Greetings, and welcome to the Guidewire First Quarter of 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; Jeff Cooper, Chief Financial Officer; and John Mullen, President and Chief Revenue Officer, who will be with us for Q&A today on the 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 are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and risk factors and documents we file with the SEC, 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 more 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 a supplement on our IR website. Finally, this quarter, Investor Relations decided to enter the current decade and conduct our earnings call on Zoom rather than a telebridge. This means we will manage the Q&A portion of today's call internally with the help of Grace moderating, you just heard from and me managing Q&A. Since it's our first go, please be patient with us if we encounter any short pauses in the handoffs during Q&A. So with that, I will hand it off to Mike.

Thank you, Alex. Good afternoon, and thanks, everyone, for joining us today. Q1 was a very strong start to the year for us and coming on the heels of a record break in Q4, I'm excited about the continued and consistent momentum in our business. In November, we had the opportunity to connect with thousands of our customers and partners at our industry conference Connections and also released Las Leñas, our 12th cloud release. Connections is an opportunity for us to present our company and product vision to the world, and the feedback has been universally positive. It was gratifying to see the results of our team's efforts come together. And I think it appropriate to call out four key themes that I took from the event, and I believe are driving our company right now. First, we continue to see strong demand from our cloud-based solutions, particularly at the high end of the market. Second, this demand is being driven by the increasing maturity of our cloud platform, particularly around the ease of updates, which is driving referenceability throughout our cloud customer base. Third, the improved agility and flexibility that our cloud platform and solutions deliver is resonating with the industry's growing demand for pace and speed and delivering analytics and AI-powered innovation. Fourth, our partner ecosystem, both in terms of consulting partners and marketplace solutions continues to rally around our cloud platform, which is extending and accelerating our reach and impact. Finally, unrelated to Connections, but important to call out, we continue to create leverage in our operating model as we drive greater efficiency running Guidewire Cloud Platform. I'll touch on each of these briefly before handing it over to Jeff to discuss the financials. Cloud demand remained strong with 9 deals in Q1. Our results were particularly…

Thanks, Mike. We're off to a great start in fiscal 2025. I want to touch on four key financial highlights before I jump into the details of the quarter. First, ARR ended at the high end of our outlook at $874 million; second, subscription and support revenue growth accelerated to 33% in Q1; third, subscription and support gross margin hit 70% in the quarter; and fourth, total revenue on a trailing 12-month basis surpassed $1 billion. Combining these financial highlights with the energy we just experienced coming out of Connections, it is clearly an exciting time to be at Guidewire. Now let me dive into the details. Total revenue was $263 million, above the high end of our outlook and up 27% year-over-year. Our total revenue beat was due to higher-than-expected subscription and support revenue and services revenue. Subscription and support revenue finished Q1 at $170 million, reflecting 33% year-over-year growth, which is the highest growth rate in 2 years. This is a reflection of our continued InsuranceSuite cloud momentum. Services revenue finished at $56 million as healthy services bookings translated into higher utilization rates. Turning to profitability for the first quarter, which we will discuss on a non-GAAP basis unless stated otherwise. Gross profit was $167 million, representing 38% year-over-year growth. Overall gross margin was 63% compared with 58% a year ago, and 42% in Q1 of fiscal '23. Our progress on profitability has been fantastic. Subscription and support gross margin was 70% compared to 65% a year ago. This was ahead of our expectations due to higher-than-expected revenue and continued progress on platform efficiency. Services gross margin was 20% compared to 10% a year ago. This profitability benefited from strong utilization rates and lower subcontractor costs. All this positive momentum on gross margins led to an operating profit…

Great. Thanks, Jeff. Our first question comes from the line of Dylan Becker at William Blair.

I appreciate the question. Mike, you touched on this to start. Obviously, we were at Connections, and it was very clear the enthusiasm from customers and partners that you talked to. I'm wondering if you could dive into the importance. You called out kind of now roughly half of the base along this cloud migration journey. I think the vast majority of those are on kind of more frequent versions of the software as well. So how that kind of unlocks more of this ecosystem enthusiasm and how it contributes confidence in your aspirational goal of getting 100% of this ecosystem converted to the cloud over time.

Yes. Thanks, Dylan. I appreciate the question. So I think one of the things that's been -- it's has been hard over the past few years is just, the use case is not an experimental use case. That the customers we serve in the industry and the use case that we serve for customers is incredibly serious. And so they take the decision to move to cloud very seriously, and they want to see a track record. Many of these customers want to see a track record of success. And so it's kind of one of the things that we're very proud of is just how well we've executed and how consistently we've executed with our cloud programs. They haven't all gone perfectly, but I can genuinely say that they've all gone well and everybody that's made that decision it's happy that they made the decision. And so that just really helps us have the conversations with the customers that are still on-prem that are still thinking about when is the right quarter and when is the right year for them to move and it just adds to the confidence and it reduces the perceived risk that they're taking and going to a platform like ours. Now the other side of your question, which we touched on at the Connections event is not only are we getting the programs live and not only are they running successfully in production, but we're actually able to keep the customers on current release versions of the product, which is slightly different than basically the way the distribution of releases existed in our on-prem customer base. We're doing a lot technically to validate the implementations and validate the new versions of the software that we write so that we can do these updates more…

No, it does appreciate it, and it was great to see the enthusiasm at the event. Maybe Jeff, as a segue to you off of that. You called out the acceleration in subscription and support revenues as a function of some of these larger Tier 1 deals, obviously, 70% gross margin there, tracking well ahead, and how this kind of gives confidence and obviously, the kind of financial implications of this long-term normalization and some of your longer-term targets there?

Next question comes from Ken Wong of Oppenheimer.

Mike, you called out the Zurich deal in your prepared remarks, and I couldn't help but notice a global framework agreement being tossed out there. I guess maybe help us understand the significance of a global framework. And how much is this -- how much of this is something that might materialize near term financially versus something that we might see kind of flowing in more medium, long term as this framework gets rolled out?

Yes, thanks for the question, Ken. Obviously, Zurich is a critical customer for us globally across many countries in many instances. And we've had success -- we've got cloud success with various entities in -- as part of the Zurich Group over the past few years. But as our momentum kind of started to pick up and as the concept that this cloud offering that we have is really working, we began to have conversations with the Zurich Group, the global kind of, call it, oversight entity that looks to create partnerships worldwide that supports every single entity. We started to have conversations with them about what we could do to facilitate the conversations and the negotiations, and the structuring of the deals with each one of the individual entities. And so somewhat, this is a mechanism for us to create a more fluid conversation with each of those entities as we proceed and grease the skids, so to speak, about the decision to move to cloud. So we still have to earn that business with each one of those entities, and we're certainly committed to doing it but it should make the sales cycles a lot more straightforward because basically, we've negotiated a structure centrally that we can share across all of those entities. And it was nice because that agreement kind of lined up to two short-term deals that I called out in the prepared remarks, both of those deals were things that we have been discussing. But once we had the global agreement in place, it became easier for us to get those two deals completed. And I don't want to project, but it's certainly not going to slow down our momentum, our sales momentum with Zurich, it could only speed it up. And I think it's just a great, I don't know, it represents just the incredible strength of this partnership and what we think we can create with Zurich worldwide, it's just an incredible milestone for us, and to have earned their trust to like create that structure. I was really proud to get to that point.

And Jeff, I wanted to maybe pick on the -- or dig into the subscription support gross margins. Really meaningful step up to 70% this quarter. You called out some of the tailwinds from top line and expenses, but any onetime uplift that we should be aware of? I know you guided it to step back a little next quarter. Yes, any help there would be great.

Sure. Yes. I mean there's a couple of things to do. First, we are modeling some significant increased customer usage of the platform as we move throughout the year as we see more and more customers go live. And so that does have an impact. The second thing that is a little bit more nuanced is we had some engineers that were building cloud migration tooling and some of those engineers transition their focus to supporting cloud customers. And as a result, the expense associated with those engineers move from R&D to cloud COGS that impact occurred towards the end of Q1. It's pretty common for us with the function of DevOps to take a regular look at how people spend their time and how we're allocating the appropriate expenses associated with their time. And so that did happen, that had an impact. If you look at that impact throughout the whole year, it adds up to about a kind of one percentage impact to gross margin that didn't impact Q1 but will impact the rest of the year. And so you take that together. That's the reason why we're not expecting to sustain at 70%, but still tracking a little bit ahead of our expectations for the year.

Great. Our next question comes from Parker Lane at Stifel.

Can you guys hear me okay?

Yes.

Perfect. Jeff, looking at the 1Q performance and the implied guidance for the full year in services. I was wondering if you could dive into that dynamic of growth a little bit more this year. And sort of comment on how close you are to the ideal split of services work being done by partners versus your internal teams.

Yes. I think in general, when we've talked about this, we've indicated that it's really critical for us to have a high-performing services team. This is a strategic asset for us, and we have the capacity to do a little bit over $200 million and as we establish the outlook for this year, we thought it would take a little time to build back to that level. But with the guidance that we've given at the end of this quarter is we now are kind of operating at a higher utilization than what we'd expected. I think, we're finding a healthy balance right now between the work that our teams are engaging in and the work that the partners are engaged in. The partners continue to lead most of these programs. And as we look at utilization rates in Q1 and as we look kind of throughout the rest of the year, I expect utilization to tick off a little bit. We're not expecting to be at 20% margins as we move through the year, but it was a really strong first quarter for us. And John Mullen is here as well, and he can offer up some comments.

I'll just add that, I agree. We're reaching that balance point where seeing what's ahead of us gives us that chance to look better at our utilization and what we do from a subcontracting standpoint. The unique part about Q1 was really Q4 we had some really nice sized deals in Q4 that created a hot start to the year. So we're a little bit ahead of schedule on utilization. But we're finding that balance Jeff is talking about, and we feel really good about the work that, that team has done. And also the really tight partnership with the systems integrators to make sure that we've got the right mix to ensure success across all of these deals.

Our next question comes from Alex Sklar of Raymond James.

Mike, I just want to follow up on Dylan's question earlier on the cloud migration pacing. You called out some of the highlights around the referenceability, the customers staying more current. AI is kind of a driver, an overall driver for customers that want to do anything with AI going into the future. Is there any change coming out of Connections, though, just in terms of your visibility over the kind of next 3-to 5-year window as far as pacing of cloud migrations?

I would say, nothing's changed if you look out 3 to 5 years. I think we've had a couple of conversations coming out of Connections where you could say things have improved, and there's a little bit more of a timeline associated with planning. And so like I said, it certainly helps kind of solidify our expectations for opportunities through the remainder of the fiscal year. I think the other characteristic of this is that we have begun to be more clear about what the long-term expectations should be for our ability to support on-prem customers out and beyond 3 to 5 years. And exactly what that looks like and starting to have real conversations with customers about what they should expect and how they should start to plan. And so I would say like the referenceability, the excitement about the product, our ability to support and run these workloads successfully. All of that helps, but it also kind of relates to just what is the final outcome of these on-prem implementations. And that conversation that we have with all those customers definitely stretches out 5 years. We make a plan for what our -- what we expect the opportunity will look like each quarter out for the next couple of years, and we continue to hone that with our sales organization and our customer success leaders. So I would say Connections helped a little, but it hasn't changed it dramatically.

I'll add one quick point on that. I think Mike’s keynote message balanced off trust and vision. And so much of the conversations we've had have been about gaining trust and proof points and it does materially starts to shift towards that vision for how our brands work together, us and customers and prospects in the industry at large work together to unlock opportunity. Just adding that, that times up really well with the pressure that exists right now, competitive pressure that exists right now in general insurance, property and casualty insurance, the need for agility, the need for more precise decision-making is very real. And having the opportunity to sit across the table from these customers and prospects and map out how we can work together and continue to invest in our R&D to help them solve that problem. It gives me a tremendous amount of optimism about how we continue to work together with them in a more strategic context than just proving out the value of the platform asset.

Okay. Great color. Jeff, maybe just one follow-up for you. Just in terms of the really strong Tier 1 activity this quarter, any color on what those look like relative to kind of the ARR increase? Any of them that kind of aren't hitting in this Q1 ARR number or any different ramp schedules versus what you've kind of historically booked with Tier 1s in the past?

Yes. So there was one deal in particular where the deal closed this quarter, but the ARR doesn't start until next quarter and so that was one nuance in the quarter. But other than that, it was pretty typical blocking and tackling. Pleased with the progress in Q1. If you're hinting at kind of the size of the ARR outperformance in the quarter. In Q1, we did have a little bit higher churn for the year than what we expect for the rest of the year, and that's kind of considered into our guidance and our forecast. And then the backlog in Q1 is usually pretty slow and then that ramps throughout the year, and that's what we expect for this year as well.

Got it. I appreciate that color. And it wasn't suggestive of the upside of just 5 Tier 1s, the way they were laid out, sounded really large. So I'm just curious if there's anything different on how those were going to hit ARR over the next few years, but that's perfect.

Great. Our next question comes from David Unger from Michael Turrin's team at Wells Fargo.

So great to be Connections and good to see the continued success and call out of Tier 1 wins, we got to spend some time with Tier 2 and Tier 3 vendors at Connections. Can you just talk through their engagement levels out of Connections this year versus prior years?

Yes. Let me say something, before I can let John give you a perspective, he spent as much or more time with customers at Connections as I did. I would say, we called out the Tier 1s just because it's so strategic and there's such a high percentage of the overall premium in the industry that relates to Tier 1 carriers, but we've had tons success with carriers of all sizes, not just the Tier 1 space. Connections is obviously a great opportunity for us to connect with people one-to-one and find out how are the projects going and what feedback do they have about our roadmap and what we're doing. And I would say I'm just very, very positive on the direction that we're headed and how it's aligned to where our customers want us to be. I mean, we're not perfect. And we definitely get feedback at these events about where we can improve and we work hard to listen as closely as we can and adjust our approach to delivering on the programs and delivering on the roadmap such that these implementations are successful and fast as possible. But I would say there's just a lot -- there's a lot of energy behind the idea that, okay, we've got PolicyCenter and ClaimCenter and BillingCenter and InsuranceNow running in the cloud, and we've got the update system working, and the systems generally working and now we can start to think about what are we doing for your claims experience and your claims adjusters and how are we making sure you can manage indemnity more effectively and what are we doing around underwriting, and helping your underwriters and helping the -- your actuaries manage rating systems more effectively and all that kind of like insurance functionality that we haven't been as focused on over the past 5 years is starting to bubble its way back up the priority list and into the roadmap, and that's pretty exciting and you get that kind of feedback from those customers at Connections, it's great. It's validating. And so that was my big takeaway, but I'll let John give a comment because he spent a lot of time with these customers there, too.

Yes. I'll start with the Tier 3s. I love the conversations and the operating principle at the Tier 3s simply because they exercise the platform and the application so aggressively. It's such a critical element of their business that we learned so much in the operations with them, great feedback, great opportunity to prioritize our R&D roadmap. And the way we stand shoulder-to-shoulder to drive value with those Tier 3s is absolutely critical to our kind of teaming coexistence. So that's fun. And I do see the Tier 3 really moving aggressively. I'll come back to that in a second. The Tier 2 is certainly unlocking value, as Mike mentioned, is becoming so much more important to them. The ability to talk about insurance features and functions, risk selection, pricing, rating, the things that we're talking about that drive their business and their ability to compete really aggressively brings the Tier 2s, which is such a big part of Guidewire's 20-year history, really brings it to that, how do we shape next chapters together. The thing I take away from Connections more than anything else with these customers is for the smaller customers, it's true that working with us, they can operate at a level of scale and leverage that was maybe not available without the partnership. And for those that are very large, we're unlocking a level of agility that would be quite difficult for them to achieve standalone. So those two things together is -- it creates a great basis for conversation and planning.

So you let right into my next question, which was obviously great demos being shown at Connections. Any initial stats you could share as it relates to customer engagement coming off of GenAI thought that could be for the future. Just wondering how that compares across tiers? In terms of customer engagement out of Connections, really at the GenAI.

Well, on a conversation basis, I would say, statistically speaking, 100% of our customer conversations have some implications on what their plans are for Gen AI and maybe more specifically, decision-making inside the enterprise. More and more, it's becoming part of the business case that we write together to take that next -- that really big important step of addressing the core processing environment and modernizing the core processing environment to unlock that value. 100%, I don't think is an overstatement. What percentage of those work into the business case to make that next important move is critical for those that are looking at either net new or migration? For those that are customers, the intensity and frequency of conversation is very prevalent in both our customer success organization and our product organization and our analytics organization and the number of conversations we're having in kind of I don't want to call them co-design but co-conceptualizing solutions for the market has increased quite a bit in the last 6 months.

Yes. And I can just give you a quick perspective. Generative AI is a tool that can be applied in 1,000 ways to the insurance industry and so it's like every customer we talk to is doing something, doing some level of experimentation, some have it in production in certain use cases. But everybody is out there doing different things, trying to learn from one another, trying to learn from partners, trying to learn from Guidewire and like aligning what we're learning and what we're doing with what they're learning and what they're doing, it's all very interesting but there isn't like a deployed generative AI step. Like literally, that will be done times 1,000 different use cases across the industry, across countries, across tiers. It's a very ubiquitous technology capability that will be applied all over the insurance life cycle. And it's kind of fun to get to sit down with people and start to think about where we might apply this especially given this like cloud platform that's likely set up to enable us to deliver this innovation in a much more fluid way than we were able to do it before.

Great. Our next question comes from Aaron Kimson of JMP Securities.

Great, thanks for the questions and have us in Nashville last month. I know it's early on GenAI, and that was part of the vision piece of the Connections keynote. But can you help us think about what the pricing model for GenAI use cases may look like?

I think it's premature for us to talk about it. It's just because we have a lot of options that we'll look at, different ways we could look at packaging it. And so it's just -- there's just like so many ways that this might go that it's probably premature for me to describe it. And I also think I would connect you back to the previous conversation. I think it's almost like if you say like how does the Internet or web browsers interact with your technology? It's like, it's everywhere, right? And so like there's going to be components, there's going to be solutions and products that are packaged and priced that are powered by generative AI and those prices and packages will relate to the solutions and products more so than they will relate to the enabling technology, the enabling capability which will certainly be like a factor in how much it cost to run, and how much it costs to build and deliver. But it's going to be far more nuanced than just like this is how we price generative AI at Guidewire.

And then Mike, you mentioned recently you have 122 customers running workers' comp on your platform. What type of activity are you seeing within that segment of the P&C market? And what's the incremental opportunity with your existing customer base like for workers' comp?

Well, so there's an existing opportunity to expand within the customer base. There's also net new opportunity for modernization activity were insurance carriers that are running workers' comp lines and want a modern platform, and we're tracking both of those things uniquely. The other side of this is that there's also -- we're uncovering opportunities to enhance the product and improve with data and analytics solutions in workers' compensation. And then there's also I think very interesting, what I guess I would call, like networks or almond requirements across multiple workers' comp carriers where they can come together and say, hey, if Guidewire can work with us to do this centrally and then apply it generally across all of our workers' comp customers. It can provide a big lift and can provide a big benefit. I think that it's just very -- I called it out just because we're starting to get feedback from customers that, hey, there's some unique requirements here, and you have a critical mass of customers and so we deserve some attention and if you focus on it, you might be able to unlock some new sales activity, but also we might be able to do a better job serving our existing customers. And it's kind of, we spent a year looking at this, and we have an incredible leader at the company named Laura Drabik, who's been driving this for us and pulling together a plan across function that we're pretty excited about. And so I hope that gives you a bit of a flavor for why we called it out. It's like I really think it's going to become a more important part of our customer base and the use cases people kind of attack with the platform.

Great. Our next question comes from Alexei Gogolev of JPMorgan.

Could you provide an update on fully ramped ARR growth levels now that you're in entering sort of the back half of those large contracts? When would you expect headline ARR and ramped ARR growth begin to converge?

Yes, Alex, we only comment on fully ramped ARR on an annual basis. The one thing I would comment is it was a very strong Q1 for us with respect to overall bookings activity and so that got us off to a good start. But we really measure ourselves with that particular metric on an annual basis. So we'll comment on that at year-end.

Another question. Could you elaborate a bit more on some of this cost optimization where you were moving resources around? Does that mean that you can go well beyond $1 billion in ARR with limited additional hiring?

Yes. I mean, so we run a cloud operations team and a debt team that formulates how we think about DevOps and we do regular assessments of where those engineers are spending their time. And from time-to-time, we have folks that are really building capabilities that build more appropriately into R&D. And then we looked at some of the -- some of these roles in particular, were site engineers, and they were more focused on supporting specific customers and so move them into the cost of goods sold line on the income statement. And this is pretty typical for us to -- we don't like to see movement too much, but we do assessments on a regular basis with our accounting team to make sure that those are all appropriately resourced. It does, I think the way we run it, we do have some flexibility in terms of how we manage that team and we can shift resources based on where they are needed. And so I think the team has done a good job in that capacity. But that's just what happened in the quarter and I flagged that just because wanted to help you all understand a little bit as to why the margin guide is a little bit below where we landed in Q1.

Okay. Great. That's the last question. I'll hand it over to Mike for closing comments.

Well, thanks, everybody, for participating in the call today. We couldn't be happier with the start to the year. It was a great Q1. It was an incredible Connections. We're excited about the prospects for the rest of the fiscal year, and we look forward to seeing everybody over the course of the next few months and maybe at the end of Q2. So, thanks, everybody, very much.