Guidewire Software, Inc.

Greetings and welcome to today's conference call. Welcome to Guidewire fourth quarter fiscal year 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. 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 your host, Mr. Jeff Cooper, Thank you. You may begin.

Good afternoon, and welcome to Guidewire Software's earnings conference call for the fourth quarter of fiscal year 2020, which ended on July 31st. 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 AK 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, 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 risk factors and documents we file with the SEC, including our most recent quarterly report on Form 10-Q and our annual report on Form 10-K to be filed with the SEC, for information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Additionally, reconciliations and additional data are also posted in a supplement on our IR website. With that, let me turn the call over to Mike.

Thanks Jeff, and thanks everyone for joining us today. It's now been a little over a year since I joined Guidewire, and this call marks the assessment of my first fiscal year as the leader of this incredible company. People say leaders should expect the unexpected, and I can say without a doubt, we exercised that principle pretty thoroughly this year. When I joined, we talked a lot about the cloud transformation we are embarked on. And now a year later, when I assess the progress we have made, I can say I have absolutely no doubt that we are on the right path. We continue to build proof points and momentum across product, services, and our ecosystem, and most importantly, with our customers. Each of those proof points builds confidence, credibility, and trust, and helps us continue to build cloud momentum. Regarding COVID and our operating model, things are little changed since last quarter. We have opened a few of our international offices in accordance with local guidelines, but the vast majority of our employees are still working from home and not traveling. The company continues to operate effectively, as you will see in our product and sales momentum in Q4. One of the positives I've personally experienced is that social norms now allow me to connect with customers virtually a lot more than I might have before using airplanes and hotels. This has given me an opportunity to do almost 50 checkpoints with insurance technology executives across our customer base and around the world. These conversations, even more than the objective measures of our progress in Q4, have validated to me that we are on the right path. As we execute on our product vision for Guidewire as a cloud service, I believe it's just a matter of time before each customer makes the decision to upgrade to Guidewire Cloud. So while I was excited when I joined a year ago, I'd say I'm feeling much more confident now that we are on the right path. Turning to our financial results, we ended fiscal 2020 beating our guidance for revenue and profitability with ARR finishing the year at $514 million. Driving this performance was very strong momentum in Guidewire Cloud products with 10 InsuranceSuite Cloud deals and three InsuranceNow deals closed in Q4. combined with sales of on-premise add-ons, expansions, and new sales that exceeded our expectations. Subscription revenue grew 84% to $120 million in the fiscal year, and we are positioned well for subscription growth into fiscal 2021. We were pleased to see customers and prospects transact in a meaningful way in Q4. Despite a degree of uncertainty due to COVID, Overall, the insurance industry remains a strong market and continues to be focused on the digital transformation projects that drive our business. We are in a great position to be the technology and cloud platform leader that powers the PNC industry's digital transformation for decades to come. As we extend our leadership position and transition the industry to our cloud platform. Last quarter, I mentioned that we were poised to release Aspen, our first cloud optimized product release for insurance suite. In June, we did exactly that with a virtual public launch attended by more than 1500 people. Aspen unifies digital analytics, AI, and our core transaction system into one platform delivered as a cloud service. Aspen introduced our cloud services architecture featuring new cloud native services for rating, and business rules and a new cloud data pipeline, which provides access to core system data in real time. It's truly the next generation PNC cloud platform. We've already seen existing Guidewire cloud customers upgrade to Aspen with EMC completing the first stage of their upgrade to Aspen in only a week. USAA and American Family have started their Aspen implementations. Aspen is already contributing to our momentum with cloud upgrades and new customer adoption, with 10 customers selecting InsuranceSuite Cloud in the fourth quarter. This brings the total number of InsuranceSuite Cloud customers to 26, doubling since the end of last year. InsuranceNow, our full suite cloud solution, purpose-built for smaller U.S. insurers, also had a great year with six new deals, three of which were in the fourth quarter. 62 insurers have now purchased InsuranceSuite or InsuranceNow on Guidewire Cloud Our early success with Aspen is just the beginning, as we look forward to introducing new releases every six months with our Banff release next, scheduled for November, followed by Cortina early in 2021, and so on and so on. We expect each new release will have new capabilities and cloud-native services our customers will use to improve how they engage with their policyholders and agents, innovate, and grow efficiently. As is evidenced by the early indicators from Aspen upgrades, these upgrades will be easier and easier for our customers to adopt, accelerating the value they derive from running Guidewire. Looking at the fourth quarter in more detail, of the 10 InsuranceSuite Cloud deals we closed, six customers purchased upgrades from self-managed to our full InsuranceSuite Cloud offering. This includes three Tier 2 insurers, Aviva Canada, Texas Mutual Insurance Company, and Wawanesa Mutual Insurance Company, and three Tier 3 insurers, Germania, La Capitao, and Western National. Germania's cloud upgrade included a major expansion in the DWP scope of their planned deployment. La Capitao's upgrade included a significant expansion from billing center only to the full suite in the cloud. CSAA Insurance Group, a AAA insurer, selected Guidewire Cloud to migrate claim center. CSAA offers automobile, homeowners, and other personal lines of insurance to AAA members through AAA clubs in 23 states and the District of Columbia. Finally, three customers selected InsuranceSuite Cloud for insurance lines not previously managed by a Guidewire core system. MapFree North America selected Policy Center on Guidewire Cloud, including digital for commercial lines, A Tier 1 insurer chose Claim Center Cloud for a new insurance brand to support a Greenfield Digital First renters insurance line. And another Tier 1 insurer selected all of InsuranceSuite Cloud for a new innovative insurance brand targeting commercial auto use cases. As I previously mentioned, we also continued our cloud momentum with all-in-one core solution insurance now with three deals in the fourth quarter. An existing Tier 1 customer purchased InsuranceNow for a $100 million DWP commercial auto line. The oldest insurer in the United States, the Philadelphia Contribution Ship, which by the way was founded by Benjamin Franklin, will be migrating their InsuranceNow deployment to Guidewire Cloud and Cure Auto Insurance became a new InsuranceNow customer in the quarter. InsuranceNow has proven to deliver very tangible business benefits for our customers and we look forward to seeing the success these new customers can achieve. I am very pleased with the turnaround we activated at InsuranceNow over the last year. I'm confident that we have the right product, team, and go-to-market motion to build on this success in fiscal 21. In addition to cloud momentum, we continue to expand the relationships and sign new customers for on-premise products. This new on-premise business was particularly strong internationally reflecting our belief that customers in North America are earlier in the cloud adoption cycle. We added three on-premise customers in Europe. Vaudois Assurances of Switzerland and Cullinade Insurance, based in Luxembourg, selected insurance suite. Sky Distribution, a VIG group startup based in Poland, selected insurance suite and digital. Additionally, Hanover Re, a Tier 1 insurer in Germany, and Guidewire are undertaking a pilot to prove out the ability of Policy Center to be used as an underwriter's cockpit. Hanover Re will take inward reinsurance policies created by brokers and sedants and populate Policy Center in order to provide a consistent view to their underwriters, rounding out our new on-premise business, a Tier 5 insurer in Canada, selected InsuranceSuite, digital, and data. At the end of fiscal 2020, $518 billion of direct written premium was under license for at least one Guidewire Core application, up 3% from last year. This growth rate is a result of new sales activity this year being more focused on expanding our footprint at existing customers through add-on business and cloud upgrades versus previous years. Turning to go-lives. A go-live event is always an exciting time for our customers, and customer adoption is how we ultimately define our success. In the fourth quarter, I was pleased to see 14 customers go live on implementations for 27 Guidewire products, including three cloud product go-lives. It's great to see our services team and our SI partners continue to drive successful go lives in a primarily virtual delivery context. Meanwhile, our growing partner ecosystem continues to be an important contributor to our increasing market leadership. Our partners facilitate customer implementations and help us accelerate customer success with value added solutions for insurance suite. We ended the year with approximately 620 consultants from 28 partner companies who have now earned the advanced certifications required for Guidewire Insurance Suite Cloud implementations, up from approximately 475 as of the end of last quarter. We believe that this growth is an exciting proof point for the opportunity our partners see in the future of Guidewire Cloud. The Guidewire marketplace has also been a valuable resource for customers to drive value and simplify integrations across the insurance lifecycle. For example, the general estimates they will generate a million dollars per year in cost savings and reduce payment cycle times by 80% as a result of automating their claim payment process by using Guidewire and our marketplace partner, InsurePay. In fiscal 20, our marketplace ecosystem grew to include 91 solution partners, up from 52 a year ago, providing more than 140 apps. We introduced a number of new partners in Q4, One new partner, Handy, provides an app that connects claimants directly to approved contractors seamlessly after a claim is entered in Claim Center. The app walks the contractor through the inspection, eliminating the need for adjuster inspections, contractor bids, and significantly reducing cycle times, costs for insurers, and increasing customer satisfaction. This is just one example of the many innovations our ecosystem partners are delivering to the insurance industry through our marketplace. I continue to be energized. by what they can accomplish by integrating into our foundational core systems. In summary, we had a great fourth quarter that capped off an important year for our company and specifically for Guidewire Cloud. We are starting fiscal 2021 with growing optimism for the business. As excited as we are about our cloud success, it's also important to realize that Guidewire Cloud is still in the early days of penetrating a large market opportunity. The vast majority of our customers and the broader industry have yet to take the first step in their core cloud journeys. The strides we have made towards advancing our cloud platform and demonstrating customer success are important reference points for the industry. We look forward to leading and supporting new and existing customers as they evolve to cloud-based core systems and look forward to serving them as effectively as we possibly can. Now I will turn the call over to Jeff.