Greetings. Welcome to the Guidewire Fourth Quarter and Fiscal 2022 Financial Results Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Alex Hughes. You may begin. Thank you, operator. Good afternoon and welcome to Guidewire Software's earnings conference call for the fourth quarter of fiscal year 2022, which ended on July 31st. I'm Alex Hughes, Vice President of Investor Relations, and with me today is Mike Rosenbaum, Chief Executive Officer, and Jeff Cooper, Chief Financial Officer. A complete disclosure of our results can be found in our press release issued today, as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. Today's call is being recorded, and a replay will be available following the conclusion of the call. Statements made on this call include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national, and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties, and assumptions and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and the risk factors and documents we file with the SEC, including our most recent annual report on Form 10-K to be filed with the SEC for information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. We will also refer to certain non-GAAP financial measures to provide additional information to investors. All commentary on margins, profitability, and expenses are on a non-GAAP basis unless stated otherwise. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted in a supplement on our IR website. With that, I'll now turn the call over to Mike. Thank you, Alex. Good afternoon, everyone, and thanks very much for joining us today. I'm happy to report a great finish to our fiscal year as we continue to steadily execute on our plan to lead the P&C industry to a modern cloud platform. Our progress in the fourth quarter is underscored by 16 cloud deals for our core software, bringing the total for the fiscal year to 40 and a constant currency ARR growth rate of 17%, which was higher than our expectations going into this fiscal year. I am very happy with the continued progress we are making on our cloud platform and the customer programs it supports. Overall, I'm very pleased with the results in the quarter and the fiscal year, but do want to call out that overall sales activity fell short of our expectations. Although we drove healthy deal volume in the quarter, we closed transactions with smaller upfront commitments, which we expect to grow as customers expand. We also closed fewer large cloud migrations than we expected heading into the fiscal year. All our existing on-prem customers are evaluating their plans with respect to cloud, but we have not yet created an acceleration of these migrations. These two factors had an impact on fully ramped ARR, which grew at 14% on a constant currency basis and will have an impact on some of our forward-looking metrics, which Jeff will cover in a bit. While there are certainly days when we would like this industry transition to move faster, I am proud of the product innovation we have delivered, thrilled with how we are competing for new deals, and confident that our current trajectory leads to our long-term goal of modernizing this critical, although risk-averse industry we serve. Before I jump into the Q4 details, I want to take a step back and reflect on how far we've come. We started our cloud transformation in earnest two and a half years ago with the launch of Aspen, our first cloud platform release. Our goal was to establish a more efficient and agile platform that would form the foundation for all future Guidewire releases. We architected Guidewire Cloud Platform to support a more seamless release cadence so customers can update each release and take advantage of new innovation without an expensive and lengthy upgrade. We believe this approach to updating the product and platform is essential to supporting the industry's effort to modernize core platforms, engage with customers more effectively, innovate with new products, and grow efficiently. In October, we will announce Flaine, our sixth release in less than three years. Flaine continues to enhance the operational maturity and scale required to support the world's largest insurers. It includes advancements to further simplify and speed development of integrations to and from Guidewire. It also dramatically expands on the packaged product solution and country-specific content available under the Guidewire GO program, including content that accelerates time to market in Japan, Australia, and the London market. Finally, this upcoming release marks the introduction of Guidewire's Jutro Digital Platform to enable rapid delivery of rich digital experiences that work seamlessly with our core applications. The next objective was to drive adoption of our Cloud Platform. This adoption would provide us the practical experience we needed to ensure we would continue to lead the P&C core market worldwide. We have been enormously successful on this front. We now have over 120 customers committed to cloud, including 79 for Guidewire Cloud Platform, of which 19 are now operating in production on GWCP. Cloud is now consistently above 90% of our sales activity, and subscription revenue has now surpassed license revenue, which is an important milestone for the business. Our transformation. The progress we have made to date gives me confidence that we're on the right path, and that we will successfully transition our enterprise to the cloud. We, of course, have a lot of work to do, but everyone at Guidewire is excited for the challenge and opportunity ahead. With that, let me turn to some of the highlights and takeaways from the fourth quarter. It was great to see continued progress driving deal volume through the quarter, while also further penetrating tier one and tier two insurers. Of the 16 cloud wins in Q4, nearly half were with tier one and tier two insurers. Similarly, for the full year, we had 40 cloud wins, and over half of these were with tier one and tier two insurers. Some notable wins in the quarter included a cloud expansion with one of the largest insurers in the world, who's extending InsuranceSuite Cloud to more lines of business. We also saw Kemper Corporation, one of the largest specialized insurers in the United States, elect to migrate InsuranceSuite to the cloud. A top ten international insurer adopted PolicyCenter in the cloud for the United States and InsuranceSuite in the cloud for the London market. This is a new customer win and represents a significant potential expansion opportunity for us. InsuranceSuite Cloud was also selected for two exciting greenfield projects serving large car manufacturers that plan to embed auto insurance at the point of sale. The first of these was for OnStar Insurance, which is affiliated with General Motors. The second deal is with a large partner and European car manufacturer to enable the upsell of insurance contracts throughout Europe. These deals are starting relatively small from an ARR perspective, but have meaningful upside as these initiatives grow. Finally, I was thrilled to see our team plant Guidewire Cloud flags in Japan and Brazil. SAISON Automobile and Fire Insurance has become our first cloud customer in Japan by selecting ClaimCenter Cloud to replace an in-house built legacy system. We now have the opportunity to demonstrate the success of cloud in this important insurance market and drive continued expansion and modernization in Japan. Turning to cloud deployment activity, we had seven more go lives on Guidewire Cloud in the fourth quarter. A Tier 2 U.S.-based specialty insurer serving niche property and casualty and surety markets deployed ClaimCenter on the Guidewire Cloud Platform. This project was delivered on time and at budget and has enabled them to update their implementations to be more aligned with our out-of-the-box configuration. They've also enhanced their end user and employee experiences and freed up valuable IT resources to support a new focus on innovation and business value. A large tier one went live with ClaimCenter on Guidewire Cloud Platform, and this was a successful greenfield implementation and is a great proof point for us as it demonstrates a tier one carrier's ability to leverage out-of-the-box features and functionality to support innovative business initiatives quickly. Finally, Church Mutual Insurance Company, a 125-year-old insurer operating in all 50 states, went live with ClaimCenter on Guidewire Cloud Platform. This project was delivered on time and at budget and has enabled more out-of-the-box configuration, reducing technical debt and leaner workflows by eliminating manual processes. This has enhanced end user and employee experience and allows their IT organization to focus on innovation and driving business value going forward. P&C core modernizations are often incredibly complex. Though we are generally thrilled with the progress we have made on our cloud programs, we do have a few of our early cloud projects that are more complicated and taking longer than we originally anticipated, and this does show up in our services margins. As I have said previously, we are committed to the success of every customer and intend to invest what is needed to ensure their success. While we are seeing higher expenses in some of these programs, I'm confident that we will see better efficiency and predictability going forward. There is, of course, a benefit in all this complexity in that it establishes tremendously valuable and durable relationships. The financial measure of this durability is reflected in an overall gross ARR attrition rate below 2% and core InsuranceSuite gross attrition of approximately 1%, excluding the impact of Russian customer attrition. This is a testament to the mission-critical nature of the solutions we provide. Turning to our ecosystem. SI partners continue to play a critical part in many of the cloud projects underway with nearly 60 Guidewire Cloud projects in Q4, including SIs. It was great to see continued expansion in this community through the fourth quarter. We finished with nearly 19,000 Guidewire consultants from the largest SIs in the world, an increase of 38% year-over-year. The number of cloud-certified consultants increased 122% year-over-year to over 5,100. We also added 13 new solution partners to the Guidewire Marketplace and now have over 160 solution partners on our platform. We are fortunate to serve a big, resilient industry that is steadily going through a significant digital transformation. With a singular focus on this industry for the last 20 years, we occupy a market-leading position marked not just by the usage and resilience of our core solution, but also by the cloud leadership we have now established. I believe we are poised to establish a once in a generation cloud-based technology platform that will serve as a source of innovation for customers while delivering durable and profitable growth for our stakeholders. I'm excited to share more about our platform in October when we host our Analyst Day on October 6th at our headquarters, and then at Guidewire Connections, which will take place this year from October 23rd to the 26th. I'll now turn the call over to Jeff. Thanks, Mike. Fourth quarter ARR ended at $683 million, up 17% year-over-year on a constant currency basis and ahead of our expectations. As a reminder, we measure ARR on a constant currency basis throughout the year and then update ARR for year-end FX rates. Making this update negatively impacted ARR by $19 million, resulting in ARR of $664 million. Reflecting on this outperformance, especially as compared to our expectations coming into the year, we saw three trends drive this result. First, continued robust demand for our cloud products, as reflected by the 40 cloud deals executed this year. Second, healthy sales performance for deals that converted into incremental ARR right away as opposed to large ramp deals that we saw in prior years. Third, our gross ARR attrition was better than our expectations. Total cloud ARR, which includes ARR for all of our cloud products and for customers that have contracted to move to the cloud, grew 50% year-over-year and comprised 53% of total ARR. Fully ramped ARR, which is defined as the fully ramped annual price outlined in the customer contract, grew 14% year-over-year on a constant currency basis. This growth rate was slower than overall ARR as we saw less ramp activity in fiscal 2022. As Mike noted, we saw less large cloud migration activity accompanied with large contractual commitments for future year fees at contract signing. Additionally, much of the large tier one migration activity is still out there to be sold. We did see healthy new customer wins and new programs at existing customers, and in many cases, we expect these deals to grow significantly, but this growth is not committed. Total revenue for the year was $813 million, ahead of our expectations due to stronger performance across all components of revenue. Cloud strength continues to be visible in subscription revenue, which was $259 million, up 54% year-over-year. Subscription revenue also benefited from much better deal linearity in fiscal 2022 when compared with the prior year, where over 50% of our bookings activity took place in Q4. Subscription and support revenue was $344 million, up 36% year-over-year. License revenue was $259 million, down 15% when compared to last year. License revenue declines were the result of upfront revenue recognition of multiyear term licenses sold in prior years that had no corresponding revenue in fiscal 2022, and term license customers migrating to the cloud. Services revenue is $210 million, up 12%. Services revenue has benefited from ongoing increases in the number of cloud implementation programs. Turning to profitability for the fiscal year, which we will discuss on a non-GAAP basis, gross profit was $398 million. Overall gross margin was 49% compared to 56% a year ago. Subscription and support gross margin was 44%, a modest uptick over last year, driven by margin improvement on our subscription line. Services gross margin was -2% compared to +5% a year ago. To meet the high demand for cloud and to drive early success, we have made investments alongside our early cloud customers, and we have invested in more subcontractors impacting services gross margins. Additionally, some of these projects have extended longer than originally anticipated. As Mike noted, our commitment to customer success has been a hallmark of Guidewire's success, and we intend to maintain that commitment as the industry shifts to the cloud. Operating income was -$45 million, better than our guidance range due to higher than expected total revenue, partially offset by lower services margin. Operating cash flow ended the year at -$38 million, below our expectations due to the timing of collections and higher subcontractor costs. We experienced stronger than normal collections in the first 10 business days of August, just after our fiscal year-end, where we collected almost $80 million. At the end of the quarter, we ended the quarter with $1.2 billion in cash equivalents, and investments. Now let me turn to our outlook. For fiscal 2023, we expect ARR of $745 million-$760 million, representing 13% constant currency growth at the midpoint. Total revenue for the year is expected to be between $885 million and $895 million. We expect that subscription revenue will be approximately $340 million, representing 31% growth. Subscription revenue is moderating off the 54% growth, resulting from two factors that make fiscal 2023 a difficult compare with fiscal 2022. First, we experienced less large ramp deal activity in Q4 fiscal 2022 when compared with fiscal 2021. Ramp deals are where customers commit to escalating annual subscription fees in the contract. Sorry, large multi-year ramps have a big impact on near-term subscription revenue, given that you recognize the total contract value ratably over the committed term. A number of the deals executed in Q4 have significant growth potential, but this growth was not committed in the ramp schedule in the contracts. Second, we experienced better linearity of sales in fiscal 2022 when compared with fiscal 2021. In fiscal 2021, we experienced over 50% of our bookings in Q4, which resulted in little revenue in fiscal 2021 and a big step-up from those deals in fiscal 2022. In fiscal 2022, we saw much better linearity, which positively impacted fiscal 2022 subscription revenue, but resulted in a step-up in fiscal 2023 that is less than what we experienced last year. Support revenue will decline by about $7 million year-over-year as a result of the continued migration of our install base to the cloud. Support revenue attaches to term licensed customers. For cloud customers, support activities are included in the subscription fee. License revenue is expected to continue to decline due to steady progress on cloud migrations. However, license revenue declines will not be as extreme as what we saw this past year, as many of the multi-year deals signed in fiscal 2020 and fiscal 2021 will start to renew annually again. Additionally, we did not execute many multi-year term license deals in fiscal 2022. Finally, as per our typical approach, we have not modeled in any positive impact of new term deals or renewals of longer duration than our standard terms. Services revenue is expected to be approximately $220 million. Before turning to our outlook on margins, I want to let you all know that we are adjusting how we allocate certain expenses to better align with our business practices. Our updated approach is more aligned with many of our peers. Starting in Q1, we will expense headcount-related costs for IT, payroll, and procurement in G&A, as opposed to our prior methodology of allocating these costs out to other expense lines. Historically, our IT personnel located in a specific country were allocated to the departments that had operations in that particular country. This made sense when IT was primarily co-located with the functions they supported, but it is no longer appropriate in a model where we are creating shared IT service functions. As our workforce has become more distributed, it was clear that we needed to adjust our approach. We expect this adjustment to have approximately two percentage points of upward impact to overall gross margins, and we will see a positive impact to all components of gross profit, with the exception of licensed growth gross profit, which never had much headcount associated with it, and as a result, no real allocation impact. Additionally, G&A, as a percent of revenue, will increase by approximately five percentage points in fiscal 2023. We will provide a reconciliation between the two approaches in our first quarter 10-Q. With that in mind, we expect total gross margins for the year to be approximately 50%. Improving subscription margins are offset by overall revenue mix shift away from high-margin license and support revenue. Subscription and support gross margins are expected to be approximately 46%. Finally, we expect services margins to be in the mid-single digits. This is expected to benefit approximately five percentage points from the previously mentioned allocation change to our income statement presentation. Additionally, we expect services margins to be higher in the second half of the year as we continue to rely on higher than normal subcontractors in Q1 and some of Q2. With respect to operating income, we expect an operating loss of between $30 million and $20 million for the fiscal year. We expect growth in operating expenses to be muted in fiscal 2023, and our outlook assumes approximately $4.5 million in long-term incentive compensation that will transition from RSUs to cash LTI, and approximately $2 million in restructuring costs that will hit in Q1. Cash flow from operations in fiscal 2023 is expected to be between $50 million and $80 million. Our CapEx expectations for the year are between $20 million and $25 million, including $14 million in capitalized software development costs. Before turning to our Q1 outlook, let me make a comment about our target model expectations. We will address this in more detail at our Analyst Day, but wanted to comment quickly here. First, we don't expect any changes to our long-term model expectations. With respect to the fiscal 2025 targets outlined in our last Analyst Day, I have a couple comments. First, we still expect to achieve $1 billion in ARR by fiscal 2025, although FX impacts we are currently experiencing have put this target under a bit more pressure than we were expecting at the start of last year. Second, we are moderating our near-term expectations to align to the buying patterns that Mike discussed. Specifically, smaller upfront commitments will cause near-term subscription revenue growth to be a bit slower than our expectations last year. This is because we ratably recognize total contract value over the committed period for subscription arrangements. As commitments decline, then we pull forward less subscription revenue into earlier years of the arrangement. Our overall expense assumptions have shifted a bit. As such, our gross margins and operating margin expectations are now a couple percentage points lower than our prior expectations, and subscription and support margins in fiscal 2025 are now expected to be in the low 60% range versus prior expectations in the mid- to upper 60% range. Finally, I want to reiterate that we are confident in our long-term margin targets and the future cash generation of our business. We have long durable customer relationships. We expect to drive scale benefits over time, and smaller upfront commitments do not negatively impact the longer term revenue potential as we expect these customers to grow as they are successful with their cloud programs. Our business is rapidly evolving. We always want to provide you with our best perspective in a timely fashion, and we'll certainly give more detail at our Analyst Day. Finally, let me address our outlook for Q1. We expect ARR to finish between $667 million and $670 million. We expect total revenue of between $190 million and $195 million. We expect subscription revenue of approximately $78 million and services revenue of approximately $55 million. Services margins are expected to continue to be under pressure in Q1 as we rely on higher than normal subcontractors, but this is not expected to persist throughout the year. Services margins in Q1 are expected to be - 8% to -10%. We expect an operating loss of between $45 million and $50 million in Q1. In summary, we are proud of what the team was able to accomplish in fiscal 2022. We feel very confident in our market position to help the insurance industry thrive. Operator, you may now open the call for questions. Thank you. At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Ken Wong from Oppenheimer. Please proceed with your question. Thank you, operator. Mike, I wanted to just kind of take your pulse on the commentary on the demand environment. You know, when thinking about the smaller upfront deals, the flatter ramps, fewer migration, I guess, what would you characterize as maybe macro specific versus maybe the insurance market, and then to the extent that, you know, Guidewire, you know, any execution dynamics that Guidewire has to sort through, how should we think about kind of what the puts and takes are in terms of that demand shift? Hey, Ken. Thanks a lot for the question. First thing is we're real happy with the deal count, the ARR activity. You know, in a lot of ways, this was a super quarter for us and continues the sort of what I would describe almost as the sort of inevitable march towards instantly establishing Guidewire Cloud in the industry. You know, as I tried to call out, we are seeing this sort of I don't know, buying behavior or propensity to request these sort of structures where they get started smaller. I think in a lot of ways this lines up to buying patterns in other cloud segments in enterprise software, which you know, might be a healthy thing. As long as we execute on the programs, you know, those deals will grow. ARR or that future ARR is there. It just has to be delivered over time as the programs evolve, you know, as the lines of business expand. I think we have a very solid track record to be able to say, you know, that we expect that future ARR and that future revenue to come in. You know, with respect to migrations, I think, you know, these are just really complicated, big decisions that these companies are making. We continue to make a lot of progress working with existing customers around what they'd like to see from us on our cloud platform and when it makes sense for them to for them to make that decision. I continue to say every quarter, and I firmly believe it will end up being true that this is a matter of when, not if. We're building a platform that's gonna support each and every one of those existing customers. So all that demand is out there for us to be able to execute on as we proceed. So, you know, I look at this as much more of an insurance dynamic than I think a macro dynamic. At least that's what I'm seeing. But we're just, you know. Hopefully, that color gives you a bit of perspective into how we saw the quarter and how we sort of expect demand to play out as we proceed into this fiscal. Got it. Got it. Then maybe a quick follow-up for you, Jeff. I realize some of this probably gets addressed at Analyst Day. As we think about kind of the margin trajectory, I mean, just based on outlook for next year, it does feel like, you know, we're at a, you know, this year was the trough. Just wanted to make sure we kinda confirmed that and if there's kind of anything that you're anticipating that maybe, you know, could shift that possibility. Yeah. No. We'll certainly go into more detail at Analyst Day. I think the one thing we are calling out for you all today is some of the deal size impact that's associated with these ramps. Our model previously assumed that we would see similar patterns this year that we saw in prior years. That does have the effect in pulling forward some subscription revenue, right? 'Cause as a deal ramps over a five-year period, you then total contract value out that and re-recognize it ratably. That dynamic can have an impact on our model. We're flagging that. That's embedded in our guidance. That's all. Those shifts are embedded in our guidance. Nothing else beyond that phenomenon that we're seeing, and we'll help people understand that a little better at Analyst Day as we go into some of the details. Okay, great. Thanks a lot. Solid quarter, guys. Okay, thanks. Our next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question. Yeah, thanks for taking the questions, guys. Maybe looking at performance across different international areas of the business. You highlighted a couple of key wins, both in Europe and Asia, and I think you highlighted Brazil as well. So curious if you're starting to see those markets or those regions sort of pick back up after some slower times previously. Then, you know, any commentary around the North American market as well would be helpful. Thanks a lot for the question, Matt. I'm glad you pointed that out. You know, obviously, Guidewire has had a lot of success internationally. Thinking about establishing a cloud platform and transitioning that success to this new cloud platform, you know, you wanna be able to do that successfully internationally. That was absolutely part of the strategy of the company. This quarter, especially this deal in Japan, gives me and I think the whole company just a lot of confidence that we are headed in the absolute right direction. The approach we took to the platform and the capability and resiliency and security and the infrastructure location of these data centers on and on and on, it's really complicated. Getting this first win in Japan, I think, you know, and Brazil allows us to sort of clearly establish the idea that this is going to be an international cloud platform success story. We're very happy with those events. You know, in terms of whether or not it points to a change in the pace of the business, I think things play out slowly, and we'll see how things go. It certainly helps. Doesn't hurt, certainly helps. I think as we've said many times, you know, this is the success of our sales have a lot to do with establishing success stories and other customers following buying patterns and implementation patterns that we can successfully establish. From that perspective, you know, we're very happy with it. Just in terms of you asked also about the climate situation in the U.S. You know, this deal that we did with OnStar, we're really excited about it. You know, it gives us an ability to align to what we think might be a different channel for buying auto insurance and excited to partner with that organization as they execute on their business strategy. Then more broadly in the U.S., we just see the pattern sort of steadily, you know, continuing to execute. You know, we're gonna see a fair split between net new and migration activity. We expect to continue to see greater than 90% of bookings activity being cloud. You know, kinda just. I hate to say business as usual 'cause it never is, but just expect that we'll continue to make progress and execute in the U.S. as we have for the past couple of years. Hopefully that helps. Yeah, very helpful. Not to nitpick too much on sort of the deal sizes or Jeff, to your point around, you know, maybe the upfront commitments not being as encompassing as some of your past ones. Should we think about that as, you know, maybe just PolicyCenter included today or just a single line of business for migrating to the cloud is included and, you know, assuming that you execute on that in the past, you've seen the expansion into other areas or is there some sort of greater limitation around what they're contracting today and you really need to go out and sort of re-win the other areas? Yeah, no. I think there's a variety of things that are going on. We are certainly seeing people take maybe a line of business or take a module rather than going for, especially in a migration context, you know, the full suite. So we are seeing a bit of that. The deal that Mike just referenced, OnStar, which is a super interesting one. They have, you know, big plans. In prior years, we may have seen some of those plans negotiated up front and kind of embedded into the contract, but this one, we're gonna see how that one plays out, and we feel very confident that they will be successful and are excited to be attached to that success. You know, I've often said that you can generally capture more area under the curve if you are willing to invest in a success-based pricing model, and I think that will play out for us over time. The way the revenue gets recognized, it does have a meaningful impact in our model as customers were making slightly bigger commitments in prior years. It's nothing that gives me pause about any commentary on the pace as this industry starts to shift to the cloud. The commitments we're seeing at the initial contract signings were a little bit lower than what we expected, and we've adjusted our models to account for that to build a bit more conservatism into them. Okay, great. Thank you. Thanks, Matt. Our next question comes from the line of Parker Lane with Stifel. Please proceed with your question. Yeah. Hi, guys. Thanks for taking the question. You've mentioned in the past a lot of investments alongside the cloud customers that are, you know, sort of impacting margins here in the near term. When I think about subcontracting and some of those fixed fee services arrangements, when should we expect that to fall out of the model? I know, Jeff, you mentioned that it shouldn't be a full year phenomenon, but is it maybe a quarter more of an impact or is that a multi-quarter, situation that we'll see play out next year? Thanks. Yeah. I think it's you're gonna see it certainly in Q1. You're gonna continue to see it a bit in Q2. As we look to the back half of the year, you know, we have very well-defined concrete plans to address it. We do feel confident that as we exit the year, we'll be at a much more normalized services margin. We are no longer entertaining fixed fee arrangements. That was something that, you know, was important for us to tackle with some of these early cloud customers but are moving away from that. We feel much more confident with what we've learned over the last, you know, 24 - 18 months in our estimation models and have identified some of the, you know, issues and problem areas that arise in these programs. We feel like we're just much better able to estimate total program costs and work with our customers in that fashion. Got it. In the context of hiring, I know you've talked about being very pleased with your employee attrition rate. On the new hiring front, is that something you're seeing become a little bit easier as you try to backfill some of these roles to support cloud customers, or is the environment still as tough as it has been in recent years? The environment is tough, but you know, I'd say as we look ahead to our headcount plans for next year, we are slowing down our hiring quite significantly. There, we don't expect to be adding nearly as much as what you've seen in prior years. That's the environment for the technical talent that we're looking for remains difficult, but we're not in market as much as we used to be. Understood. Thanks again, guys. Thank you. Our next question comes from the line of Rishi Jaluria with RBC Capital Markets. Please proceed with your question. Hey, thanks. This is [audio distortion] on for Rishi. Appreciate you taking the questions. Wanted to start with one question on the idea of lower upfront commitments or softening demand. Is this a dynamic that you're seeing play out more on one end of the market versus the other? Yeah, any color there would be interesting. Yeah, it's a good question. You're making me think about what we're seeing. You know, I think certainly the higher you go in the segments, the more lines of business and the more DWP at play, so kind of aligns to the potential for more of this sort of deal dynamic relative to all the way down to the tier five sort of segment where the reality is their organizations aren't really big enough to support a sort of mixed mode, and they really need to be all in on a particular core you know, solution strategy. You know, so yeah, there is differentiation across tiers, you know, but I would say that's probably not the main takeaway. I think the main takeaway aligns to what Jeff just said, you know, and just the idea that, you know, cloud services do support this model and our ability to deliver successfully on the programs aligns to our ability to, as I think Jeff just said, extract more value under the curve over the long run. It's a bit more of a risk-sharing approach, you know, that honestly I'm excited to take. It does have an impact on the way that we model the business, and it is slightly different than how we've operated previously, but it's not necessarily a bad thing in the long run for Guidewire or for our customers, you know. Maybe if you zoom out, like I said, it sort of aligns to how people think about cloud in general. You know, it might be pretty good. You know, basically that's how I would think about it is, you know, the more complex the environments, the more complex the IT operating environment is, the more potential there is for a structure like this to make sense. Got it. That makes a ton of sense. I appreciate the color there. One on HazardHub. There's a blog post about a month or two ago, with the leader there kinda talking about aspirations of HazardHub's ARR doubling, by the end of fiscal 2022, and aspirations for that to happen again next year. I don't know if you want to comment on those targets or the growth that you're seeing, but maybe just talk about like, sort of what's driving momentum you're seeing there and kinda how you feel about the asset and the more data or analytics space in insurance going forward. Yeah, sure. Great question. Very happy you brought it up. You know, couldn't be happier with the acquisition. You know, it's a great group of people. It's a great product. Fit right into Guidewire, connected it right into our sales and distribution organization. There's been a lot of demand for the product, you know, and that's up and down the sort of scale, you know, different size companies, different size use cases, you know, and really lines up to the thesis behind the acquisition in the first place, which is that we take this great data and analytics asset and with a real modern API approach, apply it to all sorts of different use cases within an insurance company and an insurance business process, and that is going very well. I don't wanna get into the specifics about, you know, the targets and doubling, but, you know, we're doing real well with that acquisition and feel great about the concept in general, you know, just that we can take a modern approach to data and analytics, operationalize it alongside of the policy and claims operational business processes that Guidewire runs, you know. In addition, just plug that company into all the insurance companies, you know, right now in the United States, but maybe someday into the whole world. I think there was a touchier question that relates to just, you know, why is this important, you know, to an insurance company. You know, rating a risk has a lot to do with where that risk is, you know. You know, what is it? I think it's 120 degrees we were just talking about in California, which is a pretty unique circumstance. You know, the climate in the world is changing, and there's changes in weather patterns and there's changes in risk profiles associated with these locations. This is a dynamic situation that insurance companies are dealing with when they think about rating a property and, you know, assessing the risks associated with underwriting that property. If we can make that easier for them, and we can make that more accurate for them, and we can apply modern analytics and data science to the sort of idea that each and every time they touch a risk and they're getting that price right, we can really help them and we can really help the market in general, and aligns really well to our mission. We're very, very excited about HazardHub and its, you know, success so far here at Guidewire. I appreciate the question. All right. Thank you so much. Thank you. Our next question comes from the line of Peter Heckmann with D.A. Davidson. Please proceed with your question. Good afternoon. Thanks for taking the question. One thing I wanted to clarify, I didn't hear you say it, may have missed it, but in terms of your first quarter guidance, what are you embedding there in terms of your FX assumptions? About 300 basis points of headwind? Yeah. I mean, we've kind of adjusted our forecast for current FX rates. I'm not sure about a basis points perspective, but yeah, we are factoring in current FX rates. Okay. For the year, just basically looking at spot rates currently, if we get some improvement from that, then we could potentially get some upside. On the ARR side, you know, now we're just looking at like your first quarter ARR guidance that is now based on the constant currency as of- Exactly. Yeah. We've reset ARR for the fiscal year moving ahead, and we will kind of hold that constant as we move through the year. That's right. Okay. Then just a question on the M&A outlook. You know, company continues to have a significant war chest, and it certainly seems like there's a lot of interesting smaller companies out there and maybe some valuations have come in a bit. Would you expect to be relatively more active on M&A over the next two or three years compared to the last two or three? Yeah, I think it's a fair question. Certainly we watch closely multiples, valuations and expected transaction costs. That is all headed towards, you know, that pushes us towards the possibility that we'll be more active. I think that's appropriate. You know, I think the other side of that equation is we're feeling you know, more and more comfortable, you know, with the strategic position that we have, you know, earned, I guess, with respect to the cloud platform and the confidence we have executing there. I think it's fair to say that it's reasonable to think that we will be more interested in these small companies and M&A activity, you know, just given that, you know, valuations are more in line and possible, you know, given where we are with the overall state of technology multiples and value and valuations. Makes sense. I appreciate it. Thank you. As a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the Q&A queue. Our next question comes from the line of Dylan Becker with William Blair. Please proceed with your question. Hey, guys, appreciate you taking the question. Mike, maybe I wanted to double-click on a couple of questions prior. I wanted to get your take on the idea of continuous underwriting and maybe what the value and visibility this can deliver for the industry. Maybe as an enabler of that, how you think about the evolution of insurance business models and that emphasis on data to serve as that further incentive on some of these core modernization projects. Phenomenal question. You know, in general, I remember back to when I first joined Guidewire, and I was talking to one of the insurance executives responsible for Guidewire modernization, right? We're not talking about cloud, we're just talking about mainframe to modern system. What they explained to me very nicely and politely was that their entire operation operated on a 24-hour batch-based cycle. Agents and brokers would talk to customers about quotes and offer estimates to customers about the potentially underwriting their risk, but you had to wait 24 hours for the mainframe batch system to kick in in order to provide an actual quote back to that customer. Then if there was any change to that quote, you had to wait another 24-hour cycle in order to get this to actually transact. What they were explaining to me is that establishing Guidewire as the core system was going to enable that process to execute continuously. Want a quote? Here's a quote. Wanna change something? Here's a new quote. And that could enable, you know, when you think about it that way, makes it super easy for you to understand what people are talking about when they say that we're gonna execute a digital transformation in the insurance industry. It's just the seamless type of experience and interaction that we expect to have from every company that we interact with, and we were gonna make that possible. If you take that a step further, you know, which is what I think that you're getting at sort of behind the, your next question is like, well, okay, if you're looking at a risk and you're making a decision about underwriting that risk, how frequently are we checking to see that the underlying conditions associated with that risk are still valid? And what's the term of the agreement that we've established for that risk? You know, is it a month? Is it six months? Is it a year? How frequently are we resetting that price? You know, with when you take it to the extreme, there's the potential to be looking at these risks continuously, pricing these risks continuously, you know. You know, we all see that to some extent, you know, maybe it's pretty, you know, it's pretty early in its evolution, but we see this to some extent in the way that we drive cars. The feedback that we're getting about how we're driving the car and how the risks we're taking while we're driving our car impacts the price we're paying for the insurance that we get for driving that car. You can really extend this out to the whole, you know, all these different lines of business in the insurance industry. The other thing that I think is really interesting about your question is that it doesn't just, it isn't just the idea that it impacts this one risk and this one transaction, but these companies have to be looking at their entire portfolio. They have to be using, and I'll kind of touch back to one of the earlier questions about HazardHub. They have to be looking at all the property risks that they have, and they have to be assessing have things changed with respect to the risks that they've already underwritten, and should that have an influence on the way that they wanna price the next risk that comes into the door, you know, or comes into the funnel, the sales funnel, so to speak. I just think all this is, you know, it's pretty exciting that we can establish a better platform. We can make the data and the analytics more easily available. We can create more agility in the way that these systems are deployed, and you can get to a place where insurance companies are just operating a lot more fluidly and a lot more efficiently. I think that that's really what's underlying, you know, the sort of potential behind this sort of industry transformation. Hopefully, that lines up to what you were talking about. It's an exciting way to think about what we can do for our customers and for the industry. Yeah, no, I really appreciate the detail and super exciting overall opportunity set there. Super interesting. Maybe a more boring question for Jeff. As we think about the services kinda component and mix in the business too, maybe moving away from some of those fixed fee arrangements dilutes this to a certain extent. But how should we think about that outside of, again, some of the third-party outsourcing to SIs, but the services revenue line item is some of that leading indicator of some of the overall business momentum as well, right? Having to work towards that implementation, enable the provisioning and then the actual go live for some of these solutions in the cloud, how does that, how should we think about that as a potential leading indicator of the subscription momentum as well? Yeah. I think you gotta be a little bit careful there. We did see healthy growth on our services revenue this year. We are actively pushing more and more work to our partners and intend to create a very large opportunity for our partners as we affect this transition to the cloud. It's the only way we can attack this problem scalably. Looking at our services line and the growth of our services line, I don't think is necessarily an early indicator of overall cloud demand as I expect our partners just to continue to take more and more of that work, which is a positive thing for both of us. Okay. Fair enough. Thanks, guys. We have reached the end of the question-and-answer session. I'll now turn the call back over to Mike Rosenbaum for closing remarks. Hey, thanks very much. I just wanna thank everybody for participating on the call today, and we look forward to seeing hopefully all of you at our Analyst Day on October 6th. Thanks very much, everybody. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.