Guidewire Software Inc (GWRE) 2017 Q4 法說會逐字稿

Good day, everyone, and welcome to the Guidewire Fourth Quarter Fiscal Year 2017 Financial Results Conference Call.

Today's call is being recorded.

At this time, I would like to turn the call over to Richard Hart, Chief Financial Officer.

Please go ahead.

Good afternoon, and welcome to Guidewire Software's Earnings Conference Call for the Fourth Quarter and Fiscal Year 2017, which ended on July 31, 2017.

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, including developments in connection with our recent acquisition activity.

These forward-looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date.

We disclaim any obligation to update any forward-looking statements or outlook.

Actual results may differ materially.

Please refer to the Risk Factors in our most recent Form 10-K and 10-Qs filed with the SEC.

We will also refer to certain non-GAAP financial measures to provide additional information to investors.

A reconciliation of non-GAAP to GAAP measures is provided in our press release.

Reconciliations and additional data are also posted in a supplement on our IR website.

During the call, we may offer incremental metrics to provide greater insight into the dynamics of our business.

These details may be one time 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, and then I will provide details on our fourth quarter and fiscal year '17 financial results and our outlook for Q1 and the rest of fiscal '18.

Thank you, Richard.

I'll start by sympathizing with the terrible difficulties being experienced by the people of Texas and Louisiana, as well as Puerto Rico and Florida, and noting the essential roles played by property and casualty insurers in coping with Hurricanes Harvey and Irma.

These include multiple Guidewire customers such as regional carriers Texas Farm Bureau and Texas Windstorm and national carriers such as Citizens, CNA, Farmers, Nationwide, State Farm and Zurich with claims personnel that are on the frontlines of recovery.

As it always does during times of natural disaster, the industry we serve shows its indispensability.

I will summarize our Q4 and fiscal 2017 results and then turn to 2018 and the increased investments we intend to make to support and capitalize upon the growing opportunities in our market.

Our revenue and profitability were above the high end of our outlook for the fourth quarter and for the 2017 fiscal year.

Revenue in the fourth quarter was $181.1 million and non-GAAP net income was $44.8 million.

License revenue was $109.7 million, with term license revenue of $102.9 million, up 25% from a year ago.

For fiscal 2017, we generated total revenue of $514.3 million and non-GAAP net income of $78.8 million.

License revenue was $271.5 million, representing year-over-year growth of 24%.

I note, however, that this license revenue growth for the quarter and the year benefited from early payments by customers of approximately $6.1 million in term license revenue that were expected to be recognized in Q1 of fiscal 2018.

Term license and maintenance revenue for the trailing 12 months totaled $327 million, an increase of 22% from a year ago.

Business activity in the quarter was healthy across the 3 product families that comprise Guidewire Insurance Platform: core operations; digital engagement and data management and analytics.

We added 9 new customers, including 5 for InsuranceSuite and 1 for InsuranceNow.

In addition to these, 27 existing customers expanded their relationships with Guidewire by selecting additional products, including our data and digital engagement application.

In North America, we added a substantial U.S. Tier 2 commercial lines insurer, whose name I'm not authorized to disclose today, which licensed PolicyCenter, BillingCenter, Rating Management and Data Management.

Agricorp, a Canadian Crown corporation serving agricultural producers in Ontario, licensed PolicyCenter, ClaimCenter, Rating Management and Data Management.

American Independent Companies licensed Predictive Analytics for their nonstandard auto line of business.

Vermont Mutual Group, a 190-year-old personal and commercial lines insurer, selected InsuranceNow, our cloud-based all-in-one core solution to modernize all their lines of business.

In Europe, we expanded our relationship with MAPFRE, a Tier 1 multinational based in Madrid, through the license of InsuranceSuite, Rating and Data Management by their subsidiary, Verti Versicherung, one of the largest direct insurers in Germany, for the commercial auto, homeowners and motorcycle lines.

In addition to Verti, we added [Axon] Financial Services, a newly incorporated multinational based in the Netherlands who licensed InsuranceSuite, Rating and Reinsurance, Data Management and our digital engagement application for a startup commercial lines business.

In Scandinavia, Tieto Tapiola, a $1 billion Finnish insurer, licensed InsuranceSuite, Rating and Digital for their personal and workers' compensation lines of business.

Finally, we added another European Tier 2 insurer in the fourth quarter, Zurich Insurance of Switzerland, with $2.3 billion in DWP.

They licensed PolicyCenter and Rating for their domestic commercial lines.

This relationship further extends our relationship with Zurich, one of the industry's largest multinationals with entities in Canada, Mexico, the U.S., Japan, Italy, Germany and the U.K. that are already Guidewire customers.

Overall, Guidewire continues to grow a substantial customer community of insurers of all sizes and in all lines of property and casualty.

At the end of fiscal 2017, we had a total of 328 customers, up from 260 at the end of fiscal 2016.

$423 billion of direct written premium within these customers was under license for at least 1 Guidewire core application at the end of fiscal 2017, up from $342 billion at the end of fiscal 2016.

In earning our customers' mandates, we make a moral commitment to make each successful in its transformation journey, which, of course, aligns with our strong [felt] interest to extend our lifetime track record of negligible customer churn.

A partial but critical metric of customer success is the production launch of a customer's first Guidewire core application.

We ended fiscal 2017 with 218 customers, including ISCS customers, who are live with at least 1 core product, up from 163 a year ago.

In service of these customers and in recognizing the opportunity to expand customer relationships from the core, we made 2 acquisitions in 2017: FirstBest, now Guidewire Underwriting Management, as a cloud-based collaboration application for underwriters of complex commercial risks; ISCS, now Guidewire InsuranceNow, provides a cloud-based all-in-one core solution for P&C insurers.

And our prior acquisition of EagleEye Analytics, now Guidewire Predictive Analytics, provides a cloud-based machine learning-driven analytics solution to enhance or automate decisions.

These acquisitions broaden our platform functional scope and may further the transition of our products and business to the cloud.

We are encouraged that our customers are emphasizing IT simplification, business agility and time to value as more important objectives than IT control, and that they are generally evincing a greater willingness to conform to standard product configurations.

These 3 acquisitions also expand our cross-selling opportunities and contributed to our current count of 144 customers utilizing one or more of our cloud-based solutions.

Moreover, we see the maturation of public infrastructure, such as AWS, enhancing market demand to deploy our primary product, InsuranceSuite, in the cloud as well.

Today, we already have 21 customers that have opted for a cloud-based version of InsuranceSuite through our partners in our PartnerConnect program, and we will gradually increase the number of customers who transfer full postproduction responsibility to Guidewire in the cloud, as we did for the first time in 2017 with MetLife.

Looking forward, we see the market continuing to embrace innovation and investment, particularly directed toward digital engagement and distribution, new product development and improved data management and analytics.

On the digital engagement frontier, we see insurers urgently transforming their business interfaces, seeking to redefine insurer customer and insurer agent relationships from being infrequent and transactional to being convenient, continuous and value-adding, thereby increasing customer loyalty.

On the data frontier, we see a strong desire to apply sophisticated predictive analytics and machine learning to customer service and operational decision-making.

We also believe that capturing significant growth opportunities in covering new risks, where insurers lack actuarial experience, will require new sources of data and new analytical approaches to underwriting, pricing and risk aggregation.

Traditional insurers have joined -- have been joined in their quest to exploit these potentially transformative technologies by a host of new insurtech players who raised $1.7 billion across a remarkable 173 deals in calendar 2016, according to CB Insights.

In a related phenomenon, as we've mentioned before, new flows of venture and private equity capital have rejuvenated existing competitors to Guidewire.

The increased market dynamism in both demand and competition motivate greater investment to expand our addressable markets and to build on our market leadership position.

Our product teams' first emphasis will continue to be winning the core system mandates that are at the heart of our strategy.

InsuranceSuite developers will focus on increasing scalability to meet the needs of the world's largest insurers who have adopted the Guidewire platform and to expand our out-of-the-box insurance content coverage for both U.S. and international markets.

InsuranceNow investments will focus on integrating the platform into our digital and data applications and internationalizing the platform to be marketable outside of the U.S. And both teams will work on further reducing the cost of implementation and cloud delivery, key drivers of our competitiveness.

Beyond the core, we have ambitious road maps for our digital engagement and data product families, which have enjoyed quite rapid adoption because of their pre-integration to our core applications.

We now see considerable opportunity to expand the number, scope and price points of our digital applications as insurers transform their businesses toward mobile-first, omnichannel, continuous service model, potentially leveraging mobile and IoT devices.

In data, we see great potential value in providing intuitive data visualizations, enabling new risk products and embedding analytics directly into underwriting and claims workflows.

And we are rapidly evolving both our digital and data product families to become true cloud native offerings with continuous upgrade and full Guidewire production responsibility.

For example, we have enlisted 2 early adopters for our real-time cloud analytics platform, which we will describe in greater depth during our Analyst Day later this month.

General market demand and the cloud transition will also drive expansion of our services organization and require additional hiring after several years of minimal organic growth.

While we remain committed to our well-established model with global SI partners, the next several InsuranceSuite cloud subscriptions will require heavier Guidewire services involvement.

Additionally, the InsuranceNow team has a more modest set of SI relationships and a pre-acquisition history of performing virtually all implementation work on their own.

Consequently, we anticipate taking the lion's share of InsuranceNow implementations for some time.

In both cases, we intend to migrate most of the work to our SI partners over time as we gain cloud implementation experience and establish processes for the handoff in implementation to production services for both cloud offerings.

Our aspiration is to be the preeminent technology provider, serving an even larger opportunity within the $2 trillion P&C industry as insurers reinvent themselves for a more digital and automated future with new insurance risks and more agile, nontraditional competitors.

Procuring that mantle requires leadership in product, market adoption and customer success, all of which we are targeting with this year's investments, while continuing to deliver profitable growth.

I will now turn the call over to Richard to review our results and to provide our financial outlook for Q1 and FY '18.

Thank you, Marcus.

As Marcus indicated, we exceeded our revenue and earnings guidance for both the fourth quarter and the fiscal year, and we have again delivered on our goal of growing annual recurring license and maintenance revenue by 20%.

Before I narrate our financial results for fiscal 2017 and offer commentary on our forward-looking guidance, each of which we published today, I'd like to review 2 overarching themes that inform these topics: the effects of early payments and an anticipated increase in subscription sales.

As a reminder, the vast majority of our software today is licensed under a term license model, for which we recognize term license revenue on the earlier of an invoice due date or when the payment is received.

At times, we are paid weeks ahead of the invoice due date, and associated revenues can be recognized in an earlier fiscal year or even fiscal quarter.

We call out these early payments when they are significant, because we want investors to understand what portion of our growth is related to sales in the period.

At those times, we also remind investors that early payments can inflate period results while reducing the notional growth rate in future estimates.

This year, in our fourth quarter, as Marcus mentioned, we recognized $6.1 million due to early payments.

For comparison last year, we disclosed that early payments of $2.7 million were recognized in the fourth quarter of that year.

I will note here that the $6.1 million early payment will reduce our anticipated license revenue growth in fiscal year 2018 by approximately 4 percentage points.

Early payments also impact our profitability since the revenues carry no associated cost.

In fiscal 2017, our non-GAAP operating margins were higher by 1% as a result of early payments.

The same effect will reduce operating margins in fiscal year 2018 by slightly less than 1%.

We anticipate an additional revenue growth headwind for fiscal year '18 in that subscription sales are expected to increase.

As with any other company that is transitioning to a subscription model, we are motivated by the additional value we add to customers through cloud-based delivery.

However, unlike term license sales for which we recognize license revenue annually in advance, subscription sales are recognized ratably following the provisioning of our software.

Provisioning is a milestone in an implementation process where the software's base configuration becomes operable.

For some products, such as Guidewire Predictive Analytics, this may require only a matter of days.

For InsuranceSuite cloud on the other hand, that period may be as much as 90 days or more.

We will work obviously to reduce overall provisioning times over the long term as we gain more experience with our cloud offerings and we optimize our provisioning processes.

As a result of both ratable recognition and the need to effectively provision our software, revenue recognition for subscription deals is delayed compared to our term licenses.

A shift in the mix of sales toward subscriptions will therefore shift some revenue into later fiscal quarters or even fiscal years.

A potential (inaudible) us is exacerbated by the high level of activity in our fourth quarter, which can account for nearly half of our annual sales.

In brief, the greater percentage of subscription sales and the later in the year they occur, the more our reported revenue growth is negatively impacted.

With regard to cash flow, we currently anticipate billing for our subscription sales of both quarterly and annually in advance.

As such, this may have a modest negative impact on cash flows in any fiscal year.

A concentration of subscription sales in one quarter can also affect performance in the quarter and modulate seasonal trends.

As it happens, we anticipate subscription sales to represent a substantial majority of new sales in the first quarter of 2018, providing us quick proof of this potential dynamic.

However, on a trended basis, we expect a more moderated uptake of subscription yields in future quarters.

Our current guidance assumes that the percentage of subscription sales will rise from 6% in fiscal year 2017 to 20% to 30% in fiscal year 2018.

As we transition to a more subscription-based sales model, we intend to provide our investors with the percentage of subscription-based sales at the end of each fiscal year.

With that as a backdrop, let me review our finish to a strong year.

Total revenue was above our guidance, at $181.1 million for the fourth quarter.

License and other revenue in the quarter was $109.7 million.

Fourth quarter revenues grew 28% from a year ago, or 26% if we include the impact of early payments in both fiscal year 2016 and 2017.

In both cases, revenue exceeded the top end of our guidance.

Perpetual license revenue of $6.8 million was in line with historical patterns, which we expect to continue.

Maintenance revenue was $18.7 million in the fourth quarter, an increase of 10% from a year ago and slightly above our guidance range.

As we noted in the past, maintenance growth in fiscal year 2017 slowed somewhat due to historical order patterns that were very strong in the first half of fiscal year '16 and in the second half of fiscal year 2017.

That slowdown will also be evident in a yearly comparison.

Services revenue was $52.7 million, a 47% increase from a year ago and also slightly above our guidance.

This notable year-over-year increase in services revenue was due primarily to higher-than-forecast utilization levels, the addition of approximately $9.4 million of hosting and services revenue related to InsuranceNow customers, which had contracted with ISCS prior to our acquisition of the company.

Services revenue also benefited from the impact of going live in May with our InsuranceSuite cloud MetLife implementation, which allowed us to begin recognizing deferred amounts.

For the fiscal year, total revenue was $514.3 million, of which license and other revenue totaled $271.5 million.

Within license and other revenue, recurring license revenue, which includes term and subscription licenses, was $258.3 million, up approximately 24% from a year ago.

Netting out early payments in both years had an immaterial effect on our full year growth.

Perpetual license revenue of $13.1 million dipped below 5% of total license and other revenue in the year for the first time.

Maintenance revenue was $68.6 million in fiscal 2017, an increase of 15% year-over-year.

Rolling fourth quarter recurring revenue, comprising recurring license and maintenance revenue, totaled $327 million in fiscal 2017, up 22% from a year ago.

Services revenue was $174.2 million in fiscal 2017, up 20% from fiscal year 2016.

Growth is driven primarily by higher levels of service activity and the addition of approximately $16.2 million of acquired ISCS services and hosting revenues.

Geographically, the U.S. represented 60% and 59% of revenue for the fourth quarter and the full year, respectively, compared to 55% and 54% in fiscal 2016, respectively.

Turning to profitability.

We will discuss these metrics on a non-GAAP basis, and we have provided the comparable GAAP metrics and the reconciliation of GAAP to non-GAAP measures in our earnings press release issued today, with the primary difference being stock-based compensation expenses.

Non-GAAP gross profit in the fourth quarter was $132.9 million, an increase of 28% on a year-over-year basis.

This represented a non-GAAP gross margin in the quarter of 73.4%, in line with 73.7% in the year-ago period as the negative impact of a higher mix of low margin services revenue is offset by higher margin in license revenue, including the $6.1 million early payment that carried no associated cost.

Total non-GAAP operating expenses were $69 million in the quarter, an increase of 12% compared to a year ago.

This resulted in non-GAAP operating income of $64 million, well above the high end of our guidance range and represented a non-GAAP operating margin of 35.3%.

The outperformance in operating income was primarily the result of higher-than-expected revenue, including the previously mentioned early payments, as well as improved services margin, lower-than-expected third-party professional services costs and modestly lower-than-projected hiring.

With non-GAAP operating income above expectations, non-GAAP net income of $44.8 million or $0.59 per diluted shares was also well above the top end of our guidance range.

Looking at profitability for the year.

Non-GAAP gross margin was 68.6%, down slightly from 69.4% in fiscal year 2016, primarily due to the increase in the mix of revenue from services as well as lower license and other margins as expenses relating to our growing cloud operations increased our cost of license.

Non-GAAP operating income in fiscal 2017 was $110 million, up 30% from a year ago, resulting in the non-GAAP operating margin of 21.5%, well above our guidance of 17% to 18%.

Total headcount of 1,893 increased by 357 employees during the year, including 214 that we added from our acquisitions of FirstBest and ISCS.

Of these additions, 117 were in research and development, 31 in sales and marketing and 157 were associated with our professional services organization.

Turning now to our balance sheet.

We ended the year with $687.8 million in cash, cash equivalents and investments, down from $735.8 million at the end of fiscal 2016, as free cash flow in the year of $130.5 million was offset by cash used in acquisitions of $187.6 million.

Our free cash flow for the year represented a significant outperformance from our earlier expectation and an increase of 41% from fiscal 2016.

These higher-than-anticipated revenues improved collections and lower-than-anticipated expenses drove the outperformance.

Total deferred revenue was $111.1 million at the end of the fourth quarter, increasing from $107.2 million at the end of the third quarter.

As a reminder, our deferred revenue balance can vary widely from quarter-to-quarter and has not been a meaningful indicator of business activity since we typically bill term license contracts annually and recognize the full annual payment upon the due date.

However, in the future, the deferred revenue may continue to be variable and deferred revenues may sustain higher levels if we are successful in increasing the percentage of subscription-based sales, which are recognized ratably and includes licenses of InsuranceSuite cloud and InsuranceNow.

Now I'd like to turn to our outlook, which reflects the view of services revenue growth, which is slightly higher from the one that we provided last quarter.

For fiscal year 2018, we anticipate total revenue to be in the range of $611.5 million to $623.5 million, representing an increase of 19% to 21% over fiscal 2017.

Within revenue, we anticipate that license and other revenue will be in the range of $298 million to $310 million, an increase from fiscal year 2017 of 10% to 14% on a reported basis and 14% to 18% after excluding the effect of the early payments this year.

This range is slightly wider than in the last years due to the increasing number of variables we must gauge which, as I mentioned, include now the mix of ratable license as well as the timing of such transactions.

The combined effect of the potential increase in subscription-based sales and the impact of early payments this year make it difficult for us to increase license and other revenue by 20% in fiscal 2018.

The headwinds associated with this transition to subscription sales should moderate over time.

We expect maintenance revenue to be in the range of $72 million to $75 million, representing an increase of 5% to 9%.

I note that clients who subscribe to our cloud services obtain maintenance services as part of their subscription and no separate amounts are recognized as maintenance revenue.

As I indicated last quarter, we anticipate a meaningful increase in services revenue in fiscal 2018, which we expect to be in the range of $235 million to $245 million, an increase of 35% to 41%, higher than our initial view of 30% to 30% -- to 35% increase.

This increase is driven in part by increased organic growth, the recognition of deferred services revenues from our MetLife project and increased services revenues related to InsuranceNow implementation and hosting operations.

Fiscal 2018 will also be one of increased investment as we capitalize on opportunities to address a larger addressable market.

We plan for a significant increase in hiring of development professionals to meet our product development road map, which we will discuss in more detail during our Analyst Day on September 28.

We will also continue to expand our cloud operations in Guidewire production services staff ahead of potential demand and to mitigate risks of capacity constraints in this dynamic market.

This will continue to impact and reduce our license gross margins.

And finally, we will also increase investments in systems and infrastructure.

In addition to the completion of our new ERP and revenue recognition implementations, investments will include the automation of several other operational processes, strengthening information security systems and safeguards as the migration to cloud increases our responsibilities to customers in this area.

We anticipate our gross margins to decline to between 62% and 64% next year, due primarily to the significant increase of lower-margin services revenues, which we will target to operate at a 20% margin for the full year, as well as the aforementioned investments in cloud-based operations in Guidewire production services.

In our last call, we had projected incremental growth in operating margins from fiscal year '17.

Given our operating income upside in fiscal year '17, including the profitability impact of the early payments we recognized, we now expect operating margins to increase only marginally from our fiscal year '17 expectations and to represent a modest decline as compared to our reported results.

This translates to guidance for non-GAAP operating income in the range of $106 million to $118 million, representing an operating margin of 18.1% at the midpoint.

We anticipate non-GAAP net income in fiscal 2018 to be in the range of $74.8 million to $83 million or $0.97 to $1.08 per diluted share based on approximately 77.2 million diluted shares.

From a cash flow perspective, we expect to generate free cash flow of between $94 million and $106 million based on anticipated operating cash flow of $106 million to $118 million, less anticipated capital expenditures of approximately $12 million.

For the first quarter of fiscal '18, we anticipate total revenue to be in the range of $98 million to $102 million.

Within revenue, we expect license revenue to be in the range of $26 million to $28 million.

This is obviously a very challenging compare to last year, due primarily to the effects of the early payments we previously discussed.

In addition to these effects, we anticipate that a substantial majority of sales in Q1, as I've mentioned, will be subscriptions, and we currently expect no perpetual license revenue compared to $4.2 million in Q1 of last year.

We anticipate maintenance revenue of $17.5 million to $18.5 million and services revenue of $54 million to $56 million.

For the first quarter, we anticipate a non-GAAP operating loss of between $20 million and $16 million and a non-GAAP net loss of between $12.9 million and $10.2 million or $0.17 to $0.14 per basic share based on approximately 75.2 million basic shares.

In summary, we had an exciting year, and we look forward to leading the industry as it becomes even more vibrant and dynamic.

We are enthused by the sense of innovation that the industry has attracted.

We are also very pleased that the disparate elements of core data and digital are becoming identified more and more as essential components of an expanded platform.

As we continue to strengthen our leadership in this platform, we are committed to further develop our core transactional system to broaden their functional breadth, increase their performance and reduce their cost of implementation and cloud delivery.

We will also invest in new data and analytics and digital engagement products, as these 2 product categories are receiving increased attention and budget from our customers.

Operator, can you now open the call for questions?

(Operator Instructions) We will take the first question from Jesse Hulsing with Goldman Sachs.

Yes, I had a couple that are related.

First, Marcus, based on your commentary, and also Richard's about the first quarter, it sounds like the cloud pipeline is building nicely.

I was wondering if you could drill into that.

And if you can, and then I understand it's early, give us an idea of what percentage of your transactions of your licenses next year you expect to be subscription.

Yes, I'll turn the quantitative part of that question over to Richard.

But just qualitatively speaking, as Richard mentioned in his comments, we are seeing heightened demand for both the products that we offer only in a cloud-based form and then for the core systems, which we include InsuranceNow, also only delivered in cloud-based form but then also cloud-based deployments, and full InsuranceSuite cloud versions of our main product, InsuranceSuite.

So there's no question there's heightened demand.

As you know, we deal with a finite number of transactions in any given period, so we try not to extrapolate too vigorously in any given quarter or even year, but we do seem to have a clustering of additional transactions of that type in the first half of the year and have factored that into our estimation of how the whole year will come out, which we think will be a little bit more normalized relative to the first half.

I think that this underlying secular trend is undeniable, which is why we underscored it in our remarks today.

And I think we are well situated to benefit from the desire of customers to transfer more responsibility to our shoulders.

But by no means, is it an overnight phenomenon or a comprehensive one, and we fully expect that many customers will want to license InsuranceSuite as they have traditionally as well.

It's our job to calibrate the exact mix and estimate that as best we can.

And as Richard said, we are committing to -- not only to a specific forecast of that breakdown, but also to then truly [net] up at the end of the year.

Jesse, as we mentioned, we currently anticipate that subscription sales will make up 20% to 30% of total sales over the year, up from about 6% last year, and that includes all of our subscription-based products.

It is a good question you asked because the first quarter being seasonally our lightest quarter can be the one most impacted by kind of a concentration of different kinds of deals.

And in this particular quarter, we had a concentration of subscription sales.

We do not expect that the next 3 quarters will come nearer Q1 which, for better or for worse, has come in a substantial majority of subscription sales in the quarter.

Got you.

And Richard, is there any way to -- for the first quarter because of the headwind revenue from increased subscription sales which, in the long run, is a good thing.

Do you plan on disclosing any kind of true-up metric or, I guess, a license equivalent metric, or something like that, so we can get a sense of what underlying new business looks like?

We are not planning on suggesting what our quarterly distribution of sales is in any particular quarter.

What we -- because it's just too volatile.

I mean, it's very hard for us to predict these things.

But what we can suggest is, over a year, we will -- we have a sense as to how fast that migration can happen.

We may be wrong.

It can happen faster.

It can happen slower, but we have a pretty good guess as to where we think the year is going to come out, looking both at our pipeline as well as the seasonal nature of our sales.

And we will definitely, at the end of the year, update our investors on how much of our sales for that year were subscription-based.

We'll take our next question from Nandan Amladi with Deutsche Bank.

So a little bit on the previous question.

If you think about other software companies who have gone through a revenue transition, there's sort of a point where the revenue model pivots, right?

So if your new sales, you expect to go from 6%, or 20% or so in this fiscal year.

Ex-ISCS, how many of the traditional customers who would have otherwise bought the full suite for an on-premise deployment, how many of those customers might be part of this new -- so is this a pivot point?

And if it is, then are we be able to size that?

If I understand the gist of your question, Nandan, I think we expect, right now, maybe 1 out of 4, or possibly 1 out of 5, Suite customers on the larger end, maybe Tier 3, Tier 2 and Tier 1 customers may turn out to be InsuranceSuite cloud customers as opposed to just traditional term license customers of InsuranceSuite.

Obviously, anything that we sell InsuranceNow for -- any customer who licenses InsuranceNow is licensing on a subscription model or is subscribing to the software.

That's our best guess right now.

It's a newer phenomenon, not only for Guidewire but kind of for the industry.

Certainly, for larger insurers to transition full postproduction responsibility to a partner of any sort is, I think, a trend that's undeniable and that there's strong secular motivators for it.

But it's still, nonetheless, a new phenomenon and therefore subject to errors in forecasting.

But that's our best guess right now.

So maybe 1 out of 3, to 1 out of 5, Tier 1 to Tier 3 InsuranceSuite customers will come now in subscription InsuranceCloud form.

All right.

And for the follow-up for Richard.

We've talked about the new 606 accounting standard, and obviously, in your traditional license once a year rev rec model, it would not have been that much of a change.

Now as we move to a bigger share of subscription revenue, do you expect that you have to revisit that?

No.

I think that, even as we transition to more of a subscription model, the impact on our P&L will be modest in the beginning periods because it competes with already an established annuity stream of term licenses.

And so, those still represent a substantial majority of our recognized revenues and that is -- those are the revenues that are most impacted by the change to 606, so we still need to remediate those.

We are in the process of doing so.

We're ahead of plan, and we're going to continue to do that during the rest of this fiscal year.

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

Yes.

You started out the call with the unfortunate situation with Hurricane Harvey, Hurricane Irma.

It's been some time since we've had real catastrophic events and the P&C carriers have been flush with reserves.

Can you just -- now that we're going through this, remind us what kind of impact either to the negative or the positive that situations like this had on the industry and demand for your solutions?

I think -- I appreciate the question, Sterling.

I think it's a little too early to say.

The industry hasn't tabulated the outcome for Harvey yet, and of course, Irma is still an event unfolding.

So it's too early to guess.

But you are right that the last few years have been relatively benign in terms of natural disasters for the industry, which the industry doesn't get -- never takes -- gets too excited about because, of course, over time, those probabilities add up and eventually there is a natural catastrophe and a very expensive one.

So as you point out, the industry saves against that in its reserves in the anticipation of it, in an inevitable event like a Harvey.

And so, I think, the industry is well reserved against it.

You may have heard some of Warren Buffett's commentary on that, which expressed a lot of confidence about the insurance industry's ability to absorb this and similar-sized losses.

But it's too early to say.

I think the overall magnitude has been more or less scoped, and I think it's considered well within the balance of the expected, not necessarily this year versus next year, but that's the way insurance modeling works.

All right, makes sense.

And then, as a follow-up, am I right in looking at, if I take the $6 million-and-change that came early, that would have been revenue that would have been in fiscal '18, your guidance on the revenue range is still in line or better than what most of us were expecting.

And it sounds like you're expecting more ratable revenue in fiscal '18 than what was originally contemplated when a lot of these estimates were put together -- would suggest that actually the underlying business is doing even better than what most of us anticipated when we were putting our models together for next year.

How much of that is just related to the services revenue that you're taking for InsuranceNow and InsuranceSuite in the cloud versus other upticks that you're seeing just overall in demand?

I think we feel good about demand across the whole product portfolio.

As we talked about the core, which is still the heart of our business and our strategy, and this strategic high ground as well as the new data and digital products that we have today, as well as potential new data and digital products that we're at work on, plus further upsell/cross-sell of the acquisitions that we made last year.

So I think on all those counts, we feel pretty positive about where we sit.

The increased demand for InsuranceSuite cloud implementations, while they're a bit daunting operationally because there's a lot of work to be done, I think, is overall an exciting phenomenon for us because it allows us to play an even deeper role in the success that we've made for customer projects and in financial terms we participate further in the overall level of capital expense that -- the capital investments that our customers make in these programs So I think all of that is to the good on the whole.

You are right that there are -- the sum of the total -- the aggregate revenues for the company and our outlook are positively impacted with more services than whatever we would have guessed, say, a couple of quarters ago.

And that's directly related to cloud operations and some of these larger programs where our presence is expected to be much more substantial, at least, in the first phase than a typical Guidewire implementation.

We'll go next to Jason Furby (sic) [Justin Furby] with William Blair.

Apologies if I missed any of these.

I think my brain is unfortunately operating much -- at a much slower level than you guys, at least today.

Maybe just for Richard on the Q1 guidance.

I understand that you pulled forward $6 million out of Q1 into Q4, and you expect more subscription revenue or subscription deals.

But I guess, if you look at last year, and maybe this is over simplistic, but I think you did $34.5 million of term.

So wouldn't all but the $6 million that moved into Q4, in theory, recur in Q1?

So I guess, what I'm trying to get at is, is there effectively no new term license baked into the guide for Q1?

Or what's the right way to think about that?

And then, I guess, maybe, Marcus, you've kind of hinted on this.

But what's the risk that Q2, Q3 that you continue to see this dynamic?

Or I guess, maybe more context around why you feel comfortable that it will move more towards the term deal as we move towards the year would be helpful.

Yes.

On the last part of your question, Justin, we have -- as we do our overall forecasting, we look at the complexion of individual deal, and it tends to get dialed in relatively early in the sales cycle, whether or not -- the [deployment] approach and whether or not it will be an InsuranceSuite cloud opportunity.

And this is a new phenomenon for us, in general.

We have not been broadly promoting it across every prospect, and so the vast majority of our sales organization is selling software, as they have in the previous number of years.

So that kind of defines the character of every individual opportunity in the pipeline.

Now, of course, there's room for change, but unlike the exact scope of a project, which we've talked about in the past, can be variable and have up until the last -- even month or 2 of the sales cycle, whether or not the customer expects us to be taking full postproduction responsibility or doing it themselves, that's a more fundamental question that gets addressed and analyzed earlier in the sales process.

So I -- that's just a long-winded way of saying that we have a general sense of the character of the bookings that we expect to make during the year and that's the input to making that 20% guess that Richard alluded to earlier.

And Justin, to your question, I think, it's fair to assume that the amount of term license revenue that we will be recognizing in Q1 is very modest, and that's what really drives -- yes.

In terms of new term license.

In terms of new term license, right.

As I suggested, a substantial majority of new sales in Q1 will be subscription-based, and those revenues you won't see in Q1.

Okay.

And then, maybe just a follow-up.

The 20% to 30% number, Richard, is that just ACV you expect from new bookings to come from cloud versus the balance from term?

And if that's right, is there a way to kind of back into what that implies for license growth, sort of apples-to-apples, when you sort of normalize for that?

Yes.

We tried to do some sensitivity analysis, and I think there are 2 big vectors of influence on revenue.

One is the number or the percentage of sales in the year which are subscription-based as opposed to term and the timing of those sales.

And so, obviously, the later in the year and the more subscription sales we have, the lower our reported revenue.

And just as a very, very high level indication of what that sensitivity would provide is that if you shift the timing, the average timing of the deals by about 90 days, you lose about 1%, 1.5% in growth.

And for every additional 10% of subscription revenue, you lose about 2% in growth.

That's kind of -- because most of the effect is already baked into the timing of those transactions, which we suspect will happen towards the latter end of the year, in line with kind of the seasonal nature of our bookings.

Does that make sense?

Sort of, except I'm trying to reconcile that with the commentary that you expect more sub deals to come in Q1 versus throughout the balance of the year.

Well, but don't forget, right, that Q1 historically is about 10% to 15% of our total bookings for the year and Q4 is about 50% to 55% of our bookings for the year, historically.

So if I were suggesting that a substantial majority of our deals were subscription-based in Q4, then that would have a very, very big impact.

But that's not what I'm saying.

Even with the activity in Q1, again, we're going to be back-end loaded with subscription deals and we're only going to get to about 20% or 30%.

That is our guess right now.

But as Marcus mentioned, we don't have any historical antecedents to try to understand how fast that transition can happen.

I think this is a very good guess, but it's still an estimate.

We'll go next to Rishi Jaluria with JMP Securities.

I wanted to follow up on the idea of services and insurance cloud implementations.

Can you give us a sense for what the services attach rates for the cloud implementations look like versus on-premise?

And then what can be done over time to reduce the amount of customization necessary for those implementations?

Then I have one follow-up.

Thanks, Rishi.

I think we're still in the very early stages of analyzing that, and I think that, that can be a material change over time.

And in fact, we -- one of the objectives of this transition is to ensure that we get as efficient as possible in implementing customers in this mode.

And one of the benefits of cloud-based delivery is that you have a more intimate relationship with your customers' usage of your products.

And that, in principle, allows you to kind of tune the implementations more closely and efficiently to -- in anticipation of the next customer.

Now we have a very small [end] of programs to look at.

But so far, the largest program that we've done which we've talked about a lot on previous calls, the MetLife project, was I would say between 5 and 8x the size of services attach rate that we would have on -- or that we would have had, let us say, on a more traditional implementation.

I think that was anomalously high, but as to be expected for the first time we did this at scale for a very strategic program that had some very innovative and new elements in what they were trying to achieve functionally.

And that attach rate will surely lower over time.

Nonetheless, it is still materially higher until we have systems integrators working with us in this mode than we have traditionally had.

And so in calculating the services demand that we would attach to the bookings expectation for the year, we came up with a significantly higher number, and that's what you see reflected in the services revenue guide.

Got it.

That's very helpful.

And then just in thinking about subscription mix and growth rate for next year.

Is this generally net new sales or is some of that conversion from existing term licenses?

It can be both.

It could be -- it can be both.

As I mentioned earlier, every opportunity, at least as we're thinking about it today, has a character of whether or not it'll be a traditional term license or may come in subscription form.

And that gets dialed in pretty early in the sales conversation.

So whether or not you consider it a conversion, I think is a -- it's a counter factual question about what would have happened if we were not presenting our offering this way.

And that's a guess.

I think, overall, the level of demand, the number of projects that we expect to compete for and expect to win is on the same trajectory as it's been for the last number of years.

It's just that we expect more to come in this form.

And that -- and both we and the customer and our prospects are, in select cases, are very motivated to make this new model work.

So Rishi, I will say the demand for InsuranceSuite cloud may come from existing customers that want to migrate to a cloud implementation on an upgrade, right?

We don't know whether or not that's going to happen quickly, slowly, a lot or a little, right?

Or 20% to 30% does not necessarily drive into that level of detail of how the opportunities will come.

It really takes more of a look at a pipeline, a set of discussions that are happening right now and where those discussions can come into play.

If we do have a significant uptake over the next 2 or 3 years of customers that want to migrate to the cloud, obviously, that will increase our subscription-based licenses or arrangements that much more quickly.

We'll go next to Monika Garg with KeyBanc.

Just trying to understand the impact on the subscription.

You just gave us that 20% to 30% of license in fiscal 2018, it could be subscription.

If the number was similar to last year, less than 6%, what would have, the growth of license for fiscal 2018?

I don't have the answer to that off my fingertips, right.

I didn't think to normalize that 6% subscription growth and assume that those were term licenses and then try to do an apples-to-apples comparison to fiscal year '15.

But I will suggest that the benefit we received in the year-ago subscription sales was obviously modest, because those subscription sales happened over the course of the year.

Whether it improved our revenue growth by 1% or 2%, I couldn't tell you.

Okay.

So what I'm trying to understand is that -- [had been] to fiscal 2018 license growth because of higher subscription revenue than compared to term license.

So let me make a simple statement, and I think this is maybe less scientific than you're looking for.

But if we indeed were to judge our business based only on the term license revenue model, then we would have grown next year in some way -- in the same way we grew this year.

It's kind a little bit above 21% -- a little bit above 20%.

Got it.

And then one question on the cash flow.

I think cash flow last year came much higher than your guidance, about $130-ish million.

You were guiding to $94 million to $106 million for this year.

Maybe walk us through the reasons why the cash flow will be down?

So I mentioned it in my call.

There were several reasons for the cash flow to have increased significantly above our guidance and our outlook.

One is revenues came up much, much higher than our outlook, and that obviously helps cash flow since we are generally paid in the period.

In fact, collections improved significantly, and that also added a big chunk to that outperformance.

And that is something that we can't control.

We can't necessarily forecast in an easy way.

And then, finally, our expenses were lower in the quarter than we anticipated.

And that also helped.

But it's like almost $30 million down year-over-year, which is almost 25%.

Right.

I mean, I would urge you to look at the statement of cash flows, and you will see that a significant help was from collections and then we had about $10 million that helped just because of revenue growth.

And again, the expenses were not quite what we envisioned for the quarter.

We'll go next to Tom Roderick with Stifel.

So I just wanted to follow up on the services angle.

Richard, I think you mentioned the number of professional services heads is about 157 at the end of the year.

So maybe you could talk about the numbers of heads you're looking to add and the types of investments you're looking to make there.

And then follow-up to that, relative to maybe non-InsuranceNow related type of services, can you just talk about the overall impact that rising your services headcount might have with your existing relationships with some of your systems integrator partners?

Will this just keep those in place as they were given that it's kind of an emerging newer market opportunity for you?

Or does this sort of put a little friction into place in those types of relationships?

I'll speak to that last part, Tom, and then, I think, Richard will look up the headcount question which affected services.

There's no change -- intended change in strategy or relationship with our systems integrator partners.

They are still absolutely vital to our business model, and they have very long-standing relationships with a lot of the existing customers which, as you know, are an important source of our TAM -- part of our TAM in that we seek to expand relationships with existing customers.

And while perhaps some of them, over a long enough horizon, may look to an insurance cloud, InsuranceSuite cloud model, we fully expect that a large majority of them are just going to be traditionally expanding in a traditional way with very significant systems integrator involvement.

And indeed, we have quite a few customer projects now that are now in their second, third or fourth phases where the Guidewire presence on those implementations is very minimal or could even be 0 for certain phases.

So it's a very mature project.

And all the work is being done by systems integrators.

So that certainly is sure to continue.

And then, even in cases -- even in InsuranceSuite cloud projects, which will come in subscription form, even there, our goal is that system integrators will play a part of the initial implementation, even if we take on longer-term (inaudible) responsibility.

So I think this is very well-taken in stride by all of our partners with whom we've worked for many years now.

Our destinies are linked, and I think that it's just really to the good that we are seeing a transfer of responsibility from internal IT organizations, in general, to us and to them as partners.

(inaudible).

I'm sorry.

So if you actually net out the additions of FirstBest and ISCS to our services organization, services headcount actually grew very, very modestly this year.

In fact, I would say, it was less than 20 people on a net basis.

Next year, I think, we're looking to add slightly more than that, maybe 100 to 120 people, really depending on our view of demand as the year runs.

But we are adding a little bit ahead of anticipated demand, simply because the market is becoming a little bit less -- more difficult to gauge in terms of its transition to a subscription-based model and we are preparing to have a few people ready to jump in should that model transition more quickly than we anticipate.

And the only reason we need to prepare that way is because the Guidewire presence on a cloud implementation is significantly higher right now until we develop, as Marcus suggested, a set of processes to help us take it from implementation to ongoing production services.

And that's the handoff that we need to get good at.

And so in the first 2 or 3 or even 4 InsuranceSuite cloud implementations, those implementations will be controlled by Guidewire, and over time, our SI partners will become more involved.

Our future goal is to have the same kind of dynamic with our SIs in this particular part of our business as we do in our traditional on-premises license business.

We'll go next to Brad Sills with Bank of America Merrill Lynch.

Just one on the cloud adoption.

The 20% to 30% of revenue this year ratable, would you say that's higher than expected if you were to have made that estimate this time last year for fiscal '18?

Or is it more in line?

If it is higher, I guess, where would you explain potentially higher adoption in the cloud?

I don't know, Brad, if we would have had -- it's definitely higher, no question.

I don't know what our guess would have been otherwise.

I mean, it wasn't even a question we would have put to ourselves at the beginning of last year.

Of course, we undertook the MetLife program, not as a one-off, but as an important emblematic project of a trend that we thought had legs more broadly across the industry.

But assigning a percentage of our bookings and revenue that were going to come in subscription form would not have been a question that really would have occurred to us at the beginning of the year and that we only really engaged seriously with in the last month or 2, to be truthful.

It was -- [bought] through the territory assignments, quota assignments and, of course, guidance.

I think the phenomenon is happening a bit faster.

I would characterize it as accelerating, but not at a -- it's not raging tsunami of demand coming in, in this form.

It is, I think, a steady pressure and secular trend towards a transfer of responsibility out of the internal IT organization toward external partners.

And I think there's a very clear logic that having the provider of the strategic platform take on that responsibility, as now Guidewire is increasingly willing to do, is a good thing, that it simplifies the equation and leads to greater standardization, which is now a positive in the minds of most of our customers.

But that's not terribly quantitative.

I would just say it's happening a bit faster than we otherwise expected.

I think it's also important to understand that only a few deals can impact that percentage because we typically engage in larger transactions and our cloud-based transactions are even larger than our on-prem transactions.

And therefore, the speed with which this transition happened, which we believe will be gradual but sustained, even small shifts in that transition, can have an impact on our sales.

Richard makes a good point, because if any -- if we were, for example, to win a significant Tier 1 mandate for a substantial scope and it were to come in InsuranceSuite cloud form, that could have a material impact on our financials, to the good, for sure, but larger than what we've talked about.

And one more, if I may.

I think, Marcus you mentioned some more competition from some of the private vendors.

I think, in the past, you said that, that's primarily limited to Europe.

Are you seeing more of that in the U.S. as well?

Definitely, in the U.S. I would say, across the board, the insurance sector has attracted capital in every flavor, every one of the players within insurance.

So it's the primary insurers that we focus on, the brokers, reinsurers, every segment, I think, has attracted a lot of capital.

And nontraditional players in each of these segments are -- as well as technology providers to each of these segments have all attracted capital.

So after our first 1.5 decades of quite a sleepy technology space, it's suddenly become a very exciting one, at least with respect to early-stage capital.

Our view is, as I think we've expressed in other forums, is that a lot of those expectations are going to be disappointed because things don't happen as quickly, sometimes for very good reasons, in the industry.

But there are a lot of ideas being tried right now, both direct competitors to our customers and then direct competitors to us.

And that makes it a quite dynamic period for us that we have to be sure we're responsive to and highly competitively with.

We'll go next to Alex Zukin with Piper Jaffray.

Yes.

This is Scott Wilson, on for Alex.

Marcus or Richard, just out of curiosity, with the growing portfolio of products, as well as offerings for different sizes of insurers now, going into this new fiscal year, are you planning to make any changes in the sales organization with respect to how you go to market given the increasingly complex product portfolio you have?

And then, just related to that, given your expectations for increasing subscription deals, are you doing anything with your sales force to incent these types of deals over traditional license or term license?

Yes.

Thank you, Scott.

That's a very thoughtful question.

So with respect to the first part, small versus larger prospects, it's a very important part of our strategy that our products are as broad as possible in their replicability and that we're not building lots of different sub products that apply to different subsegments of the market.

Now we have made a very important decision that we've talked about on previous calls to have 2 cores: InsuranceSuite and InsuranceNow, I think.

And they're quite different from each other and satisfy different segments of the market, but fundamentally have the same underlying value proposition.

And it's important that all of our surrounding products, the data and digital products, work with both, without having different versions of each of them.

And now the way that translates into the go-to-market strategy is that we still have a direct sales model with individual account ownership.

We do have a kind of focused overlay team that has been assembled for InsuranceNow sales, but that the data and digital products are still -- are broadly distributed and represented by one universal team.

Now the second part of your question was, are we undertaking anything at a sales incentive level to focus on InsuranceSuite cloud customers?

The answer is no.

We have -- these are more complex sales because they're the larger scope of work and larger evaluative footprint that the customers will go through before making a decision, so that they're intrinsically more complex sales, they're larger ticket.

And that's, just by its very nature and its newness, means that it's -- they're more focused and more, let's call them, executive discussions today.

Over time, I think, they'll become more, sort of, matter of course.

But right now, it's a pretty small segment of our prospect base that we are focusing these conversations on and, correspondingly, a smaller subset of the customer facing organization and the executive team that's focused on them.

We'll go next to Ken Wong with Citi.

Marcus, earlier you mentioned that you guys have about 21 customers that are already on the cloud through your partners.

How should we think about what happens to those relationships?

Do they kind of migrate over to your supervision?

Or do they stay with your SIs?

Our expectation is that they'll stay with partners and we're certainly not in any way pursuing or motivating a different trajectory for those.

They are still a pretty modest portion of our total customer base, and there are, generally, a set of specific conditions that have aligned with those to be the right answer.

But as you can tell, 21 is not 0. There are a meaningful minority of our customers who saw value in that and will continue to want work that way.

The InsuranceSuite cloud prospects that we'll be talking to, generally, in the kind of Tier 2 or possibly even Tier 1 segment, that generally larger more complex insurers doing -- sometimes, as in the case of MetLife, undertaking quite a significant business model transformation or go-to-market transformation.

It's more of those kinds of situations which are not exactly unique in that we see more of these opportunities arising.

But in each case, there's a lot of specificity that requires a more complex go-to-market and customer engagement model.

So in a way, they're addressed at different segments of the market, even if the underlying proposition of transferring responsibility outside of the organization for the application is the same.

Got it.

And then, is this -- you guys have been talking about the InsuranceSuite cloud, but should we assume that they have to kind of go all in with InsuranceSuite as a whole?

Or are there going to be elements similar to traditional InsuranceSuite where they can go ClaimCenter cloud and PolicyCenter cloud, et cetera?

Yes, absolutely, Ken.

It's -- first, to be clear, it's the same code base.

So InsuranceSuite cloud is not a different code base or a different product.

It's a different delivery and deployment and ongoing application management model.

As with InsuranceSuite, there will be plenty of cases where customers will license only one of the core applications, just claims or just claims and billing or policy or any combination thereof, as it suits their business.

We'll go next to Justin Furby with William Blair.

I'm sorry for dragging this on.

I just wanted to go to the profitability side of the cloud model, the 20% to 30% subscription expectations.

What does that do to profitability this year, Richard, given you expect a lot of that to be kind of at the end of the year?

What's the impact?

So we haven't studied what profitability would be if we were only on term license revenues this year.

So the comparison is not one that I can provide you with any degree of science or accuracy.

But what I will say is, generally, as we invest in this cloud transformation, margins will, at the outset, decline because we are investing ahead of market demand.

And then, as we add more customers to the platform and we can amortize those initial setup costs and those initial team building investments in Guidewire production services and cloud ops more broadly over a greater number of customers, those margins will then pick up again.

And how that flow happens, how does that decline and then increase happens is not something that right now we're prepared to talk to because, frankly, we don't know with specificity how fast this transition happens.

But generally speaking, in the initial transition of the model, margins will compress a little bit and then they will come back.

Indeed, you've already seen some compression this year in the cost of license margin and that obviously impacts the whole P&L and you're going to see a little bit more of that next year, which is why we brought down our gross margin guidance to 62% to 64%, as an impact of these investments that then we'll be able to carry growth in InsuranceSuite cloud and InsuranceNow implementations.

And with no further questions in the queue, I would like to turn the call over to Marcus Ryu for any additional or closing remarks.

No additional comments.

Thank you for joining our call today.

This does conclude today's conference.

We thank you for your participation.

You may now disconnect.

Thank you.