GWRE - Earnings call transcript Q3 2019 | Guidewire Software, Inc.

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Operator

Good day, ladies and gentlemen and welcome to the Guidewire’s Third Quarter Fiscal 2019 Financial Results Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Curtis Smith, Chief Financial Officer. Please go ahead.

Curtis Smith

Good afternoon and welcome to Guidewire Software’s earnings conference call for the third quarter of fiscal year 2019, which ended on April 30, 2019. Financial is Guidewire Executive Marcus Chief on with Officer. Smith, call the Ryu, Curtis Officer and of me I’m Guidewire’s Chief our on X-K ir.guidewire.com. furnished A be the website SEC, as our at of which to Relations as press are section of in our available well related complete today Investor release our results in both issued the disclosure found can of

recorded call. and the As a will is a reminder, following the today’s be conclusion being of call available replay

During upon will of to Private and current on of we the the Safe as views date. Securities disclaim any outlook. views and We the trends, are management’s of regarding subsequent be Act of and or pursuant obligations call, business. statements forward-looking forward-looking make based statements statements These Reform Harbor relied any strategies representing the provisions to performance XXXX as update forward-looking any anticipated Litigation of our as today expectations should not

materially. the may and the results recent Risk SEC. XX-Qs filed refer XX-K most our differ Form Actual in with Factors Please to

non-GAAP data also in supplement GAAP measures in will on press provided IR measures certain and non-GAAP to financial reconciliation posted to refer information is to provide to Reconciliations release. website. our are investors. A also We additional additional of our a

may business. or During details may may incremental may insight in provide metrics our and offer dynamics the the future. we of These we into be call, to updates provide the greater nature in one-time not

results our for XXXX. I questions. Marcus I take provide remarks will then fiscal let me will providing Marcus for over turn outlook our his on then that, the prepared year and your to With call full details and before

Marcus Ryu

Curtis. you, Thank

reflected financial and contributing under $X.XX reasons. is performance we exceeded of the faster share. total of We range. the reported very full to shift several sales a Our in our cloud quarter strong in both ranges which quarter’s the of million quarter, significant that at XX% for XXX.X was had Most year-to-date to subscription represented profitability among to, anticipated third these that with quarter our active per third are is and end upper non-GAAP year that a earnings sales financial responding guidance bookings, results our and driving of were bookings revenue revenue

lifetime Notably, While this new for dampens strategy, is unlike InsuranceSuite it the revenue industry the our recognized two relationships cloud quarters, multiple term whose since positive, is our we results, both and signed of the for term customer value from licenses recognized deals upfront. near in subscriptions over was revenue platform quarter.

with auto The the Consumer Reports, first the in the customer at very JD others. mutual Amica of ranked US, satisfaction is measures top Mutual, and and one by oldest Power insurer

representing Salesforce our DWP. also Amica quarter, look partnership manage the a Scandinavia. [indiscernible] Amica, Guidewire encompassing to being for and products, cloud, to migrate existing will since for selected X and other upgrade, wins their the tier strategic to our Salesforce’s InsuranceSuite insurer XXXX of their services one two financial with customer in a implementations core to cloud, entire integrating additional data digital Guidewire and us digital

second The France. Macif, was insurers domestic one in cloud of the InsuranceSuite largest win with

core implementation full reference new key new of and for we of delivery cloud customer of accelerate. of partners, starting capacity FX of less led data project a we had existing in increase by expect in million characteristics and this customer relationships an in InsuranceSuite significant and digital migration added This XXX a cloud. many Europe further a an ago, contract. than new well under Less deal to and on customer, one Macif footprint expands year DWP deals to with our continental scope in technically DWP the While for deal new advancing will be a as to being increases our X than cloud as is as billion. that demand win pace objective a anchoring This Guidewire as to

With quarters of three to this pipeline such both to the a all X we three Guidewire X X in for InsuranceSuite from of are growing cloud to we via the and complete deals deals existing completed to deals new new and X year deals. globally, the sizes first customers number year, transactions of of of expect increasing

experience our this market pricing our of for once reinforce quarter fully of expectations also with Another to labor ramped. new division are continues customers, they

of our a previously to the that higher expect XX% communicated at percentage now new sales we year to the subscription finish for Consequently, XX% bookings of as end range.

on However, performance the cloud outlook expectations we and demand, for bookings year-to-date our adjusting despite positive year. our are our

First in the for fourth upfront recognized and into subscription sales in quarter. ratable for pushes effect recognition that arrangement, foremost, of term would increased revenue demand revenue magnified quarters that is future greatly sales have been the an

expect in October patterns, one only InsuranceSuite is seasonality go at events historical connections subscription more InsuranceSuite that since we bookings year, backend follow bookings believe definitive deals for is to than our the market by cloud We in new significantly to seasonality overall QX. four are to five XXXX. commenced nature, While our evidenced weighted expected this in overall sales cloud extreme that time push as this rather

revenue and ARR flow year free than attrition factor norm. this A higher is revenue, historical impacting our second cash

in last customers at attrition are renew In addition InsuranceSuite to quarter, renewed science small expected amounts our license of to year a XXXX. or lower portion fiscal mentioned

customer be XXXX the in fiscal non InsuranceSuite be percentage in we excluding few to our continue lower expect points what have While now experienced than renewals customer negligible, past. to a any we retention, revenue expansion,

renewal behind adjust economics have relationships due few because the of a customer strategy. customers Every necessary time it M&A changed year, or at internal to or consolidation, schedules is to rollout are

a affect year. remediated However, this customer of these almost single in saw intentionally of renew to in us anticipation we year ASC contracts all concentration annually because we XXX, a issues

year full year behind first We the of most post expect to this fiscal program, remediation the back to the converge revenue retention of expect to effect have end and XXXX, historical rates. us our by

significantly a our well impact early implementation. support enabling we as to in cloud see finally, as as invested of partners have services and we our customers, cloud SI success expect Third, the to

greater strategic focus, that will our our improves While term to with transfer of this portion anticipated mix. intense services overall motivated it time cloud streams a reduce the as to revenue our capacity consistent at scale, than increase objective same of services demand own recurring reduce our longer has revenue the and ability

progress I goal. The that mentioned MACIF toward earlier, an win this encouraging our example of is

with self managed customers year, cloud of Guidewire migrations production, strong ahead think we expect cloud. we in from to As next contribution to to momentum continue

We expect are evolution fully customers will that to take indefinitely, serving fully managed committed to unfold. self and years we this

welcome for to shift to enables TCO the value syndication, the because through we addition the At customer customer lower lifetime same contribution the and in us more standardization of encourages it it faster cloud materially and data relationship. rapid time, to upgrades each increasing of

demand, cloud in what has previously model, InsuranceSuite multi-year was two estimated our consequences. However, exceeding

cloud First, additional dampening of near to term growth expense early in view these dimensions. Curtis a meet and of revenue demand. our we again revenue invest will quantify second, as ratable capacity due pressure operations to recognition

continued attract X.X serving billion center. the both mutual Japan, claim quarter, the we Insurance in with of industry DWP with National Mutual live, Agricultural Cooperative, customers. new agricultural in customer new insurer progress in market our Federation to to sales selected go and Returning a

two range Canada from all reinsurance. smaller core platform, In digital data products and insurance of selected the management addition, in including Guidewire insurers a rating and three Guidewire products broad and

quarter. customers chose digital. our XX Guidewire XX continued and selected in including total A customer customers seven additional and to customer. in XX products, data the momentum existing insurance also products platform science of new We products digital add a selected data

quarter, we who normalize are mature lines continue cyber. to science after positive calendar business saw we recruit in seeing customers and applying beyond anticipated, insurance science fourth As attrition results to data

we of gone quarter, one on a go total of also a customers had Grinnell’s with four have InsuranceSuite cloud. products, During live implementation. Guidewire customer at XX the To cloud lives total date, live InsuranceSuite XX of go including via least third

our fronts third digital the and including in faster business, including a to expect shift data term the continued of a subscription In to summary, cloud, adoption quarter, made our and the of revenue on products. Guidewire profitability. products long Despite our we generate and InsuranceSuite factors, Salesforce, we other e strength progress underlying strong to InsuranceSuite to digital integrated and multiple tailwind

long We are serving Guidewire to optimistic seeing for term. are $X the industry the the and demand about TMC look we transformation we over cloud initiatives forward global its digital trillion and

to I fiscal of remainder XXXX. financial will over our outlook for turn and results the Curtis to call now the year cover

Curtis Smith

range. X. above in June million, year XXXX, discussed ended subscription which mentioned, you, and XX.X of will better-than-expected that due and Please are increase year-over-year large quarter which XX% was that the Thank previously note customer license Total the Marcus to XXX.X the of third XX-Ka based ago the revenue that with Japanese year for our QX. comparisons XX, July was high was our million. to performance fiscal term a filed License ClaimCenter be of A was we deal for portion guidance from the a end expected close revenue on on our amended an Marcus.

license subscription was and Year-over-year growth revenue XX%.

of call, Perpetual X.X XXX, revenue As adoption XX.X subscription impacted our the of quarter revenue XX%. Subscription a million timing year in which are license X.X compared ASC was growth earnings the to contracts. we license year-over-year a affects our comparisons representing and rate recognition of license revenue the by in noted million. year-over-year was million, QX revenue term ago, of

range. mentioned, upper high represented our in increase for Services ago a of XX.X a initial our we for end revenue above investment from was the continued reclassification quarter bookings sales anticipated a ago, decline the second year of also from and was due Marcus end of of was and XX% implementations. had million, an X% to subscriptions quarter million, and XX.X hosting As guidance revenue Maintenance new year. of a year the at cloud the strong our XX% revenue range

related basis GAAP the have differences earnings comparable press stock on adjustments. today and Turning we our and discuss and being based provided amortization to of these and measures of non-GAAP to a with of non-GAAP of issue the the the GAAP from debt discount metrics expenses, effects these compensation in profitability, we tax amortization intangibles, convertible metrics release costs will our a notes primary issuance reconciliation

investments year-over-year. spend the and quarter, second sales we headquarters growth marketing costs. million increases driven towards facility at in our was for of into and quarter of We XX% took to move expenses corporate margin and the of gross The infrastructure new in possession operating a million by subscription representing middle in and this year the end gross in month. XX.X the million, in by XX.X up higher of mix. was quarter, increase was a driven compared XX% ago. were margin third XX.X profit The Total from the Gross license that

to our QX, exceeded XX.X During all high recording million existing income the was in Net we income Operating the headquarters. building million, diluted range due and expense with upside, and rent expenses the were more operating end and coming license which $X.XX of subscription quarter margin favorably for of guidance forecasted. new X%. then associated both was was the share. revenue largely XX.X Operating or per

XX.X billion Turning XX.X headquarters X.X cash, for to end ago. associated with flow was cash Operating to cash was the compared second expenses a million our balance Free to XX.X compared flat new the a compared ago. buildout to investments, equivalents the sheet, for of million we flow XX the quarter adjusting year million cash with when and year ended quarter. quarter the in

first, our XXXX. a higher sales results, fiscal We delivered than for then outlook quarter on subscriptions. looking make I high third new full fiscal better which expected of Now will year proportion let than XXXX. comments level included share year me forward, some from expected

are versus However, in given the the license anticipate and ratable of subscription the subscription of these our of contracts we high activity subscription end trimming upfront the extent guidance. we and recognition QX,

is recognized The in to shift impact in subscriptions a less quarter, is fourth compared noticeable year term the when far licenses. the to revenue from particularly upfront that given

in experienced year. mentioned, revenue attritions previously revenue for non-renewals the As with combined lost Marcus led million disclosed of to QX approximately XX our higher science

largely XXX and new subscription revenue business for is offset midpoint XXX lowering this expect While and by activity, the we by the strong X year now to million, license between million. be

XX.X perpetual subscription midpoint million anticipating of X and million, a includes This million from And raising are X million. anticipated the now million, less between XX of by we revenue than year. XX license revenue last decrease

XX are increasing outlook at X.X our to revenue We the million, to XX million increase for million midpoint. an maintenance of

outlook. to are Turning factors services, three impacting we experiencing our

system of for responsibilities our We shifting progress cloud network have made implementations to partners. expected integrator better Guidewire than

We have upgrade continued to our to as cloud customers InsuranceSuite migration early XX assess offering. they cloud and customers projects have self investment with make potential services delayed existing some managed

million result, for million, representing As XXX are midpoint. at million we moderating year services outlook revenue XXX a the $XX to to the our decline a

to XX% by million. overall revenue outlook spending, services to maintaining expect to XX.X this XXX range to offset midpoint up, by fiscal XX% than outlook of for year. the be we fiscal XXX are the lower a year, at revenue We Summing operating for all anticipate margins XXX the lowering lower between we our million total million With non-GAAP be income XXXX XXX million. and expected million, in this now

XX.X $X.XX to million, approximately diluted for a non-GAAP to diluted X.X increasing representing at million based outlet We’re our share income midpoint and million on million XXX.X $X.XX XXX.X increase the shares. net per or between

faster ARR, ARR, are nature will the respect as while the to near on last contracts, a ultimately the long With of term in ramped ARR we have quarter, term. negatively subscriptions impact impacting shift to discussed these positive

As year deals an than three in cloud fiscal over XX example, million XX in but ramped. when signed we XXXX, contribute and executed the expansion one in to ARR million date, in the less will QX year ARR fully InsuranceSuite

attrition revenue year. the ARR is Additionally, previously impacting discussed this

result, be growth bottom of be growth anticipate below term we end last points ARR our to at not rate, ARR long be a XX% of year's percentage growth which As a few of the We higher. expect range Day. this do communicated Analyst XX% the to to we ARR reflective our to expect

move impacted headquarters, the new one-time for are lower year-over-year services outlook lowering is we Excluding by XXX cash well flow HQ to year We to as our associated with approximately our to million million our costs million. free XX spend fiscal billings of as the million portion factors a the impacting may XXX year This still out, of in ARR. XXXX. into support XX expect build to which

fiscal to will year that to Looking provide impact factors ahead XXXX, commentary on want financial results. some we

we of term pace Marcus As adoption. anticipated meaningful Guidewire than with positive pleased have our on are impact faster will long trend financial cloud noted, a performance. the This

faster on I term the reiterate. is which putting pressures this three the cloud to near to operational business, shift want However, of

First, license term greater replacing term downward future in in exchange with pressure for will a the near subscription contribution new on put revenue sales sales new in periods. reported revenue

infrastructure can of commitment margin economies to investments to we and service of will scale operations success cloud and cloud significant Second, gross adoption demand customer the supporting and impact customer organizational ensure margin standardization. achieve operating until and we

services recurring necessitated higher Third, cloud services demand to towards and partners shift more lower drive SI stronger year Guidewire our in and XXXX, cloud enablement in fiscal faster from mix this year revenue and expect has implementations participation away revenue. a enabling now even we

just While services approximately to expect fiscal license be we factors and have I growth XX% the activity plan be we roughly subscription our the final we described, in are expectations, days can year. due revenue of and and QX still to early a expect revenue formalizing impact to on this flat our year large to XXXX currently

Additionally, we margin expect to XX%. operating approximately be

cash it strong drive highlighted closing, predictability, flow. financials, by of profitability, two faster cloud impact subscriptions ultimately strong was the believe quarter and InsuranceSuite and near enhanced to customers a deals. In reported increased the We term will our benefit shift our revenue optics third

Thank for the you. Operator, call can you questions? now open

Operator

from Tom with [Operator Roderick Instructions] take our We'll first question Stifel.

Matt VanVliet

are great, you shift terms Tom. cloud. getting job a the investments own how digital Matt with and well the both like digital VanVliet customers, driving Curious level, this I one data make to to here the partnerships, highlighted internal the in on Marcus, of, think as existing versus around influencing customers of Salesforce products now you to from shift sort and of much lot for new their high really as guess, a obviously great that. transformations

Marcus Ryu

the important IT question, transfer, catalyst pick I we you the a most for theme in digital serve. had Well, appreciate the the Matt. industry if overall is to investment that single

last kind the now. several very of about. for it's that top always the that had investments prominent years, in operational digital years you been has that rates essential, operational made on the And other from that been in has very, improvements absolutely So see number over digital robust we've platform we've core the our very products, of tax of can the for

distinct, that's not for think about with though I as the competitive motivations the our think cloud. to customers

partner an want Today, a Guidewire, the complexity organization and core primary from trusted for of to to internal risk system everything a that the motivation they about to cloud that's is and with the do. respect transfer in IT

is large on a includes now products, Some of also is portion ambition reliable new if accelerated platform the operational service, a core customer that of involvement transformed the but of of core of becomes that potentially or requires and efficiencies, basically digital that in strategic agenda it better partner. functioning development IT the digital, the responsibility is everything that production

Matt VanVliet

Difficulty] [Technical

Curtis Smith

sorry we the I'm couldn't that understand question.

Operator

still reposing connected. try please? that, you are Could You

Matt VanVliet

Yes.

XXXX pretty this following steady the Or outlook, year? now, more cloud subscription that significant from made a that if investments make? now you of are need are still the up uptick, incremental on in Curtis, step So even to early we mix, see there that additional, on bookings you're expecting function of you with a investments state terms infrastructure in we where pretty

Curtis Smith

Yes.

the So adoption, see when adoption, recognition. pace pressure steady assumed cloud we on accelerated the due current the more to term, inflection year continues. see in we margins together trend and short we an IS put assume didn't But five cloud IS model, of the we And more could we revenue then a point.

hiring make so and fact, and QX to need we'll the is more market the big earlier data resources the term meet Analysts to that we look of be a to longer operational impact talked QX that a things for year Day. position better potentially following and always to to order demand. in and In side quarter us, go model in on in forward gathering also attract and we'll at of fact, cloud about we’ll the the data in of

Operator

We'll next take Wong our question Guggenheim. Ken with from

Ken Wong

again. In terms of, we'll touch on cloud

higher You – it mentioned is think have that sense to to capacity and obviously deals next be that are be looks how in than any What eight pipeline that should the of rough to the seven to get accelerating, that you we like? ‘XX number closing where do what pacing now and year? able about

Marcus Ryu

little communicate have to us number, for It's premature that Ken a next we for pick a view. let alone year one a

I demand think internal of in. feel, respect, an an with you than sure it's there interesting capacity But everyone, we that constrained deliver, just we with would is higher, attach exciting are, that relationship. dramatically make which a a a have position higher of have to to the There's don't software. we have operational in and is to go license attach personnel license arrangement what term cloud where every be really

be into plans year. And budgets And of the so being we have operational to for and baked that's mindful that. all next

close throated be and of of that of this of think deals because next year aggressive kind that our a expect to And year. really yielded us expect compression to mentioned year -- which we the and demand now. year our full trajectory opportunities we what of half gave in connections prepared of the the sales my pipeline will a we remarks, course, have similar in were half a on not to is cloud until much we I pursuit have, and assertive that converting we somewhat just which of back of have that stay a event, this in really as I

Ken Wong

because commentary, you than follow in higher little magnitude it's higher deals. remediation of kind a mentioned, typical of more attrition similar relative the say of But the of a maybe then accelerated of or the of terms obviously would terms you in And to up revenue typical. attrition, kind

Marcus Ryu

the a we had for a process of customer and year will were So had that done be we by we and multiples XX to the that quantify XXX, just of have overwhelmingly was revenue caught fold fiscal was that, volume the reason dramatically attrition of off renewals In the ’XX, bit you, that in usual primary in that's and guard it had to to renewals. in but direct, cause the higher the increase we renewals problem. so ’XX, we X over the fiscal number

the also surfaced of have made these all this of borne it annual and to some the we that this also course, but equipped are And, year. manage renewals, is, vast we've we majority of think issue. year, That, the that so where think fully to of brunt that be operational should we changes anticipate,

going year next And we're have a and back so we the think to rate, to convergence beyond. historical

Operator

next our We'll with Bank. Michael question Turrin Deutsche take from

Michael Turrin

impacts end mentioned bookings, Just, at like prior which you but sounded It is range, came from of subscription first roughly number it's of think revenues. XX% at that the I the half. for in XX% been the high

still So that XX% in we're to XX% range.

seeing number you're now, to So lowering more left, pronounced is are expecting for the the year? I'm QX what's you're here talked And given the new the articulating ramp something actually you just ahead. some Or above it impacts quarter? up we for QX about could quarter detail have one XX% guide, attrition deal is year is changing bring full XX% that's last XX% -- that of came that more just looking it you in on

Curtis Smith

things Yeah, on so few a that.

would increased sales in subscription recognized for we demand you talked pointed we arrangement. revenue and subscriptions, upfront with future First, have out pushes the revenue ratable that the term quarters as about, into recognition

revenue. on the have less revenue term the have obviously more for to you or revenue, subscription So for has you quarter as the end the noted percent that it And impact range, the that we expect at sales of plus have term come don't one than revenue given year, XX%. new our we you'll see, license two then that and of it don't do be you for at we license in license subscription having term the up top XXX, for see accounting in an

as and revenue pointed year that about fiscal we was program of thing in impacting Marcus half to the on the discussed, that the so of annual QX other that first the The that’s related to forecast we’ve was that the due attrition renewals of an ‘XX, having impact we year out, into latter the results. was concentrated remediation talked

Our see revenue in going ‘XX we'll attrition lower forward. fiscal and expectation is contained rates that that will largely be

Michael Turrin

And then Sis sounds services piece, over just to on previously the you're like it transitioning expected. than more

We expected on three to earlier maybe But deals that than year-to-date, with that out play given scale. cloud somewhat transition. expected we're

hoping you be So could you're learning expected. sooner I might was maybe share some than of the handoff that that happens lessons making

Marcus Ryu

Sure.

So that intentional we strategically part is SI of to be efforts, motivated that our own know our we're capable. partners have

I cloud And, And holding let’s the positive. embrace or our to our last, are were demand services. some really a that's or been getting but market, that quarters. now cloud we've we aggressively say, their that catalyst lagged little over a mobilizing slow caught partners in the as of quarter for for think up that messaging few a to

we originally expected something with and as course. resourcing that's have But positive. very happened SI that led to year. each the quite cloud in or with bit was enthusiastic We well to go our what want But And wins that partner, was for that our cloud And depending there's little that of deals. mentioned, two the surprising to one as customer with Now, a modeling not an each what -- more the were of they in was deal MACIF program. for decided do. France, bit that swing entirely of it's I a on opts

large across -- outsized kind it’s an has transformation it billion these are now, many So products. but programs, of in impact, multi scope a because dollars

a originally a that's that Guidewire has attached anticipated it going services to So, of was lot not partner.

the more to model deals what precisely. I might have do this more go kind forward rather also more, we’ll of think able is guidance year in services about as you more and we think, months XX a we're higher I have services to we partners But next and an law, have Guidewire those visibility, than deals, be going what as conviction thought see of than let’s partner’s reflected ago. expectation our that to attach say attaching

Operator

Merwin our Sachs. next with from take We’ll Goldman question Chris

Chris Merwin

think, questions accelerated couple guess, the about Just I be talked should initial that towards year, next transition, on but the you the a for mix kind shift of taking little compression, tailwind a margins, on again, of margin. me, when implementation, given the outlook cloud partners, to we first presumably a the about for pace again, I think

how So about I a then quick follow effect up. just curious that you're thinking and countervailing have next year

Curtis Smith

Yeah.

then and provide a we about talked more to are update what to we So it. and term of expect early, a be for and on we which expectation has which margin a the same subscription pointed a lower to QX, we’ll margin has the finish approximately next with able we detailed margin year is one is reasons associated we themes our – of but XX% next once out indicated sales, year, view it's initial that the it more operating that it, our see impacting QX sales, and guide,

to here. of in running now we and the see hope XXXX. implementations in and cloud we're by that get demand place our forward investment the as then, we continued you for that in from noted more the QX up end front want Second, get we attach to operations, going expect of seeing, too, those as partners to And have do so in

attached things of the see those currently some by coming more were of at we out and the coming there we to more opportunities some look QX partners of think we as encouraged opportunities IS QX. are cloud is I into

Chris Merwin

just in similar signed Okay, the deal quarter. structure ramp had some you a the on second great. I you think quarter, pricing last for similar like was the of deal And CD question new the the pricing, sounds it deals to

we about and if of we should applied business that to and you're years that structure context cloud so, signing your long think accelerated the term sort deal more in we about years, ramp just do coming the the five years new the about still curious right quarters targets how So, is of think in being in for most think that the that. coming and of cloud just number revenue a mix out? Or how

Curtis Smith

the we have or expect actual do want to for natural of think ramp, deals because -- to pronounced element the their explicit than is most subscription license software to to in a to that pure production of more their context. scale expect And it cloud little a payments some it's I customers usage software a software and context license, is in -- relationship bit and that's service.

that into way reflected, to own over it repeat. likely and the our periods. phenomenon how future plays that's revenue that And in think course, I and So is we converting modeling bookings about one of out think

With that, over with has respect relationship continue indefinitely we customer that we said possible journey. the number in organized with with encouraged think to in the But the if do and optimizing jobs as think that we incentive how about each that's persist -- to of on steady really over state will long been as robust for customer, a we've and plans, that our being correctly, fully as started think this pricing, sales I remarks, term. our how alignment much number, the that ramped prepared we terms -- out expectations the very I in that it's we're be we

the insensitive the not we're to of early Now, years relationship. course, of

under really to it's that area that we're the But value if And total for. so we lifetime want get the don't curve, will, the of customer, unbalanced. optimizing total too the you

Operator

our from Furby question next take with William Justin We'll Blair.

Justin Furby

questions. of couple guys, Hey

this color for retention, where changes? little their pricing off actually was these Marcus, renew seeing books also get color I taking kind those all like I back customers like year to actually now, more insurance a business for next -- to and again And up the altogether? don't sense XXX Is it also and are there? every around, guess year all I guess a are customers, what they year. I is any what trying Are you InsuranceSuite are of more going Just of hoping

got so And trying do and gets for why think a I've from I'm to quick it just sense get a you up? follow here better

Marcus Ryu

Sure.

pretty to three place we've that's question kind That's a of to years. operationally made the Let it's now, put your second year. me success meaningful five And as annual ensure that team and change the to and sometimes the right. every about additional a discipline XX going And and in Justin. renewals first, are answer this us eight – that's or for part opposed new these years, annual years thinking or actually that's that managing that in changes customer cadence. customer we why that's and investments, renewal we've of a relationship, focused have team marry Yes,

answer of customers, adjustment InsuranceSuite customers think actually of are it we part and first their primarily your think of don't the it's a about the any, I the of or The off of turning software, but use color, a example the to single discontinuing these it's isn't not the an I have of to economic relationship. terms question about -- cases lot in –

is our results downward why background have have which historical they in that pricing of One acquirer, Now in more happen the is which would customers the might sometimes we or And had that kind or P&C, the and constants by obviously that adjustment, a adjustment consolidate be? terms, have ability of like customer an the acquire M&A, industry, driver that entity, occasionally usually these of will is one favorable the an amount you'll paid every other happens to big year, in the couple just premium. entity. and another acquired in larger and

time. to had concentrated, can renewal going year, multiple staggered and in years kinds opposed both Now, happen it time five all decision rollout all to a better, M&A, of prioritize like also if anticipate could from that is other much or periods only be and is enterprise products, of effects one then in that on. every happen happened normally, some not pretty And whereas these it we projects, other not project conversations, out every some adjustments change that, only at of a over single renewal the the as Guidewire to of sometimes, those of strategy it they're we whatever

was And nothing changed. so there qualitatively that

that higher led first just our it quantity could also that But happening it’s better. we and time to revenue attrition in the the was modeled of It we was XX a have change. the to such share XXX history in dramatic renewals went perhaps had something that year from

applies across clearer they've we apple us. their the a bite of visibility are of much small again in where the renewing, of now kind have I think we’ll renewals our entirety cases. So only and of be these and same the that it taken applied customer going minority but ahead forward, the of it base And customers

the belief So basis our one-time a was for that's kind of that despite it phenomenon.

Justin Furby

in X Okay, like assumptions ramp out or perpetual this are year, terms that's attrition the the new so for but your in sounds pieces what looking you here or QX where's number, full like mix And around commentary lot I effectively moving any you you helpful. this a a pipeline guess, clouds X relative any would more year, what year, bookings bit of with the for you deals, closed and it through conversions your of think And deals in expect for million then thought. to have me of heightens. that net of the the if like color shaking to June at and questions you be gross helpful. the And look in one, confidence give and just versus typical terms curious there

Marcus Ryu

Sure.

general, bookings. term we of us. in remaining And I or norm. this progress. want we consequential we quarter very for they're seven norm a multiples even which is as in a QX, Obviously, here deals than ones, mean, in sales the deals. so larger, on those the and a are more even are don't consequential comment the of case cloud us weeks the typical It's activity because because deal year, more most for have in the So, know, to terms

ahead we made to a date. come. of that still So have weeks we've also the we progress convert, But have in in us the to quarter to obviously, lot

also versus Your question was new existing. about

is I encouraging, and cases. Historically, expanding I products about existing do, we not set also both expansions we equally And surprising, both which relationships the as cetera. existing think, data our care this as we also has of business of and continue cloud, new pretty that but in as et Salesforce the of motivations which it's but with very been. net year, new for think for is relationship, from customers, terribly much it digital mix same both just cloud and logos successfully to as as not well see demand all well

Justin Furby

Okay. then just – And

Marcus Ryu

our the bookings be from our and and commentary very Sorry, aggregate we complete It's strong Again, good too can't we you -- expect had to I that also sales very year accounting a quantitative of asked relative not complexity, about the that can to the quarter just treatment for led revenue deals just feel about talked year. it. year the had you a we've targets. the to prepared the actually hear or in about of latter surprise on half so what bit that the complexity, much days in has attrition are accounting negative of the ratable with combined closing remarks. in closing that But the we

Operator

our Auty next Morgan. We'll take from with question Sterling JP

Sterling Auty

Yeah, thanks.

that crowd preliminary to want deal follow some to next of gave X year. X carries the this Just on into think line year we commentary up target about questioning, you the of the as for

mix go us Any preliminary next this of year? given should you of some I had year. cloud that just what think for would around idea thoughts where for subscription be the

Marcus Ryu

better to will expected it with that and be the Sterling. that ready continue And premature in still reasons, I to be we have going day customer traditional be of the that But direction, one self a discussions now. after behind think direction. that to believe upsells We for forward would a change, blowing that’s prospects them. have not if vast meaningful to application base managed And, our pin to But it right quantifying QX I look we'll it'll continue direction of put that next of And the in there's yet, in we the any But want will just don't get also in approach would a managed. if is further that is I wind number that say for we self switch. it the think goes, us. majority we're managed night quantify subscription. self a are number to

Sterling Auty

make impacting in of terms then there's because question one And sure like I they're buzz what's the want that air lot the follow-up the in business. a to of feel is,

talked the business of through about number InsuranceSuite hit, impact? to again happening about million I stance talked You and what can that a us thought in in but and is $XX cause you that walk prepared attrition, remarks, the specifically that right the is you type

Marcus Ryu

them for number discussing. in that with attrition had some believe we we actually to because that the out. with $XX this InsuranceSuite revenue we've primarily software, Curtis been acquisition do to or of of by But recall, surprise the may product they that respect negative a million had being attrition, to was chunk customer attrition. you QX, science. their them The in they underlying call about not that of we actual was business, lines just was have aggregate insurance their did way, many some not, It but Well, that the were rest anything the or post cyber it customer that attrition revenue the on was a of referenced customers attrition motivation referred used wanted not customer to change outlook That we we science, and service. to big with discontinue all the recoverable, changing roll that of almost new of the that the are was the

Operator

next with question from take We'll Jaluria Rishi D.A. Davidson. our

Unidentified Analyst

is Hanna on This Thank actually taking for questions. you for Rishi. my

surprised was cloud, talk to before? First, just you're if InsuranceSuite significant anything learned there's market wondering with if limited I could quarter that you around you anything you not or this about, go

Marcus Ryu

transition are is last to this new core customer we've of there the -- in relationship company, develop many year. within crazy data with for to much to has we've competencies self two a and learnings much operations, years, also important even to had all in intensely mean, customer a But and AWS, customers. us from cloud been makes that a partner kinds our cloud infrastructure recruit of related investing a broader strategic manifold that relationship. It really us responsibilities. success, on is I in other things very but, managed like there taking fundamental management, over huge to array the it's it the for understand more Guidewire, that every of Well, switch

in sure specific surprise, telling that -- with cases, to decision, we're are solemn customers first about of ensuring work they I of promises board critical we attentive very So can't but their every and making what to being any in very fundamental this are a very Guidewire way. to level water and high making strategic time. point are And this each wave success us making cloud mission their

countries sizes, continually customers our majority, the we're all now different if we getting not right in vast not prepared coming the the for it so us years. multiple totality to just base And is capabilities but which working of have, the different every our over essential. are that, hardening time be to way, and for And do this in customer in with

Unidentified Analyst

And cash you coming what operating on than a lighter flow then could contributed little the bit to in consensus just comment expected?

Curtis Smith

Yeah, sure.

the revenue year-over-year, the is almost So down our XX first, we noted, million down billings are things we and that year-over-year. due noticed services to the being

part was of that it. So a

also well. that attrition free We the noted impacted flow our as cash

means it. And we and then contributed steeper the and lower deals associated piece it million that ramps against third that invoicing cash lower of with were being it, cloud we're and migration approximately not steeper the from to our existing to initial collecting the customers So this for IS quantified invoiced year that XX amount year. customers, for ramp

Operator

to next Radke Tyler go We’ll Citi. with

Tyler Radke

the and you usual. appreciate I color as thank Hey, all

renewals that, processed. the first. fold changed the of You given the processed in a to quick hadn't growth number an talked renewal guess Xx this uptick I renewals the increase just saw of you curious, number clarification clarify just overall about I'm wanted there, churn, rates meaningfully, in I high in year.

Marcus Ryu

a just made that where different numbers there's about M&A the correct. to relationships one for -- cases. of explicit the ongoing discontinue a Yeah, be the adjusting intention is or sometimes, claim of no to the favor be reasons, clearest it's the it, should that's there of economics But about customer’s to super in a we being case relationship. be And variety

Tyler Radke

some the think like year initial as your margins going sounds through the think comments just margin is, about out you as gave think Thanks. a on but you progression you cloud and Analyst forward work subscription just Day, than us because how coming operating transition, we And way we next should targets know trajectory of then and you kind the at of as the those reach cloud should as we I about next set in that trough mix that expected. higher you understand year, of is help

Marcus Ryu

pressure that's I on year that we think the key downward talked drivers about, for one of right, the having next margin.

So versus ultimately, than a term our with but more margin. subscription it associated good licenses if be to margin thing higher expected, we lower there's see where initially there's going

them was that we margin, one So our pointed gross XXXX. to operating impacting of margin that in as

noted, of success cloud the guarantee We our absolutely customers the also to to we're be hire in given here. increased that demand support initial able that and that front of customer to needs, seeing we're trying

to in from operation we're in and cloud or front the last is go the always in this market big the things. about of showing now, we on thing XXXX. a that on, is so of is And standpoint, And seeing increased operations operating standpoint, trying data of margin the then, things demand a hire that talked which us. lot get side to QX cloud case, up share in services of quarter We for a side in

XXXX think indicator going And your on how question, the of better about coming we specific we the of five plan the impact is a And low will here. to QX, out have going be. profitability be so, forward should where year point to think in we

Operator

Brad We'll America next to Sills Merrill Bank Instructions] of Lynch. with go [Operator

Brad Sills

to on might scale? margin, look would What made getting in you for term and longer earlier of like your that to scale margin comments business? what the what to the cloud that shape and your profit be The like? for would gross getting drivers getting look cloud operation And

Marcus Ryu

aspire no And the that. recruiting And to what Brad aspiration. companies. have to class has accordingly. set aspire example the cloud -- that's been in we we're There's margins of the not other Long-term by best reason we're to

about right now would adoption what think, like from single still or talking I ways scale. that. total we're we're scale of digit call, we full operational customers a off cloud customer from long We're long ways number off a full and

interesting think but hesitate their I position, kind kind have of use about I our the we trust large, of where captive, think, let's in an we say, position partner that have advantaged we I term to that customers, of, are, right. for a long relationship, set what's whom however, is prospective this mode, be to we primed have, standing

platform to continues the if enterprises of now, our is there, we harness cloud successfully leads I that And kind operate focus primary be margins rapid care can on-boarding we over we, when think about if cloud based we and sure excuse it make of have global kind And the that the while against deliver financial large entire the large a industry's on even have to that's that the there though, horizon of majority the the we And the we're for. a companies pretty portion, industry a course years, maybe successful to to. we operational our eventually would total seeing really a acceleration not so operations at other through of that of to be no aiming fixed point that efficiency we're premium therefore gotten running cloud platform. and be into get have very multiple now, within, that promise to

Brad Sills

it perhaps And are customers so digital deploying you there, much. for? you're and nice color Any some seeing, use kind update what cases of and some one please, looked common Thank data. any I may like then of more on on trends out data some if digital results

Marcus Ryu

overwhelm Yeah, Sure. insurance products, enterprise that future claims. And digital catalyst size any they modality It's other from interaction of or to as ensures how digitally. to quo do customer, Everything support primary status happen IT want they sort. that off service with ways deal kind long with that ideal they the grade how the them, state. how with there's they to direct a why they sell I with I a any for earlier, intuitive is think said the making of they're investment consumer --

come. are to insurance will for years current digital enablement demand many going your process, variations sales right now transacting what in go use products digital across start have, the and we things other to initial many robust our the for arena. I but be cases And process portfolio beyond want it's about us that the do to in there to of sale, that. focus about quoting there's So digital The of the -- and think main customers that question just every are

of I will we're conventional the what like, so just to approaches signal I learning data and use for where because based data, think AI and other in scratching just industry. actuarial are collection very but cases make we're the reporting, the many of driven, think operational of is the surface insurance data core industry. data scale machine and Internet use big kind to large difference approaches a cusp, finding sophisticated beyond the just cases There represent of operational at the

well. for accordingly investing that as we're So

there a efforts for the if industry. positive is, commitment meaningfully loss and Guidewire, that's despite hence a a it our fundamentally positive making not that an not Our probably for to today you're how but financials for and will a has develop that's the that to approach new acquisition are it trying to just science very be been while. sustained our contributor fact And

Operator

Auty with next JP question our from Sterling Morgan. take We’ll

Sterling Auty

ramp up a the follow deals. Just on

steady down from ramp a there to a cloud So ramp higher? deals? steps what state does dollar go decided amount a you they is then is a to or migration And managed customer level InsuranceSuite customer do up the that step one hypothetically the that's the that new had and self maybe previously, take and they a if pay currently before option, they under to on of the you, it done

Marcus Ryu

materially every you transition described. to the you our [indiscernible] going couple they're but call the of cloud. in in that's a is scenarios amount to of ramp in general, we up two years, us annual coming of mode, self the to number, negotiation, A it's conversion options nature that managed to is describe And a the form using software the former over customer what number deal. of – the to a a two higher now subscription going that

more even not, production more And as element get an again, new still of of ramp platform, they pays the there's whether or some customer the customer net that is there intuitive into use their they because cloud. premium in will expectation the relationship, on -- it's

existing But case customers. ramp are that net true amount for of from is the conversion. So and term existing new we increasing in an generally, a

Operator

CEO, session. Ladies concludes will I Ryu, and conference to the question-and-answer for remarks. gentlemen, turn this now back closing Marcus today's

Marcus Ryu

further remarks. look forward for seeing No you soon speaking to thank with the and today. We participating you Bye. call and on

Operator

does gentlemen, participation. this conference. We your Ladies conclude and today's appreciate

Guidewire Software (GWRE) 4 Jun 192019 Q3 Earnings call transcript