가이드와이어(GWRE) 2026 회계연도 4분기 실적 발표 컨퍼런스 콜: ARR 성장, AI 모멘텀 및 2027 회계연도 가이던스

핵심 요약

• 가이드와이어 소프트웨어(NYSE: GWRE)는 2026 회계연도 연간 반복 매출(ARR)이 고정환율 기준 전년 대비 19% 증가한 12억 4,200만 달러를 기록하며 회계연도를 마감했습니다. 연말 환율 반영으로 인해 보고된 ARR은 500만 달러 감소한 12억 3,700만 달러를 기록했습니다.
• 풀 램프(Fully ramped) ARR은 22% 성장하며 4년 연속 ARR 전체 성장률을 상회했습니다. 클라우드 ARR은 35% 증가해 전체 ARR의 84%를 차지했습니다.
• 2026 회계연도 매출은 23% 증가한 14억 7,500만 달러를 기록했습니다. 구독 및 지원 매출은 33% 늘어난 9억 7,100만 달러, 비GAAP 영업이익은 63% 증가한 3억 4,000만 달러를 기록했습니다.
• 총 ARR 이탈률은 1.5% 미만이었으며, 핵심 시스템 고객의 경우 1% 미만이었습니다. 경영진은 이처럼 이례적으로 낮은 이탈률이 2026 회계연도 ARR 성장률을 약 1%포인트 끌어올렸다고 밝혔습니다.
• 가이드와이어는 4분기에 26건, 연간 기준 62건의 핵심 클라우드 계약을 체결했습니다. 프로네비게이터(ProNavigator)는 4분기 14건, 연간 28건의 수주를 기록했으며, 프라이싱센터(PricingCenter)는 4분기 8건, 연간 12건의 계약을 확보했습니다.
• 2027 회계연도에 대해 경영진은 ARR을 중간값 기준 고정환율 18% 성장에 해당하는 14억 5,000만 달러~14억 6,000만 달러, 총매출을 17억 700만 달러~17억 2,700만 달러로 전망했습니다.

주요 재무 데이터

가이드와이어는 풀 램프 ARR 기준 500만 달러 이상을 창출하는 고객 수가 전년 86개에서 증가한 105개로 2026 회계연도를 마감했습니다. 주식 기반 보상은 1억 8,200만 달러로 13% 증가했지만, 매출 대비 비중은 100bp 이상 하락했습니다.

사업 및 운영 성과

네이션와이드(Nationwide)는 자사의 인슈어런스수트(InsuranceSuite) 전체 자산을 가이드와이어 클라우드 플랫폼(Guidewire Cloud Platform)으로 이전하는 다년간 계약을 체결했습니다. 또한 주택 및 자동차 보험 부문에 프라이싱센터(PricingCenter)를 도입해, 가이드와이어의 미국 내 첫 번째 티어 1 프라이싱센터 고객이 되었습니다. 경영진은 이번 계약을 대형 보험사의 요구 사항을 충족하는 프라이싱센터의 역량을 증명한 중요한 사례로 평가했습니다.

기타 주요 활동으로는 AF 그룹이 처리 컴포넌트를 인슈어런스수트로 통합한 점, 마프레(MAPFRE) US가 인슈어런스수트를 확장하고 프로네비게이터를 도입한 점, 캐나다 대형 보험사가 클라우드 이전 계약을 체결한 점 등이 포함됩니다.

프로네비게이터의 초기 성과는 주로 가이드와이어의 기존 고객 기반에 대한 교차 판매에서 비롯되었습니다. 경영진은 이 제품의 보험 특화 AI 기능이 클레임센터(ClaimCenter)와 폴리시센터(PolicyCenter)를 강화하고, 향후 핵심 시스템 구축의 표준 구성 요소가 될 수 있을 것으로 기대하고 있습니다.

프라이싱센터는 폴리시센터, 어드밴스드 프로덕트 디자이너(Advanced Product Designer), 가이드와이어 데이터 플랫폼과 통합되도록 설계되었습니다. 경영진은 이를 통해 가격 책정의 정밀도와 시장 출시 속도를 높이기 위한 선순환형 가격 책정 및 요율 산정 워크플로우가 창출된다고 밝혔습니다. 회사는 프라이싱센터가 고객 관계를 신규 개척하고 향후 폴리시센터 판매를 지원할 잠재력이 있다고 보고 있습니다.

또한 가이드와이어는 고객과 파트너가 사용할 수 있는 개발자 어시스턴트를 출시했습니다. 퀘이사(Qusar) 릴리스를 통해 고객이 자사의 구축 환경과 워크플로우에 맞춘 AI 에이전트를 구축할 수 있는 에이전틱(agentic) 플랫폼을 도입했습니다. 회사는 자사 플랫폼이 API 및 기타 통합 기능을 통해 타사 AI 툴에도 개방적으로 유지된다는 점을 강조했습니다.

가이드와이어는 프로젝트의 복잡성과 기간을 줄이기 위해 AI 및 구축 툴링을 적용하고 있습니다. 향후 6개월 동안 프로젝트와 시스템 통합(SI) 파트너 전반에 이러한 기능을 순차적으로 적용할 계획입니다.

경영진 가이던스

경영진은 2027 회계연도 전망에 포함된 순신규 ARR의 절반 이상이 확정된 램프 일정과 함께 이미 계약 체결된 상태라고 밝혔습니다. 그러나 이번 전망은 이탈률이 2026 회계연도의 사상 최저치로 유지되기보다는 다시 일반적인 수준으로 돌아설 것을 전제로 하고 있습니다.

2027 회계연도 1분기 ARR은 12억 5,300만 달러~12억 5,900만 달러, 구독 및 지원 매출은 2억 7,900만 달러~2억 8,300만 달러로 예상됩니다. 구독 및 지원 매출총이익률은 약 400만 달러의 클라우드 인프라 크레딧에 힘입어 약 77%를 기록할 전망입니다. 서비스 매출은 약 6,500만 달러로 예상되며, 서비스 마진은 손익분기점 수준, 총 매출총이익률은 65% 안팎이 될 전망입니다.

리스크 및 주요 점검 사항

• 2027 회계연도 가이던스는 사상 최저치를 기록했던 2026 회계연도 이후 ARR 이탈률이 정상화될 것으로 가정합니다. 전년도의 낮은 이탈률은 ARR 성장률에 약 1%포인트 기여했습니다.
• 2027 회계연도 중 ARR로 전환될 전체 수주 잔고의 비중은 줄어들 예정이지만, 경영진은 수주 잔고에서 전환되는 절대 금액 자체는 증가할 것으로 예상하고 있습니다.
• 대형 핵심 계약은 여전히 변동성이 크며, 첫해 ARR은 전체 풀 램프 계약 가치에 비해 상대적으로 낮을 수 있습니다.
• 지속적인 클라우드 전환으로 인해 2027 회계연도 라이선스 매출은 4,600만 달러, 지원 매출은 약 800만 달러 감소할 것으로 예상됩니다.
• 단기 서비스 마진은 인도 역량 및 AI 툴에 대한 투자뿐만 아니라 대규모 정액제 프로젝트의 매출 인식 시점에 영향을 받습니다.
• 가이드와이어가 고정환율 기준을 업데이트하면서 환율 변동으로 인해 연말 ARR이 500만 달러 감소했습니다.

애널리스트 Q&A 하이라이트

ARR 지속 가능성 및 수주 잔고: 경영진은 2년 연속 22%의 풀 램프 ARR 성장을 기록하며 계약된 수주 잔고가 확대되었다고 밝혔습니다. 관련 매출 램프업은 주로 2년 차에서 5년 차에 이루어질 것으로 예상되며, 이는 첫해 ARR에 대한 즉각적인 기여는 제한하면서도 10%대 후반의 지속 가능한 ARR 성장에 대한 경영진의 자신감을 뒷받침합니다.

신제품 기여도: 프로네비게이터와 프라이싱센터는 2026 회계연도 초 경영진이 예상했던 것보다 현저히 뛰어난 성과를 거두었습니다. 회사는 이들 제품의 ARR 기여도를 수치화하거나 2027 회계연도 풀 램프 ARR 가이던스를 제공하지는 않았습니다.

프라이싱센터 경쟁 환경: 가이드와이어는 순수한 자체 개발 시스템보다는 파편화되어 있지만 이미 정착된 가격 책정 및 요율 산정 툴과 주로 경쟁하고 있습니다. 경영진은 폴리시센터와의 자체 통합을 주요 차별화 요소로 꼽았으나, 일반적인 영업 주기나 부착률을 확정하기에는 아직 이르다고 전했습니다.

AI 전략: 경영진은 AI로 인해 핵심 계약 주기가 길어지지는 않았다고 밝혔습니다. 가이드와이어는 자체 개발한 보험 특화 AI 제품과 고객이 선택한 타사 툴 및 모델을 지원하는 개방형 아키텍처를 결합할 계획입니다.

구축 효율성: AI 기반 개발 및 프로젝트 툴은 구축 기간을 단축하고 복잡성을 줄일 것으로 기대됩니다. 경영진은 이러한 툴에 대한 신뢰가 형성됨에 따라 시스템 통합업체(SI)들이 고정 가격 구조를 점점 더 많이 활용할 것으로 예상하지만, 클라우드 전환 시점의 구체적인 가속화를 예측하지는 않았습니다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Greetings, and welcome to the Guidewire Fourth Quarter Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today.

I would now like to turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you. Alex, you may begin.

Alex Hughes

Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; John Mullen, President; and Jeff Cooper, Chief Financial Officer. Complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website.

We have also posted our fourth quarter earnings deck on our IR section of the website. And today's call is recorded, and a replay will be available following its conclusion. Statements today include forward-looking ones regarding our financial outlook, our cloud and AI product strategies, customer demand, business operations, the impact of macroeconomic factors and other matters. These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date.

Please refer to the press release and risk factors and documents we filed with the SEC, including our most recent annual report on Form 10-K and our prior and forthcoming quarterly reports on Form 10-Q filed and to be filed with the SEC for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. We also will refer to certain non-GAAP financial measures to provide additional information to investors, all commentary on margins, profitability and expenses are on a non-GAAP basis, unless stated otherwise. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted at the end of our quarterly earnings deck on our IR website.

And with that, I'll now turn the call over to Mike.

Mike Rosenbaum

Good afternoon, everyone, and thank you for joining us today. We finished our fiscal year with an outstanding fourth quarter, capping off another exceptional year for Guidewire. ARR finished the year at $1.242 billion, up 19% year-over-year and above the high end of our guidance range. Fully ramped ARR grew 22%, marking the fourth consecutive year that fully ramped growth outpaced ARR growth. Subscription and support revenue grew 33%, and we exceeded expectations across revenue, operating income and cash flow.

Our execution in Q4 underscores the durability and resilience of our business model as well as the position and potential we have to lead the AI-driven transformation in the P&C insurance industry. Q4 included a number of achievements and milestones. My personal highlight was signing a long-term cloud migration agreement with Nationwide. Guidewire has partnered with Nationwide for over a decade across our core application suite. And in many ways, they were the critical partner who validated the scalability of our platform to the Tier 1 insurance segment. Earning their trust for their cloud transition and solidifying our position in supporting them for decades to come is a defining milestone in our company's cloud journey.

Nationwide also selected PricingCenter for personal lines pricing and rating. This is obviously a great win for our PricingCenter team. As we work to deliver on the specific business and technical requirements, we will further validate that PricingCenter is ready to provide the capability and scale required for any Tier 1 insurer globally. While the Nationwide win was monumental, our broader momentum with PricingCenter has been remarkable. John will share more details shortly but the integrated value proposition and the market demand for real-time price adjustment are resonating with customers. I couldn't be happier with the performance so far of this acquisition, and this deal serves as a fantastic capstone to an incredible year for David, the founder of Quantee and our PricingCenter team in Warsaw.

Another standout in the quarter was ProNavigator. Again, John will provide additional color. But sales velocity for this new product dramatically outperformed our plans. Embedding AI-driven assistance directly into the core workflows of ClaimCenter and PolicyCenter is precisely what our customer base needs right now. Rapidly integrating ProNavigator into the fabric of Guidewire and see immediate commercial traction was a major highlight of the quarter. ProNavigator serves as a straightforward AI and on-ramp for customers and now forms a core pillar of our broader strategy. Given customer enthusiasm is entirely realistic to expect this capability to eventually be incorporated into every Guidewire implementation worldwide.

The final element of our AI strategy tangibly taking shape relates to Guidewire Cloud Platform itself. Developer assistants are now available to all customers and partners, making agentic development on Guidewire exponentially faster. Things like writing integration code and building front-end applications for digital experiences are now dramatically faster. In our Qusar release, we delivered our agentic platform, enabling customers to build stand-alone AI agents tuned to their specific implementations and existing workflows. These agents operate seamlessly within their core systems, maximizing their preexisting modernization investments and taking full advantage of the structured context that resides natively in Guidewire.

Taken together, these platform and product milestones make the Guidewire strategic thesis clear. The path to intelligent, hyper-efficient, agent-driven P&C insurance operations begins with a modern cloud-based continuously upgraded core platform. And I think it's fair to say that only Guidewire has the ability to provide this to the market right now.

With respect to the financial performance of the company, Jeff will cover the numbers in detail later in the call, but I want to highlight 2 significant financial milestones. First, we nearly completed our share repurchase program, buying back over $600 million in shares. Our ability to do this is an outcome of our expanding profitability, cash generation and confidence in the long-term durability of business. Second, this year, we achieved an annual gross ARR attrition rate of less than 1.5% for all ARR and less than 1% for core systems customers, who represent the vast majority of our ARR base.

Attrition is a key metric we manage closely and acts as a primary indicator of our business durability and customer satisfaction. These attrition rates at over $1 billion in ARR are world-class, even more than the top line metrics. This number signals that our product design, implementation and ongoing support are driving exceptional long-term customer loyalty. I'm immensely proud of our team for achieving this measure of performance and commend everybody at Guidewire past and present, for helping to create the system and for operating it at this level of excellence.

We play a critical role in our customers' business operations. And of course, that reality necessitates an approach that logically leads to a uniquely durable business. This year and especially in Q4, we have begun to see clearly how our role as a core system of record can be expanded to support the application of advanced analytics to pricing agility and application of AI as a core workflow efficiency. How earning the trust of our customers allows us to establish a Cloud Platform that is delivering the AI-powered speed and agility the industry needs to not just continue their modernization agendas, but to propel them into a new, more intelligent and efficient insurance operating model. So we are happy about the results in Q4 and our fiscal year but we are more motivated about the impact we are helping to create in the insurance industry.

Finally, before handing the call over to John and Jeff, I want to convey my excitement for our upcoming Connections Conference this October in Las Vegas, where we will also host our Analyst Day on October 27. You are all, of course, invited to join us. We look forward to showcasing our latest product innovations and the new agentic capabilities of our platform. Our strategy is straightforward, deliver the world's most trusted core platform for P&C insurance, supercharge it with AI to accelerate every technology initiative within an insurance company and embed agentic intelligence directly into claims and underwriting to drive an industry-wide and global transformation. There is no better place to understand the power of Guidewire in the insurance industry, and we hope to see you at Connections in October.

With that, I'll hand it over to John.

John Mullen

Thank you, Mike. This was a great year that underscores the increasing alignment between Guidewire's road map and our customers' strategic ambitions. We work to continually increase the value our customers experience from their partnership with Guidewire and improved speed to value. Our proximity to our customers is a tremendous asset. We're at a point where our growing portfolio of products and solutions affords us the opportunity to work closely with those customers addressing enterprise grade operations and agile business capabilities, connecting their specific context to their agentic future.

This alignment resulted in 26 core deals for the fourth quarter, bringing the total for the year to 62 core cloud deals covering PolicyCenter, ClaimCenter, BillingCenter or InsuranceNow. A few of the core deals highlight. As Mike mentioned, Nationwide, a Fortune 100 company is the clearest example. They signed a multiyear agreement to move their entire InsuranceSuite estate to Guidewire Cloud Platform, capping a long-standing partnership built on proving out the platform's maturity to support their growth ambitions.

Another is AF Group, consolidating a number of core processing components onto Guidewire InsuranceSuite. MAPFRE U.S. expanded with Guidewire InsuranceSuite and added ProNavigator to support their commercial lines growth strategy. Additionally, one of the largest insurers in Canada signed a meaningful migration deal. We are also seeing our customers choose to expand their AI footprint with Guidewire. Definity, a leading Tier 1 Canadian P&C insurer expanded their Guidewire cloud commitment and adopted ProNavigator for embedded insurance domain-specific AI expertise. They are accelerating their innovation by leveraging our platform alongside their broader suite of enterprise cloud and AI tools.

We're seeing that same choice play out elsewhere in the portfolio. Alfa Insurance selected ProNavigator to accelerate previously considered internal build options. Hollard, a tremendous partner in Australia, selected ProNavigator to strengthen claimant and adjuster experience in support of a truly differentiated brand. Regulatory and compliance precision and increasing demands for efficiency contributed to this win. A long-standing customer in the U.S. Northeast selected ProNavigator as a critical element of their strategy following on from work done together with one of our field engineering pods.

Fundamental in our strategy is the ability for our platform and product portfolio to coexist with our customers' environment, maximizing impact pace and flexibility. The strength of ProNavigator is important to this thesis and translated into 14 wins in Q4 and 28 for the full year, a tremendous year for this team as they joined Guidewire. I couldn't be happier to see this team's impact and their passion for driving results for our customers.

PricingCenter also had a great quarter. We had 8 PricingCenter deals closed in Q4 and 12 for the year, a tremendous year for the team as they advance in addressing this critical strategic and fiercely competitive capability for insurers. Nationwide, in addition to the core migration has become our first U.S. Tier 1 customer for PricingCenter, choosing it for their home and auto lines. Integration to PolicyCenter will provide greater pricing sophistication and improved speed to market for Nationwide.

We saw that resonate across the rest of the portfolio, a long-standing customer in Finland became our first existing InsuranceSuite customers in Europe to adopt PricingCenter. Capital Insurance Group selected PricingCenter in a highly competitive process. Shelter Insurance chose PricingCenter as part of its larger expansion with Guidewire. Finally, Achmea Farm Insurance in Australia chose PricingCenter to drive greater pricing agility and precision throughout their operation.

The last point to make on momentum for the quarter is how pleased I was to see the mix by carrier size. MGA and smaller carriers contributed meaningfully to the results of the year. In addition to carrier size, we continue to invest heavily in our line of business, not only workers' compensation and geographic-specific content and tools. Our platform maturity and AI have accelerated our ability to address the needs of these important markets. Regarding speed to value, our investments in implementation tools and AI-powered project harness for implementations is delivering on the promise of material reduction in project complexity and duration.

We will be focusing the next 6 months on rolling out these capabilities to all of our projects and our SI partners. We believe this powers a change in the way the market thinks about capacity and the budgetary hurdle to clear in making the decision to move to a modern core foundational platform that powers their agentic future.

With that, I'll turn it over to Jeff.

Jeffrey Cooper

Thanks, John. I'm excited to close the books on another tremendous year. The team continues to execute on the growth engine while also delivering on margins, profitability and cash generation. ARR ended the year at $1.242 billion, up 19% year-over-year on a constant currency basis, ahead of our expectations. ARR benefited from strong new sales activity and the lowest gross ARR attrition rate since we started measuring ARR as a metric. As a reminder, we report ARR on a constant currency basis throughout the year, and an update at year-end for FX rates.

Making this update negatively impacts ARR by $5 million, resulting in ARR of $1.237 billion. Fully ramped ARR, which is defined as the fully ramped annual price outlined in customer contracts grew 22% year-over-year on a constant currency basis. This is the fourth year in a row that fully ramped ARR has fully ramped ARR growth and outpaced ARR growth, and the second year in a row where fully ramped ARR surpassed 20% constant currency growth. We ended the year with 105 customers with fully ramped ARR of over $5 million. This is up from 86 at the end of fiscal year 2025.

Total cloud ARR, which includes ARR for all of our cloud products and customers that have contracted to move to the cloud grew 35% year-over-year and comprised 84% of total ARR. Subscription revenue finished the year at $916 million, up 37% year-over-year. Subscription and support revenue was $971 million, up 33% year-over-year. License revenue for the year was $235 million, down 7% year-over-year as healthy migration activity continues. The shift from license revenue to subscription continues to accelerate, but it is partially offset by DWP growth of on-prem customers.

Services revenue finished at $270 million, up 23% year-over-year. We experienced strong services revenue growth as we work to balance healthy utilization of Guidewire resources with continued strong partnership and alignment with the SI community on cloud programs. All this results in total revenue for the year of $1.475 billion, up 23% year-over-year and ahead of our expectations.

Turning to profitability for the fiscal year, which we will discuss on a non-GAAP basis. Gross profit was $990 million, up 25% year-over-year. Overall gross margin was 67%. Subscription and support gross margin was 74.5%, up 4 percentage points year-over-year and already close to the high end of our FY '28 target. Services gross margin was 12.5% compared with 12.9% a year ago. Our services organization has been investing to deliver on the demand environment, and we have also been investing in AI capabilities to support future -- the future of programmed delivery. These investments are impacting near-term margins a bit, but we believe the future efficiency lift in our services motion help future cloud sales as we work hard to bring down the cost of implementations.

Operating income was $340 million, up 63% year-over-year and above the high end of our outlook. This was driven by strong subscription and support gross profit, higher-than-expected license revenue and solid operating expense discipline. Our stock-based compensation expense was $182 million for the year, up 13% year-over-year but down over 100 basis points as a percent of revenue. Operating cash flow ended the year at $390 million, up 30% year-over-year. This strong cash flow generation is a result of excellent execution and the leverage established by our model. We ended the quarter with $1.2 billion in cash, equivalents and investments. With respect to our share repurchase program, we repurchased $606 million in fiscal year 2026. This equates to 4.1 million shares repurchased at an average price of $148.41 per share.

Now let me turn to our outlook. For fiscal 2027, we expect ARR of between $1.45 billion and $1.46 billion, representing 18% constant currency growth at the midpoint. As a reminder, our ARR outlook assumes foreign exchange rates as of the end of fiscal 2026 and will be held constant throughout the year. Let me add a couple of points of context. First, our outlook assumes ARR attrition normalizes relative to fiscal 2026. Our record low attrition rate contributed roughly 1 percentage point to ARR growth in FY '26. And while it's possible we see similar rates, again, we haven't built that into our base plan. And second, more than half of the net new ARR contemplated in this outlook is already under contract with ramp dates defined and signed customer agreements. That contracted foundation is where 2 consecutive years of 22% fully ramped ARR growth shows up, and it's the basis of our confidence in durable high-teens ARR growth.

Total revenue for the year is expected to be between $1.707 billion and $1.727 billion. We expect that subscription revenue will grow approximately 31%. We expect subscription and support revenue to be between $1.240 billion and $1.246 billion in fiscal 2027, representing 28% growth at the midpoint. This assumes support revenue will decline about $8 million as a result of the continued migration of our installed base to the cloud. As a reminder, support revenue attaches to term license customers. For cloud customer, support activities are included in the subscription fee.

We expect license revenue of approximately $189 million, a decline of $46 million year-over-year. This decline is a result of the cloud transition model playing out as we expected. In FY '27, we expect to see term license revenue from recent cloud migration customers declined by almost $50 million. This is partially offset by true-ups and pricing adjustments at existing on-prem customers. Our outlook for services revenue was approximately $285 million as we expect to experience more modest growth this year off of a healthy services revenue base experienced in fiscal 2026.

Turning to gross margins. We expect subscription and support gross margins to be around -- to be between 75% and 76%. This outlook is above our prior FY '28 target and gives us confidence as we look ahead to our long-term target of 80% subscription and support gross margin. We anticipate professional services gross margin to be approximately 12%. We expect total gross margins for the year to be between 67% and 68%. With respect to operating income, we expect non-GAAP operating income of between $403 million and $423 million for the fiscal year.

We expect GAAP operating income of between $197 million and $217 million. Our stock-based compensation expense is expected to be approximately $202 million. Cash flow from operations in fiscal year 2027 is expected to be between $445 million and $465 million. Our CapEx expectations for the year are between $23 million and $28 million, including approximately $17 million in capitalized software development costs.

Our Q1 outlook can be found in our earnings press release, but let me provide a bit more color. We are expecting ARR to be between $1.253 billion and $1.259 billion. We expect subscription and support revenue to be between $279 million and $283 million, and subscription and support margin to be around 77%. In Q1, we expect to realize approximately $4 million in credits from our cloud infrastructure provider, which is meaningfully higher than we expect for the remainder of the year. We expect services revenue of approximately $65 million and services margin to be around breakeven. This is largely related to timing of revenue associated with some larger fixed fee services engagements.

Overall, we expect total gross margins of approximately 65%. Also annual employee bonuses and commission expenses related to Q4 sales are paid out in Q1, which impacts cash flow. As a result, we expect Q1 cash flow from operations to follow a similar pattern to what we experienced in fiscal year 2026. In summary, it was once again over Q4, and we look forward to a great fiscal '27.

And finally, before we turn to Q&A, I wanted to note that we filed an 8-K today announcing David Peterson, our Chief Accounting Officer, has let us know that he intends to retire in early November. The first good decision I made as CFO of Guidewire was to elevate David's role, and he has been an incredible partner to me. He has built a strong team of considerable depth, so we are well positioned to carry on, but I just wanted to take a quick moment to thank David for his partnership and for his contributions to Guidewire.

Okay. With that, let's open the call for questions.

Alex Hughes

Our first question is going to come from Alexei Gogolev, JPMorgan.

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Alexei Gogolev

First of all, I wanted to ask about ARR dynamics. So FX adjusted ARR came in at the top end of your guide. Can you break down the key drivers of 4Q in new ARR performance and talk about what was the most different versus your internal expectations entering the quarter, things like new deals versus backlog conversions and true-ups. And then maybe if there are sizable deals that closed in August that you were possibly surprised with?

Mike Rosenbaum

Yes, sure. You can go ahead.

Jeffrey Cooper

Okay. Yes, I mean, if you look at Q4, we ended at $1.242 billion, and we measure ourselves on a constant currency basis throughout the year. And so this largely came in, in line with our expectations as we move through the year. I mean, we were very pleased with the bookings that we delivered in the year. The ramp outcomes of those bookings were also quite positive. And so kind of flowing through to 19% ARR growth, 22% fully ramped ARR growth. Again, the impact of churn, which we highlighted a couple of times on the call was tremendous. That was a bit beneficial as well in the quarter. And so all of those dynamics were quite positive for us.

Mike Rosenbaum

I would say, just Alexei, one thing to add. Relative to the plan, maybe not going into Q4 because we saw this momentum building, obviously, in the pipeline that we saw. But the performance of these 2 products, ProNavigator and PricingCenter was markedly better than what we anticipated at the beginning of the year, and that's a great sign for us.

One of the objectives we set for ourselves at the beginning of the year was to broaden the product portfolio. Obviously, that led to these 2 acquisitions. This is important for us as we grow. And obviously, it's also a way for us to monetize the cloud installed base that we've worked so hard to establish over the past number of years. And so it's just great to see these product lines performing the way that they did, both in terms of deal count as well as ARR that obviously correlates to that.

But especially I want to point out the win and partnership that we have in Nationwide with PricingCenter. It's just -- it's hard to earn the trust of a Tier 1 insurance company and it really does help us make sure that we're going to, like, let's say, stress test that product and make it valid for every other Tier 1 in the world. And so that's really what I would call out in terms of like it's a driver to ARR, both strategically but also from a numbers perspective.

Alexei Gogolev

And you also pulled out a very impressive 8 PricingCenter deals in 4Q, and maybe John was mentioning those. Who are you most often displacing? Is it homegrown versus point solutions? And what are you learning about sales cycle length and attach rates with PolicyCenter customers?

John Mullen

Yes. Alexei, thanks for the question. It's -- what we're up against is really fragmented but well-established installed base. So rarely is it homegrown. There's always a number of tools, rating and pricing tools in place inside an enterprise. It's really early for us to say what we think sales cycles are going to look like and what the attach rate is going to look like. But it is the attach rate and the ability to really, I think, number one, serve a very effectively a user base that potentially has been underserved in modern technology. So that's point one.

And then point two is the integration -- the native integration with PolicyCenter that allows for just really efficient throughput on pricing and rating changes, both from an accuracy standpoint and a speed standpoint. So it will be that integration. That is the reason why we see win rates and attach rates that we're planning for in the long future, but it's too early to really measure up what those sales cycles are going to look like as time and pipe.

Alex Hughes

Our next question is going to go to Rishi Jaluria at RBC.

Rishi Jaluria

Nice to see continued strength in the fully ramped ARR number. Maybe let's start with that, right? So if I think about your fully ramped ARR number and you're coming off another strong year prior was also similar sort of fully ramped growth. Can you help us understand mechanically how to think about the time line of these ramps starting to kick in and stack on each other? Because I'm just trying to do the math on kind of the ARR guide that you provided for FY '27 and understand because it feels like the setup is there to try to drive even further acceleration. So maybe help me understand that, and I have a quick follow-up.

Jeffrey Cooper

Yes. Rishi, I think there's a couple -- there's a number of dynamics that we're looking at. And we obviously, as we negotiate these arrangements with the customers, try to optimize for the long term. And as you see, if you kind of look at the model, the ARR, the backlog, so the backlog ARR as a percentage, you can look at it as a percentage of ARR or as a percentage of fully ramped ARR. That backlog as a percentage of that ARR is growing over time, which means on a percentage basis, we just have more future ARR that will fall off of the backlog, which sets a foundation for a very durable growth.

There's a couple of other metrics that we look at. ARR, how much ARR do we expect to come off of the backlog and flow into next year's ARR. And that ratio next year is a little bit lower than where it was last year. And that's just a reflection as we look at the -- and inspect the totality of the backlog that we have, we're going to get more of that in years 2 through 5 rather than year 1 of that kind of first year of ramping event. And that just kind of continues to signal that we just have this healthy, healthy asset of backlog that we will execute over the next 5 years. So our orientation is always to orient to the long term and to make sure that we're driving the right fully ramped outcomes 2 years in a row of 22% fully ramped ARR growth really just that.

Rishi Jaluria

Got it. Okay. That's really helpful. And then, look, nice to see success with ProNavigator. Can you maybe walk us through how much of the early success you're having there is just cross-selling it into the installed base? And maybe what I'm trying to get at is, is there an opportunity for this to land net new customers for you where they might be with a competitor, but you can land on ProNavigator or other new products, use that as kind of a beachhead and over time, use that as a mechanism behind displacement?

Mike Rosenbaum

Yes. Good question. I would say the momentum that we saw this fiscal year was primarily cross-sell. There's definitely an opportunity for us to sell ProNavigator independently. Obviously, they did that as a stand-alone company before joining Guidewire. And that path isn't close to us at all. But I think that the bigger way to think about this is that we're seeing these systems evolve from, call it, a workflow system or a system of record to really the platform that you use to establish your agentic approach to claims and underwriting.

And these systems, these AI systems powered by ProNavigator facilitate that. And that creates a differentiation for us in ClaimCenter that we didn't have before that we're able to bring a broader and more -- I don't know, automated value proposition to bear when we're differentiating that product. And that's the way that I think that you should think about it helping us to set to win new estates and win new implementations of our core systems.

And like I said, like in the prepared call, I think we'll get to the point where it's unusual to see an implementation of Guidewire without it just because it is resonating so much with our customer base. And so over time, I think you'll see it as a real differentiator, a real driver of net new wins, but it won't be stand-alone. It will be more new wins for core.

Alex Hughes

Our next question is with Joe Vruwink at Baird.

Joseph Vruwink

The comments about ARR coming off backlog are interesting. I guess I'll take the flip side. What does this say about your new deal pipeline? And I think there's some scrutiny on just the 1Q ARR guide coming in below consensus. Some of that's the FX reset that you highlighted, Jeff. But is it also reflective of anticipated deal timing and there just being more opportunities later in the year?

Jeffrey Cooper

Yes. Look, I think we feel very good about where we sit and how the market is evolving and the need for a modern core platform to support and ensures initiatives just broadly and within AI. So from a pipeline perspective, we feel very positive. As we think about modeling the next year, there are a couple of areas that we try to be cautious around. As I said earlier, we always optimize for the long term, and we don't optimize for year 1 ARR events associated with new deals.

And so we look at a metric internally called year 1 ARR versus the booking event and kind of what that ratio is, and that impacts how we think about modeling the business, and I think impacts how we think about setting the guide. But we always want to orient our sales reps to focus on making sure they're driving the right long-term outcome.

So that is -- as we look at kind of next year, compare that to recent history, and kind of what is the corpus of the types of deals. Now the bigger the deal often yields a lower first year ARR and a larger fully ramped event vis-a-vis the booking opportunity. So these are all things that we kind of weigh as we think about setting an appropriate guide for the year. We've been pretty consistent about our goals of driving durable growth. For many years, it was mid-teens. More recently, it is upper teens and the model is certainly supporting that upper teens growth ambition.

Mike Rosenbaum

Can I -- I just want to add, Joe, look, there's -- I feel like we're going to have a great fiscal year. We feel set up to have a good, really strong fiscal year. And I think when you look at -- we keep using this word durability. When you look at the business model and the characteristics of the fully ramp phase and the attrition rates that we've established, it's like there's just more upside potential than there is downside anxiety.

We have to be prudent in the way that we guide and the way they project the company just because our deals are very lumpy. And things can happen, and we can't perfectly predict the future. But the company is just getting stronger and stronger. We look at the portfolio of products now kicking in and we look at the alignment that we're able to achieve with artificial intelligence and ProNavigator and the way that we're bringing it to bear on the platform. We just feel great. I feel great about the company.

And like I said, I just really think -- if you look at the fiscal year, we feel like there is more upside potential than there is downside risk. And then we really just need to figure out like how to quarterize that. And we'll give -- we provide the guide for Q1, and we figure out how to provide that visibility. But when I zoom out, I just feel a lot of -- I see a lot of strength and a lot of confidence in the momentum that we've established.

Joseph Vruwink

That's great color, Mike. Just on the AI native products, it sounds like eventually, it's not going to be possible to split them out in terms of a discrete ARR contribution because it will just be a part of InsuranceSuite. But for the time being, is it possible to maybe size those? I know you started the year sizing ProNav just because it was being acquired in, but could that exposure, I don't know, double in its ARR contribution next year?

Mike Rosenbaum

I think we'll look at whether or not how much visibility we provide, like we obviously shared some deal counts that we were excited to talk about on the call today. And as we proceed and get a little bit more experience with the business quarter-to-quarter, we can assess whether or not we provide more visibility. At this moment, it's probably not -- it is not appropriate, and that's why we didn't do it.

And to your point, we have to assess how we package these things and how they factor into the deals that we're doing each quarter. And so I guess, yes, I appreciate your question. We'll take it under advisement, and we'll think about it, and we'll offer you as much visibility as we think is strategically valuable -- or strategically possible, I suppose, is a better way to put it. But mostly, we just wanted to signal like how excited we are about this and it is really driving meaningful appreciation of the business.

Alex Hughes

Our next question is with Dylan Becker William Blair.

Dylan Becker

Maybe, Mike, starting with you. You touched on the importance Nationwide and PricingCenter. I wonder if we could go a little bit deeper I think you called out homeowners and auto, maybe 2 segments that are seeing a little bit more pricing pressure themselves in the market. So I think the appetite for adopting something that's more real time as may be disruptive or transformational, validating the importance and maybe buy a solution like that is resonating and can drive competitive differentiation. I guess is that a fair read on kind of some of the moment on PricingCenter? And I guess maybe just any other kind of color around the tethering of pricing layering into Policy and the rest of the platform over time.

Mike Rosenbaum

Yes. It's a great question. I think it's fair. I don't want to speak specifically for Nationwide, but I do want to say, in general, the thesis behind us investing in ensuring that we had a pricing platform, rating platform, deeply integrated into PolicyCenter, our product modeling capability, which we call APD and our data platform and creating what we kind of referred to as a closed-loop system for enabling actuaries and business leaders in the insurance industry to have the type of agility they need to be able to compete effectively. That is absolutely what people are buying when they buy PricingCenter and PolicyCenter. No question about it, full stop, 100% correct.

And this is super exciting, right? Because to some degree, Guidewire traditionally has sold off of a variety of things, but let's say, risk of a legacy system factors into this less so than maybe business competitiveness. And it is very exciting for us. It's very exciting for our sales teams. I'm sure John is going to want to lean into this answer here in a second. I know he's excited about it. It's excited to be connected to the business of insurance. And how you're pricing and how you're adjusting to competitors and how you're adjusting to those new risks.

At the same time, you're also seeing like this real huge transformation in AI and realizing, hey, we need to figure out how do we get more operationally efficient so that we can create more leverage in our operation, and can we do that with Guidewire. This is very exciting for us. it is absolutely true that the PricingCenter value proposition connects to that competitiveness, and it's an exciting component of the story now.

Dylan Becker

Perfect. And then maybe if I could segue to John to, I think you called out the -- some of the efficiency you're seeing in delivery in speed and cost reduction, lowering that hurdle, opening kind of the top of the funnel from a demand perspective. But how should we think about kind of the dynamics between those 2 segments? Because you could infer, right, that there's a little bit of cannibalization on the services line. Is there a fixed fee orientation to kind of insulate some of that? But maybe on the inverse, it enables you to go much faster, and we're seeing that reflected in the subscription strength. I think that's abundantly with the 26 deals you guys signed in the quarter, but maybe just kind of how we think about the evolution of that subscription and services dynamic, if that makes sense.

John Mullen

Yes. Good question. So a couple -- first thing, the ecosystem at large is navigating this. So we're navigating this and we invested -- investing heavily to make sure that the decades of experience of doing this is put into a harness where we can really move things faster. And we're seeing really early -- really good returns on, particularly the spec-driven development aspects, as Mike mentioned, things like product speed to market and product definition. That's the one that I think is the fastest business standpoint.

But we're also navigating that with the systems integrators. It's -- our relationship with our systems integrators continues to strengthen through this. And that's a through line that we have to manage very specifically, not carefully, but specifically with them as they're moving more of their efforts towards the business transformation that sits on top of what should be a more efficient implementation. So making sure that they're tooled -- we're all tooled appropriately to make these programs go faster and more predictable.

We're also working with them to make sure that we're getting closer to the business results and the things that matter to the C-suite not only in making that first decision to modernize on the core platform, but to make sure that we're driving tangible, measurable, repeatable, scalable business results off the back of it. So that's a bit of a pivot in the conversation with our SIs and focusing more of our energy on that. And then certainly, we want them to continue to build their tools. There's no world where we're going to insist that they use our tooling. We just want to make sure that they have it available to them in all their programs.

Alex Hughes

All right. We'll go to Ken Wong now from Oppenheimer.

Hoi-Fung Wong

Mike, John, I wanted to dig into that Nationwide agreement a little more, specifically the PricingCenter commitment. Any color how additive that could potentially be to TCV, perhaps not near term, but as you think about this as it scales? And then how might this influence potential Tier 1s that are looking at the platform going forward?

Mike Rosenbaum

Well, it's -- the structure of the agreement is kind of per normal, right? So there's no like rollout impact related to scaling TCV. The TCV is the contract, right? So -- and obviously, we're excited about the price point of that product. We're not going to describe the details here publicly.

But for sure, the opportunity to work with Nationwide and roll this out with them helps us convince ourselves and convince others that this is a product that can meet the needs of any insurance company anywhere in the world regardless of size. That was the objective when we began to build this. That was the objective when we tried to really convince every one of our customers, and we couldn't be more excited to be partnering with Nationwide on this journey to be able to go deliver this very quickly and prove that it works.

So yes, absolutely. That's part of the strategy here, and it's an incredibly important milestone for us. Like I said in the prepared remarks, it's like very similar to the initial deal with Nationwide. None of us, I don't think we're here at Guidewire when we did that but it has served as a real forcing function for every component of our product and services and company and ecosystem to make sure that the products work there. And I have every expectation that, that's going to occur here with PricingCenter.

John Mullen

Yes. I'll just add one quick comment too. From here, where do we go? So I won't comment on Nationwide's decision as much as we appreciate that alignment. The -- where this goes from a future standpoint is the product road map for PricingCenter has some tremendous capabilities in it today and in the future. And as we enable that more with the analytic that actuaries need to do the job and allow them to bring their own tools and consume data, it does become -- harkening back to the earlier question on ProNavigator as a potential wedge offer, PricingCenter in combination with advanced product designer, is absolutely an opportunity to be a wedge offer for our customers and be an opportunity to actually pull through PolicyCenter deals in the future because of that closed loop that Mike was talking about earlier.

And that's one thing that I'm excited about, actioning in the market as we start to stack up the proof points is PricingCenter being that wedge, and we'll see how that plays out over the year, but I'm excited about it.

Hoi-Fung Wong

Fantastic. And Jeff, maybe just digging in on the ARR side. You mentioned next year slightly more conservative retention assumptions, maybe a little less backlog coming in. I guess, would it be fair to assume maybe an elevated amount of prudence compared to how you were thinking about ARR guidance last year since you might need a little more net new to hit numbers this year?

Jeffrey Cooper

Yes. No, it's pretty consistent with our overall methodology. And just to be clear, like we're going to see more coming off of the backlog next year, just the ratio of vis-a-vis what is in the totality of backlog is a little bit lower. So the absolute dollar number will be up this year. So it's pretty consistent with how we kind of established the guide beginning of last year. Obviously, we were lucky enough to raise guidance a couple of times throughout the year, but no change in guidance methodology.

Alex Hughes

Our next question is with Parker Lane at Stifel.

J. Lane

Mike, when you look at some of the competitors out there, there's certainly AI natives that are coming to bear, a lot of folks bringing AI functionality, you brought your own in the latest releases. Is that introducing any level of confusion or lengthening deal cycles in any way for Guidewire? Or you're appropriately navigating that with your customers today?

Mike Rosenbaum

I don't know confusion is the word, but it's an interesting -- with respect to AI, it's a very interesting dynamic, maybe unprecedented in the history of enterprise software. Now is it lengthening deal cycles for core? No. I think what we're seeing very clearly is Guidewire is right core to architect your AI strategy around. This is admittedly biased, I suppose. But I think we're going to see a differentiation in the companies that are running Guidewire, running Guidewire Cloud, taking the latest releases of Guidewire aligns to the approach that we're taking and the AI strategies there are going to accelerate. And we hope, and it's our intention to create differentiation for our customers, and they're going to be able to outcompete the ones that are not as agile and not as fast.

Now that's the core side of this, right? That's the like system of record, workflow to run your insurance company side of this. Then there's this question of what AI system are you going to put on top of that. We're going to play a role in this, and it's super exciting to see the momentum that we've achieved with ProNavigator. The momentum that we've achieved with our -- the interest, I would say, we've achieved with our agentic platform and how we're able to help our customers build and manifest these AI-driven workflows in and around our platform.

But certainly, there's a lot of other choice. We've actually purposely created a very open ecosystem through our APIs, our MCP servers, our ability to run Guidewire head list, our ability to connect Guidewire to these other systems. We are open to a variety of architectures when it comes to how to manifest that out in the -- at the -- out in production with each one of our customers. And so that side of it, I wouldn't call it confusion, but there's a lot of options. And there's a lot of different companies placing bets with different providers.

As I often said, I didn't say in this kind of meeting so far, our objective is to win the core, okay? We want to win the core worldwide. We want to be the core system of record for every P&C insurance company in the world. We think we can do that by running an open platform. we think we can accelerate the transformation in AI by bringing first-party product to bear, but we fully expect and support customers looking at alternatives. And I would not say that any part of that is causing deal cycles to slow down. I think what is really happening is people are recognizing that the right way to be prepared for the future is to be on a Guidewire core.

John Mullen

Yes. I'll add that the way it's manifesting is insurance executives are as busy as they've ever been, navigating what Mike just talked about. And there's this moment -- there's this critical moment in the conversations with carriers that say, look, this is -- does not need to be a build versus buy conversation of the good old days or the bad old days, depending on how you think about it.

This is a build with Guidewire and practicality that's available to you simply because we run open, we run on throttle, and there's no one way -- we're not presenting you with any one-way doors. And when you get to that conversation with the executive teams that are navigating the space right now, there's almost -- I won't call it a side of relief, but there's a light of practicality and execution through line there that really sings really well with, okay, now let's get about the business and going forward and solving this problem.

J. Lane

Appreciate the feedback. And one quick one for you, Jeff. When we look at ProNavigator and PricingCenter, is the ARR ramping structure fairly similar to what you see across the core today? Is that a work in progress? Any color you could prove there would be great.

Jeffrey Cooper

Yes. I expect these to have more modest ramps. But the reality is that they're also going to attach to core sales. And so the dynamics may be carried by that core sale depending on how we're going to market. But if we're selling it stand-alone, the ramps will be much shallower than what we see in the core. So we'll see. But that's my expectation right now.

Alex Hughes

We're now going to go to Allan Verkhovski at BTIG.

Allan M. Verkhovski

Maybe just a follow-up on the last question. Can you talk about what advantages Guidewire has with the latest [indiscernible] that third-party AI platforms cannot replicate as well as you, along with how you plan to monetize those capabilities over time?

Mike Rosenbaum

Well, I think Fundamentally, our differentiation is always going to be an opinionated structure around property casualty insurance and an opinionated structure that cleanly and seamlessly integrates into our core applications. And then, [ Camma ], a commitment to continue to evolve those products in unison, so that one changes, the other one changes, it's our responsibility to keep that working. That value proposition is more and more valuable as you move downmarket and the size of the organizations and the IT organizations that can be brought to bear in solving these problems get smaller and smaller.

And so one of the things that was exciting we called out in the script is the momentum that we saw in smaller carriers, MGAs, like these aren't companies with massive IT teams who are huge budgets to configure horizontal solutions and sort of tweak them to fit an insurance use case. That's what you're going to get with Guidewire. So as you move up, as we move up into the top tiers of the insurance industry, these companies have a different kind of take on how they want to work with Guidewire and may be looking to invest more to differentiate themselves with maybe one of the frontier model partners. We want to support that. We absolutely do support that.

And so the, call it, the out-of-the-box point of view that we're able to bring to bear there is less valuable to that Tier 1 insurance company than is to a smaller insurance company that doesn't want to invest. That said, I think we're still in the early innings of how this plays out in reality and where we are right now and what you can do right now relative to what we imagine an insurance company is going to be able to do in terms of automating, underwriting and automating claims workflows. I think a lot is going to evolve and a lot is going to change. We're all going to learn a lot. So anyway, but that's my take of how things work right now is just like that opinionated use case and the commitment to keep it integrated into the Guidewire core applications and workflows.

John Mullen

Yes. And I think the -- as we work up the Tier 1s to Mike's point, of course, they should be building agents and they can build agents with our tooling with theirs. But the thing that really I think we need to think about and they need to think about is those agents you build need to be able to contribute to and consume from your enterprise context. And that enterprise context sides primarily in your core systems and your core operating platform and moving those things together in unison is going to give you your best chance for future flexibility and differentiation.

Allan M. Verkhovski

That's very helpful. And I guess, Jeff, just a follow-up for you. Can you share like what the puts and takes are for where we can expect fully ramped ARR growth to be in fiscal '27 given it once again came in above ARR growth this year?

Jeffrey Cooper

Yes. I think we don't guide to fully ramped ARR growth. We will certainly report on that at year-end. But we don't guide to that. Look, as we look at the pipeline, there is still a lot of healthy volume for cloud modernization, cloud migration deals that carry these dynamics with large ramping events. And so that leads us to be optimistic about our potential to continue to grow that line. But we're not going to provide any sort of color or guidance at this point.

Alex Hughes

Our next question comes from Tamjid at Guggenheim.

Tamjid Md Moinuddin Chowdhury

I guess the first one, it's encouraging to hear about the lower churn, but I wanted to focus on the new business side in the quarter. The first one is, did the deals that slipped out of the third quarter closed in the fourth quarter? And the second side of it is, excluding those deals, how did growth new business track against your internal plan?

Mike Rosenbaum

So simple answer is yes. Things played out in Q4 as we expected them to and as we outlined on the Q3 call. Secondary answer is, it's complicated. We go into a quarter with a portfolio of deals, and we try to close them all and we do our best and rarely get to 100%. But I would say, generally, things ended up aligned with what we expected. And it ended up being a very good fiscal year, right? So it was -- it's exciting for us to be able to beat the way we did and accelerate it the way we did. And we're very, very happy with the outcome.

I don't know if, John, you wanted to add anything relative to your expectations going into the quarter, but it was a great quarter and the team's really executed very well.

John Mullen

Nothing to add.

Tamjid Md Moinuddin Chowdhury

And if I could ask another one. When you kind of -- I think you mentioned Shane Cassidy, who's going to be formally assuming the role of Chief Commercial Officer role starting this fiscal year. Are there any changes that we should be expecting in the sales organization? And how much of that is embedded in your guidance?

John Mullen

So the -- so Shane joins us. First, I guess, I want to say that David did a phenomenal job in his tenure as Chief Commercial Officer. The things that he achieved as far as predictability and linearity within the fiscal year and within the quarter, are things we want to double down on and making sure that we continue to carry the torch on that sales operations methodology and rigor.

The -- with Shane joining, no changes in structure. We certainly want to make sure that we continue the momentum that's been built. The team is -- the rest of the team is in place and playing the same roles they have before. So I don't see a whole lot of change there. I do think that as we go forward, just given the nature of our relationship with these large customers is doubling down on the expansion within our existing customer base and solving these very specific business problems with the expansion of the solution portfolio is going to be a big, big focus for Shane as he moves into the role.

Alex Hughes

Our next question is going to go to Michael Turrin at Wells Fargo.

Michael Turrin

I'm getting a pretty consistent set of similar questions. So I just wanted to go back to some of the dynamics we're looking at. On the 4Q ARR number, growth is strong, but it is seasonally a stronger period. The fully ramped ARR number stands out at 22%, but I think people are looking at that relative to the initial ARR guide for next year and trying to parse why that wouldn't be more of a leading indicator for growth in the next year. And so Jeff, I know you've had some comments that are useful in attrition, and there are some currency impacts we can weigh. But just maybe help level set fiscal Q4, 1Q full year guide for ARR and how you'd frame those out for investors as we're just kind of evaluating and trying to parse what the normalized or the trajectory will look like from here?

Jeffrey Cooper

Yes. Look, I mean, I think multiple years of over 20% fully ramped ARR growth creates this incredible asset that we call backlog, our ARR backlog. And we have visibility into how that backlog flows into the number. We try to share some of that visibility with you all at Analyst Day. But as we look at kind of how that number is flowing into next year, that is a key building block of how we think about setting the guide, and this is on an annual basis.

And then we kind of think about what the appropriate churn rate is to model based on kind of recent patterns but also historical averages. And then we look at kind of what we have to go out and sell in the year and have a perspective of the type of deal it is and what are the kind of ramping dynamics associated with those deals and how they then yield year 1 ARR. Those are the foundational building blocks.

Fully ramped ARR at a couple of years, north of 20%, certainly gives us increased confidence into the durability of the upper teens. If you go back 4 or 5 years, it was much lower than that. So we're kind of building that flywheel of this incredible asset that is this backlog asset that will flow into the number. The ratio of ARR that will flow into FY '27 as a percentage of that total backlog number was down a little bit year-over-year, as I mentioned earlier on the call, and that's just a function of kind of more ramping events to come in the future. But those are the kind of the foundational building blocks that we look at. And all of those are in a very healthy place and feel very aligned to how we're talking about -- how we've talked about the durable growth engine of Guidewire.

Alex Hughes

Going with Billy Fitzsimmons at Piper Sandler.

William Fitzsimmons

Good to see the new product momentum. Appreciate the commentary on PricingCenter and ProNavigator. I imagine it's still early, but any initial thoughts you can share on underwriting center specifically as it relates to customer conversations and pipeline relative to what you outlined 90 days ago?

Mike Rosenbaum

Sure. We're very excited about the momentum of the product and working with a couple of very early customers with -- and getting the product into their hands and getting some feedback tracked and hands-on feedback and traction from out the real world. So I think we're excited to share more details about that as we head into our Connections User Conference. But that's basically where we are.

I wouldn't say relative to the underwriting category is more and more excited about it, in general, receptivity to the idea and the problem and the potential for official intelligence to play a really positive role here, is just validated more and more every day. So we really feel like we're on to something with respect to the demos and the workshops that we're able to do, with the early customers and that's really positive.

And then the other side of it, kind of John, in the call -- John was talking about Shane's remit and the things we've learned this year is being able to build this motion where our sellers can really learn multiple products, and we can fit these new things into our pipe generation and demand generation and product marketing teams. It's like developing that at Guidewire as opposed to sort of being a one core trick pony kind of company is pretty exciting. So that's where we are with underwriting and more to talk about and share at Connections.

Alex Hughes

Great. Now we'll go to Aaron Kimson at Citizens.

Aaron Kimson

I want to follow up on Dylan's question. John, you mentioned the role AI is having on accelerating time to value for implementations. And Jeff spoke to the effect of some fixed big contracts on 1Q service margins. As you get into some of the larger migrations, are you finding you're increasingly comfortable offering fixed bid implementations? And is there a scenario where fixed bids could drive a pull forward in migrations in FY '27 or at some other point further along in the future?

John Mullen

Yes, there's a geographical and a complexity of market component that goes along with the tooling. So large programs, large programs have their own complexity. And oftentimes, they have a large systems integrator involved that we're partnered with side-by-side. So what will we see from a fixed bid standpoint, I think what we'll see is very definitively acceleration. More of the fixed bid componentry will come from the SI world as they get more confident in their tooling and their ability to drive these programs.

On a pull forward basis, what I really see happening is just a greater degree of confidence in aligning business and IT executives towards this agenda item as the complexity hurdle rate, the budgetary hurdle rate and most importantly, the time duration hurdle rate becomes easier to clear so that they can get back into -- get definitively into the competitive posture they want to be in. I do foresee that there will be some new entrants and disruptors into the SI world who will be really aggressively applying AI tooling into these programs. And we want to make sure that the entire ecosystem is enabled with our tooling to push that envelope.

Aaron Kimson

Super interesting. And then as a follow-up, it sounds like the deals that pushed into 4Q mostly closed. One question I got a few times throughout the quarter is whether you're seeing the broader P&C cycle having any effect on the timing of deals closing relative to prior years?

John Mullen

No, I think the pace on these big decisions is very similar to what it's been prior years. We're not modeling nor am I measuring the team differently based on the timing in pipeline for these large deals or for any of the deals for that matter.

Alex Hughes

I'll now turn it over to Mike.

Mike Rosenbaum

Okay. Everybody, just to close, I wanted to reiterate the key takeaways that we see in the quarter and from the year is number one, we really are to see phenomenal deal momentum. The continued -- continually beating ARR growth with fully ramped ARR growth creates an incredibly durable business. And we really are seeing AI starting to drive the business. It's starting to be infused into our products, into our platform. It's impacting -- it's positively impacting the services organization and the momentum we're able to achieve with implementations.

Very, very excited about the momentum in these new products, PricingCenter and ProNavigator. We obviously talked a lot about that on the call, but incredibly strategic for the company in the long run. And finally, the cloud model is just really playing out here exactly like we thought it would. We're seeing expanding margins and cash flow enable the share repurchase that we talked about and really remarkable attrition rate at the company, creating what we think is a very unique and durable business.

And so I appreciate everybody joining us on the call and hope to see as many of you as we possibly can at our Analyst Day in Connections. And so thanks, everybody, and we'll see you later.