Karen Blasing – CFO Marcus Ryu – CEO

Thomas Ernst – Deutsche Bank Sterling Auty – J.P. Morgan Tom Roderick – Stifel Nicolaus Brendan Barnicle – Pacific Crest Securities Ken Wong – Citi

Good day and welcome to the Guideware fourth quarter and fiscal year 2012 earnings conference call. As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Karen Blasing, Chief Financial Officer. Please go ahead.

Good afternoon and welcome to Guidewire Software's earnings conference call for the fourth quarter and full year fiscal 2012 which ended on July 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 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 April 30, 2012 and the final prospectus for our follow-on offering 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 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 fourth quarter and full year results and our outlook for fiscal 2013.

Thanks, Karen; and welcome to all of you. I'm pleased to report that our fourth quarter was a strong finish to a very good year for Guidewire, including revenue and profitability that were again both ahead of our expectation. Total revenue of $67.6 million grew 33% from a year ago and was $4.6 million above the high end of our guidance. And similar to Q3, all revenue lines this quarter performed well. As an enterprise, we care most about growing our base of recurring revenue, deriving from multiyear licenses and ongoing maintenance agreements, both of which are built annually and on which we have historically enjoyed extremely high renewal rates. Our full year term license revenue was up 24% year over year and our rolling fourth quarter recurring revenue, which add term license and annual maintenance together, totaled $104 million at the end of fiscal 2012, up 28% from $81.9 million at the end of fiscal 2011. Our revenue upside flowed to the bottom line to produce non-GAAP operating income of $9.6 million in the quarter, which was also above the high end of guidance, and yielded a 14.3% non-GAAP operating margin. Non-GAAP net income was $0.10 per share, $0.05 above the high end of guidance. We ended the year with 837 employees, up 29% from a year ago. Though headcount grew considerably during the quarter, with an all-time recruiting high of 68 new employees, we did not reach the even more aggressive headcount growth built into guidance, and this contributed to our earnings upside. We continue to recruit and have aggressive hiring plans across the company. A primary driver to our overall financial outperformance in the fourth quarter was our services revenue which at $30.8 million was up 60% from a year ago, considerably ahead of plan and reflecting unexpectedly strong growth in the number and scale of our implementation. As we shared in our last two calls, utilization rates are above our long-term target, particularly as our systems integrator partners ramp up their knowledge and credentials in the policy and suite domains as they did with ClaimCenter over the last several years. In the meanwhile, it is important to understand that our professionals services form the foundation for our lifelong, highly referenceable customer relationships, which drives market share gains and which we believe will impose a formidable barrier to entry for new entrants. Our services are also profitable and provide positive cash flow, and the demand for Guidewire services reflects our current momentum in replacing legacy policy systems, the largest segment of the multibillion-dollar market for insurance core systems software. Our experience suggests that the complexity and criticality of policy replacement leads to this segment being several years behind claims, but upwards of 50% to 75% more valuable per unit premium. So we are very encouraged by the strong demand we are experiencing as exemplified by several strategic sales in the fourth quarter that I'd like to highlight. First, we signed one of our most significant European wins to date, a PolicyCenter and ClaimCenter deal with Aviva for their domestic commercial lines business. Aviva is the largest insurer in the UK and our first PolicyCenter customer in Europe. Based on experience with other multinational insurance customers such as Axa, Zurich and QBE, we expect our relationship may expand over time to various subsidiaries in other countries. As part of this sale, for example, we also signed a policy and claims license with their large Canadian subsidiary, Aviva Canada. Second, we signed a major enterprise deal for PolicyCenter and BillingCenter with the largest insurer in Poland called PZU. PZU is a household name in Poland, insuring over 25 million people and with the second largest market capitalization on their stock exchange. PZU is already serving as a great anchor reference in the Central and Eastern European markets which are growing faster than North America and Western Europe. Third, we signed an enterprise PolicyCenter and BillingCenter deal with Santam, the largest insurer in South Africa. Like the PZU win, Santam is further validation that PolicyCenter and BillingCenter are best-in-class solutions on a standalone basis just as ClaimCenter is well-recognized as the leading solution in the industry for claims. Indeed, through the last four to six quarters, we led with PolicyCenter or BillingCenter as often as ClaimCenter. Of course, the pre-integrated and unified design of our insurance suite makes it especially compelling to license additional applications after the first. There are great functional, architectural and IT efficiency benefits to implementing our full suite. A great example, in Q4, with Amica Mutual, a very respected and longstanding ClaimCenter customer who licensed PolicyCenter in 2010 and just added an enterprise license of BillingCenter in Q4. A fifth win in Q4 showcases a different approach that some carriers can take, a license and implementation of the full insurance suite. This was the approach of Pacifico Seguros, the number two insurer in Peru, who was undertaking a complete replacement of its legacy core systems with our suite. Overall, we are under-penetrated in Latin America, whose insurance market is growing faster than the English-speaking world. So this is a high-profile and significant win for us in the region. As you can tell from these examples, we drove significant international expansion in fiscal 2010, with 10 new customers from outside the US, and we are now proud to have major customers in 16 countries, up from 12 last year. In virtually all of these cases, Guidewire is the first packaged software application they have licensed for a core system project, and in each case, the proven suitability for multinational use and the global best practices embedded in the solution were crucial differentiators. The new customer wins were very encouraging validation of our ambition to transform the $1.2 trillion global P&C insurance industry and not just in the English-speaking world. Now I have saved the most significant Q4 win for last. It was here in the US. An enterprise license of PolicyCenter and BillingCenter to Nationwide Insurance, a market-leading insurer with $17 billion in premiums and 16 million policyholders across virtually all lines of P&C insurance. Nationwide had licensed ClaimCenter over a year ago and they are now our largest full insurance suite customer. There's even deeper significance in this win. To the best of our knowledge, Nationwide is the first tier 1 insurer ever to buy a packaged software product to run its primary multibillion-dollar business lines. Indeed, it is arguably the most significant milestone and market penetration in Guidewire's emerging leadership position since the company's founding. Okay, let me take a step back from this quarter and take stock. As promised in prior calls, I want to share a quantitative profile of our customer base. Going forward, we intend to do this annually. In terms of customer count, we added 30 new insurers to our customer community during fiscal 2012. By way of comparison, it took us about five years to license our first 30 customers, and fiscal 2012 nearly doubled that previous record annual customer acquisition performance. We continue to have best-in-class renewal rates among customer base, but we did have one small customer who never got started with their implementation and decided to cancel their project during the fourth quarter, until they are able to move beyond company-specific challenges. Therefore, we ended the fourth quarter with 130 total customers. Drilling down further, we added 17 new customers for PolicyCenter alone in fiscal 2012, nearly doubling our PolicyCenter customer base to 35 insurers. BillingCenter and ClaimCenter also had excellent years, with 24 customers adopting ClaimCenter and 15 customers adopting BillingCenter during the year. We entered -- we ended fiscal 2012 with 116 total ClaimCenter customers and 46 total BillingCenter customers. In terms of the source of deals, our experience this year aligned with our dual goals of new customers and deepening existing relationships. Fiscal 2012, six of our 30 new customers bought more than one of our solutions, and five licensed our full insurance suite, bringing that full number of insurance suite licenses to 22. Of our 130 customers today, 44 have more than one Guidewire product. We ended 2012 with 50 customers with over $1 billion in annual premiums, with eight of these customers carrying premiums of over $5 billion. Our customers are well-distributed amongst smaller -- our products are well-distributed amongst small carriers as well, with 80 customers under $1 billion in direct written premiums or DWP. Across sizes of insurers and lines of business, our customers are a quite representative cross-section of the global industry, and because of our international momentum, it is increasingly so on a geographic basis as well. The total DWP being managed by Guidewire's products grew by 32% in the last year, from $154 billion at the end of the fiscal 2011 to $201 billion at the end of fiscal 2012. We estimate that approximately 17% of total global DWP is using or implementing at least one Guidewire application. This growing market share is not only a byproduct of successful sales, it is also an asset that we can leverage in the development of new products, measuring and driving best practices across the industry. We plan to share some of our thinking and progress in that direction in late October at our Annual User Conference in San Francisco called Connections, which naturally we expect to be our largest event ever by a good margin. It was at last year's Connections when we launched our offering of Insurance Suite 7, comprised of PolicyCenter, BillingCenter, ClaimCenter and several ancillary applications. As the industry inevitably replaces its 30-plus-year-old green screen systems with modern software, it has given us overwhelming feedback that it wants an integrated suite that can be licensed and implemented modularly. We believe it is a huge differentiator for us that we are the only technology player of scale that offers a unified, natively-integrated and upgradable suite in this sense. We continue to invest to ensure that it keeps its lead as the best in the world. An example of that investment over the last year is in our rating module which handles insurance product pricing as an optional component for PolicyCenter. Of the 17 customers that licensed PolicyCenter in 2012, 15 of them also licensed the rating module versus licensing various third-party options. The other equally important differentiator is the consistency of our delivery of customer success. In fiscal 2012, our global services team led implementations at customers around the world -- go-lives, including a full insurance suite implementation and four other implementations that include PolicyCenter. We also continue to prove the upgradability -- with go-lives of 12 post-production upgrades, including two PolicyCenter upgrades. While our services team lead our implementations in typically a system upgrade, we rely on our systems integrator partners for the majority of the work. Going into fiscal 2013, those external Guidewire practices include over 2,700 consultants around the world. As we look ahead, we plan to sustain our level of new investment in our products to extend our technology leadership and add new offerings. At the same time, we plan to increase our investments in, one, our global services team, to maintain our exemplary rate of customer success, especially in the newer domain of PolicyCenter; and two, in our sales and marketing organization, to capitalize on growing market interest and our sales pipeline. Consequently, as Karen will detail, we do plan for lower operating margins in 2013 compared to the higher-than-expected margin delivered in fiscal 2012. Our ambition is unchanged, to win in the land-grab happening in our space over the next few years in order to create a large and highly-profitable company over the long term. Going into 2013, I believe we are better-positioned than ever to fulfill this ambition based on our competitive position and market momentum. Now I'll turn the call over to Karen to discuss our financial results and our outlook in more detail. Karen?

Thank you, Marcus. We're pleased to report results that exceeded our revenue and earnings expectations for the fourth quarter. Total revenue was $67.6 million, a 33% increase from the fourth quarter of fiscal 2011. Within revenue, license revenue was $28.9 million, up 11% from a year ago. Fourth quarter revenue included $1.6 million perpetual license revenue, down from $3.4 million in the fourth quarter of 2011, as we continued to focus on signing multiyear recurring term license agreements. Excluding the impact of perpetual licenses, license revenue was up 21% from a year ago. Maintenance revenue, which is recognized ratably through the year, was $7.9 million for the fourth quarter, up 33% from a year ago, reflecting overall license growth trends. Services revenue was $30.8 million, up 61% from a year ago, reflecting the increase in number, scale and complexity of projects we're engaged in. Our high annual revenue visibility is driven by the recurring nature of our multiyear term licenses and ongoing maintenance agreements, both of which are built annually. Term license and maintenance revenue totaled $104.4 million for fiscal 2012, up 28% from $81.9 million for fiscal 2011. With respect to geographic mix, the United States represented 51% of revenue in the fourth quarter, with 49% of revenue coming from outside the US. 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 full fiscal year, our US revenue was 55% of total revenue while international was 45%. We will discuss our profitability measures on both a 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 the release of evaluation allowance on deferred tax assets in the third quarter of 2011 and the expense of a litigation settlement in the fourth quarter of 2011. Non-GAAP gross profit in the fourth quarter was $41.6 million, an increase of 28% on a year-over-year basis, and producing a 61.5% non-GAAP gross margin. Breaking that down, gross margin for license was 99.7%, maintenance was 80.7%, and non-GAAP gross margin for services was 20.7%, higher than anticipated. We do not believe the high services utilization rates we have been experiencing are sustainable over the near term. As a result, we continue to anticipate that services margins will decrease to the mid-teens range in the next several quarters as we increase staffing levels and our services organization to support a growing number of implementations, particularly for PolicyCenter. Turning to operating expenses, total non-GAAP operating expenses were $31.9 million in the fourth quarter, an increase of 27% compared to a year ago. This resulted in non-GAAP operating income of $9.6 million, which was up 31% on a year-over-year basis and represented a non-GAAP operating margin of 14.3%. As in the third quarter, operating income was higher than our guidance due to revenue that was above our expectations and hiring that was slightly lower than the levels we had assumed in our guidance. For the fourth quarter, we generated $10.4 million in adjusted EBITDA, an increase of 22% compared to a year ago and represented adjusted EBITDA margin of 15.4%. While our longer-term EBITDA margin target is in the 20% to 24% range, we continue to place the near-term focus on investing in our future growth. And we can do -- [delivering] healthy profitability levels at the same time. Non-GAAP pretax income was $9.6 million in the quarter, and with the 33% effective tax rate, resulted in non-GAAP net income of $6.4 million in the fourth quarter. Non-GAAP net income was $0.10 per share, which was well above our guidance of $0.02 to $0.05. Non-GAAP net income decreased from $11.2 million in the fourth quarter of 2011, primarily due to a full effective tax rate in fiscal 2012 as we recognized a tax benefit in the third quarter of 2011 due to the removal of a portion of a tax valuation allowance in the prior year. Looking at our results on a full-year basis, revenue of $232.1 million in fiscal 2012 was up 35% from prior year. Full-year non-GAAP gross margin was 62.4%, an increase from 61.2% in 2011. Non-GAAP operating income was $41.9 million, up 78% from a year ago. Non-GAAP net income was $27.1 million, down 4% from 2011, with a full effective tax rate in fiscal 2012 compared to a tax benefit in 2011. Adjusted EBITDA was $44.8 million for the full year, up 74% from a year ago. We are very pleased with our full-year results that showed strong top line growth and profitability. Turning now to our balance sheet. We ended the fourth quarter with $205.7 million in cash and cash equivalents, up from $201.9 million at the end of the third quarter. We generated $19.1 million in operating cash flow for the fourth quarter and $17.1 million for the fiscal year 2012. Also, as was anticipated, we used $12.4 million in cash to satisfy tax withholding obligations related to divesting of the RSUs held by current and former employees which vested July 22nd, upon expiration of the IPO lockup period. Our current deferred revenue was $52.9 million and total deferred revenue was $55.5 million at the end of the fourth quarter, a decrease from $61.2 million at the end of the third quarter. This was primarily from the recognition -- license invoice from an existing customer that was billed in the third quarter that recognized in the fourth quarter. As we have shared in the past, 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 their due date. Further, our multiyear contracts combined with 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 rates provides us with the high-level visibility towards 2013 revenue today. Now I'd like to turn to our outlook for the first quarter and fiscal year 2013. We believe that we have been successful in driving near and longer-term top line growth with investments we have been making in our business. As Marcus described, our plan is to continue this proven strategy, and as appropriate, amplify investments in selected areas to help drive our long-term growth and to strengthen our leading market share position. We anticipate total revenue in the range of $276 million to $288 million, an increase of 21% at the midpoint. There are two fundamental principles embedded in our revenue guidance. First, we will continue to drive new licenses to a recurring term base model. While perpetual licensed revenue increased to $22 million during fiscal 2012, our guidance assumes a much lower absolute level of new perpetual licenses during 2015. Second, we anticipate our services revenue to continue to grow significantly through 2013 to service our recent and anticipated new customers wins, particularly in support of PolicyCenter implementations. We currently expect our services mix to be in that mid-40s range for fiscal 2013. In terms of profitability, while we achieved 18% non-GAAP operating margins in fiscal 2012, we are increasing our investments in product, sales and services, as Marcus described. We expect full-year non-GAAP operating income in the range of $20 million to $29 million, representing non-GAAP operating margin of 9%, at the midpoints of our revenue and operating income guidance. We anticipate adjusted EBITDA in the range of $28 million to $35 million in fiscal 2013, and we anticipate non-GAAP net income in the range of $14.3 million to $18.8 million or $0.23 to $0.30 per share based on a fully diluted share count of 63.3 million shares. On a GAAP basis, which includes $36.5 million of stock-based compensation expense, we anticipate a fiscal 2013 operating loss of between $14.5 million and $7.5 million, and net income loss of $9.5 million to $5 million or an EPS loss of $0.17 to $0.09 based on an estimated weighted average share count of 55.5 million shares. We anticipate an effective tax rate of approximately 35% for the full year. Looking at the first quarter of fiscal 2013, we anticipate total revenue to be in the range of $59 million to $62 million. First quarter revenue includes one historic transaction valued at about $4.9 million for which we anticipate our customer achieving an implementation milestone, triggering revenue recognition. This transaction is the last historical transaction for which we expect any catch-up revenue. For comparison purposes, the first quarter of fiscal 2012 included catch-up revenue of $1.8 million. For the first quarter, we anticipate a GAAP operating income of a loss of between $7.2 million and $4.7 million. We anticipate a GAAP net income of a loss of $4.7 million to a $3 million or an EPS loss of $0.09 to $0.06 per share based on an estimated weighted average share count of 54.5 million shares. We anticipate an effective tax rate of approximately 35% in the first quarter. Our GAAP operating income and net income per share expectations include $6.7 million in stock-based compensation expense. [Excluding] non-cash expense, we anticipate non-GAAP operating income of between a loss of $0.5 million to a gain of $2 million for the first fiscal quarter and non-GAAP net income of between a loss of $0.3 million to income of $1.3 million, or roughly breakeven to $0.02 per share. We expect to use cash during our first quarter as we typically use cash in the first half of the year and rebuild cash balances from operations during the second half of the fiscal year. In summary, we are pleased to report fourth quarter and full-year results that exceeded expectations. We believe our continued investments will enable Guidewire to capitalize on the significant opportunities in front of us, which we expect to drive strong revenue growth and expanding profitability in the years ahead. Operator, can you now open the call for questions?

Certainly. [Operator Instructions]. We'll go first to Thomas Ernst with Deutsche Bank. Thomas Ernst – Deutsche Bank: Good afternoon. Thanks for taking my question. How are you too?

Great. Hi, Tom. Thomas Ernst – Deutsche Bank: So, it looks like your number policy went, you know, I think is a big surprise, you're up 35, you've essentially doubled since the IPO timeframe, and this is driving the services work. I guess the question would be, with these -- first, how are these service deployments going? I know I ask you this every quarter, but it looks like they're clearly more service intensive. Are you finding success in all the deployments or are you finding any challenges that drag these out? Do you think you'll have all of these 35 customer successful when all is said and done?

Right. Thus far, all products are on track. One thing I always tell any customer contemplating one of these core system projects and the sales process, is that be prepared for an extremely demanding project. It will be very difficult, there'll be moments of pain, and it doesn’t happen by itself. So, all of these -- every one of our implementations are very, very demanding and that's just the nature of what it is that we're doing. PolicyCenter isn't intrinsically more difficult than the claims project, it's just larger. And I wouldn't characterize the projects as being more services intensive, it's just that the aggregate amount of work to be done on a program for policy is just larger. And while we're doing the same proportion of that work, 10% to 15% is our usual target, that in aggregate is just on a larger base. So, our current projects are on track and in fact it would make it extremely challenging to win new customers per policy if the existing customers, both those in implementation and in live production weren't to testify very enthusiastically in their own words. If that weren't the case, we would not do well in the market. Thomas Ernst – Deutsche Bank: Okay. Maybe more specifically on this, what is happening to the trend for time to revenue, the policy and the larger suite type deals? How long does it take you to go live and start recognizing revenue? And how has that evolved over time?

So, just first a clarification, whether or not it's policy or a claim, at this point we invoice generally 30 days within the execution of the contract. So we are getting paid license just on the start of implementation. That's across all our products. That wasn't always true historically where there was a little bit more complexity, but certainly for the last --

Two full years.

-- last two full years, and certainly going forward, that's our expectation and model. And we recognize accordingly a unified revenue model. There is a subtlety that we called out before, and I think you might be alluding to this, Tom, which is that in many cases a policy project will start with a portion of the business as opposed to the full enterprise, and this is especially the case where you have a kind of complex business with different lines of commercial lines, personal lines, specialty lines, that are a bit distinct from each other. And in this case we'll win the new customer but they will license it for a portion of their business and pay us only for that DW -- only for that amount of premium, but treat that first project as foundational and then the subsequent lines of business in a way are much more routine once they've done that first one. So, in that sense, the license base is a bit -- is smaller than in the beginning than it might become over time, and we see that a lot in policy. Thomas Ernst – Deutsche Bank: And are you finding any trend towards faster expansion in those deals or is it still early customers?

Well, we've been pleasantly surprised in general by stimulating conversations about the second product or third product earlier than some of our historical experience, and I think that just reflects the overall maturity of our products, and Nationwide, which is the largest deal we talked about in the script there, they are not live with claims, and yet they have made essentially an enterprise commitment now for policy, which was not something that you -- that we would have expected to happen, say, two, three years ago. So in that sense there's a bit of acceleration, and I think it just reflects the improving profile that we can present customers. Thomas Ernst – Deutsche Bank: Okay, last question for me then I'll let others ask. I know you give the numbers once a year on -- the number of wins and policy, et cetera, but how was the momentum through the year? Do you feel like it's stable, building, decelerating? What's the overall momentum as you exit the year and enter this new one?

We feel great about the momentum. We have clearly the strongest pipeline that [the companies ever enjoy], lots of factors going into that. One, we have more feet on the street. I think our marketing is getting better, more substantial, more pervasive, you know, and out there. I believe there's some reason to be optimistic about our competitive position that we never want to get arrogant or complacent about that. But lots of factors working in our favor there that have helped the output, which is a much stronger pipeline than we've ever had. Thomas Ernst – Deutsche Bank: Thank you again.

We'll go next to Sterling Auty with J.P. Morgan. Sterling Auty – J.P. Morgan: Thanks. Hi, guys. I wanted to start with, you mentioned kind of the emphasis on the term versus the perpetual, and the perpetual performance this fiscal year. Can you give us a sense of what we should be thinking about in terms of the trends quantified at least in terms of should term -- or, I'm sorry, should perpetual license revenue actually be down year over year and the growth made up by term? Or what should be the trend that we should think about?

Yes, Sterling. The perpetual licenses we recognized $22.3 million in FY12. Embedded in our guidance, we have assumed a much lower number of license revenue from perpetuals in 2013. So it is dampening down the effect of full license growth. We do anticipate that our term license growth will be substantive, substantially above the blended license growth. We think it's really important for the company to try to pursue the term license model. Maybe Marcus, if you can share with us what we think is the benefit to customers as well.

Yeah. One thing I'd add to Karen's comments, Sterling, is that it's always been the philosophy of the company to have a recurring revenue model based on term licenses. That's really from day one 11 years ago. The difference now is I think we've become substantially more persuasive in that. Again, not 100% of the time but steadily better. And I think three quick -- three factors have contributed to that. One, it's become much more norm in the market, you know, [with Salesforce] and others. Number two, I think we have a bit more market stature, more market stature today than we've ever had before. And number three, the central value proposition of a term license is that we continue to innovate and improve the product, and it's much easier to argue for that when you have a track record of doing so as opposed to making promises about the future. So, for all those reasons, we've been pleased with our ability to generally drive much more term license, and we are modeling that we are going to continue improving on that trend in this year. Sterling Auty – J.P. Morgan: Okay. On the deferred revenue, you gave some commentary in your prepared remarks as to why we shouldn't look at it as an indicator as compared to maybe other traditional SaaS companies, but in looking at your business and what you see from your side, is there a pattern or a trend in deferred revenue that we should expect over the course of fiscal '13?

So, typically, you will see our deferred maintenance revenue, which we've broken out for you in the Q's, and we will do so again in the 10-K. Deferred maintenance will continue to go up. If you look at it particularly on a year -- quarter-over-quarter basis, so, Q4 over Q4, and that is because we typically invoice our customers for maintenance upfront on an annual basis and recognize that maintenance revenue over the next 12 months. So it should be a good indicator of the growing customer base. Our deferred license revenue has a different characteristic to it, particularly because there's very little of deferred license revenue left from the old, historic revenue recognition that was much more driven by our customers' implementation schedules than our selling efforts. Since the beginning of FY11, all sales, and through FY12, all sales were on a unified revenue model, so it more closely reflects the sales efforts of our team rather than the customer implementation schedules. But we do have license revenue that will sit in deferred revenue for generally a fairly short amount of time. When we sign a contract with a customer, we typically will give them 30 to 60-day invoice terms for the first payment, and we do need to delay revenue recognition from the time until that invoice due date. Okay? So, sometimes that straddles the quarter and you will see deferred license revenue go up just in that period and then be recognized in the next subsequent period. Sterling Auty – J.P. Morgan: Got it. And last question, can you give us a sense in terms of the 68 employees that you hired, how did they get applied in terms of R&D versus sales and marketing? What's your kind of general thoughts around the hiring and investment by functional areas for 2013? And is there a level where you say, you know what, we would expect the peak investment to hit about such and such quarter, and then from there, would you then expect operating leverage to show through?

Yeah. I don’t have -- we don't have a peak quarter to share with you yet, Sterling, but in terms of the emphasis by function, a lot -- the emphasis -- the heaviest emphasis by far is in sales and in services, because we never want to be gated in our ability to win a new customers by an implementation shortfall. And then we have had growth in the development line as well but at a so much lower rate. And that pattern we plan to extend into this year as well. So, the heaviest growth on a percentage term by far is in sales, followed by services. And then very modest increase on G&A. Sterling Auty – J.P. Morgan: All right. Sounds good. Thank you.

We'll go next to Tom Roderick with Stifel Nicolaus. Tom Roderick – Stifel Nicolaus: Hi, guys. Good afternoon. So I wanted to learn a little bit more just about what you're seeing on the sales cycle side of policy, and maybe Nationwide is a good place to dig in. Can you talk a little bit about how long that conversation was going on for? Who else you had to compete against, obviously, there, considering the first tier 1 to evaluate a third-party policy decision, I'm gathering they looked at other vendor solutions? So, maybe if you could just talk about how long that sort of took you, how long -- many iterations, and who you went up against, that'd be really helpful. Thank you.

Sure. Yeah, the total evaluation time was about a year, which is somewhat faster, but that's because we were able to shortcut -- or rather had already invested in the kind of get-to-know-you period. They are a claims customer, and so they had done a lot of due diligence on us as a company and as leaders of the company and so forth, and then the technology, because of course it's shared between our products. So we were able to shortcut a lot of that stuff. But it was still about a yearlong conversation and negotiation before we had an executed contract. Competitively, I think this is implied in your question, we actually did not compete with any real third party, with any other software vendor. They had sort of concluded that the market had nothing to offer to a carrier of their scale. And so the alternative, the default alternative was that they would proceed with what they call legacy modernization with their own internal IT resources. And this is typically what we see at the upper end of the market, the real behemoth that are in the industry, the $10 billion plus, that they have large IT organizations accustomed to building -- adding new layers of code on that 30-year-old system. So it was a bit of a different kind of sales cycle than we have in other sectors of the market, but we had ultimately I think a very compelling value proposition for them that showed that there was a lot for that group of people to do as opposed to reinventing the wheel building the core software. And we expect to see that pattern repeated at other tier 1's. In fact, we're in a lot of those other conversations right now. Tom Roderick – Stifel Nicolaus: That's great. And Karen, maybe a follow-up question for you on Nationwide itself, I mean that $15 billion in direct written premium, it would seem like this is a pretty sizable monetary deal. How are you thinking about the inclusion of that deal with respect to your 2013 guidance? When does that sort of start kicking in both from a services and license perspective?

So there is no Nationwide revenue in 2012. All of the revenue that we expect to start would really happen in 2013. And this is a customer simply, because of the size as well, where typically we would do kind of annual invoices in advance, so we may have a pretty significant license benefit in any one quarter. During the negotiations with Nationwide, it made most sense for all parties actually to do quarterly invoicing instead of this annual in advance. So I expect both the license revenue to start to be recognized in the first quarter, but it won't hit as a one-quarter item, it'll come in much more evenly over the year. And I also expect our services revenue to really start and ramp up here pretty quickly as well. Tom Roderick – Stifel Nicolaus: Okay, that's great. Last question for me, just thinking about the mix of perpetual versus term, and term, the growth was very good this quarter, so we're sort of drawing down off of these tougher comps on the perpetual. But just as we think forward going into the model, what are you still selling perpetually? What can customers buy on that front, on a perpetual license, and how much longer will that -- it kind of sort of impacts the model in any material fashion? Or do we sort of wind all the way down on perpetual as we get to the end of 2013?

Well, it's certainly our -- that would be ideal. We don't think that it's realistic to assume that we'll get to zero in the year. We have a much lower expectation in absolute terms, not just in proportion of license but in absolute terms in perpetual license new bookings for the year than we did last year, than we achieved last year. And so that's -- and we have all kinds of internal incentives and so forth to make sure that we're all singing from the same hymn book, as they say, on this.

The one thing I'd like to add a little bit to that is, you know, we do have longstanding contracts with some of our customers who may have bought from Guidewire on a perpetual license basis for the first product or the first line of business that they were doing an implementation, [like it not], when they're going to buy a new product or they're going to expand their business with Guidewire as well, they'll -- we'll reach back into that existing customer contract and really just kind of accept orders under those existing contracts. So it's very difficult to be -- to move the organization to 100% term licensing when many of -- when some of our existing customers have already been able to successfully buy perpetuals from us.

Right.

So, those are the most of the residuals.

Right. What Karen described is the primary case where we would sell another perpetual, a customer who's already licensed a ClaimCenter historically on a perpetual basis, which is a minority of our customer base --

That's right. -- but there are still some out there that we want to up-sell to. Tom Roderick – Stifel Nicolaus: Great. That's very helpful. Thanks, guys. Nice job.

We'll go next to Brendan Barnicle with Pacific Crest Securities. Brendan Barnicle – Pacific Crest Securities: Thanks, guys. I was wondering, and maybe I'd missed it, if you had any commentary on backlog at all. It sounded at the yearend that was something you were going to share with us, like you were with updates on the customer count.

Brendan, we really, you know, in kind of looking at backlog, so much of our contractually committed licenses from our existing customers is completely off balance sheet, right? So you see sitting in deferred amounts that are really just waiting for a short time period to be recognized as earned revenue. But the concept of backlog to a software company and a term software company, I find it a little foreign in that, you know, so I think the best way to look at kind of our existing kind of base of business is how we recommended looking at that four-quarter rolling revenue metric, that includes all of the term licenses, which we expect to be recurring, and a very high renewal rate -- and then all of the maintenance revenue both from our term licenses as well as our perpetuals, because again we expect those fees to be charged to our customers and recognized as revenue year over year over year. Brendan Barnicle – Pacific Crest Securities: Great. And then if I just delved into the Q1 guidance a little bit more. Should we be assuming that services revenue would be up sequentially and that the license component overall term as well as perpetual would be up year over year?

So, yes, we do expect our services revenue to be up in Q1 over Q4. And again we do not expect a large amount at all of perpetual licenses to be recognized in the first quarter. Brendan Barnicle – Pacific Crest Securities: So, given the perpetual component that we had a year ago, should we be assuming that Q1 license total revenue -- or total license revenue is down year over year?

Yes, that's our expectation. Perpetual license revenue in the first quarter of '12 was $8.5 million. We don't expect anywhere near that size of a number for perpetual licenses in this first quarter, to be -- Brendan Barnicle – Pacific Crest Securities: And then just lastly, on our services gross margins, since you guys are still hiring, is that going to hit that mid-teens number immediately in Q1 or do you expect that to sort of continue to decline as we go through the year?

It'll continue to decline as we go through the year. Alex is -- Alex Naddaff, who runs our services organization, has a very aggressive recruiting campaign that he's had going on really for the last three or four quarters. And all of his team members are very highly utilized today. So he is working at this point to recruit to get more of a bench into his team. But it'll take a few quarters actually for that to start to impact the service margins.

But again to be clear, the main driver there we see is the lower utilization that we're targeting or the more normalized utilization, I should say, rather than a high, like -- than an even more accelerated services ramp. It's really our targeting a return to the long-term utilization rate.

Yes. Brendan Barnicle – Pacific Crest Securities: Great. Thanks, guys.

We'll go next to Walter Pritchard with Citi. Ken Wong – Citi: This is Ken Wong for Walter Pritchard. Just a quick question on your product pipeline. Can you give us a sense for what percent of the pipeline has multiple products versus what that percentage might have looked like last year?

The product pipeline. You mean -- I'm not sure I'm following you. Ken Wong – Citi: Just looking into your pipeline, what percent of that customer base, or just kind of a relative percent, you know, compared to last year, has multiple products?

I follow your question now. I don’t have a percentage to share with you, but I can tell you that a larger proportion of our conversations definitely are multi-products. And in fact, our overall go-to market is multi-product and full suite, where we expressly train our sales organization to deliver a suite-based, you know, total new operating platform kind of message, as opposed to hunt around for who might want a new claim system, right? And so it's, on almost every deal, we're having a multi-product conversation. Ken Wong – Citi: And is that something that you guys are approaching the customer with or are you seeing the customer actually come to you guys looking for that type of offering?

Actually it's a lot the latter. I think it's both of them because it's a message that suits us because we don’t think there's any other player of any scale that can do that and offer that credibly, and then secondly, it just makes so much logical sense that a lot of customers are already right there and wanting that. Ken Wong – Citi: Got you. And Karen, you guys, you know, with the 837 heads that you guys are at now, you guys indicated you're below what you're looking for. Any sense for what that, you know, kind of what the target was? Is that like 850, 900?

Yeah. So we, you know, we're targeting to hire probably, I would say, in a sense, like a little wider range, but kind of between 60 and 90 people. Ken Wong – Citi: Got you.

And when you're hiring as aggressively as we are. So we hired 68. And so we were, within our target range, I'd say the area that we still want to hire more is certainly in sales team and increasing the professional services as well. Ken Wong – Citi: Okay. And lastly, you guys mentioned that one small customer that kind of canceled their deployment. I mean, was that kind of macro-based, or you kind of mentioned it was kind of company specific, but just want a little more color there.

Sure. No, it's very, very company specific. They never actually started the implementation. The implementation was delayed several times for, entirely, for internal reasons. I think they had some management changes along the way. And then finally, I think the last wave of management came in and said, we need to get our own house in order before we can go undertaking any kind of big program, and let's just -- and naturally we tried to prevail on them, but they had kind of made a categorical decision that they need to fix some of their internal stuff. And they're very small. I mean that's -- they're at the -- I would put among our smallest customers. Ken Wong – Citi: Got you. Okay, great. Thanks a lot, guys. See you in a few days.

And that does conclude our question-and-answer session. I'd now like to turn the call back over to Marcus Ryu for any additional or closing remarks.

Thank you all for participating on our call today. We are now focused on extending our momentum into the current year, which we believe we're entering in a stronger position than at any other time in our history. So, thank you again, and goodbye.

And once again, that does conclude today's call. We do appreciate everyone's participation.