I get music. Nice. Welcome everybody. Welcome to San Mateo. Welcome to Guidewire's headquarters, and welcome to the 2022 Guidewire Analyst Day. It's great to see a room full of people. I think we might have 50 or 60 investors or analysts in the room. I know some of you have come pretty far, maybe Boston, New York, and we appreciate you guys making the journey. I don't think we have anyone international, but we'll blame that on the strong dollar. I think we have another 70 on the webcast, so it's a good turnout. It's gonna be a good day. Can we share the pictures again? Well, you saw the cast of characters. You're gonna have the same crew as last year, but we've added John Mullen, who joined about 8 months ago.
He'll offer a perspective that I think will be great for you to hear. The agenda today, we'll start with Mike Rosenbaum, our CEO, who will talk about property casualty insurance, cloud transformation, and profitable growth. Long title, but good stuff. After that, Diego Devalle will speak about delivering the Guidewire Cloud Platform, and then you'll have John come in and offer his perspective on customer success. We'll take a break. We'll come back and Christina Colby, our Chief Customer Officer, will lead a Q&A to give you sort of a partner and customer perspective on the Guidewire Cloud Platform, which I think will really be valuable. Then, we'll finish up the presentation portion with Jeff, who will take you through the Guidewire model.
When we do get to the Q&A portion, for those on the webcast, just submit your question through the Q&A link on the Zoom link, and we'll do our best to get to those. I think we have about 45 minutes budgeted for that. When we're done with that, we'll go up to the roof and enjoy the weather and take in the San Mateo skyline, okay? With that, I will hand it off to Mike.
Thank you, Alex. Okay. Hey, welcome everybody. Super great to be here in person. Fourth one of these for me, first one in person, and then we did a couple of these in our COVID-related metaverse, and that was fun, but it is really nice to see people in real life and have an opportunity to engage with the management team and take your questions and talk to you up on the roof afterwards. So thanks very much for coming. I also wanna say thanks to the folks joining online. We'll take your questions like Alex said. For the folks watching the recording, we welcome you too whenever you do watch it. Couple things that I wanted to mention before I get into slides.
Sort of number one is, Guidewire, you know, I think the right way to understand Guidewire right now is that we are not operating this business in sort of steady state, right? We're in the middle of a transformation. We are turning ourselves into a cloud platform, and that creates a dynamic in the business, and especially the financial measures that you all, use to assess our execution, our financial performance. There's a lot of variability in those metrics, okay? I recognize that. We recognize that. We do see a clear path, towards getting this company to more of a steady state, operating model, and we wanna give you the detail, necessary in order for you to be able to estimate when and exactly how that will play out, okay?
The other side of this is that, we've received over the past couple months, lots and lots of feedback, lots and lots of questions about how we are doing, in terms of driving margin and profitability into the business. We have worked pretty hard over the past, few months to incorporate into this presentation, I don't know if you'd say a tremendous amount of detail, but I would say right at the level of uncomfortability in terms of the amount of detail that we're providing you. Prepare yourselves, get ready, pay close attention to the slides that we show you, and we look forward to your questions.
Our intention is to provide you, more detail than we typically have about what's going on behind the scenes at Guidewire so that you can build, better confidence that we can convey, the confidence that we have in the operations of the company and our process, going forward. With that, let me get into the sort of story and the outline for Guidewire. Our mission is very simple. We try to serve the property casualty insurance industry with a cloud platform they can trust, to engage with customers more effectively through modern digital experiences, to innovate with new products, new channels to market, and to grow efficiently. All right. Operate these insurance companies more and more efficiently over time. That is our mission. It has been our mission since we founded the company.
I expect it will be our mission for the foreseeable future. You know, we have been extremely successful in the 20 years of our existence. 20% of the world's DWP is in some way powered by Guidewire. We have over 1,000 implementations, over 500 customers across 38 countries. We feel very, very proud of the success that the company has created to this point, and we expect this success and momentum to continue into the future. I wanna make sure everybody understands that to really understand Guidewire requires an understanding and appreciation for the property casualty insurance industry. This is a $2.7 trillion industry that, in my opinion, is very concentrated.
You could come to me afterwards and tell me if you think this is concentrated. It's amazing that 2,000 companies support $2.7 trillion in DWP, and if you dig into that a level further, there's 400 that represent 80% of that market, right? Those tier one and tier two insurance companies are the primary focus of Guidewire, and I think what we are uniquely suited and uniquely organized to support. You can see it's roughly distributed equally across the world. The other thing that you need to understand is that property casualty insurance is not just one thing. When you dig into it's actually pretty complicated.
Across personal lines insurance and commercial lines insurance, you have these individual lines of business that require an insurance company to really optimize around a specific risk, a specific peril, to get really good at estimating that risk, really good at bringing that product to market, closing that business, operating that entity, that line of business, managing claims associated with that particular line of business. What makes Guidewire unique, I think, is that our the scope of what we can support with our platform encompasses all of this. You know, we can bring to bear a technology platform that supports all of these lines for these, as I said, these large tier one, tier two, tier three insurance companies. The other thing that's important, especially nowadays, to understand about P&C insurance is that it is a remarkably resilient industry.
This shows sort of this steady growth in DWP year after year after year after year, right? There are some macroeconomic headwinds that you can see and dig into on this chart, but for the most part, this just keeps growing and tracking along with global DWP. If you're wondering, just because you guys are all sharp analysts, the $4 trillion on this doesn't map to the $2.7. This maps to P&C plus life and health, right? We think that's a broader scope of what's really addressable, but what we're trying to convey here is just how resilient this industry is that we serve.
In times like we face today in terms of macro environment, that's a blessing for us in that our baseline customer is resilient and is going to weather the macroeconomic conditions that many companies are facing these days. Next thing to understand about insurance is that it is somewhat, and I don't want to offend anybody, but somewhat lagging behind the rest of the economy in terms of unlocking what I guess I'd call digital transformation, the modernization benefits associated with modern technologies. There is an efficiency opportunity to be unlocked in the insurance industry, and this is at the heart of the value proposition that Guidewire brings to bear.
By modernizing these systems, we can provide a mechanism for the insurance industry to gain efficiencies, and improve relative to, you know, on this chart, you're seeing other sort of, not gonna call them large established industries, that can be modernized, that can be improved, and the overall efficiency of a $2.7 trillion market can be unlocked. Okay, but you might ask yourself, like, what is the holdup? Why is this hard, right? I think it sort of to one degree, fundamentally depends on understanding the challenge to an insurance technology executive. For many of our customers, maybe most of our customers, these systems that they operate were digitized over 20, 30 years ago.
This is why people talk about this industry being run by mainframes, is because it was one of the first industries to really modernize 30 years ago. They're running these very stable, very resilient systems that just are built to last forever. At the same time, they're being challenged to deal with increasing threats from cybersecurity. They're being challenged to deal with macroeconomic changes like inflation that forces rate changes into the products that they support. They're being challenged to create better, customer and agent experiences that match or beat the sort of best consumer-grade digital experiences that we all interact with in our daily lives. You know, like the challenges that they face, when compared to the balance in managing and maintaining, this legacy 20-year-old system is very, very difficult for them to manage.
It creates a lag in terms of the industry really being able to adjust to the modernization and the digital efficiency gains that I showed back on the previous slide. We like to show this is because to understand what we do, you have to understand that the core systems in insurance companies sit at the very heart of every business operation in that company. These are not satellite systems that are attached to an existing operation. This is about yanking out the heart and lungs of a company and putting in a new set of heart and lungs that connects to every other business process at that company.
You know, I like to think about it this way, like every meaningful initiative at an insurance company touches this system in one way or another. There's a string that gets pulled, and it has an impact on all the other strings, and you have to manage that very, very carefully because like I said before, this is the heart and lungs of the operation. It can't go down. They don't do business when the core system is not running. When the rates are wrong, you know, they're writing risks that they shouldn't be writing. When the claim system isn't running, they are not doing their job in processing claims for their customers.
This is an absolute definition of a critical, complex system, and it takes a long time for these things to be modernized. I think Guidewire is uniquely positioned in the world to solve this problem for the P&C insurance industry.
I believe that we are the only company in the world that can legitimately bring to bear a technology solution that stitches together the complete insurance life cycle and supports, on a cloud platform, an ability to manage product definition, market distribution, underwriting policy management, and claim servicing, capture all the information and data necessary to manage that process efficiently for an insurance company, and because now it's on a cloud platform, continually evolve it over time. We do this based on the combined efforts of thousands of people over 20 years, bringing to bear IP to support all of those lines of business across all the geographies that we support. As I said before, we're now doing this on something we call the Guidewire Cloud Platform.
It supports analytics applications and business applications across the complete insurance life cycle, and it now provides a mechanism to digitize those experience and expose them to agents and customers. It's all sort of wrapped around what we believe is a world-class ecosystem that creates a solution that is very unique and does help these insurance companies solve this problem. This strategy that I've outlined to you, this business strategy, has been largely consistent for the 20-year history of Guidewire and has produced consistent, reliable growth, right? This, you can see, is the sort of ARR growth that Guidewire has produced since IPO. We're about to start talking about cloud and cloud transformation. It's important to understand that this began for Guidewire all the way back in 2017.
I would say the 2017 cloud initiative was designed to help us understand what the market really needed and what we needed to build in order to fully commit the company to this cloud transformation, this cloud switch. That cloud pivot, so to speak, occurred when we launched the Guidewire Cloud Platform with what we'll call our Aspen release back in late 2019, 2020. At that point, we felt like the experience that we had gained from these early cloud customers was enough to tell us what we really needed to build in order to support the full breadth of our customer base and the full potential in the market.
Since we launched that platform, we now have established a mechanism for releasing innovation into our cloud customer base every 6 months, and have a series of successful releases over those, over the last 2.5-3 years. We started with establishing the cloud platform. We followed it up with a data platform. We followed it up with a new approach to building products in a more, with more agility. We followed that with an integration framework and a new marketplace approach to delivering products with Guidewire GO. Finally, in a couple weeks, we'll launch with Flaine, a new digital platform to facilitate our customers' ability to create great digital experiences. This has gone extremely well, for the company. This is a very, very significant change that we did, that we executed.
I would say at this point now, seven releases in, I'm very confident that this was the right decision. It was the right strategy. It's been executed really well. But you have to ask, "Okay, that's great, but were customers buying it?" You know? I think when you launch a product like this, the first test is, are we able to sell it? Are we able to convince customers that this plan we have, this platform we have, is what they see using for the next 10 or 20 years? I think in this case, the answer is yes, right? You see here that we have now sold this. The cumulative total of sales on the Guidewire Cloud Platform is now 79, okay? You can see the scale up and to the right.
We're gonna talk to you about the ARR, the cloud ARR, and the subscription revenue that this has generated. I feel very confident that we are on the right track in terms of the product and our ability to sell it, our ability to have quality conversations with customers about this being the future. Another important number on this slide is that 200+. That represents the existing Guidewire on-prem install base that we expect to move to Guidewire Cloud. It's important to understand that we did not start from scratch when we built this platform. We built it such that customers could leverage the investment that they had already made in their on-prem Guidewire instances and upgrade it as smoothly as possible, let's say, to our cloud platform.
It's not a complete rewrite, and that enables me to say confidently that we do expect each and every one of these 200 customers to eventually move over to Guidewire Cloud. Okay, this next slide is a bit for me, sometimes the maddening part of the job, okay. It is that there is a significant lag between the moment that we sell the product and the moment that the product actually goes live in production. If you think back to that picture I showed you before, the system diagram and how complicated these environments are for customers, often these projects take upwards of a year to complete. The go live, you know, the get-to-production phase of this cycle for us lags behind the sales cycle. As you can see from this chart, we are making progress in this front as well.
This is probably the most critical part of the journey for us is: Are we able to successfully land these customers in production on the Guidewire Cloud Platform? Are we able to earn the references that are necessary to help us continue the cycle and continue the flywheel accelerating? I think in this case, the answer is yes. Not every one of these projects has gone perfectly. Maybe none of them have gone perfectly, and that's just the nature of the job. The culture, the attitude, the technology, the approach, it's working, and we think it bears out when you look at these numbers. The 60 here represents simply the number that we've already sold, who will obviously eventually get here.
We will eventually now, just based on what we've already sold, have 79 of these customers operating on this platform in production, and that gives me the confidence to say that we are absolutely on the right track. Let me talk a little bit about potential here, okay? This slide represents for you the potential, how much we've sold already of Guidewire Cloud, the potential to sell it in the gray segments of these pie charts to our existing install base, and the remaining DWP by tier, that we can go out and attack. I believe that with a cloud platform that is significantly better than what we have been selling and delivering to our customers for the past 20 years, we will be able to continue to take share and grow the company into this potential.
You can see again, you know, the majority of the success so far has been in this sort of tier two segment, but we've had success across tiers. This breaks down that same data by region, and you can see that we've been most successful so far in Canada and the United States. It's real important to understand that we are committed to making this work internationally, and we now have successful implementations in Europe and successful implementations in Asia, both in New Zealand and Australia, and as of our fourth quarter, our first cloud customer in Japan. You can see that the strategy around bringing the entirety of the customer base across region, across tiers is starting to take shape and take hold. All right.
I should probably take a deep breath here and pause for a second. I wanna say, basically, in my tenure at Guidewire, which is now a little bit over three years, I have thought about this journey that we're on in terms of milestones, okay? You can think about it in three milestones. Milestone number one is do we have the right product, and can we pivot the organization to deliver the right product, deliver the releases every six months, deliver the customers successfully? The answer to that is yes. Next milestone is can we sell it, right? Can we sell this product, and can we convince this customer base, this pretty conservative property and casualty sector, that a cloud platform delivered by Guidewire is the right thing to bet their careers on?
I think the answer, based on the success so far in our sales and marketing efforts, is yes. Last milestone on the journey, which is a lot of what we're gonna be talking about for the rest of this presentation today, is can we deliver efficiencies and margin based on this success to our stakeholders, to our company, to all of you? I think, like I said, this is what is now the milestone that is in front of us as a company. We have put in the work to build a system that we think will scale and deliver margins over time, and that is the remaining step for us to execute on and prove and will be borne out with the financials that we produce over the following quarters.
I want to give you an assessment from my perspective and sort of set the stage for what you're gonna hear from specifically Diego and Jeff around how we expect this margin to be delivered, okay? First thing that you should take from this slide is the most important thing that we are doing at Guidewire in terms of creating margin and driving efficiency is improving the efficiency of our cloud operation, okay? We have made a very, very big investment in this operation, in this platform and our capability to run it worldwide, 24/7 across any property casualty insurance company in the world. That's been a big investment.
We expect that investment to be sort of spread out over a greater number of sales over time, and that'll improve efficiency, but there are also real engineering deliverables that we are gonna talk to you about that will cause the efficiency of this platform to be improved. Things like environment provisioning automation, things like code deployment automation, things like upgrade automation. Very exciting things for CEOs to wave the flag and tell everybody about. I'm kind of kidding. At least I got a smirk, right? These are not the most sexy, exciting things, but they're critically important for you to understand and critically important for us to deliver in order for the investment that we've made here to pay off and for the margins to be delivered, okay? That's really the most important thing, and we're gonna spend some time talking about it.
Second thing that I want to talk about is just the baseline efficiency of this operation. I think that when you're doing these large-scale engineering exercises, you really have to think about them in two steps. Step number one is can we build it? Can we make it run? Can we make it work? Step number two is now that we know it's working, now we know it's the right thing, can we make it more and more efficient over time? We absolutely expect that as we operate these customers in these production environments, as we learn the workload, the shape of the workload, we are gonna be able to engineer that system to be more and more efficient over time. I believe that that sort of vector for improving efficiency will bear fruit for us going forward.
If you think about it's really important, if you think back to the slide I showed you about how many production customers we have, we really need to get those customers in production in order to give us the data and the experience we need to drive that efficiency over time. Next one's product development. I wanna say this is the least checked variable on this, and I wanna explain why. I believe that our investment in R&D is a strategic advantage for this company. We bring more scale, we bring more capability, we bring a more complete platform to the market than any of our competitors, and I believe it's in the best interest of Guidewire and our shareholders to continue to do that. I expect this to scale, continue to scale as we scale the company.
We'll make it a little bit more efficient over time, but I really don't wanna give up this advantage I think we have in terms of focus on that tier one, tier two segment, the tier three, the top end of the tier threes that comes from this focus on R&D and this continued investment in R&D. On the sales and marketing front, we believe that we have the market sufficiently covered. We have a lot, there's a lot of efficiency in only being able to sell the product to about 2,000 companies in the world. Really, if you think about it, there's a special focus on those top 400.
We feel like that organization is scaled effectively, and we believe that we'll be able to unlock sales efficiencies over time just by improving that productivity, making the product easier and easier to sell, making the references that we have in the market and the success that we've been able to create should improve sales and marketing and efficiencies over time. Next one's very important to understand. I think, you know, Jeff will talk a little bit about this in his presentation as well. When I joined the company, and we made this pivot to cloud, we made a strategic decision to invest in a customer success organization.
We felt that it was critical to ensure that there was someone attached to each and every one of these cloud implementations so that we were learning and seeing really on a daily basis what was going on in those projects and feeding that information back effectively into the organization. We believe at this point that that organization is scaled from a headcount perspective as much as we need, and we'll going forward scale that organization programmatically, which also should and will unlock efficiencies and operating margin for the organization. Finally, G&A, just like any mature company of Guidewire size, we will continue to improve efficiencies. I think there's hybrid work opportunities that we will explore, and you can expect this to gain some efficiency over time. I wanna stress, what you're gonna hear from Diego Devalle is critically important for you to understand.
This is the critical thing that's going on at the company around cloud operations that I think will unlock the operating efficiency that's behind a lot of the questions about what's the plan going forward at Guidewire. I actually wanna give myself a pat on the back. You guys can't see it, but I hit the mark in terms of timing. Like it was impressive. I would like now to bring up to the stage and welcome Diego Devalle, who is the leader in our product development organization. He's gonna talk to you about the product and some of the things that we're doing to drive this efficiency. Diego.
Thank you, Mike.
Thank you.
Good morning, good afternoon, and welcome. Chief Product Development Officer, basically, I'm responsible for the product management, for the engineering, and to operate the platform. The slide before, you saw that there are four chevrons on operational efficiency. All those four are on me. We're trying to kind of. The presentation now is to give you transparency of how those four have a great potential. I would say even better, some of those, the potential is already realized now. We already see the potential is already there in the number, but you don't see it, at the aggregation level. We wanted to kind of spend a little bit of time to kind of give you more transparency, why that is not only potential, some of that efficiency is already available today.
First of all, I want to start a little bit where we started. This is my fourth analyst day. I had the pleasure to sort of outline the vision four years ago, and today kind of follow through that vision and give you an update. We started with those four application. Predominantly, we were leading the market with ClaimCenter and PolicyCenter, predominantly as a self-managed business. Four years later, this is where we ended up. The business has evolved into a complete cloud platform, as Mike described. I don't want to kind of spend all this time into the capability of what the platform can do, but I just wanted to point it out that the goal was not to build the platform. The goal was to fulfill some specific target business outcome into this transformation.
The number one goal was to build and to support our customer with a secure, reliable, and efficient cloud platform. Efficient for us to run for them, but efficient for them to adopt, efficient for them to be on it. When our customer run into our platform, and we have the capability to fix a security issue within a week, we are going to be way more efficient than what they could do on their own. Secondly, we wanted to make a platform that was easier to adopt, faster to implement it. From very long time, Guidewire had a very strong product. It was always like the leading product. But if it was one thing that they could kind of point out to us was is a very long implementation time. The more we move into the cloud, the more we needed to speed up that implementation time.
We needed to make it easier to consume. The second bucket that we wanted to use as a target outcome for this transformation was make it faster and more flexible to implement. Last but not least, now that we are on this platform, we wanted to have a capability to release every six months. We wanted to unleash innovation at a different pace compared to what we were doing before. Four years ago, if you remember, I was mentioning the engineering team downstairs take this transformation as an opportunity to deliver more, to have actually more fun in building things that will get quickly adopted. Four years ago, I used this slide, and I want to put you a little bit, anchor you into this slide. There is the beginning of the chart is when we start this cloud offering.
That is between 2017 and 2018, and we launched Aspen in May 2020. All the customer that we sign up from the beginning of the journey all the way to Aspen, but even a little bit later, we're not on GWCP. Four years ago, we show you this picture and saying, there is a level of efficiency that we can gain on what we call classic, but that level of efficiency will not bring us to where we want to be. To get where we wanted to be, we needed to introduce GWCP platform. A GWCP platform based on standardization, automation, and predominantly self-serviceness. I want to give a couple of examples so that you understand a little bit what we're talking about. All the initial deal on Guidewire Cloud were by and large bespoke deal.
Every customer got a slightly different flavor of the product. Imagine a company that have experience in offering a self-managed product in different flavor, different app server, different database, different configuration. Our initial customer we offer in the same a la carte configuration that turned out to be very costly for us. Every time that the customer was asking for something to be done on the platform, that request might be deferred from customer number one to customer number two to customer number three. All our customer on Classic during the initial two or three years were on a specific environment. Every time that we needed to do an update, every time that we needed to do a special request, this was translated into a special request. We changed all that with the introduction of GWCP.
Mike did show that there is a lag for the adoption of GWCP. What we're here today is to show you now we are two years later after the introduction of GWCP, we have 20 customers live. We start to see all those benefits that we envision in the shift start to pay off. What I want to introduce here is that kind of representation in which on the left side, you will see all the production customers today on Guidewire Cloud. Out of those, 25% are running what we call classic, and 75% are running on GWCP. If you combine this slide with the previous slide where Mike showed that 19 are live on GWCP, you can extrapolate how many customers are on classic.
On the right side, you're seeing what our Cloud Ops headcount is. Cloud Ops is a fraction of my team that is, so to speak, cost of goods sold. It's not the entire team, but it's a portion of it. My entire team of cost of goods sold is around 500 people across the organization to support operations, to support customer support, and to support the different platform. Out of that, a portion of that is Cloud Ops. What you can see here is quite staggering, that more than 50% of that headcount supports 25% of the customers, where on the flip side, less than half is supporting our GWCP customers in production. If this picture is kind of already good enough, the next picture is even better.
We show you that we have 60 customers in development right now. The slide that Mike showed was 19 live and 60 in progress. Those 60 in progress are customers right now that have been deployed on a non-production environment, that are engaged with our development team, that are actually working on the platform. From an ops perspective, our engagement with them is very, very similar to production. If now you kind of combine those two together, you're going to see that less than 10% of our customers are on Classic as of today. The account allocated on a Cloud Ops perspective doesn't change. It's pretty much the same thing.
Now I want to put this in perspective because it's important that you don't walk out of this with a sort of believe that this Classic customer were not important. Are super important. We would have not been able to build the platform that we built without having that journey and the start of that journey. Compared to 2 years ago, we're moving some of those customers from Classic to GWCP. As a matter of fact, we moved one of the largest one a month ago now, a few weeks ago, I would say 6 weeks ago. The journey of moving them into GWCP has already started across the first one moved like 18 months ago, and every 6 months we're moving few of them.
You will see that once this picture start to normalize, and once we'll have all the capability to move all our customers to GWCP, you can immediately see that a big portion of our account will become available, and that's kind of part of the efficiency that we're plugged into the model. The next very interesting thing is that across what we call cost of goods sold, the next two biggest activity that today are very much account dependent are number of deployment per month. Today, in the platform as of today, customers are running in production on GWCP.
If they want to kind of promote their code into production, typically imagine a customer that has an MP, an MP environment where they do multiple change in configuration to optimize their product, and then when they are ready, they wanted to push that into production. As of today, that move is a move that is triggered, they log a ticket, and there is a human being that support them into that process. We have seen in 2021, 40 of those per month, and by the end of this year, calendar year, we're expecting we're projecting around 90 per month. That if you combine a little bit the number of customer and so on, it's going to be at the rate of between 2 to 3 per month per customer.
Similarly, our increase of Ski Release for the InsuranceSuite is generating a growing number of updates and upgrades that we need to run every year. Those upgrades are, as of today, traditionally, they've been traditionally very costly from an account perspective. Those two are the two main things that we're working on that are kind of falling into the category of optimization and cloud operations potential. Let me give you a little bit more detail on the deployment support efficiency. As of today, to support those 90 deployments per month, this costs us give or take around 95 FTE per month. More or less one FTE is capable to support one of those deployments per month. We're launching in Flaine the capability to self-service.
If you remember before, I kind of mentioned that GWCP is about automation, is about scalability, and is about self-serviceness. Enable that as a self-service level will, A, give to our customer a way more interesting experience because they will be able to promote it to production whenever they are ready. Most important, it's going to give us an efficiency here that is kind of in the range of 10x. Secondly, but even more important, this from an engineering perspective is being a very difficult problem to solve. In the classic upgrade, classic upgrade was very similar to our self-managed upgrade, a traditional upgrade of Guidewire was taking between 6-12 months. That was predominantly because a lot of that work was predominantly manual.
This has been the reason why traditionally on Guidewire self-service, self-managed, we were releasing a release every two years. Because with an upgrade that takes about a year, that was like the only cadence that we could support. With the introduction of GWCP, we start to automate a set of activity, and we introduce what we call internally non-breaking change. Every shipment of the software does not break compatibility with the previous software. The introduction of GWCP enable us to continuously check our code against the customer code and ensure that nothing that we are delivering will break anything that the customer has previously written. Now with Flaine coming up in a couple of weeks, we're going to take one extra step.
We have introduced a codename product that we call Snowcat that is going to be capable to sort of validate the merge of the customer code with our code in an automatic way, bringing this down to 1 week. Those are a couple of examples of things where we have very large margins of operational efficiency. Most important, you see that with the growing number of customers on GWCP, we are constantly able to optimize on areas that are very large potential from an operational improvement. This kind of brings me to the second chapter. The second chapter is faster and more flexible implementation for our customers. That is being like a constant drive.
As I said, we will not get customer adoption at the pace to which we want without being able also to transform the product and make the product a little bit more efficient to adopt and faster to adopt. In the last three years, we've been delivering a lot of feature. Here is a list of just what we did release in the last 12 months. I want to highlight Integration Gateway. Integration Gateway is a completely game changer in the way that integration could be built against the Guidewire platform. We are rolling this out. We rolled it out as an early adoption solution a few months ago, and in Flaine now, we're going to launch that as a GA. We got a lot of customers validating checking the solution as an early adopter, and we got very raving feedback.
As you can see here from Capgemini, the expectation is that we're going to cut in the neighborhood of 30% of every implementation timeline. Those are things that are also very important for us because they're going to enable us to move our product into also tier 3, tier 4, and start to get way more compelling to a different kind of price point and to a different, into a different customer audience and so on. Last but not least, the more sexy part, right? Mike before talked about the sexy part of development and a little bit less sexy part and somehow that is the operational part. The sexy part from a product development is introducing new feature, building new capability that customer can adopt and transform their business.
We have been on a steady path of introducing those, and we are kind of starting to accelerating now that we have a platform that is fully enabled with API and externalization opportunity. Now that we have an Integration Gateway, now that we have a consistent layer of API on top of our cloud platform, we've been seeing like a radical change in the speed into which we can adopt innovation. One of that transformational change is being after the acquisition of HazardHub. As you probably know, last year, we have acquired HazardHub, and what it was very transformational that was that because of our GWCP, we were able to integrate HazardHub very quickly. We were able to kind of offer HazardHub in combination with our product line within a couple of months after the acquisition.
We got very raving feedback from customer and CIO. In this case, there is the CIO of Orion180 that is giving us kind of really good feedback on the capability that we've been able to adopt. To recap, I talked about three things. Number one, efficiency of the platform. We had a vision three years ago, four years ago now, to build a platform, and through the platform, we materialize those efficiency across multiple customer. You need to kind of think in terms of that adoption time. On average, a customer takes a year to implement.
If you start to look at the customer that have signed a deal, by the time that we have launched Aspen, that customer is a customer that will have an opportunity to be live a year after. There is that kind of lag behind. Now, as you can see, we have, like, 20 customer live and 69 customer that are in development right now. We are starting to see right now the efficiency on GWCP in a very material way. Already last year, we started to have a little bit of kind of, you know, indication in the right direction, but the sort of cohort was not large enough to sort of gave us all the indication in the right direction. What we're now is completely the opposite.
We start to see exactly the things that we want to see, and we start to model that in multiple way. Jeff is going to talk by and large about the way that we've been modeling this, and we're going to show you how GWCP is starting to give us exactly the right level of leverage that we are expecting. Number two, as mentioned, the improvement on adoption and easier to adopt is changing the game into our capacity and capability to get new customer. Probably you have not seen that or you've not noticed that, but while at the beginning of GWCP, it was heavily relying on customer upgrade and existing customer. In the last 24 months, we start to see a lot of net new deals coming, a lot of greenfield deal.
A lot of those greenfield deals came because of this investment in bucket number 2, the bucket of faster and easier to adopt. Innovation like APD and the Jutro Digital Platform have been critical for that step. Last but not least, as said, we are now releasing steadily every 6 months. We are even considering accelerating a little bit our product release because we build the muscle to release the software at a completely different cadence, and we're pretty excited about where we are and the progress that we're being able to do. With that said, I would like to introduce John Mullen, that is my new colleague since 3 months, and we had interesting conversation and fight, but by and large has been a good journey, so.
Appreciate it. Okay. First of all, thank you all for being here. I've been with Guidewire now for seven months, and I think, Diego said three and somebody else said something else, but it's actually about seven to the day. This is obviously my first analyst day with you guys, so it's really good to be here. I wanted to share a couple of perspectives. Number one, about nine months ago, I was taking a deep evaluation of whether or not I was gonna invest the rest of my career with Guidewire.
It gives me an opportunity to maybe share some perspective from where I've been with the market, what I've seen in the market, why I made that decision, how I see the evolution of some of the things I assume to be true, some of the things I learned to be true, some of the things I've discovered to be true since I joined. I think it provides a, an interesting backdrop for that conversation. Prior to joining Guidewire, I spent about 24 years in the systems integrator world. I've known Guidewire since almost its very specific inception or months or a year after its specific inception. Priscilla Hung called me, as I said, about 12 months ago, to have this conversation about is this an interesting next chapter for you?
Having served, as I said, the property and casualty insurance industry for 20 years, I had enough information, I had a lot of assumptions, and I wanted to press really hard and test really hard as to whether or not that was something that I really wanted to go after. Not dissimilar to the way you guys are looking at some of these storylines today. I'll take you through a conversation about what are some of those evolutions in the market that we serve. What is Guidewire's position, and what are some of the things I tested in testing and affirming Guidewire's position in the marketplace?
Then most importantly, as those things come together to shape where Guidewire, as a leader in the market and as a deep, deep partner, strategic partner with carriers, what does that marriage look like going forward? 'Cause it is a very, very, very different conversation than it was with on-prem software. Mike talked about the hearts and lungs of an organization, and we're talking about running mission-critical systems for socially critical brands and products and services. We don't have to look farther than last week in what's going on with Hurricane Ian to see, you know, these catastrophic events are very real. The promise delivered to the end insured is something that I take very, very seriously. When I really pressed myself and tested myself and some of the folks I talked to that said, "Really?
Do you really wanna get back into the property and casualty industry and bet the rest of your career on it?" These are real problems to solve, and I think a once in a generation opportunity to solve them differently forever. The elements that drive that change. Obviously, I know there's a lot going on in the marketplace, but that long foreseen disruption of consumerization and expectation of digital is real. You only have to look as far as the OEMs and what Tesla's doing to know that that is now very real. We know that the operational constraints that are on the carriers that we serve today are very real, okay? The boundaries of an insurance leader, a CEO of an insurance company, a business unit leader, what they have to deal with has evolved quite a bit over the last 5, 7, 10 years.
Let's compress that, and I would say the last 24-36 months probably represents as dynamic and as pressure-packed a change model for a leader in insurance than the prior 15-20 years did. I don't think that's an overstatement. What are the implications of that? The implications of, yes, I have to pursue digital interactions with how I interact with the marketplace and the blurry lines between the definition of what is the marketplace that I serve and what sits inside my operation. Yes, I have to be faster to market. I have to make faster decisions on what markets I should be in and out of.
At the end of the day, I have to book all of that into a mission-critical, scalable, reliable, trusted core processing platform that my business can run on every day. Under that backdrop, I have to invest every day to make sure that my capabilities in risk selection and pricing, which is, lest we forget, the fundamental of making money in this business, is to get better at risk selection and pricing every day in my business, make better decisions, institutionalize those decisions, and make those decisions much more rapidly in my organization. The implications basically are to the carrier, I have to understand blurry lines better. The blurry lines of my organization, the blurry lines between IT and operations.
No longer can a business leader say, "That's just IT." No longer can an IT leader say, "Well, I operate in some distant support of the business." These are forever merged. The good news is that with modern architected software and the approach we have with data and analytics, we can actually unlock the value of this rather than be burdened by it operationally. I wanna paint a picture out a little bit further, which is with operations and with data, enterprise data, third-party data, the ability to drive risk selection and pricing differently, there's another element which is the evolution of risk. How will insurance companies understand risk better rather than just price risk that comes in the door? The cockpit of an automobile. I mentioned the rate of change.
The cockpit of an automobile has changed more in the last five years than ever before, and maybe it has the same number of cup holders, maybe it has a different USB port. Thank you, Apple, for changing it every five minutes. But at the end of the day, it sends off a tremendous amount of aggregated data, whether it's normalized data or specific individual data. Apply that thinking now to the monitoring and management of an oil pipeline, the monitoring and management of a large construction project. The ability for a carrier to interact with data differently and have constant and consistent underwriting and pricing events that inform that is now available better than it ever has been before. I have to give credit to Hartford Steam Boiler.
They hired a bunch of engineers to go out and do that manually for years, and they were very, very good at it. Now it can be mechanized. Now it can be industrialized. Now it can be institutionalized. That type of opportunity, that type of dynamism in a market that has long struggled for dynamism will create winners and losers. With that assessment of the market, which I steeped myself back into very quickly about 12 months ago, I then wanted to get into, okay, is Guidewire as well-positioned as it was as an on-prem? 'Cause I spent about 4 years outside of the property and casualty insurance industry.
I dug back in, and this is something I really—this is really at the heart of why I made this bet, and it's really at the heart of what I really enjoy about our interactions with customers and jointly shaping the conversation of where customers can drive value because only Guidewire holds this position. From that leadership position, the energy. What I really wanted to test was the energy, the mettle, the full-scale commitment, from this leadership position, to defining a new future rather than holding on to the past. That's the conversation I had with Priscilla. It's the conversation I had with Mike. It's the conversation I had with every person I joined before I joined.
I don't think I have to go back through every one of Mike's and Diego's slides to prove to you that that mettle, that commitment, that vision is coming true every day. What were the elements I looked at? Experience. This is the people who ask me, "Do you really wanna get it back into property and casualty?" I spent a large part of my career, I was program manager on large policy admin projects. Those aren't easy. Custom build Guidewire projects, competitor projects, I've touched them all. I know how hard these things are, and what was really important to me is the core of Guidewire's culture from day one was a deep-seated commitment to customer outcomes.
Marcus's phrase was tunneling through granite, which I really love 'cause that's a big part of getting to these outcomes, is really the hard work to get there. I think Guidewire, I know Guidewire has that in its DNA, and I wanted to test that and see if that DNA was still true. The answer is yes. That at the forefront of now powering innovation rather than just core processing and industrialization, okay? That was a cool dynamic that's evolved over time. Diego just talked about that. The second one was engineering chops. Not easy. Not easy to replatform. Some could say late to replatform to the cloud. Why? Why is because without giving customers a way to get from on-prem to the cloud, we wanted to make sure.
What I learned is the organization wanted to make sure that there was a pathway forward before making that commitment to move to the cloud, okay? That puts a tremendous stress on the engineering minds, on the engineering throughput in the organization. That was something I put a lot of stress to. Diego mentioned we have some good arguments. That constructive contention is something I love every day because I've learned a lot in a very short period of time. What's most important in that engineering chops is the ability to drive exponential throughput now on the things that drive insurance business value rather than the things that drive operational excellence, just operational excellence. Diego showed you the two slides. Some of them were very engineering specific. The second slide was all about business impact throughput.
That then goes into vision, 'cause business impact throughput puts a tremendous amount of stress on prioritization. I tested the vision. I'll share with you that undoubtedly what the vision is that I learned and that I hope to shape, and I'm looking to shape with customers and shape with the rest of the leadership team is that vision beyond core processing, okay? We talked about profitability. We talked about core process engineering. The other components of this are orchestration, okay? Access to data at the enterprise level. Why go to cloud? Why would a customer go from on-prem to cloud? Please, don't bet the rest of your career on the fact that we can just simply process this insurance transaction faster. It's important. It's important because operational excellence is important.
The reason to go is to unlock enterprise data value, access third-party data elements in a way that operates in flow with your core processes and the systems that sit on top of your core processes. The ability to orchestrate digital interactions, customer interactions, agent interactions, third-party marketplace interactions without having to touch all the way down into the core system. That vision is the piece that I really was excited about and I am most excited about now with the release of Flaine, that we can go now into the conversation about shaping future of insurance with our critical customers. Then scale. When we talk about scale, obviously customers, number of customers, number of projects. You see that all the time with Guidewire.
It's not just the scale of it, but the depth at which we've learned these customers' environments, the problem statements, what we can solve for, what we can go after. The depth and breadth of data with the network value effect. Certainly there's a conversation about HazardHub. There's a conversation about what we do with Predict and the platform for data and analytics. That to me opens up exponential value and the ability to decide in the balance of engineering vision and scale with Diego, with the leadership team, with all of the input from customers. From here, what will we build? What will we buy? And are we ready to bear the burden of orchestrating all things that come? Mike shared with you the systems integrator and the technology partner ecosystem.
That's an important element of scale because we want our customers to be able to access all of those technology partners. You'll talk to a few of them. We'll talk to a few of them in a few minutes. As this comes to life, can we make it easier? Can we make it faster? Can we make it upgradable? Can it be ready on integrations? When we think about that, I called it a burden, but it's a right that Guidewire has earned over time to sit at the table and shape this future of this industry, but that right, if I'm sitting in your shoes, becomes a responsibility very quickly. A responsibility to access that marketplace, monetize that marketplace, and make that marketplace more efficient over time.
That's absolutely critical to the elements that I wanted to look at before I made my bet on Guidewire, and that's the pieces where I'm spending my time with the leadership team. I just wanna paint that picture for you about from that market position, where does Guidewire sit in that market position? Here are some of the proof points. These are the win rates for the last fiscal year on competitive deals. You'll see in the first pie chart, these are core system decisions by event, the other one is by DWP. Basically, you can see that, you know, the entire competitive posture is lower than that which we've won, and it's more stark in DWP. Now, historically, you would say tier one, tier two, that's where we win a lot of space.
Diego mentioned it. What I was really happy with last year in the selling cycle is tier three and even tier four, where our competitive posture was actually quite productive, okay? If we talk about the market and we talk about Guidewire, now let's talk about what happens next. Because the prioritization of where we invest to build, to buy, to orchestrate, is critical. The relationship, the value that we get in the depth and scale of our reach with customers everywhere around the world, across every line of business, and with all the systems integrators that work with them, is priceless. Absolutely priceless. It sits under a different backdrop than it did before.
What is the difference in that backdrop is, in an on-prem world, I've been there, I've been up at 4:00 A.M., eating horrible food and figuring out how to hit a go-live weekend, okay? Go-live weekend in on-prem software is the finish line. Go-live weekend, as we become the leading SaaS service provider to this marketplace and an ever-improving SaaS service provider to this marketplace, go-live weekend is the starting line, it's not the finish line. It's the starting line to start to unlock value.
In order to hit that starting line, we have to have a brutally honest conversation with our customers and with the integrators who are implementing our software to make sure that we follow the standards that allow them to get the value, not just as a moment-in-time event, but exponentially into the future as a participant on the product roadmap that we shape with them, not for them, not to them, not at them, with them. That piece is absolutely critical to Guidewire's culture, is shut up and listen. We're pretty good at that and have historically been really good at that.
As we retire off so much of that burden of core process engine, GWCP, APD, and App Events, those things open up so much more room for us to listen to what customers will clearly tell us about what's important to them, and then we prioritize together. It's harder, but it's exceptionally more valuable, okay? One of the things we did when I joined was we took the Guidewire field functions and pulled them together under one organization. Why? Because in order to drive the value of that starting point being go live weekend, we wanna make sure that we have a persistent, consistent, compelling, provocative way forward with these customers to shape our future together. I'll talk about delivery services. Jeff will talk a little bit about margins. I wanna share with you a perspective on what I've learned about delivery services.
Having done delivery and systems integration for a long, long time, it's a very tight pattern. Doesn't actually concern me that when you rotate a portfolio, you have to over-invest in the rotation of that portfolio. Investing in delivery service to get these customers who are early adopters to a predictable outcome, a controllable outcome. As Mike said, some of those projects are hard, harder than they should have been because they were early in the portfolio rotation. The other part of it is moving and managing the systems integrators to also understand so they can take on exponentially more of that delivery outcome and delivery opportunity because the market's moving fast in this direction. In order to do that, we took in a lot of them as subcontractors.
We invested a lot upfront in consuming the double cost of on-prem to cloud, and that now starts to take root as the numbers grow and as the number of people in the ecosystem who understand our cloud standards and can enforce those cloud standards. There's a tremendous amount of efficiency, learning efficiency, and productivity that will now flow through the delivery services model. With that, we take all of those components, sales, solutions, consulting, customer success, advisory services, and delivery services to drive a much more consistent, persistent, provocative, and compelling planning cycle with customers. In alignment with product strategy, I've talked about that a couple of times. What I really assessed when I joined was moving from driving operational excellence inside insurance carriers to driving innovative insurance outcomes.
Big difference, because the customers that I've been working with for 20 years, the leaders of business units and the CEOs of insurance companies, they're forever struggling with a couple of things. Number one, how do I better interact with the risks out in the marketplace, the customers out in the marketplace, the claimants out in the marketplace, and the return to normal on the loss event? On the other hand, they're thinking very specifically about, how do I run my organization ever more efficiently in a price-controlled environment I can be exposed to overnight? I can be exposed in speed to market overnight, I can be exposed in lost efficiencies overnight. As the market moves, and it doesn't move as fast as we'd always like it to, but the nuances within that move at large scale, okay?
You're missing a market from a product standpoint or missing an opportunity from an efficiency standpoint is really important, and as Mike mentioned, it's the hearts and lungs. When your hearts and lungs are running well, we don't think about them much, right? When they're under duress and when they're under stress, it's all-consuming. How do we get the hearts and lungs off of the stress model for insurance leaders? This, which Diego and Mike have talked about, is reach that point where we can now, and I'll share with you that the conversations I'm having with customers is no longer or has evolved over the last couple of months from prove to me or prove to us that GWCP and that the applications are modern, scalable, architected, flexible, orchestrated enough to check the technology box.
It has very quickly now moved into, okay, all of the elements that are coming on the roadmap, let's talk now about calculating the business value that they create for us. Better conversation to have. Every day, a better conversation to have. When those business value components lay over a very predictable, reliable, scalable, upgradable platform and business applications, we're having the right conversation. When platform maturity reaches that point where we're focusing on business outcomes over IT execution, that's where I wanna be, that's where I decided to invest my career, and I've really seen it over the last 6-7 months move towards that conversation. In executing against that, I'll share with you my priorities. Obviously, grow the business. Right? Captain of the SS Obvious. Okay. But collaborating with our self-managed customers to plan that journey, that's important.
It takes a lot of care. It takes a lot of time. It takes a lot of planning. Okay? Second one is aligning our insurance feature roadmap to market priorities. This is not easy. Japan, Australia, New Zealand, our priority markets in Europe. Commercial markets are gonna have a very interesting dynamic over the next year, and we wanna be ahead of that, okay? There's elements in London Market which we're launching that I'm very excited about that are very specific to a market that I think is gonna be very dynamic over the coming years. Focus on profitability. Optimizing intake and predictability and delivery programs so we can drive predictability, scalability, and profitability in the way these programs are executed. Activating the SI ecosystem, okay? Let's be clear, we are absolutely a software company.
We absolutely value and believe that one of our strategic advantages is the SI community that we work with, and also the thousands upon thousands of professionals inside the customer environment that we've worked with who have bet their careers on Guidewire. Who are going through the certification and the training and the sponsorship of what it means to run this software well in their environment. That's absolutely critical to us, and it's absolutely fundamental in unlocking that value to drive profitability. Increasing agility and speed. Okay? Sales productivity and execution is paramount, okay? Having all the right conversations with the right customers at the right time, absolutely critical. Amplifying the voice of the customer signal, because now we're ready for it. We can consume more of it. We can execute against it from the product roadmap.
With that, I think we're up for break. I really appreciate your time, and I appreciate you all being here, and look forward to talking to you in the Q&A and at the happy hour. Thank you.
All right. Yes, a break. We're gonna take a break till 2:45 P.M. I think they're probably setting up some snacks over there. You know where the bathroom is. You're all on Wi-Fi, so I think we're in good shape. All right.
Recording stopped.
All right. I know you guys will ask questions all day, so let's try to make it back to the seats and get the show on track.
Recording in progress.
Hi, welcome back from the break. I'm Christina Colby, Chief Customer Officer. This is my third Analyst Day at Guidewire, so it's lovely to see a lot of familiar faces again, especially after we did this virtually last year. I'm really excited to have this segment where we're gonna give you an opportunity to talk to one of our customers and a couple of our partners. You heard prior to the break about all of the fantastic things that we're doing to help to realize our vision, and how we're making it quite real. There's no way that we can convey how much that comes to life nearly as well as for you to speak directly to one of our customers. I'm thrilled today to welcome Mountain West Farm Bureau.
As an example that we will walk through, you'll be able to learn a little bit more about the company, some of the things that they've done with their InsuranceSuite, cloud implementation. Really, most of all, to hear about the business outcomes and the fundamental achievements that they've been able to accomplish just with their first release being live, and then, of course, thinking about the subsequent releases that they're doing, namely with a number of our partners and two of which are key partners who join us here today. We will go ahead and get started. Gentlemen, if you wanna join me on stage.
Good afternoon.
Hi. I'm thrilled today to be joined by Tim Hays, who is the CIO for Mountain West Farm Bureau, James Brown, who is the CEO of Smart Communications, as well as Kevin Ostrander, who is the Chief Revenue Officer at One Inc. Gentlemen, thank you so much for being here.
Thank you.
Much appreciated.
Pleasure.
Okay. Folks, we're gonna go ahead and get started with probably about 10 minutes or so of discussion to give you a little bit of background so that you understand all of the great stuff that Mountain West Farm Bureau has been working on. Then we will actually open the floor to questions. We wanna give you about at least 15 minutes or so to ask questions. You may wanna be thinking about those in advance. As we go ahead and get kicked off, Tim, if you don't mind getting us started, can you tell us a little bit about the company.
Sure. Mountain West is a property and casualty insurance company operating in the Mountain States, and we recently embarked on a journey to implement Guidewire Cloud. We are that customer that Mr. Rosenbaum talked about that migrated from the mainframe to something else. Been in place for 30 years, ran the company successfully for. We'll celebrate our 75th anniversary next year, but will not take us into the future for another 75 years, so we had to do something. Mr. Rosenbaum went on to describe kind of a customer journey, of adoption of the software, and I wanna talk about the parallels on what he was describing versus the Mountain West journey. I started at Mountain West in October of 2020. By December, I had a three-day workshop with Guidewire to size the software implementation. By January ninth, we had a cloud subscription agreement.
They stood up the infrastructure in less than 60 days. End of March 2021, we kicked off Guidewire implementation. May, we started development. November, we were done with development on 5 lines of insurance plus 50 endorsement expansions for the personal lines. We also scoped 45 integrations to that software, 2 of which are on the stage with me today, Smart Communications for documentation and One Inc for inbound payment processing. Over the scope of 6 months, we did 4,500 development items. 1,000 dev documents were reimplemented. By January, we had completed an upgrade to Dobson. We started the project on Cortina. Our upgrade took 8 days. Typical insurance implementation of an upgrade, 8-10 months. We did that in 8 days plus a couple weeks of testing.
We will upgrade to Flaine in a couple of months. In parallel to starting the project, we kicked it off in March, we're end of development November, and then by March of this year, we were ready for go live. What does go live mean for us? That means we ran a pilot group with three states, five lines of business. We are now six months into it. All of our personal lines have been started from new business perspective, and we're doing the migration process. So far, it's been a pretty successful journey. Our error rate on the software is less than 1%. Again, 4,500 development items, over 5,400 manual test cases executed.
That's tremendous. I mean, you talked about the quality of the delivery, which is outstanding. The timeline as well, to think about that transformation is a remarkable timeline. Would you mind sharing a little bit about the program and the things that were covered during it. Can you share a little bit about some of the business outcomes and business benefits that you've been able to see in what's live already?
Yeah, I'd be happy to. With products like APD, we were able to unwind a package policy and move it into monoline insurance. We are now in parallel deploying three lines of commercial. We'll build five lines of commercial in 2023 using the GO products and the SVT products. In terms of business outcome, quite literally a game changer from the experience standpoint. Changes to a policy on average took five days. They now happen instantaneously because the agent office can do that themselves. Days to minutes. The agent quotes the business, can bind the business. We went from days to issue policies to literally quite literally moments.
We went from 0% straight through processing to over 80% straight through processing, meaning at one point, an underwriter had to touch every piece of paper, and now they touch less than 20% of those. Change requests happen in minutes instead of days. Probably the more intriguing thing from an operations standpoint is the access to information in real time. Used to be you get a report at the end of the day, end of the week, end of the month, end of the quarter. Now, with the Explore product on the dashboard, they see their information every day, every moment. It's actually become entertaining to watch the operations teams and claims. They're sitting there hitting refresh. How many more did we write?
Two weeks ago, we had a board meeting and 15 policies were written while we were sitting there, and nobody touched it. That would have never happened before.
That's fantastic to hear. That's terrific. Obviously, we're honored to be part of that journey that you guys are going through. What you're describing also, I mean, really talks about a sort of a fundamental transformation within your organization, right? We can talk about the technology. There's obviously the company impact as well. I know part of your core philosophy is focusing on leveraging best-in-class capabilities to do that versus, you know, something that you would try to build yourself. Would you mind sharing a little bit about, you know, how that philosophy lends into the results that you've been able to see?
Sure. Well, we're trying to get out of the IT business, quite frankly. We wanna be in the insurance business. My IT staff has shrunk by 42%. We no longer manage infrastructure. The infrastructure has been moved to Guidewire Cloud for the insurance process. Is that kinda what you had in mind or?
That's perfect. Absolutely.
It's been a fundamental change for the entire organization, moving from what was a very manual paper process to now really joining and having the capability to be part of a digital revolution where we can collect a digital payment. We can set up an idea around communication to say, "How would you like to be communicated with? Is that text message? Is that email? Is that a piece of paper? Do you wanna visit the customer portal?" Now, these are all capabilities that we're standing up with the Guidewire Cloud solution. We haven't had to go outside of the platform to turn these on.
Which is fantastic. I expect, obviously, that makes you so much more competitive in the market as well, for policyholders and for prospective policyholders.
I sure hope so.
Very good. Excellent. Well, James, let me turn next question over to you. As Tim mentioned, obviously, Smart Communications is integral in terms of document production. But I know that, you know, is sort of a fundamental and a foundation, but there's also a growing list of other customer experiences and interaction points that you're helping to enable for them. I'm curious if you could tell us a little bit about that and if that's reflective of a trend that you're seeing across the insurance industry as well.
Yeah. It absolutely is. I think what Tim's referring to here is the transformational change, I think, in customer experience that he's able to deliver at Mountain West, and we're thrilled to be a part of that. I think what we're seeing across all of the industries that we work in, we work across insurance, banking, healthcare, is the same fundamental dynamics, that customers, consumers want to have a much more integrated conversation experience. I think in the past, what we've seen is very transactional, one-way documents that are created by insurers to go to the insured. That's shifting very dramatically. I think what Mountain West are able to do, and we're thrilled to be a part of it, is to change the way that whole experience happens.
I think for many consumers and many insurers, the customer experience now is a battleground for where customers are won or lost. I think we're seeing these transactional, one-way communications turning into conversational, two-way, contextual, hyper-personalized conversations that our insurers that we work with are able to generate through our platform.
That's great. I expect so much of that is influenced by consumerism in general, not thinking about other insurance or financial services transactions.
Yeah. I think the benchmark is no longer what did my previous insurer provide. The benchmark has become what do I experience through Amazon or Domino's or Uber. That's the new paradigm that people are chasing. The expectation is my insurance interaction should feel very much like it would do if I was shopping on Amazon.
That's great. Thank you. Kevin, over to you. Tim made mention of the fact that the One Inc capabilities are used largely, not only for payments, but disbursements as well, right? I know we're expanding the scope around those. I'm curious to get your thoughts on how that relates to the focus around, again, consumer behaviors and the expectations both from policyholders as well as towards the employee experience.
Yeah. I think it's a great question. John probably said it right? Carriers must become consumer brands, and it's around consumer experience and something Tim has talked a lot about. If you look at the insurance policy lifecycle, you know, making a payment or taking a payment is one of the most frequent touch points that you can have. I talked a little bit with you earlier about the fact that there was a stat that came out recently that over $6 trillion of Apple Pay was consumed this year, and that actually exceeded Mastercard as the second most popular electronic payment modality. You know, Michael talked a little bit about this earlier, you know, the carriers have been behind in adopting consumer-friendly technology, right?
What we've been able to do with using Guidewire as the framework from a cloud is rapidly deploy with Mountain West the capabilities to do things like take Apple Pay, take Google Pay, optimize that customer experience when you're taking your funds. Where we're going with them is really around the digital disbursement, right? Where you tie that together, where you have a claims process and the U.S. P&C industry is still predominantly pay by check. Let's get an instantaneous disbursement. Let's push that directly to their account. Let's not send a paper check, and let's ultimately have a delightful customer experience.
That's great. Okay. Well, thank you all so much. I mean, hopefully it's become clear that, you know, not only are you guys at the cutting edge and ready to do things very differently in the way that you utilize technology to create a different policyholder experience, but hopefully, you know, continued use through the openness of the platform of these best-in-class capabilities will only help you to innovate more and more rapidly. Thank you guys for all of that context. We do wanna open the floor to questions from the audience. We've got a couple mic runners around, and would be happy to answer any questions that you might have for this group. Great. Here up in the front.
Tim, just had a question.
Maybe we should turn your microphone on, though.
Just had a question. Tim, this is for Tim. I had a question on product roadmap. You know, what are you most excited about on Guidewire's product roadmap? I guess secondarily, what would you like to see them build?
One of the things that we do. This is not my first project for deploying ERP software. We tell everybody, "Stay out of the box, stay out of the box, stay out of the box, don't customize it." With APD and some of the other product, we can actually flip that and say, "Tell us exactly what you want. We're gonna build it on paper first with the mind map. The APD will then transition that into software that we can consume, and then we can keep those up to date." We are deploying on day one analytics dashboards that the company only dreamt about in the past, and these are out of the box. We haven't really customized these dashboards for ClaimCenter dashboard, policy premium dashboards. These we just turned on.
What's exciting about the platform is that we really punch above our weight because we get access to a bunch of capabilities based on the platform development over the past several years. What I'm looking forward to is really taking IT off the table as an issue for why we can't do anything that we wanna do. We're removing IT as a cycle. IT used to be involved in the paper processing cycle. You want to change a document, that was an IT cycle. You wanted to change a rate, that was an IT cycle. We're moving that downstream to the actuaries to make rate changes, to the word processing group to make forms changes. As a result, we can go so much faster. We couldn't possibly implement rate changes faster than six months because the IT cycles couldn't go any faster than that.
Now it's quite literally moments. We can change underwriting rules in 15-20 seconds because it's no longer an IT cycle. I look forward to the continuation of the platform that was described. Every six months, we are going to get new feature functionality. As Guidewire innovates, we can take advantage of that. We've worked really hard over the last 18 months to make sure that we're positioned to take those upgrades as soon as they become available, so we can innovate and integrate those things right alongside Guidewire. As far as things that I'd like to see them build, I think we have to continue to look for how can we make better data-driven decisions.
How do we build the predictive analytics into our processing so that it's starting to drive behavior around claims processing, underwriting results, and again, get closer to that cycle that says, "I'm gonna make a faster change based on the intelligence that I'm getting from our experience." Then beyond that, the platform gives us some opportunity to look beyond our own four walls into what others are doing and what others are experiencing, so we can compare that and make a better decision, hopefully.
Great question. Thanks. Dan, there's another one over there.
I was going to add to that. As a partner within the cloud ecosystem of the insurers that we serve and Guidewire serves, the Integration Gateway that Diego talked about as well means that whatever Guidewire does, it's very easy for us to connect and create new experiences for customers very rapidly. That's an exciting development as well.
Yeah. Wonderful in terms of the acceleration and also, I think total cost, being able to drive that down. Wonderful. Thank you for the question. Appreciate it. Was there one in the back as well?
There we go. Hey, Tim. Thanks. Question on as you guys were looking at future-proofing the business and modernizing the core, if the decision came down to, or if there was one that incentivized the other around the operational efficiency side, you talked about kind of the straight-through processing, the automation, the cost saving, the cost efficiency versus the data enablement of adding new lines, new feature functionality, to optimize the business platform to that extent. Was there one that outweighed the other upfront from the immediate value proposition? They kind of coalesce and come together, but I was wondering how you thought about that throughout the procurement process.
The main objective was to get off of the mainframe legacy system. Previously mentioned information security is a challenge on technology that was pinnacle in the 1990s. It was driven more off of a need to get off of these legacy systems. About over 200 applications running for a small insurance company, that's unmanageable. You can't manage that many applications. We're collapsing that application stack onto Guidewire. That was probably the main driver. The efficiencies and the access to the intelligence has kind of, quite frankly, been a surprise, a pleasant surprise. We built it with these straight-through processing goals in mind you, but if you'd have told me we were gonna hit above 80% straight-through process within a few weeks of go live, I wouldn't have said that.
I recently shared some of our numbers with one of the integration partners, and I told them, "Here's our error rate, here's our straight-through processing numbers." And he said, "Well, that's unbelievable." Now he didn't mean that was nice. He meant that's not believable. I can't believe that you have achieved that amount of result or that quality of result in such a short period of time. But it's in fact true. We went back and checked all the numbers, and it's real.
Thanks for the question. Appreciate it. There's another one in the back.
Yeah, thanks. I guess maybe as you've now gotten through this part of the process and you are ingesting more data and have those capabilities, maybe to your point on, you know, a couple hundred partners, can it swing back the other way and now you can look at very singular point solutions to integrate in that are part of the platform? And how do you sort of balance that of not getting back into a similar situation where, oh, it's easy to add this, it's easy to add that. You know, what kind of controls are you putting in place either for total data consumption or additional vendors or solutions that you're layering over the top?
From the partner side, how do you guys sort of get in and control that same discussion of here's what's most critical, you know, in trying to sell your product? Thanks.
I love the question. You know, two schools of thought for the CIO, right? One, I pick best of breed, and I buy some middleware, and I try to make everything work together, and that's a way you can go. The other is to pick a platform and run the platform and treat everything outside that platform as error. I am clearly in that right-hand camp of pick the platform and we did 45 integrations, not because we wanted to, but because there was some white space. Good news, bad news. Good news, there's a marketplace where we can look for partners that have integrations with Guidewire Cloud. Bad news is we have to build some of these integrations. As we move forward, the objective is to look at where can we retire some of these integrations or expand those integrations that already exist.
Stated goal number 1 was to eliminate application sprawl at Mountain West. We went live with a portfolio that was required to meet our regulatory requirements stated, you know. We continue to look for how can I retire this? How can I retire that? As Guidewire expands their platform, we'll be looking to do that. That's just a philosophical statement more than a governance thing. It's we don't want anything to operate outside of the Guidewire Cloud system that we have to maintain. Trying to be out of the IT business, we don't want to maintain those integrations going forward.
To the partners.
I mean, from a technology standpoint, we're very selective, I think, about the technology partners that we choose. The partnership that we've had with Guidewire has been incredibly productive. We're just very focused on making sure that we're working closely alongside partners like Guidewire to ensure that we are really closely coupled and through that can provide the best value we possibly can to our shared customers. I think between us we have. It's either 112 or 113 customers that we share. I think that close coupling of the solutions for us has been certainly very productive. It's just about being focused and being very committed to the partnership, I think.
I think, I would add too, a keen understanding of the customer requirements on both sides.
Yes.
So that we're aligned as much as possible in advance of any of the things that, you know, our customers want to do to make it fit, truly fit for purpose. That product alignment I think is quite critical.
Yeah. I think from a One Inc perspective, we have lots of synergy with Guidewire in that we're focusing exclusively on the P&C market as well. We're doing a tremendous amount of work with Guidewire in identifying some of those complex use cases that Mike talked about, right? If it was simple to take a payment or ultimately do a disbursement, lots of groups would be able to do it.
The depth of functionality that we can build in conjunction with Guidewire, and then secondarily back to what Diego talked about, which was reducing those implementation timelines on the cloud, which ultimately lowers the total cost of ownership for customers like Tim and allows them to deliver an optimized customer experience really rapidly, are strongly beneficial to us as a partner and also to Guidewire because we're able to deliver that to customers and talk more about, less about operationalize and more about customer experience in that direction that, you know, John's talked about, which is experience.
Yeah. You think about a very painful process to get your house repaired. Now you got a check that's got four names on it, right? Got me, my wife, got the mortgage holder, got, you know, potentially somebody else, and now everybody's gotta run around and try to get that check signed. There's four overnight mails to try to get, you know, your roof repaired. We're gonna solve that. We're gonna make that a fully digitalized process so that we can have a conversation with the customer that says, "We've been drawing from your account every month for this premium and would you like us to put that back into your account and handle that digital signature without having to do this paper check overnight process?
It's a very different experience, especially when someone, you know, has a claim in a very stressful circumstance, to be able to deliver that kind of of service to them is wonderful.
Yeah. We're gonna settle your claim and say, "Would you like us to put that back in your account?" Ding. Your bank just said you have a deposit. That'll be a much better experience than what we have today.
Thank you for the question. Appreciate it. I think there's.
Yeah.
Okay.
Is this thing on?
Yes.
Hi, Kamal from Oppenheimer. Thanks for doing this, everyone. I'll steer my questions towards James and Kevin since I think Tim's got a pretty full load. From a partner perspective, I was just wondering if you're able to help us understand if there's any differentiation in terms of how your customers interact with you. You know, those that are on maybe a traditional self-managed implementation versus those that have moved to cloud. Have you seen any uptick in terms of activity levels, engagement? Would just love some insights into kind of how those usage patterns might differ.
Want me to start?
Go ahead.
Yeah, I think this goes back to the whole conversation Diego talked about, right? Where you go from self-managed to the Classic environment where, you know, customers have taken the application and potentially made customizations to the application. From a partner perspective, the Guidewire ecosystem is incredibly robust, and the partner program is robust. There's only so far you can go with integrations that help your customers to rapidly get live. Ultimately, you can deliver accelerator code, which is, you know, snippets of code that help to accelerate that. But each customer, because their versions are a little bit different, struggle or potentially have challenges to get that in, which ultimately causes a lengthier implementation or a more costly implementation timeline.
A lot of what we're doing, and we're looking with Guidewire, is partnering on, as a transactional-based business from a payments perspective, is what's the optimized deployment? How do we create this that's repeatable? How can that be used and leveraged in the cloud? Our cloud customers have seen higher upticks in terms of digitization of the processes associated with it because of that repeatability, and so it's been hugely beneficial for us.
I think many of the same features. I mean, a lot of the customers that we work with Guidewire are still self-managed, but we've got quite a few now that have either moved or are in the process of moving. I think what we're able to deliver through that very closely coupled integration gateway that we talked about earlier on is a richer combined set of capabilities that allow us to continually evolve what we're able to deliver for the customers within that partnership. We're certainly very excited as this journey progresses, that I think we're able to deliver even more as a partner to those Guidewire Cloud customers.
Thank you for the question. Anyone else? Okay. Well, thank you so much for all the wonderful questions. I will actually maybe wrap with one to the group. I'd love to hear, so from your perspective, all of you obviously have strong focus in the property and casualty industry, what are some of the innovations that you anticipate coming forth to serve the industry, right? Some of the upcoming innovations. Why specifically do you think core systems are integral to making those a reality?
Tim, go ahead. You start us off.
Well, I don't think anything's slowing down. We have to be able to react to those things that come at us as competitive pressures. By upgrading our infrastructure, our core in this way that we can easily integrate to other things as they come along, we can start to build that delightful experience that I believe our customers want. To me, this is the game-changing event. We have transformed an organization at Mountain West from a very old insurance company to one that is looking forward to, "How can I be relational with my customer? How can I understand where they're at?
How do they want to be communicated with?" The modernization was the first step in a longer journey of improving our capability to react not only to what the customer wants, but what are things that are changing in the marketplace, where we have opportunities to add endorsements, new lines of insurance, new commercial products, and bring them to market faster with an appropriate rate.
I love that. If you don't mind me quoting you, one of the things that you said once that resonated with me is, "The way to go fast is to not go slow.
Correct.
I love it. I think it's fantastic. With a legacy system, right? That holds you back and doesn't, you know, and is making you slow, it's impossible to go fast.
Let's clarify just a little bit.
Okay.
How do you go fast?
Yes.
Stop doing the things that make you slow.
Okay, there we go. Thank you. I will remember that properly next time. James?
Yeah, I think what's interesting from our point of view is that a lot of the probably the vast majority of P&C implementations that we do go hand in hand with a core system transformation. I think that's because our customers have recognized that it's really impossible to put a digital facade on a system that is fundamentally slowing you down. What we're seeing is if you really wanna deliver, as Tim said, those really exquisite customer experiences and you know very modern very fresh journeys through a claims process, for example, you need a core system that will support that rather than one that hinders it. I think that's why we're seeing what we're seeing.
That's great. Thank you. Kevin?
Yeah, I'll just echo what James had said, which is, you know, the groundwork of the last 15 years of P&C transformation around core systems, whether that be self-managed or on the way to the cloud, has really set carriers up to be able to take advantage of a modern open architecture and a best-of-breed solution set. During the pandemic, we saw just a dramatic acceleration of that. What Guidewire has done from a core system perspective really enabled us to go to customers and transform their operations. You know, I'll give you an example. We were receiving calls from carriers that during the pandemic were sending customers into the office as essential folks to actually print checks, right? They didn't have the ability to do anything digital.
Because of how we've been integrated with Guidewire, we were able to work with those carriers and get them up and running in rapid time frames and optimize the customer experience. It really serves as the bedrock of enabling carriers to focus on that consumer expectations as opposed to core business processes.
That's great. Well, I look forward to continuing to work with all of you as we transform the insurance industry. Thank you, gentlemen, so much for joining us. Appreciate it.
Thank you.
Thank you.
Thanks. Thanks, everyone. All right. Next, I'm happy to hand it over to Jeff Cooper, our CFO.
Perfect. All right. Homestretch. Thank you all for coming. My name is Jeff Cooper. I'm the CFO at Guidewire.
Been at Guidewire about five years, moved into the CFO role a little over two years ago. My background is a mix of investment banking and then, finance operating roles. I did have the opportunity to work on the Guidewire IPO. Always just had an amazing amount of respect for the company and what, the company has been able to build, and it is the honor of my career to now lead the finance function here. Okay, this is pretty well understood at this point. As we made and thought through the shift to the cloud, there were certainly benefits to Guidewire that we were focused on. There is an expansion of our TAM. In an on-prem modality, we ship software to our customers.
In a cloud modality, we take on a much bigger sense of responsibility for the ultimate running of that software. The division of labor changes quite significantly, and as a result, there is a pricing uplift associated with this transition. There is a TAM expansion associated with going to the cloud. We will still retain very attractive customer lifetime value dynamics in a cloud context, recurring revenue stream, sticky core systems of record, and very long-standing customer relationships. Fundamentally, we believe that in the cloud scale matters more, right? It's one thing to deliver a software that an insurer then takes behind their four walls and runs that software. It's quite another thing for a vendor to run that software on their behalf and manage the heart and lungs of that system for an insurer.
Picking the right partner is very important. Guidewire has a long track record of customer success, and we think that, scale is just even more important in the cloud. This gives us an opportunity that is very exciting for Guidewire to build meaningful market share in a vertical market, on a common cloud core system that will open up interesting opportunities as we think about the ecosystem, we just talked a little bit about that, and analytics and other capabilities that can sit on top of that core. Very exciting opportunity for Guidewire as we think about taking our business to the cloud. Foundationally, we believe that the cloud will afford us the ability to best service our customers. We are always grounded in that, as a founding vision for how we think about this transition.
Mike touched on this slide. He talked about three critical milestones. I kind of think about this slide as what are the three critical risks we had to address in order to enact this shift to the cloud. Obviously the first one is this, can we build it? I think you have a little bit of a glimpse into the difficult technical problem that we're trying to solve on behalf of our customers. This is hard, right? This is not something that is for the faint of heart. There's a reason why there's not that many competitors in this part of the market of software. These are hard problems that we're solving for our customers. We have just made a ton of progress in this regard. I am blown away by what Diego and the product development team has been able to do.
There's a slide in Mike's section that really resonated with me that shows the start of the cloud journey on our ARR chart, and then when Aspen was released. There's a pretty long time between when we started selling cloud and when Aspen was released. We're gonna talk a little bit about, you know, Diego already highlighted some of the inefficiencies of those early customers that went on affectionately referred to as Guidewire Classic and how we're migrating them over to Guidewire Cloud Platform to get the efficiency gains that we need to see. Made a ton of progress de-risking the can we build it part of the story. The next part of the story is can we sell it? Can we continue to win at very high win rates?
Guidewire, through a lot of hard work, earned the market leadership position in the on-prem modality. We feel very strongly we will be the market winner in the cloud modality. We've invested to pursue that opportunity aggressively. We're starting to see that play out. We're very pleased with our win rates. We're happy to see new customers coming to cloud, and we're starting to see some meaningful momentum there. Excited about option risk number two. Risk number three, I know that everybody in this room is focused on this risk today, is can we deliver a software margin? Is this problem so complex that our margin structure will be different than other vertical software companies that are out there?
There is certainly a lot of hard work that is required to establish the foothold to allow us to drive the margin potential that we know and believe exists in this business. We're gonna talk about that quite a bit today. Okay. There's a lot of complexity in Guidewire. This transition is not the easiest transition in software. When you step back, it's a pretty simple story. We sell to a very attractive vertical, and that vertical is under a lot of pressure to modernize. There's just a long horizon for us to continue to do the blocking and tackling to modernize this industry. We like to think about this as a once in a generation replatforming of an industry that we can drive, and that's a very exciting opportunity.
In addition, we already have, Mike noted, over 200 on-prem customers that have yet to start that journey with Guidewire, so a very exciting opportunity for us just to continue to modernize our existing customer base. We have a long horizon for growth. I'm gonna talk a little bit today about incremental cloud margins and walk through how we're thinking about this internally. Diego talked a bit about classic customers and the operational burden of a relatively small number of customers. That has an impact in the stated financials that you all consume, and so we wanted to kind of provide a little bit more clarity, so we'll talk about that today. As we look ahead, we feel increasingly confident in the incremental margin profile to drive to our margin targets. And then operating expenses.
We've been in an investment cycle. We do view this as a once in a generation replatforming of an industry. The investments we're making today will form the foundation for how we monetize this opportunity over the next 20 years. We are through this investment cycle. We thought about this as always in 3 stages: Can we build it? Can we sell it? And then can we run it efficiently? We're at that point in time where we need to start to focus more on operational efficiency and platform efficiency, which I know Diego spent a lot of time on. Okay. Those who have covered us know this slide. We update this slide annually, and we're gonna hit it a little bit earlier in the presentation, so you're not all waiting for this slide to the end.
This is an updated view of how we think through the long-term targets that are out in our model. Fiscal 2023, that's consistent with the midpoint of the outlook we provided on the Q4 earnings call. Fiscal 2025, we gave a preview into a lot of these changes on the earnings call. Yeah, I think we disclosed most of those. We are now targeting $1.1-$1.2 billion in revenue in fiscal 2025, a margin profile of 60%-63%.
There's a dynamic that we'll talk a bit about today in terms of some of the deal activity we saw in Q4 had a bit smaller starts, more organic growth opportunities, less big commits, and that has an impact on subscription revenue, which impacted that number. There also is some incremental conservatism in how we've modeled some of the infrastructure costs that had an impact on that particular number. Some of these changes just dropped down to operating margin of now 12%-14%, and operating cash flow. A little bit less pronounced the change on operating cash flow, given some of the revenue dynamics that we'll talk through, but 15%-18%. We haven't changed the longer-term target of $1.5 billion. You guys are all smart. You can do the math.
We expect to cross that threshold in FY 2028, but that is not an FY 2028 target, so we don't have a timeline associated with that number. That, think about that as a target for us as a point in time target. We talk about the ARR growth potential is a mid-teens ARR growth. That's kinda why if you do that math, you'll arrive at a fiscal 2028 outcome for crossing the $1.5 billion ARR threshold. We haven't changed the overall targets. Those are still the same targets. In fact, I think we have increasing confidence, given some of what we've gone through earlier today in Diego's presentation to achieving those outcomes.
Finally, I get this question a lot and just wanted to make sure this was clear. The 1.5 is also a point-in-time measure. It is not meant to be an end-state model. We do think that there is margin expansion potential as we look beyond. Key part of our story, Mike talked about this a bit, but ARR is how we measure our business and how we measure our success. It is how we think about the momentum of our business. ARR is clearly being driven by our cloud momentum. If we do a double-click into the cloud, total cloud ARR is growing at a very rapid clip, and that growth is being driven by InsuranceSuite cloud ARR. So InsuranceSuite cloud ARR is now 104% CAGR.
$279 million is how we calculate our InsuranceSuite ARR. This measure looks at the ARR attached to all of our InsuranceSuite cloud customers. To the extent that they bought ancillary products, that is also included in this number, but it's just the momentum and ARR that's being driven by that cohort of customers. Those of you who've covered us for some period of time know that we have really good visibility into ARR and how we think about ARR, so this is a bridge that shows kind of the key components of how we think about building our ARR forecast. We have best-in-class ARR retention rates. We noted on the Q4 call that our core ARR attrition rate in fiscal 2022 was around 1%.
That's just an outstanding outcome that gives us a lot of comfort and visibility into our recurring revenue base. We also have a dynamic in our business that I know is pretty well understood in this audience, but we enter into a lot of long-duration contracts with our customers. The fee schedules will escalate, oftentimes during the committed period or during the initial period. That creates a phenomenon where we have ARR that flows in from the year that comes from backlog. If you look on the slide, the backlog number will be ARR that is coming in from deals that were sold in prior periods. What's left is what we have to go out and sell every year. That is obviously a big part of what we have to accomplish.
I know John's very focused on it. That also is really important for setting up our future, ramp activity. Lots of times, the activity we sell in a year won't translate into as much ARR as we all like in that current period, but it creates this flywheel effect of, future backlog events that will then flow into ARR in future periods. FX is the other thing on here. We measure ARR on a constant currency basis throughout the year and then update FX rates once a year. I'm not sure there's any perfect way to manage FX in this environment, but that is the approach that we've taken. I think we followed the example of Adobe and how they did that.
The last couple of years, FY 2020, FY 2021, FX was a slight tailwind, obviously, in FY 2022, FX was a significant headwind. It ended up taking about $19 million out of our ARR number. We'll talk about this a lot, but ARR is our measure of growth. This is how we think about the business. I think we've done a good job aligning all of Guidewire on ARR as the right metric to think about when we're doing internal planning and looking at business cases. We're always focused on kind of how does it drive ARR. The reason is because our software revenue recognition patterns are varied, right? We sell a lot of very long-duration term license arrangements under ASC 606. Those revenue events are lumpy. Thankfully, we're not selling many of those anymore.
There was a number of those that were sold in prior periods that caused the darker blue line to bounce around, and the lighter blue line is a reflection of ARR growth. The dark blue line is software revenue growth, so that would be license, subscription, and support. You take that as a group. Over time, software revenue and ARR will align, but this chart shows that there's lumpiness in the software revenue growth line, and that's why when we think about our momentum in the business, we're focused on ARR. Okay. This came up on the Q4 call. In Q4, we saw healthy activity from new customer wins, which is a really exciting fact pattern for us.
We also saw a little bit smaller commits and arrangements where the customer wants to rather than commit to escalating fees at the outset, see their fees grow as they grow DWP. A good example is the deal we did with OnStar. That is a relatively new insurer, very exciting opportunity for us, one that has a ton of potential, but the commitment at the outset was relatively small. A very meaningful customer for us, has huge potential, but commitment was small. What this chart tries to show, and I, you know, put this slide in partially because it'll allow me to have in-depth conversations with you all as we have one-on-ones and other things. What this shows is it takes four examples of a new cloud deal that are delivering the same economic output to Guidewire.
The first example is a 5-year commit, the second example is a 2-year commit, the third example is a 1-year commit, so start very small and then grow organically. The fourth example is a cloud upgrade. Even in subscription software land under ASC 606, when you sell long-duration contracts, it can create a significant amount of variability in the revenue recognition. If you take a 5-year commit and compare it with a 1-year commit for the same economic outcome, and if you assume that contract starts on the first day of the year, the revenue that would be recognized in the 5-year commit is 3 times larger than the revenue that would be recognized in the 1-year commit during the first year, okay? That contract has no growth, right?
That contract is flatlined for five years until it hits the renewal point. This has an impact in our model 'cause when you start layering on cohorts and adjusting some of these assumptions, it actually has a pretty material impact. 'Cause if you come out of a year where you sold a bunch of five-year commits, and then you layer on top a bunch of one-year commits, there's no growth embedded into the five-year commits, and you're getting a little bit less on a one-year commit. This is a kind of a complex concept, but we wanted to make sure that we made this slide available. This is a pretty easy example.
This phenomenon, and as we adjusted our models coming out of Q4, it did have a pretty significant impact on how we think about our model. Again, doesn't necessarily mean the overall economic output is different or that the ARR outcomes will be different, but it does have an impact on near-term revenue recognition and as you layer on cohorts. When you think about some of that dynamic combined with the dynamic that I talked earlier, that we had in FY 2019 and in FY 2018 some fairly large multi-year term license arrangements, that have caused software revenue growth to trail below ARR, for a period of time. We are now starting to come out of that. We are starting to see overall software revenue growth rates converge with ARR.
Ultimately, as some of those term license arrangements where multiyear revenue recognition was recognized, then you go through a period where no revenue is recognized until you get to a renewal event, and then they roll over into annual renewals. Some of those are actually coming back online, which is also a helpful fact pattern when you compare those two elements. Again, we want folks to understand that ARR is how we think about our momentum of the business, but also understand that over time, these will and should align, and it is comforting to see these two lines start to converge.
We're starting to see that, you know, still a little bit of ways away from a steady state model, as Mike noted at the beginning of the meeting, but starting to see some of that convergence. This next analysis is an analysis that we tried to help you all understand the incremental margins of the cloud customers that we're now selling today. What we did is we first looked at the Guidewire Classic cohort. This is a relatively small cohort. I think it's single digits, right? A relatively small cohort. The dark blue line is the ARR. The light blue line is subscription revenue. And then I'm not sure what color we're calling it. The teal line is InsuranceSuite cost of revenue.
What you see for the cohort in FY 2023, it's kind of breakeven on a cash basis, a little bit negative margin on a subscription revenue basis. We have clear plans to migrate all of these customers to Guidewire Cloud Platform. I know that we have near-term plans for most of them. We are aware that there are a couple that are gonna take longer, but we have plans to move these folks over to Guidewire Cloud Platform, and that will help the overall margin profile. The next cohort is what we did is we looked at all of the customers that we have sold as of the end of fiscal 2022. Then we assigned the cost that exists within Guidewire today 'cause we have hired a lot to be ready for the cloud demand.
We assigned kind of the cost as of the end of the fiscal year to date to that cohort. Here you can see, you know, what that cohort looks like from an ARR subscription revenue and overall cost perspective. Then the last cohort is as we look ahead and start adding new customers to the platform, how we think about profitability. We are at a point in time. Diego gave an amazing example of how one of the efficiencies he's gonna deliver to the platform is gonna require him to have 95 heads before that is released to a very small number after that. We can repurpose those heads and have them working on more interesting things than provisioning environments for our customers. We can do that ourselves, or they can do that themselves.
Now we can, without growing the size of the organization, tackle more and more and more. As we look ahead and think about hiring plans, we feel very confident in our ability to add meaningful ARR without adding meaningful headcount. When we think about the incremental cloud margins, those are at a healthy state. The other thing that I think is really interesting and important to make sure that you all understand is the delta between ARR and subscription revenue on this chart. There is a way to think about cash margin given some of the revenue complexity. A lot of our early large cloud deals were cloud migration arrangements. In a cloud migration arrangement, a customer who is an on-premise customer is committing to go to Guidewire Cloud.
They will need to continue to use their on-premise software for a period of time while they go through that migration period. When we account for that, we take the total contract value, we ascribe some of that total contract value to term licenses, we ascribe some of that total contract value to subscription, and we, you know, in some cases where we've made investments on services, we may even carve out some of that and ascribe it to services revenue. What you see is but from an ARR perspective, and the finance team, once a customer is committed to going cloud, we count that as cloud ARR. Okay?
The delta here between cloud ARR and subscription revenue are some of these dynamics that are going on that are, you know, maybe a little bit more complicated than we would all like. These migration arrangements are large, complex projects. This is an update of a slide we presented last year. You know, I think the overall theme, which is consistent with what I just went through in the incremental margin analysis, is that we are seeing efficiencies in the platform, that give us confidence that we don't need to add headcount to support the future customer base. If you've talked to me in the past, you know I have talked about hiring ahead of the demand.
Thanks to things like AWS and other cloud services out there, we did not have to go out and build a bunch of data centers in order to support our cloud journey, but we did have to go out and build a cloud operations team, and we did that a bit ahead of demand. Now as the platform is becoming more and more efficient, we can start scaling that. We are not expecting to see headcount growth. This chart looks at. The dark blue is the headcount costs, the light blue is the other cost to support a cloud customer. Over time, if you look at the early part of this chart, the vast majority of our costs were headcount-driven, but as we look ahead, those will be decreasing and decreasing over time as we get more efficient. Okay.
A little bit of context to the commentary or outlook from the earnings call, and one of the things we did on the earnings call is we adjusted how we allocated certain headcount. Wanted to provide a bit more color on that. Essentially, since Guidewire has been around, we have allocated IT headcount in country to the office that we're supporting, if this makes sense. Essentially, IT folks in the old mindset were setting up printers and doing those types of activities, and so they were allocated to the headcount that was in the office that they supported. Now in a hybrid work environment, we are building a shared service function in lower cost geographies.
That model no longer made sense. We made the decision to run all of the IT headcount costs through G&A and change this allocation methodology. What does that do? It created a 2 percentage point benefit to subscription and support margins by making this change. It created a 6 percentage point benefit to our services margins. It benefited R&D by 2%, sales and marketing by 1%. You see the reverse of all of that shows up in G&A, where there's a 5 percentage point increase. We looked at a lot of our peers, and this seemed to be the most common methodology. We felt like it was the right time to make this change.
The other elements of our guidance were on the subscription and support margins. Look, we're starting to see higher subscription margins. That is not necessarily flowing through as much as we would like because there's a mix shift away from support. That is what's driving subscription and support margins. We are, as we look at our services organization, expecting to see a decrease in our reliance on subcontractors this year. We've been hiring a lot to allow us to bring a lot of that work back to Guidewire-badged people that will minimize some of our subcontractor costs. We've also talked on the earnings call some of the fixed fee arrangements that we entered into with some of our early cloud customers.
We're starting to work through those projects, and those will be in the rearview mirror. We are expecting to see services gross margins at around 6% this year. Overall gross margins at 50%. R&D, again, there is some continued growth there, but most of the investments are behind us. Looking at sales and marketing and G&A, we have the teams in place, so we're really not growing either of those lines in a meaningful way this year. If you layer in our FY 25 outlook, a couple comments. As you think about subscription and support gross margins, we are feeling confident in how we are seeing the gains of GWCP to drive incremental margins.
Those healthy margins will certainly help us as we look ahead to our targets. Services, you know, I think we're starting to feel we're at a maturity point where we know how to estimate a lot of these arrangements in a much better way. We are not feeling the same pressure that we did at the early outset of going cloud to do fixed fee arrangements. We expect over time to return our services to a more normalized gross margin profile. As you look at the operating expenses, you know, the efficiencies we drive into the platform will allow us to reprioritize headcount. We will see more customers go cloud off of on-prem as well that will allow us to reprioritize some of that headcount.
As Mike noted in his part of the presentation, we will still see growth in R&D, but the big investment cycle is certainly behind us. As you look at sales, we have very good sales coverage for this vertical. 2,000 insurers, we know our customers, so we have the team built out to service the way we think about this industry. The customer success investment cycle is largely behind us at this point. G&A, there's gonna be a focus on automation, a focus on driving efficiencies. We're gonna be hiring more and more outside of San Mateo, and recognizing some cost savings as we lean in a bit to hybrid work. That's how that is some of the commentary to inform our longer term target. Capital allocation.
Wanted to comment on this quickly. We feel we're in a much stabler state than we were two or three years ago when we last talked about this. We have a very strong customer base. We are cash flow positive looking ahead, expect to continue to be cash flow positive. We've revised a little our assumptions on what we think we need for a minimum cash. We feel confident that a $400 million minimum cash balance is sufficient to run the business. We clearly want to maintain strategic cash. We are and should be a logical acquirer in this industry. You know, we've been very focused on the cloud transition and so have not been very acquisitive. That is still our primary focus.
We certainly don't wanna do anything that distracts us from that core mission. The market is getting a bit more interesting in this regard. Wanna make sure that we maintain flexibility to pursue some inorganic strategic activities. As you all know, we announced the $400 million share repurchase program that was authorized a couple weeks ago. As part of that program, we put in place a $200 million accelerated share repurchase program, so we can get that done relatively quickly. Once that's done, we'll kinda think through what we're gonna do eventually with the other $200 million. Excited to be buying our stock at these levels.
We think that this is the right approach for us as we look ahead. I'll finish with this again. You know, we feel very confident in the horizon for growth. This is a once in a generation replatforming of an industry. We've been investing heavily for this moment to arrive, and we're ready to take these insurers to the next level. You know, we feel very confident in the investments we've made in the platform to support our incremental margins, and operating expenses should be stable as we look ahead. That's the summary. I certainly appreciate everybody taking the time, and we will open this up to Q&A. I think you're gonna have the full management team up on stage for Q&A.
I was convinced Jeff wasn't gonna be able to finish that on time, but you nailed it. 25 exactly. The rest of the management team will come up. Can you turn the mic on since I left that open by accident? For those
For those on the webcast, feel free to submit a question in the Q&A chat function on Zoom. We'll do our best to get to as many of those questions as possible. We have a full room here though, so I imagine most questions will be done here internally.
Yeah.
I'm mic-ed. He's mic-ed.
Does someone need a mic? I can share this mic here.
Thanks, Mike.
Pass the mic around.
All right, a couple questions for me, but first for Mike. I think, I mean, on the last call you guys mentioned that macro didn't really impact the business, yet we did see perhaps, you know, again, smaller deal sizes and not as much migration activity. I guess, is that still the case in terms of macro not really impacting things? And did you see the migrations that you might have expected just renew as self-managed and that gets kicked down the road? Or is it more of just a slight push out while people figure out kind of what's the best approach to this cycle?
Yeah, I would say, with respect to the migration activity, I would categorize the situation as, push-outs, rather than rethinking strategies, recommitment, anything like that. It's more like we're not ready to make the decision now, but let's talk about it in a month or two months or three months, that kind of thing. My commentary about macro being a cause of any issue, any sales related issues at Guidewire, you know, is based on simply asking customers, what is the basis for your decision? You're seeing the same economic conditions we are. Is this impacting, you know, how is this impacting your business? How is this impacting your decision-making process? The only thing that I have heard from insurance buyers is that, yes, they are seeing the impacts of inflation, right? Because the claims expense goes up.
That does cycle through their business model in a normal way, right? Is they do have to get the rate increases approved often, and they are in the process of doing that. You've seen a couple public statements actually pretty recently around updates to Personal Lines auto premiums in the United States. We were reading that news today. This is happening, right? That cycle is happening. The commentary is based on that feedback to me around, hey, we're not looking at macroeconomic conditions as a decision-making factor for Guidewire. This is occurring in our business. We'll deal with it. We'll manage it. The decision about Guidewire all has to do with, is this the right time for us to embark on this modernization and embark on this upgrade?
Sometimes they do push those out a few months because these are really, really big decisions. My take is that it often has much more to do with what else is going on at an insurance company, what are the other strategic objectives they're trying to tackle and take down, and are they ready to say, okay, we're gonna put those initiatives on hold for six months, a year while they execute an upgrade to Guidewire Cloud. I don't know. That. Hopefully, that helps. I'd be happy if Jon wants to offer anything additional, or did I get it? Okay, I got it. He doesn't want to say anything else. Okay, great.
A quick one for you, Jeff. Sorry, it's another kind of macro theme, but I realize, you know, you haven't seen it yet. You know, hypothetically, if it does worsen, when you think about that ARR bridge to 2023, I mean, where would you probably see the impact? Is it the backlog, the new sales, the churn? Like, what piece should we anticipate we'll see the first signs of weakness?
Yeah. I mean, one of the things that's nice about our business is how stable our installed base is. This is not discretionary software, right? You know, we're always worried about churn. It's on top of all of our minds. In a macro environment, ripping out your core system is the last thing you're gonna do. It's not gonna show up in our attrition, and it shouldn't show up in our backlog, right? If the projects are executing well, we have committed contracts in most of those cases. Where you'll see it is on net new sales, you know, a little bit of slowdown in activity there. You might see it a little bit in smaller starts. Hey, I wanna go cloud.
As you know, we experienced that a little bit in Q4. It's hard to say that was macro. I think that was just the portfolio of deals that we closed in Q4 was a little bit different than what we expected. We were expecting a bit more migration activity, and we saw more net new activity. That's actually really exciting because those are competitive, those are new customers. I'll take net new over a migration. Oh, I'll take them both. Yeah. I think that's where you'll see it is on the net new stuff.
Yeah. I guess, Jon, as you come in and, you know, the conversation to have the migrations and moving those existing customers on that topic, to the cloud and giving them, you know, the value and the reason to do it beyond just automating functions. I guess, what have you brought to the sales team? What functions maybe have been additive or kind of altered a little bit to cultivate those customers and having that conversation of saying, you know, when are we gonna do that? And then within that 200 plus customers that have yet to sign a contract for the cloud, you know, where are we in terms of, you know, we're in the final stages of discussion, we're just having preliminary discussions, and, you know, they're not ready for it yet, maybe a couple years?
Okay. A few things in there. Let me start with the kind of. What are some of the things in an early assessment of where we are motion-wise that I wanna make sure we amplify in the way we interact with the marketplace? I think that was your first question. You know, a transactional sale model is interesting and it drives a lot of conversation. But right now, with where we are both on the migration conversation and on the business outcome conversation, it's really amplifying the advisory position, educating the entire field force, not only on what our product is, but moving away from a product placement conversation and getting into a business outcome conversation. That's a journey.
That's a journey that with Christina's team and the customer success team and the client partners that are out there, and then the advisory services elements that we're investing in over the coming weeks and months, that really elevates that conversation. That's part one, is getting to those conversations. How do they manifest themselves was maybe more of the momentum conversation, is where is that conversation? You have to think about our migrations. First, let's talk about migrations. You have to think about our migrations as, you know, kind of a portfolio of migration opportunities based on whether or not, you know, the status that they are in right now, whether it's you know, what version are they on, what is their infrastructure around in that version, what's the support of the infrastructure around that.
It puts us in kind of a cadence that it's actually a nice, pretty nice third. I think about it in thirds, right? What version they're on, whether it's self-managed, whether they're on version 9. Every one of those is a very different conversation, okay? What it feels like is, you know, if it's talking about a version 10 upgrade, over the seven months I've been here, the conversation of, "Well, I think I wanna go to version 10, and then I'll be more ready for the cloud." Okay? That was a big conversation early. That is actually giving way to the conversation that says, "Okay, that doesn't seem like the best idea 'cause I wanna get to cloud as fast as possible." That's good from a pace-setting standpoint.
What is foundational to it is really around this idea that, yes, it is costly. It is costly to go from on-prem to cloud. It is more expensive to wait. Why is it more expensive to wait? It's because as time goes, that bridge is bigger, and also the value of going increases every release, okay? That's more true today than it probably was three releases ago because of the insurance value going through that conversation. That's what the on-prem to cloud conversation feels like. I feel very good about I mentioned it in my presentation, knocking down what I would call technology hurdles and dissatisfiers and unlocking business opportunities and satisfiers. That pace, I'd love for it to go faster.
More and more of my hour in a day is spent on that second element than on the first element. We have to cover the market with that. Then the next one would be in the new comps. We were having a conversation at the break. Something the team hates me for, and that's fair, they can hate me for it, is the deeper a customer goes in a new comp, the better we look every day. When customers go deep in the evaluation of us versus competitors or us versus alternatives or us versus staying where they are, we do really well.
Now, there's the one real challenge point that we can have a discussion on is, okay, how much more business throughput in the on-cloud version than the version 10 version, okay, than the most recent Ski Release on GWCP, and I won't name a specific release because it changes every time. That conversation is gone, okay? They are seeing the value of cloud, I can integrate faster with the ecosystem, I can leverage the components that unlock business value. Those are the things that drive pace. That's how I spend all of my day helping the team think about those interactions. Christina, anything to add to that with the CS team?
I would just underscore, I think, largely the things that you talked about. Especially if we look at our existing self-managed customers, it's very clear that it's not an if conversation around cloud, it's a when conversation. The pace can be very different because of, you know, everything we were talking about in the first couple questions and the things that they have going on within their organization, but really also thinking about how they ready themselves to move to cloud. We put quite a bit of emphasis in helping them to figure out how to get there. At least we have very open conversations with each of them about doing that, you know, at the time that is most suitable for their pace.
To John's point, also talking about how we approach things differently, not only thinking about it in terms of, oh, here are the Guidewire products you have, but fundamentally, what are you trying to accomplish as a business? How can we be advisors in that conversation that may, at some point, hopefully, result in Guidewire solutions that will be well fit for that. If we don't understand specifically what they're trying to achieve from a business standpoint, even when we go through the process of implementation, it doesn't put us in a very good position to ensure that they are actually achieving those outcomes and that we're helping them to uncover more and more of that from the roadmap as well.
Any update on the mix of the 200 customers, you know, how far along some of them are? Do you feel like that pipeline is a couple years? Is it 10 years? Is it unknown at the end?
It's inside a couple of years. I'd say it's not. I'm not saying 10 years. That would hurt. If I think about those thirds, right? The way to think about it is, we can have it maybe the next time we get together. We can decompose that install base backlog. Those that are contemplating a move from version 8 forward are very immediate conversations, and those are within that 2-year window that we have to be, you know. They're not booked. They're not planned to book, but those are the. That's our responsibility to have that conversation with them to convince and work with and understand what those barriers are. That piece sits very tightly in that window.
The rest of that is really about introducing business value. We can dig deeper on the backlog of installs in future conversations if preferred.
Okay. Yeah. Clearly, cloud migration within the base is a massive opportunity, the biggest priority for the company. If we think about the company's opportunity to displace cloud competitors, are we at a point now that you're actively trying to go after those customers from your competitors that maybe signed up prior to the launch of Guidewire Cloud Platform?
I don't think we are yet. I hope we will someday be. Although, you know, I just think that that's a very different situation. Just because if you think back before about what I was talking about the duration of these programs and how long they take, really what you're doing there is you're assuming that a company that made a non-Guidewire decision has gone through that exercise, and effectively that program has failed. You know, we're just not there yet. I really don't think that that's the right strategy for any of us.
There's such an opportunity for us to go after the yet to be modernized white space in the market that I think that's a more appropriate competitive dynamic, I'd say, for you to expect at least for the next five years. I just think that we should give that time. You know, we'll see how things evolve. There's a big white space outside of that sorta pre-modernized, not yet live sorta space in the market.
With the country.
How about on mine, Alex? Anyway, did we find somebody? Okay, go ahead.
Yeah. While he's looking through that. I guess, John, you touched on the version eight customers that are maybe having those accelerated discussions. I think maybe when we touched on this last year, that was half of the overall installed base. Is there things. You talked about that widening bridge of the value proposition going forward. Are there pieces and components that you can help ease that cloud direct process, that migration burden going forward to kinda offset some of those puts and takes as well? 'Cause I think the vast majority are still on version eight, version nine. Thinking about that kind of inflection point around migration.
I think it would be actually appropriate for Diego to talk through the components. We talk about APD, and we talk about App Events. Those are the types of things that make that migration event much more predictable, much more consumable. On the back end of that, there's the business components of what we're doing in automation and orchestration in Jutro that makes getting there more valuable. Maybe you wanna comment on how you've got the team focused on easing that burden to get there.
Yeah. We have been doing multiple things. One aspect of it is being kind of working on all the script possible and all the kind of automation possible to get that migration happening. But specifically for the 8 customer, the advantage that we have for the 8 customer is that it's a 10 years old release. You know, when you start to have that conversation, and there was a release that was actually released in 2012, that is helping the conversation because the gap in functionality that we have available in the current latest Ski Release is opening the conversation in a very easy way. The typical burden is always that they want to pace that into their own timeframe.
That one sometimes is it starts to become a little bit of a problem to us or a challenge to us because we start to get into those customers and tell them, "We got all the slots booked," right? You need to start to make your decision. That is becoming a sort of an element of acceleration in the conversation. With John, we make these jokes about it's like buying airplane. You know, if you want an airplane in three years, you better start to make an order today, right? We are starting to get that kind of similar behavior and similar kind of engagement with the InsuranceSuite 8 customers because the value that we're adding into the Ski Release is becoming more compelling as we go.
They want to have a date to pace that exactly to their timeline, and we start to see that is becoming a factor of negotiation and efficiency for us to start to kind of discuss with them the timeline.
To kind of follow up on that as well too, you've got obviously the multiple version support and the cost efficiency I think you kind of briefly touched on as well. How much of that gradual ramp from the current targets to kind of the midterm and long term is attributable to being able to reallocate those on that kinda timeline path to thinking about the linearity of that progression?
You're talking about R&D expense specifically in the product and Diego's organization and how he will reprioritize his work to meet the margin targets?
The flow through too, I'm sure, from the subscription gross margin side.
Yeah.
As well, just allocating. Yeah.
Yeah. I mean, you know, as we've worked with Diego, in looking at his plans, he is the one organization that has a little bit more growth embedded into our model. When we start to model out some of the efficiency gains. In fact, there are elements that are in our cost of goods sold today, that are more naturally belong in Diego's organization. Because some of the complexity was so high, they are doing customer-specific work. Some of that headcount will drop down into R&D and drop down into his organization. There's elements like that that are going on behind the scenes that allow me to feel comfortable with the plans that we have.
While there's not meaningful overall headcount growth, some of the work being reprioritized and moving around will afford our ability to scale.
Yeah, let me give you an example more tangible. In today's world, we might have engineers that are working on specific script for a specific customer, that is completely allocated at the cost of goods sold. Moving forward, if I can use the same engineer to build a functionality to generate, I don't know, what some kind of, let's say, an observability dashboard that is equal across all the customer, automatically the same engineer kind of shift from an allocation perspective. Instead of working on a specific deliverable for one specific customer, he works on a platform functionality that becomes immediately available for all the customer. We're going to see a little bit of those things, and we start to see them, a little bit of those already now.
We start to see some kind of shift in that direction. People that were working on an SRE perspective just for a specific customer, fully allocate to that customer to an SRE team that kind of monitor across the platform a multitude set of customer across multiple across the same infrastructure. That is a sort of natural switch.
Yes.
We have one question from online. Jeff, one investor asks how to think about the change in the gross margins for the midterm target on a cash ARR basis, sort of normalizing for a lot of the accounting changes you talked about.
Yeah, there is certainly a dynamic there that is real. If you decompose that chart on incremental margins where you can see to some extent the separation between ARR and subscription revenue. We haven't broken that out on a basis points, on a percentage points delta. That is as we looked at, there was a little bit of incremental cost that went into our model that impacted margins. The bigger impact was on some of the top-line revenue recognition. Now, as a result of the deals that we sold in Q4, there are elements of those deals that have more upside attached to them because they were smaller starts. Those aren't committed, so there is an element of risk attached to that as well.
You know, I can't quantify that. I haven't quantified that. It, that factor, certainly plays into the adjustment.
I just have a question. Each quarter, you highlight the number of Guidewire Cloud Platform certified consultants, and you've talked today about some migrations not coming along as quickly as you had wanted or thought. I'm just wondering, how does that all tie in, the SI partners with your new sales motion with migrations and just are we under or over-resourced at the moment?
We're under-resourced in general, right? One of the things that always comes up when we have conversations with customers is, "Can you please help generate a bigger ecosystem of people that can implement Guidewire?" That's just the macro sense of Guidewire's ecosystem is we can have a lot more consultants would be great for everybody. There's a great opportunity if anybody wants to get certified on Guidewire. They'll have a job forever. That's part of your question. The other part of your question, I think, is like, why am I highlighting this? Why are we so interested in this? When we first began our cloud journey, we purposely and strategically did those implementations ourselves.
The strategy was do the implementation ourselves, take over the responsibility for managing that implementation going forward. It ends up looking like we've described the Classic cloud implementations, where the margins aren't as good as we would like for a software company, but we own it completely, and we're completely responsible for our own success or failure. We did that for a period of time, long enough, as Diego said, to learn what it is we needed to really do with the platform. The strategy is no longer to do those implementations ourselves. We want to push not all of it, but let's say 85% of the implementations at Guidewire back to the ecosystem. That has been happening over the past couple years.
Like, there was a mindset in the ecosystem that we were gonna grow Guidewire by taking a greater share of the implementation economic opportunity. That is not the strategy. That's why we're so focused on making sure that SI partners are cloud certified, and we can push that work to the ecosystem. I suppose I don't think I said this in my talk track. I apologize. I wanna make it crystal clear to everybody, we are a software company. We believe this problem will be best solved by software companies, and there is a role for the ecosystem to play. If John was there for 20 years, he'll tell you what the role is. We do not think.
I think it is a really significant differentiator against competitors, this difference. We do not think this problem will be best solved by companies that do software and services, and it's all sort of one thing. We believe that building a platform that scales and that partners can take on and implement and do work and add value to, that's a better solution for the overall customer base, the overall industry, and for Guidewire and our stakeholders. That's why I keep highlighting this. One of the things we track, we probably won't talk about it on the public calls, we track in our you know, our sort of weekly, quarterly targets is what percentage of these projects are led by partners, right? Where Guidewire involvement is minimized, right?
We have plenty of projects now where Guidewire is leading, but partners are involved. Now we have projects where partners are leading and Guidewire is involved. Then we will have projects where partners are leading and Guidewire is not involved. That is just a natural evolution of our maturity as a cloud platform. That's why I highlight it. Hopefully, I answered your question. That's absolutely important to understanding our strategy is we wanna be a software company.
I want to add also one thing that is kind of in context of the Integration Gateway, but besides the comment of Captive AI. The interesting thing is that all the way to few years ago, from a knowledge perspective and consultant perspective, we were kind of captive from a point of view of proprietary language, proprietary environment, and so on, right? All that aspect, there was a component of knowledge that it was, like, very difficult to acquire. In some way, it was very difficult to build a cloud strategy with adoption of the marketplace and infrastructure and so on by keeping that knowledge all kind of captive. Everything that we've been doing has been going in the opposite direction.
That is opening up in a way that you can start to interact with the Guidewire platform without having that required knowledge that it was very, very specific, right? Going forward, the Integration Gateway is interesting for multiple reasons and the way that it's architected, but one of the aspects is that you don't need to know any Gosu. You can build an integration pretty quickly directly on top of the core without having that kind of steep learning curve that was required before, right? Combination of those two things is, like, still very important to have Guidewire knowledge, but we're seeing that, you know, the way to interact with the platform is expanding and is getting completely different. Lastly, we're launching a platform in a couple of weeks, we're launching this Jutro Digital Platform.
If you think about the Jutro Digital Platform, it's not proprietary in any way. It's based on React. It's using the latest, greatest infrastructure and pieces of technology that pretty much every company building digital infrastructure are using. Again, everything into a direction in which the ecosystem can grow and we can scale on top of the core rather than the other way around.
Yeah. One thing I wanna add is that I think on a quarterly basis, we discuss that how big our partner ecosystem is. Like, the last count is we have close to 19,000 Guidewire practice members in our ecosystem. A large portion of them were particularly cloud certified, like Guidewire Cloud certified. It's double-digit growth on a quarter-to-quarter basis. John, coming from that environment, would attest to the fact that they won't invest in building the practice if they don't see the expansion of the business. The expansion of the business is completely consistent with what Mike was saying, is the fact of how we want to continue to sort of walk the line of the division of labor to move a lot of responsibilities to the SIs.
That reflects the continuous investment over the last couple years among all the SIs community.
I guess, can you share a little bit more color or detail on kind of what's giving, you know, you and the team guidance or confidence on the subscription support gross margin kind of guidance for 2025? You know, it looks like it's approximately flat ex the benefit in 2023 and then, you know, steps up about 16 points in 2024 and 2025. Like, you know, what's giving you the confidence there to kind of push that out?
Yeah. I mean, it really is Diego's presentation. I mean, I think what Diego highlighted and what we're starting to see in the efficiency that's being driven through Guidewire Cloud Platform. Current state, we are burdened by some of those Classic customers. Over time, as we grow, that becomes a smaller and smaller piece of the pie, so that burden diminishes over time. The platform efficiencies that Diego highlighted will allow us to run the software much more efficiently, and that's where we're gonna see it. As we talked about previously, there are people in our cost of goods sold today that are more naturally sitting in Diego's organization working on platform, but they're working on customer-specific issues.
The headcount attached to Guidewire Classic customers, you know, is problematic at this point in time. That will become smaller and smaller as those customers move over to Guidewire Cloud Platform. This is the journey of driving to this newer, more efficient platform that we've been working so hard to develop, and we are starting to see the benefits of that. It's not necessarily fully visible in the financials. You know, that's kind of what the incremental margin analysis slide was attempting to demonstrate. A lot of the content in Diego's organization is what Diego's presentation is what gives us the confidence there.
Yeah. I mean, would you wanna go ahead? Okay.
Yeah. I just wanted to say it in a different way. It's like a little bit more tangibly and practically, right? We plan the business. We say, "How many cloud customers are we gonna add this year?
How many people do we need to hire to support those cloud customers? Well, that number is too high. Let's reduce it. Okay, what do we need to do to reduce it? Let's look at what all those people are doing. Are there any of those things those people can do that we can automate? Well, it turns out there are. Okay, great. Do those projects, Diego. Yes, I got that. We say, let's give that feature that we just built to a customer and get their feedback on it. Turns out it works. Okay, great. Now we can adjust the ratio that we plan to hire to support the same level of cloud customers.
That's like. We do it more complicated than that, but that's basically the math that is behind the concept that we can add customers, add subscription revenue, and lower the rate at which we are hiring people to support them. It's tangible project execution in engineering that we are early access with customers and getting that feedback and the confidence that we have that this will work.
Yeah. I want to add one thing I mentioned that in a break, somebody asked me the question. First of all, you build an organization worldwide to support an X amount of customer. You cannot build an organization worldwide to support 20. You build an organization worldwide that is sized to support the number that is closer to 100. From the very get-go, we said, "Okay, how are we going to size ourselves? Well, let's size ourselves to a number that is closer to 100." You can see this in my chart when I show you that, in a portion of the, of the offset count is supporting, 20 customer live on GWCP, and then we show you how many we are supporting between production and non-production.
The number between production and non-production, as I said, is around 80, give or take. You didn't see kind of any difference in the allocation and so on. Those things are already plugged into the model right now. If you look at this in two directions, one, if we could hypothetically not have in the model the Classic customer today, and two, if you can already fast-forward the efficiency that we're planning for the next 12 months, you put those two things together, and you see exactly where that kind of growth, margin, operation is. Now, if you, on top of that, kind of model a little bit of growth at the top line of different kind of percentage, then you start to see where and why we're confident about those two things.
We have another question from online. Michael Turrin, Wells Fargo, would like to know what the timeline will be for the 60 Guidewire Cloud program sort of in process before they go live. Then also, could you size a little bit more of the Classic customers?
Oh.
Sure, yeah. Oh. I thought I had one. I'm wearing the Madonna microphone, apparently just for looks. That's good.
Now it works.
Does it work? Oh, thank you. Thanks for turning it on. I think the first portion of the question was talking about the 60 customers. All of those are in progress right now. Some of them have go lives that are in the next two weeks. Some have go lives that are in the next 12 months, so somewhere in that time frame. Each of those are active programs that we're working through. Obviously, some are very early starts and you know some are coming to the end of the initial implementation before their go live. I think. Sorry, the other portion of the question was talking about-
The Classic customers.
Oh, the classic customers. Okay. Diego made mention in his presentation that we took one of our, the classic customers, onto GWCP just in the past two months. That was a phenomenal program. We were able to accomplish a lot through that. It was actually the first of truly a scalable and sizable customer to move. Which part of you could argue does that make sense to be the first one to move? From our standpoint, we learned as much as we possibly could in order to come up with very repeatable patterns for the other six that remain. We have specific timelines and plans for each of them. Some are more immediate, some are still you know a little bit further out.
We're doing that in order to understand and manage the pace of the effort that it takes us to move them, balanced against what Diego was referring to as the operational demand to continue to support them, as well as, of course, doing it in a timeline that really suits the customer.
I will add a couple of extra information. On this 60, keep in mind that transition, lift and shift customer from self-managed is a project that typically more complex and takes a little bit longer. Projects that are greenfield, start new, they are way faster. You heard the presentation and the conversation with Christina about the example of what they were able to achieve pretty quickly. You have a little bit of that mix. I also mentioned before that in general, those large projects are a year, right? You start to look at those 60, you kind of distribute a little bit on a good mix between greenfield and existing upgrades.
You can start to see that there is like there is a variety of projects that from the time the time we deploy and we deliver the system, the time they go live, they're around 6 months, and there is a set of projects that are around 12 months. Now you start to kind of distribute that across the quarter when they sign, and you start to see that those 60 are going to materialize across the next 12-18 months, depending on the size and the start of the project. Just as a kind of nice kind of element, at least for my team, is that all the way to a year ago, a go live was like something that, you know, it's like, "Oh, let's have a drink," and so on.
Now the go live is becoming something like, "Oh, whatever. Another one of those," right? These. They're becoming. They are kind of. You get into that kind of repetitiveness into which is not such a unique thing, right? In the same way as.
Yeah, I think every reservation sort of through the next few months, right? Because obviously we schedule them is completely full. To Diego's point, the ones that we celebrated significantly to begin with, just a, you know, a high five maybe.
Don't get me wrong. The migration of this customer from Classic, we celebrated a lot. That was something that we really celebrated.
I really don't know if this matters to you guys, but I always feel compelled to talk about it. Like, the fundamental thing we're changing at Guidewire when you tell the story 10 or 15 years from now is the upgrade process. You know, the slide Diego shows is incredibly strategic. You know, these implementations even of Guidewire, and you know, when they're not Guidewire, these legacy mainframe implementations, they're just stuck. They're solidified. They're not getting improved. You know, it's kinda like if you're old enough to have lived through Microsoft Windows upgrade cycles, and it's like, "Oh, we're on different versions, and my company is behind, and we can't upgrade because we're blocked by something." It's like, this is not a world that we live in today in our consumer lives.
These operating systems just upgrade, and we trust that they will. We will get there with Guidewire. You saw that slide, you know, 10 years from now, 15 years from now, when we're able to say that, "Hey, we just have hundreds and hundreds of PolicyCenter, ClaimCenter, BillingCenter customers," and the system is just upgrading just as smoothly as your iPhones update, and you trust it, and you don't have that anxiety anymore, which I hope none of you do, right? When you say the update's ready for you just take it. You're not worried that my phone's gonna break because they've earned that trust. That's the path we're on at Guidewire, and I think that's ultimately what's gonna cause there to be a, just an incredible amount of innovation that we're able to deliver to this customer base.
We're in the middle, you know, or maybe early phases of proving, earning their trust, getting them to the next version. You know, I think Tim said this is like he took that first upgrade in the middle of the dev cycle, took a couple weeks of testing, you know. There's still a checkpoint to say, "Did this work?" He's gonna do the next one. It's gonna get a little bit better, you know. You can just see that there's just a transformational role that we're gonna play in these IT environments for these customers once we get that upgrade cycle smooth. Just wanted to say that.
Well, I'd mentioned that in the break a second back. We have no customer running on Aspen and Banff. It's kind of interesting how that is.
They're retired.
Yeah. Those were two releases that we released, like, two years ago that are retired, and at the same time we have customers debating an upgrade from IS8, right? That's kind of tells you a little bit the story about the shift of paradigm in some way and the direction in which we're going. That's kind of very important to kind of.
All right. You have a question, Ken?
Oh, yeah. Is this thing on?
Yeah.
Okay. Another question on my end. Just, back to the migrations, and I think we all recognize that your carriers, a lot of times they operate on their own timeline. I guess, I don't know, I'm not sure if it's Priscilla, maybe Jon, but any thoughts or plans to try to maybe stimulate those motions with either, you know, carrots, bigger carrots for partners, for customers, or I know you guys are more customer-friendly, but maybe sticks?
Well, I would let Mike to talk about sticks. I would say a couple things. It's all of the above, but maybe mine is the stick part. I am first of all, customer obsessed is still the first and foremost mantra. What we really needed to do is to engage in more conversation with our customer. To be honest, if you talk to every single one of our customer, the 300 or so core base, you will be very surprised to find one that do not already think about when they're gonna go to the cloud. They're in varying stages of contemplating. Now, larger the carrier, it takes longer because the environment is more complex and the need are much more complex so on and so forth.
Because of that, they are in a different path of readiness. What Jon said earlier about having a deep conversation, giving them advice in terms of how to think about it, work with them in terms of how they should consider building a business case that works and get the board to approve it. How do they align IT and business objectives? It's not only IT transformation, it's also how the IT can now better serve the businesses to grow as well. It's a very complex formula. Larger the carrier, more complex it is. The multinational and the global companies are more complex than the regionals and the single line carriers. You think that there's a real wide real estate to cover, yeah.
I think that what really, the Jon's domain expertise and the relevance that he brings to the table is absolutely important, and so is Christina and the team as well, because we're able to elevate the kind of credibility and also the domain and substantive conversation in now every single one of those customer and help them to accelerate their thinking. Or even if it doesn't accelerate, help them to put them on the path to think about it in their natural speed, right? Now that's first thing.
The second thing is, of course, when Diego continue to build more, value add, right, business value add to the platform, in addition to all the automation and tooling and good stuff that you have seen from his presentation, that would also help to build a business case, and that would be, you know, the point of acceleration as well. Now, of course, if there are other tricks, maybe Jon?
Well, I'll speak about sticks for a second.
I've been serving the industry for 23 years, 24 years, whatever it is. Sticks don't work. They don't work either way. They don't work. There's a bi-directional no stick problem on the simple premise that says we're not firing a transaction. It's not a fire and forget transaction, right? This is a socially conscious, mission conscious brand that we're serving, and we're serving them in the operation of their mission-critical systems. In order to do that right, in order to be an every quarter better provider of SaaS services, I need there to be an economic truth that says I can continue to be better every quarter. If I bring the stick to the table, two things immediately become true. I've given over economic power in that conversation.
Number two, when there's something that goes bump in the night, and it will, these things have things that go bump in the night. I've broken that ability to have. If I demand a brutally honest conversation in execution, we need to have a transparent and trustful conversation in preparation for that execution. So that to me is a fundamental truth about this space. Do I like it? Like, I fashion myself a pretty aggressive person in the marketplace. Does it sometimes make me uncomfortable that I can't drive pace based on leverage? Yeah. At the end of the day, what do I have to give up to do that?
I think fundamentally, I give up trust, I give up pricing power, and I give up the ability to continue to invest fund and fuel being the best provider of SaaS services to this industry. That's why sticks don't work.
That's good. One more?
Let's take one more, and then we'll wrap it.
Who wants to add the final? Your prize for the final. You get a cookie.
Now we warm up.
I'll just finish adding one thing onto your comment. Things have changed. You know, the difficult part is kind of behind us in a lot of ways, you know, from sticks and carrots and so on. At the beginning of the journey, we needed to kind of subsidize a lot. Part of that subsidizing was, to some extent, something you've seen somewhat in the Classic number. We kind of offered a little bit too much. We didn't have, and Priscilla mentioned features and capabilities in our six-month cadence. We didn't really have a six-month cadence, and we didn't have all those pieces. Now every six months, the gap is widening, the functionality and the added value is increasing.
I think that, you know, it's going to be up to you, John, but I think that the sort of carrot and stick and so on is kind of we started to have a little bit more.
This guy's having a debate here.
Let's assign pace. One of the things I thought about a lot when I joined Guidewire was Guidewire is a very big churning water through a very big machine with a very big boat in the on-prem world, okay? In my opinion, there is a large world out there that is drafting off of the wake created by Guidewire, okay? Before I joined, I talked to many private equity firms. I talked to a couple of other different competitors, let's say. It's an immutable truth that there is a desire to get a piece of what Priscilla and Jeff, Christina, Diego and Mike and Marcus and the founders built long before I got here. That was a big wake.
The speed at which this boat starts to move on the six-month releases and the value of that starts to move that machine fast enough. That's not a wake that can be ridden very easily. That to me is far more compelling than a stick. It's actually far more compelling than financial incentive to move. That's really it. It's hard to convey it in all of the deep financial slides that we show. That's what the momentum that is coming from the conversations that we're having in the marketplace.
Very awesome. All right, guys. Well, Alex, did you want to come up and say thank you, or do I get to do that?
It needs more coming from you.
Okay. Well, it's been, we really appreciate you guys spending the time with us. We're looking forward to hosting you up on the roof. Unfortunately, I got it wrong, the Blue Angels are not flying this afternoon. I apologize, but it is a nice day up there, and I look forward to taking some more sort of questions upstairs. Thanks very much. I guess that's the end of the broadcast, right? Thank you very much.
1 other
Getting to the roof. Alex, do you want to talk about getting to the roof? It's a little complex.
Yeah, I was gonna mention that. We have elevator classic. You could take 15 people at a time. Beyond that, I think we violate San Mateo code. I think it'll probably take us 5 minutes in total to get up there, but just be patient. We'll meet at the elevators, and we'll shuttle up one at a time.