage of inbound interest for underwriting processes and were generative AI can play a role in.
Speaker Change: Call it summarizing in assessing and inbound request for a quote relative to a carrier's ability to write that risk.
Speaker Change: But then probably another area that's worth highlighting.
Speaker Change: Obviously very clear is the developer productivity and using the using <unk> to facilitate the creation of <unk>.
Speaker Change: Maybe not just specifically code, but test cases, and the other kind of components of what goes into a development project on a platform like guidewire across all of those three things, we're seeing a lot of positive feedback from our customer base and our developers about.
Speaker Change: What they'd like to see from us and what their where these things can be put to use in order to drive efficiencies into the programs and also the operations of our customers. So there's a lot of areas, but those are the three things that I'd say are probably most interesting right now.
Speaker Change: Okay.
Speaker Change: Okay. Thank you. Our next question goes to Aaron Kimpton.
Aaron Kimpton: Thanks, guys can you help us think about the pricing methodology and possible uplift for Guidewire industry intelligence, whether that first sale of a beta version or its something available to all customers and if that's something you anticipate landing with smaller insurers, improving bad or something where you can land with tier one.
Mike: I'm here to talk about.
Mike: Yes, so great question and I think first of all the applicability of it relates to what's the model predict and whether or not it lines up to the line of business and the specifics of what that customer rights.
Mike: We took a pretty broad approach to this first one and to try to touch as many of the as much of the customer base as we could but we have a long pipeline for different predictive models that we think might work and are working through the process of validating those and building those out and so over time there'll be more models.
Mike: That.
Mike: Might be more applicable to different use cases different lines of business across the customer base.
Mike: For sure this is something that.
Mike: But there is a sort of.
Mike: You know theres, a sort of like ability to target smaller insurance companies with a larger collective data asset than they have on their own. So if you're if you are a huge insurance company you've got a lot of data you've got enough data to be able to create one of these predictive models on your own but if.
Mike: Smaller insurance company and you don't have that scope of data youre kind of stock.
Mike: This is where guidewire and this Intel model can really play a positive role and give them a sort of a head start zero day capability than it otherwise would take years to develop so that helps in terms of smaller carriers. It also helps for bigger carriers, who are jumping into new lines of business or new territories, where they don't have that day.
Mike: <unk> track record to draw from and create the predictive models they need to be as efficient as possible and so hopefully that gives you a sense of.
Mike: Where we are and how this is going to roll out in <unk>.
Mike: And the applicability of it you know overtime now I'd be I'd be I'm very hopeful that this is something that we've got enough models and enough use cases, where the majority of cloud customers are finding a way to participate in this product line with us.
Speaker Change: I'll just add one thing there which is in the.
Speaker Change: The field team and the way, we interact with customers. There's a lot of optimism about where industry. Intel can go for us because we're we've got real foundational proof points on operations and agility and running core systems getting closer to the pricing and the indemnity management of our customers puts us more in the C suite conversation.
Speaker Change: And that's really that's really an area where we can.
The envelope a little bit talk more about insurance results rather than operational outcomes and that's opened up a whole new channel and conversation for us an access to maybe buyers. We haven't traditionally sold to is awesome.
Speaker Change: That's really helpful. And then I want to follow up on Alex's question on the Japanese market can you talk a little bit about the regulatory changes in the Japanese market related the cross holding that are expected to lead the P&C insurers, having more capital on hand, and what the potential benefits of the guidewire or whether through an increased willingness to make transformational technologic.
Speaker Change: Last months, what that additional capital or for you to win market share through M&A, if that's how they choose to utilize the additional capital. Thank you.
Speaker Change: Thanks for the question I mean, as Mike mentioned, Japan, where we're going to be in that market relevant investing with the talent and the capabilities and solutions to be relevant in that market for the long haul.
Speaker Change: Really pleased with how that team has developed.
Speaker Change: I am not in a position to really get too deep too deep into the into the regulatory environment. There I'd have to pull in the Japanese team to answer that question, specifically, but I do believe that our ability to answer with our investments in policy core processing, our ability to answer both the core processing from there and the capital allocation opportunity there.
Speaker Change: It is very real.
Speaker Change: It is the acquisitions that come from Japan will continue to be a big part of the global insurance market and the dynamics of the Japanese market will see your point influence and increase the rate of investment outside of Japan, and we think we're in a really good position given multi currency multi multi location and multi line a bit.
Speaker Change: <unk> capabilities to be that partner for them going forward.
Speaker Change: Thanks Darren.
Speaker Change: Next question is going to come from Alex Sklar RBC.
Alex Sklar: Thank you.
Speaker Change: Yes, Scott for you just looking at that mix of IRR growth you've called out the strong ramp activity can you talk about how this year's bookings have looked from a ramp shape standpoint relative to the last couple of years, how much of that.
Speaker Change: Third quarter IRR growth actually came from ramps burst that record activity and then on a follow up thanks.
Speaker Change: Okay.
Speaker Change: Yes, so in terms of the overall ramp activity, it's always very hard to comment.
Speaker Change: On the year until we get to Q4, because Q4 will drive kind of how we think about that.
Speaker Change: Cohort.
Speaker Change: In general if you look at the activity in Q3. The one thing of note is that we are seeing.
Speaker Change: Some longer duration activities. So we did see a couple of deals that were longer than five years and in some cases, we have ramps that extend even beyond year five or five our definition of fully ramp there are.
Speaker Change: Kaps at year five so we don't we don't consider things that that occur after year five until that moves into the next next five year window, but in general ramps are councilor to what we'd expect bigger commitments longer duration deals.
Speaker Change: But the overall slope of the ramp there is nothing to highlight in Q4, we will have a large impact on it with respect to <unk> growth and where it's coming from it was pretty balanced.
Speaker Change: We are seeing very healthy.
Speaker Change: <unk> <unk> coming off of the backlog in Q4, we talked a bit about that last quarter. So that dynamic is still very real for us.
Speaker Change: And in Q3 saw some very healthy contribution from new deal activity in the quarter that you know as Mike noted it was a record Q3 for us.
Speaker Change: Okay, great. Thank you. Our next question comes from Matthew <unk> at Stifel.
Matthew: Thank you very much for yep. Thank you very much for taking my questions and congratulations on the quarter.
Matthew: I'm wondering if you could talk a little bit about the quantity acquisition.
Speaker Change: What's the incremental functionality that you see them bring into the table is it something that should appeal to all of your customers or just a subset of some.
Speaker Change: Yes, thanks for the thanks very much for the question as I said on the prepared remarks, I think you.
Speaker Change: You should expect us to be to provide more detail over time about where this will fit into the you know the.
Speaker Change: The company's product strategy, but I'll give you a quick answer.
Speaker Change: They provide a.
Speaker Change: Our pricing and rating technology.
Speaker Change: That we think is going to be ultimately applicable to every customer.
Speaker Change: Exactly how that rolls out across all the lines of business that guidewire and how it fits into the existing product suite like I said that's work, we're still doing right now.
Speaker Change: This is a great team of people who are.
Speaker Change: Really excited about supporting a use case thats a little bit beyond what we traditionally have focused on with with Guidewire think of like what we've done traditionally as taking the output the pricing strategy from an actuary and running it efficiently and production to provide real time rates when.
Speaker Change: You need to rate a.
Speaker Change: Our new quote this this pushes us into the design of the pricing strategy and.
Speaker Change: And then seamlessly connects the output of what those actuarial teams want to run in production to the actual production rating system that provides a huge amount of flexibility and agility to those teams into those insurance companies that want to make more real time changes now the applicability of that specifically.
Speaker Change: Depends.
Speaker Change: On what region, you're operating in in the different lines of business that youre supporting but but the general technology in terms of like providing a workbench for actuaries to build prices with bringing in lots of different data sources and run scenarios and come up with right routines and rate strategies that makes sense for the risk that they want underwrite that's what really.
Speaker Change: Cited about and that's a key component to it.
Speaker Change: Delivering on this kind of concept that we're going to bring more agility to an insurance company enable them to change their rates changed the rules changed their prices changed their product definitions as fast as the businesses want them to be changed and kind of takeaway.
Speaker Change: The concept that Theres a bottleneck on the technology side, we think we can deliver a platform a seamless platform using quantity in the rest of the Guidewire cloud platform to deliver that agility to the market.
Speaker Change: So hopefully that gives you a little bit of a sense and like I said theres going to be a lot more to come from us over the next few months and quarters on this subject.
Speaker Change: Okay terrific and then secondly, you continue to show nice subscription gross margin expansion over 70%.
Speaker Change: Once again, but still a long ways from the 80% long term target.
Speaker Change: What incremental subs do you think could be made to add another 1000 basis points of that margin over time.
Speaker Change: Yes sure.
Speaker Change: We're continuing to invest in our platform.
Speaker Change: The engineering team is continuing to build more and more automation and then it's just some of this is just a function of us adding scale.
Speaker Change: Customers getting to fully ramped outcomes from an IRR perspective, and the model just maturing so.
Speaker Change: As we look through I don't think theres any heroic steps that needs to take place in order for us to get there. It's just the continued blocking and tackling and kind of adding more and more scale to the platform that we've already built.
Speaker Change: Great. Thanks, Matthew So our last question is going to come from Tyler Radke Citi.
Speaker Change: Yes. Thanks for taking the question you hit on your developer day that you hosted it sounds like it was a good success.
Speaker Change: Earlier, this year and I'm, just curious how you're seeing your customers.
Speaker Change: Leverage.
Speaker Change: AI agent take AI, specifically around some of the code completion for modernizing these legacy systems obviously.
Speaker Change: A lot of the big tier ones have COBOL and mainframe systems with with a ton of legacy codes like what type of improvements and that modernization process have you seen thus far in <unk>.
Speaker Change: What are you doing from a product perspective to sort of enable some of those features in your own solution.
Speaker Change: Yes, thanks very much for the question. So yes, there is a lot of I'd say interesting.
Speaker Change: I don't know theoretical assessment of whether or not generative AI can tackle these mainframe conversions and I think you should we think of these things I think of these things maybe you should think of these things as potentials.
Speaker Change: And certainly there's positive signals that this might occur I would say practically.
Speaker Change: Whats really happening right now is things that are more surface level. So think like building the scaffolding for an integration between guidewire in another public or private API something that's more discrete and this is something like just works you know building the front end code associate.
Speaker Change: Good with portals or <unk> development framework, where you're taking guidewire and exposing it to public website. This is creating test cases associated with code that you are writing on our platform. In these kinds of use cases are driving a tremendous it drives a tremendous amount of cost in.
Speaker Change: The ecosystem and an implementation programs and it's really directly pointing towards positive outcomes in terms of actually deploying these techniques against these types of use cases, so certainly like the the cobalt mainframe conversion.
Speaker Change: Those kinds of things are you know like I said, you know, there's there's signal pointing towards that potential but we're also seeing a lot of other use cases that do represent very significant components of other guidewire implementation that we're seeing a lot of positive results from you know.
Speaker Change: And I would say like that's as much of where the excitement is right right now as anything else. The other thing that you just have to generally be careful of with respect to these.
Speaker Change: Modernization programs is very off in what we are doing with Guidewire is we are helping our company reinvent their business process to be more modern and enable them to break the mold of what theyre tied to with their cobalt based mainframe and so you don't necessarily want.
Speaker Change: Magic button that instantiates, the broken business process into a modern system you do actually want to take the time to think about what's the new way that we're going to architect our products, what's the new way that we're going to architect our claims processes, what's the new way, we're going to engage with our customers with new digital channels.
Speaker Change: And to do that you need a modern platform, but you need to take the time to rethink your business process and modernize your company Holistically and so yeah that magic press, a button and everything converts maybe tantalizing, but it isn't necessarily going to deliver the agile modern insurance company that.
Speaker Change: Everybody really wants.
Speaker Change: Great. Thanks, Tyler Maxine and one more question from Rishi as jewelry at RBC.
Rishi: Hey, Rajeev.
Rishi: Thanks, So much for squeezing me in really great to see continued momentum in the business, especially in a tough macro environment, maybe I want to start Mike you've made some comments on some of the success Youre seeing in insurance now I recall when you kind of started as CEO that was one of your priority is a kind of rebuilding the product and modernizing it.
Rishi: Maybe can you talk about what's driving some of the success that you're seeing insurance now whether that's products specifically go to market execution, just the industry itself being not ready for that and maybe just alongside that as we think about kind of the potential handoff.
Rishi: How do you balance the strategy of wanting to work with those customers, but at certain point should they grow up to be big enough to maybe the cash classified as tier one tier two or even tier three kind of at the border lines, what that handoff to.
Speaker Change: <unk> cloud looks like thanks, so much.
Speaker Change: Yes, thanks for the question.
Speaker Change: First just touching on the last part of your question, we actually have a number of customers that are running both insurance now an insurance suite for different lines of business different use cases, where it's more more more suited let's say for a smaller line of business that you know neat wants less customization less configuration capabilities, just the insurance now platform fits.
Speaker Change: So we see all kinds of use cases in the customer base.
Speaker Change: That you know.
Speaker Change: We just we met the team our team and has executed extremely well and then with respect to the insurance now product we've done a great job getting the product where it needs to be we've done a great job collaborating with our teams on the platform side to be able to run insurance now on the Guidewire cloud platform and drive efficiencies there.
Speaker Change: US some confidence that we can take that product to market aggressively in that in the lower tiers of the U S insurance market strategically that gives us. It gives me a lot of confidence that we're basically not we don't have any blind spots, we're paying attention to every single segment of the market and every single potential <unk>.
Speaker Change: Petitor and making sure we're competitive in winning business and.
Speaker Change: And not leaving ourselves exposed to some sort of smaller smaller insurance focused startup product that that's ultimately could be a threat to guidewire I feel great about all of that like we've executed really well the product works the customers are happy.
Speaker Change: That reference ability also matters a lot in this segment is like ultimately you just want <unk>.
Speaker Change: My perspective of a buyer of Guidewire as somebody they just want confidence that this is going to work. That's why I talked so much about reference ability and customer success, they're taking such a risk with these decisions and these programs that you can't it's not easily reversed and so our ability to say hey, we've got these customers their success.
Speaker Change: Fully running insurance now this product works, that's really helping us win.
Speaker Change: So anyway, just great execution generally and we will we feel great about that I'll, just add that that enter the market.
Speaker Change: Is is super dynamic and it's not just in the U S where the smaller carriers are both dynamic and also becoming much more technology native but.
Speaker Change: But also in Australia, the distribution space in the MGA space in the small end of the market in Australia is super dynamic in that I really love the pressure that that part of the market puts on Guidewire to think about not just core processing, but where the world distribution is going and where the world of dynamic product manufacturing is going in it.
Speaker Change: Just a really good exchange of information and thought patterns with was that in the market.
Speaker Change: All right really helpful. Thank you so much guys. Thanks Rajiv.
Speaker Change: Thanks, Rajiv without it actually is our last question do you have any closing remarks, okay. Great now it was an incredible quarter and we're looking forward to having a great quarter in Q4 wrapping up the year, we see a tremendous amount of momentum and potential obviously, we need to execute but we're incredibly excited about the position strategic position in the company. So.
Speaker Change: Thanks, everybody for joining us and we'll see you on the Q4 call.
Speaker Change: Goodbye.