Guidewire Software, Inc. Stock

Please welcome Guidewire's Vice President of Investor Relations. Alex Hughes.

I could have used that song this morning. Well, good afternoon. Welcome to Las Vegas Connections and Guidewire Analyst Day. I got here Sunday and when I woke up Monday, 1 of the things I discovered is that as good as this hotel is, they don't provide any coffee in the bedroom. So I said to mike, wouldn't it be funny if we invited our analysts and our investors to Las Vegas and made them think that the day would start at 4:30, and then surprised them with a business update call early in the morning, so they can discover the same fact, but at 5:00 a.m. So I'm sorry, Colin Jost even thought it was cool. But it is a lesson that life is filled with uncertainties and risks and say, we will be making forward-looking statements, so please keep that in mind. They're not immune to that.

We do have a great agenda today. We're going to move very fast. Normally, we have a break on these days, but today, we're not going to do that just given the amount of news and things to talk about. Mike is going to kick it off talking about delivering intelligent insurance. Then John is going to talk about driving platform expansion and growth and then we're going to -- Mike, for every section, we're going to move over and hear from the perspective of some of our customers led by Christina Colby. And then Jeff is going to bring it home talking about building on our cloud model, and then we'll finish with Q&A and a couple of drinks after that.

So that's the agenda and we're going to kind of plow through it. And with that, I'm going to hand it over to Mike.

Thank you, Alex. Hello, everybody. Hello. Yes, I couldn't tell it was. It's on now. Yes, we're good. Okay. Great. Okay. So apologies a little bit if some of this stuff is repetitive to those of you who are able to join us for the keynote this morning, but I wanted to sort of make sure that whenever we do this event and whenever we do this presentation, I just want to make sure that we sort of cover some standard ground about Guidewire. First of all, 25 years serving P&C insurance industry. I said this morning, I don't think that's going to change for the next -- at least the next decade. We see a very significant opportunity continuing to serve the P&C industry. It's an industry that's over $1 trillion in direct written premium, which is the really important driver of our business model. And we exist to provide a technology platform for that industry. Technology in P&C insurance is interesting, right? Like you think sometimes when in my previous life, we would talk about back office systems and somehow that was disconnected from the core mission of a company. But in P&C insurance, these core systems directly relate to the products that these companies can provide the customer interactions that these customers can support and also claims management, which is a critical function of an industry. We like to think that Guidewire acts as the heart and lungs of an insurance company. And without our core systems, they really can't operate. In the 25 years we've been in existence. We've managed to earn the trust of 9 of the top insurers in the world by direct written premium, 500 customers worldwide across 44 countries. And very proud to say at this point, $1.6 billion in fully ramped ARR.

The other thing about our company that's very important to understand and certainly, this has evolved quite a lot in the last 7 years that I've been a part of Guidewire is that we seek to provide these applications as a cloud service, a constantly evolving cloud service which creates this mechanism for us to deliver innovation to our customers much more effectively than they have traditionally been able to operate, like the real thing holding the industry back or 1 of the things holding the industry back for a very significant amount of time is just how slow it is to update these core applications and what -- with what we've built now, we can keep these applications current. We can continue to deliver innovation to the industry, and we continue to make a very positive impact on our customers' competitiveness.

So I want to talk a bit about our perspective on artificial intelligence and its impact on insurance. Number one, I'll start at the bottom of this slide. A lot of what governs how effective an insurance company can be is like driven by development, right? These are technology systems. There's 27,000 developers in our community. These things are incredibly complicated and somewhat these are like real fintech operations. AI is going to and has now accelerated the work that these developers do, right? The IT programs, the SI programs that underlie Guidewire implementations are speeding up with AI. We've worked incredibly hard over the past year or so to make sure that our platform was AI ready. And this is a critical accelerator of what I think is sort of a real driver behind the future of the company.

And then the other 2 sides of the triangle, the way that I want you to think about this is not so much products, but like functions at an insurance company. What makes it insurance somebody special is that they understand risk and they underwrite that risk. And then when a loss occurs, they pay the claim. And the processes that you need to follow in order to do this effectively in order to do this profitably, are very, very unique to P&C insurance. And both of these things are going to be dramatically impacted, I think, in a positive way by artificial intelligence. You say -- a lot of people say like P&C insurance is generally sort of less efficient than maybe other industries, but it's because the nature of what these companies do just resists the traditional sort of business process workflow automation. It just requires a very deep understanding of what oftentimes is unstructured information, both on the underwriting side and on the claims side. And what artificial intelligence does is it provides us like incredible unlock to that unstructured information. And these things sort of together, we think, create a very, very significant market opportunity for Guidewire, okay?

I'm going to go on top to bottom on this slide and thinking about what I think is the, call it, the total addressable market that we face right now, the opportunity that we see going forward. So number 1 is the business that we're in, right? There's a legacy tech dec in the industry is very significant. Consumer expectations continue to increase. And technology is really a real -- the key driver behind the efficiency of the industry. We serve this demand with, we think, the leading core system platform in the world. And we think that, that creates a $30 billion TAM as -- and you can think about as 1% of direct written premium. This is the business that we're in. This is a business that I think we're winning. This is a business that I'm very proud of leading. And basically, I would say from an investment perspective, this is how you should generally think about Guidewire at least over the last 7 years of my tenure at the company.

These next 2 bars are incremental and are unlocked in a very significant way by artificial intelligence. The next 1 is about controlling indemnity. It's about creating better customer experiences when losses occur, it's about operational efficiency. It's -- you could call it a genetic claims. Like if you were watching the presentation this morning, you saw a demo that I thought was genuinely profound, right? It was like -- 2 years ago, we were at connections. And at the last minute, somebody, I think it was open AI, launched a real-time API voice channel, and we said, "Hey, can somebody slap together a demo and see if this works, and I remember, it's like we stayed up all night before the keynote, and we made a demo of how you could talk to an AI and save the result back into Claim Center. And 2 years later, we have a product in production doing this, okay? Like I still watch that demo, and I'm like, "I don't believe that, that really works, okay? And I'm the CEO of the company that's running that in production. Like it's amazing. Like we legitimately can get -- like you very clearly see at this moment when artificial intelligence is the layer around which people and companies will interact with the insurance industry, and we will be able to create better customer experiences, better outcomes, the industry would be able to control loss more effectively and we think that also creates a $30 billion total addressable market. Again, rough math, 1% of direct written premium, okay?

Now I want to caveat this is like this is less of a software market that exists today. In order for us to arrive at that number, you have to start to think about the vast amounts of expense that are spent on claims adjusters and operations in these companies. And these are the things that these artificial intelligence systems will displace, which creates an economic opportunity for us to address.

Last bar on this slide is the underwriting opportunity. And you can describe this in a way, sort of focusing on operational efficiency. But I think the more interesting way to think about it is that what differentiates an insurance company is how effectively can they price risk and how quickly and effectively can they price and estimate loss associated with the potential risk they would underwrite. And again, artificial intelligence creates now this potential for us to address something that like up until this point, just resisted automation. And again, if you start to think about the labor associated with underwriting in the market today, if you start to think about better -- making better, more profitable decisions, we think that also creates another $30 billion market potential.

So it's -- and so the underwriting opportunity gets to what I think is maybe the -- obviously the most strategic thing we're going to talk about today. Maybe the most strategic thing that I've done as CEO of Guidewire and which is to announce the intention to acquire Hyperexponential. And I want to just give you a little bit of perspective on how we got here. We recognized that there was the potential for underwriting in the industry to change. We also knew about this amazing company operating in the London market serving commercial lines with this like incredible pricing engine. And we had worked very hard to build a relationship with this company sort of figure out like what was their DNA? How did they act? Did they -- might they someday potentially fit into Guidewire? And this is something that you work on over years and years as you sort of partner a little bit with the company, get to know them a little bit. But then along the way, you kind of realized, wait a minute, this company sees the same potential for how -- for underwriting and what I'll call Agentic underwriting and see -- and then you realize this is a company that, based on their based on their experience, based on their expertise, based on their customer base, there's really nobody else in the world that's better positioned to be able to help us execute on this opportunity in Agentic underwriting.

And so I'd like to welcome Amrit, the CEO of Hyperexponential up and talk to me for a little bit about the vision for Agentic underwriting and what he's thinking about in terms of joining Guidewire. Hello Amrit, you doing? Eventful day?

A little bit.

Yes. So what I'd like you to do is just tell everybody your founding story, how do you start the company? What were you thinking and give me a little bit about the history of maybe up to a year ago.

Sure. So I'm a software engineer by training, and I became a pricing actuary. So HX's story kind of intersects those 2 things. I worked in the Lloyds in London markets and actually in North America and Canada for 12 years and spent a lot of time actually doing the work of the kind of customers that we now serve. So actually, I got a very deep appreciation and respect the job of underwriting. You learn this very quickly if you're sitting next to an underwriter, either in the Lloyd's market or actually if they're trying to ensure some planes in Canada, and they're shouting at you about the prices that need to calculate, and you're learning very quickly the job to be done. So I saw very, very clearly in that work, and as I approach the end of my time working in the markets and technology was advancing and there's like a really nice resonance with the story you're talking about today about AI with the Cloud era. And actually, as the Cloud era kind of came upon us in insurance, I saw an opportunity to build a rating engine that would supercharge their pricing and rating kind of process in insurance. And so that's the founding story with respect to HX in pricing and rating.

All right. So then we're all here a year ago today before Claude Code, before Agentic AI really worked. Tell us a little bit about like your perspective on how these Agentic systems might be and will be applied to underwriting?

Yes. So you can imagine the level of kind of nerdiness in me, if I'm an actuary and software engineer, right? So I spend a lot of time exactly in that Claude Christmas point, actually spending time with technology. And the kind of -- the biggest realization I had, and we were talking to some of the Guidewire customer base today, is that the Agentic era is shifting the work from being done by humans -- actually the agents driving and reaching back to the humans for help. And the analogy you gave today on stage about Cursor is something that resonated very deeply with me. I could see when I was playing with Cursor at the start of this year, it's astonishing that it was just the start of this year, right? That Opus 4.5 came out. And we're like, okay, this Agentic stuff is going to work autonomously. I could see the analogy for insurance. And what I saw at that point was very clearly that exactly, as you say, these tools are going to need a grounding. They're going to need a framework to do this work. And so like what is the analogy for a system like cursor actually, if it's going to do underwriting, and that was what motivated the Hyper operator, and that's what motivated some of the kind of opportunities that I think we've been both talking about in parallel.

Tell us a little bit about -- and I didn't prep you for this, but tell us a little bit about the culture. I think it's lost sometimes on people when they think about 2 companies combining how important it is, that we gel as an organization, right? Like -- and I don't want to put words in your mouth, but we've talked a lot over the past some number of months about the way that you run the company and the way that you think about serving the industry, but I'd love to hear you say it yourself.

Yes, this is really important to me. So you had the slide up where it said 25 years serving the industry. So I always wanted to build a company, and hopefully, I still can within Guidewire that like last did as long as our customers do, and if you're going to do that, like the residue that's left or the foundation is the culture. So I've always obsessed very deeply about our culture, like our values myself, I do every final round interview for every employee at HX, like I'm very hands on about managing our culture. I still do that today. We have a like a valued interview process at the company that we take very seriously and very sacred to us. And I think -- the point that I think I realized when I was talking to you is that there's just a huge amount of overlap in the value system that we have and the value system that Guidewire has. And that was very important to me because I never wanted to build a company kind of reverse it into another organization and sell off into the sunset. There's just like a lot of work for us to do. And I think if there wasn't a cultural resonance, I think then there'll be a lot of friction and a lot of waste and a lot of risk, much more risk than I feel today from the work we've been doing together so far.

Well, look, congratulations. I look forward to working with you and attacking this opportunity. I think it's going to be a real profound journey. So welcome to Guidewire.

Thank you so much. I can't wait to started. Thank you.

Okay. Before I turn it over to John, I just want to cover a couple of things that I think like I try to do and remind myself and remind my audience every single time I talk about this company. Guidewire, I think, very uniquely provides a complete suite of applications that cover a complete life cycle for a P&C insurance company. And I think this is very, very important to understand. These are systems that every single insurance company in the world needs, and we provide best-in-class versions of each of them. They all run on a common cloud platform that we've worked really hard over the past 7 years to establish this, to roll this out, to make sure that it's trustworthy, secure and reliable and working. And the thing I said this morning, and I'll repeat right now, is the thing we've done now is that we've recognized that these agents are first-class citizens with respect to interacting with this platform. Just like developers use this platform, just like people or users use this platform, agents will use this platform from a development perspective, agents will use these platforms to facilitate the user interactions and agents will use this platform directly maybe through Muse or Dots or whatever you want to call it, it's like this system, regardless of how the world changes with respect to creating software, agents are going to interact with Guidewire.

And the last part of this that I think is very, very important to understand, and maybe today, doing Analyst Day at Connections is just a great reminder of this is that we don't do this alone, okay? Guidewire's success is based on the fact that we have created, I think, probably the best ecosystem of partners in enterprise software. It's not the largest, certainly. We're not the largest, but we have this core group of professionals that have defined their lives and defined their careers around the expertise necessary to make these programs successful. I mean you should not misunderstand this, deploying Guidewire, deploying Policy Center, deploying Claim Center, deploying Billing Center, deploying insurance now, it's an incredibly difficult, challenging thing to do, okay? And Guidewire with this ecosystem does it better than any other company in the world. And ultimately, that is what our customers buy, okay?

So with that, that is it, and I'm going to turn the stage over to John Mullen, our President, to talk about platform and expansion and growth. Here you go, John.

All right. All right. Thank you, Mike. Thank you, Amrit. Really excited to get started on that journey. Okay. So I'll take you through some of the reflection of the year and set up where we are as far as growth levers go coming into this year, not the least of which is amplified by what Amrit and Mike just talked about. I think there's a tremendous opportunity in the underwriting space. And we talked about it through the keynote is that, as we think about this journey through this year and on the platform that we've been working so hard to get to where it is now, it just gets us closer to the things that matter most in the insurance C-suite in the boardroom. And that's the business results the capital adequacy and ultimately, the return on equity for the overall insurance industry because we can improve that, that we can improve access to capital and deploy the 1 thing this industry is really efficient at is deploying capital to risk in the market. So there's a lot that we can solve for together.

Okay. You've all seen this slide before. We serve a very large and global, but also very durable market. Okay. I often get questions about where is this market going from a premium perspective. And the answer more and more every day, I'm more convinced that the world is not getting simpler nor less complex, okay? So the world that we serve is going to have to dynamically understand risk as it evolves, price for that risk, manage that risk. So I don't see any macro trends that are going to put this at risk. And we sit in a really strong position to continue to pursue that. We continue to achieve high win rates. If you look at it on a systems decision basis, still very strong win rates. If you look on a premium basis, still really winning those big markets. We'll talk about that a little bit more in a second. Those big carriers, those big markets.

When we think about durable capture across carrier size, this is 1 of the things I was most pleased with last year. We put a team together to really think more dynamically about kind of the Tier 4 and MGA carrier, MGAs and Tier 4 carrier market. We saw nice progress last year in penetrating that market. It's a different competitive speed. It's a different competitive dynamic. But if we think about how the market is moving and the distribution of risk, that's really -- continues to be an increasingly important space for us. Tier 1s and Tier 2s is still progressing very nicely. No real new news there from a last year this year perspective.

Continuing to build for global expansion. The platform is now -- we talked a little bit about this last year. The platform has reached a point where when we talk about agentic development, we talk about partnering with customers where we're now leveraging the extension layer to be much more line of business specific and much more country specific. And we're seeing nice progress in the content that we're building out for Japan and for Germany and for France. And those 3 will carry a tremendous amount of focus for us as we go into this -- as we go through this year.

Okay. So how is that manifesting itself? 3 data points for you. 21% is the 3-year CAGR growth for our top 10 customers on a premium in scope basis. What that says is the largest customers in the world who are going to win the scale game and the leverage game and insurance, which is becoming more important as we go forward are betting bigger on Guidewire. 21% in that arena for those top 10, 13% overall for Guidewire, so materially faster growth rate in premium under coverage. More importantly, for those top 10 customers, we've got a 28% increase in fully ramped ARR. You're all very familiar with that bottom number, which is 21% over that 3-year period. So it's a material increase in those top 10s over that same period. And that sits at that far end -- at the far end of our customer cohort group. The 1 that I think I'm most excited about is a 30% increase in the number of customers that represent a $5 million fully ramped ARR number, right? Because that -- those are also the customers that for the agented capabilities that we build. These are the customers that say to us, Guidewire if you're building it, we'll wait. Guidewire if you're building it, we'll replace what we have with that, because the continuity and context of the platform to be able to be delivered through the agentic capabilities to all points in their enterprise is fundamental to them. So that wallet share expansion in that cohort group is a tremendous opportunity for us.

Now before I leave this slide, what I'll tell you is every 1 of these dimensions has a tremendous amount of runway ahead for us. We can still expand tremendously inside the top 10 customers on a premium coverage basis. We still have a lot of a state by either product or line of business or geography within those top 10 customers to expand wallet share. And more and more, we're finding that customers are ready to bet big on what Guidewire is bringing to market. And today is no exception. The conversations I've had today about the potential of Hyperexponential and Guidewire coming together creates so much momentum in not just replacing IT costs or creating capacity for better insurance decisions to be made, but to really get into the heart of how those decisions are made, why those decisions are made and how they can be improved, value compounding over time through the relationship with Guidewire and Hyperexponential.

Okay. So let's look at this then from a TAM perspective a little bit. Mike talked about the macro numbers, but let's stack from some of the history we've talked about before. Okay. When I joined Guidewire this actual little boxer, represented the whole slide. Okay. So expanding DWP, what our current fully ramped ARR is an expanding and the new customer wins. To be fair, this was on the Slide 2, okay? New customer wins still represents a tremendous opportunity for us. If you look at global expansion and even line of business expansion, I'm still very excited about that opportunity. Then we get into the next most definitive space, which is really enterprise rating and pricing, okay?

Hyperexponential the HX ReNew product, very much focused on the London market and the specialty lines of business. Pricing Center, we talked about a lot through all of our calls over the last quarter, couldn't be happier with the progress on pricing center. And so that opens up that space for us, which is fairly definitive.

Analytics and data services. One of the things that we glossed over a bit maybe in the pace of the keynote today was Kaleidoscope. I will learn how to say it in Italian. But Kaleidoscope to me is 1 of those things that is a potentially hidden jewel that we need to unlock, and all the focus we've put into the platform and all the work we've been doing on Agentic, had we not experienced that Claude Christmas, I'm quite certain what we'll be talking about is our investments in data science and in things like Kaleidoscope, because what Kaleidoscope does, it allows us to anonymize the data asset over $320 billion in premium running through our systems that we have the rights to do analysis on. That is a massive data set, and it's not just an outcome point-in-time data set. It is a streaming transactional data set where we can unpick cause and effect at all points in the transaction flow and giving carriers the opportunity to model against that and train models against that without them actually seeing the data is a little bit of magic, data science magic that I'm not the right person to explain to you, but certainly, it has a tremendous amount of interest, particularly in those Tier 1 carriers. And you might say, but they have so much data and so much data science themselves. They're all trying to figure out. They're all using the data that they have. But if they want to enter new markets or enter new product lines or even test new pricing models, the best way to do that is against the data set that we can provide to them in this context. And I'm really excited to see where that goes. Leo and his team -- Leo Tanenblatt and his team, I think, have a tremendous amount of armaments ready to take to market this year, and I'm excited to mobilize that.

And then Agentic automation of claims and underwriting, Okay. Mike said this, this is not as clearly a defined software market, of course. There's an operational component to this. There's an Agentic component to this. There's a growth element to this, and there's a profitability element to this. So how are we positioned for -- 1 of the things when we were talking with Amrit and team at Hyperexponential, 1 of the things that really struck me was different how differently they look at the business case. How they're selling to the business users and their customer base, how they're partnering. We both -- you could say we both have very similar outputs on the business case, but we come at it from very complementary perspectives. And as you combine those 2 things together, unlocking this capability, I think, is absolutely critical for us. And what will that show up as? That won't show up us necessarily the business case that says we're achieving cost avoidance or cost displacement or even savings. It's going to be the ability to drive better insurance outcomes. Can we help a customer grow their premium? How can we participate in that? Can we help them with their profitability? And I'll be very specific because Amrit says it every time and I agree with them 100%, where it's warranted. An adequate amount of premium for a very fair price. And that's important. That's the responsibility of the underwriter. It's not to charge the highest price is a charge the most appropriate price. And if we think about balancing off our ability to capture that really business domain business case, and that IT and operations domain business case. We start to go after the larger numbers in a carrier's expense budget in their underwriting ratio and also driving overall improvement in the industry.

So I think this really brings to life that context of what we're going after. It is materially larger than it has been. So then what are some things that need to be true for us to go after that. The community of SIs who I hope you all spend time with, I'm sure you do. I think they'll tell you that this -- where we are right now from a foundational platform perspective, and an agent capability perspective and a business transformation perspective, puts us collectively in a position to drive much better business transformation than we ever have before. But they'll also tell you the battle for oxygen is real, right? They are fighting hard to have all the conversations they need to with carriers to talk about business transformation, not just IT implementation to talk about the fact that we spent, I think, 6 hours yesterday with the vast majority of them, walking them through the Agentic platform, how this should work, what good looks like, what good partnership looks like. And every conversation I had with them last night was, look, the industry carriers, our customers, our prospects, they just don't know enough yet about all the things that are coming out, all the things that are in play. So we just have to work harder. We have to work hard to fight for that oxygen in the C-suite and continue to drive that conversation. But we also have to continue to work harder to make these implementations more affordable and faster, okay? We've got the use cases out in the world. I refrain from putting the percentage on the table today in front of the main audience at the keynote. But we've got the use cases out in the world that are proving out in the cases of on-prem to cloud migrations, 40% to 50% improvement in speed. We're seeing in the net new implementations 35%, 40%, 45% improvement in speed to market. We're seeing even greater improvements in product releases for those customers that are already operating on cloud when they want to enter a new market with a new product or a new line of business. So the value of being there is proving out. We now have to turn from use cases of that kind of speed to it becoming large portfolios of that kind of speed, and that will probably look regional for a while, okay? Because the adoption of the AI tooling in these program context is going to take some time to burn in. And then what we have to do is make sure that, that becomes the standard operating procedure, okay? There's a natural tension here, okay? The capture and the exchange of value in this equation is something that we value our SI partners perspective on. We value our customers' perspective on, but I want to -- make no mistake about it. The ultimate objective is to make these programs as affordable as possible, so when we get our customers running and creating compounding value on the platform as fast as possible.

So what are the growth pillar is driving us through next year? Okay, migration and modernizations, referenceability continues to be #1 in this space. I talked about those large carriers who are betting bigger on Guidewire. It's because of the referenceability across lines of business and across geographies that allows for that. Program speed becomes -- continues to become more and more important. It is becoming fundamental to the commitment we make to the market. Segment and line of business focus. You saw work comp today, hopefully, at the keynote. This is 1 of those product releases that I'm so pleased with because the team that was working on it just got about the business of solving business problems, worked very closely with work comp carriers and with work on boards. And right now, we're at a point where that pipeline in this space is growing even faster than I thought it would. So work comp is a critical one, winning in commercial lines, all lines of business everywhere in the world. That was true in what we were going after before, it is an absolute accelerant to focus on it, the way we're focusing on it now with Hyperexponential.

A number of years ago, 1 of the most trusted people in commercial insurance, I don't have the right to quote them and were recorded here. But in an ITC conference said, "I really need somebody to partner and focus with us on the risk selection and pricing. The amplification of risk selection and pricing creates more value in commercial insurance than any other IT solution we can bring to the table. With where we are right now, we can answer that, Bill.

Agentic portfolio expansion ProNavigator's on the move, Agentic underwriting and claims. I hope everybody -- Mike mentioned the concierge demo. Concierge is a concept that a product on 1 from concept to product as fast as anything in the history of Guidewire. And it's not just about the claims component that you saw today. I think that the billing agent -- when we talk about billing inquiry, I think we'll prove out over the course of this year that policy inquiry and billing inquiry will prove to be extremely valuable in driving the economics of mass market carriers long into the future. So continuing to drive that solution set and the genic portfolio deeper into our customers, which is hard because the pace at which these things are coming out, we need to have 5 to 7x more strategic road mapping conversations with our customers than we did 3 or 4 years ago. And that puts a lot of strain on our team. Christina Colby, our Chief Customer Officer, is building the team to continue to build the muscle to go after this and leverage Agentic tooling to make sure that what we bring to customers is in their context. Japan, Germany and France. I've often talked about geographic expansion. This year, Japan, Germany, France and London market, but that continues to expand for us. These are the focus for us.

And finally, analytics, which I talked about Kaleidoscope and Industry Intel. These are the elements that are going to drive our growth for this year. But let's be honest, at this time next year, I'm going to be talking to you about a very similar set of growth patterns going forward. because this starts to cover the entire state of what's driving business value for our customers.

Okay. So with that, I'm sure you all want to hear from our customers and bring this story to life. So Dan Wuest, Paige Vincent, Nitin Jain and Christina Colby, please come on up. And Christina will take us through a panel conversation on bringing this to life.

I feel like we -- I don't know, cracked a secret that we get walk on music, but not everyone did. So thanks for that. I'm Christina Colby, great to see so many of you again. And I'm thrilled to be joined here by an absolutely phenomenal panel of leaders, both across business and technology from our customer base. Let me take a moment to give you an opportunity to get to know them, and then we will dive in with some questions. So Nitin, if you would like to introduce yourself first.

Sure. Thanks, Christina, and thanks for having me here. So my name is Nitin Jain, and I am the VP of Digital Transformation for Donegal Insurance Group. My responsibility is to make sure that all of our transformation projects get executed on time, on budget, on schedule. In addition to that, I also lead the Chennai initiative for Donegal. Just a little bit more about Donegal. Donegal is a regional P&C carrier. We have been in existence for more than 130 years. So we have a long history. We write both personal and commercial lines in 21 states with DWP of $1 billion plus. Again, because we are an independent agency model, what's really important for us is to have like in-depth and very deep relationships with our agency plan. So what is really relevant to them is that we can reduce the friction in terms of ease of use of our systems. We want to make sure that we have consistent and predictable underwriting standards. At the same time, from a servicing standpoint, we want to make sure that we can service claims as well as policy. And what is informing all of our -- in terms of the system capabilities is the guide our core system. So we are a full suite Guidewire customer on-prem right now. So we have policy center, billing center, claim center as well as we also have DataHub and InfoCenter. We are in the process of migrating to Guidewire Cloud right now. And also, along with that, we are implementing ProNavigator for ClaimCenter as part of our migration journey. So I know we're going to touch about these topics later during the conversation today, but happy to be here.

Yes. Perfect. Thank you so much. Really appreciate it. And you may recollect Paige Vincent joined us on this panel last year. So it's fantastic to have her back. Paige, would you mind reintroducing yourself for folks who may not have met you last year?

So Paige Vincent, Chief Operating Officer, Holland. We're a baby in comparison to Donegal.So we've been around for about 27 years, and we are a fully partnered business. So we don't sell insurance direct under our own brand. We do it through some of Australia's biggest retailers. So we have CBA insurance. We have Woolworths insurance and also Greenstone financial services as well as an agency business. I have the privilege of looking after all of our customer-facing parts of our business for those partners, so sales, service, claims, complaints, customer advocacy and for sits from a previous life first-line risk on behalf of the enterprise. We have all of our claims now on claim center, and we've done that over the last couple of years. We came from 3, 4 different claims platforms and we've gone direct into claims center in the cloud, and we are about to get ready to launch to our frontline, a combination of ProNavigator and claim summarization, which we'll talk about a little bit later.

Perfect. Thank you so much. And Dan, if you'd like to introduce yourself.

Absolutely. Good afternoon, everyone. Dan Wuest. I am SVP of products, engineering and architecture at CNA insurance. We are a top 10 commercial lines carrier headquartered in Chicago and actually became Guidewire's first production customer after going live on ClaimCenter way back in 2003. In my current role, I'm accountable for all business systems development, support all data delivery, all transformation, including Guidewire. CNA is the third insurance carrier I've worked for. All have been early adopters of Guidewire. So I've personally been working with Guidewire for over 20 years. And as a small indication of my commitment here today, I'm actually from -- I live in Milwaukee, and I am currently missing Game 4 to be here. So -- but happy to be on the stage and joining the panel.

I'm not certain that you're being honest about how happy you are about that. But it shows the degree of support that you have to join us. So thank you for that. I'll also add that the implementation of ClaimCenter that Dan was talking about at CNA, I was actually part of all of those years ago. But I'm glad that, obviously, I haven't aged at all. So I guess that's a good thing.

Let's see, Paige, if you don't mind, let's go back to you in terms of the question that I'll ask first. But I do just want to orient the audience, if you remember this I will ask just a handful of questions to hopefully give you a little bit more context. But I imagine the part that you want most is to be able to ask them questions directly. So we'll spend just a little bit of time setting more context, and please, of course, start to think about questions that you might want to ask, and we'll have some mic runners who are coming around too.

Okay. So Paige. As I mentioned and as you shared, you were on this panel last year, which was terrific. You have been live on ClaimCenter for a while now with some very successful results across the claims team. You worked on really 1 of the most nascent versions, I think, we had of claim summarization because your company is so innovative in the way that you're eager to always take on some of the earliest solutions. And so now you actually have summarization at a later stage, properly under ProNavigator, and that's in beta format really before rolling it out to the claims organization. That's definitely a highlight from my perspective over the past year. But perhaps what are some of the other things that you'd like to talk about in terms of progression and benefits that you've seen in the past year?

Yes. I think in the last 12 months, we have learned a lot in terms of how to use it in the right way and the outcomes that we're trying to get. But it is also almost opened our minds to thinking differently about how we actually wanted our people to interact with the customers and the experience that we could create and the ways that we could tackle some of the challenges that the industry are facing in a nontraditional way. So for example, for those that might not be aware in Australia, a highly regulated industry, we've had a couple of government reviews that have been quite critical of the industry, and there is a strong focus around vulnerable customers and how you can create bespoke experiences based on the needs that they might have during the claims journey and the way that we were originally thinking about tackling that was from a structural point of view, from specialization, the way you would normally start to think about that. But then as we started to experience claim summarization and then when we started bringing ProNavigator, it has completely changed the way that we're thinking about solving for those problems. And all of a sudden, it's moved away from having to have individuals, highly specialized experience and trained, which is very hard to get in the industry on mass to actually having technology that supports anyone, any level being able to respond in a very bespoke discrete way and have that level of competency, which is normally a 6- to 12-month piece of work to get that speed up. And all of a sudden, it's at their fingertips, and it just really helps you to think differently about how you tackle some of those really big problems that you either rely on FTE, you rely on heavy investment, those types of things, and how you can use that in a completely different way. And more pleasingly, we did a demonstration for our front line a couple of weeks ago, labeled aiming for the stars with the capital AI, a little bit lame, but the team loves it. And so we demonstrated what the first functionality is going to look like in January when they get it, and we were interested to see how they respond because it's the first time they've seen it in detail en masse and whether it was going to be a good outcome or not so good outcome. And pleasingly, they were so excited. The number that said, can we just have it tomorrow, even if it's not fully functional yet, can we just start playing with it because they can see how it's going to fundamentally shift what they're doing and also create more enjoyment in their day as well because they're fully supported. They've got the information, they can have confidence in having that right conversation, which at the moment, depending on how long they've been with us, that level of confidence can go from nothing to quite high. And then even our poor sales and service folks, they're a little bit of the poor cousins because they're not getting the technology in January. So that we even had a couple of them asking how they can move into claims, just to access the functionality.

Wow, that's fantastic. Having people drawn to claims is definitely great in terms of a career path. I love that. And Dan Deersley was part of -- he shared some anecdotes in the keynote this morning and talked about really the positive experience, I think, that the users have had. So I love the idea that they're so excited about the notion, even if they don't see perhaps all of the features or capabilities that they're looking for they're ready to try it and build the trust, hopefully, that will help them to be very successful. So thank you so much. That's incredibly helpful truly from an end user perspective. So we wanted to emphasize, I think, a lot of the benefits that users are seeing in terms of consumption of AI. So thank you so much.

Dan, if you don't mind, I'll pivot over to you. Maybe to talk a little bit more about Guidewire Cloud and some of the capabilities, once you've gone live, but perhaps more from a technical lens given your background. Of course, share that you have been a fantastic supporter of us. Thank you through a few different implementations of InsuranceSuite. Most recently, though, with your experience at CNA on InsuranceSuite Cloud, how has that compared to some of the other implementations and platforms, I guess, that you have worked on delivered platforms that you've worked on in the past.

Yes. The difference has been tremendous. I mentioned the 3 different carriers I've worked for. And every 1 of them, we had implemented Guidewire's self-managed software, which you implement it, you run it, you -- it's in your data center. And it was the best thing in the market by far, even then, and yet it was a lot of work. initial product implementations took a long time. They were very expensive. Major software upgrades could take a year and cost millions and we avoided them like the plague, which meant we were always a version or 2 behind. So as we've shifted now over to the cloud side, we made the decision to go cloud about 4 years ago. And when I joined the company 6 years ago, we actually had a moratorium on no more product development on Guidewire because people were like -- it's too expensive. So we made the decision to go cloud. We started with our specialty lines business. And as we gain some momentum, we started seeing our dev costs come down rapidly. Our speed to market increase rapidly just through the automation, through the configuration through all of the tooling that came with the platform. So it was a substantial change. And really, the speed that we can now deliver new product, new digital, new interoperability, we would have never even imagine where we are 2 years ago. And that's only multiplying. This year, as we've really started leveraging the new guidewire AI tooling and harnesses that are available with Claude Code. It's fascinating how fast we're able to deliver. And the delivery bottleneck there was a lot of discussion throughout the conference on the development process and everything and the bottlenecks are completely shifting out of engineering up into the product management teams and things like that. So it's a whole new series of problems to solve to go faster, but they're very interesting and challenging. So the experience has been tremendous. And as we saw in the keynote today, it just keeps getting better as we see more and more automation and tooling come through the platform.

That's fantastic. Thank you. And I love the fact that you emphasized it changes the paradigm between the way that business and technology work together and capitalize on market opportunity, right? So really changing a lot of the ways of working of the team and it's probably quite nice not to be the long pole in the tent as the technology group all the time, right?

Well, I own product management, too. So it's still my [indiscernible].

Okay. Well, 2 sides of the same coin, I guess. Perfect. So Nitin, if you don't mind sharing perhaps a little bit more of a perspective of sort of what the capabilities, especially around cloud and AI look like in the phases of implementation. You mentioned that you're still in the process of going through your policy transformation. You're also taking on the migration to the cloud. How is the cloud experience in that transformation different? And what are some of the benefits that you're starting to see?

Sure. So just for the context, right? So we have been on our policy transformation journey for the past 8 years. So last year, around like mid of last year, we said, okay, what's next. So we have been kind of alligating billing and claims to the sidelines and just focusing on policy transformation. So in last year was a time when there was a lot of innovation around Gen AI. So we really took a hard look where do we go from here? Like do we go to these vendors who are kind of selling us new Gen AI capabilities or we align ourselves with Guidewire. So we had like a deliberate conversation with the Guidewire leadership. Mike was there visiting Donegal there. We kind of looked at the Guidewire road map. And we felt there was a lot more alignment between where Guidewire was headed and where we wanted to be. Also, we felt that the Guidewire platform is going to offer us capabilities that we do not have to build by ourselves, while the guy where AI platform lets us allow to innovate on our own card. So where we decided is we basically signed up with the Guidewire cloud migration project. And 1 thing that we're going to do is that we're going to make sure that it's not a lift and shift to cloud. What we want to do is migrate and transform and we believe that by leveraging and tapping into the Guidewire cloud capabilities, we could actually give a unique and differential experience to our claims and billing customers. So now when we talk about getting to cloud, there are a few areas that I just want to touch upon 1 of them being that we are actually working closely with Guidewire as part of their engagement, which is or the forward deployed engineering version of Guidewire to be honest. And where we are developing capabilities that our claims leadership is actually working alongside the Guidewire technical folks to develop solutions that are purpose built and fit for the industry. I think this is a unique proposition where Guidewire is developing these products in such a close partnership with our business force. In fact, there was a lack of IT involvement from Donegal side, it was more the business value that we're providing there. And Guidewire was bringing their engineering chops there. So we're really excited for that. So that's something that's going to go live when we go live with claims center in the cloud.

The second thing is, I think both Mike and John talked about the marketplace. So we are modernizing our cloud footprint by making sure that we are tapping into the marketplace capabilities. So we are upgrading and modernizing our document production system and also our incoming and outbound payments.

The third thing is about leveraging the agentic capabilities in terms of development. So again, we've been using the guide by bassist for both configuration and for integration, alongside using cloud for our own development acceleration. So the idea is that reduce the technical debt, deliver transformation for our business and still be able to do that in a compressed time line. So we feel that I think maybe hit a jackpot by leveraging the capabilities that others have built before us and by kind of informing our decision to get to cloud by evaluating what gave has to offer in the cloud. So I think we are very fortunate like that.

Thank you. I think we really appreciate the way that you have rethought the program, the transformation, as you described in terms of changing some of the sequencing and taking advantage of a lot of the newer tools and capabilities, because I imagine for most people in the room thinking years for policy transformation feels like an incredible amount of time, but the complexity truly to run through products and deployments will actually going live with products across all the different states, typically done on renewal, there is a certain sort of duration that, that takes oil. And so before we even look at potentially perhaps different ways to tackle that you discovered ways to uncover value throughout the process, so that it's not just simply waiting again for the long pull to complete.

Absolutely. Yes. So as I said, like, so there are a lot of capabilities that we're implementing alongside cloud migration, which is kind of unique, I guess, in the industry.

I think that's fantastic. Looking for opportunities really to prove value quickly.

Exactly.

I figured that I would probably ask 1 more question that maybe takes the place of a number of the questions that you're going to ask. I know each of you have highlighted where Guidewire is playing a role in some part in your AI strategy. And of course, standpoint, we would like to be significant contributors and an integral part of your overall enterprise AI strategy. Just before we open it to the group, is there anything else that you'd like to note about how Guidewire is considered to be situated within your broader enterprise AI strategy?

So maybe I can take a first stab at it. So 1 of the reasons why we went to Guidewire Cloud and the AI platform is because the question that we wanted to answer from a business standpoint is which system do our adjusters log in when they come in the morning, which system do our underwriters log in. And we felt that by leveraging the guide where AI capabilities, they would still be logging into ClaimCenter and PolicyCenter, which is a challenge that we felt that it would be a hard sell to kind of create AI capabilities outside of the core systems. And I felt that having the data there, having the workflows there, it would be natural for any user to kind of absorb and adopt. So change management would be far more easier for us to deliver on instead of trying to have disparate systems that we will all always have to worry about integrating with each other. So that's something that drew us closer...

You are going to the place where they do their work.

Exactly, yes. Bring the technology to them in sort of them seek the technology or the solution or the capability in a different system. Yes.

That's great. Thank you so much.

We were similar thinking in terms of aging on our front line, having cheese multiple systems. So we wanted them to stay in the core platform, but also from a risk and governance using Guidewire's AI, you can't use it for any other purpose than look it was intended. When you're thinking about giving access to the front line and particularly in a regulated industry, where you need to be able to demonstrate how you're controlling the use of that AI by using it within the Guidewire platform, even if our people did want to use it for something different, they physically can't. So it gives a lot more control governance. The audibility of it is fantastic and very great when you're trying to very helpful rather when you're trying to demonstrate the risk and controls that you've put around from a regulator's point of view to give them confidence that you're using it in an appropriate way, and that will benefit customers not inadvertently.

That's fantastic because it gives you the government and controls access levels really in the same way that, that would be a mimic of an employee, but then from an operational standpoint, it is also serving up the content that, that employee would see. So it's really well suited then to the kind of work that takes the place perhaps of individuals to do that higher order of work that you were describing. Dan, anything you want to add?

I would just say that we're obviously getting a ton of lift from the AI tooling in the dev space. So that's kind of a given. But 1 of the biggest drivers in my decision to really push forward with cloud 4 years ago was I knew that once Guidewire got over the big hump of getting customers to cloud and solving that problem on how to migrate customers to cloud quickly. there was going to be a ton of innovation coming on the cloud platform, but you have to be there to take advantage of it. So the beauty is like we're seeing it now. Like in the last couple of years, the amount of new stuff that's hitting the market and coming out from Guidewire has been truly encouraging. And I think we all would just say we want you to go faster. We know you you're going fast, but a lot of really great stuff that we're actively evaluating and a bunch of new stuff that was announced today in keynote that we're eager to take a look at.

Yes. I think it's really exciting to see both the volume and the pace that we're delivering at I don't think that I would believe that you would ever tell us that we finally went fast enough. So we'll have to see if that's a possible test at some point in time. But it's definitely -- it's a good goal for us to continue to focus on always going faster and providing more and more.

Okay. We have quite a few minutes left, if we'd like to open the floor to any questions. I'm certain that you may have questions for the panel here, and we've got some microphone runners around.

Daniel, I wanted to circle on that last point. You mentioned about moving faster. How are you guys -- or maybe the whole panel as a group, how are you guys balancing the need to move faster. And obviously, there's AI platforms out there that maybe are at the very bleeding edge of innovation versus Guidewire as your preferred vendor as your trusted vendor. Like where do you draw the line in terms of which direction you guys want to invest?

It's a great question and the build versus buy is a huge question on everyone's mind. Obviously, AI is allowing us to build software faster, we're at an insurance conference. If you walked around, you talked to other guys with white bears. They would tell you about a lot of the horror stories of trying to write their own core system type systems. And the value that I think we're all getting from this collective Guidewire platform. So we're continuing to evaluate. But for me, it's not just can I write it, but I've got to operationalize it. I've got to secure it. It's got to be performant. And then I've got to innovate on it. And if I write it myself, I'm paying dollar for dollar for every feature of innovation that I'm going to provide my users versus the collective investment of all of Guidewire's customers that are contributing to their innovation that hits the market. So I'm still very much interested in staying with the Guidewire track and continuing to leverage what's coming down the pipe from Guidewire versus completely going off on our own in terms of a lot of these new core capabilities.

Anything else the other panelists might want to add or...

I think in terms of paying, I must submit from a whole perspective, we're probably comfortable with the pace, purely from a perspective of -- particularly when it comes to AI, we really want to improve our claim summarization pre navigator, fully embedded, get the benefit to scale before we move on to the next evolution. And so we come here, we see concierge this morning. We already had a pair of my ring and say, hey, we need to do this. don't have capacity. Let's just stick with the current road map, prove bag out, demonstrate confidence to the regulator and then we can move to the next thing. So I think we're probably more on the cautious side, of AI than others would be. But we want to make sure that when we make the investment, we get the benefit and get that at scale. So we're okay to kind of slid down a little bit.

But I appreciate the pattern that you have there because there are so many carriers who end up getting stuck in pilot mode and never take something operationalized to scale. And the fact that you really have an emphasis on getting the full value, I think, is incredibly strong. Let's see, are there perhaps other questions I was going to say I think this is the most quiet this group has ever been.

Aaron Kimson from Citizens. When you guys mentioned pricing or underwriting center. I guess the questions I have, what do you think about the combination with HX and Guidewire and if it's too early for that because it was just announced this morning, are you interested in pricing and underwriting center more broadly? And any color on what you use for those today?

Maybe I can address the broader question here. Absolutely. I mean, there is no product in the marketplace, which is anywhere close to underwriting center or underrating workbench. I mean if you ask like 10 carriers, like what is the definition of our underwriting workbench, nobody can come up with a unified definition. So I guess there is definitely a demand in the marketplace. I don't think so there is a solution there. So 1 thing that we do like about Guidewire's approach with underwriting center is they're building it slowly. They're not just trying to launch everything all in 1 fell swoop. So I think like we just talked to Mike Quintal, who is the product manager and owner for a rating center. And there are a lot of capabilities that we would love to pilot with them. But there is no other product. So definitely something that is needed in the marketplace, absolutely.

I can say we are actively looking at both pricing center and underwriting center, and there's a lot of interest. We need to build something or buy something like that. So very much monitoring both of those products and what's kind of interesting and ironic is a few months ago, we also started talking with HX and are looking at how we would leverage them, starting with our Canada business. So we are very intrigued by the announcement here. And 1 of the things on my mind was how is this all going to work together and now you guys can help me figure that out. So I'm very intrigued by it.

I can at least share that I think I've had 4 different customer conversations already today asking for a joint road map. Obviously, it's not prepared yet, but it's good to see that degree of interest. I'd like to qualify that, that was out of 5 customer conversations in total. So pretty high return rate on that 1.

Any other questions? Okay. Well, I want to say thank you so much for allowing us to have the time, but most importantly, huge thanks to the 3 panelists I think who gave a terrifically varied perspective, but also definitely some common themes in terms of hopefully, how we can help to continue to make you as successful as possible on your Guidewire journey. So thank you all so much. Really appreciate it. And next, we have Jeff Cooper, who's going to come to the stage and share a little bit more about our financial model. So thank you all so much again.

That was not the music I picked out, but I like it. We all have a lot of faith in our financial model, so I'll take it. Well, thank you to the customers for participating. Thank you, Christina, for hosting that. It's always great to hear from our customers at this event. My name is I'm Jeff Cooper. I'm the CFO of Guidewire. I'm thrilled to be here and walk you through our financial model. A lot of this content, you will have seen before, obviously updated. And I did want to just make sure that we closed a major acquisition this morning, many of us haven't select very much. The numbers of that acquisition largely are not included in these slides. So set that as context. There will be areas where I can opine and expand, but just wanted to make sure that, that's clear. And I do not have the clicker, there's the quicker.

Okay. So key financial highlights. We continue to have an incredibly durable business, and our growth rates have been supported by this part of this migration and modernization cycle that we're in for core processing in our insurance industry. We have decade-long customer relationships. You've heard some of those today, with best-in-class retention rates. We talked on the last earnings call that last year, we had the best ARR retention since we started measuring that particular metric. So that is -- demonstrates just how durable the business is. A strong new product momentum. You've heard a lot about some of the new product areas that we're investing in. that showed up last year specifically with 28 deals for ProNavigator and 13 deals for pricing centers. So really excited to see that part of the model start to kick in gear, that's something that we've been talking about for a long period of time, really needed to deliver on the cloud platform first before we were able to unlock that. So that's very exciting to see gross margins continuing to expand. I think we are already above our FY '28 targets. So obviously, ahead of plan with respect to the gross margin expansion story and we are continuing to drive a very profitable growth engine here at Guidewire.

So the growth dynamic, as you look over, as we started this cloud transition, we took Guidewire from what was a consistent and durable mid-teens grower and we have seen that step up to this upper teens growth dynamic driven by the success in the cloud. So we've been thrilled to see that growth rate tick up. And as I mentioned before, this is before HX. So all of this is organic Guidewire, especially as you look to FY '27, this is the midpoint of our guidance from the Q4 call. The key drivers of that growth engine has been the success in the cloud with overall cloud ARR growing 37% over the last 6 years. And that's being driven by the insurance suite cloud cohort. Those are our most important customers, and that cohort has been growing at a very rapid clip as we've invested in and delivered on the cloud transition.

So this is a slide that many of you have seen. We're very proud of this slide. It also plays into a key part of our business model, which is we sell long-durated ramping contracts. And so this is a visualization of different insurance suite cloud cohorts by year, where they started their ramping journey and where that ramp journey ends in those customer contracts. So I think when you look at this, if you look at the most recent cohort in particular, it didn't start all that different than the FY '25 cohort, but it's ending in a very, very different spot. So if you've seen over the last 2 years, that year 1 ARR contribution of these cohorts, it's helpful, but what really drives the value is the fully ramped outcomes that we see across these customer cohorts. And that model provides us a lot of predictability and visibility into our ARR growth engine. We have really 3 areas that drive ARR we have. The deals that we sell in a particular fiscal year and how that translates into year 1 ARR and as you saw on the ramp page, sometimes that translates at a relatively small rate vis-a-vis the relationship for that customer. Then we have the ARR that is coming off of the backlog. And that is the ARR from deals that were sold in prior periods that are ramping and then you always have to factor in any sort of ARR attrition. And as you can see last year, that was a tremendous result for us as we manage this overall ARR growth engine. As we look ahead to next year, couple of dynamics that we noted on the Q4 call. The ARR backlog is at a very healthy place. ARR backlog grew over 40% last year. So overall ARR backlog to inform these numbers into the future is in a very healthy place, and that provides us a lot of visibility as we look ahead to the future.

Okay. So this slide is new. We are -- we decided to update our definition of fully ramped ARR. And I'm going to walk you through the rationale and why we're doing this. So when we started the fully ramped ARR metric journey, it was back in 2019. We're very early in the cloud transition, but we recognize that these ramped contracts were going to be quite meaningful for us. And sometimes the sales activity associated with driving these big outcomes didn't necessarily show up fully in year 1. We were very early in the journey. Most of our contracts at that point in time were between 3 and 5 years -- and we had little visibility into how this cloud journey would go. So 5 years felt like a very long time. And so at that time, we said, "Hey, we're going to cap fully ramped outcomes at 5 years from a metric perspective. And we didn't have any contracts ramping beyond 5 years really at that point in time anyway, but that's how we set up this definition. That's how we set up our internal view of full year ramped ARR. And most of our InsuranceSuite cloud contracts at that point in time we're structured around 5 years and sometimes it got negotiated to slightly shorter durated contracts. As we look now, we are seeing more longer durated contracts we are seeing ramping events beyond 5 years in some cases. And we have a lot of history with these contracts and realizing these ramps. And so for that reason, in addition to we're rolling out some new systems and other things just to make this process more efficient for us. We felt it was the right time to make that fully, fully ramped. So finally, what is really fully ramped, visible to investors. -- and give you a glimpse into the full economic arrangement that was negotiated and embedded into these contracts. Now that results in a little bit more fully ramped ARR, but it doesn't really change the growth dynamic, right? So it's not a massive shift, but this is a slight shift in terms of how we're thinking about this particular metric. I wanted to make that very clear here in the room and happy to answer any questions on that when we get into Q&A.

Okay. So here's the same slide, but just extrapolate it out to 10 years. And you can see that the ramping dynamic in the first cohorts really did not impact after year 5, but we are starting to see a little bit of that impact in some of these longer durated contracts now.

So this slide is a repeat from last year. We introduced this slide last year because there was a seasonality dynamic that existed last year. where Q3 was a headwind vis-a-vis the prior year. This year, we repeated this slide, but just to say that there is not that same seasonality dynamics. So this is a more typical seasonal pattern that we see year in and year out. So nothing to call out here other than that seasonal blip that we saw last year in Q3 is not a problem that we expect to see this year.

And then this is a slide that we've now been doing for a number of years. I love this slide. It's a beautiful slide. But as we've invested in this cloud, transition. We've now really started to see the benefits of the cloud platform, the scalability of that platform. I know you all focus on incremental margins that we're driving consistently into the subscription and support line and the model has very much played out as we had hoped it would, as we've continued to scale our business. And it's showing up in cash flow, right? Cash flow, as a software guy is what matters most. And so seeing the cash flow really start to hit its stride.

Okay. So for this slide, I wanted to talk briefly around where we are with respect to the FY '28 targets, we've had these FY '28 targets out there for a little bit. What I'm going to do is comment on these targets in a more qualitative manner, help you understand where we are vis-a-vis these targets without giving fully explicit 2 years of guidance, okay? So that's the goal for this slide. You all have been tracking us. You know that we're ahead on many of these targets. So when you look at overall ARR growth and you look at how we thought about these FY '28 targets and the CAGR to get to FY '28, we are clearly tracking ahead of that. So if you think about where we expect to be over a 3-year CAGR through FY '28, we're now closer to 18% to 19% vis-a-vis kind of when we set this up 17% to 18%. Cloud ARR as a percentage of total. It's very much on track. Revenue growth, again, above where we thought it would be when we established these goals and these targets. And then on the subscription and support gross margin, last year, we were at the top end of the range. This year, we're above the range that we had. So clearly above those particular targets, and then we remain very much on track on the profitability lines but at a higher revenue number than what we had expected when we set these targets, okay? So this is how we are kind of thinking about the FY '28 targets that we talked about historically, how those parlay to FY '27 targets and wanted to provide some of this commentary. And I'm sure you'll have lots of questions as we go in through this.

Okay. So as we think about the longer-term growth dynamic, and how we think about our business. You've heard us talk for years and years about driving a durable mid-teens grower. We've ticked that up to driving an upper teens grower and we wanted to give some insight into how durable that we think this is, right? With all the growth drivers that we have in front of us with respect to migrations, modernizations, new product motions genetic is a huge opportunity that is expanding our TAM in meaningful ways. And then we also have some M&A out there in terms of hyper exponential but how that drives our growth algorithm and gives us the confidence in terms of how we can take -- how we've built this growth algorithm internally to $3 billion of ARR and growing at an upper teens clip. And this is really organic. This is before the acquisition of hyper exponential. So we believe that where we sit today vis-a-vis the TAM, vis-a-vis the products that we have vis-a-vis what we've built, driving this upper teens growth algorithm for a long period of time to $3 billion of ARR.

Now let me comment just very briefly on hyper exponential. Obviously, thrilled to get this acquisition over the finish line. Very excited about the potential here. I'll walk through quickly the transaction details, $1.7 billion upfront with a $400 million earn-out over a 3-year period Initial financing was a $1 billion term loan and then will be funded the rest from cash off of the balance sheet, structured as a term loan because we felt like that gives us the most flexibility and we are very sensitive to share dilution. And so we felt like that was the most appropriate structure. We will consistently evaluate our long-term capital needs and what the right capital structure is to support those needs. But that's the approach from the transaction details. This will close in Q2. There is no financing contingency. So we're expecting to close this before the end of our Q2.

And let me talk a little bit about kind of how we thought about the financial impact. So this is going to add 650 basis points, maybe a little bit more to our growth rate in fiscal '27 on an ARR basis. that is inorganic growth that we will see. Then on top of that, we said this will add 150 basis points to the internal organic growth plan of Guidewire. And I realize that there may have been some confusion over kind of what this means.

Let me just make sure you all understand that. If you model Guidewire standalone and you think about the growth rates that Guidewire was set to deliver stand-alone, and then you take HX, you bump that up at FY '27 and then you model that higher growth rate off of that larger base. That is how we kind of did this math to inform this calculation, that implies in FY '28 that HX is growing over 40%. So I just wanted to make sure that, that was clear. because I did get some questions on that particular issue. And we'll sure -- I'm sure there'll be lots of questions on this when we go to Q&A.

So that takes me to this slide that we talked about last year. We call this our 80-40 plan. We are still very committed to our 80-40 plan. And as we thought about building to the 80-40 plan on an organic basis, pre HGX, we felt like by the time we get to $3 billion, growing upper teens through $3 billion, that's the right time frame to think about us hitting this plan. we're always going to monitor kind of what are the right growth vectors, kind of what are the right levers to continue to drive growth. And as long as we keep marching with as our true north is this is our long-term long-term model that we hope to unlock over time. This is how we think about the potential of the business. And then I have the GAAP to non-GAAP reconciliations, which we will skip through. And then I will invite the rest of the management team up for Q&A.

Okay. And then for those of you who are on the webcast, I'll just mention, we have plenty of people in the room, so there will be plenty of questions here. But if you do want to ask a question from online, just submitted in the Zoom Q&A, and we'll take a look at that at some point, turn it over to you.

Okay. Are we ready? Who's the quarter back? Where is the mic? Yes, if you own the mic, you get to ask the question, free for all.

I actually picked Mr. Jones as my walk-up music. So that was great. Michael Turrin at Wells Fargo, I appreciate the time. And I guess I want to ask naturally, you're going to get questions and Hyperexponential. But the question I have is kind of a couple of questions we've gotten today are, what does it say about where you are and where the industry is in terms of cloud migration? And where is the industry in terms of willingness to adopt the genetic technology. And this kind of sits in the center of a lot of that discussion. So I was just hoping you could kind of marry all of that together explain why now is the right time? And just kind of walk through those different sides of what's happening in the market right now?

Let me -- I'll give you a perspective. Maybe John and Jeff can comment. We feel great about the core business and the cloud migration opportunity at the company right now. Now we're obviously not done, but the momentum is very clear. The fact that this works, the fact that this has worked, it's just very, very clear. The last bit is going to be hard. And 1 of the things I like to say is like we remain committed to every single customer, every single place in the world. And we really do want to get to this point where 100% of that customer base moves to cloud. lots of things impact that. But we just feel very, very good about that business. John leaned over to me like those -- that -- the performance and the profitability just like -- it just feels great, and this creates this space for us to do something more strategic. I never want the company to get distracted by that core mission because that's the real like future of the company. But with that space, you get an opportunity to put more of our focus and more of our capital into something that unlocks a much bigger potential market. So then you pivot -- I'll pivot your question to receptivity. I think everybody gets this now. These systems are so powerful, like we -- they are so accessible also basically, everybody is just basically saying like, how do we make sure that the guardrails are there? How do we make sure that we trust it it's no longer about, does it really work? Is this really going to work? I think everybody recognizes that underwriting is going to change, and that gives me the confidence to say like, have we found some company here that's really going to enable us to lead in this category. And I think the answer is yes. So that's my take. It's really -- I feel very, very lucky to have had the opportunity to earn the trust of this company and make this acquisition.

Just 1 thing to add. I mean you all know that we talked for years about the investment we had to make in the platform, and I might invite Diego to answer this because there's a market receptivity question, but there's also a platform readiness question. And so I don't know, Diego, if you want to comment on the work you've done to kind of get the platform to where it is to be ready for this moment?

Yes, sure. On the receptivity, the results there are 2 parts. There is -- there are things that you can do with Gen AI that were not possible before. So then the receptivity for this is bigger than the receptivity for things into which you can still debate if human can do it and so on, right? So specifically on underwriting is something that was not possible before. There is an aspect of dealing with unstructured data. All our business has been for many years, structure the data, then write some code to deal with structured data. There was not an option to deal with humongous amount of unstructured data and make decisions based on an unstructured information. Now this technology enable you to do this for the first time, right? So the customer that was on stage a second ago that he said, there is not a winner solution. There is not a solution that has all the capability and so on because this technology was not there. Now there is a technology that is opening up the door and this is the door that on top of our platform and with our ecosystem with things we are the best equipped to play with.

Yes. This moment in time is different to Diego's point. It's not that the underwriting space hasn't been important forever. It's just that it's been underserved. It's been under architected. And even if you look at rate left the career in the industry to go build this, but he built it focused on pricing first. And at that moment in time, he talked about Claude Christmas, where he really said, okay, this is the time to build a operator. And so it's not that underwriting is this -- we're not talking about underwriting being the new agentic capability because it's the first time the industry has been paying attention to transforming underwriting. It's because to Diego's point, every dollar spent in underwriting enablement in the past has been coming at it from a just a core processing type environment. And when the industry just getting too deep into the weeds. So when the industry has gone after that, they start writing policy admin logic and they've lost a plot on underwriting. At this point in time is the time to solve this problem, because it's not -- it's the combination of cloud, data accessibility and agent capabilities that allows us to say, there's actually a consumable solution here.

It's Tyler Radke from Citi. Busy day for you, especially with the early start and hosting Colin on stage.

We're going to get some of those words on the recorded line here.

A couple of questions just as we think about the strategy and pricing for some of the Agentic offerings you talked about. So I think you sort of articulated a similar size TAM for Agentic claims. As we think about that agentic opportunity is underwriting. Do you need to do some M&A in that space to kind of achieve that vision, $30 billion TAM? Or is that something you feel like you have the confidence and capabilities today in-house? And then just as you think about pricing, it seems like you're coming to those TAMs from a DWP take rate, which is how the core product is pricing. How much of that do you think evolves? Is it consumption. Is that the right way to price in sort of an agenetic labor context?

I do think it's the right way to price we'll see how the market evolves, maybe the market evolves in a different way, and it moves towards some sort of consumption model. But I just -- I think 1 of the most special things about Guidewire is the pricing structure and how aligned it is to successful customer outcomes. And this just is like a very clarifying way to package software products. And we think at this point that it will hold, okay? And I want to be clear. I think that the underwriting market is going to evolve in a different way than the claims market, okay? I think that underwriting Think of it as maybe it's a little bit more concentrated in terms of creating a solution that's going to scale and work across lines of business. I think that there is a moment in time for us to attack this and we are very uniquely positioned with hyper exponential to do this and to define it and to lead it. And there's just not -- there's not 100 other companies that are out there in the world saying that they know anything about this. I was -- I found it like I'm new to the industry 7 years into Guidewire. It's kind of funny, everybody has worked here for 30 years. But when you -- if you think back to the way that Amrit was talking about his career and basically saying, look, I'm an actuary, I'm a trained developer. I've done this myself and I've built a company to focus on the pricing of these risks. And now I see the potential in AI, and that all exists in 1 person who's built a company around that idea. That is a very special thing. Claims on the other hand, I think of it as a little bit more chaotic. Like we all can picture in our heads. The chaotic workflow of managing a claim because like hundreds of things can happen in that workflow. And I think that there's going to be a lot of companies that approach it in different ways. The special thing we bring to claims is just where the control point for all of the customers running ClaimCenter, running InsuranceNow. And so that gives us this like -- we're in the first position to be able to build a system that enables them to evolve towards more fully agented claims. And I think you could hear that in some of the things that customers were talking about today, there's going to be different receptivity to how they use how they use AI and how aggressive they are in terms of thinking about, hey, should we go fully agentic right out of the gate? Or should we just -- let's just roll out claim summarization and get started there. And let's just roll out for ProNavigator and help our claims adjusters be more efficient. And I think you're going to have just like a very, very different kind of solution set that we apply to the claims opportunity versus underwriting, which I think is going to be a lot more concentrated.

Billy Fitzsimmons from Piper Sandler. Jeff, I want to ask about margins because we showed the slide that FY 2028 targets were unchanged in acknowledging that hyper exponential is still going to close and we'll probably get more formal updates after it does. But you guys have -- as the slide showed, you're on track or running ahead of some of those targets. Can you just frame directionally, how we should think about hyper exponential impact to gross and operating margins relative to those targets?

Yes. So you should think about HyperX as largely breakeven. So slightly cash flow positive, slightly operating margin negative at the point of acquisition. Obviously, there's a lot of work that we're doing to understand and assess how we are going to integrate HyperX, so I don't have much more to communicate beyond that right now. And we'll give much more clarity on that at the upcoming Q1 call when we have a bit more time to digest what just happened this morning. But that's how you should think about their business as it is today.

I'm just curious about with AI on the carrier side, you've seen this movement to more MGUs, MGAs, binding authorities. And it seems like AI would allow very entrepreneurial underwriters to be a part -- more part of that distribution through the brokers and then the carriers just become more of capital. And so I just wonder how you approach that and what that means to selling this suite that we've had in this approach and just how that market is going to -- the industry is going to evolve over the next 5 years.

Yes. It's a really good point. Access to capital is critical, and you see MGA, the multiples that some of these businesses are getting for the acquisitions in that world is changing fast. Consolidation is happening fast, capitalization of that business happening fast. So 1 of the things, as we think about that, certainly, if we think about the carrier out, there's a lot of friction in the distribution cycle. And that the capture of value in that is going to be really complex in the coming years, not just in the MGA space, but in the commercial -- the thing about the retail brokerage space. So we have certainly -- we've got some things that we're talking about on the right and where we should play in that space. But when we think about MGAs, there are 2 things that we're really going out the market. Number one, we don't talk about it often enough, but InsuranceNow is a capability that fits the MGA space very nicely. Some of those MGAs, about 30% of our MGA customers are using insurance suite. So that mix and our ability to address that space is very real. They also very much need pricing and underwriting capabilities. So I would be speculating too far, but I know that the -- I know that both the reinsurance space and the MGA space is a target market for hyper exponential. So I think our ability to influence that space increases and is moving nicely, but it increases with hyper exponential. But you're right, I think the distribution, the next wave of agentic disruption is going to be in the distribution of product. First, we're going to see it in mass market commercial. We've seen it with me. We've seen it with other things where the ability to compare rates and operate as a self-driven comparative radar is pretty interesting, and that's real, that's here now. And then really, the more high friction complexity is going to be commercial distribution, the growth of the MGA channel and the battle for the value chain between retail brokers and commercial carriers.

Brian [indiscernible] Capital. So we're all getting to know hyper exponential doing more quickly, but it looks from their disclosures, it's like about 3/4 of the revenue that comes from the U.K. which is like a large concentration for as well respected a company, I would have thought it would be broader than that. What drives that? And the second part of the question is as much as they fit your plans, how do you fit their plans? Like what was the attraction to them of combining with you other than the money?

I'll let John comment on the revenue concentration. You've got some a little bit more experience than me. But I think that, number one, they see Guidewire as a mechanism to very quickly reach a very, very wide scale, a very -- like we offer access to a market very quickly that otherwise, they're going to have to take growth capital and build that distribution army themselves. Obviously, there's a trade-off that you -- when a startups at that phase of growth that they need to think about that. And I think that they see how the potentially this combination can very quickly establish something that is going to be the sort of the product that defines this space. okay? And then we can go win it. And you -- like I said, you build trust with the company and they feel like the mission that they have is going to be fostered as part of Guidewire. You can build that trust and you can make this argument that this is a good thing to do for the culture and for the employees of that company and that we're going to be able to create something very special together. And I think those are the things that characterize what's in it for them besides obviously, as you said, money let John will comment about the concentration of revenue, which just relates to the history of the company serving London market.

Yes. So part of it is the location of the company. But the other part of it is, if you follow the risk that is underwritten, if you go 1 degree separated from the revenue paid to Hyperexponential and think about the risk that's underwritten by the companies that are paying Hyperexponential. It's far more distributed. So the vast majority of the U.S. large U.S. property risk, like the largest market in London market is U.S. So large property risk in the U.S. lands on Ocean Marine cargo, lands on the London market syndicated business. And that's why that concentration is a big part of the reason why the concentration of revenue is there. As about 14 months ago, they started to move and build Salesforce in the U.S. And over the last 6 months, I've seen them gain real traction in the specialty space. and really in the mid-market commercial space. You heard Dan talked about the fact that he disclosed that they're looking at them for the Canadian business and some specialty business. So they are starting to penetrate the U.S. we should really think more about the risks that they're underwriting than where the revenue comes from because it's going to be U.K. and it's going to be Bermuda. But that risk is emanating from other parts of the world landing on London market.

One more in here and then online, okay. Go ahead.

This is Tamjid Chowdhury from Guggenheim Securities. I guess a question for Diego on the product philosophy. There's been a lot of focus from your customers on the cost associated with running agentic workflows. Can you maybe talk about the product philosophy of what gives your customers comfort when it comes to running these like genic products that you talked about in the keynote today and making sure that the cost doesn't go above where they see it given their budgets?

Yes. So first of all, we are -- as Mike said at the beginning, we are selling in a mechanism that we are selling the WP base based on results, right? So basically, they basically are entitled to a portion of usage. And right now, we are experimenting a lot, and we are seeing that, that is within a curve that is a curve that we can sustain. We are also monitoring closely. We reserve the right to adjust a little bit of pricing depending on the usage. But at this point -- at this moment in time, we are very confident on the aspect of when we sell claim summarization, for example, as a capability as part of claims, they are using a lot of Agentic capability and that agent capability is incorporated in our pricing philosophy. So that is the direction in which we're going.

Do you want to do 1 online?

So we have a question from Allan Verkhovski from BTIG. First question is, how does Agentic show up in the $3 billion ARR target, unlocking agentic? And then also the feedback we've gotten from some of our larger carriers regarding Agentic who have been also evaluating the are LLMs and how the acquisition of HyperX sort of changed that discussion with them.

I can start on the $3 billion target. I mean, like, look, I think on the $3 billion kind of the pathway to the $3 billion kind of driving upper teens growth all the way through $3 billion I wouldn't say that we've called out specific products within Agentic that kind of drive that. But as we look at market evolution, as we look at some of the investments we're making in Agentic claims, as we look at PricingCenter, ProNavigator, new product areas, I think what we see is the TAM is expanding in front of us. and that is giving us increased confidence in that trajectory for a longer duration than what maybe we thought 2 or 3 years ago. And so just that kind of cadence and that long-term confidence in our ability to sustain these growth rates for the TAM that we're operating in, is higher today than it was a couple of years.

And expansion in other countries, as you were listing before, that is a gigantic opportunity that, by and large, is still early in TAM.

And then I think I understood the second part of the question with respect to budgets and allocating dollars towards relationships with, say, these frontier model companies are buying solutions from Guidewire I think it's very, very early. And I'll just like speak from the perspective I have is like how do we run Guidewire and how do we allocate dollars to AI and how do we allocate dollars to head count I think the same thing is going to occur in every industry and insurance will be no exception. Is there is going to be a ratio that we think about establishing that is correct for a function about how much we spend for people and human beings and how much we spend to augment that function with AI. And that -- the second part of that equation, I think that's changing very quickly, right? If you look at like what do I need to spend in order to accomplish x with, say, just claim summarization and how much is that going to cost in a year and were we doing a good enough job in applying enough intelligence to do a great job on claim summarization. And should we apply more now that the inference is cheaper. This is changing very, very quickly. But the way I think about it is -- and I tried to point this out when I was talking about these 2 other bars on that TAM slide is you have to start to think about the labor expense in these functions in the insurance industry as a mechanism for paying for what's effectively inference and whether or not that inference comes through Guidewire and the solutions we provide and the models that are running underneath that maybe we're paying for, all of that is going to evolve as these solutions become more kind of normal. And we are just far, far much, much earlier in the development of these markets than we are with, say, the first bar and how we attack the IT budgets and sell core systems.

And I would just simply add that even though I think the question was very much oriented around Tier 1 customers. I think that there is a trend that we see across all customers that given so much opportunity to be able to use Agentic capabilities to address a lot of the unstructured data that Diego spoke about, but our industry is deluged used with. I think carriers are realizing the more opportunity that they have to be able to borrow solutions or buy solutions, address some of the use cases, allows them to put more concerted focus on the things that are truly their secret sauce. And I think that's obviously still going to continue to play out over time, but trying to figure out how to orchestrate those capabilities together are the things that will really help carriers to stand apart over time.

[indiscernible] at JPMorgan. So Hyperexponential is meaningfully larger than Guidewire's prior acquisitions and comes relatively soon after investments in underwriting center, pricing center and other AI capabilities. So my question is, what did you learn from building these products internally that convinced you that acquiring hyper exponential was the right way to accelerate the underwriting opportunity rather than just continuing organically?

Yes. Great question. So -- and I would love for the team to give their perspective on this. When we did these other acquisitions and after a period of time where I would say we were very, very focused, right? We talked a lot about this as a management team. It's like this is executing cloud at Guidewire and maybe now it seems, I don't know, weird, but I totally meant it when we said like executing that effectively as a next essential issue for the company. Like we can't get distracted. We have to ensure that the succeeds we have to ensure that the customers are successful. We have to ensure that we're able to run it efficiently in order to create a profitable company. And these were things that required just a huge amount of focus from the entire company. And at the point you start to feel comfortable, you say, okay, maybe we should do an acquisition. Maybe there's a company that we could find that would fit into this? And is that going to distract us. And are we going to be able to unlock value? Are we going to be able to merge it into the company and sell it effectively? And I couldn't be more happy with how successful the Quanti acquisition that became PricingCenter has gone and the ProNavigator acquisition and how we've been able to execute that last year. That gave me a tremendous amount of confidence that we could take a technology and plug it into Guidewire and not break it, number one. But number two, accelerate it see whether the customers would receive it effectively and be able to implement it successfully. So that gave us a lot of confidence. And then this is evolving quickly, but you look at what hyper exponential was doing with respect to their vision and product execution around underwriting and you look at the customer base and the experience set that they have with 300 people, and I just look at that and I say, if I combine that with the work and the expertise that we've built with underwriting center and I combine that with the confidence that we have in plugging that into our distribution engine, plugging that into our ecosystem, our customer success model. It just made me feel like this was a risk that was absolutely worth taking and it was going to give us an opportunity, like I said, to define the market and I think once this closes, we're going to be in a position to really be the immediate leader and execute on this. And I think it's -- I don't want to say like exaggerate, but this is a very, very significant market opportunity that we're going to be able to go after.

I just -- in the question, I don't want to read too much into the question, but the question is then, therefore, what happens with the underwriting center road map. And I would just say, let's not take lightly the all underwritten lines in all parts of the world because there are heavy flow-based underwritten lines and then there are specialty underwritten lines. And both of the -- if we think about to Mike's point, what Mike Quintal and team have been building an underwriting center and what Amrit and hyperextension bring to the table. We exist in many places in the exact same customer we're serving a very different use case and a very complementary use case and a very complementary persona. I think Persona is probably the best way to think about it. And if we combine those 2 things together, the ability to say to the -- somebody asked earlier the Tier 1s, the AIGs of the world, the Avivas of the world for all lines of business, in all geographies, Guidewire on the platform will be the answer. And all that context will be served out no matter what the dynamic is of the line of business we're talking about. And that's the piece that I just don't want us to gloss over here is the combination of these elements that's really going to drive the maximum amount of value.

And let me just add 1 more thing, and I think it will help people understand how I'm thinking about this. And maybe you can give me feedback afterwards about whether or not it makes sense, resonates. Software is becoming less and less expensive to build. I think this is just a fact, right? And so in the world that all of us grew up in Diego especially, right? Like I know he -- this resonates with him. It's like you should build something super effectively that you can run at scale for a long period of time. And you should think very deeply about how you build that thing. And I'm not saying that, that changes. But in this new world, we're in equally or let's say, more and more important is just getting in a game and with a team that's learning and establishing a flywheel around the domain, okay? Getting that experience and getting those implementations going and getting that feedback loop back into the product as fast as possible is what's going to enable us to create a lead and use that lead to go win this market. And so executing at speed is critically important. And you're collecting data, you're collecting experience, you're starting with a customer base that is very, very significant where the use case that we're after is almost like perfectly tuned to the experience that they already have. And I feel like this is going to enable us to get that flywheel spinning much, much faster than if we were able to try to -- then if we tried to do this on our own.

Yes. And I will just add 1 thing just to add a little bit on John, maybe a different word, but same concept. Don't think about underwriting as 1 solution -- 1 type of solution for all the lines and so on, even PolicyCenter. PolicyCenter is being engineered for some lines, and we are better. We have better capability for some type of line than for some others. And here, the complementarity is that where we were coming from an underwriting perspective, and the way from which HX is coming and underwriting. Yes, there is a commonality in between, but their strength on some type of line were different in the strength that we come together. So now you combine these 2 things on top of platform. You combine these 2 things with, as Mike said, with an expertise coming from a different angle on top of the infrastructure that we put together, and I think that is the unique opportunity.

Ken Wong from Oppenheimer. Two questions for me. John, you put up that slide, I think, last year this year where the opportunities for growth are coming, modernization, segment, AI, et cetera, et cetera. Based on the momentum you guys have seen in the last few years, the things you announced today, HyperX, do you feel 1 of those buckets could potentially move up in the tiering in terms of contribution commercial lines?

I think there's -- the 1 that -- the momentum, both on what we've seen, the competitive nature, what's happening in the MGA space, what's happening in the brokerage space, what's happening in complex commercial competition I think we've had good win rates in commercial lines. Our ability to take this combined and really demonstrate the ability to own the future of where commercial lines goes for the largest brands in the world. That, to me, is the 1 that I think has the greatest amount of acceleration right now.

Got it. And then 1 consistent theme I heard on the floor from customers and integration partners is that they probably need to beef up their actuarial talent, more of the partners to kind of get some of the pricing products out there. Do you feel that you're getting the leverage from your partners for that product line? Where do you guys have to invest to potentially shore that up?

I'll start there I mean our consulting partner program is obviously incredibly rich, but it was built around what InsuranceSuite always was with the original 3x centers. And to appropriately implement pricing center, you need true depth and expertise as pricing actuaries. And so some of our larger partners are really well equipped to have those practices and access to them. They're outside of what they would traditionally consider to be their Guidewire team, though, right? So there has been, I think, a huge lift from those groups. But it also allows us now to explore very different partners than we would have before who have that depth of expertise. And so I think that's something that's going to continue to evolve within our partner program is really trying to understand we had defined what partners looked like for Guidewire 3 years ago, 5 years ago, even in terms of the patterns of implementation that we saw. And now it's our opportunity. We've even shifted the partner program over the course of this year. that we can focus more on the varied types of specializations that will really represent what our product set looks like going forward.

Great. My question has a bunch of assumptions in it. And so I'm happy to be corrected. When you guys made the transition to the cloud, I really thought you were actually doing 2 things. One is you are moving to the cloud, but you're also productizing a whole bunch of highly customized implementations that could now be standardized but configurable, which was a big heavy lift. When I look at what I -- what limited amount I know about hyper exponential it looks to me like a bunch of custom implementations that haven't yet been productized and which seems like a big lift. Can it be productized in the way you've on claims and policy and billing. And how big a lift is that?

Secondly, it looks to me like pricing center and hyper exponential are actually complementary. It looks like pricing centers of personal lines too bench whereas Hyperexponential is more of a specialty in commercial. And I'm wondering if that's correct.

And then lastly, to the extent that so much in this -- I'm sorry, but to the extent that hyper-exponential is a bunch of capabilities, it seems to me like retention is going to be critical to the success of this thing. I'm wondering how much you thought that through? Because I've seen too many acquisitions where everybody gets on stage and says they're going to stay and then they best and leave.

And secondly, I'm assuming from the comments that we're looking at 40 to get the retention bonus. So I'm wondering if you can comment on that. Sorry for the long question.

No, it's a great question. I'm seeing if my memory is sufficient to answer it all I'm going to do the middle 1 first. The middle 1 is easy. The answer is yes, absolutely. Personal lines, is it perfect fit for PricingCenter, Commercial lines perfect fit for renew from Hyperexponential. That's an exaggeration. As Diego said, there's like potentially overlap in the middle, but that's a good way to think about it. The third part of your question is retention is always a critical factor in this. That's my job, right? My job is to make sure that we embrace this company and we create the right circumstances for everybody to be successful. Guidewire is a crazy place and we fight with each other all the time. And -- but I got to create a culture that Amrit and team are going to love to be a part of. If we do that effectively, this is going to go great. who knows how it's really going to go. But like just know that a priority of mine is to make sure a lot before the acquisition that this is going to work that we have to feel comfortable that this culture is going to gel. But then it's a focus of ours to make sure that it works. And certainly, there's economic incentives that are kind of structured into the deal that make this happen. But I've been a part of a lot of these. I've seen some of them that have worked out great. I've seen some of them that haven't and hopefully have learned enough to be able to give everybody a sense of confidence that this is going to work.

The first part of your question, I think, is the hardest to answer. And I think the answer and Diego, I'll certainly allow to chime in here, it sort of depends, okay? The biggest problem with Guidewire when we joined and started this exercise was, can we upgrade -- like Dan said this, he said, like, I don't know what he said, I'm paraphrasing it was like we stopped developing on Guidewire because we couldn't upgrade it anymore. It was too expensive to upgrade. So this is the reason that we had to basically create extensible extension points or extensible packaging of the functionality that people were customizing in the Guidewire implementations. We needed to do that in order to be able to create upgrades to make upgrades work. So that's the way I would think about answering your question as it relates to what you perceive Hyperexponential to be. If it becomes a block or 2 upgrade, then yes, we'll have to fix that. If it isn't, we won't. Like don't -- what they're doing is creating pricing models. They're not creating like scalable workflow. You know what I mean. And so like we will dig into this. It hasn't been an issue for the company to this point. We will dig into this. And if it's a problem, we'll solve it. But it's not apples-to-apples and I really want to stress that. Like it's a different use case that's tailored to the domain that they went to attack, right, and win. And I think that gives us a lot of confidence that it's going to continue to scale and continue to be applicable to the underwriting use case. And so I just -- I wouldn't jump to the conclusion that, hey, we needed to do that. for APD and product definition, we needed to do that for integration packaging. We needed to do that for our international country content that doesn't necessarily mean that we need to do it for complex commercial lines pricing engines. Does that make sense? Did I do a good job?

Yes. I can also add the other angle, like there are 2 parts of that story. Your assumption more or less we are all spot on. So the question was great. The other angle is, we did a lot of work on evolving guide or platform across the year to get to cloud, right? So as part of this transformation, I don't think in terms of we fix some of the existing problem for existing customer and that's it. We also learned a ton, and we have created a level of flexibility to the platform that didn't have before, right? So now you look at this problem coming from 2 directions. There is a direction of Mike said that what they were doing was applying to a slightly different use case and most likely what they were -- the way that they were solving it can continue to exist. The results of the other angle that a lot of the things that are capable to do on the platform now could become a solution to solve some of the problems that they had, right? And I believe and the best right now is that we're going to meet in the middle and that we're going to think of the learning and what we bring on the table on the level of the platform and knowledge that they have in the vertical on those special line is going to enable us to evolve into a direction in which we can do that in an efficient way in a way that was never done before. And as a couple of customer -- 1 customer mentioned today, building a solution that is not there yet full circle on the market.

And then I haven't forgot your last question. Well, I mean, we're not going to comment on -- in detail on the earn-out structure, but you should your assumption is correct. The way we thought about how we talked about this to you all is very consistent with how that earn-out will be paid out.

I'm Jessica from Raymond James. Just really do want to commend how much work you've done in migrating our customers to the cloud. You still had to segment your still need to migrate over. How should we think about the general pace of those customers? And also considering how much you've built out recently with HX Solutions, you acquired or you developed. How is that affecting the pace of migrations, but also -- this is a lot of steps. We're thinking about talking about since last time our connections, how much is developed in at AI capabilities? How is that also affecting your conversation with customers or how they're thinking about moving forward?

I personally -- I love the question because obviously, as Mike was describing, our goal is to be certain that every 1 of our customers gets to cloud. And I think what you'll continue to see, obviously, we have a great momentum that the largest constraint that we end up having is internally competing initiatives for customers. And so those are -- that's probably 1 of the biggest hurdles in terms of what helps them to either move faster or slower. So I think we're going to see a continued pace. There will probably be a very small remaining tail of customers that we have to figure out how to get them through, but I'm confident that we can get there. As you pointed out, specifically about how agentic tooling is making that dramatically different, I love the example that Nitin gave because that shows a difference in sequencing, a difference in their perception on value capture and something that helps them to actually structure and create the funding to do the migration that they wanted to because they were able to unlock value along the way. That has to be coupled though with the increased pace that we're able to see in terms of what we're doing with migration. So our own professional services team has built a really phenomenal set of tools basically with an inherent goal to be able to get the technical migration itself, almost basically down to 0 and then the remaining work to integrate into the rest of the customers overall ecosystem and environment to be able to help to reduce the cost of that. And so I would say, coupled with the work that we're doing there, the work that our consulting partners are contributing to significantly. It's really important to ensure that the migration happens faster -- we've also moved away very much from the idea of simply a lift and shift, which is what we had done for a long time, basically with the notion that a customer would start to be able to take advantage of features of Guidewire Cloud only once they made it to the destination. We have the ability now to unlock that along the way. And I would say more so than ever, our customers aren't focused on the idea of getting to Guidewire Cloud as the destination, but really thinking about what the pace of updates, the richness of the road map means to continue to have basically more and more opportunity to capture value.

We have time for 1 more.

Mike, you mentioned the acquisition of HX is maybe the most strategic thing you've done in your 7-plus years as CEO of Guidewire this morning. Obviously, the scale dwarfs anything you and the current management team have done here and prior management teams at Guidewire before you. So if we go back to your days sales force running products there, to whatever extent you're involved with the acquisitions of MuleSoft, Demandware or maybe Tableau right before you came to Guidewire. Are there any lessons good or bad that you'll apply it to HX?

Yes, for sure. And I'm not going to list them all because all of my friends at Salesforce would be really mad. I think MuleSoft, I -- there was another acquisition prior to that a company called SteelBrick, but MuleSoft is a great example of this. It's like the power of plugging a great product into a very solid distribution organization and how quickly something can grow was a huge lesson I learned from that experience. And I don't want to say like call out any of those specific acquisitions, but I'll touch on what I just described in terms of cultural fit and ensuring that we embrace this company, and we basically say, what are they bringing to Guidewire that is net beneficial to us. Like this is a company that's entire existence is based off of what I would describe for us as not exactly a sweet spot, right? And we need to treat them that way as a mechanism for us to expand our expertise into that area. And I think if we do that, and we give them enough space to basically be able to like execute on the vision that they have while benefiting from the scale and the reach that we provide support their culture, this is going to work out great, right? So I don't want to -- that's basically my -- the gist of what I learned from seeing those acquisitions at Salesforce. I will tell you, like we are all incredibly excited to have the opportunity to do this. It felt like a great time kind of the stars aligned, and I really do genuinely think that we're very, very lucky to have the opportunity to join forces with this team. So thanks for the question.

Great. That's a great note to finish on. Yes, we're done.

Okay. Well, thanks, everybody.

Thank you. Thank you all.

Good day, and thank you for standing by. Welcome to Guidewire to acquire [ Exponential ] (sic) [ hyperexponential ] Business Call. [Operator Instructions]

I would now like to turn the conference over to Alex Hughes, VP of Investor Relations. You may begin.

Thank you, Lisa. Hello, everyone. With me today is Michael Rosenbaum, Chief Executive Officer; John Mullen, President; and Jeff Cooper, Chief Financial Officer.

Details regarding today's announcement can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. We have also posted on our IR website a supplemental presentation to accompany this discussion.

Statements today include forward-looking ones regarding the proposed acquisition of hyperexponential, including expected financial and ARR impact, transaction financing, anticipated timing of closing, strategic benefits, operations 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 filed with the SEC, including our most recent annual report on Form 10-K and our prior and forthcoming quarterly reports on Form 10-Q filed and 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.

During this call, we will offer -- refer to annual recurring revenue or ARR, which is an operational metric we use to quantify the annualized recurring revenue of active investor contracts, and it should not be considered in isolation or as an alternative to GAAP financial measures.

And so with that behind me, I will now turn the call over to Mike.

Thanks, Alex. We're joining you live from our Connections Conference in Las Vegas. And I know we'll see many of you later today in person. It's an exciting day for Guidewire, and I'm thrilled to announce our agreement to acquire hyperexponential. When I joined Guidewire in 2019, the goal was to transform the company and bring the insurance industry into a common cloud platform. That objective was never really about efficiency and where the software runs. It was about innovation and upgrades. If we can make upgrades routine, core systems would stay current. And if core systems stayed current, insurers would be able to innovate faster. That objective, while not yet complete, has largely been achieved. We now have the majority of our customer base running their insurance core applications on our cloud platform and delivering innovation to that customer base faster than ever before. And we're seeing it work. Our customers are moving faster on digital initiatives, faster on product initiatives, faster on pricing and rating, faster getting new claims processes and workflows into production, helping to drive better insurance outcomes for their customers. And then in 2023, generative AI came along, and it turns out it works far better than anyone anticipated. And we see clearly that it will change the insurance industry in a lot of very positive ways. The good news is our platform is ready for it because an insurance company just cannot take advantage of AI on a core system that's decades behind. Today, we see 3 transformations happening in insurance. Each is an equally large market opportunity for Guidewire. First is the continuing system modernization driving our core business. The second is a revolution in claims automation and AI-based systems. And the third is a dramatic transformation in underwriting from a manual and cumbersome human-centered workflow to something I'll call agent -- agentic underwriting. It's our belief that in the same way coding tools like Claude and Codex and Cursor have transformed software development, agentic platforms will transform the work and the workflow of the underwriter. Today's acquisition is about delivering that new agentic underwriting platform. It's a commitment by Guidewire to lead the transformation to agentic underwriting across every segment and line of business in commercial insurance. Getting this right requires deep industry experience across actuarial science, data and analytics, pricing and core systems. This experience and day 1 capability is the result of a hyperexponential Guidewire combination. We believe this is an emerging $30 billion market and a significant growth engine that will accelerate us. Few decisions matter more to an insurer's profitability than which risks to underwrite and how to price them. Yet much of that work is still manual, modeled on spreadsheets and require significant human effort. Agentic AI systems can now automate increasingly complex underwriting work and improve the speed, consistency and quality of decisions, opening up an opportunity far beyond traditional IT software spend. This acquisition brings together the 2 best companies in insurance technology. Hyperexponential has built the most advanced underwriting platform in the industry. It's a fast-moving AI-forward team of almost 300 people with deep insurance experience. We gained a foothold in Europe, deep London market expertise and a commercial lines customer base that is the envy of every insurance technology company in the world, including Guidewire. With Hyperoperator, AI agents progressively automate submission ingestion, risk evaluation, triage and pricing preparation, all within the insurers own frameworks and controls. And what's especially compelling about this acquisition is what we can do together. We bring the core systems, policy and claims data, cloud infrastructure and customer relationships that underpin the industry's operations. By connecting that operational foundation with hx's underwriting intelligence, we believe we can deliver something truly differentiated, an end-to-end solution that helps insurers both run their business and make better underwriting decisions. So I'm excited to welcome Amrit Santhirasenan and the hx team to Guidewire. Together, we have an opportunity to accelerate innovation and bring these capabilities to a much broader customer base and create significant long-term value for our customers and shareholders.

I'll now turn it over to Jeff to talk a bit more about the deal.

Thanks, Mike. We're very excited about this transaction and what it means for Guidewire's long-term growth profile. Let me briefly walk through the transaction terms and expected financial impact.

Under the terms of the agreement, Guidewire will acquire hx for approximately $1.7 billion in cash consideration, inclusive of an employee retention pool, plus a contingent earn-out of up to $400 million based on post-closing performance. This represents potential total consideration of approximately $2.1 billion. The earn-out is designed to align a portion of the consideration with the continued growth and performance of the business over the next 3 years. We expect to fund the transaction through a combination of approximately $1 billion of new Term Loan A financing and cash on our balance sheet. And we will regularly evaluate our optimal long-term capital structure to support our strategic ambitions. From a growth perspective, we expect hx to be immediately accretive to our ARR growth rate, contributing more than 650 basis points of incremental ARR growth in fiscal 2027 on an inorganic basis. Importantly, beyond that initial contribution, we believe the combination can support an acceleration of our organic, growth -- ARR growth rate of at least 150 basis points beyond fiscal 2027, reflecting the significant opportunities to expand adoption of hx's technology across our customer base and accelerate the role of AI in delivering underwriting outcomes for the industry. We expect the transaction to close during our second fiscal quarter ending January 31, 2027, subject to customary closing conditions. There is no impact to our first quarter guidance, and we intend to provide an updated outlook for our fiscal 2027 on our first quarter earnings call. We believe this acquisition represents a compelling investment that extends Guidewire's competitive leadership, significantly expands our addressable market and creates a meaningful new engine of durable growth and long-term shareholder value.

With that, we'd be happy to open the call up for questions.

[Operator Instructions] Our first question for the day will be coming from the line of Alex Sklar of Raymond James.

Mike, maybe first one for you. Can you just talk about what's the meaning of this acquisition, how that impacts your own build around UnderwritingCenter? Is this completely -- is this complementary at all to what you've been building? Does this kind of take priority over everything that you've built so far in UnderwritingCenter? Just how we should think about covering that full underwriting workflows now between the 2 solutions?

Yes, sure. Great question. So there's definitely some overlap in terms of the vision, but we think that the approach is going to be very complementary. Like, this is a space and a set of capabilities that are really just emerging at this moment. And so I'm very excited to be able to combine the teams and the approach. Everything that we've done in this area, I think, is only going to be able to sort of help us, bring a solution to market that covers the complete spectrum of commercial lines. And I think if you would like dig one tiny level deeper, Guidewire has a lot of experience in what we call flow-based business and sort of the more sort of scalable segments of commercial lines, whereas the hx team has focused more on the sort of very complex commercial lines in the underwriting and underwriting in the London market where these things are almost completely bespoke per risk. And so the combination of both of those approaches, we think, is going to be able to allow us to bring a product to market that covers the complete spectrum.

Okay. Great. And then maybe just a quick follow-up. Can you provide any color on how hx prices? Is it similar on a premium base level? Any color on sizing of kind of deals that they have today and that $80 million of kind of, implied ARR for this year as it relates to some of your other centers today?

Yes, it's a great question. It's one of the reasons why this is such a great strategic fit. This is a company that emulated Guidewire's approach to basis points-based pricing, and it fits right in. And it's like -- of all software segments, sort of this concept that we're helping insurers achieve insurance outcomes rather than pricing per seat and really charging based on some -- a measure of premium that aligns very clearly to the benefits that the software provides, it fits in perfectly. We're not at this point prepared to speak about the deal size. You guys are probably able to do some math. It's a pretty concentrated company just like Guidewire. The insurance industry and where the majority of this premium is written, it's really not thousands of companies. And we believe we're going to be able to achieve very significant ARR outcomes here. And so yes, the deals are pretty significant.

Our next questions come from the line of Dylan Becker of William Blair.

Congrats on this really exciting acquisition here. Maybe to kind of stick with that idea of deal sizes, maybe for John, we've talked about kind of the shift from IT to outcomes in the industry, and I think agentic underwriting sits right at the core of that. But could you give us a sense of how you're thinking about kind of the underwriting sales cycle and maybe especially given the fact that it ties explicitly to faster binding processes and better loss ratios and maybe kind of how it ties explicitly to outcomes and dollars, what that means maybe for sales cycles and underwriting?

Yes. Great, Dylan. Thanks for the question. So as Mike mentioned, the way that this combination of how Guidewire has historically thought about things and how hyperexponential thinks about things comes together really nicely. If you think about the history of Guidewire, so much of what we're doing is building the right capacity and the right solution and platform for the industry to run on. And a lot of that was about gaining efficiency, IT efficiency, operating efficiency. As we start to move into agentic underwriting across all underwritten lines, all markets in the world, we start to get more into the conversation of risk selection and pricing, capital allocation, and we start to think more about what it takes to compete to grow an insurance company and get the right capital adequacy to drive the right profit for the underwritten risks. And that's why I think this combination is so rich. It gets us right at the heart of what the C-suites are talking about and what they're talking about with their Boards to compete in tomorrow's world, which is going to be far more dynamic. And we haven't even yet scratched the surface on what it means to then put all of that focus on from capital adequacy to reinsurance contracts and risk management principles, really fundamentally giving us an opportunity to change the return on equity for the entire industry and really drive both carrier efficiency and effectiveness and also industry effectiveness overall, which is exciting. And this is really fundamentally what Amrit and team, this is where they grew up. This is who they are. So it fits really well.

Right. Right. Okay. Very helpful. And then maybe, Mike, on kind of the comments around the shift to bespoke. I think there's a lot of momentum, obviously, in the specialized space, but kind of what this unlocks from an opportunity perspective to get more personalized, right, more specialized in underwriting, closing the coverage gap kind of feels like it aligns to that broader trend of where premium is flowing. But kind of any commentary on the opportunity to get more personalized there?

Yes, I love the question. I think when you think about technology and maybe very specifically AI, agentic systems, you tend to say, how does this impact the world and the workflow that I live in right now. And the knee-jerk reaction is, okay, take the workflow, take the approach we have today, we could do it faster. We could do it more efficiently. But really, what ultimately happens when you introduce a new technology like this is that you end up changing the nature of the way that you conduct your -- the business, the workflow and in this case, the underwriting. And so I think there's been this push and Guidewire has been a big part of this is like how do we structure risk? How do we define the variables that represent the core components of a risk, extract those things and put them into a model and enable us to gain efficiency and sort of push things through a flow. But when you start to have what's effectively now -- you could think about it as infinite intelligence that you could apply to a situation and you're not kind of controlled by how many people work in your underwriting department, you can start to think that the approach to underwriting will shift. We think that is a very exciting component of this. It's not something like we can drive on our own, but by creating a platform that legitimately operates at scale in the insurance industry, it's very logical to believe that this trend that you're talking about will continue. That's an exciting part of this. I think there's also sort of -- this other kind of paragraph to that thought about how this potentially changes the way that brokers interact with insurance companies and that how these risks are shared up and down the value chain. These are like more strategic components of this vision that I think will come out over time, but I actually really appreciate the question because it's definitely a part of the thinking and a part of what we get when we bring Amrit and team into Guidewire.

[Operator Instructions] and our next question will be coming from the line of Tamjid Chowdhury of Guggenheimer (sic) [ Guggenheim ].

This is Tamjid Chowdhury from Guggenheim Securities. I guess the first question, hyperexponential is an AI-native focused -- AI-native company that's focused on underwriting and pricing workflow specifically, right? And this acquisition is a year after you announced UnderwritingCenter and PricingCenter. Can you walk us through like what -- how you thought about the make or buy decision there?

Sure, sure, sure. So first of all, I would say, I think we are very lucky to have the opportunity to acquire hyperexponential at this point in their growth trajectory. This is a one-of-a-kind company. And you just have to nurture a relationship with a founder like Amrit, in this case, in my case, like over years. And that relationship, that trust, that alignment of vision and that alignment of culture is -- you tend to like think of these things as financial transactions because that's sort of the headline. But underneath, it's both sides really understanding each other, understanding the culture, understanding the vision, understanding the approach and really trusting that the entity that they have created, this company is going to join Guidewire and really see a path towards executing their mission more effectively and faster. And I think that's just a very, very important part of this. We immediately boost our capacity to bring a solution like underwriting center to market and be successful. We just immediately put ourselves in the #1 position, the default place where someone is going to look to look in order to think about making a decision like this. And we bring almost -- I think the company is now almost 300 people that have spent years focused on this like very complicated commercial lines underwriting process, and that's a big part of this. And so when you look at the like software capabilities that we've built and the software capabilities that they've built, there's obviously going to be a process we work through to assess the overlap and bring a joint vision for that product functionality to market. But when you combine 2 companies like this, it is so much more than the software, honestly. It's that experience and energy and ambition that I'm very excited about getting to bring that to the commercial lines underwriting market.

I'll let John give a comment here.

I'm going to add one quick comment there. So if you think about pricing, our enterprise pricing and rating is a fairly defined software market, okay? But the flow-based business that Mike talked about is very fundamental to what we've done with the acquisition of Quantee and where PricingCenter going. And over time, that road map is going to cross over into admitted lines in the U.S. and specialty lines overall. But if you think about those complex risks from a rating and pricing where the actuary is the underwriter, that's really what hyperex is very good at. So solving that across all lines is part of this equation. The other part of this is underwriting is as yet -- that's not necessarily specifically a software market. It is an analytics market. It's a software market. It is a human capacity market. It is a capital adequacy market. This is the part where unlocking this ambition to solve that problem and to really fundamentally define what that space is going to be in how we serve carriers is the part that unlocks this and by no means is a binary between what we've done with the UnderwritingCenter and what hyperexponential brings. It is truly a combination to go after that space across all lines.

Great. Are there any finer points you can share on like the customer count for hx and any kind of overlap statistics between Guidewire and hx?

So we're not at this point providing any sort of objective details about customer counts or anything like that. I would say that point back to what I said in the sort of script, they have a phenomenal customer base. It is -- there's a lot of great customers from the London market and the specialty commercial underwriters. And there's definitely, as I, kind of, hinted to, customer relationships that they have that Guidewire envies. And so it's not a complete overlap, and they are definitely bringing net new customers into the Guidewire fold as part of this merger -- or excuse me, as part of this acquisition.

The next question is coming from the line of Alexei Gogolev of JPMorgan.

Congratulations with the acquisition. I wanted to ask how do you think this changes your competitive differentiation versus other underwriting and pricing and rating vendors and the internal build options at large carriers?

Alex, thanks for the question. Really, the dynamic that we're able to go at the market with right now is really a business conversation, a business-first conversation focused on business outcomes. And the ability to access those chief underwriters, those product managers, the actuaries that are really driving the decisions for these underwritten lines is fundamental. And what hx brings is a deep relationship with that group and the ability to both listen and position the right business outcome conversation. But what they've proven over the last couple of years is their ability to respond very fast with product features and functions that get right at the heart of what matters to that business community. So that, to me, not only puts us in a position to have the right conversations, it drives us, which has been so important to Guidewire for so long is proximity of trust with customer. And that's a really nice cultural fit between our 2 companies. And it puts us in a position where I think from a comprehensiveness standpoint, from a business outcome standpoint, sitting on the platform of Guidewire with the data that Guidewire has available, it really does redefine that space and I think separates us from any potential competitors at a pretty alarming clip, and I'm excited to bring that to the market.

And maybe a quick follow-up on some of the financial targets. Can you talk about the accelerating organic ARR growth? Like what sort of levers do you think will drive that acceleration most? Will it be pricing power or maybe new SKUs, attach rates? That would be great to get some comments there.

Sure, Alexei. This is Jeff. Yes, super excited about what hx brings to Guidewire. Obviously, they -- we are very impressed with the technology that they've built, and there's a meaningful opportunity for us to help them realize the full potential of that technology by rolling it through our best-in-class distribution engine and our sales force. So kind of bringing that to bear in a meaningful way with this technology is a big part of how we see the vision. And then Mike talked about this in his prepared remarks, but just the TAM expansion opportunity that this creates and how we think the insurance industry generally is going to shift as it embraces generative AI and where this technology sits kind of right at the foundation of that shift that we're expecting to see in the industry. So One of these things that kind of aligns with our cloud vision integrates with kind of where we are today and helps position us for just building a very long-term durable growth engine.

Our next question is coming from the line of Billy Fitzsimmons of Piper Sandler.

Two quick ones for me. I guess the first is, can you just frame in terms of time line, how we should think about the technical and integration road map for this acquisition with kind of the core products?

Good question. The -- I guess the most important framing, I would say is with hyperexponential, we're in market selling, right? And so that there's not going to be this like a component of delay related to the sales activity and getting after it. We're in market today and working hard, especially around post-close to make sure that we are joining forces and bringing to bear everything at Guidewire to accelerate the awareness and then demand and hopefully sales of this product. I would say, last night, Amrit and I talked a lot about what the plan is going to look like in terms of integration planning. But I would say within 3 months of close, there'll be a clear explanation and joint road map that's created that gives everybody clarity about how the 2 products fit together. But I definitely don't want people thinking that we are pressing pause on the sales activity at hyperexponential right now.

And super helpful. And then the follow-up would be just we -- in the press release, we talked about kind of the ARR contribution for '27 and 2028. Just how do we think about now that you are buying hyperexponential, the ability to, kind of, scale that product with your sales force and maybe unlock growth that maybe they wouldn't have been able to do on their own. Is that a fair way to maybe frame some of the opportunity here? Or you push back on that? And how do we think about kind of the cross-sell opportunity relative to just the inorganic contribution from what hyperexponential is already doing?

No, no, that's absolutely part of the strategy here. I mean, you have a company here that clearly has product market fit. Like I said, they're about almost 300 people, but Guidewire is almost 4,000 people with footprint all over the world and carrier relationships all over the world in a very, very developed ecosystem of partners. I mean, we're going to have an opportunity to scale their reach very, very quickly, and that's a significant part of this deal. It's just -- that's the natural boost that you get when you acquire a company like that. We see this very clearly. We talked about this on our previous calls. It's like the success we've had with ProNavigator and the success that we've had with Quantee that became pricing center and the demand and the ability for us to put those products in front of Tier 1 carriers almost immediately and be able to earn the trust of those companies. it's just an extraordinary boost for these companies. And so it's definitely part of the strategy here. Hopefully, that gives you a sense. I mean, like we're going to be able to bring them into other regions where immediately, we have distribution and we have relationships on the ground with implementation partners, where we have relationships with local groups inside of insurance companies that otherwise they would have had to build that distribution army themselves, and that was the phase that they were in as a stand-alone start-up. And so that's what you get when you -- like I said, when you earn the trust of a company like this and you make them feel comfortable that we're going to be able to really accelerate their mission. So that's absolutely the plan.

Yes. I'll get into the weeds a little bit on this for just a second to take you through kind of some thought process. So if you think about mapping customers, I think it's a very complementary set of customers. But if you go one level deeper, it's the relationships inside of those customers. And that is exponentially more -- hyper exponentially, more complementary than just the customer list itself. And then if you dig in one level beneath that, as you look -- I spend a lot of time looking at the business cases and how hyperexponential thinks about writing a business case and how they sell their proposition going forward. It's very different. It's a very different starting point. And it's a very different math with the same pricing structure as Guidewire. So very complementary in that regard. And then fundamentally, boots on the ground, if you -- if I look at what their forward deployed engineering teams are doing and what Guidewire's forward deployed engineering teams are doing, they could be existing inside the very same customer doing very different things and coming at the problem from, on one hand, a core processing standpoint, on the other hand, a risk selection and pricing standpoint for the complex underwritten lines. this is very complementary. And I think the customer base will be really excited to see this come together.

Our next question is coming from the line of Tyler Radke of Citi.

And look forward to discussing the deal more at Connections Day. But I wanted to just ask about the long-term revenue opportunity that you talked about. So sort of 2 questions. Like number one, as we think about the assumptions in sort of the near term? What are you sort of assuming in terms of synergy targets to reach those ARR lifts that you described in the press release? And then as you think about this long term, does this also -- is there an opportunity to go even outside of P&C insurance as you just think about the broader agentic labor opportunity potentially in other verticals?

Sure. Tyler, I'll touch on the question around synergies. We'll obviously get into a bit more detail on our Q1 earnings call. And so we're going to do some work, and we have closing exercises to do and other things. So we'll provide more detail on Q1. As you think about what was embedded into the press release of the 650 basis points of inorganic growth that we'll see this year and then that translating into around 150 basis points of incremental growth looking forward. What's embedded into that is largely an unsynergized plan. I mean, I think that there are synergies that we think we will unlock from bringing these 2 organizations together, and that presents some upside to some of the numbers that we put out there. But the team at hyperexponential had a very strong plan, had kind of plan targets that are embedded into that forecast that are also aligned to how we talked about some of the earn-out consideration at the beginning of the press release. So there's all of these elements that are going on, but you should think about kind of those growth potential as being more combining Guidewire and hx stand-alone and some of those synergies would reflect upside to the numbers that we presented there. I'll let Mike talk about the potential to expand beyond P&C.

Yes. My quick take is that Guidewire, we tend to be very, very focused on the P&C carriers, right, the insurance companies themselves and a little bit up and down the value chain to reinsurance companies and MGAs and the distribution side. But I think that there's definitely going to be an expansion up and down with this acquisition and specifically this agentic underwriting use case is as a percentage of value to an organization, there's just more value in this segment to a distribution, MGA-focused organization relative to like a core system like Guidewire sells. So that's an exciting sort of expansion of the footprint, so to speak, of where we might focus and where hyperexponential already has in their customer base examples of customers like this. And so that's how I would think about it. Beyond P&C, we'll have to get back to you about whether or not that materializes. But I would just say like this is -- the most exciting thing for me about this is that it opens up this extraordinarily large addressable market that's completely incremental to the way that we are currently running the company, and I think will be a growth driver for us for years to come. So thanks for the question.

And that does conclude today's Q&A session. I would now like to turn the call over to Mike Rosenbaum, CEO, for closing remarks. Please go ahead.

Thanks so much, everybody, for joining. Obviously, we have a big day today at Connections in our keynote and everything else. We look forward to seeing all of you that are here with us in Las Vegas at the Analyst Day. And otherwise, we'll see you on the recorded call. So thanks for joining, and we'll see you later.

Thank you all for participating in today's program. You may now disconnect.

Greetings, and welcome to the Guidewire Fourth Quarter Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today.

I would now like to turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you. Alex, you may begin.

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; John Mullen, President; and Jeff Cooper, Chief Financial Officer. Complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website.

We have also posted our fourth quarter earnings deck on our IR section of the website. And today's call is recorded, and a replay will be available following its conclusion. Statements today include forward-looking ones regarding our financial outlook, our cloud and AI product strategies, customer demand, business operations, the impact of macroeconomic factors 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 filed with the SEC, including our most recent annual report on Form 10-K and our prior and forthcoming quarterly reports on Form 10-Q filed and 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 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 at the end of our quarterly earnings deck on our IR website.

And with that, I'll now turn the call over to Mike.

Good afternoon, everyone, and thank you for joining us today. We finished our fiscal year with an outstanding fourth quarter, capping off another exceptional year for Guidewire. ARR finished the year at $1.242 billion, up 19% year-over-year and above the high end of our guidance range. Fully ramped ARR grew 22%, marking the fourth consecutive year that fully ramped growth outpaced ARR growth. Subscription and support revenue grew 33%, and we exceeded expectations across revenue, operating income and cash flow.

Our execution in Q4 underscores the durability and resilience of our business model as well as the position and potential we have to lead the AI-driven transformation in the P&C insurance industry. Q4 included a number of achievements and milestones. My personal highlight was signing a long-term cloud migration agreement with Nationwide. Guidewire has partnered with Nationwide for over a decade across our core application suite. And in many ways, they were the critical partner who validated the scalability of our platform to the Tier 1 insurance segment. Earning their trust for their cloud transition and solidifying our position in supporting them for decades to come is a defining milestone in our company's cloud journey.

Nationwide also selected PricingCenter for personal lines pricing and rating. This is obviously a great win for our PricingCenter team. As we work to deliver on the specific business and technical requirements, we will further validate that PricingCenter is ready to provide the capability and scale required for any Tier 1 insurer globally. While the Nationwide win was monumental, our broader momentum with PricingCenter has been remarkable. John will share more details shortly but the integrated value proposition and the market demand for real-time price adjustment are resonating with customers. I couldn't be happier with the performance so far of this acquisition, and this deal serves as a fantastic capstone to an incredible year for David, the founder of Quantee and our PricingCenter team in Warsaw.

Another standout in the quarter was ProNavigator. Again, John will provide additional color. But sales velocity for this new product dramatically outperformed our plans. Embedding AI-driven assistance directly into the core workflows of ClaimCenter and PolicyCenter is precisely what our customer base needs right now. Rapidly integrating ProNavigator into the fabric of Guidewire and see immediate commercial traction was a major highlight of the quarter. ProNavigator serves as a straightforward AI and on-ramp for customers and now forms a core pillar of our broader strategy. Given customer enthusiasm is entirely realistic to expect this capability to eventually be incorporated into every Guidewire implementation worldwide.

The final element of our AI strategy tangibly taking shape relates to Guidewire Cloud Platform itself. Developer assistants are now available to all customers and partners, making agentic development on Guidewire exponentially faster. Things like writing integration code and building front-end applications for digital experiences are now dramatically faster. In our Qusar release, we delivered our agentic platform, enabling customers to build stand-alone AI agents tuned to their specific implementations and existing workflows. These agents operate seamlessly within their core systems, maximizing their preexisting modernization investments and taking full advantage of the structured context that resides natively in Guidewire.

Taken together, these platform and product milestones make the Guidewire strategic thesis clear. The path to intelligent, hyper-efficient, agent-driven P&C insurance operations begins with a modern cloud-based continuously upgraded core platform. And I think it's fair to say that only Guidewire has the ability to provide this to the market right now.

With respect to the financial performance of the company, Jeff will cover the numbers in detail later in the call, but I want to highlight 2 significant financial milestones. First, we nearly completed our share repurchase program, buying back over $600 million in shares. Our ability to do this is an outcome of our expanding profitability, cash generation and confidence in the long-term durability of business. Second, this year, we achieved an annual gross ARR attrition rate of less than 1.5% for all ARR and less than 1% for core systems customers, who represent the vast majority of our ARR base.

Attrition is a key metric we manage closely and acts as a primary indicator of our business durability and customer satisfaction. These attrition rates at over $1 billion in ARR are world-class, even more than the top line metrics. This number signals that our product design, implementation and ongoing support are driving exceptional long-term customer loyalty. I'm immensely proud of our team for achieving this measure of performance and commend everybody at Guidewire past and present, for helping to create the system and for operating it at this level of excellence.

We play a critical role in our customers' business operations. And of course, that reality necessitates an approach that logically leads to a uniquely durable business. This year and especially in Q4, we have begun to see clearly how our role as a core system of record can be expanded to support the application of advanced analytics to pricing agility and application of AI as a core workflow efficiency. How earning the trust of our customers allows us to establish a Cloud Platform that is delivering the AI-powered speed and agility the industry needs to not just continue their modernization agendas, but to propel them into a new, more intelligent and efficient insurance operating model. So we are happy about the results in Q4 and our fiscal year but we are more motivated about the impact we are helping to create in the insurance industry.

Finally, before handing the call over to John and Jeff, I want to convey my excitement for our upcoming Connections Conference this October in Las Vegas, where we will also host our Analyst Day on October 27. You are all, of course, invited to join us. We look forward to showcasing our latest product innovations and the new agentic capabilities of our platform. Our strategy is straightforward, deliver the world's most trusted core platform for P&C insurance, supercharge it with AI to accelerate every technology initiative within an insurance company and embed agentic intelligence directly into claims and underwriting to drive an industry-wide and global transformation. There is no better place to understand the power of Guidewire in the insurance industry, and we hope to see you at Connections in October.

With that, I'll hand it over to John.

Thank you, Mike. This was a great year that underscores the increasing alignment between Guidewire's road map and our customers' strategic ambitions. We work to continually increase the value our customers experience from their partnership with Guidewire and improved speed to value. Our proximity to our customers is a tremendous asset. We're at a point where our growing portfolio of products and solutions affords us the opportunity to work closely with those customers addressing enterprise grade operations and agile business capabilities, connecting their specific context to their agentic future.

This alignment resulted in 26 core deals for the fourth quarter, bringing the total for the year to 62 core cloud deals covering PolicyCenter, ClaimCenter, BillingCenter or InsuranceNow. A few of the core deals highlight. As Mike mentioned, Nationwide, a Fortune 100 company is the clearest example. They signed a multiyear agreement to move their entire InsuranceSuite estate to Guidewire Cloud Platform, capping a long-standing partnership built on proving out the platform's maturity to support their growth ambitions.

Another is AF Group, consolidating a number of core processing components onto Guidewire InsuranceSuite. MAPFRE U.S. expanded with Guidewire InsuranceSuite and added ProNavigator to support their commercial lines growth strategy. Additionally, one of the largest insurers in Canada signed a meaningful migration deal. We are also seeing our customers choose to expand their AI footprint with Guidewire. Definity, a leading Tier 1 Canadian P&C insurer expanded their Guidewire cloud commitment and adopted ProNavigator for embedded insurance domain-specific AI expertise. They are accelerating their innovation by leveraging our platform alongside their broader suite of enterprise cloud and AI tools.

We're seeing that same choice play out elsewhere in the portfolio. Alfa Insurance selected ProNavigator to accelerate previously considered internal build options. Hollard, a tremendous partner in Australia, selected ProNavigator to strengthen claimant and adjuster experience in support of a truly differentiated brand. Regulatory and compliance precision and increasing demands for efficiency contributed to this win. A long-standing customer in the U.S. Northeast selected ProNavigator as a critical element of their strategy following on from work done together with one of our field engineering pods.

Fundamental in our strategy is the ability for our platform and product portfolio to coexist with our customers' environment, maximizing impact pace and flexibility. The strength of ProNavigator is important to this thesis and translated into 14 wins in Q4 and 28 for the full year, a tremendous year for this team as they joined Guidewire. I couldn't be happier to see this team's impact and their passion for driving results for our customers.

PricingCenter also had a great quarter. We had 8 PricingCenter deals closed in Q4 and 12 for the year, a tremendous year for the team as they advance in addressing this critical strategic and fiercely competitive capability for insurers. Nationwide, in addition to the core migration has become our first U.S. Tier 1 customer for PricingCenter, choosing it for their home and auto lines. Integration to PolicyCenter will provide greater pricing sophistication and improved speed to market for Nationwide.

We saw that resonate across the rest of the portfolio, a long-standing customer in Finland became our first existing InsuranceSuite customers in Europe to adopt PricingCenter. Capital Insurance Group selected PricingCenter in a highly competitive process. Shelter Insurance chose PricingCenter as part of its larger expansion with Guidewire. Finally, Achmea Farm Insurance in Australia chose PricingCenter to drive greater pricing agility and precision throughout their operation.

The last point to make on momentum for the quarter is how pleased I was to see the mix by carrier size. MGA and smaller carriers contributed meaningfully to the results of the year. In addition to carrier size, we continue to invest heavily in our line of business, not only workers' compensation and geographic-specific content and tools. Our platform maturity and AI have accelerated our ability to address the needs of these important markets. Regarding speed to value, our investments in implementation tools and AI-powered project harness for implementations is delivering on the promise of material reduction in project complexity and duration.

We will be focusing the next 6 months on rolling out these capabilities to all of our projects and our SI partners. We believe this powers a change in the way the market thinks about capacity and the budgetary hurdle to clear in making the decision to move to a modern core foundational platform that powers their agentic future.

With that, I'll turn it over to Jeff.

Thanks, John. I'm excited to close the books on another tremendous year. The team continues to execute on the growth engine while also delivering on margins, profitability and cash generation. ARR ended the year at $1.242 billion, up 19% year-over-year on a constant currency basis, ahead of our expectations. ARR benefited from strong new sales activity and the lowest gross ARR attrition rate since we started measuring ARR as a metric. As a reminder, we report ARR on a constant currency basis throughout the year, and an update at year-end for FX rates.

Making this update negatively impacts ARR by $5 million, resulting in ARR of $1.237 billion. Fully ramped ARR, which is defined as the fully ramped annual price outlined in customer contracts grew 22% year-over-year on a constant currency basis. This is the fourth year in a row that fully ramped ARR has fully ramped ARR growth and outpaced ARR growth, and the second year in a row where fully ramped ARR surpassed 20% constant currency growth. We ended the year with 105 customers with fully ramped ARR of over $5 million. This is up from 86 at the end of fiscal year 2025.

Total cloud ARR, which includes ARR for all of our cloud products and customers that have contracted to move to the cloud grew 35% year-over-year and comprised 84% of total ARR. Subscription revenue finished the year at $916 million, up 37% year-over-year. Subscription and support revenue was $971 million, up 33% year-over-year. License revenue for the year was $235 million, down 7% year-over-year as healthy migration activity continues. The shift from license revenue to subscription continues to accelerate, but it is partially offset by DWP growth of on-prem customers.

Services revenue finished at $270 million, up 23% year-over-year. We experienced strong services revenue growth as we work to balance healthy utilization of Guidewire resources with continued strong partnership and alignment with the SI community on cloud programs. All this results in total revenue for the year of $1.475 billion, up 23% year-over-year and ahead of our expectations.

Turning to profitability for the fiscal year, which we will discuss on a non-GAAP basis. Gross profit was $990 million, up 25% year-over-year. Overall gross margin was 67%. Subscription and support gross margin was 74.5%, up 4 percentage points year-over-year and already close to the high end of our FY '28 target. Services gross margin was 12.5% compared with 12.9% a year ago. Our services organization has been investing to deliver on the demand environment, and we have also been investing in AI capabilities to support future -- the future of programmed delivery. These investments are impacting near-term margins a bit, but we believe the future efficiency lift in our services motion help future cloud sales as we work hard to bring down the cost of implementations.

Operating income was $340 million, up 63% year-over-year and above the high end of our outlook. This was driven by strong subscription and support gross profit, higher-than-expected license revenue and solid operating expense discipline. Our stock-based compensation expense was $182 million for the year, up 13% year-over-year but down over 100 basis points as a percent of revenue. Operating cash flow ended the year at $390 million, up 30% year-over-year. This strong cash flow generation is a result of excellent execution and the leverage established by our model. We ended the quarter with $1.2 billion in cash, equivalents and investments. With respect to our share repurchase program, we repurchased $606 million in fiscal year 2026. This equates to 4.1 million shares repurchased at an average price of $148.41 per share.

Now let me turn to our outlook. For fiscal 2027, we expect ARR of between $1.45 billion and $1.46 billion, representing 18% constant currency growth at the midpoint. As a reminder, our ARR outlook assumes foreign exchange rates as of the end of fiscal 2026 and will be held constant throughout the year. Let me add a couple of points of context. First, our outlook assumes ARR attrition normalizes relative to fiscal 2026. Our record low attrition rate contributed roughly 1 percentage point to ARR growth in FY '26. And while it's possible we see similar rates, again, we haven't built that into our base plan. And second, more than half of the net new ARR contemplated in this outlook is already under contract with ramp dates defined and signed customer agreements. That contracted foundation is where 2 consecutive years of 22% fully ramped ARR growth shows up, and it's the basis of our confidence in durable high-teens ARR growth.

Total revenue for the year is expected to be between $1.707 billion and $1.727 billion. We expect that subscription revenue will grow approximately 31%. We expect subscription and support revenue to be between $1.240 billion and $1.246 billion in fiscal 2027, representing 28% growth at the midpoint. This assumes support revenue will decline about $8 million as a result of the continued migration of our installed base to the cloud. As a reminder, support revenue attaches to term license customers. For cloud customer, support activities are included in the subscription fee.

We expect license revenue of approximately $189 million, a decline of $46 million year-over-year. This decline is a result of the cloud transition model playing out as we expected. In FY '27, we expect to see term license revenue from recent cloud migration customers declined by almost $50 million. This is partially offset by true-ups and pricing adjustments at existing on-prem customers. Our outlook for services revenue was approximately $285 million as we expect to experience more modest growth this year off of a healthy services revenue base experienced in fiscal 2026.

Turning to gross margins. We expect subscription and support gross margins to be around -- to be between 75% and 76%. This outlook is above our prior FY '28 target and gives us confidence as we look ahead to our long-term target of 80% subscription and support gross margin. We anticipate professional services gross margin to be approximately 12%. We expect total gross margins for the year to be between 67% and 68%. With respect to operating income, we expect non-GAAP operating income of between $403 million and $423 million for the fiscal year.

We expect GAAP operating income of between $197 million and $217 million. Our stock-based compensation expense is expected to be approximately $202 million. Cash flow from operations in fiscal year 2027 is expected to be between $445 million and $465 million. Our CapEx expectations for the year are between $23 million and $28 million, including approximately $17 million in capitalized software development costs.

Our Q1 outlook can be found in our earnings press release, but let me provide a bit more color. We are expecting ARR to be between $1.253 billion and $1.259 billion. We expect subscription and support revenue to be between $279 million and $283 million, and subscription and support margin to be around 77%. In Q1, we expect to realize approximately $4 million in credits from our cloud infrastructure provider, which is meaningfully higher than we expect for the remainder of the year. We expect services revenue of approximately $65 million and services margin to be around breakeven. This is largely related to timing of revenue associated with some larger fixed fee services engagements.

Overall, we expect total gross margins of approximately 65%. Also annual employee bonuses and commission expenses related to Q4 sales are paid out in Q1, which impacts cash flow. As a result, we expect Q1 cash flow from operations to follow a similar pattern to what we experienced in fiscal year 2026. In summary, it was once again over Q4, and we look forward to a great fiscal '27.

And finally, before we turn to Q&A, I wanted to note that we filed an 8-K today announcing David Peterson, our Chief Accounting Officer, has let us know that he intends to retire in early November. The first good decision I made as CFO of Guidewire was to elevate David's role, and he has been an incredible partner to me. He has built a strong team of considerable depth, so we are well positioned to carry on, but I just wanted to take a quick moment to thank David for his partnership and for his contributions to Guidewire.

Okay. With that, let's open the call for questions.

Our first question is going to come from Alexei Gogolev, JPMorgan.

First of all, I wanted to ask about ARR dynamics. So FX adjusted ARR came in at the top end of your guide. Can you break down the key drivers of 4Q in new ARR performance and talk about what was the most different versus your internal expectations entering the quarter, things like new deals versus backlog conversions and true-ups. And then maybe if there are sizable deals that closed in August that you were possibly surprised with?

Yes, sure. You can go ahead.

Okay. Yes, I mean, if you look at Q4, we ended at $1.242 billion, and we measure ourselves on a constant currency basis throughout the year. And so this largely came in, in line with our expectations as we move through the year. I mean, we were very pleased with the bookings that we delivered in the year. The ramp outcomes of those bookings were also quite positive. And so kind of flowing through to 19% ARR growth, 22% fully ramped ARR growth. Again, the impact of churn, which we highlighted a couple of times on the call was tremendous. That was a bit beneficial as well in the quarter. And so all of those dynamics were quite positive for us.

I would say, just Alexei, one thing to add. Relative to the plan, maybe not going into Q4 because we saw this momentum building, obviously, in the pipeline that we saw. But the performance of these 2 products, ProNavigator and PricingCenter was markedly better than what we anticipated at the beginning of the year, and that's a great sign for us.

One of the objectives we set for ourselves at the beginning of the year was to broaden the product portfolio. Obviously, that led to these 2 acquisitions. This is important for us as we grow. And obviously, it's also a way for us to monetize the cloud installed base that we've worked so hard to establish over the past number of years. And so it's just great to see these product lines performing the way that they did, both in terms of deal count as well as ARR that obviously correlates to that.

But especially I want to point out the win and partnership that we have in Nationwide with PricingCenter. It's just -- it's hard to earn the trust of a Tier 1 insurance company and it really does help us make sure that we're going to, like, let's say, stress test that product and make it valid for every other Tier 1 in the world. And so that's really what I would call out in terms of like it's a driver to ARR, both strategically but also from a numbers perspective.

And you also pulled out a very impressive 8 PricingCenter deals in 4Q, and maybe John was mentioning those. Who are you most often displacing? Is it homegrown versus point solutions? And what are you learning about sales cycle length and attach rates with PolicyCenter customers?

Yes. Alexei, thanks for the question. It's -- what we're up against is really fragmented but well-established installed base. So rarely is it homegrown. There's always a number of tools, rating and pricing tools in place inside an enterprise. It's really early for us to say what we think sales cycles are going to look like and what the attach rate is going to look like. But it is the attach rate and the ability to really, I think, number one, serve a very effectively a user base that potentially has been underserved in modern technology. So that's point one.

And then point two is the integration -- the native integration with PolicyCenter that allows for just really efficient throughput on pricing and rating changes, both from an accuracy standpoint and a speed standpoint. So it will be that integration. That is the reason why we see win rates and attach rates that we're planning for in the long future, but it's too early to really measure up what those sales cycles are going to look like as time and pipe.

Our next question is going to go to Rishi Jaluria at RBC.

Nice to see continued strength in the fully ramped ARR number. Maybe let's start with that, right? So if I think about your fully ramped ARR number and you're coming off another strong year prior was also similar sort of fully ramped growth. Can you help us understand mechanically how to think about the time line of these ramps starting to kick in and stack on each other? Because I'm just trying to do the math on kind of the ARR guide that you provided for FY '27 and understand because it feels like the setup is there to try to drive even further acceleration. So maybe help me understand that, and I have a quick follow-up.

Yes. Rishi, I think there's a couple -- there's a number of dynamics that we're looking at. And we obviously, as we negotiate these arrangements with the customers, try to optimize for the long term. And as you see, if you kind of look at the model, the ARR, the backlog, so the backlog ARR as a percentage, you can look at it as a percentage of ARR or as a percentage of fully ramped ARR. That backlog as a percentage of that ARR is growing over time, which means on a percentage basis, we just have more future ARR that will fall off of the backlog, which sets a foundation for a very durable growth.

There's a couple of other metrics that we look at. ARR, how much ARR do we expect to come off of the backlog and flow into next year's ARR. And that ratio next year is a little bit lower than where it was last year. And that's just a reflection as we look at the -- and inspect the totality of the backlog that we have, we're going to get more of that in years 2 through 5 rather than year 1 of that kind of first year of ramping event. And that just kind of continues to signal that we just have this healthy, healthy asset of backlog that we will execute over the next 5 years. So our orientation is always to orient to the long term and to make sure that we're driving the right fully ramped outcomes 2 years in a row of 22% fully ramped ARR growth really just that.

Got it. Okay. That's really helpful. And then, look, nice to see success with ProNavigator. Can you maybe walk us through how much of the early success you're having there is just cross-selling it into the installed base? And maybe what I'm trying to get at is, is there an opportunity for this to land net new customers for you where they might be with a competitor, but you can land on ProNavigator or other new products, use that as kind of a beachhead and over time, use that as a mechanism behind displacement?

Yes. Good question. I would say the momentum that we saw this fiscal year was primarily cross-sell. There's definitely an opportunity for us to sell ProNavigator independently. Obviously, they did that as a stand-alone company before joining Guidewire. And that path isn't close to us at all. But I think that the bigger way to think about this is that we're seeing these systems evolve from, call it, a workflow system or a system of record to really the platform that you use to establish your agentic approach to claims and underwriting.

And these systems, these AI systems powered by ProNavigator facilitate that. And that creates a differentiation for us in ClaimCenter that we didn't have before that we're able to bring a broader and more -- I don't know, automated value proposition to bear when we're differentiating that product. And that's the way that I think that you should think about it helping us to set to win new estates and win new implementations of our core systems.

And like I said, like in the prepared call, I think we'll get to the point where it's unusual to see an implementation of Guidewire without it just because it is resonating so much with our customer base. And so over time, I think you'll see it as a real differentiator, a real driver of net new wins, but it won't be stand-alone. It will be more new wins for core.

Our next question is with Joe Vruwink at Baird.

The comments about ARR coming off backlog are interesting. I guess I'll take the flip side. What does this say about your new deal pipeline? And I think there's some scrutiny on just the 1Q ARR guide coming in below consensus. Some of that's the FX reset that you highlighted, Jeff. But is it also reflective of anticipated deal timing and there just being more opportunities later in the year?

Yes. Look, I think we feel very good about where we sit and how the market is evolving and the need for a modern core platform to support and ensures initiatives just broadly and within AI. So from a pipeline perspective, we feel very positive. As we think about modeling the next year, there are a couple of areas that we try to be cautious around. As I said earlier, we always optimize for the long term, and we don't optimize for year 1 ARR events associated with new deals.

And so we look at a metric internally called year 1 ARR versus the booking event and kind of what that ratio is, and that impacts how we think about modeling the business, and I think impacts how we think about setting the guide. But we always want to orient our sales reps to focus on making sure they're driving the right long-term outcome.

So that is -- as we look at kind of next year, compare that to recent history, and kind of what is the corpus of the types of deals. Now the bigger the deal often yields a lower first year ARR and a larger fully ramped event vis-a-vis the booking opportunity. So these are all things that we kind of weigh as we think about setting an appropriate guide for the year. We've been pretty consistent about our goals of driving durable growth. For many years, it was mid-teens. More recently, it is upper teens and the model is certainly supporting that upper teens growth ambition.

Can I -- I just want to add, Joe, look, there's -- I feel like we're going to have a great fiscal year. We feel set up to have a good, really strong fiscal year. And I think when you look at -- we keep using this word durability. When you look at the business model and the characteristics of the fully ramp phase and the attrition rates that we've established, it's like there's just more upside potential than there is downside anxiety.

We have to be prudent in the way that we guide and the way they project the company just because our deals are very lumpy. And things can happen, and we can't perfectly predict the future. But the company is just getting stronger and stronger. We look at the portfolio of products now kicking in and we look at the alignment that we're able to achieve with artificial intelligence and ProNavigator and the way that we're bringing it to bear on the platform. We just feel great. I feel great about the company.

And like I said, I just really think -- if you look at the fiscal year, we feel like there is more upside potential than there is downside risk. And then we really just need to figure out like how to quarterize that. And we'll give -- we provide the guide for Q1, and we figure out how to provide that visibility. But when I zoom out, I just feel a lot of -- I see a lot of strength and a lot of confidence in the momentum that we've established.

That's great color, Mike. Just on the AI native products, it sounds like eventually, it's not going to be possible to split them out in terms of a discrete ARR contribution because it will just be a part of InsuranceSuite. But for the time being, is it possible to maybe size those? I know you started the year sizing ProNav just because it was being acquired in, but could that exposure, I don't know, double in its ARR contribution next year?

I think we'll look at whether or not how much visibility we provide, like we obviously shared some deal counts that we were excited to talk about on the call today. And as we proceed and get a little bit more experience with the business quarter-to-quarter, we can assess whether or not we provide more visibility. At this moment, it's probably not -- it is not appropriate, and that's why we didn't do it.

And to your point, we have to assess how we package these things and how they factor into the deals that we're doing each quarter. And so I guess, yes, I appreciate your question. We'll take it under advisement, and we'll think about it, and we'll offer you as much visibility as we think is strategically valuable -- or strategically possible, I suppose, is a better way to put it. But mostly, we just wanted to signal like how excited we are about this and it is really driving meaningful appreciation of the business.

Our next question is with Dylan Becker William Blair.

Maybe, Mike, starting with you. You touched on the importance Nationwide and PricingCenter. I wonder if we could go a little bit deeper I think you called out homeowners and auto, maybe 2 segments that are seeing a little bit more pricing pressure themselves in the market. So I think the appetite for adopting something that's more real time as may be disruptive or transformational, validating the importance and maybe buy a solution like that is resonating and can drive competitive differentiation. I guess is that a fair read on kind of some of the moment on PricingCenter? And I guess maybe just any other kind of color around the tethering of pricing layering into Policy and the rest of the platform over time.

Yes. It's a great question. I think it's fair. I don't want to speak specifically for Nationwide, but I do want to say, in general, the thesis behind us investing in ensuring that we had a pricing platform, rating platform, deeply integrated into PolicyCenter, our product modeling capability, which we call APD and our data platform and creating what we kind of referred to as a closed-loop system for enabling actuaries and business leaders in the insurance industry to have the type of agility they need to be able to compete effectively. That is absolutely what people are buying when they buy PricingCenter and PolicyCenter. No question about it, full stop, 100% correct.

And this is super exciting, right? Because to some degree, Guidewire traditionally has sold off of a variety of things, but let's say, risk of a legacy system factors into this less so than maybe business competitiveness. And it is very exciting for us. It's very exciting for our sales teams. I'm sure John is going to want to lean into this answer here in a second. I know he's excited about it. It's excited to be connected to the business of insurance. And how you're pricing and how you're adjusting to competitors and how you're adjusting to those new risks.

At the same time, you're also seeing like this real huge transformation in AI and realizing, hey, we need to figure out how do we get more operationally efficient so that we can create more leverage in our operation, and can we do that with Guidewire. This is very exciting for us. it is absolutely true that the PricingCenter value proposition connects to that competitiveness, and it's an exciting component of the story now.

Perfect. And then maybe if I could segue to John to, I think you called out the -- some of the efficiency you're seeing in delivery in speed and cost reduction, lowering that hurdle, opening kind of the top of the funnel from a demand perspective. But how should we think about kind of the dynamics between those 2 segments? Because you could infer, right, that there's a little bit of cannibalization on the services line. Is there a fixed fee orientation to kind of insulate some of that? But maybe on the inverse, it enables you to go much faster, and we're seeing that reflected in the subscription strength. I think that's abundantly with the 26 deals you guys signed in the quarter, but maybe just kind of how we think about the evolution of that subscription and services dynamic, if that makes sense.

Yes. Good question. So a couple -- first thing, the ecosystem at large is navigating this. So we're navigating this and we invested -- investing heavily to make sure that the decades of experience of doing this is put into a harness where we can really move things faster. And we're seeing really early -- really good returns on, particularly the spec-driven development aspects, as Mike mentioned, things like product speed to market and product definition. That's the one that I think is the fastest business standpoint.

But we're also navigating that with the systems integrators. It's -- our relationship with our systems integrators continues to strengthen through this. And that's a through line that we have to manage very specifically, not carefully, but specifically with them as they're moving more of their efforts towards the business transformation that sits on top of what should be a more efficient implementation. So making sure that they're tooled -- we're all tooled appropriately to make these programs go faster and more predictable.

We're also working with them to make sure that we're getting closer to the business results and the things that matter to the C-suite not only in making that first decision to modernize on the core platform, but to make sure that we're driving tangible, measurable, repeatable, scalable business results off the back of it. So that's a bit of a pivot in the conversation with our SIs and focusing more of our energy on that. And then certainly, we want them to continue to build their tools. There's no world where we're going to insist that they use our tooling. We just want to make sure that they have it available to them in all their programs.

All right. We'll go to Ken Wong now from Oppenheimer.

Mike, John, I wanted to dig into that Nationwide agreement a little more, specifically the PricingCenter commitment. Any color how additive that could potentially be to TCV, perhaps not near term, but as you think about this as it scales? And then how might this influence potential Tier 1s that are looking at the platform going forward?

Well, it's -- the structure of the agreement is kind of per normal, right? So there's no like rollout impact related to scaling TCV. The TCV is the contract, right? So -- and obviously, we're excited about the price point of that product. We're not going to describe the details here publicly.

But for sure, the opportunity to work with Nationwide and roll this out with them helps us convince ourselves and convince others that this is a product that can meet the needs of any insurance company anywhere in the world regardless of size. That was the objective when we began to build this. That was the objective when we tried to really convince every one of our customers, and we couldn't be more excited to be partnering with Nationwide on this journey to be able to go deliver this very quickly and prove that it works.

So yes, absolutely. That's part of the strategy here, and it's an incredibly important milestone for us. Like I said in the prepared remarks, it's like very similar to the initial deal with Nationwide. None of us, I don't think we're here at Guidewire when we did that but it has served as a real forcing function for every component of our product and services and company and ecosystem to make sure that the products work there. And I have every expectation that, that's going to occur here with PricingCenter.

Yes. I'll just add one quick comment too. From here, where do we go? So I won't comment on Nationwide's decision as much as we appreciate that alignment. The -- where this goes from a future standpoint is the product road map for PricingCenter has some tremendous capabilities in it today and in the future. And as we enable that more with the analytic that actuaries need to do the job and allow them to bring their own tools and consume data, it does become -- harkening back to the earlier question on ProNavigator as a potential wedge offer, PricingCenter in combination with advanced product designer, is absolutely an opportunity to be a wedge offer for our customers and be an opportunity to actually pull through PolicyCenter deals in the future because of that closed loop that Mike was talking about earlier.

And that's one thing that I'm excited about, actioning in the market as we start to stack up the proof points is PricingCenter being that wedge, and we'll see how that plays out over the year, but I'm excited about it.

Fantastic. And Jeff, maybe just digging in on the ARR side. You mentioned next year slightly more conservative retention assumptions, maybe a little less backlog coming in. I guess, would it be fair to assume maybe an elevated amount of prudence compared to how you were thinking about ARR guidance last year since you might need a little more net new to hit numbers this year?

Yes. No, it's pretty consistent with our overall methodology. And just to be clear, like we're going to see more coming off of the backlog next year, just the ratio of vis-a-vis what is in the totality of backlog is a little bit lower. So the absolute dollar number will be up this year. So it's pretty consistent with how we kind of established the guide beginning of last year. Obviously, we were lucky enough to raise guidance a couple of times throughout the year, but no change in guidance methodology.

Our next question is with Parker Lane at Stifel.

Mike, when you look at some of the competitors out there, there's certainly AI natives that are coming to bear, a lot of folks bringing AI functionality, you brought your own in the latest releases. Is that introducing any level of confusion or lengthening deal cycles in any way for Guidewire? Or you're appropriately navigating that with your customers today?

I don't know confusion is the word, but it's an interesting -- with respect to AI, it's a very interesting dynamic, maybe unprecedented in the history of enterprise software. Now is it lengthening deal cycles for core? No. I think what we're seeing very clearly is Guidewire is right core to architect your AI strategy around. This is admittedly biased, I suppose. But I think we're going to see a differentiation in the companies that are running Guidewire, running Guidewire Cloud, taking the latest releases of Guidewire aligns to the approach that we're taking and the AI strategies there are going to accelerate. And we hope, and it's our intention to create differentiation for our customers, and they're going to be able to outcompete the ones that are not as agile and not as fast.

Now that's the core side of this, right? That's the like system of record, workflow to run your insurance company side of this. Then there's this question of what AI system are you going to put on top of that. We're going to play a role in this, and it's super exciting to see the momentum that we've achieved with ProNavigator. The momentum that we've achieved with our -- the interest, I would say, we've achieved with our agentic platform and how we're able to help our customers build and manifest these AI-driven workflows in and around our platform.

But certainly, there's a lot of other choice. We've actually purposely created a very open ecosystem through our APIs, our MCP servers, our ability to run Guidewire head list, our ability to connect Guidewire to these other systems. We are open to a variety of architectures when it comes to how to manifest that out in the -- at the -- out in production with each one of our customers. And so that side of it, I wouldn't call it confusion, but there's a lot of options. And there's a lot of different companies placing bets with different providers.

As I often said, I didn't say in this kind of meeting so far, our objective is to win the core, okay? We want to win the core worldwide. We want to be the core system of record for every P&C insurance company in the world. We think we can do that by running an open platform. we think we can accelerate the transformation in AI by bringing first-party product to bear, but we fully expect and support customers looking at alternatives. And I would not say that any part of that is causing deal cycles to slow down. I think what is really happening is people are recognizing that the right way to be prepared for the future is to be on a Guidewire core.

Yes. I'll add that the way it's manifesting is insurance executives are as busy as they've ever been, navigating what Mike just talked about. And there's this moment -- there's this critical moment in the conversations with carriers that say, look, this is -- does not need to be a build versus buy conversation of the good old days or the bad old days, depending on how you think about it.

This is a build with Guidewire and practicality that's available to you simply because we run open, we run on throttle, and there's no one way -- we're not presenting you with any one-way doors. And when you get to that conversation with the executive teams that are navigating the space right now, there's almost -- I won't call it a side of relief, but there's a light of practicality and execution through line there that really sings really well with, okay, now let's get about the business and going forward and solving this problem.

Appreciate the feedback. And one quick one for you, Jeff. When we look at ProNavigator and PricingCenter, is the ARR ramping structure fairly similar to what you see across the core today? Is that a work in progress? Any color you could prove there would be great.

Yes. I expect these to have more modest ramps. But the reality is that they're also going to attach to core sales. And so the dynamics may be carried by that core sale depending on how we're going to market. But if we're selling it stand-alone, the ramps will be much shallower than what we see in the core. So we'll see. But that's my expectation right now.

We're now going to go to Allan Verkhovski at BTIG.

Maybe just a follow-up on the last question. Can you talk about what advantages Guidewire has with the latest [indiscernible] that third-party AI platforms cannot replicate as well as you, along with how you plan to monetize those capabilities over time?

Well, I think Fundamentally, our differentiation is always going to be an opinionated structure around property casualty insurance and an opinionated structure that cleanly and seamlessly integrates into our core applications. And then, [ Camma ], a commitment to continue to evolve those products in unison, so that one changes, the other one changes, it's our responsibility to keep that working. That value proposition is more and more valuable as you move downmarket and the size of the organizations and the IT organizations that can be brought to bear in solving these problems get smaller and smaller.

And so one of the things that was exciting we called out in the script is the momentum that we saw in smaller carriers, MGAs, like these aren't companies with massive IT teams who are huge budgets to configure horizontal solutions and sort of tweak them to fit an insurance use case. That's what you're going to get with Guidewire. So as you move up, as we move up into the top tiers of the insurance industry, these companies have a different kind of take on how they want to work with Guidewire and may be looking to invest more to differentiate themselves with maybe one of the frontier model partners. We want to support that. We absolutely do support that.

And so the, call it, the out-of-the-box point of view that we're able to bring to bear there is less valuable to that Tier 1 insurance company than is to a smaller insurance company that doesn't want to invest. That said, I think we're still in the early innings of how this plays out in reality and where we are right now and what you can do right now relative to what we imagine an insurance company is going to be able to do in terms of automating, underwriting and automating claims workflows. I think a lot is going to evolve and a lot is going to change. We're all going to learn a lot. So anyway, but that's my take of how things work right now is just like that opinionated use case and the commitment to keep it integrated into the Guidewire core applications and workflows.

Yes. And I think the -- as we work up the Tier 1s to Mike's point, of course, they should be building agents and they can build agents with our tooling with theirs. But the thing that really I think we need to think about and they need to think about is those agents you build need to be able to contribute to and consume from your enterprise context. And that enterprise context sides primarily in your core systems and your core operating platform and moving those things together in unison is going to give you your best chance for future flexibility and differentiation.

That's very helpful. And I guess, Jeff, just a follow-up for you. Can you share like what the puts and takes are for where we can expect fully ramped ARR growth to be in fiscal '27 given it once again came in above ARR growth this year?

Yes. I think we don't guide to fully ramped ARR growth. We will certainly report on that at year-end. But we don't guide to that. Look, as we look at the pipeline, there is still a lot of healthy volume for cloud modernization, cloud migration deals that carry these dynamics with large ramping events. And so that leads us to be optimistic about our potential to continue to grow that line. But we're not going to provide any sort of color or guidance at this point.

Our next question comes from Tamjid at Guggenheim.

I guess the first one, it's encouraging to hear about the lower churn, but I wanted to focus on the new business side in the quarter. The first one is, did the deals that slipped out of the third quarter closed in the fourth quarter? And the second side of it is, excluding those deals, how did growth new business track against your internal plan?

So simple answer is yes. Things played out in Q4 as we expected them to and as we outlined on the Q3 call. Secondary answer is, it's complicated. We go into a quarter with a portfolio of deals, and we try to close them all and we do our best and rarely get to 100%. But I would say, generally, things ended up aligned with what we expected. And it ended up being a very good fiscal year, right? So it was -- it's exciting for us to be able to beat the way we did and accelerate it the way we did. And we're very, very happy with the outcome.

I don't know if, John, you wanted to add anything relative to your expectations going into the quarter, but it was a great quarter and the team's really executed very well.

Nothing to add.

And if I could ask another one. When you kind of -- I think you mentioned Shane Cassidy, who's going to be formally assuming the role of Chief Commercial Officer role starting this fiscal year. Are there any changes that we should be expecting in the sales organization? And how much of that is embedded in your guidance?

So the -- so Shane joins us. First, I guess, I want to say that David did a phenomenal job in his tenure as Chief Commercial Officer. The things that he achieved as far as predictability and linearity within the fiscal year and within the quarter, are things we want to double down on and making sure that we continue to carry the torch on that sales operations methodology and rigor.

The -- with Shane joining, no changes in structure. We certainly want to make sure that we continue the momentum that's been built. The team is -- the rest of the team is in place and playing the same roles they have before. So I don't see a whole lot of change there. I do think that as we go forward, just given the nature of our relationship with these large customers is doubling down on the expansion within our existing customer base and solving these very specific business problems with the expansion of the solution portfolio is going to be a big, big focus for Shane as he moves into the role.

Our next question is going to go to Michael Turrin at Wells Fargo.

I'm getting a pretty consistent set of similar questions. So I just wanted to go back to some of the dynamics we're looking at. On the 4Q ARR number, growth is strong, but it is seasonally a stronger period. The fully ramped ARR number stands out at 22%, but I think people are looking at that relative to the initial ARR guide for next year and trying to parse why that wouldn't be more of a leading indicator for growth in the next year. And so Jeff, I know you've had some comments that are useful in attrition, and there are some currency impacts we can weigh. But just maybe help level set fiscal Q4, 1Q full year guide for ARR and how you'd frame those out for investors as we're just kind of evaluating and trying to parse what the normalized or the trajectory will look like from here?

Yes. Look, I mean, I think multiple years of over 20% fully ramped ARR growth creates this incredible asset that we call backlog, our ARR backlog. And we have visibility into how that backlog flows into the number. We try to share some of that visibility with you all at Analyst Day. But as we look at kind of how that number is flowing into next year, that is a key building block of how we think about setting the guide, and this is on an annual basis.

And then we kind of think about what the appropriate churn rate is to model based on kind of recent patterns but also historical averages. And then we look at kind of what we have to go out and sell in the year and have a perspective of the type of deal it is and what are the kind of ramping dynamics associated with those deals and how they then yield year 1 ARR. Those are the foundational building blocks.

Fully ramped ARR at a couple of years, north of 20%, certainly gives us increased confidence into the durability of the upper teens. If you go back 4 or 5 years, it was much lower than that. So we're kind of building that flywheel of this incredible asset that is this backlog asset that will flow into the number. The ratio of ARR that will flow into FY '27 as a percentage of that total backlog number was down a little bit year-over-year, as I mentioned earlier on the call, and that's just a function of kind of more ramping events to come in the future. But those are the kind of the foundational building blocks that we look at. And all of those are in a very healthy place and feel very aligned to how we're talking about -- how we've talked about the durable growth engine of Guidewire.

Going with Billy Fitzsimmons at Piper Sandler.

Good to see the new product momentum. Appreciate the commentary on PricingCenter and ProNavigator. I imagine it's still early, but any initial thoughts you can share on underwriting center specifically as it relates to customer conversations and pipeline relative to what you outlined 90 days ago?

Sure. We're very excited about the momentum of the product and working with a couple of very early customers with -- and getting the product into their hands and getting some feedback tracked and hands-on feedback and traction from out the real world. So I think we're excited to share more details about that as we head into our Connections User Conference. But that's basically where we are.

I wouldn't say relative to the underwriting category is more and more excited about it, in general, receptivity to the idea and the problem and the potential for official intelligence to play a really positive role here, is just validated more and more every day. So we really feel like we're on to something with respect to the demos and the workshops that we're able to do, with the early customers and that's really positive.

And then the other side of it, kind of John, in the call -- John was talking about Shane's remit and the things we've learned this year is being able to build this motion where our sellers can really learn multiple products, and we can fit these new things into our pipe generation and demand generation and product marketing teams. It's like developing that at Guidewire as opposed to sort of being a one core trick pony kind of company is pretty exciting. So that's where we are with underwriting and more to talk about and share at Connections.

Great. Now we'll go to Aaron Kimson at Citizens.

I want to follow up on Dylan's question. John, you mentioned the role AI is having on accelerating time to value for implementations. And Jeff spoke to the effect of some fixed big contracts on 1Q service margins. As you get into some of the larger migrations, are you finding you're increasingly comfortable offering fixed bid implementations? And is there a scenario where fixed bids could drive a pull forward in migrations in FY '27 or at some other point further along in the future?

Yes, there's a geographical and a complexity of market component that goes along with the tooling. So large programs, large programs have their own complexity. And oftentimes, they have a large systems integrator involved that we're partnered with side-by-side. So what will we see from a fixed bid standpoint, I think what we'll see is very definitively acceleration. More of the fixed bid componentry will come from the SI world as they get more confident in their tooling and their ability to drive these programs.

On a pull forward basis, what I really see happening is just a greater degree of confidence in aligning business and IT executives towards this agenda item as the complexity hurdle rate, the budgetary hurdle rate and most importantly, the time duration hurdle rate becomes easier to clear so that they can get back into -- get definitively into the competitive posture they want to be in. I do foresee that there will be some new entrants and disruptors into the SI world who will be really aggressively applying AI tooling into these programs. And we want to make sure that the entire ecosystem is enabled with our tooling to push that envelope.

Super interesting. And then as a follow-up, it sounds like the deals that pushed into 4Q mostly closed. One question I got a few times throughout the quarter is whether you're seeing the broader P&C cycle having any effect on the timing of deals closing relative to prior years?

No, I think the pace on these big decisions is very similar to what it's been prior years. We're not modeling nor am I measuring the team differently based on the timing in pipeline for these large deals or for any of the deals for that matter.

I'll now turn it over to Mike.

Okay. Everybody, just to close, I wanted to reiterate the key takeaways that we see in the quarter and from the year is number one, we really are to see phenomenal deal momentum. The continued -- continually beating ARR growth with fully ramped ARR growth creates an incredibly durable business. And we really are seeing AI starting to drive the business. It's starting to be infused into our products, into our platform. It's impacting -- it's positively impacting the services organization and the momentum we're able to achieve with implementations.

Very, very excited about the momentum in these new products, PricingCenter and ProNavigator. We obviously talked a lot about that on the call, but incredibly strategic for the company in the long run. And finally, the cloud model is just really playing out here exactly like we thought it would. We're seeing expanding margins and cash flow enable the share repurchase that we talked about and really remarkable attrition rate at the company, creating what we think is a very unique and durable business.

And so I appreciate everybody joining us on the call and hope to see as many of you as we possibly can at our Analyst Day in Connections. And so thanks, everybody, and we'll see you later.

Greetings, and welcome to the Guidewire's Third Quarter of Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today.

I would now like to turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you, Alex. You may begin.

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; Jeff Cooper, Chief Financial Officer; as well as John Mullen, President, who will be available for the Q&A portion of today's call. Complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. We have also posted this quarter's earnings deck on the IR section of the site. Today's call is being recorded, and a replay will be available following its conclusion.

Statements they 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 and our prior and forthcoming quarterly reports on Form 10-Q filed and 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 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.

Please note that starting this quarter, we have updated our non-GAAP methodology to exclude the impact of unrealized foreign currency exchange rate gains and losses. To ensure an accurate comparison, we have recast all our non-GAAP schedules back to the first quarter of fiscal 2025. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted at the end of our quarterly earnings deck on our IR website.

And with that, I'll now turn the call over to Mike.

Good afternoon, and thank you for joining us today. We delivered another great quarter in Q3 and continue to build momentum across the business. The quarter was highlighted by 11 cloud wins, strong progression in key pipeline deals and growing customer interest in PricingCenter and our AI platform tooling and ProNavigator offerings. Together, these dynamics continue to strengthen our position as we head into our fourth quarter and provide a solid foundation for the remainder of this fiscal year and next.

From a financial perspective, revenue, profitability and cash flow all finished ahead of expectations, continuing to demonstrate the strength and durability of our model. ARR in Q3 came in within our guidance range, growing 19% year-over-year, and fully ramped ARR continues to grow faster than ARR. The bookings results in the quarter were solid and 19% ARR growth is a great achievement. We anticipated a couple more deals to close in the quarter. But 1 of the things about Guidewire is that there are a relatively small number of discrete deals each quarter and sometimes timing doesn't align perfectly with quarterly boundaries.

That said, the progress we made in Q3 with respect to pipeline momentum gives me a lot of confidence as we head into Q4, which is 1 of our largest and most important quarter of the year.

As I think about the quarter and the progress we have made so far in our fiscal year, I'm very happy with the momentum and trust we have built in the industry. What stands out is the degree to which insurers are aligning around Guidewire as our long-term core platform partner. Customers increasingly want a complete platform they can trust, something that combines IT agility, an open approach to integration and amplifies their ability to innovate rapidly. This position has become even more valuable as insurers modernize core systems and look to operationalize the latent benefits AI creates for the insurance industry.

During the quarter, we closed 11 cloud deals, including 2 net new core system wins and 5 ProNavigator deals. One notable transaction was a 7-year extension and DWP expansion with Auto Club of Southern California for InsuranceSuite on Guidewire Cloud Platform, alongside a significant new sale ProNavigator. This carrier is investing in Guidewire to support long-term growth while incorporating greater AI-driven capabilities into its operations.

We also saw continued momentum from insurers modernizing legacy core systems globally. In Europe, a U.K. insurer part of a global insurance group, selected ClaimCenter on Guidewire Cloud Platform as part of a broader modernization initiative designed to simplify and accelerate its technology road map.

In Brazil, we closed a large strategic net new win with Bradesco Seguros. We're selected Guidewire Cloud platform as part of an effort to consolidate and modernize a significant legacy footprint. This insurer is focused on improving product velocity and accelerating speed to market.

And in North America, a large U.S. insurer selected PolicyCenter on Guidewire Cloud Platform within a commercial insurance entity. We continue to believe these types of transformational core system modernizations represent a durable long-term opportunity for Guidewire, and we were encouraged by the progress we made during the quarter.

Beyond core system modernization, we are also seeing increasing traction across newer offerings on the platform. We had 3 great PricingCenter wins in the quarter, including 1 with a Swedish insurer, and ensure in Poland as well as our first U.S. win for PricingCenter at Oklahoma Farm Bureau, which selected the platform to become more nimble in pricing and rating, reduce IT and operational friction costs and accelerate speed to market.

As I previously stated, we also saw continued and building momentum for ProNavigator, which was adopted in the quarter by 5 insurers spanning multiple sizes and lines of business as each increasingly looks to embed AI-driven knowledge and workflow automation directly into core insurance operations.

In addition to Auto Club of Southern California, ProNavigator was chosen by 2 regional mutual insurers as well as a farm and ranch focused P&C carrier and a worker's compensation insurer.

Additionally, our data and analytics offerings continue to gain traction as customers seek to embed more real-time insight throughout the insurance life cycle.

Overall, we're seeing increasing platform gravity around Guidewire, and that's translating into healthy adoption of new offerings across our portfolio. These trends and the broader momentum in the business were reinforced at recent insurance forms we hosted in Europe, Australia, Japan and Canada. And each of these events, insurers consistently emphasize the same priorities, modernizing core systems, increasing operational agility and positioning themselves to take advantage of AI in practical and scalable ways.

As we've said before, Guidewire sits at the center of the insurance enterprise. Our platform manages the core systems of record for policy, billing and claims, and we continue to expand that foundation into critical business functions like pricing and underwriting through a continuously improving cloud platform. Our platform provides the context insurance companies need to apply AI to real workloads AI and insurance or any other regulated industry use case depends on trusted data, well-defined workflows and systems capable of executing decisions reliably at scale, which is exactly what Guidewire provides.

With ProNavigator, we have embedded AI decision support directly into the applications and workflows insurers use every day. We help underwriters, claims adjusters and customer service teams make better decisions through contextual insights, recommendations and increasingly, agent capabilities integrated into the flow of work.

Underpinning all of this is our cloud platform and developer ecosystem, which was the focus of our recent developer summit in Bangalore, India. This event was a real highlight for me for 2 reasons: First, because of its scale. We had 3,000 people attend, which was double our prior year, and we had people come to Bangalore from all over the world. When we began this event, we just had no idea it would be so popular. And I never imagined that we would have customer development teams from the United States traveling halfway around the world to engage with us in this way. Second was the breadth of AI capabilities we are unlocking on the platform. Connecting these frontier models and tools like Claude code to our platform and our MCP servers is unlocking a staggering amount of productivity in our ecosystem.

Walking around the event and speaking to the real on-the-ground engineers who are every day translating the requirements of the industry to real solutions was just motivating for me. We are unleashing a productivity tsunami and the same excitement that people are experiencing with Claude code-driven software development is now very real on the Guidewire platform, making it possible to build workflows faster integrations faster, new insurance products faster, new digital experiences faster, and it was just incredible and everyone in our ecosystem is excited about it.

We're also seeing significant and measurable productivity gains internally and across our partner ecosystem through the use of these Agentic development tools, which is helping accelerate delivery and implementation time lines. This improvement will accelerate migration and modernization efforts across the industry. We are almost a decade into our efforts to bring the industry a modern cloud platform and still much of the insurance industry still operates on legacy technology. The insurance companies not operating on modernized core systems will struggle to take full advantage of AI to support the agility and intelligence insurers increasingly required to remain competitive. This reality creates a growing opportunity for Guidewire. By reducing the time, cost and complexity associated with this modernization adding AI capabilities, agents and automation into an open platform, we believe we will expand our addressable market and continue to accelerate our business.

And finally, before I turn the call over to Jeff, I wanted to quickly mention an important leadership transition in our sales work. After an incredible career as an enterprise sales leader in the software industry, David Laker has decided to step away from his role as Chief Commercial Officer and transition into a new position focused on strategic partners and initiatives. David will continue his current role through the end of the fiscal year. And to ensure a smooth transition, I'm excited to announce that Shane Cassidy is joining Guidewire starting today and will formally assume Chief Commercial Officer responsibilities after the end of our fourth quarter. Shane is a proven insurance industry leader and has been instrumental in partnering with Guidewire and helping grow our business over his 20-year career at Capgemini, where most recently, he was the Executive Vice President of the Global Insurance practice. The Chief Commercial Officer role will continue to report to John Malling and we anticipate that Shane will build on the strong sales discipline and execution that David's established. We're pleased to have Shane on board, and I'm excited to work with David in his new capacity next year.

And with that, I'll turn it over to Jeff.

Thanks, Mike. We are pleased about the progress we made in Q3 as we shift our focus to our important fourth quarter. In Q3, we executed on healthy cloud demand. We made exciting progress moving key deals through our sales pipeline. We saw strong services demand and execution, and we really demonstrated the power of our financial model with revenue growing 27% combined with strong margin and cash flow dynamics. And I was pleased with the progress we delivered in Q3 to set ourselves up to achieve a fantastic fiscal 2026.

ARR finished Q3 within the range at $1.147 billion, up over 19% year-over-year. Fully ramped ARR growth rates continue to outpace ARR growth, which is a strong indication into the growth environment we are experiencing.

Total revenue was $373 million, up 27% year-over-year and above the high end of our outlook. Subscription and support revenue finished Q3 at $245 million, reflecting 35% year-over-year growth. Services revenue finished at $72 million, up 32% year-over-year, well ahead of our expectations on continued strong demand for Guidewire led services programs and field engineering activities.

Now let me turn to profitability for the third quarter, which we will discuss on a non-GAAP basis. Gross profit was $247 million, representing 29% year-over-year growth. Overall gross margin was 66%. Subscription and support gross margin was 74% compared to 71% a year ago. The scalability of the cloud platform continues to deliver strong margins. Services gross margin was 14% compared to 13% a year ago. This margin benefited from strong utilization rates, which was partially offset by higher subcontractor expenses to ensure we had sufficient capacity for the demand we are experiencing.

We finished Q3 with operating profit of $78 million. This finished ahead of our outlook due to higher-than-expected revenue and gross profit and lower-than-expected operating expenses.

In general, operating expenses have benefited from slow -- some slow hiring and some expense timing. We ended the quarter with $1.15 billion in cash, cash equivalents and investments. Operating cash flow ended the quarter at $61 million. We repurchased 1.7 million shares at an average price of $147.7 per share. We have $241 million remaining on our share repurchase authorization that we put in place towards the end of Q2.

Now let me go through our updated outlook for fiscal year 2026. Starting with the top line, we are maintaining our ARR outlook of $1.229 billion to $1.37 billion, which reflects growth of 18% to 19% year-over-year. As we mentioned last quarter, we continue to see fully ramped ARR growth rates above ARR growth rates, and we expect that trend to continue for the full year fiscal 2026.

This is important because it sets a solid foundation for durable growth as we look ahead to FY '27 and beyond.

For total revenue, we now expect between $1.46 billion and $1.47 billion. The midpoint of our revenue growth outlook is 22%, up from 16% growth assumed at the beginning of the year and 20% growth as of the end of last quarter. We expect between $963 million and $969 million in subscription and support revenue. This is a modest increase but reflects a $20 million increase in our guide over the first 3 quarters of the year. This outlook takes into account the continued healthy DWP true-up activity, strong attach of new products and a robust pipeline in Q4.

Additionally, we were thrilled with the progress of ProNavigator and PricingCenter in the quarter. These new product areas have already surpassed my expectations for the year. We now expect services revenue to be approximately $270 million, given strong cloud demand and, in particular, demand for Guidewire services expertise.

Additionally, as we noted last quarter, we are leaning into some field engineering programs where our services personnel are helping customers utilize Guidewire Cloud platform and leverage newer Agentic capabilities to solve business problems.

Turning to margins. We still expect our subscription and support gross margins to be approximately 74% for the year. We expect services gross margins to be approximately 14%. Overall gross margins are still expected to be 67% for the full year.

We are also lifting our outlook for operating income. We expect GAAP operating income of between $124 million and $134 million and non-GAAP operating income of between $314 million and $324 million for the fiscal year. This updated outlook reflects higher revenue and gross profit expectations and lower operating expenses than originally anticipated. This is partially offset by a larger services revenue mix and an upward adjustment to our company bonus accrual, given strong growth and profitability expectations. We expect stock-based compensation to be approximately $182 million, representing 13% year-over-year growth.

We are raising our expectations for cash flow from operations for the year to be between $365 million and $380 million. Our CapEx expectations for the year are between $30 million and $35 million including approximately $18 million in capitalized software development costs.

Alex, you can now open the call for questions.

Great. Thanks, Jeff. Our first question comes from Adam Hotchkiss at Goldman Sachs.

Okay. Great. I just wanted to start on ARR for the quarter, Mike. I know you called out deal timing, but it would be great if you could share any additional details on what drove that and how broad it was. It sound like historically, you've had a pretty good handle on the quarterly cadence of backlog and deal velocity. So I'd just be curious what was different this time around? And how we should think about whether you expect the same dynamic to impact Q4?

First, thanks very much for the question. I'll answer the last part of the question first. No, we have a tremendous amount of pipeline and expect we have to execute, but we expect a very strong Q4. The situation in Q3 with respect to deal timing is honestly isn't that unusual. It's just -- there's a discrete number of deals that we have to close every quarter, and sometimes things are in our control and sometimes they're not. I actually think 19% ARR growth was a very, very solid quarter. And so I think when you kind of zoom out and look at the long history of the company, I think you have to say, well, everything is fine here and there's really nothing to read into this other than a company like us that does big large discrete deals is going to occasionally have a situation in which some things fall on the wrong side of that line. I think you really -- like when I think about what's going on, we see really pipeline building and we see demand building, and we see a tremendous amount of confidence in the sales organization and then really also the customer base and then the demand for not just core modernizations, but these new products. Jeff mentioned this, like we're creating alternative ways to get to the number in alternative products to sell in PricingCenter and ProNavigator and our analytics product offerings that are really increasing our confidence looking into Q4 and next fiscal year. So hopefully, that gives you just a little bit of color about how confident I am in the company right now and how pipeline is shaping up into Q4.

Yes. And the only thing that I would add is we've been talking for some period of time around what the impact of ARR backlog is into the net new ARR numbers. And we've known for some -- as we entered into this year, that Q3 faced a pretty meaningful headwind with respect to that particular metric. As we look at Q4, given the pipeline that we have, which is incredibly strong. In addition to the visibility that we have into the backlog that will flow out of backlog and into the ARR number in Q4. It gives us a lot more visibility into that number and informs our confidence into how we think about the guidance.

Great. That's really helpful. And then, Mike, just a follow-up on something you said on ProNav and PricingCenter, it feels like you're getting some really good early traction there. Maybe for you or Jeff, how should we start to think about when these products and underwriting center as well? I know that's moving along into next year will start to materially benefit ARR growth.

Well, those products are building in terms of the overall portfolio at the company. And they also strengthen the overall message and the value we can create for our customer by making sure we deliver a completely integrated suite across the full insurance life cycle. So obviously, as those product lines grow faster than the overall product -- the collection of product lines, they'll become a more and more meaningful part of the overall bookings number. We called it out just because it was an objective this year to get those product lines established. And as Jeff said, we're very, very pleased with the momentum. And so it will definitely happen that they'll grow as a percentage of the overall book. And we're very pleased with how much momentum we've been able to create a short amount of time.

Great. Thanks, Adam. Our next question comes from Alexei Gogolev of JPMorgan.

Hello, everyone. Can you hear me?

Yes.

Perfect. As insurance partner with major LLM vendors, what's the practical integration posture with Guidewire in terms of enablement points or governance or security? And where do you expect Guidewire to build versus partner?

Great question. So -- and it's a super complicated multifaceted answer. So forgive me, I'll do my best and I don't know how long I allocate to answers of questions on earnings calls, but let's say, 3 minutes. Most important thing for us right now is the work that we've done on what people are calling a development harness to make sure that these LLM Agentic development tools work effectively with the Guidewire stack. This is actually like real software engineering that has to be put in when you point these tools at a platform and a code base like Guidewire, you don't necessarily get good results. But after doing the work to make sure that the system knows how to interact with Guidewire, we've been extraordinarily pleased with the results. So I think this is what I was referring to in our Dev Summit in Bangalore is showing people how to get this thing deployed, how to get Claude code running on top of Guidewire how to create the code, the integrations, the digital experiences, all of that stuff through prompt engineering, and it really is phenomenal. And so I would describe that as a partnership, right? Like we don't necessarily need like an official PR from these companies. They've done an incredibly good job publishing their APIs and how to build these things to work together. We've done a great job working with their technical teams to make sure that these things deploy well and the results have been phenomenal.

Now obviously, we also have LLM that are sitting inside of products like Pro Navigator and the agents that we build to run on our Agentic layer inside of our platform. And so there's like this like good symbiosis, if that's a word that -- and how these things are working together and being practically deployed right now that I am very, very excited about I think if you say, like what's the world going to look like in 5 years? And how much of the solution is going to be delivered by Guidewire and how much of the solution is going to be delivered by a large language model and the various layers of the prompts. Who knows?

I tell you 1 thing for us that I am absolutely sure of, though, is the industry is going to run on a modern relational database like Guidewire claims, policy, billing, product modeling. These things are going to run on a modern cloud infrastructure that we provide. And we will remain open to working with these large language models and honestly, also other application providers that have incorporated these capabilities. This is what our customers want. And that's what's working right now. That's the message, and that's the architecture and that's the reality that's working really well for us right now. So hopefully, that gives you a sense of where things are and where I think they'll go. But I would say, generally, I couldn't be more pleased with how this is evolving in the ecosystem.

And 1 follow-up in terms of monetization. How are you thinking about it for embedded Gen AI features over time? And what guardrails are you likely to implement to protect unit economics?

It's a good -- so generally speaking, I would like to build product that aligns to insurance value. And we tend to almost universally sell our products based on direct written premium based on a percentage of the direct written premium that runs on the service. And that enables us to describe the value we create in relationship to the size of the insurance company, and therefore, the size of the value that we're creating for that insurance company. So if there's an LLM that's incorporated into that story in the same -- in the way that it is very directly with Pro Navigator, we want to have a basis point-based pricing structure, that will include whatever amount of, let's say, tokens that are necessary to deliver the value that we've been able to describe in selling that product.

Now obviously, there are guardrails that we will build technical and contractual that will protect us from a use case that goes beyond what we expect, but nothing that we've seen causes me to worry that, that's going to become something that slows us down. We think we're going to be able to create DWP based pricing structures for the products that align to the insurance workflow, and that's going incredibly well for us right now. Hopefully, that makes sense. Slightly a technical question, but that's the philosophy around pricing in guardrails right now, Guidewire.

Thanks, Alexei. Next question is from Parker Lane at Stifel.

Mike, really nice to see that the ProNavigator momentum here that you called out in the quarter. I think you acquired that back in October, maybe formally announced or released in April. Can you just give us a sense of how long those deals are in the pipeline? And generally speaking, when you look out to 4Q and the coming fiscal year, how you're feeling about the pipeline in the early stages of having ProNavigator on the platform?

Yes. Thanks a lot, Parker. It's a great question. I appreciate it. We probably should have woven that into our scripts. It's exciting for us actually to have a product that we can materialize demand for and close business around in a sort of reasonable amount of time. It's a very different sales motion than we have with core system modernization that I think you know can sometimes last multiple years. So certainly, there was a bit of that pipeline that was already sort of -- it was already part of the company when we did the acquisition. But since acquisition, I mean hopefully, everybody gets this is like there's this like prompt shift in the perspective of the customer base around the trust that they are able to put into a service. It just shifts from a small company to a large company. And a lot of the things that we can do to build trust around the products we sell can be applied to the new products that we add to the mix here at Guidewire, and that's certainly true with ProNavigator. And so deal cycles are shorter. The conversations are quicker and especially relative to a modernization or a cloud upgrade and that's very, very exciting, and that's 1 of the things that's driving the excitement in our sales organization, but also our customer base. Is this like this real demand to be able to actively operationalize AI in a way that allows a company to get started very quickly and ProNavigator meets that need.

I'll add 1 quick comment there, Mike. With regard to both ProNavigator and PricingCenter, the pathway to the business strategy conversation and business value outcome conversation as we continue to enrich our conversations with customers has been really powerful. So the gestation period of these deals stand-alone, Mike mentioned a different selling cycle. But it's also -- it is also proving to be a really rich engagement with Chief Claims officers and heads of underwriting heads up product and pricing inside of companies to connect the dots between the core modern platform to the business value that can be derived over the top of that. That's not just about cost dislocation and operational savings, but really about growth in indemnity management, and that's becoming a really powerful enrichment of the core modernization of core message.

Got it. Maybe 1 quick 1 for you, Jeff. You talked about slower hiring. You also talked about a surge in services demand. Was the slower hiring across the board? Or is that -- should we get in with the commentary about services demand and what you said about subcontracting and the need to invest more there, particularly like FTE headrails?

Yes. Slower hiring was mostly outside of services, I would say, Services has been hiring to meet the demand threshold. And on the slower hiring side, there's a bit of -- sometimes it just takes a little bit longer to get the heads in the door that we want to get in. And there's also a bit of us coming to terms with some of the productivity gains that we're seeing with some of the AI tooling that we're rolling out throughout the company and being a bit more measured about how we think about future head count growth. So those 2 things are playing into some of the hiring practices right now.

Great. Next up is Ken Wong at Oppenheimer. Go ahead, Ken.

Can you guys hear me?

Yes, we can hear you, Ken.

Okay. Fantastic. Mike, maybe circling back on the slip deals, I feel like you guys have been executing so well. So any time there's a little bit of hiccup. I think investors just wonder potentially, is it maybe macro given some of the geopolitical stuff that happened in the quarter? Is it maybe kind of AI causing customers to kind of think through their deployment time lines? Any I guess, any reason why it wouldn't be some of those external factors and you guys feel comfortable that it is just kind of some deal timing? And then any update on whether or not those have closed in fiscal Q4?

Yes. So it's a good question, and I would say just generally, no right? Look, this is just simply a matter of us looking at the end of Q2 and saying, what do we project is going to occur in Q3? And then you could say getting it wrong or seeing things move -- just things didn't go exactly the way we wanted.

That said, I want to reiterate like the pipeline is actually building and the ARR growth rate ended up at 19%, which is pretty phenomenal. So I think that like more so, I would say, this is a this is a headline associated with us hitting the target that we set in Q2. It is not related to anything macroeconomic or a general condition that we see in the overall demand environment. Like I said, pipeline is building, demand is building. We're looking at a -- we potentially have to qualify this is like we need to execute, and we're going to execute. But it could be a record Q4 and the demand that we see, the pipeline that we see is very, very significant. And so yes, I wouldn't connect the dots to anything related to macro or AI or anything like that.

And I agree, Ken, there's nothing like that at all. I mean, we have a ton of confidence into the market position, the demand environment. I don't want to comment on any specific deals, but as we look at the linearity at the start of Q4, it's off to a good start. So there's -- Guidewire is a business that has a small number of very large deals that can be quite impactful. This is just a dynamic of our business. And part of the reason why we always coach people to focus more on the annual results as the true measure of our success. And we feel very confident that anything that we didn't quite get in Q3 will manage to get over the finish line in Q4 and the pipeline is really strong.

Understood. Thanks for all the color there, Mike and Jeff. And Jeff, I appreciate the color on the ramp lining up with ARR this quarter and likely similar in Q4. I don't suppose any directional color in terms of whether or not fiscal Q3 was kind of tracking like ad or above, below what the Q2 levels were?

Yes. Here's what I can say. I mean, our fully ramp continues to be very, very healthy. I think it's a helpful reminder that when we approach a deal negotiation, we really focus on making sure we're being thoughtful around driving customer lifetime value. So this means optimizing the ARR dynamics for the out years, more so than optimizing them for the year 1 in quarter ARR that's delivered. And that's a dynamic of our model that we have to manage and measure, but we will always optimize for that customer lifetime value. And last year, we saw ARR growth -- fully ramped ARR growth at 22%, which was very strong. And as we kind of move through this year. And as we look ahead to next year, we're confident that we can deliver those levels or potentially higher. So that's how we're thinking about kind of where we've been throughout this year and how we're thinking about the remainder of this year.

Great. Our next question goes to Allan Verkhovski at BTIG.

Awesome. Mike, I just want to pull on that earlier thread and the productivity tsunami you mentioned in the prepared remarks. There are a lot of product updates in the Palisades release. I want to just go a bit deeper on the developer assistant. That's an early access. Can you impact the level of demand there is from Tier 1 insurers, what the most in demand like use cases are based on your conversations? And how is this further driving incremental tailwinds and pressure on insurers that haven't moved to the cloud to do so sooner?

Yes. Great question. Yes, it's interesting. There's a variety of things that involve development that relate to either the implementation of Guidewire or the ongoing let's call it, maintenance or evolution related to like IT projects that drive the initiatives at an insurance company, and it really is across the board. Probably the most tangible thing you can point to is product creation. So we've done a lot of work over the years around what we call advanced product designer and creating a better system for creating new products on the Policy Center platform. But using AI to do that is a phenomenal step-up in productivity associated with the work to make that happen. Building integrations, again, is a big part of an implementation project, and it's something that just takes up a lot of time, and that can also be accelerated. All oftentimes associated with the new product introduction will be the digital interface, the customer-facing, web-facing screens associated with quoting those products or engaging with agents around those products, that also can be accelerated. And so there's demand for all of these developer assistance. It's really across the board because that's -- I mean, it's kind of what's so amazing about these tools is like the intelligence is general, right? It's kind of -- that's -- and we can build the harness, we can apply the harness to our dev platform, and we can kind of tweak this thing and train this thing to work against our specific type of technology platform. And so regardless of what the development project is, it's accelerated, and that is awesome.

And with respect to demand and what kind of tailwinds this creates, you should think about this like in 2 ways. One is there's just a tremendous amount of work involved in migration. And so I've got a legacy mainframe system that needs to be modernized or I've got to guide where cloud implementation that hasn't been maintained quite as much as we would have liked over the years. And now that needs to be modernized that needs to be moved into Guidewire Cloud. These tools can also be applied to all that work. And so we're seeing the estimates and the time lines associated with professional services to do that work come down in very significant ways. That's what creates more demand. People often say like what's the meter on Guidewire, like what can cause Guidewire to grow faster, grow slower? Well, it's -- of course, you have to pay money for Guidewire licenses. I talked about that in an earlier question. But it's much more the implementation project that stretches out over years that like really costs a lot of money. And if we can make that faster and accelerate that, that is creating the tailwind and the extra demand for people saying, "Oh, that project that I was putting off, maybe if it's faster, cheaper, maybe this is the time to go tackle that project. That's just as exciting as this sort of like ongoing maintenance and the productivity boost in the IT departments post implementation. That's very, very real, and I think it's absolutely creating a tailwind for the company.

Perfect. That's really helpful, Mike. And Jeff, maybe just a quick follow-up for you. It's impressive that fully ramped ARR growth is still expected to outpace our growth next quarter despite seeing some of the deals pushed this quarter. Can you just walk through your confidence, your visibility and assumptions behind that?

Yes. I mean we do a very detailed bottoms-up review of our pipeline, the deals that are coming in. We're seeing kind of -- we are seeing very healthy demand for larger commits. So insurers expanding their work with Guidewire when they're modernizing 1 module to the cloud kind of consuming another module in addition to that activity. So there is -- all of that kind of flows through the model. And we have very good visibility, obviously, into the first 3 quarters of the year that also inform our guide. So a very meaningful amount of that work is already in the rearview mirror as we look ahead to the end of this fiscal year. So all of these themes and are really playing into the environment that we're seeing, kind of the larger commitments that insurers are making to the cloud platform that inform that guide.

Now there are certainly work that has to be done and completed in Q4 to realize that, but we have good visibility into the corpus of deals that we expect to see in Q4.

Thanks, Allan. Our next question is from Tyler Radke at Citi.

Yes. Thank you for. Obviously, you hit on the slip deals a bit already. But I guess, just bigger picture, 1 of the dynamics that investors are asking about is just sort of the AI crowding out effect I'm curious as you talk to your insurance customers and they're presumably ramping up coating projects. How much is that budget an issue as it relates to your deals? And as you think about sort of Q4, if you could just sort of provide sort of the underlying assumptions on close rates and whatnot. Like have you introduced more conservatism given sort of the timing issues you saw in the quarter?

No. We're obviously being very careful in going through everything in let's say, with the fine tooth comb to ensure that we're confident in reaffirming the guide and the confidence that we have in the execution. And so that's being done.

In terms of AI crowding out, like I certainly hear this narrative from people, let's say, I don't hear it from customers that I think the reality is that the insurance industry is recognizing what a profound impact AI can have on a development velocity and IT agility be underwriting and the efficiency of underwriting departments and see claims departments and the efficiency of customer service and claims automation in the industry and the productivity improvements that are potentially possible in insurance -- in any insurance company are so significant relative to what these companies spend on these IT programs, that it really -- it doesn't make sense to compare these 2 things against 1 another. You look at this and you say, "Well, if this works, which I think more and more people expect that it will then there is just in order to remain competitive going forward, you're going to have a modern core system that is capable of supporting these sort of genetic capabilities. Otherwise, you're not going to be able to remain competitive, you're going to lose ground. And so like it's like a first order question to say, well, could I code this in a different way. It's like the wrong way to look at it. And the customers are seeing -- especially the big Tier 1 customers are like see this, they recognize this. They take a look and they assess where they are and where they want to be and where they want to be with AI. And you come to the conclusion that being on a modernized platform with an open approach to APIs and MCP servers and integration to these a genetic tools and large language models, integration to an ecosystem of partners that are building on top of these LLMs and building integrated into Guidewire. This is the logical answer, and that creates the lift that we're talking about. And so I want to acknowledge that, yes, the narrative that you describe exists, but the counter narrative specifically in insurance and the use cases we unlock for IT underwriting and claims, so overwhelm this logic that that's what's driving the business positively for us at Guidewire.

Mike, I think in the prepared remarks, you talked about how you're seeing measurable and significant productivity in accelerated migration time lines. I'm just wondering if you could double-click on that. Like any metrics you could put around that? Like is it happening 30% faster? How should we think about that just in terms of when that starts to show up for you guys in terms of getting that maybe faster ramp on -- from time to booking to active ARR?

Yes. So great question. I appreciate it. So I'll give a little bit of a preamble, and then I'll prep John, and I appreciate John already took himself off mute. So he's going to chime in here on this because he owns and is driving this directly. We obviously -- we started off a little bit conservatively and said, okay, like let's get these tools in people's hands. Let's get these like start to assess what we can do. Let's start to apply these tools and these techniques to a couple of programs with a couple of customers, let's be very careful and open with customers about what we're doing and how we're doing it and let's see what happens and see if it really produces the acceleration that we think it will. And the amazing answer is it is accelerating. We are seeing the results, and we're starting to expand it to more and more projects and it's just on its way.

So I don't know, John, if you want to like throw out a couple of the numbers that we are talking to customers about. But feel free to chime in.

Yes. The investment pace right now has unlocked about 35% improvement in migration, so on-prem to cloud migration. That's a great use case because there's some control parameters around the database conversion that allow us to move really fast. So we're starting now to see -- we've redirected some of the investment towards the migration off of either legacy estate or some other asset towards Guidewire. So we're starting to get to that 35% improvement on the, we'll call them, net new deals. If I look forward, I'd say we don't start to see it leveling off. That return on -- the return on investment on that, we see that maintaining the same pace, the same curve probably until we get to that 55%. And then we'll start to see continuing cost savings, but probably less so on the duration savings just because of the gestation period of just the change management principles of doing these programs. But we still have a promising pathway ahead of us and some really great success stories behind us that we're really confident in.

Great. Thanks, John. Our next question comes from Aaron Kimson of Citizens Bank.

Mike, do you see any high-level differences in the appetite and relative budgets for adopting AI products amongst P&C insurers geographically in the Americas versus EMEA versus APAC?

Yes, that's a good question. It's interesting. Yes. Summary is, yes, we do. I don't want to call out any particular countries, but yes, we do. It's like the other way to think about it is like everybody wants to -- I think everybody wants to use AI for development. No question. Like you can very clearly see that you can use AI for development. I think there's different perspectives in different countries, but also in different carriers, different customers about the degree to which you will expose these agents to consumers or whether or not you will use sort of more human in the loop use cases where you're exposing these tools to employees and using it to boost productivity through employees. But the common factor is everybody wants to get on the learning curve. Everybody wants to get it deployed and start to figure out how it makes sense for their business. But certainly, you do see differences in country and also company about how aggressively they want to target the more efficiency -- more aggressive efficiency agendas.

Got it. And then as a follow-up, Jeff, can you talk about the shape of the ramp of Token spend at Guidewire, your level of visibility and how that will evolve going forward? And if there could be any potential gross margin effects?

Yes, we're pretty early in terms of how we're kind of monitoring and measuring this. Obviously, we're starting to see it pick up on the development side. We're starting to get it into the hands of customers with respect to the Agentic framework and how they're adopting AI within the platform. So it's pretty early for us right now. We've kind of built the mechanisms to start measuring that. And as we engage with customers, I would say right now, we're in a place where we're focused on adoption, but kind of adoption with some controls to ensure that we can make sure that there's not any sort of usage that goes out of the scope of what was intended by our contracts. And so that's where we are. No numbers, no metrics to report at this point in time, that's how we're measuring it today, though.

Thanks, Aaron. Next question is from Jessica Wang at Raymond James.

[indiscernible] here. Just to on based on underwriting center? I know it's still early, is still in development. But what have you been hearing from customers that are interested in there? Like how should we think about the product maturity so far in potential pipeline into next year? Just considering the success you've had so far with ProNavigator and PricingCenter already?

Yes. Thanks for the question. So the -- it's going very, very well. We have a handful of customers that we're working on this product with and in plans to get it into their hands in the next couple of weeks/months. We -- there is a tremendous amount of interest, I would say, in commercial lines underwriting around the potential for these LLMs and agents specifically tuned to the underwriting use case to be able to very significantly improve the efficiency of underwriting teams, reduce the time it takes for companies to respond to submissions and then also do a better job focusing on the risk analysis of the submissions that they choose to quote.

The other part of this that's very interesting is we're being able to establish a better connection to the actual policy system and the quoting system and the pricing systems that these companies are using. That's also part of the equation. And so the use case, there's a tremendous amount of demand for, I would say, universally across the customer base. And the project has gone according to schedule and we're excited about the work we're doing with these sort of carefully chosen design partners that we're working with.

That's great to hear. Also just touching on PricingCenter again, with the success of pipeline, so far, how should we think about the demand drivers here now came from your existing customers versus new -- like new logos, how do we think about potential attach rates that are involved in these different cohorts?

Yes, it's a great question. It's -- technically, the PricingCenter to policy center to product model, integration is so much an important part of the value proposition. That honestly drove the thesis behind the acquisition in the first place. what you're seeing in general in the insurance industry is this need to not only launch new products more quickly, but actually adjust the pricing -- adjust pricing and adjust rate routines more fluidly to keep pace with competition and keep their products a competitive but also profitable. And so like the friction associated with doing that relates to how the components of that solution all integrate. And so like I said, the thesis behind bringing -- making PricingCenter part of the suite at Guidewire is that we can do a really good job integrating the product model, integrating into our quoting service, integrating it into policy center. And so that connects logically to selling this to existing policy center customers and selling this alongside new policy center implementations. That go-to-market dynamic is playing out exactly as we expected it to, and that's where we're seeing the demand. You could also say it's like that's where we're focused because our value proposition is strongest there. But it's very much working according to plan.

Great. And our last question comes from Faith Brunner at William Blair.

Just building on those last couple of questions I wanted to ask about PricingCenter. I guess, you saw the 1 in Sweden, Poland, the first 1 in the U.S. How is this maybe building on referenceability of these newer products? And then maybe as you touched on the different appetite that may vary region to region. How are these kind of serving as proof points and maybe getting people a little bit more comfortable saying, hey, we might have to actually get into something we didn't think we want to, to stay competitive?

Yes. Let me -- I'll touch on the last thing. I don't know that I've heard so often that people are saying that they're surprised that they need to do it. I think everybody -- most of the companies that we're working with have like recognized that this is on a strategic agenda. And that also that this being on the strategic agenda factored into our interest in adding this to the portfolio and building out this well-integrated solution at Guidewire. That was a factor.

I think referenceability is very, very important. I also just think like us doing the work to get this into our infrastructure and being able to run it alongside the rest of the insurance suite application suite, like this is really important. This is a -- it's an incredibly good actuarial engineering team that we acquired. But there's some things we need to do to mature it in terms of how it runs and how it's supported and running it at the scale and reliability and the security expectations that Tier 1 insurance companies expect and that's a big part of the work that we've been focused on since the acquisition, and I think that's helping to drive the demand. It's like, hey, can you do all of these things you say you can do? And can you do them with the same level of trust and integration expectations that we see from the rest of the product suite at Guidewire and that kind of checks all these boxes and creates the demand uptick that we're seeing with the product.

The teams, both on the PricingCenter team, but also the general infrastructure and platform teams at Guidewire have done a really, really good job executing on this and earning the trust of these customers. And that helps build the pipeline that we're executing against and giving us confidence that this is going to continue. So I don't know, hopefully, that helps you.

Let me add, the other thing I'd say is like we're also -- we don't tend to like oversell much of Guidewire. We try to make sure we have a stellar track record in terms of selling things that we know we can do in executing on those things effectively and making sure that no programs ever fail. And I think that, that philosophy is factoring into the way we're approaching PricingCenter rollout. Anyway, thanks for the question.

Thanks for the color. .

Thanks, Faith. That's it.

Okay. Well, everybody, thank you very much for participating in the call today. As you've heard, we're incredibly excited about the momentum in the business in Q4, and we look forward to seeing everybody talking to everybody after we conclude the fourth quarter and our fiscal year. Thanks very much.

Greetings, and welcome to the Guidewire Second Quarter Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today. I would now like to turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you, Alex. You may begin.

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; Jeff Cooper, Chief Financial Officer; as well as John Mullen, President, who will be available for the Q&A portion of today's call. Complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. Starting this quarter and moving forward, we have also posted a quarterly earnings deck on the IR section of our website. Today's call is being recorded, and a replay will be available following its conclusion.

Statements today 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 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 and our prior and forthcoming quarterly reports on Form 10-Q filed and 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. 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 at the end of the quarterly earnings deck on our IR website. And with that, I'll now turn the call over to Mike.

Good afternoon, and thanks, everyone, for joining us today. Q2 was another strong quarter with ARR growing 22%. We continue to see momentum and demand increasing and the results across the board this quarter reflect what we believe makes Guidewire a uniquely durable business. Before I go into the details, I want to take a step back and provide my perspective on the position Guidewire occupies in our industry, the role we play inside an insurance company and why that combination creates long-term durability even in periods of technology disruption and change.

Guidewire is the stand-alone leader in delivering mission-critical core systems for the P&C insurance industry. We are now a SaaS company, but understanding what our solutions actually do inside an insurance company is essential to understanding our durability. Insurance is a highly regulated trust-based industry that evolves deliberately and depends on precision, resilience, compliance and accuracy at scale. Guidewire sits at the center of that environment as the operational backbone of the insurer, embedded across the core operating functions of underwriting, claims, finance and regulatory reporting. Our platform supports the complex financial and regulatory framework that underpins the industry, establishing reserves, tracking premiums collected and claims paid and enabling a highly regulated structure that spans hundreds of integrated systems, millions of insureds and trillions of dollars in transactions.

At the transactional level, we serve as the system of record for risk when a policy is written, when a loss occurs, when a claim is filed and paid. Those commitments and outcomes are executed through Guidewire. And today, we don't simply provide that software. We operate it as a continuously improving secure, reliable and scalable cloud platform that strengthens over time. The complexity of replacing a core system in the insurance industry means deal cycles and implementation projects are almost always measured in years and require deep partnership. Success on a Guidewire project is the single most important KPI in our company. And you will often hear me say that there is nothing we won't do to ensure a customer is successful with Guidewire.

That culture of customer success has produced gross ARR retention rates of over 99% for our InsuranceSuite and InsuranceNow customers. The trust we have earned serving some of the largest and most trusted insurance companies such as State Farm, Liberty Mutual, Zurich, AXA, Aviva, Travelers and USAA reflects decades of deep domain expertise, best-in-class enterprise security and deep productization of complex regulatory requirements. And while we focus on serving this Tier 1 and Tier 2 segment of the market, we can also support smaller insurers. In Q2, for example, we had wins at customers that reflected over $15 billion in direct written premium and under $50 million in direct written premium.

It is also important to understand how we price our service. We sell recurring subscriptions to our cloud products and price them as a percentage of the direct written premium managed on Guidewire. We have never been a seat-based model. We align our pricing to the economic value we deliver to an insurer, the premium flowing through their business and not the number of users accessing the system. As insurers grow premium, expand lines of business and modernize their operations and become more efficient, our growth aligns directly with that value creation.

There has obviously been a significant discussion across the market about the pace of generative AI advancement and its implications for the overall software category. What we are seeing in practice at Guidewire is increased demand for InsuranceSuite and InsuranceNow. The potential for generative AI and insurance is clear, and this is increasing the urgency for insurers to modernize legacy systems. This is because legacy mainframes were not designed for real-time data access, automation or AI-driven workflows. AI depends on clean data, trusted transactions and reliable systems of record. Generative AI will help us accelerate the value we deliver to our customers. We'll help our customers deploy agents that improve the service they provide to their customers, and it will also help us deploy and configure Guidewire faster and more efficiently. All of this AI-driven potential is increasing the momentum in our business.

Q2 results illustrate this clearly. We closed another 15 InsuranceSuite Cloud deals and 2 InsuranceNow deals. And importantly, we are seeing insurers increase their commitment to Guidewire, both in terms of larger, fully ramped ARR outcomes and longer durated contracts. The deal activity in the quarter included 3 new customer wins and healthy migrations and expansions. On the net new side, we signed one of Canada's largest private insurers who will be modernizing their legacy claims administration system to ClaimCenter. Our dialogue with this insurer dates back to 2008, so we are thrilled to start this program. This deal reflects a little over $8 billion in direct written premium, representing our largest new customer win in the quarter.

Large customers are also choosing to expand and consolidate on our platform. Two of these customers will see their ARR grow to over $20 million during the committed period. And now let me turn to some notable deals in the quarter. AVEVA U.K., the largest insurer in the United Kingdom, has entered into a long-term agreement with us, committing to move all of its Guidewire estate, including business acquired from DLG in 2025 to the Guidewire Cloud platform. Aviva recognized that to focus on innovating, serving their customers well and driving material future growth for their business, they needed a modern cloud-based core platform.

Similarly, Tokio Marine North America is preparing to migrate major elements of 3 U.S. carrier businesses and has expanded significantly above its previous baseline as it commits to more growth on Guidewire. And Donegal Insurance Group has selected Guidewire Cloud as the next step in its core system modernization strategy. migrating from on-premise InsuranceSuite to the Guidewire Cloud platform. In addition, Donegal has aligned its strategic AI initiatives with Guidewire's rapidly evolving AI road map. Initial collaboration efforts focus on advancing claims capabilities, including intelligent first notice of loss and AI-powered agentic claims handling, which will be seamlessly integrated into ClaimCenter.

Large customers are also building on their successful cloud deployments to add other lines of business and significantly step up their direct written premium commitments. For example, a top 20 commercial insurer extended ClaimCenter to more commercial and specialty lines for greater scale and efficiency, significantly increasing its DWP commitment as it works to consolidate the collection of legacy core systems that they currently support. And in Q2, we had another win at Zurich Germany, which is a direct result of the partnership and strategic framework agreement we have with Zurich.

We have also worked hard recently to widen the breadth of our core offerings to address more of the insurance life cycle. With the addition of Pricing Center, we have an ability to uniquely address the growing demand for pricing and rating agility in insurance markets. I am encouraged by the high customer engagement for this new integrated offering and pleased to have closed our first Pricing Center deal in the second quarter. We've also worked over a long period of time to embed intelligence into our Guidewire Cloud platform and InsuranceSuite applications, and it's great to see strong adoption momentum in our data and analytics portfolio. In the second quarter, we closed 25 deals that included one or more of our data and analytics offerings.

Our new embedded AI solution, ProNavigator, also got off to an incredible start with 9 deals in the second quarter. Notable deals included Aviva Canada and Gore Mutual who want to leverage this Agentic assistant to deliver answers, suggestions and ultimately, actions embedded right in our core UI. ProNavigator leverages InsuranceSuite data and insurance standard operating procedures to increase employee efficiency and minimize claims leakage. These results reflect demand not only for core modernization, but for the expanding application portfolio that surrounds it. Momentum in the quarter was phenomenal. And as I said previously, led to ARR growth of 22% Growth in fully ramped ARR continues to outpace reported ARR growth as it has over the past 3 fiscal years, and we expect that to continue this year.

We are seeing larger deals and longer deal terms, reinforcing the durability of our platform and the strategic commitments customers are making. Broadly speaking, AI for us is immensely beneficial and driving an acceleration in our business. It's helping create demand for core system modernization. It's helping us accelerate our development velocity. It's helping us accelerate our implementation velocity and will accelerate everything that customers and partners do with Guidewire. We will incorporate AI-powered agents powered by ProNavigator into our applications and continue to support an open approach to the incredible ecosystem of partners building solutions in and around Guidewire.

Guidewire is an indispensable part of a highly regulated global industry. We operate a mission-critical infrastructure with premium aligned pricing, core renewal rates above 99% and a culture built around customer success. That combination has produced 25 years of durability and predictability, and we believe it positions us well for decades to come. With that, I'll turn it over to Jeff to walk through the financial details and our updated outlook.

Thanks, Mike. Q2 was another tremendous quarter. We surpassed the high end of all of our financial outlook targets, and we are raising our full year targets across the board. Given the market backdrop, we thought it would be helpful to give a few incremental onetime disclosures to help investors understand the durability of our model. First, ARR ended at $1.121 billion and grew 22% year-over-year or 21% on a constant currency basis. Additionally, fully ramped ARR ended Q2 at $1.42 billion and fully ramped ARR growth continues to outpace ARR growth. Our market experience has taught us that we can maximize customer alignment and lifetime value by negotiating ramped subscription fees over a multiyear period. We quantify the impact of these ramps in our metric fully ramped ARR, which only quantifies the first 5 years of a contract. We typically disclose this metric annually, but thought it would be helpful to remind investors of the power of this dynamic this quarter.

Second, we continue to see customers lean into longer-durated contracts and larger commitments. This shows up in a number of metrics. For example, the average contract term over the last 12 months for new InsuranceSuite deals is over 6 years if you look at the weighted average duration weighted by fully ramped ARR. We have seen this metric increase over the last 18 months as larger customers push for longer contractual commitments. As a reminder, our standard contract duration for new cloud arrangements is 5 years. This dynamic is further evidenced by RPO growth. RPO finished the quarter at $3.5 billion, representing 63% year-over-year growth. We generally do not talk too much about RPO because we tend to focus on the powerful recurring elements of our model, such as ARR and fully ramped ARR. But in the current environment, we do think RPO is a helpful reminder of the durability of the business.

Third, large customers are one of our fastest-growing cohorts. We have seen customers with more than $5 million in fully ramped ARR grow from 35 in 2021 to 96 at the end of Q2. It is gratifying to see the largest insurers trust Guidewire to manage their mission-critical operations at an accelerating pace. Finally, as Mike noted, we see renewal rates at all-time highs. On a trailing 12-month basis, InsuranceSuite ARR retention, including all downsell activity was over 99%. More interestingly, I went back 5 years and I reviewed every customer churn event involving more than $1 million of ARR. It was easy to do because there's a very small number of these. Those churn events fall into 3 categories: First, customers that experienced financial distress or exited the line of business where they use Guidewire; second, a single instance where an acquisition drove churn; and third, a contract we terminated following our decision to exit Russia after the invasion of Ukraine. Importantly, over the last 5 years, we have not seen a single InsuranceSuite customer with more than $1 million of ARR choose to replace Guidewire with another system, except where that change was effectively mandated by an acquirer. Again, we thought it would be helpful to provide some of these incremental disclosures this quarter given the backdrop.

Now let me turn to the results. Total revenue was $359 million, up 24% year-over-year and above the high end of our outlook. Subscription and support revenue finished Q2 at $237 million, reflecting 33% year-over-year growth and our continued InsuranceSuite Cloud momentum. Services revenue finished at $62 million, up 30% year-over-year and ahead of our expectations on strong demand for Guidewire-led services programs. This number includes an increase in field engineering activities delivered through our professional services organization.

Now let me turn to profitability for the second quarter, which we will discuss on a non-GAAP basis. Gross profit was $243 million, representing 28% year-over-year growth. Overall gross margin was 68%. Subscription and support gross margin was 75% compared to 69% a year ago and continues to track well ahead of our expectations. Services gross margin was 9% compared to 6% a year ago. We finished Q2 with operating profit of $87 million. This finished ahead of our outlook as both gross profit was higher than expectations and operating expenses finished lower than expectations. We ended the quarter with over $1.35 billion in cash, cash equivalents and investments. Operating cash flow ended the quarter at $112 million. We repurchased $148 million of Guidewire shares in the quarter, and we obtained a new $500 million share repurchase authorization a few days before moving into our quiet period. We have $490 million remaining on this authorization, and we currently expect to complete this repurchase program before the end of our fiscal year.

Now let me go through our updated outlook for fiscal year 2026. Starting with top line, given our performance in the first half and our continued healthy pipeline, we are raising our ARR outlook to $1.229 billion to $1.237 billion, which reflects growth of 18% to 19% year-over-year. For total revenue, we now expect between $1.438 billion and $1.448 billion. The midpoint of our revenue growth outlook is 20%, up from 17% growth assumed in our prior outlook. We expect between $962 million and $966 million in subscription and support revenue. This $16 million increase in our guide at its midpoint is attributed to the subscription line and is due to stronger-than-expected first half bookings, healthy direct written premium true-up activity, strong attach of new products and a robust pipeline in the back half of the year. We now expect services revenue to be approximately $255 million given the better-than-expected services revenue in the first half, our higher utilization rate and an uptick in demand for Guidewire-led key programs. Additionally, we are leaning into some field engineering programs where our services personnel are helping customers utilize Guidewire Cloud platform and leverage newer aggentic capabilities to solve business problems. This is an important motion as proximity to the customer has always been a strategic asset for us.

Turning to margins. We are increasing our expectations for subscription and support gross margin to be approximately 74% for the year. We expect services gross margins to be approximately 13%. Overall gross margins are now expected to be 67% for the full year as higher subscription and support gross margins improve the overall gross margin. We are also lifting our outlook for operating income. We expect GAAP operating income of between $100 million and $110 million and non-GAAP operating income of between $293 million and $303 million for the fiscal year. This updated profitability outlook recognizes the higher revenue outlook and is partially offset by higher expenses as a result of increasing our annual bonus accrual due to expected outperformance on key financial metrics. We expect stock-based compensation to be approximately $185 million, representing 15% year-over-year growth. We are adjusting our expectations for cash flow from operations for the year to be between $360 million and $375 million. Our CapEx expectations for the year are between $30 million and $35 million, including approximately $18 million in capitalized software development costs.

Turning to our outlook for Q3. We expect ARR to finish between $1.144 billion and $1.150 billion. As a reminder, the timing of ARR landing from backlog is more heavily weighted towards Q4 than Q3 this year. Our outlook for total revenue is between $352 million and $358 million. We expect subscription and support revenue to be between $239 million and $243 million and services revenue of approximately $60 million. We expect subscription and support margins of approximately 74%, services margins to be around 12% and total gross margins around 67%. Our outlook for non-GAAP operating income is between $59 million and $65 million. In summary, we had a tremendous Q2. Alex, you can now open the call for questions.

Our first question is going to come from Adam Hotchkiss at Goldman Sachs.

I guess to start, Mike, I appreciate all the clarity on the core continuing to accelerate, but it would be great to understand how you think about what Guidewire's position in the broader AI stack looks like over the medium term. We hear a lot about competition outside of the core from forward deployed engineer models and disruptors deploying LLMs on insured data. So just maybe clear up for folks Guidewire's strategy as it relates to owning AI versus enabling AI and then how that impacts your revenue opportunity.

Great question. I appreciate it. And I would definitely say that it would be quite a bold statement for us to say we're going to own AI in the insurance industry. What we're going to own in the insurance industry is core systems that I am very confident in. We see that momentum, and we see that Insurance companies need to modernize. They need these core stacks to work effectively. There's plenty of insurance companies that need Guidewire to own the outcome with respect to AI capabilities. But running an open model where we see other companies that are going to use other components from other AI technologies in and with Guidewire, it's absolutely part of the medium-term outlook. And I think that this is really very, very important to understand. I have had numerous conversations with Tier 1 CTOs and CIOs in our customer base over the past couple of months. And every single one of them stress to me that they expect there to be a mix of how they deploy these solutions in their environments. At the smaller companies and at the smaller divisions, more of this will come from Guidewire, at the larger companies, some of it will come from Guidewire and some of it will come from partners. This is going to -- this is an incredible time in technology. And I absolutely want to stress that where we are one of one, I think, is in the perspective that we're going to be the most trusted, scalable, reliable core system that you can do anything you want with respect to AI and Guidewire. Now like how do we -- how does -- what you say, what parts of this do we want to do very well and maybe someday own, I'll give you a little bit more detail. We're super excited about the momentum we have achieved with ProNavigator in the very first quarter that it's really been part of the company. We highlighted the deal activity. We highlighted the deal activity at pretty significant real customers that are deploying ProNavigator as a mechanism to deploy artificial intelligence-powered solutions directly to the place where people are using the systems. So we can provide this context from what they're accessing inside of Guidewire. We compare it with standard operating procedures and the recommendations that they would make to those end users, and we can use an LLM to serve that to the end user in a way that's helpful in a way that like makes that person an expert, and we love the momentum that we've achieved there. As we said in the prepared remarks, we are seeing demand for and doing a lot of let's call it, 4 deployed services where we are working with our core customers to look at what's possible with respect to Guidewire technologies and these large language models that are available now and can be applied to insurance outcomes. We're super, super excited about this. But I would definitely stress like the 2 characteristics or maybe 3 characteristics of my answer. Number one, we're the right choice for core systems. There's no doubt about that. Number two, we will do more with AI and ProNavigator is a great example. We will do more with our services organization and technologies that come from Guidewire, but we will definitely be part of what I think will ultimately be a relatively complicated enterprise architecture that will be established at each insurance company based on their strategies and their goals. And no matter what, we will be open and we will provide a platform that gives our customers choice. Hopefully, that gives you a sense, Adam, of how we're thinking about this.

Okay. That's great, Mike. Really, really helpful. I wanted to then pivot to the core. I know we've talked about 25% or so of premium flowing through Guidewire today. And it feels like AI is may be moving customers into the cloud more quickly if your fully ramped ARR is accelerating off of the 22% in fiscal '25. So what's your updated view on the pace that premium moves into cloud and where Guidewire's penetration ultimately gets to over the medium term?

Thanks for the question. I would say it's definitely improving. And as you heard us talk about with respect to the results so far this year, the results in the quarter, the visibility that we see into the back half of the year, both for new business and expansions and specifically larger deals at large Tier 1 and Tier 2 insurance companies. This is just extremely positive for our business. that's what gives us the confidence to be able to update our outlook. How that relates exactly to the percentage points of global DWP that flow through Guidewire, it's very difficult for us to say or project that. I don't really run the business that way. We look at it more from a net new ARR and net new fully ramped ARR perspective and the specific workloads, the specific lines of business that exist at each of our customers in each of the geographies that we support. And then we look at it in the end of the year, and we report that out, obviously, kind of at a yearly basis, how we've done. But certainly, it's increasing. And certainly, we see demand increasing. And I think demand is increasing because of the potential that everyone sees in generative AI. They see what they can do. Like I think you guys have all heard me say this before. What's so startling, what's so special about this technology is every single person that wants to can see how powerful it is because we can all use it in our consumer lives. Like we can all touch it, we can feel it, we can ask it questions. And then you can just immediately see, "Oh, wow, I can use this in my company. But you can only use it in your company if you're running on a modernized core system. If you're running on a core system from Guidewire with APIs that you need, with the MCP servers you need, with the partnerships that you need, that's what really unlocks this, and that's what's driving the momentum in the business. That's what created the quarter that we saw. That's what's giving us the confidence to raise the guidance for the year.

Our next question comes from Ken Wong of Oppenheimer.

Fantastic. Very clear, very assertive statements on the AI front today, Mike. I think those were fantastic. I won't belabor the point too much since I'm sure my peers will. I wanted to maybe focus on new products. You mentioned good customer feedback on Pricing Center. You signed your first deal. Would love to get some early comments in terms of what you're seeing in those engagement in those conversations. And then any update on whether or not there's some traction on the underwriting side?

Yes. Thank you very much for the question. So Pricing Center is super interesting because what we're seeing is people really leaning in and wanting to engage with us to talk about what's the vision and specifically, how is it going to be integrated into PolicyCenter. So for a Guidewire customer that's running PolicyCenter, there's just this obvious connection between the product model, the way that we define the product model and how that relates to what the actuaries are going to use to be able to create the products that they need, how it connects to our data platform and to be able to provide the data they need to create the models they need to stay current, to compete, to adjust to what's going on in the market. There's a lot of engagement there. This is a deal cycle that's kind of long, though, right? This is a thoroughly researched, thoroughly studied. Sometimes there's a POC associated with these deals. And so it's kind of more similar to our core sales process where, hopefully, as we said, we closed one deal that was like more than 10 years. Hopefully, those deals won't last 10 years. But it is something that's going to take us a little while to build. We were excited to get that first deal done, but we're also excited about the amount of pipeline and the amount of engagement that we're creating for Pricing Center and for us to start to participate in this segment of the market. It's very, very exciting.

And then you asked about underwriting. Like on the underwriting side, we're still in the process of working with a small subset of customers that have expressed interest in really developing with them a solution that maps to what is really just honestly a very, very fast-evolving approach to agentic underwriting, let's call it, is what exactly does that need to do with respect to receiving submissions from brokers and how do we map that to risk appetites? And then how do we ultimately map that to PolicyCenter. Lots of excitement and engagement in the market around this. We're excited about the product. And I expect over the next couple of quarters to be able to start to get this into production with a couple of customers and learning fast and evolving from there.

Fantastic. Really appreciate the color. And then, Jeff, just a quick question on the true-up comment, I think you mentioned still seeing some tailwinds from true-up activity. I think we on the outside probably worried a little too much that as DWP normalizes, you really wouldn't see any of that activity anymore. Help us kind of walk through the mechanics of kind of how that continues to be a tailwind for the business.

Yes. Thanks, Ken. Yes, we did see healthier true-up activity than we initially expected going into the quarter. That was a little bit of a tailwind in Q2. I think as we think about the remainder of this year, it's generally aligned with how we've talked about this over the last few quarters. We saw a very healthy backdrop coming out of the kind of high inflationary period that is tempering a bit, but we continue to see this activity. And the way it works is customers have premium baselines in their contract. And it's always been part of our model that as customers grow, they pass those baselines and then we have the right to effect a true-up order. It's not uncommon for some customers to buy a bit more premium than they initially need. So it may take and in certain cases, a few years to see a true-up order after an initial purchase. But we see pretty regular volume of this. We have enough of this in our model now that we can be pretty precise in our predictions. And this year, we do still expect it to temper a little bit off of the highs that we experienced a few years ago, but saw a bit of a tailwind in Q2 and the back half of the year looks pretty much aligned with how we expected it.

Our next question comes from Rishi Jaluria from Raymond James or RBC.

All right. Wonderful. Maybe I want to first start by following up on kind of the earlier question around perceived competition from AI. We've obviously seen both OpenAI and Anthropic announced kind of deals with some of the leading insurers. But at least on first glance, it seems like it's very much complementary and maybe even potentially additive to what Guidewire Core and even some of the add-ons are doing. So I want to maybe understand how are you thinking about your ability to partner and work with the large LLM vendors and ultimately just drive greater customer success within the insurance industry? And then I've got a follow-up.

Super, super question. We absolutely see this as additive and helpful for Guidewire overall and the acceleration in the company. We have always run a very open approach to our products and to our ecosystem. We've always invited multiple parties to the ecosystem because we cannot and do not imagine that we're going to do everything for every insurance company everywhere in the world. Now obviously, Anthropic and OpenAI have this access to this incredible technology that has obviously changed and will continue to change the world. But we don't imagine that the work that they're doing is targeted at the deep, deep specific complexities associated with operating a core system in the insurance industry. And we think that leveraging the capabilities that these tools provide these LLMs or even these like desktop applications that sit on top of their LLMs, they're going to be most beneficial when connected to well-structured insurance processes running on modern core systems from Guidewire. And so we're very, very open to working with these companies. We're very open to working with our customers who have partnered with these companies around solutions that connect them to Guidewire. And like I said in the script, I said it a second ago, we see this as net beneficial to Guidewire because what you're going to be able to do with the Guidewire core system that's deployed, your operations are modernized, your operations have these connection points that these systems need. This is going to allow these companies to accelerate. This is going to allow these companies to become more efficient. And so we don't see this as competitive. We see this as additive to the overall demand in the industry for what we can provide. I think Rishi, John wants to say something here.

Yes, I'll just add a quick point. There's -- tied to your question in all of that context is the fact that insurance carriers and leaders of insurance companies are under a tremendous amount of pressure to drive pace themselves. So the ability to differentiate in the market that they compete in and sustain differentiation is under a tremendous amount of pressure right now. So the ability to work more proximate with them, solve problems with them and increase pace of innovation on top of the service and also increase speed to value in the way that they get to that first cloud implementation and consume products and services that we deploy and also, to Mike's point, have the open architecture where they can do things over the top of that at the pace that they want to and need to to stay differentiated is really driving a conversation with these carriers and leaders and insurance companies that get us every day closer to them, and that's what I'm most excited about is continuing to drive that proximity.

All right. Really helpful. Maybe just a quick follow-up. As we think about your kind of own internal AI development, your own kind of ability to bring AI to your customers, recognize you're dealing with a highly regulated industry where it could take a while to get that meaningful adoption. But the question I'd like to ask is, as you think about -- a lot of the focus is on efficiency, but do you see an opportunity to maybe even drive better revenue outcome and ultimately better customer outcomes for the insurers, leveraging AI? And what would that look like with your current road map?

Sorry, I want to make sure I understand. You mean better revenue outcomes for our customers?

Well, specifically that the insurers can generate better revenue outcomes, right, whether it's being able to have better quotes or service more customers and ultimately, the end people being insured get net benefits as a result.

100%, yes, okay? The insurance industry is an incredibly complicated thing, right, if you zoom out. It is structurally been sort of hamstrung by the amount of unstructured information and data that needs to be managed in order to effectively and efficiently conduct the art of insurance. And large language models attack this directly. They address this directly. So you can underwrite more efficiently, which means that you can look at more risk. You can evaluate more risk more quickly. You can manage claims, the input of the submission of documents and the conversations that you have to have with all the multiple parties can be analyzed more effectively. And so it's like those 2 examples are sort of like tiny little bits of why the underwriting process is going to become more effective and the claims management process is going to become more effective. And I think ultimately, the insurance industry, the insurance machine is going to become more efficient, which is beneficial to insurance companies and to the broader society and our economies. Like the insurance industry with generative AI, and I think this is why everyone is so excited about focusing on these kinds of partnerships with these big insurance companies is there is a significant potential to improve its efficiency overall, which, like I said, it will be -- I don't want to say revenue, but I would just say like the efficiency of these companies is going to improve. And we're excited to be a part of that, driving that and making that possible along with a lot of other companies, along with Anthropic, along with OpenAI, like there's going to be a lot of people that are focused on helping the insurance industry do this. Like John said, our customers are excited about the potentials here because for so long, you're sort of limited to the technology capabilities at hand. And now you have this new tool that understands natural language and can be taught to do things like underwriting and claims. It's really significant. So basically, 1,000%, yes.

I'll just hit on the daisy chain of kind of product strategy because one part of your question was product strategy. So on top of the core operating system, if you think about the pressure points, our customers need pricing agility, therefore, pricing center. That's why we take that step. Product speed to market is the next thing in that daisy chain that drives competitive differentiation for them, therefore, advanced product designer. And broker efficiency and effectiveness is the thing that's probably up for the most amount of transformation and disruption and enablement given LLMs and the models available and therefore, underwriting center. So it ties very closely. We -- the investments we're making in the product strategy ties very closely to those things that are driving differentiation for our customers that sit on top of the core processing environment. So the fact that the core processing environment has an opportunity to continue to gain market share by line of business specificity and geographic specificity because of the rate at which we can deploy products and the components that we're putting out over the top of it, I think, are really good proof points for our strategic resilience inside of our customers.

Next up is Joe Vruwink from Baird.

Great to hear about the urgency to modernize. I maybe wanted to ask about the pace around that modernization. And there's been a lot recently even COBOL got its time in the sun a few weeks ago on maybe AI tooling, making it easier to translate. I don't think necessarily the translation of COBOL is the challenging part, but I want to get your take on just modernization time lines more broadly and whether Guidewire has the ability to maybe accelerate time to value because of their AI usage.

Yes. I'll give you a quick take on this, and I think John is probably going to want to add some -- his perspective on it. Yes, we're definitely working hard to ensure that our teams that are working on these migrations, both from on-prem Guidewire to cloud, but also the modernization projects are more and more efficient. And we're starting to see the early results of this in the actual projects. There's like a whole litany of different steps that are involved in one of these programs, and many of them can be enhanced and potentially even completely automated with generative AI. And so reducing that time line, increasing the pace of that, therefore, reducing the cost of those programs also helps us make an argument about modernization now. This is definitely an exciting component of the story at Guidewire. I would caution, though, that there is a certain amount of, hey, this is running on legacy code and this is running on a system that we can't support anymore. So this like one-for-one translate into something that's more supportable. I think that's an okay step. But it really doesn't get to what is very often a major important part of the modernization, which is rethinking your business process, rethinking your products, rethinking your approach to doing business, which is often part of a modernization. And that's what you really need to engage with companies like Guidewire and our ecosystem of SIs to really help companies work through that and get to a system that's modern, but also an operation, a business workflow, a set of new standards that really kind of set the company up for their go-forward operating model. So it's more than just the conversion of the code, but it's really the modernization of all of the activities inside of an insurance company.

Yes, I'll add the -- if we think about where we were maybe 2 quarters ago, and you got to think -- we have to think about this as the investments that Guidewire is making in our professional services team and multiplied by the investments that the SIs are making in their teams. And if we go back 2 quarters, there was a lot of investigation, a lot of discovery, a lot of proofs of concept, a very wide funnel of activity. That is starting to narrow over the last 2 quarters. We're starting to see some green shoots of some really impressive kind of percentage reductions of time to value. And the next step for us is to really continue to increase the velocity of those proofs of concept and early test cases to be rolled out as standard operating procedures in these programs. But there's an important additional step, which is rationalizing that with the SIs because I think, certainly, I've been in conversation with all of our SI partners. And there's no world where we want to be competing tool-based in what it takes to drive speed to value on cloud. So we'll be doing some rationalization with them and making sure that the tools are consumable by the customer base.

That's great. And then, Jeff, one for you. I appreciate the midyear disclosure on fully ramped ARR. I'd have to imagine there's seasonality in that number, just given the deal volumes in 4Q creating some second half weightedness. Can you maybe frame how much of a given year's net new fully ramped ARR happens in the first half versus the second half?

Yes. I think there's -- obviously, you guys understand our business. You know that our seasonality is 4Q weighted. 2Q historically is our second strongest quarter, and we saw a very strong 2Q for us, and that flowed through to some healthy additions on the fully ramped side. But you'll have to wait until Q4 to get full gratification on that question. So -- and we'll certainly talk about it in the fourth quarter call.

Our next question comes from Parker Lane at Stifel.

Jeff, I appreciate the disclosure on ARR retention rates and the commentary on how a few million dollar-plus churn events you've had in recent years. Looking at the remainder of this year and more importantly, maybe your midterm targets, what sort of assumptions do you make or cushion do you bake in around ARR churn? Do you anticipate that things remain relatively consistent with historical trends? Or are you accounting for some incremental conservatism there?

Yes. I appreciate the question. And given our business, this is an area of strength of ours. We -- the assumptions are as we go bottoms up in every single account and have really good visibility into any sort of potential downsell risk that exists in our accounts. And the team flags all of those throughout the year. Usually, when we start the year, we have a good read. And so we kind of do that. And we try to be pretty conservative and cast a wide net on kind of how we think about potential downsell events. And then we usually end up performing better than some of those -- that wide net that we initially cast. But this is not kind of a top-down model assumption exercise for us. This is a very bottoms-up customer-by-customer account-by-account exercise for us.

Got it. And one quick one on ProNavigator. I believe last quarter, you said you were expecting $4 million of ARR and $2 million of revenue, 9 deals in the quarter. How is that trending relative to those expectations that you outlined last quarter around?

Trending positive to those expectations. I mean I was not expecting 9 deals in the first quarter. So we're thrilled with that progress. And we can think about how we will disclose that moving forward. But you should think about it as right now trending ahead of expectations.

Our next question comes from Michael Turrin at Wells Fargo.

Okay. Excellent. I wanted to spend some time on the commentary on duration increasing. It certainly seems positive in terms of willingness of customers to commit to Guidewire. Maybe just speak more to what's leading to that longer duration. Are you finding core replacements show up as a prerequisite for some of the kind of longer-term AI-focused initiatives insurers might be looking at? Or what drives that? And as a small second part, Jeff, you referenced the backdrop is why you're giving some of the incremental disclosures, which we definitely appreciate. Is that just the software market backdrop you're referencing because your results seem generally unphased here. So maybe just help frame why the incremental disclosures for us as well.

So on the first question, yes, this is 100% just because of the software market backdrop. And we felt that in that backdrop, some of the durability elements of our business were being missed. And so we thought it was a good time to lean into some of these disclosures that provide a bit more durability. I think Mike will probably jump in here. But on the contract duration, -- we always engage -- have always engaged in longer-durated contracts. There was a period of time when we transitioned to ASC 606, where we actually forced shorter contracts on our customers. And as we move to the cloud, our standard has been 5 years. In the early part of the cloud, if you look at duration, it was a little bit lower than 5 years. We saw testing the waters, wanting to explore smaller deals and see how it goes. And now with the maturity of the platform, kind of where we are on this cloud transition side of things, we have seen that willingness to lean in and make longer commitments. that trend has increased. And then if you look at the largest customers, in particular, the ones that are making really big bets on Guidewire, often that impulse is to move even beyond our standard 5-year terms and pursue a longer engagement. And we've seen that activity kind of more recently over the last 18 months increase.

Nothing to add. I think you got it exactly right, Jeff.

Alex Sklar from Raymond James.

Mike or John, following up on Ken's question on Pricing Center and ProNavigator and some of the early success there. Can you just reframe how you expect the adoption curve to trend and sales cycles you've seen based on what you've seen to date? Were these particular deals in the pipeline prior to the acquisitions? And maybe, Jeff, how did those initial deals look like in terms of uplift on ARR?

So I'll hit the -- I'll go on the first part and then Jeff can pick up the second. If I think about the ProNavigator deals, the adoption curve in claims, we're seeing the pipeline that's accelerated there has really been as that team came into the fold. And I just should say, while I'm on this call, I couldn't be happier with how that team has joined. The culture fit is great. The energy is exceptional. But as we think about our ClaimCenter customers that are on cloud, the receptivity to have the right conversations and start laying down tracks for what that looks like is what's really driving the acceleration there. There are conversations in underwriting as it pertains to ProNavigator, but the acceleration is really coming in the claims space. The pricing center piece, Mike mentioned a little bit earlier, which has a lot to do with those that are PolicyCenter customers and the integration of Pricing Center into PolicyCenter is something that drives a tremendous amount of value and a tremendous amount of appetite right now for the conversations. There are a lot of proof points. It is a big decision. Every one of these customers has some variation of pricing and rating inside their environment, whether it's ours or somebody else's. And so really testing the waters on that and pushing through some proofs of concept is important. But those customers that are driving pricing -- that are driving policy admin solutions that sit on Guidewire are really very interested in proving these things out and looking at potentially large and long-term commitments. There is going to be a lot of work to do to make pricing center fit all regions, all lines of business. So that's going to be something that we look at a lot of investment in over the next quarters as we go forward.

Yes. And on the ARR side, we haven't spoken too much on this topic other than to think about pricing center as a pretty meaningful ASP product. It's a little bit of a longer sales cycle. These are big investments that customers will make in that product. So we expect that pipeline to kind of build and transact a little bit slower, but be more meaningful and impactful. On the ProNavigator side, those are smaller price points at this point in time. But at this point in time, that tool or that product is primarily looking at standard operating procedures of an insurer. And it is our expectation to evolve that into other content areas that would increase the value of that product over time. So I think the price points that we're seeing today are nice starting points and when we should expect to grow those over time.

Jeff, maybe just a quick follow-up on Joe's fully ramped ARR question for you. I appreciate some of the unknowns around seasonality given the larger Tier 1 customer base. But in the first half of this year, was there anything in the fully ramped result outsized contributor either in terms of steeper ramps or larger migrations that kind of is abnormal for a first half for you?

It was an abnormal first half for us just in the fact that we -- the volume that we saw, some of the large deal volume that we saw was very, very exciting. We hope to continue to build on that. So I wouldn't say there was anything unnatural, but we are continuing to see the momentum build. There are a number of -- in the first half deals that were longer than even the 5 years. And so there's even some backlog that that is kind of off of that fully ramped ARR metric. And all of this is just kind of continued momentum that we're seeing in the business. Last year, citing Liberty Mutual was a big event for us. And so that creates a somewhat difficult compare. But as we look at the pipeline for the remainder of this year, we have a lot of really interesting activity out there. So it's always hard to predict exactly when those larger deals will come in, but we're thrilled with the pace and we're thrilled with the traction, and we're thrilled with the pipeline.

Our next question goes to Allan Verkhovski BTIG.

Awesome. Mike, given the speed and innovation of what's possible from a coding perspective, with AI. You've gone through a lot of investments over the years. You talked about demand for deployed services. Where are you making changes or leaning in more as it relates to your product road map? And how are you further adjusting it, if at all, your expected developer count growth over, call it, a multiyear basis?

Great question. So we're in the process, as you could probably imagine, of rolling out aggentic development tools, call it, a harness that works effectively for Guidewire developers. And I should say for the folks in our professional services organization and the folks in our SI ecosystem and all the customer developers, we fully expect that these aggentic development tools will be leveraged by our devs and everybody that touches Guidewire from a software development perspective. And -- for sure, we see this increasing pace over time for what we can deliver. We're a little bit early days to that approach, but the anecdotal feedback from the sort of first movers and the people that have really put their hands on these tools and figured out how to use them effectively is extremely positive and gives me a lot of confidence that the development velocity at Guidewire over time will increase, right? So then that brings up logical questions that like I had that you are asking me right now, which is, okay, well, what's our long-term backlog look like? And what are the ideas and things that we need to be putting into this product over time with this increased capacity? -- we've been in the process for the past few months is just reevaluating those road maps based on the assumption that possibly we will see this or likely we will see the throughput increase. I'm excited about the potential to increase this throughput. It's like a side benefit of all of the work we've done to move our customer base to our cloud. It's like now we have this -- we have a vehicle in the cloud-based installed base and the 3 releases we're doing every year to take the new functionality that we're building and put it in and get it into our customers' hands. It's like this incredible, I don't know, circumstance that this lines up, right, when we've got more than half of our customer base move to cloud. And I think that also provides another reason for the on-prem customers to think about accelerating their time lines to cloud. But the road map pretty vast, pretty long. You say, hey, I'm very confident in our position in the market today, but do we have a big billing center road map? Yes. Do we have a big policy center and claim center road map? Yes. Are there a whole bunch of things that we could do to make the products better, to make the products easier to install and easier to configure and easier to integrate to other systems. There is so much more that we can do. And I wouldn't -- so I wouldn't say it's infinite, but I'm very confident that we have a product road map around the existing product portfolio that is very sufficient and is going to continue to deliver value to our customers now at a faster pace, but for years to come. And so the question about are we thinking about this from a -- are we thinking about generative AI from a software development perspective? Is it an efficiency play? Or is it a value play? Right now, I'm very much thinking about it as a value play. I think that we can take the developers that we have that know Guidewire, right? They know the technology stack and the cloud technology stack at Guidewire, and they know the insurance industry and they know what to do and we can accelerate. This is going to create more value for Guidewire, and it's going to help us continue the pace or maybe hopefully accelerate the pace that we've established with cloud. And so that's how I'm thinking about it in the short to medium term.

Perfect. That's really insightful, Mike. And then, Jeff, just as a quick one for you. Can you just stack rank the areas of outperformance in the quarter as it relates to the ARR beat?

Yes, it's a good question. I mean I think in general, as I build my ARR model, there are the key elements that I need to see come to fruition. One is new deals in the quarter that then translated to ARR. The next is how much ARR is going to come off of the backlog. And the third is how much attrition events occurred. And we have really good visibility into the ARR that comes off of the backlog. We have really good visibility into those attrition events. And so those both performed largely in line with expectations. And then -- so then it's the new sales activity that we executed and delivered in the quarter is what drove that outperformance. A little bit of that we kind of called out was also some -- a bit higher true-up activity, but most of it was just the deal volume in the quarter. and then how that deal volume translated into year 1 ARR. Now within that, I think we saw a very healthy mix of kind of new customer wins, migrations, expansions into new areas within existing customers. And so that new sales momentum was pretty broad-based.

The other dimension to look at is geographical. So geographical line of business. So good spread across personal lines and commercial lines, which we're happy that that continues to be a nice balance for us. The team in Europe continues to drive really solid activity and influence in the market showing up every day in the culture and in the business of the countries that make up Europe and the U.K. And then our Asia Pac business continues. We were in Sydney last week with a lot of customers, and I'll just go back to the ProNavigator question. The receptivity, so many of those customers have -- are in the process of or already on cloud. Therefore, their appetite for consumption is just really -- it's a really powerful conversation. And so the Asia Pacific team continues to drive, I think, really solid market activity as we build out that leadership team, and we're really seeing that connection get stronger every quarter.

Okay. Great. We have time for a couple of more questions here. Next is Aaron Kimson from Citizens.

First one, there are about 90 Tier 1 P&C insurers today. Guidewire has 96 customers with fully ramped ARR greater than $5 million. How should we think about how many of your customers exceeding $5 million in fully ramped ARR today are Tier 1s? And how far down that TAM pyramid on Slide 5, do you actually have $5 million-plus FR ARR customers today?

Yes. I mean, I'll be honest, I haven't actually sliced it that particular way, but it is not -- it's very reasonable for us to have a number of Tier 2 and even Tier 3 customers that can cross that threshold. So that opportunity to see customers cross over that threshold is maybe broader than you might think.

Okay. That's helpful. Yes. And then, Mike, you mentioned strength with the analytics products. In F3Q25, you made your first industry Intel sale within ClaimCenter. Can you provide an update on what you're seeing with industry Intel, both from the standpoint of developing and validating models for more types of lines? And then also what John and team are seeing on the distribution side with industry Intel?

Yes. We continue to make solid progress there. It's a process for -- and it's a little bit of a it's not a straightforward software development process. There's a little bit of have an idea about what we might be able to predict, go make sure that we can pull the data sets and clean the data sets and test whether or not there's appropriate signal that's in the data set and then validate that. And so there's a little -- it's a little bit more R&D and research than straightforward software engineering. But we continue to make great progress and steadily building momentum with that team. And so we're very, very happy. I would say we didn't call it out specifically, but sales momentum in the quarter continues to track as expected for the objectives on that team. And I'm very, very happy with that. So it's steadily building, and we continue to be happy with the progress.

Yes, I'll just add from a market coverage and distribution standpoint, the ability to demonstrate what that team has built has really crystallized quite a bit over the last couple of quarters. So it really helps in the deal motion. The other side of it is we continue to invest in our account management motion. And when these -- when the industry intel deals aren't necessarily tied to a large deal event, we're getting much better at navigating the right buyers inside of our existing customers and now with the demonstrability of those assets to have the right conversations to trigger a much more healthy pipeline activity into existing customers.

Our last question comes from Faith Brunner at William Blair.

I know there's a lot of commentary on the pipeline in the back half of the year. But just wanted to touch on maybe how should we think about the different products flowing through the funnel as customers increasingly want to land larger with longer duration. Has there been any shift to the conversations you guys are having or typical sales cycle time lines as people seem to be more eager to standardize on the platform?

It's an interesting question. I would say, and I'd love for John to comment on this is what we're seeing that's driving the outperformance is more like broad-based larger deals across the board rather than any sort of product mix shift that you might be thinking about. We're just we're just getting basically much more established and establishing much more confidence in this platform as the logical long-term home for core system operations at insurance companies. The AI story, like we talked about, is driving some urgency there and bringing this to the table. But I would really say like the improvement is about larger, longer-term deals rather than product mix shift. We still -- obviously, we called it out. We still see the product mix shift, but like that's not what -- it's really core system, larger core system wins and commitments that's driving the improved momentum. Anything to add, John?

Time and stage is the same as it was, but we're starting now as we build out our portfolio, some of our portfolio will have a very different stage aging profile than the core processing space.

Okay. Well, thanks, everybody. It was obviously a great quarter. We're incredibly excited about it and look forward to talking to you all over the next few weeks and months. Otherwise, we'll see you at the end of Q3.

Thank you.

Greetings, and welcome to the Guidewire First Quarter Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today.

I would like to now turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you, Alex. You may begin.

Thank you, Grace. Hello, everyone. 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 8-K 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 its conclusion. Statements today 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 other documents we file with the SEC, including our annual report and quarterly reports on Forms 10-K and 10-Q, for information on risks and uncertainties and assumptions that may cause actual results to differ materially.

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 in the supplement on our IR website.

And with that, I'll now turn the call over to Mike.

Thanks, Alex, and good afternoon, everyone. Thanks for joining the call. We're off to a great start to our fiscal year, delivering results ahead of expectations across all key financial metrics, and we're seeing continued momentum in our business. Five years ago, we launched Aspen, the first release of Guidewire Cloud Platform, with the goal of enabling property and casualty insurers to engage, innovate and grow efficiently.

Today, with Niseko, our 14th release, we're experiencing tremendous success across the industry and around the world. And we continue to see accelerating adoption of our cloud products and services. Reflecting on this success, we got 4 important things right. We met insurers where they were in terms of their operational complexity and the investments they had already made. We designed agility and extensibility into the platform to unlock innovation. We invested in and fostered an ecosystem of partners to help drive our vision for a cloud-based core system powering the P&C industry, and we worked tirelessly to ensure every project and customer was successful. Our Q1 outcome and continued momentum are direct results of these decisions and hard work.

Additionally, the timing of our platform maturity aligns us well and leaves us well positioned for the advent of generative AI. The potential for generative AI and the P&C -- in P&C insurance marries extremely well with our platform's extensible design, and now it creates opportunities for us to unlock greater productivity, platform value and new products that leverage our vertical data and business process expertise. We believe these elements together position us to dramatically improve insurer outcomes and fulfill our enduring mission of enabling insurers to innovate and grow efficiently. This means our platform can now go wider and deeper with a greater portfolio of applications and tools that harness data and AI.

In October, we hosted Connections, our annual customer conference. This year, over 3,500 attended from across the industry, and we laid out this next phase in our plan, which we see as a logical next chapter for Guidewire now that we are confidently through the most difficult part of our cloud journey. As we go forward, our goal is to focus more and more of our energy on this new opportunity. We have spent many quarters discussing Guidewire Cloud and our progress transforming our company and customer base. This effort will, of course, continue. And we have a lot of runway left, but we will also begin to focus more of the conversation on everything we are positioned to deliver for the future.

So today, I'll spend a minute giving you a high-level update on the continued strength we saw in our core business through Q1 and then elaborate on our new products and opportunities. Jeff will then discuss our financial results and updated outlook. So let me begin by mentioning a few key highlights from the quarter.

Following a record Q4, we saw continued momentum with another 8 cloud deals in Q1. ARR grew 22% year-over-year and 21% on a constant currency basis. We had 5 significant deals in North America led by major insurers, The Hartford and Sompo. We had 3 international deals, including a major win at 1 of the U.K.'s most respected mutual insurers, a significant migration at a major insurer in Japan and a great win at a large Australian-based insurer. It was also great to see 6 of these 8 wins expands to include 1 or more of our data and analytics offerings. All this momentum was driven by the factors we've shared before, our cloud maturity, track record of customer success and a resilient global P&C insurance market that continues to modernize.

Based on this success, we now have the opportunity to go wider and deeper with applications targeting our customer base. Two areas where we are excited to extend our platform are in pricing and underwriting. InsuranceSuite will include new applications, PricingCenter and UnderwritingCenter alongside PolicyCenter, BillingCenter and ClaimCenter. Both new applications represent significant market opportunities that address the industry's need to overcome very fragmented and manual processes that negatively impact their speed to market loss ratios and growth.

By building PricingCenter and UnderwritingCenter on our unified cloud foundation and connecting each seamlessly with our other InsuranceSuite applications and analytics products, we believe we can significantly improve insurance agility and performance. With PricingCenter, actuaries can bring models to market faster with greater precision and control. And with UnderwritingCenter, underwriters can improve risk selection, streamline operations and accelerate quote turnaround times. And with agentic AI capabilities infused in both of these applications, insurers have the potential to dramatically improve on long-standing business constraints.

One aspect of this new product portfolio that I'm particularly excited about is the potential to combine generative AI, data and critical workflows that run on our applications. Our recent acquisition of ProNavigator is an excellent example of this. ProNavigator is an AI-powered knowledge management platform trained and tuned specifically for the insurance industry. By integrating ProNavigator into Guidewire applications, we can now deliver instant context-aware guidance and answers to the people using our applications. This sort of in-context guidance is a first step in generative AI deployment to insurance workflows and can upscale every user of Guidewire application.

In addition to providing us the opportunity to launch new products, Connections was also an opportunity for our broader ecosystems that come together. As I have said many times before, this ecosystem of partners and the innovation we have developed together have been a significant factor in our success to date. ProNavigator, in fact, is a great example of this as a graduate of our Insurtech Vanguard program, which is our initiative to identify and mentor promising start-ups.

Before handing it over to Jeff, I'll just summarize my key takeaways from the quarter. We continue to see accelerating adoption for Guidewire Cloud Platform and have plenty of runway to continue growing our core business. At the same time, we are extremely excited about the opportunity unlocks for us in new products, innovation and generative AI, and these new product areas are very much where we are focused now. We are thrilled with the early reception that our expanded product portfolio has received and look forward to sharing more with you over time as we progress with these new offerings.

With that, I'll turn it over to Jeff to walk you through the financial results.

Thanks, Mike. We are off to a great start. Q1 saw record sales activity for a first quarter and a clean beat across ARR, revenue and profitability expectations. We continue to be thrilled with the momentum we are seeing in the business. ARR ended at $1.063 billion, up 21% year-over-year on a constant currency basis and ahead of our expectations. Total revenue was $333 million, up 27% year-over-year, reflecting strong performance across all segments.

We continue to see strong subscription and support revenue growth as customers migrate to cloud and new insurers adopt our cloud products. In the first quarter, subscription and support revenue grew 31% to $222 million. Counterintuitively, license revenue grew 12% to $42 million. In general, we expect license revenue to decline as we continue to migrate customers to cloud and drive subscription revenue growth. However, in the first quarter, licensing benefited from a large annual term license renewal after the end of a multiyear commitment entered into in 2020. As a reminder, revenue related to multiyear term license contracts are generally recognized upfront, and as a result, no license -- no additional license revenue is recognized until the committed term expires. Professional services revenue finished well above our expectations at $68 million, reflecting high utilization and effective collaboration with our SI partners.

Now let me turn to profitability for the first quarter, which we'll discuss on a non-GAAP basis unless stated otherwise. Gross profit was $219 million, up 32% year-over-year, with a gross margin of 66%. Subscription and support gross margin reached 73%, continuing to track ahead of expectations. And professional services margin improved to 23%. We are seeing higher services demand and have a healthy backlog that we are executing against, which will require a bit more investment in utilization of subcontractors for the remainder of the year, but this is strategic for us as we continue to ensure every cloud program is successful.

Operating income finished at $63 million, up 83% year-over-year. Overall stock-based compensation was $43 million, up 14% from Q1 of last year. Operating cash flow ended the quarter at negative $67 million. As a reminder, annual employee bonuses and commission expenses related to Q4 sales are paid out in Q1, and Q1 cash flow finished consistent with our expectations. We ended the quarter with over $1.4 billion in cash, cash equivalents and investments.

Now let me go through our updated outlook for fiscal year 2026. Starting with the top line, we are very pleased with our first quarter performance and the continued strength and quality of our pipeline. As a result, we are raising our annual outlook for ARR to be between $1.220 billion to $1.230 billion. For total revenue, we now expect between $1.403 billion and $1.419 billion. We expect approximately $891 million in subscription revenue and $948 million in subscription and support revenue. We now expect services revenue to be approximately $245 million given the better-than-expected services revenue in Q1 and our higher utilization rates. We expect our acquisition of ProNavigator, which closed early in Q2, to add approximately $4 million of ARR and $2 million in revenue.

Turning to margins. We are increasing our expectations for subscription and support gross margin to be between 72% and 73% for the year. We expect services gross margins to be between 13% and 14%, which is lower than Q1 as we are investing in additional capacity, building our AI initiatives to improve efficiency in the future and leveraging a bit higher subcontractor levels. Overall gross margins are expected to still be 66% for the full year as higher subscription and support margins are offset by higher services revenue mix.

As a result of raising our revenue outlook, we are also lifting our outlook for operating income. We expect GAAP operating income of between $72 million and $88 million and non-GAAP operating income of between $266 million and $282 million for the fiscal year. We are raising these expectations while also absorbing the incremental costs associated with the acquisition of ProNavigator. We expect stock-based compensation to be approximately $185 million, representing 13% growth year-over-year.

We are adjusting our expectations for cash flow from operations for the year to be between $355 million and $375 million. Our CapEx expectations for the year are between $30 million and $35 million, including approximately $18 million in capitalized software development costs.

Turning to our outlook for Q2. We expect ARR to finish between $1.107 and $1.113 billion. Our outlook for total revenue is between $339 million and $345 million. We expect subscription and support revenue of approximately $229 million and services revenue of approximately $58 million. We expect subscription and support margins of approximately 73%, services margins to be around 9% and total gross margins around 66%. Our Q2 outlook for non-GAAP operating income is between $68 million and $74 million.

In summary, this Q1 saw record sales activity for the first quarter of the year, which is a great start, and we are very excited for what is ahead. Alex, you can now open the call for questions.

Great. Thanks, Jeff. Our first question is going to come from Dylan Becker of William Blair.

Maybe, Mike, starting with you, we've talked a lot about the idea of kind of operational agility, and it's evident with the new products and PricingCenter and UnderwritingCenter. Maybe wondering if you could dig a level deeper and kind of give us some or maybe a sense of what those opportunities look like and maybe if there's an unlock as you go deeper in that domain to kind of tether and attach more momentum across the existing core suite, maybe thinking PolicyCenter in particular as it feels like a logical area of kind of attach between those 2 segments.

Well, sure. For sure, the strategy around both of these products is to target our customer base, and I think that the integration that we're building and the fact that they're built or being built to run our platform and seamlessly connect with the applications but also the data platform is a real important differentiator for these products and something that helps drive the agility that you were talking about.

But if you want to sort of understand why this matters for an insurance company, these companies are, number one, sometimes trying to grow, sometimes trying to expand with new products and also always trying to just get their prices right. And the more flexibility we can provide them about modeling and estimating with their actuarial teams what the right structures are for pricing the insurance products and getting those things into actual production deployment, the more effective an insurance company they can be.

Now that gives them flexibility to, like I said, expand into new markets or add or change the existing products that they have. I think it's been pretty frustrating, I think, for the industry in general just to have such a long lag time between the concept that you know you need to make a price change to where you can actually affect that price in market. And that's what PricingCenter is designed to help alleviate. I think it's going to have a direct impact, a very direct and positive impact on our customer base and the customers that choose to deploy that with us.

On the underwriting side, the thing that's super exciting here is just giving the industry in general this ability to respond more quickly and more effectively to submissions that they receive from brokers. It's just a real -- it's a real frustration across the board. You talk to every insurance company, and they've got great teams of underwriters, but dealing with all the manual paperwork and reading the documents and assessing risk, it just takes so much time. And modern systems, especially with generative AI, are going to make -- take a big -- actually have a big improvement in terms of the operational efficiency of these underwriting departments. And so that's kind of how it affects the industry and how I think we're well positioned to be able to attach it to new PolicyCenter but also existing PolicyCenter implementations.

Sorry, was stuck on mute there. No, that's very helpful. And then maybe switching over to Jeff. If we think about kind of the incremental investment you called out on services, obviously, there's a lot of opportunity, it sounds like, here. How should we think about kind of the outsized momentum you're seeing on the services front? Is that a good indication of kind of some of the subscription momentum that's expected to come as you're doing kind of more of this process change work and really maybe indicative of the underlying kind of demand environment and how sustainable that is at the end of the day?

Yes. I think Q1 in particular was benefiting from a couple of larger programs that the teams have been working hard on. I think the services organization has done a great job partnering with the SIs to meet the demand environment that we're experiencing. It's hard to read through to just our services revenue line and take that as a proxy of overall demand for what we're trying to accomplish because it really is spread across the entire ecosystem, and we do that very purposefully.

I think one thing that we are -- there's a couple of areas where we're making investments. We do believe that, over time, generative AI can help us bring down the cost of implementation, and that can have a pretty meaningful pull-through to demand for our products. So we're investing in that, and we're excited about the early potential that we're seeing there.

And then there's also new product areas. Our services organization often has to act as the tip of the spear around new products and so investing to make sure that we're ready for that demand, and then we'll work in concert with our partners to enable them as we work through that early demand that we see with some of these newer products. So that's what's driving a lot of the investments we're making, and we feel very good about those investments.

It is shifting a little bit. We are seeing some higher services revenue expectations this year than maybe we would have thought a couple of years ago. And we think that that's generally healthy.

Great. Thanks, Dylan. Our next question is going to come from Alexei Gogolev of JPMorgan.

Mike, in recent quarters, you had a number of very large customers migrate to the cloud. Are you seeing more consumption of all 3 key products simultaneously rather than business line by business line? And what is driving the change in the consumption pattern?

I'll start by answering the second half of your question. I think what we're seeing is the -- sort of the benefits of the actualization of a lot of great hard work in close partnership with our Tier 1 customer base around what it would take to convince them that we could deliver a cloud at scale that was reliable and secure enough to support their mission-critical workloads, is we have worked tirelessly over many, many years of many releases to earn that trust. And you're seeing that now pay off in these deals materialize.

Now with respect to migrations, a lot of that is -- relates to either what they're already running with Guidewire and a commitment to move that to the cloud, which I would say sort of more often than not involves the sort of the complete landscape of what they're running with us just because it makes sense to negotiate the whole thing all at once. Very often that if it makes sense for them strategically to look at the modernization of another component of their architecture, say claims if they're running policy or policy if they're running claims, that is very often the case. But we only see a few of these every quarter, so it's tough to say that there is a pattern emerging.

But the biggest, biggest pattern that I'd say is now like very, very clearly happening is that we are showing that we can run this at scale for the largest insurance companies in the world, and we're earning that trust, and we're kicking off these incredible programs with these companies that we're excited to deliver on. And I think it's going to be just -- it's going to be a great thing for the industry. It's going to be a great thing for these customers. It's going to be a great thing for Guidewire. These are commitments that we expect to last for decades, and we're very happy that we've been able to earn this trust. And we're excited to step up and deliver on behalf of these customers.

And Jeff, if I could maybe ask you on the ARR guidance. Exactly a year ago, you kept ARR guidance unchanged. This year, you're raising it after Q1. I'm just wondering if there are any components in your current growth guidance where you made it prudently but still somewhat conservative and what might those components be.

Yes. And I appreciate the question. It is atypical for us to raise our outlook at the end of Q1 as we kind of think about our progress towards some of our annual targets. This Q1 was a little bit unique in terms of the size and scope and the deal activity we were able to close in Q1. So I think there are elements of that, that inform how we thought about adjusting the guidance. Obviously, we took a deep look at the pipeline and feel confident in the strength of the pipeline.

The third component is we made an acquisition in ProNavigator, and we expect that to add about $4 million, so that's part of the incremental raise, is related to that acquisition, ProNavigator. And then finally, just some of the early market feedback, it's still very early, so this won't contribute in large ways, but some of the feedback we're getting on the newer products is exciting, and that gives us a little bit of confidence as we think about the guide for this year.

Our next question comes from Ken Wong of Oppenheimer & Co.

Fantastic. Maybe building on that last note, and this could be for Mike or John, on the interest for Underwriting and PricingCenter. How should we think about the time line for adoption there? Like would it mirror something like PolicyCenter, which was a heavier lift and did require customers to take kind of a longer look at it? Or could it be closer to something like claims where there was much faster adoption in the early days? What's the feedback you've been getting? What are some of the stumbling blocks that could kind of stall that particular path to migration?

Yes. Thanks, Ken. I would say it's slightly different in that I think there's an opportunity for us to position this a little bit more incrementally or greenfield than maybe ClaimCenter, PolicyCenter, where you're very clearly replacing a system of record. Certainly, there's something that we're replacing, but I think that the go-to-market motion, while new for us, I think it'll evolve to be its own kind of unique and I expect maybe a little bit faster than either of those other 2 core products.

Now we've still got some work to do to prove that out, but as Jeff said, the initial response and the receptivity to the architecture and the concept and what we're setting out to do has been very positive and certainly giving us enough interaction with customers and prospects to be able to validate that we're on the right track. And so I would say, just to kind of repeat what I said, is like I expect it to be slightly faster. It's certainly not going to be something that's super fast and these are big decisions for companies to make. But it doesn't have to be a sort of all or nothing complete replacement of something, the way these big core system of record implementation and decisions are.

Fantastic. Super helpful, Mike. And Jeff, just on the subscription and support gross margins, saw a really nice uptick this quarter. Is that just kind of further efficiency gains? Or is there some timing of AWS credit or any other one-ish items -- onetime items that we should be aware of?

There was a very small contribution of some onetime items, so that did impact the quarter but not -- it is pretty small. Those are becoming less and less meaningful. I think it was just good progress that we've made in driving efficiency, and we're pleased to be able to raise the guide for the year as well. So the team has done a lot of work here across the finance organization, the engineering organization, customer success to help us tackle the efficiencies there. And so I think that's what you're seeing.

Great. Our next question comes from Michael Turrin of Wells Fargo.

Appreciate you taking the questions. I mean the growth rates of the business continued to trend higher. I know it's a seasonally lighter period, but you're clearly reaping some of the rewards of the last year. Just maybe help us stack rank the drivers of what you're seeing and if that at all shifts based on early feedback coming out of Connections. And Jeff, is there anything from a seasonal perspective we should be mindful of as we're just kind of rolling some of the numbers forward from a sequential basis on the top line?

Yes. I'll give you a perspective on drivers. So we're very happy with the pace of migration activity, and we are very -- we continue to be very, very happy with the competitive win rates and just general demand for core system deals in the industry worldwide. So we're just -- those 2 things together just give us a lot of baseline confidence in the business. And as you can imagine, these sorts of deals are very considered, which gives us a lot of visibility into the forward pipeline and gives us the confidence as we did this quarter, raised the guide based on the perspective around the fiscal year.

And then you add on top of that is the growing momentum in these new products. And like I said, the reception that we got at Connections to these new products was phenomenal, creates a lot of excitement in the customer base but also our sales organization and gives us an opportunity to line up this sort of like new vector of growth to the company. And so that's how -- that's basically how I would stack things up like migration, general demand for core systems, win rates going in our direction, building momentum quarter-over-quarter and then these new products giving us even more confidence in what we can produce as we proceed through the year.

And the only thing I'd add on the seasonality is just to reinforce what we talked about at our Analyst Day, at Connections. The one dynamic we're seeing this year is a little bit of a headwind with respect to ARR coming off of the backlog in Q3. So I think we communicated that to you all at Analyst Day and just wanted to reinforce that message. Nothing new coming out of Q1 to highlight.

Great. Thanks, Michael. Our next question comes from Adam Hotchkiss at Goldman Sachs.

Great. I wanted to ask another one on AI. When you think about some of the noncore software vendors that have come out with AI use cases for insurance, and I think we've all seen headlines of those in the last number of quarters, maybe just talk about how -- what your philosophy is in terms of competing versus partnering or allowing access to some of these third-party AI use cases and just more broadly, your sort of view and stats towards competitors from an AI perspective.

Yes, I appreciate the question. And I don't know for those of you who are closely following us, this was one of the key messages that we attempted to articulate very clearly at the Connections user conference. I think the most important thing for you to understand about Guidewire as an investor or as a customer or as a partner is that our job, our mission is to be the core system of record for the P&C insurance industry worldwide. And we need to be an open platform. We need to invite these insurtechs to build against our system of record if that is something that they want to do. We want our customers to feel confident that a decision to move to Guidewire does not curtail them, does not constrain them at all.

Now obviously, we are going to build first-party generative AI capabilities and features and products on top of our platform, and we'll offer those to our customers. But this is a space that is moving and evolving so quickly that it just doesn't make strategic sense for us to not be -- take an open approach. And so what you're going to see from us is this kind of philosophy that the most important thing is to win the core. The most important thing is to invite the innovation in and around our core, continue to create a strong ecosystem and use everything in our power to deliver as a first party generative AI-powered features and capabilities that bring our customers more value based on their investment in Guidewire.

But that's going to come from us, and it's also going to come from the ecosystem. And so I tend not to think of these companies or these headlines really as competition to Guidewire as much as an opportunity for us to really lift all boats in the industry. There is so -- we tried to highlight at the -- this at the Analyst Day with respect to sort of understanding the business dynamic in the P&C insurance industry overall. There is so much potential for generative AI in this industry that it's not going to be a winner takes all kind of situation with respect to GenAI and automating workflows and making the insurance industry more efficient. There's going to be many companies and many people and many organizations that benefit from that effort over time, and our -- like I said, our goal is to foster that innovation in the industry, not compete with it.

That's really helpful. And then I wanted to talk about just at your existing customers the propensity or increasing propensity to actually move more quickly across lines of business. I think we talked a lot about the 3 suites and the increase in full InsuranceSuite adoption a lot, but maybe the part that gets missed is the willingness and the rapidity in which customers are willing to move more wall to wall across policy types. So Mike, maybe just talk a little bit about how that's evolving, particularly post what you put up with Liberty Mutual. That would be helpful.

Sure. The way that, that discussion or decision happens in our customer base is really all about business priorities. Something is driving the effort to modernize the core system. There's a business objective that is driving the decision to be on a more agile, modern platform. And so especially when we have already established a successful implementation and a successful foothold, it becomes logical that, that customer will eventually move the other lines of business that are not yet on Guidewire to Guidewire.

But what we try to do is align ourselves to the business objectives that they have for that line of business whether or not it's expanding to another, let's say, state very often in some of our U.S.-based insurance companies or whether or not it's modernizing pricing, modernizing packaging, adding new distribution channels. It's those kinds of business priorities that align to the necessity to have a modern platform, and that's what creates the deal cycle that we can go attack or fulfill almost based on the successful track record that we've already established.

And this is kind of why I stress with everybody. It's why you hear me talk about it in the remarks every quarter. It's like the most important thing for us is every single one of our customer projects is successful. And if we can make sure that we're successful, that there is an attitude that the next program that they decided to do, logically, they would do it on Guidewire because we're the ones that they can trust and the program is going to succeed. So that -- hopefully, that gives you a sense of how it's like a business-driven expansion to the other lines of business.

Great. Thanks, Adam. Our next question goes to Parker Lane, Stifel.

Mike, just wanted to double down on generative AI here. How often are you hearing in your conversations with insurers that this is a primary catalyst for their desire to move to the cloud or adopt cloud solutions outright? And do you think it's accelerating the time line for those that would have been looking maybe 5 years in the future? Are they now starting to sort of compress that time line in anticipation of their peers adopting some of these generative AI tools?

I do think it's a driver, and I do think it's a factor, and I do think it's helping us, especially around the migration discussion. I think it's becoming more and more clear that being on a cloud platform, being on Guidewire Cloud is going to put these companies in a better position. I wouldn't say it's necessarily the primary driver in that a lot -- there's a lot of experimentation going on. There's a lot of activity going on in the customer base. And because the core programs, the core projects often take so long, like it's more like the long-term view is we're going to be better off on Guidewire, but often there's other activity around generative AI that's happening independent of Guidewire just because there's a necessity for really every company in the world to be learning how to use these tools and seeing what's out there and how they might impact them.

So definitely, it's a positive. Definitely, it's driving that conversation and increasing the velocity of the migration and modernization activity. I just wouldn't necessarily -- it's like maybe not the primary driver. It's more like a long-term positive influence.

Makes sense. And Jeff, one for you just on the pipeline that you see here over the remaining 3 quarters of the year. Anything to call out about the North American versus international split? I think you mentioned 5 North American deals and 3 international this quarter, expecting a pretty even split skewing in either direction. Anything there would be good.

Yes. I think that, in general, it's pretty -- we're pretty pleased with the breadth of the demand, so seeing healthy demand in Europe. We've made some investments, and we're optimistic about the demand in the pipeline in Asia Pac. North America continues to do really well. So it's -- nothing specific to highlight right now, and we feel confident that the pipeline is pretty broad-based and global.

Our next question comes from Rishi Jaluria's team at RBC.

This is Max on for Rishi. As we think about the generative AI and the agentic AI features that are being embedded within the PricingCenter and the UnderwritingCenters, maybe could you just remind us how those features are currently being monetized and how that could change or evolve over time? And then just a follow-up to that being, as usage and adoption of these new features scales, could that potentially have an impact to gross margins over time? And maybe what does that look like?

So the baseline approach we have for pricing almost everything at Guidewire is based on a percentage of direct written premium, and we try very much to build, define and articulate the value proposition of a Guidewire product to an insurance customer as a ratio to their direct written premium. And we feel very, very -- we've been very successful establishing that baseline with ClaimCenter, PolicyCenter and BillingCenter. And our expectation is that will also work for PricingCenter, UnderwritingCenter and other products that we sell at Guidewire.

I think this is -- it's a key characteristic of our approach and partnership with our customers that the product, the sort of the cost of these products generally scales at often improving economies as the customer grows, but it scales with their growth. And so our incentives are aligned.

And the generative AI -- think of generative AI as being key capabilities or features that are embedded within those new centers such that they're not really specifically priced. We'll obviously have to create constraints because, in some circumstances, these things can be expensive to support at scale. But in general, we feel comfortable that the DWP-based pricing models that we have for our other products will apply to these generative AI-based products.

And certainly, your comment about the potential impact to gross margin, something we think about and factor into the structures that we create for not just the new GenAI products but also the core cloud platform itself. We have constraints established that protect us from those kinds of impacts.

I would say, though, on the generative AI component of this, the efficiency -- the improved efficiencies of these models sort of quarter-over-quarter and year-over-year are astounding. And so the circumstances that exist today in terms of how much these things cost to run, I have every expectation that they will improve over time just as they have over the past couple of years, and that's kind of how we're thinking about designing for the use in embedding of these features within our products.

Thanks, Max. Next question comes from Aaron Kimson of Citizens Bank.

Jeff, I want to try and dig into the growth algorithm a little bit. If I understand correctly, John commented at the Analyst Day that, last fiscal year, expansions with existing customers drove more net new revenue than migrations. You have the nice slide on the Analyst Day deck that outlines cloud migrations, modernizations, new products, marketplace and potential M&A as growth drivers. When we think about the 17% to 18% ARR CAGR through FY '28, can you help us ballpark what each of the organic components can contribute and the glide path for migrations as a percentage of growth over time?

So there's a lot in that question, right? Look, I mean, the way I generally think about this and the way we look at this is that there's a variety of different levers that we have at our disposal as we think about achieving the growth algorithm that you just talked about. Obviously, migrations -- and it's hard to -- it's even really hard to decouple migrations from expansions because migrations so often come along with expansions into new areas and new modules. And so migrations right now are certainly contributing in a very healthy fashion. We have a long runway still to go in terms of migrating our installed base to our cloud products. And we're doing a great job of executing against that.

As we migrate, we've also seen very healthy expansion. Mike commented on this but just that impulse to commit more rather than less in this environment has been very healthy. So if you're a ClaimCenter on-prem customer thinking about migrating to the cloud, adopting PolicyCenter at the point of migration is a trend that we've seen a bit more of.

There's still a lot of white space out there in terms of legacy systems, and the team does a good job just doing the blocking and tackling of winning new customers and there's a number of new customers that we expect to add this year, and I expect that to continue in a healthy pattern and then some of these new product areas that will take a little bit of time to incubate but very excited about the potential that exists there.

So I'm not going to get into kind of the exact percentages we're expecting from each of those component areas. But I think the takeaway is that it's pretty broad-based, how we think about the algorithm that will drive that growth, and there's a variety of different growth levers that we can pull.

Yes, that was an ambitious question. I appreciate that. And then on the new products, I guess, specifically UnderwritingCenter, can you talk a little bit about UnderwritingCenter for personal versus commercial and how you think about that? Are they essentially 2 separate sub-modules from a development perspective? And does it make sense to invest in -- more heavily in one than the other first?

Yes, same underlying framework, different use cases. And I think you almost could consider personal -- each line of business in commercial will have slightly different requirements and a slightly different approach. Personal versus commercial is one way to segment it, but there's going to be lots of nuance to how this actually gets built and rolled out, in which lines of business it will be most useful for at the beginning and versus over time.

We're certainly approaching it, like we do everything at Guidewire, from a platform-first perspective and so try to share as much componentry across all of those use cases as possible. And then with Advanced Product Designer, we can model the product for that specific line of business, personal or commercial or whichever commercial line of business we're talking about.

And then with respect to the tweaking and training of the prompts and the approach we take to the models and the types of documents we have to ingest in order to feed into the business workflows, each of those will be tweaked by line of business. Our choice of where to invest in the sequencing of the investment is a little bit to do with what things we need to focus on in order to like think stress test the whole system but also which customers we've -- have the opportunity to work with in order to really test this out in conjunction with the real use case. And so that's how we're currently thinking about it. But the objective overall is for there to be one underwriting platform that's going to work across lines of business and the complex commercial lines is whether -- as well as all the commercial lines business. A super question. Thank you.

Thanks, Aaron. Well, that's our last question, so I'll turn it over to you, Mike, for final comment.

No, just thanks, everybody, for joining. I'd just reiterate, we couldn't be happier with the start to the fiscal year and the momentum that we're seeing with cloud, very significant amount of runway left in the core business for the company and positive visibility into pipeline. And we're excited to increase our focus quarter-over-quarter on these new products and excited to share more about that progress with you in future quarters and conversations throughout the rest of the year.

So thanks again, everybody, for joining.

All right. Welcome. Welcome to Connections. Welcome to Guidewire Analyst Day. I'm Alex Hughes, Vice President of Investor Relations for Guidewire. It's an exciting time to be part of the company. Hopefully, a number of you had a chance to see the keynotes yesterday and some of the presentations today. I sat through a lot of them, and I was struck by how much the story is really coming together. A lot of the work the team has done with Guidewire Cloud Platform and the agile componentry and the possibility and the opportunity that's setting up for customers and us is pretty exciting to see.

And it's great to just see all elements come together into what we talk about as the Intelligent Insurance platform. So today, we're going to talk more about that. You're going to hear first from our CEO, Mike Rosenbaum. He's going to talk about powering Intelligent Insurance. Then you're going to hear from John Mullen, our President who's going to talk about our success to date with cloud and how we plan to expand on that. Christina Colby, our Chief Customer Officer, will lead a panel with some of our great customers, so you can kind of hear and ask questions with them directly. We'll take a brief break. We'll come back.

And then Jeff will bring it all home in a discussion of our model, how we're building on it. He'll talk about the long-term plan, which -- our long-term model, which I know you're all kind of eagerly awaiting. We will finish the day with Q&A with the executives. Diego, as busy as he is, is going to join us for that. So that's great. And then -- so I think just a couple of things. We'll save the questions for the customer part. And then at the end, for the executive track, Q&A, and then we'll just kind of power through the presentations before that. Before I get out of the way and hand it over to Mike, just one more thing that's probably near and dear to our General Counsel's heart, the safe harbor. We will be making forward-looking statements today, sadly, none of which are guaranteed, but that's why we have days like this and why you all have careers. So with that, I will hand it off to Mike.

All right. Is this -- okay, here we go. Okay. So yes, I wanted to just echo what Alex said. It's great to be able to do this event alongside Connections because, obviously, this is when we put together the whole story for the company. And I felt like this year was another -- it was a special opportunity for us to, in some ways, like reset the vision for the company for the next decade. And we did that. Obviously, I personally did that with respect to cloud and the journey that we've been on for the past 6 years.

But -- so you're going to see some things in my section of this presentation that are pretty consistent about like who Guidewire is, but also some things that are like what's the next chapter of the company look like -- so anyway, thanks for coming, and here we go. The most important thing to think about when trying to understand who Guidewire is you really have to understand what the P&C -- what's P&C insurance? What does it look like from a market perspective. And so the first thing that jumps off the page is like this is a very, very big market, approximately $3 trillion in direct written premium. It's also a very concentrated market with 90-some insurers at $2 trillion. It's a very, very concentrated market.

And you'll hear us talk a lot about our focus on Tier 1 and Tier 2 insurance companies. That's where the majority of the business opportunity is. It also -- they also have very, very complex requirements that Guidewire, I think, uniquely touches and uniquely supports. -- we'll talk more about that later in the presentation. It's also a market that's worldwide. You'll see a slide later on about our aspiration is to run core systems for the whole world, and this pie chart shows you why. Everywhere P&C insurance exists, Guidewire intends to sell and be successful. The other thing that you need to understand about P&C insurance is that it's very broad.

The requirements -- this is the same system that we use to meet the requirements of insurance companies selling auto and home insurance as well as the companies that are selling insurance to -- selling commercial insurance, selling D&O insurance, which we need. I need it right now while I'm giving this presentation. So this is a system in an industry that really touches sort of every facet of the economy and every facet of our lives. What that does is it creates a very durable and resilient industry that basically tracks with GDP growth, right? It's just very steady, kind of plow straight through recessions and shocks. And that's great when you have downturns. Sometimes other industries accelerate faster than insurance, and that's not so great.

But it creates a very, very durable end market for us to focus on. Our mission, and I'd like to say when I talk to customers, this has been the mission of the company for the past 25 years, and I expect it will be the mission of the company for the next 25. We exist to create a technology platform that insurance companies can use to innovate with, to engage with customers in new ways, to create new products, to create business agility through their IT systems and enable them to deliver insurance and meet the demand for insurance worldwide. The story of Guidewire, let's say, and I don't remember who did this, but it was on our last earnings call, someone introduced this idea to us of chapters.

And so we want to describe where we are today and where we're going forward in the context of 3 chapters, right? There was Chapter 1 at Guidewire where we decided to create modern software to meet the demands of the industry. There was Chapter 2 of Guidewire where we decided to turn that software into a cloud service that we were responsible for running. And now there's where we stand today at the beginning of Chapter 3, where we're going to start to create new applications, new analytics-oriented services and use cases, new AI-powered applications and capabilities that power this next generation of the insurance industry and something we're calling Intelligent Insurance, okay? But -- let me start with Chapter 1.

What you see behind the slide of our core products is like this incredible picture of the complexity of what's entailed in delivering a core system in the insurance industry. We participate in successfully the most complicated IT projects in financial services in the world. What we do with our customers very, very often, mostly actually takes multiple years to implement. Guidewire systems are typically integrated into 50 or 100 other applications. And these are incredibly stressful. These are sort of like bet the career projects for the people that decide to go implement Guidewire.

We take that very, very seriously. And we -- somebody also said to me the other, it's pretty unique that the company has got to the level that we have with really 4 core products, right? We have a product for supporting claims automation and claims system in the insurance industry. We have a product to support policy administration in the insurance industry. We have a product to support billing. And then we have a fourth product, which we call InsuranceNow, which is geared more towards the lower-end smaller insurance companies that packages all 3 of those core applications together. But this is how Guidewire started and these applications, these core system applications really drive the company now and into the future.

Together, this has created something that's been wildly successful. We have almost 350 core customers as of the end of the fiscal year. We have over $1 billion in annual recurring revenue now. We touch in one form or another almost $800 billion in direct written premium. So we've made a good -- we've made a lot of progress in terms of at least touching in some way that $3 trillion direct written premium opportunity. Chapter 2 was all about taking those applications and turning them into cloud services. And there's a lot of different ways that you can think about this. One is we take responsibility for the infrastructure. We take responsibility for running these systems in production, which is very difficult, okay, which is a lot of work.

It also changes our perspective in how we build the systems so that because we're responsible for them, we can tweak those applications so that they're easier to run. And there's benefit there, there's value there. But I think the most important thing that we did when we built this cloud platform is we took responsibility for the upgrades, okay? We said, no longer is it something that we're going to do once every couple of years, ship a new version of the product that all of our customers have to accept and almost effectively reimplement. But instead, because we're responsible for the upgrades, we can take that into account when we create the next version of the software. And in the process, we can create something that is just significantly more value to our customers.

And so over the past, like, say, 6, 7 years, we have achieved something with respect to customer value that's just very, very different than what we were able to do when we were an on-prem software company, right? We have shifted from a world in which we were releasing software once every 2 years to where we were releasing software twice a year. And then I don't remember Diego, 3 years ago, we shifted to 3 times a year. And with every single release, we can add functionality to the cloud platform. We can add functionality to these core applications, and we can deliver more value to our customers. And these are very, very significant things that address the headaches, the bottlenecks in the IT departments that slow down insurance companies and create, like I said before, the technical agility they need to innovate and grow and execute their companies more and more effectively.

This cloud transformation, the cloud chapter of Guidewire has been phenomenally successful. My favorite word to describe the last couple of years, phenomenal. Like we tweaked this slide. A lot of you probably have seen a version of this slide in previous Analyst Days. We tweaked this slide a little bit to show you the total core customers at the company, which, as you can see, from fiscal year '19 to today has grown from 266 to 349, but you can also see is just this incredible growth in cloud and how -- while we still have a lot of core customers to go that are still on-prem and will eventually move to cloud, we've made this incredible progress in core customers on cloud and its incredible progress in the ARR or annual recurring revenue associated with those cloud agreements.

And the last segment on here is probably the most critical as it relates to thinking about Guidewire as an investment is we made a very, very significant investment in building the cloud platform and creating an organization that was capable of scaling to support the most complex insurance companies in the world. This was a bold bet that we made on the company, but we are executing now more and more efficiently every release and every quarter. And the part of this story, we often talk about all the features and the capabilities that we're able to deliver to the market.

But from an investment perspective, the engineering that is going into enabling us to run the service more and more efficiently to run the service with the same number of people as we add customers, it just creates a lot of economic value, both for investors, shareholders, but also for Guidewire customers because it creates more space for us to be able to invest in the feature creation and the application creation components of our R&D organization.

So this V-shaped recovery, as we sometimes call it, has been something that I'm personally very, very proud of. And I told you before that this is like an industry that spans the globe. This is a picture I'm also very, very proud of. It's like where we basically paint a country yellow whenever we get at least one customer. And to me, that proves that we've got a foothold in that country, and we're capable of winning the rest of the P&C insurance companies in that country. And we're kind of running out of space. We had to take Russia off the board, and we don't do business in China. And so -- but if you take away those 2, we are doing extraordinarily well. We talked a little bit in the last earnings call about the progress that we've made in Latin America, which is just really, really impressive. And that is going to become for us another region of the world where we can sell and we can be successful.

So the other component of this, and I would encourage you just because this meeting for the folks that are here in person, this meeting is at our Connections user conference, Guidewire has always been and will continue to always be about more than just Guidewire. We have created, I think, one of the best ecosystems of partners and systems integrators and marketplace partners in enterprise software. It's certainly not the biggest, right, because we have a -- we're a vertical software company and we have a specific focus, and we can't just do everything. But in our world, we have created something that is very, very special.

And the opportunity that you have this week is to go upstairs to the sixth floor and see this in real life and get to talk to all these people and meet all these people and talk to them about the businesses that they have created and are creating around Guidewire and around the P&C insurance industry. And this powers our success. This creates more value. It enables us to deliver more innovation and more benefit to our customers without personally -- without investing in all of these solutions ourselves and ultimately create something that I think is a lot more defensible and a lot more -- a lot stickier once deployed. So now -- okay, so that was Chapter 2. I'm not saying that the cloud journey at Guidewire is over. If you think back a couple of slides, you can see how many on-prem customers we have and how much focus it will take for us to convert every single one of those on-prem customers to our cloud platform.

But it is time to start to think about what is this third chapter for Guidewire and for the industry really look like. And -- now I didn't present this slide when we talk to our customers in our keynote this week, but we thought it was appropriate for us to sort of give you a view into how we think about the economic opportunity that we see in terms of creating efficiencies and creating better outcomes in the P&C insurance industry.

So I told you before, we're operating, let's say, at about $3 trillion in direct written premium. And so then you want to think about for every one of those dollars, where do they go? What happens to those $3 trillion. And this is a representative scenario for commercial lines, but it kind of plays out roughly the same or similar for personal lines insurance. But out of that dollar, about $0.57 flows back to claimants in terms of loss payment, okay? And the rest of the $0.43 is spent operating the insurance industry.

And this is very, very good actually. Like some would say, this is terrible, and we need to fix this, but this is maybe you could say the best we can do right now. But we think with technology platforms like Guidewire, with machine learning analytics, with data sharing strategies like we'll talk about with generative AI and large language models, we think there is an opportunity to make meaningful progress in creating a more efficient industry.

And you can just see like multiplied by $3 trillion, this creates an incredible opportunity, not just for us, but also for our customers and also for every single person who owns a car, every single person who owns a house and every single person that owns a company, there is an opportunity to create a more efficient system, and we intend to attack that and try to deliver on that over time with our products and our technology and our use of analytics and AI.

So this next slide kind of -- I want to give you a perspective of why I think Guidewire is unique, okay? We're certainly not the only company selling software to the P&C industry. But I think we are the only company selling software to the P&C industry that aspires and actually does have now applications that cover this complete insurance life cycle, all the way from product definition to pricing, to the distribution of software, to the practice of underwriting to policy administration and claims, okay? We can connect the dots across this entire life cycle, we can do it on one common platform. We can collect the information from that platform and put it into a data platform that we can then make available to the people operating the system so that they can do it more and more efficiently.

What we have unlocked now with our Guidewire Cloud platform is this ability to attack and deliver on capabilities within each one of these circles that have these side benefits in the other circles that have these side benefits in the rest of the business process that I genuinely think is unique. And I think that, that's beneficial for Guidewire from an investment perspective. It's also extremely beneficial for Guidewire from a customer perspective is when you partner with us, you're getting a company that is thinking about this complete solution and a partner that they can trust over time to continue to deliver on something that, like I said before, I think is very unique. Okay. So now there is this question about how is this all going to become more intelligent. Generative AI is obviously going to -- I think, obviously going to change the world, and it's obviously going to change insurance. But I think it's interesting to think or important to think about what's going to happen next and how do we think about what impact it's going to have on the insurance industry.

I think the first thing that is going to certainly happen both at Guidewire, but also in the community of systems integrators that are implementing Guidewire is that development velocity is going to increase. Large language model -- like the one thing that large language models just completely do well right now, no question about it, is they help us write code. They help us write test cases. They help us increase the velocity of development teams. We're harnessing that for our own internal development, but we're also actively working with our -- with systems integrators and our own professional services organizations to increase the velocity around which we can implement Guidewire. This all by itself is going to be a dramatic improvement. It's going to be -- have a dramatic impact on the industry.

The next thing that's going to happen is that underwriting will transform. The current process for commercial lines underwriting in the world is relatively unstructured. It's like an art form, right? It resists the sort of traditional database automation systems that we've all sort of made careers out of implementing. And it's like perfectly suited for what large language models can do, right? It's perfectly suited for creating assistance to underwriters that can remove steps from the process that can summarize documents. We can ingest documents into Guidewire, and we can spit back out summaries that make the process more automatic, more efficient.

I think underwriting is going to change. There's -- I don't want to like make personal proclamations, but there's plenty of customers that we're working with who think that within 5 years, this will look almost as automated as personal lines, auto lines are operating today. We'll see how fast that goes, but we're very, very excited about the transformation that's coming and the role we can play in driving it.

And then if you think about the third bucket here, it's like how is this going to change the process of claims adjusting, -- how is this going -- which today is a very manual process. There is going to be a sort of slower approach in our opinion to this. There's going to be a more stepwise approach to applying large language models and machine learning to the claims processes. But eventually, this will change dramatically as well.

And I also want to say, and this is maybe the slide that we worked on the most in terms of this event and Guidewire right at this moment. I want to be very clear about what our role is and what our unique responsibility is in this AI transformation for the industry, right? Guidewire's primary mission is to provide a core system our customers can trust to create open systems so that customers have access to this information they need to take advantage of generative AI and create the applications that are going to transform their companies.

We need to create what I'll call this insurance-specific context inside of our platform that we can then provide to our customers and our partners so that together, we can build the AI solutions, the AI-driven solutions that are going to drive this change. What's important about this slide is like we're in a unique position to be able to create this context to use things like MCP servers, knowledge bases and tools to make it easier and faster for our customers and for our SI partners and for our marketplace partners and for our own application teams to create the AI-driven solutions that are going to power this next generation of change in the industry.

And the clear part -- the part I want to be crystal clear about is that we don't expect that we're going to do this all by ourselves, okay? But the one part that we can do ourselves and the one part that I think will very much differentiate us in the market for the next decade is we can build a system that's open, and we can build a system that attracts the partners we need to be able to collectively drive the transformation in the industry that we think is right there. Okay. Last slide for me is I think you guys all follow us pretty closely. We did an acquisition. It's not quite closed. We're going to close it shortly, but we signed an acquisition of a great company called ProNavigator. And the story here is interesting. Like part of this story is about AI. I'm going to tell you that in a second.

But there's another part of this story that relates to our partner program and our marketplace and where this company got -- how this company got on our radar. So I'll tell the AI story first. One of my favorite applications that we've rolled out internally at Guidewire with respect to AI is Glean. -- right? It's just this amazing tool that enabled us to take all of the knowledge bases that we had and put a search engine on top, connect that search engine to a large language model. And then for me, instead of having to look up the place that told me the steps for how do I reset my password, I could then just say, how do I reset my password? And it would go off and find the answer and tell me and my life would be happy. And that was great.

And when I saw ProNavigator, I said, "Wait a minute, this is like glean for insurance, okay?" This is a system that takes the knowledge bases, that takes the standard operating procedures, that takes the -- all the expertise that you use to train your best people pairs it with a large language model and pairs it with the context of where you are in a Guidewire workflow and enables you to have a conversation with an expert. And I saw that. I was like that is exactly what this industry needs. That's what our customers need. We also, like I said, the other half of the story was this is a company that came up through our partner program. We have this little component of our partner program called the Vanguards part or the Vanguards, what, the Vanguards, the Vanguards. And -- sorry, I'm tired.

And it's for the smaller companies that haven't quite made it yet and don't quite have the capacity or the resources to do a full integration into Guidewire. But we create this opportunity for them to connect with our customers. And they did that and the customers kind of love the product. And they said, now we want to graduate. We want to make the investment. We want to build a real integration to Guidewire. And that kind of got them on our radar. And we went out and talked to some customers about it.

And the team came back to me and they said, we've talked to customers about a lot of partners, but we have never spoken to them and gotten such amazingly positive feedback about a tool like this. Everyone loves this application. And so we looked at it and we said, "Hey, what's going on with this company? And we're very lucky to have the opportunity to do this acquisition and welcome them to the fold here at Guidewire." And hopefully, roll it out to each and every one of our customers. And so I think it's a great story for this founding team, and I think it will be a great story for other marketplace partners who aspire to sort of kind of make it and grow and build something that can be connected into everything at Guidewire. So we're incredibly excited about this. Okay. That is enough for me. And now I would like to now welcome up on stage, John Mullen, our President, and talk about expanding success in the program. Okay.

Welcome, everybody, to another connections. You give us the feedback on Vegas versus Nashville. -- trying to stuff a lot in this week. I'll share a couple of thoughts as we go, I'll share a couple of thoughts about where we landed last year, kind of putting a capstone on that. A little bit about where we're going in this next chapter from my perspective or from Guidewire's perspective, but as important from the perspective of the executives in the insurance industry that we aspire to work with, and then we'll finish up with some growth agenda items, okay? So Mike talked about this next chapter. And for me, the prior chapter is very important in Guidewire's history has been first, building the applications for core processing for the industry and then very critically building the platform to support the applications that drive core processing for the industry.

But this next piece is really interesting. It's intriguing. It has to do more with being the industry platform, being the platform that serves the industry, not just from a core processing standpoint and transacting work, but also for making decisions and really where all of the work of the industry can be done. And that's with inside the carrier, but it also starts to crack into some of the things that happen between carrier and their trading partners, whether it be broker, whether it be claimant, whether it be third party, whether it be reinsurer. These are the types of conversations that we're seeking to access. And Mike showed you the dollar -- the split of the dollar in the combined ratio. Well, we start to move from efficiency gains as the primary backbone of our business case to also starting to look at indemnity improvements and risk selection and pricing improvements and speed-to-market improvements and the ability to enter and exit markets much more thoughtfully as a carrier. And that's what I'm most intrigued by in this journey forward.

And as Mike said, and I'll go back a little bit to when I first joined. Without that update process, this evergreen conversation and this ever innovative conversation wouldn't be available. So I'd be a little remiss since Diego is not presenting. I'd be a little remiss if I didn't take a minute to congratulate just the phenomenal achievements of our engineering and product and development teams over the last 2 years. The pace, and we had a lot of pressure points that we have conversations about the pace at which that team has established the platform by which we can now build applications and unlock new conversations with business leaders inside of carriers is extremely powerful. So let's talk about that. But first, last year. This is the win rates for last year. We share this slide every year. The unit count win rate progressed nicely globally last year in all geographies.

But more importantly is the win rate by DWP progressed quite substantially last year, okay? Winning at all ends of the market. So Tier 1 progress has been really nice over the last 18 months. That's on deals, but it's also on just getting into more strategic fabric conversation and planning, road map planning. We've seen some of the results in the win rates. But what really has been nice has been this piece around Tiers 3 and 4, and our win rates there continue to progress nicely, our ability to address what that market needs, things like industry intel, things like pricing. These are the types of things that really get us closer to having a much more substantial impact on the results of those carriers at that end of the market. And our agility to sell in that space and also deliver in that space continuing to improve. By region, Americas continues to progress.

The investments we've made in EMEA to get closer to market, build more of a sustainable leadership team there and have that leadership team be able to make the decisions that drive both product prioritization and marketplace prioritization has really shown some results. If I look at APAC, we're really pleased with the opportunity there. And Australia and New Zealand, we continue to be very close to the market there, and things are going quite well. The opportunity I talked to you last year quite a bit about the opportunity investment in Japan. We're starting to see green shoots there that we feel really strongly about. We're going to hear a little bit about that later.

But I think it's really important to really look at these 2 things, Japan, Germany, Latin America. These are the types of investments we're making that take -- these are sustaining investments that really focusing on line of business specification and geographic specification in these markets is really giving us an opportunity to differentiate from any competitive profiles out there. So what?

So as we think about this next chapter, on the dimension of industry scale, we continue to see progress of putting premium on the system by region, by geography, by tier. That's important. Mike said it. Diego's team will always say it. Christina's team is paying attention to it every day. The ability to run the system and get customers predictably to the service is paramount to us, and we'll never forget that. That's going to be a big part of our investment thesis. But on that platform, as now a platform for the industry, we start to get into more conversations about product speed to market, about pricing agility. Let's talk about pricing agility for a second. In the personal lines space, in all the markets of the world in mass market auto, pricing agility is the #1 competitive footprint for defining winners and losers and gains in market share. And having more of those conversations with carriers about where they want to be because of the investments we've made is unlocking a whole new platform for us.

We have to get better. We have to invest in having those conversations and influencing those outcomes. Risk selection for commercial lines, number one, you start to see a theme about some of the products that we've put out there. This is all very coherent in moving up the life cycle, up the value chain for the executives that we're dealing with, selling to, having conversations with about driving real sustaining market value. And as we move both the continued scale across lines of business and geography and up the value chain, we really do get into a new conversation of context and value creation and value capture. This is extremely interesting, and it was extremely interesting, and it follows the pattern of first chapter, second chapter, third chapter. It really has some rocket fuel now around generative AI.

So as a general purpose technology, generative AI is one of few or maybe the first that focuses in equal measure on execution at scale, scalability and also expertise at scale. So the performance and intelligence of the individual operator or the enterprise at large. And that's the piece that I think we're uniquely qualified in. This move up the value chain was something that was paramount to Guidewire's story in the first place. But the pressure that exists now on the carriers that we talk to and that we're doing business with is -- has increased exponentially. I'm never going to tell you that property and casualty insurance is going to be a first mover on all technology. But it's moving faster than it ever has before on the catalyst for change. And that catalyst for change is bombarding the executives that we talk with. What should we do? How do we deploy agents? Do we need -- where do we need to be on core processing to deploy agents thoughtfully?

And that's where all of this goes way beyond unlocking new value and expanding scale has everything to do with the context to make that work. So thinking about the starting points of deploying agents, but also about the finish line of deploying agents. How will information be extracted from the core systems for decision-making? And in what context will we land those decisions so that they can operate at scale across geographies and across business lines. This is a very unique value proposition.

Mike said, one of the things that we can do very uniquely, one of the things that we can be best in the world at is providing and sustaining that reliable, durable context for the investments that we make for our customers to consume, for the investments that our partners make to be an efficient and effective route to market and for the investments that carriers make and how they can land that in and really start to drive value from it on a sustainable basis. That's something that we're going to keep in mind as we continue to engage in these conversations with executives about their future.

So left to right here, pricing center, underwriting center and industry intel in order for a reason. Pricing center, a fairly definitive market. Pricing and rating are fairly defined markets in the space that we serve. As we enter into that based on the backbone of the Quantee acquisition and now the launch of Pricing Center, we're in a unique position to link through APD and PolicyCenter, all of the things that really drive speed to market risk selection and pricing. And that's going to -- it's a ton of energy around that over the last couple of days. So we're excited about where that goes. It will also have a fairly definitive product road map behind it because it's a fairly defined space. Underwriting center, a very defined problem statement, but not as clearly a defined opportunity space.

There are a lot of components that will make up underwriting center as we go through it and the opportunities that we discover in that and shape in that and invest in that based on customer feedback will evolve quite a bit. Industry intel. We didn't put a lot of airtime into industry intel in the keynote, but don't sleep on it. To me, this is a really interesting element of how we solve problems with and for the industry. We've got access to a lot of information, and we're investing heavily in the data science team to run models against that data, and we're starting to see some really early results. But more important than the early results of the models is the pace at which that team can now start to drive value in creating new models and running new models and testing new models and even working with customers where they can leverage the data to create their own models.

So I'm really excited about industry intel, not just because of what it is, but how we've set up that team to lead. And I think that's a much more ambiguous space to operate in. The opportunity size is huge, and we're going to continue to define that. And as we go forward with you guys in the future, we'll put some more crystallization on what that TAM looks like, how we're defining products to serve that space. And that will be something that we get a little bit much more mature with you over time. But we're really excited about where that is. And we've got a lot of interest from customers, particularly in that lower end of Tier 2 and in Tier 3, where they might not have the scale to have their own data science teams. We've got a lot of interest in shaping the conversations about how we can do that work with and for them.

So let's go into a couple of them. Pricing center, faster speed to market and pricing agility. The Quantee team has fit in about as well as we could possibly hope for them to fit in at this point. Now after this week, they're going to be exhausted. So we have to scale that team. We have to be thoughtful about how we go into specific markets, how we go into specific lines of business. But the foundations here and the ability -- and the fact that, that technology was running on GWCP at the point of acquisition, not months after the point of acquisition, speaks volumes about how well this will work for our customers.

So we're really excited about that, and we're really excited about the conversations of engaging now new users. As an industry platform, 2 things have to be true. You have to create the place where others can invest to drive value because of the placement of the industry platform and extract that value for themselves. The other one is you have to think more about all of the personas. We have to think more about all of the personas that make the business of insurance work. And we think about the world of the actuary has been wildly underserved from a technology standpoint. There's a lot of reasons for that. But the canvas and the opportunity to collaborate in the world of the actuary is really quite interesting here. And we start to get into closed loop between claims reserving and actuarial pricing, we start to get into a really efficient conversation of how fast and agile our customers can operate. So this is a big one. Underwriting center.

As I said, a little bit more of an ambiguous space and a space, frankly, that a number of our customers, and I've had this conversation a lot over the last 2 days, a number of our customers would say, okay, good. We've been wanting you to be in this space. We want you to be more declarative in this space. This is an opportunity where connecting the thread from a submission, see the world of policy center operates on a structure post bind, therefore, some structured data or a structured element of the database to build off of. But the world of many of our customers starts at the submission, much more unstructured, a lot more variables, a lot more things coming at them.

So as we think about underwriting center and the world of the underwriting assistant will change materially, how can we thread the context, and I believe we will, thread the context for the underwriting assistant and the underwriter and the product manufacturing teams to really think more about how do we get all of our focus on risk assessment, on selection and pricing and on portfolio analysis so that we can really allow the expert underwriter to be an expert underwriter and so that we can provide the context through things like ProNavigator for the less experienced underwriter to now be operating as an expert underwriter.

And this value proposition will hold up over time. Okay. Industry intel. I've said a lot about this already, so I won't belabor it other than the fact that this auto bodily injury and collision claim model has really been interesting in the market to prove out. So the team's ability to present this to customers, access new buying centers inside of the carriers and really talk about business value and business cases that are not just about cost and savings and efficiency, but about indemnity management has been really powerful. So we're going to see this develop over time. And as I mentioned, that model factory to build and deploy new models is really quite interesting. We're spending a lot of time in that space.

Okay. So what does that do to our TAM? So as you can see, the TAM here on Underwriting Center and Pricing Center gets -- can be pretty well crystallized. We know where Pricing Center is. We know where the competitors are, we know where the market is. Underwriting Center has a much more wide array of competition. You start to get into analytics and into the deployment of the Agentic model. Well, we're cracking into the new space there, okay? Because we're starting to talk about not just efficiencies and not just indemnity, but also growth and also headcount and FTEs from a totally different angle and performance of the organization and scalability of the labor base, not just of the carrier, but of the entire insurance value chain. Really interesting discussion there.

So we're pleased with what this unlocks from a new TAM perspective, and we have a lot of work ahead to crystallize that. Okay. So what are the growth pillars that drive that as we think about Intelligent Insurance going forward? As we all know, migrations is a big part of it. okay? Continuing to make it easier, more predictable and more affordable for our customers to migrate to cloud will forever be a part of our journey. And the services team has made some very large investments. We've got the referenceability running. We've talked about that a lot in the earnings calls.

But getting into strategic road mapping and improving program speed, Michael Mahoney and his team have made some very substantial investments in tooling for that, and we're starting to see the payoff on that. Expansion with existing brands. What many of you might not know is last year, we gained more in financial progress with expansion within existing brands than we did in migrations. I think this is a part of our story that needs to be well understood, which is the expansion within the world's top brands, world's top insurance brands as we think about geographic expansion and line of business expansion is a very powerful opportunity.

Net new logos, continuing to win and invest in geographic specification and line of business specification. That's an area where now we can continue to invest on a relative basis, higher volume. And as we connect closer and closer with these markets, we're starting to see some real results, the most exciting I mentioned being Asia Pac last year -- I'm sorry, being -- well, Asia Pac has progressed nicely, but Latin America last year. Pricing, Underwriting, we've talked about. This is a new buying center. This is a new value center. And then industry intelligence, again, quite an expansive opportunity.

And it's so much more about the data that we have access to and how we can build models against it and providing the context for how those models and how those decisions can exist sustainably, reliably and durably inside the carriers' world as we continue to progress as the industry platform, both on core processing and on decision-making. Okay. So last comment before I wrap. I do want to share here that in Q1, the Hartford, a long-standing customer of ours, has made the commitment to move to cloud. That information has gotten out a little bit over the last couple of days, so I wanted to balance that out here. We're really pleased.

This company is really pushing the envelope on their Agentic architecture on their strategy. They've been a great customer of ours for a long time, and we're really pleased that they recently made the commitment to move to cloud with us. Okay. So with that, I really think it's important that we hear from our customers. It's always the reason why we get here at Connections. So I really appreciate our customer panel joining, and I'll turn it over to Christina Colby to take us into that chapter.

Apologies, went the wrong direction. Well, thank you so much. This is, I think, the part that I love to hear most, and I hope that you do as well. I'm joined right now by a phenomenally esteemed group of panelists representing our customers. Daniel Engelberger, John Chu and Paige Vincent. So I'll give them a moment first to be able to introduce themselves. Daniel, if you'd like to go ahead.

Thanks, Christina. Daniel Engelberger, I'm the Chief Operating Officer for Sompo International and also a member of the Sompo P&C Management Board. My responsibilities include IT, operations, data and analytics, governance, real estate and facility management, procurement and multinational insurance.

Daniel, thank you so much for being here. We appreciate it. John, if you'd like to go ahead.

Yes. John Chu, Founder and CEO of Bamboo Insurance, do everything even including taking out the trash for the company.

Full service. I like that. That's fantastic. And Paige, if you'd like to go ahead.

Paige Vincent, Chief Operating Officer for Hollard. I don't take out the rubbish. I don't even do that at home. That's my husband's job. But at work, I do look after all of our customer-facing parts of the business, say, sales service claims. I also look after our customer advocacy area, which is a combination of disputes and external advocacy with consumer groups. And similar to Daniel, look after procurement, supply chain and for sins of the past, risk controls and advisory team.

Excellent. Well, as you can see here, there's a wonderfully vast set of experience across the group. And one of the things that we wanted to do was to hopefully give you a sense across a variety of different customer tiers as well as geographies and lines of business.

So I will get things started with a series of questions. We've allocated about half an hour for this, but we also want to be certain to hold time for you to be able to ask questions as well. So I will get the ball rolling and then please be thinking of anything that you might like to ask on top of that.

Paige, if you don't mind going back to -- you were talking about the vast variety of your responsibilities. One of the things recently is that we have deployed ClaimCenter for your claims organization. It has been live actually for quite a while now. So it would be great to hear about the experience that your team has had taking advantage of the capabilities within ClaimCenter.

So to give a little bit of background first on Hollard, we are a partnered-based business, so you will not see us sell insurance direct to customers in Australia. We do that through our major partners, one being Commonwealth Bank of Australia, which is the largest bank in Australia. And we've also partnered with the largest grocery store, which is Woolworths. So we have the privilege of providing insurance to their customer base.

Now in the way that organization has been set up, we have acquired systems over time with those acquisitions. So prior to moving on to Guidewire, we had 3 different claims platforms. We had 2 different telephony systems, and we literally had teams working on different laptops. So if you were on Hollard heritage, you couldn't then service a CBA customer and vice versa. So you can imagine the inefficiency that, that drives and cost to the organization.

So 2.5 years ago, we made the decision to move to Guidewire on the cloud. And the change that, that has made is though, now we are on one claim system. We have one way of managing claims, one telephony platform. We have one claims team that services all of our partners and we've been able to deliver a foundational customer experience that is exactly the same across the board. So we didn't just see the benefit in one partner, we saw it across all of our partners because we moved to one way of doing things, things to moving to Guidewire.

From a people perspective, because we were so siloed in the way that we manage claims, so it's really hard to get engagement up as a result of moving to Guidewire because we simplify processes, there's automation in there. Our employee engagement has literally doubled in the claims department.

That's fantastic to hear. I love -- as you're describing, that's a very employee-centric perspective, but that -- the experience that they have passes on directly to your customers, which is really terrific.

So speaking of customer centricity, if anyone had an opportunity to see the main stage presentations today, John was one of our speakers in talking a little bit about Bamboo. John, would you mind talking about -- you came from a large carrier background. You mentioned that earlier today. But you have this vision of creating a technology-driven insurance organization. Could you describe a little bit about sort of that genesis of Bamboo?

Yes, sure. We migrated to Bamboo -- or we migrated to Guidewire this year. And as a startup, obviously, we started encountering a number of scalability issues, also capabilities in software and other things that other competitors have just weren't what we needed from a competitive standpoint in terms of where we wanted to take the company. And as we've turned the corner and start scaling across dimensions of geography, product and channel, we knew that we were going to be encountering things that we just couldn't overcome. And so we decided to go with the Guidewire platform.

And it's created a number of opportunities already that we didn't even foresee, which would create different capabilities for people, for our agents and for our policyholders. We're also extremely excited because I think we're one of the very first users of the digital platform. It's a fully functional direct-to-consumer opportunity. I'm not sure we're going to use that from a DTC perspective, but it really gives us a number of strategic alternatives in the point-of-sale channel that we've launched within the homeowner ecosystem.

That's great. Thank you so much. And as you shared earlier today, you have very strong growth trajectory set ahead. And so we look forward to really scaling with you along that way.

Daniel, I'd love to ask you. So we have -- we're very privileged really to have a very strategic relationship with Sompo Group. We have an opportunity to work with some of your largest entities in Japan, as an example, and then also some of the smaller entities around the world. Can you talk a little bit about the nature of that -- the totality of the partnership? And how we're still able to work together for the needs of each of your operating entities?

Sure. So for the ones in the room who don't know Sompo to start with, we are a Japanese born, truly global insurance company. So out of the premium volume, we have about $15 billion in Japan, and roughly $17 billion outside of Japan of P&C business.

The partnership with Guidewire started in 2014, so quite a while back. And since then, for the international part of the business, we brought all our commercial lines of businesses on Guidewire, PolicyCenter and ClaimCenter. We have about 38 products, unique products on the platforms and 100 variants on the platform.

When we look at the geographic reach, right, so when I talk the international part, that's the U.S., that's Europe, and that's Asia. That's all on the international platform. We've just started in Japan. So with the direct business, ClaimCenter, and the next step is, as we actually also this week, so we weren't ready to show a slide here like the Hartford, but we agreed on the next step to move to the cloud, and that includes then Japan, looking at the commercial business in Japan. So that's the -- probably the rough order of magnitude.

Thank you so much for sharing that. Perhaps if we could kind of stick with this thread of conversation. As you mentioned -- obviously, we're very excited to work with you on your cloud journey. As you went through the assessment because you've also known Guidewire systems even longer than what you were describing as Sompo's history. What were some of the things that really appealed to you around Guidewire Cloud? And perhaps that might even relate to some of the things that you've seen here this week at Connections.

Yes. See, yes, I know Guidewire since many, many, many years, also from my previous employer. But see, as Mike pointed out, as also John pointed out, as a carrier, when you have to do your upgrade on your own, that's quite a painful exercise. And especially when you have very intelligent people in the business, they try to customize the businesses. And the place where I sit, it's a pain.

Now also the frequency of update is a lot less than when you look at the cloud side of the house, right? So you heard John talking about it, that Diego has managed to do 3 updates, I thought, right, a year. And that is a very compelling point for us as a customer.

The other thing I want to add is, right, so how I look at operations and IT. It's very simple. There is a basic layer. It's stability, security and scalability. So stability and security, I think we have been pretty good also on the on-prem. Scalability, the cloud is a lot, lot better.

And then the next layer for me is speed and precision. So we talked about the 3x a year, speed tick. Precision, I think Mike showed an interesting slide with a dollar note, right? So there, when you're on the precision side, you can gain quite a bit as an insurance carrier. And the last bit for me is trust. I want to work with a partner I can trust. So trust based on delivery, and that has always been true so far. And this is why we're taking the next step.

That's terrific. Thank you so much. Well, we hope that we can always continue to do things that will earn your trust again and again.

John, one of the things that I'd love to ask you about, I think a large emphasis of things that were discussed this week really talked about the impact that AI is going to continue to have on the industry. My sense was at least through a lot of the conversations that I had that it was probably more forward-looking conversations than ever.

When you think about with such an emphasis on technology within your organization, if you're looking out 5 to 10 years, how do you really think about the technology footprint that you want to have, the way that you obviously uniquely use data? What are some of the things that you're very focused on then in the next 5 to 10 years? And specifically, how would you want Guidewire to really participate in that?

That's a pretty deep question. I would say 3 things. One, if you think about AI today, it's rapidly evolving. So for us, one of the very important things we're trying to do is create some degree of governance around it because it gets to the point where it could be ultimately too powerful to make decisions on its own.

The second is we're not yet at the size of Sompo and some others. So I think the next critical juncture for us from an evolutionary standpoint is really having enough data so that you have machine learning. The way AI we use today, it's still very human driven as a form factor. So it's us working with our AI partners to give them the right data, tell them to search for the rules and then use the software to generate the outcomes. I think that will get turbocharged once we get to a certain size where the machine could do the things that we do from a human standpoint.

And the third thing, which is where Guidewire would come in is version control. So where AI really becomes very, very powerful in the insurance ecosystem is if you have machine learning and the software, then it can generate the changes on its own. So that the versions that are upgrading constantly are in queue with the research that you're trying to put in. And so having a system that has the modularity and configurability to allow you to extract those values when you've created new dimensions of AI is going to be very, very important.

So again, governance get to a point where you can use machine learning rather than human-driven and then having the version control and the speed to access those values.

That's great. Thank you. I love -- there's 2 things that you really pointed out in that. I think one that at least I've noticed with so much focus around generative and agenetic AI, sometimes people lose sight of the inherent value of thinking about more classical machine learning and the value there.

And then similarly, I think, Daniel, you also spoke about how technical currency just needs to be table stakes so that you can start to do all of the higher level and higher order capabilities that you want to focus on?

Well, I was just going to say that the other that's really the kind of the sea of the unknown where I think AI could take it is beyond the unstructured data side. So most of the stuff that insurance companies really deal with is structured data, it's policy data, it's claim data. But as we get more and more engendered in terms of findings, it's taking unstructured data, be it for us, home inspection reports. Upload home inspection reports in a very unstructured way and turn that into structured data. That's kind of a sea that insurance companies have been trying to cross for the last 20, 30 years. And I see AI being the bridge that finally unlocks some of that value.

I couldn't agree more. So my career actually started focused around the way that insurance companies consume data outside of the actuarial space. And the constraint was always that there was so much unstructured data, and there was a push to then try to make it structured, which is complicated enough on its own in order to be able to consume it. So being able to skip that step simply because of the overwhelming amount of unstructured data really is to me the game changer for the industry.

So then speaking about the benefits of generative AI, Paige, if you don't mind me asking, one of the things we had talked about actually in yesterday's keynote, we talked about claim summarization as one of the first capabilities of the claims assistant to come. And we're able to pilot that with your organization, which was terrific. Could you share a little bit about the experience that your team had being able to use those capabilities?

So I think, first of all, it's an absolute privilege to be involved at the very start and help design out how the claim summarization tool will work and how it's going to add value to our organization. And particularly in the context that in Australia, we had a parliamentary inquiry that released results last year in terms of insurance responses to the 2022 floods. And the key output of that inquiry was the insurers across Australia need to uplift how they communicate, how they respond to vulnerable customers. We need to provide personalized service for all customers without increasing cost, which is a very interesting proposition.

So when we think about claims summarization, for us, the key things that we'll focus on is one, we're going to make sure we get some efficiencies and benefits out of it. It currently takes about 30 minutes for a claims adjuster to summarize a claim. Claim summarization is giving it to us in a minute. But more importantly, what it is giving is emphasizing information on that claim that is really important for that adjuster to respond to. And it's actually creating capacity for them to move away from being transactional and just trying to find the information and respond to actually being a human being with that customer.

And when you think about the number of vulnerable customers, not just in Australia, but globally, and the way that we need to respond to them is one thing to get information quickly. But then if you were to match it with ProNavigator being able to then all of a sudden balance the profile of that customer, the vulnerability to match the need and have it all there for the claims adjuster to be able to respond to is quite game-changing. And so we are super excited going about getting claims summarized alive and hopefully, that will be February that we'll be able to get the teams to kind of test it out and learn, but even more excited about how we could match that with ProNavigator.

Fantastic. Thanks. So I really look forward to that. I love the emphasis, especially because there's so much focus on how dramatically rules are changing sometimes in the negative thinking about the use of AI. What you're talking about is truly, I think, what we all hope for, which is making the adjuster in this case, more intelligent and better suited to be able to handle what they need to address. So that's wonderful.

I want to be certain that we allow for time for questions from the room. So I think we have a couple of microphones being passed around. Great. I see the first question, a couple of them.

Wonderful. Rishi Jaluria, RBC. Really appreciate all the perspectives you have. I want to maybe continue on the thought process of AI. And look, as we've thought about Guidewire with the cloud journey, it's been, I think, pretty apparent that moving to the cloud has turned into a competitive advantage for insurers that have been willing to make those investments. How do you think about AI becoming that opportunity within the industry as well where it can actually not only help in, Paige as you talked about, better customer service and driving efficiency, but actually starts to result in just a better competitive landscape for those that really lean into it and go AI first?

So obviously, there is many, many fields where you can use AI. So for me or for Sompo International, it's a growth engine. So in the international part, we have seen a huge growth, and we don't have the talent available to serve that growth, right? This is why we use AI mainly at the intake side of the house to enable us the growth.

And the good thing is that in combination with Guidewire as a platform helps us to enter new markets. So we went greenfield in Italy and in France last year, complete greenfield. And that was a matter of weeks. We are not as flexible probably as you John, right, but we try to be as flexible as possible. And for a big provider, entering markets, greenfield in a few weeks, that's pretty good, I would say. And this is thanks to the setup we have in combination.

But also we use AI, obviously, for getting the better risks in. We also use it for data analytics. We use it at the claims side, FNOL. So many, many areas to use it. But I want to also emphasize AI on its own, it's not the Holy Grail. You need to understand the end-to-end impact on a customer's journey, on a broker journey and also what it does to your internal employees.

And I think just to echo that point, when you have a look at some insurers that are probably more advanced in terms of AI than others, I think one of the missing pieces is that they are doing it in certain segments and not looking at the end-to-end insurance value chain. And I think any insurer that can do the entire value chain in a way that makes sense, drives better customer outcomes, lower cost, but in a holistic manner, is the one who will get the competitive advantage. And also to emphasize a point from yesterday's keynote that orchestration layer of AI is super important as well because if you're investing in AI in different platforms in different ways, you can actually create more complexity than less in your organization.

If I could just echo, I think that's what I see from a number of customer conversations that there are some very interesting exploration around particular use cases, a variety of different technologies. And that feels great sort of at this immature stage before things are adopted at scale. But for them truly to be adopted at scale and managed appropriately and operationalized, I think that's where we need to see that coherent and integrated orchestration, not something that ends up driving up the total cost of ownership so dramatically because it's very scattered across an enterprise architecture.

Ken Wong from Oppenheimer. First, it's not a question, but for John. Thank you, Bamboo, for ensuring my California home. Two other insurers bailed and then for 5 months, no one would insure us.

And then for Daniel, the question for you. When I think about the Asian market, Japan typically lags, typically reluctant to move to cloud. You guys are obviously making a push committing to go to cloud. Would you say that you guys are maybe early? Or are we starting to see an inflection in that market where perhaps you will see other insurers make a more aggressive push to migrate?

So I'm pretty sure that when one company starts, and we are one of the three big ones in Japan, as you know. So when one company starts, the others will follow. This is my true conviction. But I think from Okumura-san leadership, our Group CEO's leadership, he truly wants us to be at the forefront. So also to be true global insurer, which we are at the moment, right, so already. So -- and this was a very short journey we have been on the international side.

And yes, there is cultural differences, right? So I've worked in global roles for my whole life almost. And you need to accept the cultural differences. There is no better or worse. But when you combine this diversity and when you bring the people on board with facts and data, which we have been doing, then they will move, and this is why we'll push.

Any other questions in the back?

Great. This is Alex Sklar with Raymond James. Maybe one for you, Paige, or anyone else who is in on kind of the full suite. But just given some of the announcements we've seen on the product side, the pace of innovation, what might have to change for you to consider adopting the full InsuranceSuite?

Very good question. Sorry, I'm pausing because it's such a hot topic, and I just want to be careful in terms of how I answer it. So I think, unfortunately, for Hollard, we had made some strategic investment choices, probably about 4 or 5 years ago that we are locked into. So for full transparency, we are on Guidewire for claims, but we are with another provider in terms of policy. And at the time that we made that decision, I don't think we truly appreciated the ecosystem benefits that come from being on the entire InsuranceSuite. But we are pretty much locked into our current position, at least for the next couple of years.

That being said, some of the -- by PricingCenter, for example, my understanding is that, that could be applied to other policy platforms, which we would absolutely have a look at because pricing and rating is an area that we are quite interested in doing better in. So we would look to see how we can leverage the Guidewire ecosystem while still maintaining our strategic investment on our current policy platform.

Any last questions? Okay. Well, thank you so much for the questions that were asked. I appreciate it. We will also have the benefit of having some of our panels available through the remainder of the day. So if you're here in person, it would give you an opportunity to be able to speak with them. I just want to say, though, personally, Daniel, John and Paige, thank you so much, phenomenal insights to share. And I'm certain it's something that everyone has really enjoyed and it's something that is I'm very grateful for. So thank you so much.

I believe we're going to a short break now for just a little bit and look forward to seeing you back again shortly.

[Break]

All right. We're going to get going here. I'll give everybody a minute or 2 to get back to your seats. Awesome. Perfect. Thank you. Well, thank you all for being here. This is always such an amazing event. And for me, it always -- it hits home just to see the impact that Guidewire has in the industry, it's super humbling for me.

I joined Guidewire in 2017 and had moved into the CFO role in 2020 and have had the opportunity to help the business navigate through this cloud transition. And it's been -- really has been the honor of my professional career to be here to help with all this hard work. And this hard work is amazing because it sets us up so well for what the future has.

So I'll jump into it. I'll start with some key financial highlights. We have a very durable ARR growth engine, and that's supported by the core work that we're doing on cloud migrations and the modernization cycle that we're enabling for core processing. You know us all, and you love like I love these very meaningful customer relationships that last in decades and result in some of the best retention rates in enterprise software.

We have a real opportunity now ahead of us to infuse much more organic innovation based on the hard work that we've done on the cloud platform, but also do more inorganic activities and super excited about the announcement with ProNavigator. So you should -- we're thinking more about those types of opportunities for a while, you all know that we were pretty thoughtful and introspective as we were working through the cloud transition. Now we're kind of looking up a little bit more.

The model is playing out the way we had hoped it would and kind of in line with how we set our expectations. So you're seeing the gross margin expansion, which is leveraging the platform investments that we have made and we look forward to continue to driving profitable growth.

So this is a slide of our durable ARR growth. And as you know, this growth engine is being driven by the cloud business. This is particularly exciting because over the last 2 years, we've seen that growth rate tick up into the upper teens. And on the last earnings call, we talked about how that upper teens growth profile will be more durable for us as we look ahead. So super exciting to be able to say those words in a forum like this, but moving off of our historical ambition of being a long very durable mid-teens grower and thinking about how we move into an upper teens grower and the progress we're seeing in the cloud is driving that confidence that we have to be able to say that.

This is a slide that we've shown over the years. And I think you all understand that the cloud ARR is driving our overall ARR growth and the InsuranceSuite Cloud customers are driving our cloud ARR. So the chart on the right looks at our InsuranceSuite cloud cohort and how they are growing and it's just been tremendous to see the progress that we've made there over the last 6 years.

This is a slide that we've now shown a number of years. And one of the things that's important to understand in terms of how we engage with our customers is that these are long and very strategic engagements. And so we typically sign 5-year initial terms. We have certainly examples where we signed longer-durated contracts than that. But typically, we sign 5-year initial terms, and it's very common for those contracts to ramp over that 5-year period, and that is spelled out in the fee table in the contract. And so this is a view of those cohorts by fiscal year and how the ramps have progressed. You may remember back in FY '23, we spent some time talking about kind of acceleration in year 3. Last year was a little bit more linear.

The other thing that's really exciting when you look at this page, clearly, something changed about 3 years ago where we saw all of these curves just move up on the page. And that's just a reflection of the platform maturing and the referenceability that we're getting out in the market, that is allowing for customers and prospects to feel more confident in the destination and make bigger commitments. Coming out of last year, it was not certain that we would see this level of step-up with respect to the FY '25 cohort, but the team has just done a tremendous job executing on this opportunity. And it's great to see customers' willingness to make some large commitments.

Those cohorts and those ramped agreements are very important in terms of how we think about the visibility of our model, right? So ARR is the primary metric that we focus on internally. And the components of building ARR are pretty simple, right? How much ARR is going to come from deals that we're going to sell in the year. And that includes things like true-ups and CPI, but all the kind of sales activity that we have in the year, that will translate into ARR in the period. Then we have the ARR that comes off of the backlog. This is all the hard work we did in prior years, the realization of that ARR.

And then you have to account for the attrition events that occur. We have very, very low attrition. Last year, we talked about having the lowest attrition rate on record since we released ARR as a metric. So just tremendous to see that progress. But all of those things together yield a pretty predictable model and give us a lot of confidence in how we think about the growth rates as we look ahead.

This is a new slide. And one of the things that I wanted to bring into this room, we always tend to orient on the annual numbers and think about the longer term. We understand that you all have to build quarterly models, and it can be difficult at times to model some of the quarterly seasonality and a key driver into the quarterly seasonality is the ARR coming off of the backlog. So I was going to say we're not in a 6-month reporting cadence quite yet, but so I'm going to provide a little bit of quarterly disclosure here.

But what this looks at is it looks like this is the ARR that's coming off of the backlog this year and our expectation for the ARR that's coming off of the backlog and where we expect it to fall in the quarter. So takeaway is for the year, we're seeing very healthy growth of ARR coming off of the backlog. Q1, Q2 and Q4 are all going to see nice tick up on a year-over-year basis. But Q3 this year actually has a year-over-year decline. That is just a function of how those particular cohorts that were in Q3 fell. It turns out last year. We had a couple of deals that we signed where the ramping event doesn't really happen until year 3.

Nothing to read into that dynamic. Just to note that when we looked at those cohorts, that jumped off the page is something that you all should be aware of as you build your models. This last year, I think we saw a little bit more volatility around quarterly earnings around some of these dynamics. So this is our attempt to bring some of that into this room and to allow us to talk about this a little bit more. But this is some kind of new view into the seasonality of the business this year.

As we look at the overall gross margin, this has just been tremendous to watch and tremendous to be a part of. So many of you remember, about 3 years ago, we came in here and said, "Hey, look, we've invested ahead of the demand curve. We've built out a cloud operations function." And these early cloud cohorts are absolutely critical to our long-term success. So we've invested ahead of that demand curve.

And now we've built the organization to support $1 billion of ARR, and we need to grow into that $1 billion of ARR. And we have executed to that in a tremendous fashion. I think the platform investments, we're improving efficiency behind the scenes. The team did a really good job around discipline, around hiring and how we think about cloud operations and the needs there and a lot of focus into how we manage our AWS environments and how we manage our cloud infrastructure to realize this page.

As we look ahead, we'll see a little bit more growth in terms of headcount. We'll see a little bit more growth on the other costs and the infrastructure cost to support our margin -- our cloud business, but we will still be delivering very, very healthy incremental margins, and we'll talk about that a little bit more on the coming slide.

We've talked about this a lot over the years. As we approach this transition, think about this as Chapter 2 and how Mike thought about the cloud transition and unlocking the cloud transition. There were really three things that we had to manage through. The first is, can you build this? This is a very difficult use case and establishing this cloud architecture is absolutely critical to our strategy and investing to make sure that we capture that platform to support our growth into the future.

The second is can we sell it? Can we continue to sell it at a high level? Can we have those win rates that we saw in the on-prem world, in the cloud world? And the win rates that John showed today were just tremendous. So the team has done a great job executing on that part of it. And then can we scale it? Can we deliver a software margin? And I'm very proud of the progress that we have made there. This is probably the last time I will show this slide because this is very much kind of the orientation around how we thought about the cloud transition, maybe a little bit of a pat on the back.

We feel very good about what we've accomplished. But what is most exciting about this slide is really what it unlocks for us. And so when we think about the growth pillars, and this mirrors what John talked about, many of these growth pillars are what John talked about. We still have a number of very exciting growth pillars ahead of the company. There's still a lot of work to do on migrations. We have approximately 150 on-prem customers. There's a long runway there.

We hope to continue to accelerate that, but there's meaningful work to do there as we continue to migrate our on-prem customer base to the cloud. Modernizations, there is still way too much of this industry running on antiquated systems, and that is just the bread and butter of what we do is kind of waking up every day to try to modernize this industry.

New products. This has been the connections where we've really featured a lot of new products and new innovation. So very excited about the potential that, that creates and the growth that, that will afford us over time. The marketplace is something that continues to grow in a meaningful way. That ecosystem is very exciting. We have some interesting revenue share partners in there, and there's opportunity to grow that base as well. And then finally, M&A is -- you should expect us to be thoughtful and measured.

This is an industry that there are interesting opportunities, but there's also a lot of horizontal opportunities that we tend to steer away from. You'll think about us looking more at adjacencies rather than consolidation plays. But there's some really exciting stuff here, and this will be part of our strategy as we look ahead. Okay. I'll pause and let you all kind of consume this slide as this is a slide that we update every year, and I know there's a lot of focus on this.

So maybe I'll give you a second to digest it, and then I wanted to walk through a couple of things. Okay. First off, the FY '26 targets are the same as the Q4 call. We'll obviously address the full year guide on the Q1 earnings call. We're super happy with the momentum we're seeing this quarter, but I want to focus this conversation on the longer-term opportunity.

So -- but just the FY '26 targets are the same. For the FY '28 targets, we put some thought into these targets as we kind of approach today. Clearly, we were going to be above the $1.5 billion ARR goal that we had previously. I think all of you were expecting that, and all of you knew that we were going to be above that number. These new growth rates, so we've shifted towards a growth rate range rather than a dollar target, which I think is more appropriate.

We originally established a dollar target when we said, "Hey, what will the business look like at $1 billion, what will the business look like at $1.5 billion?." Now kind of as we get closer to some of these targets, moving that to a growth orientation makes more sense. And these new growth rates would imply around $1.7 billion of ARR, which is a material upward adjustment off of the $1.5 billion that we talked about previously. So very excited to see that.

This elevated growth also impacts our revenue growth expectations. So we put 15% to 16% CAGR for total revenue. And then revenue ex services. So if you remove services from that equation, it's about 17% to 18%. So the revenue ex services should grow roughly in line with ARR. Gross margin expectations are largely the same with a slight uptick in total gross margins as a result of the higher software mix associated with our new growth rates.

However, the gross profit dollar -- while the gross margin numbers are largely the same, the gross profit dollars are elevated given the higher revenue base that this model assumes. As we see numerous opportunities for growth, we do see opportunities to invest more. As a result, we've adjusted our operating cash flow -- our operating and cash flow margin targets down a bit in this model. In this plan, much of the incremental gross profit dollars are being reinvested in the business. So just doing some simple math for you all. If you look at the midpoints of these ranges, our updated numbers project a little bit over $100 million in incremental gross profit dollars in FY '28. But our plan shows about $30 million of incremental operating cash flow dollars in FY '28.

So we're going to be reinvesting some of these elevated growth rates back -- reinvesting back in the business. We think that there's tremendous potential right now with everything that's going on in the world to invest more in this business. And that's a reflection of the opportunity that we believe exists to keep this upper teens growth rate over a fairly long durated period.

So those are the primary changes and adjustments that we made to the FY '28 targets. We still believe very strongly in the 80/40 plan. We released this plan last year. This is still a guiding light for us. This is the right framework to think about how we will eventually evolve Guidewire. And we're going to lean towards focusing on growth over accelerating the time line to this right now with all the opportunity that exists. But we will always kind of have this in the back of our minds as our framework.

So you'll see us calibrate a little bit more towards growth than rushing towards this plan, but we still think this is the right way to think about the long-term terminal margins for Guidewire. I will touch quickly on capital allocation. We maintain a very strong balance sheet. So about $1.5 billion in cash and cash equivalents on the balance sheet today. In FY '26, we expect about $360 million in cash flow from operations, about $28 million in CapEx and capitalized software development costs.

So it puts us in a very healthy position with respect to our overall capitalization. And this is important for us right now. I think where we are as a business, for a long time, M&A wasn't a focus, but with the investments we've made in the platform, it's the right time for us to make sure that we're keeping those strategic avenues open for us. And so I think you will see us maintain a strong balance sheet this year. We always do have regular conversations with our Board, think about capital return options. We will continue to do that.

Unlikely to have a stock -- a meaningful stock share repurchase program this year. But as we look ahead, ultimately, I expect us to get to a place where we have a programmatic approach to how we think about capital return and stock repurchases. And that's kind of the -- it for me. I wanted to just quickly finish on the highlights. We're really thrilled about how this business has progressed over the last 4 years as we worked through this cloud transition.

And there's all these new opportunities for us that even at the start of this transition that we had no idea that would be presenting themselves. So a tremendous time at Guidewire and super excited about the future and what's to come. So I will tick quickly through the GAAP to non-GAAP reconciliations, and then I will invite the rest of the management team up on the stage for Q&A. Thank you.

Rishi?

I am in charge. All right, perfect. Really appreciate all the details. Great to see the momentum of the business. Maybe I want to ask just a deeper dive in thinking about AI and the longer-term implications on the business. Mike, I know you've been taking AI seriously since day 1, and it's clearly resonating with customers and partners that we've been talking to with Connections. Really great to see that. Obviously, the keynote yesterday outlined that.

So maybe just a 2-parter. Number one, as we think about the priority of investments in AI, maybe can you outline what does that look like? And picking and choosing your spots where you want Guidewire to be the one doing it versus allowing partners to do it and other vendors and working with them and having that interoperability. And then now maybe taking it to the financial model, Jeff, I appreciate the raised ARR targets and obviously investing for growth.

As we think about the cost of inferencing, layering that into the model, how do we think about that impact on gross margins and maybe some of the incremental engineering dollars you need to put to work on AI to productize this and really kind of transform yourself into more of an AI-first company over the next couple of years. I know there's a lot there, but any color there would be helpful.

Yes. Okay. Great question. So I think you asked me to prioritize this. So I don't know if I'm going to get it exactly right, but I'll try. So from a product perspective, there is a very clear opportunity in underwriting, in commercial lines underwriting, okay? This space is just materializing and right in front of us. And we want to attack that in two ways. One is just outside of AI, we think that there's a real opportunity for UnderwritingCenter to be the backbone for how this should work in the industry with our advanced product designer, insurance products, do what we've done for ClaimCenter and PolicyCenter for underwriting and then really create what I'd like to say in hindsight will be our first AI native application that without AI doesn't make any sense.

And so there's a very clear opportunity there for us. I think second, I want to make sure we are doing exactly what our customers need us to do in terms of facilitating their use of AI inside their enterprise. And that doesn't necessarily create a direct product opportunity for us, but it helps us, I hope, sell more core systems.

And I think that, that is like the second most important thing we can do. So -- and that's all the things that like we talked about in the keynote the other day is like we like to take this platform-first approach to building product. And so we say, "Hey, we need an underwriting product, what platform services do we need?." Okay, let's build those platform services. Let's make those platform services available to partners, available to customers. That's the second most important thing we could do. And maybe the third most important thing we could do is like use AI ourselves for our development organization.

And if we do that and we execute that and we get -- Diego should comment on this, if we get the unlock that we think might be possible, the entirety of our company will accelerate. And I think we do all those things, and we're going to create a lot of shareholder value.

Yes. I mean just on the modeling side, it's very early, right? So I would say we -- right now, as our approach to AI, as Mike hinted at is more on an investment side, right? Rolling it out to the development organization, ensuring we're investing in those tools and capabilities before we see the productivity gains. But right now, we're more on the investment cycle. As we think about how it's going to impact the revenue and gross margin model into the future, it's still too early for me to comment on that.

Adam Hotchkiss with Goldman Sachs. I'd love to tag on to the last question and ask it in a little bit of a different way. You're launching a significant number of new products. This is obviously a completely new time for the company. Your win rates continue to be really impressive and improving. When we think about that part of the market that is still living on these legacy and antiquated systems and you bring all of these new products to market and that innovation gap relative to those legacy systems seemingly is accelerating. What have you been observing in your prospect conversations around their willingness to move into the cloud and be with Guidewire today maybe versus where we were 1 to 2 years ago?

One of the things that I've noticed definitely in a lot of prospect conversations because of some of the new capabilities that we're talking about, like PricingCenter as an example, it's a much easier entry point for them to work with us rather than thinking about the totality of moving all the way to PolicyCenter, which I don't mean for that to sound truly as massive as it might, but it really is a significant lift for them to think about even for perhaps a small line of business, just that alone is a major decision for a carrier to make.

And it's a decision point that doesn't come up terribly frequently. The thing that I like so much about PricingCenter and UnderwritingCenter, people can start to work with us around much smaller and more narrow use cases, perhaps starting out with particular lines of business and then start to see what that experience is like.

Of course, we -- Paige was mentioning, we have spoken about it on main stage too. PricingCenter and UnderwritingCenter don't require InsuranceSuite to sit under them. We think that it's a significantly better experience, and there's a lot more that we can do, leveraging the entire capabilities of InsuranceSuite. But I think those to me are some really interesting ways about starting to think about working with carriers in smaller steps rather than expecting them to make a full decision to move straight away from a mainframe as an example.

I have just -- I'll add one thing to that. Just if we zoom out kind of from the product set from a second and think about the seat that the decision-makers are sitting inside the carriers, the pressure on them has amplified quite a bit. Some of it's very unstructured in the way it's come at them from a -- get a hurry up and go after agentic architecture, hurry up and employ agents. What I'll say is in the conversations we're having with customers and the very real condition right now is the distance between winners and losers is both increasing in the gap and the pace at which that gap is created is very real.

Pricing is probably first and foremost amongst those. But the idea of sweating the asset and kicking the can down the road, that's really still very much a conversation we have to have and navigate for business case and prioritization and sequence, but the pressure to act is increasing more so than I've seen in the past 20 years.

Ken Wong, Oppenheimer. A question for Diego, one for John. Mike, both you and Diego characterized this Connections as being one of the biggest product focus Connections you guys have had in a while. And yet on stage earlier today, Diego, you mentioned how this was just an appetizer. And as you look towards the announcements next year, it's going to be much bigger. I guess, are you able to elaborate on that? And then for John, you mentioned more financial progress with expansions than migrations. I guess how much of that is just a lot of the migrations are kind of recent big wins and there's a lag in terms of the financial impact? Or is it just the expansion activity has just been so good?

So of course, we're going to tell you now everything we're launching next year. It's exactly how these things works, right? And what kind of -- what I was trying to convey is that we've been working for many years in enabling the infrastructure. There is a lot of work that you do under the water that you don't see, right? And that is critical, especially when you think in terms of take digital. Digital as an aspect of a library, as an aspect of infrastructure to deploy, as an aspect of infrastructure to monitor the deployment, infrastructure to monitor the serviceness of the deployment. So there is all those kind of things that you do once and you needed to do it in a way that is resilient for scale, right?

And when you work on that at the beginning, it doesn't really show, right? Because then at the same time, you need to build the first app or the first capability on top of this infrastructure. And typically, when you do that as a project, you can cut a lot of corner and just focusing on delivering quickly the capability. When you do that as a platform, you basically need to make sure that you do all the things that, as I said, they are not as sexy.

But they are the things that then enable you to grow from -- or grow or stay -- grow the COGS or grow the percentage of the COGS. But then all those things have been done across a few years. and you didn't see it, but now all these are coming to fruition. So in the last year, when we started to build new stuff, we start to get all the benefit of the infrastructure serving us.

Even the acquisition of Quantee, John made it a point that is like it was running on GWCP almost on the point of acquisition. And that was because GWCP had -- we had to build some infrastructure and some capability that then become very useful to kind of do something fairly different than what it was originally, how to say, envisioned for. So when I [ left today, ] I am saying, this is just the beginning is because depending on the decision that Jeff was alluding of we can invest more.

So if we make decision of investing more, assuming that we have the right target on investing more, right, that we have good ideas, assuming we have good ideas now we start to have the financial support, and we have an infrastructure that will enable us to accelerate on that direction, right?

So from -- my comment was on a readiness of everything that we've done is unlocking an opportunity that we didn't have before because before we needed to make sure that the infrastructure was, first of all, was capable to support what we needed to support.

I'll make a quick comment on that, and then I'll get to the other questions. The other one is underwriting itself. So the comment around the appetizer was really around UnderwritingCenter. UnderwritingCenter, there are going to be multiple pathways to get to the capabilities that make up UnderwritingCenter. And so there's going to be -- some people like me might skip straight to the dessert, some people might actually just eat the salad. But there's going to be -- for commercial carriers, there's going to be multiple ways to consume UnderwritingCenter.

If we think about between now and next year, us making all those components thread thoughtfully together and open those pathways, as Christina said, some more bite-sized chunks or some more one course at a time type chunks to get on the pattern. Back to the expansion piece. The math around it really is more around pure expansion, not having anything to do with the large migrations.

So if you look at the number of customers around the world that are really on the larger end of the market and think about how many of them are single X Centers, ClaimCenter or PolicyCenter, a few just BillingCenter, but policy and billing oftentimes in concert. But where there's still a lot of a state to go by either line of business, geography or X Center, the thing that is becoming more and more true in these conversations -- well, two things, sorry. The first thing that's becoming more and more true is because of the platform and data and things like ProNavigator, the ability to thread decisions through the enterprise and run the enterprise estate on the platform, so putting more freight on the platform is really starting to prove out in the business case.

So that idea of a customer being full suite rather than singular product is starting to make more sense in that conversation. Sometimes it's a migration, Ken, that opens up that expansion. Sometimes it's expansion to cloud and then the migration later. But all of those really are kind of really truly new estate for us, and I'm excited to continue to go after that because I think that's still yet a relatively large estate.

Dylan Becker with William Blair. Maybe for Diego or John to start. Obviously, we're layering on more product. We're talking about kind of more value accruing to the customer base. But on the implementation side, how are you thinking about automating more components of that process, creating and tailoring maybe a standardized road map to make that easier where customers realize value faster. That's one.

And then, Mike, for you on the slide around kind of the aggregate mix or share of the dollar in spend, I think it's like 25% that goes like administrative cost. Within that, where do you see kind of the biggest segments of opportunities if we're looking at it in $3 trillion overall base, like minor improvements can be massively valuable.

Okay. So I'll take a product angle or a technology angle. What -- when we talk about APD, when we talk about digital, when we talk about all those things, you have to go back and look at what was like the bigger cost of implementing Guidewire, in general, before cloud? The biggest cost was implementing integration, a big chunk. There was, of course, implementing the product model and then it was implementing digital.

Now if you look at these three things, we came with APD, we came with a new integration framework that it does not require Gosu anymore, and we came with a JDP and -- Jutro Digital Platform. So those three things have reduced a lot the cost of implementation. A lot of the sort of success that you've seen Guidewire having, especially on the net new deal.

At some point, if you really look at our history in the last 5 years, the model initially was expecting us to be faster in migration and not so, how to say, successful on net new deal. And the net new deals start to come kind of, at some point, even surprise us a little bit. And the reason they surprised us, it was because of those innovation on digital, on APD and on the integration. So we have today a product that is way more efficient to be implemented compared to what it was.

Now with that said, with GenAI and with the technology that is coming, we think that we're just scratching the surface on that, especially on things that typically require a lot of manpower for things that are fairly, fairly pedestrian, like, oh, you need to refactor XYZ, you need to adjust this implementation to modernize it in some aspect and so on.

So I think that it's a huge opportunity for us to continue to eventually evolve a product that will also have the ambition to go downstream, right? You saw the initial slide from Mike on Tier 1, 2, the product was originally kind of conceived for Tier 1, 2/3. And now we start to have some economies of scale that we can start to consider some of the specific configuration to go to Tier 4 and even further down. So 100% what you're saying, we have seen improvement.

And the last thing I want to close is what we talked yesterday about Jutro Studio is one more of this evolution of saying, "Hey, you don't need to implement InsuranceSuite and then implement Digital." We're going to go into a direction in which you do one implementation and that implementation serve both master. And so that, again, is in the direction of speeding up and accelerating implementation.

I'll just add to that maybe from a project standpoint. I think if you look at a number of the migration -- well, the majority of the migration projects to cloud that have happened in the past few years, a lot of the time is spent truly in heavy lifting, right? And a lot of the things that Diego was talking about, you're not necessarily even scratching the surface.

It could be sort of removing a lot of the habits of the past and creating a meaningful test harness that helps you to be able to take advantage of things going forward. So I would say very similar to the patterns when someone would have actually been migrating from one version of on-prem to another version of on-prem.

But it's the last one, and so people put the effort into that. In addition to a lot of the things that Diego was describing relative to now being able to take advantage of the new features, we have been investing to take out a lot of that, just effort in the heavy lifting, which caused things to be more emphasized around sort of this concept of lift and shift, right?

The idea we're going to move it to cloud, then we can start to adopt the new features later, specifically by being able to take out a lot of the testing effort, which in some cases, I think, can take maybe 30% to even 40% of a project's time and perhaps not even necessarily get to the full surface of all of the application capability. Being able to do that now means that you can start to think about the adoption of all of the capabilities that Diego was describing. Historically, those have been things that people did as sort of a fast follow-on, if you will. Then that presents the question that you also asked, which is, is there a standard value map that talks about how do you prioritize those things? We put a lot of work into identifying what we think those can be potentially for any carrier, but there genuinely is no standard that we've been able to determine, which I think is actually a great thing.

It allows us to be able to decide those aspects that we're going to transform are going to deliver the most immediate business value based upon that specific carrier's priorities. So it could be, as Diego was describing with Jutro, much better digital experiences and something that helps them to get closer to their customer so much faster.

It could be something that they're looking to actually improve bottom line and looking at loss ratio instead. And so at least by having maybe some consistent possibilities for measures, we can start to talk about benchmarks that we've seen elsewhere, but it really does need to be something that we tailor, and it's actually a huge advantage that we get to tailor it. And I know you have done...

Yes, I'll give you a quick answer to the second half of your question. Think about it like -- and this is a super high level, but like -- let's get 100 basis points out of claims processing without degrading customer experience, but maybe even improving it. And let's get 100 basis points out of the expenses associated with underwriting and accepting and managing submissions and choosing which risks to take.

And hopefully, we do a better job selecting the right risks. Both of those things are completely reasonable given the state of the platform and the state of the technology that we see right now. It's not going to happen next week. But if you get 200 basis points out of that slide, it's pretty impactful.

Aaron Kimson with Citizens. On UnderwritingCenter, is it something where you envision you'll start down market and then prove it out like the cloud or something where there are 10 to 12 other vendors in that space today, all saying they have a workbench, whether they really do or they don't, and you're going to go straight to your larger customers there?

We're going to go to the customers that want to work with us there, and I think we're not going to have any trouble finding 1 or 2 or 3 or 10. And there's probably 100 that are all looking at this in one way or another. And I want to be clear, like our goal isn't to say we're going to deliver the workbench because people think of that as like the structure. Our goal is to find the right customers to work with, to deliver the agentic system that facilitates underwriting in the insurance industry.

And in the process, I want to establish UnderwritingCenter as the backbone for doing that, okay? And I think -- now upmarket, down market, we're going to find the sweet spot. We've got so many people interested in talking to us already. It's been less than 24 hours. We're going to find some good customers to work with here.

I think line of business and interaction with the brokerage community is going to be much more of a driver than size.

Mohit Gogia with Jefferies. I wanted to just unpack the growth algorithm for you over the next few years, right? So I think expansion seems like obviously will be a major part of that. So as you think about expanding your share of the customer wallet, I think I was speaking to one of our customers on the show floor. I think I was reminded that, I mean, you are fortunate to have an end market that is flushed with cash, right? So I was told that if a strategic partner.

Who is that?

No, I was told that if a strategic partner like Guidewire can create value, there is always cash that can be spent. And obviously, that will drive your growth, right? But -- and cloud was a big piece of expanding that customer share of the wallet. But as you look towards next few years, like how are you thinking about, obviously, new products, organic or inorganic?

I'm assuming there is an organic price increase that is part of the question, too. And then there is AI monetization, which as software investors, there is some sort of skepticism around how much can a different software vendors monetize AI. But just help me understand as to how you think about expanding that share of the wallet.

I'll talk about expansion of share just for a second, then monetization of AI, you guys can talk about it. On the expansion of wallet, this is something that in the slide that I showed that we're moving up the strategic road mapping agenda and the strategic intention agenda from applications to CIO to COO to CFO to CEO to Board and right at the time when that pressure is coming in the exact reverse order at a very nice time for us.

We think working with customers in a way to unlock some of these -- the beauty of some of these more ambiguous problems to solve like UnderwritingCenter is if we can solve them, there's a lot more value to create and there are a lot more value to capture. And this is not an intensely competed procurement-driven price speed up conversation. There's one pathway to PolicyCenter -- pathway to PolicyCenters' replacing a policy admin system is a really big thing to solve for, and it has its kind of own cycle.

When we start to solve for how do we enter and exit markets better, what's the risk selection and pricing and underwriting capabilities, you need to do that to unlock value from expert underwriting and pathways to market. That's a whole different conversation. It will -- yes, it will be price. There will be a price discovery. Yes, there will be a negotiation on it. But we're solving for the very large side of that dollar that Mike talked about, which is the indemnity and exposure conversation.

And that's a conversation that we have to learn and navigate better, but we have pathways now to capture far more value. I'd like to know who's flushed with cash, but the simple fact is one of the things we will go after on this is there are a lot of categories that they're already spending in, and we're in a very unique spot to go after those in a very efficient way, efficient for us from a capture perspective, but also efficient for them from a standpoint of not satisfying a dozen different companies to solve different -- 12 different problems.

I should rehearse my answer to this. I have to be pretty -- I don't know, you guys can judge me, I guess, artful I am in responding to this. I think outside of AI, we have a tremendous growth opportunity ahead of us at Guidewire, okay? We have to, and I think we will successfully migrate 100% of our on-prem customer base to our cloud.

We are completely committed to doing that. Like -- you saw like, oh, we're all excited about the AI features and everything else, like we also develop these systems to like provision them in an environment, test their code base, move their code base to the cloud, help them migrate from their old product model to advanced product models, like we're doing all of this work to get those customers to our cloud system. That's a growth opportunity.

We have the baseline growth opportunity and the modernization potential in the industry. And now we have this potential in PricingCenter, we have this potential in UnderwritingCenter, even if the Agentic AI comes from somebody else. I think that there is a tremendous opportunity for us to grow the company. And even like underwrite an investment thesis for the company right now, the AI, it is unclear, like, let's say, like how do we monetize that.

But I say basically before, I think I very logically said, "Hey, what if we get 100 basis points here and 100 basis points there." And that kind of like triples the addressable market for us. And we're going after another component of the value chain in the industry that we serve that is far beyond the IT spend currently allocated to core systems. And so that's how I think about it. That's how we're trying to run the company.

We're going to do our job, we're going to move our customer base to the cloud. We're going to win the modernization opportunity at the same win rates that we've been winning up till now, maintain 100% referenceability, earn the trust, as Daniel said, every single time. And I think that the AI potential will manifest over time.

And the only thing I want to add here is, as we think about the targets and the financial model underpinning that, to get to the targets we outlined in FY '28, that is still very much primarily the cloud transition story playing out and the increased acceleration that we're seeing in modernization and that part of the migration curve that is still very much ahead of us over the next 3 years.

How we make that upper teens durable for a decade is kind of as PricingCenter, as UnderwritingCenter, as some of these new capabilities come into the fray. But there's multiple ways that we can get to those targets in FY '28. And one of them could include none of the stuff that we're talking about today. Obviously, we're going to execute, and we believe that, that will show up in the financial model before FY '28. But I just want to make sure that, that was understood in those targets.

And one thing that going back to my point of work that is under the water that you don't see immediately, but you will see a little bit later. We've been working a lot to make the product more, I would say, extensible in different country. So Mike did show a slide into which as long as there is one customer, the country was yellow. So now that is kind of -- is a good way to mark a lot of country yellow, but there is like a difference between you have one customer and you own the country, so to speak, right?

So a huge direction for us of growth is still in some of those countries to sort of penetrate to a point of owning the entire country and not in every yellow country, we are in that place, right? Because historically, the product was trustable and it was capable to deliver what's needed to be delivered, but you cannot scale horizontally across all the customers. You needed to -- going back to the question about cost of implementation, there was a cost of implementation that was maybe prohibitive for many customers. And now everything that we're doing from an extensibility perspective, implementation perspective and also the fact that the pressure top-down CIO and so on is opening up doors in country that is going to be part of our strategy.

And on top of that, there are a few countries that is not even yellow yet that is kind of creating that extra angle, right? So keep in mind, we have the best product on the market, and that is sort of still as gigantic runway to sort of penetrate independent from anything else that we've been discussing in new product.

It's Parker Lane from Stifel here. Jeff, maybe on the financial targets you have, you talked about the investment you're going to make of the incremental gross profit dollars through '28. Maybe zoom in on what the key priorities are there. I know Mike talked about development velocity picking up in an AI world. So how do we reconcile development velocity picking up with maybe also increased investment? Is it just a matter of delivering more innovation than you ever had before? Or are you going to start seeing some of those efficiencies in your R&D process as well?

Yes. I mean I think right now, some of the tooling and capabilities we're rolling out to the development organization is more in the investment cycle phase rather than the realization of some of those gains that we expect to take. But look, the investment is -- now that we have this cloud platform, now that we've done all the work kind of underneath the layer of water that was invisible that allows us to infuse more innovation into the industry. That's where the investment is going to be going. And so it's primarily in R&D.

I wish Diego wasn't on the stage and hearing all this, so I have to constrain him a little bit. But a lot of it will be going towards the R&D efforts. There will be some sales and marketing investments, like new personas, some new motions that we have to support. But we benefit from operating in a vertical where we know our customers very, very well.

So we should see some nice leverage on that side. So -- and then G&A, it's -- you got to -- the finance guys need to be paid too a little bit. But there's not a lot of growth going into the G&A function. We can continue to scale that. We have -- we generally have the structure in place that we need.

But this isn't a scientific comment, but it kind of connects what Jeff said to what Diego said. I want you to understand like we have a backlog of functional insurance requirements by country, by line of business. And there's many lines of business and countries where in the old world, it didn't make economic sense for us to invest and build out that product feature because we'd only sell to one customer.

If we can get these models to work and facilitate an increase in velocity for creating those solutions, suddenly, those things are going to be logical for us to deliver. And that's going to unlock those countries, and that's going to unlock those lines of business, and that's going to accelerate the implementations.

And so I give this speech all the time to our developers. If we can make our developers more productive, I don't want to make the company more efficient. I want to build more insurance product, and that's going to help us accelerate.

Joe, Baird. To predict that to FY '28, there's a bookings assumption therein. And the best I can estimate, it doesn't seem like you need anywhere close to the type of fully ramped ARR growth you've been doing to get to the 17% to 18% CAGR endpoint. Without getting too exact, is that directionally fair?

Yes. I mean look, the fully ramped number and growth rates on the fully ramped number is one that always makes me a little bit uncomfortable. We had a huge deal with Liberty Mutual that drives a fully ramped outcome that -- and you're going to see that number bounce around a little bit but I think you're picking up on the point that I was just making is that those targets are very realizable in just the core motion that we're going through today and allowing for some of this new innovation that we're talking about to provide upside to some of those numbers. And so I think you're thinking about it directionally right. I haven't done that math, but it sounds directionally right.

And then just as a follow-up, since you're winning like almost 100% of DWP decisions, what does that say about the pipeline, not just over the next year I suppose, but over years? And is there maybe an argument that the movement off mainframe to modernize, if you can show that AI improves speed to value, customers are talking about accelerating their growth by adopting your solutions quicker. Does that pick up the pace and that's actually a bigger feeder of pipeline than maybe you've been seeing?

On a qualitative basis, that's the conversation, right? Getting the conversation around what does it take to win in tomorrow's market rather than the avoidance of potential risk in a long-standing mainframe environment. So on a qualitative basis, absolutely. On a quantitative basis, I'll say that in the very near term, we feel really good about the pipeline coverage that we have. Some of that's traditional.

Some of that is really kind of the -- kind of long-standing mainframe -- dislocation of the mainframe entrenchment. If we think about -- that really ties very closely to the geographic component. So as you go from North America around the world, there are some geographies that just have a larger footprint and more entrenched mainframe footprint.

So as we continue to develop the things that Mike just mentioned, that gives us more ability to talk about really predictability of programs and then the -- and the value of being on the cloud in Germany and in Japan that is precisely important for operating in the context of those countries. So in the long measure of time, yes, mathematically; in the very near term and for a long time forward, qualitatively, that's the story that we want to continue to make true.

Great. Thank you, everybody. I think we'll wrap it up there. It's been a great dialogue, and we'll head outside for cocktail hour.

Okay. Super. Thanks, everybody.

Thank you all.