Guidewire Software, Inc. Aktie

Greetings, and welcome to the Guidewire's Third Quarter of Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today.

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

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; Jeff Cooper, Chief Financial Officer; as well as John Mullen, President, who will be available for the Q&A portion of today's call. Complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. We have also posted this quarter's earnings deck on the IR section of the site. Today's call is being recorded, and a replay will be available following its conclusion.

Statements they include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and the risk factors and documents we file with the SEC, including our most recent annual report on Form 10-K and our prior and forthcoming quarterly reports on Form 10-Q filed and to be filed with the SEC for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.

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

Please note that starting this quarter, we have updated our non-GAAP methodology to exclude the impact of unrealized foreign currency exchange rate gains and losses. To ensure an accurate comparison, we have recast all our non-GAAP schedules back to the first quarter of fiscal 2025. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted at the end of our quarterly earnings deck on our IR website.

And with that, I'll now turn the call over to Mike.

Good afternoon, and thank you for joining us today. We delivered another great quarter in Q3 and continue to build momentum across the business. The quarter was highlighted by 11 cloud wins, strong progression in key pipeline deals and growing customer interest in PricingCenter and our AI platform tooling and ProNavigator offerings. Together, these dynamics continue to strengthen our position as we head into our fourth quarter and provide a solid foundation for the remainder of this fiscal year and next.

From a financial perspective, revenue, profitability and cash flow all finished ahead of expectations, continuing to demonstrate the strength and durability of our model. ARR in Q3 came in within our guidance range, growing 19% year-over-year, and fully ramped ARR continues to grow faster than ARR. The bookings results in the quarter were solid and 19% ARR growth is a great achievement. We anticipated a couple more deals to close in the quarter. But 1 of the things about Guidewire is that there are a relatively small number of discrete deals each quarter and sometimes timing doesn't align perfectly with quarterly boundaries.

That said, the progress we made in Q3 with respect to pipeline momentum gives me a lot of confidence as we head into Q4, which is 1 of our largest and most important quarter of the year.

As I think about the quarter and the progress we have made so far in our fiscal year, I'm very happy with the momentum and trust we have built in the industry. What stands out is the degree to which insurers are aligning around Guidewire as our long-term core platform partner. Customers increasingly want a complete platform they can trust, something that combines IT agility, an open approach to integration and amplifies their ability to innovate rapidly. This position has become even more valuable as insurers modernize core systems and look to operationalize the latent benefits AI creates for the insurance industry.

During the quarter, we closed 11 cloud deals, including 2 net new core system wins and 5 ProNavigator deals. One notable transaction was a 7-year extension and DWP expansion with Auto Club of Southern California for InsuranceSuite on Guidewire Cloud Platform, alongside a significant new sale ProNavigator. This carrier is investing in Guidewire to support long-term growth while incorporating greater AI-driven capabilities into its operations.

We also saw continued momentum from insurers modernizing legacy core systems globally. In Europe, a U.K. insurer part of a global insurance group, selected ClaimCenter on Guidewire Cloud Platform as part of a broader modernization initiative designed to simplify and accelerate its technology road map.

In Brazil, we closed a large strategic net new win with Bradesco Seguros. We're selected Guidewire Cloud platform as part of an effort to consolidate and modernize a significant legacy footprint. This insurer is focused on improving product velocity and accelerating speed to market.

And in North America, a large U.S. insurer selected PolicyCenter on Guidewire Cloud Platform within a commercial insurance entity. We continue to believe these types of transformational core system modernizations represent a durable long-term opportunity for Guidewire, and we were encouraged by the progress we made during the quarter.

Beyond core system modernization, we are also seeing increasing traction across newer offerings on the platform. We had 3 great PricingCenter wins in the quarter, including 1 with a Swedish insurer, and ensure in Poland as well as our first U.S. win for PricingCenter at Oklahoma Farm Bureau, which selected the platform to become more nimble in pricing and rating, reduce IT and operational friction costs and accelerate speed to market.

As I previously stated, we also saw continued and building momentum for ProNavigator, which was adopted in the quarter by 5 insurers spanning multiple sizes and lines of business as each increasingly looks to embed AI-driven knowledge and workflow automation directly into core insurance operations.

In addition to Auto Club of Southern California, ProNavigator was chosen by 2 regional mutual insurers as well as a farm and ranch focused P&C carrier and a worker's compensation insurer.

Additionally, our data and analytics offerings continue to gain traction as customers seek to embed more real-time insight throughout the insurance life cycle.

Overall, we're seeing increasing platform gravity around Guidewire, and that's translating into healthy adoption of new offerings across our portfolio. These trends and the broader momentum in the business were reinforced at recent insurance forms we hosted in Europe, Australia, Japan and Canada. And each of these events, insurers consistently emphasize the same priorities, modernizing core systems, increasing operational agility and positioning themselves to take advantage of AI in practical and scalable ways.

As we've said before, Guidewire sits at the center of the insurance enterprise. Our platform manages the core systems of record for policy, billing and claims, and we continue to expand that foundation into critical business functions like pricing and underwriting through a continuously improving cloud platform. Our platform provides the context insurance companies need to apply AI to real workloads AI and insurance or any other regulated industry use case depends on trusted data, well-defined workflows and systems capable of executing decisions reliably at scale, which is exactly what Guidewire provides.

With ProNavigator, we have embedded AI decision support directly into the applications and workflows insurers use every day. We help underwriters, claims adjusters and customer service teams make better decisions through contextual insights, recommendations and increasingly, agent capabilities integrated into the flow of work.

Underpinning all of this is our cloud platform and developer ecosystem, which was the focus of our recent developer summit in Bangalore, India. This event was a real highlight for me for 2 reasons: First, because of its scale. We had 3,000 people attend, which was double our prior year, and we had people come to Bangalore from all over the world. When we began this event, we just had no idea it would be so popular. And I never imagined that we would have customer development teams from the United States traveling halfway around the world to engage with us in this way. Second was the breadth of AI capabilities we are unlocking on the platform. Connecting these frontier models and tools like Claude code to our platform and our MCP servers is unlocking a staggering amount of productivity in our ecosystem.

Walking around the event and speaking to the real on-the-ground engineers who are every day translating the requirements of the industry to real solutions was just motivating for me. We are unleashing a productivity tsunami and the same excitement that people are experiencing with Claude code-driven software development is now very real on the Guidewire platform, making it possible to build workflows faster integrations faster, new insurance products faster, new digital experiences faster, and it was just incredible and everyone in our ecosystem is excited about it.

We're also seeing significant and measurable productivity gains internally and across our partner ecosystem through the use of these Agentic development tools, which is helping accelerate delivery and implementation time lines. This improvement will accelerate migration and modernization efforts across the industry. We are almost a decade into our efforts to bring the industry a modern cloud platform and still much of the insurance industry still operates on legacy technology. The insurance companies not operating on modernized core systems will struggle to take full advantage of AI to support the agility and intelligence insurers increasingly required to remain competitive. This reality creates a growing opportunity for Guidewire. By reducing the time, cost and complexity associated with this modernization adding AI capabilities, agents and automation into an open platform, we believe we will expand our addressable market and continue to accelerate our business.

And finally, before I turn the call over to Jeff, I wanted to quickly mention an important leadership transition in our sales work. After an incredible career as an enterprise sales leader in the software industry, David Laker has decided to step away from his role as Chief Commercial Officer and transition into a new position focused on strategic partners and initiatives. David will continue his current role through the end of the fiscal year. And to ensure a smooth transition, I'm excited to announce that Shane Cassidy is joining Guidewire starting today and will formally assume Chief Commercial Officer responsibilities after the end of our fourth quarter. Shane is a proven insurance industry leader and has been instrumental in partnering with Guidewire and helping grow our business over his 20-year career at Capgemini, where most recently, he was the Executive Vice President of the Global Insurance practice. The Chief Commercial Officer role will continue to report to John Malling and we anticipate that Shane will build on the strong sales discipline and execution that David's established. We're pleased to have Shane on board, and I'm excited to work with David in his new capacity next year.

And with that, I'll turn it over to Jeff.

Thanks, Mike. We are pleased about the progress we made in Q3 as we shift our focus to our important fourth quarter. In Q3, we executed on healthy cloud demand. We made exciting progress moving key deals through our sales pipeline. We saw strong services demand and execution, and we really demonstrated the power of our financial model with revenue growing 27% combined with strong margin and cash flow dynamics. And I was pleased with the progress we delivered in Q3 to set ourselves up to achieve a fantastic fiscal 2026.

ARR finished Q3 within the range at $1.147 billion, up over 19% year-over-year. Fully ramped ARR growth rates continue to outpace ARR growth, which is a strong indication into the growth environment we are experiencing.

Total revenue was $373 million, up 27% year-over-year and above the high end of our outlook. Subscription and support revenue finished Q3 at $245 million, reflecting 35% year-over-year growth. Services revenue finished at $72 million, up 32% year-over-year, well ahead of our expectations on continued strong demand for Guidewire led services programs and field engineering activities.

Now let me turn to profitability for the third quarter, which we will discuss on a non-GAAP basis. Gross profit was $247 million, representing 29% year-over-year growth. Overall gross margin was 66%. Subscription and support gross margin was 74% compared to 71% a year ago. The scalability of the cloud platform continues to deliver strong margins. Services gross margin was 14% compared to 13% a year ago. This margin benefited from strong utilization rates, which was partially offset by higher subcontractor expenses to ensure we had sufficient capacity for the demand we are experiencing.

We finished Q3 with operating profit of $78 million. This finished ahead of our outlook due to higher-than-expected revenue and gross profit and lower-than-expected operating expenses.

In general, operating expenses have benefited from slow -- some slow hiring and some expense timing. We ended the quarter with $1.15 billion in cash, cash equivalents and investments. Operating cash flow ended the quarter at $61 million. We repurchased 1.7 million shares at an average price of $147.7 per share. We have $241 million remaining on our share repurchase authorization that we put in place towards the end of Q2.

Now let me go through our updated outlook for fiscal year 2026. Starting with the top line, we are maintaining our ARR outlook of $1.229 billion to $1.37 billion, which reflects growth of 18% to 19% year-over-year. As we mentioned last quarter, we continue to see fully ramped ARR growth rates above ARR growth rates, and we expect that trend to continue for the full year fiscal 2026.

This is important because it sets a solid foundation for durable growth as we look ahead to FY '27 and beyond.

For total revenue, we now expect between $1.46 billion and $1.47 billion. The midpoint of our revenue growth outlook is 22%, up from 16% growth assumed at the beginning of the year and 20% growth as of the end of last quarter. We expect between $963 million and $969 million in subscription and support revenue. This is a modest increase but reflects a $20 million increase in our guide over the first 3 quarters of the year. This outlook takes into account the continued healthy DWP true-up activity, strong attach of new products and a robust pipeline in Q4.

Additionally, we were thrilled with the progress of ProNavigator and PricingCenter in the quarter. These new product areas have already surpassed my expectations for the year. We now expect services revenue to be approximately $270 million, given strong cloud demand and, in particular, demand for Guidewire services expertise.

Additionally, as we noted last quarter, we are leaning into some field engineering programs where our services personnel are helping customers utilize Guidewire Cloud platform and leverage newer Agentic capabilities to solve business problems.

Turning to margins. We still expect our subscription and support gross margins to be approximately 74% for the year. We expect services gross margins to be approximately 14%. Overall gross margins are still expected to be 67% for the full year.

We are also lifting our outlook for operating income. We expect GAAP operating income of between $124 million and $134 million and non-GAAP operating income of between $314 million and $324 million for the fiscal year. This updated outlook reflects higher revenue and gross profit expectations and lower operating expenses than originally anticipated. This is partially offset by a larger services revenue mix and an upward adjustment to our company bonus accrual, given strong growth and profitability expectations. We expect stock-based compensation to be approximately $182 million, representing 13% year-over-year growth.

We are raising our expectations for cash flow from operations for the year to be between $365 million and $380 million. Our CapEx expectations for the year are between $30 million and $35 million including approximately $18 million in capitalized software development costs.

Alex, you can now open the call for questions.

Great. Thanks, Jeff. Our first question comes from Adam Hotchkiss at Goldman Sachs.

Okay. Great. I just wanted to start on ARR for the quarter, Mike. I know you called out deal timing, but it would be great if you could share any additional details on what drove that and how broad it was. It sound like historically, you've had a pretty good handle on the quarterly cadence of backlog and deal velocity. So I'd just be curious what was different this time around? And how we should think about whether you expect the same dynamic to impact Q4?

First, thanks very much for the question. I'll answer the last part of the question first. No, we have a tremendous amount of pipeline and expect we have to execute, but we expect a very strong Q4. The situation in Q3 with respect to deal timing is honestly isn't that unusual. It's just -- there's a discrete number of deals that we have to close every quarter, and sometimes things are in our control and sometimes they're not. I actually think 19% ARR growth was a very, very solid quarter. And so I think when you kind of zoom out and look at the long history of the company, I think you have to say, well, everything is fine here and there's really nothing to read into this other than a company like us that does big large discrete deals is going to occasionally have a situation in which some things fall on the wrong side of that line. I think you really -- like when I think about what's going on, we see really pipeline building and we see demand building, and we see a tremendous amount of confidence in the sales organization and then really also the customer base and then the demand for not just core modernizations, but these new products. Jeff mentioned this, like we're creating alternative ways to get to the number in alternative products to sell in PricingCenter and ProNavigator and our analytics product offerings that are really increasing our confidence looking into Q4 and next fiscal year. So hopefully, that gives you just a little bit of color about how confident I am in the company right now and how pipeline is shaping up into Q4.

Yes. And the only thing that I would add is we've been talking for some period of time around what the impact of ARR backlog is into the net new ARR numbers. And we've known for some -- as we entered into this year, that Q3 faced a pretty meaningful headwind with respect to that particular metric. As we look at Q4, given the pipeline that we have, which is incredibly strong. In addition to the visibility that we have into the backlog that will flow out of backlog and into the ARR number in Q4. It gives us a lot more visibility into that number and informs our confidence into how we think about the guidance.

Great. That's really helpful. And then, Mike, just a follow-up on something you said on ProNav and PricingCenter, it feels like you're getting some really good early traction there. Maybe for you or Jeff, how should we start to think about when these products and underwriting center as well? I know that's moving along into next year will start to materially benefit ARR growth.

Well, those products are building in terms of the overall portfolio at the company. And they also strengthen the overall message and the value we can create for our customer by making sure we deliver a completely integrated suite across the full insurance life cycle. So obviously, as those product lines grow faster than the overall product -- the collection of product lines, they'll become a more and more meaningful part of the overall bookings number. We called it out just because it was an objective this year to get those product lines established. And as Jeff said, we're very, very pleased with the momentum. And so it will definitely happen that they'll grow as a percentage of the overall book. And we're very pleased with how much momentum we've been able to create a short amount of time.

Great. Thanks, Adam. Our next question comes from Alexei Gogolev of JPMorgan.

Hello, everyone. Can you hear me?

Yes.

Perfect. As insurance partner with major LLM vendors, what's the practical integration posture with Guidewire in terms of enablement points or governance or security? And where do you expect Guidewire to build versus partner?

Great question. So -- and it's a super complicated multifaceted answer. So forgive me, I'll do my best and I don't know how long I allocate to answers of questions on earnings calls, but let's say, 3 minutes. Most important thing for us right now is the work that we've done on what people are calling a development harness to make sure that these LLM Agentic development tools work effectively with the Guidewire stack. This is actually like real software engineering that has to be put in when you point these tools at a platform and a code base like Guidewire, you don't necessarily get good results. But after doing the work to make sure that the system knows how to interact with Guidewire, we've been extraordinarily pleased with the results. So I think this is what I was referring to in our Dev Summit in Bangalore is showing people how to get this thing deployed, how to get Claude code running on top of Guidewire how to create the code, the integrations, the digital experiences, all of that stuff through prompt engineering, and it really is phenomenal. And so I would describe that as a partnership, right? Like we don't necessarily need like an official PR from these companies. They've done an incredibly good job publishing their APIs and how to build these things to work together. We've done a great job working with their technical teams to make sure that these things deploy well and the results have been phenomenal.

Now obviously, we also have LLM that are sitting inside of products like Pro Navigator and the agents that we build to run on our Agentic layer inside of our platform. And so there's like this like good symbiosis, if that's a word that -- and how these things are working together and being practically deployed right now that I am very, very excited about I think if you say, like what's the world going to look like in 5 years? And how much of the solution is going to be delivered by Guidewire and how much of the solution is going to be delivered by a large language model and the various layers of the prompts. Who knows?

I tell you 1 thing for us that I am absolutely sure of, though, is the industry is going to run on a modern relational database like Guidewire claims, policy, billing, product modeling. These things are going to run on a modern cloud infrastructure that we provide. And we will remain open to working with these large language models and honestly, also other application providers that have incorporated these capabilities. This is what our customers want. And that's what's working right now. That's the message, and that's the architecture and that's the reality that's working really well for us right now. So hopefully, that gives you a sense of where things are and where I think they'll go. But I would say, generally, I couldn't be more pleased with how this is evolving in the ecosystem.

And 1 follow-up in terms of monetization. How are you thinking about it for embedded Gen AI features over time? And what guardrails are you likely to implement to protect unit economics?

It's a good -- so generally speaking, I would like to build product that aligns to insurance value. And we tend to almost universally sell our products based on direct written premium based on a percentage of the direct written premium that runs on the service. And that enables us to describe the value we create in relationship to the size of the insurance company, and therefore, the size of the value that we're creating for that insurance company. So if there's an LLM that's incorporated into that story in the same -- in the way that it is very directly with Pro Navigator, we want to have a basis point-based pricing structure, that will include whatever amount of, let's say, tokens that are necessary to deliver the value that we've been able to describe in selling that product.

Now obviously, there are guardrails that we will build technical and contractual that will protect us from a use case that goes beyond what we expect, but nothing that we've seen causes me to worry that, that's going to become something that slows us down. We think we're going to be able to create DWP based pricing structures for the products that align to the insurance workflow, and that's going incredibly well for us right now. Hopefully, that makes sense. Slightly a technical question, but that's the philosophy around pricing in guardrails right now, Guidewire.

Thanks, Alexei. Next question is from Parker Lane at Stifel.

Mike, really nice to see that the ProNavigator momentum here that you called out in the quarter. I think you acquired that back in October, maybe formally announced or released in April. Can you just give us a sense of how long those deals are in the pipeline? And generally speaking, when you look out to 4Q and the coming fiscal year, how you're feeling about the pipeline in the early stages of having ProNavigator on the platform?

Yes. Thanks a lot, Parker. It's a great question. I appreciate it. We probably should have woven that into our scripts. It's exciting for us actually to have a product that we can materialize demand for and close business around in a sort of reasonable amount of time. It's a very different sales motion than we have with core system modernization that I think you know can sometimes last multiple years. So certainly, there was a bit of that pipeline that was already sort of -- it was already part of the company when we did the acquisition. But since acquisition, I mean hopefully, everybody gets this is like there's this like prompt shift in the perspective of the customer base around the trust that they are able to put into a service. It just shifts from a small company to a large company. And a lot of the things that we can do to build trust around the products we sell can be applied to the new products that we add to the mix here at Guidewire, and that's certainly true with ProNavigator. And so deal cycles are shorter. The conversations are quicker and especially relative to a modernization or a cloud upgrade and that's very, very exciting, and that's 1 of the things that's driving the excitement in our sales organization, but also our customer base. Is this like this real demand to be able to actively operationalize AI in a way that allows a company to get started very quickly and ProNavigator meets that need.

I'll add 1 quick comment there, Mike. With regard to both ProNavigator and PricingCenter, the pathway to the business strategy conversation and business value outcome conversation as we continue to enrich our conversations with customers has been really powerful. So the gestation period of these deals stand-alone, Mike mentioned a different selling cycle. But it's also -- it is also proving to be a really rich engagement with Chief Claims officers and heads of underwriting heads up product and pricing inside of companies to connect the dots between the core modern platform to the business value that can be derived over the top of that. That's not just about cost dislocation and operational savings, but really about growth in indemnity management, and that's becoming a really powerful enrichment of the core modernization of core message.

Got it. Maybe 1 quick 1 for you, Jeff. You talked about slower hiring. You also talked about a surge in services demand. Was the slower hiring across the board? Or is that -- should we get in with the commentary about services demand and what you said about subcontracting and the need to invest more there, particularly like FTE headrails?

Yes. Slower hiring was mostly outside of services, I would say, Services has been hiring to meet the demand threshold. And on the slower hiring side, there's a bit of -- sometimes it just takes a little bit longer to get the heads in the door that we want to get in. And there's also a bit of us coming to terms with some of the productivity gains that we're seeing with some of the AI tooling that we're rolling out throughout the company and being a bit more measured about how we think about future head count growth. So those 2 things are playing into some of the hiring practices right now.

Great. Next up is Ken Wong at Oppenheimer. Go ahead, Ken.

Can you guys hear me?

Yes, we can hear you, Ken.

Okay. Fantastic. Mike, maybe circling back on the slip deals, I feel like you guys have been executing so well. So any time there's a little bit of hiccup. I think investors just wonder potentially, is it maybe macro given some of the geopolitical stuff that happened in the quarter? Is it maybe kind of AI causing customers to kind of think through their deployment time lines? Any I guess, any reason why it wouldn't be some of those external factors and you guys feel comfortable that it is just kind of some deal timing? And then any update on whether or not those have closed in fiscal Q4?

Yes. So it's a good question, and I would say just generally, no right? Look, this is just simply a matter of us looking at the end of Q2 and saying, what do we project is going to occur in Q3? And then you could say getting it wrong or seeing things move -- just things didn't go exactly the way we wanted.

That said, I want to reiterate like the pipeline is actually building and the ARR growth rate ended up at 19%, which is pretty phenomenal. So I think that like more so, I would say, this is a this is a headline associated with us hitting the target that we set in Q2. It is not related to anything macroeconomic or a general condition that we see in the overall demand environment. Like I said, pipeline is building, demand is building. We're looking at a -- we potentially have to qualify this is like we need to execute, and we're going to execute. But it could be a record Q4 and the demand that we see, the pipeline that we see is very, very significant. And so yes, I wouldn't connect the dots to anything related to macro or AI or anything like that.

And I agree, Ken, there's nothing like that at all. I mean, we have a ton of confidence into the market position, the demand environment. I don't want to comment on any specific deals, but as we look at the linearity at the start of Q4, it's off to a good start. So there's -- Guidewire is a business that has a small number of very large deals that can be quite impactful. This is just a dynamic of our business. And part of the reason why we always coach people to focus more on the annual results as the true measure of our success. And we feel very confident that anything that we didn't quite get in Q3 will manage to get over the finish line in Q4 and the pipeline is really strong.

Understood. Thanks for all the color there, Mike and Jeff. And Jeff, I appreciate the color on the ramp lining up with ARR this quarter and likely similar in Q4. I don't suppose any directional color in terms of whether or not fiscal Q3 was kind of tracking like ad or above, below what the Q2 levels were?

Yes. Here's what I can say. I mean, our fully ramp continues to be very, very healthy. I think it's a helpful reminder that when we approach a deal negotiation, we really focus on making sure we're being thoughtful around driving customer lifetime value. So this means optimizing the ARR dynamics for the out years, more so than optimizing them for the year 1 in quarter ARR that's delivered. And that's a dynamic of our model that we have to manage and measure, but we will always optimize for that customer lifetime value. And last year, we saw ARR growth -- fully ramped ARR growth at 22%, which was very strong. And as we kind of move through this year. And as we look ahead to next year, we're confident that we can deliver those levels or potentially higher. So that's how we're thinking about kind of where we've been throughout this year and how we're thinking about the remainder of this year.

Great. Our next question goes to Allan Verkhovski at BTIG.

Awesome. Mike, I just want to pull on that earlier thread and the productivity tsunami you mentioned in the prepared remarks. There are a lot of product updates in the Palisades release. I want to just go a bit deeper on the developer assistant. That's an early access. Can you impact the level of demand there is from Tier 1 insurers, what the most in demand like use cases are based on your conversations? And how is this further driving incremental tailwinds and pressure on insurers that haven't moved to the cloud to do so sooner?

Yes. Great question. Yes, it's interesting. There's a variety of things that involve development that relate to either the implementation of Guidewire or the ongoing let's call it, maintenance or evolution related to like IT projects that drive the initiatives at an insurance company, and it really is across the board. Probably the most tangible thing you can point to is product creation. So we've done a lot of work over the years around what we call advanced product designer and creating a better system for creating new products on the Policy Center platform. But using AI to do that is a phenomenal step-up in productivity associated with the work to make that happen. Building integrations, again, is a big part of an implementation project, and it's something that just takes up a lot of time, and that can also be accelerated. All oftentimes associated with the new product introduction will be the digital interface, the customer-facing, web-facing screens associated with quoting those products or engaging with agents around those products, that also can be accelerated. And so there's demand for all of these developer assistance. It's really across the board because that's -- I mean, it's kind of what's so amazing about these tools is like the intelligence is general, right? It's kind of -- that's -- and we can build the harness, we can apply the harness to our dev platform, and we can kind of tweak this thing and train this thing to work against our specific type of technology platform. And so regardless of what the development project is, it's accelerated, and that is awesome.

And with respect to demand and what kind of tailwinds this creates, you should think about this like in 2 ways. One is there's just a tremendous amount of work involved in migration. And so I've got a legacy mainframe system that needs to be modernized or I've got to guide where cloud implementation that hasn't been maintained quite as much as we would have liked over the years. And now that needs to be modernized that needs to be moved into Guidewire Cloud. These tools can also be applied to all that work. And so we're seeing the estimates and the time lines associated with professional services to do that work come down in very significant ways. That's what creates more demand. People often say like what's the meter on Guidewire, like what can cause Guidewire to grow faster, grow slower? Well, it's -- of course, you have to pay money for Guidewire licenses. I talked about that in an earlier question. But it's much more the implementation project that stretches out over years that like really costs a lot of money. And if we can make that faster and accelerate that, that is creating the tailwind and the extra demand for people saying, "Oh, that project that I was putting off, maybe if it's faster, cheaper, maybe this is the time to go tackle that project. That's just as exciting as this sort of like ongoing maintenance and the productivity boost in the IT departments post implementation. That's very, very real, and I think it's absolutely creating a tailwind for the company.

Perfect. That's really helpful, Mike. And Jeff, maybe just a quick follow-up for you. It's impressive that fully ramped ARR growth is still expected to outpace our growth next quarter despite seeing some of the deals pushed this quarter. Can you just walk through your confidence, your visibility and assumptions behind that?

Yes. I mean we do a very detailed bottoms-up review of our pipeline, the deals that are coming in. We're seeing kind of -- we are seeing very healthy demand for larger commits. So insurers expanding their work with Guidewire when they're modernizing 1 module to the cloud kind of consuming another module in addition to that activity. So there is -- all of that kind of flows through the model. And we have very good visibility, obviously, into the first 3 quarters of the year that also inform our guide. So a very meaningful amount of that work is already in the rearview mirror as we look ahead to the end of this fiscal year. So all of these themes and are really playing into the environment that we're seeing, kind of the larger commitments that insurers are making to the cloud platform that inform that guide.

Now there are certainly work that has to be done and completed in Q4 to realize that, but we have good visibility into the corpus of deals that we expect to see in Q4.

Thanks, Allan. Our next question is from Tyler Radke at Citi.

Yes. Thank you for. Obviously, you hit on the slip deals a bit already. But I guess, just bigger picture, 1 of the dynamics that investors are asking about is just sort of the AI crowding out effect I'm curious as you talk to your insurance customers and they're presumably ramping up coating projects. How much is that budget an issue as it relates to your deals? And as you think about sort of Q4, if you could just sort of provide sort of the underlying assumptions on close rates and whatnot. Like have you introduced more conservatism given sort of the timing issues you saw in the quarter?

No. We're obviously being very careful in going through everything in let's say, with the fine tooth comb to ensure that we're confident in reaffirming the guide and the confidence that we have in the execution. And so that's being done.

In terms of AI crowding out, like I certainly hear this narrative from people, let's say, I don't hear it from customers that I think the reality is that the insurance industry is recognizing what a profound impact AI can have on a development velocity and IT agility be underwriting and the efficiency of underwriting departments and see claims departments and the efficiency of customer service and claims automation in the industry and the productivity improvements that are potentially possible in insurance -- in any insurance company are so significant relative to what these companies spend on these IT programs, that it really -- it doesn't make sense to compare these 2 things against 1 another. You look at this and you say, "Well, if this works, which I think more and more people expect that it will then there is just in order to remain competitive going forward, you're going to have a modern core system that is capable of supporting these sort of genetic capabilities. Otherwise, you're not going to be able to remain competitive, you're going to lose ground. And so like it's like a first order question to say, well, could I code this in a different way. It's like the wrong way to look at it. And the customers are seeing -- especially the big Tier 1 customers are like see this, they recognize this. They take a look and they assess where they are and where they want to be and where they want to be with AI. And you come to the conclusion that being on a modernized platform with an open approach to APIs and MCP servers and integration to these a genetic tools and large language models, integration to an ecosystem of partners that are building on top of these LLMs and building integrated into Guidewire. This is the logical answer, and that creates the lift that we're talking about. And so I want to acknowledge that, yes, the narrative that you describe exists, but the counter narrative specifically in insurance and the use cases we unlock for IT underwriting and claims, so overwhelm this logic that that's what's driving the business positively for us at Guidewire.

Mike, I think in the prepared remarks, you talked about how you're seeing measurable and significant productivity in accelerated migration time lines. I'm just wondering if you could double-click on that. Like any metrics you could put around that? Like is it happening 30% faster? How should we think about that just in terms of when that starts to show up for you guys in terms of getting that maybe faster ramp on -- from time to booking to active ARR?

Yes. So great question. I appreciate it. So I'll give a little bit of a preamble, and then I'll prep John, and I appreciate John already took himself off mute. So he's going to chime in here on this because he owns and is driving this directly. We obviously -- we started off a little bit conservatively and said, okay, like let's get these tools in people's hands. Let's get these like start to assess what we can do. Let's start to apply these tools and these techniques to a couple of programs with a couple of customers, let's be very careful and open with customers about what we're doing and how we're doing it and let's see what happens and see if it really produces the acceleration that we think it will. And the amazing answer is it is accelerating. We are seeing the results, and we're starting to expand it to more and more projects and it's just on its way.

So I don't know, John, if you want to like throw out a couple of the numbers that we are talking to customers about. But feel free to chime in.

Yes. The investment pace right now has unlocked about 35% improvement in migration, so on-prem to cloud migration. That's a great use case because there's some control parameters around the database conversion that allow us to move really fast. So we're starting now to see -- we've redirected some of the investment towards the migration off of either legacy estate or some other asset towards Guidewire. So we're starting to get to that 35% improvement on the, we'll call them, net new deals. If I look forward, I'd say we don't start to see it leveling off. That return on -- the return on investment on that, we see that maintaining the same pace, the same curve probably until we get to that 55%. And then we'll start to see continuing cost savings, but probably less so on the duration savings just because of the gestation period of just the change management principles of doing these programs. But we still have a promising pathway ahead of us and some really great success stories behind us that we're really confident in.

Great. Thanks, John. Our next question comes from Aaron Kimson of Citizens Bank.

Mike, do you see any high-level differences in the appetite and relative budgets for adopting AI products amongst P&C insurers geographically in the Americas versus EMEA versus APAC?

Yes, that's a good question. It's interesting. Yes. Summary is, yes, we do. I don't want to call out any particular countries, but yes, we do. It's like the other way to think about it is like everybody wants to -- I think everybody wants to use AI for development. No question. Like you can very clearly see that you can use AI for development. I think there's different perspectives in different countries, but also in different carriers, different customers about the degree to which you will expose these agents to consumers or whether or not you will use sort of more human in the loop use cases where you're exposing these tools to employees and using it to boost productivity through employees. But the common factor is everybody wants to get on the learning curve. Everybody wants to get it deployed and start to figure out how it makes sense for their business. But certainly, you do see differences in country and also company about how aggressively they want to target the more efficiency -- more aggressive efficiency agendas.

Got it. And then as a follow-up, Jeff, can you talk about the shape of the ramp of Token spend at Guidewire, your level of visibility and how that will evolve going forward? And if there could be any potential gross margin effects?

Yes, we're pretty early in terms of how we're kind of monitoring and measuring this. Obviously, we're starting to see it pick up on the development side. We're starting to get it into the hands of customers with respect to the Agentic framework and how they're adopting AI within the platform. So it's pretty early for us right now. We've kind of built the mechanisms to start measuring that. And as we engage with customers, I would say right now, we're in a place where we're focused on adoption, but kind of adoption with some controls to ensure that we can make sure that there's not any sort of usage that goes out of the scope of what was intended by our contracts. And so that's where we are. No numbers, no metrics to report at this point in time, that's how we're measuring it today, though.

Thanks, Aaron. Next question is from Jessica Wang at Raymond James.

[indiscernible] here. Just to on based on underwriting center? I know it's still early, is still in development. But what have you been hearing from customers that are interested in there? Like how should we think about the product maturity so far in potential pipeline into next year? Just considering the success you've had so far with ProNavigator and PricingCenter already?

Yes. Thanks for the question. So the -- it's going very, very well. We have a handful of customers that we're working on this product with and in plans to get it into their hands in the next couple of weeks/months. We -- there is a tremendous amount of interest, I would say, in commercial lines underwriting around the potential for these LLMs and agents specifically tuned to the underwriting use case to be able to very significantly improve the efficiency of underwriting teams, reduce the time it takes for companies to respond to submissions and then also do a better job focusing on the risk analysis of the submissions that they choose to quote.

The other part of this that's very interesting is we're being able to establish a better connection to the actual policy system and the quoting system and the pricing systems that these companies are using. That's also part of the equation. And so the use case, there's a tremendous amount of demand for, I would say, universally across the customer base. And the project has gone according to schedule and we're excited about the work we're doing with these sort of carefully chosen design partners that we're working with.

That's great to hear. Also just touching on PricingCenter again, with the success of pipeline, so far, how should we think about the demand drivers here now came from your existing customers versus new -- like new logos, how do we think about potential attach rates that are involved in these different cohorts?

Yes, it's a great question. It's -- technically, the PricingCenter to policy center to product model, integration is so much an important part of the value proposition. That honestly drove the thesis behind the acquisition in the first place. what you're seeing in general in the insurance industry is this need to not only launch new products more quickly, but actually adjust the pricing -- adjust pricing and adjust rate routines more fluidly to keep pace with competition and keep their products a competitive but also profitable. And so like the friction associated with doing that relates to how the components of that solution all integrate. And so like I said, the thesis behind bringing -- making PricingCenter part of the suite at Guidewire is that we can do a really good job integrating the product model, integrating into our quoting service, integrating it into policy center. And so that connects logically to selling this to existing policy center customers and selling this alongside new policy center implementations. That go-to-market dynamic is playing out exactly as we expected it to, and that's where we're seeing the demand. You could also say it's like that's where we're focused because our value proposition is strongest there. But it's very much working according to plan.

Great. And our last question comes from Faith Brunner at William Blair.

Just building on those last couple of questions I wanted to ask about PricingCenter. I guess, you saw the 1 in Sweden, Poland, the first 1 in the U.S. How is this maybe building on referenceability of these newer products? And then maybe as you touched on the different appetite that may vary region to region. How are these kind of serving as proof points and maybe getting people a little bit more comfortable saying, hey, we might have to actually get into something we didn't think we want to, to stay competitive?

Yes. Let me -- I'll touch on the last thing. I don't know that I've heard so often that people are saying that they're surprised that they need to do it. I think everybody -- most of the companies that we're working with have like recognized that this is on a strategic agenda. And that also that this being on the strategic agenda factored into our interest in adding this to the portfolio and building out this well-integrated solution at Guidewire. That was a factor.

I think referenceability is very, very important. I also just think like us doing the work to get this into our infrastructure and being able to run it alongside the rest of the insurance suite application suite, like this is really important. This is a -- it's an incredibly good actuarial engineering team that we acquired. But there's some things we need to do to mature it in terms of how it runs and how it's supported and running it at the scale and reliability and the security expectations that Tier 1 insurance companies expect and that's a big part of the work that we've been focused on since the acquisition, and I think that's helping to drive the demand. It's like, hey, can you do all of these things you say you can do? And can you do them with the same level of trust and integration expectations that we see from the rest of the product suite at Guidewire and that kind of checks all these boxes and creates the demand uptick that we're seeing with the product.

The teams, both on the PricingCenter team, but also the general infrastructure and platform teams at Guidewire have done a really, really good job executing on this and earning the trust of these customers. And that helps build the pipeline that we're executing against and giving us confidence that this is going to continue. So I don't know, hopefully, that helps you.

Let me add, the other thing I'd say is like we're also -- we don't tend to like oversell much of Guidewire. We try to make sure we have a stellar track record in terms of selling things that we know we can do in executing on those things effectively and making sure that no programs ever fail. And I think that, that philosophy is factoring into the way we're approaching PricingCenter rollout. Anyway, thanks for the question.

Thanks for the color. .

Thanks, Faith. That's it.

Okay. Well, everybody, thank you very much for participating in the call today. As you've heard, we're incredibly excited about the momentum in the business in Q4, and we look forward to seeing everybody talking to everybody after we conclude the fourth quarter and our fiscal year. Thanks very much.

Greetings, and welcome to the Guidewire Second Quarter Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today. I would now like to turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you, Alex. You may begin.

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; Jeff Cooper, Chief Financial Officer; as well as John Mullen, President, who will be available for the Q&A portion of today's call. Complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. Starting this quarter and moving forward, we have also posted a quarterly earnings deck on the IR section of our website. Today's call is being recorded, and a replay will be available following its conclusion.

Statements today include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties, and assumptions are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and the risk factors and documents we file with the SEC, including our most recent annual report on Form 10-K and our prior and forthcoming quarterly reports on Form 10-Q filed and to be filed with the SEC for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. We will also refer to certain non-GAAP financial measures to provide additional information to investors. All commentary on margins, profitability and expenses are on a non-GAAP basis, unless stated otherwise. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted at the end of the quarterly earnings deck on our IR website. And with that, I'll now turn the call over to Mike.

Good afternoon, and thanks, everyone, for joining us today. Q2 was another strong quarter with ARR growing 22%. We continue to see momentum and demand increasing and the results across the board this quarter reflect what we believe makes Guidewire a uniquely durable business. Before I go into the details, I want to take a step back and provide my perspective on the position Guidewire occupies in our industry, the role we play inside an insurance company and why that combination creates long-term durability even in periods of technology disruption and change.

Guidewire is the stand-alone leader in delivering mission-critical core systems for the P&C insurance industry. We are now a SaaS company, but understanding what our solutions actually do inside an insurance company is essential to understanding our durability. Insurance is a highly regulated trust-based industry that evolves deliberately and depends on precision, resilience, compliance and accuracy at scale. Guidewire sits at the center of that environment as the operational backbone of the insurer, embedded across the core operating functions of underwriting, claims, finance and regulatory reporting. Our platform supports the complex financial and regulatory framework that underpins the industry, establishing reserves, tracking premiums collected and claims paid and enabling a highly regulated structure that spans hundreds of integrated systems, millions of insureds and trillions of dollars in transactions.

At the transactional level, we serve as the system of record for risk when a policy is written, when a loss occurs, when a claim is filed and paid. Those commitments and outcomes are executed through Guidewire. And today, we don't simply provide that software. We operate it as a continuously improving secure, reliable and scalable cloud platform that strengthens over time. The complexity of replacing a core system in the insurance industry means deal cycles and implementation projects are almost always measured in years and require deep partnership. Success on a Guidewire project is the single most important KPI in our company. And you will often hear me say that there is nothing we won't do to ensure a customer is successful with Guidewire.

That culture of customer success has produced gross ARR retention rates of over 99% for our InsuranceSuite and InsuranceNow customers. The trust we have earned serving some of the largest and most trusted insurance companies such as State Farm, Liberty Mutual, Zurich, AXA, Aviva, Travelers and USAA reflects decades of deep domain expertise, best-in-class enterprise security and deep productization of complex regulatory requirements. And while we focus on serving this Tier 1 and Tier 2 segment of the market, we can also support smaller insurers. In Q2, for example, we had wins at customers that reflected over $15 billion in direct written premium and under $50 million in direct written premium.

It is also important to understand how we price our service. We sell recurring subscriptions to our cloud products and price them as a percentage of the direct written premium managed on Guidewire. We have never been a seat-based model. We align our pricing to the economic value we deliver to an insurer, the premium flowing through their business and not the number of users accessing the system. As insurers grow premium, expand lines of business and modernize their operations and become more efficient, our growth aligns directly with that value creation.

There has obviously been a significant discussion across the market about the pace of generative AI advancement and its implications for the overall software category. What we are seeing in practice at Guidewire is increased demand for InsuranceSuite and InsuranceNow. The potential for generative AI and insurance is clear, and this is increasing the urgency for insurers to modernize legacy systems. This is because legacy mainframes were not designed for real-time data access, automation or AI-driven workflows. AI depends on clean data, trusted transactions and reliable systems of record. Generative AI will help us accelerate the value we deliver to our customers. We'll help our customers deploy agents that improve the service they provide to their customers, and it will also help us deploy and configure Guidewire faster and more efficiently. All of this AI-driven potential is increasing the momentum in our business.

Q2 results illustrate this clearly. We closed another 15 InsuranceSuite Cloud deals and 2 InsuranceNow deals. And importantly, we are seeing insurers increase their commitment to Guidewire, both in terms of larger, fully ramped ARR outcomes and longer durated contracts. The deal activity in the quarter included 3 new customer wins and healthy migrations and expansions. On the net new side, we signed one of Canada's largest private insurers who will be modernizing their legacy claims administration system to ClaimCenter. Our dialogue with this insurer dates back to 2008, so we are thrilled to start this program. This deal reflects a little over $8 billion in direct written premium, representing our largest new customer win in the quarter.

Large customers are also choosing to expand and consolidate on our platform. Two of these customers will see their ARR grow to over $20 million during the committed period. And now let me turn to some notable deals in the quarter. AVEVA U.K., the largest insurer in the United Kingdom, has entered into a long-term agreement with us, committing to move all of its Guidewire estate, including business acquired from DLG in 2025 to the Guidewire Cloud platform. Aviva recognized that to focus on innovating, serving their customers well and driving material future growth for their business, they needed a modern cloud-based core platform.

Similarly, Tokio Marine North America is preparing to migrate major elements of 3 U.S. carrier businesses and has expanded significantly above its previous baseline as it commits to more growth on Guidewire. And Donegal Insurance Group has selected Guidewire Cloud as the next step in its core system modernization strategy. migrating from on-premise InsuranceSuite to the Guidewire Cloud platform. In addition, Donegal has aligned its strategic AI initiatives with Guidewire's rapidly evolving AI road map. Initial collaboration efforts focus on advancing claims capabilities, including intelligent first notice of loss and AI-powered agentic claims handling, which will be seamlessly integrated into ClaimCenter.

Large customers are also building on their successful cloud deployments to add other lines of business and significantly step up their direct written premium commitments. For example, a top 20 commercial insurer extended ClaimCenter to more commercial and specialty lines for greater scale and efficiency, significantly increasing its DWP commitment as it works to consolidate the collection of legacy core systems that they currently support. And in Q2, we had another win at Zurich Germany, which is a direct result of the partnership and strategic framework agreement we have with Zurich.

We have also worked hard recently to widen the breadth of our core offerings to address more of the insurance life cycle. With the addition of Pricing Center, we have an ability to uniquely address the growing demand for pricing and rating agility in insurance markets. I am encouraged by the high customer engagement for this new integrated offering and pleased to have closed our first Pricing Center deal in the second quarter. We've also worked over a long period of time to embed intelligence into our Guidewire Cloud platform and InsuranceSuite applications, and it's great to see strong adoption momentum in our data and analytics portfolio. In the second quarter, we closed 25 deals that included one or more of our data and analytics offerings.

Our new embedded AI solution, ProNavigator, also got off to an incredible start with 9 deals in the second quarter. Notable deals included Aviva Canada and Gore Mutual who want to leverage this Agentic assistant to deliver answers, suggestions and ultimately, actions embedded right in our core UI. ProNavigator leverages InsuranceSuite data and insurance standard operating procedures to increase employee efficiency and minimize claims leakage. These results reflect demand not only for core modernization, but for the expanding application portfolio that surrounds it. Momentum in the quarter was phenomenal. And as I said previously, led to ARR growth of 22% Growth in fully ramped ARR continues to outpace reported ARR growth as it has over the past 3 fiscal years, and we expect that to continue this year.

We are seeing larger deals and longer deal terms, reinforcing the durability of our platform and the strategic commitments customers are making. Broadly speaking, AI for us is immensely beneficial and driving an acceleration in our business. It's helping create demand for core system modernization. It's helping us accelerate our development velocity. It's helping us accelerate our implementation velocity and will accelerate everything that customers and partners do with Guidewire. We will incorporate AI-powered agents powered by ProNavigator into our applications and continue to support an open approach to the incredible ecosystem of partners building solutions in and around Guidewire.

Guidewire is an indispensable part of a highly regulated global industry. We operate a mission-critical infrastructure with premium aligned pricing, core renewal rates above 99% and a culture built around customer success. That combination has produced 25 years of durability and predictability, and we believe it positions us well for decades to come. With that, I'll turn it over to Jeff to walk through the financial details and our updated outlook.

Thanks, Mike. Q2 was another tremendous quarter. We surpassed the high end of all of our financial outlook targets, and we are raising our full year targets across the board. Given the market backdrop, we thought it would be helpful to give a few incremental onetime disclosures to help investors understand the durability of our model. First, ARR ended at $1.121 billion and grew 22% year-over-year or 21% on a constant currency basis. Additionally, fully ramped ARR ended Q2 at $1.42 billion and fully ramped ARR growth continues to outpace ARR growth. Our market experience has taught us that we can maximize customer alignment and lifetime value by negotiating ramped subscription fees over a multiyear period. We quantify the impact of these ramps in our metric fully ramped ARR, which only quantifies the first 5 years of a contract. We typically disclose this metric annually, but thought it would be helpful to remind investors of the power of this dynamic this quarter.

Second, we continue to see customers lean into longer-durated contracts and larger commitments. This shows up in a number of metrics. For example, the average contract term over the last 12 months for new InsuranceSuite deals is over 6 years if you look at the weighted average duration weighted by fully ramped ARR. We have seen this metric increase over the last 18 months as larger customers push for longer contractual commitments. As a reminder, our standard contract duration for new cloud arrangements is 5 years. This dynamic is further evidenced by RPO growth. RPO finished the quarter at $3.5 billion, representing 63% year-over-year growth. We generally do not talk too much about RPO because we tend to focus on the powerful recurring elements of our model, such as ARR and fully ramped ARR. But in the current environment, we do think RPO is a helpful reminder of the durability of the business.

Third, large customers are one of our fastest-growing cohorts. We have seen customers with more than $5 million in fully ramped ARR grow from 35 in 2021 to 96 at the end of Q2. It is gratifying to see the largest insurers trust Guidewire to manage their mission-critical operations at an accelerating pace. Finally, as Mike noted, we see renewal rates at all-time highs. On a trailing 12-month basis, InsuranceSuite ARR retention, including all downsell activity was over 99%. More interestingly, I went back 5 years and I reviewed every customer churn event involving more than $1 million of ARR. It was easy to do because there's a very small number of these. Those churn events fall into 3 categories: First, customers that experienced financial distress or exited the line of business where they use Guidewire; second, a single instance where an acquisition drove churn; and third, a contract we terminated following our decision to exit Russia after the invasion of Ukraine. Importantly, over the last 5 years, we have not seen a single InsuranceSuite customer with more than $1 million of ARR choose to replace Guidewire with another system, except where that change was effectively mandated by an acquirer. Again, we thought it would be helpful to provide some of these incremental disclosures this quarter given the backdrop.

Now let me turn to the results. Total revenue was $359 million, up 24% year-over-year and above the high end of our outlook. Subscription and support revenue finished Q2 at $237 million, reflecting 33% year-over-year growth and our continued InsuranceSuite Cloud momentum. Services revenue finished at $62 million, up 30% year-over-year and ahead of our expectations on strong demand for Guidewire-led services programs. This number includes an increase in field engineering activities delivered through our professional services organization.

Now let me turn to profitability for the second quarter, which we will discuss on a non-GAAP basis. Gross profit was $243 million, representing 28% year-over-year growth. Overall gross margin was 68%. Subscription and support gross margin was 75% compared to 69% a year ago and continues to track well ahead of our expectations. Services gross margin was 9% compared to 6% a year ago. We finished Q2 with operating profit of $87 million. This finished ahead of our outlook as both gross profit was higher than expectations and operating expenses finished lower than expectations. We ended the quarter with over $1.35 billion in cash, cash equivalents and investments. Operating cash flow ended the quarter at $112 million. We repurchased $148 million of Guidewire shares in the quarter, and we obtained a new $500 million share repurchase authorization a few days before moving into our quiet period. We have $490 million remaining on this authorization, and we currently expect to complete this repurchase program before the end of our fiscal year.

Now let me go through our updated outlook for fiscal year 2026. Starting with top line, given our performance in the first half and our continued healthy pipeline, we are raising our ARR outlook to $1.229 billion to $1.237 billion, which reflects growth of 18% to 19% year-over-year. For total revenue, we now expect between $1.438 billion and $1.448 billion. The midpoint of our revenue growth outlook is 20%, up from 17% growth assumed in our prior outlook. We expect between $962 million and $966 million in subscription and support revenue. This $16 million increase in our guide at its midpoint is attributed to the subscription line and is due to stronger-than-expected first half bookings, healthy direct written premium true-up activity, strong attach of new products and a robust pipeline in the back half of the year. We now expect services revenue to be approximately $255 million given the better-than-expected services revenue in the first half, our higher utilization rate and an uptick in demand for Guidewire-led key programs. Additionally, we are leaning into some field engineering programs where our services personnel are helping customers utilize Guidewire Cloud platform and leverage newer aggentic capabilities to solve business problems. This is an important motion as proximity to the customer has always been a strategic asset for us.

Turning to margins. We are increasing our expectations for subscription and support gross margin to be approximately 74% for the year. We expect services gross margins to be approximately 13%. Overall gross margins are now expected to be 67% for the full year as higher subscription and support gross margins improve the overall gross margin. We are also lifting our outlook for operating income. We expect GAAP operating income of between $100 million and $110 million and non-GAAP operating income of between $293 million and $303 million for the fiscal year. This updated profitability outlook recognizes the higher revenue outlook and is partially offset by higher expenses as a result of increasing our annual bonus accrual due to expected outperformance on key financial metrics. We expect stock-based compensation to be approximately $185 million, representing 15% year-over-year growth. We are adjusting our expectations for cash flow from operations for the year to be between $360 million and $375 million. Our CapEx expectations for the year are between $30 million and $35 million, including approximately $18 million in capitalized software development costs.

Turning to our outlook for Q3. We expect ARR to finish between $1.144 billion and $1.150 billion. As a reminder, the timing of ARR landing from backlog is more heavily weighted towards Q4 than Q3 this year. Our outlook for total revenue is between $352 million and $358 million. We expect subscription and support revenue to be between $239 million and $243 million and services revenue of approximately $60 million. We expect subscription and support margins of approximately 74%, services margins to be around 12% and total gross margins around 67%. Our outlook for non-GAAP operating income is between $59 million and $65 million. In summary, we had a tremendous Q2. Alex, you can now open the call for questions.

Our first question is going to come from Adam Hotchkiss at Goldman Sachs.

I guess to start, Mike, I appreciate all the clarity on the core continuing to accelerate, but it would be great to understand how you think about what Guidewire's position in the broader AI stack looks like over the medium term. We hear a lot about competition outside of the core from forward deployed engineer models and disruptors deploying LLMs on insured data. So just maybe clear up for folks Guidewire's strategy as it relates to owning AI versus enabling AI and then how that impacts your revenue opportunity.

Great question. I appreciate it. And I would definitely say that it would be quite a bold statement for us to say we're going to own AI in the insurance industry. What we're going to own in the insurance industry is core systems that I am very confident in. We see that momentum, and we see that Insurance companies need to modernize. They need these core stacks to work effectively. There's plenty of insurance companies that need Guidewire to own the outcome with respect to AI capabilities. But running an open model where we see other companies that are going to use other components from other AI technologies in and with Guidewire, it's absolutely part of the medium-term outlook. And I think that this is really very, very important to understand. I have had numerous conversations with Tier 1 CTOs and CIOs in our customer base over the past couple of months. And every single one of them stress to me that they expect there to be a mix of how they deploy these solutions in their environments. At the smaller companies and at the smaller divisions, more of this will come from Guidewire, at the larger companies, some of it will come from Guidewire and some of it will come from partners. This is going to -- this is an incredible time in technology. And I absolutely want to stress that where we are one of one, I think, is in the perspective that we're going to be the most trusted, scalable, reliable core system that you can do anything you want with respect to AI and Guidewire. Now like how do we -- how does -- what you say, what parts of this do we want to do very well and maybe someday own, I'll give you a little bit more detail. We're super excited about the momentum we have achieved with ProNavigator in the very first quarter that it's really been part of the company. We highlighted the deal activity. We highlighted the deal activity at pretty significant real customers that are deploying ProNavigator as a mechanism to deploy artificial intelligence-powered solutions directly to the place where people are using the systems. So we can provide this context from what they're accessing inside of Guidewire. We compare it with standard operating procedures and the recommendations that they would make to those end users, and we can use an LLM to serve that to the end user in a way that's helpful in a way that like makes that person an expert, and we love the momentum that we've achieved there. As we said in the prepared remarks, we are seeing demand for and doing a lot of let's call it, 4 deployed services where we are working with our core customers to look at what's possible with respect to Guidewire technologies and these large language models that are available now and can be applied to insurance outcomes. We're super, super excited about this. But I would definitely stress like the 2 characteristics or maybe 3 characteristics of my answer. Number one, we're the right choice for core systems. There's no doubt about that. Number two, we will do more with AI and ProNavigator is a great example. We will do more with our services organization and technologies that come from Guidewire, but we will definitely be part of what I think will ultimately be a relatively complicated enterprise architecture that will be established at each insurance company based on their strategies and their goals. And no matter what, we will be open and we will provide a platform that gives our customers choice. Hopefully, that gives you a sense, Adam, of how we're thinking about this.

Okay. That's great, Mike. Really, really helpful. I wanted to then pivot to the core. I know we've talked about 25% or so of premium flowing through Guidewire today. And it feels like AI is may be moving customers into the cloud more quickly if your fully ramped ARR is accelerating off of the 22% in fiscal '25. So what's your updated view on the pace that premium moves into cloud and where Guidewire's penetration ultimately gets to over the medium term?

Thanks for the question. I would say it's definitely improving. And as you heard us talk about with respect to the results so far this year, the results in the quarter, the visibility that we see into the back half of the year, both for new business and expansions and specifically larger deals at large Tier 1 and Tier 2 insurance companies. This is just extremely positive for our business. that's what gives us the confidence to be able to update our outlook. How that relates exactly to the percentage points of global DWP that flow through Guidewire, it's very difficult for us to say or project that. I don't really run the business that way. We look at it more from a net new ARR and net new fully ramped ARR perspective and the specific workloads, the specific lines of business that exist at each of our customers in each of the geographies that we support. And then we look at it in the end of the year, and we report that out, obviously, kind of at a yearly basis, how we've done. But certainly, it's increasing. And certainly, we see demand increasing. And I think demand is increasing because of the potential that everyone sees in generative AI. They see what they can do. Like I think you guys have all heard me say this before. What's so startling, what's so special about this technology is every single person that wants to can see how powerful it is because we can all use it in our consumer lives. Like we can all touch it, we can feel it, we can ask it questions. And then you can just immediately see, "Oh, wow, I can use this in my company. But you can only use it in your company if you're running on a modernized core system. If you're running on a core system from Guidewire with APIs that you need, with the MCP servers you need, with the partnerships that you need, that's what really unlocks this, and that's what's driving the momentum in the business. That's what created the quarter that we saw. That's what's giving us the confidence to raise the guidance for the year.

Our next question comes from Ken Wong of Oppenheimer.

Fantastic. Very clear, very assertive statements on the AI front today, Mike. I think those were fantastic. I won't belabor the point too much since I'm sure my peers will. I wanted to maybe focus on new products. You mentioned good customer feedback on Pricing Center. You signed your first deal. Would love to get some early comments in terms of what you're seeing in those engagement in those conversations. And then any update on whether or not there's some traction on the underwriting side?

Yes. Thank you very much for the question. So Pricing Center is super interesting because what we're seeing is people really leaning in and wanting to engage with us to talk about what's the vision and specifically, how is it going to be integrated into PolicyCenter. So for a Guidewire customer that's running PolicyCenter, there's just this obvious connection between the product model, the way that we define the product model and how that relates to what the actuaries are going to use to be able to create the products that they need, how it connects to our data platform and to be able to provide the data they need to create the models they need to stay current, to compete, to adjust to what's going on in the market. There's a lot of engagement there. This is a deal cycle that's kind of long, though, right? This is a thoroughly researched, thoroughly studied. Sometimes there's a POC associated with these deals. And so it's kind of more similar to our core sales process where, hopefully, as we said, we closed one deal that was like more than 10 years. Hopefully, those deals won't last 10 years. But it is something that's going to take us a little while to build. We were excited to get that first deal done, but we're also excited about the amount of pipeline and the amount of engagement that we're creating for Pricing Center and for us to start to participate in this segment of the market. It's very, very exciting.

And then you asked about underwriting. Like on the underwriting side, we're still in the process of working with a small subset of customers that have expressed interest in really developing with them a solution that maps to what is really just honestly a very, very fast-evolving approach to agentic underwriting, let's call it, is what exactly does that need to do with respect to receiving submissions from brokers and how do we map that to risk appetites? And then how do we ultimately map that to PolicyCenter. Lots of excitement and engagement in the market around this. We're excited about the product. And I expect over the next couple of quarters to be able to start to get this into production with a couple of customers and learning fast and evolving from there.

Fantastic. Really appreciate the color. And then, Jeff, just a quick question on the true-up comment, I think you mentioned still seeing some tailwinds from true-up activity. I think we on the outside probably worried a little too much that as DWP normalizes, you really wouldn't see any of that activity anymore. Help us kind of walk through the mechanics of kind of how that continues to be a tailwind for the business.

Yes. Thanks, Ken. Yes, we did see healthier true-up activity than we initially expected going into the quarter. That was a little bit of a tailwind in Q2. I think as we think about the remainder of this year, it's generally aligned with how we've talked about this over the last few quarters. We saw a very healthy backdrop coming out of the kind of high inflationary period that is tempering a bit, but we continue to see this activity. And the way it works is customers have premium baselines in their contract. And it's always been part of our model that as customers grow, they pass those baselines and then we have the right to effect a true-up order. It's not uncommon for some customers to buy a bit more premium than they initially need. So it may take and in certain cases, a few years to see a true-up order after an initial purchase. But we see pretty regular volume of this. We have enough of this in our model now that we can be pretty precise in our predictions. And this year, we do still expect it to temper a little bit off of the highs that we experienced a few years ago, but saw a bit of a tailwind in Q2 and the back half of the year looks pretty much aligned with how we expected it.

Our next question comes from Rishi Jaluria from Raymond James or RBC.

All right. Wonderful. Maybe I want to first start by following up on kind of the earlier question around perceived competition from AI. We've obviously seen both OpenAI and Anthropic announced kind of deals with some of the leading insurers. But at least on first glance, it seems like it's very much complementary and maybe even potentially additive to what Guidewire Core and even some of the add-ons are doing. So I want to maybe understand how are you thinking about your ability to partner and work with the large LLM vendors and ultimately just drive greater customer success within the insurance industry? And then I've got a follow-up.

Super, super question. We absolutely see this as additive and helpful for Guidewire overall and the acceleration in the company. We have always run a very open approach to our products and to our ecosystem. We've always invited multiple parties to the ecosystem because we cannot and do not imagine that we're going to do everything for every insurance company everywhere in the world. Now obviously, Anthropic and OpenAI have this access to this incredible technology that has obviously changed and will continue to change the world. But we don't imagine that the work that they're doing is targeted at the deep, deep specific complexities associated with operating a core system in the insurance industry. And we think that leveraging the capabilities that these tools provide these LLMs or even these like desktop applications that sit on top of their LLMs, they're going to be most beneficial when connected to well-structured insurance processes running on modern core systems from Guidewire. And so we're very, very open to working with these companies. We're very open to working with our customers who have partnered with these companies around solutions that connect them to Guidewire. And like I said in the script, I said it a second ago, we see this as net beneficial to Guidewire because what you're going to be able to do with the Guidewire core system that's deployed, your operations are modernized, your operations have these connection points that these systems need. This is going to allow these companies to accelerate. This is going to allow these companies to become more efficient. And so we don't see this as competitive. We see this as additive to the overall demand in the industry for what we can provide. I think Rishi, John wants to say something here.

Yes, I'll just add a quick point. There's -- tied to your question in all of that context is the fact that insurance carriers and leaders of insurance companies are under a tremendous amount of pressure to drive pace themselves. So the ability to differentiate in the market that they compete in and sustain differentiation is under a tremendous amount of pressure right now. So the ability to work more proximate with them, solve problems with them and increase pace of innovation on top of the service and also increase speed to value in the way that they get to that first cloud implementation and consume products and services that we deploy and also, to Mike's point, have the open architecture where they can do things over the top of that at the pace that they want to and need to to stay differentiated is really driving a conversation with these carriers and leaders and insurance companies that get us every day closer to them, and that's what I'm most excited about is continuing to drive that proximity.

All right. Really helpful. Maybe just a quick follow-up. As we think about your kind of own internal AI development, your own kind of ability to bring AI to your customers, recognize you're dealing with a highly regulated industry where it could take a while to get that meaningful adoption. But the question I'd like to ask is, as you think about -- a lot of the focus is on efficiency, but do you see an opportunity to maybe even drive better revenue outcome and ultimately better customer outcomes for the insurers, leveraging AI? And what would that look like with your current road map?

Sorry, I want to make sure I understand. You mean better revenue outcomes for our customers?

Well, specifically that the insurers can generate better revenue outcomes, right, whether it's being able to have better quotes or service more customers and ultimately, the end people being insured get net benefits as a result.

100%, yes, okay? The insurance industry is an incredibly complicated thing, right, if you zoom out. It is structurally been sort of hamstrung by the amount of unstructured information and data that needs to be managed in order to effectively and efficiently conduct the art of insurance. And large language models attack this directly. They address this directly. So you can underwrite more efficiently, which means that you can look at more risk. You can evaluate more risk more quickly. You can manage claims, the input of the submission of documents and the conversations that you have to have with all the multiple parties can be analyzed more effectively. And so it's like those 2 examples are sort of like tiny little bits of why the underwriting process is going to become more effective and the claims management process is going to become more effective. And I think ultimately, the insurance industry, the insurance machine is going to become more efficient, which is beneficial to insurance companies and to the broader society and our economies. Like the insurance industry with generative AI, and I think this is why everyone is so excited about focusing on these kinds of partnerships with these big insurance companies is there is a significant potential to improve its efficiency overall, which, like I said, it will be -- I don't want to say revenue, but I would just say like the efficiency of these companies is going to improve. And we're excited to be a part of that, driving that and making that possible along with a lot of other companies, along with Anthropic, along with OpenAI, like there's going to be a lot of people that are focused on helping the insurance industry do this. Like John said, our customers are excited about the potentials here because for so long, you're sort of limited to the technology capabilities at hand. And now you have this new tool that understands natural language and can be taught to do things like underwriting and claims. It's really significant. So basically, 1,000%, yes.

I'll just hit on the daisy chain of kind of product strategy because one part of your question was product strategy. So on top of the core operating system, if you think about the pressure points, our customers need pricing agility, therefore, pricing center. That's why we take that step. Product speed to market is the next thing in that daisy chain that drives competitive differentiation for them, therefore, advanced product designer. And broker efficiency and effectiveness is the thing that's probably up for the most amount of transformation and disruption and enablement given LLMs and the models available and therefore, underwriting center. So it ties very closely. We -- the investments we're making in the product strategy ties very closely to those things that are driving differentiation for our customers that sit on top of the core processing environment. So the fact that the core processing environment has an opportunity to continue to gain market share by line of business specificity and geographic specificity because of the rate at which we can deploy products and the components that we're putting out over the top of it, I think, are really good proof points for our strategic resilience inside of our customers.

Next up is Joe Vruwink from Baird.

Great to hear about the urgency to modernize. I maybe wanted to ask about the pace around that modernization. And there's been a lot recently even COBOL got its time in the sun a few weeks ago on maybe AI tooling, making it easier to translate. I don't think necessarily the translation of COBOL is the challenging part, but I want to get your take on just modernization time lines more broadly and whether Guidewire has the ability to maybe accelerate time to value because of their AI usage.

Yes. I'll give you a quick take on this, and I think John is probably going to want to add some -- his perspective on it. Yes, we're definitely working hard to ensure that our teams that are working on these migrations, both from on-prem Guidewire to cloud, but also the modernization projects are more and more efficient. And we're starting to see the early results of this in the actual projects. There's like a whole litany of different steps that are involved in one of these programs, and many of them can be enhanced and potentially even completely automated with generative AI. And so reducing that time line, increasing the pace of that, therefore, reducing the cost of those programs also helps us make an argument about modernization now. This is definitely an exciting component of the story at Guidewire. I would caution, though, that there is a certain amount of, hey, this is running on legacy code and this is running on a system that we can't support anymore. So this like one-for-one translate into something that's more supportable. I think that's an okay step. But it really doesn't get to what is very often a major important part of the modernization, which is rethinking your business process, rethinking your products, rethinking your approach to doing business, which is often part of a modernization. And that's what you really need to engage with companies like Guidewire and our ecosystem of SIs to really help companies work through that and get to a system that's modern, but also an operation, a business workflow, a set of new standards that really kind of set the company up for their go-forward operating model. So it's more than just the conversion of the code, but it's really the modernization of all of the activities inside of an insurance company.

Yes, I'll add the -- if we think about where we were maybe 2 quarters ago, and you got to think -- we have to think about this as the investments that Guidewire is making in our professional services team and multiplied by the investments that the SIs are making in their teams. And if we go back 2 quarters, there was a lot of investigation, a lot of discovery, a lot of proofs of concept, a very wide funnel of activity. That is starting to narrow over the last 2 quarters. We're starting to see some green shoots of some really impressive kind of percentage reductions of time to value. And the next step for us is to really continue to increase the velocity of those proofs of concept and early test cases to be rolled out as standard operating procedures in these programs. But there's an important additional step, which is rationalizing that with the SIs because I think, certainly, I've been in conversation with all of our SI partners. And there's no world where we want to be competing tool-based in what it takes to drive speed to value on cloud. So we'll be doing some rationalization with them and making sure that the tools are consumable by the customer base.

That's great. And then, Jeff, one for you. I appreciate the midyear disclosure on fully ramped ARR. I'd have to imagine there's seasonality in that number, just given the deal volumes in 4Q creating some second half weightedness. Can you maybe frame how much of a given year's net new fully ramped ARR happens in the first half versus the second half?

Yes. I think there's -- obviously, you guys understand our business. You know that our seasonality is 4Q weighted. 2Q historically is our second strongest quarter, and we saw a very strong 2Q for us, and that flowed through to some healthy additions on the fully ramped side. But you'll have to wait until Q4 to get full gratification on that question. So -- and we'll certainly talk about it in the fourth quarter call.

Our next question comes from Parker Lane at Stifel.

Jeff, I appreciate the disclosure on ARR retention rates and the commentary on how a few million dollar-plus churn events you've had in recent years. Looking at the remainder of this year and more importantly, maybe your midterm targets, what sort of assumptions do you make or cushion do you bake in around ARR churn? Do you anticipate that things remain relatively consistent with historical trends? Or are you accounting for some incremental conservatism there?

Yes. I appreciate the question. And given our business, this is an area of strength of ours. We -- the assumptions are as we go bottoms up in every single account and have really good visibility into any sort of potential downsell risk that exists in our accounts. And the team flags all of those throughout the year. Usually, when we start the year, we have a good read. And so we kind of do that. And we try to be pretty conservative and cast a wide net on kind of how we think about potential downsell events. And then we usually end up performing better than some of those -- that wide net that we initially cast. But this is not kind of a top-down model assumption exercise for us. This is a very bottoms-up customer-by-customer account-by-account exercise for us.

Got it. And one quick one on ProNavigator. I believe last quarter, you said you were expecting $4 million of ARR and $2 million of revenue, 9 deals in the quarter. How is that trending relative to those expectations that you outlined last quarter around?

Trending positive to those expectations. I mean I was not expecting 9 deals in the first quarter. So we're thrilled with that progress. And we can think about how we will disclose that moving forward. But you should think about it as right now trending ahead of expectations.

Our next question comes from Michael Turrin at Wells Fargo.

Okay. Excellent. I wanted to spend some time on the commentary on duration increasing. It certainly seems positive in terms of willingness of customers to commit to Guidewire. Maybe just speak more to what's leading to that longer duration. Are you finding core replacements show up as a prerequisite for some of the kind of longer-term AI-focused initiatives insurers might be looking at? Or what drives that? And as a small second part, Jeff, you referenced the backdrop is why you're giving some of the incremental disclosures, which we definitely appreciate. Is that just the software market backdrop you're referencing because your results seem generally unphased here. So maybe just help frame why the incremental disclosures for us as well.

So on the first question, yes, this is 100% just because of the software market backdrop. And we felt that in that backdrop, some of the durability elements of our business were being missed. And so we thought it was a good time to lean into some of these disclosures that provide a bit more durability. I think Mike will probably jump in here. But on the contract duration, -- we always engage -- have always engaged in longer-durated contracts. There was a period of time when we transitioned to ASC 606, where we actually forced shorter contracts on our customers. And as we move to the cloud, our standard has been 5 years. In the early part of the cloud, if you look at duration, it was a little bit lower than 5 years. We saw testing the waters, wanting to explore smaller deals and see how it goes. And now with the maturity of the platform, kind of where we are on this cloud transition side of things, we have seen that willingness to lean in and make longer commitments. that trend has increased. And then if you look at the largest customers, in particular, the ones that are making really big bets on Guidewire, often that impulse is to move even beyond our standard 5-year terms and pursue a longer engagement. And we've seen that activity kind of more recently over the last 18 months increase.

Nothing to add. I think you got it exactly right, Jeff.

Alex Sklar from Raymond James.

Mike or John, following up on Ken's question on Pricing Center and ProNavigator and some of the early success there. Can you just reframe how you expect the adoption curve to trend and sales cycles you've seen based on what you've seen to date? Were these particular deals in the pipeline prior to the acquisitions? And maybe, Jeff, how did those initial deals look like in terms of uplift on ARR?

So I'll hit the -- I'll go on the first part and then Jeff can pick up the second. If I think about the ProNavigator deals, the adoption curve in claims, we're seeing the pipeline that's accelerated there has really been as that team came into the fold. And I just should say, while I'm on this call, I couldn't be happier with how that team has joined. The culture fit is great. The energy is exceptional. But as we think about our ClaimCenter customers that are on cloud, the receptivity to have the right conversations and start laying down tracks for what that looks like is what's really driving the acceleration there. There are conversations in underwriting as it pertains to ProNavigator, but the acceleration is really coming in the claims space. The pricing center piece, Mike mentioned a little bit earlier, which has a lot to do with those that are PolicyCenter customers and the integration of Pricing Center into PolicyCenter is something that drives a tremendous amount of value and a tremendous amount of appetite right now for the conversations. There are a lot of proof points. It is a big decision. Every one of these customers has some variation of pricing and rating inside their environment, whether it's ours or somebody else's. And so really testing the waters on that and pushing through some proofs of concept is important. But those customers that are driving pricing -- that are driving policy admin solutions that sit on Guidewire are really very interested in proving these things out and looking at potentially large and long-term commitments. There is going to be a lot of work to do to make pricing center fit all regions, all lines of business. So that's going to be something that we look at a lot of investment in over the next quarters as we go forward.

Yes. And on the ARR side, we haven't spoken too much on this topic other than to think about pricing center as a pretty meaningful ASP product. It's a little bit of a longer sales cycle. These are big investments that customers will make in that product. So we expect that pipeline to kind of build and transact a little bit slower, but be more meaningful and impactful. On the ProNavigator side, those are smaller price points at this point in time. But at this point in time, that tool or that product is primarily looking at standard operating procedures of an insurer. And it is our expectation to evolve that into other content areas that would increase the value of that product over time. So I think the price points that we're seeing today are nice starting points and when we should expect to grow those over time.

Jeff, maybe just a quick follow-up on Joe's fully ramped ARR question for you. I appreciate some of the unknowns around seasonality given the larger Tier 1 customer base. But in the first half of this year, was there anything in the fully ramped result outsized contributor either in terms of steeper ramps or larger migrations that kind of is abnormal for a first half for you?

It was an abnormal first half for us just in the fact that we -- the volume that we saw, some of the large deal volume that we saw was very, very exciting. We hope to continue to build on that. So I wouldn't say there was anything unnatural, but we are continuing to see the momentum build. There are a number of -- in the first half deals that were longer than even the 5 years. And so there's even some backlog that that is kind of off of that fully ramped ARR metric. And all of this is just kind of continued momentum that we're seeing in the business. Last year, citing Liberty Mutual was a big event for us. And so that creates a somewhat difficult compare. But as we look at the pipeline for the remainder of this year, we have a lot of really interesting activity out there. So it's always hard to predict exactly when those larger deals will come in, but we're thrilled with the pace and we're thrilled with the traction, and we're thrilled with the pipeline.

Our next question goes to Allan Verkhovski BTIG.

Awesome. Mike, given the speed and innovation of what's possible from a coding perspective, with AI. You've gone through a lot of investments over the years. You talked about demand for deployed services. Where are you making changes or leaning in more as it relates to your product road map? And how are you further adjusting it, if at all, your expected developer count growth over, call it, a multiyear basis?

Great question. So we're in the process, as you could probably imagine, of rolling out aggentic development tools, call it, a harness that works effectively for Guidewire developers. And I should say for the folks in our professional services organization and the folks in our SI ecosystem and all the customer developers, we fully expect that these aggentic development tools will be leveraged by our devs and everybody that touches Guidewire from a software development perspective. And -- for sure, we see this increasing pace over time for what we can deliver. We're a little bit early days to that approach, but the anecdotal feedback from the sort of first movers and the people that have really put their hands on these tools and figured out how to use them effectively is extremely positive and gives me a lot of confidence that the development velocity at Guidewire over time will increase, right? So then that brings up logical questions that like I had that you are asking me right now, which is, okay, well, what's our long-term backlog look like? And what are the ideas and things that we need to be putting into this product over time with this increased capacity? -- we've been in the process for the past few months is just reevaluating those road maps based on the assumption that possibly we will see this or likely we will see the throughput increase. I'm excited about the potential to increase this throughput. It's like a side benefit of all of the work we've done to move our customer base to our cloud. It's like now we have this -- we have a vehicle in the cloud-based installed base and the 3 releases we're doing every year to take the new functionality that we're building and put it in and get it into our customers' hands. It's like this incredible, I don't know, circumstance that this lines up, right, when we've got more than half of our customer base move to cloud. And I think that also provides another reason for the on-prem customers to think about accelerating their time lines to cloud. But the road map pretty vast, pretty long. You say, hey, I'm very confident in our position in the market today, but do we have a big billing center road map? Yes. Do we have a big policy center and claim center road map? Yes. Are there a whole bunch of things that we could do to make the products better, to make the products easier to install and easier to configure and easier to integrate to other systems. There is so much more that we can do. And I wouldn't -- so I wouldn't say it's infinite, but I'm very confident that we have a product road map around the existing product portfolio that is very sufficient and is going to continue to deliver value to our customers now at a faster pace, but for years to come. And so the question about are we thinking about this from a -- are we thinking about generative AI from a software development perspective? Is it an efficiency play? Or is it a value play? Right now, I'm very much thinking about it as a value play. I think that we can take the developers that we have that know Guidewire, right? They know the technology stack and the cloud technology stack at Guidewire, and they know the insurance industry and they know what to do and we can accelerate. This is going to create more value for Guidewire, and it's going to help us continue the pace or maybe hopefully accelerate the pace that we've established with cloud. And so that's how I'm thinking about it in the short to medium term.

Perfect. That's really insightful, Mike. And then, Jeff, just as a quick one for you. Can you just stack rank the areas of outperformance in the quarter as it relates to the ARR beat?

Yes, it's a good question. I mean I think in general, as I build my ARR model, there are the key elements that I need to see come to fruition. One is new deals in the quarter that then translated to ARR. The next is how much ARR is going to come off of the backlog. And the third is how much attrition events occurred. And we have really good visibility into the ARR that comes off of the backlog. We have really good visibility into those attrition events. And so those both performed largely in line with expectations. And then -- so then it's the new sales activity that we executed and delivered in the quarter is what drove that outperformance. A little bit of that we kind of called out was also some -- a bit higher true-up activity, but most of it was just the deal volume in the quarter. and then how that deal volume translated into year 1 ARR. Now within that, I think we saw a very healthy mix of kind of new customer wins, migrations, expansions into new areas within existing customers. And so that new sales momentum was pretty broad-based.

The other dimension to look at is geographical. So geographical line of business. So good spread across personal lines and commercial lines, which we're happy that that continues to be a nice balance for us. The team in Europe continues to drive really solid activity and influence in the market showing up every day in the culture and in the business of the countries that make up Europe and the U.K. And then our Asia Pac business continues. We were in Sydney last week with a lot of customers, and I'll just go back to the ProNavigator question. The receptivity, so many of those customers have -- are in the process of or already on cloud. Therefore, their appetite for consumption is just really -- it's a really powerful conversation. And so the Asia Pacific team continues to drive, I think, really solid market activity as we build out that leadership team, and we're really seeing that connection get stronger every quarter.

Okay. Great. We have time for a couple of more questions here. Next is Aaron Kimson from Citizens.

First one, there are about 90 Tier 1 P&C insurers today. Guidewire has 96 customers with fully ramped ARR greater than $5 million. How should we think about how many of your customers exceeding $5 million in fully ramped ARR today are Tier 1s? And how far down that TAM pyramid on Slide 5, do you actually have $5 million-plus FR ARR customers today?

Yes. I mean, I'll be honest, I haven't actually sliced it that particular way, but it is not -- it's very reasonable for us to have a number of Tier 2 and even Tier 3 customers that can cross that threshold. So that opportunity to see customers cross over that threshold is maybe broader than you might think.

Okay. That's helpful. Yes. And then, Mike, you mentioned strength with the analytics products. In F3Q25, you made your first industry Intel sale within ClaimCenter. Can you provide an update on what you're seeing with industry Intel, both from the standpoint of developing and validating models for more types of lines? And then also what John and team are seeing on the distribution side with industry Intel?

Yes. We continue to make solid progress there. It's a process for -- and it's a little bit of a it's not a straightforward software development process. There's a little bit of have an idea about what we might be able to predict, go make sure that we can pull the data sets and clean the data sets and test whether or not there's appropriate signal that's in the data set and then validate that. And so there's a little -- it's a little bit more R&D and research than straightforward software engineering. But we continue to make great progress and steadily building momentum with that team. And so we're very, very happy. I would say we didn't call it out specifically, but sales momentum in the quarter continues to track as expected for the objectives on that team. And I'm very, very happy with that. So it's steadily building, and we continue to be happy with the progress.

Yes, I'll just add from a market coverage and distribution standpoint, the ability to demonstrate what that team has built has really crystallized quite a bit over the last couple of quarters. So it really helps in the deal motion. The other side of it is we continue to invest in our account management motion. And when these -- when the industry intel deals aren't necessarily tied to a large deal event, we're getting much better at navigating the right buyers inside of our existing customers and now with the demonstrability of those assets to have the right conversations to trigger a much more healthy pipeline activity into existing customers.

Our last question comes from Faith Brunner at William Blair.

I know there's a lot of commentary on the pipeline in the back half of the year. But just wanted to touch on maybe how should we think about the different products flowing through the funnel as customers increasingly want to land larger with longer duration. Has there been any shift to the conversations you guys are having or typical sales cycle time lines as people seem to be more eager to standardize on the platform?

It's an interesting question. I would say, and I'd love for John to comment on this is what we're seeing that's driving the outperformance is more like broad-based larger deals across the board rather than any sort of product mix shift that you might be thinking about. We're just we're just getting basically much more established and establishing much more confidence in this platform as the logical long-term home for core system operations at insurance companies. The AI story, like we talked about, is driving some urgency there and bringing this to the table. But I would really say like the improvement is about larger, longer-term deals rather than product mix shift. We still -- obviously, we called it out. We still see the product mix shift, but like that's not what -- it's really core system, larger core system wins and commitments that's driving the improved momentum. Anything to add, John?

Time and stage is the same as it was, but we're starting now as we build out our portfolio, some of our portfolio will have a very different stage aging profile than the core processing space.

Okay. Well, thanks, everybody. It was obviously a great quarter. We're incredibly excited about it and look forward to talking to you all over the next few weeks and months. Otherwise, we'll see you at the end of Q3.

Thank you.

Greetings, and welcome to the Guidewire First Quarter Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today.

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

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; and Jeff Cooper, Chief Financial Officer. A complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website.

Today's call is being recorded, and a replay will be available following its conclusion. Statements today include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and the risk factors and other documents we file with the SEC, including our annual report and quarterly reports on Forms 10-K and 10-Q, for information on risks and uncertainties and assumptions that may cause actual results to differ materially.

We also will refer to certain non-GAAP financial measures to provide additional information to investors. All commentary on margins, profitability and expenses are on a non-GAAP basis unless stated otherwise. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted in the supplement on our IR website.

And with that, I'll now turn the call over to Mike.

Thanks, Alex, and good afternoon, everyone. Thanks for joining the call. We're off to a great start to our fiscal year, delivering results ahead of expectations across all key financial metrics, and we're seeing continued momentum in our business. Five years ago, we launched Aspen, the first release of Guidewire Cloud Platform, with the goal of enabling property and casualty insurers to engage, innovate and grow efficiently.

Today, with Niseko, our 14th release, we're experiencing tremendous success across the industry and around the world. And we continue to see accelerating adoption of our cloud products and services. Reflecting on this success, we got 4 important things right. We met insurers where they were in terms of their operational complexity and the investments they had already made. We designed agility and extensibility into the platform to unlock innovation. We invested in and fostered an ecosystem of partners to help drive our vision for a cloud-based core system powering the P&C industry, and we worked tirelessly to ensure every project and customer was successful. Our Q1 outcome and continued momentum are direct results of these decisions and hard work.

Additionally, the timing of our platform maturity aligns us well and leaves us well positioned for the advent of generative AI. The potential for generative AI and the P&C -- in P&C insurance marries extremely well with our platform's extensible design, and now it creates opportunities for us to unlock greater productivity, platform value and new products that leverage our vertical data and business process expertise. We believe these elements together position us to dramatically improve insurer outcomes and fulfill our enduring mission of enabling insurers to innovate and grow efficiently. This means our platform can now go wider and deeper with a greater portfolio of applications and tools that harness data and AI.

In October, we hosted Connections, our annual customer conference. This year, over 3,500 attended from across the industry, and we laid out this next phase in our plan, which we see as a logical next chapter for Guidewire now that we are confidently through the most difficult part of our cloud journey. As we go forward, our goal is to focus more and more of our energy on this new opportunity. We have spent many quarters discussing Guidewire Cloud and our progress transforming our company and customer base. This effort will, of course, continue. And we have a lot of runway left, but we will also begin to focus more of the conversation on everything we are positioned to deliver for the future.

So today, I'll spend a minute giving you a high-level update on the continued strength we saw in our core business through Q1 and then elaborate on our new products and opportunities. Jeff will then discuss our financial results and updated outlook. So let me begin by mentioning a few key highlights from the quarter.

Following a record Q4, we saw continued momentum with another 8 cloud deals in Q1. ARR grew 22% year-over-year and 21% on a constant currency basis. We had 5 significant deals in North America led by major insurers, The Hartford and Sompo. We had 3 international deals, including a major win at 1 of the U.K.'s most respected mutual insurers, a significant migration at a major insurer in Japan and a great win at a large Australian-based insurer. It was also great to see 6 of these 8 wins expands to include 1 or more of our data and analytics offerings. All this momentum was driven by the factors we've shared before, our cloud maturity, track record of customer success and a resilient global P&C insurance market that continues to modernize.

Based on this success, we now have the opportunity to go wider and deeper with applications targeting our customer base. Two areas where we are excited to extend our platform are in pricing and underwriting. InsuranceSuite will include new applications, PricingCenter and UnderwritingCenter alongside PolicyCenter, BillingCenter and ClaimCenter. Both new applications represent significant market opportunities that address the industry's need to overcome very fragmented and manual processes that negatively impact their speed to market loss ratios and growth.

By building PricingCenter and UnderwritingCenter on our unified cloud foundation and connecting each seamlessly with our other InsuranceSuite applications and analytics products, we believe we can significantly improve insurance agility and performance. With PricingCenter, actuaries can bring models to market faster with greater precision and control. And with UnderwritingCenter, underwriters can improve risk selection, streamline operations and accelerate quote turnaround times. And with agentic AI capabilities infused in both of these applications, insurers have the potential to dramatically improve on long-standing business constraints.

One aspect of this new product portfolio that I'm particularly excited about is the potential to combine generative AI, data and critical workflows that run on our applications. Our recent acquisition of ProNavigator is an excellent example of this. ProNavigator is an AI-powered knowledge management platform trained and tuned specifically for the insurance industry. By integrating ProNavigator into Guidewire applications, we can now deliver instant context-aware guidance and answers to the people using our applications. This sort of in-context guidance is a first step in generative AI deployment to insurance workflows and can upscale every user of Guidewire application.

In addition to providing us the opportunity to launch new products, Connections was also an opportunity for our broader ecosystems that come together. As I have said many times before, this ecosystem of partners and the innovation we have developed together have been a significant factor in our success to date. ProNavigator, in fact, is a great example of this as a graduate of our Insurtech Vanguard program, which is our initiative to identify and mentor promising start-ups.

Before handing it over to Jeff, I'll just summarize my key takeaways from the quarter. We continue to see accelerating adoption for Guidewire Cloud Platform and have plenty of runway to continue growing our core business. At the same time, we are extremely excited about the opportunity unlocks for us in new products, innovation and generative AI, and these new product areas are very much where we are focused now. We are thrilled with the early reception that our expanded product portfolio has received and look forward to sharing more with you over time as we progress with these new offerings.

With that, I'll turn it over to Jeff to walk you through the financial results.

Thanks, Mike. We are off to a great start. Q1 saw record sales activity for a first quarter and a clean beat across ARR, revenue and profitability expectations. We continue to be thrilled with the momentum we are seeing in the business. ARR ended at $1.063 billion, up 21% year-over-year on a constant currency basis and ahead of our expectations. Total revenue was $333 million, up 27% year-over-year, reflecting strong performance across all segments.

We continue to see strong subscription and support revenue growth as customers migrate to cloud and new insurers adopt our cloud products. In the first quarter, subscription and support revenue grew 31% to $222 million. Counterintuitively, license revenue grew 12% to $42 million. In general, we expect license revenue to decline as we continue to migrate customers to cloud and drive subscription revenue growth. However, in the first quarter, licensing benefited from a large annual term license renewal after the end of a multiyear commitment entered into in 2020. As a reminder, revenue related to multiyear term license contracts are generally recognized upfront, and as a result, no license -- no additional license revenue is recognized until the committed term expires. Professional services revenue finished well above our expectations at $68 million, reflecting high utilization and effective collaboration with our SI partners.

Now let me turn to profitability for the first quarter, which we'll discuss on a non-GAAP basis unless stated otherwise. Gross profit was $219 million, up 32% year-over-year, with a gross margin of 66%. Subscription and support gross margin reached 73%, continuing to track ahead of expectations. And professional services margin improved to 23%. We are seeing higher services demand and have a healthy backlog that we are executing against, which will require a bit more investment in utilization of subcontractors for the remainder of the year, but this is strategic for us as we continue to ensure every cloud program is successful.

Operating income finished at $63 million, up 83% year-over-year. Overall stock-based compensation was $43 million, up 14% from Q1 of last year. Operating cash flow ended the quarter at negative $67 million. As a reminder, annual employee bonuses and commission expenses related to Q4 sales are paid out in Q1, and Q1 cash flow finished consistent with our expectations. We ended the quarter with over $1.4 billion in cash, cash equivalents and investments.

Now let me go through our updated outlook for fiscal year 2026. Starting with the top line, we are very pleased with our first quarter performance and the continued strength and quality of our pipeline. As a result, we are raising our annual outlook for ARR to be between $1.220 billion to $1.230 billion. For total revenue, we now expect between $1.403 billion and $1.419 billion. We expect approximately $891 million in subscription revenue and $948 million in subscription and support revenue. We now expect services revenue to be approximately $245 million given the better-than-expected services revenue in Q1 and our higher utilization rates. We expect our acquisition of ProNavigator, which closed early in Q2, to add approximately $4 million of ARR and $2 million in revenue.

Turning to margins. We are increasing our expectations for subscription and support gross margin to be between 72% and 73% for the year. We expect services gross margins to be between 13% and 14%, which is lower than Q1 as we are investing in additional capacity, building our AI initiatives to improve efficiency in the future and leveraging a bit higher subcontractor levels. Overall gross margins are expected to still be 66% for the full year as higher subscription and support margins are offset by higher services revenue mix.

As a result of raising our revenue outlook, we are also lifting our outlook for operating income. We expect GAAP operating income of between $72 million and $88 million and non-GAAP operating income of between $266 million and $282 million for the fiscal year. We are raising these expectations while also absorbing the incremental costs associated with the acquisition of ProNavigator. We expect stock-based compensation to be approximately $185 million, representing 13% growth year-over-year.

We are adjusting our expectations for cash flow from operations for the year to be between $355 million and $375 million. Our CapEx expectations for the year are between $30 million and $35 million, including approximately $18 million in capitalized software development costs.

Turning to our outlook for Q2. We expect ARR to finish between $1.107 and $1.113 billion. Our outlook for total revenue is between $339 million and $345 million. We expect subscription and support revenue of approximately $229 million and services revenue of approximately $58 million. We expect subscription and support margins of approximately 73%, services margins to be around 9% and total gross margins around 66%. Our Q2 outlook for non-GAAP operating income is between $68 million and $74 million.

In summary, this Q1 saw record sales activity for the first quarter of the year, which is a great start, and we are very excited for what is ahead. Alex, you can now open the call for questions.

Great. Thanks, Jeff. Our first question is going to come from Dylan Becker of William Blair.

Maybe, Mike, starting with you, we've talked a lot about the idea of kind of operational agility, and it's evident with the new products and PricingCenter and UnderwritingCenter. Maybe wondering if you could dig a level deeper and kind of give us some or maybe a sense of what those opportunities look like and maybe if there's an unlock as you go deeper in that domain to kind of tether and attach more momentum across the existing core suite, maybe thinking PolicyCenter in particular as it feels like a logical area of kind of attach between those 2 segments.

Well, sure. For sure, the strategy around both of these products is to target our customer base, and I think that the integration that we're building and the fact that they're built or being built to run our platform and seamlessly connect with the applications but also the data platform is a real important differentiator for these products and something that helps drive the agility that you were talking about.

But if you want to sort of understand why this matters for an insurance company, these companies are, number one, sometimes trying to grow, sometimes trying to expand with new products and also always trying to just get their prices right. And the more flexibility we can provide them about modeling and estimating with their actuarial teams what the right structures are for pricing the insurance products and getting those things into actual production deployment, the more effective an insurance company they can be.

Now that gives them flexibility to, like I said, expand into new markets or add or change the existing products that they have. I think it's been pretty frustrating, I think, for the industry in general just to have such a long lag time between the concept that you know you need to make a price change to where you can actually affect that price in market. And that's what PricingCenter is designed to help alleviate. I think it's going to have a direct impact, a very direct and positive impact on our customer base and the customers that choose to deploy that with us.

On the underwriting side, the thing that's super exciting here is just giving the industry in general this ability to respond more quickly and more effectively to submissions that they receive from brokers. It's just a real -- it's a real frustration across the board. You talk to every insurance company, and they've got great teams of underwriters, but dealing with all the manual paperwork and reading the documents and assessing risk, it just takes so much time. And modern systems, especially with generative AI, are going to make -- take a big -- actually have a big improvement in terms of the operational efficiency of these underwriting departments. And so that's kind of how it affects the industry and how I think we're well positioned to be able to attach it to new PolicyCenter but also existing PolicyCenter implementations.

Sorry, was stuck on mute there. No, that's very helpful. And then maybe switching over to Jeff. If we think about kind of the incremental investment you called out on services, obviously, there's a lot of opportunity, it sounds like, here. How should we think about kind of the outsized momentum you're seeing on the services front? Is that a good indication of kind of some of the subscription momentum that's expected to come as you're doing kind of more of this process change work and really maybe indicative of the underlying kind of demand environment and how sustainable that is at the end of the day?

Yes. I think Q1 in particular was benefiting from a couple of larger programs that the teams have been working hard on. I think the services organization has done a great job partnering with the SIs to meet the demand environment that we're experiencing. It's hard to read through to just our services revenue line and take that as a proxy of overall demand for what we're trying to accomplish because it really is spread across the entire ecosystem, and we do that very purposefully.

I think one thing that we are -- there's a couple of areas where we're making investments. We do believe that, over time, generative AI can help us bring down the cost of implementation, and that can have a pretty meaningful pull-through to demand for our products. So we're investing in that, and we're excited about the early potential that we're seeing there.

And then there's also new product areas. Our services organization often has to act as the tip of the spear around new products and so investing to make sure that we're ready for that demand, and then we'll work in concert with our partners to enable them as we work through that early demand that we see with some of these newer products. So that's what's driving a lot of the investments we're making, and we feel very good about those investments.

It is shifting a little bit. We are seeing some higher services revenue expectations this year than maybe we would have thought a couple of years ago. And we think that that's generally healthy.

Great. Thanks, Dylan. Our next question is going to come from Alexei Gogolev of JPMorgan.

Mike, in recent quarters, you had a number of very large customers migrate to the cloud. Are you seeing more consumption of all 3 key products simultaneously rather than business line by business line? And what is driving the change in the consumption pattern?

I'll start by answering the second half of your question. I think what we're seeing is the -- sort of the benefits of the actualization of a lot of great hard work in close partnership with our Tier 1 customer base around what it would take to convince them that we could deliver a cloud at scale that was reliable and secure enough to support their mission-critical workloads, is we have worked tirelessly over many, many years of many releases to earn that trust. And you're seeing that now pay off in these deals materialize.

Now with respect to migrations, a lot of that is -- relates to either what they're already running with Guidewire and a commitment to move that to the cloud, which I would say sort of more often than not involves the sort of the complete landscape of what they're running with us just because it makes sense to negotiate the whole thing all at once. Very often that if it makes sense for them strategically to look at the modernization of another component of their architecture, say claims if they're running policy or policy if they're running claims, that is very often the case. But we only see a few of these every quarter, so it's tough to say that there is a pattern emerging.

But the biggest, biggest pattern that I'd say is now like very, very clearly happening is that we are showing that we can run this at scale for the largest insurance companies in the world, and we're earning that trust, and we're kicking off these incredible programs with these companies that we're excited to deliver on. And I think it's going to be just -- it's going to be a great thing for the industry. It's going to be a great thing for these customers. It's going to be a great thing for Guidewire. These are commitments that we expect to last for decades, and we're very happy that we've been able to earn this trust. And we're excited to step up and deliver on behalf of these customers.

And Jeff, if I could maybe ask you on the ARR guidance. Exactly a year ago, you kept ARR guidance unchanged. This year, you're raising it after Q1. I'm just wondering if there are any components in your current growth guidance where you made it prudently but still somewhat conservative and what might those components be.

Yes. And I appreciate the question. It is atypical for us to raise our outlook at the end of Q1 as we kind of think about our progress towards some of our annual targets. This Q1 was a little bit unique in terms of the size and scope and the deal activity we were able to close in Q1. So I think there are elements of that, that inform how we thought about adjusting the guidance. Obviously, we took a deep look at the pipeline and feel confident in the strength of the pipeline.

The third component is we made an acquisition in ProNavigator, and we expect that to add about $4 million, so that's part of the incremental raise, is related to that acquisition, ProNavigator. And then finally, just some of the early market feedback, it's still very early, so this won't contribute in large ways, but some of the feedback we're getting on the newer products is exciting, and that gives us a little bit of confidence as we think about the guide for this year.

Our next question comes from Ken Wong of Oppenheimer & Co.

Fantastic. Maybe building on that last note, and this could be for Mike or John, on the interest for Underwriting and PricingCenter. How should we think about the time line for adoption there? Like would it mirror something like PolicyCenter, which was a heavier lift and did require customers to take kind of a longer look at it? Or could it be closer to something like claims where there was much faster adoption in the early days? What's the feedback you've been getting? What are some of the stumbling blocks that could kind of stall that particular path to migration?

Yes. Thanks, Ken. I would say it's slightly different in that I think there's an opportunity for us to position this a little bit more incrementally or greenfield than maybe ClaimCenter, PolicyCenter, where you're very clearly replacing a system of record. Certainly, there's something that we're replacing, but I think that the go-to-market motion, while new for us, I think it'll evolve to be its own kind of unique and I expect maybe a little bit faster than either of those other 2 core products.

Now we've still got some work to do to prove that out, but as Jeff said, the initial response and the receptivity to the architecture and the concept and what we're setting out to do has been very positive and certainly giving us enough interaction with customers and prospects to be able to validate that we're on the right track. And so I would say, just to kind of repeat what I said, is like I expect it to be slightly faster. It's certainly not going to be something that's super fast and these are big decisions for companies to make. But it doesn't have to be a sort of all or nothing complete replacement of something, the way these big core system of record implementation and decisions are.

Fantastic. Super helpful, Mike. And Jeff, just on the subscription and support gross margins, saw a really nice uptick this quarter. Is that just kind of further efficiency gains? Or is there some timing of AWS credit or any other one-ish items -- onetime items that we should be aware of?

There was a very small contribution of some onetime items, so that did impact the quarter but not -- it is pretty small. Those are becoming less and less meaningful. I think it was just good progress that we've made in driving efficiency, and we're pleased to be able to raise the guide for the year as well. So the team has done a lot of work here across the finance organization, the engineering organization, customer success to help us tackle the efficiencies there. And so I think that's what you're seeing.

Great. Our next question comes from Michael Turrin of Wells Fargo.

Appreciate you taking the questions. I mean the growth rates of the business continued to trend higher. I know it's a seasonally lighter period, but you're clearly reaping some of the rewards of the last year. Just maybe help us stack rank the drivers of what you're seeing and if that at all shifts based on early feedback coming out of Connections. And Jeff, is there anything from a seasonal perspective we should be mindful of as we're just kind of rolling some of the numbers forward from a sequential basis on the top line?

Yes. I'll give you a perspective on drivers. So we're very happy with the pace of migration activity, and we are very -- we continue to be very, very happy with the competitive win rates and just general demand for core system deals in the industry worldwide. So we're just -- those 2 things together just give us a lot of baseline confidence in the business. And as you can imagine, these sorts of deals are very considered, which gives us a lot of visibility into the forward pipeline and gives us the confidence as we did this quarter, raised the guide based on the perspective around the fiscal year.

And then you add on top of that is the growing momentum in these new products. And like I said, the reception that we got at Connections to these new products was phenomenal, creates a lot of excitement in the customer base but also our sales organization and gives us an opportunity to line up this sort of like new vector of growth to the company. And so that's how -- that's basically how I would stack things up like migration, general demand for core systems, win rates going in our direction, building momentum quarter-over-quarter and then these new products giving us even more confidence in what we can produce as we proceed through the year.

And the only thing I'd add on the seasonality is just to reinforce what we talked about at our Analyst Day, at Connections. The one dynamic we're seeing this year is a little bit of a headwind with respect to ARR coming off of the backlog in Q3. So I think we communicated that to you all at Analyst Day and just wanted to reinforce that message. Nothing new coming out of Q1 to highlight.

Great. Thanks, Michael. Our next question comes from Adam Hotchkiss at Goldman Sachs.

Great. I wanted to ask another one on AI. When you think about some of the noncore software vendors that have come out with AI use cases for insurance, and I think we've all seen headlines of those in the last number of quarters, maybe just talk about how -- what your philosophy is in terms of competing versus partnering or allowing access to some of these third-party AI use cases and just more broadly, your sort of view and stats towards competitors from an AI perspective.

Yes, I appreciate the question. And I don't know for those of you who are closely following us, this was one of the key messages that we attempted to articulate very clearly at the Connections user conference. I think the most important thing for you to understand about Guidewire as an investor or as a customer or as a partner is that our job, our mission is to be the core system of record for the P&C insurance industry worldwide. And we need to be an open platform. We need to invite these insurtechs to build against our system of record if that is something that they want to do. We want our customers to feel confident that a decision to move to Guidewire does not curtail them, does not constrain them at all.

Now obviously, we are going to build first-party generative AI capabilities and features and products on top of our platform, and we'll offer those to our customers. But this is a space that is moving and evolving so quickly that it just doesn't make strategic sense for us to not be -- take an open approach. And so what you're going to see from us is this kind of philosophy that the most important thing is to win the core. The most important thing is to invite the innovation in and around our core, continue to create a strong ecosystem and use everything in our power to deliver as a first party generative AI-powered features and capabilities that bring our customers more value based on their investment in Guidewire.

But that's going to come from us, and it's also going to come from the ecosystem. And so I tend not to think of these companies or these headlines really as competition to Guidewire as much as an opportunity for us to really lift all boats in the industry. There is so -- we tried to highlight at the -- this at the Analyst Day with respect to sort of understanding the business dynamic in the P&C insurance industry overall. There is so much potential for generative AI in this industry that it's not going to be a winner takes all kind of situation with respect to GenAI and automating workflows and making the insurance industry more efficient. There's going to be many companies and many people and many organizations that benefit from that effort over time, and our -- like I said, our goal is to foster that innovation in the industry, not compete with it.

That's really helpful. And then I wanted to talk about just at your existing customers the propensity or increasing propensity to actually move more quickly across lines of business. I think we talked a lot about the 3 suites and the increase in full InsuranceSuite adoption a lot, but maybe the part that gets missed is the willingness and the rapidity in which customers are willing to move more wall to wall across policy types. So Mike, maybe just talk a little bit about how that's evolving, particularly post what you put up with Liberty Mutual. That would be helpful.

Sure. The way that, that discussion or decision happens in our customer base is really all about business priorities. Something is driving the effort to modernize the core system. There's a business objective that is driving the decision to be on a more agile, modern platform. And so especially when we have already established a successful implementation and a successful foothold, it becomes logical that, that customer will eventually move the other lines of business that are not yet on Guidewire to Guidewire.

But what we try to do is align ourselves to the business objectives that they have for that line of business whether or not it's expanding to another, let's say, state very often in some of our U.S.-based insurance companies or whether or not it's modernizing pricing, modernizing packaging, adding new distribution channels. It's those kinds of business priorities that align to the necessity to have a modern platform, and that's what creates the deal cycle that we can go attack or fulfill almost based on the successful track record that we've already established.

And this is kind of why I stress with everybody. It's why you hear me talk about it in the remarks every quarter. It's like the most important thing for us is every single one of our customer projects is successful. And if we can make sure that we're successful, that there is an attitude that the next program that they decided to do, logically, they would do it on Guidewire because we're the ones that they can trust and the program is going to succeed. So that -- hopefully, that gives you a sense of how it's like a business-driven expansion to the other lines of business.

Great. Thanks, Adam. Our next question goes to Parker Lane, Stifel.

Mike, just wanted to double down on generative AI here. How often are you hearing in your conversations with insurers that this is a primary catalyst for their desire to move to the cloud or adopt cloud solutions outright? And do you think it's accelerating the time line for those that would have been looking maybe 5 years in the future? Are they now starting to sort of compress that time line in anticipation of their peers adopting some of these generative AI tools?

I do think it's a driver, and I do think it's a factor, and I do think it's helping us, especially around the migration discussion. I think it's becoming more and more clear that being on a cloud platform, being on Guidewire Cloud is going to put these companies in a better position. I wouldn't say it's necessarily the primary driver in that a lot -- there's a lot of experimentation going on. There's a lot of activity going on in the customer base. And because the core programs, the core projects often take so long, like it's more like the long-term view is we're going to be better off on Guidewire, but often there's other activity around generative AI that's happening independent of Guidewire just because there's a necessity for really every company in the world to be learning how to use these tools and seeing what's out there and how they might impact them.

So definitely, it's a positive. Definitely, it's driving that conversation and increasing the velocity of the migration and modernization activity. I just wouldn't necessarily -- it's like maybe not the primary driver. It's more like a long-term positive influence.

Makes sense. And Jeff, one for you just on the pipeline that you see here over the remaining 3 quarters of the year. Anything to call out about the North American versus international split? I think you mentioned 5 North American deals and 3 international this quarter, expecting a pretty even split skewing in either direction. Anything there would be good.

Yes. I think that, in general, it's pretty -- we're pretty pleased with the breadth of the demand, so seeing healthy demand in Europe. We've made some investments, and we're optimistic about the demand in the pipeline in Asia Pac. North America continues to do really well. So it's -- nothing specific to highlight right now, and we feel confident that the pipeline is pretty broad-based and global.

Our next question comes from Rishi Jaluria's team at RBC.

This is Max on for Rishi. As we think about the generative AI and the agentic AI features that are being embedded within the PricingCenter and the UnderwritingCenters, maybe could you just remind us how those features are currently being monetized and how that could change or evolve over time? And then just a follow-up to that being, as usage and adoption of these new features scales, could that potentially have an impact to gross margins over time? And maybe what does that look like?

So the baseline approach we have for pricing almost everything at Guidewire is based on a percentage of direct written premium, and we try very much to build, define and articulate the value proposition of a Guidewire product to an insurance customer as a ratio to their direct written premium. And we feel very, very -- we've been very successful establishing that baseline with ClaimCenter, PolicyCenter and BillingCenter. And our expectation is that will also work for PricingCenter, UnderwritingCenter and other products that we sell at Guidewire.

I think this is -- it's a key characteristic of our approach and partnership with our customers that the product, the sort of the cost of these products generally scales at often improving economies as the customer grows, but it scales with their growth. And so our incentives are aligned.

And the generative AI -- think of generative AI as being key capabilities or features that are embedded within those new centers such that they're not really specifically priced. We'll obviously have to create constraints because, in some circumstances, these things can be expensive to support at scale. But in general, we feel comfortable that the DWP-based pricing models that we have for our other products will apply to these generative AI-based products.

And certainly, your comment about the potential impact to gross margin, something we think about and factor into the structures that we create for not just the new GenAI products but also the core cloud platform itself. We have constraints established that protect us from those kinds of impacts.

I would say, though, on the generative AI component of this, the efficiency -- the improved efficiencies of these models sort of quarter-over-quarter and year-over-year are astounding. And so the circumstances that exist today in terms of how much these things cost to run, I have every expectation that they will improve over time just as they have over the past couple of years, and that's kind of how we're thinking about designing for the use in embedding of these features within our products.

Thanks, Max. Next question comes from Aaron Kimson of Citizens Bank.

Jeff, I want to try and dig into the growth algorithm a little bit. If I understand correctly, John commented at the Analyst Day that, last fiscal year, expansions with existing customers drove more net new revenue than migrations. You have the nice slide on the Analyst Day deck that outlines cloud migrations, modernizations, new products, marketplace and potential M&A as growth drivers. When we think about the 17% to 18% ARR CAGR through FY '28, can you help us ballpark what each of the organic components can contribute and the glide path for migrations as a percentage of growth over time?

So there's a lot in that question, right? Look, I mean, the way I generally think about this and the way we look at this is that there's a variety of different levers that we have at our disposal as we think about achieving the growth algorithm that you just talked about. Obviously, migrations -- and it's hard to -- it's even really hard to decouple migrations from expansions because migrations so often come along with expansions into new areas and new modules. And so migrations right now are certainly contributing in a very healthy fashion. We have a long runway still to go in terms of migrating our installed base to our cloud products. And we're doing a great job of executing against that.

As we migrate, we've also seen very healthy expansion. Mike commented on this but just that impulse to commit more rather than less in this environment has been very healthy. So if you're a ClaimCenter on-prem customer thinking about migrating to the cloud, adopting PolicyCenter at the point of migration is a trend that we've seen a bit more of.

There's still a lot of white space out there in terms of legacy systems, and the team does a good job just doing the blocking and tackling of winning new customers and there's a number of new customers that we expect to add this year, and I expect that to continue in a healthy pattern and then some of these new product areas that will take a little bit of time to incubate but very excited about the potential that exists there.

So I'm not going to get into kind of the exact percentages we're expecting from each of those component areas. But I think the takeaway is that it's pretty broad-based, how we think about the algorithm that will drive that growth, and there's a variety of different growth levers that we can pull.

Yes, that was an ambitious question. I appreciate that. And then on the new products, I guess, specifically UnderwritingCenter, can you talk a little bit about UnderwritingCenter for personal versus commercial and how you think about that? Are they essentially 2 separate sub-modules from a development perspective? And does it make sense to invest in -- more heavily in one than the other first?

Yes, same underlying framework, different use cases. And I think you almost could consider personal -- each line of business in commercial will have slightly different requirements and a slightly different approach. Personal versus commercial is one way to segment it, but there's going to be lots of nuance to how this actually gets built and rolled out, in which lines of business it will be most useful for at the beginning and versus over time.

We're certainly approaching it, like we do everything at Guidewire, from a platform-first perspective and so try to share as much componentry across all of those use cases as possible. And then with Advanced Product Designer, we can model the product for that specific line of business, personal or commercial or whichever commercial line of business we're talking about.

And then with respect to the tweaking and training of the prompts and the approach we take to the models and the types of documents we have to ingest in order to feed into the business workflows, each of those will be tweaked by line of business. Our choice of where to invest in the sequencing of the investment is a little bit to do with what things we need to focus on in order to like think stress test the whole system but also which customers we've -- have the opportunity to work with in order to really test this out in conjunction with the real use case. And so that's how we're currently thinking about it. But the objective overall is for there to be one underwriting platform that's going to work across lines of business and the complex commercial lines is whether -- as well as all the commercial lines business. A super question. Thank you.

Thanks, Aaron. Well, that's our last question, so I'll turn it over to you, Mike, for final comment.

No, just thanks, everybody, for joining. I'd just reiterate, we couldn't be happier with the start to the fiscal year and the momentum that we're seeing with cloud, very significant amount of runway left in the core business for the company and positive visibility into pipeline. And we're excited to increase our focus quarter-over-quarter on these new products and excited to share more about that progress with you in future quarters and conversations throughout the rest of the year.

So thanks again, everybody, for joining.

All right. Welcome. Welcome to Connections. Welcome to Guidewire Analyst Day. I'm Alex Hughes, Vice President of Investor Relations for Guidewire. It's an exciting time to be part of the company. Hopefully, a number of you had a chance to see the keynotes yesterday and some of the presentations today. I sat through a lot of them, and I was struck by how much the story is really coming together. A lot of the work the team has done with Guidewire Cloud Platform and the agile componentry and the possibility and the opportunity that's setting up for customers and us is pretty exciting to see.

And it's great to just see all elements come together into what we talk about as the Intelligent Insurance platform. So today, we're going to talk more about that. You're going to hear first from our CEO, Mike Rosenbaum. He's going to talk about powering Intelligent Insurance. Then you're going to hear from John Mullen, our President who's going to talk about our success to date with cloud and how we plan to expand on that. Christina Colby, our Chief Customer Officer, will lead a panel with some of our great customers, so you can kind of hear and ask questions with them directly. We'll take a brief break. We'll come back.

And then Jeff will bring it all home in a discussion of our model, how we're building on it. He'll talk about the long-term plan, which -- our long-term model, which I know you're all kind of eagerly awaiting. We will finish the day with Q&A with the executives. Diego, as busy as he is, is going to join us for that. So that's great. And then -- so I think just a couple of things. We'll save the questions for the customer part. And then at the end, for the executive track, Q&A, and then we'll just kind of power through the presentations before that. Before I get out of the way and hand it over to Mike, just one more thing that's probably near and dear to our General Counsel's heart, the safe harbor. We will be making forward-looking statements today, sadly, none of which are guaranteed, but that's why we have days like this and why you all have careers. So with that, I will hand it off to Mike.

All right. Is this -- okay, here we go. Okay. So yes, I wanted to just echo what Alex said. It's great to be able to do this event alongside Connections because, obviously, this is when we put together the whole story for the company. And I felt like this year was another -- it was a special opportunity for us to, in some ways, like reset the vision for the company for the next decade. And we did that. Obviously, I personally did that with respect to cloud and the journey that we've been on for the past 6 years.

But -- so you're going to see some things in my section of this presentation that are pretty consistent about like who Guidewire is, but also some things that are like what's the next chapter of the company look like -- so anyway, thanks for coming, and here we go. The most important thing to think about when trying to understand who Guidewire is you really have to understand what the P&C -- what's P&C insurance? What does it look like from a market perspective. And so the first thing that jumps off the page is like this is a very, very big market, approximately $3 trillion in direct written premium. It's also a very concentrated market with 90-some insurers at $2 trillion. It's a very, very concentrated market.

And you'll hear us talk a lot about our focus on Tier 1 and Tier 2 insurance companies. That's where the majority of the business opportunity is. It also -- they also have very, very complex requirements that Guidewire, I think, uniquely touches and uniquely supports. -- we'll talk more about that later in the presentation. It's also a market that's worldwide. You'll see a slide later on about our aspiration is to run core systems for the whole world, and this pie chart shows you why. Everywhere P&C insurance exists, Guidewire intends to sell and be successful. The other thing that you need to understand about P&C insurance is that it's very broad.

The requirements -- this is the same system that we use to meet the requirements of insurance companies selling auto and home insurance as well as the companies that are selling insurance to -- selling commercial insurance, selling D&O insurance, which we need. I need it right now while I'm giving this presentation. So this is a system in an industry that really touches sort of every facet of the economy and every facet of our lives. What that does is it creates a very durable and resilient industry that basically tracks with GDP growth, right? It's just very steady, kind of plow straight through recessions and shocks. And that's great when you have downturns. Sometimes other industries accelerate faster than insurance, and that's not so great.

But it creates a very, very durable end market for us to focus on. Our mission, and I'd like to say when I talk to customers, this has been the mission of the company for the past 25 years, and I expect it will be the mission of the company for the next 25. We exist to create a technology platform that insurance companies can use to innovate with, to engage with customers in new ways, to create new products, to create business agility through their IT systems and enable them to deliver insurance and meet the demand for insurance worldwide. The story of Guidewire, let's say, and I don't remember who did this, but it was on our last earnings call, someone introduced this idea to us of chapters.

And so we want to describe where we are today and where we're going forward in the context of 3 chapters, right? There was Chapter 1 at Guidewire where we decided to create modern software to meet the demands of the industry. There was Chapter 2 of Guidewire where we decided to turn that software into a cloud service that we were responsible for running. And now there's where we stand today at the beginning of Chapter 3, where we're going to start to create new applications, new analytics-oriented services and use cases, new AI-powered applications and capabilities that power this next generation of the insurance industry and something we're calling Intelligent Insurance, okay? But -- let me start with Chapter 1.

What you see behind the slide of our core products is like this incredible picture of the complexity of what's entailed in delivering a core system in the insurance industry. We participate in successfully the most complicated IT projects in financial services in the world. What we do with our customers very, very often, mostly actually takes multiple years to implement. Guidewire systems are typically integrated into 50 or 100 other applications. And these are incredibly stressful. These are sort of like bet the career projects for the people that decide to go implement Guidewire.

We take that very, very seriously. And we -- somebody also said to me the other, it's pretty unique that the company has got to the level that we have with really 4 core products, right? We have a product for supporting claims automation and claims system in the insurance industry. We have a product to support policy administration in the insurance industry. We have a product to support billing. And then we have a fourth product, which we call InsuranceNow, which is geared more towards the lower-end smaller insurance companies that packages all 3 of those core applications together. But this is how Guidewire started and these applications, these core system applications really drive the company now and into the future.

Together, this has created something that's been wildly successful. We have almost 350 core customers as of the end of the fiscal year. We have over $1 billion in annual recurring revenue now. We touch in one form or another almost $800 billion in direct written premium. So we've made a good -- we've made a lot of progress in terms of at least touching in some way that $3 trillion direct written premium opportunity. Chapter 2 was all about taking those applications and turning them into cloud services. And there's a lot of different ways that you can think about this. One is we take responsibility for the infrastructure. We take responsibility for running these systems in production, which is very difficult, okay, which is a lot of work.

It also changes our perspective in how we build the systems so that because we're responsible for them, we can tweak those applications so that they're easier to run. And there's benefit there, there's value there. But I think the most important thing that we did when we built this cloud platform is we took responsibility for the upgrades, okay? We said, no longer is it something that we're going to do once every couple of years, ship a new version of the product that all of our customers have to accept and almost effectively reimplement. But instead, because we're responsible for the upgrades, we can take that into account when we create the next version of the software. And in the process, we can create something that is just significantly more value to our customers.

And so over the past, like, say, 6, 7 years, we have achieved something with respect to customer value that's just very, very different than what we were able to do when we were an on-prem software company, right? We have shifted from a world in which we were releasing software once every 2 years to where we were releasing software twice a year. And then I don't remember Diego, 3 years ago, we shifted to 3 times a year. And with every single release, we can add functionality to the cloud platform. We can add functionality to these core applications, and we can deliver more value to our customers. And these are very, very significant things that address the headaches, the bottlenecks in the IT departments that slow down insurance companies and create, like I said before, the technical agility they need to innovate and grow and execute their companies more and more effectively.

This cloud transformation, the cloud chapter of Guidewire has been phenomenally successful. My favorite word to describe the last couple of years, phenomenal. Like we tweaked this slide. A lot of you probably have seen a version of this slide in previous Analyst Days. We tweaked this slide a little bit to show you the total core customers at the company, which, as you can see, from fiscal year '19 to today has grown from 266 to 349, but you can also see is just this incredible growth in cloud and how -- while we still have a lot of core customers to go that are still on-prem and will eventually move to cloud, we've made this incredible progress in core customers on cloud and its incredible progress in the ARR or annual recurring revenue associated with those cloud agreements.

And the last segment on here is probably the most critical as it relates to thinking about Guidewire as an investment is we made a very, very significant investment in building the cloud platform and creating an organization that was capable of scaling to support the most complex insurance companies in the world. This was a bold bet that we made on the company, but we are executing now more and more efficiently every release and every quarter. And the part of this story, we often talk about all the features and the capabilities that we're able to deliver to the market.

But from an investment perspective, the engineering that is going into enabling us to run the service more and more efficiently to run the service with the same number of people as we add customers, it just creates a lot of economic value, both for investors, shareholders, but also for Guidewire customers because it creates more space for us to be able to invest in the feature creation and the application creation components of our R&D organization.

So this V-shaped recovery, as we sometimes call it, has been something that I'm personally very, very proud of. And I told you before that this is like an industry that spans the globe. This is a picture I'm also very, very proud of. It's like where we basically paint a country yellow whenever we get at least one customer. And to me, that proves that we've got a foothold in that country, and we're capable of winning the rest of the P&C insurance companies in that country. And we're kind of running out of space. We had to take Russia off the board, and we don't do business in China. And so -- but if you take away those 2, we are doing extraordinarily well. We talked a little bit in the last earnings call about the progress that we've made in Latin America, which is just really, really impressive. And that is going to become for us another region of the world where we can sell and we can be successful.

So the other component of this, and I would encourage you just because this meeting for the folks that are here in person, this meeting is at our Connections user conference, Guidewire has always been and will continue to always be about more than just Guidewire. We have created, I think, one of the best ecosystems of partners and systems integrators and marketplace partners in enterprise software. It's certainly not the biggest, right, because we have a -- we're a vertical software company and we have a specific focus, and we can't just do everything. But in our world, we have created something that is very, very special.

And the opportunity that you have this week is to go upstairs to the sixth floor and see this in real life and get to talk to all these people and meet all these people and talk to them about the businesses that they have created and are creating around Guidewire and around the P&C insurance industry. And this powers our success. This creates more value. It enables us to deliver more innovation and more benefit to our customers without personally -- without investing in all of these solutions ourselves and ultimately create something that I think is a lot more defensible and a lot more -- a lot stickier once deployed. So now -- okay, so that was Chapter 2. I'm not saying that the cloud journey at Guidewire is over. If you think back a couple of slides, you can see how many on-prem customers we have and how much focus it will take for us to convert every single one of those on-prem customers to our cloud platform.

But it is time to start to think about what is this third chapter for Guidewire and for the industry really look like. And -- now I didn't present this slide when we talk to our customers in our keynote this week, but we thought it was appropriate for us to sort of give you a view into how we think about the economic opportunity that we see in terms of creating efficiencies and creating better outcomes in the P&C insurance industry.

So I told you before, we're operating, let's say, at about $3 trillion in direct written premium. And so then you want to think about for every one of those dollars, where do they go? What happens to those $3 trillion. And this is a representative scenario for commercial lines, but it kind of plays out roughly the same or similar for personal lines insurance. But out of that dollar, about $0.57 flows back to claimants in terms of loss payment, okay? And the rest of the $0.43 is spent operating the insurance industry.

And this is very, very good actually. Like some would say, this is terrible, and we need to fix this, but this is maybe you could say the best we can do right now. But we think with technology platforms like Guidewire, with machine learning analytics, with data sharing strategies like we'll talk about with generative AI and large language models, we think there is an opportunity to make meaningful progress in creating a more efficient industry.

And you can just see like multiplied by $3 trillion, this creates an incredible opportunity, not just for us, but also for our customers and also for every single person who owns a car, every single person who owns a house and every single person that owns a company, there is an opportunity to create a more efficient system, and we intend to attack that and try to deliver on that over time with our products and our technology and our use of analytics and AI.

So this next slide kind of -- I want to give you a perspective of why I think Guidewire is unique, okay? We're certainly not the only company selling software to the P&C industry. But I think we are the only company selling software to the P&C industry that aspires and actually does have now applications that cover this complete insurance life cycle, all the way from product definition to pricing, to the distribution of software, to the practice of underwriting to policy administration and claims, okay? We can connect the dots across this entire life cycle, we can do it on one common platform. We can collect the information from that platform and put it into a data platform that we can then make available to the people operating the system so that they can do it more and more efficiently.

What we have unlocked now with our Guidewire Cloud platform is this ability to attack and deliver on capabilities within each one of these circles that have these side benefits in the other circles that have these side benefits in the rest of the business process that I genuinely think is unique. And I think that, that's beneficial for Guidewire from an investment perspective. It's also extremely beneficial for Guidewire from a customer perspective is when you partner with us, you're getting a company that is thinking about this complete solution and a partner that they can trust over time to continue to deliver on something that, like I said before, I think is very unique. Okay. So now there is this question about how is this all going to become more intelligent. Generative AI is obviously going to -- I think, obviously going to change the world, and it's obviously going to change insurance. But I think it's interesting to think or important to think about what's going to happen next and how do we think about what impact it's going to have on the insurance industry.

I think the first thing that is going to certainly happen both at Guidewire, but also in the community of systems integrators that are implementing Guidewire is that development velocity is going to increase. Large language model -- like the one thing that large language models just completely do well right now, no question about it, is they help us write code. They help us write test cases. They help us increase the velocity of development teams. We're harnessing that for our own internal development, but we're also actively working with our -- with systems integrators and our own professional services organizations to increase the velocity around which we can implement Guidewire. This all by itself is going to be a dramatic improvement. It's going to be -- have a dramatic impact on the industry.

The next thing that's going to happen is that underwriting will transform. The current process for commercial lines underwriting in the world is relatively unstructured. It's like an art form, right? It resists the sort of traditional database automation systems that we've all sort of made careers out of implementing. And it's like perfectly suited for what large language models can do, right? It's perfectly suited for creating assistance to underwriters that can remove steps from the process that can summarize documents. We can ingest documents into Guidewire, and we can spit back out summaries that make the process more automatic, more efficient.

I think underwriting is going to change. There's -- I don't want to like make personal proclamations, but there's plenty of customers that we're working with who think that within 5 years, this will look almost as automated as personal lines, auto lines are operating today. We'll see how fast that goes, but we're very, very excited about the transformation that's coming and the role we can play in driving it.

And then if you think about the third bucket here, it's like how is this going to change the process of claims adjusting, -- how is this going -- which today is a very manual process. There is going to be a sort of slower approach in our opinion to this. There's going to be a more stepwise approach to applying large language models and machine learning to the claims processes. But eventually, this will change dramatically as well.

And I also want to say, and this is maybe the slide that we worked on the most in terms of this event and Guidewire right at this moment. I want to be very clear about what our role is and what our unique responsibility is in this AI transformation for the industry, right? Guidewire's primary mission is to provide a core system our customers can trust to create open systems so that customers have access to this information they need to take advantage of generative AI and create the applications that are going to transform their companies.

We need to create what I'll call this insurance-specific context inside of our platform that we can then provide to our customers and our partners so that together, we can build the AI solutions, the AI-driven solutions that are going to drive this change. What's important about this slide is like we're in a unique position to be able to create this context to use things like MCP servers, knowledge bases and tools to make it easier and faster for our customers and for our SI partners and for our marketplace partners and for our own application teams to create the AI-driven solutions that are going to power this next generation of change in the industry.

And the clear part -- the part I want to be crystal clear about is that we don't expect that we're going to do this all by ourselves, okay? But the one part that we can do ourselves and the one part that I think will very much differentiate us in the market for the next decade is we can build a system that's open, and we can build a system that attracts the partners we need to be able to collectively drive the transformation in the industry that we think is right there. Okay. Last slide for me is I think you guys all follow us pretty closely. We did an acquisition. It's not quite closed. We're going to close it shortly, but we signed an acquisition of a great company called ProNavigator. And the story here is interesting. Like part of this story is about AI. I'm going to tell you that in a second.

But there's another part of this story that relates to our partner program and our marketplace and where this company got -- how this company got on our radar. So I'll tell the AI story first. One of my favorite applications that we've rolled out internally at Guidewire with respect to AI is Glean. -- right? It's just this amazing tool that enabled us to take all of the knowledge bases that we had and put a search engine on top, connect that search engine to a large language model. And then for me, instead of having to look up the place that told me the steps for how do I reset my password, I could then just say, how do I reset my password? And it would go off and find the answer and tell me and my life would be happy. And that was great.

And when I saw ProNavigator, I said, "Wait a minute, this is like glean for insurance, okay?" This is a system that takes the knowledge bases, that takes the standard operating procedures, that takes the -- all the expertise that you use to train your best people pairs it with a large language model and pairs it with the context of where you are in a Guidewire workflow and enables you to have a conversation with an expert. And I saw that. I was like that is exactly what this industry needs. That's what our customers need. We also, like I said, the other half of the story was this is a company that came up through our partner program. We have this little component of our partner program called the Vanguards part or the Vanguards, what, the Vanguards, the Vanguards. And -- sorry, I'm tired.

And it's for the smaller companies that haven't quite made it yet and don't quite have the capacity or the resources to do a full integration into Guidewire. But we create this opportunity for them to connect with our customers. And they did that and the customers kind of love the product. And they said, now we want to graduate. We want to make the investment. We want to build a real integration to Guidewire. And that kind of got them on our radar. And we went out and talked to some customers about it.

And the team came back to me and they said, we've talked to customers about a lot of partners, but we have never spoken to them and gotten such amazingly positive feedback about a tool like this. Everyone loves this application. And so we looked at it and we said, "Hey, what's going on with this company? And we're very lucky to have the opportunity to do this acquisition and welcome them to the fold here at Guidewire." And hopefully, roll it out to each and every one of our customers. And so I think it's a great story for this founding team, and I think it will be a great story for other marketplace partners who aspire to sort of kind of make it and grow and build something that can be connected into everything at Guidewire. So we're incredibly excited about this. Okay. That is enough for me. And now I would like to now welcome up on stage, John Mullen, our President, and talk about expanding success in the program. Okay.

Welcome, everybody, to another connections. You give us the feedback on Vegas versus Nashville. -- trying to stuff a lot in this week. I'll share a couple of thoughts as we go, I'll share a couple of thoughts about where we landed last year, kind of putting a capstone on that. A little bit about where we're going in this next chapter from my perspective or from Guidewire's perspective, but as important from the perspective of the executives in the insurance industry that we aspire to work with, and then we'll finish up with some growth agenda items, okay? So Mike talked about this next chapter. And for me, the prior chapter is very important in Guidewire's history has been first, building the applications for core processing for the industry and then very critically building the platform to support the applications that drive core processing for the industry.

But this next piece is really interesting. It's intriguing. It has to do more with being the industry platform, being the platform that serves the industry, not just from a core processing standpoint and transacting work, but also for making decisions and really where all of the work of the industry can be done. And that's with inside the carrier, but it also starts to crack into some of the things that happen between carrier and their trading partners, whether it be broker, whether it be claimant, whether it be third party, whether it be reinsurer. These are the types of conversations that we're seeking to access. And Mike showed you the dollar -- the split of the dollar in the combined ratio. Well, we start to move from efficiency gains as the primary backbone of our business case to also starting to look at indemnity improvements and risk selection and pricing improvements and speed-to-market improvements and the ability to enter and exit markets much more thoughtfully as a carrier. And that's what I'm most intrigued by in this journey forward.

And as Mike said, and I'll go back a little bit to when I first joined. Without that update process, this evergreen conversation and this ever innovative conversation wouldn't be available. So I'd be a little remiss since Diego is not presenting. I'd be a little remiss if I didn't take a minute to congratulate just the phenomenal achievements of our engineering and product and development teams over the last 2 years. The pace, and we had a lot of pressure points that we have conversations about the pace at which that team has established the platform by which we can now build applications and unlock new conversations with business leaders inside of carriers is extremely powerful. So let's talk about that. But first, last year. This is the win rates for last year. We share this slide every year. The unit count win rate progressed nicely globally last year in all geographies.

But more importantly is the win rate by DWP progressed quite substantially last year, okay? Winning at all ends of the market. So Tier 1 progress has been really nice over the last 18 months. That's on deals, but it's also on just getting into more strategic fabric conversation and planning, road map planning. We've seen some of the results in the win rates. But what really has been nice has been this piece around Tiers 3 and 4, and our win rates there continue to progress nicely, our ability to address what that market needs, things like industry intel, things like pricing. These are the types of things that really get us closer to having a much more substantial impact on the results of those carriers at that end of the market. And our agility to sell in that space and also deliver in that space continuing to improve. By region, Americas continues to progress.

The investments we've made in EMEA to get closer to market, build more of a sustainable leadership team there and have that leadership team be able to make the decisions that drive both product prioritization and marketplace prioritization has really shown some results. If I look at APAC, we're really pleased with the opportunity there. And Australia and New Zealand, we continue to be very close to the market there, and things are going quite well. The opportunity I talked to you last year quite a bit about the opportunity investment in Japan. We're starting to see green shoots there that we feel really strongly about. We're going to hear a little bit about that later.

But I think it's really important to really look at these 2 things, Japan, Germany, Latin America. These are the types of investments we're making that take -- these are sustaining investments that really focusing on line of business specification and geographic specification in these markets is really giving us an opportunity to differentiate from any competitive profiles out there. So what?

So as we think about this next chapter, on the dimension of industry scale, we continue to see progress of putting premium on the system by region, by geography, by tier. That's important. Mike said it. Diego's team will always say it. Christina's team is paying attention to it every day. The ability to run the system and get customers predictably to the service is paramount to us, and we'll never forget that. That's going to be a big part of our investment thesis. But on that platform, as now a platform for the industry, we start to get into more conversations about product speed to market, about pricing agility. Let's talk about pricing agility for a second. In the personal lines space, in all the markets of the world in mass market auto, pricing agility is the #1 competitive footprint for defining winners and losers and gains in market share. And having more of those conversations with carriers about where they want to be because of the investments we've made is unlocking a whole new platform for us.

We have to get better. We have to invest in having those conversations and influencing those outcomes. Risk selection for commercial lines, number one, you start to see a theme about some of the products that we've put out there. This is all very coherent in moving up the life cycle, up the value chain for the executives that we're dealing with, selling to, having conversations with about driving real sustaining market value. And as we move both the continued scale across lines of business and geography and up the value chain, we really do get into a new conversation of context and value creation and value capture. This is extremely interesting, and it was extremely interesting, and it follows the pattern of first chapter, second chapter, third chapter. It really has some rocket fuel now around generative AI.

So as a general purpose technology, generative AI is one of few or maybe the first that focuses in equal measure on execution at scale, scalability and also expertise at scale. So the performance and intelligence of the individual operator or the enterprise at large. And that's the piece that I think we're uniquely qualified in. This move up the value chain was something that was paramount to Guidewire's story in the first place. But the pressure that exists now on the carriers that we talk to and that we're doing business with is -- has increased exponentially. I'm never going to tell you that property and casualty insurance is going to be a first mover on all technology. But it's moving faster than it ever has before on the catalyst for change. And that catalyst for change is bombarding the executives that we talk with. What should we do? How do we deploy agents? Do we need -- where do we need to be on core processing to deploy agents thoughtfully?

And that's where all of this goes way beyond unlocking new value and expanding scale has everything to do with the context to make that work. So thinking about the starting points of deploying agents, but also about the finish line of deploying agents. How will information be extracted from the core systems for decision-making? And in what context will we land those decisions so that they can operate at scale across geographies and across business lines. This is a very unique value proposition.

Mike said, one of the things that we can do very uniquely, one of the things that we can be best in the world at is providing and sustaining that reliable, durable context for the investments that we make for our customers to consume, for the investments that our partners make to be an efficient and effective route to market and for the investments that carriers make and how they can land that in and really start to drive value from it on a sustainable basis. That's something that we're going to keep in mind as we continue to engage in these conversations with executives about their future.

So left to right here, pricing center, underwriting center and industry intel in order for a reason. Pricing center, a fairly definitive market. Pricing and rating are fairly defined markets in the space that we serve. As we enter into that based on the backbone of the Quantee acquisition and now the launch of Pricing Center, we're in a unique position to link through APD and PolicyCenter, all of the things that really drive speed to market risk selection and pricing. And that's going to -- it's a ton of energy around that over the last couple of days. So we're excited about where that goes. It will also have a fairly definitive product road map behind it because it's a fairly defined space. Underwriting center, a very defined problem statement, but not as clearly a defined opportunity space.

There are a lot of components that will make up underwriting center as we go through it and the opportunities that we discover in that and shape in that and invest in that based on customer feedback will evolve quite a bit. Industry intel. We didn't put a lot of airtime into industry intel in the keynote, but don't sleep on it. To me, this is a really interesting element of how we solve problems with and for the industry. We've got access to a lot of information, and we're investing heavily in the data science team to run models against that data, and we're starting to see some really early results. But more important than the early results of the models is the pace at which that team can now start to drive value in creating new models and running new models and testing new models and even working with customers where they can leverage the data to create their own models.

So I'm really excited about industry intel, not just because of what it is, but how we've set up that team to lead. And I think that's a much more ambiguous space to operate in. The opportunity size is huge, and we're going to continue to define that. And as we go forward with you guys in the future, we'll put some more crystallization on what that TAM looks like, how we're defining products to serve that space. And that will be something that we get a little bit much more mature with you over time. But we're really excited about where that is. And we've got a lot of interest from customers, particularly in that lower end of Tier 2 and in Tier 3, where they might not have the scale to have their own data science teams. We've got a lot of interest in shaping the conversations about how we can do that work with and for them.

So let's go into a couple of them. Pricing center, faster speed to market and pricing agility. The Quantee team has fit in about as well as we could possibly hope for them to fit in at this point. Now after this week, they're going to be exhausted. So we have to scale that team. We have to be thoughtful about how we go into specific markets, how we go into specific lines of business. But the foundations here and the ability -- and the fact that, that technology was running on GWCP at the point of acquisition, not months after the point of acquisition, speaks volumes about how well this will work for our customers.

So we're really excited about that, and we're really excited about the conversations of engaging now new users. As an industry platform, 2 things have to be true. You have to create the place where others can invest to drive value because of the placement of the industry platform and extract that value for themselves. The other one is you have to think more about all of the personas. We have to think more about all of the personas that make the business of insurance work. And we think about the world of the actuary has been wildly underserved from a technology standpoint. There's a lot of reasons for that. But the canvas and the opportunity to collaborate in the world of the actuary is really quite interesting here. And we start to get into closed loop between claims reserving and actuarial pricing, we start to get into a really efficient conversation of how fast and agile our customers can operate. So this is a big one. Underwriting center.

As I said, a little bit more of an ambiguous space and a space, frankly, that a number of our customers, and I've had this conversation a lot over the last 2 days, a number of our customers would say, okay, good. We've been wanting you to be in this space. We want you to be more declarative in this space. This is an opportunity where connecting the thread from a submission, see the world of policy center operates on a structure post bind, therefore, some structured data or a structured element of the database to build off of. But the world of many of our customers starts at the submission, much more unstructured, a lot more variables, a lot more things coming at them.

So as we think about underwriting center and the world of the underwriting assistant will change materially, how can we thread the context, and I believe we will, thread the context for the underwriting assistant and the underwriter and the product manufacturing teams to really think more about how do we get all of our focus on risk assessment, on selection and pricing and on portfolio analysis so that we can really allow the expert underwriter to be an expert underwriter and so that we can provide the context through things like ProNavigator for the less experienced underwriter to now be operating as an expert underwriter.

And this value proposition will hold up over time. Okay. Industry intel. I've said a lot about this already, so I won't belabor it other than the fact that this auto bodily injury and collision claim model has really been interesting in the market to prove out. So the team's ability to present this to customers, access new buying centers inside of the carriers and really talk about business value and business cases that are not just about cost and savings and efficiency, but about indemnity management has been really powerful. So we're going to see this develop over time. And as I mentioned, that model factory to build and deploy new models is really quite interesting. We're spending a lot of time in that space.

Okay. So what does that do to our TAM? So as you can see, the TAM here on Underwriting Center and Pricing Center gets -- can be pretty well crystallized. We know where Pricing Center is. We know where the competitors are, we know where the market is. Underwriting Center has a much more wide array of competition. You start to get into analytics and into the deployment of the Agentic model. Well, we're cracking into the new space there, okay? Because we're starting to talk about not just efficiencies and not just indemnity, but also growth and also headcount and FTEs from a totally different angle and performance of the organization and scalability of the labor base, not just of the carrier, but of the entire insurance value chain. Really interesting discussion there.

So we're pleased with what this unlocks from a new TAM perspective, and we have a lot of work ahead to crystallize that. Okay. So what are the growth pillars that drive that as we think about Intelligent Insurance going forward? As we all know, migrations is a big part of it. okay? Continuing to make it easier, more predictable and more affordable for our customers to migrate to cloud will forever be a part of our journey. And the services team has made some very large investments. We've got the referenceability running. We've talked about that a lot in the earnings calls.

But getting into strategic road mapping and improving program speed, Michael Mahoney and his team have made some very substantial investments in tooling for that, and we're starting to see the payoff on that. Expansion with existing brands. What many of you might not know is last year, we gained more in financial progress with expansion within existing brands than we did in migrations. I think this is a part of our story that needs to be well understood, which is the expansion within the world's top brands, world's top insurance brands as we think about geographic expansion and line of business expansion is a very powerful opportunity.

Net new logos, continuing to win and invest in geographic specification and line of business specification. That's an area where now we can continue to invest on a relative basis, higher volume. And as we connect closer and closer with these markets, we're starting to see some real results, the most exciting I mentioned being Asia Pac last year -- I'm sorry, being -- well, Asia Pac has progressed nicely, but Latin America last year. Pricing, Underwriting, we've talked about. This is a new buying center. This is a new value center. And then industry intelligence, again, quite an expansive opportunity.

And it's so much more about the data that we have access to and how we can build models against it and providing the context for how those models and how those decisions can exist sustainably, reliably and durably inside the carriers' world as we continue to progress as the industry platform, both on core processing and on decision-making. Okay. So last comment before I wrap. I do want to share here that in Q1, the Hartford, a long-standing customer of ours, has made the commitment to move to cloud. That information has gotten out a little bit over the last couple of days, so I wanted to balance that out here. We're really pleased.

This company is really pushing the envelope on their Agentic architecture on their strategy. They've been a great customer of ours for a long time, and we're really pleased that they recently made the commitment to move to cloud with us. Okay. So with that, I really think it's important that we hear from our customers. It's always the reason why we get here at Connections. So I really appreciate our customer panel joining, and I'll turn it over to Christina Colby to take us into that chapter.

Apologies, went the wrong direction. Well, thank you so much. This is, I think, the part that I love to hear most, and I hope that you do as well. I'm joined right now by a phenomenally esteemed group of panelists representing our customers. Daniel Engelberger, John Chu and Paige Vincent. So I'll give them a moment first to be able to introduce themselves. Daniel, if you'd like to go ahead.

Thanks, Christina. Daniel Engelberger, I'm the Chief Operating Officer for Sompo International and also a member of the Sompo P&C Management Board. My responsibilities include IT, operations, data and analytics, governance, real estate and facility management, procurement and multinational insurance.

Daniel, thank you so much for being here. We appreciate it. John, if you'd like to go ahead.

Yes. John Chu, Founder and CEO of Bamboo Insurance, do everything even including taking out the trash for the company.

Full service. I like that. That's fantastic. And Paige, if you'd like to go ahead.

Paige Vincent, Chief Operating Officer for Hollard. I don't take out the rubbish. I don't even do that at home. That's my husband's job. But at work, I do look after all of our customer-facing parts of the business, say, sales service claims. I also look after our customer advocacy area, which is a combination of disputes and external advocacy with consumer groups. And similar to Daniel, look after procurement, supply chain and for sins of the past, risk controls and advisory team.

Excellent. Well, as you can see here, there's a wonderfully vast set of experience across the group. And one of the things that we wanted to do was to hopefully give you a sense across a variety of different customer tiers as well as geographies and lines of business.

So I will get things started with a series of questions. We've allocated about half an hour for this, but we also want to be certain to hold time for you to be able to ask questions as well. So I will get the ball rolling and then please be thinking of anything that you might like to ask on top of that.

Paige, if you don't mind going back to -- you were talking about the vast variety of your responsibilities. One of the things recently is that we have deployed ClaimCenter for your claims organization. It has been live actually for quite a while now. So it would be great to hear about the experience that your team has had taking advantage of the capabilities within ClaimCenter.

So to give a little bit of background first on Hollard, we are a partnered-based business, so you will not see us sell insurance direct to customers in Australia. We do that through our major partners, one being Commonwealth Bank of Australia, which is the largest bank in Australia. And we've also partnered with the largest grocery store, which is Woolworths. So we have the privilege of providing insurance to their customer base.

Now in the way that organization has been set up, we have acquired systems over time with those acquisitions. So prior to moving on to Guidewire, we had 3 different claims platforms. We had 2 different telephony systems, and we literally had teams working on different laptops. So if you were on Hollard heritage, you couldn't then service a CBA customer and vice versa. So you can imagine the inefficiency that, that drives and cost to the organization.

So 2.5 years ago, we made the decision to move to Guidewire on the cloud. And the change that, that has made is though, now we are on one claim system. We have one way of managing claims, one telephony platform. We have one claims team that services all of our partners and we've been able to deliver a foundational customer experience that is exactly the same across the board. So we didn't just see the benefit in one partner, we saw it across all of our partners because we moved to one way of doing things, things to moving to Guidewire.

From a people perspective, because we were so siloed in the way that we manage claims, so it's really hard to get engagement up as a result of moving to Guidewire because we simplify processes, there's automation in there. Our employee engagement has literally doubled in the claims department.

That's fantastic to hear. I love -- as you're describing, that's a very employee-centric perspective, but that -- the experience that they have passes on directly to your customers, which is really terrific.

So speaking of customer centricity, if anyone had an opportunity to see the main stage presentations today, John was one of our speakers in talking a little bit about Bamboo. John, would you mind talking about -- you came from a large carrier background. You mentioned that earlier today. But you have this vision of creating a technology-driven insurance organization. Could you describe a little bit about sort of that genesis of Bamboo?

Yes, sure. We migrated to Bamboo -- or we migrated to Guidewire this year. And as a startup, obviously, we started encountering a number of scalability issues, also capabilities in software and other things that other competitors have just weren't what we needed from a competitive standpoint in terms of where we wanted to take the company. And as we've turned the corner and start scaling across dimensions of geography, product and channel, we knew that we were going to be encountering things that we just couldn't overcome. And so we decided to go with the Guidewire platform.

And it's created a number of opportunities already that we didn't even foresee, which would create different capabilities for people, for our agents and for our policyholders. We're also extremely excited because I think we're one of the very first users of the digital platform. It's a fully functional direct-to-consumer opportunity. I'm not sure we're going to use that from a DTC perspective, but it really gives us a number of strategic alternatives in the point-of-sale channel that we've launched within the homeowner ecosystem.

That's great. Thank you so much. And as you shared earlier today, you have very strong growth trajectory set ahead. And so we look forward to really scaling with you along that way.

Daniel, I'd love to ask you. So we have -- we're very privileged really to have a very strategic relationship with Sompo Group. We have an opportunity to work with some of your largest entities in Japan, as an example, and then also some of the smaller entities around the world. Can you talk a little bit about the nature of that -- the totality of the partnership? And how we're still able to work together for the needs of each of your operating entities?

Sure. So for the ones in the room who don't know Sompo to start with, we are a Japanese born, truly global insurance company. So out of the premium volume, we have about $15 billion in Japan, and roughly $17 billion outside of Japan of P&C business.

The partnership with Guidewire started in 2014, so quite a while back. And since then, for the international part of the business, we brought all our commercial lines of businesses on Guidewire, PolicyCenter and ClaimCenter. We have about 38 products, unique products on the platforms and 100 variants on the platform.

When we look at the geographic reach, right, so when I talk the international part, that's the U.S., that's Europe, and that's Asia. That's all on the international platform. We've just started in Japan. So with the direct business, ClaimCenter, and the next step is, as we actually also this week, so we weren't ready to show a slide here like the Hartford, but we agreed on the next step to move to the cloud, and that includes then Japan, looking at the commercial business in Japan. So that's the -- probably the rough order of magnitude.

Thank you so much for sharing that. Perhaps if we could kind of stick with this thread of conversation. As you mentioned -- obviously, we're very excited to work with you on your cloud journey. As you went through the assessment because you've also known Guidewire systems even longer than what you were describing as Sompo's history. What were some of the things that really appealed to you around Guidewire Cloud? And perhaps that might even relate to some of the things that you've seen here this week at Connections.

Yes. See, yes, I know Guidewire since many, many, many years, also from my previous employer. But see, as Mike pointed out, as also John pointed out, as a carrier, when you have to do your upgrade on your own, that's quite a painful exercise. And especially when you have very intelligent people in the business, they try to customize the businesses. And the place where I sit, it's a pain.

Now also the frequency of update is a lot less than when you look at the cloud side of the house, right? So you heard John talking about it, that Diego has managed to do 3 updates, I thought, right, a year. And that is a very compelling point for us as a customer.

The other thing I want to add is, right, so how I look at operations and IT. It's very simple. There is a basic layer. It's stability, security and scalability. So stability and security, I think we have been pretty good also on the on-prem. Scalability, the cloud is a lot, lot better.

And then the next layer for me is speed and precision. So we talked about the 3x a year, speed tick. Precision, I think Mike showed an interesting slide with a dollar note, right? So there, when you're on the precision side, you can gain quite a bit as an insurance carrier. And the last bit for me is trust. I want to work with a partner I can trust. So trust based on delivery, and that has always been true so far. And this is why we're taking the next step.

That's terrific. Thank you so much. Well, we hope that we can always continue to do things that will earn your trust again and again.

John, one of the things that I'd love to ask you about, I think a large emphasis of things that were discussed this week really talked about the impact that AI is going to continue to have on the industry. My sense was at least through a lot of the conversations that I had that it was probably more forward-looking conversations than ever.

When you think about with such an emphasis on technology within your organization, if you're looking out 5 to 10 years, how do you really think about the technology footprint that you want to have, the way that you obviously uniquely use data? What are some of the things that you're very focused on then in the next 5 to 10 years? And specifically, how would you want Guidewire to really participate in that?

That's a pretty deep question. I would say 3 things. One, if you think about AI today, it's rapidly evolving. So for us, one of the very important things we're trying to do is create some degree of governance around it because it gets to the point where it could be ultimately too powerful to make decisions on its own.

The second is we're not yet at the size of Sompo and some others. So I think the next critical juncture for us from an evolutionary standpoint is really having enough data so that you have machine learning. The way AI we use today, it's still very human driven as a form factor. So it's us working with our AI partners to give them the right data, tell them to search for the rules and then use the software to generate the outcomes. I think that will get turbocharged once we get to a certain size where the machine could do the things that we do from a human standpoint.

And the third thing, which is where Guidewire would come in is version control. So where AI really becomes very, very powerful in the insurance ecosystem is if you have machine learning and the software, then it can generate the changes on its own. So that the versions that are upgrading constantly are in queue with the research that you're trying to put in. And so having a system that has the modularity and configurability to allow you to extract those values when you've created new dimensions of AI is going to be very, very important.

So again, governance get to a point where you can use machine learning rather than human-driven and then having the version control and the speed to access those values.

That's great. Thank you. I love -- there's 2 things that you really pointed out in that. I think one that at least I've noticed with so much focus around generative and agenetic AI, sometimes people lose sight of the inherent value of thinking about more classical machine learning and the value there.

And then similarly, I think, Daniel, you also spoke about how technical currency just needs to be table stakes so that you can start to do all of the higher level and higher order capabilities that you want to focus on?

Well, I was just going to say that the other that's really the kind of the sea of the unknown where I think AI could take it is beyond the unstructured data side. So most of the stuff that insurance companies really deal with is structured data, it's policy data, it's claim data. But as we get more and more engendered in terms of findings, it's taking unstructured data, be it for us, home inspection reports. Upload home inspection reports in a very unstructured way and turn that into structured data. That's kind of a sea that insurance companies have been trying to cross for the last 20, 30 years. And I see AI being the bridge that finally unlocks some of that value.

I couldn't agree more. So my career actually started focused around the way that insurance companies consume data outside of the actuarial space. And the constraint was always that there was so much unstructured data, and there was a push to then try to make it structured, which is complicated enough on its own in order to be able to consume it. So being able to skip that step simply because of the overwhelming amount of unstructured data really is to me the game changer for the industry.

So then speaking about the benefits of generative AI, Paige, if you don't mind me asking, one of the things we had talked about actually in yesterday's keynote, we talked about claim summarization as one of the first capabilities of the claims assistant to come. And we're able to pilot that with your organization, which was terrific. Could you share a little bit about the experience that your team had being able to use those capabilities?

So I think, first of all, it's an absolute privilege to be involved at the very start and help design out how the claim summarization tool will work and how it's going to add value to our organization. And particularly in the context that in Australia, we had a parliamentary inquiry that released results last year in terms of insurance responses to the 2022 floods. And the key output of that inquiry was the insurers across Australia need to uplift how they communicate, how they respond to vulnerable customers. We need to provide personalized service for all customers without increasing cost, which is a very interesting proposition.

So when we think about claims summarization, for us, the key things that we'll focus on is one, we're going to make sure we get some efficiencies and benefits out of it. It currently takes about 30 minutes for a claims adjuster to summarize a claim. Claim summarization is giving it to us in a minute. But more importantly, what it is giving is emphasizing information on that claim that is really important for that adjuster to respond to. And it's actually creating capacity for them to move away from being transactional and just trying to find the information and respond to actually being a human being with that customer.

And when you think about the number of vulnerable customers, not just in Australia, but globally, and the way that we need to respond to them is one thing to get information quickly. But then if you were to match it with ProNavigator being able to then all of a sudden balance the profile of that customer, the vulnerability to match the need and have it all there for the claims adjuster to be able to respond to is quite game-changing. And so we are super excited going about getting claims summarized alive and hopefully, that will be February that we'll be able to get the teams to kind of test it out and learn, but even more excited about how we could match that with ProNavigator.

Fantastic. Thanks. So I really look forward to that. I love the emphasis, especially because there's so much focus on how dramatically rules are changing sometimes in the negative thinking about the use of AI. What you're talking about is truly, I think, what we all hope for, which is making the adjuster in this case, more intelligent and better suited to be able to handle what they need to address. So that's wonderful.

I want to be certain that we allow for time for questions from the room. So I think we have a couple of microphones being passed around. Great. I see the first question, a couple of them.

Wonderful. Rishi Jaluria, RBC. Really appreciate all the perspectives you have. I want to maybe continue on the thought process of AI. And look, as we've thought about Guidewire with the cloud journey, it's been, I think, pretty apparent that moving to the cloud has turned into a competitive advantage for insurers that have been willing to make those investments. How do you think about AI becoming that opportunity within the industry as well where it can actually not only help in, Paige as you talked about, better customer service and driving efficiency, but actually starts to result in just a better competitive landscape for those that really lean into it and go AI first?

So obviously, there is many, many fields where you can use AI. So for me or for Sompo International, it's a growth engine. So in the international part, we have seen a huge growth, and we don't have the talent available to serve that growth, right? This is why we use AI mainly at the intake side of the house to enable us the growth.

And the good thing is that in combination with Guidewire as a platform helps us to enter new markets. So we went greenfield in Italy and in France last year, complete greenfield. And that was a matter of weeks. We are not as flexible probably as you John, right, but we try to be as flexible as possible. And for a big provider, entering markets, greenfield in a few weeks, that's pretty good, I would say. And this is thanks to the setup we have in combination.

But also we use AI, obviously, for getting the better risks in. We also use it for data analytics. We use it at the claims side, FNOL. So many, many areas to use it. But I want to also emphasize AI on its own, it's not the Holy Grail. You need to understand the end-to-end impact on a customer's journey, on a broker journey and also what it does to your internal employees.

And I think just to echo that point, when you have a look at some insurers that are probably more advanced in terms of AI than others, I think one of the missing pieces is that they are doing it in certain segments and not looking at the end-to-end insurance value chain. And I think any insurer that can do the entire value chain in a way that makes sense, drives better customer outcomes, lower cost, but in a holistic manner, is the one who will get the competitive advantage. And also to emphasize a point from yesterday's keynote that orchestration layer of AI is super important as well because if you're investing in AI in different platforms in different ways, you can actually create more complexity than less in your organization.

If I could just echo, I think that's what I see from a number of customer conversations that there are some very interesting exploration around particular use cases, a variety of different technologies. And that feels great sort of at this immature stage before things are adopted at scale. But for them truly to be adopted at scale and managed appropriately and operationalized, I think that's where we need to see that coherent and integrated orchestration, not something that ends up driving up the total cost of ownership so dramatically because it's very scattered across an enterprise architecture.

Ken Wong from Oppenheimer. First, it's not a question, but for John. Thank you, Bamboo, for ensuring my California home. Two other insurers bailed and then for 5 months, no one would insure us.

And then for Daniel, the question for you. When I think about the Asian market, Japan typically lags, typically reluctant to move to cloud. You guys are obviously making a push committing to go to cloud. Would you say that you guys are maybe early? Or are we starting to see an inflection in that market where perhaps you will see other insurers make a more aggressive push to migrate?

So I'm pretty sure that when one company starts, and we are one of the three big ones in Japan, as you know. So when one company starts, the others will follow. This is my true conviction. But I think from Okumura-san leadership, our Group CEO's leadership, he truly wants us to be at the forefront. So also to be true global insurer, which we are at the moment, right, so already. So -- and this was a very short journey we have been on the international side.

And yes, there is cultural differences, right? So I've worked in global roles for my whole life almost. And you need to accept the cultural differences. There is no better or worse. But when you combine this diversity and when you bring the people on board with facts and data, which we have been doing, then they will move, and this is why we'll push.

Any other questions in the back?

Great. This is Alex Sklar with Raymond James. Maybe one for you, Paige, or anyone else who is in on kind of the full suite. But just given some of the announcements we've seen on the product side, the pace of innovation, what might have to change for you to consider adopting the full InsuranceSuite?

Very good question. Sorry, I'm pausing because it's such a hot topic, and I just want to be careful in terms of how I answer it. So I think, unfortunately, for Hollard, we had made some strategic investment choices, probably about 4 or 5 years ago that we are locked into. So for full transparency, we are on Guidewire for claims, but we are with another provider in terms of policy. And at the time that we made that decision, I don't think we truly appreciated the ecosystem benefits that come from being on the entire InsuranceSuite. But we are pretty much locked into our current position, at least for the next couple of years.

That being said, some of the -- by PricingCenter, for example, my understanding is that, that could be applied to other policy platforms, which we would absolutely have a look at because pricing and rating is an area that we are quite interested in doing better in. So we would look to see how we can leverage the Guidewire ecosystem while still maintaining our strategic investment on our current policy platform.

Any last questions? Okay. Well, thank you so much for the questions that were asked. I appreciate it. We will also have the benefit of having some of our panels available through the remainder of the day. So if you're here in person, it would give you an opportunity to be able to speak with them. I just want to say, though, personally, Daniel, John and Paige, thank you so much, phenomenal insights to share. And I'm certain it's something that everyone has really enjoyed and it's something that is I'm very grateful for. So thank you so much.

I believe we're going to a short break now for just a little bit and look forward to seeing you back again shortly.

[Break]

All right. We're going to get going here. I'll give everybody a minute or 2 to get back to your seats. Awesome. Perfect. Thank you. Well, thank you all for being here. This is always such an amazing event. And for me, it always -- it hits home just to see the impact that Guidewire has in the industry, it's super humbling for me.

I joined Guidewire in 2017 and had moved into the CFO role in 2020 and have had the opportunity to help the business navigate through this cloud transition. And it's been -- really has been the honor of my professional career to be here to help with all this hard work. And this hard work is amazing because it sets us up so well for what the future has.

So I'll jump into it. I'll start with some key financial highlights. We have a very durable ARR growth engine, and that's supported by the core work that we're doing on cloud migrations and the modernization cycle that we're enabling for core processing. You know us all, and you love like I love these very meaningful customer relationships that last in decades and result in some of the best retention rates in enterprise software.

We have a real opportunity now ahead of us to infuse much more organic innovation based on the hard work that we've done on the cloud platform, but also do more inorganic activities and super excited about the announcement with ProNavigator. So you should -- we're thinking more about those types of opportunities for a while, you all know that we were pretty thoughtful and introspective as we were working through the cloud transition. Now we're kind of looking up a little bit more.

The model is playing out the way we had hoped it would and kind of in line with how we set our expectations. So you're seeing the gross margin expansion, which is leveraging the platform investments that we have made and we look forward to continue to driving profitable growth.

So this is a slide of our durable ARR growth. And as you know, this growth engine is being driven by the cloud business. This is particularly exciting because over the last 2 years, we've seen that growth rate tick up into the upper teens. And on the last earnings call, we talked about how that upper teens growth profile will be more durable for us as we look ahead. So super exciting to be able to say those words in a forum like this, but moving off of our historical ambition of being a long very durable mid-teens grower and thinking about how we move into an upper teens grower and the progress we're seeing in the cloud is driving that confidence that we have to be able to say that.

This is a slide that we've shown over the years. And I think you all understand that the cloud ARR is driving our overall ARR growth and the InsuranceSuite Cloud customers are driving our cloud ARR. So the chart on the right looks at our InsuranceSuite cloud cohort and how they are growing and it's just been tremendous to see the progress that we've made there over the last 6 years.

This is a slide that we've now shown a number of years. And one of the things that's important to understand in terms of how we engage with our customers is that these are long and very strategic engagements. And so we typically sign 5-year initial terms. We have certainly examples where we signed longer-durated contracts than that. But typically, we sign 5-year initial terms, and it's very common for those contracts to ramp over that 5-year period, and that is spelled out in the fee table in the contract. And so this is a view of those cohorts by fiscal year and how the ramps have progressed. You may remember back in FY '23, we spent some time talking about kind of acceleration in year 3. Last year was a little bit more linear.

The other thing that's really exciting when you look at this page, clearly, something changed about 3 years ago where we saw all of these curves just move up on the page. And that's just a reflection of the platform maturing and the referenceability that we're getting out in the market, that is allowing for customers and prospects to feel more confident in the destination and make bigger commitments. Coming out of last year, it was not certain that we would see this level of step-up with respect to the FY '25 cohort, but the team has just done a tremendous job executing on this opportunity. And it's great to see customers' willingness to make some large commitments.

Those cohorts and those ramped agreements are very important in terms of how we think about the visibility of our model, right? So ARR is the primary metric that we focus on internally. And the components of building ARR are pretty simple, right? How much ARR is going to come from deals that we're going to sell in the year. And that includes things like true-ups and CPI, but all the kind of sales activity that we have in the year, that will translate into ARR in the period. Then we have the ARR that comes off of the backlog. This is all the hard work we did in prior years, the realization of that ARR.

And then you have to account for the attrition events that occur. We have very, very low attrition. Last year, we talked about having the lowest attrition rate on record since we released ARR as a metric. So just tremendous to see that progress. But all of those things together yield a pretty predictable model and give us a lot of confidence in how we think about the growth rates as we look ahead.

This is a new slide. And one of the things that I wanted to bring into this room, we always tend to orient on the annual numbers and think about the longer term. We understand that you all have to build quarterly models, and it can be difficult at times to model some of the quarterly seasonality and a key driver into the quarterly seasonality is the ARR coming off of the backlog. So I was going to say we're not in a 6-month reporting cadence quite yet, but so I'm going to provide a little bit of quarterly disclosure here.

But what this looks at is it looks like this is the ARR that's coming off of the backlog this year and our expectation for the ARR that's coming off of the backlog and where we expect it to fall in the quarter. So takeaway is for the year, we're seeing very healthy growth of ARR coming off of the backlog. Q1, Q2 and Q4 are all going to see nice tick up on a year-over-year basis. But Q3 this year actually has a year-over-year decline. That is just a function of how those particular cohorts that were in Q3 fell. It turns out last year. We had a couple of deals that we signed where the ramping event doesn't really happen until year 3.

Nothing to read into that dynamic. Just to note that when we looked at those cohorts, that jumped off the page is something that you all should be aware of as you build your models. This last year, I think we saw a little bit more volatility around quarterly earnings around some of these dynamics. So this is our attempt to bring some of that into this room and to allow us to talk about this a little bit more. But this is some kind of new view into the seasonality of the business this year.

As we look at the overall gross margin, this has just been tremendous to watch and tremendous to be a part of. So many of you remember, about 3 years ago, we came in here and said, "Hey, look, we've invested ahead of the demand curve. We've built out a cloud operations function." And these early cloud cohorts are absolutely critical to our long-term success. So we've invested ahead of that demand curve.

And now we've built the organization to support $1 billion of ARR, and we need to grow into that $1 billion of ARR. And we have executed to that in a tremendous fashion. I think the platform investments, we're improving efficiency behind the scenes. The team did a really good job around discipline, around hiring and how we think about cloud operations and the needs there and a lot of focus into how we manage our AWS environments and how we manage our cloud infrastructure to realize this page.

As we look ahead, we'll see a little bit more growth in terms of headcount. We'll see a little bit more growth on the other costs and the infrastructure cost to support our margin -- our cloud business, but we will still be delivering very, very healthy incremental margins, and we'll talk about that a little bit more on the coming slide.

We've talked about this a lot over the years. As we approach this transition, think about this as Chapter 2 and how Mike thought about the cloud transition and unlocking the cloud transition. There were really three things that we had to manage through. The first is, can you build this? This is a very difficult use case and establishing this cloud architecture is absolutely critical to our strategy and investing to make sure that we capture that platform to support our growth into the future.

The second is can we sell it? Can we continue to sell it at a high level? Can we have those win rates that we saw in the on-prem world, in the cloud world? And the win rates that John showed today were just tremendous. So the team has done a great job executing on that part of it. And then can we scale it? Can we deliver a software margin? And I'm very proud of the progress that we have made there. This is probably the last time I will show this slide because this is very much kind of the orientation around how we thought about the cloud transition, maybe a little bit of a pat on the back.

We feel very good about what we've accomplished. But what is most exciting about this slide is really what it unlocks for us. And so when we think about the growth pillars, and this mirrors what John talked about, many of these growth pillars are what John talked about. We still have a number of very exciting growth pillars ahead of the company. There's still a lot of work to do on migrations. We have approximately 150 on-prem customers. There's a long runway there.

We hope to continue to accelerate that, but there's meaningful work to do there as we continue to migrate our on-prem customer base to the cloud. Modernizations, there is still way too much of this industry running on antiquated systems, and that is just the bread and butter of what we do is kind of waking up every day to try to modernize this industry.

New products. This has been the connections where we've really featured a lot of new products and new innovation. So very excited about the potential that, that creates and the growth that, that will afford us over time. The marketplace is something that continues to grow in a meaningful way. That ecosystem is very exciting. We have some interesting revenue share partners in there, and there's opportunity to grow that base as well. And then finally, M&A is -- you should expect us to be thoughtful and measured.

This is an industry that there are interesting opportunities, but there's also a lot of horizontal opportunities that we tend to steer away from. You'll think about us looking more at adjacencies rather than consolidation plays. But there's some really exciting stuff here, and this will be part of our strategy as we look ahead. Okay. I'll pause and let you all kind of consume this slide as this is a slide that we update every year, and I know there's a lot of focus on this.

So maybe I'll give you a second to digest it, and then I wanted to walk through a couple of things. Okay. First off, the FY '26 targets are the same as the Q4 call. We'll obviously address the full year guide on the Q1 earnings call. We're super happy with the momentum we're seeing this quarter, but I want to focus this conversation on the longer-term opportunity.

So -- but just the FY '26 targets are the same. For the FY '28 targets, we put some thought into these targets as we kind of approach today. Clearly, we were going to be above the $1.5 billion ARR goal that we had previously. I think all of you were expecting that, and all of you knew that we were going to be above that number. These new growth rates, so we've shifted towards a growth rate range rather than a dollar target, which I think is more appropriate.

We originally established a dollar target when we said, "Hey, what will the business look like at $1 billion, what will the business look like at $1.5 billion?." Now kind of as we get closer to some of these targets, moving that to a growth orientation makes more sense. And these new growth rates would imply around $1.7 billion of ARR, which is a material upward adjustment off of the $1.5 billion that we talked about previously. So very excited to see that.

This elevated growth also impacts our revenue growth expectations. So we put 15% to 16% CAGR for total revenue. And then revenue ex services. So if you remove services from that equation, it's about 17% to 18%. So the revenue ex services should grow roughly in line with ARR. Gross margin expectations are largely the same with a slight uptick in total gross margins as a result of the higher software mix associated with our new growth rates.

However, the gross profit dollar -- while the gross margin numbers are largely the same, the gross profit dollars are elevated given the higher revenue base that this model assumes. As we see numerous opportunities for growth, we do see opportunities to invest more. As a result, we've adjusted our operating cash flow -- our operating and cash flow margin targets down a bit in this model. In this plan, much of the incremental gross profit dollars are being reinvested in the business. So just doing some simple math for you all. If you look at the midpoints of these ranges, our updated numbers project a little bit over $100 million in incremental gross profit dollars in FY '28. But our plan shows about $30 million of incremental operating cash flow dollars in FY '28.

So we're going to be reinvesting some of these elevated growth rates back -- reinvesting back in the business. We think that there's tremendous potential right now with everything that's going on in the world to invest more in this business. And that's a reflection of the opportunity that we believe exists to keep this upper teens growth rate over a fairly long durated period.

So those are the primary changes and adjustments that we made to the FY '28 targets. We still believe very strongly in the 80/40 plan. We released this plan last year. This is still a guiding light for us. This is the right framework to think about how we will eventually evolve Guidewire. And we're going to lean towards focusing on growth over accelerating the time line to this right now with all the opportunity that exists. But we will always kind of have this in the back of our minds as our framework.

So you'll see us calibrate a little bit more towards growth than rushing towards this plan, but we still think this is the right way to think about the long-term terminal margins for Guidewire. I will touch quickly on capital allocation. We maintain a very strong balance sheet. So about $1.5 billion in cash and cash equivalents on the balance sheet today. In FY '26, we expect about $360 million in cash flow from operations, about $28 million in CapEx and capitalized software development costs.

So it puts us in a very healthy position with respect to our overall capitalization. And this is important for us right now. I think where we are as a business, for a long time, M&A wasn't a focus, but with the investments we've made in the platform, it's the right time for us to make sure that we're keeping those strategic avenues open for us. And so I think you will see us maintain a strong balance sheet this year. We always do have regular conversations with our Board, think about capital return options. We will continue to do that.

Unlikely to have a stock -- a meaningful stock share repurchase program this year. But as we look ahead, ultimately, I expect us to get to a place where we have a programmatic approach to how we think about capital return and stock repurchases. And that's kind of the -- it for me. I wanted to just quickly finish on the highlights. We're really thrilled about how this business has progressed over the last 4 years as we worked through this cloud transition.

And there's all these new opportunities for us that even at the start of this transition that we had no idea that would be presenting themselves. So a tremendous time at Guidewire and super excited about the future and what's to come. So I will tick quickly through the GAAP to non-GAAP reconciliations, and then I will invite the rest of the management team up on the stage for Q&A. Thank you.

Rishi?

I am in charge. All right, perfect. Really appreciate all the details. Great to see the momentum of the business. Maybe I want to ask just a deeper dive in thinking about AI and the longer-term implications on the business. Mike, I know you've been taking AI seriously since day 1, and it's clearly resonating with customers and partners that we've been talking to with Connections. Really great to see that. Obviously, the keynote yesterday outlined that.

So maybe just a 2-parter. Number one, as we think about the priority of investments in AI, maybe can you outline what does that look like? And picking and choosing your spots where you want Guidewire to be the one doing it versus allowing partners to do it and other vendors and working with them and having that interoperability. And then now maybe taking it to the financial model, Jeff, I appreciate the raised ARR targets and obviously investing for growth.

As we think about the cost of inferencing, layering that into the model, how do we think about that impact on gross margins and maybe some of the incremental engineering dollars you need to put to work on AI to productize this and really kind of transform yourself into more of an AI-first company over the next couple of years. I know there's a lot there, but any color there would be helpful.

Yes. Okay. Great question. So I think you asked me to prioritize this. So I don't know if I'm going to get it exactly right, but I'll try. So from a product perspective, there is a very clear opportunity in underwriting, in commercial lines underwriting, okay? This space is just materializing and right in front of us. And we want to attack that in two ways. One is just outside of AI, we think that there's a real opportunity for UnderwritingCenter to be the backbone for how this should work in the industry with our advanced product designer, insurance products, do what we've done for ClaimCenter and PolicyCenter for underwriting and then really create what I'd like to say in hindsight will be our first AI native application that without AI doesn't make any sense.

And so there's a very clear opportunity there for us. I think second, I want to make sure we are doing exactly what our customers need us to do in terms of facilitating their use of AI inside their enterprise. And that doesn't necessarily create a direct product opportunity for us, but it helps us, I hope, sell more core systems.

And I think that, that is like the second most important thing we can do. So -- and that's all the things that like we talked about in the keynote the other day is like we like to take this platform-first approach to building product. And so we say, "Hey, we need an underwriting product, what platform services do we need?." Okay, let's build those platform services. Let's make those platform services available to partners, available to customers. That's the second most important thing we could do. And maybe the third most important thing we could do is like use AI ourselves for our development organization.

And if we do that and we execute that and we get -- Diego should comment on this, if we get the unlock that we think might be possible, the entirety of our company will accelerate. And I think we do all those things, and we're going to create a lot of shareholder value.

Yes. I mean just on the modeling side, it's very early, right? So I would say we -- right now, as our approach to AI, as Mike hinted at is more on an investment side, right? Rolling it out to the development organization, ensuring we're investing in those tools and capabilities before we see the productivity gains. But right now, we're more on the investment cycle. As we think about how it's going to impact the revenue and gross margin model into the future, it's still too early for me to comment on that.

Adam Hotchkiss with Goldman Sachs. I'd love to tag on to the last question and ask it in a little bit of a different way. You're launching a significant number of new products. This is obviously a completely new time for the company. Your win rates continue to be really impressive and improving. When we think about that part of the market that is still living on these legacy and antiquated systems and you bring all of these new products to market and that innovation gap relative to those legacy systems seemingly is accelerating. What have you been observing in your prospect conversations around their willingness to move into the cloud and be with Guidewire today maybe versus where we were 1 to 2 years ago?

One of the things that I've noticed definitely in a lot of prospect conversations because of some of the new capabilities that we're talking about, like PricingCenter as an example, it's a much easier entry point for them to work with us rather than thinking about the totality of moving all the way to PolicyCenter, which I don't mean for that to sound truly as massive as it might, but it really is a significant lift for them to think about even for perhaps a small line of business, just that alone is a major decision for a carrier to make.

And it's a decision point that doesn't come up terribly frequently. The thing that I like so much about PricingCenter and UnderwritingCenter, people can start to work with us around much smaller and more narrow use cases, perhaps starting out with particular lines of business and then start to see what that experience is like.

Of course, we -- Paige was mentioning, we have spoken about it on main stage too. PricingCenter and UnderwritingCenter don't require InsuranceSuite to sit under them. We think that it's a significantly better experience, and there's a lot more that we can do, leveraging the entire capabilities of InsuranceSuite. But I think those to me are some really interesting ways about starting to think about working with carriers in smaller steps rather than expecting them to make a full decision to move straight away from a mainframe as an example.

I have just -- I'll add one thing to that. Just if we zoom out kind of from the product set from a second and think about the seat that the decision-makers are sitting inside the carriers, the pressure on them has amplified quite a bit. Some of it's very unstructured in the way it's come at them from a -- get a hurry up and go after agentic architecture, hurry up and employ agents. What I'll say is in the conversations we're having with customers and the very real condition right now is the distance between winners and losers is both increasing in the gap and the pace at which that gap is created is very real.

Pricing is probably first and foremost amongst those. But the idea of sweating the asset and kicking the can down the road, that's really still very much a conversation we have to have and navigate for business case and prioritization and sequence, but the pressure to act is increasing more so than I've seen in the past 20 years.

Ken Wong, Oppenheimer. A question for Diego, one for John. Mike, both you and Diego characterized this Connections as being one of the biggest product focus Connections you guys have had in a while. And yet on stage earlier today, Diego, you mentioned how this was just an appetizer. And as you look towards the announcements next year, it's going to be much bigger. I guess, are you able to elaborate on that? And then for John, you mentioned more financial progress with expansions than migrations. I guess how much of that is just a lot of the migrations are kind of recent big wins and there's a lag in terms of the financial impact? Or is it just the expansion activity has just been so good?

So of course, we're going to tell you now everything we're launching next year. It's exactly how these things works, right? And what kind of -- what I was trying to convey is that we've been working for many years in enabling the infrastructure. There is a lot of work that you do under the water that you don't see, right? And that is critical, especially when you think in terms of take digital. Digital as an aspect of a library, as an aspect of infrastructure to deploy, as an aspect of infrastructure to monitor the deployment, infrastructure to monitor the serviceness of the deployment. So there is all those kind of things that you do once and you needed to do it in a way that is resilient for scale, right?

And when you work on that at the beginning, it doesn't really show, right? Because then at the same time, you need to build the first app or the first capability on top of this infrastructure. And typically, when you do that as a project, you can cut a lot of corner and just focusing on delivering quickly the capability. When you do that as a platform, you basically need to make sure that you do all the things that, as I said, they are not as sexy.

But they are the things that then enable you to grow from -- or grow or stay -- grow the COGS or grow the percentage of the COGS. But then all those things have been done across a few years. and you didn't see it, but now all these are coming to fruition. So in the last year, when we started to build new stuff, we start to get all the benefit of the infrastructure serving us.

Even the acquisition of Quantee, John made it a point that is like it was running on GWCP almost on the point of acquisition. And that was because GWCP had -- we had to build some infrastructure and some capability that then become very useful to kind of do something fairly different than what it was originally, how to say, envisioned for. So when I [ left today, ] I am saying, this is just the beginning is because depending on the decision that Jeff was alluding of we can invest more.

So if we make decision of investing more, assuming that we have the right target on investing more, right, that we have good ideas, assuming we have good ideas now we start to have the financial support, and we have an infrastructure that will enable us to accelerate on that direction, right?

So from -- my comment was on a readiness of everything that we've done is unlocking an opportunity that we didn't have before because before we needed to make sure that the infrastructure was, first of all, was capable to support what we needed to support.

I'll make a quick comment on that, and then I'll get to the other questions. The other one is underwriting itself. So the comment around the appetizer was really around UnderwritingCenter. UnderwritingCenter, there are going to be multiple pathways to get to the capabilities that make up UnderwritingCenter. And so there's going to be -- some people like me might skip straight to the dessert, some people might actually just eat the salad. But there's going to be -- for commercial carriers, there's going to be multiple ways to consume UnderwritingCenter.

If we think about between now and next year, us making all those components thread thoughtfully together and open those pathways, as Christina said, some more bite-sized chunks or some more one course at a time type chunks to get on the pattern. Back to the expansion piece. The math around it really is more around pure expansion, not having anything to do with the large migrations.

So if you look at the number of customers around the world that are really on the larger end of the market and think about how many of them are single X Centers, ClaimCenter or PolicyCenter, a few just BillingCenter, but policy and billing oftentimes in concert. But where there's still a lot of a state to go by either line of business, geography or X Center, the thing that is becoming more and more true in these conversations -- well, two things, sorry. The first thing that's becoming more and more true is because of the platform and data and things like ProNavigator, the ability to thread decisions through the enterprise and run the enterprise estate on the platform, so putting more freight on the platform is really starting to prove out in the business case.

So that idea of a customer being full suite rather than singular product is starting to make more sense in that conversation. Sometimes it's a migration, Ken, that opens up that expansion. Sometimes it's expansion to cloud and then the migration later. But all of those really are kind of really truly new estate for us, and I'm excited to continue to go after that because I think that's still yet a relatively large estate.

Dylan Becker with William Blair. Maybe for Diego or John to start. Obviously, we're layering on more product. We're talking about kind of more value accruing to the customer base. But on the implementation side, how are you thinking about automating more components of that process, creating and tailoring maybe a standardized road map to make that easier where customers realize value faster. That's one.

And then, Mike, for you on the slide around kind of the aggregate mix or share of the dollar in spend, I think it's like 25% that goes like administrative cost. Within that, where do you see kind of the biggest segments of opportunities if we're looking at it in $3 trillion overall base, like minor improvements can be massively valuable.

Okay. So I'll take a product angle or a technology angle. What -- when we talk about APD, when we talk about digital, when we talk about all those things, you have to go back and look at what was like the bigger cost of implementing Guidewire, in general, before cloud? The biggest cost was implementing integration, a big chunk. There was, of course, implementing the product model and then it was implementing digital.

Now if you look at these three things, we came with APD, we came with a new integration framework that it does not require Gosu anymore, and we came with a JDP and -- Jutro Digital Platform. So those three things have reduced a lot the cost of implementation. A lot of the sort of success that you've seen Guidewire having, especially on the net new deal.

At some point, if you really look at our history in the last 5 years, the model initially was expecting us to be faster in migration and not so, how to say, successful on net new deal. And the net new deals start to come kind of, at some point, even surprise us a little bit. And the reason they surprised us, it was because of those innovation on digital, on APD and on the integration. So we have today a product that is way more efficient to be implemented compared to what it was.

Now with that said, with GenAI and with the technology that is coming, we think that we're just scratching the surface on that, especially on things that typically require a lot of manpower for things that are fairly, fairly pedestrian, like, oh, you need to refactor XYZ, you need to adjust this implementation to modernize it in some aspect and so on.

So I think that it's a huge opportunity for us to continue to eventually evolve a product that will also have the ambition to go downstream, right? You saw the initial slide from Mike on Tier 1, 2, the product was originally kind of conceived for Tier 1, 2/3. And now we start to have some economies of scale that we can start to consider some of the specific configuration to go to Tier 4 and even further down. So 100% what you're saying, we have seen improvement.

And the last thing I want to close is what we talked yesterday about Jutro Studio is one more of this evolution of saying, "Hey, you don't need to implement InsuranceSuite and then implement Digital." We're going to go into a direction in which you do one implementation and that implementation serve both master. And so that, again, is in the direction of speeding up and accelerating implementation.

I'll just add to that maybe from a project standpoint. I think if you look at a number of the migration -- well, the majority of the migration projects to cloud that have happened in the past few years, a lot of the time is spent truly in heavy lifting, right? And a lot of the things that Diego was talking about, you're not necessarily even scratching the surface.

It could be sort of removing a lot of the habits of the past and creating a meaningful test harness that helps you to be able to take advantage of things going forward. So I would say very similar to the patterns when someone would have actually been migrating from one version of on-prem to another version of on-prem.

But it's the last one, and so people put the effort into that. In addition to a lot of the things that Diego was describing relative to now being able to take advantage of the new features, we have been investing to take out a lot of that, just effort in the heavy lifting, which caused things to be more emphasized around sort of this concept of lift and shift, right?

The idea we're going to move it to cloud, then we can start to adopt the new features later, specifically by being able to take out a lot of the testing effort, which in some cases, I think, can take maybe 30% to even 40% of a project's time and perhaps not even necessarily get to the full surface of all of the application capability. Being able to do that now means that you can start to think about the adoption of all of the capabilities that Diego was describing. Historically, those have been things that people did as sort of a fast follow-on, if you will. Then that presents the question that you also asked, which is, is there a standard value map that talks about how do you prioritize those things? We put a lot of work into identifying what we think those can be potentially for any carrier, but there genuinely is no standard that we've been able to determine, which I think is actually a great thing.

It allows us to be able to decide those aspects that we're going to transform are going to deliver the most immediate business value based upon that specific carrier's priorities. So it could be, as Diego was describing with Jutro, much better digital experiences and something that helps them to get closer to their customer so much faster.

It could be something that they're looking to actually improve bottom line and looking at loss ratio instead. And so at least by having maybe some consistent possibilities for measures, we can start to talk about benchmarks that we've seen elsewhere, but it really does need to be something that we tailor, and it's actually a huge advantage that we get to tailor it. And I know you have done...

Yes, I'll give you a quick answer to the second half of your question. Think about it like -- and this is a super high level, but like -- let's get 100 basis points out of claims processing without degrading customer experience, but maybe even improving it. And let's get 100 basis points out of the expenses associated with underwriting and accepting and managing submissions and choosing which risks to take.

And hopefully, we do a better job selecting the right risks. Both of those things are completely reasonable given the state of the platform and the state of the technology that we see right now. It's not going to happen next week. But if you get 200 basis points out of that slide, it's pretty impactful.

Aaron Kimson with Citizens. On UnderwritingCenter, is it something where you envision you'll start down market and then prove it out like the cloud or something where there are 10 to 12 other vendors in that space today, all saying they have a workbench, whether they really do or they don't, and you're going to go straight to your larger customers there?

We're going to go to the customers that want to work with us there, and I think we're not going to have any trouble finding 1 or 2 or 3 or 10. And there's probably 100 that are all looking at this in one way or another. And I want to be clear, like our goal isn't to say we're going to deliver the workbench because people think of that as like the structure. Our goal is to find the right customers to work with, to deliver the agentic system that facilitates underwriting in the insurance industry.

And in the process, I want to establish UnderwritingCenter as the backbone for doing that, okay? And I think -- now upmarket, down market, we're going to find the sweet spot. We've got so many people interested in talking to us already. It's been less than 24 hours. We're going to find some good customers to work with here.

I think line of business and interaction with the brokerage community is going to be much more of a driver than size.

Mohit Gogia with Jefferies. I wanted to just unpack the growth algorithm for you over the next few years, right? So I think expansion seems like obviously will be a major part of that. So as you think about expanding your share of the customer wallet, I think I was speaking to one of our customers on the show floor. I think I was reminded that, I mean, you are fortunate to have an end market that is flushed with cash, right? So I was told that if a strategic partner.

Who is that?

No, I was told that if a strategic partner like Guidewire can create value, there is always cash that can be spent. And obviously, that will drive your growth, right? But -- and cloud was a big piece of expanding that customer share of the wallet. But as you look towards next few years, like how are you thinking about, obviously, new products, organic or inorganic?

I'm assuming there is an organic price increase that is part of the question, too. And then there is AI monetization, which as software investors, there is some sort of skepticism around how much can a different software vendors monetize AI. But just help me understand as to how you think about expanding that share of the wallet.

I'll talk about expansion of share just for a second, then monetization of AI, you guys can talk about it. On the expansion of wallet, this is something that in the slide that I showed that we're moving up the strategic road mapping agenda and the strategic intention agenda from applications to CIO to COO to CFO to CEO to Board and right at the time when that pressure is coming in the exact reverse order at a very nice time for us.

We think working with customers in a way to unlock some of these -- the beauty of some of these more ambiguous problems to solve like UnderwritingCenter is if we can solve them, there's a lot more value to create and there are a lot more value to capture. And this is not an intensely competed procurement-driven price speed up conversation. There's one pathway to PolicyCenter -- pathway to PolicyCenters' replacing a policy admin system is a really big thing to solve for, and it has its kind of own cycle.

When we start to solve for how do we enter and exit markets better, what's the risk selection and pricing and underwriting capabilities, you need to do that to unlock value from expert underwriting and pathways to market. That's a whole different conversation. It will -- yes, it will be price. There will be a price discovery. Yes, there will be a negotiation on it. But we're solving for the very large side of that dollar that Mike talked about, which is the indemnity and exposure conversation.

And that's a conversation that we have to learn and navigate better, but we have pathways now to capture far more value. I'd like to know who's flushed with cash, but the simple fact is one of the things we will go after on this is there are a lot of categories that they're already spending in, and we're in a very unique spot to go after those in a very efficient way, efficient for us from a capture perspective, but also efficient for them from a standpoint of not satisfying a dozen different companies to solve different -- 12 different problems.

I should rehearse my answer to this. I have to be pretty -- I don't know, you guys can judge me, I guess, artful I am in responding to this. I think outside of AI, we have a tremendous growth opportunity ahead of us at Guidewire, okay? We have to, and I think we will successfully migrate 100% of our on-prem customer base to our cloud.

We are completely committed to doing that. Like -- you saw like, oh, we're all excited about the AI features and everything else, like we also develop these systems to like provision them in an environment, test their code base, move their code base to the cloud, help them migrate from their old product model to advanced product models, like we're doing all of this work to get those customers to our cloud system. That's a growth opportunity.

We have the baseline growth opportunity and the modernization potential in the industry. And now we have this potential in PricingCenter, we have this potential in UnderwritingCenter, even if the Agentic AI comes from somebody else. I think that there is a tremendous opportunity for us to grow the company. And even like underwrite an investment thesis for the company right now, the AI, it is unclear, like, let's say, like how do we monetize that.

But I say basically before, I think I very logically said, "Hey, what if we get 100 basis points here and 100 basis points there." And that kind of like triples the addressable market for us. And we're going after another component of the value chain in the industry that we serve that is far beyond the IT spend currently allocated to core systems. And so that's how I think about it. That's how we're trying to run the company.

We're going to do our job, we're going to move our customer base to the cloud. We're going to win the modernization opportunity at the same win rates that we've been winning up till now, maintain 100% referenceability, earn the trust, as Daniel said, every single time. And I think that the AI potential will manifest over time.

And the only thing I want to add here is, as we think about the targets and the financial model underpinning that, to get to the targets we outlined in FY '28, that is still very much primarily the cloud transition story playing out and the increased acceleration that we're seeing in modernization and that part of the migration curve that is still very much ahead of us over the next 3 years.

How we make that upper teens durable for a decade is kind of as PricingCenter, as UnderwritingCenter, as some of these new capabilities come into the fray. But there's multiple ways that we can get to those targets in FY '28. And one of them could include none of the stuff that we're talking about today. Obviously, we're going to execute, and we believe that, that will show up in the financial model before FY '28. But I just want to make sure that, that was understood in those targets.

And one thing that going back to my point of work that is under the water that you don't see immediately, but you will see a little bit later. We've been working a lot to make the product more, I would say, extensible in different country. So Mike did show a slide into which as long as there is one customer, the country was yellow. So now that is kind of -- is a good way to mark a lot of country yellow, but there is like a difference between you have one customer and you own the country, so to speak, right?

So a huge direction for us of growth is still in some of those countries to sort of penetrate to a point of owning the entire country and not in every yellow country, we are in that place, right? Because historically, the product was trustable and it was capable to deliver what's needed to be delivered, but you cannot scale horizontally across all the customers. You needed to -- going back to the question about cost of implementation, there was a cost of implementation that was maybe prohibitive for many customers. And now everything that we're doing from an extensibility perspective, implementation perspective and also the fact that the pressure top-down CIO and so on is opening up doors in country that is going to be part of our strategy.

And on top of that, there are a few countries that is not even yellow yet that is kind of creating that extra angle, right? So keep in mind, we have the best product on the market, and that is sort of still as gigantic runway to sort of penetrate independent from anything else that we've been discussing in new product.

It's Parker Lane from Stifel here. Jeff, maybe on the financial targets you have, you talked about the investment you're going to make of the incremental gross profit dollars through '28. Maybe zoom in on what the key priorities are there. I know Mike talked about development velocity picking up in an AI world. So how do we reconcile development velocity picking up with maybe also increased investment? Is it just a matter of delivering more innovation than you ever had before? Or are you going to start seeing some of those efficiencies in your R&D process as well?

Yes. I mean I think right now, some of the tooling and capabilities we're rolling out to the development organization is more in the investment cycle phase rather than the realization of some of those gains that we expect to take. But look, the investment is -- now that we have this cloud platform, now that we've done all the work kind of underneath the layer of water that was invisible that allows us to infuse more innovation into the industry. That's where the investment is going to be going. And so it's primarily in R&D.

I wish Diego wasn't on the stage and hearing all this, so I have to constrain him a little bit. But a lot of it will be going towards the R&D efforts. There will be some sales and marketing investments, like new personas, some new motions that we have to support. But we benefit from operating in a vertical where we know our customers very, very well.

So we should see some nice leverage on that side. So -- and then G&A, it's -- you got to -- the finance guys need to be paid too a little bit. But there's not a lot of growth going into the G&A function. We can continue to scale that. We have -- we generally have the structure in place that we need.

But this isn't a scientific comment, but it kind of connects what Jeff said to what Diego said. I want you to understand like we have a backlog of functional insurance requirements by country, by line of business. And there's many lines of business and countries where in the old world, it didn't make economic sense for us to invest and build out that product feature because we'd only sell to one customer.

If we can get these models to work and facilitate an increase in velocity for creating those solutions, suddenly, those things are going to be logical for us to deliver. And that's going to unlock those countries, and that's going to unlock those lines of business, and that's going to accelerate the implementations.

And so I give this speech all the time to our developers. If we can make our developers more productive, I don't want to make the company more efficient. I want to build more insurance product, and that's going to help us accelerate.

Joe, Baird. To predict that to FY '28, there's a bookings assumption therein. And the best I can estimate, it doesn't seem like you need anywhere close to the type of fully ramped ARR growth you've been doing to get to the 17% to 18% CAGR endpoint. Without getting too exact, is that directionally fair?

Yes. I mean look, the fully ramped number and growth rates on the fully ramped number is one that always makes me a little bit uncomfortable. We had a huge deal with Liberty Mutual that drives a fully ramped outcome that -- and you're going to see that number bounce around a little bit but I think you're picking up on the point that I was just making is that those targets are very realizable in just the core motion that we're going through today and allowing for some of this new innovation that we're talking about to provide upside to some of those numbers. And so I think you're thinking about it directionally right. I haven't done that math, but it sounds directionally right.

And then just as a follow-up, since you're winning like almost 100% of DWP decisions, what does that say about the pipeline, not just over the next year I suppose, but over years? And is there maybe an argument that the movement off mainframe to modernize, if you can show that AI improves speed to value, customers are talking about accelerating their growth by adopting your solutions quicker. Does that pick up the pace and that's actually a bigger feeder of pipeline than maybe you've been seeing?

On a qualitative basis, that's the conversation, right? Getting the conversation around what does it take to win in tomorrow's market rather than the avoidance of potential risk in a long-standing mainframe environment. So on a qualitative basis, absolutely. On a quantitative basis, I'll say that in the very near term, we feel really good about the pipeline coverage that we have. Some of that's traditional.

Some of that is really kind of the -- kind of long-standing mainframe -- dislocation of the mainframe entrenchment. If we think about -- that really ties very closely to the geographic component. So as you go from North America around the world, there are some geographies that just have a larger footprint and more entrenched mainframe footprint.

So as we continue to develop the things that Mike just mentioned, that gives us more ability to talk about really predictability of programs and then the -- and the value of being on the cloud in Germany and in Japan that is precisely important for operating in the context of those countries. So in the long measure of time, yes, mathematically; in the very near term and for a long time forward, qualitatively, that's the story that we want to continue to make true.

Great. Thank you, everybody. I think we'll wrap it up there. It's been a great dialogue, and we'll head outside for cocktail hour.

Okay. Super. Thanks, everybody.

Thank you all.

My name is Adam Hotchkiss. I cover the emerging software space here at Goldman. I'm really thrilled to have CEO of Guidewire, Mike Rosenbaum, here with us today. Thanks so much for kicking off the day with us.

You're welcome. It's great to be here.

Fantastic. I guess, for those in the audience that are maybe a little bit less familiar with Guidewire's role in the P&C insurance ecosystem, maybe just give a quick refresher on what Guidewire does and the customers that you serve.

Okay. Sure thing. So we provide what's called core systems to the P&C insurance industry. And the core systems, you want to think about as sort of the ERP system, the heart and lungs of an insurance company. We manage everything related to policy administration, claims and billing. And so you want to think about these things as very, very complicated implementations that are designed to operate for a very long time.

Without Guidewire, the insurance company doesn't operate, and that's why we like to say we're the heart and lungs of the operation. The company has been around for about 25 years, and we've established a pretty healthy market share in the overall P&C industry.

That's great. Really good overview. You've been at Guidewire since 2019. I know there's been ebbs and flows in the business model, moving from on-prem to cloud. Talk a little bit about your experience through that journey, what you've learned and how that's evolved to where we are today?

Sure. So I joined in 2019 when the company had just begun a transition or a transformation to becoming a cloud service. The company started as on-prem software, traditional on-prem software model and had been very, very successful. But right around 2018, I think the company recognized, based on feedback from customers, but also some competitive pressure; that the future needed to be a cloud service. We needed to figure out how to make this Software as a Service model, so that we could take responsibility for operating the software and updating the software.

I think ebbs and flows is a very, very difficult thing to do, is move a company that's already well established in a certain operating model and teach the company, teach the customer base, teach the ecosystem how to think about Guidewire as a service.

But over the last 6 years, we've been incredibly successful, I would say, number one, validating that we can successfully run these applications as a service, that we can sell them as a service, that we can implement them as a service and I think most importantly, maybe that we can operate them efficiently.

So one of the stories behind the company over the past couple of years has been really improving the gross margin associated with the software and how we're able to run it. And as of right now, I think all of that has gone extremely well. If you think about what I would have said would have been a success back in 2019, the conditions of the company right now, I would have accepted. It's gone very well.

Okay. So you have mentioned that Guidewire runs over 20% of direct written premium on your platform. What does that stat mean to you? And when you think about what makes up that other, call it, 70% to 80%, particularly on the mainframe side, but also on the on-prem side; what do you have to see or do to materially break into that market over time? And is there a cap that it should think about in terms of there's just going to be some DWP that's never going to move to...

No, the cap is 100, right? So first of all, when you -- it's very important for everybody to understand our pricing model, our packaging model. We don't charge per seat. What we do is we say that the value we deliver correlates to the premium that the insurance company is running on top of Guidewire. And that's the core pricing metric that we use for selling the software.

And so the measure of 20% of DWP that is licensed to run on Guidewire describes effectively our penetration into the potential market. It's very unlikely that any company gets to 100% market share. Certainly, we aspire to that. And I think we have a clear line of sight to continuing to improve this, and it's not outside of the realm of possibilities that we would break through 50. I think that's very, very clear.

And the way to think about that is it sort of correlates to GDP. So the countries that have large economies, have large, mature P&C insurance industries; that's where the majority of that direct written premium is, and that's where our focus has been.

And so when you think about how do we continue to make progress from 20% to 30% to 40% to 50% market penetration, it's really just about continuing to focus on ensuring that Guidewire can be implemented successfully in every single once of the regions all over the world.

How do we continue to make progress in Japan? How we can make progress in Germany? How do we continue to make progress in the United States with the big, big Tier 1 or the largest insurance companies? That's our focus. That's how we continue to gain market share, let's say, and modernize these systems to Guidewire.

Yes, maybe bifurcate that a little bit for us that U.S. opportunity breaking into the Tier 1s, those are such complex businesses. It's really important for them for there to be referenceability. So maybe talk a little bit about how that differs from what you need to do internationally, which I know there's a lot of local considerations there as well.

Yes. So if you think back to what I said a minute ago about the implementations of these systems are very complicated, they're very risky. The biggest I like to think about, our buyer is thinking about Guidewire is great software and we know it works. But in the back of their mind, they're thinking, "Oh, what happens if this 3-, 4-year project fails," okay?

So it's like we're trying to minimize that failure rate to zero. We're trying to make sure that people accept that from Guidewire, you're going to get something that works and you're going to get something that has a very, very small chance of failing because they are betting their careers on this decision, and they're somewhat betting the company's future on the decision to implement Guidewire. So that's the key, is that we need to establish a track record of almost perfect success.

And I think, then you say, okay, baseline, that's there; can we convince these very large insurance companies that this is a better approach than a build-your-own strategy? Just they can write -- they have huge armies of developers, they have a vast amount of resources. But we need to convince them that starting with the Guidewire platform gives them an advantage in the market that enables them to go faster than they could on their own. That's what helps us penetrate the United States.

And I think one of the magic things about our business model is we're taking that platform, that same platform and applying it internationally. We apply the same product over the world.

But then to get penetration in these international markets, we need to tailor the software, the integrations, the unique regional requirements so that the implementation in each of these countries is faster and less risky. And that's what helps us win internationally. And so it's like the combination of those two things is what helps us continue to take share.

Okay. Very helpful overview. I think before digging into the business a little bit more deeply, want to touch on the most recent quarter -- most recent year, actually for you, is the third straight year where you've effectively reaccelerated fully ramped ARR. A lot of momentum in the business.

Maybe just walk us through what you're seeing in terms of cloud deals across migrations, new deals, expansions. How that's informing the acceleration of the business? And then maybe just give us a quick overview of what you're expecting for next year.

Well, so obviously, it was a great quarter, it was a great fiscal year. We're very happy with the ARR growth rate almost touching 20 and the fully ramped exceeding 20. And so for people that don't understand this, Guidewire, I think, is, I think, relatively unique in enterprise software, in that we do very long-duration contracts. And the contracts that we do often include -- almost always include ramps.

So we'll book an increase in our ARR, but we also have a contractual obligation from the customers to increase ARR over time. And so we report that as fully ramped ARR, which we like to think of as like the real measure of the long-term health of the business. Guidewire is going to continue to grow ARR each year just based on the contracts that we've already secured.

And so thinking back to like what's going on in the business right now and what drove the success in the fiscal year and the quarter, I would say, number one, most important thing is referenceability. We -- I like to imagine, and I think it's generally true, that 100% of the customers that have chosen to go to Guidewire Cloud, that have chosen to partner with Guidewire; would tell their competitors, "Yes, it was a good idea; yes, we're happy with that decision."

That attitude that we have 100% referenceability is driving an increase in win rate. It's also creating more confidence in the model, it's creating more confidence in the teams that we have the ecosystem and the platform necessary to ensure that these things are successful.

You also have to like zoom -- back up a little bit and say, like we're still replacing mainframe systems in a lot of our customer base. That is still the model. You kind of forget that sometimes, is that there's a lot of legacy software out there running the P&C insurance industry. And that -- they -- everybody knows that, that has to be evolved, that has to be modernized.

And so I think what we've done in the last couple of years has created a situation where we are logically and obviously, the best choice in most circumstances. And that is -- in addition to 100 other things, that's fundamentally what's driving the business right now.

Okay. Very helpful. I would normally save this question for later, but there's a lot been made by a number of sources around the potential share of workload. I know we were talking about this suited for LLM augmentation in insurance relative to other categories. And I think once of the striking things is you don't really hear a lot being said in the insurance space and amongst insurers themselves around AI displacement like you do -- or just AI augmentation like you do in some of these other areas of software.

So how do you, as a company, balance those two things while also taking advantage of the opportunity?

Yes. So the insurance industry, it's incredibly complicated. The transactions that you execute in insurance are not simple transactions, they are complex, consequential agreements. And there, even on the claims side, like the simplest thing is, "Hey, I cracked my windshield, and here's the payment to go fix my windshield." But you have to worry about the legalities. It's just incredibly complicated what they do.

And so it has resisted this like traditional automation, right, the traditional idea that you can create a workflow and automate something, and that's repetitive and so the thing -- the system just gets more and more efficient. The reality of the insurance industry is that it's driven by people, it's driven by people that are highly trained and highly experienced and have learned over sometimes decades how to operate in the insurance industry effectively. And so it resists this traditional like technology automation.

LLMs are sort of -- think of it as a new tool that gives us and the industry a mechanism to begin to automate or make more efficient a lot of these things that have traditionally been very, very -- that have effectively been impossible for us to automate with tech.

So if you think about the challenge of an underwriter, a commercial lines underwriter is receiving from a business hundreds of documents that describe what that business does, describe the real estate that, that business owns, describes the loss histories and the claims histories; all these documents flood into an underwriter, they have to be read.

Someone has to read these things, someone has to read these documents and pull out, extract out of those documents, the information necessary that we can use to plug into our predictive model that says, "Here's how you should underwrite this risk, here's our estimate for how much you're going to make or lose from this risk." With LLMs, we can start to do that, right? With LLMs, we can start to augment what these people are doing in reading these documents and give them a boost.

The other side of it is regulated right? So a significant amount of the industry basically can't change operations until state regulators and countries approve the changes. So like the concept of explainability really matters in insurance. You can't just say, "The magical model told me that." You have to tell the regulator, you have to tell the industry, "Here's why we made that decision."

And so -- anyways, very challenging. But LLMs, generative AI creates this -- it provides this new tool that we can start to use to incrementally -- and I think it will like feel slow, slowly improve the efficiency of the industry. And you're applying it to something that's $2.5 trillion, $3 trillion a year. So the payoff here is immense, but it's going to take some time and effort.

Okay. And so how do you then approach that conversation with your customers? And how are customers, who I'm sure are reading the news just like you are, approaching you around the AI conversation?

Okay. So the most important thing, and this is exactly what our customers say to us, it's exactly the way we operate the company; you have to have the core system of record, the data systems that operate the company in order, in order to be able to take advantage of LLMs. It's like a baseline starting point.

So Guidewire without any first-party LLM or generative AI strategy at all is still benefited by generative AI because every single company needs to have a core system that runs effectively, that -- where the data is captured in an organized way and is made accessible to the analytics, actuarial teams to made accessible.

We provide -- if you want to talk in the lingo of LLMs, we provide the context that the LLMs need in order to make better decisions, in order to unlock this potential. And so that's the most important thing about what we're doing right now, is we're building a system that will be and is, think of it as LLM friendly, that enables them, enables us, enables our partners to start to use these tools on top of insurance business processes. And that's, I think, also driving the company right now, is there's this additional reason for modernizing your systems.

For a number of years, we were trying to make sure that you had great web interfaces and mobile interfaces to the back-office processes of an insurance company, that you had great data and analytics so that you could create dashboards and operational analytics. And now we're trying to make sure we have the systems in place so that LLM, as they evolve, will be able to increase the efficiency of the industry.

Okay. That's really helpful. Let's take a step back to the business. What is the typical lifestyle -- life cycle look like for a Guidewire customer? Maybe bifurcate between a Guidewire on-prem customer who's moving to cloud and then a net new customer.

Sure. So I think we -- you might imagine a Guidewire customer chose to buy our claims product 15 years ago, deployed it. They're successfully running us for claims. We come back to them and say, "Hey, there's an evolution now. You should move that to our cloud platform. We can provide all these extra benefits in the process. You have to change some things operationally, but it's going to get better." And so we think about migrating that customer to our cloud.

At the same time, we say to them, "What are you doing for policy administration, what does your billing system look like? Oh, those are legacy mainframe systems. It's too complicated for us to do all 3 programs at once. Let's do the cloud upgrade. Let's get claims to cloud, then we'll talk to you again." and then we sell them policy administration and policy center and then they do a project to modernize and attach to that billing center.

Then we can say to them, "What are you doing for your digital interfaces, what are you doing for your data platform?" We've got products that we can sell to them that attach to that situation that overall ecosystem of Guidewire core applications.

That same story can play out in terms of other, call it, lines of business that the customer is running. "So hey, we're running claims center for our personal lines of business, but we've got this mainframe running our commercial lines." We have a conversation about taking that directly to cloud now.

And so kind of all adds up, getting back to what I was saying before, about how we have really proven that this model works, and we really have created an ecosystem of professionals that can implement these things successfully.

So those conversations about what is your IT landscape look like right now and how do we make a strategic plan with a company to get it all modernized and get it all to our cloud kind of depends on where they are in their journeys. But it's really made the conversation a lot more strategic, a lot more long term. And I guess, getting back to the quarter and the fiscal year, it's driving an acceleration in our business.

Yes. And maybe talk a little bit about the increased willingness of customers to take on maybe more lines of business than they used to add initial contract or take on multiple policy billing claims rather than just take on one. I know you've talked about the full insurance suite. That's not something we were talking about a number of years ago. What's driving that increased willingness? And how would you maybe quantify that?

Certainly, referenceability is driving this. Okay. So there was a anxiety about our readiness to succeed here, right? So when we were having this conversation back in 2019, 2020, customers were looking at us and saying, "Well, how many times have you done this before? I don't want to be the first once to do this."

I remember very specifically, I said this on a public call, I think, once is I had many customers say to me, "I 100% agree with what you're doing. Love it, want you to be successful. I don't want to go in the first half. I want to go in the second half. I want to be the 51st percentile of cohort to go to cloud." And so it's amazing that now we're there, right?

And so the change in sort of our ability to provide references to learn -- and we've learned a lot, we've gotten much better at running the system, updating the system, working with partners; that's all improved. And so that's really changed. And that creates for the customers, for the prospects, let's say, kind of more confidence that they should contract for the full suite at the moment when they're negotiating one of the applications.

Sometimes, they still have a very complicated set of priorities to juggle with respect to what they execute when. But the concept that they're in a better -- they're going to have more negotiating power with us, let's say, when they make that decision once and the level of confidence they have that the whole thing is going to work just gives us the support we need the buying cycle to be able to drive a full suite decision.

That's helpful. And what limits your growth then, right? I mean we were talking about high teens growth, and now we're fully ramped [ 22 ] ARR approaching 20% presumably, right? Relative to the DWP running on maybe 1 module, there's a revenue opportunity to capture that DWP across multiple. You talked about lines of business. That's all improving for you.

And so when you think about the forward growth trajectory, is there anything that limits your ability to grow either in line with or faster than where you're growing today?

Well, so there's certainly just a -- there's only -- it's a concentrated industry. So there's only a certain -- there's not infinite insurance companies. It's a limited set of insurance companies. And within each of those insurance companies, there's a limited bandwidth in terms of their just ability to execute these programs.

And so you do very often will have conversations with them saying, "Look, we're just not in a position to be able to do this project right now. We've got XYZ we've got to do first, and then we're going to come back to you in a year."

And so you add that up, and it's like we work our tails off to increase that demand, but there's a constraint, right, that there's just so many projects that are going to come to market and be done in a year just based on the count of insurance companies and insurance IT organizations, insurance operations.

What pushes us past that is what we're starting to do now in creating additional products that we can sell into that customer base. We've got this incredible position now with a cloud-based customer base, with a vertical use case that we can deeply study and bring in new products to market. We did this acquisition last year of a pricing platform called Quantee. That's an exciting opportunity for us to sell something incremental into our customer base, into the cloud-based customer base.

And so that is what I look at is if we can execute effectively in that extra product, kind of new product area, has the potential to push our growth rate higher because that stuff is not as limited to the core implementation constraint that I described a minute ago.

Yes, how do you think about that then? Because I know so much of the company's focus and there is just such a revenue and DWP opportunity in those core modules. How do you think about resource allocation and things like that in order to take advantage of some of those adjacencies?

And you do have a lot of competition, right? I mean, like you have like the Verisk and some of the other folks in the world in data and analytics. So do you feel any limitation on what you can do outside of those core modules?

Yes. personally and I think the management team, we're all very focused, determined people, okay? This is the most important thing, is that we will not lose sight of our -- the need to focus and execute effectively on the core system opportunity for Guidewire and the commitment that we honestly have made to our customer base.

And so you could tell yourself a story about how exciting it's going to be to make all these new products and divert -- get our attention diverted. We just cannot do that. We have something very special right now in going in the company around these core system projects and these core applications that we will not lose focus, okay?

But we've gotten pretty good at it, okay? Like we've really gotten much better at it in the last couple of years. And that gives us a little bit of confidence, it gives us a little bit of extra, I don't know, call it, space operationally to focus on new things. And that shows up in the way that we run the company within the fiscal year, it shows up in the way that we describe our objectives for fiscal year.

Literally, just 6 or 7 months ago, I was saying "No, focus needs to continue to be core system execution. That needs to be the focus." But the success we had in the year, the confidence that we've built with the ecosystem and the implementation success, the confidence that we have in sort of -- measured by, let's say, attrition rate; that's really improved to the point where we're starting to allocate more of our focus to these incremental applications.

I don't feel constrained right now economically. I don't feel constrained about the opportunity space. I do think it's -- you're going to start to see us talk more and execute more on these new ideas in these new applications. And it shows up in the acquisition, like I said, of this company that we did last year, Quantee.

And without announcing anything new today, obviously, at a high level, what are some of the most low-hanging fruit areas for you outside of the core?

Well, so certainly, there is this opportunity in pricing and a pricing platform that ties cleanly to a rating engine. That is an opportunity for insurance companies to make changes more quickly for them to be able to tune their products to what they're seeing in the market.

Things have been very challenging for the insurance industry over the past couple of years because we had this spike in inflation, we've seen an increase in the loss ratios associated with catastrophes and the percentage of risk associated with these natural disasters in [ cats ]. And so that needs to be reflected in better, smarter pricing strategies for their products. And so they want more agility in pricing platforms, we see an opportunity there.

I'll talk -- I talked a minute ago about underwriting. We see a tremendous opportunity in commercial lines underwriting. Just like the efficiency that is made possible now because of, call it, the smart, strategic application of large language models to the practice of underwriting creates a potential for us to really do something special there, I think.

And I think there will be an improvement in underwriting efficiency in the industry, and I would love to drive that. I think we're in a great position to help do that.

And then we're in an incredible position with respect to the claims center installed base and the claims operations in the industry. And just like I said, smartly and strategically applying generative AI-driven tools, even traditional workflows and traditional analytics, gives us the ability to improve claims outcomes for insurance companies and for consumers.

And the other thing I don't -- I'm sorry it's a long answer, but please, I don't want to neglect this. Because we have -- are now operating these systems on our cloud, we have access to a data asset that's very unique in the industry, that we have now created the pipelines and created the environment and applied really great data science teams to creating predictive analytics models that effectively are the combination of the number of Guidewire customers that have opted in to anonymously sharing data and information such that we can provide predictive models back to the industry.

We're just getting started here, but it's a very special and unique thing that Guidewire can do based on the cloud installed base and our access to those operational systems.

Okay. Really helpful. I want to switch gears to the Liberty Mutual deal that you announced, Obviously, a longer-duration deal than you've typically announced in the past and a pretty big expansion for you. Just walk us through why call that out the way you did on the call. What's so important about that deal to you? And what does that tell you tell us -- what should that tell us about your future?

Well, so first of all, economically, financially, we thought such a consequential deal was necessary to describe. We're thankful that we didn't want people like running around trying to figure out who that was. And so it's great to be able to say that, that was Liberty Mutual.

This is a customer that's been part of Guidewire for a long, long time. But we worked incredibly hard to understand what they were trying to accomplish with their system modernization and earn their trust to create this like very, very consequential partnership for the company.

I think back to when I first joined the company, it was actually -- there was a deal signed the day before I joined with USAA. And USAA became the company that really worked with us to validate our cloud strategy and really stressed us out, and it was like the people that we had in mind when we were building the next generation of Guidewire is make sure the USAA was successful.

I sort of see this very similar. This deal is going to define for us what best-in-class Tier 1 core operations looks like for the next 10 years. It's incredible to have the opportunity to work with this team and really understand from them what do they need from us in order to make sure that they can differentiate and win in the market across claims, across policy. It's like that is what we're all looking forward to.

So you just have the picture in your head that's like it's not -- they don't have unlimited resources. But almost effectively they do. They looked very carefully at what the world had to offer and chose to partner with us.

And so I just -- we're humbled and excited to make sure that this is a huge success and defines a pattern that I hope to replicate with other Tier 1 insurance companies all over the world. What we do with this deal over the next few years is going to define a pattern that can be replicated.

Okay. That's great. And then competitively, what -- when you're in an RFP, what makes you win versus your competitors?

It's just referenceability, in my opinion. Like we all have great technology. We have the best, okay? We have the best product. Most important thing is referenceability. There is -- and it's kind of the culture of our company that we are going to do whatever it takes to ensure that these programs are successful. And that's a big deal because there's just so much consequence to the success of these programs.

The other thing I would say, which is a little bit of a nerdy answer, is that we have found the sweet spot between configuration and customization and scalability, that we have found this -- we have engineered this mechanism that enables us to let third parties do the implementation successfully that it doesn't rely on Guidewire engineering to sort of save the day and do add functionality at the last minute.

There is this like magical sweet spot. Like these are heavily configured, customized systems. That's really important to ensure that they're successful. That's the demand.

And we have found a way to do that with our platform, with our applications that balances this ability to keep it updated, ability to keep it secure, ability to run it efficiently, but at the same time, allow a company like USAA to implement the software and run an insurance operation any way they want. And I think that's kind of the secret, technically, of why Guidewire has been so successful.

That's helpful. And then on the cloud transition, I think you're roughly at 3/4 of your ARR now recognized as cloud ARR. Maybe talk about where you are in that transition, particularly because I think there's a difference between where you are on the logo side versus on the ARR side from a cloud transition perspective. Where are you? And how are you sort of communicating with your on-prem customers?

Yes, you should -- so the ARR is higher, obviously, in the cloud, and so that causes the cloud ARR to be higher. We -- think of us as emphatically past the halfway point. So we're past the halfway point from an a count perspective, okay?

And what we do -- I kind of think of that as like rearview mirror, right? So what we don't publish or talk about, is like we have a very clear conversation with every single one of our on-prem customers about where are you? Like what's your proclivity to decide to go cloud this year, next year, the following year? We have a chart that we look at about like what's that look like.

And I'm very happy with the progress we're making there. We're past the halfway point. All those customers that told me they don't want to go in the first half, we can go back to them and say, "Now you're in the second half." That's going very well.

We, over the past year or so, have gotten more specific and more clear with our on-prem customer base about what dates we will be able to support the on-prem implementations and exactly how we'll be able to support them, to give them enough time to make a plan to move to our cloud. And so that there's -- I want no one to ever be surprised by this.

And I genuinely -- I've said this every single time this topic comes up. I'm convinced that we will, at some point, successfully move them all to our cloud. Like that's our objective, is I don't want to lose a single customer. I want to make sure that this works for every single once of our customers, and we're committed to doing that.

It is going to stretch out, let's say, at least another 5 years, it's just the nature of what we do. But I'm very comfortable that we're making that progress and we're seeing sort of this referenceability and the capability of the platform to start to bring -- accelerate those migrations a little bit faster than we expected a couple of years ago.

It's really helpful. I know we're coming up on time, but I wanted to ask once on margins just because I think the gross margin improvement has been so material. Your ability to leverage your data ops and support teams, what's been driving that? That's been ahead of your expectations. And just at a high level, I know we don't have Jeff on stage. But at a high level, how should we think about that trajectory going forward?

This has been one is -- I was just talking to our management team about this. It's like we are in -- we're very lucky to have an incredible engineering organization led by a guy named Diego Devalle. And he is uniquely excited about driving gross margin, okay, which is like we're so lucky to have him and to be so fired up about improving the operational efficiency of Guidewire.

And it takes -- it's been -- we took a risk, okay, like we picked an architecture, and we thought it was going to work, and we got these customers live, and we've made it work. And then we just said about executing project after project after project that would make it all more and more efficient over time. And so now we're improving the efficiency of the operations.

At the same time, we're adding new customers and adding more customers on the revenue side. And so you see this improvement in the gross margin, it's really been phenomenal. We're ahead of schedule in terms of the projection that we made. We're very, very excited about it.

And that drives the rest of the company. I mean, that creates the economic surplus that facilitates our ability to invest in sales, facilitates our ability to invest in new products. And so it's a really important facet of what's driving the company right now.

So yes, thanks for -- anyway, thanks for the question. It's like hundreds of projects and thought -- we just think what can make it more efficient, what can we make it for efficient, which should we try next and just grinding through those things to improve the operations of the company.

Okay. Last question. next 6 to 12 months, what is your biggest focus and priority as CEO? And then if you look even longer next 5 years or so, what are you most excited about for the Guidewire?

The next 6 to 12 months, number one, we just got to keep running the company effectively, keep winning these deals, like keep executing, but really kind of paired with that is make sure that I'm executing effectively on the new product innovation, new product execution, getting the feedback from our early customers so that we can improve that.

And then I would say 5 years from now, my 5-year plan is that those new products, the products that surround our cloud are successful enough that we're talking about them in 5 years as like a whole another component to the top line story and the value we're able to deliver to the P&C industry.

And that Guidewire right now is known as like the core system leader. I'd love in 5 years for people to think of Guidewire, our customers to think of Guidewire as the core systems leader and a real innovation partner in terms of data, analytics, LLMs, generative AI and all these additional things that we're going to be able to do on top of the core systems.

Fantastic. Mike, thanks for the time.

Thanks a lot.

Greetings, and welcome to the Guidewire Fourth Quarter Fiscal 2025 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today. I would now like to turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you, Alex. You may begin.

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; John Mullen, President; and Jeff Cooper, Chief Financial Officer.

A complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. Today's call is being recorded, and a replay will be available following its conclusion. Statements today include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date.

Please refer to the press release and the risk factors and other documents we file with the SEC, including our annual report quarterly reports on Forms 10-K and 10-Q for information on risks, uncertainties and assumptions that may cause actual results to differ materially. We also will refer to certain non-GAAP financial measures to provide additional information to investors. All commentary on margins, profitability and expenses are on a non-GAAP basis, unless stated otherwise. A reconciliation of non-GAAP to GAAP measures is provided in our press release, reconciliation of additional data are also posted in the supplement on our IR website.

And with that, I'll now turn the call over to Mike.

Thanks, Alex. Good afternoon, everyone, and thanks for joining us today. To begin, I want to take a moment to acknowledge and congratulate the entire Guidewire team across every function in our company on a truly outstanding year. We've all worked tirelessly to build a cloud platform that serves the P&C industry. We have engaged with customers and prospects often for multiple years to listen to feedback and help connect their imperatives and aspirations to our product capabilities.

To create an ecosystem of certified professionals capable of successfully modernizing the core systems that power our industry and help our customers and partners realize the benefits of moving to our cloud-based model, all this hard work is paying off for customers, partners and the industry overall. It has also yielded tremendous financial results this year with both ARR and fully ramped ARR growth rates accelerating. ARR in fiscal 2025 grew 19%, and fully ramped ARR grew 22% on a constant currency basis. We emphatically surpassed the $1 billion ARR milestone and collectively feel great about the future potential in the business.

Before I hand it over to John, I just want to summarize my key takeaways from the quarter and fiscal year and why I think we're well positioned to continue building on our current momentum. First, demand for Guidewire Cloud platform is strong and continues to grow. Q4 was a record quarter, driven by deal volume, deal size and a milestone win for our company. Liberty Mutual, a major Tier 1 insurer, chose to migrate their on-premise ClaimCenter instance to the cloud and also made a 10-year commitment to Guidewire to adopt PolicyCenter on our Guidewire Cloud platform.

This is one of the most strategic partnerships in our history. Everything we have been talking about in prior quarters about platform maturity, referenceability and flexibility really played out to drive this win and the overall results this quarter. Second, our pipeline entering fiscal 2026 remains very healthy. This durable demand environment is being driven by the success and referenceability of our cloud customers, which continues to generate great engagement and conversations with insurers of all sizes across all worldwide regions.

Third, cloud margins are improving ahead of schedule. Guidewire Cloud Platform continues to scale very well reflected in subscription and support gross margins finishing the year at 70%. Jeff will talk more about this, but I'll just say that this increases our confidence that we can run a best-in-class cloud service and continue to grow into our target profile. But as proud as we are about our financial performance, it's important to recognize that what really drives us is delivering value and innovation to the P&C insurance industry.

While there is still a lot of important work ahead in continuing the cloud transformation for our customers and the industry as a whole, I am increasingly energized by data-driven analytics and AI-focused applications that will truly deliver on the modernization potential we see. Our performance over the last few quarters has allowed us to begin to invest more in this incremental potential we see in the industry.

Our acquisition of [indiscernible] is a great example of this. where we believe we can modernize pricing operations and product management across the industry, and as a result, help insurers grow. We also see tremendous potential with our industry intelligence offering delivering predictive models and claims operations that will help drive down loss and expense ratios for our customers. We see opportunity in underwriting and intelligent ingestion of documents and data that will power a step change in commercial underwriting efficiency. The successful transformation of our company to cloud puts us in a very unique strategic position, especially when you consider the possibilities for generative AI in our industry, our cloud platform, cloud installed base, ecosystem and collective expertise and experience provides the general industry and line of business context needed to unlock the potential in large language models in generative AI.

By combining mission-critical core systems of record with cloud native services and modern APIs, we're in a position to focus directly and incrementally on these new applications that I think will genuinely improve the industry. We are excited to share more about this vision at our Connections user conference in Las Vegas in October, which will include a session specifically for financial analysts and our investor community. And with that, I'll hand it over to John.

Good afternoon, everyone. As Mike said, it was another record quarter and fiscal year for Guidewire. We continue to see growing demand, signing 19 core cloud deals in Q4, totaling 57 for the year, representing healthy annual growth in deal count. We saw the maturity and referenceability of Guidewire Cloud Platform drive larger deal sizes. This was underscored by the Q4 landmark signing with Liberty Mutual for ClaimCenter and PolicyCenter that Mike mentioned. These points of strategic alignment culminate in the context of the quarter. But it's important to recognize the countless hours that went into establishing this level of shared commitment and alignment to a path forward. We're humbled by the opportunity to partner with leading insurers on their journeys and grateful for the depth, rigor and commitment that customers and Guidewire teams put into this.

We did 9 deals with Tier 1 brands in the fourth quarter. We continue to build on our referential proof points with the world's leading global insurance brands. This manifested itself again in the fourth quarter with 3 deals at separate subsidiaries of a Tier 1 multinational insurance brand. In the fourth quarter, we saw broad-based strength by geography, line of business across migrations, expansions and net new deals. Starting with geographic strength. North America had a great year, an exceptional win rate that was very stable throughout the year and through Q4. Our European team closed 2 meaningful deals in the quarter, bringing their total for the year to 11, which shows a great return on the investments we've made in Europe. This EMEA team is very effectively advancing our strategic alignment with the market. In Latin America, we saw a sharp increase in market momentum, closing 3 deals in the fourth quarter. This team is making a massive impact. In Asia Pacific, our success in Australia and New Zealand combined with our long-term bets in Japan put us in a great long-term position.

Turning to deal type. We saw 8 migrations in the quarter and 6 meaningful expansions to new lines of business or new modules at existing customers. Our account alignment motion is absolutely critical in the SaaS context. This is showing results for us, but more importantly, for our customers and aligning our activities with their strategic plans and business results. We also won 6 net new customers in the quarter, including 4 for full InsuranceSuite. It was great to see insurance now have another good quarter, closing a total of 3 deals in the fourth quarter, two of which were net new, showing that we can cover all ends of the market.

We're seeing continued traction with our focus on industry intel and our data and analytics portfolio of products. We closed another 2 deals for Industry Intel in Q4 and 16 of our core deals in the quarter included 1 or more of our analytics and data offerings. This momentum is fueled by the successful programs driven by our professional services teams and the depth of our partnership with the SI community and broader ecosystem. Our SI community expanded by 11% to over 27,000 professionals and a 24% increase in cloud certified consultants. These relationships continue to increase the strategic nature of how we face the market together.

We will be working within professional services and with the SI community to drive increasing pace and predictability in programs leveraging AI. There is also an increasing focus with these SIs and our advisory partners in the identification of business value for insurers and the critical importance of modern core systems to unlock the promise of agility and precision that is emerging with the possibilities of generative and agentic AI.

Our technology partner ecosystem remains healthy and growing. We focused on managing and nurturing this ecosystem, which has increased to over 300 third-party applications on our marketplace, driven by over 200 technology partners. We continue to focus on aligning these partners and applications for impact to customer outcomes. Reflecting on the quarter, I'm truly proud of the team's commitment and execution. We carry strong market momentum and pipeline into this next fiscal year. We will continue to tirelessly run and improve the platform and applications.

We will continue to drive our effort, investments and focus of our ecosystem to be closer to the strategic needs and business outcomes of our customers and the industry at large. This includes operating in their geographic and regulatory context, addressing their specific line of business needs and investing to address the increasing pressure our customers face in the areas of risk selection, pricing, agility and products feed to market. We're optimistic for the year ahead.

With that, I'll hand it over to Jeff.

Thanks, John. We had an incredible finish to the year, highlighted by 19% ARR growth, 22% fully ramped ARR growth and 25% cash flow from operations margin. I'm so proud of what the Guidewire team delivered in Q4 and the fiscal year.

With that, let me jump into the details. ARR ended the year at $1.032 billion, up 19% year-over-year on a constant currency basis and ahead of our expectations. As a reminder, we measure ARR on a constant currency basis throughout the year and then update ARR for year-end FX rates, making this update impacted ARR by $9 million, resulting in ARR of $1.041 billion. In general, ARR benefited from strong sales activity throughout the year and the lowest ARR attrition rate on record since we started disclosing ARR as a key metric.

Fully ramped ARR, which we define as the fully ramped annual price outlined in customer contracts, grew 22% year-over-year on a constant currency basis. We are seeing an increased willingness from insurers to make big commitments to Guidewire Cloud. Total Cloud ARR, which includes ARR for all of our cloud products and for customers that have contracted to move to the cloud, grew 36% year-over-year and comprised 74% of total ARR.

Total revenue for the year was $1.2 billion, ahead of our expectations due to strong performance across all components of revenue. Subscription revenue finished the year at $667 million, up 40% year-over-year. Subscription and support revenue was $731 million, up 33% year-over-year. Despite the strong cloud migration activity we have seen, license revenue for the year was $252 million, up 1% year-over-year due to healthy direct written premium and CPI adjustments. As migrations continue to accelerate, it will positively impact subscription revenue would cause license revenue to decline over time. Services revenue finished at $219 million, up 21% year-over-year. We experienced strong services revenue growth as we work to balance healthy utilization for Guidewire resources with continued strong partnership and alignment with the SI community on cloud programs.

I think we achieved a healthy balance this year, and the team has done a great job managing this part of our business. Turning to profitability for the fiscal year, which we will discuss on a non-GAAP basis, gross profit was $789 million, up 28% year-over-year. Overall gross margin was 66% compared to 63% a year ago. Subscription and support gross margin was 70%, up 4 percentage points year-over-year. Services gross margin was 13% compared with 7% a year ago. We improved billable utilization rates and continued to achieve successful outcomes with cloud programs. Implementation programs are benefiting from improved predictability and efficiency, platform maturity, combined with more experience with cloud is improving outcomes. Operating income was $208 million, up 109% year-over-year and above the high end of our outlook by $13 million. The positive impact of higher-than-expected revenue was partially offset by the employee bonus accruals, which was higher than our expectations due to outperformance of key financial targets. Overall stock-based compensation was $162 million, up 10% year-over-year.

Operating cash flow ended the year at $301 million. We are thrilled with the continued profitability and cash flow progression. We ended the quarter with $1.5 billion in cash, cash equivalents and investments.

Now let me turn to our outlook. For fiscal 2026, we expect ARR of between $1.21 billion and $1.22 billion, representing 17% constant currency growth at the midpoint. Our confidence to deliver durable ARR growth is being supported by multiple years of strong fully ramped ARR growth rates punctuated by 22% growth in fiscal '25. The cohort of ramping events sold in fiscal '25 will flow into our ARR number over the next 5 years. We are thrilled to see durable growth move up off of our historical pattern of mid-teens growth. Total revenue for the year is expected to be between $1.385 billion and $1.405 billion. We expect that subscription revenue will be approximately $888 million, representing 34% growth and we expect subscription and support revenue to be around $945 million in fiscal 2026, which assumes support revenue will decline about $7 million as a result of the continued migration of our installed base to the cloud.

As a reminder, support revenue attaches to term license customers for cloud customers support activities are included in the subscription fee. We expect license revenue to decline by over $30 million due to continued progress on cloud migrations. This also assumes a bit lower DWP and CPI adjustment activity this year in our on-prem customer base. Our outlook for services revenue is approximately $232 million as we expect to experience more modest growth this year off of a healthy services revenue base experienced in fiscal 2025.

Turning to gross margins. We expect subscription and support gross margins to be between 71% and 72%. We continue to track ahead of our targets and feel incrementally more confident in our ability to deliver on our long-term margin targets that we discussed at our Analyst Day last year. We anticipate professional services gross margins to be approximately 13%, we expect total gross margins for the year to be approximately 66%. With respect to operating income, we expect non-GAAP operating income of between $259 million and $279 million for the fiscal year. We also expect GAAP operating income of between $68 million and $88 million.

Our stock-based compensation expense is expected to be approximately $185 million and this includes $10 million in assumed SBC costs associated with our employee stock purchase plan that we initiated in late fiscal 2025. Cash flow from operations in fiscal 2026 is expected to be between $350 million and $370 million. Our CapEx expectations for the year are between $25 million and $30 million, including approximately $16 million in capitalized software development costs. Our Q1 outlook can be found in our press release, but let me provide a bit more color. Even with strong sales activity in Q4, we have a healthy pipeline in Q1.

We are expecting ARR to be between $1.048 billion and $1.054 billion. We expect subscription and support revenue of approximately $218 million and services revenue of approximately $60 million. We expect subscription and support margin between 71% and 72% and services margins of around 15% and total gross margins of approximately 64%. 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. In summary, Q4 capped off a tremendous fiscal year, and it's a reflection of the team's strong execution as we have started to unlock the potential of the market opportunity in front of us. With that, let's open the call for questions.

Great. Thanks, Jeff. So our first question is going to come from Rishi Julia at RBC.

All right. Perfect. Really nice to see this sort of acceleration at scale. Maybe just two for me. First, I comment that record low ARR attrition in the year really stood out to me. Maybe can you talk what's been the drivers? Has it been product maturity and certain things in your control, focus on customer success as well as some macro events within the industry, maybe less consolidation than expected better insurance environment. Maybe walk us though what you're seeing there? And then I've got a quick follow-up.

I'll take it and then I'll let John and Jeff comment if they want to. I think certainly, the company just generally benefits from having an extremely durable customer base, extremely durable use case. But I would say the focus we've had on ensuring project success, pushing to make sure that projects go live, pushing the -- ensure that customers no matter what see positive results from the decision to go with Guidewire benefits our ability to ensure that we continue to renew and that every single one of these contracts. And we've just had an extreme focus on this, and you could describe it as a focus on customer success, a focus on quality implementations with our partner programs. I think that all of that plays into what was a really remarkable outcome for attrition. It's pretty unique. I've worked in enterprise software for a long time, and this was a very, very good year. In terms of what we were able to renew relative to what we started with and -- so focus across the board is generally my answer.

Yes. The only thing I would add is, I mean, you're right to note that drivers of attrition can be things like M&A events and things that are in some way out of our control. And we didn't experience any large events like that this year, which benefited the number. I just also want to call out the team's focus on this. I think the customer success team has done a tremendous job just building focus and getting in front of any type of attrition event and having very healthy conversations with customers to kind of ensure we're working hand-in-hand on resolving issues early.

Got it. That's really helpful. And then maybe just as a quick follow-up. If I really think about the [indiscernible], right? I mean, clearly, it's been a very successful cloud transition. The metrics speak for themselves in terms of cloud as a percent of ARR accelerating ARR growth, et cetera, how should we be thinking now with kind of a focus on platform expansion? I know in the past, you've kind of hinted it doing more on the underwriting side and becoming broader and going deeper within the customer base. Not to get too much ahead of connections next month, but just love to get a little bit of color for how we should be thinking about kind of that act to as we start to get through the cloud transition, and there's maybe a little bit more focus on platform expansion, which I'm sure you've been working on as well.

Yes. Let me put -- I'd like to -- you could call it Act 3 maybe because Act 1 was establishing the success of the company in the first place, Act 2 maybe was turning it into a cloud platform. Act 3 is all about data and analytics and more innovative application use cases that we can uniquely build. I just think I would position this all around the strategic position we're in. We have an access and permission from an incredible customer base to apply these innovative use cases to positive insurance outcomes that I think is very unique in the world. And we're very, very excited to go attack that opportunity. And it's honestly just complete luck. We didn't plan it, but generative AI creates this incredible opportunity to differentiate these applications and bring additional value to an industry that I think is traditionally just less structured, less automatable. But with generative AI, there is so much potential for us to improve the efficiencies that underlie a lot of these workflows in the industry, and we're very, very excited about it.

I think Connections, as you said, will be a great opportunity for us to talk about that in more detail. But we see potential, like I called out in the discussion points, we see potential in pricing. We see potential in underwriting. We see potential in claims. It's really across the board. And the strength of the business, the strength of the execution so far really gives us, call it, some slack or some ability to focus additional resources in the business at these use cases. It's the confidence that we have in the baseline execution of the cloud transformation, the continued modernization activity that gives us the ability to say, "hey, let's carve out some people that can really go focus on these new products, work with customers and bring these new products to market." So hopefully, that's maybe Chapter 3 that you should expect from us to talk more and more about as we go into the future. I don't know, John, you probably have a good perspective on this, too.

The only thing I'd add is you mentioned the proximity to a customer. With the location we have in the market, with the work we've done, the ability to get closer and closer to our customers' strategic intentions for growth, for product speed to market for agility is something that we're wired for. And we're really excited about having more of those conversations and I think we have a right to have those, and we are building the team and the account motion that really turns our years on for that and the product team that can really get after that. So a lot of optimism around that Act 3.

Our next question comes from Dylan Becker at William Blair.

A really nice job here. I appreciate the question. Maybe, Mike, starting for you -- you or John, I think there's been kind of this misperception around what premium growth -- or how that kind of impacts the model to some extent. So we love the opportunity for you to kind of address that. And maybe in that context of a more normalized premium backdrop, maybe the importance that, that places on more efficient pricing and underwriting. And again, we've talked about catalysts in the past, but maybe if that's even a further kind of validation of why now is the time to modernize, we can't just traditionally lean on price.

Sure. So the first thing that I would say is premium growth, direct written premium growth generally benefits Guidewire but it is maybe -- you introduced the concept of it being slightly misunderstood. We have a lot of complicated structures that we create with our customers that often give them periods of time in which they can have price certainty before things like premium growth kick in and caused resets in what they're paying us. And so as that -- as you look at that across our entire customer base, there may be changes that are going on in the industry related to premium growth that don't directly flow into our revenue model, as you might imagine they would just based on the complexity of those contract structures.

But generally, this is beneficial for us. It's also beneficial in the context that the industry -- it creates an incentive in the industry for them to, as you say, get more focused on pricing risks, get more focused on their efficiencies in order to be able to bring great change to market. And that helps create more of a compelling event for us in terms of making the argument that they should have modern core systems and modern platforms around which to operate their insurance company.

So look, both of these things are beneficial to us. I think that there's a story that like any sort of slowdown in that growth rate in the industry is a headwind to Guidewire, but I really think that, that overstates the issue for us. We just see -- we continue to see a lot of demand for system modernization and we don't see a slowdown in premium growth really having a dramatic impact on that demand. And so as Jeff said in the remarks, we modeled in a slight kind of reduction in the growth rates associated with the license component of our ARR or the term license component of our ARR. But relative to the other drivers of our business, this is pretty minimal. The industry needs to modernize. The industry is more and more dynamic every quarter, and systems like Guidewire are only helping drive that.

That's perfect. And maybe it's a good segue to Jeff too. Obviously, the 22% fully ramped is exceptional here. I think people -- we've always kind of thought about the industry as a consistent kind of mid-teens grower that didn't really move or fluctuate too much, I guess, given kind of the market momentum, what you guys are seeing kind of the inflection, referenceability and maturity here. Is there any way to rethink about kind of what the structural growth profile of the business is here going forward?

Yes. Thanks for the question. We're thrilled to deliver 19% ARR growth this year. We're guiding to 17% next year, so seeing that tick up in the overall growth rate is exciting for us to watch. And given the dynamics that we're seeing in the demand profile and the willingness to make large commitments and the ramped agreements that we see, it gives us confidence that, that elevated level kind of ticking up off of mid-teens has the potential to be durable. But this industry does have its own rhythm and cadence, and so we'll be measured as we think through that, but obviously thrilled to see the growth rate tick up a bit.

Our next question comes from Alexei Gogolev at JPMorgan.

Mike, I wanted to ask you about competition. Obviously, we always appreciate your measured comments, but from what we can understand, one of your competitors, which went prior recently suggesting their ARR is growing at 9%. And obviously much, much lower than what Guidewire is experiencing. Do you think that is more company specific? Or are you seeing any challenges in the industry where they operate and what do you think is the trajectory of DWP.

So yes, let me -- this is my general take of Guidewire and our growth rates is almost every single customer prospect I speak to recognizes that it would be beneficial to modernize their core system to a platform like Guidewire. And the biggest question, the biggest thing holding them back is the possibility of failure, the possibility that, that project doesn't work, the possibility of that project takes twice as long as they expected to and the ROI associated with the assumptions don't hold. And so to the extent that we can minimize that risk, and I guess I can't say that it's yet 0, but certainly, that's our aspiration that, that risk is 0. This increases our potential to grow this company because there is so much demand, there's so much unmodernized system out there.

There's so much potential in this industry that if we can create the confidence that this decision is going to work and it's going to pay off and the assumptions that they have about the impact it's going to have on their business are going to come true. And it's all -- like I said, it's all about minimizing the risk of failure. That can drive our success. And so I don't like to compare us versus anybody else, but it's like when we engage and we can convince these customers that they can follow in the footsteps of all these other success stories, that's what's really driving our growth.

And I think this is -- it's not just core to our technology platform, but the attitude in the company about how we will stop at nothing to ensure that every single customer is successful. This is what is really helping to drive that growth rate. And I think kind of you look at our guide for next year, it gives us a lot of confidence in the out years as well.

And a quick follow-up on some of your generative AI comments. Obviously, a huge opportunity, as you say. How about internal software development do you think you're approaching a stage where you can move from or software updates per year versus 3 currently?

That's a good question. I don't know -- yes, I'm going to have to talk to our tech leaders about this and see what Diego thinks. I would say this about this tooling. We're incredibly excited about it, okay? We have done the proof of concepts that I think a lot of software companies have done. We have seen the signal that this has the potential to accelerate our throughput and give us a path to producing more innovative products. We're in the early stages of like extending these proof of concepts and it's probably premature for me to say that the claim that we are seeing x amount of increase in productivity, but we certainly see the potential, and we're very, very excited about it.

Now as it relates to how often we'll release to our customers, that's more complicated and probably has to do with us validating with customers that they're prepared to receive updates more frequently versus just putting more into each release. That's kind of a debate we'll have with customers. But we are very, very excited right now about these tools and how they'll be used to build product at Guidewire, how they'll be used to help customers do implementations more efficiently, how our own professional services will use them to do implementations more efficiently. So very bullish in the long run about the potential that we see here.

Our next question comes from Aaron Kimson at Citizens Bank.

I want to touch on Liberty Mutual. Do you think the 10-year term of that deal is unique? Is it potentially going to be emblematic of cloud migrations where you have to get you a proof point and then these very long-term deals start to come over time. Or are you already having conversations with other large Tier 1s on these types of longer-term strategic partnerships?

I think the -- as it pertains to to the Liberty Mutual conversation is really around the size and scale of the partnership and how we think about the long-term commitment. I don't see this yet as a pattern for all the conversations that we have with Tier 1s. We're having a lot of -- we have had for some time and continue to progress down the conversation with Tier 1s on what that commitment looks like, what's the right cadence for how they roll out. And really, if you think about how these play out with Tier 1s, what it's really going to be about when will be -- when they will plan for the release of claims, the release of policy across multiple lines of business will really be the niche underlying facet of how long that term commitment is.

And yes, we want to be flexible with that. We want to make sure that we're aligned with them. But we really want to tie them up with the business value that they realize and the cadence of their programs and their strategic plans over time.

Got it. That's helpful. And then Mike, you launched the Guidewire app marketplace in 2021, I believe. Today, you mentioned it has over 300 third-party apps and 200 tech partners. A lot of people are skeptical of its potential when you launched it. Can you talk about what you learned at Salesforce that allowed you to be successful in building out the app market versus the Guidewire and the similarities and differences between doing sort of horizontal vendor and vertical vendor?

Yes, sure. Great question. So the first thing I learned at Salesforce was the immense potential in opening up the platform to third-party development is not having the attitude that all the innovation needs to come from the primary software vendor, but really just embracing the concept that if we get these core implementations done and then open up the systems in terms of SDKs and APIs and create an opportunity for third parties to connect that you can create something that's just far, far more beneficial to customers than you can do on your own. And you don't -- it's not just Salesforce, you see this certainly in the Apple and Google consumer marketplaces with respect to phones. You see this at Salesforce. And you see this at Guidewire. It's different. We have a smaller number of customers. We have more specific use cases. We have a smaller number of partners, but the potential is still there. And I think when we -- and I think I have to be clear, this existed before I joined Guidewire.

I think we invested in it when I joined Guidewire and really made a big -- put a bigger focus on it, maybe, but it had existed prior to me joining the company. I think the thing that we recognized in 2021 was that our focus needed to be on our cloud transformation that we needed to put -- we bet the company on that this was going to be successful, and we needed to put all resources onto those objectives. And so that created room for application innovation, third-party innovation that we wanted to be open to and that's the vision.

It's worked very well in a variety of other contexts, and I see it working here extremely well. I think, again, I said a couple of minutes ago, that the generative AI use cases that exist in our industry are not going to be fulfilled 100% by Guidewire. And I'd like to put myself in the perspective of a customer. With a customer, what I would want from Guidewire if I was a customer is I want to buy a platform that I can choose to integrate with whatever Insurtech start-up comes along that fits the bill and solves my problem. And if Guidewire embraces that sort of use case, that's going to create more value for me.

That's going to give me the confidence to like, say, do a 10-year commitment with Guidewire and put my whole operation on it. And that's the circumstances we want to create here, and I couldn't be happier with how this thing has progressed so far.

Our next question comes from Ken Wong at Oppenheimer & Company.

Fantastic. Question for either Mike or John, we touched a lot on AI. Mike, you just mentioned how fear is what's holding customers back from modernizing more aggressively. Do you see an opportunity here to perhaps infuse your service organization with AI, helped streamline deployments, potentially minimize some of that risk to modernization.

Yes, Ken, great question. Absolutely yes. It's one of the primary agendas with our services team this year and not just within our services team, but in collaboration with the SI community to really think about how we can unlock both the pace and the predictability of these programs. And the early returns -- the early returns on the data side, data migration side of things and the technical migration side of things is showing some really promising results as we start to extend more into more templatized approach to the configuration for the specific customer environment, we're going to continue to press on that. It's a great question. And absolutely, it's a focus for us as we go through this year.

Fantastic color. Jeff, I just wanted to touch on that Liberty Mutual deal. Can you help provide some context in terms of, again, how the compares on a fully ramped basis for a deal of that magnitude works? I recall you guys only have -- you guys only count a certain number of years out for the fully ramped and then to the extent you can provide some color on kind of how that comparability could look as we kind of go out into further years of that particular arrangement.

Yes, Ken. I appreciate the question. And you're right. Thanks for calling out. We do cap our metric fully ramped ARR at 5 years, and we do have instances where ramping events occur after year 5. I really we're not at liberty to disclose any of the terms or any kind of particulars around the Liberty Mutual deal, but it was a very meaningful deal for us. They were an early on-prem customer, and their legacy agreement was a perpetual license agreement. So it really does change the nature of the financial arrangement but also the strategic arrangement with that customer.

Our question -- next question comes from Joe Vruwink at RW Baird.

I want to ask another AI-related topic, but since you brought up being at the point of investing in incremental innovation, this does seem to be coming at a good time, there's incredible attention from your customers and partner community just even on something like claims automation and being able to deploy agents into that setting.

I guess I wanted to ask, would you envision Guidewire having a lineup of your own agents available for sale? And just related to that, maybe can you speak about what distinguishes the Guidewire Cloud platform and in agenetic AI world, that's going to be different relative to what is becoming available in the insurance space.

So the baseline that I want everybody to understand is we believe a Guidewire customer running claims or policy running a modern core system is going to be benefited with respect to deploying agentic automation capabilities relative to somebody running a legacy system. I think like we are focused on that as a primary use case. And so I think even if we were not to have our own fleet of Guidewire AI agents, and those AI agents were to come from some third party, I think we just talked about our marketplace strategy.

This is a driver for our core business is that we are embracing that use case directly in that we think there will be human beings that use ClaimCenter and PolicyCenter. There will be agents that use ClaimCenter and PolicyCenter and that's what our customers want. Our customers, I would say, see this potential just like we do and are trying to prepare themselves for that possibility. And the best way to prepare themselves is to get to a modern system to get to Guidewire. So that is a lift to the demand in the baseline business for our company.

Then certainly, I think that you could see us saying there will be automation technologies just like we've had with our workflow and autopilot systems that are embedded in PolicyCenter and claims system already. Those things will become more and more agentic and they will become more and more functional with AI. So I guess, like the message is, yes, that's certainly possible. It's not something that we're ready to talk about the specifics of, but it is definitely possible.

And I would expect customers -- what I would expect is that there's going to be a very disparate and fun and confusing approach to how this deploys into the insurance industry over time. We're still actually very, very early in this game and learning how these systems work and how to deploy them in the various context we support. But yes, I do think that what you described is a possibility.

I'll just -- I'll add 2 quick points to that. The -- what's going to matter most and what's mattering most in the conversations that we're having with customers today. One is the context, right? So the depth of context of a vertical solution is important to solving the problem together and unlocking and navigating the fun and confusing part that Mike just mentioned. But the other part of it is building from the platform up. So the agentic AI architecture being for Guidewire built from the platform up allows for us to embed in our existing applications, yes, deploy agents, but I think most importantly, allow for customers to navigate the environment they want to navigate as part of the fabric of their solution.

With SaaS in general, with the move to cloud in general for Guidewire, our ability to inter-operate with the customers' ecosystem is a huge advantage because it's durable and evergreen. And that's the part that is the backbone of most of the conversations I have with customers about the future of agentic.

That's great color. Maybe one for Jeff -- and Jeff, I like you're not at liberty to discuss Liberty. Nice play on words there. But aside from Liberty just the fully ramped ARR number. Can you maybe speak to the composition of new cloud sales over the past year, like was it more migration heavy versus new business or expansions? And then anything to call out just about the complexion of the ramp terms that might improve ARR visibility even beyond FY '26.

Yes. I think the biggest takeaway is that the demand profile was very balanced, healthy mix of new customer wins, expansions attached to migration straight migration. So we saw a nice mix of deals throughout the year. I think as we look at the overall activity this year and look at ramping events and kind of over the next 5 years, nothing too dramatic to call out, maybe a little bit higher step-up in year 3 that gives us visibility into the out years, which is always nice. But in general, it's pretty consistent with how we've talked about ramps historically.

Our next question comes from Adam Hotchkiss at Goldman Sachs.

I think we talked a lot about platform expansion with Rishi's question, but there's also a clear opportunity for you to get more of Guidewire's 3 core products into insurers. And I think the expansion at Liberty is a great example of that. Are you seeing any changes to the way customers are thinking about expanding whether that's lines of business or across the 3 core products with you as you're getting more full insurance suite references as a customer like Liberty comes in from a reference perspective? And then remind us what you're doing, if at all, on your end to engage with folks and keep this sort of conversation top of mind, even when they're not at the end of their renewal cycle.

Okay. Good question. Thanks. As we think about the full suite context, Q4 did have some nice full suite mix in it. Customers, if I think about the conversations with customers on full suite, it still starts primarily with a specific product or a very specific line of business. What is happening more and it's a nice evolution. I don't know if I would call it a trend from an instance perspective or a number of units perspective. But really, as they get to the point of decision, we are having more conversation about what will this look like if full suite or if multiple lines of business or if multiple geographies to put a little bit more commercial leverage on their side of the table and the conversation to be blunt.

That has -- that starts to align our outcomes very nicely. So we welcome that conversation. We're navigating that conversation. Sometimes that results in the commitment. Sometimes it results in a commitment that follows up with the plan of action or a shared road map towards a destination that will pick up other products in the future.

The only thing I would add is this shows up in the fully ramped number, right? So you see these -- this willingness to make bigger commitments and that is playing through in the deals that we're experiencing -- like 3 or 4 years ago, all of our reps are trained to say, "hey, you're thinking about a claim center migration, let's also wrap PolicyCenter into this." And 3 or 4 years ago, the conversation was, "thanks, let's get the ClaimCenter thing right, and then we'll talk." And now we're seeing a much more openness around talking full suite, and I think that, that's a healthy backdrop.

Your other question was around the timing, and we want to make sure that we're not at all event-based, okay? So the -- Jeff mentioned our customer success team and their attention to customer detail and customer shared planning. We very much are focused on regular cadence with customers regardless of any renewal cycle so that we understand the evolution of their business better so we can have thoughtful, proactive conversations, having very little to do actually with any contractual dates we have in place with them.

Okay. Very helpful. And then roughly 3/4 of the business from an ARR perspective on cloud now. Any updates to how you're communicating sort of end of support expectations for on-prem customers going forward? Or is it the same as it has been?

It's the same as it has been. We've been more and more clear over the past couple of years, and we feel very, very good now about the dates and the timelines and the communication structure there should be no customer in our installed base at all surprised with respect to our ability to support the service. And I think John kind of mentioned, I don't know it was like picked up. But we continue to invest in mechanisms to make that migration more and more smooth and less and less risky and less and less of an investment. And so we're committed. I've said it before, like I'm going to say that it's a huge success when we get every single one of our on-prem customers move to our cloud successfully, and we're absolutely committed to doing that.

Our next question comes from Matthew Kikkert at Stifel.

Congratulations on the great year. You mentioned multiple data and analytics wins in the quarter on those data analytics solutions, where are the attach rates sitting stay? Or how do you view that subsegment trending into the next fiscal year?

Well, attach rates were very healthy. And I think the takeaway for me is that we're successfully enabling our teams to communicate the value associated with these other products with the core system sale. And so that's a very, very positive sign. Certainly, this is an area that's growing faster than the core business itself. And so we see increasing potential there. We also are very excited about the product momentum, especially with our industry intelligence product suite, where we've got these predefined predictive models that especially focused on claims. And we continue to build out those models, continue to prove them out with with customers in the field. And I think -- so you see this expanding sort of capability to have this discussion in our field and in our sales organizations, but you also have growing confidence in our ability to produce value and get that rolled out.

You also -- I think it's legitimately would consider the quantity pricing platform and analytics product, and we're very, very excited about building that muscle at Guidewire and learning how to have those conversations with the actuarial teams in our customer base. So we're very, very excited about the, call it, that new product line motion accelerating faster than the company overall.

Okay. And then secondly, how do you view individual operating margin levers shaping out for fiscal year '26. Is there anything unique that you want to call out? Or do you view recent trends continuing?

Yes. No, nothing unique. It's just a continuation of our model playing out in the investments we've made in leveraging those investments over time. And just driving more scale. So I think it's just kind of blocking and tackling in terms of how we think about operating margin. And I think we noted in the commentary that what we're seeing in our customer base and what we're seeing across the organization just gives us increased confidence in some of the longer-term targets that we've talked about historically.

Now we'll go to Michael Turrin at Wells Fargo.

Thanks. Appreciate you taking the question. There's a lot of good stuff here throughout. I think it's the Tier 1 strength that particularly stands out. So just hoping to explore more of how much of that is just -- it's the end of the fiscal year versus something specific you're seeing it's helping unlock some of those larger opportunities. And then I'm also wondering, as you kind of build on the cloud momentum more holistically, do you see opportunity to bring AI to some of those larger insurers based on conversations that you're having? Or is it more the smaller, potentially more nimble tiers 3 to 5, where you think you could see just earlier adoption of some of those modules as they become a bigger part of the conversation here.

Go ahead, John.

Michael, thank you. I'll talk about the kind of the Tier 1 momentum tied to year-end context. If I look at how long some of these deals spend in the time frame we span multiple fiscal years. So I don't think it's tied to the year-end context. I think it's tied really more towards -- and I'll talk about Tier 1s in the broadest context. The amount of work that goes in to get into a laboratory environment, prove out, go through the references, do all of the deep, deep, deep early solutioning work, really that volume of work, that intensity of work is not something that's naturally tied to the end of a fiscal year. It's tied more specifically to the cadence and time that the customers can spend to dig deep on the solution, make the decision and line up. There are times when we want to try and tie up more with their budgeting cycle, frankly, than our end of fiscal year.

And we've seen a lot of the work that David Laker and the sales team have done around linearity is really tied to our customers' budget cycles more than our year-end fiscal cycle. But the decisions are big, and they span any quarter deadline or any fiscal year deadline, that's for sure.

On the AI stuff, I think it's -- I'll let Mike go on that. But but it's a very different -- it's for all of these Tier 1s, their agenda on AI can be very different in the way they're thinking about it and then where they're thinking about working with us on it.

Yes. And I think it's -- for sure, AI is not one thing. There's going to be hundreds of different things and capabilities and features and products that are powered by or made possible by AI that support Guidewire and support the insurance industry in general. And I'm sure there's going to be plenty of those things that are useful and practical for a Tier 1 insurance company. But there's such a difference in sort of engineering software development horsepower at a Tier 1 insurance company relative to a Tier 3 or a Tier 4, even a Tier 5 insurance company. And so the productization of these capabilities that we can provide just as makes it possible for the smaller insurance companies to leverage these things, whereas a larger insurance company with a larger IT organization, with real expertise in software development, they have the capability to do some of these things on their own, which they're certainly welcome to and we're excited to work with them on doing them alongside Guidewire.

And so there's just absolutely going to be a mix. But I really would encourage everybody to just think about it's not just 1 thing. We're using this to accelerate our development. We're using this to accelerate the configuration of our platforms. We're using this across the claims experience and workflows. We're using this in underwriting. And so each of those things is going to have a particular fit to a particular insurance company based on size and we're still, like I said, very early on in the evolution of this as it applies to this industry. And I'm excited for it across the breadth of our customer base. But I think it's reasonable to say that it will be different by tier.

Our next question is from Alex Sklar at Raymond James.

Just one for me. Maybe, Jeff, just in some of the building blocks for the FY '26 ARR outlook, can you just talk about that 50-50 mix of ramp versus net new still a good rule of thumb, how that looked in FY '25? And then you spoke to a slightly lower premium growth, maybe embedded in your assumption, any change in terms of what your assumptions were in terms of Guidewire pricing contributing to growth or churn versus this past year?

Yes. So in terms of the kind of the building blocks and how we think about that, we talked a little bit about it being balanced between new ARR coming from booking events in the year and then the ARR coming off of the backlog. As we've kind of continue to see FR ARR grow. You'll see that be a little bit more weighted, which provides some nice visibility into kind of how we think about building the forecast. So that's pretty positive. We've modeled a little bit more conservatism around how we're thinking about true-up activity, and that's flowing through the model and embedded into our forecast. And with respect to pricing, I think the team is doing a good job, pretty consistently kind of focusing on improving discounting and with the maturity and the referenceability of the platform, that's certainly helping a commercial conversation. So that's the way we thought about it and how we've built it up. I am -- we had an amazing year with respect to ARR attrition, not -- those events can be sometimes hard to forecast if there's an M&A event or other things. So my model assumes kind of more rates more aligned with historical averages. Hopefully, that's helpful. Did I get everything in there?

Okay, our last question goes to Tyler Radke.

So just following up on the Liberty Mutual deal. Obviously, it's a large landmark deal, as you referenced. I was curious, though, if you're able to comment, is this kind of the largest cloud deal from an ARR perspective? And then have you seen any other kind of customer conversations and response just in terms of just providing referenceability, it'd be great for you to touch on that.

Well, I would say this is the most strategic deal we've ever done in the history of the company, and we look forward to making sure that this is a smashing success for Guidewire, but especially for Liberty. It has not been public to this point. And so to the extent that it's helpful for us with other customers that we'll see. I think we will learn a lot from this implementation and ensuring that it is successful in the things that we learn and the things that we were able to put into our product and our practices will help with other customers.

Certainly, that's been the case with the other Tier 1s that have partnered with us on the evolution of Guidewire in general, but also the evolution of our cloud practices. And so I have every expectation that the ultimate success we're able to achieve here is just going to help build momentum for the company and help us convince other large insurance companies that this is a platform that they can innovate with. This was a -- as you could probably imagine, a pretty extensive evaluation that lasted a long time and looked into sort of every little nook and cranny of our product suite. I'm incredibly excited to have passed the test. But honestly, more excited about like living up to the potential and seeing this through and making it a success. And when we do that, I think it will be helpful for the company long term. Our aspiration is to earn the right to prove that with every other Tier 1 in the industry, and we're excited to go do that. And -- so hopefully, that gives you a sense of where this stands and the kind of focus that we intend to apply ensuring that it's a success.

Yes. Super helpful. And then just on clearly a strong quarter and guide. And then -- but I thought the Q1 commentary on the pipeline and then just the Q1 implied net new ARR was much stronger than typical seasonality. So could you just talk to that? Are you seeing kind of improved linearity throughout the year? Or maybe is there deals that even push from Q4 to Q1 that's helping you on that?

I'll let Jeff comment on this. I just want -- look, we have a very strong demand environment right now. And so it's exciting to be able to guide the way we did for the fiscal year, and it's very exciting to be able to say that we didn't sort of clean things out in Q4 and still have a lot of room to go in Q1. There's a lot of opportunity that we see ahead across the industry, and we're very, very excited about it. So -- but go ahead, Jeff.

Just two things. I mean the main thing is, as Mike noted, is our demand profile is robust enough that we can have an incredible Q4 and still have a very healthy pipeline as we go into Q1. So that's super positive. This Q1, we are seeing some healthy contribution from ARR off of the backlog that's a key dynamic in how you think about modeling seasonality for the business. It isn't always perfectly visible to the analyst community. So Q1 had a pretty healthy step-up from ARR coming off of the backlog and Q4 this year also is very healthy in that regard. Q3 is a little bit of a difficult compare. Last year, we talked about the step-up from Q4 to Q3. That was a pretty healthy step up last year. This year, that step is even more pronounced. So just as you think about seasonality, understanding kind of where that ARR comes off of the backlog is important to understand. So I want to provide that context. And we can give a little bit more color on this at our Analyst Day.

But the key point is, as Mike noted, this is that we're just kind of in a robust demand environment. where we're going to have a very strong Q4 and continue to have a healthy new bookings quarter in Q1.

All right. Great. I think we cleaned up.

Okay. So let me say thanks, everybody, for participating. We're incredibly proud of the achievements this year and honestly more excited about the potential for the future and look forward to connecting with everybody that can make it at our Analyst Day in Vegas at our Connections event in October. So thanks for -- thanks, everybody, for joining.

Thank you, everybody. My name is Dylan Becker. I'm the research analyst here at William Blair that covers Guidewire Software. We have the CFO, Jeff Cooper, here with us today. Jeff, thank you for joining us. Before we get started, he's got a presentation. We'll run through about 10 or 15 minutes on the background on the business. Before that, all of the necessary disclosures for this presentation and the conversation can be found on williamblair.com.

With that, Jeff, I'll pass it to you.

Great. Yes. Thank you. I appreciate everyone joining me today. I will run through these slides pretty quickly, and then we'll get to the Q&A session. Guidewire is a software company, 100% focused on one mission, and that is delivering agility to the P&C insurance industry through a cloud-based platform that focuses on the core operations of an insurance company. We sell policy administration, claims management and billing systems into the insurance industry. And we do that via our cloud delivery platform, which you might hear us call Guidewire Cloud Platform. The industry that we serve is a very important one and it is one that is pretty concentrated at the high end, but then highly federated as you kind of move down in the tiers of insurers. And Guidewire has done a good job over the life of the company, meeting the needs of some of the largest and most complicated insurers and so has done a really good job tackling that top of the pyramid, that 80 insurers that make up a very meaningful part of the industry, but also delivering a platform that serves the needs of kind of what we call Tier 2 and Tier 3 and below.

We kind of operate across the P&C insurance market, and that would include both personal lines and commercial lines. These are obviously -- many of these lines of insurance are nondiscretionary, so highly durable end market that we service. And it's an industry that's going through a lot of change. We've been seeing inflationary impacts, regulatory impacts. And so our platform is here to help them address all of those requirements and make sure they operate efficiently. Many of these arrangements that we sell into are quite complicated. And at a larger insurer, our software really sits at the center of their operations, and it's not uncommon for there to be upwards of 100 or 200 integration points into our software. Many of those integration points are to one-of-a-kind systems, legacy systems that exist within an insurer's IT landscape. So this is a very hard problem to solve and a hard problem to solve in a cloud context. We have spent and some of you may have been along the journey with us as we've kind of transitioned the business to the cloud, but invested quite heavily in our cloud platform to support our ability to deliver these core transactional systems of record in a cloud context.

It's a hard problem. And we're just talking about the throughput and what our engineering team has been able to deliver because I think it is really tremendous what they've been able to accomplish. But these are very kind of important systems with many touch points. This is a view into kind of how we think about our suite of applications.

The big investment that we've made over the last 5 years is on this cloud infrastructure side and the core services side that support our application layer. And now we have a lot of core services that have been kind of delivered more as a cloud-native micro service that is helping a lot with the efficiency in terms of how we deliver our core business applications. But the business applications are the ones that I mentioned, policy centers, policy administration, claims centers, claims management and billing center is the billing system to support the core functions of an insurer.

InsuranceNow is a product that we sell to smaller insurers that covers all of those kind of core functions in a single suite, and that's the core of our product portfolio. And then we sell some analytics applications and other applications that are attached opportunities to the core suite. We maintain a very robust ecosystem. A big part of our strategy is working with the global SIs to help us modernize this industry together. We intend to deliver the software, and we are happy to have them kind of tackle the very important services work. They do maintain a highly strategic services organization as well. But that they do a very small fraction of the overall work that's being done in the industry. And more and more, as we deliver a common cloud platform and service to the industry, we're creating an opportunity for third-party software vendors to build and integrate into that common cloud platform, and that's creating a marketplace of ISVs that we work with as well. So this is creating a pretty exciting ecosystem for us that we sit at the center of.

The momentum has been strong recently. So we've had -- this is an industry that is conservative in nature and risk averse. And the shift to the cloud is a very consequential one, especially in this use case. And so we have seen a very measured approach to the cloud, but we are now starting to see the impact of the investment and the referenceability of some of our early cloud customers is helping accelerate demand. And that is a big part of this industry, word of mouth and referenceability is something that is very important. And we get asked a lot around other macro drivers that's driving this acceleration right now. And the answer is no.

The answer is this is really the micro of the blocking and tackling of delivering the platform proving the referenceability so that CIOs at large insurance companies can feel confident that this is a good time to make this shift. I need to modernize my stack. This is something I've been delaying for too long, but now is a good time to go. And so that's showing through in how we think about ARR, but also subscription and support revenue.

And the margin story as well, if you look at the subscription and support gross margins, you can see not too long ago, we were at 44%. That was coming out of a pretty meaningful investment cycle.

We also knew how important referenceability was in the early part of this journey. And we invested in building out a cloud operations function to make sure that all of those early cloud customers were successful. So we threw headcount at the problem initially and then work to kind of deliver the platform that would drive more efficiency and automation. And that strategy has played out. Those early cohorts were absolutely critical to make sure that they were successful. And now we're realizing a lot of the investments we made in the platform, and that is showing through to the gross margin line. Subscription and support gross margin line is the most important number on this page. It drives overall gross margin and operating margin in a meaningful way. And then we just had our earnings call on Tuesday. It was our Q3. It was a very strong Q3 for us. From a seasonality perspective, Q4 is always our strongest quarter, and then it's usually Q2 and then Q3 and then Q1. But this Q3 had a nice designation of being more meaningful than Q2 for us, which is a little bit unique. And our CEO referenced that it was our third strongest bookings quarter in history. Our Q4s are always very strong. So you can -- but that was something that we're excited about. And then we were able to update our guidance ranges for the fiscal year.

And this is just a reconciliation page. And then I think we can move to Q&A.

Perfect. Maybe that's a good place to start as well, Jeff. You highlighted kind of the recent strength in the quarter that you guys just reported earlier this week. We talked about the investments that take place to kind of get to this point from a cloud perspective. Can you maybe kind of double-click on why all of that is resonating now from a market perspective? And what's giving carriers the confidence to invest in these cloud core systems?

Yes. I think this was an industry that is very measured, very thoughtful and very pretty slow in going to the cloud, especially for this use case. And this is a hard decision for us as a kind of company to think through when do we -- because we had a very highly profitable business on-prem and are viewed as the market leader. But we knew long term that was not the optimal way to deliver software to the industry. It was not the optimal way to deliver innovation to the industry. And so when do we kind of think about this transition and how do we make the switch? I think when we finally kind of said we're going to go down this path, we moved with a lot of intention. But it did change how the industry thought about adopting core. I think you saw insurers decide to sit on the sidelines for a period of time and wait and see how the cloud transition would play out, maybe doing smaller initiatives, kind of testing the water style initiatives. And then we've kind of worked through that over the last 2 or 3 years. And now we have enough referenceability on the platform. We have enough customers on the platform that we're seeing higher confidence that, okay, now is a good time to make bigger commitments. Two years ago, we were seeing -- I'm going to take one of my lines of insurance to the cloud or I'm going to do PolicyCenter in this line, but I'm not going to do ClaimCenter. And so now we're seeing much bigger commitments. And so that's an exciting place to be.

And maybe it's a good point because I think that was a big takeaway out of the earnings in and of itself is not only deal velocity has stepped up, but also the size of those commitments to your point. How do you think about -- I think you mentioned earlier in the presentation, that 100 to 200 kind of integration points within the core today, what that looks like from a vendor consolidation kind of opportunity for the business over time as you get more of those core components across the end-to-end nature of a book from a P&C perspective.

Yes. We are certainly seeing more willingness to adopt more broadly Guidewire throughout. And we are seeing -- it's not uncommon for especially large insurance companies that have been acquisitive to have, in some cases, 5 or 6 different core system vendors and pockets of their business. And so cleaning some of that up and standardizing is something that we're seeing a bit right now and is working to our benefit. And then there's like -- if you think about all those integration points, most of those are kind of internal systems and so not something that a vendor would consolidate. But there is a lot of stuff that we're doing with our insurtech partners to bring more innovation to the marketplace as well.

Yes, yes, for sure. And maybe obviously, the momentum is very clear, but how should we think about sort of the overall opportunity ahead? Where do we sit relative to the cloud transition as it is today and then the opportunity to continue to increase as well?

We're still early. And when we think about our strategy, Phase 1 of the strategy is executing on this cloud transition and aggregating a meaningful part of the industry on a common cloud platform. And then that opens up just so much opportunity for us to sell through and kind of bring new products there. But in terms of the Phase 1, I think we're seeing really healthy momentum. We have now about 50%, a little over 50% of our customers are on the cloud journey with us, but there's still 50% that we have to go and still work through. In addition to the amount of the industry, which we estimate is in the range of kind of 40% to 50% that still runs on mainframe-based systems in terms of the workloads that exist in the industry. So there's a lot of work to do just on kind of getting to this Phase 1 state of aggregating the industry on a kind of highly efficient, highly effective common cloud platform.

And if we think of those 2 pillars, not only the migration opportunity, but the ability to expand as they look to land larger as well as kind of that 50% of legacy systems, what does that mean to the business from kind of a durable ARR perspective?

Yes. It creates a very healthy backdrop for us to feel confident in the TAM that we have, just right with the core business that we're operating in today to drive -- we talk about being a long-durated durable mid-teens grower. We have some metrics that around fully ramped ARR that we've talked about that have been growing faster than that, that gives us reason to believe that maybe we can grow a little bit faster than that, but our ambition is still the same. It's just to kind of create a very long durated durable grower.

Sure. And maybe from a profitability perspective, right, we've seen kind of the inflection in the model as a function of this transition as well. We've seen highly efficient vertical software models in the past, too. But how should we think about Guidewire in that context?

Yes. So as we embarked on this cloud transition, we unveiled what we called our midterm and longer-term targets to help investors understand the trajectory because we did kind of negatively impact margins and then now we're kind of returning them to a healthy level. And so we have those targets set out for -- we now are kind of -- our FY '25 was our original midterm targets and now FY '28 was our original long-term targets. Those are now kind of our midterm targets. And then we have a longer ambition around what we call our 80-40 plan, which is getting to 80% subscription and support gross margin and 40% operating margins. And everything that we see in the business, we feel confident in our kind of path to that. The time line to that is a little bit uncertain, and there's so much opportunity to invest in areas that are adjacent and kind of add more value to the insurance offerings that we offer to customers today that somewhat depends on kind of how growth tapers to when we ultimately get to those kind of terminal margins, but that's how we think about the long-term margin potential.

Sure. And coming from the CFO seat as well, it's a good place to be to have the opportunity to kind of pull each of those individual levers as well. But how do you think about that balance of capitalizing on what seems to be kind of an uptick in momentum from a carrier perspective and willingness to adopt more of the software versus that sustained kind of margin inflection given the balance between the 2?

Yes. Yes. We, as a management team, are very focused on if we can drive incremental growth, that's what's going to drive most enterprise value and shareholder value. So it's a growth orientation, but we also recognize that we service an industry that moves at its own pace. And so we are not going to kind of throw money at growth that we don't think will materialize. And so we're going to be very disciplined about that. As we think about areas of spend -- within R&D, that's where there's the most area for us to maybe accelerate some investment. But our team there has been quite disciplined and has an orientation that adding a lot of headcount doesn't necessarily drive incremental productivity or efficiency and sometimes that can create disruption. And so they've been pretty cautious and measured about how they think through.

We have the largest engineering team. We have the largest investment. So we feel confident that we can continue to drive innovation and new product creation largely with the team that we have today. From a sales and marketing perspective, we have the largest sales and marketing organization in the industry. We service a vertical market. We know everybody in our market, like we are very close to our customers and our prospects. So it's not like we need to add breadth from a sales and marketing perspective. There are investments like we made some investments in customer success. We've made some investments in more strategic advisory for Tier 1 insurers that are so critical to our ability to execute towards our TAM. But in general, we have really good coverage and so don't feel the need that we need to rapidly grow sales and marketing spend.

And then G&A is about just driving more operational efficiency. And so you won't see a lot of growth. So I think as we thought about our targets, we feel even if we can drive accelerating growth, not necessarily need to kind of spend a lot in order to capture that.

Sure. Sure. And you touched on kind of the momentum that you're seeing in Tier 1 and Tier 2 a second ago as well. As we think about the competitive landscape, what does that look like? How much of it is actual or if they're external to the vendors? How much of that is internal? How should we think maybe even across the carrier segment of the ecosystem there?

Yes. So there's a healthy competitive environment. We have a number of competitors. Most of our competitors are now private equity owned capacity. We have a lot of pride in the amount that we invest and kind of how our engineering team is driving innovation into the industry and differentiating. And our thesis in the cloud has always been that market leadership is going to matter a lot more in the cloud domain than it mattered on-prem. It's one thing to buy software from a vendor and run it behind your 4 walls. It's another thing to rely on a vendor like Guidewire to run a mission-critical service for you as a service. And so that was part of our thesis. And I think that's playing out. It's hard to compete with the -- when you kind of build the scale and the investment that we have. However, there are certainly a number of credible competitors, and we see all of these deals go to RFP. Our win rate has been quite strong recently as these investments have been realized.

Sure. Maybe you could talk to the positioning and the opportunity of the partner ecosystem in support of that kind of competitive positioning as well, too. You talked about the SI piece, but also maybe talk about kind of the technology ecosystem as well, too, and what that means from a platform profitability.

Yes. This is a very exciting part of the story from my perspective. And it was a part of the story that we were just not able to unlock on-prem because our customers had implemented our software in such different ways that it was hard for third parties to build on top of Guidewire in that context. And so as we move to the cloud, we get all of our customers on a common cloud architecture. We are investing aggressively in the ecosystem of insurtech vendors that can then integrate into that environment. Our CEO came from Salesforce and was attuned to how Salesforce built this out. And so I think this is a very exciting part of the story for us. It also creates an avenue for M&A or other activities. But getting the cloud done is the most important thing to unlocking that. And we talked about over 50% of our customers are now on the cloud journey, but a smaller number is fully running and operational cloud because there's lots of work going on implementing and going live and doing all those activities.

So that's a -- I think the team is doing a really good job building out that marketplace and even thinking through kind of how the long-term economics would work. But right now, it's still a little bit dependent on kind of running through the base of the cloud transition..

Sure. And it's very clear the transition that has taken place within Guidewire as a business. But if we think about the industry as well, can you talk about kind of some of the factors that are pushing for digital change, if you will, around consumer expectations, frequency and severity, a handful of things that are helping validate the motion that Guidewire is bringing to market.

Yes. I mean, The industry is -- it's a nice industry to service because there are those pressures, but it's also such a durable nondiscretionary industry that the industry has kind of been adopting and reacting to those in a very measured and conservative way. As a market leader in this industry, that gives us a little bit of an advantage because we can watch how certain things are adopted, digital disruption, GenAI, cloud and other verticals that have moved faster and then apply those best practices and do that with intention rather than doing a lot of testing and other things and having failed experiments. So our experiment hit rate is very high. But the industry is always under a lot of pressure, regulatory pressure, pricing pressure, inflationary impacts. And so the ability to have a system that can support you with more agility is becoming more and more important, especially as your competitive set adopts those kind of systems.

Sure. And if we were to think about how you go to market kind of the pricing mechanism on a premium basis as well, too, how should investors be thinking about?

Yes, a good point. So we price our software on basis points of an insurer's direct written premiums or effectively their revenues. And so that is always in our pricing model. It works really well. It aligns to the value that we deliver. It's also how insurers think about their income statement. They think about IT spend as basis points of direct written premium. And so we fit into how they think about it. And an environment helps a nice fee-based model and kind of an environment where some seats are coming under pressure from agentic models and other types of models. So it's been a good way for us to go to market. We also capitalize on a bit on our customer success. So as our insurers grow their premiums, they will move through baselines in the contract, and we can charge true-ups as they grow, we also grow.

Sure. And you do have your own internal services function as well. Can you maybe speak to the strategic nature that helps you kind of understand those problems and pain points for customers that may help curate a little bit of that innovation road map as well.

Yes. I think our service -- we think about ourselves as a software company, first and foremost. But a big part of Guidewire's success throughout the history of the company has been this focus and dedication on driving successful outcomes. Core system replacement and modernization projects throughout the industry are ripe with failures and our track record on this is very, very strong. And it's a big part of kind of why we're able to be successful. Our partners do an amazing job. And as global SIs do 80% to 90% of the work associated with Guidewire implementations. But our services team is kind of tip of the spear, especially as it relates to new capabilities, and they're the best of the world. And so we can drop them in if the project starts to go a little sideways to make sure that we drive the right outcome. So we do a little over $200 million of services revenue. We try to make sure that we -- it's very strategic for us to maintain that services capacity. And so kind of growing that much slower than software, but kind of maintaining that kind of resource that Guidewire is very important for us.

Sure, sure. And we kind of hinted at it a few times here as well, too, but you serve as a foundational system of record for the industry, right? You help facilitate a lot of those core complex workflows. How do you think about the advent and opportunity for AI to help kind of drive process efficiency throughout insurance business?

Yes. I spoke earlier that this industry tends to get technology laggard. And so that gives us the luxury of being able to watch what works in other places. We may not have that luxury with GenAI or some of these -- because this industry is so ripe with unstructured data and manual processes that GenAI lends itself very well to helping with. In many cases, there will be a human-in-the-loop, but there's a lot of very interesting use cases. We have investments in infusing it into the core product set. We have investments in new adjacent areas. One of the ones that we've talked about is the submission intake process for commercial lines of insurance, how much documentation and unstructured data goes to in those submissions and how inefficient that process is today. And then we have use cases around how we do code development. We have use cases around how we support services engagements. One of the biggest hurdles to adopting our cloud application is the cost and uncertainty of the services program to get from point A to point B. And we always like to say, if we can bring down that cost of services associated with the cloud migration by 50%, we would double demand because that's often the biggest sticking point. And we have a number of initiatives around kind of how we use GenAI to assess the legacy environment and modernize. So there's endless use cases here.

And we believe that we will have permission to drive a lot of these use cases that are more horizontal across the P&C insurance industry. And then the SIs are working with customers on more kind of highly specific customer use cases. But I do believe that this industry is going to be on the front foot as it thinks about adopting. And that's good for us from an overall demand perspective because if you're running a 40-year-old mainframe-based system that's on a back processing arrangement, you're not set up for success in a GenAI world, and that is certainly part of the message that our sales team is delivering. And I think that's resonating. I ask my team all the time, is it driving some of this acceleration in demand? I think it feels like what's driving this acceleration in demandand is just the referenceability of the platform and the blocking and tackling, but I also think that this backdrop is helping.

Is that maybe helping too, with the conversations that you're having with that on-prem-based compliant and support as you kind of think about end of life and transitioning into support for one singular system?

Yes, I think that's right. I mean I think it's more acute if you're running a legacy system rather than a modern on-prem system. But everybody is thinking about how are they set up to capitalize on some of these themes..

Perfect. And we've covered a lot of ground here today, and it's been incredibly helpful, Jeff. Thank you. Maybe if we were to -- I mean, again, the company has come a long way as we think about kind of the initial iteration of moving to the cloud 5 years or so ago. If we think about what the next 5 or the next 10, right, talking about durability here can look like for the business. what excites you the most about the opportunity ahead? And what's kind of your measure, the way that investors should think about kind of tracking that success over time?

Yes. Yes. I mean, I think, what excites me is once we get through this cloud transition is this opportunity, we've built this platform that the industry runs on and the opportunity to just flow more innovation through that platform. Some of that will be just kind of building out new capabilities on our ClaimCenter and PolicyCenter products. So a lot of that will be kind of new products that we can attach and focus on. We did a small acquisition in the quarter for a European company that does pricing. And so moving into pricing and rating is an area of ambition that we have. Our systems today can be thought about as being focused on what we call post bind. So once the policy is found, it comes into our policy administration system, we manage the claims. There's a ton of work that happens prebuying in the underwriting process where you price and rate insurance policies that we can have a more active role in. So there's a lot of new opportunity out there that's exciting for us as we look ahead.

Perfect. I think that's a great place to wrap for now. Jeff, thank you very much.

Greetings, and welcome to the Guidewire Third Quarter Fiscal 2025 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today.

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

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; and Jeff Cooper, Chief Financial Officer; as well as John Mullen, President and Chief Revenue Officer, who will be available for the Q&A portion of today's call. A complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. Today's call is being recorded, and a replay will be available following its conclusion.

Statements today include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and the risk factors and documents we file with the SEC, including our most recent annual report on Form 10-K and in our prior and forthcoming quarterly reports on Form 10-Q filed and to be filed with the SEC for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.

We also refer to certain non-GAAP financial measures to provide additional information to investors. All commentary on margins, profitability and expenses are on a non-GAAP basis, unless stated otherwise. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted in the supplement on our IR website.

Finally, similar to last quarter, we're conducting this earnings call via Zoom audio rather than a Telebridge. This means we will manage the Q&A portion of today's call internally with the help of Grace, who you just heard from, and me managing Q&A. Please be patient if we encounter a short pause in any of the handoffs during Q&A.

And with that, I'll now turn it over to Mike.

Thanks, Alex. Good afternoon, everyone, and thanks for joining us today. Before we get started, I want to take a moment to acknowledge and congratulate the entire Guidewire team for the hard work and exceptional execution that went into delivering another amazing quarter. Our results in Q3 and year-to-date clearly demonstrate the accelerating momentum we're seeing as more insurers recognize how critical it is to have a flexible and agile core system. Guidewire Cloud platform is now well established and proven, and we're in an excellent position to continue driving growth, efficiencies, innovation and better insurance outcomes for our customers.

Let me start by sharing some highlights from the quarter. First, I'll touch on sales, where we had a record Q3. The sales activity we delivered was actually the third best quarter in our history. We closed 17 cloud deals, 14 for at least one of our InsuranceSuite applications and 3 for InsuranceNow. We saw particular strength at the high end of the market closing 7 core system deals with Tier 1 insurers and 3 with Tier 2 insurers, again, proving 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 ARR of $960 million allowing us to raise our full year outlook. We are solidly on track to exceed $1 billion in ARR this year, which was a collective ambition we established a number of years ago. We will be thrilled to surpass this milestone, but more excited about the overall momentum in the business. Our growth this quarter was broad-based and multidimensional with 9 cloud migrations 5 net new deals and 3 expansions. I'm also excited about the traction we've established with InsuranceNow. This quarter, we closed 3 net new InsuranceNow wins, including 2 of the largest ever on this product.

Our success with InsuranceNow 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.

Advanced 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 referenceability continues to spur both expansion activity and new cloud wins. This included a Tier 1 personal lines insurer in the United States who after successfully deploying ClaimCenter on cloud is now expanding to InsuranceSuite.

We also had great new expansion wins in Europe. And I was pleased to see a new cloud win in Japan where the success of another local cloud project played a key role. And finally, the work we did previously to establish a large framework deal with Zurich Group is now paying off where we executed 2 more deals, 1 with Zurich, Switzerland, who adopted PolicyCenter and BillingCenter 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 ClaimCenter workflow. This is a model trained and validated based on contributed anonymized data and only possible based on our cloud deployments. This is a first important step towards what we believe will ultimately not just be a great source of new revenue but more so an added and 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 referenceability. We had 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 3 regional insurance forms 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 of insurance and exploring ways the industry can continue to innovate and improve. Several customers shared their experiences including Lee Dante, Commercial Claims Director at RSA Insurance, who described how RSAs move to Guidewire Cloud has streamlined claims processing, improved transparency and positioned RSA ahead of its peers in the U.K.

We also heard from a law a multiline insurer headquartered in Switzerland, who spoke about how Guidewire Cloud has driven better service and increased efficiency in its K2 program, where over 99% straight-through processing. And B-Safe, a Polish micro insurance specialist shared how they utilized advanced product designer to rapidly launch a new product in 4 days, fulfilling a critical commitment to their distribution partner. 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 to maintaining rigorous compliance with evolving European regulations like Solvency II, GDPR and Dora.

In May, we hosted 2 more regional insurance forums, 1 in Tokyo and 1 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, an investment of approximately $60 million over the next 5 years that extends and enhances our existing local operations, talent, innovation and partnerships. 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.

At our Forum in Sydney, Neil Morgan, COO of IAG, shared a powerful story about the role of technology and crisis. After a series of severe weather events in Auckland, IAG faced a surge of 48,000 claims, including 4,000 written-off vehicles. One team member using Guidewire ClaimCenter integrated with an intelligent automation tool to build a bot that cut claim processing time from 20 minutes to just 90 seconds, a change that freed up teams to focus on supporting customers when it mattered most. Together, these 3 events demonstrated how we're delivering on our global strategy through deep local partnerships, innovation and track record of execution excellence.

But for me, the real highlight of the past few months was the developer Summit we held in Bangalore, India. We put on our first developer event last year in Bangalore, and we're surprised at the positive reception and interest. This year, we were blown away with over 1,500 developers attending from nearly 60 partners and customers. 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 1,500 people all come together in one room to learn and enhance their careers and ability to support Guidewire programs more effectively was inspiring.

Every attendee was encouraged to bring a laptop and we had the opportunity to share in a very hands-on keyboard 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 upgrade safe development for InsuranceSuite extensions, new migration technology to support upgrades to our advanced product designer, new components and capabilities in our Jutro front-end web experience platform new AI cogen capabilities supporting Jutro, integration applications and [indiscernible] extensions.

We shared new approaches to full-cycle business intelligence with our cloud data platform, Data Studio and Explore dashboard and reporting suite as well as the ability to use all of this to easily generate test and deploy predictive models on our platform. 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.

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 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. And in the midst of all of this, we completed our acquisition of Quant a cutting-edge provider of pricing and rating technology based in Poland. Since closing the acquisition, we've been hard at work planning the integration of Quantee into our broader technology portfolio and expect to share more specific plans about this area of our product strategy in future calls.

In summary, Q3 was a historic quarter for Guidewire and highlights 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 and proving capabilities of Guidewire Cloud Platform. I could not be more pleased with our strategic position heading into our Q4. As I think we are well placed to continue our cloud transformation and mission to support efforts to modernize and power innovation in our industry.

So with that, I'll turn it over to Jeff to discuss the financials in more detail.

Thanks, Mike. We had an incredible Q3, and we look forward to building on this positive momentum. Strong demand for our cloud offering helped ARR finish at $960 million, ahead of expectations. Additionally, as Mike noted, we had a strong sales quarter, both in terms of deal counts and deal sizes. It is clear as our market -- our cloud market leadership position is now established that insurers are more willing to make large commitments. This is a strong vote of confidence and we aspire to exceed customer expectations and drive successful outcomes with this critical work.

Total revenue was $294 million, up 22% year-over-year and above the high end of our outlook. Subscription and support revenue finished Q3 at $182 million, reflecting 32% year-over-year growth and our continued InsuranceSuite cloud momentum. Services revenue finished at $54 million and benefited from strong services bookings that translated into higher utilization rates.

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. Overall gross margin was 65%. Subscription and support gross margin was 71% compared to 66% a year ago. In the quarter, we benefited from approximately $4 million in credits from our cloud service provider, which positively impacted our gross margin. More generally, and I know I've been saying this for a while, I am thrilled with our progression on the gross margin line and the benefits of the platform investments that are now being realized to a healthy degree.

Services gross margin was 13% compared to 10% a year ago. We are very pleased with our profitability progression in our services org. Most importantly, the services org and combination with our partners and our customers, continues to deliver successful outcomes in the form of go-lives and cloud updates. This is foundational to our long-term success.

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. This growth includes our new employees from the acquisition of Quantee. We are excited about adding the team at Quantee to accelerate our ambition in the pricing domain. This acquisition added an immaterial amount of ARR in the quarter and 23 employees with the majority of the new employees located in Poland. 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 are adding and the fit with our existing product development motion. Our respective teams are already working well together.

We ended the quarter with over $1.2 billion in cash, cash equivalents and investments. Operating cash flow ended the quarter at $32 million, which was ahead of our expectations due to strong collections in the quarter. We settled at maturity, our 2025 converts, which resulted in a $100 million cash outlay, including accrued interest, and we realized net share accretion of approximately 26,000 shares as the shares issued to bondholders upon maturity were less than the shares we received from the call spread we purchased in 2018 in conjunction with issuing our 2025 converts.

Now let me go through our updated outlook for fiscal year 2025. Starting with the top line. Given our strong performance year-to-date, we are raising our ARR outlook to $1.012 billion to $1.022 billion, which reflects growth of 17% to 18% year-over-year. In addition to higher sales momentum, we are also seeing record low ARR attrition percentages and record high ARR ramping activity. As a reminder, our ARR outlook assumes foreign currency exchange rates as of the end of our last fiscal year, and we update ARR exchange rates at year-end. If we update ARR today based on current exchange rates, than we would see an approximately $8 million positive adjustment. We will certainly quantify this at year-end, and we'll continue to monitor FX rates throughout the remainder of the fiscal year.

For total revenue in fiscal 2025, we now expect between $1.178 billion and $1.186 billion. We expect approximately $660 million in subscription revenue and $724 million in subscription and support revenue. Given higher-than-expected services bookings year-to-date, we now expect services revenue to be approximately $215 million.

Turning to margins and profitability, which we will discuss on a non-GAAP basis, we now expect subscription and support gross margin to be between 69% and 70% for the year. 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. 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.

Our FY '25 expectations for services margin and total gross margins remain unchanged at 12% and 65%, respectively. We are lifting our outlook for operating income, primarily as a result of our revenue outlook, we expect GAAP operating income of between $20 million and $28 million and non-GAAP operating income of between $187 million and $195 million for the fiscal year. We expect stock-based compensation to be approximately $162 million, representing 11% year-over-year growth. This is a bit higher than our prior forecast due to the acquisition of Quantee and lower employee attrition than our model assumes.

We are increasing our outlook for cash flow from operations for the year to be between $255 million and $275 million due to stronger-than-expected revenue and collections, combined with strong expense discipline. In summary, it was a fantastic third quarter, and we are excited for Q4.

Alex, you can now open the call for questions.

Great. Thanks, Jeff. [Operator Instructions] And with that, our first question is going to come from Alexei Gogolev with JPMorgan.

Congratulations for the amazing results. Jeff, it has now become almost like a tradition for you to provide your view on 3-year ramp ARR outlook during 3Q earnings. I think you've done it 2 years in a row. Would you be able to share your thoughts this year? What do you expect to fully rent ARR?

Yes. So thanks, Alex. Yes, 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 ramped ARR results. And I think most folks understand kind of how important Q4 is. That said, I feel confident that we can see fully ramped ARR grow at levels consistent with what we've seen more recently. As a reminder, we grew fully ramped ARR 17% and 19% on a constant currency basis in fiscal '23 and fiscal '24, respectively.

So kind of maintaining that upper teens level of fully ramped ARR growth. It feels like we're headed in that direction. But I just want to make sure I add that Q4 is always our largest sales quarter. Fully ramped ARR in particular, depends on larger commitments, multiyear commitments. And those large deals can be very binary in nature. And so we have a range of outcomes that can be quite wide as we model out different scenarios. But kind of getting into that maintaining upper teens, fully ramped ARR growth would be a tremendous outcome for us to do that 3 years in a row, and that's the direction we're working towards.

And Mike, could I ask you a question about the Japanese market. It seems that you're progressing really well. What is the secret sauce? What is helping you to win cloud deals in that market? And how are those customers viewing U.S. software.

Yes. Thanks for the question. I appreciate it because the trip to Japan this quarter and the event that I described, it was a real highlight for us. It was also exciting for us to be able to announce this financial commitment to the region. And 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 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 operate insurance businesses.

I think the key word is commitment. We're committed to this market for the long haul. I can't say whatever it takes, but that's the attitude. 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 in what those companies need for the next 10, 20, 30 years of their existence in the Japanese market. And I think we're uniquely positioned to do that. I don't think that there's any other P&C platform, core system platform that is that is honestly capable of serving the market the way Guidewire is. It takes a very significant investment for us to show up year after year after year. and deliver this for them, but we're going to do it.

And I think that's what was behind 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 now with cloud, that the -- that we have the follow-through and that it's 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 want to be the P&C platform for Japan for the next 20, 30 years.

So our next question comes from Adam Hotchkiss at Goldman Sachs.

I guess just to start, I know when we had it in the past, talked about fiscal '25 ARR guidance it felt like you had messaged that the ARR cadence was substantially weighted towards Q4 given your visibility on the backlog and when that was coming live into total ARR. Obviously, with the Q3 outperformance would be just good to understand whether there was any pull forward from Q4 relative to your expectations or if it was just a stronger quarter given more demand at the top of the funnel, I would appreciate any color there.

Yes. I'll give you my perspective quickly, and then Jeff can chime in if he wants. It was obviously a great Q3. And -- but we have momentum across every tier and every component of the business right now. We feel good about the potential in Q4 and that relates to being able to pass through 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. So Yes. Let me -- actually, John is here, and we pointed that out in the -- at the beginning of the call, he's here, and I'll give you a perspective on the Q4 outlook.

I'll just add that Mike mentioned that the quarter was broad-based and multidimensional. I think it's really about execution. I'll comment that the -- as the -- as the quarter came to a close, the execution -- I would have 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 didn't see or feel any pull forward or any singular outsized dividend.

Yes. And just to pile on there a little bit. From how we modeled it, Adam, as John hit it on the head, it's my view and kind of how I was expecting the quarter play out. There were some of these deals that I expected to slide into Q4. And we're just seeing very high close rates and a very strong execution. So we saw a bit less of that. So kind of not necessarily pull forwards, but kind of those deals didn't kind of naturally pass into Q4.

We're now going to go to Dylan Becker of William Blair.

Congrats on the terrific results here. Maybe Mike or John, for you. I know Jeff called out kind of the larger contracts and we've seen kind of the validation of the platform starting to lay out here. I wonder to what extent are your conversations starting to have that kind of more holistic consolidation type of story around it where you can be kind of that singular and the vendor to help solve a lot of that kind of disparate legacy complexity that we become so accustomed to knowing here?

Great. Dylan, thanks for the question. The -- what I would -- I would harken back to the conversation on proof points 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 the next geography, what's the next segment of business to go after. And in the quarter, we saw what would amount to 2, I think, pretty critical strategic takeouts of what would have been more modern competitors. And it plays to that question you're asking, which is earning the right to broaden the reach of the conversation to get warm introductions into other lines of business and other segments and other geographies is proving out.

In a few cases, it starts to become very much a conversation about at some point in the future, what does an align destination look like where Guidewire is really part of the strategic fabric of that carrier's planning going forward? And more and more, we're having those conversations and more and more, we're putting the teams in place in the geographies to 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 to hit.

Sure. No, totally fair. I appreciate the color there, John. Maybe for you, Mike, as there's been a lot of talk around kind of the different insurance segments as well, too, right, but the hardening rate environment and the inflationary pressures that are being put on consumers and risk exposure. How do you think about 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?

Yes, it's a great question. I think with the word I like to use with respect to this question is agility. The more agility that we can provide insurance companies and the developers, actuaries, IT 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 -- what kind of rate structures are they applying to these products? Being able to do that faster is going to enable the insurance industry to learn more about how to best close that coverage gap. How to best take this like incredible financial instrument to market as effectively as possible.

We are seeing pretty significant shifts towards access and specialty away from admitted 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 IT 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 excited here at Guidewire around bringing insurance to every business, homeowners, state locale in the world that needs it, and that's pretty exciting.

So I think that behind what we call like the referenceability and the success stories of all these cloud implementations, there's a degree of agility that we're delivering that is genuinely new and unique in the industry, and that's going to continue to help close the coverage gap that you described. And so that's a big part of it.

Our next question is going to come from Ken Wong of Oppenheimer & Company.

A question for John or Mike, I think earlier it was mentioned record low attrition, record high ramping activity. How much of that do you think is a dynamic of your core market just really leaning into modernizing versus perhaps internal initiatives and execution that you guys have been laying the groundwork on.

Let me give you 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 to follow through the agreements kind of flowing into the business model. The most important thing at Guidewire that is 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.

The -- this is an incredibly durable 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 1, it will be part of the company forever. And that's what my take on what's driving that financial measure.

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 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 issues and opportunity to solve problems. And that's really helped a ton maintaining alignment on that -- on the attrition rate.

Got it. Fantastic. And Jeff, just in terms of the pace of investments, you talked up how second half will continue, what the investment levels. How are you thinking about going forward? Are you guys seeing the ROI where it might make sense to extend the investment cycle or is this more of a kind of a 1-year catch-up after years of putting investments in the cloud platform?

Yes. I mean I think that this year has played out pretty consistently with how we plan, although the hiring was a little bit more back-end weighted than we originally expected. The addition of the quanti team is exciting for us as the pricing ambition has been something we've been thinking about for a long time. We certainly see a very healthy backdrop for investment as we look at our market 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 the most professional sales team and we're appropriately resourced to address the market opportunity in front of us and still deliver new products and capabilities to the market. We still foundationally believe that we're always assessing our plans. And 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, the messages as you think through how we've talked about our longer-term goals, historically, we feel very confident that we can operate and kind of meet the moment while kind of maintaining the existing investment profiles that we talked about previously.

[Operator Instructions] Our next question comes from Michael Turrin at Wells Fargo.

It's David Unger on for Michael Turrin tonight. You guys touched on the Gen AI 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?

As opposed to call out particular features, I would say, 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 ClaimCenter, across PolicyCenter, there's numerous opportunities in the claims workflow for applying and building and applying these features to improve process efficiency 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 where generative AI can play a role in, call it, summarizing and assessing an inbound request for a quote relative to a carrier's ability to write that risk.

But then probably another area that's worth highlighting, that's just obviously very clear is developer productivity and using LLM to facilitate the creation of 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 3 things, we're seeing a lot of positive feedback from our customer base and our developers about what they'd like to see from us and what they -- where these things could 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 3 things that I'd say are probably most interesting right now.

Our next question goes to Aaron Kimson.

Can you help us think about the pricing methodology and possible uplift for Guidewire industry intelligence, whether that first sale is a beta version or it's something available to all customers. And if that's something you anticipate landing with smaller insurers improving out or something where you can land with Tier 1s and Tier 2s off the bat?

Yes. So great question. And I think, first of all, the applicability of it relates to what's the model predicts and whether or not it lines up to the line of business and the specifics of what that customer writes we took a pretty broad approach to this first 1 and to try to touch as many of the -- as much of the customer base as we could. But we have a long kind of 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 that might be more applicable to different use cases, different lines of business across the customer base.

For sure, this is something that there's a sort of like ability to target smaller insurance companies with a larger collective data asset that they have on their own. So if you're a huge insurance company, you've got a lot of data, you've got enough data to be able to create 1 of these predictive models on your own. But if you're a smaller insurance company and you don't have that scope of data, you're kind of stuck. And this is where Guidewire and this Intel model can really play a positive role and give them a sort of head start zero-day capability that otherwise would take years to develop.

So that helps in terms of smaller carriers that also helps for bigger carriers who are jumping into new lines of business or new territories where they don't have that data 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 like where we are and how this is going to roll out and the applicability of it. Over time, though, 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.

I'll just add one thing there, which is 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 where 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. And that's really an area where we can push the envelope a little bit, talk more about insurance results rather than operational outcomes and that's open up a whole new channel conversation for us and access to maybe buyers we haven't traditionally sold to as often.

That's really helpful. And then I want to follow up on Alexis question on the Japanese market. Can you talk a little bit about the regulatory changes in the Japanese market related to cross holdings that are expected to lead to P&C insurers having more capital on hand. And what the potential benefits to Guidewire are, whether through an increased willingness to make transformational technological investments with that additional capital or for you to win market share through M&A if that's how they choose to utilize the additional capital?

Yes. Thanks for the question. I think as Mike mentioned, Japan, we're going to be in that market relevant, investing with the talent and the capabilities and the solutions to be relevant in that market for the long haul. Really pleased with how that team has developed I'm not in a position to really get too deep 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 problem there and the capital allocation opportunity there is very real. 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, to your point, influence and increase the rate of investment outside of Japan. And we think we're in a really good position given multicurrency, multi-location and multiline of business capabilities to be that partner for them going forward.

Our next question is going to come from Alex Sklar, RBC.

Just looking at that mix of ARR growth, you 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 third quarter ARR growth actually came from ramps versus that record activity. And then I had a follow-up.

Yes. So in terms of the overall ramp activity, it's always very hard to comment on the year until we get to Q4 because Q4 will drive kind of how we think about that cohort. In general, if you look at the activity in Q3, the one thing of note is that we are seeing some longer-durated activities. So we did see a couple of deals that were longer than 5 years. And in some cases, we have ramps that extend even beyond year 5.

Our definition of full year out ARR, it caps at year 5. So we don't consider things that occur after year 5 until that moves into the next 5-year window. But in general, ramps are kind of similar to what we'd expect bigger commitments, longer-durated deals, but the overall slope of the ramps, there's nothing to highlight and Q4 will have a large impact on it.

With respect to ARR growth and where it's coming from, it was pretty balanced. We are seeing very healthy ARR coming off of the backlog in Q4. We talked a bit about that last quarter. So that dynamic is still very real for us. And then in Q3 saw some very healthy contribution from new deal activity in the quarter that, as Mike noted, it was a record Q3 for us.

Our next question comes from Matthew Kikkert at Stifel.

Congratulations on the quarter. I'm wondering if you could talk a little bit about the quanti acquisition. What's the incremental functionality that you see them bring in to the table? And is it something that should appeal to all of your customers or just a subset of some.

Yes. Thanks very much for the question. As I said in the prepared remarks, I think you should expect us to be -- to provide more detail over time about where this will fit into the company's product strategy. But I'll give you a quick answer. They provide a pricing and rating technology that we think is going to be ultimately applicable to every customer. Exactly how that rolls out across all the lines of business at Guidewire and how it fits into the existing product suite. Like I said, that's work we're still doing right now.

But this is a great team of people who are really excited about supporting a use case that's a little bit beyond what we traditionally have focused on with Guidewire. Think of like what we've done traditionally is taking the output, the pricing strategy from an actuary and running it efficiently in production to provide real-time rates when you need to rate a new quote. This pushes us into the design of the pricing strategy 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 an agility to those teams and to those insurance companies that want to make more real-time changes.

Now the applicability of that specifically depends kind of on what region you're operating in and the different lines of business that you're supporting. But the general technology in terms of like providing a workbench for actuaries to build prices with, bring in lots of different data sources and run scenarios and come up with rate routines and rate strategies that makes sense for the risk that they want to underwrite. That's what we're really excited about. And that's a key component to us delivering on this kind of concept that we're going to bring more agility to an insurance company enable them to change the rates, change the rules, change their prices, change their product definitions as fast as the businesses want them to be changed and kind of take away the concept that there's a bottleneck on the technology side.

We think we can deliver a platform, a seamless platform, using Quantee in the rest of the Guidewire Cloud platform to deliver that agility to the market. So hopefully, that gives you a little bit of a sense. And like I said, there's going to be a lot more to come from us over the next few months and quarters on this subject.

Okay. Terrific. And then secondly, you continue to show nice subscription gross margin expansion over 70% once again, but still a long ways from the 80% long-term target. What incremental steps do you think could be made to add another 1,000 basis points to that margin over time?

Yes, sure. We're continuing to invest in our platform. 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 customers getting to fully ramped outcomes from an ARR perspective and the model just maturing. So as we look through -- I don't think there's 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.

So our last question is going to come from Tyler Radke at Citi.

You hit on your developer day that you hosted, it sounds like it was a good success earlier this year. And I'm just curious how you're seeing your customers leverage AI, genetic AI, specifically around some of the code completion for modernizing these legacy systems. Obviously, a lot of the big Tier 1s have [ Cobalt ] and mainframe systems with the ton of legacy codes. But like what type of improvements in that modernization process have you seen thus far? And what -- I guess, what are you doing from a product perspective to sort of enable some of those features in your own solution?

Yes. Thanks very much for the question. So yes, there's a lot of, I'd say, interesting, 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. And certainly, there's positive signal that this might occur. I would say, practically, what's really happening right now is things that are more surface level.

So think like building the scaffolding for integration between Guidewire and another public or private API, something that's more discrete. And this is something like just works, building the front-end code associated with portals or our Jutro development framework where you're taking Guidewire and exposing it to a public website. This is creating test cases associated with code that you're writing on our platform. And these kinds of use cases are driving a tremendous -- it drives a tremendous amount of cost in the ecosystem and in the 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 Cobalt mainframe conversion those kinds of things are -- like I said, they're signal pointing towards that potential. But we're also seeing a lot of other use cases that do represent very significant components of a Guidewire implementation that we're seeing a lot of positive results from. And I would say like that's as much of where the excitement is right now as anything else. The other thing that you just have to generally be careful of with respect to these modernization programs is very often what we are doing with Guidewire is we are helping a company reinvent their business process to be more modern, and enable them to break the mold of what they're tied to with their Cobalt-based mainframe.

And so you don't necessarily want a 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. 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 yes, that magic present button and everything converts is maybe tantalizing, but it isn't necessarily going to deliver the agile, modern insurance company that everybody really wants.

I'm actually seeing 1 more question from Rishi Jaluria at RBC.

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 you're seeing in insurance now. I recall when you kind of started as CEO, that was 1 of your priorities of kind of rebuilding the product and modernizing it. Maybe can you talk about what's driving some of the success that you're seeing in insurance now, whether that's product specifically, go-to-market execution, just the industry itself being ready for that.

And maybe just alongside that, as we think about kind of the potential handoff. How do you balance the strategy of wanting to work with those customers. But at a certain point, should they grow up to be big enough to maybe be classified as Tier 1, Tier 2 or even Tier 3 kind of at the border lines, what that hand off to IS Cloud looks like.

Yes. Thanks for the question. First, just touching on the last part of your question. We actually have a number of customers that are running both InsuranceNow and InsuranceSuite for different lines of business, different use cases where it's more suited, let's say, for a smaller line of business that wants less customization, less configuration capabilities, just the InsuranceNow platform fits. So we see all kinds of use cases in the customer base.

I think that we just -- we -- the team, our team, and it has executed extremely well with respect to the InsuranceNow 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 InsuranceNow on the Guidewire Cloud platform and drive efficiencies there. That gives us some confidence that we can take that product to market aggressively in the lower tiers of the U.S. insurance market. Strategically, that gives us -- 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 competitor and making sure we're competitive in winning business and not leaving ourselves exposed to some sort of smaller insurance-focused start-up product that ultimately could be a threat to Guidewire. I feel great about all that. we've executed really well.

The product works, the customers are happy. That referenceability also matters a lot in this segment is like ultimately, you just want -- my perspective of a buyer of Guidewire is somebody they just want confidence that this is going to work. That's why I talked so much about referenceability and customer success. They're taking such a risk with these decisions and these programs that like you can't -- it's not easily reversed. And so our ability to say, "Hey, we've got these customers, they're successfully running insurance now this product works. That's really helping us win. And then -- so anyway, just great execution generally, and we feel great about that.

I'll just add that, that end of the market 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 also in Australia, the distribution space in the MGA space and the small end of the market in Australia is super dynamic. And 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's distribution is going and where the world of dynamic product manufacturing is going and it's just a really good exchange of information and thought patterns with that in the market.

With that, that actually is our last question. If you have any closing remarks?

Great. No, 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, the strategic position of the company. So thanks, everybody, for joining us, and we'll see you on the Q4 call.