Guidewire Software, Inc. (GWRE) Q2 2015 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Guidewire Second Quarter Fiscal 2015 Earnings Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the call over to Ms. Karen Blasing, Chief Financial Officer. Please go ahead. Karen Blasing - Chief Financial Officer & Treasurer: Good afternoon, and welcome to Guidewire Software's earnings conference call for the second quarter of fiscal 2015, which ended on January 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 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 website at ir.guidewire.com. 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 on our second quarter fiscal 2015 financial results and our outlook for the third quarter and fiscal 2015. Marcus S. Ryu - President, Chief Executive Officer & Director: Thanks, Karen. Our second quarter results exceeded our expectation for both revenue and profitability, particularly in license revenue, with term licenses up 21% year-over-year. An important way that we assess our longer-term success is trailing 12-month recurring revenue from term licenses and maintenance. For Q2, this figure equaled 204.6 million, representing growth of 33% from a year ago. In terms of overall revenue, we experienced two headwinds. First, foreign currency rate shifts favoring the U.S. dollar. And second, strong engagement from our system integrator partners, which, as desired, has allowed us to achieve license revenue growth without a proportional increase in Guidewire Professional Services. Reflecting these factors, total revenue for the quarter was $89.4 million, an increase of 7% compared to a year ago. During the second quarter, we made significant progress on our 2015 game plan. We extended our distinctive track record of customer success. We continued cultivating our large community of system integrator partners to carry out the preponderance of implementation work. We continued differentiating InsuranceSuite in both capability and market adoption. And we significantly expanded our R&D organization toward the developments of new Integrated Solutions in the key domains of data and analytics and digital interaction. Our customer success momentum in the second quarter included upgrades to our full suite and new wins with both domestic and international carriers, including several multinationals. For example, five of our customers expanded their use of our platform to full InsuranceSuite, including American Family, Michigan-based Hastings Mutual, U.K.-based Hastings Direct and two subsidiaries of Tokio Marine North America and Philadelphia Insurance. We also signed two new customers who selected our entire InsuranceSuite, Hamilton USA and New South Wales Self Insurance Corporation, who also selected our client data management product. The latter of these is an Australian government agency managing a homebuilding compensation fund. And this win reflects InsuranceSuite's applicability to the public and quasi-public entities who serve insurance functions in many geographies. Multinational insurers are a particularly important segment of our market, and we made good progress in expanding several of those relationships. Zurich Switzerland joined four other entities across three continents in the $50 billion Zurich Insurance Group in selecting ClaimCenter to cover their book of business in their headquarters territory. QBE Australia, an $18-billion insurer operating in 48 countries, is already an InsuranceSuite customer, who recently selected our data warehouse product, InfoCenter, to further leverage InsuranceSuite capabilities. IAG, a multinational carrier and a ClaimCenter licensee in Australia, expanded their relationship with full InsuranceSuite and DataHub licenses for their subsidiary in New Zealand, which has over $1 billion in premiums and is the largest insurer in that country. With offerings that now go beyond core system replacement with InsuranceSuite, during the second quarter, we saw more signs of success with some of our newer products as well. For example, during the quarter, a new customer, New Jersey Guaranty, selected our data management and analytics products, DataHub and InfoCenter, as well as ClaimCenter. Main Street America Group, an existing ClaimCenter customer, selected a Guidewire Live app to lay our data visualization capabilities and extract more value from ClaimCenter. Capital Insurance, a PolicyCenter and BillingCenter customer, expanded their relationship with Guidewire by also selecting DataHub and InfoCenter. And similarly, Basler, a $2 billion domestic Swiss insurer added DataHub to their previous selections of PolicyCenter and BillingCenter for their Swiss operations. And Guild Group, an Australian multi-line insurer licensed a number of Guidewire Live apps to enhance their long standing use of InsuranceSuite. Turning to implementation, we had several key go lives across four countries during the quarter. These were important not only in extending our track record of customer success, but also in showcasing the maturation of our SI ecosystem and fulfilling our longer term commitment to reduce services as a percentage of total revenue. While we continue to play a key role in all of our customer implementations, our expanding partner engagement model contributed to license and maintenance revenue, increasing to 62% of total revenue in the second quarter, compared to 54% of revenue a year ago. Some of the major go lives in the second quarter included a follow-on deployment of PolicyCenter and ClaimCenter at Aviva U.K. for their commercial and property owners lines of business. L'olivier Assurances, a division of Admiral France went live with InsuranceSuite during the quarter, while Pacifico Seguros in Peru and Citizens Property Insurance in the U.S. each had major follow-on InsuranceSuite go lives across multiple lines of business. New Jersey Manufacturers completed a major follow-on deployment of PolicyCenter and BillingCenter for their personal auto book of business, and also went live with our Quote and Buy Portal. And CSAA Insurance Exchange had a major follow-on go live of ClaimCenter for personal and umbrella claims across all of their regional offices. The sustained cadence of customer success enables us to continue to win market share and earn industry recognition. We enjoyed a win on that latter counts during the quarter, when Gartner named Guidewire a Leader in its first Magic Quadrant for P&C Policy Management Systems with the highest position in both of their customary two axes, Completeness of Vision and Ability to Execute. This highly visible recognition adds to Guidewire's highest rating in the Gartner Magic Quadrant for P&C claim systems last year. In addition, Celent, another analyst firm, recently awarded Guidewire two XCelent Awards for claims administration, with ClaimCenter as the top solution out of 31 vendors in the Breadth of Functionality and Customer Base categories. Turning now to products, our development team is committed to the pursuit of two long-term goals. First, lowering the cost of legacy system replacement and the total cost of ownership of our solutions, specifically InsuranceSuite. Our primary lever here is to build out greater contents and capabilities, specific to geographic regions and to each line of P&C insurance and this work will continue for years. At the same time, the P&C industry has ambitions which are predicated on legacy replacement, but extend considerably beyond it. The two domains key to insurers' transformational goals are; one, data, encompassing operational reporting, data visualization, and predictive analytics. And two, digital interaction, reflecting a sea change in how insurers want to distribute their products and serve their policyholders, namely in the digital and omni-channel modes that we see emerging in many other industries. We embrace these ambitions as great for the industry we serve and very positive for our business because they catalyze demand for legacy replacement and considerably expand our total market opportunity. Consequently, for the last several years, we have been investing in mobile and portal technology and data management and analytics as key adjacencies to InsuranceSuite. Earlier this year, we communicated our intention to expand our R&D organization in support of these efforts. We made considerable recruiting progress during the second quarter, as evidenced by a net head count increase of 41 people, primarily in R&D, and led by our new Head of Products, Ali Kheirolomoom. At the halfway point in the year, we believe this leaves us well positioned to achieve our goal of approximately 90 R&D head count additions for the year. In summary, our second quarter reflected progress towards both our near-term financial and longer-term strategic goals. We won important new relationships and extended our track record of implementation success, with increasing leverage of our SI partners. We continue to see strong demand for legacy core system replacement at P&C carriers of all sizes across the globe. And we advanced our goals for new products in both development and market adoption. Before closing my remarks, I want to add a personal comment on the announcement contained in our press release today, namely that Karen Blasing will be retiring from her position as CFO. I speak for all Guidewire constituents in expressing my profound gratitude for all that she achieved during her tenure, including our successful 2012 IPO, two subsequent public offerings, our first acquisition, our emergence as market leader in our space and a major growth in maturation in all aspects of the company, including building a superb finance team. In her stead, we are excited to be adding Richard Hart to our management team as our next CFO. Richard brings unique financial and technology experience to our team, having most recently served as Managing Director on the Technology Investment Banking team at Deutsche Bank. As one of the lead bankers on our IPO, Richard joins our leadership team with a deep understanding of our organization and our business. With Karen's commitment to continue to support us over the next several months, we're confident in a smooth transition. With that, let me turn the call over to Karen now for a financial commentary on Q2 and our guidance. Karen Blasing - Chief Financial Officer & Treasurer: Thank you, Marcus. Before I go into our results and guidance, let me add that I'm proud to have been a part of the Guidewire team since 2009. This is a very dynamic organization that is highly respected by a global industry that I'm confident Guidewire is still on the early days of transforming. It has been a pleasure to work with a high caliber organization and team. While I look forward to my retirement, I'm committed to helping Richard and the team over the next several months to ensure a smooth transition. Now, turning to our results, our second quarter exceeded our revenue and earnings expectation. Total revenue was $89.4 million, a 7% increase from the second quarter of fiscal 2014, and above the high end of our guidance range, despite foreign currency headwinds. As a global company, with a growing customer base, it is important for us to be responsive to the needs of our global customers. As such, a minority of our software licensing and maintenance contracts are not denominated in U.S. dollars. These contracts are typically billed annually in foreign currencies with payments translated to U.S. dollars at then prevailing foreign exchange rates. With fluctuations in foreign exchange rates, we sometimes benefit from the translation to U.S. dollars and sometimes report lower revenues due to the currency translation when translated to USD. Within revenue, license revenue was $43.7 million, a 24% increase from a year ago. Contributing to license revenue upside with the sale of additional software to an existing customer that was anticipated later in our fiscal year. In addition, this customer requested we align invoicing due dates for their prior purchase to a date consistent with the new purchase. This sale resulted in better results in our second quarter for the new purchase and also advanced revenue of $2.9 million from the annual payment of their prior term license purchase from later in our year to this second quarter. License revenue would have been above expectations, even excluding this incremental revenue. Second quarter license revenue also included approximately $2 million in perpetual license revenue that had been considered at the time we provided guidance for the quarter. Maintenance revenue was $12.2 million for the second quarter, up 23% from a year ago, reflecting overall license growth trends. Note, that maintenance decreased on a sequential basis, largely due to $0.4 million that had been in long-term deferred revenue and was recognized in our first quarter, as we discussed on our first quarter earnings call. We remain focused on driving growth in recurring term license and maintenance revenue, which reached $204.6 million on a trailing 12-month basis, an increase of 33% from a year ago. Services revenue was a little below expectations in the second quarter, due to a combination of foreign exchange fluctuations and an increased pace of SI partner engagement with customer implementations. Services revenue of $33.6 million decreased 12% from a year ago, reflecting our long-term objective of decreasing services as a percentage of overall revenue. Our mix of license and maintenance as a percentage of total revenue increased to 62% from 54% a year ago. While we expect to see some quarter-to-quarter variability in the split, we expect the trend increasing license and maintenance as a percentage of revenue to continue as we look ahead. We will discuss our profitability measures on both the 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 expense. Non-GAAP gross profit in the second quarter was $60 million, an increase of 17% on a year-over-year basis, and representing a 67% non-GAAP gross margin compared to 61.1% in the year-ago quarter, with a benefit from the transition of some employee costs to outside the United States. Breaking that down, in the second quarter, non-GAAP gross margin for license was 98.3%. maintenance was 83.9%, and 20.3% for services. Our non-GAAP gross margin also continues to increase as a result of our shift in revenue mix toward higher margin license and maintenance revenues, as we rely more on our SI partners for service implementations. Turning to operating expenses. Total non-GAAP operating expenses were $42.8 million in the second quarter, an increase of 26% compared to a year ago. This resulted in non-GAAP operating income of $17.2 million compared to $17 million a year ago. Non-GAAP operating margin was 19.2% in the second quarter, well above expectations, largely due to revenue upside from the deal that closed earlier in the year than we had originally anticipated, as well as a positive foreign exchange, currency impact on our growing employee base outside the U.S., as we further globalize our operations. Non-GAAP net income was $12.4 million, or $0.17 per share, also above guidance, compared to non-GAAP net income of $11.6 million, or $0.16 per share in the second quarter of fiscal 2014. Turning to our balance sheet. We ended the second quarter with $627.2 million in cash, cash equivalents, and investments, down slightly from $631 million at the end of the first quarter. Our total deferred revenue increased to $52.5 million at the end of the second quarter, from $46.9 million at the end of the first quarter. Turning to guidance. Our better than expected year-to-date performance has largely offset the negative currency impact we saw in the first two quarters. While these headwinds strengthened in the second quarter, we are maintaining our full year revenue expectations for license and maintenance revenues. We are, however, moderating our service revenue expectations to reflect the combination of foreign exchange fluctuations and the success we are seeing transitioning an increasing portion of implementation efforts to our partners. Turning to our expenses. We've invested in people outside the United States and now a significant portion of our costs in foreign currencies. Combined with second quarter profitability that was ahead of expectations, we are increasing guidance on profitability metrics for the year. With these factors in mind, our outlook for the third quarter is as follows. Total revenue to be in the range of $76.5 million to $84 million. Within revenue, we expect license revenue to be in the range of $30.4 million to $34.9 million, maintenance revenue of $11.1 million to $12.1 million, and services revenue of $35 million to $37 million. For the third quarter, we anticipate non-GAAP operating income to be between $2.3 million and $6.3 million, and non-GAAP net income of between $1.5 million and $4.2 million, or $0.02 per share to $0.06 per share, based on an estimated weighted average diluted share count of 72.3 million shares. We anticipate a GAAP net loss between minus $6.5 million to minus $4.2 million, or a loss of $0.09 per share to $0.06 per share, based on an estimated weighted average basic share count of 70.5 million shares. For the full year fiscal 2015, we anticipate that license and maintenance as a percentage of total revenue will remain strong as our system integrators continue to perform an increasing portion of our implementations. Total revenue to be in the range of $362.7 million to $378.4 million, representing an increase of 6% over fiscal 2014 at the midpoint. Within revenue, we believe that license revenue will be in the range of $170.3 million to $180 million, an increase of 12% to 18% from fiscal 2014, and consistent with our prior guidance, despite foreign exchange headwinds. We continue to anticipate that term license revenue will grow at approximately 20% in 2015 and the perpetual license revenue will be an insignificant amount. We expect maintenance revenue to be in the range of $48.4 million to $50.4 million, also consistent with our prior expectations. We expect services revenue to be in the range of $144 million to $148 million, which reflects foreign exchange headwinds, as well as continued success with our partner engagement model. With respect to expenses, we continue to invest in expanding our R&D team to enhance existing products and develop new technology offerings. Though not as significant, we are also investing in targeted sales to broaden our reach. While these investments represent incremental costs over the next several quarters, we don't expect them to materially contribute to revenue. As I mentioned, these investments are in part offset the foreign exchange impact on expenses we incur outside the U.S., including field sales offices and our services and development center in Dublin, Ireland. With that in mind, for the full year, we expect non-GAAP operating income in the range of $54.8 million to $62.8 million, an increase of over $7 million from prior guidance, and representing a non-GAAP operating margin of 16% at the midpoints of our revenue and operating income outlook. We expect non-GAAP net income in the range of $36.6 million to $41.9 million, or $0.51 per share to $0.58 per share, based on an estimated weighted average diluted share count of 72.2 million shares. And we expect a GAAP net income in the range of $0.4 million to $4.9 million, or $0.01 per share to $0.07 per share, based on an estimated weighted average diluted share count of 72.2 million shares. In summary, the second quarter was better than our expectations on both revenue and profitability, despite continuing foreign exchange headwinds. We've made substantial progress toward realizing our fiscal 2015 goals. Our recurring license and maintenance revenue model continues to build momentum, and we expect to deliver profitability for the year, while investing in our long-term growth. Operator, we are now ready to open the call for questions.

Thank you. And we'll take Brent Thill with UBS.

Karen, you will be missed. Thanks for working with all of us for the past few years. Marcus, I had a question as it relates to the impact of the SIs that you're seeing the ramp. Is that starting to help you see faster sales cycles or quantity of new deal wins as those SIs are being more influential in the channel and helping you weave through the competitors? Marcus S. Ryu - President, Chief Executive Officer & Director: The SI ecosystem is clearly a very important asset in the sales process, and it's one that we've invested in developing over a long period of time, and I regard it as one of multiple enormous barriers to entry that we've been able to construct over the years. They are very helpful in sales in a number of ways. First, they provide a degree of surround sound, if you will, to the people – the folks we're trying to persuade. So it's not just us speaking, but senior representatives of multiple firms that are making the case for legacy transformation and for Guidewire in particular. Secondly, they provide a level of market validation by competing with each other for the opportunity to serve our customers, and that helps validate the costing that goes into what's invariably a major capital investment. And then in aggregate, they provide a collection of case studies of customer success that are also very persuasive to the deciding entities. Right? So for all these reasons, they are very helpful. And especially in mature geographies, they are a key asset. It also highlights one of the challenges we have in newer geographies, as we've had throughout our history, that where we don't have as well-developed a partner community and the partners that are there don't have as established a basis of credentials, it's harder work. So they are a useful accelerant and support in mature markets. In newer markets, we're still earning our way, as we always have.

Marcus, I just want to be clear, are you seeing an acceleration in sales cycles because of the SI community yet, or is it pretty consistent with what you've seen in the past? Marcus S. Ryu - President, Chief Executive Officer & Director: I'd say there are signs of acceleration across deals in select segments and in select geographies. And there are multiple causal factors, one of them that's very helpful are the SIs, but there's also the general maturation of our software, the case studies that we can point to, the testimony of successful customers, et cetera. So it's one of multiple threads that are useful, but it's definitely an important one.

Okay. And, Karen, just the guide down is all as a result of SI in the FX. There's no fundamental deterioration of the pipeline that you're seeing. I just want to be clear on that. Karen Blasing - Chief Financial Officer & Treasurer: That's absolutely true.

Great. Thank you.

Thank you. We'll go next with Walter Pritchard with Citi.

Hi, thanks. You talked, Karen, about some investments, although you are raising the margin guidance for the year. And if I go back about nine months ago, you cut the margins for this year, and I'm wondering if we should think about – still think about this year as a low point on the margin side and we can build from here, or do you expect that you need to make these types of investments or potentially incremental investments as you go into 2016 and could have the margins come down again in that period? Karen Blasing - Chief Financial Officer & Treasurer: So, Walter, gross margins, absolutely we continue to expect those to improve. I firmly believe license and maintenance revenue is going to outpace any kind of service growth there. So we'll continue to get good gross margins. On the operating margin, it will take some continued investments. We haven't provided guidance out into FY 2016 yet. Clearly, expenses will increase, just as we add head count through fiscal 2015. We'll have the 12 months' effect of those. We're working through very carefully with Ali, who is our new engineering head, and developing the roadmap for the pace of those products, as those get released. So you'll hear more from us over the coming months.

Okay, got it. Thank you. Karen Blasing - Chief Financial Officer & Treasurer: And let's not forget, I mean, operating margin is very important to this company, as is cash flow. So we're always keeping an eye on what that bottom line is going to be as well.

Thank you. We'll take our next question from Sterling Auty with JPMorgan.

Yeah. Thanks. Hi, guys. First, let me start with, Karen, congratulations on a great career, not only here at Guidewire but for many years at a number of notable companies through the Valley. You'll be missed, and enjoy your retirement. Karen Blasing - Chief Financial Officer & Treasurer: Thank you.

On to the task at hand, I wasn't quite clear in terms of the professional services revenue in the quarter, was it that what you saw was implementations that went live, so they finished up, but some of the new business that you would have thought that, perhaps, you would have picked up on the services side went to the system integrators or was there anything in terms of some billing around existing projects that fell short in terms of services revenue? Karen Blasing - Chief Financial Officer & Treasurer: So it's kind of a mix actually of all. We had a number of go-lives. I think Marcus mentioned a few of those in his prepared remarks. So they were very, very successful. The second thing is, is we always have an outlook as to how – when we're winning transactions at our customers' site, we have an estimation process of how much of that business is going to go to the SIs. But we do hedge it a little bit to make sure that we've got adequate staff, if the customer have a higher preference for more of Guidewire people. So that's always a consideration we take into our guidance. In this case, the way it came out, our SI partners were extremely successful in winning over the customers and taking the lion's share of those implementation projects. So the programs that we put into place really do seem like they're working.

All right, great. And then, Marcus, can you help us – there was a number of Suite deals that you mentioned that you won. You mentioned like the Tokio Marine transaction, for example. I'm curious, are some of the big multi-nationals, even in Suite starting to buy smaller and smaller chunks, meaning are they taking baby steps more often than big chunkier deals like we saw with Nationwide and Hartford? And how is that, kind of, layered into the growth outlook? Marcus S. Ryu - President, Chief Executive Officer & Director: Right. So, no specific trend there. Every insurer has its own unique situation, both system-wise and in terms of their business. There will be cases where a large multi-national will decide, or a large Tier 1 insurer will decide to implement the full suite for a subsidiary by a line of business or will decide that they have a small group that they want to do a full project for and we'll do it on a smaller scale. It's – there's no – there has been no specific pattern over the years. And in each case, we are often evaluated across the requirements of the full group, or the full enterprise before that final determination is made, which is one of the somewhat vexing dimensions of the business that we -that confounds our forecasting efforts because we can be involved in a very intense evaluation cycle that will be a long time. We can win in that evaluation and be confident of being the platform of choice for a very large insurer, but still have uncertainties leading up to quite close to the final contract as to the scope of that initial license and therefore the revenue that will attach in the early periods. And obviously, we do what we can to to motivate a larger commitment, but we're not willing to forfeit long-term customer value in order to do so. And that's the kind of classic trade-off that we face in all of these big relationships. What we have seen is a very consistent, constructive pattern where once we have that initial relationship, whether it's for one application or for the full suite, that we successfully develop those over time and we have in virtually every single large insurer relationship, we have an upward trajectory of an expansion of use, both for the applications they have licensed and for new applications.

Understood. Thank you.

Thank you. We'll go next to Brendan Barnicle of Pacific Crest Securities.

Great. Thanks so much, guys. Karen, like everyone else, congratulations. You well deserved and are certainly going to be missed. It's been a pleasure to work with you. Just quickly, maybe I missed it. But did you give us what the FX – actual dollar impact was for the quarter? Karen Blasing - Chief Financial Officer & Treasurer: We didn't. We didn't give you the actual impact. It was modest enough that it didn't affect our results and we still had a nice beat on the second quarter, despite the fact that we got a little bit of top end – top end headwinds. Where it hit us more dearly was actually really on the service line than anywhere else because a lot of those service contracts are denominated in local currency. So when translated back, that was one of the reasons that we fell on the short side of the guidance on that – on that particular line.

And maybe I missed it, but I think on the last call you had given us assumption, I think, of 100 basis points to 300 basis points of headwind for FX this year. Did you change that at all for the remainder of the year? Karen Blasing - Chief Financial Officer & Treasurer: We did not. I think we're going to have a slightly higher impact to the full year from that, but we are still comfortable with the full year range that we've given this guidance.

Okay, great. Thanks for that. And then, Marcus, interested in – I know you've had given us a lot of great wins, you got a lot of great progress with Tier 1s in particular, but I'm wondering if there are any in the pipeline now that we might expect to see at some point this year? And kind of following up on Brent's question, how the SIs helped you with those Tier 1 accounts? Marcus S. Ryu - President, Chief Executive Officer & Director: Right. So, to the first part of your question, we have many Tier 1 conversations underway, more than we've ever had in our history. And I guess the most specific I can be is to say that we would be bitterly disappointed if we didn't close multiple of them by the end of the year. It's hard to be more specific than that. In terms of the SI relationships, SIs are vital to every one of those sales cycles. In fact, they are important to almost every sale that we do, but particularly at the upper end, where the large preponderance of the work, the implementation work, will be executed by the SI. They are a vital part of the sales process. And indeed, a good portion of the evaluation cycle is not evaluating the software per se, but evaluating the implementation plans as presented by multiple SIs. And we play a major role in that, but we're not the ones being evaluated. In fact, in a sense, we're on the other side of the table helping the carrier make the decision. So they are very, very important to that process. It's helpful that we have multiple choices to offer almost to any large insurer. And we've worked hard in those relationships. But in some cases, the most arduous part of the evaluation is defining this large scale transformation program. It's not the evaluation of the software itself, where at this point we have such a considerable corpus of proof that that part's somewhat easier now than it used to be.

Is that – add an extension to the sales cycle that wasn't there before because now there's this evaluation stage that the Tier 1s have to go through, or is there just enough credibility and confidence around having those SIs behind you that it doesn't really impact it on the negative side. Marcus S. Ryu - President, Chief Executive Officer & Director: No, I wouldn't say the sales cycles are longer as a result, but the character of the sales cycle now has a somewhat heavier emphasis on the implementation front perhaps than it did in prior years. In the recognition that the software works, and therefore it's appropriate to spend the evaluation time that you have on picking the right partner, thinking about how the team – the project will be organized, understanding all our methodology and best practice. And we find ourselves talking about that a great deal more if you compare to how we were selling maybe a decade ago, where there's very, very heavy emphasis just on the technology. But in terms of the overall duration of the sales cycle, in some respects, it's gotten faster. But then again, over time, the ambitions have gotten larger and the projects more complex. So it's been a bit of a wash when you get down to the core evaluation part of the cycle. What we do think has gotten faster and we are optimistic of continuing to improve is what we call wandering in the desert phase, the deliberation about whether to undertake core system transformation in the first place, and I think we see some encouraging signs that that's becoming much more of a decided question in our favor.

Great. Thanks so much, guys.

Thank you. We'll take our next question from Matt Van Vliet with Stifel. Matthew Van Vliet - Stifel, Nicolaus & Co., Inc.: Yes, hi. Thank you, on for Tom Roderick today. Congratulations, Karen. Question on some of the newer products or those offered outside InsuranceSuite. Multi-part here, but kind of how should we think about revenue contribution or ASP contributions now or more importantly going forward? When you're adding these on, do you think there's much impact now from having all this additional SI capacity that allows you to maybe have a more robust project? And then long-term, just kind of where do you see revenue coming from InsuranceSuite and the additional modules? Marcus S. Ryu - President, Chief Executive Officer & Director: Right. So InsuranceSuite will always be the preponderance of our bookings and, therefore, our revenue. We don't see that changing for any kind of – over any meaningful horizon. However, new products are not just there incidentally, they are expected to make a meaningful and growing contribution to both bookings and revenue. We have, of course, our own internal targets and plans for that. And I'd say while staying at a high level that we're on track or ahead for our expectations for the newer products. But in terms of revenue, they're competing against, if you will, a much larger corpus of existing contracts and relationships with recurring revenue. So that does recur in each period, where they are just another layer of additional recurring revenue being added on top of that. But it will be a growing wedge that are important to our growth aspirations for the future. And we also – we expect we have a couple levers there. First, we have more products to build, each of which will carry its own license. And then the pricing that we think those products should enjoy, if we continue to succeed and deliver customer success with them, we should improve from kind of early adopter stage to more mature market phase. So those are important levers. And we've been really encouraged by the degree to which the whole sales force is learning to represent our product portfolio, not just in terms of individual products, but as a comprehensive suite with meaningful adjacencies that add onto it into one strategic picture. And that's a very fundamental part of our sales methodology. Matthew Van Vliet - Stifel, Nicolaus & Co., Inc.: And then just a quick follow-up on that. From a sales perspective, is there a thought down the road to maybe have some more product specialization within teams or have people come in? Or how do you want to approach spending enough focus on what is obviously a smaller product, but very important in terms of differentiating the Guidewire platform? Marcus S. Ryu - President, Chief Executive Officer & Director: Right. Our thinking on this is pretty defined. We believe in the importance of a strong thought leader, consultative relationship between an account rep and the decision-makers at each of the insurers in our target market. And so, that rep has to be at least passably conversant with all of the products' capabilities, and more importantly, able to position them in all in the context of a total transformation agenda. Now, at a product-specific level, our portfolio is now at the point of – is complex enough that we need more specialization on the pre-sales team, i.e., the folks who demonstrate each of the products and answer deeper questions at a product specific level. So to recap, kind of generalist account reps that are capable of representing the whole portfolio, partnered with a more specialized pre-sales and product expert team. That's our sales approach. Matthew Van Vliet - Stifel, Nicolaus & Co., Inc.: Great. Marcus S. Ryu - President, Chief Executive Officer & Director: And we'll probably do that I think – I think we're going to stick to that for the foreseeable future. Matthew Van Vliet - Stifel, Nicolaus & Co., Inc.: All right, thank you.

Thank you. We'll take our next question from Alex Zukin with Stephens.

Yeah, hey, guys. Congratulations on a solid quarter. Marcus, one for you, just increasingly we've been picking up, and I think in some of your comments about the data and analytics product traction. We're hearing that it's not just becoming a point of up-sell, but it's actually starting to drive sales cycles with the core products as well. So can you just walk through, how are the conversations changing now now that you have these products working in the field with some of your customers? Marcus S. Ryu - President, Chief Executive Officer & Director: Yes, I appreciate the question and the observation. That's absolutely the case. We see data management, which is the overall rubric for all our data assets right now, as a very important complement to the core suite. Right? So our core suite is a transactional engine. It's the operational platform in which people spend, insurance knowledge workers spend their working day, but of course what that operational platform is doing is generating and processing huge amounts of data. And that data is, if you will, the core inventory of an insurer. Right? It's what they have to analyze. It's what they transact on. And so data is not – it's not an afterthought for an insurer, it's often the main objective of a transformation program is to have better command over that data to understand what's going on and then to translate that into analytic insight, which gets re-injected into the operational platform. So, for all of these reasons, we find ourselves positioning data at the same time as we talk about the operational platform, namely InsuranceSuite. And we have more insurers who say, well, both are essential, we should just license it all at once and we should stage – frame the project in a way that they're both being implemented at the same time. On top of that, our data assets perform a couple of other very useful functions in the implementation cycle. They often provide a staging area for data conversion across multiple legacy systems, and they can also serve as an integration hub for a large category of key integrations that have to happen in a typical implementation. So for all these reasons, they're right alongside the core suite. And sometimes it makes sense to implement them together, sometimes after the core implementation. And in a couple of cases, even before, as an initial stage. We're seeing all of those and those are all very healthy trends for us. And we expect as those products mature that we're going to enjoy very broad adoption of them by our customers.

That's helpful. And then, Karen, maybe just one for you. Again, on the FX side, just maybe a little bit more clarity just on the guidance. I realize it's going to be higher than the initial – a little bit higher than the initial headwind that you've talked about, but maybe is there some way to just quantify, how – are you – on a constant currency basis, how does the guidance that you just gave look versus the guidance that you have provided on the prior quarter call? Karen Blasing - Chief Financial Officer & Treasurer: So if you remember that guidance was given in the first part of December, so there had already been a fair amount of acceleration in the U.S. dollar as of that early December. Now there has been a bit more acceleration of the U.S. dollar, but it hasn't necessarily been in currencies that have affected us the most. So, our four biggest currencies that we get some impact from are Austrian dollar, Japanese yen, British pound, and then euro. And so we've been able to look at kind of the piano play of transactions that we have in our customer base as well as those expected transactions and still stay within the expected guidelines.

Okay, got it. Karen Blasing - Chief Financial Officer & Treasurer: So it's deteriorated a little bit, but not a significant impact from where we thought we were in the first part of December.

Got it.

Thank you. And with that, we have no further questioners in the queue. I'd like to turn the program back over to Marcus Ryu for any additional or closing comments. Marcus S. Ryu - President, Chief Executive Officer & Director: No other comments. Thank you all for participating on our call today. Good-bye.