Guidewire Software Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kevin Kumar Kumar - Goldman Sachs & Co. LLC - Analyst : Hi, thanks for taking my question. I wanted to ask a question around the demand environment. Guidewire obviously is seeing some really strong deal activity. And that's perhaps in contrast to some softness with other software vendors where customers are perhaps delaying large purchases. So Mike, can you just talk a bit about what you're seeing in the P&C market? And in general, how carriers today are thinking about prioritizing these large kind of core system modernizations?

Question: Kevin Kumar Kumar - Goldman Sachs & Co. LLC - Analyst : Thanks. That's helpful. And then maybe one for Jeff on margins. I think gross margins for subscription and support have been relatively stable the last couple of quarters. So maybe how should we think about the next inflection point that pushes cloud margins closer to that kind of 70%-plus figure that you and the team have talked about in the past?

Question: Kevin Kumar Kumar - Goldman Sachs & Co. LLC - Analyst : Great. Thank you both.

Question: Dylan Becker - William Blair - Analyst : Hey, gentlemen. Really nice job here. Maybe Mike for you. We've seen some interesting data from carriers that are more innovative, gaining share, improving decisioning and (technical difficulty) in auto. I wonder how that conversation you're having with customers shifts more to business REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 9:00PM, GWRE.N - Q3 2024 Guidewire Software Inc Earnings Call enablement versus outright IT alignment, fueling some of that momentum and maybe how customers are thinking about those similar dynamics of share gains carrying over to additional P&C lines over time?

Question: Dylan Becker - William Blair - Analyst : That's great. And actually, it's a good segue into the second question too, Mike. I think Jasper, the most recent release calls out commercial agility within that as well. And you've had some success on the commercial content side. I think you called out London there as well. But if you could elaborate maybe on your efforts here on the commercial side of the market and the right way of thinking about that opportunity?

Question: Dylan Becker - William Blair - Analyst : That's great. Thanks, Mike. Congrats.

Question: Ken Wong Wong - Oppenheimer & Co. Inc. - Analyst : Great. Thanks for taking my question. I wanted to circle up on the fully ramped ARR comment. It seems like you guys are set up really well to wrap up the year. Any color on what's causing that step-up off of a tough comp? Is it just your customers have higher confidence in the business? Is it cloud migration, the premium step ups, the true-ups? What are some of the factors we should be thinking about that's driving that?

Question: Ken Wong Wong - Oppenheimer & Co. Inc. - Analyst : Okay, perfect. Thanks, Mike. And then, Jeff, maybe building off of that, as we think about the guide, obviously, very strong Q3, maybe a little lighter Q4. Should we marry the Q4 -- the full year '24 guide with that fully ramped commentary, which is obviously still strength coming off of Q3, but the actual ARR realization is coming down the line?

Question: Ken Wong Wong - Oppenheimer & Co. Inc. - Analyst : Okay, perfect. Thanks a lot, guys.

Question: Peter Heckmann Heckmann - D.A. Davidson & Co. - Analyst : Good afternoon. Can you just remind us about the frequency with which the pricing is adjusted relative to DWP? And as regards to that, how do you think about the effect of some personal lines, insurance company or even commercial like exiting certain markets, just given the need to really raise premiums in the face of higher catastrophe risks? How does that trade-off work?

Question: Peter Heckmann Heckmann - D.A. Davidson & Co. - Analyst : Okay. That's helpful. And then, just can you remind me of the number of net new logos in the last year? And if my tracking is right, it looks like about nine net new logos so far this year. But number one, is nine right? And then, what was the number for last year? It looks like I missed the fourth quarter.

Question: Peter Heckmann Heckmann - D.A. Davidson & Co. - Analyst : Okay. That makes sense. I appreciate it.

Question: Rishi Jaluria Jaluria - RBC Capital Markets, LLC - Analyst : Wonderful. Thanks for taking my questions. I want to start with the comment you made about managing to less linearity. Can you maybe walk us through the steps that you took to get there outside of just the shift to a more ratable model? And as we think about our own models beyond this year, is this year's numbers inclusive of your Q4 guide, the right proxy to use for future years or how should we think about seasonality? And I've got a quick follow-up.

Question: Rishi Jaluria Jaluria - RBC Capital Markets, LLC - Analyst : Okay, wonderful. That's really helpful. And then, I just wanted to ask a question about Jutro. Since you announced that at the Connections last year, picking up a lot of interest. Can you maybe walk us through what is adoption and use cases look like so far with Jutro? And as we think about -- it's a developer kit. Is there an opportunity for you to leverage generative AI just given that GenAI has been really helpful from a coding perspective to maybe even speed up time to value even faster than what we've seen before? Thanks.

Question: Rishi Jaluria Jaluria - RBC Capital Markets, LLC - Analyst : Thank you.

Question: Matt VanVliet VanVliet - BTIG, LLC - Analyst : Hi, good afternoon. Thanks for taking the question. Maybe I wanted to dig in a little bit on what some of the specific drivers were that got some of the APAC deals in particular over the line, and improving performance that you called out there on the cloud side of the business. How much of that is product maturation and other things you're doing versus John and his team continuing to knock on doors and get deals done? Anything you can do -- provide us with a little more details on what's working there that maybe wasn't just as a few quarters ago?

Question: Matt VanVliet VanVliet - BTIG, LLC - Analyst : All right, helpful. And then, just two quick follow ups, Jeff. One, it looks like a pretty big perpetual deal came through on the quarter. Any additional details you can help us with there? And then, from a more strategic standpoint, on the gross margin reinvestments you talked about, anything specifically that you're targeting there? Is it just sort of an acceleration of things on the roadmap already?

Question: Matt VanVliet VanVliet - BTIG, LLC - Analyst : You mentioned the upside to gross margins that maybe are going to accelerate some investments in the platform. Just curious if that was pulling things forward.

Question: Matt VanVliet VanVliet - BTIG, LLC - Analyst : Okay. Thank you.

Question: Alexander Sklar Sklar - Raymond James & Associates, Inc. - Analyst : Great. Thank you. Mike, a lot of comments today around the maturity of your cloud solution kind of helping drive faster demands. Can you just talk about your cloud customers staying closer to the latest release and where that stands today versus a year or two ago? And is there any way to characterize how that piece of it is factoring in broader demand and cloud adoption? Thanks.

Question: Alexander Sklar Sklar - Raymond James & Associates, Inc. - Analyst : All right. I appreciate all the color, Mike. Jeff, maybe just a quick follow-up for you on Rishi's question around linearity. We obviously have the fourth quarter ARR guide. I think you also implied that Q4 might not reflect the strength of fully ramped bookings just given ramp schedule. So I just wanted to clarify, is the smoother linearity comment and kind of less reliance in Q4, is that a phenomenon you're seeing on the fully ramped side too or is there an added aspect in terms of the mix of ramp deals that you're looking at in fourth quarter versus the rest of the year? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 9:00PM, GWRE.N - Q3 2024 Guidewire Software Inc Earnings Call

Question: Alexander Sklar Sklar - Raymond James & Associates, Inc. - Analyst : All right. Thanks for that.

Question: Alexei Gogolev Gogolev - JPMorgan Securities LLC - Analyst : Hello, everyone. Mike, I was wondering if you could give us some insight into the customers that are still on the old prem software versions. When do you think these customers would be ready to migrate to the cloud? I'm assuming that they haven't received any upgrades since you guys moved and started to introduce cloud products. So do you think 2026 or 2027 would be a pivotal year when many of these customers will begin to consider cloud migration?

Question: Alexei Gogolev Gogolev - JPMorgan Securities LLC - Analyst : Perfect. Thank you, Mike. And Jeff, very quick question for you. Does this strategy of passing on low-margin service revenue to partners mean that you would not need to add significant amount of additional talent and labor capacity in the midterm, which would potentially help improve your margins going forward?

Question: Alexei Gogolev Gogolev - JPMorgan Securities LLC - Analyst : Appreciate the answers. Thank you, Jeff. Thank you, Mike.

Question: David Unger - Wells Fargo Securities, LLC - Analyst : Hey, it's David Unger on for Michael Turrin. Thanks for taking the question. Just one from us. Can you guys just talk through the trends you're seeing in terms of the sales cycle and any differences to note by either geography or tier? Thank you.

Question: David Unger - Wells Fargo Securities, LLC - Analyst : Thanks, Mike.

Question: Aaron Kimson Kimson - Citizens JMP Securities, LLC - Analyst : Thanks for the question. Can you provide any color on the specific areas in accelerated product investments that Jeff mentioned at the end of his prepared remarks?

Question: Aaron Kimson Kimson - Citizens JMP Securities, LLC - Analyst : Very helpful. Thank you. And then, (technical difficulty)

Question: Aaron Kimson Kimson - Citizens JMP Securities, LLC - Analyst : And then maybe -- yeah, stepping back, one of your cofounders, former CEO, current Board member of Marcus Ryu talked last month about how he believes the future software's vertical, and verticals are going to become more and more specific over time. One better case and factor on vertical software is that LLMs are going to accelerate engineering productivity and allow nimble upstarts to capture a lot of the value that many vertical REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 9:00PM, GWRE.N - Q3 2024 Guidewire Software Inc Earnings Call software applications provide at a fraction of the cost. Mike, where on the spectrum between those two trains of thought do you see things playing out in the insurance market?

Question: Aaron Kimson Kimson - Citizens JMP Securities, LLC - Analyst : Thank you.