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

Greetings, and welcome to the Guidewire Fourth Quarter Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today. I would now like to turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you. Alex, you may begin.

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; John Mullen, President; and Jeff Cooper, Chief Financial Officer. 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. We have also posted our fourth quarter earnings deck on our IR section of the website. And today's call is recorded, and a replay will be available following its conclusion. Statements today include forward-looking ones regarding our financial outlook, our cloud and AI product strategies, customer demand, business operations, the impact of macroeconomic factors and other matters. These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and risk factors and documents we filed with the SEC, including our most recent annual report on Form 10-K and our prior and forthcoming quarterly reports on Form 10-Q filed and to be filed with the SEC for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. We also will refer to certain non-GAAP financial measures to provide additional information to investors, all commentary on margins, profitability and expenses are on a non-GAAP basis, unless stated otherwise. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted at the end of our quarterly earnings deck on our IR website. And with that, I'll now turn the call over to Mike.

Good afternoon, everyone, and thank you for joining us today. We finished our fiscal year with an outstanding fourth quarter, capping off another exceptional year for Guidewire. ARR finished the year at $1.242 billion, up 19% year-over-year and above the high end of our guidance range. Fully ramped ARR grew 22%, marking the fourth consecutive year that fully ramped growth outpaced ARR growth. Subscription and support revenue grew 33%, and we exceeded expectations across revenue, operating income and cash flow. Our execution in Q4 underscores the durability and resilience of our business model as well as the position and potential we have to lead the AI-driven transformation in the P&C insurance industry. Q4 included a number of achievements and milestones. My personal highlight was signing a long-term cloud migration agreement with Nationwide. Guidewire has partnered with Nationwide for over a decade across our core application suite. And in many ways, they were the critical partner who validated the scalability of our platform to the Tier 1 insurance segment. Earning their trust for their cloud transition and solidifying our position in supporting them for decades to come is a defining milestone in our company's cloud journey. Nationwide also selected PricingCenter for personal lines pricing and rating. This is obviously a great win for our PricingCenter team. As we work to deliver on the specific business and technical requirements, we will further validate that PricingCenter is ready to provide the capability and scale required for any Tier 1 insurer globally. While the Nationwide win was monumental, our broader momentum with PricingCenter has been remarkable. John will share more details shortly but the integrated value proposition and the market demand for real-time price adjustment are resonating with customers. I couldn't be happier with the performance so far of this acquisition, and this deal serves as a fantastic capstone to an incredible year for David, the founder of Quantee and our PricingCenter team in Warsaw. Another standout in the quarter was ProNavigator. Again, John will provide additional color. But sales velocity for this new product dramatically outperformed our plans. Embedding AI-driven assistance directly into the core workflows of ClaimCenter and PolicyCenter is precisely what our customer base needs right now. Rapidly integrating ProNavigator into the fabric of Guidewire and see immediate commercial traction was a major highlight of the quarter. ProNavigator serves as a straightforward AI and on-ramp for customers and now forms a core pillar of our broader strategy. Given customer enthusiasm is entirely realistic to expect this capability to eventually be incorporated into every Guidewire implementation worldwide. The final element of our AI strategy tangibly taking shape relates to Guidewire Cloud Platform itself. Developer assistants are now available to all customers and partners, making agentic development on Guidewire exponentially faster. Things like writing integration code and building front-end applications for digital experiences are now dramatically faster. In our Qusar release, we delivered our agentic platform, enabling customers to build stand-alone AI agents tuned to their specific implementations and existing workflows. These agents operate seamlessly within their core systems, maximizing their preexisting modernization investments and taking full advantage of the structured context that resides natively in Guidewire. Taken together, these platform and product milestones make the Guidewire strategic thesis clear. The path to intelligent, hyper-efficient, agent-driven P&C insurance operations begins with a modern cloud-based continuously upgraded core platform. And I think it's fair to say that only Guidewire has the ability to provide this to the market right now. With respect to the financial performance of the company, Jeff will cover the numbers in detail later in the call, but I want to highlight 2 significant financial milestones. First, we nearly completed our share repurchase program, buying back over $600 million in shares. Our ability to do this is an outcome of our expanding profitability, cash generation and confidence in the long-term durability of business. Second, this year, we achieved an annual gross ARR attrition rate of less than 1.5% for all ARR and less than 1% for core systems customers, who represent the vast majority of our ARR base. Attrition is a key metric we manage closely and acts as a primary indicator of our business durability and customer satisfaction. These attrition rates at over $1 billion in ARR are world-class, even more than the top line metrics. This number signals that our product design, implementation and ongoing support are driving exceptional long-term customer loyalty. I'm immensely proud of our team for achieving this measure of performance and commend everybody at Guidewire past and present, for helping to create the system and for operating it at this level of excellence. We play a critical role in our customers' business operations. And of course, that reality necessitates an approach that logically leads to a uniquely durable business. This year and especially in Q4, we have begun to see clearly how our role as a core system of record can be expanded to support the application of advanced analytics to pricing agility and application of AI as a core workflow efficiency. How earning the trust of our customers allows us to establish a Cloud Platform that is delivering the AI-powered speed and agility the industry needs to not just continue their modernization agendas, but to propel them into a new, more intelligent and efficient insurance operating model. So we are happy about the results in Q4 and our fiscal year but we are more motivated about the impact we are helping to create in the insurance industry. Finally, before handing the call over to John and Jeff, I want to convey my excitement for our upcoming Connections Conference this October in Las Vegas, where we will also host our Analyst Day on October 27. You are all, of course, invited to join us. We look forward to showcasing our latest product innovations and the new agentic capabilities of our platform. Our strategy is straightforward, deliver the world's most trusted core platform for P&C insurance, supercharge it with AI to accelerate every technology initiative within an insurance company and embed agentic intelligence directly into claims and underwriting to drive an industry-wide and global transformation. There is no better place to understand the power of Guidewire in the insurance industry, and we hope to see you at Connections in October. With that, I'll hand it over to John.

Thank you, Mike. This was a great year that underscores the increasing alignment between Guidewire's road map and our customers' strategic ambitions. We work to continually increase the value our customers experience from their partnership with Guidewire and improved speed to value. Our proximity to our customers is a tremendous asset. We're at a point where our growing portfolio of products and solutions affords us the opportunity to work closely with those customers addressing enterprise grade operations and agile business capabilities, connecting their specific context to their agentic future. This alignment resulted in 26 core deals for the fourth quarter, bringing the total for the year to 62 core cloud deals covering PolicyCenter, ClaimCenter, BillingCenter or InsuranceNow. A few of the core deals highlight. As Mike mentioned, Nationwide, a Fortune 100 company is the clearest example. They signed a multiyear agreement to move their entire InsuranceSuite estate to Guidewire Cloud Platform, capping a long-standing partnership built on proving out the platform's maturity to support their growth ambitions. Another is AF Group, consolidating a number of core processing components onto Guidewire InsuranceSuite. MAPFRE U.S. expanded with Guidewire InsuranceSuite and added ProNavigator to support their commercial lines growth strategy. Additionally, one of the largest insurers in Canada signed a meaningful migration deal. We are also seeing our customers choose to expand their AI footprint with Guidewire. Definity, a leading Tier 1 Canadian P&C insurer expanded their Guidewire cloud commitment and adopted ProNavigator for embedded insurance domain-specific AI expertise. They are accelerating their innovation by leveraging our platform alongside their broader suite of enterprise cloud and AI tools. We're seeing that same choice play out elsewhere in the portfolio. Alfa Insurance selected ProNavigator to accelerate previously considered internal build options. Hollard, a tremendous partner in Australia, selected ProNavigator to strengthen claimant and adjuster experience in support of a truly differentiated brand. Regulatory and compliance precision and increasing demands for efficiency contributed to this win. A long-standing customer in the U.S. Northeast selected ProNavigator as a critical element of their strategy following on from work done together with one of our field engineering pods. Fundamental in our strategy is the ability for our platform and product portfolio to coexist with our customers' environment, maximizing impact pace and flexibility. The strength of ProNavigator is important to this thesis and translated into 14 wins in Q4 and 28 for the full year, a tremendous year for this team as they joined Guidewire. I couldn't be happier to see this team's impact and their passion for driving results for our customers. PricingCenter also had a great quarter. We had 8 PricingCenter deals closed in Q4 and 12 for the year, a tremendous year for the team as they advance in addressing this critical strategic and fiercely competitive capability for insurers. Nationwide, in addition to the core migration has become our first U.S. Tier 1 customer for PricingCenter, choosing it for their home and auto lines. Integration to PolicyCenter will provide greater pricing sophistication and improved speed to market for Nationwide. We saw that resonate across the rest of the portfolio, a long-standing customer in Finland became our first existing InsuranceSuite customers in Europe to adopt PricingCenter. Capital Insurance Group selected PricingCenter in a highly competitive process. Shelter Insurance chose PricingCenter as part of its larger expansion with Guidewire. Finally, Achmea Farm Insurance in Australia chose PricingCenter to drive greater pricing agility and precision throughout their operation. The last point to make on momentum for the quarter is how pleased I was to see the mix by carrier size. MGA and smaller carriers contributed meaningfully to the results of the year. In addition to carrier size, we continue to invest heavily in our line of business, not only workers' compensation and geographic-specific content and tools. Our platform maturity and AI have accelerated our ability to address the needs of these important markets. Regarding speed to value, our investments in implementation tools and AI-powered project harness for implementations is delivering on the promise of material reduction in project complexity and duration. We will be focusing the next 6 months on rolling out these capabilities to all of our projects and our SI partners. We believe this powers a change in the way the market thinks about capacity and the budgetary hurdle to clear in making the decision to move to a modern core foundational platform that powers their agentic future. With that, I'll turn it over to Jeff.

Thanks, John. I'm excited to close the books on another tremendous year. The team continues to execute on the growth engine while also delivering on margins, profitability and cash generation. ARR ended the year at $1.242 billion, up 19% year-over-year on a constant currency basis, ahead of our expectations. ARR benefited from strong new sales activity and the lowest gross ARR attrition rate since we started measuring ARR as a metric. As a reminder, we report ARR on a constant currency basis throughout the year, and an update at year-end for FX rates. Making this update negatively impacts ARR by $5 million, resulting in ARR of $1.237 billion. Fully ramped ARR, which is defined as the fully ramped annual price outlined in customer contracts grew 22% year-over-year on a constant currency basis. This is the fourth year in a row that fully ramped ARR has fully ramped ARR growth and outpaced ARR growth, and the second year in a row where fully ramped ARR surpassed 20% constant currency growth. We ended the year with 105 customers with fully ramped ARR of over $5 million. This is up from 86 at the end of fiscal year 2025. Total cloud ARR, which includes ARR for all of our cloud products and customers that have contracted to move to the cloud grew 35% year-over-year and comprised 84% of total ARR. Subscription revenue finished the year at $916 million, up 37% year-over-year. Subscription and support revenue was $971 million, up 33% year-over-year. License revenue for the year was $235 million, down 7% year-over-year as healthy migration activity continues. The shift from license revenue to subscription continues to accelerate, but it is partially offset by DWP growth of on-prem customers. Services revenue finished at $270 million, up 23% year-over-year. We experienced strong services revenue growth as we work to balance healthy utilization of Guidewire resources with continued strong partnership and alignment with the SI community on cloud programs. All this results in total revenue for the year of $1.475 billion, up 23% year-over-year and ahead of our expectations. Turning to profitability for the fiscal year, which we will discuss on a non-GAAP basis. Gross profit was $990 million, up 25% year-over-year. Overall gross margin was 67%. Subscription and support gross margin was 74.5%, up 4 percentage points year-over-year and already close to the high end of our FY '28 target. Services gross margin was 12.5% compared with 12.9% a year ago. Our services organization has been investing to deliver on the demand environment, and we have also been investing in AI capabilities to support future -- the future of programmed delivery. These investments are impacting near-term margins a bit, but we believe the future efficiency lift in our services motion help future cloud sales as we work hard to bring down the cost of implementations. Operating income was $340 million, up 63% year-over-year and above the high end of our outlook. This was driven by strong subscription and support gross profit, higher-than-expected license revenue and solid operating expense discipline. Our stock-based compensation expense was $182 million for the year, up 13% year-over-year but down over 100 basis points as a percent of revenue. Operating cash flow ended the year at $390 million, up 30% year-over-year. This strong cash flow generation is a result of excellent execution and the leverage established by our model. We ended the quarter with $1.2 billion in cash, equivalents and investments. With respect to our share repurchase program, we repurchased $606 million in fiscal year 2026. This equates to 4.1 million shares repurchased at an average price of $148.41 per share. Now let me turn to our outlook. For fiscal 2027, we expect ARR of between $1.45 billion and $1.46 billion, representing 18% constant currency growth at the midpoint. As a reminder, our ARR outlook assumes foreign exchange rates as of the end of fiscal 2026 and will be held constant throughout the year. Let me add a couple of points of context. First, our outlook assumes ARR attrition normalizes relative to fiscal 2026. Our record low attrition rate contributed roughly 1 percentage point to ARR growth in FY '26. And while it's possible we see similar rates, again, we haven't built that into our base plan. And second, more than half of the net new ARR contemplated in this outlook is already under contract with ramp dates defined and signed customer agreements. That contracted foundation is where 2 consecutive years of 22% fully ramped ARR growth shows up, and it's the basis of our confidence in durable high-teens ARR growth. Total revenue for the year is expected to be between $1.707 billion and $1.727 billion. We expect that subscription revenue will grow approximately 31%. We expect subscription and support revenue to be between $1.240 billion and $1.246 billion in fiscal 2027, representing 28% growth at the midpoint. This assumes support revenue will decline about $8 million as a result of the continued migration of our installed base to the cloud. As a reminder, support revenue attaches to term license customers. For cloud customer, support activities are included in the subscription fee. We expect license revenue of approximately $189 million, a decline of $46 million year-over-year. This decline is a result of the cloud transition model playing out as we expected. In FY '27, we expect to see term license revenue from recent cloud migration customers declined by almost $50 million. This is partially offset by true-ups and pricing adjustments at existing on-prem customers. Our outlook for services revenue was approximately $285 million as we expect to experience more modest growth this year off of a healthy services revenue base experienced in fiscal 2026. Turning to gross margins. We expect subscription and support gross margins to be around -- to be between 75% and 76%. This outlook is above our prior FY '28 target and gives us confidence as we look ahead to our long-term target of 80% subscription and support gross margin. We anticipate professional services gross margin to be approximately 12%. We expect total gross margins for the year to be between 67% and 68%. With respect to operating income, we expect non-GAAP operating income of between $403 million and $423 million for the fiscal year. We expect GAAP operating income of between $197 million and $217 million. Our stock-based compensation expense is expected to be approximately $202 million. Cash flow from operations in fiscal year 2027 is expected to be between $445 million and $465 million. Our CapEx expectations for the year are between $23 million and $28 million, including approximately $17 million in capitalized software development costs. Our Q1 outlook can be found in our earnings press release, but let me provide a bit more color. We are expecting ARR to be between $1.253 billion and $1.259 billion. We expect subscription and support revenue to be between $279 million and $283 million, and subscription and support margin to be around 77%. In Q1, we expect to realize approximately $4 million in credits from our cloud infrastructure provider, which is meaningfully higher than we expect for the remainder of the year. We expect services revenue of approximately $65 million and services margin to be around breakeven. This is largely related to timing of revenue associated with some larger fixed fee services engagements. Overall, we expect total gross margins of approximately 65%. Also annual employee bonuses and commission expenses related to Q4 sales are paid out in Q1, which impacts cash flow. As a result, we expect Q1 cash flow from operations to follow a similar pattern to what we experienced in fiscal year 2026. In summary, it was once again over Q4, and we look forward to a great fiscal '27. And finally, before we turn to Q&A, I wanted to note that we filed an 8-K today announcing David Peterson, our Chief Accounting Officer, has let us know that he intends to retire in early November. The first good decision I made as CFO of Guidewire was to elevate David's role, and he has been an incredible partner to me. He has built a strong team of considerable depth, so we are well positioned to carry on, but I just wanted to take a quick moment to thank David for his partnership and for his contributions to Guidewire. Okay. With that, let's open the call for questions.

Our first question is going to come from Alexei Gogolev, JPMorgan.

First of all, I wanted to ask about ARR dynamics. So FX adjusted ARR came in at the top end of your guide. Can you break down the key drivers of 4Q in new ARR performance and talk about what was the most different versus your internal expectations entering the quarter, things like new deals versus backlog conversions and true-ups. And then maybe if there are sizable deals that closed in August that you were possibly surprised with?

Yes, sure. You can go ahead.

Okay. Yes, I mean, if you look at Q4, we ended at $1.242 billion, and we measure ourselves on a constant currency basis throughout the year. And so this largely came in, in line with our expectations as we move through the year. I mean, we were very pleased with the bookings that we delivered in the year. The ramp outcomes of those bookings were also quite positive. And so kind of flowing through to 19% ARR growth, 22% fully ramped ARR growth. Again, the impact of churn, which we highlighted a couple of times on the call was tremendous. That was a bit beneficial as well in the quarter. And so all of those dynamics were quite positive for us.

I would say, just Alexei, one thing to add. Relative to the plan, maybe not going into Q4 because we saw this momentum building, obviously, in the pipeline that we saw. But the performance of these 2 products, ProNavigator and PricingCenter was markedly better than what we anticipated at the beginning of the year, and that's a great sign for us. One of the objectives we set for ourselves at the beginning of the year was to broaden the product portfolio. Obviously, that led to these 2 acquisitions. This is important for us as we grow. And obviously, it's also a way for us to monetize the cloud installed base that we've worked so hard to establish over the past number of years. And so it's just great to see these product lines performing the way that they did, both in terms of deal count as well as ARR that obviously correlates to that. But especially I want to point out the win and partnership that we have in Nationwide with PricingCenter. It's just -- it's hard to earn the trust of a Tier 1 insurance company and it really does help us make sure that we're going to, like, let's say, stress test that product and make it valid for every other Tier 1 in the world. And so that's really what I would call out in terms of like it's a driver to ARR, both strategically but also from a numbers perspective.

And you also pulled out a very impressive 8 PricingCenter deals in 4Q, and maybe John was mentioning those. Who are you most often displacing? Is it homegrown versus point solutions? And what are you learning about sales cycle length and attach rates with PolicyCenter customers?

Yes. Alexei, thanks for the question. It's -- what we're up against is really fragmented but well-established installed base. So rarely is it homegrown. There's always a number of tools, rating and pricing tools in place inside an enterprise. It's really early for us to say what we think sales cycles are going to look like and what the attach rate is going to look like. But it is the attach rate and the ability to really, I think, number one, serve a very effectively a user base that potentially has been underserved in modern technology. So that's point one. And then point two is the integration -- the native integration with PolicyCenter that allows for just really efficient throughput on pricing and rating changes, both from an accuracy standpoint and a speed standpoint. So it will be that integration. That is the reason why we see win rates and attach rates that we're planning for in the long future, but it's too early to really measure up what those sales cycles are going to look like as time and pipe.

Our next question is going to go to Rishi Jaluria at RBC.

Nice to see continued strength in the fully ramped ARR number. Maybe let's start with that, right? So if I think about your fully ramped ARR number and you're coming off another strong year prior was also similar sort of fully ramped growth. Can you help us understand mechanically how to think about the time line of these ramps starting to kick in and stack on each other? Because I'm just trying to do the math on kind of the ARR guide that you provided for FY '27 and understand because it feels like the setup is there to try to drive even further acceleration. So maybe help me understand that, and I have a quick follow-up.

Yes. Rishi, I think there's a couple -- there's a number of dynamics that we're looking at. And we obviously, as we negotiate these arrangements with the customers, try to optimize for the long term. And as you see, if you kind of look at the model, the ARR, the backlog, so the backlog ARR as a percentage, you can look at it as a percentage of ARR or as a percentage of fully ramped ARR. That backlog as a percentage of that ARR is growing over time, which means on a percentage basis, we just have more future ARR that will fall off of the backlog, which sets a foundation for a very durable growth. There's a couple of other metrics that we look at. ARR, how much ARR do we expect to come off of the backlog and flow into next year's ARR. And that ratio next year is a little bit lower than where it was last year. And that's just a reflection as we look at the -- and inspect the totality of the backlog that we have, we're going to get more of that in years 2 through 5 rather than year 1 of that kind of first year of ramping event. And that just kind of continues to signal that we just have this healthy, healthy asset of backlog that we will execute over the next 5 years. So our orientation is always to orient to the long term and to make sure that we're driving the right fully ramped outcomes 2 years in a row of 22% fully ramped ARR growth really just that.

Got it. Okay. That's really helpful. And then, look, nice to see success with ProNavigator. Can you maybe walk us through how much of the early success you're having there is just cross-selling it into the installed base? And maybe what I'm trying to get at is, is there an opportunity for this to land net new customers for you where they might be with a competitor, but you can land on ProNavigator or other new products, use that as kind of a beachhead and over time, use that as a mechanism behind displacement?

Yes. Good question. I would say the momentum that we saw this fiscal year was primarily cross-sell. There's definitely an opportunity for us to sell ProNavigator independently. Obviously, they did that as a stand-alone company before joining Guidewire. And that path isn't close to us at all. But I think that the bigger way to think about this is that we're seeing these systems evolve from, call it, a workflow system or a system of record to really the platform that you use to establish your agentic approach to claims and underwriting. And these systems, these AI systems powered by ProNavigator facilitate that. And that creates a differentiation for us in ClaimCenter that we didn't have before that we're able to bring a broader and more -- I don't know, automated value proposition to bear when we're differentiating that product. And that's the way that I think that you should think about it helping us to set to win new estates and win new implementations of our core systems. And like I said, like in the prepared call, I think we'll get to the point where it's unusual to see an implementation of Guidewire without it just because it is resonating so much with our customer base. And so over time, I think you'll see it as a real differentiator, a real driver of net new wins, but it won't be stand-alone. It will be more new wins for core.

Our next question is with Joe Vruwink at Baird.

The comments about ARR coming off backlog are interesting. I guess I'll take the flip side. What does this say about your new deal pipeline? And I think there's some scrutiny on just the 1Q ARR guide coming in below consensus. Some of that's the FX reset that you highlighted, Jeff. But is it also reflective of anticipated deal timing and there just being more opportunities later in the year?

Yes. Look, I think we feel very good about where we sit and how the market is evolving and the need for a modern core platform to support and ensures initiatives just broadly and within AI. So from a pipeline perspective, we feel very positive. As we think about modeling the next year, there are a couple of areas that we try to be cautious around. As I said earlier, we always optimize for the long term, and we don't optimize for year 1 ARR events associated with new deals. And so we look at a metric internally called year 1 ARR versus the booking event and kind of what that ratio is, and that impacts how we think about modeling the business, and I think impacts how we think about setting the guide. But we always want to orient our sales reps to focus on making sure they're driving the right long-term outcome. So that is -- as we look at kind of next year, compare that to recent history, and kind of what is the corpus of the types of deals. Now the bigger the deal often yields a lower first year ARR and a larger fully ramped event vis-a-vis the booking opportunity. So these are all things that we kind of weigh as we think about setting an appropriate guide for the year. We've been pretty consistent about our goals of driving durable growth. For many years, it was mid-teens. More recently, it is upper teens and the model is certainly supporting that upper teens growth ambition.

Can I -- I just want to add, Joe, look, there's -- I feel like we're going to have a great fiscal year. We feel set up to have a good, really strong fiscal year. And I think when you look at -- we keep using this word durability. When you look at the business model and the characteristics of the fully ramp phase and the attrition rates that we've established, it's like there's just more upside potential than there is downside anxiety. We have to be prudent in the way that we guide and the way they project the company just because our deals are very lumpy. And things can happen, and we can't perfectly predict the future. But the company is just getting stronger and stronger. We look at the portfolio of products now kicking in and we look at the alignment that we're able to achieve with artificial intelligence and ProNavigator and the way that we're bringing it to bear on the platform. We just feel great. I feel great about the company. And like I said, I just really think -- if you look at the fiscal year, we feel like there is more upside potential than there is downside risk. And then we really just need to figure out like how to quarterize that. And we'll give -- we provide the guide for Q1, and we figure out how to provide that visibility. But when I zoom out, I just feel a lot of -- I see a lot of strength and a lot of confidence in the momentum that we've established.

That's great color, Mike. Just on the AI native products, it sounds like eventually, it's not going to be possible to split them out in terms of a discrete ARR contribution because it will just be a part of InsuranceSuite. But for the time being, is it possible to maybe size those? I know you started the year sizing ProNav just because it was being acquired in, but could that exposure, I don't know, double in its ARR contribution next year?

I think we'll look at whether or not how much visibility we provide, like we obviously shared some deal counts that we were excited to talk about on the call today. And as we proceed and get a little bit more experience with the business quarter-to-quarter, we can assess whether or not we provide more visibility. At this moment, it's probably not -- it is not appropriate, and that's why we didn't do it. And to your point, we have to assess how we package these things and how they factor into the deals that we're doing each quarter. And so I guess, yes, I appreciate your question. We'll take it under advisement, and we'll think about it, and we'll offer you as much visibility as we think is strategically valuable -- or strategically possible, I suppose, is a better way to put it. But mostly, we just wanted to signal like how excited we are about this and it is really driving meaningful appreciation of the business.

Our next question is with Dylan Becker William Blair.

Maybe, Mike, starting with you. You touched on the importance Nationwide and PricingCenter. I wonder if we could go a little bit deeper I think you called out homeowners and auto, maybe 2 segments that are seeing a little bit more pricing pressure themselves in the market. So I think the appetite for adopting something that's more real time as may be disruptive or transformational, validating the importance and maybe buy a solution like that is resonating and can drive competitive differentiation. I guess is that a fair read on kind of some of the moment on PricingCenter? And I guess maybe just any other kind of color around the tethering of pricing layering into Policy and the rest of the platform over time.

Yes. It's a great question. I think it's fair. I don't want to speak specifically for Nationwide, but I do want to say, in general, the thesis behind us investing in ensuring that we had a pricing platform, rating platform, deeply integrated into PolicyCenter, our product modeling capability, which we call APD and our data platform and creating what we kind of referred to as a closed-loop system for enabling actuaries and business leaders in the insurance industry to have the type of agility they need to be able to compete effectively. That is absolutely what people are buying when they buy PricingCenter and PolicyCenter. No question about it, full stop, 100% correct. And this is super exciting, right? Because to some degree, Guidewire traditionally has sold off of a variety of things, but let's say, risk of a legacy system factors into this less so than maybe business competitiveness. And it is very exciting for us. It's very exciting for our sales teams. I'm sure John is going to want to lean into this answer here in a second. I know he's excited about it. It's excited to be connected to the business of insurance. And how you're pricing and how you're adjusting to competitors and how you're adjusting to those new risks. At the same time, you're also seeing like this real huge transformation in AI and realizing, hey, we need to figure out how do we get more operationally efficient so that we can create more leverage in our operation, and can we do that with Guidewire. This is very exciting for us. it is absolutely true that the PricingCenter value proposition connects to that competitiveness, and it's an exciting component of the story now.

Perfect. And then maybe if I could segue to John to, I think you called out the -- some of the efficiency you're seeing in delivery in speed and cost reduction, lowering that hurdle, opening kind of the top of the funnel from a demand perspective. But how should we think about kind of the dynamics between those 2 segments? Because you could infer, right, that there's a little bit of cannibalization on the services line. Is there a fixed fee orientation to kind of insulate some of that? But maybe on the inverse, it enables you to go much faster, and we're seeing that reflected in the subscription strength. I think that's abundantly with the 26 deals you guys signed in the quarter, but maybe just kind of how we think about the evolution of that subscription and services dynamic, if that makes sense.

Yes. Good question. So a couple -- first thing, the ecosystem at large is navigating this. So we're navigating this and we invested -- investing heavily to make sure that the decades of experience of doing this is put into a harness where we can really move things faster. And we're seeing really early -- really good returns on, particularly the spec-driven development aspects, as Mike mentioned, things like product speed to market and product definition. That's the one that I think is the fastest business standpoint. But we're also navigating that with the systems integrators. It's -- our relationship with our systems integrators continues to strengthen through this. And that's a through line that we have to manage very specifically, not carefully, but specifically with them as they're moving more of their efforts towards the business transformation that sits on top of what should be a more efficient implementation. So making sure that they're tooled -- we're all tooled appropriately to make these programs go faster and more predictable. We're also working with them to make sure that we're getting closer to the business results and the things that matter to the C-suite not only in making that first decision to modernize on the core platform, but to make sure that we're driving tangible, measurable, repeatable, scalable business results off the back of it. So that's a bit of a pivot in the conversation with our SIs and focusing more of our energy on that. And then certainly, we want them to continue to build their tools. There's no world where we're going to insist that they use our tooling. We just want to make sure that they have it available to them in all their programs.

All right. We'll go to Ken Wong now from Oppenheimer.

Mike, John, I wanted to dig into that Nationwide agreement a little more, specifically the PricingCenter commitment. Any color how additive that could potentially be to TCV, perhaps not near term, but as you think about this as it scales? And then how might this influence potential Tier 1s that are looking at the platform going forward?

Well, it's -- the structure of the agreement is kind of per normal, right? So there's no like rollout impact related to scaling TCV. The TCV is the contract, right? So -- and obviously, we're excited about the price point of that product. We're not going to describe the details here publicly. But for sure, the opportunity to work with Nationwide and roll this out with them helps us convince ourselves and convince others that this is a product that can meet the needs of any insurance company anywhere in the world regardless of size. That was the objective when we began to build this. That was the objective when we tried to really convince every one of our customers, and we couldn't be more excited to be partnering with Nationwide on this journey to be able to go deliver this very quickly and prove that it works. So yes, absolutely. That's part of the strategy here, and it's an incredibly important milestone for us. Like I said in the prepared remarks, it's like very similar to the initial deal with Nationwide. None of us, I don't think we're here at Guidewire when we did that but it has served as a real forcing function for every component of our product and services and company and ecosystem to make sure that the products work there. And I have every expectation that, that's going to occur here with PricingCenter.

Yes. I'll just add one quick comment too. From here, where do we go? So I won't comment on Nationwide's decision as much as we appreciate that alignment. The -- where this goes from a future standpoint is the product road map for PricingCenter has some tremendous capabilities in it today and in the future. And as we enable that more with the analytic that actuaries need to do the job and allow them to bring their own tools and consume data, it does become -- harkening back to the earlier question on ProNavigator as a potential wedge offer, PricingCenter in combination with advanced product designer, is absolutely an opportunity to be a wedge offer for our customers and be an opportunity to actually pull through PolicyCenter deals in the future because of that closed loop that Mike was talking about earlier. And that's one thing that I'm excited about, actioning in the market as we start to stack up the proof points is PricingCenter being that wedge, and we'll see how that plays out over the year, but I'm excited about it.

Fantastic. And Jeff, maybe just digging in on the ARR side. You mentioned next year slightly more conservative retention assumptions, maybe a little less backlog coming in. I guess, would it be fair to assume maybe an elevated amount of prudence compared to how you were thinking about ARR guidance last year since you might need a little more net new to hit numbers this year?