GUIDEWIRE SOFTWARE, INC. M&A announcement

Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer, John Mullen, President, and Jeff Cooper, Chief Financial Officer. Details regarding today's announcement 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 on our website a supplemental presentation to accompany this discussion. Statements today include forward-looking ones regarding the proposed acquisition of hyperexponential, including the expected financial and ARR impact, transaction financing, anticipated timing of closing, strategic benefits, operations, 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 file 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. During this call, we will refer to annual recurring revenue or ARR, which is an operational metric we use to quantify the annualized recurring revenue of active customer contracts, and it should not be considered in isolation or as an alternative to GAAP financial measures. So with that behind me, I will now turn the call over to Mike.

Thanks, Alex. We are joining you live from our Connections conference in Las Vegas, and I know we will see many of you later today in person. It is an exciting day for Guidewire, and I am thrilled to announce our agreement to acquire hyperexponential. When I joined Guidewire in 2019, the goal was to transform the company and bring the insurance industry into a common cloud platform. That objective was never really about efficiency and where the software runs. It was about innovation and upgrades. If we could make upgrades routine, core systems would stay current, and if core systems stayed current, insurers would be able to innovate faster. That objective, while not yet complete, has largely been achieved. We now have the majority of our customer base running their insurance core applications on our cloud platform and delivering innovation to that customer base faster than ever before. We are seeing it work.

Our customers are moving faster on digital initiatives, faster on product initiatives, faster on pricing and rating, faster getting new claims processes and workflows into production, helping to drive better insurance outcomes for their customers. In 2023, generative AI came along, and it turns out it works far better than anyone anticipated. We see clearly that it will change the insurance industry in a lot of very positive ways. The good news is our platform is ready for it because an insurance company just cannot take advantage of AI on a core system that is decades behind. Today, we see three transformations happening in insurance. Each is an equally large market opportunity for Guidewire. First is the continuing system modernization driving our core business. The second is a revolution in claims automation and AI-based systems.

The third is a dramatic transformation in underwriting from a manual and cumbersome human-centered workflow to something I will call agentic underwriting. It is our belief that in the same way coding tools like Claude and Codex and Cursor have transformed software development, agentic platforms will transform the work and the workflow of the underwriter. Today's acquisition is about delivering that new agentic underwriting platform. It is a commitment by Guidewire to lead the transformation to agentic underwriting across every segment and line of business in commercial insurance. Getting this right requires deep industry experience across actuarial science, data and analytics, pricing, and core systems. This experience and day one capability is the result of a hyperexponential-Guidewire combination. We believe this is an emerging $30 billion market and a significant growth engine that will accelerate us.

Few decisions matter more to an insurer's profitability than which risks to underwrite and how to price them. Yet much of that work is still manual, modeled on spreadsheets, and requires significant human effort. Agentic AI systems can now automate increasingly complex underwriting work and improve the speed, consistency, and quality of decisions, opening up an opportunity far beyond traditional IT software spend. This acquisition brings together the two best companies in insurance technology. hyperexponential has built the most advanced underwriting platform in the industry. It is a fast-moving AI-forward team of almost 300 people with deep insurance experience. We gain a foothold in Europe, deep London market expertise, and a commercialized customer base that is the envy of every insurance technology company in the world, including Guidewire. With hyperoperator, AI agents progressively automate submission ingestion, risk evaluation, triage, and pricing preparation, all within the insurer's own frameworks and controls.

What is especially compelling about this acquisition is what we can do together. We bring the core systems policy and claims data, cloud infrastructure, and customer relationships that underpin the industry's operations. By connecting that operational foundation with hx's underwriting intelligence, we believe we can deliver something truly differentiated, an end-to-end solution that helps insurers both run their business and make better underwriting decisions. I am excited to welcome Amrit Santhirasenan and the hx team to Guidewire. Together, we have an opportunity to accelerate innovation and bring these capabilities to a much broader customer base and create significant long-term value for our customers and shareholders. I will now turn it over to Jeff to talk a bit more about the deal.

Thanks, Mike. We are very excited about this transaction and what it means for Guidewire's long-term growth profile. Let me briefly walk through the transaction terms and expected financial impact. Under the terms of the agreement, Guidewire will acquire hx for approximately $1.7 billion in cash consideration, inclusive of an employee retention pool, plus a contingent earn-out of up to $400 million based on post-closing performance. This represents potential total consideration of approximately $2.1 billion. The earn-out is designed to align a portion of the consideration with the continued growth and performance of the business over the next 3 years. We expect to fund the transaction through a combination of approximately $1 billion of new Term Loan A financing and cash on our balance sheet. We will regularly evaluate our optimal long-term capital structure to support our strategic ambitions.

From a growth perspective, we expect hx to be immediately accretive to our ARR growth rate, contributing more than 650 basis points of incremental ARR growth in fiscal 2027 on an inorganic basis. Importantly, beyond that initial contribution, we believe the combination can support an acceleration of our organic ARR growth rate of at least 150 basis points beyond fiscal 2027, reflecting the significant opportunities to expand adoption of hx's technology across our customer base and accelerate the role of AI in delivering underwriting outcomes for the industry. We expect the transaction to close during our second fiscal quarter, ending January 31, 2027, subject to customary closing conditions. There is no impact to our first quarter guidance, and we intend to provide an updated outlook for our fiscal 2027 on our first quarter earnings call.

We believe this acquisition represents a compelling investment that extends Guidewire's competitive leadership, significantly expands our addressable market, and creates a meaningful new engine of durable growth and long-term shareholder value. With that, we would be happy to open the call up for questions.

Thanks. Yeah, sure. Great question.