Guidewire Software, Inc. (GWRE) Earnings Call Transcript & Summary

Thank you, everybody. Chris Merwin here. I cover Guidewire for Goldman Sachs. And I'm very pleased to be joined by Jeff Cooper, who is the CFO of Guidewire. Jeff, thanks so much for being here.

Happy to be here. And thanks so much for having us.

Absolutely. Well, to kick things off, I guess, with everything that's transpired in 2020 for the insurance industry, for Guidewire, I guess, can you talk specifically about how the impact of the pandemic has impacted your customers and then specifically how that informs their strategy around system migration to the cloud in 2021?

Yes. Sure. So obviously, there's been a lot of introspection and thinking around how -- what COVID has done in the here and now as insurers in general adapted to the complex environment that was evolving all around them. We sell systems that are core systems in nature, 100% focused on the property and casualty insurance industry and primarily focused on modernizing what are historically legacy systems that have been instantiated in an insurer for, in some cases, 30 or 40 years. And so these are very large strategic initiatives and I would say measured purchasing behavior around these types of systems. As the insurers were adapting to the environment that was being presented by COVID, I think there was a little bit of a slowdown in kicking off those types of large strategic initiatives as they maybe needed to front-load some investments in ensuring that they could engage with their customers in a digital modality because being in person was complicated and a variety of other things. So we did see some impact. And that was most notable, I would say, in our Q3 of last fiscal year when we noticed the lengthening of those sales cycles as people were adjusting to what's going on. I think the industry in general has risen to the moment in terms of whether it's providing rebates to auto customers who aren't driving nearly as much but just finding interesting and new ways to engage with their insurance in order to service them. But in terms of thinking about large, core strategic initiatives, we did see an immediate impact as the world went into lockdown. And as we've come out of that -- and even in our Q4 last year, which ended in July, we were really pleased with the activity levels that we saw as people started to move beyond kind of those initial reactions and get back to longer-term strategic thinking with respect to how they think about their IT framework. So that was kind of what we've experienced. It's hard to say. We're in the midst of a number of transitions at Guidewire. We're in the midst of shifting the industry to the cloud, and that's having an impact on kind of how insurers approach buying a system such as this in addition to kind of what we saw with COVID.

Great. So I want to talk a lot about the cloud. But before we do, I wanted to ask about the on-premise business. I think a couple or 3 quarters ago, there's a little bit of pressure there that you saw. It sounds like that since normalized. But it still seems like there's healthy demand for on-premise systems where, to your point, a customer may have a mainframe system that's 30 or 40 years old. So getting up to on-premise Guidewire is a huge leap in terms of their capabilities. So can you just talk a bit about what demand has been looking like for on-premise segment of the business?

Yes. There is still demand for on-prem. As we inspect our expectations for bookings and other sales measures, we do expect the vast majority of new core system purchases to be in the cloud modality. We've talked in the past of getting into the upper ranges of 80% of our bookings, those types of ranges should come from the cloud side of the business. That being said, there are pockets of the world where we still see a high interest in on-prem and Europe is a little bit behind the U.S. in terms of making the move to the cloud. So there still is demand, but we expect the majority of our demand to come in the cloud modality for new core systems. There are some accounting elements that may cause term license revenue to actually show up positively even in the context of a cloud sale like, for example, when we sell a migration to an existing customer, they still have to leverage their on-premise capabilities. So an allocation of the purchase price will be allocated to term license that could even cause some of our term license revenue to optically increase even though the emphasis there is going to the cloud.

Got it. And how do you think about balancing accommodating customers that, say, for whatever reason, still want to be on-premise versus, of course, getting everybody to the cloud? Because today, it seems like you're willing to meet customers where they want to be, of course, with the preference for the cloud, but you haven't taken a step yet of doing forced migration. So just curious how you think about striking that balance.

Yes. This is a conservative industry and a measured industry. And we are actively working to meet our customers where they are and where they're at. At the same time, I think it is clear from our messaging and the conversations that we have been having with customers that we're focused on a cloud-first strategy. Our R&D efforts are focused on cloud first. That is where the thrust of our investment is going to go. We will continue to drop down functionality and capabilities to our on-premise product as it makes sense. But they will be on a different release cadence and a different release cycle than our cloud customers. So that is where we are focused. And our customers largely understand that there are pockets of on-prem demand that we are seeing today. And even those customers, as we engage with those customers, what I've noticed more recently is more and more are asking for cloud pricing even in the on-prem contract because they are thinking long-term and they're saying, "Hey, I may not be ready to go to the cloud, but I likely will go to the cloud at some point in time. So I want to kind of understand what that relationship would look like with Guidewire." And as we implement them, we will also kind of consider the end destination of going to the cloud and cautioning them against kind of implementing in a way that would make it difficult for them to migrate to the cloud in the future.

Got it. And then I mean as it relates to the cloud, you've got customers who have taken a version of InsuranceSuite 8, 9 and 10, probably mostly 10, but some version of your on-prem InsuranceSuite product and have then done a migration, right, to the cloud. Then you also had your Guidewire Cloud Platform, where I think you have 3 customers, I don't know if I'm not mistaken on that now. I know you're investing a lot of money in R&D in the cloud platform. So how do you incentivize your customers to get on the cloud platform and not lift and shift an on-prem version to the cloud, where ultimately you want everyone on that cloud platform such that they get all the updates, and of course, you realize the efficiencies from a COGS perspective?

Yes. So the Guidewire Cloud Platform was part of the Aspen release. That's when -- that was when we launched that in a GA fashion. And that is the destination for all of our cloud customers, right? Eventually, we will get all of our cloud customers on that path. And when you're on that path that you'll become -- you are then on the ski slope of release cycle that will allow us to do 6-month releases to the industry, which is a pretty meaningful change off of what people were experiencing in an on-premise world. You're right. We do have some of the early cloud customers that we signed where we're more of -- we brought them to our version 10, and then we brought that version 10 into a Guidewire Cloud that was managed by our internal cloud operations folks. So we have a number of customers that are live in that manner. And over time, we'll work with those customers to find the right time to port them over to the Guidewire Cloud Platform. And there may be some architecture changes that is required as part of that exercise. But going forward, all new cloud customers should be going -- there have to be highly unique circumstances for why they wouldn't go on to the Guidewire Cloud Platform. So all the new -- and most of the new implementations we're working on, especially those that have been sold post the Aspen release, are all focused on going to the Guidewire Cloud Platform.

Got it. And can you talk a bit about how Cloud Direct helps to facilitate that? And also, maybe just the -- if there's a way to frame the time or cost of having an existing Guidewire Cloud customer not on GCP make that transition over.

Yes. Yes. So Cloud Direct is an initiative primarily run by our upgrade team and our professional services organization to enable our customers who aren't on version 10 to go to the cloud without taking an intermediate stop at version 10. So when we first started rolling out Guidewire Cloud, we asked the customers to upgrade to version 10. And then from version 10, which was our first version of the software that was really optimized for cloud delivery, we're taking them to the cloud. We've removed that kind of intermediate step as we now have a clearly defined destination, which is a little bit different than what we had previously. And so all of this is about just further instantiating the steps that is required and making it more visible, making this path more well trodden so that insurers understand the steps that they need to take in order to get onto the Guidewire Cloud Platform journey. And so we have a team that's very focused on those steps and making that as programmatic as possible, almost productizing that approach to the best of our ability. Obviously, there's highly unique environments that we're working with. And so that's the process that we're going through. So if you're on version 8 today, there is a path for you to go directly to the cloud. If you're on version 7 -- and a small cohort of our customers is still utilizing a version that is lower than version 8. It's a little bit more of a complicated approach. But those version 8 and above, which is the vast majority of our customer base, have a relatively clean path to go into Guidewire Cloud. Now there are some incremental costs vis-à-vis just doing a straight upgrade to version 10. There's a little bit of a remediation exercise that you have to go through in order to make sure that you're satisfying the requirements in our architecture layer that is going to be much more standardized. And we're working with our customers and investing a bit there to help make that as seamless as possible.

Got it. And so it sounds like, as you said, a majority of your cloud customers are in the group that went to version 10 and then migrated to the cloud. So in terms of like the time and cost of getting them to Guidewire Cloud Platform, anything you can share there?

Yes. There's a variety of customers there. There's a handful that are currently live that would not be on Guidewire Cloud Platform. Some of the ones that -- even if we had started implementing prior to the release of Aspen, we were able to then kind of get those on the right path. So there are a handful of customers that went on kind of what we internally call Guidewire classic. And there will be some costs in order to migrate them over, and we'll work with the customers to choose the right time to do that. But those shouldn't be so material. We'll work through those. And there's nothing kind of that I would call out in this forum with respect to that. But there are some marginal costs that would go into doing that work.

Makes sense. And I guess in the context of your long-term targets that you put out for revenue -- top line growth and everything, how should we think about -- I think you basically mentioned that substantially all of the net new cloud customers will be on Guidewire Cloud Platform. Do those targets also assume that you've migrated the customers not on Guidewire Cloud Platform to Guidewire Cloud Platform as well?

Yes. Over time, we will do that. So as we start to think about the longer-term targets, clearly, by those points in time, we will have completed those migrations. We'll see. It's unclear to me exactly how long that will take. Whether it's kind of a couple of years or a year, we can work through those. But yes, the assumption is that we will get everybody onto that converged infrastructure that supports this fast cadence release cycle.

Great. So in terms of the updates, there's been Aspen. There's been Banff. And then you've got another one coming up, I think, in 2021, Cortina, I believe it is. Can you talk about the feedback that you've got from customers on Banff so far? Anything you can share about what we might expect to have in subsequent releases?

Yes. A big part of this is really making clear the destination that we want our customers to get to. And I think that that's been really critical in terms of our ability to communicate to customers what this path looks like. Everybody is excited about the vision of a system that you don't need to worry about maintaining and updating, doing a major upgrade and taking that potential business disruption to implement that upgrade on a kind of 4 to 6-year cadence, staying current. And so that is a big part of the value. And so just the mere fact that we have delivered a platform and the architecture layer that supports the release of new releases on a 6-month cadence is a big shift for the industry. And then there are innovations that we've delivered with those products. So some of the enhancements that we've talked about is Advanced Product Designer, which allows an insurer to bring new insurance products to market in a much more rapid fashion where a business user can actually instantiate these products without having to go to their IT department and do a lot of custom coding to bring new products to market. So that was a key part of the Aspen and Banff release. We've also talked about Autopilot as one of the new features that we're announcing that will allow us to automate a lot of the claims process and enable a much more straight-through processing of claims, which is something that certain cloud customers are really excited about. So there's a lot of -- there is innovation elements there that we're working on that on a future functionality basis that will get some customers pretty excited. But just the overall ability to keep customers current and deliver new features in our rapid cadence is what is, I think, is really the most transformational thing about the new releases.

Great. And I think you alluded to this a little bit in your answer, but the low-code platform, obviously, was one of the significant parts of the Aspen update. And how important has that been for customers, particularly as it relates to configuration? I know for some of your customers, these are such massive deployments. The professional services work can be expensive and perhaps daunting in some cases. But just curious how that has impacted customers' willingness to make these migrations if the low-code platform can help reduce some of the friction around implementations.

Yes. You talk to our customers and what are the some of the driving factors that are driving -- modernizing their core system framework. And you hear the words agility a lot. So being able to respond to changing market needs in a rapid fashion is one area. And that's where Advanced Product Designer, the low-code platform that enables you to bring a business user to bring products to market is quite compelling. On the flip side, when you're rolling out a core system to some of the most complex IT environments in the world for large insurers, so much of the complexity of the implementation process is really around how you integrate to all the different components of that system. I was just on a call with Mike, and he mentioned what we do is very much at the hub, at the center of what an insurer does. A lot of SaaS applications are more at the spoke level, right? It's a little bit easier to instantiate a SaaS application at the spoke level. It may need to integrate to the hub, but it doesn't integrate to all components of your IT framework, and we are very much at that center. So so much of the complexity of instantiating and implementing these systems is around all of those unique integration points. And there is work that we can do to build out better API layers, better integration hubs to support that work. But that's still complexity that you're going to need to tackle. And I'm not sure that you can tackle that in the low-code or no-code manner.

Understood. In terms of, I guess, what you've seen more lately, I mean you get asked here and there about win rates and pricing and things like that. I mean anything you can share about directionally how those are changing or -- for win rates? And then as it relates to pricing, is that something that you get much pushback on with customers? Or is it really not so much at all about the pricing, it's just about those customers being ready to take on the project and push the systems to the cloud?

Yes. So on the win rate side of things, we disclosed some metrics during our Analyst Day and how we think about that. And we do a pretty deep dive into all the kind of core system decisions that occur globally. And there's always an evolution and some changes. But overall, there hasn't been a material shift. We've always operated in a competitive market. There are a number of competitors that are credible competitors here in the U.S. and then globally. It's not uncommon to have one particular competitor in each country. Some of those are more services oriented rather than kind of true packaged software oriented. But haven't seen a material shift in our win rates. Obviously, the shift to the cloud is changing some things. And we may have seen some of these insurers at the lower end of the market that have a bit more simplistic use cases, make that move to the cloud a bit earlier or be ready for that move to the cloud a bit earlier. And now we're starting to try and tackle what I call the meat and potatoes of the industry, large books of business that exists out there and migrating those parts of the market to the cloud. On your second -- what was your second question again?

Just around pricing. Like I know with the cloud -- I mean at times, you talked about the 2 to 2.5x pricing uplift. I know that can vary certainly by size of the carrier. But is that pricing uplift still the right way to think about things? And is price much of a sticking point at all or not so much?

So that is still very much the way we think about it. And we think about it in that 2 to 3x range is really how we think about it. Total cost of ownership is always an active conversation with our customers. A lot of the hang-ups on total cost of ownership actually can come more on those implementation costs and those upfront costs in order to implement the system. And obviously, that can have an impact into how we think about the software cost, the subscription cost and the ARR cost. But all of the data points that we've seen still point to the fact that 2 to 3x is the right range. And we're actively working with our customers to, again, try and standardize and make more repeatable some of these steps in order to implement the product that we can kind of help lower some of those upfront costs that are off in a hurdle in terms of implementing or kicking off a project like this.

Got it. I know early in the cloud transition, one thing you were doing to help incentivize customers to migrate was that you introduced ramped pricing where because at the onset of a transition, there's professional services, you have to keep paying for the license, then you get turned on for the subscription, it's a lot, obviously, of cash upfront. And so is that ramped pricing structure still the primary way you're pricing these migrations, I guess, number one? And number two, that type of pricing structure caused you to introduce a metric called fully ramped ARR. And I just want to make sure -- I know you update that annually. But just curious if that's still the best way to look at your growth given how you're pricing these deals.

Yes. So ramped contracts -- ramps have been around even before the cloud. It was common even in the term license world, although it's become a bit more pronounced in the cloud world, especially as the ASPs are larger for these cloud deals. It is still the way we think about it. Especially in a migration context, the ramps can be quite pronounced because the way we think about a booking is it's the incremental value that's being delivered to Guidewire above whatever renewal value that exists. So if you're an existing term license customer, you already have ARR that's flowing through our financials. When we then sell a cloud migration, we only look at kind of the bookings, the value that's incremental to what was in the renewal amount. And oftentimes, a migrating customer will only pay a small uplift in the first year of that ramp because they're already paying their term license. They're not up and running and live on the cloud product yet. And then you start to see that contract ramp in a more material fashion in year 2 and year 3. And somewhere -- some contracts will ramp all the way to year 5. This is a not uncommon structure. And even in new arrangements, we also will see ramps. So that is pretty common. The fully ramped metric we released a couple of years ago was to help investors see some of that activity that may not be manifesting itself in the current year ARR. I would expect as we continue to grow and see ARR accelerate that fully ramped ARR in kind of productive years where we're seeing a lot of migration activity and cloud activity should kind of run ahead of ARR from a growth perspective, but maybe not materially. The first year we disclosed that, I know that there was a very material separation between fully ramped ARR and ARR growth. Last year, that normalized for a variety of reasons. And then as we look forward, I would expect it to grow a bit faster than ARR.

Okay. Very helpful. Thanks. In terms of cloud gross margins, I mean, this is a topic we hear a lot about. And I know it really all ties back to what we were discussing before about getting all your customers onto Guidewire Cloud Platform such that you can realize more efficiencies in terms of your cloud COGS. Can you talk a bit about the process of realizing the gross margin efficiencies in the cloud? Is it pretty much tied directly to how fast you can get all these customers on cloud platform? Are there a bunch of other nuances? Just would love to hear about how to think about that trajectory getting up to your long-term targets over time.

So the first thing to talk about is as we have invested heavily in the cloud operations function to support the existing cloud customers and what we expect to sell kind of in the near future, we are really building out a best-in-class cloud operations function to support our cloud customers in the future. And that -- we have been able to variabilize a lot of the expense of going to the cloud. We no longer have to build data centers. We can leverage things like AWS and other things to better variabilize many of the expenses of going to the cloud. But building out this cloud operations function has been a big focus for us and a big investment area as we move through this year. As we exit this year, we do expect to start to be able to leverage that investment in a more meaningful way. Now that we have a clearly defined destination where we're bringing our customers in the Guidewire Cloud Platform, we have the different Aspen releases that are tackling certain things that will help us better manage the run time operation costs of these customers. And we have a very -- we -- because we have a clear destination of where we're getting people to, it enables us to have a much more productive conversation with R&D and our cloud operations to highlight specific features and functionality that we're developing that can have a meaningful impact on the run time cost to support an incremental customer. One of the key areas that we often talk about is that integration layer. So much of the complexity of managing these environments is all those different touch points that we're at the hub, and all those different integration points that we have can create a lot of complexity to running these environments. So those are areas that we're investing quite heavily. The aspiration is as we build out this cloud operations team, we used to think about how many cloud operations head count do we need to support an incremental customer. We have since kind of moved this cloud operations team, so it will operate in pods. And now we think about how many customers can a pod support, and we start to see our ability to scale this. But we're not there yet. We're also the really critical part of the overall demand curve with respect to the market. And these early customer cohorts are so critical. So we are hiring a bit in anticipation just to make sure that we don't have any missteps as we're signing up these early customers that will be important references for the industry. But as we exit this year, we do think that we can start to see leverage on these investments. And then from there -- it's not going to happen overnight, but we can start marching in the right direction towards the longer-term targets that we talked about at Analyst Day.

Great. Actually, a question from the audience came in, just kind of keeping on this topic. Can you give us a sense of what percentage of your cloud COGS exiting '21 are going to be fixed with kind of personnel around cloud option support versus the variable cost that you'll bear, and obviously, what that might look like as you get to that long-term target?

We haven't broken out in specific detail. But the vast majority of our costs right now are head count attached. And so as we can leverage those investments in a more meaningful way, that's going to be a big driver of margin expansion.

Perfect. Sounds good. Yes. So in terms of the ARR growth, obviously, you've already sort of talked about what that would look like this year and even next year kind of in terms of high-level terms. Anything you can share about like what are some of the upside drivers there? I mean anything you can share about pipeline build right now? Anything you can share about close rates as we sort of move through the pandemic? And it seems like we're getting into a better IT spending environment. Just trying to understand some of the ways in which you could exceed those targets that you've set out and what you're seeing today.

So we think about -- and we've talked about at Analyst Day the opportunity to, not necessarily this year, but after this year, see accelerating ARR growth. That comes from really 3 different elements. We have this unique migration opportunity to take current Guidewire customers who are implemented on-premise and move them to our cloud. There is an ARR uplift that's attached with doing that. And then that is -- we expect that to be a pretty significant part of our overall bookings, especially our cloud bookings in the early stages of this transition. And that's a unique opportunity that we have. One of our most important assets is the breadth and scale of our existing customer base who are on-premise and that opportunity to bring those customers into the cloud. Those are the customers we know the best. It's a very unique asset that we have. As we build up those reference points in the cloud, we do think that you'll see the industry in general become kind of more confident in the cloud maturity of the platforms that exist out there to service them, right? And Guidewire being one of the most important ones. So as we see that, I think you'll start to see core modernization activity reaccelerate to what I've described as more normalized levels. We've seen a bit of a slowdown in insurers that are still running legacy systems modernizing those systems. And I think that's a natural reflection of where we are as an industry in terms of adopting cloud-based core systems. If you're an insurer who's thinking about a modernization, has a 30-year-old mainframe-based system, and you're asking yourself, you have 2 options. I'm going to go buy an on-premise system while all the vendors are focused on selling the cloud system, or I'm going to buy a cloud system while a very small percentage of the global DWP is being managed by cloud-based core systems. It's a bit of an uncomfortable position. And so I think we have seen some of that activity slow down. But as we build more and more referenceability, as we aggregate more and more DWP onto our cloud platform, we should see that start to return to more normalized levels. And then the third leg of our growth stool is really around as we aggregate a significant amount of DWP on our core, there are all sorts of ancillary opportunities in the data and digital side to supplement our strategic high ground in the core. And those will drive -- those are the kind of the components that should help us drive ARR over the near to midterm into kind of those mid-teen levels that we talked about at the Analyst Day.

I wanted to touch on partners a bit. I mean one of the things that really differentiates Guidewire, I think, is the breadth of your partner ecosystem globally. And so I guess as we kind of look into the next few years here, how important are those partners going to be in driving this cloud shift? And I guess also, do you foresee a scenario in which more and more of the integration work will be ceded to those partners such that your overall business mix shifts more towards subscription?

Yes. Another critical asset that Guidewire has built over the last 20 years is the partner community that we have, the know-how in terms of implementing, and configuring and integrating our software. So that is a really critical asset that we have. And we've done a really -- there's been a concerted effort to do a lot more certification, a lot more training and education of the partner community over the last year. And we talk about that on a quarterly basis on our earnings call, some of that work that we've done. And we've seen really good enthusiasm and appetite from our partners to take on more and more of this work. I think they recognize that this is a once-in-a-generation replatforming of an industry that will create a lot of work for the SI community. We want the SI community to do as much of that as possible. So I think we are very much aligned with our partners towards how we attack this part of the market. And so yes, we feel really good about the work that we've done. And that should -- over time, we will be able to push the vast majority of that work that is more time and materials and project based to our -- to the partner community.

One more question from the audience here. It's about sales cycles. And the question basically is you obviously spoke to some of the elongation of the sales cycle you saw right as the pandemic hit. As we're a few quarters past that now, what can you share about what sales cycles look like today relative to pre-pandemic levels? Are they kind of back to normal? Is it better? Just curious if you could quantify it for us.

It's hard to comment. I do think the pandemic is less of an impact on sales cycles today. So more normalized vis-à-vis any sort of pandemic elongation on sales cycles. I do think that this industry is rocking what it means to go to the cloud. And there's a lot that an insurer has to think through, and it's a very consequential decision to decide to have a vendor not only provide the software for your core system but then run that system on your behalf. And so our customers and prospects are quite measured in how they kind of go through that process. And so sales cycles in the cloud world have been probably a bit longer than sales cycles in the on-prem world, although I would say you inspect the sales cycle data in our installed base and it's all over the map. We have customers that have been prospects. We have customers in our funnel for this year that have been in our funnel for 5 years. And every year, we get them close and they make the decision to kick the can down the road one more year. And we know when they finally are ready, they will go Guidewire. We have a really good relationship there, but that kind of temptation to kick the can down the road is -- can be there for insurers. And so that is the biggest risk that we see as we execute against our pipeline. And these deals are large and binary in nature. So those are some of the risks that we focus on. But sales cycles may have elongated a bit through this cloud transition. And I think we're -- I think kind of COVID had an impact for a while, but we've worked through that.

Got it. Coming back to cloud for a second. Obviously, Guidewire has made a huge number of investments in the cloud. A lot of progress has been made over the last few years. I guess ultimately, you're still selling on-premise although the focus, of course, is much more on the cloud. With the competitive set we've seen a 100% focus on the cloud, and you have a lot of very large customers, again, who may or may not be ready for that, but how do you think about strategically the cost and benefits of going all in on the cloud, clarifying in a way the product portfolio, the go-to-market message versus, again, putting customers in an uncomfortable spot if for whatever reason they really want to stay on-premise?

Yes. Look, I think customers have gotten the message that Guidewire is all in on the cloud. And our focus and the thrust of our innovation is all in on the cloud. So that is the journey that we're on. Now we understand it may take customers a while to get to that point, but that is where our innovation is focused. There may be innovation that gets dropped down to the on-prem product. And so I think customers have gotten that message. Every on-prem customer that we sell today, I like it because I view that as a future cloud customer. They're just not quite ready yet. And so we're starting to see, as I mentioned earlier, that even those customers, as they go through the contracting process, they're thinking about the cloud as we go through the implementation process. We're thinking about kind of making sure we're making the right decision so that we can eventually get folks to the cloud. But the industry as a whole is -- will take some time to get there fully.

Sure. That makes sense. I guess in terms of investments for this year, do you feel like -- I mean obviously, you've laid out the plan, but how helpful is it to push more on sales and marketing? I mean -- or is this really a situation where the industry needs to be ready, right, to move to the cloud, and you'll see that come through? Or do you see opportunities to hire -- go out hire more reps, push a little bit harder in certain regions to try to drive faster growth?

The thrust of our investment this year has been on the cloud operation side and a bit on the R&D side, as Diego and his organization, I think, is really revving up and can absorb a little bit more head count. On the sales and marketing side, we feel really good about our coverage. We know all these customers. We know where they live. We know where their daughter's going to college. We know where their kids play soccer, right? I mean like this is a vertical market. We have deep relationships at all of these customers. We know all the systems that they have. We know where all the legacy systems are. So I don't think we need more -- a lot more direct sales coverage. There are some investments that we're making kind of on the early side of the funnel, some of that presales investment to better -- to help people better understand the value proposition that the cloud offers. And there's also some investments we're making on the customer success side as we transition from being a software company to delivering our core services -- our core system as a service. There are some investments that we could make on the customer success side. But with respect to the direct sales force, we think we have good coverage.

Got it. Maybe one last quick one. InsuranceNow, I think we've seen some improvement with that business lately. I think you closed 6 deals in fiscal '20. Down market, are you seeing more appetite for modernization? Are they moving more quickly? Just curious like what's been driving the recovery for your InsuranceNow product.

Yes. We're pleased with the investments we've made there and the progress that we've seen. That is clearly a more competitive part of the market. There are more competitors that are credible competitors to deliver the needs to service that part of the market. So we do tend to see a broader swath of competitors in that part of the market, but excited about the progress we've made. If you think back to where we were 18 months ago, I think we feel very confident about our position. And the sales team is engaged and focused on a strong pipeline for this year. So we're happy about how that product is shaping up.

Fantastic. Well, with that, I think we're right at the top of the hour here. But Jeff, I just wanted to -- thank you so much for joining us this afternoon. Really appreciate it. Great to chat with you and look forward to doing it again -- doing that again.

Yes. Thanks for having me. I appreciate it, Chris.

All right. Take it easy.