Greetings. Welcome to the Guidewire First Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Alex Hughes, Vice President of Investor Relations. You may begin.

Thank you, operator. I'm Alex Hughes, Vice President of Investor Relations. And with me today is Mike Rosenbaum, Chief Executive Officer; and Jeff Cooper, Chief Financial Officer. A complete disclosure of our results can be found in our press release issued today as well as 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 the conclusion of the call. Statements made on this call include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and the risk factors and documents we file with the SEC, including our most recent annual report on Form 10-K 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 in the supplement on our IR website. With that, I'll now turn the call over to Mike.

Thank you, Alex. Good afternoon, and thanks, everyone, for joining today. We're off to a strong start to the year, and it's great to see this momentum continue following a record Q4 where we had especially high close rates. I characterize this quarter as one of continued solid execution. We are seeing good progress on the deal front as well as in operations and also had a tremendous customer conference at Connections last month. We had record attendance with about 3,000 in-person attendees. The enthusiasm and support for our strategic direction and Cloud Platform was noticeable, and the event provided great validation of our progress and the tangible business impacts we are providing to our customers. We are steadily building a franchise that will have a lasting and positive impact on the P&C insurance industry, and that will produce durable, profitable long-term growth that is commensurate with a vertical market leader. Since we had a chance to speak at Analyst Day last month, I'll keep today's remarks fairly brief and share my key takeaways on the business. First, Guidewire Cloud Platform continues to advance steadily and consistently with each new release. The ninth release of Guidewire Cloud Platform, Ins Brook, was made available December 1, and builds on the automation, orchestration, integration and monitoring capabilities in Hakuba and will deliver greater functionality in digital analytics, data, straight-through processing and pricing. Each release brings greater and greater benefits to customers, which helps to grow interest in our platform. Second, we continue to see this interest manifest in sustained sales momentum. We closed another seven cloud deals in the first quarter, including six for InsuranceSuite Cloud. This, despite Q1 typically being a seasonally lower quarter. We closed four InsuranceSuite migrations in the quarter, including the first Japan-based insurer to commit to the full suite in the cloud. We also closed three net new deals, including another competitive takeaway. Insurers are responding to the greater agility, efficiency and innovation that Guidewire Cloud Platform offers and increasingly view it as aligned with their technology and strategic road maps. Third is data and analytics, which is something I am excited about as a longer-term opportunity and as something our cloud success positions us well for. As a core systems provider, we have a unique opportunity to layer on data and analytics offerings to core workflows and to drive greater real-time analysis and decision-making around policy, underwriting and claims. I was pleased to see HazardHub adopted by a Florida-based property insurer, just a few months after it adopted our InsuranceNow core solution. HazardHub was chosen for its proprietary hazard risk scoring and its seamless integration with InsuranceNow. Fourth, we continue to nurture and grow an ecosystem of partners, including SIs and solution providers, which helps to drive sustained activity and greater value from the platform. In the quarter, we had nine more go-lives and leading SIs, Capgemini, Cognizant, Deloitte, EY and PwC all now have achieved cloud migration certifications. Connections was a tremendous success and highlighted for me the advantages Guidewire and our ecosystem deliver for our customers. The stories that were shared drove home the impact of the improved agility, speed and innovation our platform delivers. Definity Insurance, a leading Canadian insurer with a 150-year history, adopted Guidewire Cloud Platform in 2021 to achieve greater scale, resilience, agility and innovation. They have now already seen deployment times improve 63%, quote response times improve 30% and downtime reduced by 75% and platform setup times improved 10x. The speed Guidewire Cloud platform delivers was best illustrated by GM OnStar who spoke about successfully creating and launching an embedded insurance product from start to go live in only nine months. CNA Insurance, one of the largest commercial and specialty insurers in the United States, really illustrated the complexity that large insurers have to manage through when moving to the cloud and how Guidewire Cloud Platform's continuous release cycle supports much greater agility for these insurers, while also providing the strategic optionality they need to stay current with the market. As we continue to sell, innovate and expand the community around our platform, an additional key objective has been to drive greater platform and company efficiency. Jeff will talk more about this, but we were all pleased to see continuing margin expansion in the quarter, even above our objectives and forecast. The work we are doing to manage all of this while also improving efficiency through our organization is critical and not always the most glamorous part of the job. It has been exciting to see the results of these efforts continue to flow through to our financial outcomes these past few quarters. Finally, we announced in today's release that Priscilla Hung's sabbatical is ending soon, and we are all very excited to have her back. While we do not plan for her to return to the same operating role, we are very pleased that she'll continue to be an employee and an invaluable senior adviser at the Company. With that, I'll turn it over to Jeff to discuss the financials.

Thanks, Mike. We're off to a strong start in fiscal 2024, and it is great to see sustained momentum in the business. From a financial perspective, we entered into this year very focused on increasing ARR and the subscription mix of our business, expanding overall gross margins, primarily led by subscription and support gross margin, but we are also prioritizing services margins, and driving greater cash flow from operations. Today, I'll talk about how we're doing in each of these areas as I go through the details, and we'll finish with our updated outlook. ARR finished just above the high end of our outlook at $770 million. Total revenue was $207 million, also above the high end of our outlook, and this beat was primarily due to higher-than-expected subscription and support revenue and services revenue. Other components of revenue were largely in line with our expectations. Turning to profitability for the first quarter, which we will discuss on a non-GAAP basis. Gross profit was $121 million, representing 46% year-over-year growth. Overall gross margin was 58% compared to 42% a year ago. Subscription and support gross margin was 65% compared to 49% a year ago. This was ahead of our expectations due to higher-than-expected revenue, increased cloud infrastructure efficiency and the timing of some cloud services credits from our cloud infrastructure provider. We are thrilled with this result as it gives us confidence to raise our profitability targets for the year. Services gross margin was positive 10% compared to negative 9% a year ago. This profitability turnaround is a result of many quarters of work that we have discussed in prior earnings calls. This start to the year sets us up well to hit our annual target of $30 million in gross profit for services. These results demonstrate exciting progress and margin expansion. On a year-over-year basis, subscription and support gross margins expanded 16 percentage points. Services gross margin expanded 19 percentage points and total gross margins expanded 16 percentage points. While we still have work to do to get to our long-term margin targets, I do want to recognize all the hard work by a number of teams at Guidewire, including the cloud operations team, the support team, the product development teams, the services organization and our FinOps team to help us unlock this potential. All this positive momentum on gross margins led to an operating profit of $4.1 million. This is a strong result compared with our prior outlook of negative $22.5 million at the midpoint. About $15 million of this beat came from the gross profit line, and $11 million came from operating expenses. On the operating expense side, we saw slower hiring and lower travel expenses than we expected, but approximately $5 million to $6 million of the $11 million is due to timing of certain expenses now expected later in the year. Overall stock-based compensation was $36 million, up 3% from Q1 last year, which was generally in line with our expectations. We ended the quarter with $854 million in cash, cash equivalents and investments. Operating cash flow ended the quarter at negative $72 million, which is a bit better than our internal expectations. As a reminder, annual employee bonuses and commission expenses related to Q4 sales are paid out in Q1. As a result, Q1 cash flow is always lower than the other quarters in the fiscal year. Now let me go through our updated outlook for fiscal year 2024. Starting with the top line, we are maintaining our outlook for ARR. ARR is still the best way to measure overall sales momentum, and we feel confident in our pipeline and are on track to hit our annual targets. We are also maintaining our outlook for total revenue. We expect approximately $471 million in subscription revenue and $542 million in subscription and support revenue. We now expect term license revenue to be a bit higher than prior expectations due to higher DWP true-ups, and we have tempered our expectations for services revenue to approximately $195 million. Our services model is shifting away from lower-margin subcontracted revenue a bit faster than we previously forecasted. Additionally, our partners are continuing to lead more and more of the implementation engagements, which is great. Turning to margins and profitability, which we will discuss on a non-GAAP basis, we now expect subscription and support gross margins to be 62% for the year, an increase of 7 percentage points compared to fiscal 2023. This puts us ahead of schedule with respect to hitting our FY '25 target of 63% to 65%. It is clear that the product investments we have made and the hard work of teams focused on efficiency are having the desired impact on scalability and product gross margins. We continue to expect services gross margins of approximately 15%. As I mentioned last quarter, we will measure professional services success this year by: one, our ability to deliver in conjunction with our partners excellent customer outcomes, and two, our ability to deliver $30 million in services gross profit, and we are on track to hit these goals. As a result, we now expect overall gross margin to be approximately 62% for the full year. This is already at the midpoint of our FY '25 target, so we are tracking ahead of schedule. With respect to operating income, we are raising our operating income outlook to between $82 million and $92 million for the fiscal year. We are thrilled by this momentum as we work towards unlocking the profitability potential of the business. We expect stock-based compensation to be approximately $150 million, representing 5% year-over-year growth. We are increasing our cash flow from operations expectation to between $115 million and $135 million for the fiscal year. Turning to our outlook for Q2, we expect ARR to finish between $793 million and $798 million. Our outlook for total revenue is between $237 million and $243 million. We expect subscription and support revenue of approximately $130 million and services revenue of approximately $43 million. We expect subscription and support margins of approximately 63%, services margins to be around breakeven, and total gross margins to be between 61% and 62%. We did conduct a small services reorganization in early Q2, which carried an approximately $2.5 million one-time charge. Our outlook for operating income is between $15 million and $20 million. In summary, it was a strong start to the year. As we mentioned at Analyst Day, we are at an exciting inflection point with respect to profitability and our ability to demonstrate margin expansion.

You can now open the call for questions.

Appreciate the question here. Maybe, Mike, starting with you, you called out kind of the Connections Conference and a lot of discussion coming out of that around aligning kind of the decision-making with tangible value towards business applicability versus kind of the IT infrastructure side. I wonder how important is that conversation around business applicability as we think about kind of championing change in the industry and maybe to what extension you're seeing that evolution play through or flow through into your conversations and interactions with customers?

Yes. Great question and Connections is a great example of an opportunity for us to talk about this and hear from customers directly on the subject. If you think about the history of the cloud transformation here at Guidewire, the story really began with an IT-focused infrastructure, operational value proposition, reduced complexity, and support upgrades. What's so exciting about the momentum we've achieved in the product organization with our quarterly releases is really our ability to ship business value improvements consistently with each release. This is increasingly the story of Guidewire Cloud, which is not just about having a core system that runs effectively, but having a core system that can help you differentiate in the market. We can help you make changes to your products more efficiently and faster, adjust prices, assess the risks associated with the insurance you're writing, and optimize your claims processes more effectively. All those capabilities are delivered more efficiently through these cloud releases, and that is now a much bigger part of the conversation. It's been very well received, and I feel like we're just starting to experience the positive momentum from this shift.

That's great. Maybe switching over, Jeff, on the operating side. A lot of healthy momentum here and outperformance from a margin perspective, I guess, maybe help us think through some of the seasonality, any variable puts and takes on a quarterly basis and how we should think about some of the sustainability. I know you called out some kind of reallocation there, but sustainability of the outperformance here relative to even when we met 30 days ago, maybe versus what was more onetime in nature, if anything?

Yes. No, it's a good question. We are obviously very thrilled with the margins we saw in Q1. It caught me a little by surprise. I wasn't expecting to be at 65%. There were some onetime elements in there. We did benefit from a bit higher revenue. Some of that revenue was tied to platform usage that was billed in arrears, so think about that as kind of catch-up revenue recognized in Q1 that flowed through to the margins. Additionally, we did have a little bit higher credits from our infrastructure provider in Q1 than we were expecting in the back half of the year. But in general, we've made strong progress in how we think about the efficiency of the platform that we're delivering, and it gives us a lot of confidence as we start to reach for longer-term targets. I would say that there was a little bit of a onetime effect, somewhere around 2% to 3 percentage points, when you factor in that top line catch-up revenue and credits that may not recur throughout the end of the year, but in general, it's really healthy progress.

I guess I'll start with the cloud deals. I think seven in the quarter, pretty impressive, particularly given it's typically a seasonally slow quarter. Curious, Mike, how are you thinking about maybe carrier appetite for cloud modernization today compared to perhaps a year ago? What are the key drivers that you would attribute to the stronger deal activity that we're seeing out of the gate?

Thanks for the question. I would say, probably two things. One, there is steadily building confidence in the operating conditions for insurance companies that are feeling more confident about the future, enabling them to make these decisions and pull the trigger on these projects. The bigger part is growing confidence in our direction, our capability to deliver success, follow through, and get those projects live. We're starting to see a shift where customers are more willing to pave the road for other insurers. The momentum in Q1 reflects all this hard work we've put into the platform and the positive customer stories and business impacts we've achieved, helping improve the willingness for insurers to migrate or explore new deals on the platform.

I wanted to circle back on some of the commentary you made around HazardHub and some of the other analytics products that you're adding in there? How should we think about those being additive to ARR on a specific contract or for customers in general versus being more of a carrot to get customers to move to GWCP and really start to unlock all the value of being in the cloud?

It's a good question. I would say primarily, our expectation is that it will develop into an incremental source of ARR for the company. We can certainly use the analytics products as incentives to drive cloud adoption, but I believe the core cloud value proposition creates enough support or direct core sales, and the analytics sales can be incremental. Over time, our goal is to create a distinct analytics business that is linked to but accelerates overall growth.

Nice to see continued momentum in the business especially coming out of connections. Maybe starting with connections, right? There was a lot of excitement with partners and customers we talked to at the conference around Jutro. Can you talk to us now that the product has gone live? What has early feedback from customers and partners been? How do you expect this to help you competitively and build a stronger ecosystem?

Yes, great question. Feedback has been extremely positive. One of the exciting things we've done is take a collection of business requirements and turn it into an insurance application that is exposed digitally on top of the platform. Jutro allows us to deliver something in 24 hours. It's a game changer in terms of how people think about deploying digital applications. We're incredibly excited about it, and the feedback from customers has been very positive. This enables them to create consumer experiences much faster and more effectively, making insurance easier to consume.

You spoke about it a little bit on the Investor Day made some recent progress with migrating clients on classic platform. Remind me, I believe you have four left, but does that imply there were two that migrated over the last 12 months or so? How are you thinking about the timetable on those remaining four?

Yes. Thanks for the question. Yes, we have had success in moving a couple of those customers from our classic approach to our GWCP approach. We're in active conversations and planning with each of those four customers. These transitions can be complicated and often depend on their internal priorities and projects. My expectation is that the transition will not happen all in one year; it might take two or even three. We’re comfortable with our dialogue with these customers and the planning and approach we're taking.

If you look back to the Analyst Day two years ago, the impact of the Classic customers was quite significant as a drag on overall margins. As we've migrated a group of those over to GWCP, improved efficiency managing the classic customers, and grown our business, this issue will be a smaller piece of the overall pie.

Mike, I wanted to circle back to your upbeat analytics commentary. How might reform the risk modeling, I think, in California, specifically allowing forward-looking data spark demand for analytics? Might this have any pull-through for cloud interest?

Great question. We're excited about the changes that California is working with the industry to make. There's a lot of turbulence in the insurance market here. We expect that solutions, specifically HazardHub, can play a role in better understanding the real risk profile associated with properties. We think this will significantly improve how carriers measure and price risk, operating the industry efficiently. Our intent is to play a significant role in driving a better market. I believe that increased agility in operations will help carriers manage risks better, updating operations efficiently. So, we’re very positive on this change and look forward to driving a more efficient industry. I just wanted to say thanks, everybody, for participating in the call. We're incredibly pleased with the start to the year, and we feel great about how things are progressing on the platform with customers and partner program and overall momentum in the business. We look forward to catching up with everybody throughout the quarter. If we don't, I guess, we'll see you at the end of the next quarter. Thanks very much.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.