Karen Blasing - Chief Financial Officer, Principal Accounting Officer and Treasurer Marcus S. Ryu - Co-Founder, Chief Executive Officer, President and Director.

Nandan Amladi - Deutsche Bank AG, Research Division Brendan Barnicle - Pacific Crest Securities, Inc., Research Division Sterling P. Auty - JP Morgan Chase & Co, Research Division Tom M. Roderick - Stifel, Nicolaus & Company, Incorporated, Research Division Walter H.

Pritchard - Citigroup Inc, Research Division Brent Thill - UBS Investment Bank, Research Division.

Good day, and welcome to the Guidewire Second Quarter Fiscal 2014 Financial Results Conference Call. Today's conference is being recorded. And at this time, I would like to turn the call over to Karen Blasing, Chief Financial Officer. Karen, please go ahead..

Good afternoon, and welcome to Guidewire Software's earnings conference call for the second quarter of fiscal 2014, which ended on January 31. This is Karen Blasing, Chief Financial Officer of Guidewire; and with me on the call is Marcus Ryu, Guidewire's Chief Executive 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. To access the press release and the financial details, please see the Investor Relations section of our website at www.guidewire.com. As a reminder, today's call is being recorded.

And a replay will be available following the conclusion of the call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date.

We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These risks are summarized in the press release that we're issuing today.

For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our annual report on Form 10-K for the period ended July 31, 2013, and our quarterly report on Form 10-Q for the period ended October 31, 2013.

Also, during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation schedule showing GAAP versus non-GAAP results has been provided in our press release issued after the close of market today.

Additionally, we are providing detailed reconciliation data, as well as recurring revenue calculations, in a supplement posted on our IR website at ir.guidewire.com.

Finally, at times in our prepared comments or responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update in the future.

With that, let me turn the call over to Marcus for his prepared remarks, and then I will provide details regarding our financial results and our outlook..

to build software products that transform the global P&C industry, while ensuring that every customer succeeds in the journey. The large majority of our target market still relies on legacy systems. So our ambition is to win a disproportionate share of the selections as insurers seek to transform their operations.

We still confront substantial competitive challenges. But we believe that we are widening our differentiation, through market momentum, a broadening solution footprint and our unique track record of customer success. We also believe that we are still in the very early days of transforming the $2 trillion P&C industry.

And we're excited about the opportunities ahead. I'll now turn the call over to Karen to discuss our financial results for the quarter, and elaborate on our outlook.

Karen?.

Thank you, Marcus. We are pleased to report that our results for the second quarter exceeded our revenue and earnings expectations. As Marcus stated, our strong second quarter was a result of signing several new customers who licensed single products, or all of InsuranceSuite. These wins span the U.S. and the international theaters.

With this momentum, we are increasing the mid-point of our revenue guidance for the year by $2 million, $1 million in license revenue and $1 million in service revenue. Total revenue was $83.5 million for the second quarter of fiscal 2014, a 16% increase from 1 year ago.

Within revenue, license revenue was $35.2 million, a 15% increase from the second quarter of fiscal 2013. Term license revenue increased 15% year-over-year to $34 million, while perpetual license revenue remained quite small at $1.2 million, consistent with Q2 FY '13.

Maintenance revenue, which is recognized ratably through the year, was $9.9 million for the second quarter, up 7% from a year ago, reflecting overall license growth trends. Service revenue was $38.4 million, up 19% from 1 year ago and benefited from work completed on several large implementations.

In addition to sales momentum, license revenue also benefited from one deal, which was closed early in the year than expected. We also saw a couple of existing customers pay us ahead of their payment due dates, freeing an additional $1 million into the second quarter.

As a reminder, revenue in the second quarter of 2013 included approximately $4.5 million in early payments. Excluding the $1 million in early payments in the second quarter of 2014 and the $4.5 million in early payments 1 year ago, license revenue increased 30% year-over-year. Geographically, the U.S.

represented 49% of revenue in the second quarter, with 51% of revenue coming from outside the U.S. Turning to expenses. We will discuss our profitability measures on both a GAAP and non-GAAP basis.

And we have provided a reconciliation of these in our earnings press release issued today, which is also on our website, with the primary difference being stock-based compensation expenses. Non-GAAP gross profit in the second quarter of $50.9 million represents a gross margin of 61%, a slight decrease from 61.8% a year ago.

Non-GAAP license gross revenue -- gross margin was 96.6%, compared to 99.6% a year ago, due to an increase in third-party royalties and the costs of Guidewire Live, which are considered a cost of license revenue. Non-GAAP gross margin for services was 22.7%, compared to 19.2% in the prior year.

We saw higher-than-expected services revenue from several large contracts and lower seasonal cost. We expect our services revenue and cost to normalize over the remainder of the year, with service gross margins decreasing from the second quarter levels. Turning to operating expenses.

Total non-GAAP operating expenses were $34 million in the second quarter, an increase of 17% compared to 1 year ago, primarily from investments in research and development and sales.

Despite these continued investments and our growth, operating expenses, in total, were lower than assumed in our guidance, due primarily to slower-than-expected hiring over the holiday period, and lower variable spending across several departments. With revenue, there was above and expenses that were lower than anticipated.

Our profitability was ahead of expectations. This resulted in a non-GAAP operating income of $17 million and non-GAAP net income of $0.16 per diluted share, both of which were well above our guided ranges. Turning now to our balance sheet.

We ended the second quarter with $588.4 million in cash, cash equivalents and investments, up from $576.9 million at the end of the first quarter. We reported cash flow from operations of $20.3 million in the second quarter, compared to $19.4 million in the year ago period.

Total deferred revenue was $51.5 million, an increase from $43.5 million at the end of the first quarter.

As a reminder, we do not believe that deferred revenue is a meaningful indicator of business activity during the quarter, since we typically bill termed license contracts annually and recognize the full annual payment upon the due date or other contract terms.

Further, our multi-year contracts, combined with our annual payment terms, mean that a significant amount of our contractually committed fees are not visible on our balance sheet.

We believe that the combination of this contracted business and our best-in-class renewal right -- rates, provides us with a high level of visibility towards fiscal 2014 revenue today. Now I'd like to turn to our outlook.

Based on our second quarter performance, we are increasing the mid-point of our revenue guidance by $2 million, $1 million in license revenue and $1 million in services revenue, even though a portion of our upside in the second quarter came from revenue that we expected later in the year.

As we discussed previously, we expect growth and services revenue to moderate in this year, as our system integrator partners continue to gain traction and our customers show interest in working with non-Guidewire consultants. We expect this trend to gradually shift a larger percentage of our revenue to license and maintenance.

Within license revenue, we are pleased to see perpetual license revenue becoming almost negligible. And we now expect perpetual license revenue to decrease in fiscal 2014 as compared to fiscal 2013. From an expense perspective, we are continuing to execute the strategy that has driven our recent success.

Our investments in sales continue to help us broaden our reach and capture share. And we continued to enhance our existing products and bring new technology to market through continued investment in engineering, while carefully managing our operating costs.

With that backdrop, for the third quarter of fiscal 2014, we expect license revenue to be in the range of $30 million to $32 million, maintenance revenue of approximately $10 million, and services revenue in the range of $36 million to $38 million. Within license revenue, perpetual license revenue is expected to be approximately $3 million.

Total revenue is expected to be in the range of $77 million to $79 million, representing year-over-year growth of 14% at the mid-point. This reflects the recognition of License revenue in the second quarter that we had expected later in the year, and a seasonally slower third quarter.

For the third quarter, we anticipate non-GAAP operating income of between $1 million and $3 million, and non-GAAP net income of between $0.7 million and $2 million, or $0.01 to $0.03 per share, based on a fully diluted share count of 72.6 million shares.

Our non-GAAP operating income and net income expectations for the third quarter exclude approximately $16.7 million in stock-based compensation expense and about $0.4 million in amortization of intangible assets. Including these noncash expenses, we anticipate a GAAP operating loss between $14 million and $16 million for the third fiscal quarter.

We anticipate a GAAP net loss between $8.3 million to $9.5 million, or a loss of $0.12 to $0.14 per share, based on an estimated weighted average basic share count of 68.4 million shares. We anticipate an effective non-GAAP tax rate of approximately 32.4%, and a GAAP tax rate of approximately 40.5% in the third quarter.

Looking at full year fiscal 2014, we anticipate total revenue to be in the range of $334.5 million to $342.5 million, an increase of $2 million at the mid-point from our prior guidance range of $330.5 million to $342.5 million, and representing a revenue increase of 13% from fiscal 2013 at the mid-point.

Within revenue, we believe that license revenue will be in the range of $146.5 million to $150.5 million, an increase of 19% to 22% from fiscal 2013.

This is an increase of $1 million from prior guidance, even though we now expect perpetual license revenue to decrease from fiscal 2013, compared to our prior view that it would be in line with last year.

This also means that we continue to expect term license revenue to grow above 20%, even with more challenging comparisons caused by the incremental revenue contribution from large-scale purchases from a couple of Tier 1 customers early in 2013.

We expect maintenance revenue to be in the range of $40.5 million to $41.5 million, an increase of 8% to 10%. Keep in mind that we expect maintenance revenue growth to lag license revenue growth. And it is recognized ratably over the support the period.

We anticipate services revenue to be in the range of $148 million to $152 million, an increase of 6% to 9%. Turning to profitability.

We anticipate full year non-GAAP operating income in the range of $35.5 million to $39.5 million, an increase from our prior guidance range of $20.5 million to $25.5 million, reflecting upside in the second quarter and representing a non-GAAP operating margin of 11% at the mid-point of our revenue and operating income guidance.

And we anticipate non-GAAP net income in the range of $24 million to $26.7 million, or $0.34 to $0.38 per share, based on a fully diluted share count of 71 million shares. As Marcus noted, despite these increases in profitability guidance, there is no change in our strategy to invest in sales and profit -- and products.

And these investments are expected to continue beyond fiscal 2014. We anticipate an effective non-GAAP tax rate of approximately 32.4% for the full year. On a GAAP basis, which includes approximately $66.4 million of stock-based compensation expense and approximately $1.4 million in amortization of intangible assets.

We anticipate a fiscal 2014 operating loss of between $28.4 million and $32.4 million, a net loss of $16.9 million to $19.3 million, or an EPS loss of $0.26 to $0.29, based on an estimated weighted average basic share count of 65.9 million shares. We anticipate an effective GAAP tax rate of approximately 40.5% for the full year.

In summary, we are pleased with our second quarter results, as they reflect momentum from InsuranceSuite, new customers, and key wins in the U.S. and around the globe. At the same time, we see the desired shift to more revenue from recurring term license contracts, as perpetual licenses are becoming increasingly negligible.

We also see a growing portion of implementation and related services performed by our partners.

Our strategy to invest in sales and marketing and product development is showing early traction, and we believe that our continued investments are enabling us to expand our leadership position in the market, as we continue to gain share of the long-term opportunity that remains ahead of us.

Operator, can you now open the call for questions?.

[Operator Instructions] And we'll hear first from Nandan Amladi with Deutsche Bank..

So the first question is on the system integration community.

How large is that group of people now? And what types of projects are you actually having them do entirely on their own, versus being involved at the front end of the project?.

Nandan, I don't have any updated numbers to share on exactly the size of the community. We've been taking the practice of sharing that once a year, and we'll certainly do that at the end of the fourth quarter. It is a metric that the alliances team tracks.

To the qualitative part of your question, we're seeing systems integrator activity pretty much on all the things that we do. But it follows a fairly predicable pattern, in that, when a product is newer to the market or to a specific geography, there's heavier Guidewire involvement.

And then as the local SI community gets up to speed on the product and develops some credential from having participated in those earlier projects, they become capable of caring a larger and larger portion of the work load.

I do want to make one -- correct one slight thing in your question -- implicit in your question, which is the notion that partners could do the projects entirely by themselves. It's an important part of our model that we retain some participation in every project. And that includes very plain vanilla implementations of ClaimCenter here in the U.S.

It's an important part of our model. We believe our services team performs a critical part of ensuring alignment with the product direction and our methodology. And it's a very important part of our customer relationship as well. So even in the most mature segments of our business, we still have Guidewire services involvement.

And expect that to be the case indefinitely..

And a quick follow-up, if I might.

Your investments in sales capacity for, over the next, call it, 4 to 6 quarters, are they going to be focused on certain regions? Or are you growing across the board?.

We definitely have further investment ahead in Europe, where the territories are still significantly larger than what we think is -- as the steady-state down the road. But there are investments also to be made here in the Americas. We have more products to sell.

So each rep has, in a sense, a richer territory to go after because there are more conversations to be had. And as we've talked about in previous calls, there's a real focus on our part, to engage with the very largest insurers, the so-called Tier 1. And those interactions always take longer and are more complicated.

And we've made a pretty concerted investment in that segment of the market over the last 1.5 years..

We'll go next to Brendan Barnicle with Pacific Crest Securities..

The quarter looks great, I was -- had one question though, on one metric, which is the rolling 4 quarters recurring revenue, at 21%. That had decelerated from the last couple of quarters.

Anything that's going on in that metric?.

I can respond to that. While that rolling 4-quarter metric actually does a good job of mitigating some of the seasonality with it, when you end up -- when we end up with -- sometimes our customer is making these early payments to us, if they come into the fourth quarter, it has the effect of actually increasing the growth rate during that period.

If they fall out of your prior period, like they did in this case. So we had $4.5 million in Q2 of FY '13, that does have an impact on that rolling 4-quarter average as well..

Okay.

So it's really just related to that bulk? Now you had given us, Karen, that number, that 30% revenue growth if we took that out is there a similar way to look at the rolling 4 quarters?.

I'm sorry, Brendan, can you ask your question again?.

Sure. You had given us the revenue growth rate by....

Up 30%..

So $1 million at this year and the $4.5 million out 1 year ago and compared them.

Is there a similar way to look at the rolling 4 quarters? Do you we just have $4.5 million out then, and take $1 million out this time and compare them in that way?.

That's exactly it. That's right..

And then, Marcus, I was interested, you mentioned several of the new products.

Either I didn't hear it or you didn't mention it, on the data management and BI front, any new customer examples that you can give us about how that's being utilized?.

Well, we don't have any customers live in production with it yet. We signed our first customer, net new customer post acquisition and post announcement of the new product. We announced that, I believe, in the first quarter, which was American Modern. I think that was in the script of our prepared remarks last quarter.

And we made other progress in this quarter and we're in a lot of other conversations about it. It's a very timely need. Every insurer has to deal with -- has BI needs. Those are pretty fundamental to what you do as an insurer and a lot of them have existing investments and partial investments and investments they're not thrilled about as well underway.

So it's a very relevant dialogue, and we think we anticipate further growth in the segment. And we're pleased to have a couple of wins on the basis of which to build that. But none of them are live yet.

And as you know, in our business, it takes a while to go the full life cycle of bringing a product to market, getting a few customers, and then bringing them live and having stories to tell..

Our next question will come from Sterling Auty with JPMorgan..

Maybe a question on revenue and then a question on the expenses. On the revenue front, do you just characterize, as you mentioned, the Tier 1 conversations, the deals are lumpy and such and they're not really embedded in kind of the forecast.

But how would you characterize just the progress that you're making on those discussions?.

Yes. So in this quarter, we didn't call out any Tier 1 win as contributing to the results for the quarter. And obviously, if it was a significant one, we wouldn't want to talk about that. So your inference is correct. It's also correct that we're in more dialogues with more Tier 1 companies than ever before.

And not just in the U.S., but also in the Europe. And we've -- we have to be kind of judicious about how we factor in our progress in the sales cycle, because we know from experience both that the deals have -- well, customers -- buyers are fickle. And then, secondly, it's not always entirely predictable how much they will buy from us.

So a very large insurer could end up buying for a very small segment. It could end up being a smaller deal than a smaller insurer -- a much smaller insurer, to begin with, but then could evolve into something much more substantial later. So we feel great about the progress we're making in that segment.

And we feel really confident that our value position is completely relevant to that segment. But when we have significant wins to announce, you'll be sure you hear about them..

And you mentioned the Guidewire Live implementation, now that you're kind of commercially available. What's at the pipeline for Guidewire Live, as well as the portal? You mentioned some of the success there.

But how is the pipeline developing?.

For the Guidewire Live, we talked to, basically every customer that's in Live production. So that's a subset, a large subset, of our customer base.

And we definitely have a heavier emphasis on claims, because they're sort of a richer data set, with the largest population of customers that have been live for some duration, and therefore, have richer data to work with. We have not been calling out each win on these calls.

I did want to mention the one that I talked about in the prepared remarks, because they are really key InsuranceSuite customer that's also very highly regarded in the industry. But there are quite a few others that are now sending us data on a regular basis. And we've been able to convert a number of them into paying licenses..

Great.

On the expense side, Karen, can you help us, in terms of that cost of license, maybe a little bit more color in terms of the third-party expense versus Guidewire Live? And how should we think about how that Guidewire Live expense will scale?.

So taking the first one, first. The third-party Live -- the third-party royalty costs. When we purchased Millbrook in May of last year, as you know, we kind of reconfigured the product that they had.

And we've also licensed this -- had a small license for an ETL tool, that we do pay royalties on, when our customers sign up for that data management and standard reporting that comes out of that section of it. So it's new for us, it's not terribly meaningful. But it will be a part of the fabric of the cost of license revenue going forward.

Now Guidewire Live, that is actually -- it's kind of been a pretty good critical mass right now in order to be able to manage the operations in itself and support our customers in that. So I would expect to see it growing moderately over time. But not in leaps and bounds..

Okay. And last question, on the expense side, as you mentioned, the variable expense. You talk about strong new sales, but yet x the stock-based compensation, so the marketing expenses seemed to be flat. I would have expected some additional commission expense.

Is that one of the area that the variable was lower than anticipated? What was the cost? And what else had lower variable cost in the quarter?.

Yes. So it's actually, it's -- the flat is -- the Q1 includes our Big Connections Users Conference. And that's a -- they have to -- we're relatively pretty hefty price tag for it. So that's a one quarter phenomena that happens. The rest of it is marketing expenses, seminars, webinars, sales support that happens kind of throughout the year.

But our big cost in our marketing programs is always in the first quarter with connections..

We'll move next to Tom Roderick with Stifel..

Marcus, let me throw the first one at you here. You talk about the Tier 1 pipeline being -- being very strong. And certainly, even absent Tier 1, you're seeing the numbers show up very nicely. But I'm curious as to what you're seeing in proof-of-concepts on your larger deals, regardless of whether they are Tier 1, Tier 2, Tier 3.

You get a pretty good sense of visibility, I would think, into that pipeline.

When you look into various larger scale proof of concepts, what are customers looking for? What are they asking for? How are these proof of concepts stretching out in time frame relative to what you've historically seen?.

Thanks for the question, Tom. And I appreciate the empathy with what we go through in the sales process because you're absolutely right.

Despite having quite a few customers and brought all the projects that we've had ever been involved in to live production, our perspective customers still expect us to go through, almost all the time, a fairly rigorous proof-of-concept, where we -- they really exercise the system and they really confirm that, to their satisfaction, that it'll work in their environment.

And we have to do that at every segment of the market.

And I would not even characterize the very largest customers as being more demanding in their expectations than the smaller ones, because while a larger company will have a more complex IT environment and more integration points and larger scalability needs, they also will have a larger IT department.

And they will also be more comfortable taking on a large transformation project. Whereas, a smaller insurer may not have done that in institutional memory. So it's a higher perceived risk from their perspective, and they'll want to prove more things out in the POC. So we are doing that pretty much in every sales cycle.

I think it's a very rare sales cycle that does not have a POC at some point in it. And if anything, this is a very subjective comment. But I would say that they are getting, if anything, slightly more demanding than they were before. Not in any -- maybe not any quantifiable way, but it does feel that way.

And I think it's because we are -- the ambitions for what they want to achieve out of these programs is continuing to get more and more expansive. And therefore, they are more and more things to prove out in the context of the POC. So I don't anticipate that getting any easier any time soon..

Great. Just a follow-up on that very topic. So in thinking about these Tier 1 customers are bigger deals that you have in your pipeline, and let me actually specifically reference Tier 1.

Should investors be expecting a -- any of these deals to transform in the way that Nationwide did, in that it was enterprise-wide in a very aggressive time frame? Or when you examine your pipeline, should we be expecting more along the lines of geographic or Line of Business where all that is settled that will be gradual in nature and take a longer-term to play into the numbers?.

So I think the latter is the more likely scenario. Most of them, I think, that's our expectation.

But it often comes down to kind of imponderable fact that our -- really, that the company decides on their own about how -- what's their capital investment appetite? What's their sense of urgency in their market? What's their degree of frustration with their current environment, and how expansive? What's their appetite for risk, for a large transformation program? And all of these things, we have actually quite little influence over.

That's their our own internal deliberation. I think most of the time, those -- that constellation of facts lead them to want to stage things out further.

But there are certainly conversations we know were the -- we're in, where the prospect feels like, they have to move quickly and that they're not happy with their assets for a new competitive reality. It's just a -- it's a question of whether they can translate that felt urgency into a desire to do a very large scale program all upfront.

And often we don't know that until, really, the last stages of the sales cycle..

Great. Last quick one for me. You mentioned China as your first big win in that region.

What do you see as the opportunity in this region? What are you doing to staff up for that opportunity?.

It's definitely a high-growth market. There's -- insurance in China looks quite different than it does in other parts -- well, certainly in the U.S. or in Europe, but not radically different than it looks in other more emerging markets, and that the volumes tend to be very high, and the products tend to be somewhat simpler.

And their expectations of intolerance for a long project is also lower. So it's not a completely different pattern than what we see elsewhere in the world, but it has its own unique characteristics. It's an enormous market, as we all know.

But we're being very kind of cautious with our expectations, not expecting explosive growth out of it, and not pouring massive investment disproportionate to other markets. I think we see it as -- we want it to contribute to the total bookings goal, and it's part of our plan. But it's not some sort of foundational pillar of growth..

We'll move next to Walter Pritchard with Citi..

Question for Karen, just around the expenses. [indiscernible] for the last few quarters, have guided for more hiring and haven't done that.

I'm wondering if you can just give a little bit more detail as to why you haven't been able to hire, what you expected? Is it just focus of the team? Is it the competitive -- or sort of the labor market in the Bay area? Just trying to get a sense of where you think you're falling short in terms of the hiring -- or why you've fallen short?.

Yes. So Walter, just one thing to correct. We actually have hired quite a bit. The miss in the predicting the operating expense related to those new heads. They started in January. They didn't start in November. So we've actually done a pretty good job about hiring people through the end of the -- through the end of the year.

Let me -- in our second quarter, we actually added net addition of 21 people, in that second quarter. And again, that's growth -- that slowed down quite a bit from FY '13, as we had a really big push to hire more engineers and more salespeople. But on the other hand, it's still pretty successful..

Got it. Now just second question, maybe for both of you, in terms of -- you're sitting on quite a decent size cash position.

I'm just wondering, do you see opportunities to consolidate geographically? Or do see opportunities to expand the product lines through acquisitions? Just trying to get a sense of where we should expect to see that -- that cash deployed, assuming that, that is the use case?.

Right. So of the 2 vectors that you mentioned, namely geographic and product, the latter is very much our emphasis and the former would be unlikely -- or certainly a lot lower in priority. Insurers want us to do a great deal, to serve them -- that logically extend from the core transactional -- operational platform that is InsuranceSuite.

There's a lot more product that logically should be built around InsuranceSuite. And we want to build a lot of that ourselves. It's logical for us to do. But there are other elements that aren't -- that also exist in the market, too. And so that's the lens through which we look at the opportunity..

And our final question today will come from Brent Thill with UBS..

Karen, I'm curious if you could just give us a snapshot of -- on deal sizes that you're seeing this year versus perhaps 1 year ago. I know you don't break them out.

But can you give us any sense of what you're seeing? Are you seeing a larger upfront commitment? Are you seeing kind of the same trend? What thing should we take away that you see us that you could tell us?.

Yes. So I appreciate the question, Brent. The -- last year in FY '13, we had a couple of pretty large sized transactions that really dominated the year. So it was a mix of kind of larger sized transactions out there.

One of the things that I'm very pleased at, when I look at the number of deals that we've closed this year, as well as looking out into the Q3 and Q4, is the volume of transactions is up pretty substantially. And they're meaningfully sized transactions when it comes to the core products and the core InsuranceSuite.

So I think that's quite a good trend..

Okay. And just on the services, I know, Marcus, you said at the beginning of the year, with a very clear strategy that shift as much to the partners. I think in the first half of the year, you were somewhere in the mid- to high-teens growth in terms of the services business.

I believe that you're guiding for somewhat of a deceleration in the back half of this year.

Is that because of that? Or are you seeing some other move that's impacting that in your guidance?.

No change in disposition or expectation from what we talked about before. We continue to make -- put a very heavy emphasis on partner enablement and partner success. And that's not only because of our own business model ambitions.

It's actually because our customers want to have a very robust ecosystem of options, and they have certain cost and scale advantages that we, as a pure -- as a product-focused software company, do not. So it's really a good alignment between what customers want and what serves our long-term business model needs.

And -- but that said, there's a role for services for us in every customer relationship. And there's a certain rightsized team that serves that function. And in certain parts of the world, in certain segments of our market, it's actually essential that we do the bulk of the work, at least until the SIs build up their own credentials in those areas..

And since I'm the last, can I just ask a question on the sale profit. You hired a new Head of Sales. Has there been any major changes in terms of route to market or -- that fundamental playbook of what you're doing on the direct sales force? Or is it more of deep vision strategy? If you can just give us a sense of how that's ramping..

Yes. So Scott's been a great addition to the team. It's only been a few months, but I feel very confident in asserting that. And I also feel confident that the rest of the team would stay the same. It's -- he is -- he's not seeking to radicalize anything about our go-to-market, which has been pretty successful over our history.

But his mandate is to ensure that we keep up the same level of quality and kind of customer intimacy, as we get many more customers, that are in more and more far-flung locations. And that's a very real scaling and cultural challenge that takes the full-time talents of him as a leader.

He has a lot of work to do on that front, but I think he's making all the right moves so far..

And with that being our final question, I'll turn the call back to Marcus Ryu for any additional or closing remarks..

No additional comments. Thanks very much for joining us on this quarter's call. See you in the quarter..

That will conclude today's conference. Thank you, all, once again for your participation. You may now disconnect..