Q4 2019 Earnings Call
Ladies and gentleman, you're currently standing by for today's Pegasystems fourth quarter 2019, earning results conference call. At this time, we are still admitting additional participants and plan to be underway. Shortly we do appreciate your patience and please your family.
[music].
Good day, everyone and welcome to the Pegasystems fourth quarter 2019 earnings results Conference call. Today's call is being recorded at this time I would like to turn the conference over to can still well CFO. Please go ahead [noise].
Thank you [laughter], good evening, ladies and gentlemen, Walker.
For 2019 earnings call.
Oh, Yeah, I'd like to read our Safe Harbor statement.
Certain statements contained in this presentation may be construed as forward looking statements as defined in the private Securities Litigation reform.
Nike 95.
[laughter] anticipates intends plans believes well for sure.
Okay.
Robert.
Sure.
Workout guidance.
Likely.
Or variations of such watch and other civil works rushing to Jennifer.
Which speak only as of today.
They are based on current expectations and assumptions.
Such statements.
You are subject to various risks and uncertainties actual results for fiscal year 2019 and beyond.
Sure really from the company's current expectations factors is what caused the company's results could differ materially from those expressed in forward looking statements contain the company's pressure.
Q4, 2000 earnings do you have themselves.
[laughter] holding on annual report on form 10-K for the year ended December 31st 2019, but not a recent filings with the FCC.
Washington Office waste reliance on such forward looking statements and there are no assurances, it's a matter stripping such statements will be achieved.
Well, that's really going to make hardly changed except as required by applicable law, we do not undertaken specifically disclaims any obligation to publicly before.
Do you know whether as a result, you information future events father wash and with that I'll turn call over to Alan Trefler founder and CEO.
But.
It's not seem to be honest when ways, we delivered very strong Q4, which topped off strong results.
Interest.
Significant progress Archie old accelerating growth and moving to more recurring model, but getting to see a cut off one or go to market investments.
[laughter] broader and deeper client engagement.
That's a result.
On how we're executing our strategy to help clients achieve.
Her proportional.
I don't know travels I do like one of the Boston.
It's also with what does your all in CV and got cool.
[laughter].
Missing adoption.
No ever longstanding clients.
[laughter] people in Brooklyn, Oh celebrated in Q4 to 22% year over year, having said we believe the TV.
The nature of the most closely with work underlying momentum I wonder what that drug in time for the team for solid execution. He sells a monkey and I'm very confident in our ability to execute.
No. There's so much more we can do.
Velocity and that's an opportunity to help clients.
What's your digital transformation initiatives.
So I know in 2019, I've been Wisconsin, she level exacts, almost doubled and Uh huh.
Okay.
Uh huh.
Don't work each one of them.
I think on color.
Regardless of industry.
Called and.
They're ongoing struggle with true digital transformation.
I'm just thinking about how much trouble is competitive onslaught and well take to thrive over the next can you talk <unk>, yeah, there's been especially with the lack of visibility we see cancer Muslim world.
Oh, sorry, so there were.
Very clear of common challenges that are emerging.
On the perfectly we're preparing the builders.
Organizations need to be overweight Christmas and technology architecture.
<unk> business models that are evolving.
Cool Devon capabilities <unk> absence from multiple sources, including outsourcing organization.
Ill open platform that will support.
Oh.
It wouldn't be technical challenges involved and government airports ward.
Ecosystem people prophecies impaired.
Perfectly aligned with we'd be works that well.
Socket organizations and dealing with a sure.
Additional product oriented transactional models.
World War Everything's offer a service.
He conventional your partner something something that was bought it Oh, yes, being turned upside down and older versions are realizing.
Sure.
As a service monster.
There are adopting to be more customer centric frictionless easier to engage.
Ultimately you're comfortable.
Just one of the was equally well with all ability to enable organizational speed from intelligent automation.
Powerful.
Personalized customer experiences are just bring everything together and he was.
Consider how.
That's good activity mobile computing power and increased customer expectations enterprises are shifting from Oh sure reacted fulfillment.
The focus on collapses and he can you give engagement.
Analytical principles that leverage information well beyond whats captured in the traditional CRM system can lockup anticipate the names, but also to actually yeah potential customer she is willing or actually.
Average quote since we're probably going to customers as they haven't.
Finally achievable.
What do you actually listen you're comfortable are satisfied.
Yep.
These challenges a common across industries goats blasting different works for example, token attrition.
Ladies and showing phones.
Selling collectively content services.
Fairly old style data plan, that's going to be a race to the bottom Oh looking for ways to better understand what customers want and deliberate consensual engagement that offers for an expanded portfolio of services and content across channels.
Oh, no how to do it.
No that they needed.
Great. Examples in one of our war since 2019 deal with one of the world's largest telecommunications companies.
They chose pega to hopefully achieve strategical strategic digital transformation.
Children shoes on the telecom sector, becoming more commoditized family because on differentiating fusion Peoria proactive server people with robust customer experiences increased revenue and absolutely right cost.
Exactly the type of initiative, which even before they chose pega because we work with after that that's helping meet your multifaceted he's achieving scale moving to the cloud realizing locos speed of delivery differentiating customer service integrating.
Actually in severe customer journey.
They expect to generate.
I mean 1 billion a year right.
2021.
Hi April protective extra action and short fulfillment customers in the moment.
That's one of tens of billions of next best action decisions each year.
Yes.
Let me clubs are still organizing silent credit card divisions thinking own with customers.
For the mortgage group and Kevin talked with that checking and savings.
So I wasn't going to be shattered.
By the emergence of open banking convinced checks of interbank standards and make it easy for organizations to compete at <unk> hundred organizations to put together a package multiple products.
Okay.
It's from other institutions.
Great customer loyalty and stuff like coupled with managed from a centralized touch point regardless.
Also opens the back so.
It's a real driver.
Forcing organization.
And you know health care. It gives me the final one that's historically been.
I will ultimately incredible reactive.
Smacks of the action around specific events or acute illness or hospitalization, but the industry is rapidly shifting to a wellness and preemptive health outcomes.
Mean, delivering a continuous collapses.
Nurturing wellness experience.
And being able to measure themselves.
Oh, the all of these organizations use that they need to platform on which to build their own as more and.
And they get to respond to that happen quickly.
[laughter] Im seeing similar and sometimes they don't have loved ones lessons as one of them. So I want to remind you of the power, it's probably a differentiation.
Our solutions.
We were a modern scalable platform.
Has both a brain.
Intelligence to make brilliant decisions, but most of the ability to get weren't going to pull that off structure.
Absolutely.
Only software.
To fund these capabilities.
Our architecture technology and experience and intelligent automation miles ahead of alternatives and we continue to invest all getting everything.
You know I find it from using to see some companies now dredging up in terms of the 19 nineties.
Hello.
Even though we were the highest weighted.
Segments back there were like always follow on work on Wallace and frankly sat.
Especially today, so it shouldn't be about well it should be about June.
And that's exactly what I can deliver.
Hi, this is unique capabilities position us to do the platform platforms for enterprises and want to create real digital proliferation and evolving core.
Never has a lot wind wellness builds for change.
More relevant.
The touch a bit on 2019 accomplishments.
Turning to focus on the solution small businesses.
We think will generate the best confirmed slogan.
Well.
Traditionally strong Walker.
While explicitly and newer bought central time potential.
We continue to invest and part of the kids to ensure our platform remains best in industry, providing clients with the most innovative and differentiated capabilities in the market over the past as part of the value well no or very unique model driven approach.
Yes, you're going to take clients with us even if you make massive changes and introduce concepts like Clark choice.
Courses offering is pregnant study this single unified powerful intelligent automation platform increasingly adopted by our clients and prospects.
The platform that they want to use to deliver their business models.
Well, we're releasing the latest version of pegging funding.
So I wouldn't be where capabilities in our core area, one client engagement customer service and intelligent automation.
Really exciting new features.
In the design thinking concepts directly incorporate into the software.
I think local highly collaborative development faster easier.
I don't tend to express.
It really takes into development process, and God use and stuff like that to quickly dissolved and before that project.
For a minimum lovable projects smaller things to the traditional projects, we can handle the mission critical things that fly.
This lets customers start small and take advantage of package slips and scale and evolve applications baseball business needs.
Hey, Scott said, we're going to be especially important.
Organizations develop new when more platform oriented licensing.
2019 result, subscribing to work and we saw good momentum and we continue to develop customer engagement capabilities.
Messaging and data visualization.
Major enhancements that get easier and faster for clients adults whatever.
And we'll continue to be wed highly them anything interesting reporting that went live in this category Gartner and Forrester customer engagement multichannel marketing hubs real time interruption management.
Industry Awards for shell Ram customer case management and customer service.
We recently commissioned to report from Forrester calculated the value of working with girls on transforming customer engagement.
Among clients forced labor laws.
Average return on investment.
Walking 489% over a three year period.
Most of breakeven.
There's an extraordinarily about one of a quantifiable value where customer goodness broadly girls and you can feel free to check out before us to report on our website.
We continue to enhance the pega platform intelligent automation with all of a bottoming process automation solutions and I'm not sure enterprise locally factory makes it possible for citizens developers to create enterprise compliance Archie blast low code solutions.
Gordon just recognition by major analysts.
We were identified.
Excellent and a number of key categories that are critical to our clients that only have continued to investment pega cloud to ensure we have awesome cloud solution, while still supporting cloud choice and customers.
Who want to wrong.
Partner.
In 2019, we expanded our crosswords guarantee with proprietary support and we added several important security certifications.
Including hard Trust I wrap in February.
Much easier to do business and health care and with the government.
More importantly, as seen on results remain for Pega Cloud and club choice continues to grow.
I will just.
So 2019, when the quality growth.
We continue to focus on expanding the field organization to better capture the remarkable opportunity in front of those.
Conclude the client success organization, helping of capitalize on the opportunity for expansion within our client base.
We are also increased engagement, which we judge based on high quality interactions on the web board meetings or email conversations like more than 30% was our target organizations and we expanded our certified ecosystem by more than 25%.
You may recall that in 2017, we launched or.
Sure it's program to invest in emerging Pega partners and helping accelerate ecosystem. So that was invested the nine companies in the U.S. and EMEA.
All of them are doing well and growing.
We just haven't announcements or really people see the teletext, a leading digital go girl consumer experience technology services Company just bought one of these partners surrender.
Total debt at more than 40000 employees on six continents focused on delivering transformative customer experience of engagement and great solutions and the softer freight see an opportunity to grow their business with a pick up on Spreadtrum is exactly the kind of results. We were looking for when we established as program.
Great validation.
And then the final topic is Pegaworld. This is a significant events every year, it's a flagship Kaufman.
It's supposed to be very very exciting this year, we had terrific clients signed up 10% over hunger.
Example, United Health care will be speaking about how did you say odd for next generation customer care Ford, we'll be talking about how they all harnessing pega across the enterprise to enable citizens development.
And just if you will be talking about how it's rolling globally based on the successes I saw in the early returns.
I would agree we'll be talking about using pega to build the future of insurance.
So what they call insurance box.
This year will be at all hometown of Boston.
I hope you'll be able to join us.
The biggest that's pegaworld ever on June 1st and second.
So in summary, we're really happy with our 2019 performance on my please.
Since unclogging TV growth and the leg of it has.
20, Twond or you can see us offering with an ongoing rhythm of continuous improvement through up and prove a father things for them ecosystem investment sales and marketing to capture the full potential your opportunity while being mindful.
<unk> costs.
Profitability.
With regard positive about how our software is being adopted and we are really really excellent visibility to our revenue for next year.
Guiding to be over a billion dollars.
I'm excited to see this milestone and grateful to the entire pega team.
Got it in this world yesterday carries us into the future I'm thankful to our clients and shareholders for continuing to clusters.
I'll turn the call over to Kevin.
Thank you Alan.
Weve reached an important milestone in the history of Tech is evolution as a business.
Arriving at the rocks that midpoint of our call transition.
Back in late 2017, we consciously shifted pega business model moving moving from a company that primarily sold at software on a perpetual license basis. So much larger company itself, mostly on a subscription basis, we've made great progress on our transition so far.
The most important success metrics that we've been tracking to show.
And the impact and progress of our strategic execution. During this transition our annual contract value for HCV and remaining performance obligation RTL or sometimes referred to backlog.
Let me first talk about ACB just to remind you we enter 2019 with the targeted increasing total ACB by about 20% in 2019.
Please to report total HCV growth exceeded our expectations at the end 2019, our total HCV 693 million a solid increased 22% from 2018 steadily CV a 570 going in.
Hi, good quality CB grew 54% from 110 million in 2018 to 169 million in 2019. This impressive results drove this total HCV growth rates up to 22%.
The growth continues to be our most important metric.
The successful execution of our strategy.
Total HCV is somewhat recurring pega cloud and claim quals commitment representing the annualized recurring spend from our clients for cloud term license and maintenance. Another reason CV growth is so important because it's the best leading indicator for our future revenue growth.
Now, let's turn to remaining performance obligation RPL also called backlog, which is another important metric in 2019 talkin cloud backlog increased by 41%.
For 299 million.
December 31st 2018.
422 million.
That was 31 to 2019.
Well reflects client commitments not recorded as revenue as of the Pureed reported.
Providing visibility into where a significant portion of our future revenue will come from.
Total backlog increased by 205 million.
631 million to 836 million.
An increase of about 33% when compared to the balance at the end of fiscal 2018.
Our robust backlog is another benefit of our cloud transition historically much of our bookings were taken us revenue in the current period, causing variability in our quarterly results. These days the largest portion of our about our bookings our cloud most of which goes into backlog, creating a more predictable revenue and cash flow stream.
You can see further evidence of our successful transition so the recurring revenue business by looking at the change in our total revenue gains.
Over the past four years, we've moved from a business that was about 50% recurring revenue business. It's over 67% recurring revenue at the end of 2019.
Pretty spectacular shifted a relatively short period of time. When you include take a consulting we have almost 90% visibility to our 2020 revenue targets.
Hey core element of our strategy continues to be building more valuable business by shifting a greater percentage of our annual revenue see the subscription model.
We believe it satisfy demand for recurring arrangements not only enables us to capture significant lifetime value from existing customers, but also unlocks previously untapped customer segments, which can include business units.
So operating rather than capital expenses or companies, whose cash constraints.
We're making big advanced investments, we also enable our clients to start fastly scale, which aligns very well with a subscription based model I want to drive homeless point, we will continue to provide flexibility to our clients to see tremendous value in our cloud choice differentiator and our cloud and our clients continue yeah.
Pega on a recurring basis.
Our deliberate ongoing transformation to a recurring business model continues to track to plan as we've discussed in the past to cloud transition typically takes a software company about four to five years to complete.
Today, where did the approximate midpoint of our cloud transition.
Our cloud transition continues at this pace, we will expect revenue and profitability optic optics to improve noticeably in 2020 and 21 to normalize during 2022.
We continue to invest in sales capacity and build out our quality infrastructure to continue to scale that a significant growth engine, which is in the near term has temporarily slowed our margin improvement we expect the lag between the business, we win and its revenue and the resulting mismatch between revenue and cost to diminish over time as we exit this transit.
Yes.
We remain very confident that the long term benefits of recurring business model, including a more predictable future revenue and cash flow straight far outweigh the skewed short term optics around reported revenue growth and the impact to short term cash flow EPS marching in profitability for 2019 reporting both captains.
GAAP results for reconciliation of all GAAP to non-GAAP measurements is provided in the financial tables in the press release issued earlier today and those are also available on the Investor Relations section of our website.
Let's turn to a few other details in 2019, we were turned about $74 million to shareholders deprived of about $9 million of dividends and approximately 65 million in share buybacks and that settlements of equity.
And we finished the quarter with just over 5100 employees worldwide, an increase of approximately 13% from one year ago more than half of the new hires joined our go to market organization.
What growth reflects the fact that heavy continues to be seen by candidates as an extremely attractive place to work.
Turning to our fiscal year 2020 guidance, given our strong HCV growth in 2019, it's clear that I guess, the annual revenue will exceed $1 billion for the first time, the company's history and important milestones.
Assuming that Pega cloud continued that's approximately half of new client commitments. We expect 1.1 billion of revenue representing total yearly revenue growth of about 20% for 2020.
From an earnings perspective, we expect to achieve approximately 20 cents of non-GAAP EPS.
We believe the quarterly revenue and cost of the already for 2020 should resemble our quarterly linearity for 2019.
We anticipate a slightly better gross margin in 2020, as our cloud business achieved better scale efficiency.
The impact of the cloud shift will be significant revenue and margins in 2020, as we crossed the midway point of this cloud transition so continuing to drive significant HCV growth is a priority.
The ultimate measure of the successful execution of our strategy in 2020 and beyond we're focused on achieving several key goals first we aspire to increase our growth rate.
The market for digital transformation is huge uptick is well positioned for continued success given our outstanding team are best in class product portfolio and our proven track record of customer success second we will continue to shift our business to an increasingly recurring model improving our revenue and cash flow visibility.
We will continue to differentiate by offering cloud choice to our clients.
Fourth we are focused on building a business that can sustain greater improvement in profitability as we scale, allowing us to make progress running that business.
Under the role of 40 theme balancing growth and margin, while we continue to invest in sales and marketing to capture this massive market opportunity in front of house.
Before opening the call for questions I'd like to invite each of you. So our annual Investor day on Monday June 1st during our annual conference Pegaworld inspire which is in Boston as Alan mentioned.
So what Ken please send an email pega investor relations at Pega Dotcom.
For those who cannot join in person will hold a webcast today they get back accessible on the Investor Relations section of our website and with that operator, we will open the call to questions.
Thank you if he would like to ask a question. Please press star followed by the number one on your telephone keypad.
You're calling kind of speakerphone. Please make sure you don't assumption is off to ensure your signal commence our equipment.
Again I went to ask a question. We'll go first to receive delivery up from D.A. Davidson. Your line is open.
Hey, guys. Thanks for taking my questions and nice to see a strong finish to the year couple ones first in thinking about cloud gross margin side I know, we've talked about inversely investments on the cloud infrastructure side.
You know he was it was down little bit this year, how should we think knew how should we thinking about.
Opportunity for cloud gross margin expansion heading into next year and beyond.
So I appreciate yes.
Great question, we originally had kind of vicious this cloud margins being much more of a linear scaling between 2018 for 2022 as we start to achieve more normalized margin.
The reality is as we've talked about we made significant investments in 2019 like ours that would have certification and also getting ahead of some of the accelerated growth in cloud. They certainly have the right infrastructure support so I think 2019.
We met we've mentioned before and we firmly believe is really a trough year for us so that gross margin will on through 2020 to 21, it's way too.
Fairly.
Ah kind of linear fashion, each year getting getting up to where our more steady state margins are so you'll definitely see improvement in cloud large and some of that scale recruitment cloud as bigger, but it's also some specific things that we've done really run our cloud more efficiently in 2000 2019.
Okay and.
And then on the hiring side you mentioned.
Growth in both total employees and go to market all looks like a head count this quarter is up about 33% versus last year, just an accelerating pretty steadily in the past couple of quarters.
So sensor were how do you feel you are in terms of sales and go to market higher.
And when I think should we kind of expect to catch up curve to be over and see sales hiring rates, maybe drop back in line with HCV therapy.
God business solution to that problems that together to get the HCV grows up [laughter], if that doesn't happen I'm glad we're going to not contribute to accelerate if we cannot get to a high level of confidence that we're going to get to a return.
So what happens in the last.
18 months in particular could you give sort of a little subjective flavor to it as we've really deepened our engagements with some of these enormous enormous companies who deal what.
We're finding way more opportunity and be its reminder, that takes a while to get introduced reintroduced and build those relationships I actually had a meeting at the beginning of 2019, we very senior executive for one of the world's largest banks, who are ready to customer.
I heard what we did how to discussion and he looked at me for the weather how would you guys. Good.
I can't I can't escape you can get through the comps because you can't escape rebar, and where you average way better than what they have.
We are frankly, because this business there will be coming from that takes a certain critical math. This is gonna be reporting test year for us to demonstrate that we can get returns and get the more reliably and we're committed to showing that.
Alright. Thanks.
In terms of Oh, Yeah, maybe cash the question too can.
It did look a little light in the quarter and I'm, just going through the balance sheet looks like that maybe a little bit on that receivable side can you give you sound a little bit more light on cash flow.
Based on on guidance.
Talking about something in the neighborhood of 600 basis points of margin expansion on the income statement, but how should we be thinking about capsule margins next year.
So as you go through a cloud transition I mean, there's there's some loss there are some.
Some people that talk about it they reported this.
Financing the transition right, because you're going away from receiving all your perpetual revenue upfront and not only do you have the revenue trough you actually do create.
Natural delayed billing because the belly matches.
Really to matches the revenue a little bit more closely for for cloud business. So we're working through we're about halfway through our call technician and we yeah. We've largely funded that through you know cash.
She's et cetera, So we are.
We believe that 2020.
Sure.
Ultimately 19 in 2021 will be better than 2020 in 2022 will be back to more normal level, but naturally if you go through a cloud transition there is a pressure on.
Cash flow just like the rest on the optics of top line revenue, but it's nothing unusual and we're well positioned to up to get through the transition.
Right got it and that's my last one from me and I'll hop.
Just in terms of the guidance for next year I apologize if I missed this out what what are you assuming in terms of pega cloud as a percent of new sales in 2020 versus what we saw in 2019. Thanks.
So we have assumed that 50%.
While yet because that would seem does that seem directionally in line with what we saw in 2019 and also you know we're trying to get with cloud choice, we really feel.
There's a lot choice in a lot of flexibility our clients need and want so we believe that called Pega cloud excuse me I will be somewhere in the 50% range again for next year.
Alright, perfect. Thank you so much yet.
Thanks Ritchie.
And next we'll go to Steve Koning from Wedbush Securities. Your line is open.
Hi, gentlemen, thanks for taking my questions I'll, just give you two here one maybe one more for cat one more for Alan.
So can I apologies I dropped a couple of times so.
You are already answered this.
Good.
To me a little bit about your HCV expectations. He did 22% year on year in Q4.
What's that are result of some large deals coming in or was it. The result of mcl solidly that the higher you've done is not becoming more productive we've got a new baseline for next year, which you would look to improve maybe maybe some thoughts on how that puts right.
So yes, we.
I see that we did in 2019.
I would not a tribute to a small number of deals that skewed that number.
We always to sales of sizes as everyone probably knows that was Paul So theres always a certain amount of our bookings that are with larger transactions, but I wouldn't say that I don't.
2019 was skewed in that direction.
In terms of what's up hopefully that new normal right in terms of the ACB number naturally we want that number two at a minimum be about 20% because if we can keep it above that we can really stay close to our longer term targets. However, we're investing in a pace and go to market that we should yield something higher than that.
22% for fiscal 19 is really promising to suggested maybe this is the start of an acceleration, which would then really validates the strategy about increasing go to market.
We made no.
Similar to we really think sir for companies with high quality executing well that the rights number for growth should be meaningfully above 20 to 22 to shocked if you can look hillary's.
I would shed a minimum so we'll.
He's asking and working to do that the good news is that the pipeline what we consider to be qualified pipeline actually grew at a faster rate than our is CV growth.
Right I think sets us up well you haven't suggests that we can you get converted the public right.
Well, we should be able to shouldn't adoption.
Right. That's really helpful. Color appreciate thought these guys weighing in on that Bob Great and then sort of follow up.
On a change of pace here.
As you look at your.
Development work on project Phoenix, how do you expect.
Kind of how should we think about.
The rollout.
When that goes to yet how how it goes D.A. does it does get replaced Infinity is an incremental two infinity.
You know kind of help help us understand the state of that development as it has it goes to market.
Yeah, So we literally announced and has a deep dives with the lumpy architects from our clients.
At Pegaworld last year, we did a whole bunch today on the Wednesday.
Really do with these guys.
50 clients it ought to flex and what some of the stuff. We wanted to really put about hey. This is something that you just rolled out in increments. So we have already rolled out some meaningful pieces of internally in terms of being able to frankly, modernize and inter operate without trying it systems and it is.
I'm going to do something we just rip out and were replaced in should it be what this is getting it shows up a project.
Fraud, I'll give it the project to really actually take advantage of probably bigger technologies take advantage of state of the art new.
User experience if you want to see an example of what we're talking about your go to design got credit Dot com because your entire design system, we put out and that Phoenix will bring back into the absolutely ready to stay busy our parents organized around react we expect to good remodel driven we'll be able to take huge amounts would have customers have already done.
So this is not a replenishment.
This is entirely a.
For change.
Welcome to the architecture play I'm really happy with I was down and if you could imagine I'm actually personally pretty closely.
But I could imagine Greg well. Thank you very much guys and congrats on the Q4.
Thank you.
And next we'll go to you and Kim from Rosenblatt Securities. Your line is open.
Thank you congrats on a strong quarter Alan can Alan.
Can you just a politician qualitatively talk about the trying around large deals I know Steve talked about it in the previous question, but I'm not.
Not sure. If you guys qualified large deals is a million dollars plus deals or not but has that been trending up or or has that been trending down or the move away from the perpetual license business.
Just just want to better understand over what dynamics, there or is the likes to have too many or to make up the acuity. He's the one doesn't think spending now thanks.
Yeah, I wouldn't say that total contract value. If you want to sort of normalize that similar level of frankly, a little smaller because we're more open I mean, we've changed your attitude about a bunch of thing.
If you think about December 2017, before we slipped.
Sales pump plans with everything else that we give it would appear to try to get the salespeople to shovel yearlong, even if the customer old we wanted to go for three so duration used to be routinely really close to five years and.
Actually a lot of customers are going to passive service business.
Really are more custom just trying to get out typically two to three to four year term and whereas we used to overconfident show times, where you hindsight CNNX drip drip year commitment.
We're now I think you'll give much longer installations going down a little.
It didn't have to what we've been starboard about some of the stop we could have kept without looking reality is you have effective duration is going down to be able to three something sort of range.
Names that you should use execution I want I think we're writing better business into the RPL backlog. If we're bullish like we were duration to be five years would be.
We suffered higher right. So there's no different you're already good really terrific.
Sure good would've computers perpetual [laughter] runs, we catch up front, but depending on the business is exactly the way we wanted to look and it's not dependent on.
Good deals I tell them, what they consider when the dollar deal not big extracted in many ways with your clients or you feel good.
Kind of an entre deal.
That will be.
Instead of working real hard to celebrate $4 million year deal up from one of by the possibility I don't know your dollar deal and then.
That being successful Upselling I figure three of your level reliable.
Great. Thanks for that detailed and that doesn't really help.
And then on the the professional services or consulting services line.
Can you just stuff obviously, that's been trending down as you try to.
Flow somewhat that world to your system in a better channel is that can you just update us on the progress there and should we continue to expect to win new trend.
So.
The trend down in 2020 thanks.
No. So I'll take that one I don't.
I don't suspect that professional services will decline in 2020 like it did in 2019. However, we're also not expecting professional services to grow at the pace at our HCV would be growing because I think quite frankly that would be a failure with our ecosystem.
Well to be able to make sure that we're we're encouraging lots of lots more people entering ecosystem to help support I'll take a solutions, so but I don't believe you'll see a decline I think we've been thinking about professional services being more of a single digit grower right year over year for the next few years.
Which then would of course, bringing the total mix.
In our favor from more towards OS software related subscription.
Okay, great. Thanks for that and then just quickly can also on cash flow on what is the size.
Billings Chuck being the biggest driver on the cash flow dynamics is there any other component that could potentially have an impact in 2020, I mean, do expect would receive receivable, 70% or any other no no not at all our receivables are well in chat we up really sometimes the receivables picked up at the end here just to give the timing.
<unk> annual maintenance billings et cetera that tend to be more skewed towards Q4. So they are hesitant to jump up in acute for that kind of.
Now through the year you'd kind of if you look at last few years, you'll see that trend. So it's not there is no yes, our collection issues whatsoever.
The real real challenges you go through cloud transition is just solely for billing many years up front at a perpetual they're going to billing year by year end, you just have to tie to get through that transition to normalize things and that's what's going on with E.
The billing.
You know.
Maybe like flat taking over the last few years as we get free that transition.
Okay, great. Thank you so much.
Thank you.
Our next we'll go to Mark Schappel from benchmark Your line is open.
Hi, Thank you for taking my question my starting in the quarter.
Starting with you during the past.
12 to 18 months or so reducing contract durations as it's been a focus of the company or something you've been working on and I. Just wonder if you just give us an update of where you are on your on your contract durations today I think he's terminal so much or so ago about three and half years.
Yes, so just one clarification mark.
Just just stood there so that misunderstanding with that we art.
Dropping duration just for I don't think your blindness, just for sake of dropping duration is that what happens is when you push for longer duration something has to get but typically you have to get deeper price discounts to get that longer commitment. That's just kind of the way it works in software and given our retention rates being very high there.
Really isn't the necessary powdered that there's not a benefit roster really pushed hard for that 567 year contract because you're giving up HCV. Yes. So what happened is as we pushed more to be more agile and nimble selling and really not tried to force or or as Alan said be stubborn around for.
Looking for a longer duration is actually three up market opportunity for us to sell actually hotter HCV. The duration question as you Apis. We started this journey, we were a little bit north of four years on average duration and now were quite kind of closer to just just north of just a little bit above three.
Years.
The thing about that as we went through that and backlog is still ground handling and HCV, if still grow to it so really and we've seen good good pricing and a unit economics on the deals that we've done but our duration has has come down as you know by somewhere north of four to make.
Be somewhere north of three years.
Thank you. That's that's helpful and then and then Alan I'm moving on your its but either eight or nine months. Since you bought a small little messaging broker vendor I think was in the chat and anywhere just wondering if you could just give us an update of where that product stands right now that's that's kind of oh.
A growing and kind of emerging space. These news.
Sure. That's an example of in of of bringing in the power going technology.
We tend to do the work upfront to really work to incorporate it into a really sensible coherent platform and a part of all announcements in the next week. It was going to highlights really impressive new capabilities, but not brings our superior works out sometimes referred to as direct messaging where organizations.
Communicate to bear.
Customers through through.
Yeah.
Your first Orient affectively and so that's there was very very nice.
We're also very pleased with the talent, but we got so I think that's for example, a bunch of things were going to cause you to do you want on world, but are not very controversial.
Piping still allows to improve.
Offered to our clients.
Great. Thanks, then finally it was when if you just give us a sense of where do you view the.
Demand environment today versus say a year or so ago.
Well I just want me to go off meaningfully up.
And customers are really interested in having juice conversations.
<unk>.
You're never sure, but the future for to be but right now.
It was pretty darn good so I think the demand environment is excellent.
We are we're able to both complemented in some cases compete with some of the players like salesforce or whatever that are out there probably has a lot of filling that we can do with those organizations.
So companies apparent thought that there might go one place where solution realize the sometimes maybe a little bit more.
What happened to write conversations with the right people go to website and take a look at from the videos are the most of the last six months.
These kinds of Sun and go look at Commonwealth Bank, Australia mine phenomenally good.
I think department store.
Thank you.
[noise] and next we'll go to Steve honors from Keybanc. Your line is open.
Hi, guys. Thanks for taking the question I'm just wondering how are the a the sales ramp that you guys had been implemented over the past couple of years, how those investments and that's hires are ramping.
And how do you feel about their ability to execute on the infrastructure type lingered. They you that you've been saying.
So I'll take part of that and then I'll give the second to Alan So.
One of the things that I think we've been watching closely is how do we hire more.
Hi, or more of our go to market team, how fast are they able to build height, what's the quality of that type and then naturally. The next part of that is how quickly can they convert that pipe into their first and their second and third the all right and what's the time and we traditionally at a relatively longer ramping for new.
Obviously helps out.
Yes to the last couple of years, what's really encouraging that we started this bigger push for sales capacity about 18 months ago.
We had good plainfield, but we've already seen HCV accelerate above 20% target that we can operate it so that it kind of gives us a level of optimism that you know there. There is this increase capacity. It certainly helps to drive accelerated growth that we're not seeing the whole yield at that.
Yet because a lot of people are still ramping while.
Over its Alan on that other thoughts because of the business where are you having greater experience fairly good confidence et cetera can help and so people do need from time to come up her up Weve also been putting quite a good about further we've invested.
We will walk you really improving on enablement.
They can get so due out who's.
Got it was more structured we just sort of sales kick off through January there wouldn't be Tyler, we really organized around getting organization getting.
I kind of executives to really understand what strategies for every one of their organizations and we pretty uniform. We've heard that it was the best education of the best trading and the most practical advice that we would ever received so I think you know, we've really seen things that make it quite optimistic that we'll see.
The increase growth and frankly.
We need to figure out how to children.
Okay, and that's a that's really helpful and just kind of on that same front how are you thinking about.
The same kind of salesforce investments and into next year, and you know I guess anything incremental opex growth on the on the sales front.
So let me make a comment about opex in total so opex will grow at a slower paced than our revenue growth, obviously, because you see the not yet yes improvements that will be the case in 2021 likely indicates in 2022 as well.
So you will start see operating leverage over the next three years, if you look at where about Opex growth coming from it will be largely skewed towards the end market and so somebody asked if you've got some of that we will do assuming that we are getting the yields that are returned as Alan mentioned earlier upon those investments we're certain.
We should do you make it that way because even growing at 22% or even 25% in the markets were in our scale. There's still a lot more cannibalization, we can do what our competitors in those markets and so we feel like that as an investment weren't making.
Okay, great. Thanks, guys.
Thanks.
And next well go to Pat Walravens from JMP Securities. Your line is open.
Hi, this month for Pat. Thank you so much for taking my question I'm. So just wondering income stuff that market Chan. If you see I mean, you I see I am all CPM chen's eating anytime he always says any change in competitive.
Dynamic that again.
So I think it's pretty much as it has been historically.
Now in the process space in the automation space.
Look pretty advantage with our technology, you still see competitors running around all competitors will lead to drop prices, but dropping prices doesn't deliver outcome. So weve sounds that we've been able to be quite successful.
And your your rational pricing model.
Also having clients be successful I think the biggest competitive dynamic has been good change our behavior.
Historically, we would just sort of skewed.
And Ken.
Hi Center would say just naturally buyers to whale deals.
We really haven't openness and we'd really staff the company with people, who understand that HCV world isn't as a service world. It's it's great to eat through whale lots of bites and I would say that behavior has meaningfully changed.
In the last 24 months.
Yes, I think that's all for the Gosh, you know there's lots of noise out in the market everyone's talking about stuff.
But I'm not seeing a material change.
I think it.
Right.
[noise] that at this time I'd like to turn the call back over to Alan Trefler for closing remarks.
Thank you very much everybody up.
So we worked hard in 2019, it's nice to have seen it closed away there's a good.
We're already deeply into.
22019 entry feels like a long time ago I will end with the final pitch for Pegaworld.
They would have magnitude over 7000.
People it should be terrific. There's this often keeping patients already on the docket with new computed Procter and gamble talking about what you're doing in an existing clients like well Sainsbury reason, Unilever and a whole variety of governmental.
Functions.
Business for US up if you go long lines of credit Little you can see what they're going to be talking about and it's not do its vs. Pine described stop I will tell you that.
Many of our term customers compete with each other so we're not really allowed to talk about what they do but when they come to this conference up usually be remarkably transparent and it's a great opportunity to see how these forward thinking companies.
Actually really getting it done so thank you for listening and hope to see June 1st and second the Pegaworld and obviously will be talking to you before again, thank you very much.
And that does conclude our conference. Thank you for your participation you may now disconnect.
[noise].