Guidewire (GWRE) Q2 2026 Earnings Call Transcript

Date

Thursday, Mar. 5, 2026 at 5 p.m. ET

Call participants

• Chief Executive Officer — Mike Rosenbaum
• Chief Financial Officer — Jeff Cooper
• President and Chief Revenue Officer — John Mullen
• Vice President, Investor Relations — Alex Hughes

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Takeaways

• ARR -- $1.121 billion, up 22% year over year, or 21% on a constant currency basis.
• Fully ramped ARR -- $1.42 billion at quarter end, continuing to outpace reported ARR growth.
• RPO -- $3.5 billion, representing 63% growth year over year.
• InsuranceSuite ARR retention -- Over 99% trailing twelve months, with only a small number of $1 million-plus churn events in five years.
• Large customer growth -- Customers with over $5 million in fully ramped ARR grew from 35 in 2021 to 96 at quarter end.
• InsuranceSuite Cloud deals -- Fifteen closed, with three new customer wins and notable expansions, including major deals at Aviva UK and Tokio Marine North America.
• New product traction -- First PricingCenter deal signed; ProNavigator saw nine deals in its introductory quarter.
• Data and analytics attach -- Twenty-five deals included one or more offerings from the data and analytics portfolio in the quarter.
• Revenue -- $359 million, up 24% year over year, above the high end of the provided outlook.
• Subscription and support revenue -- $237 million, reflecting 33% year-over-year growth driven by InsuranceSuite Cloud adoption.
• Services revenue -- $62 million, up 30% year over year, exceeding expectations due to strong service program demand.
• Gross profit -- $243 million, up 28% year over year, with an overall gross margin of 68%.
• Subscription and support gross margin -- 75%, up from 69% a year earlier.
• Services gross margin -- 9%, up from 6% in the prior year.
• Operating profit -- $87 million for the quarter, ahead of outlook expectations.
• Cash position -- Over $1.35 billion in cash, cash equivalents, and investments at quarter end.
• Operating cash flow -- $112 million generated for the quarter.
• Share repurchase -- $148 million repurchased during the quarter, with $490 million remaining on a new $500 million program expected to conclude by fiscal year-end.
• Average contract term -- Over six years for new InsuranceSuite deals, rising as larger customers pursue longer contractual commitments.
• Fiscal year 2026 ARR outlook -- Guided to $1.229 billion to $1.237 billion, representing 18%-19% year-over-year growth.
• Fiscal year 2026 revenue outlook -- $1.438 billion to $1.448 billion, with a midpoint growth of 20%.
• Fiscal year 2026 subscription and support revenue outlook -- $962 million to $966 million, a $16 million upward revision at the midpoint due to first-half bookings and true-up activity.
• Fiscal year 2026 services revenue outlook -- Approximately $255 million, with continued demand and higher utilization.
• Fiscal year 2026 subscription and support gross margin outlook -- Raised to approximately 74%.
• Fiscal year 2026 services gross margin outlook -- Now projected at approximately 13%.
• Fiscal year 2026 overall gross margin outlook -- Now expected at 67% for the year.
• Fiscal year 2026 GAAP operating income outlook -- $100 million to $110 million; Non-GAAP guidance set at $293 million to $330 million.
• Fiscal year 2026 stock-based compensation -- $185 million, a 15% increase year over year.
• Fiscal year 2026 operating cash flow outlook -- Raised to $360 million to $375 million.
• Fiscal year 2026 CapEx outlook -- $30 million to $35 million, of which approximately $18 million is capitalized software development.
• Fiscal Q3 2026 ARR guidance -- $1.144 billion to $1.150 billion, noting timing is weighted to Q4.
• Fiscal Q3 2026 revenue guidance -- $352 million to $358 million.
• Fiscal Q3 2026 non-GAAP operating income guidance -- $59 million to $65 million.

Summary

Guidewire Software (NYSE:GWRE) reported rapid ARR and revenue expansion, citing heightened demand from large and mid-market insurers, with company leaders emphasizing structural tailwinds from increased AI urgency. Management detailed customer contract durations extending beyond six years, attributing this to growing customer confidence and larger, multi-year commitments. Operational execution resulted in all key metrics surpassing prior guidance, prompting raised annual financial outlook ranges across ARR, revenue, and margin lines. The company achieved material new wins and migrations at enterprises such as Aviva UK, Tokio Marine North America, and Zurich Germany, further consolidating tier-one insurer relationships. New product launches, including PricingCenter and the recently acquired ProNavigator, showed high customer engagement and better-than-expected initial deal traction. Management introduced incremental disclosures around fully ramped ARR, RPO, and cohort dynamics to demonstrate the sustainability and resilience of the operating model.

• Mike Rosenbaum said, "gross ARR retention rates of over 99% for our InsuranceSuite and InsuranceNow customers," underscoring product stickiness and minimal competitive churn in the existing base.
• Customer adoption of next-generation products, especially for AI-powered automation and analytics, saw rapid acceleration with nine ProNavigator deals and twenty-five data and analytics deals signed in the quarter.
• Jeff Cooper provided, "RPO finished the quarter at $3,500,000,000, representing 63% year-over-year growth," highlighting future contracted revenue stability.
• New, longer contract terms and larger fully ramped ARR outcomes are directly tied to customers shifting core operations and premium processing onto Guidewire Cloud.
• True-up revenue tailwinds from baseline DWP outperformance remain steady, contributing to upward revisions in subscription forecast and underpinning higher full-year revenue guidance.
• Product roadmap investments are oriented toward enabling both proprietary and third-party AI, with management expressing strong ongoing confidence in sustaining a faster pace of functional delivery as cloud penetration deepens.
• CFO guidance reflects continued scaling efficiency, with subscription and support gross margins now forecast at approximately 74% for the fiscal year, and total company operating cash flow outlook adjusted to be between $360 million and $375 million.

Industry glossary

• ARR: Annual recurring revenue; a measure of subscription-based revenue normalized to a one-year period.
• Fully ramped ARR: An internal metric quantifying the maximum expected annual recurring revenue from contracts as they reach their full value, typically over the first five years.
• RPO: Remaining performance obligations; the total value of contracted revenue not yet recognized under ASC 606.
• True-up activity: Adjustments to contract value when customers' direct written premium processed through the system exceeds baseline thresholds, triggering additional revenue.
• ProNavigator: Guidewire’s embedded AI solution designed to power agentic assistance and automation within insurance workflows.
• PricingCenter: Guidewire’s newly launched product for price modeling and rating agility within PolicyCenter deployments.

Full Conference Call Transcript

Mike Rosenbaum: Good afternoon, and thanks, everyone, for joining us today. Q2 was another strong quarter with ARR growing 22%. We continue to see momentum and demand increasing, and the results across the board this quarter reflect what we believe makes Guidewire Software, Inc. a uniquely durable business. Before I go into the details, I want to take a step back and provide my perspective on the position Guidewire Software, Inc. occupies in our industry, the role we play inside an insurance company, and why that combination creates long-term durability even in periods of technology disruption and change. Guidewire Software, Inc. is the standalone leader in delivering mission-critical core systems for the P&C insurance industry.

We are now a SaaS company, but understanding what our solutions actually do inside an insurance company is essential to understanding our durability. Insurance is a highly regulated, trust-based industry that evolves deliberately and depends on precision, resilience, compliance, and accuracy at scale. Guidewire Software, Inc. sits at the center of that environment as the operational backbone of the insurer, embedded across the core operating functions of underwriting, claims, finance, and regulatory reporting. Our platform supports the complex financial and regulatory framework that underpins the industry, establishing reserves, tracking premiums collected and claims paid, and enabling a highly regulated structure that spans hundreds of integrated systems, millions of insureds, and trillions of dollars in transactions.

At the transactional level, we serve as the system of record for risk. When a policy is written, when a loss occurs, when a claim is filed and paid—those commitments and outcomes are executed through Guidewire Software, Inc. And today, we do not simply provide that software; we operate it as a continuously improving, secure, reliable, and scalable cloud platform that strengthens over time. The complexity of replacing a core system in the insurance industry means deal cycles and implementation projects are almost always measured in years and require deep partnership.

Success on a Guidewire Software, Inc. project is the single most important KPI in our company, and you will often hear me say that there is nothing we will not do to ensure a customer is successful with Guidewire Software, Inc. That culture of customer success has produced gross ARR retention rates of over 99% for our InsuranceSuite and InsuranceNow customers. The trust we have earned serving some of the largest and most trusted insurance companies such as State Farm, Liberty Mutual, Zurich, AXA, Aviva, Travelers, and USAA reflects decades of deep domain expertise, best-in-class enterprise security, and deep productization of complex regulatory requirements.

And while we focus on serving this tier-one and tier-two segment of the market, we can also support smaller insurers. In Q2, for example, we had wins at customers that reflected over $15 billion in direct written premium and under $50 million in direct written premium. It is also important to understand how we price our service. We sell recurring subscriptions to our cloud products and price them as a percentage of the direct written premium managed on Guidewire Software, Inc. We have never been a seat-based model. We align our pricing to the economic value we deliver to an insurer—the premium flowing through their business—and not the number of users accessing the system.

As insurers grow premium, expand lines of business, and modernize their operations and become more efficient, our growth aligns directly with that value creation. There has obviously been a significant discussion across the market about the pace of generative AI advancement and its implications for the overall software category. What we are seeing in practice at Guidewire Software, Inc. is increased demand for InsuranceSuite and InsuranceNow. The potential for generative AI in insurance is clear, and this is increasing the urgency for insurers to modernize legacy systems. This is because legacy mainframes were not designed for real-time data access, automation, or AI-driven workflows. AI depends on clean data, trusted transactions, and reliable systems of record.

Generative AI will help us accelerate the value we deliver to our customers. It will help our customers deploy agents that improve the service they provide to their customers, and it will also help us deploy and configure Guidewire Software, Inc. faster and more efficiently. All of this AI-driven potential is increasing the momentum in our business. Q2 results illustrate this clearly. We closed another 15 InsuranceSuite Cloud deals and two InsuranceNow deals, and importantly, we are seeing insurers increase their commitment to Guidewire Software, Inc. both in terms of larger, fully ramped ARR outcomes and longer-durated contracts. The deal activity in the quarter included three new customer wins and healthy migrations and expansions.

On the net new side, we signed one of Canada's largest private insurers who will be modernizing their legacy claims administration system to ClaimCenter. Our dialogue with this insurer dates back to 2008, so we are thrilled to start this program. This deal reflects a little over $8 billion in direct written premium, representing our largest new customer win in the quarter. Large customers are also choosing to expand and consolidate on our platform. Two of these customers will see their ARR grow to over $20 million during the committed period. And now, let me turn to some notable deals in the quarter.

Aviva UK, the largest insurer in the United Kingdom, has entered into a long-term agreement with us, committing to move all of its Guidewire Software, Inc. estate, including business acquired from DLG in 2025, to the Guidewire Cloud Platform. Aviva recognized that to focus on innovating, serving their customers well, and driving material future growth for their business, they needed a modern, cloud-based core platform. Similarly, Tokio Marine North America is preparing to migrate major elements of three U.S. carrier businesses and has expanded significantly above its previous baseline as it commits to more growth on Guidewire Software, Inc.

And Donegal Insurance Group has selected Guidewire Cloud as the next step in its core system modernization strategy, migrating from on-premise InsuranceSuite to the Guidewire Cloud Platform. In addition, Donegal has aligned its strategic AI initiatives with Guidewire Software, Inc.’s rapidly evolving AI roadmap. Initial collaboration efforts focus on advancing claims capabilities, including intelligent first notice of loss, and AI-powered agentic claims handling will be seamlessly integrated into ClaimCenter. Large customers are also building on their successful cloud deployments to add other lines of business and significantly step up their direct written premium commitments.

For example, a top-20 commercial insurer extended ClaimCenter to more commercial and specialty lines for greater scale and efficiency, significantly increasing its DWP commitment as it works to consolidate the collection of legacy core systems that they currently support. Ending Q2, we had another win at Zurich Germany, which is a direct result of the partnership and strategic framework agreement we have with Zurich. We have also worked hard recently to widen the breadth of our core offerings to address more of the insurance lifecycle. With the addition of PricingCenter, we have an ability to uniquely address the growing demand for pricing and rating agility in insurance markets.

I am encouraged by the high customer engagement for this new integrated offering and pleased to have closed our first PricingCenter deal in the second quarter. We have also worked over a long period of time to embed intelligence into our Guidewire Software, Inc. platform and InsuranceSuite applications, and it is great to see strong adoption momentum in our data and analytics portfolio. In the second quarter, we closed 25 deals that included one or more of our data and analytics offerings. Our new embedded AI solution ProNavigator also got off to an incredible start with nine deals in the second quarter.

Notable deals included Aviva Canada and Gore Mutual, who want to leverage this agentic assistance to deliver answers, suggestions, and ultimately, embedded right in our core UI. ProNavigator leverages InsuranceSuite data and insurance standard operating procedures to increase employee efficiency and minimize claims leakage. These results reflect demand not only for core modernization but for the expanding application portfolio that surrounds it. Momentum in the quarter was phenomenal, and as I said previously, led to ARR growth of 22%. Growth in fully ramped ARR continues to outpace reported ARR growth as it has over the past three fiscal years, and we expect that to continue this year.

We are seeing larger deals and longer deal terms, reinforcing the durability of our platform and the strategic commitments customers are making. Broadly speaking, AI for us is immensely beneficial and driving an acceleration in our business. It is helping create demand for core system modernization. It is helping us accelerate our development velocity. It is helping us accelerate our implementation velocity, and will accelerate everything that customers and partners do with Guidewire Software, Inc. We will incorporate AI-powered agents powered by ProNavigator into our applications and continue to support an open approach to the incredible ecosystem of partners building solutions in and around Guidewire Software, Inc. Guidewire Software, Inc. is an indispensable part of a highly regulated global industry.

We operate a mission-critical infrastructure with premium-aligned pricing, core renewal rates above 99%, and a culture built around customer success. That combination has produced 25 years of durability and predictability, and we believe it positions us well for decades to come. With that, I will turn it over to Jeff to walk through the financial details and our updated outlook.

Jeff Cooper: Thanks, Mike. Q2 was another tremendous quarter. We surpassed the high end of all of our financial outlook targets, and we are raising our full-year targets across the board. Given the market backdrop, we thought it would be helpful to give a few incremental one-time disclosures to help investors understand the durability of our model. First, ARR ended at $1,121,000,000 and grew 22% year over year, or 21% on a constant currency basis. Additionally, fully ramped ARR ended Q2 at $1,420,000,000, and fully ramped ARR growth continues to outpace ARR growth. Our market experience has taught us that we can maximize customer alignment and lifetime value by negotiating ramped subscription fees over a multiyear period.

We quantify the impact of these ramps in our metric fully ramped ARR; it only quantifies the first five years of a contract. We typically disclose this metric annually, but thought it would be helpful to remind of the power of this dynamic this quarter. Second, we continue to see customers lean into durated contracts and larger commitments. This shows up in a number of metrics. For example, the average contract term over the last 12 months for new InsuranceSuite deals is over six years if you look at the weighted average duration weighted by fully ramped ARR. We have seen this metric increase over the last 18 months as larger customers push for longer contractual commitments.

As a reminder, our standard contract duration for new cloud arrangements is five years. This dynamic is further evidenced by RPO growth. RPO finished the quarter at $3,500,000,000, representing 63% year-over-year growth. We generally do not talk too much about RPO because we tend to focus on the powerful recurring elements of our model such as ARR and fully ramped ARR. But in the current environment, we do think RPO is a helpful reminder of the durability of the business. Third, large customers are one of our fastest-growing cohorts. We have seen customers with more than $5,000,000 in fully ramped ARR grow from 35 in 2021 to 96 at the end of Q2.

It is gratifying to see the largest insurers trust Guidewire Software, Inc. to manage their mission-critical operations at an accelerating pace. Finally, as Mike noted, we see renewal rates at all-time highs. On a trailing 12-month basis, InsuranceSuite ARR retention, including all down-sell activity, was over 99%. More interestingly, I went back five years and I reviewed every customer churn event involving more than $1,000,000 of ARR. It was easy to do because there is a very small number of these.

Those churn events fall into three categories: first, customers that experienced financial distress or exited the line of business where they used Guidewire Software, Inc.; second, a single instance where an acquisition drove churn; and third, a contract we terminated following our decision to exit Russia after the invasion of Ukraine. Importantly, over the last five years, we have not seen a single InsuranceSuite customer with more than $1,000,000 of ARR choose to replace Guidewire Software, Inc. with another system, except where that change was effectively mandated by an acquirer. Again, we thought it would be helpful to provide some of these incremental disclosures this quarter given the backdrop. Now let me turn to the results.

Total revenue was $359,000,000, up 24% year over year and above the high end of our outlook. Subscription and support revenue finished Q2 at $237,000,000, reflecting 33% year-over-year growth and our continued InsuranceSuite Cloud momentum. Services revenue finished at $62,000,000, up 30% year over year and ahead of our expectations on strong demand for Guidewire Software, Inc.-led services programs. This number includes an increase in field engineering activities delivered through our professional services organization. Now let me turn to profitability for the second quarter, which we will discuss on a non-GAAP basis. Gross profit was $243,000,000, representing 28% year-over-year growth. Overall gross margin was 68%.

Subscription and support gross margin was 75% compared to 69% a year ago, and continues to track well ahead of our expectations. Services gross margin was 9% compared to 6% a year ago. We finished Q2 with operating profit of $87,000,000. This finished ahead of our outlook as both gross profit was higher than and operating expenses finished lower than expectations. We ended the quarter with over $1,350,000,000 in cash, cash equivalents, and investments. Operating cash flow ended the quarter at $112,000,000. We repurchased $148,000,000 of Guidewire Software, Inc. shares in the quarter, and we obtained a new $500,000,000 share repurchase authorization a few days before moving into our quiet period.

We have $490,000,000 remaining on this authorization, and we currently expect to complete this repurchase program before the end of our fiscal year. Now let me go through our updated outlook for fiscal year 2026. Starting with top line, given our performance in the first half and our continued healthy pipeline, we are raising our ARR outlook to $1,229,000,000 to $1,237,000,000, which reflects growth of 18% to 19% year over year. For total revenue, we now expect between $1,438,000,000 and $1,448,000,000. The midpoint of our revenue growth outlook is 20%, up from 17% growth assumed in our prior outlook. We expect between $962,000,000 and $966,000,000 in subscription and support revenue.

This $16,000,000 increase in our guide at its midpoint, attributed to the subscription line, is due to stronger-than-expected first-half bookings, healthy direct written premium true-up activity, strong attach of new products, and a robust pipeline in the back half of the year. We now expect services revenue to be approximately $255,000,000 given the better-than-expected services revenue in the first half, our higher utilization rate, and an uptick in demand for Guidewire Software, Inc.-led key programs. Additionally, we are leaning into some field engineering programs where our services personnel are helping customers utilize Guidewire Cloud Platform and leverage newer agentic capabilities to solve business problems.

This is an important motion as proximity to the customer has always been a strategic asset for us. Turning to margins, we are increasing our expectations for subscription and support gross margin to be approximately 74% for the year. We expect services gross margins to be approximately 13%. Overall gross margins are now expected to be 67% for the full year as higher subscription and support gross margins improve the overall gross margin. We are also lifting our outlook for operating income. We expect GAAP operating income of between $100,000,000 and $110,000,000 and non-GAAP operating income of between $293,000,000 and $330,000,000 for the fiscal year.

This updated profitability outlook recognizes the higher revenue outlook and is partially offset by higher expenses as a result of increasing our annual bonus accrual due to expected outperformance on key financial metrics. We expect stock-based compensation to be approximately $185,000,000, representing 15% year-over-year growth. We are adjusting our expectations for cash flow from operations for the year to be between $360,000,000 and $375,000,000. Our CapEx expectations for the year are between $30,000,000 and $35,000,000, including approximately $18,000,000 in capitalized software development costs. Turning to our outlook for Q3, we expect ARR to finish between $1,144,000,000 and $1,150,000,000. As a reminder, the timing of ARR landing from backlog is more heavily weighted towards Q4 than Q3 this year.

Our outlook for total revenue is between $352,000,000 and $358,000,000. We expect subscription and support revenue to be between $239,000,000 and $243,000,000 and services revenue of approximately $60,000,000. We expect subscription and support margins of approximately 74%, services margins to be around 12%, and total gross margins around 67%. Our outlook for non-GAAP operating income is between $59,000,000 and $65,000,000. In summary, we had a tremendous Q2. Alex, you can now open the call for questions.

Alex Hughes: Great. Our first question is going to come from Adam Hotchkiss at Goldman Sachs.

Adam Hotchkiss: Great. Thanks so much for taking the questions. I guess to start, Mike, I appreciate all the clarity on the core continuing to accelerate. It would be great to understand how you think about what Guidewire Software, Inc.’s position in the broader AI stack looks like over the medium term. We hear a lot about competition outside of the core from forward-deployed engineer models and disruptors deploying LLMs on insurer data. Just maybe clear up for folks Guidewire Software, Inc.’s strategy as it relates to owning AI versus enabling AI and then how that impacts your revenue opportunity.

Mike Rosenbaum: Great question. I appreciate it, and I would definitely say that it would be quite a bold statement for us to say we are going to own AI in the insurance industry. What we are going to own in the insurance industry is core systems. That I am very confident in. We see that momentum, and we see that insurance companies need to modernize. They need these core stacks to work effectively.

There are plenty of insurance companies that need Guidewire Software, Inc. to own the outcome with respect to AI capabilities, but running an open model where we see other companies that are going to use other components from other AI technologies in and with Guidewire Software, Inc. is absolutely part of the medium-term outlook. And I think that this is really very, very important to understand. I have had numerous conversations with tier-one CTOs and CIOs in our customer base over the past couple of months, and every single one of them stressed to me that they expect there to be a mix of how they deploy these solutions in their environments.

At the smaller companies and at the smaller divisions, more of this will come from Guidewire Software, Inc. At the larger companies, some of it will come from Guidewire Software, Inc. and some of it will come from partners. This is an incredible time in technology, and I absolutely want to stress that where we are one of one, I think, is in the perspective that we are going to be the most trusted, scalable, reliable core system. That you can do anything you want with respect to AI and Guidewire Software, Inc.

Now, how does—if you say what parts of this do we want to do very well and maybe someday own, I will give you a little bit more detail. We are super excited about the momentum we have achieved with ProNavigator in the very first quarter that it has really been part of the company. We highlighted the deal activity. We highlighted the deal activity at pretty significant real customers that are deploying ProNavigator as a mechanism to deploy artificial intelligence-powered solutions directly to the place where people are using the systems. So we can provide this context from what they are accessing inside of Guidewire Software, Inc.

We can pair it with standard operating procedures and the recommendations that they would make to those end users, and we can use an LLM to serve that to the end user in a way that is helpful, in a way that makes that person an expert, and we love the momentum that we have achieved there. As we said in the prepared remarks, we are seeing demand for and doing a lot of—let us call it—forward-deployed services where we are working with our core customers to look at what is possible with respect to Guidewire Software, Inc. technologies and these large language models that are available now and can be applied to insurance outcomes.

We are super, super excited about this. But I would definitely stress the two characteristics or maybe three characteristics of my answer. Number one, we are the right choice for core systems. There is no doubt about that. Number two, we will do more with AI, and ProNavigator is a great example. We will do more with our services organization and technologies that come from Guidewire Software, Inc. But we will definitely be part of what I think will ultimately be a relatively complicated enterprise architecture that will be established at each insurance company based on their strategies and their goals. And no matter what, we will be open and we will provide a platform that gives our customers choice.

Hopefully, that gives you a sense, Adam, of how we are thinking about this.

Adam Hotchkiss: Okay. That is great, Mike. Really, really helpful. I wanted to then pivot to the core. I know we have talked about 25% or so of premium flowing through Guidewire Software, Inc. today, and it feels like AI is maybe moving customers into the cloud more quickly if your fully ramped ARR is accelerating off of the 22% in fiscal 2025. So what is your updated view on the pace that premium moves into cloud and where Guidewire Software, Inc.’s penetration ultimately gets to over the medium term? Thank you.

Mike Rosenbaum: Thanks for the question. I would say it is definitely improving, as you heard us talk about with respect to the results so far this year, the results in the quarter, the visibility that we see into the back half of the year, both for new business and expansions, and specifically larger deals at large tier-one and tier-two insurance companies. This is just extremely positive for our business. That is what gives us confidence to be able to update our outlook. How that relates exactly to the percentage points of global DWP that flow through Guidewire Software, Inc., it is very difficult for us to say or project that. I do not really run the business that way.

We look at it more from a net new ARR and net new fully ramped ARR perspective and the specific workloads, the specific lines of business that exist at each of our customers and each of the geographies that we support. And then we look at it at the end of the year, and we report that out, obviously, at a yearly basis how we have done. But certainly, it is increasing and certainly we see demand increasing. And I think demand is increasing because of the potential that everyone sees in generative AI. They see what they can do.

I think you have all heard me say before: what is so startling, what is so special about this technology is every single person that wants to can see how powerful it is because we can all use it in our consumer lives. We can all touch it. We can feel it. We can ask it questions. And then you can just immediately see, oh, wow, I can use this in my company. But you can only use it in your company if you are running on a modernized core system.

If you are running on a core system from Guidewire Software, Inc. with the APIs that you need, with the MCP servers you need, with the partnerships that you need, that is what really unlocks this, and that is what is driving the momentum in the business. That is what created the quarter that we saw. That is what is giving us the confidence to raise the guidance for the year.

Alex Hughes: Great. Thanks, Adam. Our next question comes from Ken Wong of Oppenheimer.

Ken Wong: Hey. Fantastic, very clear, very assertive statements on the AI front today, Mike. I think those were fantastic. I will not belabor the point too much since I am sure my peers will. I wanted to maybe focus on new products. You mentioned good customer feedback on PricingCenter. You signed your first deal. We would love to get some early comments in terms of what you are seeing in those engagements and those conversations. And then any update on whether or not there is some traction on the underwriting side?

Mike Rosenbaum: Thank you very much for the question. PricingCenter is super interesting because what we are seeing is people really leaning in and wanting to engage with us to talk about what is the vision and specifically how is it going to be integrated into PolicyCenter.

For a Guidewire Software, Inc. customer that is running PolicyCenter, there is just this obvious connection between the product model, the way that we define the product model, and how that relates to what the actuaries are going to use to be able to create the products that they need; how it connects to our data platform to be able to provide the data they need to create the models they need to stay current, to compete, to adjust to what is going on in the market. There is a lot of engagement there. This is a deal cycle that is kind of long, though. This is a thoroughly researched, thoroughly studied—sometimes there is a POC associated with these deals.

And so it is kind of more similar to our core sales process where, hopefully—as we said, we closed one deal that was like more than 10 years. Hopefully, deals will not last 10 years, but it is something that is going to take us a little while to build. We were excited to get that first deal done, but we are also excited about the amount of pipeline and the amount of engagement that we are creating for PricingCenter and for us to start to participate in this segment of the market. It is very exciting. And then you asked about underwriting.

On the underwriting side, we are still in the process of working with a small subset of customers that have expressed interest and really developing with them a solution that maps to what is really just, honestly, a very, very fast-evolving approach to agentic underwriting, let us call it—what exactly does that need to do with respect to receiving submissions from brokers, and how do we map that to risk appetite, and then how do we ultimately map that to PolicyCenter? Lots of excitement and engagement in the market around this.

We are excited about the product, and I expect over the next couple of quarters to be able to start to get this into production with a couple of customers and learning fast and evolving from there.

Ken Wong: Fantastic. Really appreciate the color. And then, Jeff, just a quick question on the—excuse me—on the true-up comment. I think you mentioned still seeing some tailwinds from true-up activity. I think we on the outside probably worried a little too much that as DWP normalizes, you really would not see any of that activity anymore. Help us walk through the mechanics of how that continues to be a tailwind for the business.

Jeff Cooper: Thanks, Ken. We did see healthier true-up activity than we initially expected going into the quarter. That provided a bit of a tailwind in Q2. I think as we think about the remainder of this year, it is generally aligned with how we have talked about this over the last few quarters. We saw a very healthy backdrop coming out of the high inflationary period that is tempering a bit, but we continue to see this activity. And the way it works is you have premium baselines in contracts, and it has always been part of our model that as customers grow, they pass those baselines and then we have the right to effect the true-up order.

It is not uncommon for some customers to buy a bit more premium than they initially need. It may take, in certain cases, a few years to see a true-up order after an initial purchase. But we see pretty regular volume of this. We have enough of this in our model now that we can be pretty precise in our predictions. And this year, we do still expect it to temper a little bit from the highs that we experienced a few years ago, but we saw a bit of a tailwind in Q2, and the back half of the year looks pretty much aligned with how we expected it.

Alex Hughes: Great. Thanks, Ken. Our next question comes from Rishi Jaluria from Raymond James or RBC.

Rishi Jaluria: Alright. Wonderful. Thanks so much for taking my questions. Maybe I want to first start by following up on the earlier question around perceived competition from AI. We have obviously seen both OpenAI and Anthropic announce deals with some of the leading insurers. But at least on first glance, it seems like it is very much complementary and maybe even potentially additive to what Guidewire Software, Inc. Core and even some of the add-ons are doing. I want to maybe understand, how are you thinking about your ability to partner and work with the large LLM vendors and ultimately just drive greater customer success within the insurance industry? And then I have got a follow-up.

Mike Rosenbaum: Super, super question. We absolutely see this as additive and helpful for Guidewire Software, Inc. overall and the acceleration in the company. We have always run a very open approach to our products and to our ecosystem. We have always invited multiple parties to the ecosystem because we cannot and do not imagine that we are going to do everything for every insurance company everywhere in the world. Obviously, Anthropic and OpenAI have access to this incredible technology that has obviously changed and will continue to change the world, but we do not imagine that the work that they are doing is targeted at the deep, deep specific complexities associated with operating a core in the insurance industry.

And we think that leveraging the capabilities that these tools provide—these LLMs or even these desktop applications that sit on top of their LLMs—are going to be most beneficial when connected to well-structured insurance processes running on modern core systems from Guidewire Software, Inc. And so we are very, very open to working with these companies. We are very open to working with our customers who have partnered with these companies around solutions that connect them to Guidewire Software, Inc.

And like I said in the script, I said it a second ago, we see this as net beneficial to Guidewire Software, Inc., because what you are going to be able to do with a Guidewire Software, Inc. core system that is deployed—your operations are modernized, your operations have these connection points that these systems need—this is going to allow these companies to accelerate; it is going to allow these companies to become more efficient. And so we do not see this as competitive. We see this as additive to the overall demand in the industry for what we can provide.

John Mullen: I will just add a quick point. There is a—Tied to your question and all that context is the fact that insurance carriers and leaders of insurance companies are under a tremendous amount of pressure to drive pace themselves. So the ability to differentiate in the market that they compete in and sustain differentiation is under a tremendous amount of pressure right now.

So the ability to work more proximate with them, solve problems with them, and increase pace of innovation on top of the service, and also increase speed to value in the way that they get to that first cloud implementation and consume products and services that we deploy, and also, to Mike’s point, have the open architecture where they can do things over the top of that at the pace that they want to and need to stay differentiated is really driving a conversation with these carriers and leaders in insurance companies that get us every day closer to them. And that is what I am most excited about, continuing to drive that proximity.

Rishi Jaluria: Alright. Really helpful. Thank you so much. Maybe just a quick follow-up. As we think about your own internal AI development, your own ability to bring AI to your customers, I recognize you are dealing with a highly regulated industry where it could take a while to get that meaningful adoption. But the question I would like to ask is: as you think about—a lot of the focus is on efficiency—but do you see an opportunity to maybe even drive better revenue outcomes and ultimately better customer outcomes for the insurers leveraging AI? What would that look like with your current roadmap? Thanks.

Mike Rosenbaum: Sorry. I want to make sure I understand. You mean better revenue outcomes for our customers?

Rishi Jaluria: Well, specifically that the insurers can generate better revenue outcomes, that whether it is being able to have better quotes or service more customers, and ultimately the end people being insured getting benefits as a result.

Mike Rosenbaum: 1,000% yes. The insurance industry is an incredibly complicated thing. If you zoom out, it is structurally hamstrung by the amount of information and data that needs to be managed in order to effectively and efficiently conduct the art of insurance. And large language models attack this directly. They address this directly. So you can underwrite more efficiently, which means that you can look at more risk. You can evaluate more risk more quickly. You can manage claims—the input of the submission of documents, and the conversations that you have to have with all the multiple parties can be analyzed more effectively.

Those two examples are tiny little bits of why the underwriting process is going to become more effective and the claims management process is going to become more effective. And I think ultimately the insurance industry, the insurance machine, is going to become more efficient, which is beneficial to insurance companies and to the broader society and our economies. The insurance industry with generative AI—I think this is why everyone is so excited about focusing on these kinds of partnerships with these big insurance companies—is there is a significant potential to improve its efficiency overall which, like I said, I do not want to say revenue, but I would just say the efficiency of these companies is going to improve.

And we are excited to be a part of that, driving that, and making that possible, along with a lot of other companies, along with Anthropic, along with OpenAI. There are going to be a lot of people that are focused on helping the insurance industry do this. Like John said, our customers are excited about the potentials here. Because for so long, you are limited to the technology capabilities at hand, and now you have this new tool that understands natural language and can be taught to do things like underwriting and claims—really significant. So basically, this is, 1,000% yes.

John Mullen: I will just hit on the daisy chain of product strategy because one part of your question was product strategy. So on top of the core operating system, if you think about the pressure points, our customers need pricing agility; therefore, PricingCenter. That is why we take that step. Product speed to market is the next thing in that daisy chain that drives competitive differentiation for them; therefore, Advanced Product Designer. And broker efficiency and effectiveness is the thing that is probably up for the most amount of transformation and disruption and enablement given the LLMs and the models available and, therefore, UnderwritingCenter. So it ties very closely.

The investments we are making in the product strategy tie very closely to those things that are driving differentiation for our customers that sit on top of the core processing environment. So the fact that the core processing environment has an opportunity to continue to gain market share by line-of-business specificity and geographic specificity because the rate at which we can deploy products—and the components that we are putting out over the top of it—are really good proof points for our strategic resilience inside of our customers.

Alex Hughes: Thanks, Rishi. Next up is Joe Vruwink from Baird.

Joe Vruwink: Hi. Great. Thanks for taking my questions. It is great to hear about the urgency to modernize. I maybe wanted to ask about the pace around that modernization, and there has been a lot recently—COBOL got its time in the sun a few weeks ago—on maybe AI tooling making it easier to translate. I do not think necessarily the translation of COBOL is the challenging part, but I wanted to get your take on just modernization timelines more broadly, whether Guidewire Software, Inc. has the ability to maybe accelerate time to value because of their AI usage.

Mike Rosenbaum: I will give you a quick take on this, and I think John is probably going to want to add some of his perspective on it. We are definitely working hard to ensure that our teams are working on these migrations, both from on-prem Guidewire Software, Inc. to cloud, but also that the modernization projects are more and more efficient. And we are starting to see the early results of this in the actual projects. There is a whole litany of different steps that are involved in one of these, and many of them can be enhanced and potentially even completely automated with generative AI.

So reducing that timeline, increasing the pace of that, therefore reducing the cost of those programs also helps us make an argument about modernization now. This is definitely an exciting component of the story at Guidewire Software, Inc. I would caution, though, that there is a certain amount of, hey, this is running on legacy code, and this is running on a system that we cannot support anymore.

So this one-for-one translate into something that is more supportable—I think that is an okay step, but it really does not get to what is very often a major important part of the modernization, which is rethinking your business process, rethinking your product, rethinking your approach to doing business, which is often part of a modernization. And that is what you really need to engage with companies like Guidewire Software, Inc. and our ecosystem of SIs to really help companies work through that and get to a system that is modern, but also an operation, a business workflow, a set of new standards that really set the company up for their go-forward operating model.

So it is more than just the conversion of the code, but it is really the modernization of all of the activities inside of an insurance company.

John Mullen: I will add: if we think about where we were maybe two quarters ago, and you have to think about this as the investments that Guidewire Software, Inc. is making in our professional services team multiplied by the investments that the SIs are making in their teams. If we go back two quarters, there was a lot of investigation, a lot of discovery, a lot of proofs of concept, a very wide funnel of activity. That is starting to narrow over the last two quarters. We are starting to see some green shoots of some really impressive kind of percentage reductions of time to value.

And the next step for us is to really continue to increase the velocity of those proofs of concept and early test cases to be rolled out as standard operating procedures in these programs. But there is an important additional step, which is rationalizing that with the SIs. Because I think—certainly, I have been in conversation with all of our SI partners—and there is no world where we want to be competing tool-based in what it takes to drive speed to value on cloud. We will be doing some rationalization with them and making sure that the tools are consumable by the customer base.

Joe Vruwink: That is great. And then, Jeff, one for you. I appreciate the midyear disclosure on fully ramped ARR. I would have to imagine there is seasonality in that number just given the deal volumes and 4Q creating some second-half weightedness. Can you maybe frame how much of a given year’s net new fully ramped ARR happens in the first half versus the second half?

Jeff Cooper: I think you know our business. You know that our seasonality is 4Q-weighted. 2Q historically is our second-strongest quarter, and we saw a very strong 2Q for us, and that flowed through to some healthy additions on the fully ramped side. But you will have to wait until Q4 to get full gratification on that question, and we will certainly talk about it in the fourth quarter call.

Alex Hughes: Thanks, Joe. Next question comes from Parker Lane at Stifel.

Parker Lane: Hey, guys. Thanks for taking the question. Jeff, appreciate the disclosure on ARR retention rates and the commentary on how few $1 million-plus churn events you have had in recent years. Looking at the remainder of this year and, more importantly, maybe your midterm targets, what sort of assumptions do you make or cushion do you bake in around ARR churn? Do you anticipate that things remain consistent with historical trends, or are you accounting for some incremental conservatism there?

Jeff Cooper: I appreciate the question. Given our business, this is an area of strength of ours. The assumptions are, as we go bottoms up in every single account, we have really good visibility into any sort of potential down-sell risk that exists in our accounts. The team flags all of those throughout the year. Usually, when we start the year, we have a good read, and so we do that. And we try to be pretty conservative and cast a wide net on how we think about potential down-sell events, and then we usually end up performing better than some of that wide net that we initially cast. But this is not a top-down model assumption exercise for us.

This is a very bottoms-up, customer-by-customer, account-by-account exercise for us.

Parker Lane: Got it. And one quick one on ProNavigator. I believe last quarter you said you were expecting $4,000,000 of ARR and $2,000,000 of revenue. Nine deals in the quarter—how is that trending relative to those expectations that you outlined last go-around?

Jeff Cooper: Trending positive to those expectations. I was not expecting nine deals in the first quarter, so we are thrilled with that progress. We can think about how we will disclose that moving forward, but you should think about it as, right now, trending ahead of expectations.

Alex Hughes: Great. Our next question comes from Michael Turrin at Wells Fargo.

Michael Turrin: Hey. Great. Thanks very much. Can you hear me okay?

Mike Rosenbaum: We can. Yep.

Michael Turrin: Excellent. I want to just spend some time on the duration increasing. It certainly seems positive in terms of willingness of customers to commit to Guidewire Software, Inc. Maybe just speak more to what is leading to that longer duration. Are you finding core replacements show up as a prerequisite for some of the longer-term AI-focused initiatives insurers might be looking at, or what drives that? And as a small second part, Jeff, you referenced the backdrop as to why you are giving some of the incremental disclosures, which we definitely appreciate. Is that just the software market backdrop you are referencing? Because your results seem generally unfazed here.

So maybe just help frame why the incremental disclosures for us as well. Thanks very much.

Jeff Cooper: On the first question—yes. This is 100% just because of the software market backdrop, and we felt that in that backdrop some of the durability elements of our business were being missed, and so we thought it was a good time to lean into some of these disclosures that provide a bit more durability. I think Mike will probably jump in here. But on the contract duration, we always have engaged in longer-durated contracts. There was a period of time when we transitioned to ASC 606 where we actually forced shorter contracts upon our customers. As we moved to the cloud, our standard has been five years.

In the early part of the cloud, if you looked at duration, it was a little bit lower than five years. We saw customers testing the waters, wanting to explore smaller deals and see how it goes. And now with the maturity of the platform, where we are on this cloud transition side of things, we have seen that willingness to lean in and make longer commitments. That trend has increased. And if you look at the largest customers in particular, the ones that are making really big bets on Guidewire Software, Inc., often that impulse is to move even beyond our standard five-year terms and pursue a longer engagement.

And we have seen that activity more recently over the last 18 months increase.

Mike Rosenbaum: Nothing to add. I think you got it exactly right, Jeff.

Jeff Cooper: Thanks very much.

Alex Hughes: Okay. Alex Sklar from Raymond James.

Alex Sklar: Great. Thank you. Yep. Thanks. Mike or John, following up on Ken’s question on PricingCenter and ProNavigator and some of the early success there, can you just reframe how you expect the adoption curve to trend and sales cycles you have seen based on what you have seen to date? Were these particular deals in the pipeline prior to the acquisitions? Maybe, Jeff, how did those initial deals look like in terms of uplift on ARR?

John Mullen: I will hit the first part, and then Jeff can pick up the second. If I think about the ProNavigator deals, the adoption curve in claims—we are seeing the pipeline that is accelerated there has really been as that team came into the fold. And I should say while I am on this call, I could not be happier with how that team has joined. The culture fit is great. The energy is exceptional. But as we think about our ClaimCenter customers that are on cloud, the receptivity to have the right conversations and start laying down tracks for what that looks like is what is really driving the acceleration there.

There are conversations in underwriting as it pertains to ProNavigator, but the acceleration is really coming in the claims space. The PricingCenter piece Mike mentioned a little bit earlier has a lot to do with those that are PolicyCenter customers, and the integration of PricingCenter into PolicyCenter is something that drives a tremendous amount of value and a tremendous amount of appetite right now for the conversations. There are a lot of proof points. It is a big decision. Every one of these customers has some variation of pricing and rating inside their environment, whether it is ours or somebody else’s. And so really testing the waters on that and pushing some proofs of concept is important.

But those customers that are driving pricing, that are driving policy admin solutions that sit on Guidewire Software, Inc. are really very interested in proving these things out and looking at potentially large and long-term commitments. There is going to be a lot of work to do to make PricingCenter fit all regions, all lines of business, so that is going to be something that we look at with a lot of investment over the quarters as we go forward.

Jeff Cooper: On the ARR side, we have not spoken too much on this topic other than to think about PricingCenter as a pretty meaningful ASP product with a little bit of a longer sales cycle. These are big investments that customers are making in that product. So we expect that pipeline to build and transact a little bit slower, but be more meaningful and impactful. On the ProNavigator side, those are smaller price points at this point in time, but at this point in time, that tool—or that product—is primarily looking at standard operating procedures of an insurer, and it is our expectation to evolve that into other content areas that would increase the value of that product over time.

So I think the price points that we are seeing today are nice starting points, and we should expect to grow those over time.

Alex Sklar: Jeff, maybe just a quick follow-up on Joe’s fully ramped ARR question for you. I appreciate some of the unknowns around seasonality given the larger tier-one customer base. But in the first half of this year, was there anything in the fully ramped result—outsized contributor, either in terms of steeper ramps or larger migrations—that is abnormal for a first half for you?

Jeff Cooper: It was an abnormal first half for us just in the fact that the volume that we saw, some of the large deal volume that we saw, was very, very exciting. We hope to continue to build on that. I would not say there was anything unnatural, but we are continuing to see the momentum build. There are a number of, in the first half, deals that were longer than even the five years. And so there is even some backlog that is off of that fully ramped ARR metric. And all of this is just continued momentum that we are seeing in the business.

Last year, citing Liberty Mutual was a big event for us, and so that creates a somewhat difficult compare. But as we look at the pipeline for the remainder of this year, we have a lot of really interesting activity out there. It is always hard to predict exactly when those larger deals will come in, but we are thrilled with the pace, and we are thrilled with the traction, and we are thrilled with the pipeline.

Alex Hughes: Great. Our next question goes to Alan Derkosk at BTIG.

Alan Derkosk: Hey. Can you hear me?

Mike Rosenbaum: We can. Yep. Awesome. Thanks for taking my questions here.

Alan Derkosk: Mike, given the speed and innovation of what is possible from a coding perspective with AI, you have gone through a lot of investments over the years. You talked about demand for deployed services. Are you making changes or leaning in more as it relates to your product roadmap? And how are you further adjusting, if at all, your expected developer count growth over, call it, a multiyear basis?

Mike Rosenbaum: Great question. We are in the process, as you could probably imagine, of rolling out agentic development tools—call it a harness—that works effectively for Guidewire Software, Inc. developers. And I should say for folks in our professional services organization, the folks in our SI ecosystem, and all of the customer developers. We fully expect that these agentic development tools will be leveraged by our devs and everybody that touches Guidewire Software, Inc. from a software development perspective. And for sure, we see this increasing our pace over time for what we can deliver.

We are a little bit early days to that approach, but the anecdotal feedback from the first movers and the people that have really put their hands on these tools and figured out how to use them effectively is extremely positive and gives me a lot of confidence that the development velocity at Guidewire Software, Inc. over time will increase. That brings up logical questions that I had and that you are asking me right now, which is, okay, what does our long-term backlog look like, and what are the ideas and things that we need to be putting into this product over time with this increased capacity?

We have been in the process for the past few months of reevaluating those roadmaps based on the assumption that possibly we will see this—or likely we will see—the throughput increase. I am excited about the potential to increase this throughput. It is like a side benefit of all the work we have done to move our customer base to our cloud. Now we have a vehicle in the cloud-based install base and the three releases we are doing every year to take the new functionality that we are building and put it in and get it into our customers’ hands.

It is this incredible circumstance that this lines up right when we have got more than half of our customer base moved to cloud. And I think that also provides another reason for the on-prem customers to think about accelerating their timelines to cloud. But the roadmap is pretty vast, pretty long. I am very confident in our position in the market today, but do we have a big BillingCenter roadmap? Yes. Do we have a big PolicyCenter and ClaimCenter roadmap? Yes. Are there a whole bunch of things that we could do to make the products better, make the products easier to install and easier to configure and easier to integrate to other systems?

There is so much more that we can do. I would not say it is infinite, but I am very confident that we have a product roadmap around the existing product portfolio that is very sufficient and is going to continue to deliver value to our customers, now at a faster pace, for years to come. So the question about are we thinking about generative AI from a development perspective—is it an efficiency play or is it a value play? Right now, I am very much thinking about it as a value play.

I think that we can take the developers that we have that know Guidewire Software, Inc.—they know the technology stack and the cloud technology stack at Guidewire Software, Inc., and they know the insurance industry, and they know what to do—and we can accelerate. That is going to create more value for Guidewire Software, Inc., and it is going to help us continue the pace, or maybe hopefully accelerate the pace, that we have established with cloud. That is how I am thinking about it in the short to medium term.

Alan Derkosk: Perfect. That is really insightful, Mike. And then, Jeff, just as a quick one for you. Can you just stack-rank the areas of outperformance in the quarter as it relates to the ARR beat?

Jeff Cooper: It is a good question. In general, as I build my ARR model, there are the key elements that I need to see come to fruition. One is new deals in the quarter that then translate to ARR. The next is how much ARR is going to come off of the backlog. And the third is how many attrition events occurred. We have really good visibility into the ARR that comes off of the backlog. We have really good visibility into those attrition events, and so those both performed largely in line with expectations. Then it is the new sales activity that we landed and delivered in the quarter that drove that outcome.

A little bit of that, we called out, was also a bit higher true-up activity. But most of it was just the deal volume in the quarter and then how that deal volume translated into year-one ARR. Within that, I think we saw a very healthy mix of new customer wins, migrations, expansions into new areas within existing customers. And so that new sales momentum was pretty broad-based.

John Mullen: The other dimension to look at is geographical. So geographical line of business—good spread across personal lines and commercial lines, which we are happy continues to be a nice balance for us. The team in Europe continues to drive really solid activity and influence in the market, showing up every day in the culture and in the business of the countries that make up Europe and the UK. And then our Asia-Pac business continues. We were in Sydney last week with a lot of customers, and I will just go back to the ProNavigator question. The receptivity—so many of those customers are in the process of or already on cloud.

Therefore, their appetite for consumption is just really—it is a really powerful conversation. And so the Asia Pacific team continues to drive.

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