Guidewire Software, Inc. (GWRE)

Analyst Day 2018

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Sep 20, 2018

Good afternoon. Thank you for joining us. I served as Guidewire's CEO. I was part of the original co founding team that started Guidewire since 17 years ago. As we've done in previous years, I want to set some strategic context for a bit and then share with you a whole host of metrics about our progress in the market. And then with whatever time is remaining, take as many of your questions as we have time for. As I trust you all know, we are a specialist company. We serve 1 industry, the global property and casualty insurance industry that indemnifies individuals and businesses against hundreds of varieties of loss. This is an industry whose salient, whose important to us as a society is only increasing in a time of as we grow into an increasing awareness of climate change. This is just a picture from my home state of California, where we are experiencing yet again the most significant year of wildfire losses in both Northern and Southern California as part of a fire season that is fully 72 days longer than it was 30 years ago. And then of course, on this coast, we have Hurricane Florence, only the latest instance of increasing frequency and severity of storm events that have caused just in most recent counting some $17,000,000,000 of loss in only a few days. And we can expect this trajectory only to move in one direction. So the P and C industry is fundamental to protecting ordinary individuals and businesses against these kinds of losses, and it's been my privilege to serve the industry along with 2,200 other phenomenal colleagues that care similarly about the deeper mission at hand. The industry is one of the largest in the global economy. It collects over $2,000,000,000,000 in premiums. It's comprised of about 1500 enterprises, primary insurers around the world that cover hundreds of different varieties of loss. And that segment of the industry, the primary insurer who underwrites and bears that central risk has been our customer from the very beginning. And it's our mission to make them ever more effective in this socially important task. Our mission is to deliver the industry platform that P and C insurers rely upon to adapt and succeed in a time of accelerating change, and we always immediately follow that with an affirmation of our commitment to ensure that every customer succeeds in what is usually a very arduous journey to make that transformation. Now in this mission statement, particularly salient of the terms to adapt and succeed because this is an industry like many, but because it's grappling with all kinds of significant underlying changes, changes in end market behavior, changes in new market entrants, changes in the kind of talent that is accessible to the industry to undertake these transformations and then changes in the underlying nature of risk itself. And in light of that, virtually every enterprise in the industry is embarking or is at some stage of a transformation program motivated by a set of imperatives to adapt in this changing world. The major themes of that could be summarized as follows: 1st, to develop a much more streamlined and automated almost industrialized or manufacturing like operational environment that can process a larger and larger volume of activity with less and less human involvement, but while actually increasing the degree of precision in the decisions that are made adapting to a really tectonic change in the preferences of both consumers and businesses to interact through a digital modality as opposed to through always through face to face interactions or to have those face to face interactions embedded in a much more omnichannel comprehensive digital environment to explore a universe an expanding universe of data in all sorts of new ways to visualize that data, to mine it for predictive insight, to be able to find patterns that were not easily discernible with smaller data sets or with less powerful tools. Then to apply that to cover an expanding universe of different categories of risks than the ones that the industry has traditionally covered, emerging risks like cyber, like business interruption, like supply chain disruption, like reputational risk, new categories of potential loss that require often new analytical techniques and new data sources in order to be able to underwrite and price, to then interface with the universe of innovation that is happening in the insurtech world, which I'll ascribe to quantify for you near the end of the presentation. And then to do this all in the context of scarce IT bandwidth and scarce IT resources, grappling with the need to simplify the underlying IT complexity that it takes to execute on all of these technology driven initiatives. So in light of these needs, our value proposition to the industry is what we call Guidewire Insurance Platform. Now traditionally, in our history, we described ourselves purely as a software company. Increasingly, you will hear us when we speak to the industry describing ourselves as an industry platform company because our value proposition and commitment to the industry extends beyond just the business applications that we're known for, all highly industry specific and designed for insurance business users. This is the most significant year of releases for Guidewire in our history. You will hear Ali, our Chief Product Officer, give you an update on the many exciting things that we're doing across the entire suite of products. But of course, our first obligation is to deliver high quality software that performs as delivered. Alongside that, part of the platform is a services proposition. Traditionally, with Guidewire, this has meant implementation, services at the time of implementation and then periodically in the future to upgrade. Now in an increasingly cloud based strategy and cloud based value proposition. That service extends to us providing a turnkey reliable business service that insurers can rely upon to operate with a minimum of IT complexity. And all of the services that go along with that in terms of cloud operations, security, customer success encompass a broader universe of services that we bring to bear as our customers go through their journey. And then finally, part of our platform proposition is to bring an ecosystem that is connectivity at with highly reliable, decreasing costs to all of the other partners that are important providers of either data or functionality or often services that are fundamental to fulfilling the full insurance promise, all the way from distribution to service and claims. And increasingly, we see ourselves as an access and value provider in bringing together what is a very complex and at times bewildering set of offerings, many of which are emergent in this new era of InsurTech and allowing insurers to unify them, integrate them into their core operating environment and make maximum use of it. So these three facets of the insurance platform are now how we characterize our value proposition to the market we serve. And in doing so, we claim to help our industry, the industry we serve, do all the core things that it cares most about. Obviously, keep on the light, run their operations as they are, further differentiate by disburdening themselves of the core functions that are no longer differentiating for them so that they can focus on the branding, the products, the pricing, the market strategy, market segmentation that allows them to differentiate and succeed in their market and then also to grow, to identify new market segments that they want to pursue, potentially through different distribution modalities or different geographies or different lines of business and get rapidly into market with a platform that takes care of the full lifecycle of activities and transactional needs that it takes actually to write business in the insurance industry. So running a business, differentiating that business and growing the business are all different facets of our proposition. This is a long distance from where we started the company 17 years ago, where our proposition could be summarized simply as you have an old cobalt mainframe, we give you a new modern application that looks a lot better and has different features to it. It's a much more encompassing and strategic proposition that we're now committed to and that will occupy us for, I expect, the rest of our professional career. Now at the heart of this is an evolution in the industry itself. So as we evolve, we've been aligned with a deep pivot that's happened within the industry itself. And that is a recognition that in order to successfully undertake all of these grand ambitions, that they must dramatically simplify the amount of effort that they put into IT and also derisk what are inevitably expense capital intensive, expensive programs that involve lots of their professionals and distract them from the core task of running the business. So simplifying IT has gone from a nice to have to an absolutely central mandate at the heart of every insurer strategy. And this in turn has propelled Guidewire into rethinking the way that we go to market and what it is that we offer to now delivering all of our products in the cloud. This has caused over the last few years, we have built Guidewire cloud. We still have a long journey ahead of us to do all to scale it to the needs of even our customer base and the broader industry beyond, but help with the rise of public infrastructure that now offers elastic computing at declining unit costs, we're now able to extend a different kind of proposition to the market. At the heart of that is a different division of labor than one of just a pure software company. If you think about in simplified and schematic form, what it is that an insurer has to do in order to take a technology driven strategy or transformation strategy, if they start with software, they have to look functionally adequate to what they're trying to do. They have to manage the infrastructure that keeps that running in a production environment. They have to implement that software successfully and then handle all of the release management and upgrades and support that it takes to keep that production service going. And then they have to frame that in the context of business requirements, which, of course, constantly evolve. Traditionally, in the on premise model, our duty stopped at the waterline of delivering high quality software that performed this promise and then supporting them through some of the steps of implementation, but then essentially having customers take the ball from there to run their operations. In a cloud based world, we take on a significantly expanded mandate, which is not only to deliver the software, but also to manage the entire production environment to obscure from their from the customers' need to think about all of the infrastructural tasks and then also to manage all of the production releases, the upgrade process, the support that goes along with that business service. And what you find in our cloud strategy is a reflection of our market's desire for something that's convergent on a turnkey business service, something that they can use as needed and turn off and scale up and down only to the degree that it meets their particular requirements. With this expansion in responsibility comes dramatically a margin to market opportunity for Guidewire and our expectation that customers will pay 2 to 3 times what they pay for us for just the software alone. Obviously, there is some element of cost transfer in that expanded revenue opportunity, but we're confident and Curtis will frame for you in quantitative terms how it flows into our income statement over the years to come, what we expect that expanded market opportunity and impact on our profitability will look like. Also, Priscilla, who will immediately follow, will elaborate on some of the operational the many operational tasks that it's taken on Guidewire's part to mobilize for us to be able to fulfill this proposition. So I want to turn now to the different flavors of motivation that we are already serving and expect to serve more of in the market with respect to cloud. The first category of customers that are that we see moving to the cloud are those that are approaching the conventional question of legacy replacement, taking that 1980s, 1990s vintage mainframe application and moving it to a Guidewire core system and to doing so but in a cloud form, right? We've already we're already working with a number of customers in this mode, some with InsuranceSuite, a few smaller insurers with InsuranceNow. And we expect that a meaningful portion and a growing portion assuredly of the some 100 of some 1100 other prospects that we are constantly pursuing over the years to come will adopt our core platform in cloud based form. The second variety of customers are those that have already implemented Guidewire, our core platform, on an on premise form and potentially those that may choose, at least for their first iteration, to implement our software on premise, right? Today, that number is somewhere a bit over 5.75 implementations of 1 or more of our core applications at some 2.75 of our customers. And today, as we have one publicly announced example of a customer making this migration going from an on premise implementation of Guidewire to a cloud based one, But we are in dialogue with a very large cross section of our current customer base, and we are confident and expectant of a growing portion of them to optimize this journey, right? This is another segment of the demand. And then there's a third category of demand, which could be thought of as greenfield, either insurers that in pursuit of that growth value proposition decide to undertake a new a core platform. They want it to be there's no existing premium, but they are in pursuit of a new market opportunity, a new segment, a new line of business, a new these are adventures And these are adventures primarily undertaken by larger insurers, typically in the Tier 1 or Tier 2, though they're not We're honored to have Mike Heller to talk about Nationwide as an example of that. We're honored to have Mike Heller to talk about Nationwide as an example of that with what they've done with digital small business. And then the very first cloud based customer that we've talked about with InsuranceSuite is MetLife, which was in this form. So across these different categories of demand, we expect that a growing portion of our new bookings will come in the form of subscription, and we've modeled out our best guess of what that will look like on a fairly aggressive ramp that we're mobilizing both go to market and internal operations to meet over the coming years. And again, Curtis will spell out to you what that means in economic terms. Now it's worth pointing out at this point that across the entirety of our product portfolio, and this slide represents all of our products that are licensable. These are essentially all the SKUs that we license to customers today. All of these products are deployable in the cloud today. And a subset of them are licensable from Guidewire only in the cloud. This reflects the overall commitment that we made several years ago to offer that as an option to customers, and we expect that more of them will take us up on that. So that includes our digital products, the core platform and the data products. At the same time, we expect that more of our we're partnering enthusiastically with other partners that are relevant to what insurers are trying to do strategically. Some of these are InsurTechs. But one of the most significant partnerships, which we announced ourselves to be at the very start of about a year ago is with Salesforce in the CRM world. So as insurers recognize the need to centralize their operations and their visibility and their go to market strategies around the customer, they've felt that the growing need to unify that CRM universe with the transactional and operational world in which we traditionally specialize. It was very natural for us then to align with the market leader who was Salesforce, who's enjoyed significant traction in the P and C industry to deliver a truly product based cloud native integration between the core operating platform world and the CRM world. We launched our first versions for availability in May of this year. We think we have a whole set of very interesting customers joint customers already that have made strategic commitments to 1 or both of our companies already to pursue from here. And we've brought the first of these customers into live production recently. That's Alika, a very long standing Guidewire customer, now a Salesforce customer as well that is using that product type integration between InsuranceSuite and Salesforce Financial Services Cloud in order to bring a truly digital front office into being. They believe they'll get substantial competitive advantages as we believe they will for some time, but we also expect that this digital front office powered by CRM linked to the operational world will become table stakes for the industry within a very short matter of time. I want to turn now to talk about another important vector of our growth, another ambition that we announced publicly just a number of weeks ago, and that is a new business unit that we call Analytics and Data Services or the ADS business unit, in Guidewire. And I want to elaborate a bit on why we created this as a new unit, on the opportunity that we see ahead of us and spend a little more time, actually a bit disproportionate to their actual contribution to our recent financial performance because we believe it will become an important engine of growth in the future. And it also reflects, I think, a meaningful expansion of the total addressable market that we're pursuing as a company. So to frame the opportunity simply, every dimension of the initiatives that I described earlier have a data dimension to it, right? To better instrumentation of core operations, recognizing and tracking with in a much more data rigorous way customer behavior, especially in the point of distribution, especially digital distribution, all kinds of opportunities to visualize, model and mine for predictive insights, existing data. And then again, the need to go for new risks, which often takes different data sources and different analytical techniques beyond traditional actuarial ones in order to pursue. All of these have a data dimension to them. And corralling them into one business unit that can focus on them, linked to but not necessarily beholden to the core system strategy was an important decision that we just made. In essence, we have an industry that is grappling with and excited about a huge abundance of new data sources that are available from the public Internet, from proprietary sources, from all different approaches to harnessing data that where it was not so self evidently available. At the same time, that they want to intermediate new risks and also make the decisions that it takes to run their operations of the high volume decisions in a much more machine driven and precise way. In order to address that opportunity, they need a set of skills and assets that on their own, they find themselves hard pressed to meet. It takes a platform that is capable of ingesting and aggregating and curating that data, the machine learning and artificial intelligence techniques, it takes to find signal within that data. That data has to then be harnessed in the service of models that are specific to the P and C industry and then put into business applications that underwriters and claims adjusters and other business users are able to consume and make meaningful decisions out of. And there is a need to do that, again, as simply as possible with a minimum of IT complexity and ideally at very high volume without escalating cost. So this is a set of requirements that we believe we are well situated to meet and through a combination of what we built internally and then the recent acquisition of SCIENCE. So what we bring together in this division are 3 of the product areas that have been operating essentially as disparate adjunct to the core system business that we're now bringing together in this one business unit. There's Guidewire Live, which already allows streaming from our core operating platform into a cloud based data lake for primarily data visualization use cases to date. There is Cyence, the company that we acquired and closed in last fiscal year that brings a data listening approach to help insurers underwrite and model a specific category of risk, namely cyber insurance that we're now working to generalize to other lines of P and C, for which we have 37 enterprise customers. And then there's our predictive analytics solution that originally started with an acquisition we made some 4 or 5 years ago namely EagleEye Analytics that embeds machine learning driven predictive analytics scores directly at the point of decision throughout the underwriting customer service and claims life cycle, for which we now have 39 customers, all of whom are Guidewire InsuranceSuite customers. So by unifying these three sets of assets under the broader mandate to become a world class analytics and data services provider to the industry, we believe we can more effectively address a market opportunity that is substantially larger than just an adjunct to the core system business. And over time, we can build an asset that is quite distinctive, namely an aggregation of data that uniquely combines all of the operational experiences of those participatory Guidewire customers, many of whom will be in the cloud as well as all the different data sources that are available to be harnessed to find signal within both public sources, proprietary ones, sources that are now just beginning to be exploited for interesting into positive insight on customer behavior, fraud and the like, like social media streams and the like into a single data lake that we can then mine for insight and using different machine learning and PMC modeling techniques to be applied to both a new category of risks, some of which are not well underwritten today in the market precisely because there is inadequate loss experience or inadequate data to model and bring them to market in the conventional insurance modality as well as well established lines of business like small business or commercial auto and the like. And then opportunities to apply those insights to throughout the P and C life cycle from underwriting, distribution, services and claims. So we're compelled by the opportunity to create this data asset. Obviously, the asset in itself has to be translated into actual business value for our customers, but there are substantial scale, skill and functional benefits by having such a large data set to work with. And we think we're uniquely situated with our installed base of 380 customers, more and more of whom will be in the cloud and therefore more proximate to contributory data than any other organization in the world today. Leading this effort is a great new leader within Guidewire. His name is Paul Meng. He was the CEO of Analytics for Aon Benfield, one of the top 3 commercial brokers spent his career in TMC and in TMC Analytics, including as a leader of the insurance practice at McKinsey. I just want to give you a few quick examples of what sort of things sort of new cases we can address. I talked about the opportunity to help insurers underwrite and price new categories of risk more precisely. And so kind of schematic example would be very classic insurance problem, which is how do you underwrite a commercial risk. If you first thing you need to do with the commercial risk is gather some basic data about them. The conventional way to do that is to ask the insured or the would be insured themselves to provide basic information that over time you develop actuarial patterns to understand how they're correlated with potential future losses. And what insurers have found is that there's a certain level of granularity that they can impose over the universe of risk to put them into different categories of low, medium and high risk and to price them accordingly. What science has discovered is that at least with respect to cyber risk, there's every reason to expect this will be true of every other category of risk that by a finer grained understanding of the data, like knowing more precisely what services are being provided, knowing what kind of products might be sold, understanding what and listening to what is said about these different businesses on social media, geolocating where their operations are situated. All of these other factors can lead to a different kind of calculus, a more finer a finer grain calculus about both the risk and the way that that should be priced. And this is at the absolute heart of what it is that insurers do. And if we can provision them across different lines of business with that greater insight, there's every expectation that insurers that master this will do substantially better than those that don't, right? Secondly, on the operational side, there are many examples of how better data coupled with experience and with and embedded appropriately into the workflow of a process can yield materially better outcomes to all the things that insurers care about. So for example, in the claims world, this is a case study from a commercial insurer, it's a customer of Guidewire called Atlas. They focus on livery, taxis and on ride sharing on the ride sharing economy. They had done exceptionally well growing at 30% a year over the last few years. And they recognized they had a strategic need to be able to deploy their claims resources appropriately on claims that had the lowest that required the most human attention, while automating the settlement of meritorious claims as quickly as possible. So they had a triage problem. As new claims come in, making an assessment of how likely the claim was to escalate into a high severity and expensive claim and resolving all things as quickly as possible, right? And by applying the predictive analytics tool, they were able to drive a very to really bend the curve on what a claim looks like over time and have claims that to make a relatively incremental adjustment to claims that were standard and were that had not aged, but make a very material change in the claims that were high severity and were longer in duration. And they've quantified that potential benefit as something like 3 to 5 percentage points in their loss ratio, which is highly strategic kind of improvement. And we're also able to accelerate dramatically those claims list of settlements in aggregate over the entire claims book, right? So if we can apply these kinds of predictive insights at the point of decision and all of these important steps, those insurers that embrace and operationalize those kinds of changes will have an enormous advantage over those that are approaching the process in a conventional traditional tribal wisdom kind of way. And that's at the heart of our proposition here. Now in sizing the opportunity, we're very early in it and a lot of what we're trying to do is aspirational. We don't have products that can address the totality of use cases that we can envision. But we think that there is breadth in this approach to basically everything that an insurer thinks about in planning what products they want to bring to market, strategically how they want to manage that risk book of business, sales and distribution and of course the claims process. And if we survey the categories of technology and data spend that the industry spends today in these respective categories with predictive modeling tools, we're buying underwriting data and pricing data from 3rd party sources, fraud analytic tools and the like, we come up with a number of something like $8,000,000,000 or so that the industry spends annually on this universe of needs. We don't address the entirety of that today, but that is what we're positioning ourselves for. And we think that's completely what's exciting to us is that it is both lateral to and complementary to the core system operation that has been our business for the last decade and a half. Okay. So I want to now turn to the second half of the discussion, which is just to share with you the metrics that we've been collecting over the last year to give you a sense of our progress in the market. Of course, one of the basic counts is how many licenses are we selling across all our products in core data and digital. You see that reflected here. Last year, we had an aggregate over 1200 licenses of our products across our customers. I think this slide tells the basic story of our growth strategy, which is to complement the effectively linear pace of adoption for insurers to modernize their core platform with a host of data and digital offerings that speak to some of their more modern strategic needs. And we've enjoyed an exceptionally high attach rate of the new offerings that have been a combination of internal development and acquisition. And that's been a highly successful growth strategy that we have every intention of continuing. Part of our original thesis as founders in the company was that if we successfully help insurers replace that legacy core platform that we will be uniquely well situated in order to bring additional offerings that both leverage and enhance the data and the workflows that are within those core platforms. And that's essentially exactly how it's played out over the last 5 years. And an expanding product portfolio has helped us grow licenses. As you can see here, this is just the most summary of overall data about our top line as it's grown over the years all the way from the release of our very first product, the ClaimCenter, in 2,004. There's been a combination of acquisitions. We've done 5 over our history. And for the sake of posterity, we did our plunge into the cloud in fiscal 2017 with our 1st cloud customer in MetLife, a customer that we expect to join with many others to follow. I talked about the attach rate of our new data and digital products. Here, you'll see that something like we enjoy very high attach rate of these new products as we continue to penetrate our existing customer base and continue to position the new products in the context of new sales. We expect that this metric will become less and less interesting over time. It's now a fundamental part of how we of what motivates our prospects in order to work with Guidewire in the 1st place, some sort of digital transformation or a desire to leverage their data better. And we expect to see the percent of our installed base that adopts 1 or more of our offerings in each of these areas to eventually converge on something close to 100% over time. And this ability to expand beyond the core, both through acquiring new products and effectively bringing them to market with while retaining much of the existing team as well as building new products on our own organically that leverage the data model and the deep knowledge that we have of the processes in question is a strategy that we'll be doubling down on going forward. Another obvious metric is the number of customers and the premiums of our customers in aggregate. What you see on the left is the 380 primary insurers that are now part of our customer community. And on the right, you see reflected the total premiums within those customers, not necessarily 100% within each that have licensed 1 or more of our core applications. This analysis too kind of changes over time because it does not include our science customers and the other analytics and data services customers that we expect to acquire over time. As I mentioned, those are relationships that are no longer attached specifically to core system sales, but it's still a metric that we'll continue to measure. And in aggregate, it reflects the fact that our customer community comprises roughly a quarter of the global industry, both in count of number of insurers and in the aggregate premiums represented amongst them. Here is a view of our customers by tier. We divide the industry somewhat arbitrarily the following industry convention into 4 tiers, greater than €5,000,000,000 1,000,000,000 to €5,000,000,000 3 100,000,000 to €1,000,000,000 and below that. And we've seen growth across all customer segments, reflecting the fulfillment of a pretty important part of our strategy, which is that we want to build a platform that's sufficiently generalized that we can serve primary insurers of all sizes, essentially in all geographies and across all lines of P and C. Nonetheless, despite the progress that we've made, especially at the top end of this pyramid over the last number of years, we have a long way to go in fully penetrating the opportunity reflected in each. This is a geographic view. It shows us across the 3 main the 3 theaters or the way that we segment the world geographically between the Americas and APAC. As you would have heard in our last earnings call, we had a year of really significant progress in EMEA with a number of important wins in the Tier 1 and Tier 2 with primary with insurers domiciled in major continental geographies. Nonetheless, we still have an enormous distance to go and a lot of markets still to penetrate in EMEA. And we are going to be active. They are winning trying to start new relationships for many years to come. If you take a look at how our sales have been split between expansions between existing opportunities and winning the logos for our business, it's been fairly consistent for the last 2 years our expectation is that we'll be roughly convergent on Omnis. And our expectation is that we'll be roughly convergent around this. And that's a combination both of increasing market stature and ability to win new customer mandates with the fact that we are broadening our product portfolio, which increases the expansion opportunity within each customer. And so the way that those two effects kind of net out, we expect will be something like a 2:one ratio for some years to come. Looking at it globally, we are we serve a global industry, so we have always aspired to think of ourselves not as a Silicon Valley company, but as a company in the service of the global industry. We've now completed some 6 20 core system projects or we have 6 20 projects that have either been completed or actively underway in 30 countries, we have brought 240 of our customers into live production with 1 or more of our core applications. And I'm just stating the obvious, this is our most important competitive asset because it's an arduous to achieve. Every one of these implementations remains extremely demanding and then provides the foundation for effectively a lifetime relationship, which we can continue to build, sell additional product and add additional value. Competitively speaking, there's been a little change to report from the last time I said before you. We effectively compete with the same competitors that we have in the past. In the Americas, our primary competitor is Dunk Creek, which is a private or a private equity held software company, approximately Guidewire's age that we've been competing with for many years as well as a host of niche vendors that serve primarily smaller insurers in the Tier 3 and 4. In Europe, we compete a much larger with a much larger universe of competitors, typically active in 1 or 2 countries. These are for the most I think with the exception, of course, of SAP and DXC, which is a part of CSC, these are all much smaller companies than Guidewire. Despite that, they are very worthy competitors in particular geographies where they have a local advantage in knowledge, sometimes in local content or relationships. So competition in Europe has been and will continue to be substantially more challenging than in the Americas. So we made great progress this last year. And then in APAC, it is the one geography where we still encounter a meaningful resistance competitively with insurers that have a building clinician. That's a phenomenon that was that used to be global, but is now really just isolated to Japan. And then in ANZ, that's a country that we've that's a geography where we've been pretty broadly adopted over previous years and expect that to continue as well. Here, I share with you a bit more color and data than we have historically about our win loss rate. This is a kind of 2 year look about core system decisions. We're not competing only in core systems today, but those are the most important decisions that we track the most closely for competition. On the left, you see just the total number of decisions. This is based on our analysis and we're listening very closely around the world for whenever a core system decision is made. And by our count, a bit above 50% of these have gone Guidewire's way against a very large array of competitors, none of whom want to buy our account more than 2 or 3 selections across any kind of customer size. On the right, you see the DWP or premium cut of that same data where the entire pie chart reflects all of the premium that was potentially up for license. And what this reflects, so the comparison between the two pie charts will just show that in general, the larger insurers, we enjoyed a higher win rate across the same set of competitors. So by rough count, we're winning slightly more than half of all of the global decisions and about 2 thirds of the total premium. While there's a lot to be proud of in that fact, there's a lot to be discontent with as well because every time a core system decision is made even to even with the competitor that they may where a customer may regret the decision in the future, the switching costs are such that it takes a great deal of effort for us to change that decision back to Geismar in the future often years. So this is really the battleground for us in sales to win that core system mandate on top of which we have years of expanding the opportunity ahead to look forward to. Now another measure is not just the number of wins, but how much remains for us to be for us to expand those relationships with and how much of the market still remains. So we measure this a couple of ways. One measure is DWP penetration, where the denominator is the total DWP of the universe in question and then the numerator is how much is under license for at least one of our applications. And then another measure, we gave us a different name in the past, but we call it revenue opportunity now where the denominator is for a given universe, what is the total annualized subscription or license fee that would be possible based on historical pricing and then what do we actually have in the numerator, right? So these are the 2 ratios that we measure across different market segments. And we can apply that both to the existing customer base or to the overall market or the segments thereof. So what you see here, first, I should say this excludes now the cloud opportunity, which is a multiplier effect, of course, on what we can license our products for. It also excludes anything that we may sell with the new data division because we're too early in our market experience, I think, for that to be meaningful. So excluding those opportunities entirely, this chart represents our degree of customer penetration. On the left, just by premium, and you can see again that we touch a meaningful portion of the global market. We're having license where we had at least a foothold, we have licensed at least something, one of our core applications. And then on the right, within our customer base, how much more we there remains for us still to license, right? And what this reflects that within our installed base, even without considering the cloud and data opportunities, we have a significant room to grow, just in licensing additional modules in InsuranceSuite, also our data and digital products, right? Now applying that same kind of methodology, but now to the overall market, again excluding cloud and data. If you look at the overall market, you see the portion of the market that we touched. This maps to the roughly 25% that I showed on the prior chart. And then the market opportunity from there, you'll see that we're just barely scratching the surface in what's ahead of us. Again, excluding the opportunity to multiply existing relationships through a cloud migration. So we have a great deal ahead of us, and this is what consistently leads us to the conclusion that the highest ROI on any investment activities or new initiatives that we may undertake as a company are best directed toward further penetrating this opportunity and securing our market leadership position. Last topic I wanted to cover was the phenomenon of InsurTech and to give you an updated view of our view of what's happened in InsurTech over the last few years. This is a term that didn't even exist 4 or 5 years ago and now has become a significant investment category for early stage technology investment. Roughly speaking, we divide the InsurTech universe into 2 categories, those that are digital attackers, who essentially come with a distribution value proposition either on their own or in partnership with other with some insurers to try to disrupt some given market segment with generally a digitally native kind of value proposition. On the other side, there's a much larger, but often less flashy, less marketed category of insurtech that we call process improvers that are generally trying to apply some form of horizontal technology, whether that is whether it's data or drones or natural language processing or whatever it may be to a specific insurance use case. And there's a much larger universe of these. So parsing what that means in terms of its relationship to Guidewire, we see that of the $2,500,000,000 approximately that has been invested over the last 5 or 6 years in the industry, the majority of that on a dollar basis has gone to new products and distribution, whereas a meaningful portion has gone to data analytics and some of these process improvers, with only a small sliver going to core systems, which is a category obviously that we would put ourselves in. And with almost all of that investment effectively going to existing players that have been around for long before 2012. What you see on the left is a kind of incomplete inventory of all of the different emerging technologies that have attracted early stage investments, fraud detection, underwriting analytics, IoT data, claims supply chain, machine learning based, photo based estimation of Autophysical Damage, many, many of these categories, all of which are or many of which are exciting and interesting complements to conventional insurance processes and many of which are very logical integration partners into InsuranceSuite. So this has captivated a great deal of interest in the industry, and we believe that our role is, 1st, to make it as easy as possible for our customers using the platform to integrate those capabilities into what they're doing with InsuranceSuite in a complementary way. And then in select cases, where we see real growth opportunity and true synergy, they are potential acquisition targets for us as we've undertaken successfully with the 5 we've done in our history so far. I think it's also interesting to note that the majority of the investment that has gone into InsurTech has come from within the industry itself, some 83%, by one estimate, has come from insurers and reinsurers that are looking for ways to essentially verticalize these horizontal opportunities and make them effective for solving insurance problems. But so far, the insurtech phenomenon has been wholly positive for Guidewire. It's been an important strategic catalyst for insurers to undertake greater technology investment, and it has expanded the universe of potential partners and potential acquisition targets for Guidewire. And that's all been entirely welcome. We see no sign of that stopping in the near term future. Just to recap then, straightforwardly enough, the things that Guidewire has to do is not expand the number of new strategic things that we're pursuing, but to execute on the ones that we've already made commitments to. And so it brings us to a pretty simple list of execution tasks as a leadership team. 1st, we have to win the platform mandate. That is another way of saying we have to make the sales plan. And that is 1st and foremost, that will always be demanding. But we are in the best demand environment that we've ever had enjoyed as a company with arguably an enlarged market stature even relative to years prior. And so we're up for that challenge. Secondly, we have to build on the great momentum that we experienced in Europe, which is hugely important to the insurance industry. Most of the large multinationals or all of the large multinationals are based in Europe. They're all customers of ours to differing degrees, but we have a significant opportunity to expand those as well as plant more flags with the domestic domiciled insurers in the major geographies in Continental Europe, which are more active in their technology initiatives than we've ever had before. 3rd, though not necessarily less important than the others, we must achieve the cloud transition. A great deal of that involves operational tasks not visible in our financial statements, but are very fundamental to our ability to fulfill the promises that we're making to customers to dramatically simplify their transformation journeys and to take on as a trusted partner their risk and complexity. And then finally, we have we've taken a bet on a speculative, but enormously exciting opportunity to bring new sources of data and new kinds of data science to a whole host of insurance problems across their life cycle and to bring and to actually grow the insurance industry itself by allowing it to indemnify many categories of risks that today go effectively self insured. If we do that successfully, we can not only do a good for Guidewire, but also help the industry itself perform its social function all the more expansively. So with that, I think we have about 10 minutes or so left to be able to take questions. Sure. Justin? Thanks, Marcus. Justin Furby with William Blair. I guess two questions. You showed the mix of new and cross sell. And I guess I was expecting it to be a heavier cross sell year than last year, just given your growth in DWP came down a bit. Is there anything else beyond that in terms of your landing bigger with that DWP or its cloud or what? And is there a number in terms of DWP growth where you start to get nervous or it's like where you feel like you have to hit from a threshold? And then totally separate, what does the data stuff you're doing, how does that impact your ability to better penetrate when you think about APAC and Europe? And you mentioned the competitors are tougher there. How does that inform that? Sure. So your first question is about the kind of mix between land and expand. And at what point does it feel good? Does it feel something that we would worry about? I mean, it's very much an aggregate metric because it combines lots of different factors. I would be thrilled for us to take have an existing customer that, let's say, made a commitment now that's been implemented for a long time, but made the commitment to be migrate entirely to the cloud and maybe license more of our platform today. And that would not move by $1 our new DWP mix, but would be strategic for us and could represent a tripling or more of the value of the ongoing value of that relationship to us. So that would be hugely significant. On the other hand, of course, it would be very exciting. It's always exciting when we win a mandate with a new large insurer. Maybe they're only buying billing center from us or whatever, but they're doing it for a substantial amount of premium. And we know we have 6, 17 years of experience to know that, that's going to lead to buying a lot of other things with us over time, however long it may take. And that does move that metric a lot, and it also changes the land and expand metrics. So is one of those things more desirable than the other? No, they're both essential to the strategy. I think if we were to see that we were now somehow for some reason, incapable of selling new to winning new mandates and those were going to some competitor or our win rate were changing meaningfully, that would, of course, be extremely worrying. We saw the opposite of that happen this year. Or if we were to see that we were able to win new mandates, but somehow existing customers didn't want to buy anything more from us, that might also be very troubling for a different reason. It would mean that we were failing in customer referenceability and that we were that was ultimately going to bite us in other ways too. So I think it's just it's one measure among many. And my personal takeaway is that it's going to be a roughly 2:one ratio for some time and that feels pretty healthy to me. Your other question was about data and whether that would be an important competitive or useful competitive wedge, I think, in other geographies. And I think absolutely. One of the challenges in our business from the very beginning was that the minimum buy from Guidewire, like the minimum commercial relationship we could have with a customer was to do a huge transformation program. Maybe it would only be for claims or only for policy or one segment of their business, but it was enormous. And so that's a big initial bite that a customer had to take an enterprise had to take with the company. And if that company is now based on the other side of the world, it makes it all the more difficult. Data is not like that. Science, in a very short period of time, is able to build an extraordinary number of relationships because they were able to speak at the top of the house with a growth proposition that did not take almost any had almost no IT footprint, but had a growth proposition to it, right? And they were able to form I was astonishingly quick relationships at a very senior level. So that's captivating to us because we think the data has that characteristic. If we can show for a new business, hey, here's an opportunity for you to underwrite something that you haven't done before, it's growth opportunities, you can be live on that quickly, then that could be the start of a relationship that, of course, we could leverage on the core system side as well. So I think it has that interesting quality. And that's one of the reasons that we wanted to decouple it from core systems and to give it the autonomy, the funding, the leadership that it took to go pursue those on its own. Could you tell us what the win rate looks like in that total chart by GL? We don't have that cut for you, but I will I want to give you I can speak to it directly saying that we have we do very well in 2 of the geographies, in the U. S. And APAC, excluding China, where we have not done well. And we've done historically, we've done substantially worse in Europe. You saw that we have a much longer list of competitors. That 36 or 36 or 39 competitors that are shown in these tiny slices, the large majority of those are European, right? And they generally serve smaller insurers. So on the matrix of competitive results, where we've done the worst by far are with small insurers in Europe, where we're facing a focused competitor, speaks the language better, often comes from the industry there and we're more expensive and we're from a different country. So the dollars involved are typically much smaller. Nonetheless, those are losses and those are important things that we need to win going forward. How much does it drag down the total win rate, of the European? Like so if you were to exclude those 2, would you guess that would be 75%, 80% win rate? I would hesitate to I wouldn't want to guess just because I could be embarrassed by getting the arithmetic wrong, but I'm sure that it makes a very meaningful difference. The large majority of the losses that we would have had over the last 3 years have come in that segment. Yes, Ken? Marcus, you mentioned being in dialogue with all of your existing on prem customers. I guess first just wondering kind of how that dialogue might be different from some of these net new or greenfield opportunities and whether or not it's a much longer time line potentially? And then a second question, I can't help but notice that you focus quite a lot on the ADS business. I think in the past, you guys have quantified it as being roughly the size or data and digital being roughly the size of claims. Is that meaningfully larger now? Sure. So with respect to new versus existing customers and the relationship or the nature of the dialogues that we have with them, They're not as different a species as you might think, in part because we're ultimately selling to human beings and people change roles and we have in many cases, our implementations or our relationships have survived multiple changes in leadership over 5 years, 10 years, etcetera. And so we are even though the software is we enjoy an extraordinarily low churn rate, we still have to constantly validate our worth and worthiness, especially when we're talking at the time of expanding the relationship. And we're not no customer treats us as entitled to the next decision, even though we obviously have a lot of advantages in the sales process. I would say with respect to cloud, that we find an equal appetite across our existing customers and new. There's not it's not as the new customers are more urgent and excited about it, we see nothing like that. I think that there's a very broad based kind of universal appetite for along the lines that I described, a desire for that risk and complexity risk transfer and complexity reduction that I talked about. Your other question was about data and like in kind of quantizing the opportunity. That's why I tried to put some disclaimer around the big number that I put before you because we're early in that and we don't have solutions that cover that waterfront comprehensively. So I think we are well situated to develop that. I mean, we have a data science team of 100 professionals. We have a great leader who knows what he's doing in that. We have a customer base that we're showing actually huge value for. I mean, if we can move the needle 2 or 3 percentage points of operating income just for one slice of predictive analytics. And if we can industrialize that and show that, that's true for any insurer, we should enjoy an exceptional attach rate on that over time. So I think we have a new appreciation of the economic value. I think we have more assets to pursue that than before. And I think we've now recognized the power of treating that as a distinct vector of approach to the market than just an adjunct to the core system sale. Yes, Sterling? I want to follow on the ADS question from this perspective. You sound excited about it. It sounds like it's an incremental investment, but we heard that excitement when you launched Guidewire Live as well. Everything you just said was from a Guidewire perspective. Big question from my perspective is why now? Why will the customer choose now to finally embrace this? Yes. I think you're right to hold us honest, Sterling, because we did have a lot of excitement about Guidewire Live. Most truthful answer is we were young and stupid then and a little bit and we're a little older and hopefully a little wiser now. That's the most crucial thing because we were new in a domain that we did not have much expertise in, and we have dramatically more in the company than we did before. So that was we've been humbled a bit by that. Secondly, I think that the world has changed with respect to insurers' willingness to syndicate and contribute data. Now it has to be done very respectfully with all kinds of security and controls, things that we have to do naturally because of the cloud journey as well. So we're much more mature in our ability to discuss that. And I think that as we have used even though it's been much slower than we like, as we're able to now reinforce references and examples of the actual economic benefit. So it's not a theoretical, yes, they signal in here, there's a treasurer there if you look for it. No, actually this insurer is able to attest to the needle moving in their underlying core performance. As we have more and more of those references, I think we end up with very different dynamic. There's one final thing that we've done that I think will make another big difference is that we have at a functional level, we have integrated that product much more intimately with the core platform, right? So now for example, predictive analytics is now embedded directly within InsuranceSuite. So if you're a claims adjuster, you see at the same time that you're making a settlement judgment, you will see advice scores broken down by parameter on why you should go one way versus the other. And that's not some other tool that you have to go for, go through. There's no other Sirius integration. It's just there's no other log in. I mean, it's right there in the same screen. And it turns out that, that moves the needle as well in adoption. So these are all bases for optimism, but obviously, as in so many areas, other places, we have to prove it with results. Do we have time for a few more? Darlene, can we do a few more? Okay. Sure. Hey, Marcus. I have two quick questions. One, does Guidewire cloud, does that change the win rates at all long term? Do you see any impact on that in terms of addressing pain points or adoption? And then the second question I had was, this slide was really fast on the flip, but you had that slide about market opportunities across the different tier segments of insurance customers. The Tier 45, that dollar, I mean, that was as big as the Tier 1 and 2 category. I was just curious why the dollar opportunity is so large there. Sure. If you consider the fact that most of the DWP is concentrated at Tier 1 and Tier 2. Great. So question 1 with respect to win rate in cloud, too early to say that that will happen, but I think all logic suggests that as we can have more customer references that say Guidewire is operationally capable of delivering in the cloud, this has dramatically simplified our life and now the service actually works as a reliable as a reliable business service. I think that's what the market has been hungering for a long time. And if you were to look at the single largest competitive objection Guidewire has had over the years, it has been the projects are too long and complex, right? And if we can address those, we will be at the heart of what we need to what drives customer adoption. The second question on this chart, it's simply a matter of differential pricing. And smaller insurers pay dramatically more per unit of premium than large. Or you can think of it as a volume discount. And this is the way that it actually has mapped out historically. So it leads to the results that despite the fact that premium is, as you point out, quite heavily concentrated in Tier 1, that the 4 segments, almost just by coincidence, but the 4 segments are roughly equal in market opportunity for Guidewire, which is one of the reasons one of the reasons that is the reason that motivated us to acquire what is now InsuranceNow. I don't have it I couldn't compute the pricing differential for you exactly, but you can yes, but you can kind of back into it from that look, yes. 1 or 2 others? Maybe 1 more. Okay. Thank you. Hi, Colin Decharm with Sterling Capital. Just curious to ask about the ADS TAM and the data lake. So number 1 on the ADS TAM, the $8,000,000,000 figure, I'm assuming that's kind of a best estimate on current market today. I'm curious, is there a cloud transition element at all to that or potentially more of a value add given your large installed base where that $8,000,000,000 could indeed be a multiple of that down the road? Right. Number 1. And number 2 is I'm curious on the radius of the moat this data lake can potentially fill. Can you talk a little bit about the permissions that are currently in place with the data, I. E, if I'm a Tier 1 client of yours, do I have to opt in to allow you to use it? Or can you use it already in some anonymized way and give an aggregated anonymized solution or Sure. I'll take question 2 first. So with respect to permissions, obviously, this is not our data. It's a customer's data. We have to be utterly respectful about usage. There's a whole PII dimension to it that our customers in the industry is hypersensitized to appropriately so. So it's not as though, hey, you've used ClaimCenter, therefore we have access to the data, we're going to start doing interesting things for you. Everything is very, very carefully controlled, permissioned, legally negotiated and so forth. But one basis for optimism is that this is an industry that has long before any of these kind of sophisticated advances in data science has always syndicated its data. It's that kind of fundamental to the insurance model. And they already have well established practices for anonymizing things and getting things to a level where they can come up with actuarial loss tables that are shared across the industry that so this is sort of the next generation of that, but it requires great care, as you point out. That's right. The other part of your question was quantizing the opportunity, and we thought that the most objective way was to look at, well, what are insurers actually spending, right? So that is a kind of replacement based TAM analysis. There's a more interesting TAM analysis, which is as a percentage of value creation. And if you can move the it can actually affect the underlying profitability of the whole industry, then what's a reasonable capture for a technology provider in that? I think that leads to a number so dramatically large that it's not helpful to put it on the slide, but it is motivating for us as a business. Okay. Thank you all, and I'll be available for other questions at the end of the day. Thank you, Marcus. Thank you for your questions. Marcus will be available at the break and at the end of the session as well in case we didn't time to get to all of the questions. Now Marcus obviously talked a lot about the importance of cloud with respect to our platform and how we're investing heavily in cloud. Here to provide more detail about our business readiness for that is Priscilla Hung, Guidewire's Chief Operating Officer. Priscilla? Thank you. Hello. Good afternoon. My name is Priscilla, and I think I've met a few of you already over the years, and I'm very delighted to be here to share with you how Guidewire is getting ready to support the cloud business. I've been with the company for over 13 years now and currently my responsibility is primarily to focus on getting the company ready to succeed in the cloud and execute our cloud strategy. My team currently comprised of roughly about 1,000 professionals across teams like professional sorry, product development, not professionals, so product development and strategy, M and A, business development alliances, customer success, business strategy and go to market teams as well as the technology operations like cloud ops and information security. Now in this session, I will share with you how we are getting ready, what is the cloud's impact on the Guidewire internal operations in order for us to gear up to support our customer and the market demand. Daiwa Cloud. What is really Daiwa Cloud in light of the impact of the Gaara operation? Let's take a step back and look at what that really is. Gaai Cloud really is about transferring a risk and application management responsibility from the Gaai customers to Guidewire in a utility like model. And as a result, the customer is free up to focus on bandwidth and the resources in what matters to them the most, like business agility and strategy. Now we are, in turn, responsible for the ongoing customer success of the application, all that predicated on a platform that is economically viable and financially profitable to us. Now under this model, Skylight cloud technology wise is hosted by AWS and Marcus mentioned that early on in his presentation. And the cloud operations team is responsible to keep the lights on. Now what that means is that we're responsible for the ongoing infrastructure uptime. We're responsible for ongoing upgrades, post production support and everything has to do with the application management of the Daiwa solution. We also assume service level like uptime and response time guarantees and we are accountable to keep the customer data secure at all times. In addition to cloud operations, we also offer the cloud assurance services that provide training and certification, assure quality of implementation and upgrade with our partners and customers and also execute the gating process and cycle for production release. Now in a way, cloud assurance services really wrap the cloud operations around and manage the entire lifecycle of the Gaara application. Now if you look at this business model, it's very different. It looks very different and feels very different than our on prem business that has been running for over a decade now. And what it means is that to succeed, to take on a cloud and to be able to meet all this demand, it really requires us to fundamentally think and operate differently within Guidewire. It requires us to build product differently, to sell differently and to support it differently. What that means is that to win in this game, we need to transform the entire operation. We need to mobilize the entire company, all facets of the organization in a very organized and coordinated fashion. My foremost objective in my job is to make sure that we are ready to take on the cloud business and to be responsible and get the platform ready to ensure majority of the Daiwa customer can run the core in Daiwa Cloud in the next couple of years when they're ready. What is the benefit of the cloud? Marcus touched on that a little bit earlier. To recap a little bit, why does the customer really want to run the portfolio in the cloud? There are many reasons. Some of the top reasons are accelerate speed to market and they may not be offering new product or expansion to a new geography or market segment. As we discussed, they can transfer the risk and IT complexity from them to us, so they can focus on what matters to most in the business. It also allows a faster innovation platform through test and learned and adoption of InsureTech. Now why does Daiwa want to adopt the cloud? Because first and foremost, our customer requirements and the market needs is very important to us. We want to be able to continue to deliver the value proposition by being the industry platform. So offering the cloud solution is stellar in our mission in that regard. Now while we're taking on the risk and liability of being responsible for the entire application lifecycle, we do gain, as a result, intimate insight of our customers' operation, which is very important to us. And being able to use cloud and powered by the cloud offer faster innovative technology to our market through rapid cadence of software releases and also much less disruptive and less expensive upgrade. Standardization and conformity in the cloud also allow us to focus our investment in R and D much more sharply. Now all that results in a higher revenue capture for Guidewire. Everything gets better when we practice more and with scale. And this whole cloud journey really motivates a virtual cycle and creates a network effect that offer us a couple of really good benefits, including onboarding a large community of partner on our platform in much more rapid and frictionless manner. We're able to accelerate our adoption of best practices and therefore standardization and conformity and as a result lower the runtime cost when we're at scale and never in turn increase the profitability of the business model. Marcus mentioned that a little bit about the cloud driving a different kind of divisional labor. Now since the inception, when we're offering the on prem software, what we do is we offer high quality software. We participate in implementation and some ongoing upgrade. However, at large, we ask our customer and their appointed SI to be responsible for the entire life cycle of the application, including ongoing upgrades and also infrastructure. Now in the cloud model, it is a completely different paradigm. We take on a lot more. We take on a very different kind of a division of labor, a lot more ownership of the application, now which then entails a utility like business model, which is very different than the on prem. The utility like model would entail subscription pricing as we often move it with. It would entail a new type of contract that would have got by assumed terms that we never have to deal with before, like security guarantee, like our continued maintenance of industry standard compliance, uptime, response time, so forth, and the associated liability if we fail to deliver. As I mentioned, it also cloud offer a rapid platform for innovation through faster release cadence. Customer success would offer a quarterly check-in with our customer to ensure ongoing adoption of our product and customer satisfaction. And there, very importantly, because of the divisional labor is now different, we're taking on a larger ownership of the application management cycle. The rule of engagement or the split of growth and responsibility between us and the SI will be modified as we take on more responsibility and ownership. SI will continue to be very important in our cloud journey. We will do what we can to continue to enable them, train them, so on and so forth. And because Daiwa now is assuming a lot more downstream risk and liability, We will be raising the trading certification level across our SI ecosystem for them to participate in the cloud implementation. As I mentioned, in order to transform to the operation to support the cloud journey, It really requires a very coordinated approach. It requires many teams within the company to transform together in an organized and managed and coordinated fashion. Now, it also necessitate a multiyear investment plan across certain key initiatives. And those investment plan will be then reflected in Curtis long range plan that you'll hear a little bit later on in this session. A couple of orgs that require this kind of care and ongoing investment outside of the market facing organization includes product development. Needless to say, we would need to continue to invest in engineering to transform the architecture on the underlying on prem software portfolio to take advantage of the cloud. We need to continue to invest in cloud operation and infrastructure. We need to continue to increase scale in those teams to keep up with the market demand to drive efficiencies and therefore they allow margin expansion in the future. Now we have no choice but to make sure that we continue to invest and take information security extremely seriously. We are absolutely on a hook to protect our customer data as well as to continue to keep up with industry compliance mandate. Customer success is a necessary function. It is something new that we recently created to address the customer satisfaction and allow a very high touch approach for ongoing visit with the customer to make sure they adopt our solution, they're happy with it because it eventually would translate to the customer's willingness to renew the business relationship with us over time. Needless to say, partner enablement continue to be very important as our SI ecosystem continue to be a critical role in our cloud journey. Now even though we're still early in our journey, many of our customers have already adopted running the application in Dialog Cloud. Now today, 100 percent of our solution portfolio can be enabled in the cloud regardless of the underlying architecture, maybe on prem or cloud native. Now our credential shows that over 150 customers today is already running at least one product in Guidewire Cloud. 39 of our core customers, may it be InsuranceSuite or InsuranceNow, are either adopting the cloud. Now you'll hear later on Mike Keller, one of our customers, who will be sharing the cloud story with you. Speaking of Si, the SI ecosystem is very dear to my heart. And in fact, my first job at Guidewire was the head of alliances and cultivated many of those early relationship. And they will continue to be a strategic and crucial role in our cloud transformation journey. Now as you may all know, in the last decade, we have enjoyed a very, very solid and very exciting relationship with ASI partners as we cooperatively bring to life 100 of successful guide by projects. Now and also over the last 10 years, the FIs have been focused on investing in a guide by practice at a CAGR of about 50%, approaching over the 7,800 SI professionals worldwide today. The cloud does not change that. The only thing that the cloud change is a slight division of labor between the partners and us, whereas we are being asked to take on more ownership in the application management. And in fact, I would say that the SIs are fully engaged, if not more engaged with us for cloud market development and bringing up these SI customers and migration going forward as well as the on prem deployment. Now to make sure that they are engaged and to make sure that they have what they need, I participated in a 2 week roadshow in late August, early September, to visit a couple of our biggest SI to make sure that they're mobilized to take on some of these cloud projects with us in the current fiscal year. Now in addition to SI partnership, we also formed some strategic alliances with key cloud leaders. Marcus mentioned Salesforce, the other one is Amazon. Now this whole kind of journey wouldn't have been possible without the adoption and maturity of public infrastructure like Amazon. We selected Amazon or we selected AWS rather as our cloud platform back in 2015 after an extensive diligence exercise. And today, we're the lead partner in the insurance sector at AWS and we're also one of the top 3 strategic partners across all the financial services sectors within AWS. Our partnership is multifaceted across multiple different components including executive sponsorship, mutual financial investment, collaborative development and very importantly, our access to the deep cloud domain knowledge and also the technology services. So let's take a few moments to look at the video, which is a testimony by Amazon and also Salesforce, our partner, as well as our Head of Cloud Operations, Oleg Gunopolsky. If you talk to most CIOs, roughly 70% of their IT budgets is relegated to maintaining their legacy systems in the status quo. At the same time, the business wants new digital channel strategies, social strategies, enter new markets more quickly than their competition, introduce new products more quickly than their competition. And the cloud starts to break up that burden of legacy and enable those agile skills that these insurance companies need to be. The impact of cloud computing on the insurance say that they're willing to switch carriers if they could receive more personalized experiences elsewhere. And from an insurer's perspective, they have tons of data about their policyholders, and yet they're not able to take action on them. In the last 2 years, 80% of the data was created in the entire world. About 70% of that data is customer related data. And yet less than 1% of it is either analyzed or acted upon. As we acquire more data about consumers and about employees and about partners, end users of cloud computing are going to be able to leverage that data to be more predictive, to be more proactive. When you think about insurance and P and C Insurance Companies, the heart of the innovation, the heart of everything they do is in the core systems of record, policy administration, billing and claims. And there's a lot of interest from our customers for core systems that can run-in the cloud. Guidewire is the leading example of that in property and casualty insurance. The whole point behind the Guidewire and Salesforce partnership is to create a 1 +1 equals 3 relationship. You've got the number one CRM provider across sales, marketing and service, which is Salesforce. And you've got the number one insurance platform provider in PNC who's Guidewire. And by combining the strengths of these two solutions, we're able to provide a richer and deeper interaction with the policyholder. Guidewire has embarked on a journey to make every product native to cloud. With our InsuranceNow products and our predictive analytics and underwriting management, we have nearly 150 customers who are on a cloud. In addition, we take a number of our clients to cloud with our insurance suite offering. At this point, we are starting to go to market and start positioning our product as a right choice for carriers to be in the next generation of P and C insurance software. So I've been with Gabriela for over 13 years. It's been very, very long time. And one thing very special about this company, and that's one of the reasons why me and my colleagues working here for such a long time is our single focus on our customer. Our customer has always been the most important thing in our mantra. And as Marcus pointed out, we are the insurance platform powered by the cloud. In a way, we are like serving as a springboard to propel the customer to where they want to be. It's very, very exciting. Over the last decade, I've done many jobs and I've seen many changes and challenges at Guidewire along the journey. I've seen the company evolve from a single product claim center to now with a rich portfolio of product, from a small private company to now global enterprise, from a very small public private company to now public company. It's all very exciting along the journey, but I've never been more excited as now being part of the next phase of Gaiwa and be part of the company that can potentially transform the industry. I really see that as a once in a lifetime opportunity. If we really get this right, we see billions of business going through our business platform, powering up and offering vital utility services, insurance services to millions of people. And I'm pumped up, Daiwa is already, I'm surely making sure in my power we don't screw this up. Thank you. Can I ask any questions? Hi. Maybe can you talk about as you move your customers to the cloud, how you think about splitting the work between the SI partners, how much work they can take on and how much work Guidewire you may have to deploy with your services organization? Absolutely. You're talking about migration, taking on an existing installed base. So I want to clarify that the only difference between what we're doing in a cloud versus on prem is taking on the post production support, right? The ongoing application maintenance of the Gala portfolio, the upgrade and so on and so forth and also the assurance services around it. But everything else, the split of responsibilities between Daiwa and the FI pretty much remain unchanged. So therefore, when you're talking about the migration from on prem to Guidewire Cloud, the one thing that we'll make sure that we're responsible for is what I've just said, is the application management cycle and the post production support of the Gaiawe portfolio. Now there are certain parameters that we draw and at the point of sales or the point of transition with the customer to say this is the scope, right? But the SI partner can take on all the other scope. And in fact, this migration can also be part of a larger managed services initiative that the SI offer to the enterprise as well. That could be outside the DIY transition. It could be just a component of it. Priscilla Vratz, VIVA Merrill. Good to see you. Thanks for doing this. Just a question on multi tenancy. Is that in the road map? Is that important for InsuranceSuite cloud? Could it be a catalyst? Could it change that ratio of 2 to 3x uplift from term license to subscription over time? Yes, great question, Brad. So I would say that I would defer to Ali to address the multi tenancy question. Ali would be the next up, our Chief Product Officer responsible for the roadmap. Let me share 2 thoughts. So first of all, multi tenancy is not a goal, right? So nobody say I'm buying you because you're a multi tenant solution. And they are buying the gamma cloud because of the business benefit that both markets share earlier in terms of agility and focus and transfer of risk, so on and so forth. So it's not necessarily multi tendency they're asking for. But however, in order for us to make the platform much more cost efficient for us to drive profitability over the years, we need to be able to deploy or transition our on prem architecture to whatever it takes to make that happen, right? So multi tenancy could be one of the components that we will consider. But you'll hear Ali mentioned microservices, stateless or serverless architecture. That will be the goal as well. And what we're trying to do is to be more cost efficient. Sterling Auty with JPMorgan. As you think about your system integrator partners, since they've had such success with the on prem world, do you find that they're willing to train up a larger portion of their consultants faster this time? And kind of where are we in terms of the building of that army that you're going to need to help with the client migration to the cloud? Great question, Sterling. So of course, nobody wants to be told that they want to take more exams, right? The same for the SI. But I think it's important to share with them why we raised the bar. If you look at the car model, as I described, we are taking on a lot more responsibility after the implementation is done. We're responsible for all the risk and liability of security, of the quality of the product, all the defect remediation to a certain extent. So we need to make sure that the SI partners, while we work with them, they want to up the game, right? We want to make sure that the quality of the world product is something that we are willing to take on the risk in the downstream. So when you raise it with them, of course, they are not totally happy about that, but the thing is they understand that this is what is required. And we also offer some initial incentive for to bring up the initial group of SIs to a high level as well, so they welcome that. But I also think that because they see as much as Geibar, the growth of the market direction towards the cloud, they see the opportunity for them, right, in setting up this cloud incident. And very importantly, they also see multi year opportunity for them to move hundreds of our on prem customer to the cloud. I mean, those are the this requires a lot of services that we're not going to take on all of them ourselves. We're going to take on a small portion, crucial portion of it. The rest all go to their side. So I would say that they I wouldn't say that for the training one, they are absolutely welcome and are laid up, but they understand that this is a standard we set and they would like to play that game. Hi, Priscilla. Ken Wong from Guggenheim. Building on Sterling's question, you showed a slide earlier where you had 7,800 SI partners in terms of the headcount. Should we envision that that entire 7,800 person army potentially could be cloud deployers? Or is it just going to be a subset of that at the top or specific teams within some of your SI partners? Right. So good question. So let's look at what the 7,800 is. 7,800 is like the entire universe of the members of the GALBA practice across all the different SIs. And there are different roles that all rolled up in the 1700. You can be in QA, you can be a tester, you can be so on and so forth. So there are different roles. Now the specific people or description of the consultants that will be in the cloud role with us would be like the developers or the business analysts. Those are the 2 key constituents that we will love them to re up the certification and be more advanced or maybe ace level or Jedi level, right, to participate in this cloud journey with us. So I would say that because, say, if you look at InsuranceSuite today, it's the same InsuranceSuite we put to the cloud, right? So many of the SI partners are already familiar with that. So all they really need to do is to recertify at a higher level, take some additional training and so on and so forth. So I would say that a portion of the 7,800 is already cloud ready. It's just a matter of raising a comfort level of guide wire, so that, again, we're comfortable to take on the work product as we are responsible for the downstream risk and liability. Now that said, of course, over time, as the market expands, it will continue. I would expect the entire ecosystem continue to grow the Gala practice to meet the demand. So you would see the 70,000,000, 100 become something bigger, right? Hi, Priscilla, it's Justin Furby with William Blair. Just a question on the time to deploy. Is there enough evidence yet to suggest that that's materially different than on prem? Is that part of the pitch to customers today? Or is it more about post go live and the efficiency of the upgrade cycle? Anything you can share on just how much faster or cheaper it is today versus a non prem deal? Yes. So that's a great you actually touched on 3 questions that are varying, but let me try to break it down. So first of all, you talk about sort of time to deploy, right? So this cloud transformation journey will take a better part of the next decade. It doesn't take place over time. Just to transform the on prem insurance suite architecture to cloud native would take 5, 6, 7, 10 years. Right? You'll hear more from Ali how we're doing this. So the time to deploy today, if you're asking the question today, is no different than the time to deploy an on prem application. The only difference is we are now taking on the post production support. Are going to host it on behalf of the customer. So in today's value, really customer is looking for is for them to transfer all the risk and complexity to us, but again to free them up so they can get focused on what's most important to the business. Now from a cost perspective, as Curtis and Marcus would have told you many times before, these cloud contracts are much larger than on prem, right? So if you are asking today, are they paying us more from the cash perspective, they are paying more for the services that we render for them, right, ongoing upgrade, the defect remediation and everything else that we take care and also infrastructure. But the cost is predictable, right? They don't have to do the work. It's predictable because subscription price is priced at a certain level at a point of sale based on a certain scope. As long as the customer doesn't change the scope, the price is constant. So it's not necessarily at this point they're paying less, but they're paying predictability and also free up their attention to do something else. One more question. Hi, Priscilla. Tom Roderick with Stifel. Thanks for being here today. Of course. You and Marcus both talked a little bit about the Salesforce partnership. You've gone live with 1 customer now. Curious if you could kind of share your learnings with going to market with Salesforce and what the learnings of the go live have taught you. What did they particularly need from working with Guidewire that they couldn't do themselves? And what are the opportunities going forward with Salesforce? Thanks. Absolutely. Thank you. So let me also break up your 3 questions. So first of all, what is the lesson learned working with Salesforce? I would say that it's so specific to Salesforce, building these strategic alliances, particularly 2 relatively big companies are different and difficult because you think about trying to within your firm, trying to motivate other people to do things, right? Unless the person work for you, you need to influence, right? It's difficult just within your firm to influence other to do things. Now imagine that you're now influencing a multibillion dollar company with 10 times your size to try to go towards the direction you are going. So that alone, it's difficult. But the thing is, we have been successful so far because our strategy aligns, right, in terms of what they do versus what we do and why do you think that why do I think that they work with us is we are we're the industry leader deep with deep domain knowledge. It's really difficult for any horizontal player to be going that deep, right? The investment need to be very focused and we're talking about the last 17, 18 years, we do nothing but to P and C, right? It's something really difficult to replicate for horizontal. So that's why I think that between Salesforce and us, we understand that they are the CRM and we are the domain and we have a good marriage. So when strategy wise and the leadership level, both companies believe this is what we want to do. It's I think it's a key element to make sure that the strategy ongoing is successful. The opportunity is vast. We only have 1, right? But we have like couple of dozens of joint customer that is existing customer in the installed base that we can go back and sell this value proposition. We can have more Amica going forward. Now that it does not include the future opportunities, right? So therefore, we believe that it's a tremendous opportunity for both companies going forward. Thank you. So can I have the clicker, please? Thanks. Thank you. Thank you, Priscilla. And as Priscilla mentioned, we're investing a lot as a business to make sure that we're ready for today and the future with respect to cloud. Now to get a little bit deeper on that topic with respect to our product strategy is Ali Karulamoom, our Chief Product Officer. Thank you. Thanks. Good afternoon. My name is Ali Kralavoom. I serve as Chief Product Officer. I've been with the company for about three and a half years now, focused on developing the organization globally and evolving and modernizing the technology platform to provide further differentiation for our customer. I'm excited to share with you an overview of our platform strategy and roadmap and the investments that we are making over the course of next 3 to 5 years. Marcus talked earlier about the business and IT imperatives that are driving the P and C disruption and evolution today. I want to key off these imperatives and walk you through the strategy and road map in 5 different chapters. And that's what we have learned over the course of last few years interacting with our customers, we are realizing that these imperatives are fundamentally driving the way they are looking at how they want to drive their evolution in the industry. Let me start with optimizing core operations and the investments that we are making in that area. First investment was around modernizing user experiences, standardizing product definition globally and enabling data driven insights to drive straight through processing for our carriers. So I'm going to walk you through some of these investments and what we have done. So in terms of modernizing the user experiences, InsuranceSuite 10, which is the release that will launch at Connections this October, provides persona based dashboards that aggregate content from multiple sources. They provide and offer a digitized mobile first and touch enabled set of interactions for our carriers. And what you see here is the account holder summary dashboard that creates a 3 60 degree view of the customer. It provides a unified engagement timeline, so bringing all the interactions and transactions that a customer has had the carrier, with the insurer, brings it all into one picture and provides one quick action. So the persona that is the underwriter adjuster can quickly invoke the appropriate insurance processes. And in this dashboard, you can see that we are aggregating data from the customer, the profile information, the current policies, billing statement, delinquencies and so on. And all of this data, again, can come from a variety of different information sources, internal to the organization or outside of the organization. Here, you see an underwriter dashboard. If you look at the world of underwriting, you're dealing with a lot of information sources, some again, inside their corporate enterprise, a lot of them outside, a lot of them on public Internet, on Internet and cloud based data sources. So we wanted to provide an easy way for that underwriter to bring, again, all the data into one single place. And if you look at some of the segments in P and C like global commercial, where the complexity multiplies, you're not dealing about just one single entity that you're insuring. You're dealing about complex building, commercial building. You can imagine the amount of data that you have to aggregate and bring together. So we are again, with these investments we have done in InsuranceSuite 10, we want to make that very easy for our insurers. ISO is a subdivision of Verisk Analytics and is recognized as the statistical and actuarial standard for the most majority of the commercial business today. And I'm really pleased to announce that as of last June, we have completed all ISO lines, all 6 ISO lines of commercial content across all fifty states. We are the 1st company to fully automate ISO delivery lines into the rating and policy systems. This really hasn't done before, and we have done it through a visual automation tool that gives you a content authoring, publishing and management framework for bringing that ISO content and publishing it to our policy systems, our policy center. And you can see a picture, a screenshot of the tool depicted here. This has multiple benefits. 1st of all, automating ISO content creates a greater barrier of entry for many, including Guidewire. We spent many years building these ISO lines and now have an automated supply chain that allows us to not only deliver those ISO lines but refresh them on a quarterly basis. It significantly improves our win rate in commercial segment and reduces the customer total cost of ownership. We preconfigured commercial content that we can provide basically in the box. So let's turn our attention to the next chapter and investments that we are making to help insurers meet their digital imperatives, including linking to insurers' digital transformation initiative. As you know, digital is a catalyst of why insurers today are undertaking these core system implementation projects. It's a catalyst because it represents both a significant opportunity for insurers as well as a significant risk posed by insurtech. So again, it's been a great catalyst and continues to be for our insurers. In addition to digital transformation, I also want to talk a bit about how we are embedding insurance in front office CRM and then delivering personalized omni channel experiences, again, for our customers. So today, we offer a wide range of persona based applications across the entire P and C lifecycle. Some of the applications here include customer engaged, vendor engaged, producer engaged and service rep engaged. These applications fundamentally externalize interactions with our underlying core system into digital front end. And so far, we have exported applications on top of InsuranceSuite, our core system. And now starting this fall, we are adding support for InsuranceNow starting with customer engage. So you can see that we are really moving towards this notion of a unified pane of glass regardless of the underlying core system that you're interacting with. And what's exciting for us, we are moving towards now the next generation of digital engagement applications, and this next generation are all designed to be fully cloud native and business user configurable. And there are 2 examples that I'm going to talk about today. 1 is Digital Small Business Solution, or DSP, and the other one is Insurance CRM. So let's drill down into each area a bit more. So digital engagement experiences today are delivered through, again, a single pane of glass that interface with the underlying core system, being InsuranceSuite or InsuranceNow. It supports multiple engagement channels. Insurer customers can come in, let's say, through mobile, they can come in through Alexa, through chatbot, through Salesforce channel, and we are going to continually add new interaction channels, engagement channels as we move forward. And we support different interaction modes. This can be self-service or assisted service. And I'm really excited about digital small business or our DSP solution via Guidewire cloud. 99% of digital insurance products today are delivered through the traditional broker channel, and they are dealt with basically paper based applications. And what DSP represents is a cloud native online personalized insurance products for small business owners. Micro business owners, these are businesses that have 5 or less employees. And to give you some stats, 62% of all businesses in U. S. Are micro businesses today. 540,000 new businesses are created every month, micro businesses every month in U. S. And 1 third of millennials, a population of roughly 71,000,000 already has small business. And 40 another 49% is going to have basically open up a small business in the next 3 years. So a very significant portion of the industry, and we are really excited to have a solution that brings it all together. And we are extremely proud having nationwide the largest small business insurer in the nation as our strategic partner and adviser putting this solution together and early adopter customer. Mike Taylor is here today and will talk about the investments that Nationwide has made into DSP and where we are headed jointly in the market. In terms of key capabilities of DSP, at the high level, we provide a consumer grade buying experience for that market business. We provide a visual market segmentation and personalization tooling and also building analytics and monitoring that allows carriers to pursue test and learn opportunities to experiment with new products, launch them in the marketplace and then evolve them and adopt them. So let me give you a bit more overview on what DSP represents. So again, DSP, think of small business owners, micro businesses that can go online, do a code and binds completely online using their device of their choosing. It can be a mobile phone, it can be tablet, it can be desktop, it can different channels of interaction, manage their policies and pay premiums from anywhere at any time. Another aspect of DSP that was, again, really powerful for us was that we are constantly learning from the experiences. We are constantly analyzing and monitoring the experiences so we can optimize the experience further for our insurers. What's unique about this cloud native SaaS solution is that it comes with Engagement Manager. Think of Engagement Manager as a completely visual product configuration and personalization module. So if you're a product manager at the insurer, you can go use Engagement manager and not provide again, it provides rule driven interfaces and experiences to customize the experience you want to deliver to that small business owner. It allows you to do market segmentation, what segment of the market I want to launch this campaign on. And again, we provide in-depth user analytics, allowing that insurer to not customize the experience, So you can have multiple versions running simultaneously. And again, for me, if you look at what DSP represents, it gives you an initial glimpse of where we are headed with our transformation and modernization journey that both markets and Priscilla spoke about. You're going to see digital experiences, unifying core data and digital functions together, all delivered as a cloud native SaaS solution. So that's fundamentally where we are headed with our cloud journey and enabling this new generation of solutions to the marketplace. Another solution that we have invested in is insurance CRM, and the insurers are now realizing that they need to combine and unify the world of CRM customer CRM with the insurance transactional and operational world. So we partnered with Salesforce to bring together our digital engagement products and combine them with Financial Services Cloud, SSC, and use these products to optimize the front office interactions for P&C. And the goal of that optimization is to enable the call center reps and agents to have a better sales and servicing experience as they're serving the policyholder, unifying those interactions and bringing that 3 60 degree view of the customer together in one place for them. Let me show you a couple of screenshots of what we have done here. So here, you see, again, focuses on 3 50 degree view of the customer, their policy information, their billing information, claims information, all got natively into Financial Services Cloud, leveraging FSC's native technologies such as Lightning and Canvas technology. So now you see all of our data here, you can see account details, customer profiles, policies, all from Guidewire systems, all unified and brought together into a single pane of glass. And that's the strategy fundamentally with digital, bring data from any source and bring it to where the user resides so they don't have to jump and go to different applications to see the data, bring all the data together in one screenshot. And here, you see our personal auto quotes wizard fully embedded again inside SSC. So now that call center rep has full interaction with the Guidewire system in the back end directly from that Financial Services cloud. And in addition to running and providing a quote right there online to the user, they can also navigate down and look at policy information or account information without leaving the environment. And the fact that the data is coming from multiple sources is completely transparent to the user, and we are doing that because we have non native insurance objects that we have embedded inside FSC. So very seamless and transparent interaction call center reps and agents. Now let's move on to the next chapter and investments that we are making to help insurers use data in new ways, including enabling analytics based SmartCore by infusing analytical data directly into core operations, streaming real time operational insights and delivering persona based applications. So here, you see that we are enabling SmartCore by taking predictive models and infusing directly into that experience for the knowledge worker, into the claim center experience. As Marcus indicated earlier, these are not different. I don't have to go elsewhere to get that, and that's the power of data and unifying that with the underlying core system. So whether these are transactional data, whether these are historical data or predictive data, we can bring it all together and infuse it into the same environment. And here, you see an example of a litigation risk detection that's brought together right there for that claim adjuster who is reviewing that claim and deciding whether they want to approve it or not. And again, in addition to the score that now comes from that predictive model, from our predictive analytics application and embedded inside the core, you can also see now all the factors that lead to that prediction. So every data, every piece of data, again, available seamlessly inside the application. The same data on the same score can also be used in business rules. And now imagine the power of that, now you can automatically approve a claim. You can route it to SIU department for exception processing. Again, the data is not just visualizing it and presenting in your application, we can also use it to do straight through processing and automating. Marcus talked a little bit about live analytics. As you know, with live analytics services, we are streaming transactional data from underlying core systems, and we bring all of data to a data lake. We also augment that with 3rd party data sources that are also added to that data lake. Now imagine you have the universe of transactional data, 3rd party data, now we can apply rich predictive models on top of all the information that's available in the lake. And what's exciting for us with the Science acquisition, we now have a data listening engine that can bring a vast majority of 3rd party data sources. CYENS processes petabyte of information every month. Now imagine all that reach set of 3rd party data sources also available on the same data. And very much like what you saw before with live analytics and start predictive analytics. We are doing the same exact model that the data can be analyzed, it can be transformed, it can be embedded inside the core or using processes for a straight through processing. In addition to aggregating the data and placing it on the lake, we also visualize it through a series of cloud native analytics applications. So here you see an example of 1, our claim explorer application. So if you are, let's say, that claim advisor, adjuster or supervisor, now you can see all the claim information, whether it's claim activities, cycle time, trends, service levels, how many claims have I processed, am I meeting my service level objectives. All of that is brought in real time. It's not a batch process, it's not transactional in real time and presented to the user. You also see data such as workload for my adjuster, who's processing how many cases. So you can dynamically change that distribution and make the workforce more and more effective. So again, the power of data here is allows you to operate the insurance processes a lot more efficiently than before. We have approached this by business domains. Currently, we have Explore application for claims and underwriting, and this fall, you see Explore application for policy, and we'll continue extending again this library of cloud native analytics applications that we are developing. So let's move on to the next chapter now and talk about investments that we are making to help insurers embrace InsurTech that's out there. And starting with offering a curated marketplace of partner add ons and reducing the complexity of integration through open APIs and also facilitating, again, that rapid test and learn environment for our insurers. We launched Guidewire Marketplace about 1.5 years ago. We currently have over 500 accelerators and 89 of which is developed by Guidewire Partners. And what's really exciting for me is the investments that we are making in fiscal year 2019 in terms of Death Connect, which is a new technology innovation that will be part of the Guidewire marketplace in fiscal year 2019. To describe DefConnect and its relationship to the marketplace and how it will enable a plug and play integration for our insurers, let me use the analogy of Apple App Store. So today, if you're an iPhone developer, you can go ahead to Xcode environment, which Apple provides, write the application and then go ahead and publish that application, which takes it to a security and compliance review by Apple team. And once that review once you pass that review, the application is now added to the Apple App Store. And then all of us as consumers, we can go ahead and discover the application, we can purchase it, we can download it and then we configure the application, and it's ready for use. So truly a plug and play experience. And these applications continue to work independent of Iris upgrades, at least most of them do, continue to work, and then that's something that we all have relied on. So we wanted to repeat that type of experience for the investments that we are making in DevConnect and Marketplace. So as a partner, you go and start adding these add ons for Guidewire, these functional extensions to the platform. Once you're done with developing that application, that application goes to Guidewire for security review and compliance. And once it passes that, it's added now to Guidewire marketplace, which again becomes not discoverable to our insurers. And insurers, again, very similar to their iPhone model, can go ahead once they discover it, they can purchase it, they can download it and now they are visually configuring the application. And again, I emphasize that because it's visual configuration of that add on. You are not coding to take advantage of that add on, which is very, very different drastically different from what happens in P and C today. So let me elaborate on that some more. So this is kind of a before and after of DevConnect. So today, our customers, our insurers are riding the adapters. So they're riding the code to take advantage of this third party adapters. And they are not only writing it the first time, they are also taking out they have to have to modify it every time the platform is operated. So they have to go there and constantly ensure that this add on is going to continue to work. And what we have done now with the after leveraging the desk connect technology and framework, we are now allowing that add on again to be downloaded by that insurer. They're going to configure it. They're not writing a single line of code. The partner who wrote that add on is responsible for maintenance of that add on, not the insurer any longer. And the Guidewire ensures that the add on continues to work regardless of the platform operates that we are doing. So again, seamless experience for insurers and add ons that are fully operatable from one release to another. And that's going to significantly reduce the total cost of ownership. If you look at the whole integration landscape for insurers, that's roughly 50% of the project implementation cost is 3rd party integration that insurers do. A typical insurer has upward of 100 integrations that they're dealing with. So it was really important for us to make that very, very seamless. And in addition to that reduction of TCO, this provides a fantastic opportunity to not ingest new technologies. So as an insurer, you cannot ingest new technologies, and that allows us and positions our core system as an orchestration layer for all the technology innovations that are happening in the industry, all the insurtech. So we cannot bring it into an environment that's safe, that's reliable and start realizing the value of some of these insurtech add ons and decide whether you want to take advantage of it or not. But we make that ingestion very, very simple. And in addition to all the capabilities you see here, we are also going to provide analytics capabilities for both the insurer as well as the partner that's writing the add on. And here, I'm showing you an example of the insurer analytics. So as an insurer, I can look at how many add ons I have running in my production environment, how many vendors are providing those add ons. Most importantly, what's the uptime and reliability and SLAs associated with that add on. And in the future, you see us even apply things like machine learning to automatically pick the right service that is more is applicable to what the insurer is trying to do. So again, we are super excited about the investments that we are making in this area. And if you don't mind, let's go ahead and roll a video of 1 of these I think about how business is changing and how people are engaging in multiple locations around the world, I see a big challenge. How do you gather and validate information on the ground, in person, at any location, at any time? If you really want to verify and validate something, you need people that you can trust, and you need them everywhere. You also need the technology to empower them, communicate with them, and connect them to the customers that need their help. We go look helps insurance companies, financial with over 45,000 Lookers to capture data and perform custom tasks from directly within Guidewire ClaimCenter. We can be your eyes anytime, anywhere. We go look, that's what we do. We're very excited to have V Go look as one of our key partners, Safe Connect partners in the marketplace. And let's turn our attention to the final chapter, and these are the investments that we are making to help insurers gain business agility and simplify IT complexity by leveraging cloud as a strategic enabler. Investments here include optimizing insurance suite for Guidewire cloud to again reduce our costs and improve efficiency, deliver P and C Cloud microservices on top of the AWS platform and enabling business driven visual configuration. We are leveraging our cloud technology playbook, and there are 5 plays that we are executing as part of our cloud transformation journey. First, the focus is around delivering a cloud native P and C platform to drive standardization. Again, the platform analogy I make here, you have force.com that has allowed Salesforce to build a library of applications and solutions on top of that platform. We want to create a fit to purpose vertical platform for P&C that allows Guidewire and our partners to develop a new generation of P&C applications that are running on top of that platform, very much like the digital small business that you saw. So naturally, again, the focus is on top of this platform, we want to assemble and deliver this next generation of solution and application, again, both by Guidewire and our partner community. We also want to make sure that we have visual configuration everywhere, and that's a key part of the value proposition. If you look at the investments on digital small business, if you look at the amount of configuration that are needed or quote customization, it's barely none. It's all done through that visual configuration, through that engagement manager that allows you to very quickly change the definition of the product and personalize it. And again, that's the future where we are headed with all our cloud investments. It allows us to grow the community and network through this disconnect and ecosystem that you saw earlier in the marketplace. So we want to establish that vibrant development community and marketplace around Guidewire. And finally, in that context of continued modernization, we want to deliver a growing library of core data and digital microservices. And let me drill down into an example of 1 of these microservices, a crucial microservice in the context of core, so you understand what we are doing with this service, and that's our rating service. Today, we provide an industry leading rating engine. But as we set forth to go ahead and develop the next generation rating engine, we wanted to make sure that this next generation is going to take advantage of everything that cloud has to offer, leapfrog the current capabilities that we have. So if you notice what we are doing, we are now building a hyperscale service, leveraging Amazon Cloud Infrastructure and Machine Learning, an engine that does pre compute in milliseconds of rates and then allows us to do impact analysis on how effectively that is executing, be able to change parameters and see what's the impact of that to your entire book of business, then the type of things that wasn't feasible a few years back. And now we are again leveraging the elastic computing of Amazon and the services that's available to us, we want to open up the possibilities with this rating engine. And as you can see, with this rating engine, it leverages and the rating market service you see here, very much like every other market service that Guidewire is developing, it leverages this common service fabric. And what this common service fabric is, it gives us the 20 fourseven uptime. It gives us the failover, the load balancing, the logging and monitoring. So as we develop these services, they all exhibit these behaviors. There are services that are built to last. There are services that are built to be 20 fourseven because as you saw with that digital small business, the generation, the population that we are serving is not dramatically different. There are non millennials that expect to come in at 3 in the morning and get their insurance. So we need to make sure the services that we are developing and delivering use and apply that type of philosophy in terms of their uptime and operations. And where we are headed, when you take this playbook and you bring it all together, now you're seeing where we are headed with this insurance platform business architecture, which is comprised of several building blocks. At the heart of it, you can see P and C core services and the business services that are leveraging a growing library of common cloud services. You see digital engagement services, microservices that are agnostic to the underlying core, working with insurance suite and insurance services, data and analytics services that are pervasive throughout the entire platform. You see visual configuration and tooling everywhere, product model standardization globally, a growing platform and developer ecosystem, all of which are layered on top of both AWS as an infrastructure as well as a platform as a service. And on top of our insurance platform, we'll have our point product, but we also see this growing library of top solutions that we are bringing to market, like digital small business, like insurance CRM and like future solutions that we are building, digital claims concierge and so on. So that's really the opportunity and excitement around where we are headed with this platform. And again, to give you a sense on some of these services, when you're talking about P and C Business Services, think of this as task focused microservices that we are building for P&C, things like rating that we talked about, submissions, commission and a growing list of other micro services that we want to have here. Or you'll see P and C core services, which are now more macro level policy administration and claims servicing set of services, both of which leveraging and using a growing library of common cloud services, things like authentication, authorization, geocoding and so on. So it's absolutely an exciting future for Guidewire and our customers, and we are really, really happy and looking forward to seeing it all come to fruition. So with that, let me stop and see if you have any questions. Hi there. Tyler Radke with Citi. I think there was probably enough content up there to go a full hour. So thanks a lot for the details. I don't know if half hour was enough. But I had two questions and related to kind of the Engage and digital products. So could you just walk us through how you think about Guidewire's addressable piece of that market in the context of where Salesforce plays and your partnership there? And then as a follow-up, could you just give us kind of the walk through of the monetization of how you're monetizing Salesforce's Financial Services Cloud when you kind of have a joint customer using Guidewire and Salesforce? So in terms of the use scenario for Insurance CRM, as I mentioned, the digital engagement products in general, we wanted to make sure we can aggregate the experience regardless of the channel, the PMC experiences, and then make sure these experiences can be embedded, Whether we want to embed them into an Alexa on the front end or a chatbot on a different channel, this view Salesforce as another channel of distribution. So if you have personas that are already leveraging Salesforce, they're already in Financial Services Cloud I'm a call center rep, and I'm using because that's my CRM world. I'm using Salesforce on that front end. But when have a prospect, an insurance customer policyholder coming online, I need to have all the information that's coming from my system of record around that policyholder needs to be available to me so I can make that informed decision. I don't want to jump around across multiple applications. So the partnership was realized and recognized the fact that Salesforce is the CRM number 1 CRM company in the world. So for us, we didn't want to say that now we are going to provide a better CRM capability than Salesforce. What we also provide we have the system of record for all the transactional data about that policyholder and P and C. So the marriage was can we bring these sources of information together in a seamless fashion. Notice that we put the focus on 2 personas, call center reps and independent agents, which are not they are more casual users that are not captive users, like underwriters that we have or claim adjusters or claim managers that are sitting in our systems. There are more kind of casual users that need to have access to information provided by Guidewire as well as all sort of other information about the customer and customer three sixty degree view of the customer, if you will. So that's how we divided the roles and responsibilities in that context. Obviously, we sell digital engagement products to customers who may not have, obviously, Salesforce, to customers of personas that are not part of that on office CRM world. And for us, think of it as digitized interaction for P and C that can be embedded in any channel. So in that sense, our digital focus is figuring out what those interactions are, what is that personal AutoCode wizard. And then where that auto code visitor runs, we want to be as flexible as possible, given where the user is reified. Does that make sense at the high level? Ali, two quick questions. One, on InsuranceSuite Cloud, what's kind of stopping you from being, I guess, more aggressive in rolling out like a multi tenant InsuranceSuite cloud environment? What's because if you just think about multi tenancy SaaS and all the benefits, faster implementation, you don't have to manage 100 different runtime environments. And it just seems like kind of a pretty big benefit for you guys. And so what's kind of stopping you from doing that? And why not just start on it today? And what does that take? Is that an entire rewrite of the code base? Or are you just is that something incremental you can do? And then the second part, maybe your presence that was what the last thing was about, but the microservices, is that just for the like the ancillary data products? Or is the eventual plan you're going to turn literally every single core function of InsuranceSuite into a microservice? And so that's kind of how you get to cloud native multi tenancy. You just turn everything into a microservice. Yes. To give you, let me answer your second question first, and then I'll go back to multi tenancy. You're looking at modularity and microservices across the entire landscape, across the insurance platform as a whole, and that includes core functions, data and digital. And the way we are coming at it in terms of why we have listed some of the microservices you see here, as you see, these are core services, submission, commissions, rating. We are not looking at why we're doing microservices, we are doing that to enable a new generation of application that have all the attributes. These applications or solutions are obviously very effective, they are very cost effective, they operate 20 fourseven. So the lens, why we are doing that is to enable that, to do things like digital small business, like insurance CRM and future applications. So solutions help us identify what are the building blocks that we need to explore. And as we start doing these solutions, they are becoming more core data and digital, all unified and orchestrated. So that's why when you look at our microservices strategy, it really spans the entire spectrum, and we are exposing all those building blocks that are needed. So yes, the plan is to expose as much as it makes sense to generate or allow us to generate this new generation of solutions. And you have seen some of what we have listed here, the investments that we are making. Going back to your question of single tenancy and multi tenancy, I've been in this industry for many years. I've dealt with single multi tenancy by previous carriers. I think the technology is moving very rapidly. I can even argue that multi tenancy was 15 years ago. If we look at what's happening in the industry now, people are starting to look at serverless. They're looking at elastic computing. So you're not allocating a space, you're dynamically leveraging the compute or database as you need them and then you let go of it. You available to us right now and multi tenant is one of them. We have some services today. Available to us right now and multi tenant is one of them. We have some services today that are multi tenant list. But rather than saying we need to be single tenant or multi tenant or tenant list, we want to come back and say what is the main objective that we have for this cloud solution we are delivering in terms of its cost effectiveness, in terms of efficiency, in terms of off time. And then we use all of this technology that's available to us as a lever to get us to that end goal, which as you can imagine is more and more is going to be extremely high gross margin for us. So multi tenancy is definitely something you are looking at, but it's not the answer all the time. Sometimes serverless and tenantless is a much better way of achieving our objective. Thank you. Thanks for your time. Could you talk about how you're looking to monetize the marketplaces opportunity you talked about and maybe the revenue share arrangement you have with app developers like you talked about WeGoLook? No, thank you. Yes, we are in early stages of the marketplace revenue sharing model. It is more of a revenue share. We are looking at every ad on every provider has a different way of how they are monetizing their value add services. In some cases, it's transactional. In some cases, it's based on DWP. In some cases, there are free services that they're offering with a premium, if you will, with the idea of advancement to a higher paid subscription model. So what we have decided to do and we now have some flavors of all of that under conversation with some of the add on providers. So where we have put our focus and energy right now has been on DevConnect platform and making sure that we can collect all the raw data, so we can apply different type of financial models on top of it. So whether it's going to be, again, more of a transactional usage base or it's going to be a flat fee, we are building the infrastructure in DevConnect to keep track of it, which then allows us to have personalized revenue share models or other revenue models as appropriate with our add on provider. But we are in early stages of that as we're adding more partners through the DevConnect layer. All right, thank you very much. Thanks for your time. Thanks, everybody. We'll take a short break. Please convene back here at 3:30. Thank you. Thanks everybody. If you could please take a seat. Okay. Thanks, everybody. If everyone could please take a seat, we'll get started. Thank you. I feel like a bystander at the end of the night. Will everyone actually could you please yes, Thank you. Yes. Great. Thanks, everyone. So thank you also for your great questions. And I think we have to find a way to make sure we've enough time to for people to answer the questions in session. Also just wanted to remind you that the Guidewire team will be here afterwards for the cocktail reception, so that outlet will be available to you. As a final reminder, please do fill out the evaluation surveys. They should be in front of you, and we'll take that feedback on for this next event. So of course, up to now, we've been talking about how we are evolving our business and our platform accelerated by cloud in service of our mission, and there's no better way to tell the story of our mission in flight than to invite one of our customers to tell their story. And I'm privileged to be able to welcome Mike Keller to share Nationwide's story. Mike has a long history of service to Nationwide and the industry. He joined the company in 2,001. He served as EVP and CIO for 17 years at Nationwide and was one of the key executives driving their technology driven transformation, which is really remarkable, and it's gratifying to serve Mike and his team. Please join me in welcoming Michael to the stage. All right. Thank you. Good afternoon. It is a pleasure to be here to share with you the business and technology transformation journey that we've been on at Nationwide in a strong partnership with Guidewire. And I'd like to begin by introducing you to Nationwide and providing some of the strategic business context behind these large transformational investments that we're making. For those that aren't familiar with Nationwide, we are a mutual insurance company that currently ranks number 66 on the Fortune 500 list and we offer a wide variety of insurance and financial services products. We are a top 10 provider in almost all of the product categories that we participate in and we're number 1 in a number of them including insurance for small businesses, for farms and ranches, for pets as well as the largest provider of public sector retirement plans and corporate owned life. The diversification that you see indicated on the chart really isn't an accident. It is a part of our strategy. It's our belief that we will be more valuable to our customers and to our distribution partners if we offer a breadth of complementary solutions. It's also the case that we pay a lot of attention to the different kinds of risks that we underwrite. And the diversification of risks allow us to have more consistent stable earnings and really focus on making sure we have the capital strength that we need to continue to grow. I'm going to talk to you mostly today about the work we're doing with Guidewire and our Property and Casualty businesses, but I want to provide a little bit of the kind of historical and strategic context behind why we're making these investments. If you look at our core insurance businesses, which is personal lines and standard commercial for small and mid market customers, That core, we are investing over $1,000,000,000 in doing product process and technology transformation. That's a really big bet and something that has obviously gotten a lot of play at the Board, CEO level and across the company, very not only big investment in financial capital, but also in human resources. So the question is kind of why would we do that? And so to understand historically how Nationwide came to be at least in that part of our business was really through the merger of multiple different companies. So Nationwide Insurance historically was a kind of super regional carrier, exclusive agency focused and predominantly played east of the Mississippi without a real strong presence in the Northeast. In the late 90s, we acquired Allied Insurance, which had a very similar product set, but different distribution model. They played predominantly west of the Mississippi. And then about 7 years ago, we acquired Harleysville Insurance, who predominantly plays in the Northeast. So you basically had, no pun intended, a nationwide footprint in personal lines and small commercial, but under the covers, it was 3 different companies. And so about 7 years ago, we embarked on what we call our one brand, one company strategy. The one brand part was relatively early relatively straightforward and at least on a comparative basis easier. So as we branded what used to be Harleysboro and what used to be Allied nationwide, you had to change signage and websites and forms and bills and all that kind of superficial stuff. But the really heavy lifting is beneath it. So if you think about the fact that you had 3 long time established carriers, they have developed different products and contracts, they have different underwriting appetite, all of their business processes from distribution to claims, billing, customer service, underwriting and rating rules, it was all different under the covers. And so these transformation programs are really about bringing us to be 1 company with simplified and modern products and processes. And then a big play is the technology side. Those 3 companies had completely independent IT stacks in every area. And in most cases, they were pretty heavily dated. So trying to look like a national carrier, we typically had to try to do work on 3 different platforms in a lot of cases the same kind of work and then create integration layers and those kinds of things to try to provide any kind of consistent digital experiences and the like. So a lot of the rationale behind this was to try to get to a point where we think we could be long term competitive as a modern national carrier. And so the work that we did started and I'll talk a little bit more about the projects with claims and then went into personal lines and is now going into commercial. But when it's done, we will have across personal lines and commercial lines, common products, common processes, simplification and we will have all of it on a modern technology platform leveraging the major components of InsuranceSuite, Policy Center and Claim Center. And we're also leveraging a lot of the Guidewire products and the data in the digital space. The basic business case behind it, 1 on the one brand side, there's a major advertising and brand war and brand matters in personal lines and small commercial. So if you look at what we spend in traditional advertising and digital marketing, in sponsorships with the PGA and NFL and NASCAR, we invest a tremendous amount of money. So that money can now be used on a national basis. In addition to that, there are significant benefits to distribution partners. So like in commercial where there's been a lot of consolidation, a lot more power is being held by national brokers and agents and they want somebody that's going to be easy to do business with, not somebody that looks old and different and complex across the geographies. So we think it will really help us there. From an internal perspective, there are tremendous efficiency benefits, both speed and cost, both on the business side and IT side. And we've already seen in the places where we're done, it will enable us to better leverage data and create a much better digital customer experience. So that's the business case behind it. In terms of what we've actually done, I said we started with claims that is complete. The good news is that kind of our hypothesis was if we didn't get to clean business processes and clean core systems, We really couldn't do what it is that we wanted to do in areas like data and digital. We could never be as fast, agile or customer friendly as we wanted to be. And now that that's complete, we're actually seeing that play out. So I think I give multiple examples. But when Hurricane Harvey hit Texas, we had a business rule. It was hardcoded in those old systems that had said, you only have 1 automobile on a floodplain. This is pretty unusual to have that kind of flooding. But in that case, we had a lot of customers with multiple vehicles that were all hit by the same incident and they didn't want to file 3 separate claims. We were able to change that business rule and basically code test and put it in production in a day at the request of the business. We could have never moved with that kind of speed. And if you look at what we've been able to do with things like mobile technology, both for claims adjusters and end customers, the same thing. So very anxious for the day where we will be in the same place with personal lines policy and commercial lines policy. On the personal lines side, that's a single biggest project. That project alone is over a 5 $100,000,000 investment. It shows on the chart that we're 50% done. From my perspective, it's actually quite a bit higher than that. There's a tremendous amount of process and technology work that has to be done before you get your first product into your first state. We are well past that. We have all products done and kind of all of the core functionality in. We're in half of the states right now, but really just at a point where we're doing mandated state based variation from the Departments of Insurance and completing the rollout. So even though it shows that will go on to 2021, we're also doing a bring people on to the Guidewire platform at renewal. So that can be a 6 to 12 month period after we go into the state to have everybody on it. So there's a real heavy lifting will be done by the end of 2019. Commercial lines were earlier in the process. We have our first products up in our first states, but a lot of heavy lifting to do to both get additional products done and additional geography. But it is our belief that was at the beginning. These are high risk, high reward projects, but we really believe at the time that it was something that we had to do for long term competitiveness. And in spite of the fact that the industry doesn't always have a great track record for delivery of these kinds of large complex transformational programs With the success that we've had so far, we're feeling pretty good about the prospects for completing them. Now shifting gears a little bit, that's really what we're doing for our large scale core traditional P and C businesses. We also have a number of specialty businesses. And in this case, we're really driving the transformations with InsuranceNow. We actually started with private client, which really wasn't a transformation. It was actually a new business startup. So we predominantly appeal to a class or segment of users. There are some very high end customers, serviced typically by people like Chubb that we weren't after, but there was a mass affluent segment that we had looked at that we believe was underserved, but that really couldn't be met with our current approaches to product pricing and underwriting, customer service or claims. So we basically created a new business and some outside leaders and combine them with some strong internal folks. And when we were trying to decide what to do from a technology platform perspective, what we really wanted was something that would allow us to basically support all dimensions of the business and move as fast as we possibly could. So we picked insurance now actually when it was independently ISCS. It was pretty much the software equivalent of a carrier in a box. So it met functionally very well with what we'd want to do with a startup. And was also cloud based and faster and lower total cost of ownership. That is now fully implemented and it is a $300,000,000 in premium and growing business for us. The other ones on this chart are transformational. Our excess and surplus business has multiple companies and lines within it. We have a couple of those done, but the 2 biggest are contract and brokerage lines are yet to go, but we've had good success in the lines that we have up. And then finally, I mentioned that we're the largest provider of pet insurance. That's on a very old platform and we studied kind of everything that was available in the marketplace and again selected insurance now. We've done all the planning work, we funded it and are just in the stages of starting development. Our most recent partnership with Guidewire, you heard a little bit about digital small business, But we're actually working in partnership with Guidewire to create a compelling digital insurance offering for small businesses. Just to provide a little bit of kind of historical context and an analogy, Nationwide was actually pretty early to market in around 2000 with a very effective quote and buying for personal lines auto insurance. But for a whole bunch of reasons, profitability, changes in leadership, channel conflict, never really stayed focused and never really made the investment required. And if you fast forward 18 years later, we like almost every agency based carrier are losing share to folks like GEICO and Progressive who are direct and more digital. And so we believe that for particularly the micro commercial segment, but probably even up into smaller the risks are relatively less complex, but it will go the same way as personal lines. And so as the number one writer through agency channels, we believe we have significant knowledge, data and capability, but we really wanted to go in a pure direct to digital fashion. So we got into discussions with Guidewire and wanted to see what we could do in partnership to get a good offering in the marketplace quickly. We initially thought we might go with service or I'm sorry, with an insurance now for that, but we ended up deciding to go with insurance suite in the cloud. Biggest reason was we had invested a lot of time and money already through our commercial lines transformation and building out commercial products on our policy center. We also had all of our commercial claims on ClaimCenter. So the solution that we ended up leveraging takes advantage of our claim center implementation on prem, both policy center and billing center in the cloud. But while that provided the core, what we really wanted to do is to have a really robust digital offering both for sales and service. And that was really where the partnership came in and Guidewire developed the digital small business capabilities. We were able to go in and do things like personalized journeys. So we actually in 8 months from the time we started in January to a launch just a couple of weeks ago, August 27, we're able to get 18 classes of small business insurance up in the market in Illinois. It's going to be a test and learn. It's really too early to say. We are just beginning the digital marketing campaigns to try to drive volume to the site. But if you look at it, the journey and the experience that somebody would have coming in as a micro business owner is very different if you are a barbershop versus if you're a florist. And we would not have been able to do that without things like the engagement manager component of DSB. So more to come on that. It's still early, but I do have a short video that talks about this that I'd like to show. At Nationwide, we are committed to protecting businesses of all sizes with innovative insurance solutions that meet their unique needs. But in our research, we found that micro businesses, those with fewer than 5 employees, are underserved by today's insurance market. Consider this, in the United States, 62% of all businesses are micro businesses. More than 540,000 new businesses are created every month. Nearly a third of millennials, the biggest generation in US history with 71,000,000 individuals have already started a business, and almost half of them, 49% want to start a business in the next 3 years. To help this growing group of entrepreneurs, Nationwide has teamed up with Guidewire to create an innovative new solution, Nationwide Commercial Digital Direct. Nationwide Commercial Digital Direct delivers end to end digital capabilities across the entire insurance lifecycle. Why is Nationwide launching a digital solution? Consumer shopping behavior is changing. Millennials, the fastest growing group of micro business owners, are a digital first generation with 9 in 10 owning smartphones and 78% purchasing products online and other generations are adapting digital as well with many of them preferring to start their transactions online. Nationwide has designed commercial digital direct to align with these preferences. Micro business owners can quote and bind business owners policies online using their mobile phones, tablets, or Nationwide, a market that Nationwide can attract and serve easily with the 2nd component of Nationwide Digital Direct, Guidewire Engagement Manager. Guidewire Engagement Manager is a digital tool that empowers our nationwide teams to create personalized digital experiences for specific segments, leverage 3rd party data to personalize and pre fill information for prospects, launch marketing campaigns, conduct AB testing, then quickly make changes based on the results. Will micro business owners ensure their businesses with Nationwide Commercial Digital Direct? We believe so. The solution is tailored to their digital preferences, while still offering call center support. Other insurers are just beginning to figure out how to sell and service commercial lines through an entirely digital experience. Nationwide is well poised to gain an early mover advantage by starting now. Nationwide is well poised to gain an early mover advantage by starting now. So when can you expect Nationwide Commercial Lines Digital Direct? We launched in August 2018 to target approximately 50,000 micro business owners in Illinois with business owners insurance. From there, our solution will position us to quickly learn from the marketplace, adjust our product offerings, expand up to the small business segment and scale nationally. Commercial Lines Digital Direct from Nationwide, an innovative new solution for innovative business people, micro business owners. Nationwide is on your side. Right. And so for my final topic, given that there's been a lot of discussion around cloud, I wanted to take you through a little bit Nationwide's perspective and our strategy in that area. Nationwide has been moving workloads to the cloud for many years now, but it has been predominantly software as a service or SaaS offerings. So whether it's moving from SQL to Salesforce or from on prem service management to ServiceNow or from PeopleSoft to Workday, we predominantly move that kind of workload to the cloud. When we had looked a number of years ago at a lot of things that would be more in the infrastructure or platform as a service area, We just didn't find moving to the cloud to be advantageous. There were still significant security concerns. There are a number of cases where our on-site on prem hosting was just as efficient. And quite frankly, it takes work to get there and we had a lot of other priorities on our plate, including the big transformation programs that you've heard about. So we really didn't do much outside of the SaaS arena. Given what we've heard going on in the marketplace at the beginning of 2017, we decided to really take a hard look and craft a more robust and comprehensive cloud strategy. And we did both some consulting work and we did experiments and vendor visits and all the kinds of things that you would look to do. But we really came up with a different answer this time. We really found that from a security perspective, there are some different things that we need to do to really be secure in that environment. But in an awful lot of ways, the cloud providers are actually better at security than most internal shops. And if we manage it properly, we got very comfortable with that dimension. We also found that there were significant areas where the financial benefits were meaningful. And then the other one that really kind of caught our attention was the speed and agility advantage. So just one example, as we started to do more and more work with telematics, collecting large volumes of data from vehicles to try to do better underwriting. We tried to stand up, we didn't try. We did stand up a big data, Hadoop based environment internally in our data center, but it took months to get it up in place. We got it up in place with 1 vendor and they shift strategies and we had to migrate it to different software. And by the time it was done, it was expensive and slow to get up. We ended up getting it working. But when we look back and kind of did the case study of what would have happened if we had done that in the cloud from the beginning, it would have been far faster, far cheaper and it would have created a much better development environment for our folks to be able to spend their time doing innovation rather than core plumbing. So we found a lot of different areas and a lot of strength in a number of the business cases, not all workloads. But we believe that we will go from about 20% in the cloud and 80% on prem today to more like 80% in the cloud and 20% on prem by 2021. What that means in terms of our relationship with Guidewire, for all the work we've done with them with insurance now, it's actually pretty easy because it was in the cloud from the beginning. But if you look at what's going on with InsuranceSuite, we're having our first experience with InsuranceSuite in the cloud on the commercial direct projects that you just heard about. We're also beginning to work doing development on our core insurance suite platforms from the personal lines, commercial lines and claims transformation in the cloud. And we'll take the learnings from those to figure out what to do with production. But if we could even move development and test, when you look at the size of these projects, we have massive development teams in multiple locations. We have a huge amount of integration testing that needs to be done. So we have a tremendous investment in infrastructure for development and test environments. Just getting that to the cloud could be very helpful to us, could lower our costs. I mean today, we put all those environments in and provision them and they get used part of the time. In the cloud, we can turn them on when the developers are using them, turn them off and not pay for them when we don't. And in addition to that, there are just things that the developers can do without talking to infrastructure, the software enablement in AWS as such that they can basically turn things up, experiment with it, try innovations that they wouldn't do in the current on prem dev test world. Long term, I expect that we will get all of our production insurance fleet to cloud, but that's going to take a while. We've already invested in the infrastructure, so we own it. We've invested in the licenses. We have a huge business case and an awful lot running on completing those transformation programs. So we will just stage the movement of the current on prem stuff to the cloud based on a whole variety of factors and the business case behind them. So with that, I'd like to thank Guidewire for the great partnership and for inviting me today and I'd be happy to answer any questions. Thanks, Mike. I guess, 3 very different questions. The SMB initiative that you guys are doing, what's interesting about that is it seems like Guidewire is going to have the ability to then take it to the State Farms of the world and your competitors. What like what drove that partnership? And do you are there any safeguards for you? Number 2, markets are probably prepped you for this question, but they talk about Guy Wert talks about cloud and their ability to charge a vendor twice or 3 times as much as if you're taking a term license on premise, does that I'm sorry, Steve. Say that last part again. So in other words, you're paying $1 which is probably more than that for in the year. The idea is to pay $2 or $3 in a cloud environment. Does that make sense? And then lastly, you guys have a big life insurance business. What is there any did you guys talk about Skywire about getting into that or what do you use for your life insurance space? So 3 very different questions, but Yes. Yes. All right. I'll try all 3. First, on the digital small business or commercial direct initiative, we did negotiate some kind of first mover rights that at least prevent the competitors we would care about the most from implementing right away. That doesn't last forever. But as the number one carrier, we actually think we have already an advantage just in terms of our customer base, our brand, our data and the like. And first movers always get additional advantage. So in the long run, we believe and the final thing is if you look at the DSP tools, they're great tools to personalize a fully digital experience for small businesses. We have the business insight and knowledge and expertise to be able to do that, which a lot of the startups, for example, would not. So we believe that we can be first to market with a better offering and that if other carriers get that same tool set a little bit later, they would eventually get there anyway if they were seriously interested in going after that segment. Is that answered on that one? Okay. Second question on cloud economics. If we were going to pay $3 for what we could pay $1 for on prem, I guarantee you we would not go there regardless of what everybody is saying about innovation or speed or agility. I don't think that's what's really going to happen. I mean, if you take a look at it, the money that Guidewire is saying takes them from $1 to $2 or $1 to 3 dollars just to basically do services that we otherwise have to do ourselves. And so my hope and expectation is that they're going to be able to double or triple the revenue in that space, do it profitably, and I'm still going to get a better solution for the same or less money that I'm paying today. Well, so if you just take an example, one of the things that's pretty expensive is going through major version upgrades. It's disruptive. It's expensive. It's hard to get business to want to do it because in the short run, like one release, you don't get that much for it, but you still have to go through all the disruption. If you wait multiple releases, it becomes this insurmountable object. And it's just very hard for most IT organizations to stay current with packaged software. And just things like Guidewire doing that for all of their InsuranceSuite cloud customers, they should get very good at doing it. They should be able to do it more often, more seamlessly, less expensive in a less disruptive way for us. So those things that they were talking about in terms of upgrades, application management and that kind of thing, I think we're okay at it. But if somebody was doing that many, many times more often than us and they know their product even better, they should be able to do it faster, better, cheaper, whether it's multi tenant or single tenant. Final on life insurance, Guidewire did not have an offering. We have a transformation going on in our Life business as well. It's part of the reason I have gray hair and had to stop after 15 years, we're doing so many of these. But we actually have multiple older Life platforms and there is a mandate to move to new products with new mortality tables and new accounting codes and that kind of stuff. So we're going to have to redo essentially all of our Life products in market, and we didn't want to do it on those old platforms. So we have a major investment to put into the Life platform and move all of our Life products, at least new for sale Life products, not all of the legacy onto that platform. And the platform we chose was the Oracle OIPA, Oracle Insurance Policy Administration, I think it's called, but that platform. If Guidewire came out with a great life insurance product tomorrow after spending 100 of 1,000,000 of dollars and having all new business processes and products on that platform. For us, it wouldn't make sense for other customers that haven't gone that haven't yet made that kind of investment in mind. Hi, Mike. Thanks for doing this. So you mentioned trying to get all processes, all IT onto a single common platform. You obviously showed that you have on premise and then you have Guidewire Cloud and then InsuranceNow. On the Insurance cloud, it sounds like you guys are going to migrate to on premise at some point to that direction. How should we think about the InsuranceNow versus the Guidewire cloud component? Is InsuranceNow something you guys will graduate off of? Or will that forever kind of stay on the specialized brands that you guys have pushed out there? Yes. So we would not move off of insurance now for those specialty businesses that we've moved on unless we had to. If you think about one of the differences between InsuranceNow and InsuranceSuite is InsuranceSuite was really built for large scale Tier 1 carriers. And so if we ever reach the point where kind of InsuranceSuite couldn't handle the weight in the growth, but I don't see that being very likely. And hopefully, it will continue to improve its ability to scale up. In terms of one platform, it's really kind of by business area, right? So we wouldn't put pet excess and surplus, standard commercial lines, standard personal lines on all one. But all light businesses, we want to have on common platforms. Does that answer your question? Hi. I think over here to your left. Hi. Hi. Thanks for doing this. I'm Michael Turrin with Deutsche Bank. Just wondering if you could talk a bit more about what drove your decision to use Guidewire for some of these processes beyond claims transformation, personal commercial lines, the use of insurance now for some of the specialty businesses? How much of it was Nationwide's core vision versus what you've seen from the relationship working with Guidewire prior to versus some of their efforts to sort of help keep you aware of what they've been working on as well? Yes. Good question. We have treated every one of the major initiatives or investments, we typically call them transformation programs, as an independent business case and as an independent look at what is the best solution that's out there. At the time that we started the relationship with Guidewire, it was really before our 1 company, 1 brand strategy. So we were originally buying it for Nationwide and Allied. We hadn't even bought a Harley's pull yet. We didn't know if we were going to use it for ag or access and surplus or the other areas that we subsequently used it for. So that was a very successful program for us, and we got the whole business there. We knew we needed to do something on the policy front because we had 3 legacy systems, none of which were in great shape. And literally, I used to talk to people when people would complain about why is it so expensive and why does it take so long to do this digital experience for the customer? It's because I have to do it 3 times instead of once and I'm doing it on a technology that was never built for it. And in some cases, no matter how hard I try, I just can't fake it, right? So if I'm on batch COBOL systems, I can't provide a common real time experience across channels or technologies. So we knew we needed to do something and we looked at what was in the marketplace and we also looked at what it would take to either modernize or build from scratch our own solution. And quite frankly, there was a lot of debate on whether we should put our eggs in the Guidewire basket at that time. I had multiple people both inside the company and outside tell me, this is stupid. You won't have your job in 2 years. And so 7 years later, I retired of my own will. But it turns out in hindsight to be a really easy decision. If you look at the record of the number of large carrier wins that Jaguar is having, I think today if I was making this decision, it was easy. At the time we made it, it was seemed a little bit riskier. But clearly, the claims experience helped us get comfortable with it. And then once we had done claims and first in line, the commercial lines decision was easy. Hi. Thanks for telling Mike. So I think I have a question on the slide where you were showing the implementation times of the project. I think it was on the personal line where you showed that starting 2017, 50% done and it will be done in 2021. So like it seems like 4 years kind of implementation time. Could we talk about why is the implementation time that long? Yes. I've been asked that question many times by our Board. And I will try to give you a good answer. They didn't usually like it. But policy systems sit at the core of everything you do. It interfaces to service, to billing, to distribution. I mean, it's kind of the center of what of my peers calls the Gordian Knot of Complex Legacy IT Systems. So trying to pull that out and replace it with something new and then do all that integration work is a tremendous amount of heavy lifting. I mean, we just have tens and hundreds of difficult integrations that need to get done. And then on top of that, you need to do all the data conversions. And in our case, it was from multiple different legacy systems and multiple different legacy You're reengineering a tremendous number of core business processes. So you have to work with the business and get all of that engineered and then configure it in the Guidewire, so that that works. And then you have to go state by state and get approval to implement the new products. And you have to work with your distribution partners and your customers. In our case, since we went with a new product, basically, the way it's experienced by the customer is we're canceling your old product as the regulators make us say that and we're trying to sell you on a new product. And so just when you have millions of customers trying to get everybody through that process takes a tremendous amount of time and effort and work. So long winded way of saying, it's really hard on the business side, it's really hard on the technology side. And basically took about probably 2 years to get one product in one state. Then it took another year to get all products in one state. And then once that's done, you've kind of got the hard part behind you from a technology standpoint. But the business side of rolling it out against all of those geographies and across all those customers and distribution partners is still a lot of work. All right. Thank you. Mike, that was a great session. Thank you very much for your faith in us on behalf of the Guidewire team, and congratulations on what you've accomplished, you and the team, at Nationwide. Our closing session today is hosted by Curtis Smith, our CFO. Great. Thank you for joining us today. We really appreciate you taking the time to better understand Guidewire and its financials. Also special thanks to the Guidewire team members and all of their work in putting together the materials to make this day happen. Really appreciate it. I'm Curtis Smith, Guidewire's CFO. I'll be joined by Jeff Cooper, VP of Finance and together we're going to present the financial update and respond to your questions at the end. So there are 4 key things that we're going to talk about today and they set the roadmap for our presentation. Understanding ASC 606, the impact on revenue primarily due to our term contracts and also the impact on commissions. Cloud driving business model changes, the transformational shift, expanding the TAM that we've been talking about, the subscription revenue growth and the concomitant impact on margin. And then cloud driving sort of a new division of labor with our system integration system integrators than we've seen over the past year and a half with our cloud implementations. We're going to talk about some key metrics today that we have foreshadowed in earlier earnings reports and then we'll end with our target 5 year model. We note and you've heard this many times today that our cloud transition is not a 3 to 4 year project. It is a multi year opportunity and journey. And our 5 year target model is not a terminal model or value. All right. First, let's start with our favorite number 606. We've read a number of auditor reports on the topic and some software research reports as well. And noted one from Stifel that was titled ASC 606, bringing accounting confusion to software. And also one from Goldman Sachs, deep dive, ASC 606 impact on SMID software. We expect a somewhat messy transition period. We've been discussing 606 with you over the past 2 years and we're hoping to bring some clarity now to its impact on our 2019 financials. We'll put 3 slides together today to kind of go over the impact of 606. First, a summary slide. You've seen tables like this before that indicate the impact on 605 and 606. I will also use an example that illustrates the impact on our 2019 numbers and why we chose to do these remediations. And then finally, we'll talk a little bit about the impact on accounting for the commissions. All right. The summary table to begin with. And if you start at the left of it and come over, we looked at contract type. And again, the contract that's most that has the biggest impact for us in 606 is a term license. And what we've noted here too is a multi year term license deal either 1 plus year or 2 plus. Under ASC 606, the treatment an annual fee upfront at the earlier of due date or cash collection. Under 606 that annual fee upfront for entire initial term. So there's a multi year term license you get all of it in year 1. In 606 and 605, you'll just get 1 year of it. So the fiscal 2019 revenue impact is significant for a multi year contract in a 606 world. We go down term license annual renewals, under 605, ratable revenue recognition, under 606, annual fee upfront on renewal date. The impact on our 2019 revenues, significant in 605. And then lastly, the subscription contract. Under 605 ratably ratable at specified annual fee under 606 ratable at an average of annual fee in committed term. The impact for 2019 for us is moderate and really with ramps. So annual payments, we accelerate over time. We take an average of that over the entire time period versus just looking at one period and then the ramp periods. So when we analyze then the impact of the loss to retained earnings when we implemented 606, together with the benefit we get from it, it equaled a largely neutral impact. And let me walk through that a little bit. So on the red arrow down, we went through this process of remediating almost all of our contracts so we could avoid a big loss to retained earnings. There were some that we intentionally didn't target, but it because it was too difficult to change. So some of that, those contracts were lost into retained earnings. The other big piece of that is in 2018 when we implemented the 2 plus 1 term contracts with our new contracts and new customers going forward, We got 1 year of revenue recognized, but then the 2nd year was lost into retained earnings. And that's basically what made up that lost retained earnings for 2019. Then if I look in more detail around the benefit from 606 in 2019, it's basically the same 2 +1 contracts. When we anticipate signing so many 2+1 contracts, we will get 2 full years of revenue in 2019, but then we won't get the 2nd year in 2020. So there is some benefit in 2019 to having these 2 plus 1 contracts. And it will be based on the number of 2 plus 1 contracts we end up putting in place. So we took those two things, we analyzed it, we weighed them against each other. It was largely a wash for us. There is one thing to note though on the benefit from 606, the green arrow, it will depend largely on our mix between subscription and term contracts. We've assumed a certain split. If we see a lot more term contracts with a 2 +1 structure, we'll see a bigger benefit. If we see fewer, we'll see less of a benefit. All right. Now here's an example that we're using to illustrate the impact on our revenue of 606. And what we've done here is we split the slide into 2 parts. The left hand side, we're calling the old world and that consists of fiscal 2018 prior years under a 605 standard. And on the right hand side of the slide, it's our New World or it's fiscal 2019 when we implemented 606 and then the years going forward. So if I go to the left hand side of it, then we're looking at one example of a 4 year term license contract that generates $1,000,000 a year in revenue. It renews in year 5 in 2021 and the start date for it is in Q4, which is when the bulk of our contracts come in place. So in that scenario, in the old world, we recognize term license revenue on an annual basis in Q4 of each year based on earlier payment received or due date. And there you see it, dollars 1,000,000 in 2017, dollars 20.18, dollars 20.19 and 20. That's how it roll out. At renewal in 2021, in the 5th year, we begin ratable revenue recognition because Novus OE. That's how it looks that contract in a 605 old world. We take that same contract under capital A there and we don't remediate it. So it's exact same contract and then we bring that over the right side of the table into our new world of 606. So it's that top piece there. $17,000,000 $18,000,000 of revenue gets recognized the same way it was in the past. Under a 606 world though, on remediated, those 2 out years of the term are lost into retained earnings. So there's a $2,000,000 negative impact to our revenue if we had not remediated that 4 year term contract. That's one of the reasons we went out and spent a lot of time over the last 2 plus years targeting and successfully remediating over 300 of our contracts with our customers to avoid that big loss of revenue into that retained earnings. So now if I go back all the way down to B, same 4 year term contract that we then remediate so that the initial term ends in fiscal 2018 and then it goes to automatic renewals in 2019. So then we look at that same that remediated now contract, 4 year term contract into our New World and we start with it under 606 remediated. Because we remediated it and now it's on an annual renewal basis under 606, we get the full year in 2019 and then we'll get the full year again in 2020 in the Q4 when it renewals. So recognized term license renewal on an annual basis in Q4 of each year going forward 2019 2020. That's comparable to that same contract in a 605 world. When we look at that same remediated 4 year term contract and this is the bottom B example here in the New World, the 2017 2018 revenue gets recognized as it did in all scenarios here. But then in fiscal 2019, under 605, we recognize the term license revenue on a rattle basis, in this case beginning in Q4, which are where many of our contracts are signed. And so we only end up getting 1 quarter of that rattle recognized revenue in 2019 versus the full amount that we'd get in a 606 world right above. And so that's why we say that's not comparable, not comparable to the 606 and not comparable to 605 with that same contract. So there is a significant benefit of remediating contracts and not losing revenue loss to retained earnings. That's part of the story here. The other part and I think it's equally important too, so we could make our 605 number comparable. Revenue under 605 in the new world, as we've noted here, is not comparable to 605 in the old world. And therefore, when we talked about this earnings, we said all of our guidance would be on a 606 basis going forward. All right. One more 606 slide. The other impact of 606 and I think this is one that's generally well understood is the commission's expense impact. And the idea here in general is to match up the cost to obtain a contract, commissions cost, which should be the biggest piece of that with the revenue recognition of that same contract. And there's one we've assumed a 5 year amortization period. That was one of the key piece of analysis that we did in putting this together. And there's one anomaly that we just point out here. For our term licenses, if you look at that commission type here, and we're saying the 2 plus one contract, right, 2 year initial term plus the annual renewal. Under 605 recognized as incurred, In this new standard, license commission costs will be recognized 40% in year 1 because we see 2 years of revenue recognized in year 1. So then we get 40% of the commission there. In year 2, 0% of that commission is expensed. In year 3%, 4%, and 5%, 20%. So that's one thing to note if we have a term license with a 2+1 contract that we will sign in 2019. For subscription, it's recognized as incurred under 605 and under 606 recognized ratably over the 5 year amortization period. What we noted in earnings is that there will be a benefit of this treatment of our commissions expense, capitalizing it and then amortizing it back in 2019. And we said that, that benefit to our 2019 financials would approximate about a 1% increase in our operating margin. All right. That's 606. Let's move on to cloud driving business model changes. So as we've noted in the past, subscription as a percent of new sales has been increasing. We noted where we were in 2018, this is not drawn to scale And then our anticipated range of 40% to 60% in 2019, and we expect that to grow over time as we move out over the next 5 years. There's an impact of that move to more subscription revenue, to more cloud based revenue on our license and other margin. We'll try to illustrate it here. On the left hand side of that, these are the statistics we've talked about before, subscription as a percent of license and other revenue, where we were in 2018, the midpoint of the guidance range we gave for 2019. The license and other gross margin on the other side of this slide in 17% 97% that subscription grew. In 2018 that came down. And as it grows again in 2019, we expect that gross margin to naturally come down as it costs more for us to maintain and support a cloud product than it does for us to support a term license. The benefit, as we've noted though, is there's a pricing multiple that we get and that's one of the reasons why it makes sense for us to keep taking on more subscription revenue even though the margin in the short term is coming down. There is a pricing benefit for us selling the cloud license versus the term. The other impact of the cloud business model change is on services. And we're showing you the long history here of our services as a percent or our mix, our services as a percent of total revenue. And you can see it elevated in prior periods. It came down to that 30% 34% level in 2016 and 2017. And then a bump back up to 40% plus in 2018 for some of the reasons we've noted and we've talked about in prior earnings calls. We guided for that growth rate to come down in 2019. Our expectation will share more about that, that will come down more and more as a percent of revenue closer to that 30% to 34%, 5% that we've seen historically in the past. And we'll talk about some of the things we're doing to drive that in the next couple of slides. This is one of the impacts of the short term. There's been more services revenue as our attach rates have been higher with some of our cloud implementations and have required more attach of our service. Our expectation is going forward though that, that will come down over time. Okay. Now we'll talk about some key metrics and I will invite Jeff Cooper, our VP of Finance to come up and walk us through those slides. All right. Thanks, Curtis. My name is Jeff Cooper. I'm the VP Finance. I joined Guidewire just under a year ago. My background is a mix of Investment Banking and Finance operating roles. And I had distinct pleasure of working on Guidewire's IPO when I was on the Investment Banking side. And I distinctly recall sitting in a conference room with the IPO working group talking through key metrics for the business and which metrics would be instructive for investors to consider. And one of those metrics, as you all probably know, is 4 quarter recurring revenue. That was a good proxy for ARR at the time of the IPO and we and as 606 has a pretty significant impact on our stated financials, 4 quarter recurring revenue is no longer a great proxy for annual recurring revenue. And so we're going to introduce some new metrics today, and I will walk you through those. So first is subscription, new sales as a percent of total new sales. And the first two metrics are transitional metrics. And we're highlighting those as transitional because we think that there's value while we're in the early stages of the cloud transition to these metrics, but we do not intend to provide this on an ongoing basis. So you've heard us talk about subscription new sales as a percent of total new sales, and we announced on our earnings call that our outlook for that would be between 40% 60%. I do want to take a moment just to make sure people understand the metric new sales. Total new sales is an internal measure of the annual average contract value over a 5 year period. So it takes some credit for future ramp periods into what is an internal bookings metric. It also adjusts down perpetual licenses into what would be an ARR equivalent to Guidewire. So I want to make sure people understand the both the numerator and the denominator for this metric, and we will continue to update everyone on this as we work through the year. The second metric we thought was instructive was InsuranceSuite cloud deals, and we said on the earnings call that we expected between 48. This could include a new core module sold to an existing InsuranceSuite cloud customer who did not purchase the full suite previously. So this is cloud deals, not cloud customers. And to date, of the 4 cloud IS InsuranceSuite cloud customers announced, 3 have purchased the full suite, the 4th purchased the full Suite in a piecemeal fashion, and so 4 cloud customers via 5 InsuranceSuite Cloud deals. Now moving to the go forward metrics. 1st is subscription revenue. We committed to breaking that out once it reached 10% of license and other, and we expect it to reach 10% of license and other this year. We will treat our subscription revenue disclosure very similar to how we disclose perpetual licenses. So it won't be on our stated financials, but we will talk about it on the earnings call and it will be in the notes of our financials. For the year, we guided to a range of $48,000,000 to 54,000,000 At the midpoint, that would be around 75% year over year growth. And last year, we grew subscription revenue over 3.50%. And then finally, annual recurring revenue. This is a replacement metric to 4 quarter recurring revenue, and we're excited to announce that today and committed to providing that an update on that on an annual basis moving forward. So ARR. We define ARR as the annualized amount at the end of the period for all active term licenses, subscription agreements, maintenance contracts and hosting contracts. It does not include the impact of perpetual licenses, but does include maintenance associated with perpetual licenses. And it obviously does not include the Last year, ARR grew 20%, which had some impact of inorganic ARR from the SCIENCE acquisition, but we do not intend to break out organic and inorganic ARR as we move forward. We measure ARR in ramped agreements tied to the invoicing schedule. So if payments ramp over time, our ARR will also ramp over time. Please note this is different than revenue recognition under 606, which would recognize the average amount over the contracted period. Our definition of ARR is a bit more conservative. So as an example, if a customer with a 3 year contract grows from $1,000,000 in year 1 to $2,000,000 in year 2 to $3,000,000 in year 3. During the 1st year of this contract, ARR would be 1,000,000 dollars Reported subscription revenue would be $2,000,000 because we average over the contract period. ARR growth is sensitive to a number of factors, such as the percentage of our deals sold in a ramp context and the steepness of the slope of a ramp. If we see either of these measures increase year over year, we would expect to experience a negative impact on ARR growth. FY 2019, we modeled an increase in the number of ramps over FY 2018. And in our early experience with the cloud, we have seen a significant number of the cloud deals in a ramp format. So we are modeling an increase in the number of ramp transactions that we sell in this year. Additionally, ARR can be negatively impacted by ARR churn, which we do not intend to disclose, but ARR churn has been negligible over the last couple of years. For FY 2019, we expect ARR growth of 15% to 18%. We have not assumed any M and A in this growth rate. And additionally, I wanted to note that ARR does include some lower growth components of revenue such as maintenance and hosting. So with that, I will turn it back to Curtis. All right. Now to the 4th theme that we wanted to share with you today, and that is the target 5 year model. Before I get into the model, I want to review our current financial profile, where we are in 2019 or at least the guidance we provided in 2019 and what led to that or how we got there. Then I'll share some of the drivers around how we're going from where we are today and how we get to that 5 year target that we've been talking about. And then finally, I'll share with you that 5 year target model and walk you through some of the components of it. Okay. So to start with where we are today and some of the drivers that got us to 2019. And as we've talked about before, to start off the top there, subscription as a percent of new sales is increasing. Subscription as a percent of license and other revenue is increasing and we expect both of those to increase over time. And the natural consequence of those increases is the lower gross margin that we're showing there coming from 69% to 62% and then based on our guidance at 60% in fiscal 2019. The other thing we note on the services side of it, services was elevated in 2018 for significant reasons. We expect to see that to continue to come down over time slightly below where at least the projection is slightly to be below where it was in 2018 in fiscal 2019. GMs, I noted, lower due to natural impact of more subscription revenue and to some extent because of the increased services in the revenue mix still at a fairly high level with the lower gross margin associated with it. OM is driven by lower GM and by some of the investments that we've talked about earlier and referenced again today. Some of the investment in R and D spend that we made in 2018 and will be fully annualized in 2019 and then the additional investment that we talked about into the ADS business. We also note some of the efficiencies that we've seen in OpEx over time. Sales and marketing is not shown here, but if you go back to 2018, sales and marketing was 18% of revenue in fiscal 2016 and you can see how that's come down to 15% of revenue in 2018. We expect some of those same efficiencies in both R and D and G and A going forward. I'll note our free cash flow margin and the association with our operating margin. We said in the short term, free cash flow is going to be a better indicator with some of the accounting impacts on our operating income. In the longer term, we expect that our free cash flow margin will correlate better with our operating margin. Given some of those puts and takes from the accounting side of things, we'll largely be neutralized. Okay. That's where we are. Now what are we doing to get to where we want to be in our 5 year target model? So here are the key drivers that we are pointing to. You've heard a lot of these already in some of the presentations that have been made both on the product side and then also on the operations side from Priscilla. Let's start with new sales. Our expectation is that we continue to add more and more subscription. Right now or in fiscal 2018, our subscription as a percent of new sales was 36%. We expect that to grow to 80% plus in fiscal 2023 or that's the target model. Also on the sales side, as we've noted, there's a tremendous opportunity for us to expand within our initial customer within our existing customer base and to migrate on premise customers to the cloud. The biggest box here is cloud operations and it's going to be one of the biggest drivers of expanding our margin going forward. We've noted some of the key things that we'll be focused on over that 5 year period and we've already initiated standardized contract terms to optimize margin, maximize deal sizes to absorb fixed costs, drive standardization and conformance to drive cost efficiencies. We see this on the product side as we've talked about some of these Balance offshore Balance offshore and onshore resources and streamline processes via automation tooling. There is a plan in place. These things won't just happen in 1 year period. It will be a multiyear period. Those are some of the key drivers that we expect to drive up our operating margin, in particular, our subscription or cloud gross margin. Services is also a big piece of the plan going forward. We talked about this a little bit in earnings, but we intend to mobilize our SIs to own a larger share of the cloud implementations than they have over the past year and a half. Priscilla talked a lot about the plan in place to do that and the path forward on that front. Decreased services as a percent of revenue were up to 40%, 40% plus right now. We're targeting 30% in 5 years from now, which has been consistent with that mix that we've seen in the past. And then drive services margin to 20%. We've seen that a couple of years ago. This past year without the one time charge we had, we would have been at 19%. So there's some incremental things we'll be doing there both on the insurance suite front and also on the INow front to drive that services margin going forward over the next 5 years and targeting that 20% margin. And then on the OpEx side, drive down expense as a percent of total revenue. We've had some success in doing that on the sales and marketing side of it. We'll continue to focus on those efficiencies and do the same thing on the G and A side of it too, Many of which should come after we get through this pretty heavy period of essentially installing some pretty big systems and at least for 1 year closing 2 different sets of books. Okay. So we talked about where we are in 2018 2019. The drivers that we're going to put in place, the plan in place we have to sort of drive that expansion and the margin, the profitability expansion and the growth into our 5 year target model. And now here's the last part of it then, the actual 5 year target. And I know we've said this a number of times, but one emphasizes the target, not guidance. Important to note, this cloud transition, as we've said many times, is not a couple of year project. It is a 5 to 10 plus year journey for us. And this represents a 5 year target and not the terminal model or the terminal value. On the subscription as a percent of new sales, you can see up at the top there, we're targeting 80% from the sort of 40 to 60% range we have currently. On the sales growth, we're assuming 50% of license and other revenue is cloud and expect maintenance and services growth to decline, while targeting a license and subscription growth rate of 20% over that time period. As we noted before, services expectation is to bring that down from 40% to 30% based on some of the things we talked about earlier. Gross margin gets overall gross margin gets up to that 65% to 67% range. Research and development comes down from 22% to 2017% to 2019%. In the short term, we've made some pretty significant investments in R and D in both 2018 and will continue to happen to roll over into 2019. We expect to be able to leverage that in the early years of 2020, but then incrementally expand our investment in R and D going forward. So when you look at the absolute dollar amounts going up, even though that percent as a percent of revenue, it's coming down. The other thing, sales and marketing, we expect efficiencies there. We've seen that historically where it went from 18 percent of revenue and 16% to 15% in 2018. We expect that to come down to that 12% to 14% range. And then similar efficiencies on the G and A front from the 8% and where we are in 2018 to the 6% of the midpoint of the range that we're targeting for fiscal year 2023. All that lands us at an operating margin of 28% to 30% and a free cash flow margin at 29% to 33%. As I noted before, earlier in the short term, operating margin didn't correlate well with the free cash flow margin because of some of the accounting impacts. In the longer term, we expect those accounting impacts to largely offset each other and that operating margin is a good proxy for free cash flow margin. The other thing that I would note here on the growth part of the target is that while we understand a cloud inflection point is possible, we have not modeled that. We are assuming a steady rate of customer conversion to the cloud and steady rate of new cloud customers going forward. All right. So in summary, the 2 key things impacting our financials in 2019 and then going forward are 606 and cloud. 606, we believe is a short term impact and hopefully will get clearer and be less relevant as we continue to progress through 2019. Cloud is the bigger opportunity. And as Marcus has mentioned, it's an all hands on deck priority for Guidewire this year and going forward on this multiyear journey. And when I think back just personally on our cloud readiness just 6 months ago when I joined and compare it to now, it's clear to me we've taken a huge step forward. And there are many steps for us to take in this multiyear journey as we go down this path. So with that, I'd like to invite Jeff back up to the stage here and we'll be happy to respond to questions you have. But also, we know that we may not get to all of them today and we'll be happy to schedule some follow ups with you next week either on the phone or in person, which we've already scheduled. Sterling? Sterling Auty from JPMorgan. Actually, if you could put the 5 year model back up, I think we're all going to ask questions around it. So two questions, one here and one on the ARR. The first one, not to be nitpicky, but I know you're saying it's not guidance, but when you're saying it's a 5 year target, is this 2023, 2024? Because we're all going to do the same thing. We're going to take your free cash flow margin guide that's there, multiply times the revenue, come up with a free cash flow number, throw our own multiple on it, discount it back and say, how does that equate to the stock? So I think it's going to be meaningful in terms of where that is and I have one follow-up. Yes. We noted it, 2023, it's 5 years, 2019, 2020, 2021, 2022, 2023. All right. Perfect. So that's on that point. So we and we thought both of those were important, both the year, the revenue, the approximate revenue we're expecting there at 1.3% and then the margin profile that we've noted. Very helpful. And again, we know it's not guidance and we hope that you're going to do better than that. And I think that's an important point too. Sorry, sorry to sorry. I think it's important and we're trying to notice that this is not a terminal model for us, right? We understand that it's in 5 years from now, here's what we're targeting, but we expect there will be growth going forward. We're only at 50% of our total revenue subscription facing its target, right? We expect there to be growth going forward and some additional efficiencies on the OpEx side of things too. It's just where we're pointing to in 5 years, but this is a 5 to 10 year journey as we've talked about. Perfect. And then the one follow-up is around the ARR metric that you put up and what you're guiding to. Can you help us with a little bit of the detail behind it in terms of the impact from the ramp deals, maybe quantifying it? Because we're all used to seeing that 4 quarter rolling number that was well above 20%. Heck, it was about 30% for a number of years. So some immediate reaction getting is, boy, I'm surprised it wasn't a 20% guide. So understanding what those impacts are and that doesn't maybe fully reflect the power of ARR as it grows going forward would be helpful. Yes, sure. We haven't I don't think we're prepared to quantify the impact of ramps. As we have modeled that, it is quite sensitive to the ramps. That is one of the largest sensitivities in the overall ARR analysis. We can consider at some point in time thinking through ARR backlog that is tied to some of those ramps. I'm not in a position to disclose that here, but there's a number of factors that influence ARR. There's other things such as kind of hosting revenue, which we felt was more appropriate in our ARR. It's tied to product revenue that's related to one of the acquisitions that we did that currently sits in our professional services. That's not a growing component of ARR. That's just kind of trailing off ARR. But there are a number of factors that went into that guide. I think I'd add to that too that we're putting out this new metric for the first time, right? We don't have years of operating experience around it too, right? So we're taking that approach when we put that number out there to say, hey, this is the first time it's out here. We'll continue to get more experience with it every quarter where we're in a place where, hey, it's more part of kind of our operating cadence where it hasn't been in the past. All right. Thanks, guys. I really appreciate the detail. Rishi Jewelliere at D. A. Davidson. Two quick questions. First, going back to the target model, if I compare the target model that you're laying out versus your prior target model, Sales and marketing is lower under the new model versus the 60% to 8% in the past and same on the G and A side. So stripping aside 606 and the benefit you're getting on sales and marketing, what's leading the greater leverage on both of those lines as a percentage of revenue relative to your prior model? And then on the ARR side, I can see you put the disclaimer there that you can't calculate it from the financial statements because you know we're going to try to do that as soon as we get home. But if we were to try to do that historically, how wildly off would we be from that? All right. Thanks. Let me do the long term model question and Jeff will pick up the ARR. So on the long term model, 2 years ago, we put out a model and then we pulled it back because we realized as we're moving into the cloud, it's going to completely change how we were initially thinking about that margin profile going forward. And so we pulled that long term model off and we said, hey, wait, once we get a little bit more experience with this transition to the cloud and better understanding of its impact on our model going forward, then we'll share with you that 5 year model, which we shared today. Specifically on the sales and marketing, so it's not a good comparable, right? So look at that one and then compare it to this one, right? It just didn't assume the cloud transition back then. To your question around sales and marketing, I think even 2 years ago, right? As I've noted in 2016, we saw sales and marketing as 18% of revenue. We're now seeing it at 15% or lower, currently just over a 3 year time period. So there's some nice operating history that gives us some comfort that, that ability to continue to leverage that sales and marketing expense going forward is out there. I think the other key part of it, now this existed back then and it still exists today, but we just have more experience with it now on the go to market side of things is we have a limited number of customers we're going after, 1500, right? And so we many of those are already customers, right? So it's even a smaller number that we're going after. Our sales force has M expense should be able to be leveraged given that sort of more defined set of potential new customers that are out there. And then on the ARR question, look, you can get pretty close to calculating ARR based off of our historical financials. You would need the breakout of subscription revenue in order to annualize that number, which we are now providing. The real complexity is moving forward. So under 606, where we have multiyear revenue recognition for new term licenses, ARR will normalize that down to an annual amount. And so that's kind of where a lot of the complexity lies moving forward. Historically, 4 quarters recurring revenue was a good proxy for ARR. You had to normalize for things like early pays and adjust out perpetual licenses. But you could get pretty close. It's just going to get more and more complicated. And as the subscription piece becomes a bigger part of the business, we wanted to give that clarity. And there was another part of your question, I mean, it's the G and A piece of it too. So the leverage we expect there too. And I don't know that we anticipated this 2 years ago, but you probably did. There's a significant 2 new systems that we've deployed, that have a lot of expenses associated with them that bring that number to the 8% too. And at least for 2019 because of the modified retrospective 606 that we're doing, we will be closing against $0.02 of books for a full year under 606 and of 605 and reporting under both, right? So that is at least in the short term elevating that number. But we expect to absolutely be able to drive efficiencies out of that going forward. Okay. Right here, Justin Berg of Luebbers. I guess a few questions and I apologize if you hit this, Curtis. But in terms of the linearity over the next 5 years, I mean, is it should we expect it to be pretty consistent after this year at 300 basis points, 400 basis points? Or is it is that as good of a guess as any in terms of how we get to the 5 year? And then the gross margin assumptions on cloud, you guys have talked about 60 to 65. There's this pretty big variance of what you've talked about for cloud pricing 2x to 3x, which I'm assuming has a pretty big impact on margins. So how do you kind of what gives you the confidence? And is that the right assumption? Is that mid-60s or 60% -plus gross margin on cloud? Yes. So a year ago, we put out on the gross margin on the subscription. A year ago, we put out a slide in Analyst Day that talked about kind of where we are with a very low cloud gross margin. And that over time and with some scale that we expected that to get to 65% plus. So the way we have modeled that in is, yes, we are expecting and it's a low gross margin right now. We are expecting it by 2023 to be at 65% plus on the cloud gross margin side of things. And what's driving it though isn't just one variable like the number of IS Cloud customers or scale, but all of those things that we talked about in that cloud operations bullet point and the things that Priscilla referenced in her presentation too And that Ali represented too, right? The standardization, the microservices, right, making it less costly for us to maintain cloud products going forward. That's multiyear, but those are all key parts, scale and all these other operational things and product things that will lead to us to be able to bring the margin cloud margin where it is today up to that 65% plus, which we expect to be there by 2023. That's our target. So I think maybe this is what you were referencing, but we didn't assume some cloud inflection point. Like at some point, there's going to be a big uptake and the demand is going to go through the roof, right? We assume just a steady rate of conversion of existing on prem customers to cloud over time and the same sort of steady rate of new cloud customers coming in. So it's not like it bumps up like this, but just a steady rate of that over time to get us to the numbers we talked about in the 5 year model. One other thing to add to that is, when do we expect to bottom out from a margin perspective and start to see that margin progression as we march towards the long term model. I think that's a hard thing for us to answer. It depends on hiring plans. It depends on a variety of things. But it could be next year where we see margins bottom out and then start marching back up towards the long term goal. Does that make sense? It possibly could be. And there's it depends on hiring plans and a variety of factors and kind of all, but that there is a possibility. Curtis and Jeff, two questions. 1, the I was just curious whether we would on kind of GAAP margins, so kind of including SBC, which is a real expense. How do you expect to see kind of similar operating leverage on SBC as a percentage of revenues or however you guys look at it? And so any clarity on that? And then just to clarify, so the 5 year target model that you have right now that has existing customers converting to cloud, some assumption underlying that? And would you say that is that like the majority or minority or roughly half? How what's the assumption behind that? So on the first one, SBC, we don't expect changes to our SBC going forward, but we really didn't spend a lot of time on the GAAP side of things. But it's really non GAAP you've seen here, right? So on the second part, we're not sharing those specific conversion rates. We did look at 2019. We put our guidance together there and assumed conversion rates, new customers coming in on iNow, on InsuranceSuite Cloud, a number of those that are going to be converting over from existing. And then we maintain that conversion rate to be consistent without any sort of big fluctuations forward. But we haven't shared those rates and we don't intend to. Hey guys, Brad Sills over here. Okay, Brad. Yes. Thanks. I think in the past, you guys have kind of endorsed 20% as kind of the true growth rate for the company, and it was easy before the transition to see that in term license. Now you and then last year, you provided that bridge for the subscription mix to get us to what that normalized would look like. What's your view? Has that changed at all the true growth rate of the company, would you say it's 20%, we should not be looking at ARR that 15% to 18% with upside gets us there? Or how should we think about just what your view is on the underlying growth of the business? Yes, a couple of things. So one of the things we did for our long term model, overall growth rate is impacted by services coming down, right? That growth rate goes from 50% to much, much lower than that and the overall revenue number growth rate is going to be impacted by that. We also see the same thing happening on maintenance, right? We expect that to get smaller and smaller over time and eventually become part of the overall subscription, right? And so that's factored into how we at least think about the growth rate here. The other thing we did note though is that we are assuming and continue to target a 20% growth rate for license and subscription revenue over that time period. So that is still a stated target for us and the goal for the 2023 model. Great. Thanks. And then one more if I may. You've seen a nice acceleration in Europe. I know that's been an area of investment, building the content out so that you're competitive in those markets, the compliance content in different countries. Do you feel like you're there? Are you kind of hitting a tipping point in Europe? Is this part of the new norm? How early are we in the adoption cycle in Europe? Well, this year was a big year for Europe, right? It kind of been chugging along for several years and it was the breakout year from new customers, new deals, our country coverage. And so with that bump, we don't see expect similar year over year growth rate, but we do expect us to be able to maintain that higher level of activity going forward here. And so we're optimistic about that. For 2019, it's one of our stated 3 or 4 priorities for a company and we'll be very, very focused on Europe in 2019. Chris, I think we have to. Okay. All right. Thank you, everyone. Really appreciate you spending some time with us today. So in closing, thanks for being with us. We're going to have a cocktail reception. Also as a reminder, all of the presentations will be up on the IR site at 5 p. M, so in a few minutes. Please fill out the evaluation surveys, and thanks for being with us today.

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