Guidewire Software, Inc.

Greetings. Welcome to the Guidewire fourth quarter and fiscal 2022 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. Please note this conference is being recorded. I'll now turn the conference over to your host, Alex Hughes. You may begin.

Thank you, Operator. Good afternoon, and welcome to Guidewire Software's earnings conference call for the fourth quarter of fiscal year 2022, which ended on July 31st. I'm Alex Hughes, Vice President of Investor Relations, and with me today is Mike Rosenbaum, Chief Executive Officer, and Jeff Cooper, Chief Financial 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 in 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 ones regarding our financial results, products, customer demand, operations, the impact of local, national, and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties, and assumptions 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 annual report on Form 10-K to be filed with the SEC for information on risks, uncertainties, and assumptions that may cause actual results that 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. All commentary on margins, profitability, and expenses are on a non-GAAP basis unless stated otherwise. A reconciliation of non-GAAP to GAAP measures is provided in our press release, Reconciliations and additional data are also posted in a supplement on our IR website. With that, I'll now turn the call over to Mike.

Thank you, Alex. Good afternoon, everyone, and thanks very much for joining us today. I'm happy to report a great finish to our fiscal year as we continue to steadily execute on our plan to lead the P&C industry to a modern cloud platform. Our progress in the fourth quarter is underscored by 16 cloud deals for our core software, bringing the total for the fiscal year to 40 and a constant currency ARR growth rate of 17%, which was higher than our expectations going into this fiscal year. I am very happy with the continued progress we are making on our cloud platform and the customer programs it supports. Overall, I'm very pleased with the results in the quarter and the fiscal year, but do want to call out that overall sales activity fell short of our expectations. Although we drove healthy deal volume in the quarter, we closed transactions with smaller upfront commitments, which we expect to grow as customers expand. We also closed fewer large cloud migrations than we expected heading into the fiscal year. All our existing on-prem customers are evaluating their plans with respect to cloud, but we have not yet created an acceleration of these migrations. These two factors had an impact on fully ramped ARR, which grew at 14% on a constant currency basis, and will have an impact on some of our forward-looking metrics, which Jeff will cover in a bit. While there are certainly days when we would like this industry transition to move faster, I am proud of the product innovation we have delivered thrilled with how we are competing for new deals, and confident that our current trajectory leads to our long-term goal of modernizing this critical, although risk-averse, industry we serve. Before I jump into the Q4 details, I want to take a step back and reflect on how far we've come. We started our cloud transformation in earnest two and a half years ago with the launch of Aspen, our first cloud platform released. Our goal was to establish a more efficient and agile platform that would form the foundation for all future Guidewire releases. We architected Guidewire Cloud Platforms to support a more seamless release cadence so customers can update each release and take advantage of new innovation without an expensive and lengthy upgrade. We believe this approach to updating the product and platform is essential to supporting the industry's effort to modernize core platforms engage with customers more effectively, innovate with new products, and grow efficiently. In October, we will announce Flame, our sixth release in less than three years. Flame continues to enhance the operational maturity and scale required to support the world's largest insurers. It includes advancements to further simplify and speed development of integrations to and from GuideWire. It also dramatically expands on the packaged product solution and country-specific content available under the Guidewire Go program, including content that accelerates time to market in Japan, Australia, and the London market. Finally, this upcoming release marks the introduction of Guidewire's JUTRO digital platform to enable rapid delivery of rich digital experiences that work seamlessly with our core applications. The next objective was to drive adoption of our cloud platform. This adoption would provide us the practical experience we needed to ensure we would continue to lead the PNC core market worldwide. We have been enormously successful on this front. We now have over 120 customers committed to cloud, including 79 for Guidewire Cloud Platform, of which 19 are now operating in production on GWCP. Cloud is now consistently above 90% of our sales activity and subscription revenue has now surpassed license revenue, which is an important milestone for the business and our transformation. The progress we have made to date gives me confidence that we're on the right path and that we will successfully transition our enterprise to the cloud. We, of course, have a lot of work to do, but everyone at Guidewire is excited for the challenge and opportunity ahead. With that, let me turn to some of the highlights and takeaways from the fourth quarter. It was great to see continued progress driving deal volume through the quarter, while also further penetrating Tier 1 and Tier 2 insurers. Of the 16 cloud wins in Q4, nearly half were with Tier 1 and Tier 2 insurers. Similarly, for the full year, we had 40 cloud wins, and over half of these were with Tier 1 and Tier 2 insurers. Some notable wins in the quarter included a cloud expansion with one of the largest insurers in the world who is extending insurance suite cloud to more lines of business. We also saw Kemper Corporation, one of the largest specialized insurers in the United States, elect to migrate insurance suite to the cloud. A top 10 international insurer adopted policy center in the cloud for the United States and insurance suite in the cloud for the London market. This is a new customer win and represents a significant potential expansion opportunity for us. InsuranceSuite Cloud was also selected for two exciting Greenfield projects serving large car manufacturers that plan to embed auto insurance at the point of sale. The first of these was for OnStar Insurance, which is affiliated with General Motors. The second deal with a large partner in european car manufacturer to enable the upsell of insurance contracts throughout europe these deals are starting relatively small from an arr perspective but have meaningful upside as these initiatives grow and finally i was thrilled to see our team plant guidewire cloud flags in japan and brazil they saw automobile and fire insurance has become our first cloud customer in Japan by selecting Claim Center Cloud to replace an in-house built legacy system. We now have the opportunity to demonstrate the success of cloud in this important insurance market and drive continued expansion and modernization in Japan. Turning to cloud deployment activity, we had seven more go-lives on Guidewire Cloud in the fourth quarter. A Tier 2 US-based specialty insurer serving niche property casualty insurity markets deployed Claim Center on the Guidewire Cloud Platform. This project was delivered on time and at budget and has enabled them to update their implementation to be more aligned with our out-of-the-box configuration. They've also enhanced their end user and employee experiences and freed up valuable IT resources to support a new focus on innovation and business value. A large Tier 1 went live with Claim Center on Guidewire Cloud Platform, and this was a successful greenfield implementation and is a great proof point for us as it demonstrates a Tier 1 carrier's ability to leverage out-of-the-box features and functionality to support innovative business initiatives quickly. Finally, Church Mutual Insurance Company, a 125-year-old insurer operating in all 50 states, went live with Claim Center on Guidewire Cloud Platform. This project was delivered on time and at budget and has enabled more out-of-the-box configuration, reducing technical debt, and leaner workflows by eliminating manual processes. This has enhanced end user and employee experience and allows their IT organization to focus on innovation and driving business value going forward. P&C core modernizations are often incredibly complex. Though we are generally thrilled with the progress we have made on our cloud programs, we do have a few of our early cloud projects that are more complicated and taking longer than we originally anticipated, and this does show up in our services margins. As I have said previously, we are committed to the success of every customer and intend to invest what is needed to ensure their success. While we are seeing higher expenses in some of these programs, I'm confident that we will see better efficiency and predictability going forward. There is, of course, a benefit in all this complexity in that it establishes tremendously valuable and durable relationships. The financial measure of this durability is reflected in an overall gross ARR attrition rate below 2% and core insurance suite gross attrition of approximately 1%, excluding the impact of Russian customer attrition. This is a testament to the mission-critical nature of the solutions we provide. Turning to our ecosystem, SI partners continue to play a critical part in many of the cloud projects underway, with nearly 60 Guidewire cloud projects in Q4, including SIs. It was great to see continued expansion in this community through the fourth quarter. We finished with nearly 19,000 Guidewire consultants from the largest SIs in the world, an increase of 38% year over year. And the number of cloud certified consultants increased 122% year over year to over 5,100. We also added 13 new solution partners to the Guidewire marketplace and now have over 160 solution partners on our platform. We are fortunate to serve a big resilient industry that is steadily going through a significant digital transformation. With a singular focus on this industry for the last 20 years, we occupy a market leading position marked not just by the usage and resilience of our core solution, but also by the cloud leadership we have now established. I believe we are poised to establish a once in a generation cloud-based technology platform that will serve as a source of innovation for customers while delivering durable and profitable growth for our stakeholders. I'm excited to share more about our platform in October when we host our analyst day on October 6th at our headquarters, and then at Guidewire Connections, which will take place this year from October 23rd to the 26th. I'll now turn the call over to Jeff.