Good day and welcome to the Guidewire First Quarter Fiscal 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I would 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 first quarter of fiscal 2015, which ended on October 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 Web site 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 as 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 Annual Report on Form 10-K for the period ended July 31, 2014, which is 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. Additionally, we are providing detailed reconciliation data as well as recurring revenue calculations in a supplement posted on our IR Web site at ir.guidewire.com. Finally, at times in our prepared remarks 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 on our first quarter fiscal 2015 financial results and our outlook for the second quarter and fiscal 2015.

Thanks Karen; and we are off to a solid start in fiscal 2015 with first quarter revenue and profitability that exceeded our expectations. Total revenue of $79.7 million increased 20% from a year ago with strength primarily in license and maintenance revenue. As always, our business model focus is on recurring revenue from term licenses and maintenance. On a trailing four quarter basis, this revenue totaled 195 million, an increase of 31% from a year ago. We continue to make great strides in our journey to enable the transformation of the P&C insurance lifecycle and thereby the $2 trillion global P&C industry itself. Our game plan for 2015 is straightforward; first and foremost, to extend our distinctive track record of customer success; second, continue to cultivate our large community of system integrator partners to carry the preponderance of implementation work; third, increase R&D investment in InsuranceSuite to drive differentiation, and to new solutions with native integration to the suite; and fourth, use the combination of the first three elements to continue to win market share as insurers invest in their future. During the first quarter, we made progress in each of these areas. On the sales front, we saw continued momentum with InsuranceSuite and our newer offerings and further expanded our global reach. For example, Republic Group, a multi-line regional insurer based in Dallas selected full InsuranceSuite, rating management and our data management and business intelligence solutions, DataHub and InfoCenter for their entire business, both personal and commercial lines. InsuranceSuite was also selected by State Trust, a life insurer who has recently expanded into P&C insurance through the acquisition of several P&C carriers in Latin America. State Trust also licensed our rating management, reinsurance management and client data management modules as well as our mobile and portal offerings, placing them…

Thank you Marcus. Our results for the first quarter exceeded our revenue and earnings expectations. Total revenue was $79.7 million, a 20% increase from the first quarter of fiscal 2014. Within revenue, license revenue was $28.8 million, up 53% from a year ago. Nearly all of license revenue was term based, as perpetual license revenue was relatively insignificant in Q1 of both fiscal 2014 and 2015. In the first quarter, term license revenue benefited from early payments and even without these payments, license revenue would have been above guidance. Term license revenue also benefited from a customer who we signed in the first quarter of last year but whose license revenue wasn’t recognized until the second quarter of last fiscal year. Excluding the impact of these two timing factors, total license revenue would have increased 30% from a year ago. As expected revenue in the first quarter included the recognition of certain long-term deferred revenue that had reached recognition milestones. This contributed $1.4 million to license revenue in the first quarter and will repeat as a recurring term license revenue in the future. Maintenance revenue was $12.5 million in the first quarter, up 30% from a year ago, reflecting overall license growth trends. Services revenue was $38.4 million, up 1% from year ago reflecting our commitment to transferring an increasing portion of the implementation effort to our SI partners as their engagement levels continued to increase. As such license and maintenance represents 52% of revenue in the first quarter, compared with 43% a year-ago. Our focus on generating highly visible recurring term license and maintenance revenue was also reflected in the rolling four quarter trends which totaled $195.1 million, an increase of 31% from a year-ago. Geographically the U.S. represented 49% of revenue in the first quarter with 51% of…

[Operator Instructions] And we will take our first question from Nandan Amladi of Deutsche Bank.

So clearly your services revenue came within expectations of keeping it flat year-on-year, but what are you doing to make sure you that your implementations and the quality of implementations isn’t impacted as you share more of the work with the system integration community?

Yes you correctly noted on that, the customer success, referenceability, the long term relationship, that these are the most important assets of the company. And they require sustained management attention at all times and that’s been true for our whole history and will always be true, regardless of the mix of services, division of labor between us and our SI partners. A couple of things have helped as we continue to mature our model. The first is that we have an increasingly veteran services organization ourselves with more -- with better and better tooling for implementation and a more and more refined methodology that we apply and we share all of that very transparently with our partners, who are also coming up the enablement and experience curve across many implementations and in some cases are building their own proprietary assets to help them with their own methodologies, things like accelerators, estimation tools and the like. So there is a process of collective learning and experience that has helped make our projects not only more efficient but also more conformant to a best practice model that we've evolved now through almost 200 implementations. All that said, every project is unique and very, very demanding and we have a system of oversight at a management level on every program to make sure that they remain on track and thus far that's been the case.

And a quick follow up if I might. At the recent Guidewire’s Connection conference, obviously you had record of tenants. But how was the lead generation activity? How many prospects were there this year relative to conferences in past years?

I don’t know an exact number, but we had very robust growth in both customer participation and prospects. I’d say they both increased proportionately to the total attendance count. It’s by far the most important sales event for us over the year and it does -- not so much because of a lot of sales activity that we initiate at the conference, but simply from the tremendous rapport and information and experience sharing that happens between our customers and perspective customers, which of course we do everything to facilitate. So we make enormous progress in our sales cycles every year at Connections and this year was probably the best ever in that regard.

And we will take our next question from Sterling Auty of JPMorgan.

Let’s go into -- just so we have clarification, the two items on the license side. Karen, can you remind us again, the amount of the impact to last year’s timing? And then, what was the -- I know you gave us the 30% benchmark, but if you could just give us a little bit more color, what was the pull forward in terms of the payment this year?

So the total amount of both the early payments that came in from Q1, as well as the term license revenue that was recognized in Q2 of last year, that was recognized in Q1 in this year is about $4.3 million combined.

And the early payment for this year; can you give us just that component of it?

You know Sterling, my preference would be to not and that is because there’s one contract actually that was recognized in Q2 of last year and then recognized in Q1 of this year. And for confidentiality for our customers, we prefer not to give the exact amount of that contract. So what I can tell you, it was roughly three quarters, one way between two-thirds and three quarters was the contract and the balance of it was the early payments. You’ll see by the end of the first half that of course it all equals out. So first half Q1 and Q2 combined, compared to Q1 and Q2 last year, there will be no seasonal difference between those. It’s just important to note them, between the timing of these quarters.

Then in terms of the -- on the services side, what was the comment that you made about? Was there some long-term deferred revenue that got recognized? Did that come into the services and did that help the services margins in the quarter?

It did. So in the call that we had in September with our fourth quarter results, when we had provided guidance for our first quarter revenue as well, we had noted at that point that we had a contract sitting in the balance sheet that we believe was going to be brought into earned revenue in the first quarter. And in fact that happened. The breakout of that is the total amount of it is about $4 million. Roughly $1.5 million of that came into license revenue, about $400,000 of it came into maintenance revenue and then about $1.9 million came into services. So it did improve the services margin by roughly 3% to 4%.

And that’s where you’re saying -- when we look at it, the margins going forward are like -- when we look to next quarter, we need to adjust from that, but you’re still seeing kind of -- on a year-over-year you still see improvement?

Absolute improvement. No question about it.

Okay. Last housekeeping, the FX impact, you mentioned kind of 1% to 3% headwind on the full year that you’re absorbing, but still increasing the guide. But any sense of what the FX impact was in the quarter?

Pretty minimal. We have -- most of our revenue that happens should fall into the first quarter. A lot of that is based in U.S. dollars. As a matter of fact, the preponderance of our revenue really is based in U.S. dollars. And we have some amount that’s in euro, some in sterling and a little bit in other less noted currencies as well. So we got very little impact in the first quarter.

Last one, Marcus, just on your front, when you look the opportunity, especially in that Tier 1 pipeline for the remainder of the year, what’s kind of driving the sales cycles at this point? You’ve enjoyed kind of a little bit of a decent, let’s say a hardening margin in P&C for the last several years. How do you think about this fiscal year in that pipeline in terms of the IT budgets versus pressures to go ahead and get those decisions made and get moving on transformation?

Right. It always is a complex matrix of factors that every enterprise -- Tier 1 or not, has to wrestle with. In the Tier 1 sector in particular, we are dogged pursuit of many of them. Some of these conversations are pretty mature in that we’ve been talking to insurers in some cases for multiple years before we get to call them our customer. And we remain optimistic and hopeful that we're going to get some of those converted. The way we see it is in inevitability in every case and in aggregate, though at times it can be frustrating to pin it down to a specific quarter as we've talked about in previous calls. As you’ve noted, there’s been a modest improvement in the kind of macro conditions for insurers and I think most large Tier-1 insurers would describe a small improvement due to macro-factors, which is obviously a helpful fact but not a huge driver. The most important driver by far is the share obsolescence of those legacy environments combined with a recognition that the consumers now want to interact, transact and be served in a very different way than they have been traditionally by insurers and that any insurer operating entirely on a legacy platform is woefully out of position.

And we will take our next question from Brent Thill of UBS.

Marcus on the sales hiring, I recognize that ’13 was a big hiring year. You tapped the brakes in terms of hiring in ’14 and then you’re sending the signals of tapping the brakes even a little bit more in favor of R&D. But the big question I get is in the market, this is early as yours and clearly you are a leader in your market. Why slow that rate at the pace that you're slowing it to and I guess what are you looking for that could inflect that back up? Is this just the year of R&D and then sales and marketing gets a bigger lift as we go into fiscal ’16? It'd be great to get your thoughts.

So as you noted, but just to be explicit, we are continuing investment in sales, in every region, across pretty much every sales function, pre-sales, direct sales reps, sales management, et cetera. And that’s because we do see an expanding frontier of opportunity around the world and we need more sales coverage to achieve that. The last two years, or in particular ’13 as you noted was a bit more of a surge recognizing that we were behind the level of coverage that we thought was warranted given the maturity of the market and our position within it, and I think we’ve more or less normalized that, but still have a steady amount of sales hiring ahead and that’s going to continue indefinitely. To your question about when do we accelerate that more? There are a couple of national governors that we deal with as we become an international company. For example there are a number of geographies, Germany comes to mind, where we're in a lot of conversations but there's just a natural limit on the pace at which insurers will adopt not, so much because of cultural attributes, through there are some of those factors, but because they want to see the experience of the early adopters, before you get the proverbial mass market to follow behind, and having too much sales coverage is kind of pushing on a rope until you have a lot of proof points to establish. And that goes, not just by geography but by product area as well. And so right now we’re about 1.5 years two years into a lot of new product initiatives that have early adopters. Those projects are going well and there are a lot of success stories. We had some early versions of those to share at Connections, but we’ll have a lot more in the coming quarters and those are big catalysts of course to the next wave of adoption, and a more sort of mass market approach to distribution.

And just a quick follow up for Karen; on the initial duration or existing duration of your contracts there, are you still seeing roughly a five year average or any change there? And I'm just curious at least on -- the initial signings of new clients. Are you starting to see more the suite taking upfront rather than the modular approach that maybe you saw in the past?

A couple of things. One, the duration seems to be about the same. I think most people, it seems in the insurance world, from a technology standpoint, kind of think about a five year horizon; and so that tends to be what the minimum contract length is, that they are requesting of us. It’s not on our behalf. Honestly would pay the sales reps anything if it’s three years or longer. So it’s really reflective of how -- our customer's commitment to the use of products for a long time. The second question you asked I am sorry?

Just on what you’re seeing in terms of the uptake of the multiple products versus the modular basis out of the gate?

Yes. It has changed a bit over time and it’s really reflective more of kind of size of the carrier. We see mid-sized carriers typically now buying the full InsuranceSuite if they are a first time customer for us. But we see customers who bought one product or maybe for a single line of business a while ago coming back and buying their second product with it as well. So I think it’s a nice healthy mix of customers buying the full suite and committing upfront, for making a more higher [ph] purchase of that as well.

But the impetus of your question Brent is, we think it was right on the money that we’re really encouraged by the number of insurers who see the value of a unified platform, delivered by one design team, by one delivery team, one product team. And that’s a very key part of our growth hypothesis going forward, that we can build additional products that support other dimensions of the insurance lifecycle beyond the traditional purview of the legacy system and have very rapid adoption and perhaps if we’re very successful, even diminishing cost of sales. Not to get ahead of it but that’s part of the aspiration here. And I think we see some early proof points that are confirmatory of that.

And I would like to elaborate a little bit on the sales question you had on the number of sales people. We are tapping on the brakes slightly, but I want to emphasize slightly. So total sales and marketing personnel went up about 23% in ’14 over fiscal year ’13 and there's only a few percentage points difference on what our expectations are for this year. So please rest assured that we are still putting our foot on the gas, even though it's maybe not down quite as hard as it has been in the last couple of years.

And we will take our next question from Walter Pritchard of Citi. Q – Walter Pritchard: Karen, just wanted to make sure on the guidance from last quarter. You had guided I think $23 million to $27 million, and I had in my notes that that had included some of this. I had in my notes $1.8 million. I'm just trying to square your comment with you were above the guidance with the $4.3 million overage that debt that you had from the two factors, and then just trying to -- make sure I'm clear on what was included in the guidance last quarter? A – Karen Blasing: So included in the guidance, yes was about $1.8 million that was coming off the balance sheet -- from deferred revenue into earned revenue. So that included in the guidance. There was a little bit of early payments in Q1 of this year. That was not expected. But we also did outperform on the new business compared to what we had included in the guidance as well. Q – Walter Pritchard: Got it. And then just as we look throughout a year, you did talk a little bit about the January quarter and the compares from last year. Are there any other sort of amounts that you have that are deferred, scheduled to come off, that are unusual that we should know about in either -- other than what you talked about in Q2, Q3 or Q4? A – Karen Blasing: No, not a thing.

And we will take our next question from Tom Roderick of Stifel. Q – Tom Roderick: Marcus, could I just get away from the core InsuranceSuite for second, and talk about some of the other products. It seems to be you are mentioning a little bit more frequently things like the DataHub, the rating and reinsurance engines. Can you talk about what sort of incremental uptake or any sort of momentum shift you're seeing with those newer products? And what is that -- what is the inclusion of those products in some of the deals you mentioned doing to ASPs in the cases where they are adopted? A – Marcus Ryu: Right. So this is slightly different for each of the product areas. One point of clarification is that, reinsurance and rating are actually components of PolicyCenter. There are an aspect of functionality that can be turned on or off modularly, whereas Guidewire data management, DataHub and InfoCenter or Guidewire Live or our portal offerings are really additional pieces of software that get implemented. And in terms of adoption, we're seeing pretty robust uptake on all of those by our customers. I wouldn’t single out any particular one of them as being more vigorously adopted or others that are lagging behind. All of them, we have kind of followed the similar curve of early adaptors who find it very compelling and are willing to take a little bit of advance risk to getting more and more mainstreamed and now you see in the case of something like reinsurance or rating, it's just a norm that it gets included in a typical sale. In terms of ASP influence that’s -- it's highly variable. There are cases where it makes a material difference. One of the large deals that we announced last…

We will take our next question from Brendan Barnicle of Pacific Crest Securities.

Marcus, I wanted to follow up on a question Brent had asked a bit earlier. In your prepared comments you talked about kind of one the big resistance point still being getting people to move off sort of their legacy systems. And I was wondering what it is that holds them back and how you can sort of accelerate that almost cultural change in attitude, particularly given how many leading vendors you've got on your platform now?

Right. It's the central fact about our business and this has always been the case that there's a very high switching cost to adoption and of transition from a legacy core operating platform that has 80% to 90% of the internal employees of a company living within every day, and the houses all of the core transactional data, all of the financials, all of the mission clinical data, the products, the customer records et cetera. This is just not an easy thing to transition away from. It is not so much a technology problem as it is just a complexity and data mapping challenge, an integration challenge. So how do we accelerate that? How do we improve that? Increasingly, with a more and more disciplined and efficient and expert methodology for implementation as I mentioned earlier, but another theme that I described in the prepared remarks that we underscore to our audience at Connections is that we want to lower the total cost of ownership with a more and more complete, closer and closer to ready to go out of the box solution. And that requires more engineering effort, because the product has to have comprehensive content for every line of business, for every variation, for every geography that we're in as opposed to expecting all of that, or a large portion of that to get configured in a given implementation. So that’s a long term commitment that we’re making as an organization, really to the industry that we want to continuously elevate the completeness of the product right out of the box. That lowers adoption cost that lowers transition cost and total cost of ownership and all of those things. That is biggest contributor to driving adoption speed.

And then I had one follow up. We saw a really nice acceleration in your rolling four quarters recurring revenue that looked like the highest level we've seen in over a year. Obviously that was somewhat impacted by the couple of items that Karen called out, but was there anything else that was driving that? Is that Connections? Is that seasonality? I was surprised at that kind of strength in this quarter.

No, I wouldn’t attribute it to Connections in particular. It was again a great event, but some of the benefits of that event are going to play out in coming quarters. I think we advanced a number of significant deals that didn’t close this quarter and probably won’t close next quarter and we have a lot of work to get closed within the fiscal year. But that's just a nature of our business. How it plays out on a quarter-to-quarter basis is always a bit of guessing game for us and that’s why we try to take a conservative approach to forecasting guidance, very mindful of that fact.

The other thing that makes a difference is less perpetual licenses. So we have been quite successful through our sales team and influencing our customers to buy on a term license basis. So that all benefits in that recurring license as well.

That’s basically point by Karen. It is not -- the general recognition by the industry and indeed by CIOs across all industries that a perpetual license model for large scale enterprise software is not a winning model has been helpful to us. So we don’t get all the credit for that, but we certainly tried to harness that recognition, because it's aligned with our business model and I think we’ve been pretty successful at it over the last few years, which has been great.

And we will take our next question from Alex Zukin of Stephens.

I wanted -- Marcus one for you, maybe just commenting on the competitive environment that you’re seeing out there with respect to kind of win rates and particularly as it relates to your confidence level or increasing confidence level in the tier 1 pipeline.

No major changes to report in the competitive landscape. As we’ve said in many an earnings call, Accenture is our single largest competitor but not our only one. I would say at the upper tier, the larger the insurer, the more likely it is that Accenture will be our primary external competitor, though in some cases we compete with some form of inaction, which is not so much a full custom development of something comparable to InsuranceSuite, but might be an incremental measure, taken on a legacy platform, which patches it up for a year or two. And we consider that a loss. We're certainly disappointed when that happens. And that’s a very real competitor as well. So no real changes. I would say that we steadily improve our differentiation and most importantly our track record of references. Customer -- the size of our customer community, the echo chamber effect of having more and more players in the industry who have made the commitment to Guidewire application, all of these things I think just continue to help our cost.

And then one other question. Talking about the Tier 1 pipeline, do you feel like you’re seeing customers that have a wait and see approach, that they'd rather somebody -- another large carrier take the plunge before them and you feel that there may be a wave coming at some point or it is a steady type of one or two or three year or whatever that dynamic is that plays out.

Right so the insurers are acutely conscious, especially at the upper tier, of the actions of their peer group. In many cases, the executive team will be formed by people who’ve had experience of other carriers of comparable size. So they’re all -- nothing goes unnoticed and obviously every success or failure is duly registered as an indicator of what they should do as they confront the inevitability of having to replace their own core platform. We do think of it as a wave and inevitability, but not necessarily one that we can call or time very well or one that all happens within a given year. And if you were -- by other measures, in addition to adjust the financial ones, if you were to look at the frequency with which large insurers are discussing, and the seriousness with which they’re discussing they need to replace their core operating platform, I think that’s been highly encouraging and as predicted and that's also reflected in the number of conversations that we have. Of course it’s our job to convert that into real projects; and in many cases there the challenge is not so much what’s happening externally, as just challenge to build the institutional will to make a big capital investment. And there is no avoiding the fact that it takes a big capital investment to do one of these projects, of which our license is actually a small portion.

And this does conclude our question-and-answer session. I will now turn the call back to Marcus Ryu for closing remarks.

No other remark. Thank you all for participating on our call today, and good bye.