Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to the Pegasystems First Quarter 2023 Earnings Results. [Operator Instructions] As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Kenneth Stillwell. Please go ahead.

Kenneth Stillwell

Thank you. gentlemen, to and earnings QX ladies call. evening, and Pegasystems welcome XXXX Good

I'd our anticipates, targets, construed to Certain we XXXX. estimates, Private like Before begin, may, Act Reform read believes, as in in of will, presentation Securities should, Litigation statements words statements this forecast, safe plans, may strategies, forward-looking be expects, projects, as The defined the which similar usually and and such intends, variations only contained statement. expressions date identify harbor the or various statements, current are expectations made other likely guidance, and such words the forward-looking events, future risks assumptions. subject of with they speak on was to of uncertainties. as and Because or statement deal are could, statements based

fiscal in could to Actual are forward-looking with company's earnings filings cause year Securities ended from the and such statements, XX, including will the that Exchange not cautioned recent beyond on in statements annual full company's and expressed undue expectations. Investors results contained and the there on its the company's press to XXXX and year in those materially the other no be SEC. and with current are December filings the the from release XXXX, differ Factors announcing the could are company's contained QX the matters for place and statements Form XX-K XXXX forward-looking achieved. that in report materially reliance Commission, year results differ its such for assurances

by of future do whether these undertake update applicable cause as obligation or statements, our view revise we events and Although the to change, not any to as may result otherwise. information, subsequent required publicly except or new events specifically forward-looking disclaim law,

to Founder I Trefler, with CEO the Pegasystems. turn Alan and of call over And that, will

Alan Trefler

everyone you, XXXX. had call. terrific you and thank We today's Thank start Ken, on to a in

XX% increasing Cloud. what we that footprint remaining achieved where said strengths, our marketing opportunity, QX, clients, our focus environment through in for some by is time. exactly tremendous driven we uncertain in well, In resilient leveraging an and had efforts. expect executed strategy and growth and sales will our Pega primarily our in team we of and remain we existing Our we our strength should This ACV

a discipline select focus continuing We to will Ken also Though tremendous positively Clients continue And this moment. balancing of becoming great our progress strategy. cash the responding our with growth, saw discuss margins results cloud not effectiveness reinforce It's architecture, focus a driving model, to our our more logos. engagement. make new deep that's our to are financial we on Cloud our company, scale. detail towards us XX growth see for significant in is of in and fiscal to opportunity Pega for flow. see rule our solid and Overall, generating results growth. year.

from. building Sweden themes. clients and had Italy same to the were conversations the visiting deeply Germany, I Now, road, with clients, I'm solidly I've trip just spending on continue including be our continue hear I be Last Europe, I Center, based optimistic, to despite in was continues interested a to at in returned and booked to a Briefing And lot Executive anxieties time with Cambridge our and the the week which in Pega. clients. Europe both of relationships

and clients history technologies. one transformation solutions and deliver control a of a They AI, enterprise or noted drive engagement investment outcomes. Pega spending their customers a are concerned efficiency of improve looking for about personalized optimize AI losing driving just especially and top newest CIOs automation better digital know as interested the in remains was to compromising business that priorities has survey to to XXXX. published processes. [City] to the some transformation very Clients well for of force as governance that Digital want experience. to generative organizations also without long of helping how ways use effectiveness as ways in improve in with leverage are responsible the

digital transformation and AI to to addressing aligned these and perfectly both meet concerns approach Our to is needs. these

work powered make their quickly. smarter, empower workflow We to organizations point integrity. for AI and we our And ensure about enterprise adapt most technology talk platform and approach, unified for decisioning low serves and We Now simpler it developing IT experiences software always business powerful building three can that been scalable our has employees to automation. in code enterprises that about compromising the people. without provide

organizations combining We're goals self enable optimized without sacrificing enterprises that autonomous become business control. AI to and automation to with

the seen, operational no our to customer AI heritage enterprise just clients harnessing, an use and founding you've to our and improve clients. excitement our needs business And and as lots reminder, capabilities drive we're in helped since to and interest ago, position this of doubt and as our powered And unique decades Now, there's understanding We've complex a as elevated Pega AI technology leveraging able our evolve. a four automate processes, be been unique evolving on provide solutions in to hype. has efficiency. capabilities experience, are of lean clients’ to AI

of that to we with allow out AI clients and generative building true When enterprise an month, to focus make generative cases ready. to choice AI enterprise stay approach plans value minimize the last offering generative use our technology used governance their that truly We AI maximize with on we risk. will our announced

to from generate example, use simple a create AI better sentence. For we applications copy to generative just marketing performing prototype or

centrally manage existing life great that AI their enterprise. approach clients give add to security AI platform. suitable emerging generative reliability, and licenses own infinity, to our Pegas foundation and hallmarks of the specific AI architectural IT provides strategy to coming generative for organizations approval into example generative controls manage APIs. and auditing This be APIs will and flexibility in in of Pega the Because or to A new inclusion human allows of into of safety, generative able with are Our managers incorporates our to Bedrock, can a approach, service that we recent developers Bedrock cloud. our AI Amazon's build the cloud announcement easily scale integrate and AWS is our on time, AI platform, clients. same we it make cloud support other to our generative based other cases solutions and used client's preferences. and can continue available to and At have providers the integrate applications

make providing controls that transparency enterprise providers generative been AI benefit. rapid we've of fairness the other like the Now, But are and that software code forefront on lower to low and robustness sure at putting all and are commodity. and going to into years solutions believe AI committed responsible a We to straight Pega our hand, the will exist. developments higher end, grade make the for

our So create solutions organizations. we're excited value by for additional to about augmenting the opportunity

Now, Pega based early the enhancements, commercialize, will and with help security. are post-centric apps cloud excited powered that by business code or of technology last Pega a These the we be make investments pursuing. empowers apps. maximize Launchpad, progress address be adopters, and providers continue which to built being build of announced reliability, staff that select software new we cloud improvements global they have working platform rolled out to amazing enhanced center operations deliver supported agility, We're business to we'll group for scalability, Pega with to to needs low better And an these new our organizations that clients. development Launchpad experiences application and year speed, also improves and as markets

and new we're annual of capabilities offerings coming feet Aflac. and XXX,XXX our outstanding partner showcasing be our ingenuity. on XX from also featuring more success XX announcing from presentations booths, fabulous. stories over AI several demos up square the to than Now, pure Inspire be it's going PegaWorld clients, including than XXX highlighting more at We're in demonstrating new and keynote tradeshow be We'll solutions

will pressures manage outcomes. to are talk about We and to transformational deliver bottlenecks and and using staffing roadblocks they continually market fluctuations how reduce Pega

our Pega science centric Citibank, different clients, a mission being partner, who deliver live first decision on went trusted on originally, financial technology its experiences. is leverage Pega of to obviously very very customer drive omni-channel XXXX one to services using in of

Netherlands, journey the customer become fully demonstrate based AI decisioning. Rabobank code and digital using low case capabilities, service Pega's Media, will leveraging business, and they Virgin experiences how customer to are and management who a AI their describe from who revolutionizing our will

out in person If this PegaWorld all website, yet, join and free and the you register Monday, please check us on join of especially investor to and XX. see session haven't feel the hear us to for June

a Telling Company. shot pleased with our progress XXXX Of summary, be Rule strong XX Case to and I'm ongoing in our

results to digital for transformation global by from AI. that and Our large continue driven automation enterprises ongoing leverage solutions and drive demand be

well really we're as is good on meaningful clients is doing focus the effective. winning market in as to us effort strategy making business. And how about feel Our on obviously candidly proving

And is it our confident absolutely turn think prepared opportunity team. and us. me We over executing to challenging the COO leverage let space front to provide right the we but capabilities and color one experienced in financial with expect Stillwell. I right on challenges well right our XXXX the macroeconomic right I feel are the are CFO To in that with strategy in the face significant of and and now our results we Kenneth to times.

Kenneth Stillwell

Thanks, Alan.

backlog. annual the it XXXX. business strong economic great ACV, success most important our The environment, to cashflow, to deliver team Given three value, an contract our is and measure start to a are such uncertain see metrics of

to powered going ACV year-over-year. quarter largest XX% initial Cloud progressing comments continues was be $XX in and component in new This metrics. focus has constant in approximately Cloud my metric ACV we're XX% year-over-year million constant against added for Pega Pega value the currency. contract the currency growth, to today the growth and fastest ACV constant growing. net I'm us. to continues the XX% of in by ACV three which most currency how ACV Pega So and Annual represented of grew these important Cloud important critically increased strong on been result the be QX.

bolstered deepening was to by Our strategy realign market our on to resources our our marquee our customers. focus ACV with growth relationships our and decision go

clear quarter results first working. strategy is Our provided evidence this

attracting broad addition, are we Our based ACV growth was in logos. new and

not for XXXX. Although primary that focus is our

which subscription work long late delivering transition started Moving to have while to cash flow. to In XXXX. free our though. in We and was flow business tremendous for start of produce we great still metric do transform our clients. in vision operating in to When flow million year a lot is our our cash $XX economic value cash XXXX build to a successful for for a Pega's million model QX, we $XX term the the generated

XX% with happy growth result and had strategy growth as of efficiency. of success cash flow the by ACV strong business concept coupled with the of work now sharpen strong We're a generation We're is hard many the our And in to years our Pega subscription believe Pega business. numbers. Our the results efficient our the gross really of to we've anchoring free progress team we as first through running show Cloud We we're and our as some to you Cloud margin can leverage margin expanded to growth. gross and see the we are quarter upside starting increasing future. operating more there's our the

to Pega that growth in that currency on combined Revenue Cloud Moving number increased the term backlog. would XX% a majority upfront thirds drive term from in billion two in the to recognized in we by of upon In constant we Cloud year license and did lower year-over-year less the because Pega by last QX ACV obviously our add had backlog revenues Cloud net $X.XX over is from time. Pega quarter revenue recognized and new renewal. backlog. than contrast, deals of with Total quarter. first in ratably of license revenue recognize driven That's renewals,

and revenue non-GAAP variable. dynamics, quarter be EPS an can these Given highly and individual

And of sometimes the of what's in it's business. the not underlying happening fundamentals representative

drop For revenue. example, down February. in license We in back discussed XX% revenue XX% was this by total driven year-over-year term this QX in

And Our the high at backlog of unusually quarter significantly impact term in saw fourth first of XXXX. license million was the quarter revenue in you $XXX XXXX. that backlog

QX year-over-year. expected term backlog was significantly less balance the license revenue prior end the 'XX in year, term our decline to of license that we than XXXX of at Given significantly

thoughts policy million our economic debt. repurchased environment, convertible we million our repurchase $XX to business. helpful to to last thought will it uncertain formal some our of an be as opportunistically also quarter not we XX% rather, of discount. This look We retire transaction cash, modeling we given notes Similarly and approximately $XXX would convertible generate was a part provide a on

last in annual to year we update we guidance Our the practice something of we've is at a like mentioned business the not materially provide material the happens year, guidance quarterly start provide else to acquisition do unless guidance. or done and not

new flow. focus Given our this we on flow, free a year cash cash metric added increasing

Our commitment strong. generating flow is free to cash

especially and company, flow cash growth when established in the business. that free we value delivering actually economic uncertain we in growth periods consistent welcoming understand not environment a solid based climate both free the That generation cash way, As cash see as environment these an a scale. flow certain the are as when we is free we of less improvement flow

we in and PegaWorld sales for the we've Alan XXXX expect since expenses be first marketing half second to in half the Conference as of driven by our XXXX the time mentioned, live being mentioned to higher XXXX. as and that's compared And earlier, as our first

will virtual we sessions. again host person I'm to be long June held Las model will discuss and after in at long year a our investors XX, Vegas strategy. very our excited session PegaWorld, term four Monday, term that in our once investor

registering include strategy, If also pegainvestorrelations@pega.com. in model. product please will go email our updates and agenda session, innovation, for you're our investor to on the our The interested market financial

include will on We discussion. also the for questions as and usual agenda time

of In very team the closing, our XXXX. well first in quarter executed

with economic environment. we're market the participants Of our still facing other all in course, uncertain of software

we're I to metrics focusing continue most those as going on backlog. ACV, and three flow, cash So important mentioned,

questions. Operator, please for line open the

Operator

Thank you.

Instructions] Please be Kevin now go session. Goldman Your question answer [Operator Sachs. conducting question from will comes We ahead. Kumar and a first with

Kevin Kumar

materialized in relatively rates? of question. you for in up guidance believe those some quarter provided lengthening anything sales Thanks environment. factored the terms have I in held or close macro of Have for Or taking to Kenneth the seen cycles deal my softness last changes XXXX well?

Kenneth Stillwell

Yes, question, Kevin. Great

that. aspects there is So a couple of

executing in QX. saw that our So was against deterioration wouldn't the first one sales think is, our in I campaigns I say we team pipeline, terms our any of there in

well. executed I we think

there solid. There can transformation very our of concern think against I was said economic committed That still execution that engaging. initiatives. digital think are our is I sense out their was clients level our there to last but year, some definitely you there's pipeline as

there's we into that's But think that. in two haven't deterioration but marketplace. or like I our you was the close metrics. the statistical of feel of out So uncertainty translate seen can of the there good, pieces the kind actually The execution timidity that

Kevin Kumar

more on in know there's been And that. Yes, on then focus within has that's on customers, focus helpful. to logo expansion I curious the the organization existing on sales comment and been changes the adds. some

for So just process? that of what [indiscernible].Thanks. the was natural of course kind the sales And curious contributors those remaining

Alan Trefler

that us organizations, well, basis opportunity strategy. and you who's relationships it's I with new see inbound else, Well, because, and with industries. had will will we we are consistent improve upside, meaningful either candidly us are tell future, think, are giving what critical to absolutely have very in by with relationships customers the organizations. get and a the XXX are the how continuing Alan. see ourselves We doing companies to are types have adding time great the the of working somebody the expected we worked logos that with uncovered and several capacity we And have to customers, those and companies with important lot spend building that with both leading more various do that's be somewhere very our really, significant those in that or I

that's the maybe really a in little strategy feels good a So particularly year tougher.

Kenneth Stillwell

is of companies It's that think the not current are our to just our said, or to were Pega. were is, there people our where our Pega. I the look because like very there that other entertaining not new that that opportunity think the new focus is that somehow clients to majority are clients of I with message is, one that we Alan clear, heard of of That as existing because But true. out just would I strategy not not that logos important not lots clients some add there that we also are which point wanted be clients.

just us make will to we clear. that And happen. that and continue wanted nuance I them sure they find sometimes to think and sometimes find I was

Kevin Kumar

Thank both. Great. you

Kenneth Stillwell

you. Thank

Operator

Next question, Rishi with ahead. go RBC. Please Jaluria

Richard Poland

on Hi, taking question. Richard is Thanks Poland Rishi. for my this

around I that a you're and doing question two guess part So kind the is lane. generative what one on first of AI

could generative it the you're lot that Thanks. of opportunity that So how a how the compliance And proposition and you sounds security follow up it's type if kind differentiating against the term. just of other long wrapping solutions elaborate just there about a monetization value you're like really out around opportunity. of some little just AI on exciting technologies. on and bit is just you the of is kind But think then AI the a

Alan Trefler

Sure.

So advantage lots driven business software. using been is Because writes a model, basically of generative compared your structural I technology how create always from our of think you company. we've the other model. want the got the model run. has to system to We're to actually that inform Pega a that What means And a companies. model you

So example for that you home the you the of information AI would would I a a like go want process sample to define look of say, schema, data through, need, loan. capture for instance, And data a schema that look would generative what you one can would equity will what stages like. terrific hey, would identifying for job do

test use to might You able it. to be

that model. your about a business. to go to all those apply our really It components things but technology of And opportunity lot jumpstart, such also amazing you simplify gives of into are an you how

of lot been types an I about companies things extremely of think the code. is really a that candidly, architecture suited low So leverage, the are talking and that those well examples; have

have real apps fit in trouble right structures. enormous code a standard, and low that don't enterprise think don't are the I because

to more AI updated replaced people many going to be the for be market are but need code that cases think routinely. just using by to I little in things a write there's sophisticated, generative a huge

you don't do you it, later. want to again, six just but So it updated, be and updated once months updated, use

for structural I is demand for going additional the of drive things Pega this that And are us. a are Monetizing software those variety that's advantage our towards types in with absolutely a it's doing. we chance to and And us a our they think good I have to more. clients we think for And for it, use of cases. paid And get when general, more, them. it gives use what good

think addition of is a candidly appropriate has about. So that And feed, it by this this of mainstream hype, just into which the long lot not I but having before understanding It's technology what AI is excitement were in a affected mature pretty that. we we to I media. we're think broke of part nonstop, on

Richard Poland

Alan. maybe one super you, Ken. And insightful. then Thank for That's

solid as How in think Just been it's margin Cloud past we should forward? pace of the expansion, about about really we the that kind of recent Pega think gross going and years. I the know, about track, Is still of XXXX. high previous I range Thanks. by should to we gross think the think mid Pega margins? one that targets, Cloud XXs was the of in kind

Kenneth Stillwell

Sure.

maybe was a So margin do high set the XX%, years, when When of the was it we then it's of and Cloud could XX%. target maybe then it target years XX%. our and said, picture. we've And we was it was gross moved started XX%, the we first first to we them, of XX%, Pega ago, paint the couple interesting And XXs. kind well now about a of then surpassed to Then then we XX%. couple that

And think is forever, that efficiency at of But do you good to margins can't point, And begin hit would course, point companies so on gross and have SaaS to want go to right? some best like right? eight, naturally got scale. strive that some stabilize. with best class be so an in class, I we're starting a in we the to where get Because

mile high standpoint. Maybe in best marker being XX margin way on I'll journey that think from to XXs gross a frame maybe that's is I a class So company SaaS the to it.

Alan Trefler

also the Being more been putting effective make reliable achieved, about team the years throw five rework that money that our cloud clients. save Project to collaborative may talk to this you about actually when extensive in automation just the able system has so ago would of about is have excellent way that. I we our terms both has me into for been Phoenix, heard and talked work more but both in, operations of

We little rework And lot system bar and have oriented non-financially what micro services oriented But improvements of get makes as have a can we we and things a to do the that that's excited we would the I what can't architecture. from related go would me forever. cloud what go. be just is beyond describe scale. to raise we that There more

Richard Poland

Very you. Thank helpful, guys.

Operator

ahead. Please Citi. Steve question, Next go Enders with

Steve Enders

where I All right, up taking a AI focusing and kind in following products AI discussion. and of embedding initiatives question functionality for do guess ecosystem parties think win, of right great. and some Thanks technology that to embed have or on will maybe how I the you be that maybe the you your into the the of other guess third just technology about vendors here. your on the looking with set. at versus partnering product rest to

Alan Trefler

partnership major to going We central building talked market. go with about to AWS. definitely how we're the partner. generative to to other the AI with be capabilities Well, to also is Partnership our able we're providers

and in AI and able make but and to savings very customer cost call which to is benefit that which perspective. also we being both be not course, So them needs of there. rapidly have the continue to that when And to emerging evolve capabilities as a decision is to from be We, technology, optimizing own large to what it to open self really of we learning something AI hub. the our generative language comes super process the powerful ability AI customer some able our processes a part use see is capabilities, use we model call going to of a are what service also architecture

enterprise really customers player something that well-equipped not be know within with come significant up be I that have of think that be So we that's space, to we're insanely competitive types to to going us and because with that super an to on needs absolutely can able would we the We're we're things the serve, considering going and a great types clients perfectly feel general but I feedback excited use. the showing track right going we're doing. be from fit that there delivering of things be that early actually are to to getting here

Steve Enders

thinking the understood the mean, year Okay, appreciate Ken and out half thoughts I quarter, anything for for it of guide there. maybe you throughout anything guess of rest quarter flow one into think the the the and the really not the about time we in be the here for year [indiscernible] Was nature initial or cash, good in we that pulling should paper cash flow that forward? as accounted going of that about there put cash there. kind

Kenneth Stillwell

mean QX in that, Steve, QX in higher which be are sure. billings would QX higher our collections our typically, QX. just a reminder and that typically and Yes, would

that have Now, said, CICP that we lot QX like, we example, of have a in payment cash our outlays annual goes for out. because do

so quarter higher typically in typically, higher, have, because a have a commission a We payment QXs of are it's bookings. higher we

and and in I But billings. strong QX cash and of were stronger, cash offsets typically free because very there our just but QX bookings strong QX say less quarters, terms are flow So that typically would of that, flow. was and the nature said, some free to are of QX QX

Steve Enders

Thanks great the there. for the answer again Okay, questions. taking appreciate

Kenneth Stillwell

Sure.

Operator

William Blair. Next Please question, go Jake Roberge ahead. with

Jake Roberge

Alan, AI little bit comment Hey, mission Could the advantage my more for wanted low what the that critical the world take could code forward? moving use just about history positioning thanks to talk more team taking workflows Pega's cases. from into you help dig commoditize really generative just its of your deeper and you questions. lower a AI and in opportunities end AI

Alan Trefler

about goes a also customer building also can have build consistent app moat explain just When that means and enterprise be into together, we hooked lets things technology it them our able that provides lets our the is low approach. why I'm customer, we our with positioning the isolated code “low talked Well, have that really applications, means and mean? enterprise Pega with assets, customer some types what insurance that apps code” the quickly. that also doesn't leverage sure, other or factory to of things. all other talked to really I an consistent of or of I complementary think interfaces, fit company, way about of does and a structure a be And things a that types them be each vary where the a call is But Well, them across of a those types bank other. might enterprise either This that They a with controls, divisions or things that things across might going a work, like with different that certain a into say or what the is vary cake. to to run in the we other go like the cake, apps. layer are have ability of related apps entire

of have from a apps I to bunch lends itself distinguished that little being running around. think that super really just companies

like betting we've that's that code actually or remarkable run company any a some on little their exactly from that competitors. on ways low apps, the of experimented that look simple generating And future mobile things, are some our been apps that quite kinds demos with of mobile in do device, generating

think is that just out going you're it's going I to Because shaking really is to, to [indiscernible] up think find going market. going the end the away. I really go market to

Jake Roberge

Thanks macro? XXXX? exit the and helpful. at start transition of do is you and role the of your a still Pega to this that as you year for how business And Ken pace the like the of as any seen then be impact subscription on for result this you Very transition about color, the a track year? of do you feel the Have complete feel migration

Kenneth Stillwell

originally I some So maybe had every a to financial would it. happy through an envisioned to years, Cloud. are choice. in think Pega subscription, four I a probably by it, thought I'm first. it longer I pace, those The want general, than of of the kind of to that's a six enough, took tease going way, let's years, subscription, mind. just but in close well. think I is going client take ties to it little what transition them six to good went the or to get Not but with cloud it been our There months is subscription really questions. transformation very couple kind five has out five my important to that I'm year so like

Now, every has Cloud. client themselves, case, of their not okay. I or to that the environment. But the depending things such we want our it clients reality amount is lots decided think manage may significant Pega it's a have to will. But to on within But be might that's want choose used everyone of

move to In to some to terms like because is software Cloud, mean, cases, we have the in you move, relationship our I done on or have chose and not understand companies must that company. say typical you our workloads Pega we have than of choice, clients, clients, clients, pushed no who've clients forced other different

be we of on and how might of though, having move that is us, seen new to move those shift respectful said, applications they Pega important kind but Cloud, they two meaning of quarter That thirds clients, have clients to and another Pega how how most over mission have Pega not may And it to we of to Cloud have our thing conversations I are, there. their just stake critical need something some all the and have workloads. think, The for environment. much, begun every be some every do year, hard have

that of the to clients know to. will as think over that the what happen you value. they that the And migration, time I And extent mentioned, kind want

In kind does or you move in the terms mean maybe economy, of economic if of Cloud. Pega not to have the headwind people that move

That some client is of I movement they financial a absolutely they inefficiencies line question. inside say to have true Pega think have, a going maybe our the clients. vendor depends punch optimization of some views organization. that for solve Cloud of really that or on And is cloud, may may it's would the I some their other that your like the to kind like whether

other For make that not not not they have, of term the because move, they some they use those be clients, move. resources short to to ready may may want to may in

part, I universal it's a say say, tougher would economic to overall, a helpful environment not Pega is a clients think the last it when point. But that's depends, would Cloud probably about that I really So bit environment. little have

Alan Trefler

duty, we're of and Yes. skilled are running once be pressure a billing beneficial and staff. might retaining of heavy right have Gap] easy cloud. it's the on when up [Audio run in This of in basically it. just super customers month data But driving to under so some some their a a on terms Cloud, a large for would obviously, do their center got cases pick into again, including data operating woven more are automation have the Google that systems It's vendor want their that center very millions of to that XXs in combination Amazon we customers, or tangible that may little and folks and accounting and [Audio cloud that Gap] non to literally-literally run they make total where of not move it also we've customers apps systems

they by [Audio and/ centers who there's picking or center or do to them [Audio their data some Gap]. how and data know up Gap] it on to And moving do vendors best, whether that. of want these it

Unidentified Analyst

taking great. questions. Thanks Sounds for my

Kenneth Stillwell

you. Thank

Operator

go Bora question with Please ahead. Next Pinjalim JP Morgan.

Pinjalim Bora

more question. through change little sure the thing jumped just long the after try make for taking Ken, this driving there's strong. positive just SCF pretty want that's And was should on on I'll year flow. performance like one onetime a I seems capital time in for not expect a seems to like seems a time SBC QX. thinking in working bit. thanks the Hey, then It what cash the free it we the

Kenneth Stillwell

that you heard cash I say the second Pinjalim free point. SBC Sorry, I point? flow heard for I But did the

Pinjalim Bora

bit little go and a like, jumped seems, seems ahead. comp base stock The

Kenneth Stillwell

That's I you, why. I'll faint Yes. the were just volume. explain. a on like It's little okay. thought you I bit

So flow. Free cash yes.

about cash If about way cycle. that to to is flow connected about a little the to billings think billings bit and revenue the you think think maybe free

cycle about quarters the through think are our for largest year, you the and If typically revenue QX. QX revenue

QX. QX are quarters softest and revenue Our

QX, not relatively would little that QX are billings means but Our our across and be the are lesser our in the across and QX higher consistent materially a than different billings bit and costs in year which QX year.

And strong so flow less and if QX in our costs QX. stronger and you you now and and cash QX be in QX typically billings take translate into flow, that would and cash

to the color flow. give helpful So on of bit little hopefully, a cash that's

of compensation, of XXXX five higher is equity And is is adjustment, through will stock base did there out in that I bit would vesting into then of biggest beginning the the period play one adjusted of stock grant the kind shouldn't onetime acceleration, there. On four actually but a comp of a that the we based near term and call is we a comp, years to two actually for cycle kind base there half factors, second the our one, from adjustment second primarily which stock say XXXX. because it I one a of was thing. an not little in that that

And XXXX would certainly repeat. that that not in the would something calculation for that is be

time There stock pressure little change based is some there. not that up on strategy. to structural a there's So is our compensation is a one bit not that that

Pinjalim Bora

of for and around how a to might lot Very AI versus potential efficiencies Understood. about ask kind Yes. the you call One that do from capture AI from lot value the on seats pressure using think you heard about in I those a clear. things the potential actually of you're to we incremental will Alan. have want capabilities, efficiency kind that of drive? AI. doing Obviously, of customers gain this

Alan Trefler

that put the for seats of potential the contact channels, you for obviously you think things become to center number of becomes lot is service I the going chatbots So folks, affects, if an seats, self or better in a that occurs, automation candidly, example, because or better automated can do on pressure have.

However, and we ones. to are tooling Gap] it's fine. better seats, for because pricing couple companies to We've the really is interactions, manage including extent those, candidly that client it's user being think of automating the Gap]. the and a that based find think [Audio run to got the us, I those use best automated moved through [Audio customer, and away from it's of

Kenneth Stillwell

Thanks Pinjalim.

Operator

Next question, ahead. Steve Nikko. with go Please SMBC Koenig

Steve Koenig

Gentlemen, taking for Hi, the start year. my thanks questions. Congratulations great on a to

a it cloud. housekeeping a a for net or think Ken new then Ken I maybe you ACV Just question XX% question Alan. and was mentioned that for two

new commitments? ACV was you cloud is on commitments. it the I'm the the for this of based that guide, or same the cloud that you're new same new what definitionally? net being clear assumption so I XX% client Just of it client what Is percentage definition an was And XX% like, was guys to think, percent year. using Was that

Kenneth Stillwell

Yes, metric use is to that with confusing reported get that very Steve, quarter. versus can one when we be quarters we trying consistent two may did. to one a what We're across metric because metric it our sometimes be or

backlog, easier revenue, because the felt it'd will much into to measure. We that So that But and reason. that talk yes, be the that translate translate just like into essentially same the etc. about metric, was will billings it's

Steve Koenig

that we from Got makes calculate sense, That financial. the it. can

great. So that's

your higher and good far revenue we my The noticed assumption, was results, the also good. predicted based quarter track Okay, especially cloud cloud with a guide we of terms the and and ACV a so better there. revenue. ACV then than bit would was cloud have than your RPO expected is on cloud so was you're we on cloud, very And in takeaway

And the through relatively line, of be then and back wondering, would level thinking that cloud one licenses kind one just Is deals you on help for an you so had were your should there I'm And end don't mind. if QX. the last Alan that some revenue quarter, QX here? still then same next cloud loaded subscription outlet, for

Kenneth Stillwell

revenue lags for sure. ACV So

question. So when I'm any a that deals, have there. But quarter. be That generalizing. Alan really impacts we a revenue we term don't, we XXXX, with his for for end revenue lagging they well, that that's statement are correct typically back loaded, yes, that the is definitely hit effect license you when more our happening. And booked think the because so renewals if don't to would in want as there's

Steve Koenig

Great. it. Got Thanks. Super.

another on very moving I knocks the years there over there's generative Alan Pega not as of kind think, that as developers, here, So yet the of Java are guess is I Pega one on AI. question relevant developers. But many

build models, more got But grown you've Pega make that. current really build to ecosystem trained a that. to of help to on hardest partners, and a generative lot hard, a more focused productive of capability, that democratize trained earlier can and part you more talked fundamentally kind So to you that's the about to wanting overcome AI that or that This the well, Pega developers or even very used model developers, development model? be does of your

And whole if anyway, AI what, the then enough So even nuts? thing, hopefully coherent? along turn not then that's some model you random process and language transparent Pega to like, need just the build model, the for same into why have lines, gets users this the the good the model AI to that soup turn have to questions code like, that from does be

Alan Trefler

top mind. think they're I good No, And certainly they're of questions.

than to improve. to hard a of developers which requiring little at it's working use addition Java, that in bar kind also, over. perhaps historically, We've jump which of been being a being things been Pega to takes there curve, one the a high times criticized to or fewer learning we've So But is work. for

risk group enterprise. the But to really your opens AI an use use because both the structure very more citizen a providing make It will of to that massive a lot developers the think existing of the much I we productive. right more much we democratize those. really advent not it can leverage have, citizen a to has the developers of takes for makes stuff of guidance technology word of a up where generative change of developer the the

still So be and we our so make layer Pega guidance deep the cake, with knowledge, of from can control don't like any instructions but it provide sort but require interpreted language. can that that

more a does would for you this when system real of not customers at single a little the talks app, need small and number as challenge, number [app a at your who why The than and to have how describe if about But things into relative stuff, create Now, you that go what all. demos look a I backends. you think create is certainly model of of to question just a need]. to

the you You some to Because to to a to need need to how make works. want structure system, go make that you system that that be changes. when able to structure changes captures go

a the validate robust decide of things to is of how data, all what who you want model. capture in unreliable, thing to it send don't to of approve really if this need process our are really going to to how types those super needs you app capture And that's build around and go to to just qualified we able the out little that able controls model, be actually time, edit You post the regenerating center things not the are, I think architecture uniquely we're introduce have But our you you systems, different all an easy to it; be to bugs. the backend of a because flow. to be how things would like right transaction,

exciting They and people. well really this And sense be way. can the I our be staggeringly, business to make to And staggeringly powerful now they're actually in think, models visible. will able constructed

about this And This going really that what influence business does quite crank. that's in be we're the excited we're one not just think years. to is turn of So to really it's for bit us. the why I for a going

Steve Koenig

Got thanks lot. Hey, again. it. a Congrats

Kenneth Stillwell

you. Thank

Operator

Please Securities. Next Truist go Joe Mearus question, ahead. with

Joe Mearus

guys. Thanks so much,

Just have one question.

whitespace Just current within customer base. the the about

just might how with kind selling of you've there. if different qualitatively, mining the opportunity? whether us in size just could of so quite the then think past, geographies, new I it flow broaden curious cases, even remind I that maybe it's different am help task being And product fits to you and Thanks how to much. maybe large. ever into buckets then that just or spoken

Kenneth Stillwell

may the process the part. part, take take Alan I'll first So then mining

speculating we So. can the and we how naturally our living, and spend right we we get we kind directional we reasonable would think a what companies market do use of you're this we be a this data of can this, that for never a have know target. because big idea about is, market third we Joe, can think often from perfect, but party is,

client, out And when well, like when we of our below digits, that single you what look and And penetrated XX%, say, base may client are years mid four growth this to you would well across with go kind of single be we digits three penetration. after approached look XX%.

we're to think some in our of get able maybe what clients might from I XX% So about largest we've even our be penetrated XX%, talked of clients we largest in them. terms

about So almost number ridiculously is I there. how tackle market $XXX think have high talk the that we much to out could we that billion

we for a in in think Alan, the that think don't a set. actually, long year company, clients things relationship our clients, about have I maybe business we that anniversary, and month you I been the we Everflow? and are opportunity mistake in but for So terms as deeply are, talk we penetrated this of to time, want the those should XX we

Alan Trefler

the talk in I when upside. attention. staggering the we well customers they when for Yes. [indiscernible], same a enterprises government commercial was and I I the governments of of And what and tiny fraction able all in And go do can. a those to to correct. for cases, Last really, the absolutely That's the week, attention, Germany, that, liked such we're have deserve as where few there's candidly,

better for everybody. to just just help ACV. their think is going of wonderful less than Everflow Everflow tool think So processes. amounts to people a with it's on going I win get a And a win large is what's itself this understanding I generates of be

at. Pega how of that platform how think to good you and part able I of handle the more be Everflow the apply of is technology than to better things it's use workflows can the you the discovery automation, are Pega do can

Joe Mearus

thank Awesome, so you much.

Operator

Please go Barclays. Srinivasaraghavan question, ahead. Next Vinod with

Vinod Srinivasaraghavan

for Thank my Hi. taking you question.

for me. Just one

this bit way quarter? patterns Can before You've the trend how in customers did about earlier. product you've talked the little usage baseline usage a about talked about with throughout purchasing and you talk

Kenneth Stillwell

think on way. is volume based about value usage we use expand talking a workloads what the they frictionless be that we that, they a do see for fraction naturally just to of So new the in where they use Pega the client. created about And that get from by small ability to that we're value clients footprint contracts as of to our is their bring the new clear, really cases, that

it's terms very process. predictable repeatable consistent across the some a and because year, In very usage clients haven't of

I way of go if so this have for world, might the you they very need in many a a in peaks like the go the loan of that and trying years adopt there where to that and there's identify troughs the be to of our clients tracking had through up the frictionless and other parts bigger heavy go the overhead through in internal sizing purchasing to the wouldn't we're majority actually of would process through a say but of quarter, a kind and perpetual not were rigorous back we in back can to actually it that say help and process. have engagement is clients in year and I have on weren't, traditional year way a go What might terms be that because originations example with usage. spring our business of the nature trends Some engaging

really a part very way. clients to from able a be Pega get our important of And want base model. We usage frictionless to value that's the in

Alan Trefler

down individual based to smoother. and that won't often usage bounce a month when And I that's customers trailing and, both won't up usage vary think are will quarters month average the Customers little on happier and so XX a calculate us, and month.

And so that's how do to this. intent we

Vinod Srinivasaraghavan

you Thank it. it. appreciate Got

Alan Trefler

attending. that, everybody let thank me with for So

Vegas. year, XX You generative look Investor Pega exciting you guys I very the to on through forward MGM think to Thank XXth this AI are. working XXth, be Grand And enormously seeing you hard. to much. the that on it’s June were and who Day the ones want brilliant about see to We're world want capabilities excited going you I where we particularly know, is

Operator

teleconference. concludes This today's

You you for lines your and at this may participation. disconnect thank time your

Pegasystems (PEGA) 26 Apr 232023 Q1 Earnings call transcript