Guidewire Software, Inc.

Greetings and welcome to Guidewire's third quarter 2020 financial results conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Jeff Cooper. Thank you. Please begin.

Good afternoon, and welcome to Guidewire Software's earnings conference call for the third quarter of fiscal year 2020, which ended on April 30th. My name is Jeff Cooper. I am the Chief Financial Officer, and with me on the call is Mike Rosenbaum, Guidewire's Chief Executive Officer. A complete disclosure of our results can be found in our press release issued today, as well as in our related Form 8K, Furnished to the SEC, both of which are available on the investor relations section of our website. Today's call is being recorded, and a replay will be available following the conclusion of the call. Statements made on this call include forward-looking statements regarding our financial results, products, customer demand, operations, the impact of COVID-19 on our business, certain leadership changes, and other matters. These statements are subject to risks, uncertainties, and assumptions. and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and the risk factors and documents we file with the SEC, including our most recent quarterly report on Form 10-Q for information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP, CCAP measures is provided in our press release with the primary differences being stock-based compensation expenses, amortization of intangibles, the amortization of debt discount and issuance costs from our convertible notes, changes in fair value of strategic investments, and the related tax effects of these adjustments. Additionally, reconciliations and additional data are also posted in the supplement on our IR website. With that, let me turn the call over to Mike.

Thank you, Jeff, and thanks to those of you joining us for our third quarter earnings call. Quite a lot has changed since our last call in March, and I'm proud of how everyone at Guidewire has adapted and responded to the changes required by the COVID-19 pandemic. A lot has also changed in just the past week. And so before I get to the quarterly results, I want to take a second and relay to everyone how deeply saddened every single member of the team here at Guidewire is regarding the death of George Floyd and the underlying inequality and racism it reflects in our society. I sent a message to our company yesterday that said it's just fundamentally not acceptable to me that a portion of our community feels that the system we live with values their lives less than mine. We are all committed to doing our part in working to address this at Guidewire and in our communities. And I'm confident that we will find some value from this senseless loss of life. It's forcing us to have a conversation we are uncomfortable having. And even though that seems like a very small step, I think it will lead to positive change. With that, I'll proceed to the quarterly update. We had a good quarter, all things considered. As you can imagine, we spent a lot of our time working to adapt to a new approach to work in addition to the normal things we do to operate the company. We're happy to report that ARR grew 10% from a year ago to $483 million in line with our expectations. Additionally, we exceeded our guidance ranges for revenue and profitability in the third quarter. We've adapted to working from home company-wide and I expect us to operate this way through at least our fourth quarter and most likely our first quarter, which ends in October. I've been particularly impressed with our team's flexibility and eagerness to support one another as our colleagues juggled sometimes less than ideal work environments with personal responsibilities and the long list of new stresses and uncertainties we are all now facing. Like many others in the technology industry, We've been pleasantly surprised by how smoothly this transition has gone, and we are working to ensure that we take everything we have learned from this experience and apply it logically to how we operate going forward. I have no doubt that we will support a greater percentage of remote work and find new and more creative uses for our office spaces going forward. While we continue to execute effectively as a company, there are COVID-related impacts to our business that we are dealing with. As you know, we sell large, heavily negotiated deals for complex IT projects that have long sales cycles. We have been happy to see existing deals and projects continuing to move forward, and in many cases, our customers are just as motivated to continue to make progress on these initiatives as we are. A large majority of our new sales in any given year come from existing customers, and we very often have longstanding relationships with customers and prospects that have transitioned well to virtual engagements. However, we have seen lengthening sales cycles, and in some cases, delayed decision-making related to the very significant amount of uncertainty many of our insurance customers and prospects are facing. We expect this to continue in Q4, which is a critical period given the seasonality of our business. We consider ourselves fortunate to operate in a very resilient vertical. with a strong recurring revenue business model based on delivering mission-critical applications. But we do expect that the current environment will have some impact on our ability to close new business, and that is considered in our outlook for Q4, which Jeff will discuss in more detail. Looking at some of the details of our third quarter, we delivered solid results in an uncertain environment, and while new business activity was not as strong as a typical Q3, We did add four new customers and seven existing customers selected additional Guidewire products. Momentum for Guidewire Cloud continued in the quarter with over 60% of new sales from Cloud, which included InsuranceSuite Cloud, InsuranceNow, and Science products. A particularly notable win was with Aviva Italia, an existing customer who has opted to migrate their InsuranceSuite instance to Guidewire Cloud. Given the environment in Italy during the quarter, I found it to be a remarkable example of the perseverance and resilience of our community, and we were all very inspired to get this transformation started in the midst of these difficult circumstances. We also saw momentum continue with Insurance Now, our all-in-one cloud offering. CFM Insurance, a provider of farm, homeowners, and renters insurance, selected Insurance Now to modernize their operations in the third quarter. Also, and as discussed on our last call, Tuscarora Wayne Insurance decided in Q3 to migrate their on-premise instance of insurance now to Guidewire Cloud. Science contributed three notable wins in the quarter, showing the breadth of our reach by adding to our client base an insurer, an MGA, and a reinsurer. A German insurer selected science risk selection and accumulation for its international corporate underwriting business. And in the UK, Optio Group Services selected science accumulation and risk selection for small business for cyber. And finally, a market-leading reinsurer based in Bermuda licensed science risk. Finally, we closed one new on-premise suite customer and an on-premise core system expansion in the quarter. British Columbia Automobile Association, a $225 million DWP insurer, serving one in three households in British Columbia, selected all of insurance suite, as well as data and digital. Admirals, a tier two insurer in the UK, expanded their relationship with Guidewire to add claim center. As part of our move to work from home, our services organization has successfully transitioned to 100% remote implementations very effectively. In Q3, we completed nine core data or digital go-lives, including a go-live on insurance suite cloud at Massif in France, an insurance now go-live, and a full insurance suite go-live. In addition to customers who went live on new products, six customers completed major version core upgrades. Our continued momentum would not be possible without our partner community. Notably, within our partner community, approximately 475 consultants from 19 partner companies have now earned advanced certifications required for Guidewire cloud implementations. up from approximately 270 as of the end of last quarter. We believe that this growth is an exciting proof point of the opportunity our partners see in the future of Guidewire Cloud. I'm grateful for the efforts throughout our ecosystem, for the continued service and leadership to the P&C industry. I'm also pleased to announce that we closed two small venture investments in exciting innovators in the InsurTech landscape, BetterView and Clara Analytics. Betterview is a geospatial analytics provider that helps underwriters manage property risk and helps adjusters to remotely manage property claims. Clare Analytics is a provider of predictive analytics solutions focused on workers' compensation and commercial claims. These investments total $2 million and closed in Q4. We look forward to working with both companies as they help support what we measure as the largest and most vibrant applications ecosystem in P&C insurance. As I previewed in our previous quarterly call, we completed in May what I think is one of the most important releases we've ever done as a company. We're calling this release Aspen, and it is our first cloud-optimized release of InsuranceSuite. This is the first release to take advantage of our Guidewire Cloud Platform on AWS. It introduces a cloud-native rating service, a cloud-native rules engine, a completely new approach to integrated digital experiences and a number of enhancements to Policy Center designed to allow insurers to launch new insurance products more quickly and more easily. Our mission is to enable insurers to engage, innovate, and grow efficiently, and the Aspen release of InsuranceSuite is a major milestone in that journey. I'd also like to take this opportunity to discuss some leadership changes that we are making in the company. First, after 15 years at Guidewire and an incredible career in enterprise software, Steve Sherry has decided to retire. Steve will continue with the company as Chief Sales Officer through the end of our fiscal year and will stay on after as SVP Strategic Accounts through at least the end of the calendar year to ensure a complete and seamless transition. We are all incredibly indebted to Steve for the contribution and leadership he provided during his years at Guidewire. He's an incredible sales leader, and has built a truly first-class sales division here at Guidewire that will surely outlast him. In anticipation of Steve's retirement, we're excited to welcome Frank O'Dowd to the leadership team here at Guidewire. Frank is a 20-year sales veteran and leader from Oracle, a company that we all deeply respect in its professionalism and approach to enterprise sales. Frank was most recently a Group Vice President at Oracle's Cloud Sales Division. We're lucky to get him and excited for him to join. He will start with us on June 15th and have an opportunity to work with Steve and the team as we close out the year, at which point Steve will smoothly pass the Chief Sales Officer baton to Frank on August 1st. Second, I'd like to congratulate Jeff Cooper, our new CFO, who you will hear from in a minute. After an extensive and thorough search, we have decided that there really is no one better to lead our finance organization right now than Jeff. His command of the very complex financial details of our business model transition, in addition to the trust the organization has in him and the leadership he has shown during this interim period in the COVID-19 transition, all demonstrated to me and our board that Jeff was the right financial leader for Guidewire right now. During the process, I continually asked myself, who do I trust to financially manage and lead this company? And I just kept coming back to Jeff. He has a command of the business and a belief in our potential, and I'm excited about what we will build together. Third, I'd like to congratulate Priscilla Hung on a promotion to president in addition to her role as COO of Guidewire. Priscilla joined Guidewire in 2005. She has for many years been a key driver of the most critical Guidewire initiatives and I expect will remain a key leader of the organization for years and years to come. She embodies the grit, determination and resilience of our culture, and I'm excited to continue to partner with her as we drive the next chapter for Guidewire, Guidewire Cloud and our partner ecosystem. She's been an invaluable partner to me in coming up to speed here at Guidewire, and I look forward to her continued leadership and partnership. I hope that these leadership changes signal to you how extremely optimistic we are about our strategic direction and the long-term opportunity to serve the P&C industry. We are not slowing down investment in our cloud platform and cloud operations team. The investments we are making today will be key to our future success as the industry increasingly recognize the benefits of our cloud product. In summary, like many others, we are facing new uncertainties as a result of the COVID-19 pandemic. But we are optimistic that these impacts are temporary when considered against the multi-year timeframe and time horizon we optimize for, and the fundamental market pressures driving demand for modern insurance platforms. And as our cloud offering matures, we expect demand will continue to strengthen. We're building the most comprehensive cloud-based platform and ecosystem in the world, and I'm confident that Guidewire and the insurance industry we serve will weather this storm. We'll get through this period of social and economic uncertainty and come out a stronger, more efficient company, and I hope a stronger and better world. Now I'll turn it over to Jeff.