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

Sterling P. Auty - JP Morgan Chase & Co, Research Division Walter H. Pritchard - Citigroup Inc, Research Division Brendan Barnicle - Pacific Crest Securities, Inc., Research Division Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division Brent Thill - UBS Investment Bank, Research Division

Good day, and welcome to the Guidewire's Third Quarter Fiscal 2013 Earnings Conference. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Karen Blasing, Chief Financial Officer. You may begin.

Good afternoon, and welcome to Guidewire Software's earnings conference call for the third quarter of fiscal 2013, 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 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 annual report on Form 10-K for the period ended July 31, 2012, and our quarterly report on Form 10-Q for the period ended January 31, 2013, both of 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. Additionally, we are providing historical reconciliation data, as well as recurring revenue calculations in a supplement posted on our IR website available 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 onetime 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 and our outlook for the rest of fiscal 2013. Marcus S. Ryu: Thanks, Karen. I'm pleased to report that our third quarter revenue and profitability exceeded the high end of our guidance ranges. We continue to see strong demand from P&C insurers to transform their operations through replacement of their decades-old legacy core systems. We have pursued this opportunity since the company's founding, and we continue to expand our leadership position based on market adoption, rigorous software engineering and a unique track record of customer implementation success. Revenue in the third quarter was $68.3 million, an increase of 20% from 1 year ago. We continue to invest in expanding our global sales and services capabilities, as well as advancing the technology in both our core suite and adjacent domains. Even with these investments, our third quarter expenses were largely consistent with our plans, leading to non-GAAP operating income of $3.9 million, which was also above the high end of our guidance. A key metric that we use to track our progress is the recurring revenue from term licenses and maintenance that we have recognized on a rolling 4-quarter basis. At the end of the third quarter, this metric was $130.9 million, a 34% increase from the end of the same period 1 year ago. The strength of this metric reflects the general momentum of our business, with the added benefit of large transactions with tier 1 insurers nationwide in the Hartford that we started recognizing early this fiscal year. We continue to be optimistic about the prospects for our business, and as Karen will discuss in more detail, we are increasing our guidance for the fourth quarter, and therefore, full fiscal 2013, based on our third quarter results, in addition to our sales pipeline and our visibility into annual contracts with existing customers. Turning now to some of the highlights of the third quarter. We believe we experienced several positive indicators of our growing leadership position. First, we continue the key themes of our sales momentum, namely PolicyCenter and full suite sales, as well as international expansion. A representative example of the former is Michigan Farm Bureau, which has 550 million in premiums and serves nearly 0.5 million policyholders in Michigan across personal and commercial lines. Michigan Farm Bureau licensed our full insurance suite, and we'll be implementing it with PwC as their partner. A key example of our international success was the ClaimCenter sale to Germany's largest auto club, ADAC, one of Germany's most recognized companies who handles 4 million claims per year. We also expanded our reach to our first customer in Belgium, with the license of ClaimCenter to ING, who will use Capgemini to lead their implementation. Another significant international transaction was the expansion of our relationship with AXA Mexico, the second largest P&C insurer in the country, who is expanding their ClaimCenter license to all of their commercial and personal lines operation with an implementation led by Capgemini. Beyond sales, we extended our implementation success with several important go-lives, 3 of which were in the key geography of Continental Europe. Finland's largest insurer, Pohjola, has gone live with their implementation of ClaimCenter for their main line of business and personal motor. The other 2 European go-lives in the third quarter were ClaimCenter projects at Direct Line Italy and AXA Germany. In North America, Universal Insurance Group, Puerto Rico's largest insurer, went live with a full InsuranceSuite implementation, led by PwC, for both their commercial and personal auto lines. We also had several significant production upgrades, most notably, GEICO's upgrade to ClaimCenter 7.0, with 12 million policies and approximately 50,000 claims per month now being processed in ClaimCenter. Turning to development. The bulk of our engineering team is focused on the next major release of InsuranceSuite, 8.0, which is scheduled for release in the fall. Our efforts to help modernized core system software for P&C insurance continues to attract the attention of industry analysts. For the sixth year in a row, ClaimCenter earned a strong positive, Gartner's highest rating in their 2013 report on P&C claims management system. This recognition builds on the same rating of strong positive that PolicyCenter received earlier this year. Additionally, the Guidewire Live team has made significant progress since our launch of Live last October, with 2 licensable apps now available. Claim canvass allows insurers to visualize weather conditions for a particular time and place on a map to help validate claims. Viewpoint helps insurers pinpoint loss or policy locations without an address, such as on a highway interchange, to visualize conditions and claims investigations. As is our intention with all Guidewire Live apps, these tools improve insurer insight while enhancing customer service and efficiency. We also announced a new way to deliver live apps directly within InsuranceSuite screens, which renders new functionality at the precise point where it is most useful. While Guidewire Live program is still young, we already have well over a dozen customers contributing data on a daily basis, and we are just beginning to convert some of these into paying relationships. Over time, we expect the network effects inherent in Guidewire Live to attract insurers to adopt our suite and to motivate them to contribute their data. In addition to our organic R&D efforts, since the end of the third quarter, we closed on a meaningful milestone for Guidewire, our first acquisition. As we announced 2 weeks ago, Millbrook specializes in data management, and like Guidewire, has focused exclusively on the P&C insurance industry for its entire history. We came to know Millbrook while collaborating at the 5 customers that we have in common, and recognize that their skills in and technology for data management directly complement our core competency in software engineering for transactional systems of record. In particular, Millbrook speaks to 3 areas of data management, where customers have been seeking further help from Guidewire. Number one, operational reporting and business intelligence. As the production environments in which virtually the entire workforce of an insurer spends its working day, our applications capture and generate critical data, which our insurers want to view and interpret. Number two, data conversion. The decades-old legacy systems we typically replace have huge volumes of historical data that must be mapped and converted into Guidewire's data structures. And third, operational data stores or ODS, active repositories that pull together data from multiple production systems and keep downstream processes intact as customers transition to our future state platform. Over the last 16 years, the Milbrook team has built data models and solutions that help insurers with these 3 challenges: Interpreting data to improve operations; migrating historical data; and unifying data from multiple systems. The Pennsylvania-based Millbrook team is being merged into our services engineering team to advance both our solution and delivery capabilities. We believe that the addition of Millbrook will lower key barriers that inhibit insurers from taking the leap of core system replacement, in addition to providing us new incremental solutions to license to our customer base, as we plan to do starting later this calendar year. In addition to continually expanding our product capabilities, expanding our partner program remains another critical component of our ability to meet customer demand. At that point, it's noteworthy that the number of trained third-party SI consultants now exceed 3,400 in Guidewire practices. Importantly, our SI partners are engaged in virtually all of our PolicyCenter and InsuranceSuite implementations, where they are developing both expertise and credentials. We expect our SI partners to increasingly take on a greater portion of the overall implementation efforts required for these products, which is a win-win situation for everyone involved. Our efforts across product services and partners were recently recognized at an important industry awards event called the VIP Awards, hosted by Celent, an industry analyst. These awards are noteworthy because they are based entirely on votes from actual P&C insurers. We received first place in 5 of 6 categories, including core solutions, strategic partner and decision support technology, with the last of those awards due in part to our progress with Guidewire Live. As we look ahead, we believe that we are well-positioned to deliver a strong fourth quarter and multiple trends support our optimism for fiscal 2014. Market adoption of next-generation policy management systems is growing, buyers have shown preference for full application suites, and we have started to see tier 1 insurers begin to seriously engage with the need to update their core legacy systems. Based on our initial view, we feel comfortable with the current street consensus of approximately $345 million in revenue for fiscal 2014. This takes several factors into consideration. As I just noted, we continue to see a favorable demand environment, and Guidewire is competing effectively. We expect to deliver balanced growth in license and services revenue, which by definition means that services revenue growth will begin to moderate as we migrate a growing proportion of our services work to our strategic SI partners. In addition, it is important to remember that our fiscal 2014 revenue growth metrics will face a few headwinds. Our focus remains on generating recurring term license revenue, which will again reduce the level of perpetual license revenue. During fiscal 2013, we received the final benefit from catch-up revenue. And as we have discussed on recent calls, our fiscal 2013 growth was accelerated by a small number of very large transactions. We underweight such transactions in our forecasting process due to the difficulty of predicting precisely when they will occur and what the contract structure will be. Obviously, we are quite early in the planning process for fiscal 2014, given that we have not yet completed our fiscal 2013 campaign. And as such, we will provide additional detail and quarterly updates as we gain additional visibility. In terms of our go-to-market strategy, we will continue investing in our strategic growth initiative during fiscal 2014. We plan to expand our product offering to further differentiate our core suite offering, both organically and building out Millbrook's technology. In addition, we will continue to invest in international expansion with emphasis on Europe, where we are seeing positive signs of success. And we will sharpen our sales approach to the largest insurers to build on the accomplishments of fiscal 2013 to win additional top-tier accounts in the years ahead. We remain confident in our ability to capture a disproportionate share of a tremendous market opportunity ahead of us. We are at a critical stage of the market's growth and we are fulfilling our ambition to lead an inevitable migration for the P&C industry, away from legacy core systems toward flexible, upgradable software products such as ours. With that, let me lead the call -- let me turn the call over to Karen.

Thank you, Marcus. We're pleased to report that our financial results exceeded our revenue and earnings expectations for the third quarter of fiscal 2013. Total revenue was $68.3 million, a 20% increase from the third quarter of fiscal 2012. As a reminder, we recognized $4.5 million in license revenue during the second quarter instead of the third quarter, as a result of receiving early payments from new and existing customers. Within total revenue, license revenue is $22.9 million, a 6% increase from the third quarter of fiscal 2012. We continue to emphasize recurring term licenses as opposed to perpetual licenses. And in the third quarter, term license revenue was $17.9 million, a 16% year-over-year increase, while perpetual license revenue was $5 million, a decrease from $6.3 million in the third quarter of fiscal 2012. Maintenance revenue, which is recognized ratably throughout the year, was $9.1 million for the third quarter, up 17% from 1 year ago, reflecting overall license growth trends. Services revenue was $36.2 million, up 31% from 1 year ago, reflecting the increase in the quantity and scale of projects we're engaged in. As in the second quarter, there was no catch-up revenue coming from the balance sheet in the third quarter. Our high annual revenue visibility is driven by the recurring nature of our multiyear term licenses and ongoing maintenance agreements, both of which are predominantly billed annually. As Marcus shared, as of April 30, our metric of rolling 4-quarter term license and maintenance revenue was $130.9 million, an increase of 34% from 1 year ago. With respect to geographic mix, the United States represented 55% of revenue in the third quarter, with 45% of revenue coming from outside the U.S. In the year-ago period, 48% of revenue came 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. We continue to focus on the global opportunity and are investing significantly overseas, despite pronounced economic challenges in certain regions, including Europe. We will discuss our profitability measures on a non-GAAP basis and we have provided a reconciliation of GAAP to non-GAAP measures in our earnings press release issued earlier today, with the primary difference being stock-based compensation expenses. Additionally, we are providing historical reconciliation data, as well as recurring revenue calculations in a supplement posted to our IR website at ir.guidewire.com. Non-GAAP gross profit in the third quarter was $35.7 million, representing a 52.3% non-GAAP gross margin, a decrease from 59.7% a year ago, reflecting our investment in services to expand implementation capabilities. Overall, our expenses including expenses related to new hires were largely on track for the quarter. As a result, while our profitability was lower on a year-over-year basis due to our investments for long-term growth, our revenue upside in the quarter led to each profitability measure exceeding our expectations for the quarter. Non-GAAP operating income of $3.9 million represented a non-GAAP operating margin of 6% and compared to $9.1 million in the year-ago period. Non-GAAP pretax income was $3.8 million in the quarter. Our non-GAAP effective tax rate was 31%. And with the reinstatement of the R&D tax credit, we now anticipate a 31% tax rate for the full year. Non-GAAP net income for the third quarter was $2.6 million or $0.04 per diluted share, also above our guidance and compared to non-GAAP net income of $5.9 million or $0.10 per diluted share in the year-ago period. Turning now to our balance sheet. We ended the third quarter with $203.6 million in cash, cash equivalents and investments, compared to $203.2 million at the end of our second quarter. Note that cash balances at the end of the third quarter do not include the impact of our acquisition of Millbrook, which was completed during the fourth quarter. Total consideration for the acquisition was $18.5 million, $14.8 million of which was in cash and will be reflected in cash balances in the fourth quarter. Operating cash flow in the third quarter was $5 million, compared to $10.3 million in the year-ago period, with the decrease due to just discussed planned investments. Total deferred revenue was $51.5 million at the end of the third quarter, an increase from $45.1 million at the end of the second 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 amount on the due date, which is generally 30 to 60 days after the original contract date, and again, on each anniversary date. There is no specific pattern to whether an invoice and its due date span the end of the quarter, and therefore, results in an increase in deferred revenue. Additionally, when customers pay us ahead of the due date, as we saw on the second quarter, we are obliged to recognize revenue upon receipt, in which case, the invoiced amount does not go into deferred revenue at all. Furthermore, our multiyear contracts, combined with annual payment terms, means that a significant amount of our contractually committed fees are not visible on our balance sheet. We believe that this large base of business, already under contract, combined with our best-in-class renewal rates, provides us with a high level of visibility, as reflected in our rolling 4-quarter recurring revenue metric, which we believe is a good measure of our business under contract. Now turning to our guidance for the fourth quarter. Let me begin by reminding you that we shared in our press release a few weeks ago that we do not expect the acquisition of Millbrook to have a material impact on our fourth quarter revenue or non-GAAP profitability. With that said, we are increasing our previously shared fourth quarter revenue guidance based on anticipated anniversary payments from customers, as well as the help of our overall product line. As such, for the fourth quarter of fiscal 2013, we anticipate total revenue to be in the range of $91 million to $94 million, an increase from prior guidance of $88 million to $92 million. This guidance assumes license revenue in the range of $44.5 million to $46.5 million, of which we expect perpetual license revenue to be in the range of $3 million to $4 million. We anticipate maintenance revenue of approximately $9.5 million, and services revenue in the range of $37 million to $38 million. We now anticipate GAAP operating income of between $1.9 million and $2.9 million in the fourth quarter. We anticipate fourth quarter GAAP net income of $1.7 million to $2.6 million, or $0.03 to $0.04 per share, based on an estimated fully diluted weighted average share count of 62.6 million shares. We anticipate an effective GAAP tax rate of approximately 11% in the quarter. Our GAAP operating income and net income per share expectations includes $9.8 million in stock-based compensation expense in the fourth quarter and about 300,000 in amortization of intangible assets from our Millbrook acquisition. Excluding these noncash expenses, we anticipate non-GAAP operating income between $12 million and $13 million in the fourth quarter. With an anticipated depreciation and amortization of $2 million, we expect adjusted EBITDA to be between $13.7 million to $14.7 million in the fourth quarter. With a non-GAAP tax rate of approximately 31% in the fourth quarter, we anticipate non-GAAP net income of between $8.3 million to $9 million, or $0.13 to $0.14 per share, based on an estimated fully diluted average weighted share count of 62.6 million shares. For the full year, we anticipate revenue to be in the range of $294.8 million to $297.8 million, an increase from prior revenue guidance of $286 million to $292 million. For the full year, we anticipate license revenue in the range of $119 million to $121 million, maintenance revenue of approximately $37.2 million, and services revenue of between $138.6 million and $139.6 million. We now anticipate GAAP operating income for fiscal 2013 to range from $2.6 million to $3.6 million. We anticipate GAAP net income to range from $5 million to $5.9 million, or $0.08 per share to $0.09 per share, based on an estimated weighted average diluted share count of 62 million shares. Our GAAP operating income and net income per share expectations for the full year include $38.3 million in stock-based compensation expense and $300,000 in amortization of intangible assets from our Millbrook acquisition. Excluding these noncash expenses, we expect full year non-GAAP operating income to be in the range of $41.2 million to $42.2 million, an increase from our prior expectation of $36 million to $42 million, and representing a non-GAAP operating margin of 14 percentage points at the mid-point of our revenue and operating income guidance, which is well above our original expectation for the year. With depreciation and amortization of approximately $5.2 million for the year, we anticipate adjusted EBITDA in the range of $46.1 million to $47.1 million in fiscal 2013, and we anticipate non-GAAP net income in the range of $28.4 million to $29.1 million, or $0.46 to $0.47 per share, based on a fully diluted share count of 62 million shares. Again, an increase from our prior expectations for non-GAAP net income of $0.45 to $0.46 per share. We anticipate a non-GAAP effective tax rate of approximately 31% for the full year. Looking beyond fiscal 2013. Marcus shared earlier that we are comfortable with the current street consensus for revenue of approximately $345 million in 2014. There are a few additional details I wanted to provide to help analysts as they begin to fine tune their fiscal 2014 models. First, from a seasonality perspective, due to the nature of our annual billing cycles with customers, we expect quarterly revenue breakouts in 2014 to have similar patterns to those in 2013, adjusting for onetime catch-up revenue that we saw in the first quarter of 2013, and early customer payments in the second quarter. At a high level, this would have our first half of the fiscal year in the low 40% range of our full fiscal year revenue, with the second half of the year representing the high 50% range for full year fiscal revenue. I'd also like to point out that we continue to focus on generating long-term recurring revenue. We expect to further increase the recurring nature of our revenue in 2014 with diminishing perpetual revenue, and this is considered in our initial view for fiscal 2014. As we have discussed in the past, but worth reminding, we also received the last of our anticipated catch-up revenue in the first quarter of 2013, which is another minor headwind to our growth. We will continue to emphasize top line growth over margin expansion in the near term. And as such, we anticipate that non-GAAP operating margins in fiscal 2014 to be down a few hundred basis points on a year-over-year basis. As Marcus indicated, in fiscal 2014, we plan to continue investments, including expanding our product capabilities, international expansion and broadening our global sales capability. We will provide further details on our financial guidance for fiscal 2014 when we get together on our fourth quarter fiscal 2013 call. What should be clear is that we remain upbeat about Guidewire's outlook for both the fourth quarter and longer-term. Operator, can you now open the call for questions?

[Operator Instructions] And we'll go first to Sterling Auty with JPMorgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: So to kick it off. Can you just talk to us about how we should think about the services revenue in the quarter and whether that's sort of -- is a leading indicator of license revenue? And I was specifically thinking about some of the projects you're working on in terms of PolicyCenter?

Sure. I think we've had discussions on this before. And we have firmly believed that the number of new projects that we've entered into, particularly around PolicyCenter, require a larger Guidewire presence today. And that's really reflected in the higher services revenue that we reported in the third quarter. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Okay. And since you gave some preliminary thoughts on fiscal '14, and you talked about the further diminished perpetual license revenue, could you maybe also just discuss with us what that should mean for the maintenance revenue line as the perpetual line is starting to fade?

Sterling, you're right in that when perpetual licenses go down in absolute numbers year-over-year, the increase in maintenance growth does have a somewhat modified effect as well, so it doesn't increase in gross numbers quite as fast as if we had booked, for instance, 100% perpetual license revenue. Our perpetual maintenance fees -- I was just going to add, our maintenance fees are typically 20% per annum of a perpetual license fee, similarly to 20% of a term license fee. But the term licenses is paid over multiple years, where the perpetual license would only be paid once upfront. Sterling P. Auty - JP Morgan Chase & Co, Research Division: That makes sense. And then just last question, Marcus, for you. When you look at the pipeline, can you just give us a little qualitative commentary around the mix, both geographically, as well as what you're now seeing in terms of the makeup, especially for the full InsuranceSuite opportunities? Marcus S. Ryu: I'll take the second part first, that we are definitely engaging with the market now with a full suite offering. And we have -- our prospects want to talk about every one of our products, in combination and as an entire suite. And that was one of the most important transitions and evolutions for the company to go through over the last 2 years and we feel great about how well that's gone. I think we have just as many customer conversation, starting just on policy as we do on claims. And I fully expect that trend to continue. As to geographic character on our pipeline, we've had a lot more development of pipeline in Europe, which is encouraging and necessary. I think that's a direct consequence of having more -- there's more sales capacity and reach in Europe than we have before. And there's still further to go on that score. There are certain regions that we're not -- our coverage is not as comprehensive as I'd like to see it yet, such as the Nordics, for example, and still more to go in Continental Europe. But we have more coverage now than we did a quarter ago and more than -- and significantly more than a year ago. And that's being reflective, I think, in our European pipeline, as we would expect.

And we'll now move to Walter Pritchard with Citigroup. Walter H. Pritchard - Citigroup Inc, Research Division: Just a follow-up on what Sterling asked. Services revenue continue to grow faster than software and actually drove the majority of the upside in the April quarter here, as well as in your guidance increase. And you note that you have partners ready to take on more of the business. And I think we've heard you talk about that for the last few quarters here. And I'm wondering what makes you confident at this point that you will see the transition of services revenue more to the partners? Marcus S. Ryu: Fair question. The most important thing is that we have services partners that are building the skill base and the credentials equally importantly to be able to take on more of the services work. And that we really did not have a year ago a number of partners who could say with credibility and with tangible fact base that they had implemented our software and brought customer live for PolicyCenter. And that's now -- that story is now evolving in a really positive way where we have multiple partners who can say that now for multiple customers. And that's the most important lever by far in kind of moderating our revenue mix more heavily towards license, which of course, has always been our goal and is also the basis for that kind of comment about having more balanced revenue growth expected next year across license and maintenance on the one hand and services on the other. Walter H. Pritchard - Citigroup Inc, Research Division: And then, Karen, any update on number of customers that have taken the full suite? I know you gave that out at your analyst meeting back in the late summer last year. Any update on that number?

We don't have an update, Walter. We'll share a lot more of those kind of details on our fourth quarter call.

And we'll now move to Brendan Barnicle with Pacific Crest Securities. Brendan Barnicle - Pacific Crest Securities, Inc., Research Division: Marcus, you mentioned all the folks that you've got working on it from the systems integration side. This quarter, we saw a number of companies that sort of got into trouble because they didn't have a big enough channel to get everything implemented as quickly as they wanted to. Do you feel like you've built out enough of a distribution on the implementation side that you don't have to worry about sort of customer satisfactions or stalls in the implementation process? Marcus S. Ryu: Broadly speaking, definitely. We have -- we don't gait any software licenses by our ability to implement, and that's the most important thing. There are certain regional quirks in that people aren't completely fungible all around the world and there are some places where we need more services capacity, especially if we fulfill the demand that we see. And I would put Continental Europe in that category, kind of broadly speaking. But on the whole, we don't see our license growth in any way gaited by our ability to implement through a combination of our own staff and our partners. Brendan Barnicle - Pacific Crest Securities, Inc., Research Division: Great. And Karen, you've talked about operating margins being a little lower next year related to the investment. Can we assume that next year is kind of the bottom in those operating margins? Or is that something that you're just going to have to kind of wait to see how growth goes as we get into next year?

Brendan, we are going to be prepared to talk a lot more in detail about what our full fiscal year guidance is going to be. What we wanted to emphasize is that we still think there's a tremendous amount of opportunity in this market. So we're building out more product capability and we're building out more sales capacity with it as well. And so we just want to make sure that the investment community really understood that we still believe we're in a very heavy investment growth mode on that basis.

[Operator Instructions] And we'll now move to Tom Roderick with Stifel. Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division: So I completely understand the process of not wanting to incorporate any of these big potential deals in your guidance, and particularly as you haven't even given formal guidance for '14 yet. But maybe you can provide a little bit of qualitative process for us, if you don't mind, just how you see some of these big Tier 1 policy deals moving to the pipeline, what gives you some confidence that they are kind of moving forward and what's the feedback you're getting from sales reps out of the field with respect to any sort of inflection points for the adoption of policy? Marcus S. Ryu: Sure, Tom. So we are definitely in more conversations of that sort than ever before. There has been a lot of interest generated, not only by the big -- some of the big customer wins, but even the smaller ones are also of consequence for those conversation. And that's been very encouraging. The -- just to build on the point of why we are a little bit moderate in how we incorporate our expectations for the big wins into our forecasting process, it's not only a matter of the fact that they are lumpy just like any other transaction but because the structure of how those contracts will finally be executed have a lot of consequence for revenue, whether a customer chooses to buy on a full enterprise basis, which is essentially what Nationwide did, or they choose to go more by line of business or by geography can have a material difference on the way the revenue plays out. And so we could be involved in a really productive, excellent conversation that's very strategic and so forth with a big account. But then they could decide, well, look, for the first year, we're going to implement for just this one line of business and we're not enticed by other considerations to license on an enterprise basis, so that's the likely plan from here, and that would make a big difference, obviously, in our bookings and in revenue for that account. Even though the conversation could be equally strategic. So that's why we take a cautious view of it with respect to forecasting. Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division: That's great and completely understandable. Marcus, maybe on a personal level, you've added sort of a sales hat to your ever-growing list of responsibilities. Can you talk about how you've been able to balance your time? What your plan for the sales organization is? How long you think you'll be wearing that sales hat? And anything else you can share about the expanded role you've taken in that front? Marcus S. Ryu: Sure. And I appreciate the question. I've always been, for a good portion of my time, customer-facing. And that's -- and I expect that will be the case as long I'm in the role of the CEO, that is just an essential part of our business that these are huge strategic kind of career-betting decisions that our customers make, and they tend to look -- they want to look at a principle in the eye and say that we're on the hook with them. And so that's just the core part of my job regardless. And I know the leaders of our 3 theaters, North America, APAC and EMEA very well and that works out really well. What -- I do believe that there will be room over time and it could be within a year to add more sales leadership talent to the organization. There's no specific timeline or open search for that because we want to be guided by really finding the right fit and things are working fine so far on that account. Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division: Great. But one last one for me, maybe expanding on Sterling's earlier question about sort of services mix here. You talked in the script a bit about services partners taking on a greater role. Maybe if I think longer-term, and maybe that is, say, 2 to 3 years out, what sort of mix do you see services playing in the total revenue mix, if you look out to that sort of steady-state, again, call it 3 years out if you want? And how does that impact your gross margins as we think to the longer-term frame of the model? Marcus S. Ryu: Sure. So I'll go out on a limb and say that I believe that if we continue to fulfill our ambition here, that we should have services be contributing somewhere in the order of 1/4 of our total revenue, maybe 1/4 to 1/3, or anywhere from 1/5 to 1/3, say, in that zone. How fast we get there has a lot to do with the way the demand comes in and the way that our partners ramp up. But there's every reason to expect we can get there if we continue our trajectory through the market. And that is the single most important lever for driving improved gross margin, more than anything else we can do because, of course, we enjoy a near 100% gross margin on our software, a very high gross margin on maintenance. And everyone in the company is completely aligned with that goal and expectation. And we have all our programs and go to market and alliances outreach and all of those things are oriented around that longer-term goal.

We'll now move to Brent Thill with UBS. Brent Thill - UBS Investment Bank, Research Division: Marcus, just on the sales capacity that you're adding, I'm curious if you could just help us all understand how your plans -- have they changed for the year? Have you been able to ratchet up the sales hiring process, given the outperformance and your results or are you still kind of holding to the plan that you said at the beginning of the year in terms of the growth? And I was just curious if you could give us any flavor in terms of what kind of growth rate you're looking for this year in terms of the overall sales capacity adds? Marcus S. Ryu: Yes. And I appreciate the question, Brent. We've expanded sales at a very brisk pace, our sales capacity that is, at a very brisk pace. I believe we're almost nudging up against a 50% growth for the year -- year-over-year in total sales organization headcount. And that's not only sales reps, but that's all of the other, the full teams have to go to battle in every sales cycle. And that's really the fastest-growing unit of any function in the company. Whether that will precisely be the case next year or not, I'm not -- our plans aren't bottomed out but they will certainly be -- there's certainly a lot more growth to come still in sales ahead. As we always mention, I'm talking about sales growth, it's important to keep in mind that the new guys take a while to be effective. It's partly because they have to learn the industry and build the relationships, and it's partly just because of the nature of our sales cycle. So that's another reason that we see -- there's margin pressure that's inherent in growing the sales organization in our model in the near term because it takes a while for them to produce. But we wouldn't be doing it if we didn't see a lot more demand that we can capture. Brent Thill - UBS Investment Bank, Research Division: And that's -- just to understand, the 50%, is that one of the highest growth rates you've seen in a while in terms of that, you're putting in or relative to what you're adding? Marcus S. Ryu: Absolutely. It's -- I think, outside of the maybe first couple of years of the company, it's the highest growth rate of any group ever. Brent Thill - UBS Investment Bank, Research Division: Okay. That's helpful. And then, real quick on Millbrook, they've been, as you mentioned, in business 16 years, but you said they're not -- there's no financial impact. Obviously, there's a lot of demand expertise. And when you look at the other customers that they have that you may not have, do you feel like there's some big ones that they have that they could be helpful in fertilizing your base? Marcus S. Ryu: There are a couple of relationships that will be helpful. That was not a primary synergy that drove the motivation for the acquisition. The real synergy here, I think, is that the data management, the 3 areas that I mentioned in my prepared comments are of interest to really, I'd say, almost every single one of our customers has been pressing us for more there. Frankly, in full candor, it's an area that we have not served our customers to the same degree that we have in the core system area. It's adjacent to it. It's extremely important. But because we were still focused on building a functionally complete next generation core system platform, we kind of left data management a bit as an afterthought and time has come really to address it. And even in a couple weeks since the announcement, there's been -- we're in a lot of conversations about it, and it's been extremely well-received by our customers, which is the most important validation. Karen has something to say, too.

Yes. I was just going to emphasize the same thing. We don't expect much input -- much impact really kind of from a revenue or expense category. They're small organization. They have 25, 26 employees at this stage. And yet, our engineering team, our services implementation team and our sales teams are quite excited about the acquisition. So we just don't expect a material revenue or expense impact immediately into -- resulting from the acquisition. Marcus S. Ryu: One more thing to add is that Millbrook, they're tremendous experts at the domain they serve but I wouldn't characterize them as a sales-driven organization in their history. And they certainly had no kind of international reach whatsoever. And so there are a lot of our customers who have never heard of them yet, especially internationally, that's true by definition. And so there's -- I think there's a lot of opportunity to introduce their assets in a properly Guidewire productized and licensable form to our entire customer base.

And now we'll go to Sterling Auty with JPMorgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Yes. I just wanted to come back for a couple of follow-ups. First, can you give us what the headcount in total was at the end of the quarter versus the end of last quarter just so we can characterize? I know Millbrook is small, but just so we can delineate between the hiring and what's going to come in next quarter in terms of acquisition?

Sure. So headcount at the end of January was 972 people, and at the end of April, it was 1,035. Sterling P. Auty - JP Morgan Chase & Co, Research Division: All right. Great. And then, Marcus, you talked about earlier in the prepared remarks, some of the new innovations in areas that you wanted to continue to invest in terms of the products. How much of that will actually just be absorbed into the existing PolicyCenter claims under BillingCenter in part of what existing customers did as part of the subscription? And how much of that new innovation will offer upsell opportunities? Marcus S. Ryu: Virtually everything that we're characterizing as new innovation is in the latter category or upsell opportunities. There are additionally licensable products and solutions to our customers. Of course, we have to do a base level of innovation just in the core products. It's hardly worth calling that out. I mean, we just have to keep making -- a version 8.0 is better than 7.0 in all kinds of ways that don't carry additional license per se. But Guidewire Live, what we're doing in the mobile and portal domains, and Millbrook, we all think of in terms of new licensable opportunities. Sterling P. Auty - JP Morgan Chase & Co, Research Division: And last question. How much do you think the -- historically, reporting was an area that you've licensed from technology and how much of the mobile and other innovations do you think will actually take over the need to have some of the traditional reporting capabilities? Marcus S. Ryu: I think there are distinct domains. There's core operational reporting, which is just looking at just stacks of numbers that come out of the production system, and that's kind of keeping the lights on, kind of a functional requirement. What customers wanted to do in mobile and portal extensions of the core system tend to be quite different. There are ways of projecting functionality out to sometimes internal users, using them through a different modality, like an iPad out in the field, or to their partners, the producers and agents, or directly to their policyholders for distribution purposes. And incidentally, some of these are extremely strategic and important initiatives, but they're ones that they couldn't undertake until they had done the core system replacement. So even though the total amount of software involved in it may be a lot less than the core application, the perceived benefit of it can be kind of disproportionately high, which is an exciting aspect of doing those things.

And at this time, with no further questions, I'll turn the call back to Marcus Ryu for closing remarks. Marcus S. Ryu: Thank you all for participating on our call today, and we look forward to speaking with you again soon. Goodbye.

This does conclude the conference for today. Thank you for your participation.