Good day and welcome to Guidewire’s First Quarter Fiscal Year 2017 Financial Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Richard Hart, Chief Financial Officer. Please go ahead, sir.

Thank you. Good afternoon and welcome to Guidewire Software’s earnings conference call for the first quarter of fiscal year 2017 which ended on October 31, 2016. My name is Richard Hart, I am the 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, both of which are available on the Investor Relations section of our website at ir.guidewire.com. As a reminder, today’s call is being recorded and a replay will be available following the conclusion of the call. During the call, we will make forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding trends, strategies, and anticipated performance of the business. These forward-looking statements are based on management’s current views and expectations as of today, and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. Actual results may differ materially, please refer to the Risk Factors in our most recent Form 10-K and 10-Qs filed with the SEC. We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted in a supplement on our IR website. During the call, we may offer incremental metrics to provide greater insight into the dynamics of our business. These details may be one-time and we may or may not provide updates in the future. With that, let me turn the call over to Marcus for his prepared remarks. Then I will provide details on our first quarter financial results and our outlook for the second quarter and the rest of the fiscal year.

Thanks, Richard. During the first quarter of fiscal 2017, we advanced our strategic goals for the year and delivered financial results that exceeded our guidance. Total revenue in the first quarter was $94.1 million and non-GAAP net income was $0.02 per share including the impact of our acquisition of FirstBest Systems. Total license revenue was $38.7 million. Recurring term license and maintenance revenue for the previous 12 months totaled $273 million, an increase of 21% from a year ago. At the end of the quarter, we held our 12th Annual Connections user conference, growing 1,600 attendees. There were a few important takeaways for the Guidewire team after spending three concentrated days with our customers and prospects. First is that our customers strongly agree with our view that digital predictive analytic and device driven technology are driving competitive threats and business model change faster than we would have predicted several years ago. Second, our customers are impatient for us, both to develop new capabilities and to reduce their total cost of ownership. They agree that squaring this circle will require more content and partner integration to support market segments and geographies with an ever-more complete solution and to leverage the cloud for more standardized and rapid implementation. And third, our customers are exceptionally engaged and loyal. In return, they’re relying on us to stay true to our mission and to fulfill our commitment to invest in our platform for the long-term. They see a mutual win in our platform growing into the industry standard on top of which they can pursue their own strategies for differentiation and growth. Aside from connections, we continued recent trends of wining new customers and expanding existing relationships with both additional DWP coverage and new product licenses. In addition to sales of InsuranceSuite, we saw continued…

Thank you, Marcus. As Marcus indicated, we exceeded our guidance for the first quarter in both revenue and earnings. Total revenue in the quarter was $94.1 million, up 14% from a year ago. Within revenue, license revenue of $38.7 million increased to 20% from the year ago. License revenue benefitted from $4.2 million of perpetual license revenue from one existing customer in the first quarter. It is important to note that we continue to expect that for the full year perpetual license revenue will be similar to that of fiscal year 2016 as term licenses remain our predominant licensing model. Maintenance revenue of $16.5 million was above our guidance range and increased 18% from a year ago. Services revenue was $38.9 million, an increase of 8% from a year ago. Services revenue was above our guidance range as billings exceeded expectations and we also benefited in part from the recognition of approximately $1.7 million, which have been deferred until formal acceptance of the delivering implementation of a project for an international customer. Turning to profitability, we will discuss these metrics on a non-GAAP basis and we have provided the comparable GAAP metrics and the reconciliation of GAAP to non-GAAP measures in our earnings press release issued today, with the primary difference being stock-based compensation expenses. Non-GAAP gross profit in the first quarter was $58.3 million, an increase of 12% from a year ago, which represented a non-GAAP gross margin of 62%, a decrease as we anticipated from 63.5% in the year-ago quarter. As we indicated last quarter, we expect gross margins to be lower in fiscal 2017 than they were in fiscal 2016 due to the deferral of revenue associated with our digital Greenfield project, investments in new cloud operation, production services personnel and the effects of our acquisitions of…

Thank you. [Operator Instructions] And we’ll take our first question from Kenneth Wong of Citi. Go ahead sir.

Hi guys. This is Rich Hilliker on for Ken. Just a quick one on my end here. Marcus, you mentioned at the beginning that some of the customers connections you heard that they want some new capabilities, lower total cost of ownerships and market segments and geos. Just kind of curious, if life insurance was at all in the conversations and any timeframe that that could possibly slip in? And then maybe what kind of customers have been possibly pulling for that? Just curious what the dynamic there is in the conversation if you could help with that?

The discussion at connections and the particular [inaudible] at connections tend to be very focused on current products and of course that all has 100% P&C focus. A small minority of our customers in the U.S. and somewhat larger minority of our customers overseas have life insurance subsidiaries, but that the colleagues who work in those groups are generally quite distinct in different business units. And that reflects the fact that even in insurance companies that write both life and health and P&C, they tend to be very distinct subsidiaries and have very different operations, different distribution. Of course, there is an aspiration to start to bring those things closer together in the future at most companies. So, not a lot of discussion about it in that forum but there are other contexts in which the subject comes up. And I think as every organization, as every financial services company including insurance comes to think of the -- want to introduce a much more customer centric outlook and sell a diversity of products, then the idea of cross-sell between life and non-life products becomes more and more urgent imperative. How much interaction or integration that requires between the core systems is I think a subject of some complexity. But certainly at the customer level, there is a desire for that interface. And we see ourselves playing a role in that but we also feel the fair amount of demand to say why can’t you do what you’ve done in non-life for life as well, because it’s not fundamentally more complicated even though it is a bit different.

And we will take our next question from Nandan Amladi with Deutsche Bank. Please go ahead, sir.

So, Marcus, over the last couple of years, you have taken a lot of efforts in creating templates and making the deployments easier for the core suite. How about for the data and the digital products? How much out of the box functionality is available today and how much sort of custom work is necessary to stand up those modules?

I would characterize them as on the same curve of maturation and increasing simplification with instrumentation and tooling that makes them easier to implement. The same curve that we followed with the core suite, the newer products are as well. They have a substantially smaller functional footprint which makes that curve factor to climb but there is a -- I think there is sort of universal maturation process for all enterprise software, as first, you’re just trying to meet the functional requirements then over time making it easier and easier, more and more standard, more and more business user controlled et cetera. And I think that expectation that all of our products will become both more capable and cheaper to use apply for all of our products and we hear from every customer segment and it’s on our burden to deliver that.

And we will take our next question from Alex Zukin of Piper Jaffray. Please go ahead.

Just a couple for me. First maybe -- the first one for Richard, the National Indemnity payment terms were little bit different than some of your other customers historically. Can you go through maybe a little bit in more detail what drove those changes and how that can substantially impact future deals with other customers? And then, I have a follow-up.

Alex, I am not at liberty to discuss the minutia of the commercial arrangement with this particular customer. And I would suggest that it wasn’t a payment term that actually changed but it was a set of commercial terms that our revenue team thought were sufficiently new and unique that they want to take a more conservative approach to revenue recognition. We definitely do not believe that this will impact how we normally license. This was a transaction that was very competitive with one of our more significant competitors and it required us to be a little bit more nimble on our negotiating style.

Got it. Did have any -- was there anything associated with similar to the digital Greenfield initiative with this customer?

No, not really, a slightly different set of commercial terms required this revenue treatment.

Got it. And then, Marcus…

Alex, the reason we stated it is simply maybe is an illustration of why when you have somewhat larger companies that you’re negotiating with, we need to forecast with a slightly more conservative approach, because you simply don’t know when these things will come up.

Got it. And then, Marcus, maybe a bigger picture question in light of the recent kind of rising interest rate environment. Can you maybe talk a little bit about how you could potentially see that impacting the budgets that you’re targeting or the demand environment or the velocity of those deals getting done, maybe later in the year as your core constituency maybe has a little bit more money to spend?

Yes, I think a more normalized interest rate environment is a very healthy thing for the insurance industry. I think you’ll hear that view reflected from most executives that they’ve been in a long drought of close to flat, zero fixed income returns, which they are by business model or by statute require to hold all of their surplus. So, it’s been a long hard winter for the industry on that score. That’s not without some positive benefits, because some industry observers would say that it has compelled insurers to focus with greater discipline on underwriting or an operational excellence and the like. And some of those teams are very confident with our messages in the market and what the capabilities of our software. But on the whole, we would love to see a more normal interest rate environment where insurers earn more historically typical kind of returns. Now, exactly how that will change their buying behavior is a speculative question because pretty much for the entirety of Guidewire’s existence, this has been the interest rate regime. And so, we haven’t actually seen a world in which insurers are earning more than just a notional return on their fixed income portfolios. I look forward to that, we’ll see.

Got it. Richard, if I could squeeze one more, and just can you talk about the success or the progress with the sales productivity in the EMEA region, specifically as you guys changed some of the sales resources around last quarter?

I think it’s a little early to say, Alex. We did make a couple of changes at the leadership level and a few things at the team at operational level as level. We are heavily engaged in Europe in more conversations than ever before, which is gratifying. There is more complexity in Europe for sure, the complexity because of the diversity of region and business models, regulatory regimes et cetera, and also more complexity, because of our staffing. To deliver the projects is complicated by language requirements and the like. So, everything is harder there, but then again, we are a lot less penetrated there; so, there are many more targets to go for. And I think we are working very hard to make sure we bring to have a let’s call it a more robust transfer of best practices that has served us well here in North America to Europe. Now that we have the scale, we’ll be pursuing a lot of different conversations at the same time.

And Alex, let me just also add that we are starting to consider taking some steps to counteract the impact of the strengthening dollar in that region, which always makes it incrementally harder for us to sell and implement software or at least more expensive.

And we’ll take our next question from Justin Furby with William Blair & Company. Please go ahead, sir.

Thanks, guys and congrats on the quarter. Marcus, I wanted to ask about the cloud. It just sounded at Connections that Zurich [ph] was much more front and center for you guys. And I was wondering as you seem to put more marketing dollars and development dollars at work there, sort of what the response has been from your customer base and prospective customers. And I was hoping you could give a sense of if you look at the deals that are in play right now, in your pipelines or what percentage of them are really seriously considering cloud for core systems today and what you’re doing with AWS and some of your partners? What that maybe look like a year ago as a percentage and what you think it might look like a year from now? Thanks.

So, Justin, to answer the first part of your question, the customer response has been wholly positive. I think there is the natural expectation around customers that we’ll leverage the best in software and the cloud that’s available outside of Guidewire to deliver on the two obvious goals that -- or expectations that customers have about mainly with the software more functionally complete and capable and that it’s cheaper and easier to implement and maintain upgrade et cetera. And the cloud is very relevant to that. You’ll recall that our cloud strategy has a couple of components. Job one was to ensure that our core InsuranceSuite today would be cloud deployable on public infrastructure and that’s a milestone that we achieved with InsuranceSuite 9. So, the second part of your question, the demand for that from customers, I think it has a level of interest and approval. Glad that we’ve taken that step and I think they’re still in evaluative [ph] mode about how many will make that plan implementation decision. But I think they appreciate having the option, and it would be our expectation that -- but a small to growing minority of our new customers will want to deploy InsuranceSuite in that mode, but we’re kind of guessing at it right now. The other part of our cloud strategy, of course is to deliver new capabilities outside of InsuranceSuite or augment InsuranceSuite at cloud based services. And you see us doing with Predictive Analytics within the underwriting management solution; we’ve done it for a few years now with Guidewire Live. And you’ll see more and more of what we developed in the capability to be really cloud-based. We have to have no on-premise analogs, but only way that you would license it from us is a cloud-based service.…

And then on Accenture and Duck Creek in the sale, as we sit here today, Marcus, do you think it’s been a net positive from the standpoint of opening up Accenture as a partner or negative from Duck Creek in terms of potentially be more competitive or net neutral; how do you sort of handicap how it’s impacted your business over the last couple of quarters?

It’s certainly been a positive in a sense that it has allowed something that was effectively impossible before than they are services based collaboration with Accenture insurance services. And Accenture is the premier, arguably the premier global systems integrator firm with tremendous reach into the insurance industry, especially outside of North America. And our ability to partner with them I think would make possible by the change in ownership structure for Duck Creek. Duck Creek remains our far most competitor in our most important market in North America. And we don’t see that changing in the near-term. How their behavior is changed I think is -- it’s open to discussion. I would say that on the one hand, there is maybe a sense of liberation collaboration that they get -- they are not part of $70 billion systems integrator firm. On the other hand, I think they lose some of the benefits of that association, a close association in ownership structure and that they have to stand on their own ground, which has its own significant challenges. So, it’s a kind of a two-edged sword. And it’s played out in different ways and different sales cycles. But the overall ability to partner with Accenture outside of North America has been quite positive for us. And we expect it to yield greater returns over time.

And we will take our next question from Rishi of JMP securities. Please go ahead.

I have got one for Marcus and one for Richard. Marcus, I wanted to follow up on the topic of cloud. With some of your partners and SIs doing makeshift cloud implementation projects with Guidewire before InsuranceSuite 9. How is having a formal cloud strategy impacted your relationship with these partners?

Our relationship with our partners has never been stronger. We have a very strong complementarity in our business models. And I would say -- I would even go up a step to say that we will not achieve our growth objectives if our partners aren’t successful. And therefore, we invest a great deal in their enablement, include selling activities and the like, informing them of our product strategy and all the rest. They are very, very important to us. It’s important to understand that a transformation program, there is an enormous process of work that has to get done. There is no shortage of work. And systems integrators are very less demand constraint, and they are actually supply constraint in being able to mobilize the kind of teams, with the light language skills, the right technical skills with a right availability at the right price point for just meet the demand. It’s much more -- that’s much more their challenge than finding something -- finding a way to be relevant.

And Richard, in terms of the acquisitions of FirstBest and EagleEye, you did mention the dilutive nature of these acquisitions. Can you give us a sense for just how big an impact, maybe be just directionally, these have on financials, both for Q1 as well as for the full year?

So, what we stated on our last call is that the combined effect of these acquisitions will place 2% to 3% downward pressure on our operating margins for the year. In terms of their individual impact this quarter, it is difficult for me to answer that question, but I would assume that it had a similar impact in this quarter.

And then, do we have a sense for directional contribution to revenue or is that not meaningful?

What we said is $4 million to $6 million for the year due to the impact of deferred revenue write-downs and purchase price accounting elements -- analyses and -- I’m sorry effects. And I think that $4 million to $6 million is still a good handle for the year.

And we’ll take our next question from Tom Roderick of Stifel. Please go ahead, sir.

Hey, gentlemen, good afternoon. Thanks for taking my question. So, Marcus, you’ve talked quite a bit last couple of quarters and at the Analyst Day here about small number of big deals coming into the pipe and sort of managing through those. You talked about National Indemnity on this call being one of those that converted. I’m curious if this is more happenstance or if this is -- if this is a result of some certain prior implementations with other Tier 1s that have gone well that are now coming into your pipeline. Can you talk a little bit more about the happenstance of a certain Tier 1 deals or larger deals coming in? What that’s doing for you to manage the sales cycles and what sort of visibility these potentials are giving you as you work through those sales cycles?

Well, I think there are a few dynamics that work here, Tom. Number one, we have always had a longstanding aspiration to sort of every major -- or insurer in our industry, there is a particular focus on very large insurers that command the concentration of the premiums. We love all our customers, but it’s just a simple fact that there are relative small number of Tier 1 insurers that are disproportionately significant in our industry. And we had longstanding efforts of virtually every one of them in the world trying to build the relationship with them. Some of those will come to fruition in any given period. Secondly, as we’ve talked about in a lot of different context, where are these catalysts that are bigger than Guidewire and bigger than the insurance industry and digital engagements and the opportunities in predictive analytics and artificial intelligence, new modes of customer service, chat box and the like. There is a time of significant technology driven change and very large insurers, even extremely successful and profitable ones have anxieties and ambitions about what that all mean for them. And that’s catalyzed and the access it has every other segment of the market. And I think we are beneficiary of that additional activity as well as locus of engagement, because we have a perspective from talking to hundreds of insurers that I think is really valued especially by the largest insurers. And we’ve taken advantage of that. And then third, to your point, if you’re a very, very large insurer, you have a history of building all your own systems, given it’s a very complex legacy environment, then as you contemplate the enormous effort that it will take the transition to a more appropriate, modern digitally engaged kind of platform, you naturally look…

Got it. Very helpful. Richard, quick follow-up for you. You mentioned in your script that there has been handful of deals that have delayed their start or certain projects that have delayed their start. Can you remind us, what if any, is the common theme delaying certain of those projects?

Yes. I mean, there is typically no common theme, but every once in a while a customer will go through an inception process and understand that he needs or she needs or they need to fine tune their internal business processes a little bit more prior to starting their work; they want to do a little bit more homework; they want to refine the people that are going to be allocated to the project, both internally and at SIs and even at Guidewire. And that can typically cause a delay of a couple of months to a quarter. And all you need is a couple of those to change to a small degree the services revenues that you anticipate during the year.

And we’ll take our next question from Brent Thill with UBS. Please go ahead, sir.

Thanks. Richard. I just want to reconcile, you beat the quarter in your own guidance by over $5.5 million yet you lowered the full year by 500k, part of that’s I believe is FX. But can you just maybe describe why you’re not letting flow through?

So, my full year guidance is based on a view of a pipeline that stretches out two or three quarters. In any particular quarter, we’re going to have some volatility, because the seasonality of large deals flowing in out of a particular quarter can change. That impact is diluted when I look out at a full year. Now, I think when you look at the -- at our revision, what we did is we raised the bottom end of the license guidance by a few million dollars, because we feel incrementally more comfortable that our license numbers are more solid. We have reduced by the same amount the top end of the services guidance. So that’s a little bit of a wash. And we increased maintenance by a hair; so, we actually increased total revenue guidance by about $0.5 million. The reason that it is difficult for us to be more decisive either way, growing or not growing those revenue lines is as Marcus has said, we do have some bigger transactions kind of floating around that we need to lock down and understand how we can recognize what the payment terms will be, whether or not they license for more than one line of business or more than one module. And these are all conversations that are currently active and happening.

Okay. And when you mentioned the backend loaded nature of those deals, we kind of go back to the future, if you will, of your back when you had a lot of those big deals stacked. Is that just because it’s lined up to the end of your fiscal year and these vendors know this? What do you think is causing that sacking effect again this year which we saw over a year ago?

I think it’s just the variance that comes from a small number of our larger transactions. I don’t think that there is any calculation on their part to time those decisions or based on our fiscal year. The economics of these programs are such that the license portion of it is actually relatively -- they are heavily negotiated but it’s still a modest portion of the total capital expenditure that the program is involved. And so, they are much more concerned like fitting into their own budgeting cycles and approval processes and government cycles et cetera than our calendar. You are right that a year ago we had a kind of unusual concentration in the fourth quarter. I think that was pretty coincidental. I think if we look at this year, we don’t see that same kind of slammed into the last two months of the year kind of phenomena; we don’t anticipate that but it’s backend loaded in the sense that it’s second half as opposed to first half.

And we will take our next question from Jesse Hulsing of Goldman Sachs. Please go ahead.

Hi, thanks. This is Jena [ph] on for Jesse. I have two. First with respect data and digital, just curious in your expectations for these products as a new bookings contributor this year versus last year. And secondly, just to follow up on your earlier comment around competitive landscape. I wanted to get more color around how pricing is trending; are there any significant changes there?

Right. So, to the first question, I think it’s a little too early in the year to call what percentage of total bookings data and digital products will contribute. What I said in my prepared remarks is that we see them growing very robustly, at least at the rates that they grew in the last few years. And so, we fully expect that to continue. We think the tax rate that we experienced in both with new deals and existing customers will continue to be very strong. And we still have a lot of our current customer base that has not licensed our new products. So, we don’t -- actually it’s only a minority of our customers who have. So, I think there is a lot of opportunities within our own customer base and that’s particularly true of the Predictive Analytics and underwriting management solutions that we just acquired a few months ago. But I think we will be similarly forthright and disclose about their contribution to bookings; it’s just a little bit premature to do that after the first quarter. I think the second question you have was about competition and pricing. I would say that we are competitively -- we have always had been in a very competitive environment. I think it differs by segment, by geography and by products. There are some areas such as, newer products for instance where they are not nearly as competitive because we have such an advantage from the native integration that the digital products have with our core. And then, there are other areas that can get very, very intensely competitive. And naturally there is more price pressure. We also have competition, not just on price but on deal terms on the willingness to agree to certain payment structures or certain implementation arrangements and the like. And that is if anything a more important competitive battle ground than a license product itself. Richard, has some other thoughts.

Yes, the only thing I would add to that is that it’s difficult to discern one quarter whether or not there is any particular pattern that’s shaping. But I would remind you that at our Analyst Day, we did suggest that in the lowest tiers of our market, tier 4 where the competition is maybe the most active for us, we did see some price pressure that we accommodated. And as a result, we were able to increase our run rate. And that price pressure was somewhere around 5% to 10% of additional discount on list.

And we’ll take our next question from Sterling Auty with J.P. Morgan. Please go ahead.

Hi. This is Lina Consta [ph] in for Sterling. Thanks for taking my question. I was just wanted to quickly follow up on the earlier commentary around Europe and just international. Are you seeing any changes in demand across geographies, any changes in buying behavior? If you could update us on that, that would be really helpful. Thank you.

No change in buying behavior -- no dramatic changes in buying behavior over the last year or two. I would say we are seeing on the margin, more activity and more interest stimulated by things Insuretech investments, which have increased dramatically in Germany for example as well as additional receptivity to Guidewire specifically because we have with every passing period, more bona fides, more customer examples, more reference cases to allude to, but nothing fundamental. On the other side of the ledger of course we have a very, very strong dollar, which is not helpful. And I think it’s a time of somewhat greater political uncertainty, which sometimes gets cited as an excuse, but I wouldn’t say to a degree that’s really measurable.

There appear to be no further questions at this time. Mr. Ryu, I’d like to turn the conference back over to you for any additional or closing remarks.

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

That does conclude today’s presentation. Thank you for your participation. You may now disconnect.