Guidewire Software, Inc.

Greetings. Welcome to Guidewire's second quarter fiscal 2023 financial results conference call. At this time, all participants are in listen-only mode. Any question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll turn the conference over to Alex Hughes, Vice President of Investor Relations. Alex, you may now begin. Thanks, Rob.

Thanks, Rob. 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, aka 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 this 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 of any subsequent date. Please refer to the press release and risk factors and documents we file with the SEC, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q filed to be and to be filed with the SEC for information on the risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. We also will 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 and a supplemental on our IR website. With that, I'll turn the call over to Mike.

Thank you, Alex. Good afternoon, and thanks for joining us today. I'm pleased to share the results of what was another great quarter for Guidewire. We continue to steadily execute and improve in all key areas of our business, and second quarter results were a good demonstration of this. We combined strong sales execution, great cloud adoption, and improved cost discipline to deliver better than expected results. We exceeded our targets for ARR, subscription and support gross margin, operating margin, and our performance this quarter gives us a strong foundation to build on for the remainder of the fiscal year. As we continue to lead an industry transition to modern cloud-based core systems, we enable our PNC insurance customers to better engage with their customers innovate with new products, channels, and agile approaches to risk management, and structurally grow more efficiently than is possible with legacy core systems. We continue to make steady progress in the key pillars of our strategy, cloud adoption, cloud deployments, cloud efficiency, and growing our ecosystem of partners that amplify everything we do ourselves. On the call today, I'll talk about our quarterly progress in each of these areas. Starting with cloud adoption, Q2 sales activity was strong with eight cloud deals in total, including two new customer wins, three migrations, and three insurance suite expansions at existing customers. In the Americas, we had two new customer wins, including one for insurance suite with a $2 billion DWP insurer and another for claim center with a $1.4 billion DWP insurer. We also closed two cloud migration deals, including one for Claims Center with a global Tier 1 insurer and another for InsuranceSuite with a long-time Guidewire regional customer. In addition, we continued to work with one of the largest insurers in the world to steadily expand on Guidewire Cloud with a new Greenfield initiative. In EMEA, we had three cloud wins, which is a strong quarter for us in this region. Two of these deals were with one of the largest Finnish insurers who will be migrating an on-prem implementation of insurance suite to Guidewire Cloud Platform while also expanding insurance suite to a new line of business. In addition, a major UK-based insurer will adopt billing center on Guidewire Cloud Platform after adopting policy center on the platform last year. All of these transactions represent the growing confidence in our platform and cloud capabilities and the unique benefits we can provide in cloud-based modern core systems. Turning to cloud deployments, we continue to build momentum with nine more go-lives on the Guidewire cloud platform in the recent quarter. The breadth and pace of deployments in Q2 was exciting and has kept us all very busy. The go-live activity this quarter was international with three deployments in the United States, three in EMEA, three in Canada, and it was upmarket with one Tier 1 and five Tier 2 deployments. In the quarter, we saw a Tier 1 insurer and a top 20 P&C insurer in the United States deploy Claim Center on Guidewire Cloud Platform, illustrating GWCP's ability to scale with the largest insurers. At the same time, a startup insurer was able to deploy Policy Center and Billing Center on Guidewire Cloud Platform in just a few months, demonstrating that GWCP can be deployed quickly. I was also pleased to see insurers successfully modernize and transform their core systems to GWCP. This included AMA Insurance Company, one of Canada's largest motor insurers, deploying Insurance Suite on GWCP to deliver greater efficiency and better experience for its customers and its agent network. We also saw a major UK insurer with over a 300-year history deploy Claim Center on Guidewire Cloud Platform to begin its transformation journey. To date, 31 customers have gone live on Guidewire's Cloud Platform. This total includes migrations, modernizations, and greenfield deployments. And I believe this speaks to the capability, flexibility, and agility of our platform. We will obviously continue to increase this total each quarter. And as we do, we'll continue to improve our operating capabilities and efficiency with each new deployment and each new release. We also still have a lot to learn. Every time we complete a Go Live, we learn something. We identify ways we can improve. both for our internal operating efficiency, but more critically, we learn how to make these experiences and projects better for our customers. We remain determined to relentlessly drive further improvement in our cloud operations, reliability, performance, and security. So while we are thrilled to now have 31 production customers and proud of the work we have done to achieve this, we also recognize that eventually, and I might say inevitably, this number will be in the hundreds or maybe even the thousands. So the work we are doing right now to improve the efficiency of our operation in the future is critical to our long-term success and a key component of our intention to be a source of durable long-term profitable growth. One of the assumptions we made coming into this year was that we could hold our cloud operations headcount flat while continuing to scale cloud adoption. This was based on the significant investment we have made and continue to make in our cloud platform. In the past six months, we have nearly doubled the number of production customers on Guidewire Cloud and have been able to effectively control the infrastructure and headcount expenses required to support that growth. The significantly improved subscription and support gross margins we saw this quarter were driven by these decisions and the determined execution of our teams. We will continue to learn and improve as we grow and continue to leverage the experience and feedback we gain from each project go live so that we can confidently position Guidewire Cloud for every relevant insurer everywhere in the world. Turning to Guidewire's partner ecosystem, we continue to build momentum with both our SI partners and our solution partners. The number of Guidewire consultants at system integrators grew to over 21,000 at the end of Q2, up by 27% year over year. The number of cloud-certified consultants increased 82% year over year, passing 6,600 at the end of Q2. This gives our customers a valuable bench of cloud-trained professionals to draw on as they start down the path of modernization or embark on cloud upgrades. The importance of this community is illustrated by the fact that SIs have participated in over 70% of our cloud projects to date, and of these, 60% have been SI-led. Now, before I hand it over to Jeff, let me just comment on last week's news regarding our headquarters. Around four years ago, we moved into a beautiful new building in San Mateo, California, with approximately 180,000 square feet of space. But shortly after this move, the COVID pandemic changed the world. Post-COVID, our teams have become more distributed, and our hiring strategy has become more global. This move allows us to realize significant savings while right-sizing and aligning our office footprint to the needs of a more distributed, flexible, and global workforce. Jeff will comment in more detail about the financial impact of this move, but basically it will save us $10 to $12 million a year starting next fiscal year. I want to congratulate our real estate team on executing this transaction in a very challenging environment for these sorts of activities. And I look forward to discussing this move further with Guidewire colleagues in the coming weeks. With that, I'll turn it over to Jeff.