Guidewire Software, Inc. Q3 FY2026 Earnings Call

Greetings and welcome to the GuideWire 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, a.k.a. furnished to the SEC, both of which are available in the investor license 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. The same 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 day. Please refer to the press release and the risk factors and documents we filed with the SEC, putting our most recent in-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 retasked all our non-GAAP schedules back to the first quarter of fiscal 2025, the 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 stack 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 Pricing Center and our AI platform tooling and pro-navigator 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 one 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 one 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 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 their 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 two net new core system wins and five pro navigator deals one notable transaction was a seven year extension and dwp expansion with auto club of southern california for insurance suite on guidewire cloud platform alongside a significant new sale Pro Navigator. 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 UK insurer, part of a global insurance group, select the Claim Center on Guidewire Cloud Platform as part of a broader modernization initiative designed to simplify and accelerate its technology roadmap. In Brazil, we closed a large strategic net new win with Berdesco Seguros, which 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 Policy Center 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 three great pricing center wins in the quarter, including one with a Swedish insurer, an insurer in Poland, as well as our first U.S. win for pricing center 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 five insurers spanning multiple sizes in 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 two regional mutual insurers, as well as a farm and ranch-focused P&C carrier and a workers' compensation insurer. Additionally, our data and analytics offerings continue to gain traction as customers seek to embed more real-time insight throughout the insurance lifecycle. 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 forums we hosted in Europe, Australia, Japan, and Canada. In 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 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 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 workflows. AI in 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 agentic capabilities integrated into the flow of work. Underpinning all of this is our cloud platform and developer ecosystem, which was the focus of of our recent developer summit in Bangalore, India. This event was a real highlight for me for two 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 Cloud 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 cloud-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 agentec development tools, which is helping accelerate delivery and implementation timelines. 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 org. 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 transitioned 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 Mullen, 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 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 $147.07 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 to $1.237 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 FY27 and beyond. For total revenue, we now expect between $1.46 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 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 three 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 Pricing Center 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 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 and $134 million and non-GAAP operating income of between $314 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 We are raising our expectations for cash flow from operations for the year to be between $365 and $380 million. Our CapEx expectations for the year are between $30 and $35 million, including approximately $18 million in capitalized software development costs. Alex, you can now open the call for questions.

Great. Our first question comes from Adam Hodgson at Goldman Sachs.

Thanks for taking the questions. 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 felt 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 this same dynamic to impact T4.

First, thanks very much for the question, and I'll answer the last part of the question first. No, we have a tremendous amount of pipeline and, you know, expect we have to execute, but we expect a very strong Q4. You know, the situation Q3 with respect to deal timing, that honestly isn't that unusual. Well, it's just, you know, 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, you know, 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. You know, Jeff mentioned this, like, we're creating We're creating alternative ways to get to the number and alternative products to sell in Pricing Center and ProNavigator and our analytics product offerings that are really increasing our confidence looking into Q4 in the 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.

Yeah, and the only thing that I would add is, you know, we've been talking for some period of time around what the impact of ARR backlog is into the net new ARR numbers. And, you know, 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 in how we think about the guide.

Great. That's really helpful. And then, Mike, just to follow up on something you said on ProNav and Pricing Center, it feels like you're getting some really good early traction there. and 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. Thanks so much.

Well, you know, 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 whole insurance life cycle. So, you know, obviously as those, you know, as those product lines grow faster than the overall product, you know, the collection of product lines, they'll become a more and more meaningful part of the overall bookings number. You know, we called it out just because it was an objective this year to get those product lines established. And as Jeff said, And we're very, very pleased with the momentum. And so it'll 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 Alexi Vogelab of J.P. Morgan.

Hello, everyone. Can you hear me?

Yes.

Perfect. Hi, Mike. As an 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. And it's a super complicated, multi-faceted answer, so forgive me. I'll do my best in I don't know how long I allocate to answers of questions on earnings calls. but let's say three 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 guide wire 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 guide wire 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. This is what I was referring to at our Dev Summit in Bangalore, showing people how to get this thing deployed, how to get cloud code running on top of Guidewire, how to create the code, the integrations, digital experiences, all of that stuff through prompt engineering. It really is phenomenal. And so, you know, 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 LLMs that are sitting inside of products like ProNavigator and the agents that we build to run on our agentic layer inside of our platform. And so there's, like, this, like, in how these things are working together and being practically deployed right now that I am very, very excited about. You know, I think if you, you know, if you say, like, what's the world going to look like in five 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 one thing for apps 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, you know, where things are and where I think they'll go. But I would say generally couldn't be more pleased with how this is evolving in the ecosystem.

Thank you, Mike. And one 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 products 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 way that it is very directly with ProNavigator, we want to have a basis points-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, you know, 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 um dwp based uh pricing structures for the products that align to the insurance workflow and that's going incredibly well for us right now um hopefully that makes sense uh slightly a technical question but that's the philosophy around pricing and guardrails right now guidewire thanks alexi um next question is from parker lane that's people hey good thanks for taking give us a sense of how long those deals are in the pipeline and

And generally speaking, when you look out to 4Q and – Yeah, thanks a lot, Parker.

It's a great question. I appreciate it. We probably should have woven that into our script. 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 modernizations that I think you know can sometimes last multiple years. So certainly there was a bit of that pipeline that was already part of the company when we did the acquisition. But since acquisition, and hopefully everybody gets this, it's like there's this prompt shift in the perspective of the customer base around the trust that they're 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. You know, the conversations are quicker, especially relative to a modernization or a cloud upgrade. And that's very, very exciting. And that's one of the things that's driving the excitement in our sales organization but also our customer base. This is this, like, operationalized AI in a way that allows a company to get started very quickly and ProNavigator meets that need.

I'll add one quick comment there, Mike. With regard to both ProNavigator and Pricing Center, 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 standalone, Mike mentioned a different selling cycle, but it is also proving to be a really rich engagement with chief claims officers and heads of underwriting, heads of 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 and indemnity management. And that's becoming a really powerful enrichment of the core, modernization of core message.

You talked about slower more there, particularly.

Yeah, slower hiring was, you know, 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, you know, 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, you know, 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 headcount growth. So those two things are playing into some of the hiring practices right now. Appreciate it.

Next up is Ken Long. Go ahead, Ken.

Can you guys hear me? Yeah, we can hear you, Ken. Okay, fantastic. Mike, I think circling back on the slip deals, I feel like you guys have been executing so well. So anytime there's a little bit of hiccup, I think investors just wonder, you know, potentially is it maybe macro given some of the geopolitical stuff that happened in the quarter? Is it maybe, you know, kind of AI causing customers to kind of think through their deployment timelines?

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 some deal timing and then any update on whether or not those have closed in in fiscal Q4 yeah so it's a good question and I would say just generally no right there like 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 know you can say getting it wrong or seeing things move you know 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, you know, 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's building, demand is building. We're looking at a, you know, potentially, I have to qualify this as 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, yeah, I wouldn't connect the dots to anything related to macro or AI or anything like that.

Yeah, 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, you know, as we look at the linear, Choir is a business that has a small number of very large deals that can be quite impactful. This is just the 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, you know, 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 fully 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, at or above, below, what Q2 levels were?

Yeah, here's what I can say. I mean, Foley Ramp continues to be very, very healthy. You know, 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 one end 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, a fully ramped ARR growth at 22%, which was very strong. And as we kind of move through this year, 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 Alan Verkowski at BTIG.

Awesome. Thanks for taking the question here, guys. Mike, I just want to pull on that earlier thread in 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 in 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?

Yeah, great question. Yeah, it's interesting. I mean, 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 of an insurance company, and it really is across the board. Probably the most tangible thing you can point to is product creation. So, you know, 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 assistants. It's really across the board because, you know, 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, you know, 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 this creates, you should think about this, like, in two 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 a Guidewire 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 timelines associated with professional services to do that work come down in very significant ways, that's what creates more demand. You know, people often say, like, what's the meter on guidewire? Like, what can cause guidewire to grow faster, grow slower? Well, of course, you have to pay money for guidewire licenses. 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. You know, that's very, very real, and I think it's absolutely creating a tailwind for the company.

Perfect. That's really helpful, Mike. Yeah, and Jeff, maybe just a quick follow-up for you. It's impressive that fully ramped ARR growth is still expected to outpace ARR 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? Thank you, guys.

Yeah, I mean, we do a very detailed bottoms-up review of our pipeline, the deals that are coming in. And we're seeing kind of, you know, we are seeing very healthy demand for larger commits. So insurers expanding their work with Guidewire when they're modernizing one 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 three quarters of the year that also inform our guides. 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 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 guy. Now, there is certainly work that has to be done and completed in Q4 to realize that, But we have, you know, good visibility into the corpus of deals that we expect to see in Q4.

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

Yeah, thank you for taking the question here. Obviously, you know, you hit on the slip deals a bit already. But I guess just, you know, bigger picture, one of the dynamics that, you know, investors are asking about is just sort of the AI crowding out effect. And I'm curious, as you talk to your insurance customers, and they're, you know, presumably ramping up coding projects, how much is that budget an issue as it relates to your deals? And, you know, as you think about sort of Q4, if you could just sort of provide, you know, 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? Thank you.

We're obviously being very careful and going through everything in Q4, you know, let's say with a fine-tooth comb to ensure that we're confident in reaffirming the guide and the confidence that we have in the execution. And so, you know, that's being done. In terms of AI crowding out, like, I certainly hear this narrative from, you know, from people, let's say. I don't hear it from customers. 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, B, 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 doesn't make sense to compare these two things against one 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 to have a modern core system that is capable of supporting these sort of agentic 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 one 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 authentic 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, you know, 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 Gaguar.

Go ahead, Josh. Go ahead.

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

Yeah, 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. What 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, let's 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.

Yeah, 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 a leveling off. You know, 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.

Thank you, guys. Mike, do you see any high-level differences in the appetite in relative budgets for adopting AI products amongst PNC insurers geographically in the Americas versus EMEA versus APEC?

Yeah, that's a good question. It's interesting. Yes. You know, summary is yes, we do. I don't want to call it any particular countries, but, yeah, we do. You know, there'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. You know, 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 you know, 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 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?

Yeah, 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, you know, 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, you know, 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, you know, we can make sure that there's not any sort of, you know, 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, Eric. Next question is from Jessica Lang at Raymond James.

Thanks for inviting me in here. Just to put some base on Underwriting Center, I know it's still early, it's still in development, but what have you been hearing from customers who are interested in there? Like, how do we think about the product maturity so far, a potential pipeline into next year? The concern is that the stuff you have so far with ProNavigator and Project Central already.

Yeah, thanks for the question. So, 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 slash months. You know, 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 you know the use case there's a tremendous amount of demand for I would say universally across the customer base and you know the project is going according to schedule and we're excited about the work we're doing with these with these sort of carefully chosen design partners that we're working with.

That's great to hear and also just Talking on Pricing Center again, with the process of pipeline so far, how do we think about the demand that came from your existing customers versus new, like, completely new logos? How do we think about potential attach rates that are involved in these different cohorts?

Yeah, it's a great question. It's technically the pricing center to policy center to product model integration is so much an important part of the value proposition. You know, 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 and adjust rate routines more fluidly to keep pace with competition and keep their products, you know, 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, you know, like I said, the thesis behind making pricing center part of the suite of Guidewire 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, you know, connects logically to selling this to existing Policy Center customers and selling this alongside new Policy Center implementations. That, you know, go-to-market dynamic is playing out exactly as we expected it to, and that's where we're seeing the demand. And, you know, you could also say it's, like, that's where we're focused because our value proposition is strongest there. But, you know, it's very much working according to plan.

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

Okay. Just building on those last couple questions, I wanted to ask about pricing. And I guess you saw the one in Sweden, Poland, the first one in the U.S. how is this maybe building on reference ability of these newer products and then maybe as you touched on the different appetite that may vary region of 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 yeah let me I'll touch on the last thing I don't know that I've heard so often that people are saying that you know they're surprised that they need to do this I think everybody most of the companies that were working with have like recognized that this is on the strategic agenda um you know and that also

that this being on the strategic agenda factored into our interest in um in you know adding this to the portfolio and building out this well-integrated solution at guidewire that was a factor um you know i think referenceability is very very important i also just think like 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. You know, this is an incredibly good actuarial engineering team that we acquired, but, you know, 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 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. You know, the teams both on the, you know, on the pricing center team, but also the general infrastructure and platform teams at Guidewire have done a really, really good job executing on this uh and earning the trust of of these customers and help that helps build the pipeline uh you know that we're that we're uh that we're executing against and giving us confidence that that this is going to continue so i don't know hopefully that helps you let me add the other thing i say is like we're all we're also we don't tend to like oversell much at Gaguar we try to make sure we have a stellar track record in terms of selling things that we know we can do and executing 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 pricing center rollout rollout anyway thanks for the question you know thanks for the color 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 in our fiscal year. Thanks very much.