GWRE - Earnings call transcript Q2 2020 | Guidewire Software, Inc.

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Operator

Greetings. Welcome to Guidewire’s Second Quarter 2020 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

the to turn Smith. host now will conference your over Curtis I

may You begin.

Curtis Smith

welcome P-Finance. Earnings And Guidewire’s ended and Guidewire the afternoon Financial Mike Curtis to Good and Rosenbaum, the am Software’s on XXXX. name of Cooper, Chief Jeff the year Smith. is I XX, of second fiscal Officer Conference me XXXX Chief January which Guidewire. Executive on Officer My V is with quarter for Call call

be can related found our complete the disclosure section results A website ir.guidewire.com. well available our our issued of release in SEC. are at as Relations X-K in today the which of press to Investor on our Both as of furnished

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

forward-looking anticipated we of business, Reform of Litigation availability. statements to call Private of future and and the Act including provisions our market the to will product strategies, Safe performance the trends, pursuant cloud Harbor During offerings, shift product Securities roadmap the the XXXX regarding make

the forward-looking We update or recent management’s Actual as and XX-K factors any today results date. differ Form most as of refer our obligation SEC. any be with current should statements and as of are on not These expectations and views relied our Please materially. to subsequent views any upon based forward-looking XX-Q to in disclaim statements representing risk may outlook. filed the

of and primary from and refer stock-based discount A costs tax our measures expenses, our will in differences to financial on is to these related investors. GAAP the effects the issuance convertible of reconciliation release intangibles, compensation also We to adjustments. to non-GAAP being with notes amortization amortization press additional non-GAAP the debt measures provide certain of information provided

are also supplement website. IR data on Reconciliations a in our posted additional and

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

his With turn details and that our me then Jeff let the on for XXXX. I outlook before for provide fiscal over and our results providing to prepared remarks Mike and QX call will

We will then questions. your take

Mike Rosenbaum

Thank you strategic second earnings call. measured by touch us milestones, our quarter not I'll had a our for those second a of joining you, to thanks which Curtis We very also few financial moment. but quarter, and notable and solid on in just a performance

subscription and We with profitability revenue above continue revenue cloud XX% total to see momentum guidance and build of growth ranges.

revenue. cloud-based recurring our ARR in close a is from as of to and As I've we company, previously million, $XXX for transition an billion us putting milestone ended ago year metric the quarter to and I think $X.X we XX% that key up emotional mentioned, the a subscription at important very model

couple very As I mentioned were there a a milestones strategic second achieved quarter. of in the ago,

it First, we Project in deal Policy billion their USAA on XX the follows of ClaimCenter were honored to call. of our Transformation for project to represents set cloud-based we running then believe the path and Cloud Tier I This Guidewire will systems. and large associated transformation moving a insurers the standard and DWP. earnings covering be win their selected for and X core USAA QX highlighted a selection heels This implementation for the chart by all

to critical it's and in Company InsuranceNow in this a now parent Tier a company at X First Second, Insurance our win win Chicago United on Security and are Health I'm insurer extremely board and Warrior Holding turnaround an we that milestone we back the as Invictus insurance pleased driving got with Casualty. the business. with Company,

those selection the organizational made focus the segment in result is product investments on and we the and to more of made the this market this calls previous in discussed have we efforts. of a clearly changes direct We have

to investment In looking the in Insurance Wayne and and migrate momentum being offering. significantly that our received InsuranceNow Company on-premises of are close agreeing tangible forward future. by in we we InsuranceNow focus instance well market by wins evidence addition, our the to cloud-based after and to the their InsuranceNow ARR just Tuscarora customer, our expanded QX, more These existing provide are

to and grow The also interest new deal insurance modernization innovation at seeing cloud. products Guidewire's the and through industry's win increase initiatives rapidly traditional of market. to USAA we core in the Guidewire represent InsuranceNow cloud-based of an are the moving in system help examples designed carriers bringing to business smaller But

by via Guidewire Cloud the to to developing is our bringing market are Cloud with Tier insurance them It and these for in X agility group and and a We seeing delivered are selected types self-managed to the on working novel way. products carriers them X quickly. cloud-based see for Digital begin In of use PolicyCenter, tasked to the customer in innovation multiple demand projects QX, increase. existing with Tier innovation large BillingCenter, leverage customers exciting InsuranceSuite this and accelerate

Insurance, risks as as Nichido [ph] strikes In riots, in insurer such terrorism South as deals, ClaimCenter addition we the and short-term entirety to In customers well of Africa, in to selected provide selected United InsuranceSuite the Fire coverage Digital. of Susreia And two located and civil happy Digital. Insurance Tokyo, to SoC, welcome subsidiary South States. long-time only new a E.Design the Tokyo customer Africa for are outside cloud these Marine and commotion,

the Spring our a of new our modeling products, Insurance listening Clear related optimized for and Property a is Life Casualty, small cases subsidiary and as data we Clear cyber. momentum of business Delaware customer. being example workers' engine analytics use core compensation Outside science-based science beyond for added Guidewire to and selected Spring of continued an

I additional products. InsuranceSuite three the mentioned, expansions. Turning selection other X of core existing chose previously their the with these, and Including additional USAA Tier insurer systems to Among XX customers selected XX customers products.

Accident BillingCenter, Mutual ClaimCenter. Insurance AXA State Digital Hong the and PolicyCenter, PolicyCenter, selected Union Digital; Corporation Data; and Kong selected selected Farmers while National Insurance and

Western Admiralty existing customers to Canada also and Zurich products Reserve National We Republic and Group, Club and Group, adding of Group Group and Canada with the Mutual second Western in data Data management continue digital. Indemnity, see adding Digital CAA add Insurance RSA quarter

Indemnity Services added capabilities Global and quarter. data Additionally, Insurance both in and second the digital Safety

track go-lives measure of continues be our our real ultimate successful course, success. Of record of to the

who had to version second latest On seven go quarter, on that, the to the products. who version and five customers During upgraded including InsuranceSuite of live one for of we InsuranceNow. top major two different the customers first customers time completed XX customer upgraded XX upgrades,

for with a manner cloud consistent from certifications be global programs This enable approximately investments consultants Guidewire remains within XXX large a top standards. partners to our in priority with and to market not to of tripling partner our now better integrators systems Cloud be consulting implementations, ready our industry. customers since to possible advanced Notably, a without partner for the our invest number last better companies certified the consultants momentum have robust almost would made and of P&C the end continue earned they We work required serve global Guidewire partner number the community. XX companies, year. a fiscal community, training to of in

no are role QX as system mistake, was very market not Seven here, industry. The that just I make as solid say our confidently But significant a quarter. a but months imperatives of the motivating modernization can strong also for transformation, core midst company, we ever. my are in the since

clear, absolutely runs P&C of is shift to industry on-prem, on modern big implementations much connect transformation from self-managed The the product and that we systems for with correct. chosen the to constraint in is Too legacy cloud direction insurers away and strategy a still have are customers looking ways. and the

financial This the We on are from will away model has cloud short modernization and cloud to shift confident we term to continue that implications the of offerings. position build in deals, as and to invest partner to product for core shift deliver as and real on our we projections. market-leading financial the continue choice self-managed in on-prem this a dynamic means our projects

strategy, that insurers slows. the core long-term on-prem system are demand self-managed As for cloud-based their recognize right systems

Asia it to term, signal. Jeff to well. very financial discuss in I North this and a is We as are that switch very the think medium and that Curtis that seeing this implications expect this follow want will I but in Europe in positive clearly will change, long and stress America of the

And we believe strengthens, cloud in The our enough and ability our to validates service deliver sales to slowdown will cloud product strategy. our to as accelerate market, company shift it cloud sell on-premise sales. our the outpace license and

industry as in confident remain as its serve $X.X position ever of P&C trillion platform core choice. to We the our as

than as very ago InsuranceNow are We confidence is to see future that And industry's launched in the production. InsuranceSuite already and and market as five less early have in and of these proof Cloud stages important transition positive demand which Cloud references to points the years as of sign. customers success XX We officially are the validation serve currently cloud. customers two a clear still the boost well InsuranceSuite customers, prospects. of The and of customers cloud will in

for how the that long-term only strengthens out while financially and it company. So will reset for short implications requires it our projections in the to to term, our belief transition play in strategy medium- us underlying our business

COVID-XX prepared. very address and to and a to want we're here team monitoring events be taking its the our meeting to the actions closely I and Finally, fast-moving impacts potential have proactively regular Guidewire We're update response. to

CDC and in formal on recommendations. restrictions some with government line place We have travel in

also and employees comfortable accommodating supporting for work-related traveling are We feel not activities. do who

seen enacting Additionally, own more and their will preventative prospects we policies are our and follow. have that evidence customers believe

use our engage supporting some to to work. up regularly a are and, cases, employees approach and variety and work tools remote we encouraging Our ramping of remotely, in

affect year. restrictions sales meetings do a could not financial and we on material and impact anticipate travel currently widespread this delivery in-person While activity, service

Before Curtis handing service for Chief to his want to thank Guidewire and the Financial Curtis our as over Jeff, to Officer. call I

On best Curtis later all and the of XXX of Guidewire's him a leading you Guidewire, transition. ASC early As after standard transition at everyone organization his responsibility, our tremendous month. the this of I days Cloud amount behalf accounting adoption of the wish know, on took through

our I'm we filing team CFO role Finance, announce in already appreciate with of with the current we as assuming interacted XX-Q. feel also and at finance CFO continues. why no Cooper, VP of search good Jeff are pleased be the you interim helm our to have after of Many of that hands the Jeff doubt of the will can Jeff

over Now, I'll Curtis Jeff. and to call the turn

Curtis Smith

the is subscription you, and to attributable and our quarter revenue subscription in to XX% sales. License Thank in million. Cloud revenue growth of guidance was by increase ago, subscription revenue an InsuranceSuite million, This XX% $XXX high increase in a primarily end the year revenue Mike. was was of million driven $XXX.X $XX.X second range. strong Total above from

initial terms two-year our stated of the majority open renewals, continue call, than sense uplift although longer also it terms renewals in term by vast small and the us we extending second annual As followed of license deals experienced when are makes million $X considering one for revenue less the beyond we to previous year. to activity customers. with quarter, we we from expect a In to conform our

XX% in subscriptions sales new year of ago. software a XX% perspective, new to a sales From mix basis, sales a of quarter compared XX% second subscriptions. were year-to-date new the software were On

million, year compared also was relatively the ago guidance and $XX.X above revenue Maintenance our of was high a to range. end flat

a a the our includes subscription in includes subscription customer call, of the activities the growth maintenance revenue license impact from maintenance cloud by of to muted when This stated previous which part in service. converts revenue, we subscription to as fees. a migration be As term deals expect

quarter ARR, which project a currency revenue quarter in from second additional constant XX% year to $XXX million, of large ensure for quarter, customer basis guidance, for increase investments $XX.X million ago. made at we impacted the the is the Mike a was noted, Services end approximately a slightly second our below of as on the was success. an by

as capabilities investments profitability, services in to in a in will on a professional profit professional due mentioned we the investment. to was mix, million ago. I subscription Gross opening basis. year $XXX.X and our offset my revenue cloud discuss a the by remarks, second The these relatively to Turning compared impact of million $XXX.X and metrics non-GAAP expanding greater was greater services and result similar license lower quarter

XX% year XX% down compared an the again a As investment margin success a result, year X%, a by to ongoing was XX% gross customer ago. Services the was the margin of quarter for to mainly ago, an from quarter driven ensure gross project. for

year. but million in the $XX.X was year by of held of Total operating increase year were from headcount QX expenses in and an in increases second a net driven quarter, held ago, the this the in connections previous XX% QX timing which

operating share. upside a due As or and hiring was favorability income in our high of revenue to the diluted Net per projects. result, income guidance $XX.X largely and the end was timing expenses of range million million, exceeding $X.XX $XX.X from

Free ended flow for $XX.X $X.X flat excluding million with tenant balance million a the ago, for compared and We the $XX.X compared approximately cash cash, equivalents Turning to investments million $XX.X allowance flow first the net billion to of our expenses. Operating ago. which the sheet. cash end in the a was impact $X.X buildout associated excludes the for quarter with the a in to new million to $XX.X million year quarter from compared improvement quarter was $X.X quarter. year million cash headquarters positive

call the over Jeff I outlook. to to now will discuss our turn

Jeff Cooper

Thank you, Curtis.

are highlight numbers. of impacting that to a into we we seeing Before want I dive are couple our themes the outlook,

well. First, our activity progressing is cloud deal

continued expect deal InsuranceSuite Cloud in this strong activity growth We year.

cloud execute our success progress important our are most long-term Our driving factor the and the pleased ability to to we is with in date.

many time, is reconsidering core same away process are previously self-managed North consider from extending Guidewire Cloud. and the America, the self-managed in path systems that cases considering systems to market shifting in than thought their prospects expected. and At Customers primarily we faster

can about in a best modality. future, we result, welcome shift. As cloud we think the the our as believe we And service we the customers

short our term term, new the impact in resulting However an activity slowdown license has the in sales outlook. on

XX% our our XX%. on This adjustment XX% and a prior to basis range year of growth expected a due is sales million to growth compared expectations. constant fiscal new between now of XX% outlook outlook to about to previous currency lower-term reflects revised and XXXX be license midpoint the $XX in is ARR prior to

as XX% sales, new to of range previously and subscription XX%. percent from sales our of XX%, expect XX% total be We up a new stated to between

to the midpoint. million increasing between we and result, million representing subscription a $XXX are outlook our year, As revenue this $XXX growth at XX%

$XX revenue million modifying outlook outlook associated are respect this to maintenance. and our between $XXX and million revenue and outlook with our for year. subscription the million license and We outlook our lower bookings to -- its revenue due license between upfront updated to expectations is coupled $XXX activity This with term million to lowered maintenance $XX and

do Currently year, term We in less but impact could term customers than is benefit sign followed half standard contracts deviate two-year expected initial license some back higher by annual that renewals. this be million licenses. anticipate the from from the be amount this our if to large of $XX materially we see longer-term

outlook This is and Our $XXX cloud million on activity. revenue self-managed deal success $XXX lower informed new updated and in working partners with SI services is between view million. continued implementations by

in-house did couple but in to we services more changes outlook. becoming contemplated being decide were see a work our for Additionally, was not Customers our generally that Guidewire, large self-sufficient personnel. of customers performed prior positive is by previously these

to gross $XXX be non-GAAP million our expect still and $XXX the respect With expect compared to year million. We margin, $XXX revenue range overall our between we previous to to million and gross XX% of margin for $XXX million XX%. total between of

within license XX% subscription XX% expect subscription X%. We services X% be And overall margin between and to and higher we be to expect between mix. margin even and

are a income of X%. operating and million We representing at between non-GAAP margin to operating now $XX be $XX the midpoint expecting million

million approximately our $XX $XX with million and to cash $XX outlays of associated between We free cash headquarters. flow expect be million excluding new

is $XX third between license in Subscription quarter, expected million range in revenue subscription to expect to to the of be to the $XX million. $XX $XX million Turning and and be revenue we million. QX

to million. anticipate of We range to the of revenue $XX in and QX million $XX.X services million $XX be $XX million QX expect total of million. revenue to $XXX revenue We to $XXX million maintenance

XX% expect ARR In ARR activity sold in Currently, is we deals QX growth of XX% in cloud between ramp year and to XX%. of QX outlook from QX, annual XX%. in embedded last to from be our which benefits

loss $XX we quarter, $X and million. third the operating For a of non-GAAP anticipate million between

are willingness solutions. the on-premise long-term while from a in saw we signs we core the for a is in shift insurers' pleased away the trend P&C positive summary, of were systems faster-than-expected with clearly quarter, cloud In adopt activity to seeing Guidewire. we

impact business prior statement and However, expected income to model the our expectations. pronounced be than is near-term more

our understand financial do we this will through work help puts these model and to best We as investors takes transition.

Operator, for you can open now call the questions.

Operator

JPMorgan. Thank you. question be conducting Please your At question. [Operator Instructions] this time, will question-and-answer Sterling Auty we with a from first session. from is Our proceed

Sterling Auty

Hi, thanks. guys. Yes,

sign there? why conceptually, faster calculation, in understand wait well Why this deal? your the isn't appreciates Is cause everyone that on right it think deal think a to the with what the that's a I minute, signed would timing of But cloud term and difference? just might else growth move. you that impact the a ARR that shift terms a Or So year? Because think, going cloud if you have that's a in us what to help supplanting ARR investors agrees lower I recurring you revenue. is there

Mike Rosenbaum

cloud. goes a think headed that industry. So it Guidewire, And of think that's that this, look it's real. becomes I happening company We're right? there's at anytime where point really future the now right is the And I I the the point a a That's future. think clear That's to everyone. transformation clear to through like specifically,

we happening I investors, want everybody that to partners, would. it customers, faster shift that than is Employees, understand I think happening. thought It's

the to projections the from plan we future. financial model on-prem And set assumed assumptions made a pretty a to elegant and Our sales model our us in make about cloud smooth sales. transition and allowed

transition assumptions those see are like to in seeing of fiscal in not year. is -- at said half around the look half we second as I second the we're we up smooth the that lining that What are year the what of

demand than we expected planned almost cloud we seeing the seeing slow on-prem expected. the demand exactly we're the for and are Specifically faster seeing on-prem -- not demand we but down we're

I call like positive think I've question think for in and I the this saying it products and is on-prem for the for slowdown the It's of the you what is good thing. your cloud And demand a accelerate think you're demand the like validation a in and obvious said that I makes the think sign. a And we up the I cloud It's the -- said I is, just can strategy. such in model. licensing question appreciate

want doing we're here exactly that better We're to it cloud. a now. success on right you and they're to what to cloud at to what grow fundamentally customer accelerate all creates market rates I better confidence that assure customer such enough grow ready engenders make the believe enough focused the that and is we to allow will And that the working make ultimately product continue demand and to and that move to And that supports. decision that's us cloud ARR

believe, progress. latest and one deployed insurance the I'm single USAA our we're of right firmly the most and on customers. We companies pleased of greatest every on in the with the scale strategy infrastructure world revered the to following We've to one path right in and USAA. designed very the won up the trust cloud of

first in is designing latest team release and for the which really -- unified organization And cloud the really product actually gearing up the We engineering creating cloud real release in our around combined of cloud InsuranceSuite, the service. May, of function right which recently development is a with product. operations delivering the we're now company a

so in you all will for back ARR the of growth that's had such of fundamentally and slowdown on-prem the demand what it things add we those and initially. sales make get cloud that's license that to the bookings what accelerate we'll the enable to And us will what and the projected I up up think,

P&C And right in the again we to fundamental of and that I'm very place remains confident that changed. of really absolutely systems just business opportunity. take that advantage we're would very, are opportunity path the fundamental industry opportunity haven't core is on modernizing and correct a reiterate in the fundamentals the the business There big

Sterling Auty

up just maybe And just to as follow a clarify. then

are So, to they because the want dead, just like move that they're cloud. it's chosen to longer term on-premise not competition? those deals It's taking the not opportunities the self-managed consider they've

Mike Rosenbaum

That's right. exactly

this the the in competitive market that I in It's We and we're said, we're any haven't seen was with. model the hasn't to us in half dynamic cloud seeing changed whole way simply at the like That just market. looking shift in to -- a second begin change quarter-to-quarter. seeing

into evaluate I -- else to So, taking They're that is pretty there's nothing don't more really that I read should think you which time logical. situation.

North think Asia, in in but trend the will also I we a expect follow I this excuse Europe prepared we're natural Like thing. -- I mostly seeing remarks, EMEA said, And America, that and in me. and this said Asia in it's very like

very for you it's -- this the take these decisions around reconsider that you future on-prem the insurance I systems, cloud-based would these insurers as to implementations take for proven cloud carriers moving indicates once core is it more to it that logical If proven. those and if think think about be as --

said, our to it's that driving enhance to things the to like goes where projecting. where the accelerate references market just out to ability were the and all the to will I we we're the I think back build growth gets of back customer proof us back and here ultimately product the accelerate points capabilities which that further And ARR

Sterling Auty

Thank you. Got it.

Operator

you. Thank

is next proceed Bhavan your Our question. question Suri William Blair. Please with from from

Bhavan Suri

really for Hey quickly guys, Sterling's on my taking maybe for thanks numbers guess first, and one commentary. Chris question. Jeff given I

sort impact said of that a to increase $X.X historically You've negative revenue. of is X% sort every million

I so you a down negative by $XX to but it And got obviously impact, come XX. million about

Just little help reconcile two me those a bit please? numbers

Curtis Smith

Yes.

thinking way. the absolutely it You're right about

represented higher sales that impact our has of of is half in explains about a percent total to that shift subscription as -- the that a As outlook. we think about new the

expectations the is what half bookings. term of is were for the really the That The in license year. impact our other of a little slowdown ahead bit

through we a are that seeing roll bit as well. activity So,

little subscription weighted. the activity we're more back-end some of seeing a also then bit is And

revenue is recognition revenue And contributing ratable less in year. the so the

of about impact. half that explains other though the So, how And that's we're it. the thinking

Bhavan Suri

it. it. Got Got

then And importantly, partners, talked more about for when you consultants. increasing this you, Okay. services you've professional organizations Mike look at

touched big And insurance and interested else. implementations in really these great it everything on guys broader You these and because drives that. that's reach are are

permanent With problem terms it the terms But part the of of we in reach. conversation? ultimately? guys of expand these was the obviously, the It's because cloud, partner slowing Or that they dynamic. not Are changes great should beginning, implementation cloud part in the Accenture are about of How think that? they the the solution Salesforce in the guys the a they get want the or think they organizations about service thinking spend about million slowing positive to down from you're dynamic How a do, could as project but with million didn't of the what the on-prem? and see or given negative, professional $X should seeing moving for both we a cloud Salesforce what $X [ph].

Mike Rosenbaum

Thanks Yes. for the question.

every think sale projects. single a has Guidewire implementation corresponding I

big. they're Sometimes

a and a system shift a a Sometimes legacy strategic product they're is significant to system to involve core Guidewire is modernization very from going Certainly small. project. implementation

Additionally, Cloud InsuranceSuite when -- Guidewire again sell brings is which project. a it an very upgrade it to XX, often requires we corresponding

that's why and InsuranceSuite the consultants XX implementations those that important and with the success. with for the instantiating standards associated we're consultants and growth And continued so our are trained expertise and so the

the and sale. between one-to-one a project that is There

to be make bench ecosystem are And staffed in partner so consultants customers a efficiently. sure that sales we same our things certified about customer, executed they incented the -- the to ensure of both that they and time. are capable we're and can thinking have be can ready at dynamic when projects those the And the

but really, important. I bit that also little there of think nuance it's think there's is really a -- I a

respect One frequency. we XX. release going things with There releases to InsuranceSuite every product months the we're is of the will that do six not an Cloud Instead forward. the be Guidewire changing will of

to are customers move of is us That's frequent releases. capable that taking making really that product more our type cloud. we the ensuring to those decision to but the for is going our innovation is cloud the of implementation move to this speak delivery basis important it of so doing the And the that smaller drive when to to who around

I But think when want And to our long is so the away from ability for that sell you answer. these and accelerate to the sales. a future consultants future important and I us what really our that's cloud to to future how you take are -- -- continue

Bhavan Suri

Thanks it. Thank for the guys. was you, color. That helpful. really Appreciate

Mike Rosenbaum

Yes, you. thank

Operator

next Please question proceed is Guggenheim Wong Ken Our your Securities. question. from from with

Your line have default open. must question. This is real with It been Wong may the appears proceed be Ken there Please from line. Guggenheim. line from your a

Ken Wong

Yes.

Okay.

about that. Sorry

in it. every what lower I with sure slowdown that So wanted confidence as can depend kind extent to the got And of there that year here? term because wondering pushout, was not it the of the somewhat historically that to gives terms we there. think connections higher. of fact wasn't rates on moving any this used -- that in in-house out just customers on make term the to just term retention kind focus any the And change that is us of was viewed pushing sort of wanted services was nothing just heartbeat out you where -- confidence you the some I motion the guess there be slowdown might that these And maybe wasn't gives now ordinary maybe in deals? it's or underlying that I to Cloud -- of to

Jeff Cooper

Yes. Hey Jeff. Ken, it's

last in a QX churn related did see of negligible. little did So, churn a not to to year be we heightened see we bit that that And note our We customer do pattern. science. continues repeat of

we it's expectations. line line think still in with about lost any the was experienced quarter year, in in quarter our much in very ARR attrition much our with ARR expectations. as So, that the very we or And the

So, there. no impact

long for of that's of a And supplement their who with side we've live with to services in-house but continuing personnel. on IT some staff the period customers been services really time our

And work. of a so healthy on off-guard, but customers thing something it caught us to it our that a little that take for more was bit is

attrition. ARR So, it has do any nothing with to

Ken Wong

then of that any it. probably to haven't be in this And of XXXX thinking I a way something maybe terms fiscal trajectory Got yet you fully should to out chance kind about know had we is guys how flush us a but follow-up. now? steer

Jeff Cooper

Yes.

in So, obviously, impacts the still has term cloud impact we're with back the a our demand We're outlook. through pretty -- what into model. significant comes how what the working near-term modality the long-term on activity license to and we profile think respect on are that seeing the

but we at position Day update as So, Ken, do you that now Analyst right in do to expect every that to a not year. should us

Ken Wong

it. a lot right. All guys. Thanks Got

Jeff Cooper

Thank you.

Operator

And from Davidson. your Rishi from with our Please comes of next Jaluria line question the question. proceed D.A.

Unidentified Analyst

guys. is taking questions on today. you Rishi Anna today. Hi This the Thank for for

previous of following kind made. a comment So, up on you

larger into or You of And this? year more services about your What do do of relatively personnel. customers some those you done on kind remain by have assumptions you the of in-housing accelerate built expect work trend talked this previously your to remainder the stable?

Mike Rosenbaum

relative This it's Again, of phenomenon. that a a is decision. think that couple healthy were isolated made event. customers There we a

that understand fit into and this our bit little embedded inspection a deeper a others to services of with that there profile are our done have We team we would outlook. have that

Unidentified Analyst

more highlighted why going nice seems like business a generally a growth forward? of And the then That's Okay, little then that on second lot win maybe Could do with your about color you InsuranceNow great. been you? having have It product. chose how hear. maybe the think they one provide increased you of Thanks. question. more you And success guys to you

Mike Rosenbaum

the the for win. to prepared about. talk an we're of everybody the Like question. in It's come that Thanks quarters I've very, couple said remarks, about opportunity Yes. to very excited in up previous that a I had times

really that product, we -- of forecast in the I implementation. just We specifically executed a focused it see the to sales not I'm on year. And product rest to segment doing organization see we the want through the think you the America, excited the just -- and this phenomenally around but North also the and the the market. about that that of product pipeline to about we plan just a as efforts revamped by the revamped marketing approach refocused the services

as a important said of close we'll on pipeline and an strategic calls. I've -- company it before that on materializes this strategy update obviously calls. product deals, and our But future is and previous is aspect And like you

I that the getting very, the so feel of very And and pleased execution organization of win. just proud

the and to got and guess that or That of favor. was we've the a line. my that the to characteristic commitment over to understanding our the and product anecdotally selection the it sort of give that the of really sort color, and process lot think company little you the it I to to a organization with Guidewire, made edge pushed industry I do had

ability successfully As competitive market. was aware deal. you're that our a the of competitive And compete to a this it is reinstantiate was of excited -- to probably us space. sort I segment It's see a in

Unidentified Analyst

Thanks. helpful. Very

Operator

is Sachs. question from your our Please from Chris And next Goldman Merwin question. proceed with

Chris Merwin

pricing professional I on given getting ongoing has been ramp Thanks. incremental any cloud. really there costs the all curious cloud Thanks with well? are conversations know my for very to just that term are with taking those just about the much and the you maintaining for upfront evolving? I and ask structure effective a so then the question. pushback subscription but far deal Are to just customers license or paying wanted conversations contemplating the structure migration as services how

Mike Rosenbaum

justifies plan a together implementation necessary putting expense the long-term to are support standards implementation value around we getting Yes. I overall made project the the really is to back cloud forward. I that the the that the comments made support think The upgrade answering the about getting importance of to consultants. about reiterate to changed feedback model -- about sure going quarter-to-quarter. would would the comments proposition question and I nothing's the I'm making say just I I that

that significant As justify changed sure that's can carrier. product we putting And these upgrade very, favor transactions. that of very are the and in you're very -- move. help more balance But together that They're it transition, aware, such just proposal insurance are a I'm we of equation more but that that do helps that things very carefully haven't studied. hard to on it's expense, focused a we that the ensure basically move minimize will work what to

just justify working through So and the very it's products that we're as what dynamic nothing's real is going the changed forward. that we cloud of sales but

Chris Merwin

follow-up. a gross about of in as things on you just and you at your know one Day year scaling focus then subscription costs And margins. terms Analyst I -- Great. talked Mike of up was this the on

to on hear So, bit a drive if Thanks. that to initiatives just the that's how to up talk wanted we an some of margins could specific update on you target? just cloud long-term gross far. you're trending so about working Can

Mike Rosenbaum

of bit that level give point things of real I'll little Yes. high a I'll say would will an a mentioned both of of I already, deeply. you more indication kind the explain things doing sort I we're at two which but them that

becomes that engineer merged sort product a writing the but writing the think at service running we just not it's this folks spiritually, organization's reliable may important a delivering and that organization cloud efficient are and a viewpoint like we're hand-in-hand I the and is of service. sound very, scalable with And we that cloud are operations becomes we operations very we're thing, we're with code that code working small that development. that a that software, One cloud such instantiated the and every thing that

really as when efficient describe change, you sort more which further it every are can making as think that cloud and important partnership forward. we an That a release move really, milestone really, also how becomes and just organizational important but That's period but service, more driving you partnership the of of us. about the every we for development really

on USAA and the The latest that deployed other is talked cloud greatest now about of infrastructure. side I how it is

going terms customers is you're the we're that's margin to in of deploy us comments a believe and leverage I of that of our efficiencies the made future creates think the we after. that that that I forward it lot going creating the how that gives we're really ensuring

not quarter this getting I'm terms technical that very, that improvements without the the appropriate call. two that happened for is into things I course in right of this any in us think area. down setting the detail probably for are So, Those of making on of very positive

Chris Merwin

you. Thank Great.

Mike Rosenbaum

Yes, lot. thanks a

Operator

your Mayank question. question with Tandon Please Our Needham. next is from proceed from

Mayank Tandon

you. Good evening. Thank

function is for question that or the margin of a the provide going more that quarter, color just Could First, be a compression a SG&A bit on Jeff. little modeling is towards you to margin terms weighted going more trajectory gross slippage to in margin just maybe next of be XQ? in impact

Jeff Cooper

Yes.

more license I and a term where of revenue the function think hits. kind where it's revenue hits the of

Those offline had in activity of we license go for term example fair a XXXX. and amount then XXXX. QX of an QX year a deals in As reemerge of

it's a so rather And any more I revenue that function expenses highlight. the than of would

Mayank Tandon

another clarification. And it. Got of point just then

from growth, seeing In vacuum the Or push really terms activity? go of quarters? to some is disruption function also of new of terms also the that's transition to existing the to client of base you are in the a couple next as sales a the creating you into this cloud rate your growth and

Jeff Cooper

increases of is accepted shift natural -- that a which legacy as premise between to approach take to versus cloud can to the of for a I get adjust think we system the fundamentally. the to I we confidence outcome is surety offering product don't as just underlies that and -- Guidewire take I both a opportunity to going in then normal well implementation time of of natural net the around customer think core that and core a the and back modernization said, the like a migration it's that in as advantage shift base And that base that new. it's rate the period cloud the -- to modernization. customer

a going second very and is say, cloud.' and okay is that's we Does a go make going adjust we what that causing period And get it them to maybe to now for I underlies really of sense? -- on pace core everybody a just attack. will to demand to that's that look back the of we right to then opportunity has normal to there should think the straight shift that this become clear take just time that and that environment sales take

Mayank Tandon

Yes Thank does. it you.

Operator

Michael with from your is Wells Securities. question Turrin from next proceed our question. Fargo And Please

Michael Turrin

in Hey, annual good changing there. what's terms to guide. to here Thanks, back the go I of afternoon. want

I growing mix think the impact subscription clear. is

on the maybe just a around normalization extend this there terms we how term stood So quarter? there of versus And into we the the more Can for we more Mike? you sense period what's of new kind extended far that evaluation piece heading of where to in focusing license any before just bit again. get could talk process, referenced

Mike Rosenbaum

half chime maybe not in Jeff first your I'll question. answering Yes. I'm let doing appropriate Well job an the if of

going there's impact to we subscription, going have that on. are One that to term be which shift have which think to you a support. I things are there's revenue that when two from adjusted -- to

couple we the year. end you well, for compensate are we've side you cloud to we which we're given by think same seeing in to solid think right? that term and of see saying slowdown on-prem fiscal going the just sales of I have what if been ARR, other the not the At very sales weight equal of when is sales I've the to to enough normalize same the the is sales, -- quarters increase cloud time visibility if of can that for last that you the at back And the so looking through

We're a very annual company.

fiscal to we give so close half a of QX. second the the of and what from, all expect in of that the the of and complete you with And sense a at the we the so this did of these that can year. organization assessment that of little We deal-by-deal see demand, where can assess a went we have detail pipeline demand should numbers business the kind great all came through of we the after rest for we into visibility looked in

to honest this people into to year next quarters year. able you out really focused to of I almost strong everybody stay We the a And course about better small necessity be fiscal have to focus about need it over a fiscal. a two But in with what this think from we'll next But be on like a way. it's closing bit if job on of next be picture year. to of amount we really want looks think give careful visibility distracting my -- I the away you little the

Jeff Cooper

to just thing then one add. And

not this one migrating potential the go the were that with to would migrate future. that XX customers is now lot the customers the buy the to XX expecting weren't year, to on-premise year those are the InsuranceSuite wait evaluating them on-prem -- One Those customers trends implement or seeing see of ready of the we're who then and going a in of future. in customers and beginning in InsuranceSuite way choosing as of things to And we the right that a would rather allow were step. in cloud than cloud we at to that maybe to

Michael Turrin

implementations your wondering helpful standpoint prior and color given That's transformation becoming you and increasingly you. more. about customers its initial where time? of Okay. are from just experience side on just and observations in Mike, where can talk the is with if terms cloud both cloud your of Maybe Guidewire over the from the production more today we five repeatable one

Mike Rosenbaum

Yes. Thanks for the question.

amount to forward. that a set experience be infrastructure to enough I'm do being in right talked approach very confident the bit we little have sort given able the better had of able It's ourselves about right also in this the a right We couple customers learning architecture time really obviously, and a and of go-lives with and repeatedly do like going we scalably information very, of to going single do given we've positive enough answers us the about that previously every I that us it. up to tremendous forward. feel and So, that we have this now questions and

is I'd sort for major in you releases, of first InsuranceSuite think if the milestone InsuranceSuite XX really has is do release our cloud that here a optimized we're about that had XX this of organization. of to up XX really, part other May coming and The say

this the really can is to compare associated Salesforce, mindset If proposition customers' it here the continuing been the implementations to into able deliver of idea up for I doing cloud we innovation -- that and a ourselves cloud continually our contrast in setting and around back way concept time. has be to are we are of the value from long with back Salesforce that

the the and deals to those model value see to be it's think industry that between the really cloud can going delivery I phenomenal I and a is it sell P&C like benefit to creates help forward. a that us going difference going

Guidewire customers, now engineers When cloud completed and is a here in that and we the really, deliver we're where being system that take self-managed implementations their the the company able than more be to the our important to to have hundreds base. about them implementations milestone of I immediately and to at a hundreds into that features for for the products build way out healthy what for into efforts on-prem away working think just May are and customer of really in core those better find right of I'm And such whole and from release we our and are model is years customer that. a literally going excited our base. incredibly

Michael Turrin

Great. Thank you.

Operator

proceed Citi. from question from with question. your Please Tyler Next is Radke

Tyler Radke

in made Hey squeezing deals, any seen if of curious earlier bookings to some interest type seeing increase you cloud within skewing versus wanted the in expected. of maybe InsuranceSuite terms larger back kind project-based in. the little you're your And those bit go just thanks cloud pursue better more mix cloud for I'm remarks of wondering maybe composition change around of to initiatives. deals. I for than being But comment a to prepared with a Mike me we've just obviously cloud I'm customers smaller seeing

you. of the cloud kind expectations the type cloud moving to type whether any mix of that's factor and seeing guide. and of kind of with and pieces deals Just the relative of here terms of in Thank color maybe you're a

Mike Rosenbaum

customers a that seeing that market trying think that Yes. deliver they Thanks innovate. I'd insurance in our what that new products call or positive creative signal, test is don't new they the I to for bring thinking they innovation lot insurance I they I'm are quickly. what those the think factor know because very call through. right? think can where is have also whether and of a question. channels they this projects of learn of to groups can They're trying to products They're I

when that take and and that exactly is around the business. can sort business speed a the that work. how And it's whiteboard which speed can you the the you your of fast which The going of you game from can operating idea around you're name an reality agility is like assess grow to do to

easier to use major that that think a to is increased deliver for exciting book Guidewire I major sort -- delivery the on exciting books running an are us on of that's leap can as really, it agility, meet or the see I -- the which multiple really on of it And these more the And to validate take upgrades around once positive cloud in. points they're justify operating and it very works a that us business business systems of type cloud the sign are projects and that as thing major makes of to project our ability really demand. are model how that facilitates the for them the move Guidewire they that So with very, at around and that the moves cases, underlying of that the looking that insurers will underlying cloud to see participate that model they in proof they and to already that to able that Cloud. legacy functioning either the business

factor think another to a proof a think yes, I to accelerate positive points is it us and the create those sign continue So opportunity we I but very it is for to business. need

Tyler Radke

on up working and about guess Thank kind help adopting testing InsuranceSuite of seeing lifting is to the of on kind of infrastructure partners of and those large seeing you're kind to that to with Cloud I that, projects? in these your not us shifting waters the you -- on-prem you. AWS. of customers Or think kind different some you Or maybe those you Great. maybe that cohort? the two Guidewire all. customers, color. cases and maybe just kind a are follow they're we should of and will I just some type That's quarter and AWS of helpful last dynamics Are at how think smaller talked about understand move just just are related if those if

Mike Rosenbaum

these something market right? over as transition a was And will I when see that as that something you cloud Yes. on-prem -- way platforms. of that an go was one do and see take this software separate, really say you away phase it This is 'move the time. package the I it cloud' to can a move that that to you to logical of

that do yourself. can You

also a call businesses them with that can okay. that You partner. I strategies or And let's those are do those think

upgraded augment to same functionality version to six Okay? being the But able Guidewire aligning we're with being it thing that's is not cloud cloud as that's yourself in enhanced really the services XX. of that every the months deliver InsuranceSuite native to

of that. some see we'll think still I

in I appropriate to to and vast of where might going certain that's delivered. the be it Guidewire But use circumstances. think cases are real value go Cloud directly I majority the think you're going cloud see to

see there'll I exists to that So, customers less some just go directly think to Guidewire that and a Cloud. you'll more the still it step forward, less was to transitional going extent. positive choosing and But of be

Tyler Radke

Mike. Thanks Appreciate it.

Operator

from Bank is proceed with your of Please from question. question Brad Sills America. next Our

Brad Sills

for Great. my taking Thanks guys question.

the version of mentioned next You InsuranceSuite Mike more be will cloud-ready. that Cloud

you please. of really guess means Or that if what rapidly. little it'll what getting more more with on could this is what release you're a more elaborate the capable at that benefit? think be more I for that cloud-ready features delivering bit Is you. Thank next being -- I

Mike Rosenbaum

problem. Yes. Sure. No

that is that on and around our make that we can delivery our can features I of I -- is the to use the way innovation that and engineering is think on the our customer our running assumptions top that situation platform -- about think that it a provider guess optimize Guidewire new XX around of organization InsuranceSuite new Cloud case. now optimizing product cloud -- we is is implementation that of the cloud platform

implementation to say the focus on-prem of support that InsuranceSuite is is that a base mistake, Cloud customers. Now, to can that's maintenance organization maintain innovation and to is our functionality available running not delivering platform. around important provide we to part on our top be InsuranceSuite XX customer But made important model won't ability the very for of very no that running us. Guidewire to the That's our make of and on-prem just XX new the that

I we part mentioned analytics specific implementations capabilities native to of use. a cloud adding second but InsuranceSuite native are cloud variety that implementation will not that that and XX services augment the services can of as that we There's our that services. cloud data are services cloud just customers run be a natively adding ago, that

around May. engineering more every coming that that the see will you in that releases work make first of doing us think and we so which optimizing And more Does month six I the is are these sense?

Brad Sills

Thanks No. I Absolutely. if one then And question Mike. more you. please. Yes. Thank may

you an more saw comfortable in-house? are versions in-house. do thing? of hosted more the point at we're that you. the shift quarter services that services a Thank ongoing trend? words, support during this other to running you more longer-term the You beginning capable and of In Is think customers mentioned the This of for

Jeff Cooper

Hey, time. clear have versions those for make self-sufficient. some be of customers those to on-site have large extended on-premise And are -- period just Those Jeff. aren't would we some made our decision. do this and be projects Yes. that that always an goal customers to is Brad we where versions. The hosted And that to be is

is this always So goal. the

We a a this little were we So caught offguard there year. understand into just have our model. this that couple built us

Brad Sills

Thank it. you. Got

Operator

And we Vruwink Company. proceed Instructions] with from question. [Operator W. have Baird Robert your & Please Joe

Joe Vruwink

product out the with Guidewire data could core to -- upcoming emphasis systems the look maybe to mix tools, mix back front-end cloud Salesforce. a years relationship on have few It heavy to the the digital that wondering digital going I'm release. helping is development could pretty is different the growth? and offering, accelerate seems just Mike between that like a mix

Mike Rosenbaum

part think would system answer Well it's just designing claims, assuming implementation data growth. that of I'd specifically, the of are be to accelerate the we or cloud policy I way that single can billing. analytics we're are I say, insurance whether that question the way an core system, and And every is going

now that fact is think proven. I

in that we about be terms pointed to portals in of and The and applications investment. processes -- us things terms digital APIs focused And think should I way to the really mobile channels, that customers days core just it's a websites feedback giving our carriers never-ending. we of you enhanced done top and expose actually with of capabilities, where got product our claims-based with affinity out specifically to policy enable other and couple

channels. adopt making I The I like think into for these sort to of carriers extend business around the reach said, we're capabilities, Guidewire-driven of them push these new looking That's there processes. places was a are easier to exciting. innovative really, that carriers other the lot for really the of doing And and support those work enhancing digital

we've that exciting a from was got That meeting. validation really that

to capabilities, I as the XX, continue of think, part the evolve InsuranceSuite to offering the accelerators that of continue release as will we the get and six-month we they going analytics-based capabilities So be digital enhance that these core cycles in capabilities real for to cloud offering. are

Joe Vruwink

much. very you Thank Great.

Mike Rosenbaum

Thank you. Yes.

think I the we're at the So of top hour now.

in today want on for So to Thank call and the the you thanks all we'll see participating everybody. I quarter.

very much. thanks So

Operator

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

Guidewire Software (GWRE) 4 Mar 202020 Q2 Earnings call transcript