Good day, and welcome to the Guidewire Third Quarter 2012 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Karen Blasing, please go ahead, ma'am.

Good afternoon, and welcome to Guidewire Software's Earnings Conference Call for the third quarter of fiscal 2012, which ended on April 30. 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 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 issued today. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our quarterly report for the period ended January 31, 2012, and the final perspective for our follow-on offerings, which are on file with the SEC. 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. Finally, at times in our prepared remarks or 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 maybe 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 third quarter results and our outlook for the rest of fiscal 2012.

Thanks, Karen, and welcome all of you joining us on our call today, our second as a public company. I am pleased to report third quarter financial results, which exceeded our expectations for both revenue and profitability. We are still at the very early stages of a significant market opportunity, and we believe the Guidewire's differentiated product offering and our track record will continue to drive significant market share gains. We have regard to the future with measured optimism, and this is reflected in our increased guidance for fiscal 2012, which Karen will detail later. Our top line results were strong across the board, resulting in total revenue of $57 million. This was above our guidance of $50 million to $53 million and represented growth of 28% from a year ago. This performance included 30% growth in one of the key metrics we track, our rolling 4 quarter term license and maintenance revenue, i.e., our recurring revenue base. In addition, we saw significant strength this quarter in our services business, which grew 31% year-over-year and was a primary contributor to the revenue upside in the quarter. I underscore that our services organization is an important enabler of our software product strategy. Our services teams often lead the implementations of our software products at global property and casualty insurers and are typically responsible for 10% to 15% of the total work. Today, they are fully deployed in implementations of our suite across a range of new customers, as well as existing customers who are more broadly deploying or upgrading our products. As we noted last quarter, PolicyCenter carries the highest license value of any of our applications and is the most strategic core system that runs the P&C insurers business. Consequently, PolicyCenter and full InsuranceSuite projects tend to be larger than other deployments, and implementations are correspondingly more demanding. As we experience increasing interest in adoption of PolicyCenter in the full suite, we are seeing increased demand for our services. This drove strong growth in services revenue for the quarter, and we expect this trend to continue for the medium term based on our pipeline. In addition to revenue that was above our expected range, overall profitability also benefited from operating expenses that were lower than expected. Though our headcount growth was strong, our hiring ramp was less than the ambitious goals that we had factored into our guidance. We continue to recruit and have aggressive hiring plans throughout our organization to support the demand that we are seeing from our solutions on a global scale. This combination of higher revenue and lower operating expenses led to non-GAAP operating income of $9.1 million, and non-GAAP net income of $0.10 per share, well ahead of our expectations of a non-GAAP operating loss to break-even performance for the quarter. Business-wise, you'll recall that Guidewire's mission and strategy are very straightforward. We're here to enable the enormous global P&C insurance industry to transform its operations through the full replacement of its legacy operating environment with our modern core system software suite. We measure our progress by successful implementations, exemplary renewal rates, new customer adoptions of our products and by our existing customers licensing additional products and broadening their use as measured in premiums. We are enthusiastic about continued demand for all of our products. Part of our commitment to investors is to share our progress on these metrics annually, which I look forward to doing on our next earnings call after we close our Q4. We'll talk about the total number of new customers or products they've licensed and the total premiums under license for each. In advance of that, this quarter I'll say that we see clear signs that our focus on PolicyCenter and upsell of our large ClaimCenter customer base is paying off as reflected in demand for our implementation services reaching an all-time high. Our services team has also been very active completing implementation to drive customer success. Lumley General Insurance of New Zealand, for example, recently completed the deployment of PolicyCenter and BillingCenter following a successful deployment of ClaimCenter. And Jewelers Mutual, the most recent client to go live, implemented our full suite in only 12 months. In new business, a third quarter transaction exemplifying several of the trends I've been highlighting is New Jersey Manufacturers Insurance Company, with $1.4 billion in premiums. NJM has been a ClaimCenter customer for several years and committed in Q3 to implement both PolicyCenter and BillingCenter enterprise-wide. In addition, we're pleased to see more customers starting their relationship with Guidewire with PolicyCenter. For example, Rockhill Insurance, a specialty lines focused $140 million insurer who selected PolicyCenter and BillingCenter as their new rating, underwriting, policy administration and billing system. Overall, we continue to increase our traction in the segment of the market with over $1 billion in annual premiums. To date, over 50 insurers in this segment have selected Guidewire. We believe we have significant opportunities to further penetrate large insurers who are already Guidewire customers, as well as attract new customers in this year and above, with only about 10% of our target audience reached so far. In summary, we're pleased with our continued growth, which we firmly believe here at Guidewire derives from the success of our insurance carrier customers and our track record of successful implementations. Industry analysts also continue to take note of our differentiated position in the marketplace. We were recently awarded Gartner's highest ranking in their claims market scope report for the fifth year in a row, and we were rated best in class at all 4 categories of TowerGroup's Claims Management Systems vendor report for 2012. We believe this recognition is the direct result of our focus on customer success as we bring modern, flexible, upgradable solutions to the P&C market. We believe that we are at a significant stage in the development of our market, where our opportunity for definitive market leadership requires continued investment in technology and people. These investments are across the board: To sustain our high level of product innovation, to expand our global distribution and to extend our track record of customer success. With the P&C market still in the early stages of upgrading billions of dollars worth of legacy systems, we believe that our investments and emerging leadership position will enable Guidewire to scale meaningfully in the years ahead. Now let me pass the call over to Karen for more details on our financial performance and outlook. Karen?

Thanks, Marcus. We're pleased to report results that exceeded our revenue and earnings expectations for the third quarter. Total revenue was $57 million, a 28% increase from the third quarter of fiscal 2011. Within revenue, license revenue was $21.7 million, up 22% from a year ago. $15.4 million, or 71% of our license revenue, came from renewable term-based contracts, while the remaining $6.3 million of our license revenue related to perpetual license contracts. It is worth mentioning while term license revenue typically increases on a year-over-year basis as we add new customers, our third quarter term license revenue decreased $700,000 compared to a year ago. This was not unexpected, and it was due to an earlier-than-anticipated annual term license payment of $2.5 million that was received and recognized during the second quarter of fiscal 2012 as we discussed on our last quarterly call. Maintenance revenue, which is recognized ratably through the year, was $7.8 million for the third quarter, up 39% from a year ago, reflecting overall license growth trends. Services revenue was $27.6 million, up 31% from a year ago and reflecting the growth in overall implementation activity, as well as higher-than-expected utilization rates. As a software company, we focus on the long-term growth in software license and maintenance revenue, and essential element of achieving high growth in the metric is successful customer implementations, which are enabled in part by our service organization and their differentiated track record in the marketplace. As we discussed last quarter, we are seeing increased demand for implementation resources, particularly in areas where our partner channel is still in the earlier stages of ramping their knowledge and practices. As a result, over the near term, services revenue growth will continue to trend ahead of our total revenue growth. However, there is no change to our longer-term expectation that services revenue will decline as a percentage of our total revenue. Our annual revenue visibility is strong due to the recurring nature of our multi-year term contracts that are billed annually in our ongoing maintenance agreements. Since we bill annually for our term contracts and recognized revenue on payment due dates when payment is received, our revenue can be variable on a quarter-to-quarter basis even though full year visibility is high. Because of this, we believe that rolling 4-quarter recurring revenue is also an important metric to consider. For the 4 quarters ended April 30, 2012, term license and maintenance revenue totaled $97.7 million, up 30% from $75 million for the comparable 12-month period ended April 30, 2011. With respect to geographic mix, the United States represented 52% of revenue in the third quarter with the 48% of revenue coming from outside the U.S. Our geographic mix can be variable on a quarter-to-quarter basis depending on the timing of larger transactions and the associated revenue recognition. For the first 9 months of the year, our U.S. revenue was 57% of total revenue, while international was 43%. We will discuss our profitability measures on both the GAAP and non-GAAP basis, and we have provided a reconciliation of GAAP to non-GAAP measures in our earnings press release issued today, with the primary difference being stock-based compensation expenses, as well as a release of a valuation allowance on deferred tax assets in the third quarter of 2011. Non-GAAP gross profit in the third quarter was $34 million, an increase of 26% on a year-over-year basis and producing a 60% non-GAAP gross margin. Breaking that down, gross margin for license was 99%, maintenance was 83% and non-GAAP gross margin for services was 22%. During the third quarter, services gross margin was at the upper end of our recent ranges and above our expectation of a mid-teens gross margins due to higher utilization rate. For the next several quarters, we continue to expect that service margins will fall back to the mid-teens range as we grow staffing levels in our services organization to support an increasing number of implementations particularly complex policy implementations. Turning to operating expenses, total non-GAAP operating expenses were $24.9 million in the third quarter, an increase of 22% compared to a year ago. This resulted in non-GAAP operating income of $9.1 million, which was up 40% on a year-over-year basis and represented a non-GAAP operating margin of 16%. Operating income was considerably higher than our guidance due to 3 primary factors: First, revenue was above our expectations; second, our services gross margin was ahead of plan, as I discussed; third, while we expanded our organization by over 40 net new employees, we had an even greater number of hires factored into our guidance. For the third quarter, we generated $9.9 million in adjusted EBITDA, an increase of 43% compared to a year ago and represented adjusted EBITDA margin of 17%. We believe there is room for adjusted EBITDA margins to expand to the 20% to 24% range from a long-term perspective. However, we are placing a greater near-term focus on investing in the business and considering the already strong profitability that the company is delivering. Our non-GAAP pretax income was $9.4 million in the quarter, and with a 37% effective tax rate, resulted in non-GAAP net income of $5.9 million in the third quarter. With an average weighted diluted share count of 60.1 million shares outstanding, non-GAAP net income was $0.10 per share, which was well above our guidance of a loss of $0.04 to breakeven. Non-GAAP net income decreased from $7.1 million in the third quarter of 2011 primarily due to a full effective tax rate in fiscal 2012 as we removed a significant portion of our tax valuation allowance in the third quarter of 2011. For comparison purposes, our third quarter GAAP operating income was $4.8 million compared to $4.7 million in the third quarter of 2011. GAAP net income was $3.1 million or $0.05 per diluted share compared with net income of $29.4 million in the third quarter of 2011. Note that GAAP net income in fiscal third quarter 2011 was positively impacted by an income tax benefit of $23.7 million primarily due to the release of a significant portion of the company's tax valuation allowance. A detailed reconciliation on GAAP to non-GAAP measures is included in our press release. Turning now to our balance sheet, we ended the third quarter with $201.9 million in cash and equivalents, up from $169.6 million at the end of the second quarter. During the third quarter, we completed a follow-on offering of 9.2 million shares with 8.45 million shares filled by existing stockholders and 750,000 sold by the company. This transaction provides $19.4 million in proceeds from our follow-on offering, net of underwriting discounts and expenses. Cash at the end of the quarter also increased from strong operating cash flow during the quarter of $10.3 million. Our current deferred revenue was $54.3 million and total deferred revenue was $61.2 million at the end of the third quarter, consistent with total deferred revenue at the end of the second quarter. We do not believe that deferred revenue is a meaningful indicator of business activity during the quarter, since we typically bill term license contracts annually and recognize the full annual payment upon the due date. Additionally, contracts that are signed, billed and do within the quarter do not appear in deferred revenue at all. Further much of our contractual committed fees are not visible on our balance sheet as a result of our multi-year contracts combined with annual payment terms. If you combine our contracted business with the fact that we have best-in-class renewal rates, we typically have good visibility into a large portion of our next year revenue at the start of a given fiscal year. Now turning to our outlook for the fourth quarter of fiscal 2012, following a better-than-expected third quarter performance, we now believe our fourth quarter revenue results will be above our prior expectations, largely due to higher ongoing service activity in support of new business. We anticipate total revenue in the fourth quarter to be in the range of $60 million to $63 million. We continue to invest in our organization in order to capitalize on our momentum and market opportunity. For the fourth quarter, we anticipate GAAP operating income of between a loss of $3 million and breakeven. We anticipate a GAAP net loss of $2 million to breakeven or minus $0.03 to breakeven per share based on an estimated fully diluted share count of 62.5 million shares. We anticipate an effective tax rate of approximately 36% in the fourth quarter. Our GAAP operating income and net income per share expectations include $4.5 million in stock-based compensation expense. Excluding this noncash expense, we anticipate non-GAAP operating income of between $1.5 million and $4.5 million to the fourth fiscal quarter and non-GAAP net income of between $1 million to $3 million or $0.02 to $0.05 per share based on a fully diluted share count of 62.5 million shares. Based on the strength of our third quarter results combined with our fourth quarter guidance, we are increasing our guidance as follows: We now anticipate full year fiscal 2012 revenue of between $224 million and $227 million, an increase from our prior guidance of $216 million to $222 million and representing growth of 30% to 32%. In addition, we continue to feel good about the company's ability to deliver revenue growth of 20% or greater from a long-term perspective consistent with our long-term target model. From a profitability perspective, we anticipate GAAP operating income of between $15.3 million and $18.3 million for the full year fiscal 2012, and net income of between $9.6 million to $11.6 million or $0.16 to $0.19 per share based on a fully diluted share count of 54.5 million shares. Total stock-based compensation is expected to be approximately $18.4 million for the full year. Non-GAAP operating income, which excludes stock-based compensation, is expected to be between $33.7 million and $36.7 million, an increase from our prior guidance of $18 million to $24 million, and non-GAAP net income is expected to be between $21.8 million to $23.8 million or $0.40 to $0.44 per share based on an average weighted fully diluted share count of 54.5 million shares, an increase from our prior guidance of $0.21 to $0.28 per share. In summary, we are pleased to report third quarter results that exceeded expectation on both the top and bottom line. We're excited about our continued momentum and are confident that continued investments in our long-term growth will enable us to capitalize on the significant opportunity ahead. Operator, can you now open the call for questions?

[Operator Instructions] And we'll take our first question from Sterling Auty, JPMorgan.

Even you had the unusual kind of timing of the payment last quarter, just want to ask upfront, was there anything unusual in terms of timing of payments or catch-up payments in this quarter?

No, there weren't. Nothing unusual at all.

Okay, great. And then you mentioned the hiring expectation in the quarter, the hiring results, what's your expectation in terms of net ads for headcount in order to hit the guidance that you've given?

You're referring to the fourth quarter, Sterling, I presume.

That's correct, right.

The current quarter. Well, for modeling purposes, we're assuming that we will fully catch up to the expectation that we have for the year, and though that's actually a pretty big number. But of course, we're only affecting the last few weeks of the year so the actual financial impact is pretty modest between the current run rate on recruiting and the full number that we need to get to achieve the notional budget number that we started with. I think the full GAAP between where we are and where we started the budget is something in the order of about 90 heads.

Okay, great. And then the last question, and I'll go back into the queue. The services revenue is very strong, mix is up, obviously a big discussion point around Guidewire. How should we think about the lead time between services strength leading to additional or the license revenue?

I'd like to give you a simple one sentence answer to that, but it's actually a little bit intricate. There are a number of factors that play into it. One thing we've been highlighting in our comments is the fact that policy projects are more complex and therefore, have a larger services component. There's another subtle factor, which is that in policy projects, the first phase of that program has a kind of foundational quality that may affect only -- it could be at implementation only of a portion of the carrier's full premiums. And this is a little different than in claims where it's more typical for an implementation to be fully enterprise-wide in one shot. Even with claims projects, you'll have cases where they will implement in portions, but it's more feasible in general to do a full enterprise shot. Whereas with policy, it's typically a bit more partitioned. So you have 2 effects pointing in the same direction. First, that the projects are more complicated and larger, there's more work, therefore, more services. And that the first phase of the project may actually affect a smaller portion of the carrier's premiums, and therefore, are licensed. And that -- and those 2 effects, I think, has led to a slightly higher balance of services to license because of the policy mix.

And we'll take our next call from Tom Ernst from Deutsche Bank.

First question for you. In the strong guidance for Q4, is there any catch-up revenue or anything atypical in that, that we're looking for?

No, Tom, there really isn't.

Okay, great. And then I know we've beaten this to death in the past, but it's on everybody's mind, Marcus. I think it would be helpful, as you look into your pipeline and what you're playing, do you see any risks that's exposed to Southern European debt in that any insurers that stand out as salient to you that might be at risk? What's your sensitivity that kind of the current economic fears that are happening right now?

So the question that we've been asking ourselves, there's nothing specific that has to do with the current state of financial turmoil. It hasn't come up in any conversation that we've had in any of our pursuits in Europe and, I was just there myself. That said, we don't want to be completely sanguine about it because it is a very unsettled time there. And in the long term, the P&C industry, even though it's somewhat insulated from macro cycles, ultimately those rely on economic growth to be financially healthy itself. So we're not blasé about it, but the -- it has not come up as a factor to date in any of the conversations or pursuits we're currently engaged in.

So it's fair to say no anecdotes from your customers of challenges or issues or hold-ups that are macro issues relating to this point?

Right. It's not been cited as such anywhere to date.

Okay. Well, how do you plan as particularly, as getting ready for next year, is there ways that you can take into account and be flexible in case that changes? What are you thinking for next year as you're beginning your planning process?

Well, candidly, we're bit behind in our sales distribution reach in Europe overall, and that's one of the structural growth areas that we're investing in. And that's taking a longer-term view than the present turmoil, and we've been scaling up our sales capability in Europe overall, in Continental Europe and in the U.K., which is the third largest insurance market in the world after all. And for that, we're kind of doing that without a specific timing pieces about the current turmoil, but -- and that's also motivated by the fact that these decisions evolve over a longer period of time. Typically, there's a period of consideration and evaluation that could last for a year before a serious due diligence process, which could last another year. And when you're dealing with time frames like that, we figure we just keep our eye on the horizon and make sure we can serve the long-term opportunity.

Okay, last question for me and I'll let others ask. Certainly encouraging to hear some more policy and suite wins. I'd like you to step back since we're still in the first couple of dozen of policy customers, any failures? Any challenges at this point or are you still on track and all of the life deployments have been accepted and our generally happy customers are better?

Very much so. We've extended the same track record that we've had with claims and remains one of our -- I think our most distinctive differentiators in the market. That said, we are always very forthright with any customer or prospect that these are going to be very challenging projects. They're just inherent in changing an operating platform that affects a very substantial portion of the employee base and that hasn't changed sometimes for decades. So it's just inherent in our business that the programs are always challenging. PolicyCenter may be incrementally more so, but we have extended our track record of customer success, that's been our hallmark.

So no canceled deployments at this point?

No. None.

And we'll take our next question from Tom Roderick with Stifel, Nicolaus.

Karen, I apologize if I missed this. I have to jump on the call just a couple of minutes late, so apology. But do you have the mix of perpetual versus term license on the quarter or that mix stands for the year-to-date so far?

Yes, I certainly do. Just give me a moment and I'll pull that up for you, Tom.

Sure. Maybe as you're looking for that, kind of a second question around it would be, in thinking about the mix of license relative to services going into the fourth quarter as part of your guidance, maybe you can give us some help in thinking about what's that appropriate mix for license as a percentage of total revenue going into the fourth quarter since this percentage does seem to jump around a little bit, and we know you have more visibility than we do in terms of some of the term agreements and when they come up for renewal and things like that. So would be the 2 questions that I have around license.

So the term versus perpetual mix. So in the third quarter of 2012, we recorded $21.7 million of total license revenue, of which $15.4 million of that was term revenue and $6.3 million of that was perpetual.

Got it. Okay.

Now related to the fourth quarter, I don't see a significant amount of perpetual license actually expected in that fourth quarter. I think we'll have kind of a normal mix on that as well.

Got it. So when you think about giving guidance typically on a quarter or even an annual basis, what's the right way for us to think about what your kind of quarterly expectation of term -- of perpetual would be? Would that $6 million sort of be in the high end and maybe think sort of low-single digits, or do you typically not include really much of anything at all from a perpetual basis in that number?

That's right. So as you know, we have very good visibility from our existing customer contracts that are there. Any of those customer contracts that are term licenses, we have with near certainty when the revenue is expected to be recognized from those current customers. Then evaluating new sales contracts that are coming in on top of it, clearly if we have a high degree of confidence on individual sales contracts that are either already signed by the time we provided guidance, or we have a very high degree of confidence in those contracts being signed as well, we will consider those in the guidance that we give for the current quarter and then for subsequent periods with that as well.

Got it. Perfect. Marcus, one quick one for you, just been thinking about your competitive environment. You've got one more quarter under your belt in terms of watching the behavior from Accenture and Duck Creek now that they've joined forces. As you start to do more policy deals, are you seeing more of Duck Creek in the marketplace? Any sort of changes competitively pricing wise, or rather is there a combined entity for yet one more quarter here?

No real change in the competitive landscape as we've been forthright in all of these communications, we regard Accenture as our foremost competitor. And it's partly because of the Duck Creek acquisition, but it's also because they're really the only competitor that we encounter in multiple geographies, which is just not the case with smaller ones, which tend to be more regional. So they are still our #1 competitor and that's been the case for years and we anticipate it will remain that way for years.

And we'll take our next question from Walter Pritchard with Citigroup.

Marcus, I just want to talk a bit about, we understand that the deferred revenue number here isn't extremely meaningful, not like we see with some of the recurring SAS [ph] businesses, for example. But if I look at total billings for the quarter or if I look at it for the 9 months so far in the year, it significantly lags revenue growth. I think it was 10% for the quarter, 16% for the year, and I'm wondering what we should read into that? I think the deferred revenue trends are tracking below where we had, had the model right after the IPO. I'm just trying to get a sense of, is there more business coming out of deferred that you expected is less of what you're doing be in deferred, as you thought it might be before? Just trying to get a sense of why we're seeing that dynamic.

Yes, I think that's true, Walter. I think since we've now had a single unified revenue model beginning in FY '11, where all of the transactions are treated kind of consistently for new sales transactions, you're seeing less impact to the amount of deferred revenue that's drilling into current revenue, unlike you saw in FY '10 where we have those unusual catch-ups. So there is a small amount of revenue that's actually coming into any of the current quarter from any of the longer-term deferred revenue that we have out there, much more back to normal for us.

And that's more than you would expect -- it sounds like that's more than you would have expected 6 months ago because we obviously do 3 and 6 months ago that unified revenue model was what was taking hold here.

That's right.

Okay. And then just relative to the perpetual mix, it sounds like you're expecting that to go back to normal for next quarter. Is it just a deal-by-deal issue where you get a large deal that a customer wants perpetual, and that's what took place this quarter? I'm just trying to get a sense of -- obviously, the term model is a better model long term. You guys have done things to try to encourage customers to go in that direction. I'm curious both on the quarter, as well as the outlook going forward whether do you still see customers believing that's the best model for their niche as well.

We definitely see increasing adoption and understanding of the term model. Part of it is just a question of familiarity, the notion of paying for software in an annual recurring basis. That frankly is novel to the insurance industry, and it's becoming significantly less so. And now that some of them are customers, the sales force, et cetera, it's become less of a consideration. We do everything we can both in the sales compensation structure and in negotiating stance and in pricing structure to heavily motivate a term deal, but there are times when the customer is either insistent or the economics of the way that they want to look at it just lead to a perpetual deal, and we're not going to be absolutely dogmatic about it in those situations.

Got it. And this is the last question, Karen, on the hiring. It looks like sales and marketing was the area where you were most below where we were looking at in terms of expenses. I'm just wondering, you're obviously based in Silicon Valley, there's tons of -- tons of publicity about hiring being difficult. Is it R&D folks in your sort of San Mateo headquarters, is the people out in the field that you're finding it more competitive hire? Just trying to get some more detail there. And then, is there anything you need to do, either pay people more, structure things differently, et cetera, to try to kind of break through this issue on hiring or is it just focus on the management team?

Yes. Actually, Walter, I'll take that. Recruiting wise, we actually had a good -- a very good recruiting few months and we're really pleased with the people that we brought on the team. And I'd actually call out sales as being a place in terms of new hires, which isn't as reflected in the numbers. But in terms of team additions, I can tell you qualitatively, we're really pleased. The gap came, I think, from the fact we're really ambitious in the ramp for new hiring, and in retrospect just more than our recruiting machine could pull off because it was a significant acceleration beyond what we've ever hired before in that period of time. That is what we wanted to do, but we're still fully aiming to fill those heads, but just didn't get it done as fast as we would've liked.

And we'll take our next question from Brendan Barnicle with Pacific Crest Securities.

Just a follow-up on Walter's question on sales and marketing, should we expect maybe a less than seasonal ramp until the marketing expenses because of the more limited hiring?

No. Let me step in and actually help on that one. So we do have very aggressive goals actually to hire additional sales or sales support individuals in the fourth quarter, and actually leading into a 5 '13 [ph] as well, and that's one of the key investment areas for us. In addition, you might remember that we tend to have a cluster of contracts that typically happen in the second quarter related to our customer's year end of December. And then typically, we have more contracts that we signed in our fourth quarter as well. And our commission -- accounting for our commission expense dictates that we record the commission expense at that time those contracts are actually booked and are eligible for sales commission quarter credit. So you should see some seasonal higher numbers for sales and marketing typically in our fourth quarter as well.

Great. And Karen, following up on your comments about services gross margins, you said expect them to get back to the mid-teens. Would you expect that as soon as this fourth quarter or are we going to just work our way back to that over the next several quarters?

Services was one of the areas where we did not hire as quickly as we anticipated in that third quarter, and so our services personnel and the project managers were at extremely high utilization rates during that quarter. Since then, we have a really ramped up the hiring and the deployment of those service personnel as well, so I think you'll see a reduction in our gross margins in this fourth quarter too.

But will it reduce all the way to that mid-teens level that you had suggested or is that more something that we'll see a couple of quarters out?

It will gradually come down to that and you'll see the impact of that literally in the first couple of quarters in FY '13.

Great. And then lastly, Karen, can you just remind us on the visibility that you have going into sort of as a percentage of revenue that you have going into any given quarter on any given fiscal year?

On an annual basis, we have visibility north of 75% of the amount of license and maintenance revenue that's expected in that time period. Now it will differ dependent on the amount of new contracts we expect to close in any one given quarter.

Great. And then, Marcus, just one last one for you. As you've seen more and more the deployments that you're having and more of your own professional services people involved, are you getting any pushback from customers to run more of these applications for them almost as a fully outsourced type of model?

Sometimes the question is floated but we shut it down pretty quickly and say that's just not our business. I mean, our model and our offerings service wise is to achieve knowledge transfer and help them have a successful implementation and then leave and help the customer to be self-sufficient. And whether they -- if there's an opportunity for application maintenance or hosting on the like, then we can direct them to any one of our capable SI partners.

[Operator Instructions] We'll take our next question from Barbara Coffey with Brigantine.

Can you put some numbers around when you said a policy transaction seems to take longer than, let's say, a Claims or Billing? So what is a typical time to install one of these or each one of these solutions? And then as a follow-up, I'd like to know sort of how effective you have been at cross-selling and what kind of metrics we should be looking at for sort of watching that develop with you guys.

Sure. So first in terms of comparing into the scale of the project, our ClaimCenter, our BillingCenter project versus the Policy one. Our median implementation time to go live for Claims or Billing would be 12 to 18 months from the start of the project to put -- to a production go live. That will be in Claims or Billing. In Policy, you can add 6 months to both of those numbers as being the expectation. There are, of course -- that's a range. I say the large majority of our project would fall within that range, but of course, there are ones that have happened faster, sometimes substantially faster and sometimes a bit longer. And in terms of the effort, the total number of a man hours that it takes on the program, and these are not just our hours, it's the total effort which involve customers.

The full commitment on both sides.

I'm sorry?

It's the full commitment on both sides.

Correct, right. On Policy, I would guess somewhere around the third larger in the scale of the program. So that's reflected both in total amount of effort and in the duration of the project. Your other question was about our upsell experience. I don't have metrics that we're prepared to share today. Though on our next earnings call, we'll be pretty specific about the total number of customers and licenses that we have by product, and we can share what kind of percentage of our customers have more than one product and so forth. There is -- we do believe that we're in a very advantaged position with respect to upsell because 50% of the quote is shared between our products and there are all kinds of advantages and implementation and integration and user adoption and so forth from adopting multiple applications within the suite, which were all built and designed by the same team. That's a big selling proposition that we're seeing the benefits of now. And the way that kind of cashes out in our pipeline and sales expectations is that about 1/3 to -- roughly about 1/4 to 1/3 of our new business we expect to come from existing customers and the rest to come from net new names to our customer list.

And that concludes today's question-and-answer session. Mr. Ryu, at this time, I will turn the conference back over to you for any additional or closing remarks.

Thank you all for participating in our call today. We are excited about the increasing adoption of our technology for P&C insurers worldwide, which we attribute to sales execution, the rigor and scale of our software development operations and our track record of customer success. We are consciously investing in all of these areas to accelerate our emergence as the clear leader in serving this very large and underserved market. Thank you again and goodbye.

Ladies and gentlemen, that concludes today's call. We thank you for your presentation.