Greetings. Welcome to the Guidewire First Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Alex Hughes, Vice President of Investor Relations. You may begin.

Thank you, operator. I'm Alex Hughes, Vice President of Investor Relations. And with me today is Mike Rosenbaum, Chief Executive Officer; and Jeff Cooper, Chief Financial Officer. A complete disclosure of our results can be found in our press release issued today as well as our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. Today's call is being recorded, and a replay will be available following the conclusion of the call. Statements made on this call include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and 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. 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. With that, I'll now turn the call over to Mike.

Thank you, Alex. Good afternoon, and thanks, everyone, for joining today. We're off to a strong start to the year, and it's great to see this momentum continue following a record Q4 where we had especially high close rates. I characterize this quarter as one of continued solid execution. We are seeing good progress on the deal front as well as in operations and also had a tremendous customer conference at Connections last month. We had record attendance with about 3,000 in-person attendees. The enthusiasm and support for our strategic direction and Cloud Platform was noticeable, and the event provided great validation of our progress and the tangible business impacts we are providing to our customers. We are steadily building a franchise that will have a lasting and positive impact on the P&C insurance industry, and that will produce the durable, profitable long-term growth that is commensurate with a vertical market leader. Since we had a chance to speak at Analyst Day last month, I'll keep today's remarks fairly brief and share my key takeaways on the business. First, Guidewire Cloud Platform continues to advance steadily and consistently with each new release. The ninth release of Guidewark Cloud Platform, Ins Brook, was made available December 1, and builds on the automation, orchestration, integration and monitoring capabilities in Hakuba and will deliver greater functionality in digital analytics, data, straight-through processing and pricing. Each release brings greater and greater benefits to customers, which helps to grow interest in our platform. Second, we continue to see this interest manifest in sustained sales momentum. We closed another seven cloud deals in the first quarter, including six for InsuranceSuite Cloud. This, despite Q1 typically being a seasonally leg quarter probably will be available following -- we closed four InsuranceSuite migrations in the quarter, including the…

Thanks Mike. We're off to a strong start in fiscal 2024, and it is great to see sustained momentum in the business. From a financial perspective, we entered into this year very focused on, one, increasing ARR and the subscription mix of our business; two, expanding overall gross margins, primarily led by subscription and support gross margin, but we are also prioritizing services margins; and three, driving greater cash flow from operations. Today, I'll talk about how we're doing in each of these areas as I go through the details, and we'll finish with our updated outlook. ARR finished just above the high end of our outlook at $770 million. Total revenue was $207 million, also above the high end of our outlook, and this beat was primarily due to higher-than-expected subscription and support revenue and services revenue. Other components of revenue were largely in line with our expectations. Turning to profitability for the first quarter, which we will discuss on a non-GAAP basis. Gross profit was $121 million, representing 46% year-over-year growth. Overall gross margin was 58% compared to 42% a year ago. Subscription and support gross margin was 65% compared to 49% a year ago. This was ahead of our expectations due to higher-than-expected revenue, increased cloud infrastructure efficiency and the timing of some cloud services credits from our cloud infrastructure provider. We are thrilled with this result as it gives us confidence to raise our profitability targets for the year. Services gross margin was positive 10% compared to negative 9% a year ago. This profitability turnaround is a result of many quarters work that we have discussed in prior earnings calls. And this start to this year to the year sets us up well to hit our annual target of $30 million in gross profit for services.…

[Operator Instructions] And our first question comes from the line of Dylan Becker with William Blair. Please proceed with your question.

Appreciate the question here. Maybe, Mike, starting with you, you called out kind of the Connections Conference and a lot of discussion coming out of that around aligning kind of the decisioning with tangible value towards business applicability versus kind of the IT infrastructure side. I wonder how important is that conversation around business applicability as we think about kind of championing change in the industry and maybe to what extension you're seeing that evolution play through or flow through into your conversations and interactions with customers?

Yes. Great question and Connections is a great example of an opportunity for us to talk about this and hear from customers directly on the subject. I think if you think about the the history of the cloud transformation here at Guidewire. The story really began with IT-focused infrastructure, operational value proposition, reduce complexity, support upgrades, things like that. But what's so exciting about the momentum we've achieved in the product organization with our ski resort releases and first, shifting to a twice-a-year release schedule and then subsequently shifting to a three times a year release schedule, and then really importantly, doing all the work necessary to facilitate customers receiving those updates. All that -- you can think of it as like all of that work, engineering, plumbing, so to speak, of a cloud system gives us the ability to ship business value improvements consistently release over release over release, and that's increasingly the story really of Guidewire Cloud, which is not just, hey, we have a core system that runs effectively, but we have a core system that can help you differentiate in the market. We can help you make changes to your products more efficiently and faster. We can help you adjust your prices, assess the risks associated with the insurance that you're writing. We can help you optimize your claims processes more effectively predict outcomes more efficiently. And all those capabilities are delivered legitimately more efficiently through these cloud releases and that is much, much more part of the conversation and what the customers are excited about effectively buying when they buy into Guidewire and our cloud story. So for sure, this is a shift in a way that we're taking the product and the Company to market it's been very, very well received. Somewhat I feel like we're really just getting started, honestly, this is really just starting to kick in and these updates are starting to take hold. And -- that was -- we were talking today actually about our key takeaways from Connections. And the reality of the -- just how fluid these update processes are going for our cloud customers was one of the big takeaways. So I appreciate the question. I think it's absolutely part of the story. And probably one of the things that's helping us continue to drive and improve sales momentum in the business.

That's great. Maybe switching over, Jeff, on the operating side. A lot of healthy momentum here and outperformance from a margin perspective, I guess, maybe help us think through kind of some of the seasonality, maybe any variable puts and takes on a quarterly basis and how we should think about some of the sustainability. I know you called out some kind of reallocation there, but sustainability of the outperformance here relative to even when we met 30 days ago, maybe versus what was more onetime in nature, if anything?

Yes. No, it's a good question. We are obviously very thrilled with the margins we saw in Q1. It caught me a little bit by surprise. I wasn't expecting to be at 65%. And there was some onetime elements in there. We did benefit from a bit higher revenue. Some of that revenue was tied to platform usage that was billed in arrears. So think about that as kind of catch-up revenue that was recognized in Q1 that flowed through to the margins. Additionally, we did have a little bit higher credits from our infrastructure provider in Q1 than we're expecting in the back half of the year. But in general, we've made really strong progress in how we think about the efficiency of the platform that we're delivering and it gives us a ton of confidence as we kind of start to march towards those longer-term targets. So, there was a little bit of a onetime effect. I would couch it around 2% to potentially 3 percentage points when you factor in the top line that was some of that catch-up revenue and you factor in some of the credits that may not recur throughout the end of the year, but in general, just really healthy progress.

Our next question comes from the line of Kevin Kumar with Goldman Sachs. Please proceed with your question.

I guess I'll start with the cloud deals. I think seven in the quarter, pretty impressive, particularly given it's a seasonally slow typically seasonally slow. And I think that compares to four deals maybe last year. So curious, Mike, how are you thinking about maybe carrier appetite for cloud modernization today versus perhaps a year ago? And maybe what are the key drivers that you would attribute to the stronger deal activity that we're seeing out of the gate?

Thanks for the question. I would say sort of probably two things. One, steadily building confidence in the -- just the stability of the operating conditions for insurance companies feeling more confident about the future, enabling them to make these decisions pull the trigger on these projects. That's part of it. But I think the bigger part of it is just growing confidence in our direction, our capability to deliver success, follow through and see the projects live we've talked for years about sort of how conservative the customer base is and how they want to see other people sort of pave the road, so to speak, for them to drive down in the future. And I think, we're starting to see that, that factored into the momentum in Q1. And I think it's also helping us feel comfortable and confident about the pipeline over the next three quarters and the outlook for the rest of the fiscal year. We really just are seeing all the hard work and energy that we've put into the platform and the products and the customer stories that are -- positive customer stories and the business impacts that we've achieved with them helped improve the propensity of these either migrations or net new deals to come to the platform. So, it's all those things, I think, adding up to result in a very positive start to the year for us.

That's great. And then, Mike, you called out analytics? And I guess Guidewire now is a fairly robust portfolio of analytics applications, so curious kind of which applications are seeing the most traction? Where is there room to maybe improve attach rates? And how do you think about the overall kind of add-on strategy going forward?

So yes, we mentioned the deal that we did with HazardHub, which we're really excited about. We think that there's a revolution maybe coming, if I'm not exaggerating too much in the way that people approach property analytics. We talked a lot about that at our Connections Conference. We think that the approaches that most of the insurance industry is taking to measuring the risk associated with properties can be vastly improved by taking a much more specific and much more local, even address by address, location-by-location approach. And HazardHub is our mechanism for driving that change in the industry. We think it will have broad applicability to multiple different lines of business, and there's a lot of excitement about driving traction and adoption of that product in our customer base, but also throughout the industry, where there's an opportunity for us to maybe drive more attach is with our Predict product. I think that most insurance companies have, call it predictive analytics, machine learning projects up and running. They're working hard with great teams of people to try to sort of predict outcomes and predict next steps and predict severity on risk and claims and things like this. Where they struggle is actually deploying it. They struggle actually getting it into the core systems, into the core system workflows, in front of the people and the users at the points in the business workflow -- in the business processes where you can really take action and have an impact on the business. And that's where Predict really shines, is making it possible for us to actually deploy effectively and efficiently and fast all this work that the data scientists and engineers have done inside these insurance companies. And so this is one of the areas where we think that there will be more attached going forward, more joint selling and more just positioning and deploying InsuranceSuite applications and InsuranceNow applications alongside these predictive analytics models with Predict. So hopefully, that gives you a sense of how excited we are about it.

Our next question comes from the line of Rishi Jaluria with RBC. Please proceed with your question.

Nice to see continued momentum in the business especially coming out of connections. Maybe starting with connections, right? There was a lot of excitement with partners and customers we talked to at the conference around Jutro. Maybe can you talk to us now that the product, if I'm not mistaken, did come out a GA at the beginning of this month, maybe what his early feedback from customers and partners been since talking about it at the conference announces kind of going live? And how we should expect this to maybe help you competitively, but also really helped us build out a stronger and more robust ecosystem? And I've got a follow-up.

Okay. Yes, great question. Feedback was extremely positive. One of the things we did that I thought was a little bit risky, but also a lot of fun as we worked on this project to sort of take a collection of business requirements and turn it into an insurance application that was exposed digitally on top of the platform. And Jutro was one of the primary enabling mechanisms for us to be able to deliver something in 24 hours. It's really a game changer in terms of the way people think about deploying digital applications. We are incredibly excited about it and the feedback so far from customers is also very, very positive. And so somewhat, it's the feedback from the customers who are seeing it and putting their hands on it and looking at the demos and connections, but it's also what we call our early access customers who have been working with us over the past couple of releases to really use this, build applications with it, deploy those applications into the public domains. And ultimately, it's about enabling them to create these consumer experiences in a much, much faster way. We -- it's a real change in the way that traditionally these agent-facing or consumer-facing applications are developed, deployed, maintained. And we think it's going to provide a significant boost to the development teams, the IT teams, the business teams who are responsible for rolling these things out and ultimately making insurance just easier to consume, and making the whole process more efficient, but also more convenient and more friendly. So very, very happy that you noticed that and very positive feedback from initial customers and the customers we showed it to of connections.

All right. Wonderful. Really helpful. And then in your prepared remarks, you talked about you're continuing to grow the partners that you certified for cloud migration. Can you maybe talk a little bit about how you might be able to, number one, accelerate the number of partners that can do that and you'll continue to offer some of that services, and maybe number two, tying generative AI into all of this, right? But to what extent can partners utilize, whether it's AI or actually generative AI to accelerate the pace of those migrations and maybe even speed up the time to being certified for that?

Well, so yes, it's a great question. We've been working very, very hard to ensure that the consultants in our ecosystem are certified on each cloud or lease. That was number one, most important thing, right? Because we're changing the approach more quickly the pace of innovation from Guidewire has increased. And so it's very important that we ensure that everybody that's selling themselves or deployed on a live project knows the latest and greatest and knows how to do the implementation, the way that you should do it based on the latest release. That's number one. Number two is we recognize that there's a particular skill set in sort of assessing the current state of a Guidewire on-prem implementation and optimizing the approach to moving that over to a cloud implementation. So that obviously, you need to understand, you need to be cloud certified. But you also -- there's just a whole bunch of things that we've learned now about 100 projects that we can help disseminate more effectively into the broader ecosystem. And that -- so that's what's behind that effort to create those migration certifications. Certainly, we're looking to add additional horsepower to that program, and we're very open about the approach to recruiting partners and training consultants because in our opinion, we're creating a lot of demand for that Guidewire expertise. And the more capacity there is to do these sorts of projects, I think the more demand, honestly, we'll be able to create. So our certification approach is very open, and we're constantly trying to recruit more and more consultants to be experts on the projects. I really think this is one of the best things sort of a consultant can learn if they want to ensure that they're going to -- that they're going…

Our next question comes from the line of Peter Heckmann with D.A. Davidson. Please proceed with your question.

You spoke about it a little bit on the Investor Day made some recent progress with migrating clients on classic platform. Remind me, I believe you have four left, but the two -- does that imply there were two that migrated over the last 12 months or so? And how are you thinking about the timetable on those remaining four?

Yes. Thanks for the question. Yes, we have had success in moving a couple of those customers over from our classic approach to our GWCP approach. We're in active conversations and planning with each one of those for customers. These things are somewhat complicated and often have a lot to do with their internal priorities and other projects that they're executing as part of their overall IT landscape and project portfolio and other business ambitions like building out new product lines or optimizing business processes or digital implementations. And so factoring in that shift is something we're working closely with them. And so my expectation is that this isn't something that's going to be transitioned all in one year, and it might stretch out two or maybe even three. But we're pretty comfortable right now with the dialogue that we have with these customers and the planning and approach that we're taking. We're also doing a lot of work to continue to optimize the implementations that support them on the classic approach to Guidewire Cloud. So we feel comfortable about that. We're always working to make sure that it goes well. But from an investor perspective, I don't think it's something that really factors as much as it did into the overall picture at Guidewire as it did maybe 1.5 years ago, I feel really good about this approach.

Yes. Pete, I was going to say the same thing. I mean, I think if you look back to the Analyst Day two years ago or year like a little over a year ago, two Analyst Days ago. The impact that the Classic customers had is a drag on the overall margin was quite significant. As we've migrated a group of those over to GWCP as we've improved our overall efficiency in managing the classic customers, and just as we've grown our business, that's going to be a smaller and smaller piece of the overall pie. So we'll be less material to the margins going forward. But it's something we're still working hard on.

Good. Well, that's good to hear. And then in terms of just the this second quarter guidance that just looking at a little bit at -- and I want to make sure I'm interpreting this correctly, but it looks like it should be a relatively more solid term license quarter with a little bit lighter growth in subscription and then another kind of down high teens type in services. And so, on the services side, should this be the last quarter where we see that type of decline and then we start to see year-over-year growth again in the back half?

Yes. So on the services side, as we noted in the prepared remarks, we've been doing a lot of work to move away from lower-margin subcontracted revenue and pushing more and more business through our partners, that's impacting top line, but bringing in a much higher quality revenue stream that is a higher margin profile. So that is playing out. Q2 is also the holidays, and so it's not uncommon for Q2 to be a little bit slower than Q1 with respect to overall services. And then we have capacity and we have a fair amount of work to do in the back half of the year and so are expecting revenue growth in the back half of the year vis-à-vis the first half, and have structured our cost basis in a way that we can do that at a nice margin. So that's how we're thinking about the services side of the business. Term license, as you know, it kind of bounces around with when the renewal activity happens. And so Q1 is always like from a term license perspective, Q2 will be seasonally higher, which is pretty consistent for us. And then on the overall subscription side, the only thing I would call out is that we did have a little bit of what I would call more onetime revenue that impacted subscription in Q1. In general, we feel very good about the start to the year in terms of how we march towards our longer-term targets and our annual target for this year. But some of that did impact the sequential growth rate from Q1 to Q2.

Our next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question.

I wanted to circle back on some of the commentary you made around HazardHub and some of the other analytics products that you're adding in there? And I guess as we look at those on a go-forward basis, how much should we think about those being additive to ARR on a specific contract or for customers in general versus being sort of more of a carrot to get customers to move to GWCP and really start to unlock all the value of being in the cloud and using some of those more advanced features.

Yes, it's a good question. I would say, primarily, our expectation -- my expectation is that this developed into a -- and I don't want to say independent, but linked an incremental source of ARR for the Company. We can certainly use them as carrots to drive cloud adoption. But I'm more and more comfortable that the core cloud value proposition and the value proposition of insurance suite with the cloud services that we have built to support it creates enough support or direct core sales and then the analytics sales of these products of Predict and HazardHub can be incremental. They can be linked sometimes, and we certainly work hard to link them and sell them both at the same time. But over time, our ambition is absolutely to create an incremental analytics business that, like I said, is linked to, but accelerates the overall growth of the Company.

Okay. Very helpful. And then great to see the Japanese carrier moving to a full GWCP deployment. Do you think this is sort of the breaking of the dam of some of the international clients being ready to make that full switch and really embracing the cloud, maybe as partners are more prevalent and more trained? Or is this still a little bit of a, each carrier needs to make their own decision. There's not necessarily this bigger group wave from country to country like we've seen here in the U.S.

Yes. I don't think we're ready to call it. And I don't know if we'll ever really see it sort of a metaphor like breaking the dam or anything like that. It's certainly helpful. It is an incredibly positive signal. We had another Japanese customer go to the cloud, and this is our second one, this is a full suite implementation. It's certainly helpful. It helps us validate the model. It helps us exercise all the particular things we need to do to make sure that the system works and can go live successfully. And so it's all very, very helpful. That kind of approach played out across each of the countries we operate in, certainly helps. But I wouldn't -- I don't have a vision and we don't have a financial plan that sort of imagine some like future flood. It's going to just be steady improvement, increased propensity to trust us and to trust the model, and that all just builds country over country quarter-over-quarter. That's more the approach we're going to take. It's modeling the business and really, it's also our expectation. And I think it kind of relates to what you just said, which is there is this overriding factor of what are their priorities, what are their objectives, what are their timelines, and those factors have a big -- those things factor into in a large way the timing of those deals for them. So this is certainly helpful on the progress we've made internationally over the past couple of years, certainly points to the eventual success, but I don't see it coming all at once at all.

Our next question comes from the line of Parker Lane with Stifel. Please proceed with your question.

This is Matthew Kikkert on for Parker. So you're in your non-cloud release now and have a strong amount of go-lives. How would you compare your effectiveness and speed in those cloud implementations this time compared to at the beginning of your cloud push?

Yes. That's a great question. I shouldn't admit it, but it's night and day. I mean, we are just so much more confident now around what it takes to run these successfully than we were when we first got started. We did a good job when we got those first cloud deals done, and we got those first cloud customers live. But I don't know, I want to put it into a measure, but many, many orders of magnitude more confident. Just having done and experienced all of these different circumstances that can arise in one of these projects, and having built really a world-class organization in terms of understanding and assessing what we learned from each one documenting it super effectively building it into better operational processes to enable that we're more prepared than we're sort of making sure that the gotches that held up other projects don't occur again incredibly proud of the work that our teams and our partners have done to ensure that these programs go live more and more effectively with each cycle. That same concept also, by the way, applies to the updates, right? So it's not just the initial go-live, but it's also the subsequent update and making sure that customers are thinking about that and planning for that and testing for that, so that those things can operate more smoothly now. It's just incredible how much progress we have made over the past few years around this topic. And by the way, I don't think we're done. I think we're at nine. And so how many letters are there in alphabet, we'll run out eventually and have to come up with a new marketing approach. But when we get to 18, we're going to be even better. These things are going to be going even more smoothly. And we have established the improvement function inside of Guidewire around these projects, and are really, really doing a much better job than we were initially. And that experience is -- that positive experience for customers is shared and does help us sell more effectively and helps us feel confident in the progress and the momentum in the business. So appreciate the question. Unfortunately, makes me admit that we were -- had a lot to learn when we first got started, but very, very proud of the progress that we've made so far.

Yes. Awesome. That's great to hear. And then at the end of your prepared remarks, you mentioned you did a $2.5 million services reorg earlier in second quarter. Could you provide some more detail around the changes that you made there? And what was the thought that went into that move?

It was really around just doing some rightsizing. We have seen that org. We have seen our partners take on more and more of the burden. That is a great outcome for us as that improves our overall scalability as we address this very large opportunity in front of us. And so it was a relatively small action, but does kind of play into the services margins in Q2. So we wanted to call that number out for you. But that's all I would call out on that particular topic.

Our next question comes from the line of Ken Wong with Oppenheimer & Company. Please proceed with your question.

Mike, I wanted to circle back to your upbeat analytics commentary. How might reform the risk modeling, I think, in California, specifically allowing forward-looking data spark demand for analytics? And might this have any kind of pull-through for cloud interest?

Yes. Great question. I'm glad you pointed that out. We're excited about the changes that the state of California is working with the industry to make. There's obviously a lot of turbulence in the insurance market in California, which many of us personally feel having a lot of the employees of Guidewire work and live here. So, we see it as very positive -- a very positive update to the approach, and we expect that solutions, specifically HazardHub can play a very positive role for the industry and taking advantage of these changes and just better understanding, number one, the real risk profile associated with these properties and with these locations, but also things that insurance companies and also homeowners and businesses can do to mitigate that risk. We think that's all part of the equation when it comes to operating a more effective and efficient insurance market. And so California is making some changes, but we also think that HazardHub and property analytics in general, can really significantly improve the approach that carriers take to measuring risk and pricing risk and operating the the industry overall more and more effectively. We expect intent, we're excited about playing a driving role in that I'd also say that this extends not just our products and HazardHub, but also our partners there's a number of analytics partners that plug directly into Guidewire and can be deployed super easily on our platform that are going to facilitate this sort of new modern approach to risk management, risk selection, managing disasters, if they occur, more effectively. It's very, very exciting, applying this Insurtech Innovation to the industry, and we're excited to be a part of it that California change, it's sort of, for me, kind of makes all the work we do here real because if you talk to people that live in California, there's not any of us who either haven't experienced or knows somebody who has experienced a change in their insurance provider because of the because of the risks associated with the weather changes and the risk profile in California. So that makes it all kind of personal for us and makes it pretty exciting. Whether or not it helps us sell cloud, I certainly hope so. I think overall, agility is the word I like to use. I think if you're in a world where risk is changing faster than the more agility you have, the more pace around which you can operate your insurance company the more effectively, you're going to be able to manage those changes, manage that risk more effectively, update your operations and update your company more effectively. And so Guidewire Cloud and modern solutions provided by InsuranceSuite applications and InsuranceNow, it delivers that agility and enables the industry to operate more efficiently. So, we're very positive on that change and look forward to seeing -- helping drive, honestly, just a better, more efficient industry. So anyway, that hopefully that helps.

Yes. Very helpful. And I appreciate all the thoughtful details there. And then just a quick one for you, Jeff. I'm not sure if from quarter-to-quarter, we see too many changes, but just wondering if there's any update in terms of what kind of the deal ramp dynamics might look like in Q1?

Yes, yes. No major change. Q1 -- if you look at Q1, it generally as a portfolio tends to have a little bit of a shallower ramp than the rest of the year just because it's a smaller and a lot of the activity is kind of more true-up and renewal compared to the overall bookings profile. But it was very consistent with Q1 last year so kind of steady as we go, no change to ramp assumptions at this point.

Our next question comes from the line of Michael Turrin with Wells Fargo. Please proceed with your question.

This is David. I'm going from Michael Turrin tonight. So similar to Ken's question that just said. So we've been booking up a bunch of head bids that you’re positioning and the competitive environment has improved within the last year, especially -- you mentioned you have high close rates. So I'm wondering how this all translates into deal dynamics as you sign new cloud deals?

Yes, interesting question. So first of all, you got to understand for these big cloud deals, they're very often very long sales cycles, very involved very involved, often pretty significant proof-of-concept phases, even pilots. We work with these -- these decisions are not taken lightly, and we're involved in them for many, many months of sometimes over a year on a particular deal. Close rates over the past couple of years and especially through the cloud transition have remained stable. We provided some detail around this at the Analyst Day, and you'll find this in the slides we prepared and the talk track that we went through around competitive win rates, close rates very pleased, I'd say, maybe I shouldn't say that. Maybe I should say I'm never pleased until we get it to 100, right? It's a competitive market. But we have remained steady throughout the transition and continue to feel more and more confident about our position competitively. The reason I call out these competitive deals over the past few quarters is just simply that it's almost like -- we consider it almost a bit of an expansion to our total addressable market. And that once a carrier modernizes to a system. We sort of expect that it's not going to come back up for grabs for maybe 5, 10 years, and to see a few of these deals and now multiple quarters in a row where we see these customers coming back to market and looking for us to make that shift from a sort of modernized system or a modernized system decision to Guidewire. We just see that as a very positive trend and something that we think just points in our favor in terms of being able to support our growth projections, bookings projections and ability to address the overall insurance market.

Yes. The only thing I would add is just like the value of the stock, right? The more risk associated with the Company that has an impact on the overall stock price. So as we negotiate these deals, the more proof points we have, the more we can derisk the path from going to where they are today to our cloud that helps us as we think about building a business case and making the case to the insurer that now is the time to go and that these price points are reasonable. It is clear that some of the early, early adopters got preferential pricing because they were taking a bigger risk. And as we think about future engagements, we are going to be firmer and firmer on how we think about discounting. This is part of the strategy all along. So I think we're starting to see that. These deals are still heavily negotiated. As Mike said, you never want to lose one of these because when you lose one, you feel like it goes away for 10, 15 years. So, we fight tooth and nail to make sure that we're well positioned and win. But it is our expectation that we can do better on discounting as we look ahead.

I really appreciate all that detail, guys. And a little more higher level here. So I know it's early, but is there a way to think about the insurance industry's budget commitment trends as we look forward into next year, our commitment to software spend versus the prior year and their appetite to convert to the cloud.

Yes, it's a great question. And I think we've talked over the past few quarters about the shocks that the industry has dealt with in terms of inflation, weather-related risk and loss and the cycle that they have to follow in terms of getting rate increases approved by regulators and how that all flows through the system. So, as we get through a cycle of that, and hopefully, we have a stable inflation environment, we have a stable interest rate environment, knock on wood or hopefully, we get stable climate-related, weather-related risk environment, that's harder to control, obviously. Those things are work to our favor in terms of creating the type of stability that enables them to feel comfortable making a big project decision around core system modernization. So certainly, that is improving. And we watch it very closely, and hopefully, that stability continues, and it will help increase the propensity for these deals to be greenlighted, which results in our bookings events for us.

Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.

And apologies, if this was covered earlier popping around a couple of earnings calls tonight. But Jeff, I was hoping just on the -- if we look at the ARR guidance, obviously, you beat the high end by $1 million here in Q1. But if I look at Q2, it came in, I think, a little bit below where consensus is modeling. And overall, it looks like the first half from a net new perspective is down versus a year ago, and that's expected to improve in the second half. I know there's ramp in timing factors that are at play. But can you just help us understand that a bit more? And was there any change in the ramp of the contracts you're expecting to kind of layer in this year?

Our Q2 outlook is very consistent with our expectation as we went into the year. We obviously have a lot more visibility than you all in terms of when the ramps hit, and that has a big variable into how we model out quarter-by-quarter. So Q1 got us off to a good start. We're very pleased with it. We always kind of think about our business on an annual cadence. I think we're off to a very good start. Q2 is consistent. The ramps are falling the way we expected them to fall the attrition profile in the business is still very, very small and kind of following the way we expected it to fall. So, there's really no change to our internal expectations. We understand that you all have to make your best guess on your quarterly estimates, but very consistent with how we thought about it as we started the year.

That's helpful. And Mike, you talked about how the number of deals you closed in the quarter was better than you expected. Was there any timing factors there pulling stuff in? And then if you could just talk about kind of the composition of those deals just in terms of the size and they, on the smaller side of things, just given the seasonality of your business? Any additional color there would be great.

No, there wasn't anything special about pulling in deals or anything. It's just continued positive momentum in the business. And like I said, especially coming out of a strong Q4, typically, you end up with a strong Q4 by pulling deals in from Q1. And so then we use that sort of an explanation for light Q1, but we followed up a strong Q4 with a very solid Q1. And I think that, that speaks volumes about the momentum that we have in business. Deal count was also -- it was great to see. We had four migrations, which I was very, very happy to see. So it's not all the net new or it's not all migrations. It's a good spread. And like I said, we see this deal in Japan is just phenomenal. It's a phenomenal milestone for us when you think about the long term and the potential that we have internationally and especially in Japan, I was very, very excited to see that deal close. And like we said, like we work for a lot of years building relationships and making sure they understand the strategy and the story and building confidence in getting a deal like that in Japan across the line in Q1 was great. So I wouldn't read anything special into it. In terms of deal size, pretty normal, kind of where we expect it to be. And like I said, really strong start to the year.

Yes. The only thing I'd add to is, look, I had obviously modeled a little bit lower bookings activity in Q1 as we went into the quarter. So -- and some of that was just a reflection of the strength of Q4. So, we were pleased to see the activity in Q1. It was a little bit higher than what we'd modeled. But it was not, I wouldn't say there was any sort of unnatural pull in. It's just -- we look at this on an annual cadence, and we got off to a good start.

Our next question comes from the line of Mike Funk with Bank of America. Please proceed with your question.

This is Matt on for Mike Funk. You mentioned especially high close rates in the prepared remarks. Can you provide any incremental color on how deals are moving through different stages of the pipeline relative to prior Qs?

Yes. I just -- I wouldn't say that we've seen an acceleration in deals moving through. I'm trying to think about, sometimes you see these things just push. And I guess, if we don't see them push and we see them close, then I guess that's sort of like an acceleration relative to the average. But I wouldn't say that the expectations we have for how long an evaluation will take have changed. We just feel more comfortable about the outcome of the evaluation and the outcome of the deal process being positive as we gain -- I guess as we gain confidence as the market gains confidence in the solution and our ability to deliver success. And as the references and other customers who have already deployed and gone live on the service, validate that. And so, it's just I wouldn't describe it as a cycle acceleration as much as it is just more confidence in the deal to actually close and be decided in our favor.

Our next question comes from the line of Aaron Kimson with JMP Securities. Please proceed with your question.

You announced a partnership with Swiss Re Connections, talked about it a little bit at the Analyst Day. Can you comment on early progress there and your appetite for more potential partnerships with reinsurers going forward?

Yes. This was a very exciting relationship. It is -- I guess it's been in the works for a while talking to them about what we might be able to do together. And I think that the, obviously, the connections event precipitated the opportunity to announce this and start talk about it with customers and talk about it publicly. I would say our momentum in the cloud facilitates a much deeper understanding and relationship with our insurance customers, which creates the potential for us to play a far more interesting role in terms of what I guess I'd say is like orchestrating the relationship between insurance companies and reinsurance entities. There's a significant amount of data sharing that goes along with providing reinsurance and assessing risk, sort of back and forth between these entities and Guidewire can facilitate that relationship. We can make that more efficient. There's a lot of exciting things that we can do with companies like Swiss Re. To the extent that they have analytics models that they're have developed or would like to see their insurance partners utilize to manage risk more effectively if Guidewire can be a facilitator for that sort of activation and operationally managing that model such that the insurance companies are making better decisions. They're aligned with the expectations that their reinsurance partners have, that's a big, big benefit. And I think that what we're seeing is a lot of excitement about this new model for a centralized cloud service supporting the entire industry can really play a different sort of role in overall risk management, up and down the value chain. So, I appreciate you bringing this up. I mean we've got a lot more work to do with Swiss Re. We're incredibly excited about where this might go. And we're excited to be working with them and have the opportunity to talk about that work in public.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to CEO, Mike Rosenbaum for closing remarks.

I just wanted to say thanks, everybody, for participating in the call. We're incredibly pleased with the start to the year, and we feel great about how things are progressing on the platform with customers and with partner program and overall momentum in the business. So we look forward to catching up with everybody throughout the quarter. And if we don't, I guess, we'll see you at the end of the next quarter. So thanks very much.

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