Guidewire Software Inc (GWRE) 2017 Q1 法說會逐字稿

Good day, and welcome to the Guidewire's first-quarter FY17 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Richard Hart, Chief Financial Officer. Please go ahead, sir.

Thank you. Good afternoon, and welcome to Guidewire Software's earnings conference call for the first quarter of FY17, which ended on October 31, 2016. My name is Richard Hart, I am the Chief Financial Officer of Guidewire, and with me on the call is Marcus Ryu, Guidewire's Chief Executive Officer. A complete disclosure of our results can be found in our press release issued today, as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website at IR.Guidewire.com.

As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call. During the call we will make forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding trends, strategies and anticipated performance of the business. These forward-looking statements are based on Management's current views and expectations as of today, and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. Actual results may differ materially. Please refer to the risk factors in our most recent Form 10-K and 10-Qs filed with the SEC.

We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted in the supplement on our IR website. During the call, we may offer incremental metrics to provide greater insight into the dynamics of our business. These details may be one-time in nature, and we may or may not provide updates in the future. With that, let me turn the call over to Marcus for his prepared remarks, then I will provide details on our first-quarter financial results and our outlook for the second quarter and the rest of the fiscal year.

Thanks, Richard. During the first quarter of FY17, we advanced our strategic goals for the year and delivered financial results that exceeded our guidance. Total revenue in the first quarter was $94.1 million and non-GAAP net income was $0.02 per share, including the impact of our acquisition of FirstBest Systems. Total license revenue was $38.7 million. Recurring term license and maintenance revenue for the previous twelve months totaled $273 million, an increase of 21% from a year ago.

At the end of the quarter, we held our 12th Annual Connections User Conference, drawling 1,600 attendees. There were a few important takeaways for the Guidewire team after spending three concentrated days with our customers and prospects. First, is that our customers strongly agree with our view that digital predictive analytic and device-driven technology are driving competitive threats and business model change faster than we would have predicted several years ago.

Second, our customers are inpatient for us, both to develop new capabilities and to reduce their total cost of ownership. They agreed that squaring the circle will require more content and partner integration to support market segments and geographies with an ever-more complete solution, and to leverage the cloud for more standardized and rapid implementation.

Third, our customers are exceptionally engaged and loyal. In return, they are relying on us to stay true to our mission and to fulfill our commitment to invest in our platform for the long term. They see a mutual win in our platform growing into the industry standard, on top of which they can pursue their own strategies for differentiation and growth.

Aside from Connections, we continued recent trends of winning new customers and expanding existing relationships with both additional DWP coverage and new product licenses. In addition to sales of InsuranceSuite, we saw continued momentum with our digital and data products including predictive analytics. Our new products are on-pace to grow as strongly as last year in percentage terms.

We also continue our pursuit of mandates from the largest companies in our target market, namely Tier 1 insurers. As we discussed in our previous call, our pipeline this year features a small number of larger transactions. We believe that we have probability weighted them appropriately in our guidance, but it is worth noting that the timing and final commercial form of such transactions are inherently more difficult to judge ahead of time.

For example, our traction with large insurers continued in the fourth quarter, as we earned the selection of National Indemnity, Berkshire Hathaway's oldest subsidiary and a sizable Tier 2 insurer. Which licensed claim center, business intelligence and digital portal for its commercial, personal, reinsurance and workers' compensation lines. In this instance, certain commercial terms required us to defer recognition of all license revenue until the project is completed, which we anticipate occurring after the end of this fiscal year. While this is an atypical result, it does reflect the complexity that can affect our forecasting process, especially with respect to larger insurers.

Other new customers in the quarter included Grinnell Mutual, a Midwestern insurer who selected InsuranceSuite, Digital Portals business intelligence. And [NE and Covey] Holdings, who license predictive analytics for usage in both underwriting and claims. Three additional commercial line subsidiaries of the W. R. Berkley family of insurance companies selected ClaimCenter. And we added a new subsidiary of the multi-national insurer, Zurich, with the addition of Zurich Mexico, who selected ClaimCenter and Digital Portals. Outside of North America, among others, StaySure Limited in the UK selected the predictive analytics for profitability, and an accident compensation corporation in New Zealand selected PolicyCenter, BillingCenter, Business Intelligence and Digital Portals.

Customers who expanded their relationships with us included expansions to license more InsuranceSuite, and additions of data and Digital Portals, as well as Predictive Analytics. For example, [Febulls] became a suite customer with the addition of PolicyCenter and BillingCenter, and also selected data and portals. Safety National selected our data products and BillingCenter to complete their adoption of the suite. Our data products were also selected by Universal Group in Puerto Rico and Hartford Mutual in Maryland, who selected Data Management and Predictive Analytics for profitability.

Numerous customers also added Digital Portals in the quarter including Alberta Motor Association, Farm Bureau Mutual of Idaho, AAA Carolinas and Wawanesa. These wins across all product areas validate that our platform approach is resonating with the industry. We also see the market embracing our thesis that the winning operational platform for P&C should unify digital engagement and data solutions with core transactional application. This shift in demand is rewarding our strategy of expanding the reach of our platform, and we see our wins in digital and data as validating our decision to augment a long-standing software development approach with targeted acquisitions and opening additional development centers outside of Silicon Valley.

In the first quarter, we saw strong interest in Predictive Analytics, an indication that customers and prospects were eager to leverage new differentiated capabilities of the Guidewire insurance platform. In addition, our underwriting management system acquired from FirstBest in the first quarter is now showing promise, as customers with complex lines of business, usually in commercial insurance, have shown interest in how such a collaborative application can extend the functionality of the Guidewire suite. We also expect customers to ascribe even greater value to both of these products as we deliver deeper integration into our platform.

Delivery-wise, our strong network of systems integrator partners continues to be instrumental to our success. With their assistance, we continued our track record of successful go-lives, and ended the quarter with 168 live core implementations. Go-lives in the first quarter included Amica Mutual, Insurance Corporation of British Columbia, State Auto, Brotherhood Mutual, The [Dentists] and the Belgian insurer, [Turing Afrance].

Last quarter, we gave some detail on the size and nature of what we refer to as our Digital Greenfield Project. The progress we made in the first quarter on this initiative supports our confidence in a go-live before the end of the year. In summary, our first quarter supports our optimism about both our near and long term prospects. We feel an urgency to capitalize on an expanding opportunity and to serve the pressing needs of a vital industry undergoing rapid technology-driven change. I now turn the call over to Richard to review our first quarter results in more detail, and our financial outlook for the second quarter of FY17.

Thank you, Marcus. As Marcus indicated, we exceeded our guidance for the first quarter in both revenue and earnings. Total revenue in the quarter was $94.1 million, up 14% from a year ago. Within revenue, license revenue of $38.7 million increased 20% from a year ago. License revenue benefited from $4.2 million of perpetual license revenue from one existing customer in the first quarter. It is important to note that we continue to expect that for the full-year, perpetual license revenue will be similar to that of FY2016, as term licenses remain our predominant licensing model.

Maintenance revenue of $16.5 million was above our guidance range and increased 18% from a year ago. Services revenue was $38.9 million, an increase of 8% from a year ago. Services revenue was above our guidance range, as billings exceeded expectations and we also benefited, in part, from the recognition of approximately $1.7 million. Which had been deferred until formal acceptance of the delivery and implementation of a project for an international customer.

Turning to profitability, we will discuss these metrics on a non-GAAP basis. And we have provided the comparable GAAP metrics and a reconciliation of GAAP to non-GAAP measures in our earnings press release issued today, with the primary difference being stock-based compensation expenses. Non-GAAP gross profit in the first quarter was $58.3 million, an increase of 12% from a year ago, which represented a non-GAAP gross margin of 62%, a decrease, as we anticipated, from 63.5% in the year-ago quarter.

As we indicated last quarter, we expect gross margins to be lower in FY17 than they were in FY16, due to the deferral of revenue associated with our Digital Greenfield Project, investments in new cloud operation and production and services personnel, and the effects of our acquisitions of EagleEye and FirstBest. As such, we saw year-over-year decreases in gross margins for each revenue line, specifically non-GAAP gross margin for license was 96.6%, maintenance was 82.4% and services was 18.8%. Notably, services gross margin in the quarter was positively impacted by approximately 4 percentage points as a result of the recognition of previously deferred revenue, which I mentioned previously.

Total non-GAAP operating expenses were $57.3 million in the first quarter, an increase of 25% compared to a year ago. In addition to ongoing investments, contributing to this increase were the impact of our acquisition of FirstBest and costs associated with our Annual Connections User Conference. Which took place in the first quarter of FY17, as opposed to FY16, in which it occurred in the second quarter. Non-GAAP operating income was $1.0 million or $5 million above the high end of our guidance range, due to higher-than-projected license, maintenance and services revenues. With non-GAAP operating income above expectations, non-GAAP net income of $1.1 million or $0.02 per diluted share was also above the top-end of our guidance range.

Turning to our balance sheet, we ended the first quarter with $686.2 million in cash, cash equivalents and investments, down from $735.8 million at the end of FY2016, primarily due to the $33.6 million we used to acquire FirstBest during the quarter, as well as seasonal operating cash outflow of $12.9 million in the quarter. Total deferred revenue was $68.8 million at the end of the first quarter, also reflecting seasonal patterns. As a reminder, our deferred revenue balance can vary widely from quarter to quarter, and is not a meaningful indicator of business activity since we typically build term license contracts annually and recognize the full annual payment upon the due date. Further, long-term deferred revenue does not reflect our multi-year contracts.

As we noted on our last call, in FY17 there is a new and notable element to deferred revenue as a result of the significant activities we have undertaken with our Digital Greenfield customer. We continue to make progress towards the delivery of this initiative, and are on-track to start recognizing revenues associated with that program in early fiscal -- in early Q4 of this fiscal year. This program contributed in the quarter to a net increase of approximately $4 million to services deferred revenue.

Now turning to our outlook. Our updated full-year guidance is largely in-line with expectations provided during our fourth-quarter call. Despite foreign currency headwinds, which based on current rates, would adversely impact license revenue for the year by approximately $4 million. In addition to providing quarterly and annual top line and bottom line guidance, we have tried to provide additional color on the expected linearity of our financial results when expectations differ from our historical performance. Consistent with our practice, we want to note that we expect revenue in FY17 to be more back-end weighted than last year, which featured significantly more activity in the first half than had been historically typical. Our expectations of seasonal trends this year will also impact anticipated quarter-over-quarter growth for the second quarter. We anticipate profitability to be more back-end weighted, as well.

With that backdrop, for the second quarter, we anticipate total revenue to be in the range of $106 million to $110 million. And within revenue, we expect license revenue to be in the range of $56 million to $60 million, which includes the impact of approximately $1 million of headwind based on current foreign currency rates. We anticipate maintenance revenue of $16 million to $17 million, and services revenue of $32.5 million to $34.5 million. For the second quarter, we anticipate non-GAAP operating income of between $13.5 million and $17.5 million. And non-GAAP net income of between $8.9 million and $11.6 million, or $0.12 to $0.15 per diluted share based on approximately 75 million diluted shares.

For FY17, we anticipate total revenue to be in a range of $473 million to $483 million, representing an increase of 11% to 14% over FY16. Within revenue, we anticipate that license revenue will be in the range of $254 million to $262 million, an increase of 16% to 19% from FY16. We expect maintenance revenue to be in the range of $66 million to $68 million, representing an increase of 10% to 13%, as a back-end weighted calendar minimizes incremental maintenance revenues recognizable in the fiscal year. We expect services revenues to be in the range of $150 million to $156 million, an increase of 4% to 8% from FY16, as the delayed start of several projects, combined with the back-end weighted license pipeline, prompts a modest reduction in the top-end of services guidance.

We expect non-GAAP operating income to be in a range of $77 million to $87 million, resulting in full-year non-GAAP operating margin of approximately 17% at the midpoint. We anticipate non-GAAP net income in the range of $52.8 million to $59.4 million, or $0.70 to $0.79 per diluted share, based on approximately 75.3 million diluted shares. We anticipate a non-GAAP tax rate of approximately 34% and an effective GAAP tax rate of 56% for both the second quarter and the full year.

Looking at cash flows, we continue to be comfortable with the perspective we shared on our last call that free cash flow should come in between $70 million to $85 million, and operating cash flow of $78 million to $93 million with anticipated capital expenditures of approximately $8 million.

In summary, we had a strong first quarter that exceeded our guidance, our Digital Greenfield initiative is progressing as planned, and we are excited about the momentum we are seeing for all the components of the Guidewire Insurance platform. As such, we remain confident that we can continue to strengthen our position in the marketplace by partnering with our customers in this time of unprecedented industry transformation. Operator, you can now open the floor for questions. Operator?

Thank you.

(Operator Instructions)

Kenneth Wong, Citi.

Hi, guys. This is Rich Hilliker on for Ken. Just a quick one on my end here. Marcus, you mentioned at the beginning that some of the customers, at Connections, you had heard that they want the new capabilities, lower total cost of ownerships and market segments and GOs.

Just curious if life insurance was at all in the conversations, and any time frame that, that could possibly flip in. And then maybe what kind of customers have been possibly pulling for that? Just curious what the dynamic there is and the conversation, if you could help us with that.

Sure, the discussions at Connections, and the participation at Connections tend to be very focused on current products, and of course, that all has 100% P&C focus. A small minority of our customers in the US and a somewhat larger minority of our customers overseas have life insurance subsidiaries, but the colleagues who work in those groups are generally quite distinct in different business units. And that reflects the fact that even in insurance companies that write both life and health and P&C, they tend to be very distinct subsidiaries in a very different operations, different distribution.

While of course, there is an aspiration to start to move things closer together in the future at most companies. So not a lot of discussion about it in that forum, but there are other contexts in which the subject comes up. I think as every organization, as every financial services company, including insurance, comes to think of -- wants to introduce a much more customer-centric outlook and sell a diversity of products.

Then the idea of cross-sell between life and non-life products becomes a more and more urgent imperative. How much interaction or integration that requires between the core systems is, I think, a subject of some complexity, but certainly at the customer level, there is a desire for that interface. And we see ourselves playing a role in that, but we also feel the fair amount of demand to say why can you not do what you have done in non-life, for life, as well. Because it is not fundamentally more complicated, even though it is a bit different.

Okay, great.

Nandan Amladi, Deutsche Bank.

Hi, good afternoon. Thanks for taking my question.

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

I would characterize them as on the same curve of maturation and increasing simplification with instrumentation and tooling that makes them easier to implement. The same curve that we followed with the core suite, the newer products are, as well. They have a substantially smaller functional footprint, which makes that curve faster to climb.

But there is -- I think there is a universal maturation process for all enterprise software as -- first, you are just trying to meet the functional requirements, and then over time, you are making it easier and easier, more and more standard, more and more business user controlled, et cetera. And I think that expectation that all of our products will become both more capable and cheaper to use is -- applies to all of our products and we hear it from every customer segment and that is not our burden to deliver them.

Thank you.

Alex Zukin, Piper Jaffray.

Hey, guys. Thanks for taking my questions. Just a couple from me.

First, maybe the first one for Richard. The National Indemnity payment terms were a little bit different than some of your other customers, historically. Can you go through maybe a little bit in more detail what drove those changes and how that has a potential to impact future deals with other customers?

And then I have a follow-up.

Alex, I am not at liberty to discuss the minutia of the commercial arrangement with this particular customer. And I would suggest that it was not a payment term that actually changed, but it was a set of commercial terms that our revenue team thought were sufficiently new and unique that they want to take a more conservative approach to revenue recognition.

We definitely do not believe that this will impact how we normally license. This was a transaction that was very competitive with one of our more significant competitors, and it required us to be a little bit more nimble on our negotiating style.

Got it. Did it have any kind of -- was there anything associated with -- similar to the Digital Greenfield Initiative with this customer?

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

Got it. And then Marcus -- (multiple speakers).

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

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

Yes, I think a more normalized interest rate environment is a very healthy thing for the insurance industry. I think you will hear that you view reflected from most executives that they have been in a long drought of close to flat, zero fixed income returns, which they are by business model or by statute, required to hold all of their surplus.

It has been a long, hard winter for the industry on that score. That is not without some positive benefits because some industry observers would say that it has compelled insurers to focus with greater discipline on underwriting, around operational excellence and the like. Some of those themes are very confident with our messages in the market and with the capable of our software.

On the whole, we would love to see a more normal interest rate environment where insurers earn more historically typical kind of returns. Exactly how that will change their buying behavior is a speculative question because pretty much for the entirety of Guidewire's existence, this has been the interest rate regime.

And so I -- we have not actually seen a world in which insurers are earning more than just a notional return on their fixed income portfolios. I look forward to that. We will see.

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

I think it is a little early to say, Alex. We did make a couple of changes at the leadership level and a few things at the team and operational level, as well. We are heavily engaged in Europe in more conversations than ever before, which is gratifying.

There is more complexity in Europe, for sure, complexity because of the diversity of regions, business models, regulatory regimes, et cetera, and also more complexity because of our staffing. To deliver the projects is complicated by language requirements and the like. So everything is harder there, but then again, we are a lot less penetrated there, so there are many more targets to go for.

And I think we are working very hard to make sure we bring -- to have a, let us call it a more robust transfer of best practices that have served us well here in North America to Europe now that we have the scale to be pursuing a lot of different conversations at the same time.

Thank you.

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

Got it. Thank you, guys.

Justin Furby, William Blair & Company.

Thanks, guys, and congrats on the quarter. Marcus, I wanted to ask about the cloud. It just felt like at Connections, this year, was much more front-and-center for you guys.

And I was wondering as you seem to put more marketing dollars, development dollars at work there, what the response has been from your customer base and prospective customers? And I was hoping you could give a sense of if you like at the deals that are at play right now in your pipelines, what percentage of them are really seriously considering cloud for core systems today?

And what you are doing with AWS and some of your partners, and what does that maybe look like a year ago as a percentage and what you think it might look like a year from now. Thanks.

Justin, to answer the first part of your question, the customer response has been wholly positive. I think there is a natural expectation of our customers that it will leverage the best in software and the cloud that is available outside of Guidewire to deliver on the two obvious goals that -- or expectations that customers have of us.

Mainly, that the software is more functionally complete and capable, and that it is cheaper and easier to implement and maintain, upgrade, et cetera. And the cloud is very relevant to that. You will recall that our cloud strategy has a couple of components.

The job one was to ensure that our core InsuranceSuite today would be cloud deployable on public infrastructure, and that is a milestone that we achieved with InsuranceSuite 9. To the second part of your question, the demand for that from customers, I think is -- it is at the level of interest and approval. They are glad that we have taken that step, and I think they are still in an evaluative mode about how many will make that implementation decision.

But I can say they appreciate having the option, and it would be our expectation that a small but growing minority of our new customers will want to deploy InsuranceSuite in that mode. But we are kind of guessing at it right now.

The other part of our cloud strategy, of course, is to deliver new capabilities outside of InsuranceSuite, or that augment InsuranceSuite as cloud-based services. And you see us doing that with Predictive Analytics, with the new Underwriting Management solution. We have done it for a few years now with Guidewire Live, and you will see more and more of what we develop in new capability to be really cloud-based, to have no on-premise analog.

The only way that you would license it from us is as a cloud-based service. I think there is every expectation that, that will be well received, and it should accelerate adoption even further for those products because there is less implementation friction. I think that is just kind of a no-brainer and an expectation from our market.

The last part of your question was, I think, what portion of our customers want to have the entire application, entire core application in a completely cloud based way. There is a bit of -- I think we have discussed this in other calls, and in our Analyst Day, there is -- the market is not completely homogenous in this respect. Smaller insurers tend to be more receptive or more eager for a cloud-based or managed service kind of model, which disburdens themselves with a lot of the IT requirements to manage a core system.

And much larger insurers or the very largest Tier 1 insurers, I think, are a lot more circumspect about it. They love the idea of cloud-based services; whether they are going to move their transactional core or their entire system of record to a cloud-based mode and hand it over to the vendor, I think we are still some distance away from that. Even though I think most people would say that it is a long-term inevitability.

Right, okay. On Accenture and Duck Creek and the sale, as we sit here today, Marc, do you think it has been a net positive from the standpoint of opening up Accenture as a partner? Or a negative from Duck Creek, in terms of -- because it being more competitive or net neutral?

How do you sort of handicap how it has impacted your business over the last couple of quarters? Thanks.

It has certainly been a positive in the sense that it has allowed something that was effectively impossible before, mainly, our services-based collaboration with Accenture Insurance Services. And they -- Accenture is the premier -- arguably the premier global systems integrator firm with tremendous reach into the insurance industry, especially outside of North America. And they -- and our ability to partner with them, I think, was made possible by the change in ownership structure for Duck Creek.

Duck Creek remains our foremost competitor in our most important market, North America, and we do not see that changing in the near-term. How their behavior has changed, I think, is -- well, it is open to discussion. I would say that on the one hand, there is maybe a sense of liberation that they get, that they are not part of a $70 billion systems integrator firm.

On the other hand, I think they lose some of the benefits of that association, that very close association and ownership structure, in that they have to stand on their own ground, which has its own significant challenges. So it is kind of a two-edged sword, and it has played out in different ways in different sales cycles. But the overall ability to partner with Accenture outside of North America has been quite positive for us, and we expect it to yield greater returns over time.

Got it. Thanks very much, guys.

Thanks, Justin.

Rishi, JMP Securities.

Hey, guys. Thanks for taking my questions. I have one for Marcus and one for Richard.

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

Our relationship with our partners has never been stronger. We have a very strong complementarity in our business models. I would say -- I would even go another step to say that we will not achieve our growth objectives if our partners are not successful.

And therefore, we invest a great deal in their enablement, in core selling activities and the like, informing them of our product strategy and all the rest. They are very, very important to us. It is important to understand that these transformation programs, there is an enormous corpus of work that has to get done.

There is just no shortage of work. Systems integrators are -- they are less demand constrained than they are actually supply constrained in being able to mobilize the kind of teams with the right language skills, with the right technical skills, with the right availability at the right price point for -- to meet the demand. That is much more their challenge than finding something -- finding a way to be relevant.

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

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

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

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

Okay, great. Thank you, guys.

Tom Roderick, Stifel.

Hey, gentlemen, good afternoon. Thanks for taking my questions. Marcus, you have talked quite a bit the last couple quarters and at the Analyst Day here about a small number of big deals coming into the pipe and managing through those.

You talked about National Indemnity on this call being one of those that converted. I am curious if this is more happenstance, or if this is a result of some certain prior implementations with other Tier 1s that have gone well that are now coming into your pipeline.

Can you talk a little bit more about the happenstance of certain Tier 1 deals or larger deals coming in? What that is doing for you to manage the sales cycles, and what sort of visibility these potentials are giving you as you work through those sales cycles?

I think there are a few dynamics at work here, Tom. Number one, we have always had long-standing aspiration to serve every major -- every insurer in our industry, with a particular focus on very large insurers that command a concentration of the premiums.

We love all our customers, but it is a simple fact that there are a relatively small number of Tier 1 insurers that are disproportionately significant in our industry. And we have had long-standing efforts at virtually every one of them in the world trying to build a relationship with them, and some of them will come to fruition in any given period.

Secondly, as we have talked about in a lot of different contexts, there are these catalysts that are bigger than Guidewire, bigger than the insurance industry. Digital engagement, new opportunities in Predictive Analytics and artificial intelligence, new modes of customer service, Chatbox and the like. There is a time of significant technology driven change, and very large insurers, even extremely successful and profitable ones, have anxieties and ambitions about what that all means to them.

And that has catalyzed them to act as it has, as it has every other segment of the market. And I think we are a beneficiary of that additional activity, as well as a locust of engagement because we have a perspective from talking to hundreds of insurers that I think, is really valued, especially by the largest insurers. We have taken advantage of that.

Third, to your point, if you are a very, very large insurer, you have a history of building all of your own systems, given a very complex legacy environment. Then as you contemplate the enormous effort that it will take to transition to a more appropriate modern digitally engaged platform, you naturally look to your peer group, and you want to know who else has done this, who have they done it with, what are their bone fides. Have they proven their scalability, have they proven their worthiness in these large scale transformation programs.

So the successes that we have been able to achieve with some very, very large insurers that you know among our customer base has been absolutely essential to establishing our credentials to serve other insurers. And as in every industry, companies are arrayed with a different degree of risk appetite. What we see now is, I think, even some of the more traditionally risk averse insurers, I think have recognized the need that standing still is not an option.

And that there really are only -- there are a very small number of credible partners that on a technology side, can help them undertake the transformation they need. So all of that has been very helpful. I think we have a somewhat of a concentration of these conversations that we are hopeful of converting within the year.

But as I -- and Richard both said in our prepared remarks, there is a kind of core unpredictability about the exact timing and structure of those deals that can be kind of confounding to the forecasting and guidance process. But we do our best.

Got it. Very helpful. Richard, quick follow-up for you.

You mentioned in your script just that there has been a handful of deals that have delayed their start or certain projects that have he delayed their start. Can you remind us what, if any, is the common theme delaying certain of those projects?

Yes, there is typically no common theme. Every once in a while, a customer will go through an inception process and understand that he needs or she needs or they need to fine-tune their internal business processes a little bit more, prior to starting their work, they want to do a little bit more homework.

They want to refine the people that are going to be allocated to the project, both internally and SIs and even at Guidewire, and that can typically cause a delay of a couple of months to a quarter. And all you need is a couple of those to change to a small degree the services revenues that you anticipate during the year.

Perfect. Thank you, guys. Appreciate the help.

Thank you.

Brent Thill, UBS.

Thanks. Richard, just wanted to reconcile. You beat the quarter and your own guidance by over $5.5 million, yet you lowered the full year by $500,000, part of that is, I believe, is FX. But can you just maybe describe why you are not letting that flow through?

So my full-year guidance is based on a view of a pipeline that stretches out two or three quarters. In any particular quarter, we are going to have some volatility because of the seasonality of large deals flowing in and out of a particular quarter can change. That impact is diluted when I look out at a full-year.

Now, I think when you look at the -- at our revision, what we did is we raised the bottom end of the license guidance by a few million dollars because we feel incrementally more comfortable that, that our license numbers are more solid. We have reduced by the same amount, the top end of services guidance, so that is a little bit of a wash.

And we increased maintenance by a hair, so we actually increased total revenue guidance by about $0.5 million. The reason that it is difficult for us to be more decisive either way, growing or not growing those revenue lines.

Is as Marcus has said, we do have some bigger transactions kind of floating around that we need to lock down and understand how we can recognize what the payment terms will be. Whether or not they license for more than one line of business, or more than one module, and these are all conversations that are currently active and happening.

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

Brent, I think it is just the variance that comes from a small number of larger transactions. I do not think that there is any calculation on their part to time their decisions based on our fiscal year. The economics of these programs are such that the licensed portion of it is actually relatively -- they are heavily negotiated, but it is still a modest portion of the total capital expenditure that the program is involved in.

They are much more concerned about fitting into their own budgeting cycles and approval processes and government cycles, et cetera, than our calendar. You are right that a year ago, we had kind of an unusual concentration in the fourth quarter; I think that was pretty coincidental.

I think, as we look at this year, we do not see that same kind of slammed into the last two months of the year kind of phenomena; we do not anticipate that. But it is back-end loaded in the sense that it is second half as opposed to first half.

Thank you for the color.

Jesse Hulsing, Goldman Sachs.

Hi, thanks. This is [Yenna] on for Jesse. I have two. First, with respect to data and digital, just curious on your expectations for these products as a new bookings contributor this year versus last year?

And secondly, just a follow-up on your earlier comment around competitive landscape. Wanted to get more color around how pricing is trending; are there any significant changes there?

Right. So to the first question, I think it is a little too early in the year to call what percentage of total bookings the data and digital products will contribute. What I said in my prepared remarks is that we see them growing very robustly at least at the rate that they grew in the last few years, and so -- and we fully expect that to continue.

We think that the attach rate we are experiencing, both with new deals and existing customers, will continue to be very strong and we still have a lot of our current customer base that has not licensed all our new products. So we do not -- it is actually only a minority of our customers who have, so I think there is a lot of opportunity, even within our own customer base. And that is particularly true of the Predictive Analytics and Underwriting Management solutions that we just acquired a few months ago.

But I think we will be similarly forthright and disclosed about their contribution to bookings, it is just a little premature to do that after the first quarter. I think the second question you had was about competition and pricing. I would say that we are competitively -- we have always been a very competitive environment.

I think it differs widely by segment, by geography and by product. There are some areas, such as the newer products, for instance, where they are not nearly as competitive because we have such an advantage from the native integration that the digital products have with our core. There are other areas that can get very, very intensely competitive, and they are naturally -- there is more price pressure.

We also have competition, not just on price, but on deal terms, on the willingness to agree to certain payment structures, or certain implementation arrangements and the like. And that is, if anything, a more important competitive battleground than the license price itself. Richard has some other thoughts.

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

Thank you.

Sterling Auty, JPMorgan.

Hi. This is [Lina Costa] in for Sterling. Thanks for taking my question. I just want to quickly follow up on the earlier commentary around Europe and just international.

Are you seeing any changes in demand across geographies or any changes in buying behavior? If you could update us on that, that would be really helpful. Thank you.

No change in buying behavior over -- no dramatic changes in buying behavior over the last year or two. I would say we are seeing on the margin, more activity and more interest stimulated by things like insure tech investments, which have increased dramatically in Germany, for example, as well as additional receptivity to Guidewire, specifically. Because we have with every passing period, more bone fide -- more customer examples, more reference cases to allude to, but nothing fundamental.

On the other side of the ledger, of course, we have the very, very strong dollar, which is not helpful. And I think it is a time of somewhat greater political uncertainty, which sometimes gets cited as an excuse, but I would not say to a degree that is really measurable.

It appears there are no -- (multiple speakers). I am sorry, there appear to be no further questions at this time. Mr. Ryu, I would love to turn the conference back over to you for any additional or closing remarks.

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

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