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Guidewire Software, Inc. (NYSE:GWRE)

Analyst Day Call

October 3, 2012 4:00 PM ET

Executives

Karen Blasing – CFO

Marcus Ryu – CEO

John True – SVP, Field Operations

David Connolly – Partner, Ernst & Young

Allan Lubitz – SVP and Chief Information Officer, Mercury General Corporation

Joel Matthies – VP, Information Technology, Jewelers Mutual Insurance Company

Jeremy Henrickson – VP, Product Development

Analysts

Walter Pritchard – Citigroup Global Markets Inc.

Brendan Barnicle – Pacific Crest Securities

Karen Blasing

Welcome, this is Guidewire’s First Analyst Day. We intend to make it an annual event. Like if not, next year we’ll probably put the timing so it’s a little bit closer for User’s Conference. This year our User’s Conference is in a couple of weeks, the last week of October but it does happen to be an acquired period for us. So, in this case we still wanted to have the Analyst Day, but we thought we’d bring it up a couple of weeks to allow you to have an opportunity to come and meet some more of the management and hear a little bit more of the details.

Couple of housekeeping items. One, we will be passing out USB drives with the copies of all the presentations at the end of the day. So, you can put in the computer and jump ahead to see what’s on it for authority. The second thing is, we do have Wi-Fi and I know many of you still need to keep up with your offices and what’s going on in the markets at this point, so the Wi-Fi communications is right on the left over there, okay.

A quick reminder, phones off just so we don’t have ringing or buzzing in the middle of the presentations, would be great. We’ve also taken the opportunity to leave a small survey on your chairs. We really do appreciate your feedback. So, we’d like to get, continue to get better and better about this. And make sure that we’re meeting the needs of both the analysts as well as all the investors as well. So, please take the opportunity to complete the survey.

One another additional item, we are going to have a break. It would be about 15 minutes, so that gives you an opportunity to use the restrooms to get additional refreshments. We also have Ben Brantley here who is the – one of our Chief Architects and the CTO. And he will be available if you want to just wander around, he’ll take a tour on the engineering floors to show you really kind of how the sausage actually gets made behind the scenes. We do have a very impressive engineering lab up here as well, where we do a lot of the performance testing. So, if you are interested at all, please take that opportunity during the break.

Let’s see, lastly we are going to be having a reception. We have some nice cocktails and orders planned. It is back on the 8th floor of the West Tower, at 5:00, so we’ll break and actually go over there. And if you’d like to attend, we’d be happy to have you there with us, okay. So, let’s get started.

Today we are going to be providing some forward-looking statements. So, I do refer you to the Safe Harbors that’s on the screen today. I also recommend that you go to of course the Securities and Exchange Commission filings on our filings. We recently got our 10-K on filed about maybe 10 days ago or so. So, please refer to that as well.

The agenda, starting today, so, Marcus Ryu our company’s Chief Executive Officer, will give you a company update and vision, then followed by John True our Senior Vice President of Field Operations who will go through his responsibilities. He has responsibilities for sales to professional services, for alliance. And a real treat here, we have Dave Connolly, actually who is a partner at Ernst & Young, one of our premier system integrators will have an opportunity to speak with you as well.

Short break. And then two of our favorite customers actually, Allan Lubitz for Mercury and Joel Matthies from Jewelers will be here to give you kind of their first hand experiences of their experiences, both our products and our services team.

Jeremy Henrickson who is Vice President of Product Development, an old-timer at the company, he is not quite a founder but he has been here nine years I think. So, he’ll give you an opportunity to give you a little bit more flavor and color of the engineering team works. And what their goals are and where he’s taking the company.

And then myself, I will finish up with brief 15 minutes on giving update on the financials. And then we will open it up to questions and answers. And all of the management team will stay for those questions, okay.

On the individual presentations, if you’ve got a really burning question, go ahead and raise your question during the middle of the presentation. If it can wait, we’d like to offer an opportunity to ask a few questions at the end of each section. We do have microphones that we walked around so that others will have an opportunity to hear your question as well, okay. And at the end we have probably 15 to 30 minutes actually planned for a full Q&A session for anyone who wants to state, okay.

With that, I’ll turn over to Marcus.

Marcus Ryu

Good afternoon. It’s really a pleasure to see all of you. I believe and I’ve met, I know almost all of you, I’ll just jump right into it. And spend the next 30 minutes or so elaborating on what you’re already very familiar with which is that Guidewire is an enterprise software company that focuses on building core system software for the global property and casualty insurance industry.

Now, over the last 10 months, right around our IPO and in preparing for the IPO, we had the opportunity to spend a lot of time with the constituency that we had not talked to very much during the first 10 years of the company’s existence namely the investor community.

And it was striking to me the amount of – the number of times that we would be asked as people try to understand the Guidewire story, what kind of company are you, if you’re a software company, are you SAP, and if you’re SAP, then why not?

And so, that gave rise to us some internal discussion about how do we think about our business model and how might we represent it to clarify to those kind of now growing accustomed to seeing the software well through that optics. And there are some very fundamental respects in which Guidewire is like a SAP company. And that’s an important aspect, and which we’re not. And I thought I would start there before going into elaborate a bit more about where we’re going.

So, with other SAP, with SAP companies, we share I think a very fundamental insight and belief which is that – the enterprise software business is only an attractive place to be if you can build products on a single code base, without customization. And that’s really a religious principle. At Guidewire it syndicates from our founding and Jeremy will elaborate a bit more on how that principle premier is all about product development.

From a business model standpoint, the other SAP insight that we’ve embraced really from the company’s beginning is that it’s essential to have a strong recurring revenue foundation that comes from renewable multi-year contracts on both license. And we have license and maintenance components but support both competency and enable the funding of a world-class development team that can continue to innovate in the products.

Now the other insight or trend, that has given way to the adoption of SAP in many different other industries has been the desire, the appetite of enterprise customers to expand for the responsibilities, who are maintaining and continuing the evolution of some of their products.

And to a certain degree that’s beginning to happen in this industry as well, and it’s one of the reasons that a very small subset of our customers have looked into an option of deploying our software in hosts for Cloud like environment though our SI partners. But that highlights the most significant respect in which we’re not like a SAP company, and that is that, overwhelmingly our software is implemented on premises.

And the reason for that is that our software served a mission critical function, our software serves as a transactional system of record, that run one or more or all of an insurance carriers most inspiration. And it is actually the demand of our market, of our customers to have the software deployed and maintained on premise. And our software is adapted as such. Now, one consequence of that is that we avoid the cost and the effort that goes along with running a multi-tenant hosting environment, but it also gives way to certain architectural attributes of our software.

And there is one other respect in which we’re a bit different from SAP as well, which is the SAP companies think a lot about churn, and a software that’s very easy to implement and get live is also conversely equally easy to get off.

And one quite striking fact about our customer base in our business model today is that we have exceptionally deep and enduring relationships with all of our customers. And indeed other than one example that we highlighted on the last earnings call, we’ve never had a customer and their relationship with us are not renewed. And that’s across all, our customer base that one exception being an unusual case, where they didn’t actually even start the implementation for internal reasons. So, the basis for life-long deep relationships with our customers is a very fundamental part of our business model.

Now, also as a software company, economically speaking, that means that we focus on one metric of – financially speaking above all others, and that is growing our recurring revenue base. We’ve been very fortified with the investor community in that form of self-measurement and also in providing transparency about the growth in that recurring revenue. And maintaining our accelerating macros is a driving imperative for us strategically. And you can see that on a recurring rolling four quarter basis, we’ve grown at a pretty healthy clip for the last number of years.

So, with that as preamble, I want to talk about four subjects in my time today, first, the recap of our markets and our solutions, then I want to give a little more quantitative color to the market traction that we’re experiencing right now. Talk a bit about the subject of services and the systems integrator ecosystem which you’ll then be complement, or here complimented from our partner to the economy from EY. And then close on the main vectors of growth that we’re investing and pursuing. So, let me start with our market and solutions.

As you know, we’re vertically oriented company. We serve just one industry, the Global P&C Insurance industry. And as amount of nice attributes, among them that it’s seldom an un-discretionary product that is global and that is more than other industries somewhat buffered from the macro-cycle. It also has the attribute of being very large this is a slide that we used in our IPO road show, the industry being about $1.2 trillion in total premium, their revenues.

And as you’d expect it’s such a large industry, it’s been an enormous amount on its core IT. In 2010, $14.5 billion and third party software and services, according to Gartner growing at a pretty healthy clip going into the future.

Now there isn’t one specific, there isn’t available a perfect breakout of that software and services spend that goes to core systems. And so, some portion of that is not spent on core systems presumably. But on the other side of the ledger is the fact that these numbers don’t include the very substantial internal spend on internal IT resources that maintain and continue custom development on those Legacy environments. So, we think it’s a reasonably good proxy for the total amount of services spent and software spent on that represent our market.

Now, when I say core systems, what do I mean, we define it very simply as aligned with the four main functions that define property and casualty insurance. Selling and underwriting insurance products called policies, administering those policies, collecting premium from customers, policyholders through billings. And then when there is a loss investigating and paying claims on those losses. And that is the way that our software is organized.

And our thesis at the core of Guidewire is that we are in early days of an inevitable migration from the Legacy Systems generally 30 years old, COBOL based, hard-coated, running on mainframe enhance for 100 environments to a new generation of thoughts like web based, flexible and increasingly deployable in cloud and mobile environment.

Now, many times we’re asked, what are the main tablets of this change happening and what is the basis for believing that it will continue to happen or even accelerate in its progression. And the three categories that we really identified or that we hear about from the market are as follows.

The first is just the fact of share IT obsolescence from that legacy generation and that encompasses the people who are knowledgeable and able to maintain those environments. Secondly, we increasingly hear about the strategic and competitive imperative that come from moving away from an environment in which all the business logic and the strategy of the company is essentially hard-coated and authority of all green screen system to something that’s much more flexible and reflects the ways the company want to distribute, manage and interact with their customers.

And then, overtime, particularly in the last year or two, we’ve become more and more sophisticated in quantifying and substantiating an ROI case, an economic case for how better risk decisions, we get reductions and lower costs to make a substance of improvement in the core economics of an insurance carrier. And some combinations of these three catalysts have changed or are behind the underlying center of our software.

As also, we deliver in the form of a suite to re-product, office inability center and ClaimCenter, Jeremy will describe a bit more about some of the specific characteristics of our software and what we think we do that’s quite distinctive. But at the headline level, the main thing to understand about our products, are first, that they are transactional systems of record that are designed to fully replace that legacy environment, that we have generalized these products to serve the entire global industry from very small carriers to some of the largest players in the business.

And that we deliver the software as a suite, that works as a unified whole, all of which we have built organically, but that can be licensed and implemented modularly to accommodate the different strategies and different points of insertion that our customers in the market want, those are the main points of our software.

And we pulled the view that there is no other technology company extends today that has an offering with all four of these characteristics, let alone that has experienced the kind of adoption that we’re enjoying right now.

So, that’s our market and solutions, let me now talk and turn to some of the indices of our market traction and give a bit more detail than we’ve shared thus far in our earnings calls.

I can start by just sizing our market and thinking about it at the highest level, how big is the opportunity that we address as a business. And there are three metrics that we think about internally in keeping score of our progress in the market, but first just the total number of buying entities that we can sell to. There are about 5,000 or 6,000 or 7,000 insurance companies around the world, we see them organized because many insurance companies are parts of different groups. We see them organized into roughly 1,200 primary insurers that we can sell to, 1,200 mining entities.

The industry premiums, an another easy way to keep score that’s again in 2010 was $1.2 trillion, in total worldwide in P&C. And then, doing the arithmetic on that – on those premiums are historical license pricing and our experience in the market to date, we calculate somewhere between $2.5 billion to $3 billion annual recurring revenue potential, so not counting the services, just counting the annual recurring revenue that aligns with the metric that I just identified, it’s the most important in Guidewire’s business model. That’s roughly how we think about the size of the market.

Now, in terms of measuring our progress in penetrating that market, here are some ways to look at it. First you can think in terms of the number of licenses that we have sold for each of our products over time and we haven’t shown this historical cut before, but I think it tells a pretty straight forward story of products being brought to market and being adopted.

In FY12, in particular, we had an excellent year we had strong adoption of all of our products. But it is the most striking change there is in the number 18, from the 18 policies in our customers that we had in FY11, to the nearly double number that we ended in July with 35. So, that was extremely encouraging to us because policy-center is both a more strategic by its very nature and carried with it a higher license price.

Now, I want to come back to PolicyCenter in a moment and describe some of the other characteristics of it and how it’s different from ClaimCenter. But before that, let me just give you a couple of other exhibits that give you a sense of our market.

Now, as I mentioned our software is delivered in the form of a suite with modular components and so our customer relationships can evolve in lots of different ways. And we see different patterns of this relationship evolving with our customers. Really, what we – all we want to do is align with the areas where they see the greatest opportunity or where they have the most urgent issues. And our goal straight-forwardly enough is to have every one of our customer’s license, all of our products for their entire business.

So, you see a couple of examples here of cases where just a carrier, a multi-national carrier implemented claim-center for various of their country subsidiaries around the world to cases where they started with an enterprise license to one of our product’s ClaimCenter and that have started to roll out policy and billing, business unit by business unit cases where they have gone product by product at an enterprise level and other combinations as well.

All right, so all of these patterns are just fine and our direct sales model as John will elaborate in his portion is supportive of a deep consultative relationship with each of our customers that continuously strive to show enough value to expand that relationship.

Now, if you look across our customers, there are lots of different ways to cut them by characteristic. But the overall point that we have designed our software to and that we measure our progress in is to ensure that our customer base are actually are representative cross-section of the entire market that we aspire to serve.

So, one important metric, in some ways the most important is to think about the size of customer as they measure themselves by premium. And it’s just making a somewhat arbitrary cut into tears, a size of customer you can see that we have pretty strong representation across every size of insurer. And that we are now enjoying meaningful revenue from each of these four tiers.

The other striking point is that we are still quite under-penetrated at the top of those tiers, and those carriers that are over $5 billion in premium. Now we have some very important names and credentials in that tier, names like Nationwide, Liberty Mutual, Tyco, Aviva, AXA, Alliance etcetera. But there are still dramatically more opportunity there. And you’ll hear John talk a bit about some of the distinctive things that we’re doing to increase our competitiveness in that segment of the market. A segment by the way which has historically not bought Packard applications.

Then, the third exhibit, just as a sort of a summary level, this is a kind of all of our customers by product. We have 130 total insurers as of the end of our fiscal year in July. 44 of them have licensed more than one of our products, and 22 as you see at the center at that Venn diagram, are suite customers having licensed all three.

Now, let me return to policy-center. And I want to call out a couple of trends that are quite distinctive about and a bit new Guidewire in terms of our interaction with the market with respect to policy-center.

So, first – and the first of these are the relationships that are starting with policy-center, where policy-center is either the only or one of the – the initial license with them includes a license to policy-center. And you see that there is a really dramatic difference in last year where we had 13 new customer relationships that began with a license to policy-center and that’s quite different than what we’ve experienced in the years proceeding.

Secondly, and this is related but certainly different point, that our policy-center relationships tend to be linked much more to those full suite relationships. So, of those 22 customers that we now have a full suite relationship with, you see that two-thirds of them or two thirds of our policy-center customers count those 22, about half of our BillingCenter customers and only about a fifth of our ClaimCenter customers.

And then the final point I’ll make and this is quite important because it ties to the discussion I’ll have about services in a moment is the PolicyCenter projects are larger, longer and more valuable than either BillingCenter or ClaimCenter projects. And just to give you a kind of quantitative sense of that, if you look at our policy-center projects compared to a comparable ClaimCenter projects at the same amount of premium, our experience has been that the project will last about 40% longer in terms of time to go life, will involve about 30% more work in configuring the system and integrating it with the other, the rest of the enterprise IT environment, that will typically be rolled out in multiple phases as opposed to one big enterprise phase. And the license may align with that phased rollout.

And then, just in general, the decision to replace a policy administration system is perhaps the single most significant IT decision that an insurer can make. and consequently there is lot more deliberation and complexity that goes into thinking about the enterprise IT environment and all the downstream effects as well as the effect on the business model. And all of that gives the kind of gravity and significance to the policy-center project.

Now, along with that of course is the fact that the software carries significantly higher license price as is appropriate. And our experience so far has been, it’s been in the zone of 50% to 75% more license per unit premium than claims.

So, I want to spell this out, maybe to make it a bit more vivid for you in terms of a couple of customer relationship, couple of examples. Because one question that we’ve been asked a lot is how does this, how does this evolution of a customer relationship play-out financially, right in economic terms.

So, I have two representative examples for you, and just before going to the first, I’ll remind you for the risk of reasons I just described, these are very large significant weighty projects. And therefore the business, the commercial relationship that we have with customers as they unfold, I mean, it’s very heavily negotiated. I mean, there are lots of different elements and pieces that have to come together before our company is ready to make these decisions.

So, there are a couple of small corks that I will call out for you in these two examples, but rather than present you a perfectly idealized case, I thought – we thought it would be better to show you actual examples that we find representative about how our relationships unfold.

So, here is the first of them, this is a long-standing ClaimCenter customer, you can see that they started their relationship with us in fiscal ‘05, which is back in 2004. They signed a 7-year ClaimCenter license. The colors on this chart represent, the blue and the green are the license and maintenance and the orange represents the services, the Guidewire Services’ relationship.

And then in fiscal ‘12, this last year, this customer – long standing customer of ours elected to implement our license PolicyCenter and BillingCenter as well, at the same time that they did a renewal of their ClaimCenter license, all right.

So, what are we looking at here? You see that as you’d expect, every year they pay us the annual fee, the annual license and maintenance. And then you see that services as you’d expect kind of slight upwards for that initial implementation and then taper off over time to in this particular case, we have a small presence that continued, that’s not always the case. But it’s very typical that there will be a spike of services that then taper off over time. And that license and maintenance was essentially constant during that entire period.

Now, one little anomalous thing is that in this particular contract, it was one of our earlier ones, we agreed that they would pay us a true-up on their license based on their growth in premium in year six, that’s the year that we would look at it and it would be a onetime true-up. It’s a little anomalous, it’s generally not how our contracts are structured today, it was the case in this, and that’s why there is a little blip in FY10.

But then in FY12, they elected to implement license and implement policy and billing. We’ve just started that project. And as you would expect, there is a large spike in services that go along with that but that that will taper off and eventually go to zero over time.

So, we have a – typically we have a volume based discount that goes with any decision to license more. In this particular case, we have the volume discount not apply until FY13, so that’s one. But as it turns out, that volume discount was just one of multiple negotiating elements that helped us preserve licensing for our policy and billing.

So customer relationship number two, this is an example of a customer that’s just licensed policy and billing. And as I mentioned before, policy and projects can often take – are often implemented and licensed in phases, right. So, there is – there are two phases represented here, Release 1, RI, and a Release 2.

So, they’re starting with one major business unit, and there are, as there is always is a substantial PolicyCenter, substantial services element for that implementation. And then, their expectation is to then start with Release 2, in fiscal, in our fiscal ‘14. And there will be a period of time where we have services from that first release and some additional services for the second release but it’s actually a smaller amount in aggregate, and that they – and the plan is for us to be essentially completely out of the implementation by the early part of fiscal ‘15, right.

So, this another kind of typical pattern, but that we – in this particular case we have negotiated to have them – have an automatic already contractually committed increase in license in fiscal ‘13 that will go with some of the additional premium that happens in Release 2.

Now the only other little cork here is that in fiscal ‘12, they’ve only – it was a stub year with respect to the license so they paid us a small portion of license relative to the really, the annual amount which is reflected in ‘13 and beyond.

So, you see in this case that services and license have kind of moved in opposite directions that as they, as the licenses will increase over time as they expand the use of the software to more and more of their premium. And their requirement of having Guidewire Services present will decline, actually quite precipitously as they move on to other phases.

Okay, so then, returning then to my final slide here on the subject to market traction to market adoption, if we come back to those three big basic ways of keeping score on our market progress. First, as a total number of customers, again, we finished last fiscal year at 130. And that does represent an up-tick in the rate of new customer acquisition versus previous years. We characterize it as an up-tick as opposed to being on some fundamentally different trend than we’ve been historically, because one year doesn’t make a trend but it has certainly been very encouraging.

Secondly, in terms of premium under license, this is measures of the premiums, the total premiums of all of our customers that have licensed at least one of our applications. At the end of our Fiscal ‘12, we were just over $200 billion, which represents about 16% of the global premiums if we pegged to the $1.2 trillion number.

And then third, if you think about all of our current customers having in the future licensing all of our products for all of their premiums being the full 100%, somewhere around 30% of that is now under licensed today, meaning that we still have very substantial opportunity to up-sell our existing software over the remainder of the suite just to our current customers.

Okay, I want to move now into the services and the SI ecosystem which is the subject that we’ve only touched on very lightly in the earnings calls. And I only have a few slides here but there are a couple of very important points we want to convey. I want to start with just the main strategic principles that govern the way that we think about services. And it doesn’t represent a change in philosophy, these are the same principles that have – that we’ve been following from the very beginning of the company.

The first and most important strategic principle is that services are there to ensure customer success, customer reference ability and deep ongoing relationships where we live up to every promise that we make during the sales evaluation process. This is the North Star for Guidewire, every person that Guidewire understands this comes before all other considerations. I mean, that services’ first mission.

However, stipulating that – we make sure that everyone at Guidewire, including in the services team understand that project success and customer self-deficiency are the goals not services revenue, right. And we not only say that as a point of principle, it’s actually reflected in all of our internal incentive plans, in the ways that we measure performance internally here at Guidewire, right. So there has been, there is complete strategic clarity of the Guidewire as a software company, and that services are there as an enabler of driving that recurring revenue.

It’s also important that as the management team that we don’t – that where we think carefully about the demand that we’re seeing in the market and ensure that we have enough services capacity to meet that demand. And that we’re never in a position where sales are gated by not having adequate services capacity to implement, so that’s another important principle.

And that, while we’re doing all of this, we want to ensure that we are enabling and motivating a very healthy systems integrator ecosystem. And that takes investment and effort on our upside it doesn’t just happen by itself without effort. And we’re certainly taking the steps to make sure that happens. We have historically and we’ll be doubling those efforts right now. So, those are the strategic principles that govern the way we think about services.

Now, in order for this to work, we have to have a very clear division of labor with systems integrators that also make sure that the economics are rational, that there is – that it’s a profitable thing to be a Guidewire partner.

And I don’t intend to go through these bullets but it’s just to make the point that of the total purpose of work that it takes to implement or go through the project, go through the operational transformation that’s usually entailed by implementing our software, there are lots of things to be done. And of that total universe, we only do about 10% to 15% of that totality, and the rest is being done by our customers and by their systems integrator partners.

So, this is the distribution of work. And it’s actually reflected quantitatively in our estimating spreadsheets when we think, when we advice customers about the total amount of effort that they are thinking about.

And the overarching principle here is that our services organization is to play primarily a mentoring role and to be experts in our application as they go through all the hundreds or even thousands of decisions that it takes to go through these transformations.

And you can see that reflected in the things that we have on that left side, things like understanding, presenting an implementation methodology, guiding the way that our software can be configured and actually executing some of that configuration but eventually transferring that over to customers and providing ongoing tech support and the like.

And even within that list, over time, in each customer relationship, the objective is to transfer some of those tasks over to the partner or over to the customer in understanding how to implement the software, how to execute the configuration and the like, right. So, that’s the division of labor and it leaves an enormous amount of work and opportunity on the SI or customer side in each one of these programs, right.

So, that’s been the basis for a very healthy relationship with an ecosystem of world-class systems integrator partners. Just to put that in quantitative terms, you see here a list of our main SI partners. And right here you see those that have been trained, trained either by Guidewire or trained in the – trained in the trainer format by our partners. And these numbers are reported monthly by each of our partners. And it’s a metric that we carefully track.

On top of that, there are significant resources that provide other related services that are very important to these transformation projects but don’t necessarily involve implementing or integrating to directly our software. So, things like conversion, like testing, user training change management in the like are all very important. They don’t necessarily require specific training in our technology, but they are important parts of the Guidewire practice.

And if you add these up right now there are approximately 2,700 SI partner consultants that are in Guidewire practices. And this number represents about 100% growth over the last 18 months.

Okay, last topic, our strategies for growth. So, overwhelmingly our strategy for growth for the next two years comes down to selling what we have today more effectively and more broadly, right. And it’s about sales and their capability and reach. The main drivers for that are leveraging the leadership position that we believe we’re beginning to emerge into based on some highly visible winds on customer momentum and the like, right.

And that has a couple of components that we’re particularly focused on. I’ve talked about the importance of having all of our customers begin to implement the full suite and across their entire businesses. And the primary opportunity there, being PolicyCenter. We know that we have significant opportunities and under penetrated geographies, especially continental Europe, where we have a number of marquee names. But in quantitative terms have just not even scratched the surface.

And then there is the Tier 1 opportunity, because the enormous portion of the industry’s premium represented by the Tier 1. We think we have some excellent credentials now in this Tier. And we are also taking substantially deeper approach in our go-to-market with respect to Tier 1. So, all of these are drivers that we have to succeed at if we’re going to fulfill our growth ambitions that we’re making the appropriate investments to do so.

So, with respect to those investments, in quantitative terms, we’re in the midst of the second year in which we will be investing – planning for at least 25% growth in the sales and marketing team. I mean, that’s significantly faster than our historical experience. We’re building out the team and our capabilities in all three regions, North America, EMEA and Asia Pacific, and John will give you a little bit of color about the nuances that are different between each of those regions.

We are investing in deeper coverage for a more consultative sales model, especially at that Tier 1 that I alluded to. And we’re ensuring again that we have the services capacity for that international expansion and for supporting center and keep implementation, the demand that we see out there in the market. So, overwhelmingly in the next – in the kind of two year horizon, this is the primary vector of growth for us, right. Selling what we have more effectively, more broadly.

On top of that, we are also making investments in the product. And I want to be a little circumspect in how much I share here, but I’ll give you just one slide to elaborate on the theme that we’ve talked about with some of you and was also mentioned in the IPO and in our follow-on road show, which is the opportunity to leverage the fact that we have a substantial customer base, really on the same data model that have a strong appetite for both analytical offerings and understand the operational metrics, in quantitative terms of their peer group, other insurance, right.

And so, what we are – what we’ve been investing in is the concept that goes by the code name internally here Project Vega, quite early days. But the idea here is a web based platform that on top of which we can provide value added offerings but they’re very closely tied in with the suite with implementations of the suite at our customers.

And it would be a set of offerings that that can do lots of different possibilities. But the focus right now is on syndicating data that comes from an individual suite implementation with data that’s shared on a voluntary basis by other customers as well as the huge oceans of external data that are out there and increasingly available to be merged with that in context.

If we execute successfully on this, and if our early indications of demand are indicative, there is potential for a network effect that we find pretty exciting. But I underscore extremely early days there is no network effect yet. There is, it’s unproven but we are – we’re taking it very seriously and we have a dedicated team within the company that’s thinking about every aspect of this and actually developing to it.

So, that was the second big growth factor in the third, which I’ll only say a few words about is the opportunity to explore, new business development potential. So, given our installed base, our visibility in the market and the like, we become an attractive potential partner to lots of other service providers who either currently or in the future wants to serve the P&C industry.

And we have historically given that very little time and very little effort preferring to focus on the development of our own software that’s changing. And we are spending a lot more time in these conversations to find productive ways to bring other services to our installed base. And overtime, not necessarily in the next year timeframe, but over time this could be a meaningful vector of our growth.

So, in summary strategically no change in focus. We serve in the industry for a core problem of replacing their legacy systems. We’re building on a momentum and leadership position that we believe we’re emerging into and focusing on the key metric of recurring license and maintenance revenue.

Sales wise, we have more investments to make and coverage and consultative debt focusing on PolicyCenter and suite up-sell. And in services, as long as we have strong customer satisfaction, especially with our new PolicyCenter customers, we know that we’ll continue to do well in the market. But we have to ensure at least in the near term that we are not gating any of our sales opportunities by implementation capacity. At the same time that we’re actively supporting a thriving systems integrator reboot system.

And then finally, product wise, we have lots of work that’s kind of below the water-line just to ensure that we widen our functional lead that we believe we have over our competitors as well as making investments and new opportunities, primarily under the rubric of this Project Vega that I alluded to.

So, with that I’ll close. If there are any, if there are couple of burning questions I can address them now otherwise we’ll just keep moving on with the agenda. No, okay. John?

John True

Good afternoon. My version of Safe Harbor, you see any numbers in my presentation passed through the filter of markets. And Karen you should not take it – take them as accurate numbers.

So, I look after all the customer facing activities at Guidewire for sales services and alliances. And I thought it might be helpful to give just a short background of the newest member of the management team roughly one year, I’ll give you a little background of where I came from and why I decided to make the next chapter of my career at Guidewire.

So, I spent the last 20 years in similar positions, enterprise software and technology companies, Parametric Technology, RIBA, Equallogic and 4SI both which were acquired by Dell and Hewitt Packard. And I was with each of those four companies at kind of similar stage and challenges Guidewire both large and under-penetrated market with really the challenge to create scale with repeatable, executable engine the provided predictability and the top line.

And so, that is my challenge here. And as I looked at Guidewire from the outside, two things, first of all the market characteristics were there. The second of which, I had a longstanding relationship with many of the folks, the founders who I had a chance to work with at RIBA. But my humble opinion and the last year have really validated this. The sustainable competitive advantage that I believe we enjoy right now is wider and more significant than any of my other experience to date.

A combination of very long term investment in broad functional software, and pretty unique set of experiences around both volume and depth of implementation skills that provide a significant competitive advantage that I believe is here for the long term, at least the long term in terms of the way we look at our market of the next five years.

So, in terms of my challenge to create an execution engine in general, we’ll focus, I focus on three things as we look at how to improve our capabilities there. First of which, is to increase our capacity and reach you around building a leadership and thought – thought leadership and consultative relationship with our customers.

So, in our history, we’ve been reasonably opportunistic focused on the next 12 months of kind of real top line revenue. And we’re transitioning that into much more, deeper long term perspective on our target market which is represented by roughly EBITDA of $100 million and above P&C market.

To really make repeatable our differentiation through customer success, so our services and project success is unique how we get more consistent and more leveraged about how we use that in the sales cycles both in terms of new prospects and in terms of expanding our installed base, is very important and last but not least, investing for profitable growth.

So, as Marcus described, we’re investing between 25% and 30% in sales and marketing growth over our capacity, we got started just about a year ago. And it’s really around making repeatable through recruiting engine, but specifically how we develop and deploy resources in a thoughtful way to really maximize both productivity and time to productivity in the field organization. Yes sir.

Unidentified Analyst

(Inaudible).

John True

Sure, the question was 25%, is that aggregate or? That’s an annual number. So we did 25% last fiscal year and now in the current year have plans to increase capacity by 25% again.

So, the organization has either the three primary functions, sales which is primarily a direct selling model, professional services organization which as Marc described as an elite group with that we do roughly 15% of the overall services, universe in our projects and then the Alliances organizations, which is very strategic both in our selling and delivering capacity, I’ll spend a little time on each one of these.

So, the selling organization is really – spends their time in three phases, first of all making the case for core systems change, then making the case for product or Packard software as it applies to that change and finally measure – making the case for our approach which manages risk and probability for success in those projects.

So, the go to market for us is a very collaborative team based selling approach that is consulted of in nature, first of all built around our direct selling executives. And we measure them on bookings or new ARR, new recurring revenue, we produce $2 million per direct co-decoding sales guy average contract length is five years. So, each year, each individual co-decoding produces roughly $0 million new incremental in annual recurring revenue.

This group traditionally tends to manage the buyer’s journey for the last 12 months of the sales cycle we’re slowing increasing now I’ll talk more about that in a bit. The average sales cycle for us is on average between 12 and 14 months. We have what I’ll call some early data points especially in our installed base where from time to time we’ll be able to shrink that significantly but on average we see no significant trends in drastically reducing the sales cycle.

Sales consulting group are really our product experts. They spend time demonstrating our software proving conceptually that the software will provide value based on the way the customers to find their strategic initiatives as well as pretty deep domain expertise in terms of tying our products to those initiatives.

The inside selling group is reasonably new for us in the last two years, and it is another step for us to lengthen the time by which we spend in perspective sales cycle. So, they primarily work between the 12-month and 24-month lead time of our pipeline deals. They work in concert with our sales organization and then transfer primary responsibility over to those direct selling reps.

The Guidewire consulting group is a unique part of our go to market model, and we’ve been reasonably opportunistic with this in the past as well. This is a group I’ll call the practice where we help our customers in a workshop type fashion to both create the business case for core transactional system change. And then over time to measure and validate that we’re delivering business value to those customers. And it’s strategic in terms of winning new customers. And over time we think it will accelerate adoption of additional applications or suite.

The investment here has gone from primarily North America to be both global in nature. We’ve recently added resources here both Europe and A-Pac and then we’ve significantly increased the capacity.

Last but not least, are the customer relationship managers, so this group deals primarily with our installed based. Their primary measurement is around our renewal rate. Marcus mentioned very high percentage of our renewals, we’re very proud of that. And then also we’ll use this, very small sales force to focus on our installed base around new products, Project Vega is a good example of that, they’re targeted with early adoption of that product as we go forward in this fiscal year.

Often times we get asked especially because of the size and scope and complexity of our projects, how do you look at the real business value of those – of those projects. And this is a snapshot of the value consulting engagements that we do. And in general overall to look across the entire suite, customers tend to zero in on between 2.5 and 4.5 points of overall operating income. And they come in top line, bottom line and productivity areas, new products to market or the rate at which they can change their existing products, reducing linkage in the claims process and almost always reducing over the long-term the money they spend in their IT organization.

In terms of our go-to-market by region, in general, we’re pretty consistent in terms of the way we approach each market, with some slight kind of specific differences by region and also by maturity, by the maturity of market. In the U.S. which is our most mature market which last year was in mid-60s in overall revenue and slightly less than that in terms of the new bookings, new ARR.

We have the – kind of the broadest coverage in general. On average there are 30 to 35 both customers and prospects and individual territory reps – territory. We have the broadest set of resources around the collaborative team based approach. And then as Marcus was alluding to as we’ve both seen our pipeline grow in the Tier 1 above $5 million and some of our recent customer successes, and the increased productivity we get out of folks that are focused on these accounts, we started a new initiative just about six months ago, where we really reduced the number of those top tier accounts, per account rep.

We look to establish a much longer time horizon by which we develop pipeline in real recurring revenue and get much deeper and broader in terms of the relationships that we look to establish there. So, we have very high hopes starting in North America and then growing that investment in EMEA and the A-Pac.

One comment about Latin America, still very opportunistic for us even though we have customers in Mexico, Brazil and Peru, and in this year we look to set an investment in Brazil with local folks and a specific partner strategy.

In Europe and the emerging territories, even though we – it think we’re healthy, very healthy and are paranoid about kind of the economic conditions in Europe in general. But last year was our best year ever and our European business it was the fastest growing in terms of percentage and by far the largest percentage of new customers in that region.

Our focus is on the largest economic centers, Germany, France and United Kingdom we have significant investment in pretty much resources across our selling model in each of those geographies pretty opportunistic in the rest of the territory, albeit we’ve had some good success. In the last year we closed (inaudible) Poland’s PZU, the largest insurance in South America, Santam.

And then, in terms of our alliance go to market, in this region, in general, in the large economic centers, very consistent with the US approach with our large global strategic partners. As we get outside of those economic centers, we feel that there is kind of opportunity both for those partners and some boutique partners with specific local industry or local customer relationships we can take, we can take advantage of.

In Poland, a good example of that was Solaris, which helped us both with relationships at PZU with some local content and compliance intellectual capital and now that relationship is turned into a pipeline generating partnership of which this month we’re – I think we have somewhere in the range of 90 people from Polish insurers coming to investigate core system transformation. So, we’re pretty excited about that model.

In Asia Pacific, it’s the kind of the tale of three worlds for us, for us today, markets in Japan, Australia, New Zealand and China, each with unique characteristics. Japan and Australia are similar and, in that 75% of DOBP is held in six, only six of those Tier 1 insurers were installed, currently in four of them, some small way, some in the medium way, and we’re very focused in investors in those accounts to grow them into suite customers covering the majority of their business lines.

China represents an interesting opportunity for us. We are really still figuring it out but we’re very committed to our investment in the area. As most of you know, it’s the fastest growing market. There are roughly 50 insurers today in our target market of above $100 million but growing much faster than anywhere else in the world.

We’ve got investments on the ground in sales, pre-sales and services. And we’re kind of pretty actively trying to figure out the right go to market partner model there to maximize what we think is a pretty good opportunity over the coming five years.

In terms of the competitive landscape, it would be from a macro perspective to get complacent. I think conservatively, even though we don’t have 100% accuracy on data, I think conservatively we can say that we have won more than the majority of decisions that have been made around core systems, selections in the next year, meaning, our selections surpass the combination of all of our competitors.

Having said that, if you involve each and every one of our sales cycles, you wouldn’t feel that way, everyone is a very intense battle. One, because the gravity by which the company takes these decisions, both in terms of the impact it has on individuals in their careers and the very critical – mission critical nature that the project takes for the organization, everyone kind of is, all resources on board to make the right decision. And our competitors look at it in similar regard. So, they tend to try to take every deal and because we’re winning a majority of them, they tend to – when we are involved take every opportunity to put their best foot forward to win.

The competitors come in three categories, in my humble opinion. The first of which is probably the only competitor that we see today that we think in the reasonable term has potential for competing for a leadership position on market that’s Accenture. And the reason we think that is that we have tremendous respect for their capabilities in terms of their system integrator and advisory expertise in the insurance industry, they are very large footprint and very long – deep relationships especially at the top tier.

And they obviously have scale in terms of reach especially at the top end, at the top end of the market. They approach the market a little differently but I assume that Marcus was pretty clear. We realign our entire organization around maximizing, recurring software maintenance revenue. And because of their history and predominance of their revenue around services, professional services and system integration revenue, they tend to approach each opportunity with how do they maximize long term services revenue.

And so, the best, the best way for me to describe kind of the way customers look at it, recently one of the top tier wins of CIO, we’re reviewing after the deal as we normally do why, why now it’s Packard software, why did you select Guidewire and how did you view the competitive landscape. And in this case, the CIO which was – is a 20-year fortune 500 CIO, describe Accenture as the number two competitor in the process. And the way he described it was we looked, we looked at this commitment as a 10-year commitment. And we were trying to predict who would make the largest investment and maintain a leadership position over the long term.

And we may look at themselves and look at Accenture they have a very large system integrator relationship. But when they look at history, they see very few data points where system integrators in general and specifically Accenture have led large enterprise software markets for an extended period of time. And so, I think that’s a realistic view and one of the challenges that they have in terms of competing with us of the top end.

The two other competitor, types of competitors, one, we could often times talking about the large horizontal software vendors like Oregon SAP they have kind of dated with our industry over the last 10 years. They’ve made some small acquisitions, very critical success here as domain expertise and a long term view which neither we consider as strength for the large, for the large horizontals. And they tend to try to repurpose more horizontal or financial services oriented applications into domain specific core insurance systems. And at least for the last year, in my tenure I have not seen them in the final stages of large significant selection process.

And last, what I’ll call a small regional point solutions, and so, in terms of individual application expertise because the market is large, value creation opportunity is big, there is lots of private equity in, venture capital that are investing in small companies, most of which have been born up and through individual application areas, billing claims or policy or they’ve grown in particular in Europe with a specific country expertise, where they’ll have a suite and specific customer and domain relationship with that particular country. But we don’t see anyone emerging as potential threat at least in the reasonable term around global leadership.

I mentioned earlier, in addition to what Jeremy will describe as the best, what we believe is the best software in the world in this space. I – every month as it goes by, I realize that the experience we have, having gone through 202 projects and 130 customers around implementing these core systems transformations is a significant competitive weapon for us over time.

So, our services organization, a strategic weapon but kind of their mantra is very consistent with the direct selling organization. First, they are very focused on long-term decision that will ensure and increase in recurring revenue and maintenance, recurring license revenue and maintenance. First, they are very focused on making projects as short and inexpensive as possible and driving self sufficiency within our customers. And that as well gives us the best opportunity to utilize our resources to drive new recurring license revenue.

And last but not least, they are very, focused that strategic imperative is around success as the customer sees it. Sometime known as conformance, we’d like to call value alignment. But we spend a lot of time earlier in these projects, aligning how the customer defines success and then scoping our projects. And we play almost an arm bargemen’s role with our customer and our partner keeping everyone focused on activities that go towards that specific value proposition, because these projects if not managed with such discipline can take on kind of many tentacles outside of that core value proposition.

Proof-point of that is a, 130 customers with a pretty global reach. The power of these relationships not nearly is affective for me to describe, we’ll have both drillers and Mercury give their perspective on both the buyer’s journey and their journey with us as they’ve gone through their implementation. This is our best selling weapon in the world. It’s the smallest large industry in the world. And most often prospects know about our activities and our wins well before we communicate them to the world.

202 implementations, zero project failures, it’s easy to put the slide up. It’s – we don’t take this success for granted. And what you’ll hear from our customers is this success is by no means frictionless, it is – we stand side by side with our customers which is – is really the commitment and conviction I’m hopeful you’ll hear from them. And as you do channel checks with our customer base, terrific and then, till death do us part is kind of how we go about these projects. And never do we make short term decisions in terms of our customer challenges. These are pictures by the way of combinations of our service folks, our strategic partners and customer teams which have to work collaboratively that drive that success.

As Marcus described our model in delivery, it’s three fold. First, small elite delivery teams, very specific product expertise and pretty senior domain expertise. We typically try to keep it to 15% of our overall project, the overall services, universally inside these projects. We tend to have more senior folks. We spend not a lot of time, hiring inexperienced folks in growing in the service organization because we really throw them into the deep end of the water very quickly.

So, we recruit very senior folks. We do a pretty good job of on-boarding and then throw them into very senior roles in these projects. And then you’ll hear shortly about the system integrator partner program which is very strategic both on our selling process as well as in delivering global reach and capacity.

The residual impact of our service organization in addition delivering customer success is in three areas. First of all, they play a very critical role in the selling process. So, and we’re getting much more adapted surgically inserting them but they really do provide the credentials by which customers look, to look at folks that have been through this journey before, understand how to navigate success and as well as to avoid pitfalls. But we just have such a large lead in terms of the expertise that we have around these projects compared to our competitors that is an incredible sales weapon.

In addition, during the first 12 to 18 months, these folks end up managing the account relationships and look for incremental pipeline for us to expand the products. And we do as good a job as anyone I’ve seen in terms of communication between our services group and our developmental organization around driving our product roadmap based on specific customer requirements.

Last but not least is our Alliance’s Group. We have five strategic partners there, Cap Gemini, Cognizant, Eliot, Ernst & Young, PricewaterhouseCoopers and IBM, IBM is relationship is multi-tenanted, in addition to being a system integrator, we have both hardware and software relationships with them.

And our partner program plays three very important roles, first of which, and this is one that is growing as we mature our leadership position, is sourcing new opportunities. These organizations all have global reach, very specific strength in different parts of the world. And as our leadership and the risk associated projects continues to go down, we tend to get more inbound opportunities from the partner community. We have twice as many last year as the year before and we are very optimistic about repeating that performance this year.

The second is around influencing sales cycles, the dynamic in our business is in every one of these selections, we tend to have two or three of these partners that we are involved with and compete from a system integrator business. They provide kind of a megaphone of the Guidewire message and differentiation. And we tend to compete more often than not with Accenture. And so, this gives a queasy objective view of the market from many voices outside of Guidewire.

And the last is an engine for global capacity which was the original reason that we got started and very important to maintain our organic growth objectives, is to provide significant scale globally around the services delivery and capacity.

And, I would say the relationship when you do channel checks on these folks, what they’ll say is that we’ve reached a point of scale where we remove the needles in these organizations in terms of their top line objectives. We produce a profitable good margin business for them. And one of the largest growing practices amongst specific, majority of their financial services group and globally across these organizations.

And so, with that, what I’d like to do, we thought we would give you the opportunity here from a partner’s perspective. And so, well, I’d like to introduce David Connolly. David has been with us since 2005, so since the very early stages of our partner program. He’s seen the maturity of the partner program and hopefully he’ll share with you a bit, not just about the historical success they’ve had but how they view their investment thesis about the opportunity going forward.

So, with that I’d like to introduce to you David Connolly of Ernst & Young.

David Connolly

Thanks John. Yeah, it was actually April 2005, it was Priscilla and Marcus, we had a meeting and he approached, I was actually in a different firm at the time. Everyone with me at that time now is what made Ernst & Young here.

And we had this idea of a partnering program, here is a picture of what the opportunity looks like, are you interested. And hesitantly we said yes, it looks good. And in fact that complex that you actually saw there, that was the first implication of SI load, and I’m actually in that book somewhere, which just somewhat embarks that we’re still uploading, it was a tough first project.

So, what I thought I would do is I am partnering the firm. I managed the Guidewire relationship globally for Ernst & Young which has become quite a task after all these years and the amount of business that we do together. And I also manage called insurance operation improvement which is everything that my firm does to improve the core operations of an insurance company which includes certainly Guidewire but all they have a front-end transformation work.

I thought I’d give you – what did I do, okay. There you go, I thought I’d give you just kind of a view on what we see driving this wave of core operation transformation because it’s very distinct. And this is what I do for a living just keep track of these things. So, this won’t surprise you but this is really what’s making it happen and why Guidewire is becoming so popular.

Systems are becoming obsolete and the people that are supporting them are becoming obsolete. The retirement is dramatic now and you can’t find COBOL program as an assembly programmers to support the systems. Our clients say, I can’t even get a new product out anymore, I can’t do on this platform, I’m stuck or if get a stuck, I can’t bill for it, I’m too afraid of my billing system. So that is a major driver in the market.

The ROI, return on investment is solid, the value consulting what Guidewire does, we have a similar, as well capability. And for claims it’s a slam dunk. I mean, you look at I mean, in the Nationwide case we help them build that for ClaimCenter. Yeah, we can’t disclose the numbers, but it’s shocking. But what they’re going to spend for ClaimCenter implementation and what they’re going to get it in ROI, it’s incredible, it’s a no-brainer.

Competitive pressures, it’s finally happening. These old systems and what not, someone is waiting, it was still in contest and someone who was waiting for someone else to blink and say it’s okay, it’s time to go ahead. Open up the best of our systems and take a chance and actually change them.

And so, now you saw the list. There are some big gun carriers out there, have made the plunge. It’s safe, they didn’t get eaten by the sharks, they didn’t drown and they’re thriving. And so the rest of the carriers are saying, wow, I’m really behind now, I’m stuck, I’m going to get smoke for the competition here if I don’t make a platform change to it and keep up.

And then, finally and we’ve been trying this for quite a while, it wasn’t safe 10 years ago to do a big change like this because the maturity of the software wasn’t there, you were going to do it custom. You were going to do it for multiples more from a cost perspective. And odds are you’re going to have a failed project. I mean, the toughest thing in the policy implementation is actually finish the project. And I’ve been doing this for 25 years now, the number of policy failures, crazy in history.

With mature software coming it, it’s out of the box, it’s got something to go with, much, much safer we’re now seeing policy projects succeed and that’s not, unnoticed in the marketplace as well. So those are the main sort of drivers of this wave, very, very lucrative wave for us in consulting and for the insurance carriers and obviously for Guidewire.

So, a bit about the formula for success in our relationship here. Over 50 Guidewire implementations successful, we’re proud of that. The mantra that Guidewire holds, we came up on our own as well independently. We can’t afford a failed project in my business. The only thing that sells the next project is the last one going well. Use it as a credential and if I don’t have that, trust me, I’m out of business. So, the only thing we can to make sure we are successful that aligns with Guidewire as just relates nice symbiotic relationship.

We have a perfect record of on-time deliveries. There have been cases when I blew my budget, yeah, I told the client list and I want to get credential out of you, I need you, you are Zurich Japan, I want to get to rest of Zurich globally. I’m just going to throw a couple of million dollars into this, I’m going to go ahead and make sure it’s right, because this is really hard to do in Japan for the first time as it turns out.

But I need you to attest that this is a good experience and that we did not charge you anymore than anyone would and that works. In the end we all win. So, the record is for flawless so far, and it will continue to be flawless as long as I’m standing in front of this podium doing this job.

The partnership is very important to us. Our firms are very conservative firms for those that know the brand, we are heavy audit based client, in fact we are audit jewelers. And so, a lot of my partners are very focused on various safe decisions.

Our firm only has two vendor alliances globally period, across the board, only two, only one with an insurance. And so that gives you a sense on what we had to go through and the hoops I had to jump to get this confirmed as an alliance. When you get 50 implementations going, that’s confidence building even if sort of large, but it’s the gentleman we have. And we were the partner to air in 2011, the first partner in the air that programmed so we’re proud of that.

The consultants, we have about 450, and that chart we’ve shown before, it’s a mix of trained professionals on the Guidewire platform and others that do conversion testing and so forth in that practice.

We have centers of excellence, you’re standing close to one right now, in fact just across the water, is where I have and that matures, it’s a facility where I’ve got a large core resources that are Guidewire trained. And we do a lot of the work out of the center. So, I have people that will be sitting in New Jersey or in Bangkok or in London, wherever the based hub project is, I do a tremendous amount of the work out of the center in Redwood City and then also in Bangalore, India. So, I’m getting two working shifts a day, which cuts my work-time down tremendously, because of the time-zone differences. And that model support is extremely well.

So, Redwood City, California, and Bangalore, India and I’m up and running in Melbourne Australia, and I’ll talk a bit more about the others we’re going to build. But those are all Guidewire specific and a lot of where my resources sit.

We also make significant investments, we did a seven figure investment with Guidewire on next generation reporting and business intelligence solution, it’s in the market now, it’s going really well. And it differentiates Guidewire in the marketplace the Project Vega is a very symbiotic with what we’re doing here. And so, we’re putting money back into this relationship because the returns are so great when we do that.

Our customer list, pretty significant there. So, this is the list since we started in 2008, with Ernst & Young. I said we work somewhere else, I brought my team over to EY in 2008. And this gives you a sense on who we’ve supported in that relatively short timeframe. So our growth has been incredible with a hockey stick in terms of revenues and people, our first year was $10 million, they give you a sense. We’ve now booked $280 million in services fees with Guidewire alone. That puts it on the ramp of $28 billion care-company that I am with, something that big, it gets that attention.

Nationwide, we’ll talk a bit more about in a moment, that’s game-changing for everyone. When a carrier like Nationwide, ClaimCenter was important and we got that deal. PolicyCenter is a game-changer. When a carrier is a Tier 1 goes of Packard software and chooses Ernst & Young, we’re seeing more inbound business now for us personally as a result of that. And so, my contacts globally now are saying, wow, this is true and we like Nationwide and carrier that big is going with Packard software it’s got their eyes opened. So, we’re expecting a very significant lift globally now out of that transaction alone that will benefit my firm as well with Guidewire.

Way to busier chart but this is sort of consistent with what we’ve shown earlier. It gives you a sense on why Izen integrator care about a Guidewire relationship. And you can see, everything that’s in yellow is stuff that I do as it relates to the transformation effort. So, that $280 million that you saw, that’s largely focused on the implementation, what I don’t count all the stuff that I’ll do before an implementation where we’re helping the client business a business case, or helping them with process redesign for traditional transformation, then they lead to a system selection decision and it may lead to a Guidewire decision.

In this marketplace, in this day, a lot of those decisions are going towards Guidewire, because of the market dominance and the stability and the record, so forget the fine print but I think you get the idea as to why this is interesting to us.

And then looking ahead, our ClaimCenter, if you look at all the jobs we’ve done today, the majority are ClaimCenter, logically so. We see tremendous momentum with PolicyCenter, and the Suite. A lot of it is selling within the existing client base, so ClaimCenter is already a win, they are solid, they client says, yeah, I’m going to stay on the same platform, I’m going to transform to policy and PolicyCenter is a logical progression. So, we’re seeing a lot of momentum there.

And the revenues are just articulated, it’s right, it’s two to three times X the revenues for me, for Guidewire, just the way it’s structured and the complexity and size of transforming policy. I mentioned Nationwide, it is a major, major milestone in the marketplace and it’s going to change the landscape probably forever, for everyone involved.

We are going to double our headcount in the next three years, so I’ll probably be 900 to 1,000 people at the rate we’re going, that’s probably a standby conservative estimate. But that is what I’m looking at right now. We’re going to put up four more centers, one in Asia, we’re debating where that’s going to go, whether it’s Hong Kong or something further North, one is Latin America, probably in Brazil and one in London which is almost half built already, I just don’t formally have put signage on it, but in fact it’ll be operating and covering my European operation. So, we’re adding all that and that’s more investment we’re making.

And more and more in the innovations, this is intelligence of one area. We’ve got a whole another set of ideas that we’re working on and accelerators that make us more attractive, we’re not competing with Cap Gemini and IBM and the rest of them as well as to speed up our project and reduce the risk when the time comes.

So, I was told to make up all the bad times and throw right behind, I think I did it, I’ll entertain any questions if you might have them.

Unidentified Analyst

Thanks. Previously show kind of some of the things that Guidewire was doing on the services’ side versus the partners. I think you showed somewhat similar. How do you feel about this split in terms of what each – what each party is really responsible for us or anything you’d like to see shift as we move forward?

David Connolly

Between Guidewire and Ernst & Young?

Unidentified Analyst

Yeah.

David Connolly

It’s worked out really well, it’s evolved over time. I mean, it’s a matter of trust on both sides, right. And really I can tell you that I remember the first project that Guidewire was reasonably terrified handing over the keys towards adolescence and saying, you drive thing but if you crash it, you’re going to kill all of us. I mean, that was basically the message that we got. And I was the partner on that job by the way. And it worked well, and it got people calm.

Over the years they have spent some interesting struggles with, should this be more Guidewire, less Guidewire people, Ernst & Young are not keeping us in tuned. There are so many projects out there. I think it’s come to a really happy medium. And the ratios are where they should be. We as a firm need less ClaimCenter support and less undoing in a brand new country, like in Poland. It’s good to have some local Guidewire folks involved for PolicyCenter, we need more Guidewire services folks because it’s more nation and evolving. It’s a pretty good balance from my perspective.

Unidentified Analyst

You were describing Nationwide as a game-changer. And also talking about the tremendous momentum you’re seeing in PolicyCenter. I’d just like you to dig into that a little bit more, why is this so significant in Nationwide and what’s causing the changed momentum PolicyCenter? Thank you.

David Connolly

Yeah. So, I don’t want to get into specific names but not far from here, I mean, there is a carrier that just crashed a big policy project, it’s $0.5 billion write-off, right. And people lost their jobs, that doesn’t happen, there are a subsidiary of a larger carrier. And they wiped out the whole management team. And so, that scares the scrap out of everyone involving and going in these projects.

And they didn’t go with a true Packard solution, Guidewire wasn’t I think even considering that one, because PolicyCenter wasn’t mature enough when the time was there for a decision to be made. And they told me, I know well, they could do it again, they go with Guidewire and they may still at this point. So, there are so many stories of crashed projects that people have been extremely hesitant because you don’t want to lose your job over these things, it’s just not worth it.

So, there has been this long-long waiting period and carriers, you can go ahead and handle a claim and that’s great. But if you can’t write a policy and watch where the point, how are you going to grow your revenue base, how are you going to get new products out, all these things you want to do as a carrier, you can’t do it on the current platform they have to do something.

And when you look at the pile of records out there, Guidewire right now are shining clean and it’s early. But the fact that Nationwide took the plunge and trust me, the rigor that was going through in the software and the services side, we had a great left because we were successful in the claims project.

But if you had asked me two years ago with the Nationwide goal, with the package policy system, I’d say no way and so would they. They got confidence in Guidewire because of ClaimCenter and so we’re just now starting policy just after Labor Day we got this thing going. But I can already feel in the market that carriers are now starting the big ones, I mean the really big, the Zurich’s, the Alliance, a bit of Cyber Lace and we’re in touch with all of them, saying if they’re willing to do it, I should probably open my eyes and give it a shot. I’ve got pent up demand, I can’t go much longer without with.

Some are going to wait and see, I think some are going to move in faster now, because they know Nationwide wouldn’t do this as a spurious act. So, there is not much deeper I can go into that. I mean, I’ve got numbers in terms of what the opportunity is for services and policy alone, it’s staggering, it’s literally staggering because the demand is there. And these carriers, they’re going to get caught in the lost in the dust if they don’t pick this up like everybody does. So that’s the opportunity that I see.

Unidentified Analyst

When you think about the available market opportunity does, not to put you on this relative to Marcus’s commentary to begin with, but does that intuitively make sense to you or do you think that the market sizing, underplays or overplays what the opportunity is here.

David Connolly

I think Marcus was somewhat conservative from what I’m seeing. It was quite interesting (inaudible).

No doesn’t mean no and yes definitely doesn’t mean yes. We had to figure that thing out so requirements weren’t locked down if we hoped. And then we start stumbling in the things like, wow, a this calendar looks very different than we’ve ever seen before and I had to deal with it. And I had a fixed price deal because I had to sniper out one of the guys you saw on the board there, as a big five because they’re about to sign. I cut a deal fixed price and I said, no matter what, I will go over in that situation.

All three of them were claims, in this case that’s also how many deals that I’ve done in claims versus policy. I think I’m doing less policy fixed price right now just because of the nature of the business and the size of it, etcetera, etcetera. The other ones were a matter of, I had to cut a way down just to win the business and I’m still one of the reference, it’s not a pandemic situation by any means, if it was, I wouldn’t survive basically with my firm, so. Probably she cut it off I’ll be here after the break. So, thanks. And I guess you’re on break now. I’ll hand it over to you.

Karen Blasing

Thank you very much. Thank you very much. So, we’re running slightly behind, we’ll give you until 2:40 to come back from the break. And again, have an opportunity to actually walk around, take the tour if you’d like. Is Ben here? No. We’ll find somebody quickly actually to give you a tour on the engineering floor, if you’re interested in doing that and back at 2:40.

(Break)

Karen Blasing

There are brownies, there are cookies they look really good. I’m going to grab one myself. There is coffee and sodas as well. So, give a supportive to the – for the next couple of presentations.

So, again, I’d like to have John True come up and introduce our customers. So, just a quick reminder first, we do have a cocktail reception again starting at 5:00. There will be people here who will be able to guide you back over and get you in through the security gates as well into the other tower. So, don’t forget to join us. John?

John True

I have the pleasure of introducing what is our most valuable selling assets, two great customer stories we’re starting with Allan Lubitz from Mercury Insurance. His journey with Guidewire is more than four years long. They were our first suite customer and understand both, buyer and customer journey and value creation as well as anyone.

I’m very honored, to introduce Allan Lubitz.

Allan Lubitz

Thank you John. Well, it’s a pleasure for me to be able to spend some time with you this afternoon. As you heard in Marcus’s comments, he told you a little bit about the five-year journey down the road to get to 2012 for Guidewire. So, as you can see from my graphic here, I’m going to tell you a little bit about the five year journey at Mercury to achieve 2012, where we are now.

First, what I wanted to do is, I wanted to give you a little bit of a background about our company. Some of you may know us, especially if you’re California based, you may be one of our customers. We have a very large presence in California. We are primarily an auto and home insurer property and casualty. We are in 13 states, we intentionally picked those 13 states because they have the largest number of vehicles, so that was our objective, California of course being the largest.

And our particular model of doing business is that we work through independent agents, so we have to resell ourselves every single day so that those agents will represent us as the best choice for their clients and they’ve got many other companies that they can do business with.

We’ve had a very nice success story, achieving 2 million policies, almost $3 billion in revenue as of last year, $4 billion in assets with great ratings by the rating agencies. And I want to draw your attention to this is a big year for us. In April we celebrated 50 years in business. And the insurance industry maybe 50 years is not legendary but for us it’s a big deal.

And it was particularly nice because there is something I’m going to tell you about who is able to be with us. But let me first mention that we are also selected again as one of Forbes most trustworthy companies. So, you can tell this is a company that has a rich foundation and prides itself on doing right and earning our keep every day.

So, the thing I want to tell you about, we made the anniversary particularly great as I said. We still have our founder, who just turned 91 years old, a few weeks ago. And his name is George Joseph. And I just want to tell you a little bit about him because I find it so interesting. When I had a chance to meet him five years ago, actually five years ago, this month, I had been the CIO at First American Financial. I had been a CIO at General Motors at ZyTech at HNR Block. And I was really trying to figure out what was – what did life hold for me next. And the CEO of the company Gabe Theodore called me and asked me that question, what are you doing and might you be available?

And after we hit it off really well and I thought his assessing potential, I got a chance to meet Mr. Joseph. And I learned in that conversation that he had been in the Air Force in World War II just like my father in law, my dad had been in the Army in World War II. When he graduated on the GI Bill, he went to Harvard and got dual degrees in Economics and physics, so no basket leaving here. And he did it in three years. And then he became an insurance agent. And he saw serious flaws in the product in the way it was sold and handled. So, he decided to start a company, he had that entrepreneurial spirit.

And now, even though he’s over the running of the company to us is a leadership team, it’s really nice having his presence that he shows up and he’s there, and I even told some people yesterday, that just as before I was heading out of the office, he had sent me five Harvard business review articles with some notes and here are some interesting things. So, a very, very bright man, and somebody that was – it has been an honor for me to get to know.

So, we had this meeting back in 2007, and that was just before I started. I was in the midst of helping probably another company sell itself. And the 50th Anniversary celebration, I was very surprised that when he stepped in front of the group of all of our employees it was sign on cast, to all these locations, he pulled out of his pocket an 80-column computer punch card. And he chose to make his leading part of his speech that day about the dynamic transformation he had seen in the world of technology. He didn’t talk about claims or underwriting.

And I think I’m drawing a conclusion from that but I think he said fundamentally that the skills involved, that the technique involved in most areas where insurance hasn’t radically changed in 50 years. But to him, thinking back to the fore-data processing specialist that they had in the 1960s, that they were using time-shared computers, they had built, whatever they had to do they had to build themselves. That he felt that this was the turning point in his life that he had seen in the history of the company that it was technology that driven a lot of the change. So, I was feeling a little bit proud that day.

And so, let me go back now in time, back to the 2007, and where I started in January 2008, first thing I did was I did an assessment of where we were from a system perspective. And a lot of our systems were what you would call mainframe base, but they were 1970s, vintage HP 3000 systems, they were some custom built systems from the late 1990s into the 2000s.

There was one Packard solution that had come with an acquisition but had not really been heavily invested in, and highly customized but not heavily invested in terms of upgrades. And there was a custom built agency portal. And so, that where a custom built is the same here what I saw, and I think what you heard in David’s comments, that was the whole industry. There weren’t – it was only, that there weren’t really great Packard solutions it was unwillingness to want to take them. Because at that time, scale mattered so much that people wanted to have the ability to outspend the other guy. So, I think we hit that nexus point here where we realized that this was no longer core to our success we were just all spending a lot of money.

So, in May of that year 2008, I went to the – one of the insurance industry conferences, the Accord Loma Conference in Las Vegas Nevada, and there were certain themes that kept reclining. One of them was, and back to David’s comments that was very much on platform modernization for all the reasons he listed.

Secondly, as people were looking around to see what were the choices that were out there for a solution that could replace it, there really wasn’t a lot of good choices, they were aging solutions, they weren’t well architected, they didn’t have that flexibility or cost model that made them attractive so, with an absolutely right market for some other solution. And so, a lot of us were wondering around that show looking around is going to be the emerging company.

So, it was at that show that I had the opportunity to meet Guidewire, this is from the page of the website, Guidewire was one of the demonstrators there at that show. I had an opportunity to meet them and hear their story. And as they did, I talked to all the different companies, everybody had a boost there, anybody who was milling around the hallways, I had a chance to try to talk to them and learn what was going on.

But I sensed something very uniquely different about Guidewire. So, because of that conversation and then my ensuing research about six months later I went to our CEO, Gabe Theodore and I said, together with some other allies I had brought with me, I think it’s time for a bold new approach, are you open to this. And it was, what if we would implement a completely new suite, I mean, everything, policy, claims, billing, let’s do it all.

And in so doing, let’s be able to introduce product changes faster and cheaper, let’s have – instead of having these multiple platforms where you have rating engines on the front end, rating engines and the middle engine and ratings on the backend, let’s have on contiguous system, one platform that everybody uses, underwriting, claims, the agent, even to the end customer. So, we’ll minimize the potential for discontinuity between those systems and that we’ll have a common experience and we’ll do the development once. So, these concepts may not sound so radical from other companies that you’ve looked at, but for this industry they were radical.

Then we talked about probably the biggest, most difficult topic, which was completely reengineering the process by insurance happens. And to taking it completely paperless, taking out a lot of steps, and amazingly, he’s a forward thinking guy, and he said, this sounds very interesting to me this is something I’d like to go forward with.

So, we spent some time working on over the next few months, and what we boiled down over the next few months were certain key decisions, because when you look at vision functionality, architecture, to get a decision, one of them was are you open to this buy versus build concept. And our company in 50 years had been built on this notion that data processing was done without outside solutions. And I think to the earlier comments that we heard today that, it still is some reluctance in the marketplace, but certainly changing.

The other thing was, do you go with an all-in-one versus a point solution. And I’ll tell you, I mean, my view of those things have changed over the years. And if you’d have asked me, when I was a kid, it was very common that people would buy like TVs that had stereo systems built to them as all-in-one cabinet solution, they’re expensive, complex, but as it got later in my life, it was very common that when you build up a stereo system you would buy – you had another turntable, turntable and a receiver and a tape-deck and all those things, they all came from different sources. And you would put them all together and that was part of the fun of being, the being of an audio file was all these different coolest, greatest, latest.

But those of us in the IT world, we realized that that isn’t always the most fun place to be. And if you can find one throat to choke, if you can get somebody who is so invested in it, that they can provide you that all-in-one capability. So, that’s really an ideal place to be. So, it’s not always easy to find.

So, then we had the complexity of a vendor selection process. So, we talked to all the usual industry pundits. We started talking to actual customers of these different solutions that were out there. And we found certain common themes were popping up about which companies were flexible, which ones are mature, etcetera, I’ll talk a little bit more about that in a bit.

And then, to tie all this together, we had to be innovative I think in terms of the implementation approaches since I had had the opportunity to work at a lot of different companies and implement big projects before, I felt very confident that we could take an implementation approach that would guarantee success or come as close to guaranteeing success as possible, so I won’t go into all the nitty-gritty’s of that one.

But when you take all these together getting everybody to buy decision to an all-in-one decision, choosing a vendor and agreeing to an almost guaranteed success implementation model, doing all those things together leads you to a potentially successful implementation.

So, our CEO was sold, we told the Chairman about it, it was very exciting to see him buying into something like that, particularly with his historical perspective. So, I want to tell you a little bit about why we specifically recommend a Guidewire.

I guess, albeit to the gating factor for any company, when you’re making a decision, it’s got to be product. If the function at least out there, if I can’t convince the claim’s people to underwriting folks, agents and others who looked at it, that this does all the things they needed to do, it would be dead on arrival.

Behind the scenes though, my folks looked – we have a scoring mechanism that we used where a product and functionality was only one of the four or five categories, architecture was one of the key ones. And they had to score well on architecture, performance quality of the solution, flexibility, completeness of the product offering, positive signs that they would be continuing their re-investments. So you look at all of those things together and you get to a point where you say, okay, product lines, I think we’re comfortable. So, then you got to look more – you got to look more broadly, what are the people like.

And not only did we see the things that you heard earlier this morning, earlier this afternoon about the commitment to this industry but the people were honest, high integrity, committed, at every level, it wasn’t just the executives, it was every team member we met, and we knew we weren’t getting just a random selection, we were walking around the floors here in the building and meeting people.

So, and then, maybe most importantly we would do the client reference calls and hear the same story from them as well. So, it was like, we kept, and kind of almost lifting the covers, looking for where is, where is the problem and we weren’t finding it. And then, tying it all together, the unifying element of all this was this corporate philosophy, the commitment to the P&C industry, anybody out there that we saw emerging, they either were very small and they were committed because they had to be, they were very large and they were very diverse.

Here was a large and growing company who as truly committed to this industry. The philosophical approach to 100% client reference-ability, I have heard companies make references to that or that kind of generic sort of a comment, this was a mantra. And I thought, well, that’s pretty serious, you’re not going to let anybody fail, because they realized how we’ll damage their own reputation that continual product reinvestment for long term thinking, so when you tie these together that’s why Guidewire emerged among all the others that we looked at.

So, now if I step forward from 2008 into 2009, obviously there was a contract negotiation phase and all that. And then we got to a pilot. Now, this is part of when I was referring to an approach that would guarantee success, I had seen so many large projects I think David mentioned $0.5 billion, one that failed, I’ve seen in so many – the IRS had had huge failure systems, mortgage companies, others had invested. No, these aren’t 1 million here and 1 million there, these are tens hundreds of millions of failures. And it became the norm in a lot of articles that you would read about IT that project failure was more of the norm than the exception.

So, some of the techniques that I learned and wanted to apply here was let’s do a pilot approach to it and let’s make certain rules. So, the first rule was, we’re going to go into a brand new state with a brand new product, so that eliminates all the problems of file conversions of getting people over middle also really allowed us to create a new operation behind it.

Secondly, that we were going to take it out of the box. Let’s not think that we’re smarter than everybody else, let’s sit with what these folks have already done. If we’re going to pick them, because we think they’re the best, let’s not second guess them. So, let’s try not to ever deviate from what’s out of the box.

Third, let’s not try and solve every single integration point that we possibly have, let’s find the critical ones and get those working first prove it, let’s build on successes and let’s not do back-stock conversions which the Greenfield Solution helped us with.

Let’s presume it’s going to be successful and build everything that we build as common services. And let’s treat it as a true partnership, let’s form the partnership internally with our business units and lets form the partnership and completely be partnered, no vendor customer relationship, truly partnered with Guidewire. So, with that approach, we went live in Nevada and we will forever I guess have the distinction of now being the first customer ever to go live with the full suite implementation.

And I have to tell you, I mean, I didn’t think a lot about it during implementation because I thought that it would get our heads thinking the wrong way, we will become more about hitting the finish line before everybody else than about doing it right. So, we did it right and it just so happens, we ended up being the first one. We had committed it to be a 12-month project, we at the tail end of the project decided there were a few more integrations wanted to do, so we held it back for one extra month just to do some extra integrations and we went live.

And we didn’t, I’ll tell you a little bit about some of the things we chose to leave out of the pilot. But from the customer’s perspective, internal or external, when everything can quote all the way to issuance of the policy. And I think probably the hardest part of it is implementations besides the technical part of implementing and getting things done, it’s the human change management process to get people to think differently, to move to more exception based processing, to go to completely automated approvals.

I mean, these are people who are accustomed to putting a large file folder into a FedEx box and shipping it from office to office, moving it from inbox to inbox for wet signatures. And then move everything then now to a completely workflow based solution, which many of you maybe have seen in other industries but it was very novel here.

So, completely paperless, paper was definitely the enemy and everything automated. So, we got to all those hurdles, now we had actually introduced it to agents, and will the agents like it? And that was one of our next biggest points of satisfaction was when the agents saw, they liked it. And that to us was kind of one of the big question marks, is it right for internal purposes but not right for external. But agents actually think an awful lot more like our underwriters than they do like other people. So I think it was, it felt very natural.

So, we had our first success, right. We were all feeling good about it. What does that mean, little Labadie here? So, what they said to us was, hey great job, finish them on time. The next time you do it, you got to do it faster and cheaper. But it actually turned out to be a good challenge for us and for Guidewire, I remember going back and saying to them, hey, everybody what’s happening, except we have to do it faster and cheaper next time.

And so, we looked into it and we dug into it and we found out what used to make that happen. So, as we went into 2011 and started aiming towards rolling this out, we did take a little bit of gap period in there between the first rollout in 2011, we wanted to make sure that we finished up a few things like we didn’t include the renewal module and the reinstatements and some of those things had already failed, we’ve been wasted work.

But it was a success, so we had to move really fast and get a few things, write some reports, some other remaining integrations done, so we quickly got those done, then we moved into the launch period.

And in the launching we wanted to go into multiple states and multiple lines of business and we wanted to do at the same time. So, each time we would try something a little bit more risky, we would try to do multiple states at the same time, then we tried to do multiple states, multiple lines of business at the same time, etcetera.

So, one of the really important things for us, I forgot to mention implementation wise, was we had a phenomenal partnership with our product group. And our product group completely bought into this approach and helped redesign the product to be more aligned, to make rolling it out in groupings to be logical because I told them, the more we can group together, the cheaper I can make each implementation. So, you got to have these partnerships and alliances with your other business teams to make these things really work well. I’m not sure EMY found the same – certainly what we found.

So, we expanded quickly, we had founded doing product redesign, rate level changes and things that moves much more quickly, we’re able to adapt to our marketplace much faster. We used to do very, very product changes per year, now we do lots of product changes per year. Obviously we’re a regulated business so we can’t just do it at a whim. But we now have that tremendous amount of flexibility.

We then took on the task of reengineering the business process in other parts of the country, other business lines. But with the success and with the advocates being the actual line employees who did the work, we didn’t have to be IT selling it, they were selling and sourcing, you got to get on board, this is really cool.

So, one of the thing the drawing up there, the image shows you a little bit is, we’re also making an investment, working together with Guidewire to add other functionality, like for instance putting mobility onto the front end and making that something that is – it’s something that’s aligned well with their product line, so that we again are not off building separate systems that then have to integrate into their systems, and we try to make this one contiguous platform, because it’s so core to our business.

So, as I had – I don’t know if I gave you the number before, but we’ve done about 17 implementations and implementation for us means, a product line in a state, so if we have three product lines in one state, that’s three implementations. We dealt with a lot of different vagaries as we went state to state, but we’ve got it down now pretty much to a cook-book.

More Labadie here just a reaction for our agents, and our newer agents, it was one thing we were worried about, we didn’t know, yes maybe some of the people who are used to our old systems wouldn’t ever do it or send people who are new and want everything to be on an iPhone. So, we didn’t know what the reaction would be. And so, it was hard to test in the marketplace but the reaction was very good.

And I wanted it to be more specific internally to get one of our heads of underwriting to be willing to do a formal testimonial that says, we can now issue policies 50% faster with Guidewire PolicyCenter, it’s a pretty big statement.

So, I want to take you quickly to some of those positive feedbacks here and give you some of the specifics by groupings. One thing I want to say, just some of the agent, one of the agent comments, system is too easy to miss the step. So, that was a good sign for us, it was intuitive. Another one that we liked was one of our marketing managers said, hey they’re already doing course, we haven’t finished the training yet. So, those were good signs to us. People could figure out how to make it work.

You can’t always, you just ask a direct question, or a direct answer you can’t always figure it out, because you got to look for these signals. So, from the customer side, things like we love Guidewire, intuitive, flexible, easy to make changes, from our underwriting group’s perspective, you heard the 50% faster comment. They talk a lot about being able – we’ve been growing as a company and now we’re able to absorb that workflow without them adding staff, they love that.

They see improved communication, when we – when an agent writes a piece of business and underwriting needs, some document from them, there is a way that they have to communicate back and forth and that’s facilitative to the system, it’s paperless. So, they were used to being surrounded by huge file cabinets filled with paper. Now they are paperless, and it gives them more facility, flexibility, staffing flexibility.

And on the claims and billing side, they were really focusing on the fact that they were able to decrease cycle times, the ability to assign and move the fork around at different people, so very workflow oriented. Things like being able to move it from one approval stage to another was very good, being able to do their reserves and payment approvals instantaneously and online, taking all the paper out, real time posting. These were big deals to them. And they see a great streamlining in their own operations.

So, bottom line I would say is that for us, it has been a real great partnership. And I just wanted to make one personal comment is that, I think someone earlier made a reference to the fact that it’s – you put your own career on the line here. And I think Mercury certainly took a big leap of faith by taking the risk and making a big, big philosophical change to go to a purchase solution to get an alliance with Guidewire.

But also for me at a personal level, that was a pretty big career changing moment for me that if it had gone poorly, it would have been bad. And so I will tell you that, it was a nice thing for me to know that I had people like Marcus and others who were with me shoulder to shoulder at every step. And I truly felt that that partnership was real.

So, I’m going to be – after the conclusion of my comments. I’m going to be here at the reception afterwards if people want to ask any questions. But I could probably take one or two right now if you have any, yes.

Question-and- Answer-session

Unidentified Analyst

Can you give us a sense of how many other applications actually had to integrate into the Guidewire suite to get up and running?

Allan Lubitz

Around 30. You could imagine there are so many different things billing, the payment systems, where you get your credit to come from, your motor vehicle records your driving history, I mean, general ledger, there are so many immigration wise verse. It was about quality. And I think we ultimately try to think one with – we got I think 9 or 12 in the beginning up to 15 or 17 and then we got 21 and now finished out the rest of those.

Unidentified Analyst

(Inaudible).

Allan Lubitz

We looked at everything. We looked at all of them. Surprisingly almost everybody that we talk to the industry pundits out there gave us a different name. So that I think was – for me was one of the big surprise that was not a de facto name at that time. I am guessing because I am not – but I am guessing Guidewire probably pops up more often now if you ask the question generically to any of these guys.

Unidentified Analyst

Can you just I don’t know how much Guidewire has shared with you about the project Vega that they are talking about but in a generic sense I am just wondering?

Allan Lubitz

I heard about it few hours ago.

Unidentified Analyst

I am just wondering how as it relates to kind of your benchmarking you know being able to harness the data both internally, external data and so forth, are you able to do that today and how do you look at solving that problem? I know there is probably a lot of different ways of doing that. But how that’s been solve today and just wanted to hear more about that?

Allan Lubitz

Our answer is as much as I am capable of answering. I have no – bet if you talked like actuary group or others, they do some of the things like that. So just trying more to with what I am aware. But I got a presentation sometime this year of taking – doing what they do with project Vega similarly they have something they can with do claims right now. Or you can contribute your claims data and I think there is a dozen or more companies to do that. And it provides some very interesting insights.

You know when you are flying alone out there, you are not always sure whether you loss just some expenses or in line with the rest of your industry or if you cross to handle or process the claim or handle underwriting files whatever is comparable if you are doing better or worse or and if you are doing better or worse, is there a good reason for it. So I think it’s touching on a kind of analytics that never really could be available before because now you actually can do with this contributory confidential analytics. So I am excited about it whether business uptake will be, I can’t be sure but I think it’s going to get – some of them park in veiled at the connections conference and my guess is that, I have people beaten down my door asking how do we get involved in that.

Can I take one more maybe? There is enough – are we okay on time. I will do more one. Yes.

Unidentified Analyst

Just a quick question, sorry if I miss this earlier.

Allan Lubitz

Yes, gentleman in the line, yes.

Unidentified Analyst

Yeah, go there. Terrible this year, though I am sorry. But in terms of the thing that they mentioned in terms of each module helping your own profitability margin, can you share that with us in terms of how you tangibly benefited from the implementation of Guidewire in your own business in quantitative terms?

Allan Lubitz

Well, let me get over a spreadsheet; let me show you all the details. By the way, my phones are husky, they didn’t retain but I apologize to those of you who don’t – I am very sorry about that. He was pretty happy though. Let’s see. I don’t want to put specific numbers because that’s not my job. But let me just say that when you look at something, when you make, when you heard underwriting make a comment like 50% productivity improvement, you can imagine as fairly significant.

Profitability in an insurance company is so elusive we had – if you guys probably track insurance you know what the global warming and the weather patterns have done to this industry. I mean, the rain losses, hail, I mean, it’s like Armageddon up there. And so we – when I listen to the quarterly reports from our competitors, it’s a pretty devastating story out there. So sometimes all this productivity gains get masked by the vagaries of the insurance business.

But I think if you take a long term view of this my guess is that if we chart out our cost over a multi-year period of time we are going to see a very significant change. This is going to be kind of water ship period of time for this industry when this car sharing model happens where you no longer having to support fully the cost of all your systems and you are now buying them on a per drink or per license basis. I think this is going to be a very radical change.

But I think the insurance industry is open for more kinds of radical change if any of you saw Marcus’s speak last years’ conference. This is an industry that it’s open for a lot of that so what I will give you specific I think that’s generically what I would say that it’s big.

Well, thank you very much for the opportunity and I think I am going to turn it back to John to introduce gentleman here, my pleasure. Thank you.

John True

Allan, thank you for your comments. I have a pleasure to introduce next Joel Matthies, Chief Information Officer, Mercury, no global warming impact in the world of valuable.

Joel Matthies

No worries. Thank you John. I will share some quantitative numbers at the end to answer your question I will be at very simplistic and very brief. As Allan mentioned from an insurance perspective we don’t know our profitability until two or three or four years later. I think most of you understand that from a pricing perspective and claims experience. That’s one of the challenges in terms of being in insurance space.

Well, good afternoon, I have the pleasure to present Jewelers Mutual journey of success and implementing the Guidewire software in all 50 states and Canada for our personalized division. So we have distinct pleasure of operating in the basically the United States and Canada as I mentioned.

I am Joel Matthies as mentioned, CIO of Jewelers Mutual. We are specialty insured deeply rooted in the jewelry industry. My – of course I am here to share with you I believe a compelling story of our business success as well as the successful relationship with Guidewire and Jewelers Mutual.

So before I began I brought some goodies with me. I will ask whoever has a middle initial starting with U, I will ask you to raise your hands. There is a reason I picked U. So for those that would have had a middle initial (inaudible) a two carat diamond ring in my bag or a beautiful Rolex for the gentlemen. We, of course, we ensure all of those elements.

So on this more of a serious note, what we will be discussing today I will try and keep it brief. I know you’ve been here for a while. Our profile, I will talk about building trust and capabilities that was discussed earlier by Allan as a same challenge. Little bit differently that Allan but very similar in the like. Defining success, what was success going to look like as we move toward implementing Guidewire? Build out developing a business case and that’s started much like Allan’s depiction, CEO on the board having meaningful discussions about the investment. And then finally successfully implementing our Guidewire of personal lines. We are scheduled go live on our other division which is commercial lines in May of 2013.

Jewelers Mutual was founded in 1913 almost 100 years ago to support the jeweler insurance needs. We offer a variety of converges as you can see from retail, repair, manufacturing, wholesaler et cetera. We are exceptionally proud of our financial stability, the high rankings in both A.M. Best, receiving an A+ rating for 25 consecutive years along with Ward Top-50 designation in three of the last six years. It’s something that we have been representative by independent agents throughout United States and Canada for our commercial line of business.

Again commercial lines that’s ensuring jewelry stores, jewelry craftsman, wholesales, manufacturers and of course as I mentioned we also have the consumer side of the business the personal lines where we go direct to the consumer.

When I joined Jewelers Mutual on August of 2005, we were just completing a six year policy admin system conversion. Not in the Guidewire, we are completing a six year journey from 2000 to 2006 on a whole new policy admin system conversion which was of course ten figures that the board has invested.

Unfortunately, the system did not meet the business needs. And the business had little belief in IT and we could meet those needs going forward. My role as a CIO is change agent would be critical.

Making the right decision to select our next business partner for the core systems technology would truly define me and my career at Louis Mitchell. It’s been mentioned a number of times but those are the events that you don’t sleep at night and you wonder am I making the right decision. And you are exceptional cautious about making that decision and going to that process.

We had a team of eight, like Allan mentioned as well, we had a team of eight has been a week and that was after spending a good nine to ten months planning and reviewing for the trips, a team of eight go to every single vendor, talk and probe them, talk about the things that Allan mentioned the products. You serve it, you program management and project management and how good are you from all the nation we have a disciplined here. What type of professionalism do you have? We had a team breakup and study the organizations and during 2010 spend five weeks on the road going and visiting a number of different vendors.

So we have challenges from an organization to get there, my job in terms of working through was to build the credibility with the business. So in terms of building trust and building capabilities, the things I work toward was telling and talking them about you have to help me to find a strategy.

We had some CEO challenges; I will talk about that in a minute in the organization. So me and my peers talked a lot together about what’s our business strategy translating that into IT strategy, developing and investing in infrastructure, it’s been neglected, knowing and hoping that at some point we replace our core systems product the one that was failing, the one we have prompt with that was one of the key implications of getting investments from my CFO to – we are going to make these decisions and investments to plan for moving forward on a core systems implementation.

So how we define success? So like my colleague Allan, I begin to study in-depth the leading core systems and visiting trade organizations, visiting trade shows, research and going to conferences, and it became evident to our management team, we are one of the holistic and integrated business solution.

Following really our criteria for success: Robust, agile & scalable technical architecture, integration, open systems platform the things that a CIO looks for in terms of driving new technology into the business. Finally, our business focus, a Best-in-class P/C insurance processes, Intuitive workflow management, and then finally Speed to market through product configurability.

We worked towards developing a business case between myself and my CEO. I mentioned we had some changes at the top spot. From 2005 to 2009, those five years, five, six, seven, eight, nine, we had four new CEOs. So during that process as we going through a failed policy admin system conversion into 2006 and outing of the current CEO three more and ultimately landed on our current CEO who became my strong business partner advocate Mr. Darwin Copeman in leading this change.

It was a critical time in our organization he went through that in developing, so when I talk about building capabilities with the business, my peers, it was essential to build strong working relationships when we had kind of round the clock. That was significant challenge for us. The principle that really we talk about here in terms of working through the business case, working through the business case, tremendous work around existed leading to a lot of customer ends. We had to work to influence the board. They were of course a little bit shell shocked that we wouldn’t considering asking for more dollars after we invested a ton of money on systems that had failed.

I mentioned CEO playing a large role. The business transformation model was key to gain alignment in JM board support. We kept talking it’s not about technology initiative for us. We do it mutual. That maybe the case in some customers of Guidewire even you can operate and implement really a module the entire platform or to all the way out to business transformation. Our selling point to the board was we truly needed to work through business transformation and working right to left as many of you know working left or right in terms of people, process and technology that’s the model to build software. Find the people, find smart people, have them build the processes and then implement the technology.

We work right to left, we are going to buy the technology that’s been developed with best practices. We are going to use the software and the processes particularly the processes and the IP to intellectual that they invested in over years of best-in-class insurance processes. And then we are going to make sure we don’t customize that software and implement that software for our people to execute again. That was a critical point for us in terms of how we are going to move through that. Finally, we established governance team oversight with the CEO playing a large role myself and the CFO from a financial responsibility.

I will conclude here and talk a little bit about what I saw, I mentioned a lot of the program management, project management we had as we are going through selection process. What I have seen today Guidewire is, one of the best organizations from a software development perspective looking at program management and project management holistically. They employed a very strong agile development methodology. We were also comfortable with agile methodology in terms of the development; I am not going to go into detail what that is, hopefully some of you know that. We had employed agile development when I got on board in the latter part of 2007. So we came to the Guidewire with a couple of years experience working through agile development and we are comfortable in that methodology.

Knowing that they had the expertise in walking through the floor as many of you had today a couple of years ago, it was evident a distinct they will posses. That’s one of the key influencers for me as a CIO as how discipline, how organized, how effective that someone plan to make sure you can execute. So go slow to go fast and we have seen those benefits as an organization.

Our top realized benefits today billing the lockbox integration, we are using Chase as our lockbox provider. We have seen payments and processing in terms of significantly faster. 30% probably does it not justice. We have had in days where we will be eight to ten days in the past before moving the integration with Chase. It could take our consumers eight to ten days to see their actual payment processes once they have applied for insurance for us. Now it’s a matter of hours if that.

Guidewire/Thunderhead integration enabled no-touch document generation saving us two FTEs every day. Thunderhead is our enterprise document management solution. What Thunderhead provided what I called mass customizations. Of course, an insurance organization is all about forms, documents, policies, we have the ability to specify and pick different paragraphs that we didn’t search into the letter, into the policy, into the correspondence to the policy holders, that type of efficiency have we seen tremendous efficiency in terms of on the floor just for a personal line. We expect our commercial lines to see even more efficiencies.

From a scale perspective, our personalized product is exceptionally simple. We are for personal do to insurance to consumers, very simple. Our commercial lines of business is ensuring jewel block means the diamonds and gems and everything else that work along with that in terms of retail jewelry outlets.

That particular product is about 10 X. We always talk about 10 X differential from a personal line, very simple to the complexity of our commercial lines about 10 X. So we are expecting significant savings when you get into the mass documentation. A policy could be anywhere from 600 to 2000 pages for one of our commercial line of policy. So the ability to actually manipulate, manage those type of insert paragraph and the control the actual language very important. We had agents, we had processors, typing whatever they want it on policies. That’s a contract legally binding contract, talk about loss of control, we are lucky and fortunate we were in more difficult space.

Product Development/Configuration, Allan touched on it. It’s one of the big selling points. Reduction in Training, for our staff that covers, we are going to be all in as I mentioned in May of 2013 for our commercial lines of business, all of our employees we operating or at least 90% of our employees will be operating in the Guidewire. The ability for employees to move around and be comfortable and in an intuitive system, we have seen a significant reduction in on boarding a staff from 12 weeks to feeding of the system and all the different changes and workaround that have to know to about five weeks.

Finally, the Time to complete Personal Lines application reduced by more than 20%. Now we got our processors and in particular our CSRs, our reps one is to talk and engage our personal line policy holders about getting more of their jewelry out of their jewelry box and into Jewelers Mutual. Jewelers Mutual of course, we compete from a consumer perspective of trying to move people out of the jewelry of their home owners and on to their – our policy. So a lot of people of course myself in the past including having jewelry scheduled on your home owners doesn’t cover mysterious disappearance in God’s laws at a plug for Jewelers Mutual if you didn’t get that.

I am – finally the last ballpoint, I am going to finish early, I want to make sure you guys have time for questions. Release 2 Commercial Lines Division of the management we are working to go live here next year. We are about half way through it, a little over half way through it currently on schedule in terms of the plan. Scope, we are little bit over on scope, but we are little but under on cost, so we are seeing some deficiencies there from a project expectations that we didn’t expect which is great.

I am going to finish, I am going to let you take some questions, feel free to ask me questions about my experience, Jewelers Mutual, our experience and relationship with Guidewire and anything else. If not, I am around, well go ahead.

Question-and- Answer-session

Unidentified Analyst

How long do you think it will be before you consider doing another project?

Joel Matthies

Well, I have significant – I didn’t references, I want to move to the project or the presentation quickly. This particular initiative was one of – this particular we called systems replacement project was one of eight initiatives in our business transformation effort and I will go ahead in a minute, articulate that. We had our systems replacement project. We had a new personalized brand and development work with marketing agency to roll out across United States and Canada.

We replaced our enterprise document management system with Thunderhead as I mentioned. We put a new content management system. We integrated of course a new rating engine from CGI one of the leading rating engine in the insurance space. We built a new business intelligence platform and data warehouse to support big data and analytics.

We won’t have a ton of technology projects but we have a lot of investment up making sure those investments we made payoff in the next 10 years. We are a small organization much smaller than Allan’s organization. We are about a $150 million in revenue, $200 million in assets. This particular project from a scale perspective, over four years we invested $35 million into this business. So think about that if you take that scale out and say you are a $1billion organization, that’s a big investment from a scale perspective. Now you are talking $350 million investment on a $1 billion organization quite significant and it is been significant.

We’ve on boarded 50 people that have come into our building to support the 70 people that are on the project. So now granted those who are half time, core time FTEs, not four time but we did onboard 50 FTEs to support initiative over the course of three years. I will turn back over to you Karen, is that correct and then thank you very much.

Karen Blasing

Thanks very much Joe. We really appreciate you coming to sometime today. This – I immeasurably thankful. So with that, I am going to turn around to Jeremy.

Jeremy Henrickson

All right. Good afternoon everyone. Thank you so much for making the time to come, visit us here and especially for coming over here to the 8th floor of the East Tower which is where my team and I spent most of our waking days and everyone from all of you, few of are sleeping ones too. So I am going to talk to you today about the product development organization if I can get here.

So where John is responsible for the kind of implementation side of the house and the sales side of the house. I am responsible for writing the product that our customer implement in order to meet their goals. And so I wanted to start by showing just a couple of slides that I show perspective customers when they come to visit us at some point in the sales cycle.

The first one is this. 2032. That 20 years from now. And the first thing I like to tell people this is not about the first project nor is it even about full legacy replacement or rolling out the product to all the states in the full business. This is about a partnership, a long term commitment and marriage between Guidewire and each of our customers. And there has to be an element of trust and understanding and believe that – all of the challenges and problems that are going to be thrown out us over the next 20 years.

And I kind of most concrete illustrate I have this imagine it’s 1992, 20 years ago, how many of us thought that most of you beholding iPads or some other device in your hands right now or carrying around these remarkable smartphones in our pockets. We are utterly crazy if we don’t think that 20 years from now is going to just as different as 20 years ago. I mean that’s true not just on the technology side of the house but it’s also true respective of the business. Insurance is evolving incredibly rapidly not just on the technology side itself.

So we believe and trust one another that we are going to be work together over that long stand of time to really create a successful relationship which leads me to what our mission really is. You are going to hear me echo of few points even hearing already this afternoon. But far and away, our number one priority is ensuring that our current customers are successful by whatever definition they happened to have.

And it’s one of my very lucky privileges to be able work at a company where we are in complete alignments on this point. I don’t have to argue with John and his sales capacity about building a new feature and making our current customers successful though he makes the current customers successful, same thing on the implementation side. And so this permits everything that we do in the product development organization from how we think about offering a new product and so how we think about testing it and how we think about helping customers when they run into trouble.

Underneath there are a number of other things that really matter. Number one we are the ones that are really trying to make sure we are ensuring the long term technical and market viability of the product. We know and I love ClaimCenter version 7 and PolicyCenter 7 and BillingCenter 7 but I also know that 20 years from now those current versions of the products will be legacy software. So we need to start doing things today that set us up for ensuring that these are still going to be credible products 5, 10, 15, 20, 30 years from now.

Second we always want to be able to expand our target market and the products portfolio where our business we want to have more stuff to sell. Third and we are always trying to ease and accelerate our implementations. We want to be able to use our professional services staff with increasing efficiency over time and we want our partners and customers to be able to do the same thing so that faster and faster and cheaper and cheaper to get more and more value out of the products that we have.

Finally, we are always innovating and I am going to talk for a bit about this at the end. This is a core part of our culture and something that’s been really from the very beginning. So really four things I want to talk to you about today. First I am going to give you a very brief overview of our products. You heard a lot of illusions; I am not bring it altogether in one piece. I am going to talk just very briefly about my team. Third, I am going to delve into this point about ensuring customer success and some of the differentiating things that we do try to make that happen and then finally innovations.

First start with our products. These are not from market slides. We follow a suite of applications for managing the key functions and property and casualty insurance business. One policies, two billing, third claims. Now each of these products has been built entirely from the ground up here at Guidewire and each of them has been built with the exact same underlying technology and tool platform which is represented by that blue disk below three applications.

Now this is incredibly important because it means that customers who have gone through the process of learning any one product and implementing that one product can leverage the expertise that they have gained in that implementation for all of the other products making that much more efficient for them to build on top of that for the second and third project which alludes to another point which is that as Marcus said we can either implement this application serially or in the case of customers like Mercury all at one as a part of a single suite implementation.

And it’s important that we have both of those alternatives because different customers have different priorities and also particularly for very large customers is often very difficult to impossible to do all these sub projects in serial. And so we have quite a strategic advantage over the monolithic applications that don’t give that option.

So let me talk about each of the products in turn starting with ClaimCenter because it’s our first original product. As you know, it’s a ClaimCenter and claims management system from collecting information upfront to organizing the entire process of investigating potentially litigating and finally settling the claim. This include, of course, asking the system of record for financials including reserving for likely claim costs as well as making payments.

I just want to give you a little flavor of what ClaimCenter does. This screen is an example of helping claims adjusters to determine whether it’s their customers fault in the accident or not. Now insurance companies’ employees thousands upon thousands of claims adjusters many of whom are brilliant people, many of whom have not had a whole lot of education and each of them are responsible typically over $1 million in claims payments for year. So one of ClaimCenter’s strength is that it can help those people who are less experienced make better judgments by encoding the best practices of the most experienced and most savvy adjusters in the business rules and decision support tools that look like little bit like this one.

So we know though the ClaimCenter is a clear market leader for claim with large group of live and successful customers. But we continue to invest in ClaimCenter to modest state so that we can both maintain and extend that market leadership position. The second product and at the very heart of our suite is PolicyCenter. It manages policies from quoting for new business, new management policy changes, things like changes of address or changes in marital status, through renewals and audits. The policy system is far in a way the most important system in any insurance company.

Now the prior generation of policy systems was primarily aimed at the recording of policies and getting the financials right. So systems were incredible and that was great and PolicyCenter of course does that. But in addition, it also manages the process of putting new policies in place. This means that we need a good point of sale interface for recording new policies and including helping agents, help customers’ potential customers about their options or up selling them to more profitable alternatives. It also means using business rules to evaluate policies and route them for underwriting review when a human being is necessary to make a decision.

Now we dedicated an enormous amount of developing capacity to PolicyCenter to rapidly build up the features and add on that are really required to win in this category. And as a director of all of that investment, we’ve really seen that we winning new customers faster than everyone else. So we are going to continue to invest PolicyCenter so they can hopefully continue to earn that business from the rest of the market.

Our third application is BillingCenter which handles invoicing and collections from their customers and, of course, handles commissions for agents and brokers as well. So one of the things we’ve done at innovative BillingCenter is letting a query describe a new payment alternative via business user configuration as opposed to being constrained to other things that are baked into the product themselves and inaccessible by the customer.

This gives insurances a lot more flexibility in designing payment plans that are going to appeal to their customers much like mobile phones providers provide payment plans that appeal to each of us. The same flexibility allows customer service reps to adjust payment plans and things of that nature midstream without having to go through manual expenses and often error prone handling on their own.

BillingCenter is our newest product. But it’s actually been quite successful much faster and anticipated. I mean, Marcus showed early we have 46 customers and it’s already a market leading product with really only one other significant head to head competitor. Now it has substantial success BillingCenter on its own but as you saw from Marcus and see slides much of BillingCenter future success really is tied at the success suite as a whole and PolicyCenter particular.

All right. So there are three kinds of core market products but in the 7.0 suite, we actually also released four additional add-on modules that I want very briefly speak to. So first in the center there the yellow circle is Client Data Management. This provides a center customer record that tied together all of the information from the full suite about the customers. Now for an – if an insurer has the CRM system already, they are welcome to leverage that. But surprisingly large number of our customers actually don’t have a system or don’t have wanted to like very much I am seeing noting over here, Joe and so they elect to use ours instead.

Second is rating which access the calculation engine for determining the pricing of policies. Now customers can choose to use our rating engine or can choose to use an external rating engine. But we are seeing pretty strong market demand for actually having good rating tools integrated with PolicyCenter’s product configuration capabilities and so quite a few of our customers are electing to use our rating engine.

Third, insurance companies use reinsurance to spread some of their risk of course to other insurance companies. So that a single huge loss or storm or something like that can wipe the amount. Now our reinsurance management module let customers keep track of their insurance treaties and manage the financial processes, paying reinsurers on a per policy basis and then also collecting from reinsurers in the events of large loss.

Finally in the United States, the insurance services the Insurance Services Office or ISO for short they substandard for how large percentage of insurers really design their products. By following and ISO standard insurers have much easier time getting regulatory approval from states for their products. So we build out a number of line of business templates based on these standards so the customers can choose to license them enabling our customers to get the market much more rapidly than they would otherwise be able to and then subsequently maintain compliance.

Now each of these four add-on modules are licensed separately add additional cost. But they are only for use of the primary application. They are not actually independent standalone products on their own. So almost everything I have talked about here is IP that we developed ourselves. But there are couple of very important partnerships that we do rely on. The first of those is ISO, so a portion of these template standards are proprietary IPs so we do have a relationship with them to use those.

And the second big one is IBM Cognos which is our preferred reporting tool and means we build all of our sample reports inside the Cognos tool and that we bundle a limited use license for Cognos for use specifically with our applications.

That’s a lot of product very quickly and it turns out that building these is really hard. We have massive scope and highly detailed requirements that can really only truly be divide by going into deep interactions with customers who are actually going through legacy system replacement projects. There is no other way to get that information.

And because of that we have now invested over a 1,100 person-years in the product development organization alone in order to get our products to the point that they are today. Now we have learned an enormous amount during this time and has made plenty of mistakes. But our customers have help us catch those mistakes and we baked fixes or changes whatever we need to back into the product. The future customers never have to undergo any of those challenges.

It is incredibly difficult to be a new entrant into this market because if you want to do this it takes years to get it right. And anyone who choose to enter this market has to be prepared to make a large long term investment and wait years before they are going to have a product that can actually gain any sort of real traction in the market.

All right, so that’s what I am on product. I want to switch to the team. Globally we are about 250 people, a little more than that, split out as you see here. The shared platform is significant part of each application so you can see that that team is quite large and you can see that the PolicyCenter team here is our second largest team mostly because that’s the largest surface area of functionality.

Our Billing and Claims are smaller not because we are care about them less but because they are just smaller applications. Another way of looking at this is by the roles that people have. Roughly half of our team are developers, engineers who are writing code actually building the product. But you will also notice that sort of on a percentage basis, we actually a quite a large product management team. That’s because this is enormously complex software and we want our product managers to become pretty intimately familiar with our customers especially if they are doing something unique or something that we haven’t done before. We want to understand these use paces and be able to effectively communicate those things back to the engineers who are actually sitting in front of their coding every day.

Our product management team includes not just people who are running around or visit our customers but also include insurance experts. People who have previously been adjusters or underwriters or had other roles at insurance companies so that we have on this floor that sort of in-house expertise that can make sure that we get things right as opposed to just relying on the instincts on the engineers who have never had those roles.

A few of the things about the team. So you all noticed that we are based there and the majority of the development team is here. There is a reason for that because the founders recognized that the most disciple thing about this was going to be getting the software right in the first place. And there is an enormous history of both success and failures in enterprise software here in the Bay Area and we hired those people and put them here and said look, tell us about those lessons, let’s make sure that we get it right this time, let’s focus on the long term. And that’s fundamentally what has enabled us to make sure that we’ve been able to build successful customers. Its expenses but we do it a hundred times again the right way, the same way, this way. Of course, it is also just an exceptional talent pool.

Now we don’t need to do everything here. And so we have opened two other offices. They are first class offices that work on strategically important things to the business in Toronto and Dublin, Ireland. Now these two places have great technical talent in their own right and it turns out that Toronto is actually pretty great place for insurance domain knowledge. This also helps us be more efficient with our hiring as we can paralyze the effort across three offices. And of course it allows us to leverage cost efficiencies both today and in the future as we think about developing new products more rapidly and at lower cost.

Two other points. Even at our scale now that we have well over 150 engineers, roughly half of those engineers still have degree from top Tier schools. So we are maintaining that quality bar very high so that the quality of our software never degrades. Second, we have incredibly low voluntary attrition rates in voluntary sometimes that’s low. But we want to make sure that we build a place where people love building software and where they are allowed to do things with high quality.

This is important as a business because it means that the people who originally wrote the software are still here so that when we are building something new that means we can do it much more efficiently than otherwise be able to or a customer runs into a problem the engineer who wrote the thing is still here and we can help them as rapidly and efficiently as we can.

Okay, we will talk a little bit about ensuring customer success. I loved Allan’s presentation because it is going to sound like I am echoing about two minutes of what he said. So the first thing of course is functionality. The product has to have the stuff in it that will enable our customers to be successful. The things that appear in a marketing checklist or in RFI or RFP that’s just the cost of entry. You don’t have that, you can’t do business.

But if you look at the set of thing that actually make project successful or not they are very much hidden and they are very much different than purely instead of functionality things like timeliness. Well, Guidewire actually ship ClaimCenter 7, ClaimCenter 8, PolicyCenter 9, when they say they are going to ship it. Software is riddled with example of people shipping late.

Quality, once I get this product, is it actually going to work for me or am I going to have to struggle with bugs and errors and calling the team to get fixes all the time. Is it going to be flexible enough to meet the needs that I don’t know about yet? The same two or three year five years from now that who knows what I am going to have to do? And the software handles that or not? Is it scalable, will it meet the needs of the very largest companies in the world? Is it integratable? We are talking about the 30 years so integrations that we have done and that can that actually connect the systems? And most importantly is it upgradable or I am going to be stuck on claims in version 5 or 6 or 7 for the next 30 years?

So I am going to talk about each of these elements in turn. First, functionality and timeliness. It all starts with the customer and having product parties that are driven from actual customer needs. A lot of software companies will say, we have this great idea about this wonderful future that we see ahead of us. But those things they think about building aren’t actually grounded and the reality of what they are hearing a customer actually needs in order to be successful. So we take a great deal of time and care particularly on product management group to reach out to our customers and ask them what you need to be successful or what you think the next thing is coming up? What’s your next priority so that we can line up our efforts behind those things?

Second, we value implementation success over sales eye candy. It will be really, really easy for us to build stuff that looks really cool in the sales cycle and that people will get kind of excited about but would add absolutely no value to actually having a successful implementation at the end of the day. And so we do have some things that look good in the sales cycle but overwhelmingly we focus on the thing that are actually going to drive success in projects because if we can drive that success we will maintain that tracker that allows us to sell more software.

Third, we always, always, always leverage our network of domain expertise. So I talk a little bit about the people we have here on the floor who have history in insurance companies but that’s only in the very beginning of a much larger network. We have our colleague and professional services people in sales, our partners and most importantly our customers who are just this incredible wealth of knowledge and are so willing to share it with us and so we try to take many of those lessons as we can backend of the product and assure that we always building the best possible thing that we can and always improving upon things dealt to make them even better.

So the next principle is Agile Development and in some cases I can talk about this for an hour, I am going to do it less than a minute. Those who have an opportunity to walk around the floor probably saw some boards left a little bit like this. These boards are the combination believe it or not of 10 years of iterations and refinement on a process that allows us to build high quality software on time.

It keep us focus on the things that are most important to customer and it allows us to deliver our major releases to our customers on time every single time and that’s an extremely rare thing in enterprise software.

Flexibility and Integratability. I want to paint a little bit of picture about how flexible our software needs to be. So one dimension along which we need to be flexible is that we need to support any line of business. So some of our customers are in personal lines, some commercials, some specialties, some in all of the above, some in some set of each of them. And each one of these has many, many sub sets under that. So the software build in the first place had to handle that plurality of options.

Then we have to handle customers of any size from the $100 million premium customers that John referred to earlier to the nationwide scale end up. A single product has to be able to deal with all that. Now the good news here is that it turns out the most of things you need to support a very small customer and very large customer turn out to be the same. So largely they are asking for the same stuff.

But then we also have to deal with different regulatory environment within the United States via 50 states, 50 different regulatory requirements multiply that by another 150 odd countries and you end up with a lot of geographies each of which has their own special requirements most of which we are not able to anticipate ahead of times. So the software has to be designed with the principles of flexibility from the beginning.

We didn’t know that we have this right at the beginning. In fact, at the very beginning we didn’t have it right. Certain things were too flexible, certain things weren’t flexible enough. But overtime we had the opportunity revises over and over and refine over and over again and now that we have over 200 implementations we believe that we have proven that the system is sufficiently flexible to meet the needs of the global customer base.

Talking about global stuff just another minute. We have customers in 16 countries now and that’s important to understand that they are all on exactly the same path. We don’t have a special version for Japan or special version for France. We are not going to build special version for China. They are all on exactly the same product. Now that supported by some core capabilities such as multicurrency, right here in France you drive through the tunnel to the UK, you get an accident, now suddenly you have to paying claims in pounds even though your currency in euro. So right we can handle cases like that. We can enable multi-language support and things that these international customers are going to want. But you don’t have to write custom code to do that.

And finally, we have the capability at our own option to supply country specific content. So if John feels that it’s going to be useful for us to a supply specific integration to sell into some country, we can choose to do that or even our professional services organization can choose to do that. Or if we feel that every customer at a particular reason going to implement something, we can always build that one so that we can efficiently deploy onto all our customers.

So we can do that at our option and in fact if you look at these 16 countries we very rarely have to do any of that in order to secure our first customers in those countries because of part we are flexible enough to meet the needs on its own.

Last, I want to show you what I think is pretty funny diagram but it’s actually entirely real about an actual integration environment that one of our customers showed us. Okay, 30 sounds like a lot, I think count the number of bubbles on the slide that looks closer to 60 or 70. This is not unusual. So all of our customers have to integrate to modern systems that they have written in-house to legacy systems that are 20, 30, 40 years old. Again because we have done this and over 200 implementations and across every conceivable client of integration point we have a great deal of confidence that we can handle any sort of integration that our customers need.

Okay, Upgradability. This more than anything speaks to the long term commitments that our customers have together. So I want to kind of take a brief step back and talk about how this implementation process works in the first place. So somebody starts implementing policies in version 7 and there is a core application functionality there and the underlying shared platform aligned with their IT infrastructure that’s great.

The customer then says what’s actually of differentiating value for us? What are the things that we could in this project that about are uniquely differentiating for our business? So those things into this configuration layer and invest whatever we need to make that what we wanted to be. Okay, that’s great. They do that with the help of our partners and professional services organization who kind of help educate them in the house make this work.

Then those set of people often steps back, steps away. And meantime the customer or the partner whoever they are working with continues to constantly improve that to get more value out of that configuration without ever changing any of this. They might still be PolicyCenter version 7.02 but they are turning away on configuration making improvement over improvement over improvement over time without ever having to call up my guys to write that functionality for them.

But the most important thing is that we are doing work here and that we are building incremental value into the product. We are building out new features, new capabilities, new technologies that we like to think our customers are going to find useful. So we can supply that to them but customers can preserve all of the same that they have already build in order to make sure that they have their differentiating advantages. It’s still an enterprise software upgrade. It’s hard, it’s hard for enterprise software but it’s possible.

Now six or seven years ago our customers in the market was deeply skeptical that we’ll be able to do this. No one else has done it. And so we invested in an enormous amount of energy in making sure that we get this right and the result is this chart which shows that up through current time we see end of the fiscal year we’ve now upgraded 46 customers that just major upgrades doesn’t even include a little minor maintenance upgrades that people do. 46 major upgrades is includes all three of our products and so we believe it also proven out the point that we really can provide customers with an upgrade pass so they can get from 7 to version 8 to 9 to 10, 15 to 20. So that 20 years from now they won’t be stuck on claims in version 7.

Question-and-Answer-session

Unidentified Analyst

(Inaudible).

Jeremy Henrickson

So then another standard is zero. The number that I have chosen to upgrade is – there is obviously a set of customers who haven’t chosen to upgrade yet. And there are number of reasons for that. Some customers – so first of all customers are not going to upgrade immediately to every version that we show, right. It’s not – there is not a lot of value to them to do that. It’s just – it’s more of a cost that they are not going to introduce in functionality. Our goal is possible for customers to upgrade when they choose it is time for them to upgrade whether that’s because they want to be on the different IT architecture or they want to take advantage of some new capabilities that we have and because of that we actually have a very long tail such that we support our applications after five to ten years after they have been released.

And so they are not obligated to upgrade until after that time. That we were closely with them to make sure we always in touch and understanding when it is that we think they should upgrade but no one stranded on an old version.

Right. Very briefly on Quality, something we care deeply about and there is another topic occasion which I can talk about for couple of hours but I will keep it again less than one minute. This is a picture of our Automated Functional Testing System and each of our engineers spend as much time writing code that’s actually about making the functionality work and that equal to the amount of time they spend writing testing code, right.

So testing is an extremely important. I just want to highlight one number here that number which is already old now over 170,000 unique automated test that could run every single time an engineer makes any changes to the system.

That’s important because it means that we know instantly even in a year and half before release if something that’s used to work yesterday is broken today and that we can fix it. So I can take a version of software and put it on my laptop right now and have a great deal of confidence that this going to work even a year before it release. So I know that the software is of high quality.

We run over 11 million – up to 11 million of these tests every single day. In 2011, we run 1.7 billion of these tests. Those (inaudible) our lab over there, saw those machines and saw what they were doing running test and we know we are going to run more test than in 2011.

Now functional testing gives you whether or not the software is correct. That’s not good enough. It has to be correct and work at scale the very largest customers in the world. So in order to do that, we have a similar testing system for that which yields results that look a little bit like this. This graph shows that our application respond relatively quickly and like a quarter of a second or less to most request that’s good.

It also shows that we very efficiently use databases; I am not going to delve on these except to say that the testing we do here at Guidewire is not to generate the marketing white paper that has big numbers on it. The test in fact even though we do generate that white paper that white paper is based on actual realistic testing coverage where we have realistic users and realistic data that’s more complicated than the data and users any of our customers have so that we can prove that we can support the needs of the very largest customers in the world.

Okay, that’s all I have on customer success. One final, one final topic Innovation. So essentially everything that I talked about up to this point has been about the currently available set of products that we have. But we are always thinking about what new functionality, what new add-on, what new features, what new revenue generating products can we provide? And I just want to talk a little bit about how we think about this overall?

So first of all as I kind of alluded to the very beginning of the presentation there are two kinds of change and two kinds of innovation. There is technical and then kind of business functional side. We think about both. And the first place that we think about both of these is in our core products. Innovation is not the progress of two brilliant scary guys corner that think of all the cool ideas. Innovation is about a culture of doing the very best one can with the latest technologies that are going to best serve our customers.

And so every engineer here is being as innovative as they can within whatever functional area they are responsible for. And this is important because it allows us to maintain both our technical and functional advantage over our competition and most importantly avoid the long term obsolescence that would happen if we did not continue to innovate.

Second, we do have the wild idea, we are out here guys the corner. There is a group we have called Guidewire Labs which Ben Brantley runs those who met him on the tour. This is an incubator for new ideas. Places where they can think about things that aren’t thinking about core products every single day. But thinking outside of that box, about new technologies, about new products, about new things that are going on in the market. So that we can come up with new features, other add-ons or other entire products.

One example of this is actually few years old is our original foray into kind of portals for vendors and customer portals and mobile applications like the iPad and the iPhone. These were kind of out of that place and are now under consideration for new product efforts.

Finally, of course, we are thinking about new products. Significant investments that can drive incremental revenue.

These are things like the Vega project that Marcus and a few of us I think quietly alluding to you today. Disruptive technologies, approaches, things that will enable us to have completely new revenue streams on top of and beyond the current set of products that we have today and in fact our usually only possible if one has a great set of products data they have a large installed base. Because we want to be able to continue to provide the sort of value to our customers that we been providing today over that span 5,10, 15, 20, 25 years so that when we are sitting here in 2032 we will be able to say, yes, our customers are using the very best software in the world today not just work with their 20 years ago.

Thanks for your time. I am happy to take questions. Silence, well, thank you very much.

Question-and- Answer-session

Unidentified Analyst

(Inaudible) from technology companies there are so much competition for talent. I was meeting with someone the other night who told me there are mobile companies but they would hire every single mobile engineer they can find, they just can’t find, so there is enormous competition for engineers in the valley. Where you getting your people from? How you are attracting them? How are you keeping them? Is the price of your engineers going up, is he compete with everyone else around here who working all these great innovative things?

Jeremy Henrickson

Yeah. They are very much as a worker talent. So we think about this in many ways. So first of all, we attract different kinds of engineers because unlike many places there are sort of flashes in the pan focused on kind of on building something fast or cheap. We want to do things with quality and we want to do it in a way that’s in a long term sustainable fashion, not just for our customers but for our own internal people. That’s actually a very rare thing to find in the valley.

And so we tend to attract people that are looking for that mode and we tend to retain them because the level of what they are doing and they like the fact they can focus on the quality. And that’s the reason that our attrition rate is so low. It’s also worth nothing that for the last couple of years we’ve been names in everyone’s place to work in the Bay Area which doesn’t hurt and there is a reason for that. So our underlying principles are really what allow us to both attract and retain that talent.

We don’t – we do see the upward pressure on salaries. But we don’t overpay, we really don’t and that’s because people want to be here. You have to pay a lot of money to keep someone that doesn’t want to be some place. But we believe that we want to pay people fairly by the market place and people as well. But we are not going to try to compete with company like Google on salary who has dollars spending.

Unidentified Analyst

(Inaudible).

Jeremy Henrickson

We actually don’t expect to be much any greater than the normal inflationary at this point.

Unidentified Analyst

Hi, I had two questions for you. The first one is I can clearly (inaudible) I don’t think this industry is ready for multi-tenant SAS. I think that’s too much of a leap of pay.

Jeremy Henrickson

Sure.

Unidentified Analyst

But do you have any customers that are actually asking you about putting the solution in a private cloud, looking at data center the way they are managing their data centers and is there anything that you need to do to the platform or the products to enable that? And I have a question on different area?

Jeremy Henrickson

So yes, we do on occasion. Not many but a few ask. It can be used in a private cloud today. There are few things we could do the product to take advantage of the few specific features what kind of call based architectures that we don’t do the things relatively small. But there is nothing stopping someone from deploying that architecture today if they want.

Unidentified Analyst

And then on a different area, you mentioned Verisk and Cognos in terms of reporting, I know David, so heard from but you also mentioned kind of the reporting tool they had developed. How do you see on the reporting tools, what (inaudible) is doing and I think there is some you know mentioned from Marcus about partnering for some of these items. Is there a platform reserved as I think about like sales were not coming, foundation and building things on top of it? Are you enabling through APIs and do you see that as an area that you need to support going forward?

Jeremy Henrickson

Absolutely. One of the things that we care deeply about and this doesn’t apply to us to reporting but really applies to it’s kind of all the products together is that anyone – any of our partners, any of our customers can build what we called accelerators which are based – things you can build based on configuration tools that will bring value. So in (inaudible) case, they build out some of customs kind of premium report which they think it’s great. In our case, we done something internally, our customers have done something that they want to share with the rest of the customer community. So absolutely that’s something to think about. Great. Thank you for your time.

Karen Blasing

Okay, my turn. I didn’t feel who I am actually and with that tool you have a lot of access to me, so I am going to make my presentation around there short today. That’s certainly free to ask a lot of questions with this as well. We really wanted to have an opportunity to actually get let Marcus get his business statement, let John and Jeremy have an opportunity, so you can get a chance to meet them and certainly meet our customers and Dave Connolly with there as well. I will be prefer short amount of time.

So first of, I am on to recap. I like to recap Guidewire’s financial strengths. First, we have a recurring revenue model from both term licenses and maintenance fees. Our contracts over five years and we do have best in class renewals. In addition, we are continuing to drive term licenses and favor over perpetual licenses for our customer arrangements.

These term license contracts and long term arrangements give us really strong revenue visibility. In addition, our professional service implementation projects expand multiple quarters so we have actually pretty good visibility into the near term in sector service business as well.

As we discussed on our last earnings call, we are increasing investments in our business to capitalize on our momentum and our very strong competitive position and to extend our market share gains. We are increasing investments in our products to extend our technology leadership as Jeremy discussed and to add new offerings as Marcus has alluded to. At the same time, we are expanding our services team to staff current and anticipated projects to ensure customer success but only to fuel license growth.

And as John described we are building our sales organization to capitalize on growing market interest and the sales pipeline. We believe these investments are the right strategy today to drive shareholder value. In our history, we have already proven our ability to profitability and we believe quite strongly that there are sources of financial leverage that we will realize over the long term. We will go through them today. Also I would like to reaffirm our Q1 and full year FY’13 guidance that we provided on at our September 4 earnings call.

Revenue growth. We achieved the revenue growth in FY’12 license and maintenance grew over 30% from both new customers and from up sales to our existing customers. Our professional services revenue also grew over 30% as our team is engaged for additional project implementations many of them for our PolicyCenter product.

Our balance sheet is strong. This matters to our customers and to our prospects. We generated over $17 million in cash from operations in FY’12 and raised over $133 million in cash from the IPO and from the follow-on.

So with the beginning of the day, Marcus began by talking about how we are like SAS companies and how we are not like SAS companies. Well, one of the way is we are not like SAS companies is that our deferred revenue is not a very useful indicator of business activity during any period. This is the results of how we invoice our customers and how we recognize revenue. We typically build term license contracts annually in advance and recognize the revenue on the invoice due date. This is different from software delivery to service and recognized on a daily basis over the life of the contract.

During any accounting period, we may have a mix of commercial contracts from existing or new customers that may impact the deferred revenue balances. For an example, at the end of FY’11, we had a couple of pretty large contracts that including some perpetual licenses that were deferred until Q1 of FY’13 which increased the deferred revenue balance. During the fourth quarter of FY’12, we also had a significant contract that was completed but in this case the commercial terms of that contract called for quarterly billing. So only a quarter of the annual term license and maintenance amount had been build and therefore deferred.

And remember only billed invoices are included in our deferred revenue. Future contractually committed fees from our customer contracts are not recorded and are not visible on the balance sheet.

Beginning of FY’11 thank goodness, our revenue accounting for all new product sales is straight forward. Catch-up revenue from those historical accounting had only a very minor impact on FY’12 results. This small amount of deferred catch-up revenue remaining on the balance sheet at the end of FY’12 is expected to be recognized during FY’13.

Looking at the details. Deferred license revenue, it’s generally just kind of a short-term depository today depended primarily on invoice due dates or in a small individual cases some product functionality that we expect to be able to deliver within a short timeframe.

Deferred maintenance revenue, it is anticipated to grow year-over-year from our long term contracts and our very high renewal rates. Deferred services is expected to diminish to near zero as the small number of projects depended on percentage of completion accounting are expected to be complete in FY’13.

So as a key metric, we measured fourth quarter recurring revenues by adding total term licenses and total maintenance revenues recognized in the preceding four quarters excluding those perpetual licenses. These recurring revenues increased 28% in FY’12.

Now we are increasingly encouraging our customers even our existing ones to license our software on a term basis rather than on perpetual license. This is expected to impact our license growth rate in FY’13. But we believe term license paid annually over time offers the following benefits. We think we will receive larger fees as our customers are expected to pay as licensing fees for the use of our products for long time.

Ad secondly the term licenses provide very good visibility into expected revenue from our customers. We expect term licenses to grow in excess of 30% in FY’13 which is an acceleration from the term license revenue growth generated in FY’12 and is an excellent indication our market share gains.

Service revenues as a percentage of total revenues are (inaudible) in FY’13 as we are engaged in the larger number of customer implementation projects from recent and expected wins particularly ones involving PolicyCenter.

Let’s talk a moment about margins. Guidewire’s achieved of 18% non-GAAP operating margin in FY’12 benefited from the higher proportion of perpetual licensees in FY’12 than are expected in FY’13. In addition, our services margin were higher than anticipated as our success in PolicyCenter wins resulted in very high utilization of our services personal.

We are actively recruiting and training service team members to increase staffing levels to support those customer projects. This is going to dampen our service margins, I am anticipating to the mid-teens during this fiscal year. In addition, we are going to continue to invest in our research and development team and build all our sales team to increase capacity.

We are reaffirming Q1 and FY’13 full year guidance consistent with the detail that we provided on the fourth quarter earnings call on September 4. Looking at the first quarter of FY’13, we anticipate total revenue to be in the range of $59 to $62 million. First quarter revenue includes one historic transaction valued at about $4.9 million for which we anticipate our customer achieving and implementation milestone triggering revenue recognition. This transaction is the last historical transaction for which we expect any catch-up revenue.

For comparison purposes, the first quarter of fiscal 2012 included catch-up of $.18 million. Now for the full fiscal year 2013, we anticipate total revenue in the range of $276 million to $288 million, an increase of 21% of the midpoint. This includes two very fundamental principles. The first services revenue will grow supported by larger and more projects. The second principle has seems much lower level of license revenue from perpetual licenses in FY’13 from the level of about $22 million in FY’12. As I mentioned a moment ago, we expect term license growth achievement in excess of 30% this year.

Overall, we expect in the long term to be running a 20 plus percent annual revenue growth business driven primarily by the sales of our software products to new and existing customers. Our gross margins should naturally improve as our license growth outpaces our service growth for several reasons. First the multi-nature of our license and maintenance arraignments. Second, our service model which encourages successful project implementations with four to eight quarters and third our deepening relationships with the system integrators they build their practices around Guidewire products.

In addition, we should achieve financial leverage as our sales teams produced multi-year term license and maintenance revenue. While commissions expense is earned and expense at the time of contract booking. And last because our engineering teams have grew to a single code based products that can be licensed to a broad base of customers. Our research and development as a percentage of revenue should decline and produce improving financial leverage. And of course G&A expenses improved with scale.

As I mentioned at the start of my presentation we have already proven our ability to generate meaningful profitability. Our increased investments are a result of the acceleration we have seen in our business and believe that we have the opportunity to create a very large company. We are confident that we will be able to leverage these investments from a long-term perspective.

With that, I will ask my colleagues to join me at the front of the room and respond to any questions you may have. And if you got questions on the financial, I am happy to entertain those while the team assembling as well. Walter?

Question-and- Answer-session

Walter Pritchard – Citigroup Global Markets Inc.

(Inaudible).

Karen Blasing

You know in this current year some are mid-40s to maybe even up a couple of points above that.

Walter Pritchard – Citigroup Global Markets Inc.

(Inaudible).

Karen Blasing

No, it’s far lower than that. I think the really kind of target first to have healthy services business and still give great customer success and good feedback governance form the customers probably 30% to 35%. Why don’t you say Marcus.

Marcus Ryu

Anywhere from 25% to 35%.

Unidentified Analyst

Just a quick question on your license growth. You put on the chart that next year you expect 108 to 112 and if you back into that that’s about low-teens. And I was just wondering if you could maybe go back – I know you guys have mentioned this is some part of the call in terms of how much of this is lower policy license and service mix as opposed to other factors maybe in current.

Karen Blasing

Sure. So the question really relates to the license growth. On the guidance that we have given it looks like get in the low-teens. It’s driven heavily by the amount of perpetual licenses so we had about $22 million with perpetual licenses that was recorded in FY’12. We expect that number to be less than half really in FY’13. But we do expect a very healthy growth in our term license business.

Unidentified Analyst

So just a follow-up talking about the perpetual not that really still wants perpetual, is it a particular region, particular type of customer, what is that there gravitating towards? And also just remind us there was the perpetual option, any further discussion there, anything that you can highlight?

Marcus Ryu

The two categories – actually there are two categories of customer or prospect where perpetual in greater demand and they actually overlap. There are some that government entities for whom it becomes sort of statutory, almost a statutory requirement or at least it represent as very insistently that’s the case. And then there are cases where we have an existing customer relationship with the contract that had a perpetual element to it. And there is just the natural expectation that that would persist into any additional license they would have with us.

And there are sometimes it’s compelling because it’s one of the – it eliminates one of the demanding aspect of any kind of commercial arrangement which is the contract negotiation just making the additional license amendment. But we care a lot about eliminating that element and we are doing our best to do so.

Brendan Barnicle – Pacific Crest Securities

Give us more kind of a product usability question so perhaps Allan, Joel or Jeremy. In the use of independent agents, what is that about your product that – is there something you can do on the product to have the agents use the Guidewire program as part of jewelers or…

Marcus Ryu

Alan comment on that actually.

Allan Lubitz

Well, you make sure to send your question. You mean, in what way the agent used in Guidewire, is that what you are asking about?

Brendan Barnicle – Pacific Crest Securities

Yeah and what is it about – is there anything about Guidewire user interface that perhaps draws the agent to use your product and to sell your product more so than someone else. They are all independent agents, they could sell anyone’s?

Allan Lubitz

Let me say three things about that. First of all, many, many agents use agency management system. And this is really the system that they used to run the operation of their business so that we don’t touch. Another thing they might use something called comparative radar, so there might an independent agent will go out and they will quote a business and they will get multiple quotes from multiple carriers. Once they made the decision to go with A carrier meaning let’s say us, then they have to interact with our system. So that information they have already entered in has to seamlessly flow into our system and then they have to complete the rest of policy using our platform.

So first of all, you want a system that’s easy to integrate with because you want this multiple those comparative radars to integrate very seamlessly. You want their agency management system to be able to integrate as seamlessly as possible because they keep more information than we would keep them make the persons’ birthday or other factors that are pertinent into us giving them insurance.

And then you want the interface to our system or to Guidewire to be simple easy to use straight forward and ideally I think Jeremy you made a comment about not a lot of eye candy that I have told these guys. It does have to have some amount of eye candy. It has to be appealing in enticing simple to use and you saw in my comments that some agents even come without training that they were able to use. So that’s easy to use, intuitive large call, so does that answer what you are looking after.

Unidentified Analyst

Just maybe follow, so when you talk about those agency management systems, and I want to tied into markets because one of the questions we get from investors is how do you compare, where do you compete or complement (inaudible) or where do you compare and compete against Verisk. So there is some items in their presentation in terms of like ISO from Verisk and with the agency management system Ebex comes to mind. Can you talk about from customer point of view, where do you see the three fitting that market and if you could tell us from the vendor perspective?

So to say we don’t compete with either of those parties. First, Verisk is one of our very few partners and we license their intellectual property with respect to the definition of different policies that’s very pertinent here in the U.S. So we are very much in a partnership mode. They have some enormous advantages just by virtue of way they evolved the consortium from insurance companies and that’s not – and so that’s not a business at any other outside party would be – would have an easy time penetrating and that’s their core business.

With respect to Ebex, we also do not compete with Ebex in anyway like they are not – we are quite complementary. But we also don’t integrate to what they do either. The main agency management system providers sell almost duopoly of two companies called applied – applied AMS who have I think between them 80% market share. So we (inaudible) even integrated with them but they serve a very different constituency which is the small agent as opposed to the primary carrier who tends to be much smaller – a much larger entity than the agent. But all of you have further thoughts on it.

Jeremy Henrickson

We actually left, I mean, Ebex purchased the actual policy system that we left called the (inaudible) Solutions Group. As Marcus mentioned there are two primary I would say offerings from an agency management system. We have two types of agents. We have the ones that are exceptionally efficient, highly tech-savvy. They tend to want to have deep penetration. And I would say it goes into three levels. It goes into simple entry, I want the ability as an agency owner, to buy own an agency force, I want the ability to look at my actual revenues, I want to know what the commissions are, I want to know how I am running my business. That’s the – one of the two levels.

You go from service, excuse, from enquiry to service to integration. Those are the three levels that a particular agency owner wants from an insurance carrier. Obviously the last one is what we called in the business SEMCI, Single Entry, Multi-Carrier Interface. I had the ability as an agency owner to say okay, I want to shop for my customer these 25 insurance carriers.

I want the Holy Grail which is the ability to input that one time and shop 25 insurance carriers and get that back automatically so I can update my agency management system and I can reflect to my consumer or the customer where we are.

That’s a high level in terms of – that’s the Holy Grail from an agency perspective what you call SEMCI. That’s really the three levels. Entry, service, integration, integration being SEMCI the ability to integrate the carriers and receive quote and automatically update and then pick and choose who you wanted to do business with from an agency perspective.

Marcus Ryu

So we cover what you are seeking really?

Unidentified Analyst

Yeah.

Marcus Ryu

Great.

Unidentified Analyst

Just a quick follow-up on nationwide, I think you guys had mentioned there was one quarter billed in deferred, will that be an accurate statement?

Karen Blasing

That’s right.

Unidentified Analyst

Okay. And then so just so we get a sense in terms of if we look at the license deferred, what do you expect that to be on a percentage basis in terms of – and I know that might not be easily projectable but just so we get a sense of how much is contracted like goes straight in term version how much has provisions that cause it maybe get put in deferred things?

Karen Blasing

I will give you an example. Even from our existing customer, our existing customer contracts often they will call for an invoice to be raised but billed over into the next quarter. So one of our larger customers actually every March we bill them multi-millions of dollars but the invoices is in due until April. So that every year comes into deferred revenue consistently.

There are other new customers that come in and really it’s a matter of contract negotiation at that time. Will it be a large customer that will come in that we billed in advance. Will it be a large customer that will actually commercial terms end up being quarterly billing instead of annual billing? It’s just varies a lot.

And that’s one of the reasons that we really try to emphasize deferred license now that we have a single unified revenue model is just a short time depository. So most of the time when you see deferred revenue billed in any one period, you can pretty much expect that it will be recognized as revenue within the next quarter or two because of credit terms or possibly a product feature deliverable that’s out there. We follow that into the guidance.

Marcus Ryu

Your question goes up to them was also – of the deferred – of the revenue in deferred, license revenue in deferred, what portion of it is just timing and what portion of it is a product.

Unidentified Analyst

(Inaudible). But I just want to clarify on an ongoing basis, is it predictable to how much going to deferred versus just full straight in the device term license.

Karen Blasing

We March of that carefully and that’s one of the things that we review in providing guidance into the near term, into the first quarter we are giving guidance. Obviously, when we are giving guidance on a longer term basis, we are looking at what we expect to be the revenue that can be recognized from our existing contracts whether they will be recognized in that individual quarter where the invoice due date would fall into the next one. So we billed all that into it and you kind of handicap the new sales transactions that are expected to come in.

Unidentified Analyst

I won’t to ask about the deferred. I have a couple of questions about your systems integrator partners. And the first one is there was reference the fact that you might go into a deal with two to three systems integrator partners, can you talk about how that works, how you work with your partners, how the systems integrators work on that and then how the customer looks back makes a selection?

Marcus Ryu

You know, it’s very situation depended. As a general rule early in the process unless one of our partners is actually sourced the opportunity to us. We keep a pretty check to view helping each other partners differentiate based on their strengths. And then normally after the software selection the customer go through a system integrator selection where if they choose Guidewire or choose one of those three partners. And but as we mature and we get more deals that are sourced we tend to advocate our line earlier in the process. So we think that’s a trend over time.

Unidentified Analyst

And does the customer make the selection mostly based upon the software, based upon the relationship of ASI, how are you finding and made vary by customer size and geography?

Allan Lubitz

I think in general it’s based on credentials with where they have credentials with similar profile business as the customer that’s making the selection and as always in the selling environment. It does often have impact on the existing relationship they may have with a particular system integrator or partner relationship.

Marcus Ryu

The existing relationship is important but what you see with us and I am not sure if this is true of other core system providers in other verticals is an inversion of the normal relationship between the systems integrator and us as a software company where the choice of software solution will precede and will drive the selection of the systems integrator as opposed to the opposite. It’s overwhelmingly the trend.

There are occasional – there are instances where a systems integrator will be asked present and objective point of view that they will participate in the selection process where they won’t actually be the implementer but that’s a minority of cases. And even in those cases they will make the decision about the software solution and then on the basis of that will then make a systems integrator choice if the systems integrator involves at all.

Unidentified Analyst

And then another question my last one on systems integrators. If – you put up a slide and there were couple of very successful integrator partners with lots and lots of trains people obviously Ernst & Young and I know they are still here is successful. There were number of other large non-Accenture partners that didn’t have very many people trained. What’s your objective in terms of getting some of those leading players up to the same levels as your leading partners both domestically and then internationally other markets?

Marcus Ryu

Additional comments. So historically we are the most track record in the market, in the most history with PriceWaterhouseCoopers, Ernst & Young, Capgemini. And I think they have all taken a more entrepreneurial orientation with respect to Guidewire over several years ago and that’s given them a bit of lead in the market.

I think we are naïve in the very early days and thinking will this be there with the right solution and a strong value proposition and all of the other larger incumbent systems integrator ex cetera among them will that just sort of line behind it. That didn’t happen that way. What unfold is that the systems integrators are responsive to what they see from their customers, their clients as well as their target clients and on the basis of that then a line behind solution.

And what we are seeing now is dramatically more alignment around us because you got a sense from Dave about just the magnitude of the opportunities and that’s those kinds of numbers are very attractive to basically all of these players. And because of the selection dynamic where the solution is preceding the ASI selection will getting enormous amount of wild interest. But players like Dave and Capgemini have a significant lead based on their credentials, their training and so forth and that’s as it should be because they took a greater entrepreneurial risk with us say four, five years ago. Anything you want to add to that?

Unidentified Analyst

(Inaudible).

Marcus Ryu

We get a lot of both in life and health and they are not quite identical. Life is significantly more adjacent or closer to the TNC than health. They both have enormous challenges of their own. And then there is also some functional complexity in that life billing for example is a lot simpler than life policy or a lot more profit than the life policy. Health insurance is enormously complicated because there are three parties not just the insured and the carrier but then also the healthcare provider which just makes enormously intricate and it also varies much more by country.

So in terms of just raw functionality I think we have estimated that we probably have a 70%, 80% functional coverage over what we have to do. But an intimidating is they need to go to market with a completely different set of buyers, completely different sales force, new marketing message were unknown to those industries. And so given their worse low single-digit penetration, penetrated into this opportunity and focuses on friend those far we deferred it beyond the planning horizon.

Unidentified Analyst

Coming back to the systems integrator for a second, systems integration population, the growth has been large and it’s great to see. Can you help us with the numbers in context, so specifically I think someone mentioned at the systems integration population is doubled? Was that over the last year or two year?

Marcus Ryu

It’s been about the last 12 to 18 months.

Unidentified Analyst

12 to 18 months. And then my question would be do you feel you have 25%, 50%, 75% where you need to be ultimately like how much bigger does it have to get to you before you feel we are good, we are at steady stay, we got up with the market, we don’t need to be larger, currently you have any (inaudible)?

Marcus Ryu

Well, it depends on what trajectory you project for adoption, right. And so if you get bullish enough about the rate of which these decisions will be made then we would need a dramatically larger.

Unidentified Analyst

And is that double, triple?

Marcus Ryu

I think five times or more. I mean, a single – just to give you some red box size numbers, a large core system replacement which could be claims or claims implementation for a multi-billion dollar enterprise full replacement will engage a 100 to 150 people for 18 months. At policy projects it could be twice that in scale but you can’t really run a 300% project so the project will be cut up into components. But in terms of about the aggregate amount of work it could actually be that. And that’s just one – that’s an example from our customer, from some of our customers and not even Tier 1 customers who wanted a couple of billion in premium.

So it’s – there will be pressure on even the SICO systems to scale to the demand if it were to evolve very quickly I mean something we just thought to.

Unidentified Analyst

And then last one is 100% over the last 12 to 18 months, where do you think it will be – what rate you expected to grow over the next 12 months?

Marcus Ryu

I would say it’s in about – it seems to be growing at about the same pace right now or accelerating from what it’s been over the last period. A lot of – I think, I wish Dave here to speak from – in the voice of a natural SI partner but having worked with them a number of years they try to take a long term horizon but before they can absorb – their economics don’t allow them to bulk up an enormous workforce and cost base in advance of demand. They can’t – they just can’t tolerate that kind of event. So they are staffing up – scaling up in response to identify demand within the next let’s say next four quarters, right.

They just can’t – their economics don’t support them doing much more than that. So the fact that we had this much investments over the last 18 months I think is reflective of what they saw happening and it’s kind of played out as expect or even little faster than expected. So and you got a sense from Dave how he sees the future playing out.

Anyone else? Okay, great. Why don’t we drink here and then we will be in the other tower for those who wish to join us for our brief cocktail.

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