Good day and welcome to the Guideware fourth quarter and fiscal year 2012 earnings conference call. As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Karen Blasing, Chief Financial Officer. Please go ahead.

Good afternoon and welcome to Guidewire Software's earnings conference call for the fourth quarter and full year fiscal 2012 which ended on July 31. This is Karen Blasing, Chief Financial Officer of Guidewire, and with me on the call is Marcus Ryu, Guidewire's Chief Executive 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. To access the press release and the financial details, please see the Investor Relations section of our website at www.guidewire.com. As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These risks are summarized in the press release that we issued today. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our quarterly report for the period ended April 30, 2012 and the final prospectus for our follow-on offering which are on file with the SEC. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation schedule showing GAAP versus non-GAAP results has been provided in our press release issued after the close of market today. Finally, at times in our prepared comments or responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be one-time in nature and we may or may not provide an update in the future. With that, let me turn the call over to Marcus for his prepared remarks, and then I will provide details regarding our fourth quarter and full year results and our outlook for fiscal 2013.

Thanks, Karen; and welcome to all of you. I'm pleased to report that our fourth quarter was a strong finish to a very good year for Guidewire, including revenue and profitability that were again both ahead of our expectation. Total revenue of $67.6 million grew 33% from a year ago and was $4.6 million above the high end of our guidance. And similar to Q3, all revenue lines this quarter performed well. As an enterprise, we care most about growing our base of recurring revenue, deriving from multiyear licenses and ongoing maintenance agreements, both of which are built annually and on which we have historically enjoyed extremely high renewal rates. Our full year term license revenue was up 24% year over year and our rolling fourth quarter recurring revenue, which add term license and annual maintenance together, totaled $104 million at the end of fiscal 2012, up 28% from $81.9 million at the end of fiscal 2011. Our revenue upside flowed to the bottom line to produce non-GAAP operating income of $9.6 million in the quarter, which was also above the high end of guidance, and yielded a 14.3% non-GAAP operating margin. Non-GAAP net income was $0.10 per share, $0.05 above the high end of guidance. We ended the year with 837 employees, up 29% from a year ago. Though headcount grew considerably during the quarter, with an all-time recruiting high of 68 new employees, we did not reach the even more aggressive headcount growth built into guidance, and this contributed to our earnings upside. We continue to recruit and have aggressive hiring plans across the company. A primary driver to our overall financial outperformance in the fourth quarter was our services revenue which at $30.8 million was up 60% from a year ago, considerably ahead of plan and reflecting…

Thank you, Marcus. We're pleased to report results that exceeded our revenue and earnings expectations for the fourth quarter. Total revenue was $67.6 million, a 33% increase from the fourth quarter of fiscal 2011. Within revenue, license revenue was $28.9 million, up 11% from a year ago. Fourth quarter revenue included $1.6 million perpetual license revenue, down from $3.4 million in the fourth quarter of 2011, as we continued to focus on signing multiyear recurring term license agreements. Excluding the impact of perpetual licenses, license revenue was up 21% from a year ago. Maintenance revenue, which is recognized ratably through the year, was $7.9 million for the fourth quarter, up 33% from a year ago, reflecting overall license growth trends. Services revenue was $30.8 million, up 61% from a year ago, reflecting the increase in number, scale and complexity of projects we're engaged in. Our high annual revenue visibility is driven by the recurring nature of our multiyear term licenses and ongoing maintenance agreements, both of which are built annually. Term license and maintenance revenue totaled $104.4 million for fiscal 2012, up 28% from $81.9 million for fiscal 2011. With respect to geographic mix, the United States represented 51% of revenue in the fourth quarter, with 49% of revenue coming from outside the US. Our geographic mix can be variable on a quarter-to-quarter basis, depending on the timing of larger transactions and the associated revenue recognition. For the full fiscal year, our US revenue was 55% of total revenue while international was 45%. We will discuss our profitability measures on both a GAAP and non-GAAP basis, and we have provided a reconciliation of GAAP to non-GAAP measures in our earnings press release issued today, with the primary difference being stock-based compensation expenses as well as the release of evaluation allowance…

Certainly. [Operator Instructions]. We'll go first to Thomas Ernst with Deutsche Bank. Thomas Ernst – Deutsche Bank: Good afternoon. Thanks for taking my question. How are you too?

Great. Hi, Tom. Thomas Ernst – Deutsche Bank: So, it looks like your number policy went, you know, I think is a big surprise, you're up 35, you've essentially doubled since the IPO timeframe, and this is driving the services work. I guess the question would be, with these -- first, how are these service deployments going? I know I ask you this every quarter, but it looks like they're clearly more service intensive. Are you finding success in all the deployments or are you finding any challenges that drag these out? Do you think you'll have all of these 35 customer successful when all is said and done?

Right. Thus far, all products are on track. One thing I always tell any customer contemplating one of these core system projects and the sales process, is that be prepared for an extremely demanding project. It will be very difficult, there'll be moments of pain, and it doesn’t happen by itself. So, all of these -- every one of our implementations are very, very demanding and that's just the nature of what it is that we're doing. PolicyCenter isn't intrinsically more difficult than the claims project, it's just larger. And I wouldn't characterize the projects as being more services intensive, it's just that the aggregate amount of work to be done on a program for policy is just larger. And while we're doing the same proportion of that work, 10% to 15% is our usual target, that in aggregate is just on a larger base. So, our current projects are on track and in fact it would make it extremely challenging to win new customers per policy if the existing customers, both those in implementation and in live production weren't to testify very enthusiastically in their own words. If that weren't the case, we would not do well in the market. Thomas Ernst – Deutsche Bank: Okay. Maybe more specifically on this, what is happening to the trend for time to revenue, the policy and the larger suite type deals? How long does it take you to go live and start recognizing revenue? And how has that evolved over time?

So, just first a clarification, whether or not it's policy or a claim, at this point we invoice generally 30 days within the execution of the contract. So we are getting paid license just on the start of implementation. That's across all our products. That wasn't always true historically where there was a little bit more complexity, but certainly for the last --

Two full years.

-- last two full years, and certainly going forward, that's our expectation and model. And we recognize accordingly a unified revenue model. There is a subtlety that we called out before, and I think you might be alluding to this, Tom, which is that in many cases a policy project will start with a portion of the business as opposed to the full enterprise, and this is especially the case where you have a kind of complex business with different lines of commercial lines, personal lines, specialty lines, that are a bit distinct from each other. And in this case we'll win the new customer but they will license it for a portion of their business and pay us only for that DW -- only for that amount of premium, but treat that first project as foundational and then the subsequent lines of business in a way are much more routine once they've done that first one. So, in that sense, the license base is a bit -- is smaller than in the beginning than it might become over time, and we see that a lot in policy. Thomas Ernst – Deutsche Bank: And are you finding any trend towards faster expansion in those deals or is it still early customers?

Well, we've been pleasantly surprised in general by stimulating conversations about the second product or third product earlier than some of our historical experience, and I think that just reflects the overall maturity of our products, and Nationwide, which is the largest deal we talked about in the script there, they are not live with claims, and yet they have made essentially an enterprise commitment now for policy, which was not something that you -- that we would have expected to happen, say, two, three years ago. So in that sense there's a bit of acceleration, and I think it just reflects the improving profile that we can present customers. Thomas Ernst – Deutsche Bank: Okay, last question for me then I'll let others ask. I know you give the numbers once a year on -- the number of wins and policy, et cetera, but how was the momentum through the year? Do you feel like it's stable, building, decelerating? What's the overall momentum as you exit the year and enter this new one?

We feel great about the momentum. We have clearly the strongest pipeline that [the companies ever enjoy], lots of factors going into that. One, we have more feet on the street. I think our marketing is getting better, more substantial, more pervasive, you know, and out there. I believe there's some reason to be optimistic about our competitive position that we never want to get arrogant or complacent about that. But lots of factors working in our favor there that have helped the output, which is a much stronger pipeline than we've ever had. Thomas Ernst – Deutsche Bank: Thank you again.

We'll go next to Sterling Auty with J.P. Morgan. Sterling Auty – J.P. Morgan: Thanks. Hi, guys. I wanted to start with, you mentioned kind of the emphasis on the term versus the perpetual, and the perpetual performance this fiscal year. Can you give us a sense of what we should be thinking about in terms of the trends quantified at least in terms of should term -- or, I'm sorry, should perpetual license revenue actually be down year over year and the growth made up by term? Or what should be the trend that we should think about?

Yes, Sterling. The perpetual licenses we recognized $22.3 million in FY12. Embedded in our guidance, we have assumed a much lower number of license revenue from perpetuals in 2013. So it is dampening down the effect of full license growth. We do anticipate that our term license growth will be substantive, substantially above the blended license growth. We think it's really important for the company to try to pursue the term license model. Maybe Marcus, if you can share with us what we think is the benefit to customers as well.

Yeah. One thing I'd add to Karen's comments, Sterling, is that it's always been the philosophy of the company to have a recurring revenue model based on term licenses. That's really from day one 11 years ago. The difference now is I think we've become substantially more persuasive in that. Again, not 100% of the time but steadily better. And I think three quick -- three factors have contributed to that. One, it's become much more norm in the market, you know, [with Salesforce] and others. Number two, I think we have a bit more market stature, more market stature today than we've ever had before. And number three, the central value proposition of a term license is that we continue to innovate and improve the product, and it's much easier to argue for that when you have a track record of doing so as opposed to making promises about the future. So, for all those reasons, we've been pleased with our ability to generally drive much more term license, and we are modeling that we are going to continue improving on that trend in this year. Sterling Auty – J.P. Morgan: Okay. On the deferred revenue, you gave some commentary in your prepared remarks as to why we shouldn't look at it as an indicator as compared to maybe other traditional SaaS companies, but in looking at your business and what you see from your side, is there a pattern or a trend in deferred revenue that we should expect over the course of fiscal '13?

So, typically, you will see our deferred maintenance revenue, which we've broken out for you in the Q's, and we will do so again in the 10-K. Deferred maintenance will continue to go up. If you look at it particularly on a year -- quarter-over-quarter basis, so, Q4 over Q4, and that is because we typically invoice our customers for maintenance upfront on an annual basis and recognize that maintenance revenue over the next 12 months. So it should be a good indicator of the growing customer base. Our deferred license revenue has a different characteristic to it, particularly because there's very little of deferred license revenue left from the old, historic revenue recognition that was much more driven by our customers' implementation schedules than our selling efforts. Since the beginning of FY11, all sales, and through FY12, all sales were on a unified revenue model, so it more closely reflects the sales efforts of our team rather than the customer implementation schedules. But we do have license revenue that will sit in deferred revenue for generally a fairly short amount of time. When we sign a contract with a customer, we typically will give them 30 to 60-day invoice terms for the first payment, and we do need to delay revenue recognition from the time until that invoice due date. Okay? So, sometimes that straddles the quarter and you will see deferred license revenue go up just in that period and then be recognized in the next subsequent period. Sterling Auty – J.P. Morgan: Got it. And last question, can you give us a sense in terms of the 68 employees that you hired, how did they get applied in terms of R&D versus sales and marketing? What's your kind of general thoughts around the hiring and investment by functional areas for 2013? And is there a level where you say, you know what, we would expect the peak investment to hit about such and such quarter, and then from there, would you then expect operating leverage to show through?

Yeah. I don’t have -- we don't have a peak quarter to share with you yet, Sterling, but in terms of the emphasis by function, a lot -- the emphasis -- the heaviest emphasis by far is in sales and in services, because we never want to be gated in our ability to win a new customers by an implementation shortfall. And then we have had growth in the development line as well but at a so much lower rate. And that pattern we plan to extend into this year as well. So, the heaviest growth on a percentage term by far is in sales, followed by services. And then very modest increase on G&A. Sterling Auty – J.P. Morgan: All right. Sounds good. Thank you.

We'll go next to Tom Roderick with Stifel Nicolaus. Tom Roderick – Stifel Nicolaus: Hi, guys. Good afternoon. So I wanted to learn a little bit more just about what you're seeing on the sales cycle side of policy, and maybe Nationwide is a good place to dig in. Can you talk a little bit about how long that conversation was going on for? Who else you had to compete against, obviously, there, considering the first tier 1 to evaluate a third-party policy decision, I'm gathering they looked at other vendor solutions? So, maybe if you could just talk about how long that sort of took you, how long -- many iterations, and who you went up against, that'd be really helpful. Thank you.

Sure. Yeah, the total evaluation time was about a year, which is somewhat faster, but that's because we were able to shortcut -- or rather had already invested in the kind of get-to-know-you period. They are a claims customer, and so they had done a lot of due diligence on us as a company and as leaders of the company and so forth, and then the technology, because of course it's shared between our products. So we were able to shortcut a lot of that stuff. But it was still about a yearlong conversation and negotiation before we had an executed contract. Competitively, I think this is implied in your question, we actually did not compete with any real third party, with any other software vendor. They had sort of concluded that the market had nothing to offer to a carrier of their scale. And so the alternative, the default alternative was that they would proceed with what they call legacy modernization with their own internal IT resources. And this is typically what we see at the upper end of the market, the real behemoth that are in the industry, the $10 billion plus, that they have large IT organizations accustomed to building -- adding new layers of code on that 30-year-old system. So it was a bit of a different kind of sales cycle than we have in other sectors of the market, but we had ultimately I think a very compelling value proposition for them that showed that there was a lot for that group of people to do as opposed to reinventing the wheel building the core software. And we expect to see that pattern repeated at other tier 1's. In fact, we're in a lot of those other conversations right now. Tom Roderick – Stifel Nicolaus: That's great. And Karen, maybe a follow-up question for you on Nationwide itself, I mean that $15 billion in direct written premium, it would seem like this is a pretty sizable monetary deal. How are you thinking about the inclusion of that deal with respect to your 2013 guidance? When does that sort of start kicking in both from a services and license perspective?

So there is no Nationwide revenue in 2012. All of the revenue that we expect to start would really happen in 2013. And this is a customer simply, because of the size as well, where typically we would do kind of annual invoices in advance, so we may have a pretty significant license benefit in any one quarter. During the negotiations with Nationwide, it made most sense for all parties actually to do quarterly invoicing instead of this annual in advance. So I expect both the license revenue to start to be recognized in the first quarter, but it won't hit as a one-quarter item, it'll come in much more evenly over the year. And I also expect our services revenue to really start and ramp up here pretty quickly as well. Tom Roderick – Stifel Nicolaus: Okay, that's great. Last question for me, just thinking about the mix of perpetual versus term, and term, the growth was very good this quarter, so we're sort of drawing down off of these tougher comps on the perpetual. But just as we think forward going into the model, what are you still selling perpetually? What can customers buy on that front, on a perpetual license, and how much longer will that -- it kind of sort of impacts the model in any material fashion? Or do we sort of wind all the way down on perpetual as we get to the end of 2013?

Well, it's certainly our -- that would be ideal. We don't think that it's realistic to assume that we'll get to zero in the year. We have a much lower expectation in absolute terms, not just in proportion of license but in absolute terms in perpetual license new bookings for the year than we did last year, than we achieved last year. And so that's -- and we have all kinds of internal incentives and so forth to make sure that we're all singing from the same hymn book, as they say, on this.

The one thing I'd like to add a little bit to that is, you know, we do have longstanding contracts with some of our customers who may have bought from Guidewire on a perpetual license basis for the first product or the first line of business that they were doing an implementation, [like it not], when they're going to buy a new product or they're going to expand their business with Guidewire as well, they'll -- we'll reach back into that existing customer contract and really just kind of accept orders under those existing contracts. So it's very difficult to be -- to move the organization to 100% term licensing when many of -- when some of our existing customers have already been able to successfully buy perpetuals from us.

Right.

So, those are the most of the residuals.

Right. What Karen described is the primary case where we would sell another perpetual, a customer who's already licensed a ClaimCenter historically on a perpetual basis, which is a minority of our customer base --

That's right. -- but there are still some out there that we want to up-sell to. Tom Roderick – Stifel Nicolaus: Great. That's very helpful. Thanks, guys. Nice job.

We'll go next to Brendan Barnicle with Pacific Crest Securities. Brendan Barnicle – Pacific Crest Securities: Thanks, guys. I was wondering, and maybe I'd missed it, if you had any commentary on backlog at all. It sounded at the yearend that was something you were going to share with us, like you were with updates on the customer count.

Brendan, we really, you know, in kind of looking at backlog, so much of our contractually committed licenses from our existing customers is completely off balance sheet, right? So you see sitting in deferred amounts that are really just waiting for a short time period to be recognized as earned revenue. But the concept of backlog to a software company and a term software company, I find it a little foreign in that, you know, so I think the best way to look at kind of our existing kind of base of business is how we recommended looking at that four-quarter rolling revenue metric, that includes all of the term licenses, which we expect to be recurring, and a very high renewal rate -- and then all of the maintenance revenue both from our term licenses as well as our perpetuals, because again we expect those fees to be charged to our customers and recognized as revenue year over year over year. Brendan Barnicle – Pacific Crest Securities: Great. And then if I just delved into the Q1 guidance a little bit more. Should we be assuming that services revenue would be up sequentially and that the license component overall term as well as perpetual would be up year over year?

So, yes, we do expect our services revenue to be up in Q1 over Q4. And again we do not expect a large amount at all of perpetual licenses to be recognized in the first quarter. Brendan Barnicle – Pacific Crest Securities: So, given the perpetual component that we had a year ago, should we be assuming that Q1 license total revenue -- or total license revenue is down year over year?

Yes, that's our expectation. Perpetual license revenue in the first quarter of '12 was $8.5 million. We don't expect anywhere near that size of a number for perpetual licenses in this first quarter, to be -- Brendan Barnicle – Pacific Crest Securities: And then just lastly, on our services gross margins, since you guys are still hiring, is that going to hit that mid-teens number immediately in Q1 or do you expect that to sort of continue to decline as we go through the year?

It'll continue to decline as we go through the year. Alex is -- Alex Naddaff, who runs our services organization, has a very aggressive recruiting campaign that he's had going on really for the last three or four quarters. And all of his team members are very highly utilized today. So he is working at this point to recruit to get more of a bench into his team. But it'll take a few quarters actually for that to start to impact the service margins.

But again to be clear, the main driver there we see is the lower utilization that we're targeting or the more normalized utilization, I should say, rather than a high, like -- than an even more accelerated services ramp. It's really our targeting a return to the long-term utilization rate.

Yes. Brendan Barnicle – Pacific Crest Securities: Great. Thanks, guys.

We'll go next to Walter Pritchard with Citi. Ken Wong – Citi: This is Ken Wong for Walter Pritchard. Just a quick question on your product pipeline. Can you give us a sense for what percent of the pipeline has multiple products versus what that percentage might have looked like last year?

The product pipeline. You mean -- I'm not sure I'm following you. Ken Wong – Citi: Just looking into your pipeline, what percent of that customer base, or just kind of a relative percent, you know, compared to last year, has multiple products?

I follow your question now. I don’t have a percentage to share with you, but I can tell you that a larger proportion of our conversations definitely are multi-products. And in fact, our overall go-to market is multi-product and full suite, where we expressly train our sales organization to deliver a suite-based, you know, total new operating platform kind of message, as opposed to hunt around for who might want a new claim system, right? And so it's, on almost every deal, we're having a multi-product conversation. Ken Wong – Citi: And is that something that you guys are approaching the customer with or are you seeing the customer actually come to you guys looking for that type of offering?

Actually it's a lot the latter. I think it's both of them because it's a message that suits us because we don’t think there's any other player of any scale that can do that and offer that credibly, and then secondly, it just makes so much logical sense that a lot of customers are already right there and wanting that. Ken Wong – Citi: Got you. And Karen, you guys, you know, with the 837 heads that you guys are at now, you guys indicated you're below what you're looking for. Any sense for what that, you know, kind of what the target was? Is that like 850, 900?

Yeah. So we, you know, we're targeting to hire probably, I would say, in a sense, like a little wider range, but kind of between 60 and 90 people. Ken Wong – Citi: Got you.

And when you're hiring as aggressively as we are. So we hired 68. And so we were, within our target range, I'd say the area that we still want to hire more is certainly in sales team and increasing the professional services as well. Ken Wong – Citi: Okay. And lastly, you guys mentioned that one small customer that kind of canceled their deployment. I mean, was that kind of macro-based, or you kind of mentioned it was kind of company specific, but just want a little more color there.

Sure. No, it's very, very company specific. They never actually started the implementation. The implementation was delayed several times for, entirely, for internal reasons. I think they had some management changes along the way. And then finally, I think the last wave of management came in and said, we need to get our own house in order before we can go undertaking any kind of big program, and let's just -- and naturally we tried to prevail on them, but they had kind of made a categorical decision that they need to fix some of their internal stuff. And they're very small. I mean that's -- they're at the -- I would put among our smallest customers. Ken Wong – Citi: Got you. Okay, great. Thanks a lot, guys. See you in a few days.

And that does conclude our question-and-answer session. I'd now like to turn the call back over to Marcus Ryu for any additional or closing remarks.

Thank you all for participating on our call today. We are now focused on extending our momentum into the current year, which we believe we're entering in a stronger position than at any other time in our history. So, thank you again, and goodbye.

And once again, that does conclude today's call. We do appreciate everyone's participation.