管理層發言
Greetings, and welcome to Guidewire's Third Quarter of 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; Jeff Cooper, Chief Financial Officer; as well as John Mullen, President, who will be available for the Q&A portion of today's call. 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 this quarter's earnings deck on the IR section of the site. Today's call is being recorded, and a replay will be available following its conclusion. Statements today include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national and geopolitical events on our business 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 the risk factors and documents we file 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. Please note that starting this quarter, we have updated our non-GAAP methodology to exclude the impact of unrealized foreign currency exchange rate gains and losses. To ensure an accurate comparison, we have recast all our non-GAAP schedules back to the first quarter of fiscal 2025. 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, and thank you for joining us today. We delivered another great quarter in Q3 and continue to build momentum across the business. The quarter was highlighted by 11 cloud wins, strong progression in key pipeline deals and growing customer interest in PricingCenter and our AI platform tooling and ProNavigator offerings. Together, these dynamics continue to strengthen our position as we head into our fourth quarter and provide a solid foundation for the remainder of this fiscal year and next. From a financial perspective, revenue, profitability and cash flow all finished ahead of expectations, continuing to demonstrate the strength and durability of our model. ARR in Q3 came in within our guidance range, growing 19% year-over-year and fully ramped ARR continues to grow faster than ARR. The bookings results in the quarter were solid and 19% ARR growth is a great achievement. We anticipated a couple of more deals to close in the quarter, but one of the things about Guidewire is that there are a relatively small number of discrete deals each quarter and sometimes timing doesn't align perfectly with quarterly boundaries. That said, the progress we made in Q3 with respect to pipeline momentum gives me a lot of confidence as we head into Q4, which is one of our largest and most important quarters of the year. As I think about the quarter and the progress we have made so far in our fiscal year, I'm very happy with the momentum and trust we have built in the industry. What stands out is the degree to which insurers are aligning around Guidewire as their long-term core platform partner. Customers increasingly want a complete platform they can trust, something that combines IT agility, an open approach to integration and amplifies their ability to innovate rapidly. This position has become even more valuable as insurers modernize core systems and look to operationalize the latent benefits AI creates for the insurance industry. During the quarter, we closed 11 cloud deals, including 2 net new core system wins and 5 ProNavigator deals. One notable transaction was a 7-year extension and DWP expansion with Auto Club of Southern California for InsuranceSuite on Guidewire Cloud Platform, alongside a significant new sale of ProNavigator. This carrier is investing in Guidewire to support long-term growth while incorporating greater AI-driven capabilities into its operations. We also saw continued momentum from insurers modernizing legacy core systems globally. In Europe, a U.K. insurer, part of a global insurance group, selected ClaimCenter on Guidewire Cloud Platform as part of a broader modernization initiative designed to simplify and accelerate its technology roadmap. In Brazil, we closed a large strategic net new win with Bradesco Seguros, which selected Guidewire Cloud Platform as part of an effort to consolidate and modernize a significant legacy footprint. This insurer is focused on improving product velocity and accelerating speed to market. And in North America, a large U.S. insurer selected PolicyCenter on Guidewire Cloud Platform within a commercial insurance entity. We continue to believe these types of transformational core system modernizations represent a durable long-term opportunity for Guidewire, and we were encouraged by the progress we made during the quarter. Beyond core system modernization, we are also seeing increasing traction across newer offerings on the platform. We had three great PricingCenter wins in the quarter, including one with a Swedish insurer, an insurer in Poland as well as our first U.S. win for PricingCenter at Oklahoma Farm Bureau, which selected the platform to become more nimble in pricing and rating, reduce IT and operational friction costs and accelerate speed to market. As I previously stated, we also saw continued and building momentum for ProNavigator, which was adopted in the quarter by 5 insurers spanning multiple sizes and lines of business as each increasingly looks to embed AI-driven knowledge and workflow automation directly into core insurance operations. In addition to Auto Club of Southern California, ProNavigator was chosen by 2 regional mutual insurers as well as a farm and ranch focused P&C carrier and a workers' compensation insurer. Additionally, our data and analytics offerings continue to gain traction as customers seek to embed more real-time insight throughout the insurance life cycle. Overall, we're seeing increasing platform gravity around Guidewire, and that's translating into healthy adoption of new offerings across our portfolio. These trends and the broader momentum in the business were reinforced at recent insurance forums we hosted in Europe, Australia, Japan and Canada. In each of these events, insurers consistently emphasize the same priorities: modernizing core systems, increasing operational agility and positioning themselves to take advantage of AI in practical and scalable ways. As we've said before, Guidewire sits at the center of the insurance enterprise. Our platform manages the core systems of record for policy billing and claims, and we continue to expand that foundation into critical business functions like pricing and underwriting through a continuously improving cloud platform. Our platform provides the context insurance companies need to apply AI to real workflows. AI in insurance or any other regulated industry use case depends on trusted data, well-defined workflows and systems capable of executing decisions reliably at scale, which is exactly what Guidewire provides. With ProNavigator, we have embedded AI decision support directly into the applications and workflows insurers use every day. We help underwriters, claims adjusters and customer service teams to make better decisions through contextual insights, recommendations and increasingly agentic capabilities integrated into the flow of work. Underpinning all of this is our cloud platform and developer ecosystem, which was the focus of our recent Developer Summit in Bangalore, India. This event was a real highlight for me for two reasons. First, because of its scale. We had 3,000 people attend, which was double our prior year. And we had people come to Bangalore from all over the world. When we began this event, we just had no idea it would be so popular. And I never imagined that we would have customer development teams from the United States traveling halfway around the world to engage with us in this way. Second was the breadth of AI capabilities we are unlocking on the platform. Connecting these frontier models and tools like Claude Code to our platform and our MCP servers is unlocking a staggering amount of productivity in our ecosystem. Walking around the event and speaking to the real on-the-ground engineers who are every day translating the requirements of the industry to real solutions was just motivating for me. We are unleashing a productivity tsunami and the same excitement that people are experiencing with Claude-code-driven software development is now very real on the Guidewire platform. Making it possible to build workflows faster, integrations faster, new insurance products faster, new digital experiences faster, and it was just incredible and everyone in our ecosystem is excited about it. We're also seeing significant and measurable productivity gains internally and across our partner ecosystem through the use of these agentic development tools, which is helping accelerate delivery and implementation timelines. This improvement will accelerate migration and modernization efforts across the industry. We are almost a decade into our efforts to bring the industry a modern cloud platform and still much of the insurance industry still operates on legacy technology. The insurance companies not operating on modernized core systems will struggle to take full advantage of AI to support the agility and intelligence insurers increasingly require to remain competitive. This reality creates a growing opportunity for Guidewire. By reducing the time, cost and complexity associated with this modernization, adding AI capabilities, agents and automation into an open platform, we believe we will expand our addressable market and continue to accelerate our business. And finally, before I turn the call over to Jeff, I wanted to quickly mention an important leadership transition in our sales organization. After an incredible career as an enterprise sales leader in the software industry, David Laker has decided to step away from his role as Chief Commercial Officer and transitioned into a new position focused on strategic partners and initiatives. David will continue his current role through the end of the fiscal year. And to ensure a smooth transition, I'm excited to announce that Shane Cassidy is joining Guidewire starting today and will formally assume Chief Commercial Officer responsibilities after the end of our fourth quarter. Shane is a proven insurance industry leader and has been instrumental in partnering with Guidewire and helping grow our business over his 20-year career at Capgemini, where most recently, he was the Executive Vice President of the Global Insurance practice. The Chief Commercial Officer role will continue to report to John Mullen, and we anticipate that Shane will build on the strong sales discipline and execution that David has established. We're pleased to have Shane on board, and I'm excited to work with David in his new capacity next year. And with that, I'll turn it over to Jeff.
Thanks, Mike. We are pleased about the progress we made in Q3 as we shift our focus to our important fourth quarter. In Q3, we executed on healthy cloud demand. We made exciting progress moving key deals through our sales pipeline. We saw strong services demand and execution, and we really demonstrated the power of our financial model with revenue growing 27% combined with strong margin and cash flow dynamics. And I was pleased with the progress we delivered in Q3 to set ourselves up to achieve a fantastic fiscal 2026. ARR finished Q3 within the range at $1.147 billion, up over 19% year-over-year. Fully ramped ARR growth rates continue to outpace ARR growth, which is a strong indication into the growth environment we are experiencing. Total revenue was $373 million, up 27% year-over-year and above the high end of our outlook. Subscription and support revenue finished Q3 at $245 million, reflecting 35% year-over-year growth. Services revenue finished at $72 million, up 32% year-over-year, well ahead of our expectations on continued strong demand for Guidewire-led services programs and field engineering activities. Now let me turn to profitability for the third quarter, which we will discuss on a non-GAAP basis. Gross profit was $247 million, representing 29% year-over-year growth. Overall gross margin was 66%. Subscription and support gross margin was 74% compared to 71% a year ago. The scalability of the cloud platform continues to deliver strong margins. Services gross margin was 14% compared to 13% a year ago. This margin benefited from strong utilization rates, which was partially offset by higher subcontractor expenses to ensure we had sufficient capacity for the demand we are experiencing. We finished Q3 with operating profit of $78 million. This finished ahead of our outlook due to higher-than-expected revenue and gross profit and lower-than-expected operating expenses. In general, operating expenses have benefited from some slow hiring and some expense timing. We ended the quarter with $1.15 billion in cash, cash equivalents and investments. Operating cash flow ended the quarter at $61 million. We repurchased 1.7 million shares at an average price of $147.07 per share. We have $241 million remaining on our share repurchase authorization that we put in place towards the end of Q2. Now let me go through our updated outlook for fiscal year 2026. Starting with the top line, we are maintaining our ARR outlook of $1.229 billion to $1.237 billion, which reflects growth of 18% to 19% year-over-year. As we mentioned last quarter, we continue to see fully ramped ARR growth rates above ARR growth rates, and we expect that trend to continue for the full year fiscal 2026. This is important because it sets a solid foundation for durable growth as we look ahead to FY '27 and beyond. For total revenue, we now expect between $1.46 billion and $1.47 billion. The midpoint of our revenue growth outlook is 22%, up from 16% growth assumed at the beginning of the year and 20% growth as of the end of last quarter. We expect between $963 million and $969 million in subscription and support revenue. This is a modest increase but reflects a $20 million increase in our guide over the first three quarters of the year. This outlook takes into account the continued healthy DWP true-up activity strong attach of new products and a robust pipeline in Q4. Additionally, we were thrilled with the progress of ProNavigator and PricingCenter in the quarter. These new product areas have already surpassed my expectations for the year. We now expect services revenue to be approximately $270 million, given strong cloud demand and, in particular, demand for Guidewire services expertise. Additionally, as we noted last quarter, 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. Turning to margins. We still expect our subscription and support gross margins to be approximately 74% for the year. We expect services gross margins to be approximately 14%. Overall gross margins are still expected to be 67% for the full year. We are also lifting our outlook for operating income. We expect GAAP operating income of between $124 million and $134 million and non-GAAP operating income of between $314 million and $324 million for the fiscal year. This updated outlook reflects higher revenue and gross profit expectations and lower operating expenses than originally anticipated. This is partially offset by a larger services revenue mix and an upward adjustment to our company bonus accrual given strong growth and profitability expectations. We expect stock-based compensation to be approximately $182 million, representing 13% year-over-year growth. We are raising our expectations for cash flow from operations for the year to be between $365 million and $380 million. Our CapEx expectations for the year are between $30 million and $35 million, including approximately $18 million in capitalized software development costs. Alex, you can now open the call for questions.
Great. Thanks, Jeff. Our first question comes from Adam Hotchkiss at Goldman Sachs.
分析師問答
I just wanted to start on ARR for the quarter. Mike, I know you called out deal timing, but it would be great if you could share any additional details on what drove that and how broad it was? It felt like historically you've had a pretty good handle on the quarterly cadence of backlog and deal velocity. So I'd just be curious what was different this time around and how we should think about whether you expect the same dynamic to impact Q4?
First, thanks very much for the question. I'll answer the last part of the question first. No, we have a tremendous amount of pipeline and expect—we have to execute, but we expect a very strong Q4. The situation in Q3 with respect to deal timing, honestly, isn't that unusual. It's just there's a discrete number of deals that we have to close every quarter. And sometimes things are in our control and sometimes they're not. I actually think 19% ARR growth was a very, very solid quarter. And so I think when you kind of zoom out and look at the long history of the company, I think you have to say, well, everything is fine here, and there's really nothing to read into this other than a company like us that does big, large discrete deals is going to occasionally have a situation in which some things fall on the wrong side of that line. I think you really—when I think about what's going on, we see pipeline building and we see demand building, and we see a tremendous amount of confidence in the sales organization and then really also the customer base and the demand for not just core modernizations, but these new products. Jeff mentioned this: we're creating alternative ways to get to the number and alternative products to sell in PricingCenter and ProNavigator and our analytics product offerings that are really increasing our confidence looking into Q4 and next fiscal year. So hopefully, that gives you just a little bit of color about how confident I am in the company right now and how pipeline is shaping up into Q4.
Yes. And the only thing that I would add is we've been talking for some period of time around what the impact of ARR backlog is into the net new ARR numbers. And we've known for some—as we entered into this year that Q3 faced a pretty meaningful headwind with respect to that particular metric. As we look at Q4, given the pipeline that we have, which is incredibly strong, in addition to the visibility that we have into the backlog that will flow out of backlog and into the ARR number in Q4, it gives us a lot more visibility into that number and informs our confidence into how we think about the guide.
Great. That's really helpful. And then, Mike, just a follow-up on something you said on ProNavigator and PricingCenter. It feels like you're getting some really good early traction there. Maybe for you or Jeff, how should we start to think about when these products and Underwriting Center as well—I know that's moving along into next year—will start to materially benefit ARR growth?
Well, those products are building in terms of the overall portfolio at the company. And they also strengthen the overall message and the value we can create for our customers by making sure we deliver a completely integrated suite across the full insurance life cycle. So obviously, as those product lines grow faster than the overall product collection, they'll become a more and more meaningful part of the overall bookings number. We called it out just because it was an objective this year to get those product lines established. And as Jeff said, we're very, very pleased with the momentum. And so it will definitely happen that they'll grow as a percentage of the overall book, and we're very pleased with how much momentum we've been able to create in a short amount of time.
Our next question comes from Alexei Gogolev from JPMorgan.
As an insurance partner with major LLM vendors, what's the practical integration posture with Guidewire in terms of enablement points or governance or security? And where do you expect Guidewire to build versus partner?
Great question. It's a super complicated, multifaceted answer. Most important thing for us right now is the work that we've done on what people are calling a development harness to make sure that these LLM agentic development tools work effectively with the Guidewire stack. This is actually real software engineering that has to be put in: when you point these tools at a platform and a code base like Guidewire, you don't necessarily get good results. But after doing the work to make sure that the system knows how to interact with Guidewire, we've been extraordinarily pleased with the results. I think this is what I was referring to at our Dev Summit in Bangalore: showing people how to get this deployed, how to get Claude Code running on top of Guidewire, how to create the code, the integrations, the digital experiences, all of that stuff through prompt engineering. It is phenomenal. I would describe that as a partnership. We don't necessarily need an official PR from these companies. They've done an incredibly good job publishing their APIs and how to build these things to work together. We've done a great job working with their technical teams to make sure that these things deploy well, and the results have been phenomenal. Now obviously, we also have LLMs that are sitting inside of products like ProNavigator and the agents that we build to run on our agentic layer inside of our platform. There's a good symbiosis in how these things are working together and being practically deployed right now that I am very, very excited about. If you ask what's the world going to look like in five years and how much of the solution is going to be delivered by Guidewire versus delivered by a large language model and the various layers of prompts, who knows? I will say one thing I am absolutely sure of: the industry is going to run on a modern relational database like Guidewire. Claims, policy, billing, product modeling—these things are going to run on a modern cloud infrastructure that we provide. And we will remain open to working with these large language models and also other application providers that have incorporated these capabilities. This is what our customers want, and that's what's working right now. That's the message, that's the architecture, and that's the reality that's working really well for us right now. Hopefully that gives you a sense of where things are and where I think they'll go. Generally, I couldn't be more pleased with how this is evolving in the ecosystem.
Thank you, Mike. And one follow-up in terms of monetization. How are you thinking about it for embedded Gen AI features over time? And what guardrails are you likely to implement to protect unit economics?
It's a good question. Generally speaking, I would like to build products that align to insurance value. We tend to almost universally sell our products based on direct written premium, based on a percentage of the direct written premium that runs on the service. That enables us to describe the value we create in relationship to the size of the insurance company and therefore, the size of the value that we're creating for that insurance company. So if there's an LLM that's incorporated into that story in the same way that it is very directly with ProNavigator, we want to have a basis-points-based pricing structure that will include whatever amount of tokens are necessary to deliver the value that we've been able to describe in selling that product. Now obviously, there are guardrails that we will build—technical and contractual—that will protect us from a use case that goes beyond what we expect. But nothing that we've seen causes me to worry that that's going to become something that slows us down. We think we're going to be able to create DWP-based pricing structures for the products that align to the insurance workflow, and that's going incredibly well for us right now. Hopefully that makes sense. It's slightly a technical question, but that's the philosophy around pricing and guardrails right now at Guidewire.
Thanks, Alexei. Next question is from Parker Lane at Stifel.
Mike, really nice to see the ProNavigator momentum here that you called out in the quarter. I think you acquired that back in October, maybe formally announced a release in April. Can you just give us a sense of how long those deals are in the pipeline? And generally speaking, when you look out to Q4 and the coming fiscal year, how are you feeling about the pipeline in the early stages of having ProNavigator on the platform?
Thanks a lot, Parker. It's a great question. I appreciate it. We're excited to have a product that we can materialize demand for and close business around in a reasonable amount of time. It's a very different sales motion than we have with core system modernizations that can sometimes last multiple years. Certainly, some of that pipeline was already part of the company when we did the acquisition. But since acquisition, there's been a prompt shift in the perspective of the customer base around the trust they are able to put into a service when it's backed by a company like Guidewire. A lot of the things we can do to build trust around the products we sell can be applied to the new products that we add to the mix here at Guidewire. That's certainly true with ProNavigator. Deal cycles are shorter and the conversations are quicker, especially relative to a modernization or a cloud upgrade. That's very exciting. That's one of the things driving the excitement in our sales organization, and there's real demand to operationalize AI in a way that allows a company to get started very quickly and ProNavigator meets that need.
I'll add one quick comment there. With regard to both ProNavigator and PricingCenter, the pathway to the business strategy conversation and business value outcome conversation as we continue to enrich our conversations with customers has been really powerful. So the gestation period of these deals—stand-alone, Mike mentioned a different selling cycle—but it is also proving to be a really rich engagement with Chief Claims Officers and heads of underwriting, heads of product and pricing inside of companies to connect the dots between the core modern platform to the business value that can be derived on top of that. That's not just about cost dislocation and operational savings, but really about growth and indemnity management. That's becoming a really powerful enrichment of the core modernization message.
Got it. Maybe one quick one for you, Jeff. You talked about slower hiring. You also talked about a surge in services demand. Was the slower hiring across the board? Or is that—should I weave that in with the commentary about services demand and what you said about subcontracting and a need to invest more there and particularly SBU-type roles?
Slower hiring was mostly outside of services, I would say. Services has been hiring to meet the demand threshold. On the slower hiring side, sometimes it just takes a little bit longer to get the heads in the door that we want to get in. There's also a bit of us coming to terms with some of the productivity gains that we're seeing with some of the AI tooling that we're rolling out throughout the company and being a bit more measured about how we think about future headcount growth. So those two things are playing into some of the hiring practices right now.
Great. Next up is Ken Wong at Oppenheimer.
Mike, maybe circling back on the slipped deals. I feel like you guys have been executing so well. So any time there's a little hiccup, I think investors just wonder: potentially is it macro given some of the geopolitical stuff that happened in the quarter? Is it maybe AI causing customers to think through their deployment timelines? Any reason why it wouldn't be some of those external factors and you guys feel comfortable that it is just kind of some deal timing? And then any update on whether or not those have closed in fiscal Q4?
It's a good question. I would say generally no—this is simply a matter of us looking at the end of Q2 and saying what we project will occur in Q3 and then seeing things move a bit differently than planned. I want to reiterate the pipeline is actually building and the ARR growth rate ended up at 19%, which is strong. So more so, this is a headline associated with us hitting the target that we set in Q2. It is not related to macroeconomic conditions or a general condition that we see in the overall demand environment. Pipeline is building, demand is building. We could have a record Q4, but of course we have to execute. The demand and pipeline we see are very significant. So I wouldn't connect the dots to anything related to macro or AI or anything like that.
I agree, Ken. There's nothing like that at all. We have a ton of confidence in our market position and the demand environment. I don't want to comment on any specific deals, but as we look at the linearity at the start of Q4, it's off to a good start. Guidewire is a business that has a small number of very large deals that can be quite impactful. This is just a dynamic of our business. Part of the reason why we always coach people to focus more on the annual results as the true measure of our success is because of this dynamic. We feel very confident that anything that didn't quite get in Q3, we'll manage to get over the finish line in Q4 and the pipeline is really strong.
Understood. And Jeff, I appreciate the color on the fully ramped lining up with ARR this quarter and likely similar in Q4. I don't suppose any directional color in terms of whether or not fiscal Q3 was kind of tracking at or above/below what Q2 levels were?
Here's what I can say: our fully ramp continues to be very, very healthy. I think it's a helpful reminder that when we approach a deal negotiation, we really focus on driving customer lifetime value. This means optimizing the ARR dynamics for the out years more so than optimizing them for the year-one in-quarter ARR that's delivered. That's a dynamic of our model that we have to manage and measure, but we will always optimize for customer lifetime value. Last year, we saw fully ramped ARR growth at 22%, which was very strong. As we move through this year and look ahead to next year, we're confident that we can deliver those levels or potentially higher. That's how we're thinking about where we've been throughout this year and the remainder of the year.
Great. Our next question goes to Allan Verkhovski at BTIG.
Awesome. Mike, I just want to pull on that earlier thread and the productivity tsunami you mentioned in the prepared remarks. There are a lot of product updates in the Palisades release. I want to just go a bit deeper on the developer assistant. That's an early access. Can you unpack the level of demand there from Tier 1 insurers? What the most in-demand use cases are based on your conversations? And how is this further driving incremental tailwinds and pressure on insurers that haven't moved to the cloud to do so sooner?
Great question. There are a variety of development tasks that relate to either implementation of Guidewire or ongoing maintenance and evolution related to IT projects. Probably the most tangible use case is product creation. We've done a lot of work over the years around what we call Advanced Product Designer and creating a better system for creating new products on the PolicyCenter platform. Using AI to do that is a phenomenal step-up in productivity. Building integrations is another big part of implementation projects and can also be accelerated. Often associated with new product introduction is the digital interface—the customer-facing, web-facing screens associated with quoting those products or engaging with agents—that also can be accelerated. So there's demand for all of these developer assistant capabilities across the board because these tools are generally applicable once we build the harness and train them to work against our specific technology platform. Regarding demand and the tailwinds this creates: think of it two ways. One, there's a tremendous amount of work involved in migration. If I've got a legacy mainframe system that needs to be modernized or a Guidewire Cloud implementation that hasn't been maintained, these tools can be applied to that work. We're seeing estimates and timelines associated with professional services to do that work come down significantly. That creates more demand because projects that were being postponed may become actionable if they're faster and cheaper. That's as exciting as the ongoing maintenance and the productivity boost in IT departments post implementation. It's very real and creating a tailwind for the company.
Perfect. That's really helpful, Mike. And Jeff, maybe just a quick follow-up for you. It's impressive that fully ramped ARR growth is still expected to outpace ARR growth next quarter despite seeing some of the deals pushed this quarter. Can you just walk through your confidence, your visibility and assumptions behind that?
We do a very detailed bottoms-up review of our pipeline and the deals that are coming in. We are seeing very healthy demand for larger commitments—insurers expanding their work with Guidewire when they're modernizing one module to the cloud and then consuming another module in addition to that activity. All of that flows through the model. We also have very good visibility into the first three quarters of the year, which informs our guide. A meaningful amount of the work is already in the rearview mirror as we look ahead to the end of the fiscal year. So these themes—the larger commitments that insurers are making to the cloud platform—inform the guide. There is certainly work that has to be done and completed in Q4 to realize that, but we have good visibility into the corpus of deals that we expect to see in Q4.
Our next question is from Tyler Radke at Citi.
Obviously, you hit on the slip deals a bit already. But I guess, just bigger picture, one of the dynamics that investors are asking about is the AI crowding-out effect. I'm curious as you talk to your insurance customers and they're presumably ramping up coding projects, how much is that budget an issue as it relates to your deals? And as you think about Q4, could you provide the underlying assumptions on close rates and whether you have introduced more conservatism given the timing issues you saw in the quarter?
We're being very careful in reviewing everything for Q4 to ensure we're confident in reaffirming the guide and the confidence in our execution. That's being done. Regarding AI crowding out, I hear that narrative, but I don't hear it from customers in a way that worries me. The reality is the insurance industry recognizes the profound impact AI can have on development velocity, IT agility, underwriting efficiency and claims operations. The productivity improvements possible are so significant relative to what these companies spend on IT programs that it doesn't make sense to view them as competing budgets. If AI works, which more people expect it will, insurers will need modern core systems capable of supporting agentic capabilities. Otherwise, they won't be able to remain competitive. Being on a modernized platform with an open approach to APIs, MCP servers, integration to agentic tools and LLMs and an ecosystem of partners is the logical answer, and that creates the lift we're seeing at Guidewire. The narrative exists, but the counter narrative in insurance—the use cases we unlock for IT, underwriting and claims—overwhelms that logic and is driving the business positively for us.
Mike, in the prepared remarks you talked about measurable and significant productivity in accelerated migration timelines. I'm wondering if you could double-click on that. Any metrics you could put around that? Is it happening 30% faster? How should we think about that in terms of when it starts to show up for you in terms of getting a faster ramp from booking to active ARR?
Great question. We started conservatively: get the tools in people's hands, apply them to a couple of programs with a few customers, be open with customers about what we're doing, and see if it produces acceleration. The amazing answer is it is accelerating. We're seeing results and expanding to more projects. John, do you want to provide the numbers we're discussing with customers?
Yes. The investment pace right now has unlocked about a 35% improvement in migration—so on-prem to cloud migration. That's a great use case because there are control parameters around the database conversion that allow us to move really fast. We're starting to redirect some investment toward migration off legacy estates toward Guidewire. We're starting to get that 35% improvement on net new deals. Looking forward, we see a pathway to maintain the same pace until roughly a 55% improvement, after which we would still see continuing cost savings but likely less duration savings because of change management realities. We still have a promising pathway ahead and strong success stories behind us.
Our next question comes from Aaron Kimson of Citizens Bank.
Mike, do you see any high-level differences in the appetite and relative budgets for adopting AI products among P&C insurers geographically in the Americas versus EMEA versus APAC?
Yes, we do see differences. I won't call out particular countries, but there are different perspectives across countries and carriers about how aggressively to pursue consumer-facing agentic deployments versus human-in-the-loop use cases focused on employees and productivity. The common factor is everyone wants to get on the learning curve and start to deploy and figure out how AI makes sense for their business. Differences exist in how aggressively companies target efficiency agendas, but broadly there's strong interest worldwide.
Got it. And then as a follow-up, Jeff, can you talk about the shape of the ramp of token spend at Guidewire, your level of visibility and how that will evolve going forward? And could there be any potential gross margin effects?
We're pretty early in how we're monitoring and measuring token spend. We're starting to see it pick up on the development side and getting it into customers' hands with respect to the agentic framework and adoption within the platform. We've built mechanisms to start measuring that. Right now, we're focused on adoption with some controls to ensure there's not usage beyond the scope intended by our contracts. It's early; we have no metrics to report at this point.
Next question is from Jessica Wang at Raymond James.
Just to touch on Underwriting Center. I know it's still early and still in development, but what have you been hearing from customers that are interested? How should we think about product maturity so far and potential pipeline into next year given the success you've had with ProNavigator and PricingCenter so far?
It's going very well. We have a handful of customers we're working with and plan to get it into their hands in the next couple of weeks to months. There's tremendous interest in commercial lines underwriting for LLMs and agents tuned to underwriting use cases to significantly improve efficiency, reduce time to respond to submissions, and allow underwriters to focus on risk analysis. We're also establishing better connections to the policy, quoting and pricing systems companies use. The use case has broad demand across the customer base. The project has gone according to schedule and we're excited about the work with carefully chosen design partners.
That's great to hear. Also touching on PricingCenter again, with the success and pipeline so far, how should we think about the demand drivers—did they come mostly from existing customers versus new logos? And how should we think about potential attach rates across these cohorts?
PricingCenter's integration with PolicyCenter and the product model is a key part of its value proposition and was integral to the acquisition thesis. The industry needs to launch new products more quickly and adjust pricing and rate routines more fluidly to stay competitive and profitable. The friction in doing that relates to how the solution components integrate. This value proposition logically drives selling PricingCenter to existing PolicyCenter customers and alongside new PolicyCenter implementations. That go-to-market dynamic is playing out as expected and is where we're seeing demand. We're focused where our value proposition is strongest, and it's working according to plan.
And our last question comes from Faith Brunner at William Blair.
Just building on those last couple of questions, I wanted to ask about PricingCenter. You saw ones in Sweden and Poland and the first in the U.S. How is this building referenceability for these newer products? And how are these serving as proof points to get people more comfortable to adopt something they might not have thought they needed to stay competitive?
I don't often hear customers say they're surprised they need to do this; most companies recognize it's on their strategic agenda and that factored into our decision to add PricingCenter and build a well-integrated solution at Guidewire. Referenceability is very important. We also needed to mature PricingCenter in terms of how it runs and is supported at the scale, reliability and security expectations Tier 1 insurers expect, and that's a big part of the work we've focused on since the acquisition. This helps drive demand: customers ask can you do all these things you say you can do and do them with the same level of trust and integration from the rest of the product suite? The PricingCenter team and our platform teams have done a really good job executing and earning customers' trust, which helps build the pipeline and gives us confidence this will continue. We try not to oversell; we focus on selling things we know we can do and executing effectively so programs don't fail. That philosophy factors into our PricingCenter rollout. Okay. Well, everybody, thank you very much for participating in the call today. As you've heard, we're incredibly excited about the momentum in the business in Q4, and we look forward to talking with everybody after we conclude the fourth quarter and our fiscal year. Thanks very much.