Q3 2020 Pegasystems Inc Earnings Call
No not at all about that okay.
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Please standby.
Good day and welcome to the Pegasystems third quarter 2020, <unk> earnings Conference call.
Today's conference is being recorded.
At this time I'd like to turn the conference over to Ken.
Ken Stillwell. Please go ahead.
Thank you.
Good evening, ladies and gentlemen, and welcome to Pegasystems Q3, 2020 earnings call.
Before we begin 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 Act of 1995.
The words expects anticipates intends plans believes will could should estimates may targets strategies intends to projects forecasts dicey likely and usually or variances variations of such words and other similar expressions identify forward looking.
Which speak only as of the date. The statement was made are based on current expectations and assumptions because such statements deal with future events. They are subject to various risks and uncertainties actual results for fiscal year 2020, and beyond could differ materially from the company's current expectations.
Factors that could cause the company's results to differ materially from those expressed in forward looking statements are contained in the company's press release announcing its Q3 2020 earnings and in the Companys filings with the Securities and Exchange Commission, including its annual report on form 10-K for the year ended December 30, Onest 2019, and other recent filings with the <unk>.
Seifi.
Investors are cautioned not to place undue reliance on such forward looking statements and there are no assurance that the matters contained in such statements will be achieved although subsequent events may cause our views to change except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward looking statements.
Whether as the result of new information future events or otherwise.
And with that I'll turn the call over to Alan Trefler, founder and CEO of Pegasystems.
Thank you Ken.
The highlights were strong our results through Q3 demonstrate our ability affords through and succeed during that time.
Our business continues to perform well due to several major factor did.
Digital transformation existential arc markets. It is central to their continued existence and prosperity.
An increasing percentage of our revenue is predictable and recurring.
Through Q3, our CV would we consider the best indicator of our improving cash flows underlying business growth.
Increased by 21 cents year over year constant currency with two thirds of our new business coming from Patrick from this quarter we.
We continue to extend our leadership in key markets that are less adversely affected by the investment markets such as financial services government health care and insurance.
The telecom and fun working with large global organizations were gradually work with organizations that can withstand the short term effects into those markets and in fact fund your needs increase.
As noted previously we have a strong cash position to help us through this period of uncertainty. So we can continue to invest for long term growth.
Now we are now more than about half way through the transition to recur and as we start to get closer to completing this transition unsurprisingly, our cash flow should and will start to improve we anticipate that drug costs and revenue will start to be a better reflection of the health of the business notwithstanding the lumpiness.
Okay any.
Our team remains strong and resilient and committed to the success of our clients and pega and I remain deeply respectful.
Of how they do.
And our clients are engaging gets we collectively navigate through this ongoing time of uncertainty.
No in terms of client trends on a sound fluke is ideally suited for organizations that continue to face immediate challenges today, even as they know they need to transform for tomorrow.
[laughter].
Problems that in many cases, no one else can solve from visionary goals, two quick fixes and everything in.
In between.
Russia's business complex.
In this well complicated an ever changing world.
Someone who is the engine that mix solutions clear relationships smoother and helps our clients to like their customers and bring sign those teams together.
We continue to improve our software to make it easier for clients to enhance customer engagement.
Boost employee satisfaction, all increased while the increase efficiency and reduce costs no key industry analysts.
We continue to see pega, improving and our CAD. The infinity ratings is one of the important ways that we develop confidence that our significant R&D investments are successful for example, since we last spoke we are the undisputed overall leader in the just published florist.
The prestigious real time interaction management way.
Head of 12, other players, including sales force themselves.
Yeah. The reality is that this idea of how the rain rain to drive and control and optimize interactions really is resonating well concessions.
We released our last version of our unified Pega Infinity product suite and I want to give a big thank you to everyone across the Pega organization, we put so much effort into planning developing and delivering the tremendous features and working so closely with our clients to make sure we were working on the right stuff.
We launched value finder, a new AI powered capability to help organizations engage underserved customers.
With messages and offers designs for their specific needs. This.
This is part of the Pega customer decision hub and expands the power of our one to one customer engagement to ensure that all customers personalized prime empathy treatment.
Such as the Premier customers.
Stuart we have typically gotten the most attention.
And we want them to visionary in Gartners magic quadrant for robotic process automation.
Now our new business continues to be strongest.
Traditional areas of financial services government Telecom healthcare insurance and you know the industries that I indicated are more resilient during the pandemic.
This quarter, our largest new business successes were with other divisions of existing clients, but we continue to score new logos as well.
This is a good indication of our ability to continue to radiate you are excellent customer base, but it remains enormous potential, but also being able to find new clients to move into.
We've been doubling down on our efforts to further penetrate our largest clients, particularly as we believe they will be least impacted by an ongoing pandemic, who they have major strategic strategic digital transformation is that we can help with for example in terms of some of the recent work that we've done in financial services and exists.
The banking clients. The RBC is making major use of the pega customer decision hub at the center of the bank enterprise Decisioning and servicing platform to really support their full fledged monetization.
Great example of the power of our choice. We're also working with the bank to migrate to the pet applications. The pega cloud and doubled the capacity. This is full up the system that will be used to support more than 11 million customers across 30000 that personnel up it will connect everything all facets from on.
According to account servicing in telecoms are not clients telefonica expanded their use our pega cloud to be able to be kind to orchestrate intelligent customer journey across all engagement channel with a 25 million customers alright, Ron digital transformation to a pre imagine their customer experience.
And consolidate technology, leading to a more effective marketing and service operations to customer satisfaction and growth.
And then government.
The airports, who has been a client in 2016, when they were looking for a solution to could truly scale and handle their monetization has chosen pega to be a major part of the plants with near term in future and we're expanding our work with them with plans to expand from six applications for more than 100 supporting more than 10000.
So it gives us this is a great example, also of cloud choice and we.
We continue to to find that these government agencies have needs in the present and will have each of the future not just driven by the pandemic, but driven by a well understood requirement to modernize.
I also want to take a minute to acknowledge our work with the US census Bureau lead census ended its 20, 20% you will complement to over 15 and it was the largest peacetime mobilization in our country and of course. The census is a cornerstone of our democracy Asaf what was used in multiple ways about the project.
Most importantly, as the case management system processing every single serve and slumped regardless of whether it came in online by phone or through the more mobile devices powered by our software.
No. It's clear that they were and continue to be lots of politics around this program.
Lever, we're happy that our part worked at massive scale supporting hundreds of thousands of concurrent global users. It was a tremendous technical success. One we're proud of and that demonstrates that pega software and our team are capable of handling really critical mission critical projects.
Finally as.
As a reminder, we can also support smaller organizations we.
We extended work this quarter with water, New South Wales, which managers a water allocation of territory. They roughly the size of excess our son, who is being used to manage about 50% of the allocation licenses and it's part of the modernization program designed to put your customers at this tour of the new.
Digitally enabled advantaged water network. So it's great to be able to have technologies that can both do sophisticated and and capable of crush complexity. There yet at the same time be able to handle the entire and that's what we're continuing to invest and continuing to build.
I'm now sometimes about the impact with Cobra that our response.
We continue to look at our response for the pandemic and adjusted necessary and I'm frankly extremely pleased with our ability to operate effectively during this difficult and uncertain times, we continue to function successfully as a nearly 100% remote workforce and expect we will do so through the winter or we are.
Reevaluating, how we work as a result of them them back and know our clients as well you as well I actually think we're going to continue to see more interested in seeing clients for profound digital transformation. That's up is just being reinforced by what organizations are going through we are confident in our.
Our ability to come out of this crisis, a much stronger company in the long term and we remain very grateful for the continued support of our staff our clients and our partners and a strong commitment to those who have worked before.
We continue to support the greater Pega community.
And those who are particularly challenged by this crisis.
In summary, our results.
Great in particular, our HCV growth and clinical meant to demonstrate our ability to manage through this downturn, it's terrific to see on industry analysts the prospects are viewing the power of what we do.
We're focused on finishing up the year pretty strongly and driving business to really continue to move forward and I also wanted to mention that you may recall that we announced on June 1st that we hired in Stafford as president of global client engagement.
This is a new role to unified Pega as corporate strategy marketing go to market and services functions I'm really pleased how he is engaged with the team and clients. During its first full quarter, Canada and I'm very very excited so with this and to provide more color on the financial results, Ken Let me turn it back to you.
Thanks Alan.
It's clear that our pega cloud business continues to expand at a rapid pace, reflecting the solid execution of our strategy to lead with Pega cloud. It's also awesome to see the improvement in Pega cloud gross margins, which have been pretty significantly year over year for those of you that who are newer to the pega story, we accelerated our transition.
The pega cloud at the start of 2018, moving from a business that primarily sold perpetual software licenses to business, primarily sales recurring cloud arrangements a cloud transition typically takes a software company four to five years to complete we estimate that we're about 60% of the way through our cloud transition. What this means is that comes.
You must have largely moved away from deploying pega under perpetual licenses now almost all our new client can that makes our cloud. These customers are either subscribing to pega cloud a cloud deployment that we manage or client cloud a cloud deployment that our clients manage on their cloud of choice as a result, our total software revenue mix has shifted large.
Finally to recurring.
Back to the first nine months of 2020 more than 90% of our software revenue was recurring pega is well on its way to we making itself as a subscription software company.
But this significant multiyear shift from perpetual to cloud arrangements has implications for our reported financial results as I mentioned every quarter, it's delayed significant revenue recognition in cash collection to future periods, causing some odd optics for revenue cash flow and profitability, we expect revenue growth cash flow and profitability will normalize as we finish.
Our cloud transition in early 2023, however, we're confident that this move to a recurring revenue model and cloud computing as well help us set up for the next phase of growth as our cloud transition continues the most important metric that reflects the successful execution of our strategy this growth in annual contract value.
Or HCV ACB represents the annualized value of our ATIP contract as of the reporting date.
We're pleased to report that it's been over two years that we reported year over year, ACB growth up 20% or higher each and every quarter, which is a step up from the mid teens growth in HCV that we delivered prior to our shift to cloud.
As of September Thirtyth, 2020, ACB on a constant currency basis increased by 21% in the same period, one year ago to 777 million, although an increase of 21% is respectable we aspire to further accelerate or a CV growth rates and we continue to add go to market capacity to pursue the massive and growing.
Digital transformation market opportunity.
Q3, 2019 to Q3 2020, Pega caught a C.D. grew by 57% acquiring called ACB increased by 10%. Both of these growth rates are in constant currency.
Second most important metric during the cloud transition its remaining performance obligation RPL also referred to as backlog backlog represents quite contractual commitments for which revenue has yet been recognized.
Our total backlog increased by 38% for $229 million to 838 million year over year. This 229 million increase the backlog is the largest weve delivered since we started tracking it are reflection of the commitments our clients are making and pega solutions.
In fact, 66% of our new client commitments for Pega cloud in Q3, 2020, which is 16 percentage points higher than the approximately 50%. We are tracking after the first half of 2020, it's important to understand especially during our cloud transition that our bookings mix of pega cloud can vary.
Quarter to quarter, which impacts our current period reported revenue. This is because the majority of the value from Pega cloud bookings goes into backlog and is recognized as revenue in future periods. In contrast, a majority of license revenue from perpetual client arranged to recognize this revenue in the quarter when the deal is for.
We estimate that every annualized one percentage point change in the mix of Pega cloud booking versus an annualized historical mix of 50% impacts reported revenue by about $4 million on an annual basis.
To really understand the financials in this business during the cloud transition, it's very important to not just look at one measure instead you have to look at ACB revenue and backlog for example, if ACB goes up that backlog goes down well, we haven't done as good a job beating ourselves for the future and this is further compounded by the cloud trend.
Mission, which has had the full effect on reported on reported revenue, which is why were looking so much the ACB growth to measure our business momentum.
Moving to margin.
I think I'm equally excited about the improvement and Pega cloud margin as ticket cloud gross margins increased an impressive 1500 basis point going from 49% in Q3 2019, 64% in 2000 in Q3 2020 credit goes to our product development in cloud teams, where we.
We've made noticeable improvement in the profitability of Pega cloud operationally I want to reiterate how pleased I am that he'd be staff or join Pega earlier this year as president of global client engagement before joining pega Havent helped grow his business unit as his last employer by over 300% going from about one.
Billion to over 3 billion in a relatively short period of time, Ironically Hayden joins pega as we approach 1 billion of annual revenue over the last two years, we've invested significantly in our go to market engine with a strong focus on adding sales capacity, we've begun to see the increased level of client engagement, which leads to building strong pipeline when can.
Third it will drive further acceleration of our HCV growth, especially given this investment improving sales effectiveness remains a critical lynchpin of our strategy for margin improvement for which Hayden is highly committed and motivated to drive.
So, let's turn to a few other detail now that I'm past the midpoint of our cloud transition revenue in HCV growth percentages started to converge and we'll continue to do so during the remaining two years of our transition.
In the first nine months, our success in closing new and expansion Pega cloud and client club deals drove our growth in term license cloud and maintenance revenue, which makes up our recurring revenue sources total subscription revenue for the first nine months of 2020 increased by 27% year over year soaring from 420.
4 million to 548 million, an increase of over $100 million.
Largely because of the convertible debt offering we completed in February Pega finished the period with total cash and marketable securities of 468 million on September Thirtyth 2020, compared to $512 million at the end of the prior quarter. During the first nine months, we returned about $84 million to shareholders comprised dividends buybacks and.
Settlements of equity we ended the quarter with over 5700 employees worldwide, an increase of 13% from one year ago.
In conclusion, we're looking forward to Q4 and closing out 2020, a year that's truly been like no other and history of enterprise software like our peers, we always have quite a bit of what the chop into Q4, because its a critically important sales quarter. We're focused on finishing the year strong positioning our company to deliver even you deliver.
Or even higher growth rates and margins in the future.
Operator, please open the line for questions.
Thank you.
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And we'll take our first question from Chris Merwin from Goldman Sachs. Please go ahead.
Hi, This is Kevin on for Chris Thanks for taking my question and congrats on the great quarter.
I guess I had a question on cloud backlog, which accelerated nicely in the quarter, which can you talk maybe a bit more about the drivers of strength. There are you seeing improvements to sales cycles and how's that duration is trending for deals.
So I found that first Oh got out why not go ahead.
So what I was going to say some of it is math and the fact that we have such a big cloud mix in the quarter, 66% you would expect that our revenue will be lower in the quarter and you would build board of backlog, but that if that trend continues naturally that pega call backlog is the lifeline for our future revenue. So some of it is just the.
Very strong momentum of Pega cloud it actually helps build that and some of it is the.
But the fact that clients when they look at you know peg as offerings, our pega cloud offering is now much more prominent and much more.
Interesting for our clients and when we first started to talk about it three four or five years ago. So some of it is that the momentum of just out but the math of a quarter, but in general we're seeing more and more clients engage with up around pega cloud. So sorry I'll go ahead.
I was going to say in a number of clients think that pad is the best company to run Pega client cloud I think is very important and when a customer is moving its too tired data center infrastructure to Europe.
Europe and as Youre, Google up then they want to have their pega infrastructures as we are so tied into their systems really as part of the way they think about their technology sector bugs.
For for lots of customers are saying, Hey, we know that you'll be able to make it easier for us to tune to grow into it to bill. So I think it's just a maturation in the market of how we talk about ER and our very strong successes.
Great that's helpful and then.
I guess one on on cloud gross margins, obviously, we saw a really nice sequential improvement there more than weve seen typically.
Eight anything to call out other than kind of general scale efficiencies that that's that's helping that metric.
Yes, so the great thing about as I'm sure. Many of you know the great thing about software has been it's highly leveraged at the margin line. The thing with SAS is that it is also highly leveraged as you scale up the margin line. If you have an efficient job.
Well cloud operations or SAS operations as we had when we were a smaller scale, we weren't as efficient and now that we have more scale. There arch. There are technical tools that we can use like kubernetes like hibernation like things that we can do to actually become more efficient, but there is also just the natural operating leverage that more clients you have.
Have you become better and able to handle significant client capacity and get operating leverage out of the amount of people and then ER and technologies that actually support that so we expected our cloud sales to grow this year I think we're doing even slightly better than we actually had.
And hoped we'd be at this point, but remember we still do our goal is not 64%. Our goal is into the mid seventies. So we still have we're still on this journey, but we're very happy with where we are right now.
Great. Thanks for taking my question.
Well now take our next question from Jack Andrews from Needham. Please go ahead.
Hi, good afternoon, Thanks for taking my question I.
I was wondering if you're seeing it perhaps a culture change around pega and you know your modernization efforts as you continue to penetrate organizations, meaning that.
As you continue on your path more software is getting developed in the hands of more functional users are people know who are waking up to it really what is the art of the possible I guess with pega and all the possibilities or is there still some some work to do on that front.
Well its organization by organization.
Because you really need to be able to show.
Show people I think so.
Great.
Possibilities, but our customers are doing a good job a very good job of being able to show, what's possible and being willing to talk publicly about it at considerable detail not a threat to the 30000 foot level summary, but really actually.
Talking about how you know for example, the the CEO of a comprehensive Australia attributed the fact that they outperformed all of your peers toward peak, what they call their customer engagement metrics, which they've been very public or technology spec or they just do a brilliant job world. So I think we are seeing that a record.
Ignition that had that can both help to materially change the game and frankly I'm getting lots of positive feedback on the architectural changes we've been doing as part of project Phoenix, which is introducing a very micro services oriented very lighter approach to how pega looks.
For our customers, particularly for those customers, where clients club food care since care about that one.
Right no I appreciate that and just as a quick follow up when you talk about the the divergence in growth rates between Pega cloud versus client cloud you expect that to continue or or should these growth rates, perhaps converge over time.
No I think that I think that pega cloud will grow at a faster pace for some time because one it's it's a it's a more prominent deployment design.
Desired deployment model for clients. That's 0.1 0.2 is you are starting to cloud is slightly smaller than client cloud and so you do get the advantage of having us and it's a more accelerated percentage growth, but I I do see clients wanting both wanting the option of having both but I do think at least for the next couple of years the math.
So the growth rate certainly would I would I would think that skew more towards pega cloud.
Got it thanks and congratulations on the results.
Yeah.
Well now take our next question from Mark Murphy from JP Morgan. Please go ahead.
Yes. Thank you David job on that backlog piece up Alan I think you had mentioned this focus on finishing up the year pretty strongly I'm wondering if you could maybe just speak to the texture of the Q4 pipeline in other words is it lumpy or is it pretty well.
Diversified and do you have any sense that there is a fairly normal are healthy Q4 budget flush environment I guess at least for the digital transformation projects that are out there.
Well no because we're meant because we're managing to ace TV.
Which is a recurring forward looking way I don't think through the last couple of years, frankly budget flush as mattered as much as it did in the old perpetual days up the reality is that Kevin said, we have a lot of what the topic Du pool, we always do but I'm pretty comfortable that there.
There's a lot of their teach up you know that the pipeline is strong and people are certainly working really hard but we are in an unpredictable environment. So not just the pandemic, but politically.
Our armed with really thrilled that we have been able to report such strength for Q1, Q2, and Q3 and I've heard a lot of confidence of the state.
Hi, Bill.
We'll work it is ours, because oh, yeah understood Okay and.
Ken I wanted to ask as well just on the international piece of the business.
Are there any customer discussions or any.
Pipeline in Europe that are seeing impact of the curve. It flare ups in the end this a second wave.
Oh, Lockdowns or you know is.
Is there any reason to expect some volatility in Europe.
So it is a little early with the Germany, and France situation. So I mean, that's all way of really emerged in the last few days, what I would say, though is and I do not and there has been no I'm not I'm, none of none that I know of but what I would also say is remember the lock down that we had back at the beginning part of the year and our clients.
Largely forged right through that period of time, and so given that any lock down that you at least at least what I read any locked down but you see dollar not won't be as dramatic as what we saw earlier in the year I would think it I would think that it would be no worse than what we saw earlier in the year and we did see some impact here and there there is no doubt, but it didnt materialize.
Elyse into impacting our growth trajectory. So I wouldn't say that we're at a stage right now where that is something we were preparing for which has massive spend reduction because of that you know anything can happen, but that's not something we're thinking about right now.
Right yes.
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But he's become sales to somebody who is the reason why were there because the customers are the out there that have shown that we should think about it with a walk down first half than it was a little power fund because nobody knew what to expect if we go back to more locked up now.
You know I was on the on the video chat with a major French organization today and.
They understand that their digital transformation us to continue whatever happens.
Yeah, I see okay. It can one last quick one.
Again understanding the they see VP isn't the end the backlog.
He is.
Very very robust and realizing term licenses are not the not the focus here, but can you just speak to that are you know was there any particular verticals or transactions on the on the term license side, where the dead.
Might have gone one way or the other in Q3 and just any feeling on maybe is there anything we should be thinking through on that term license keys is for Q4.
Sure. So just to remind you that the to the second quarter in the third quarter typically not big renewal quarters right. It's typically our biggest renewal quarters Q4, as you can imagine because that's when a lot of our historical bookings happen and sometimes the renewals leak into Q1. So in terms of revenue from term life.
Sensors, which as you know come up front under six so six killing Q3, typically do not have a significant amount of that Q4 has some and so does Q1 I think the bigger.
Kinda behind your question a little bit is that.
I've been seeing number.
And I'm very close to the deals that pega, probably even more so the most cfos because of the some of the functions the reporting to me, but I'm very close the deal, but I will tell you. There are there are a lot of deals that start one way and go. The other you know start turn go cloud start I'll go through if that happens all the time and filed choice model.
I have been seeing more of a of a prominent of things landing at Pega cloud over the last you know five or six months I do think that might be just the maturity of pega cloud. So what that would mean for me is that the growth rate of pega cloud could be sustainable and that term license and the variability of term licenses.
It wouldn't be as big of a factor as we finish the cloud transition that's helpful.
Thank you very much.
Relatively looking we're just saying.
He is the cloud operations.
Now reports into account so he has a very close access.
Those are implementing dollar, helping implement and be aware and improving our acquired operations that he's been doing a great job of that.
Got it thank you.
Well now take our next question from Okay. So yeah from Barclays. Please go ahead.
Hey, guys. Thanks for taking my question.
Our next in the sort of the quarter.
And then I was just wondering so Q3, obviously, a big part of the quarter for everyone and you could outline some lumpy. These.
For too, but just can you give us more color as to how that business performed relative to your expectations going and the pipeline that he had going into Q3, and what are the sort of like anything or helping them solve the shape and form of views within these cycles. So just wanted to get more color on the performance this quarter.
I didn't hear the vertical you mentioned sort of repeat it.
Uh huh.
Oh federal Yeah, one large federal I think it's not just us federal but you know governments globally, we've been seeing a lot of activity in everything from the UK government to the German government to the ER, Obviously you were.
Governments and I mentioned, the smallest failure deal I'll.
The the the nature of that business I think was slowed budget pandemic a bit, but then really kick in and the pipeline. There is all very very nice and and as we would hope and want so I think the being able to make government is more efficient and able to handle some of.
It's clearly going to be a long term sort of set of issues isn't isn't going away and I think we'll continue.
[music].
Quite stronger I expect next year as well.
Right.
And just one other question I have is on the pega cloud. So so the new client commitment seem to be something that thing have you sold this quarter, but just wondering as these particular licensee look towards Q4 and also put next to your own single, both I'm sort of like maybe moving didnt make any personal so.
Because it's low is the easy thing that the time has some sort of like to put more formal remittances to do battle with index should be putting you should evolve I mean, it looks like a sales in something that initiative. That's it for my fingers, but we're doing we're doing.
That's a good question, we're doing some but unlike some companies we'd much rather sell a new piece of business on bed bugs.
Moving existing customer on Pega cloud and what it's going to lead to much greater radiation. So we were not I know there are some other companies has basically gone out and said we want to get all our.
Customers onto private cloud and we're doing it more as it makes sense for their customer.
As opposed to just trying to drive that frankly would risk being a short term births.
On a year or two burst of of bookings, we really want to make it so where we're growing that business as opposed to just converting if that does that make sense.
Interest.
Yes, I'll add I'll have one clarification that up two years ago, we weren't ready to do that we didnt have we weren't as confident to take on all the new growth with Pega cloud and convert flying that is no longer.
A gate, we feel very comfortable to new clients, but salads point, we want to move them.
When they're looking at increasing their footprint with pega, that's the opportune time to actually make that transition not just go to clients that are perfectly comfortable in the environment and try to in some way for stemmer incents them to move unnecessarily, we're trying to do that in an orderly fashion.
And we'll now take our next question from Pat Walravens from JMP Securities. Please go ahead.
Hi, it's mark onto a pad I think it's so much for taking my question. So you mentioned that the strength in the robotic process.
Okay and then so I was wondering are.
There isn't any changes in that after that and then it. Thank you.
Sure. So it's interesting because the people who are new to this may not be aware, we view robotic process automation as very much an adjunct to.
To end to end automation you know there's been a lot of talk about how dropping these robots. It is going to just automatically revolutionize the way the companies work and the reality is that as we probably have respected organizations are finding that what they really want to do is put their robots.
Into effect so for the past 12 is in control as opposed to having all these little disjoint robots to wake up and go to we now support with our recent releases we support looking into other brands of robots. So they don't have to rip them out, but we've had some very large organizations that have.
Oh boy, it's really clear that when you have a pet and losses your automated and you're using it as a robot that everything works exactly in the right way you do not bias in things like robotic desktops. So it's.
It's not just getting better spores with analysts, which we love Yeti, we're seeing customers really starting to understand that more deeply and that drives not just our robotic process automation part of our business, which is doing nicely, but it also drives the entire pega infinity and that story.
Got it thanks, so much.
Well now take our next question from Yun Kim from the capital Partners. Please go ahead.
Thank you, Phil and tape, but congrats on a based on quarter Alan can a view I'm focused more on increasing your penetration within your line within your large customer base I'm sure. We expect to see client cloud growth, perhaps we we accelerate here from the current sales.
Low teens to mid teens or even higher.
Or do you expect to have large existing customers, but to also begin to adopt pega cloud more meaningfully for new projects.
Actually on larger size projects.
Well, it's interesting we've seen some of those very large additional penetration.
In 200.
Peter Clarke and that's been really quite.
Yes. This is really quite gratifying, we have some enormous systems are running on running a better clock. So you know as Ken said earlier, a lot of times the decision as to which form of agreement they want.
Ends up flipping back and forth right up to the very last last moment and so it's almost hard for me to give you guidance as to what that trend line is firmly going to going to be but there's a lot of the dubious about.
Okay, Great. One one you had one additional point of that just just one additional quick so we get about 75% in 2020 for 75% of our new bookings are with our existing logos.
So given that our cloud percentages. So high that you think you could do the math just quickly and know that our existing clients are buying pega cloud at a pretty pretty happy pace as well.
Okay, great that that sounds really good it seems like there's a.
You know transition point coming up or already been there but.
Ken unparalleled cloud sounds like a you know obviously the new customer add has been pretty consistently strong for that cloud business, but can you give us any sense on how the you know the the velocity of the expansion or even really be unit expansion rate has been trending upward that business. Thanks.
Yes, so I don't think there's a good metric I could.
Disclose right now on that and I'll, Let me explain why at a time in the common EMR or got retention greater net expansion rate really applies to clients that have a deployment and their increasing usage. If you look at the growth of pega cloud for us.
I would say most of it is coming actually from new client environment's going on to Pega cloud as opposed to.
Body, starting off with 100 users and moving to a thousand so I think at some point in the future that will be a more interesting metric for right now most of our pega cloud growth is actually new clients environments going on to Pega cloud, which then gives us the room to grow off of that you that initial footprint. So I think we're still early in pega.
Cloud in terms of that being the most meaningful metric.
Okay, great. Thank you so much.
Yep.
Well now take our next question from Steve Anderson at Keybanc. Please go ahead.
Hi, great. Thanks, Brad Thanks for taking the question I'm I'm, just wondering how to wear now six months into.
Some of the van Den Haggen, everyone working from home anything any change in them.
The mix of project used cases that are that customers are bringing in India.
Yeah, I think that they've got more strategic you want in the early days you had a lot of sort of panic reaction, but the discussions we're having now are really consistent if you. If you want to get a real understanding of decisions that I think is resonating extremely well I have my 60 minute keynote from Pegaworld.
In June and is this concept of a center out business architecture to really think about the the work and decisions. Your business is making is really resonating and those are more strategic initiatives.
And there is there's a lot of time and a lot of attention that organization being spent on those.
Okay. That's great and then I guess just on the on the cloud side and they are saying that you think that I think peg as hard as it is I guess more ready for some of these customer use cases. So we expect I guess from here that the mix of new business coming on to a somewhat.
Now, let's see if there's a problem with this quarter versus kind of the 50% expected or how should I think about that a lot from here.
I'm going to leave that crystal ball to account.
[laughter] [laughter].
[laughter].
I.
I mean, I I think I think so specifically.
We're talking about Pega cloud. So your question was around Pega cloud growth rate, sorry, I broke there for a second.
So it was about I think it was kind of the mix that we should yeah.
Yes, the mix dependent club right, yeah, sorry, so I don't I.
I keep saying that the mix.
50% is something that we've seen more quarters than we havent as you know, but every once in a while you know a quarter jumps up a little bit I don't know if that's a trend or is that just happens to be an anomaly of a quarter, but but I will tell you that the feeling I have is that pega cloud has has momentum let me.
To say it that way, but the mix could stay at 50, you know I just felt it's hard for me to gas, but I will say that I I would be surprised if the percentage dropped well below 50 for a number of sequential quarters I think that's not the way the business feels to me.
Just a quick follow up on that do you think there's anything related to you know work from home and Oh I got flexibility to go into the data centers that could be having an impact on on that that near term next.
Oh, yeah, absolutely that has a factor I mean, there's no doubt I mean quite our army client companies in general pretty much everybody you talk to kids re imagining the workplace re imagining the work location and they realize that if they have call centers that call center doesn't need to be everybody going into an actual building together and so if you just use call center as.
Just one of the use cases I definitely think people, we're going to move to more browser based interactions and they're going to need to have people in different locations and that plays right into digital transformation Pega and also pega cloud.
Oh, great things are extremely busy yeah question.
Well now take our next question from Mark Schappel from benchmark. Please go ahead.
Hi, Thank you for taking my question [noise], Maryland.
Alan starting with your just building on one of the prior questions on your federal business, which has been going quite nicely over the past few years.
The government sector is a very large space and especially the federal circuit. Just wondering if you could just review the type of government use cases.
Or you believe pega is particularly strong.
So one of the things that is extremely strong got his process automation in case management, which is the heart of our business and if you look at government is full of.
But what you refer to as case management, whether it's actually up processing applications licensing of businesses apparently requests for for help or assistance all of these fit perfectly into the model and if you go to our website.
Your watch my keynote you'll see something that would govern that people see this they say boy. This is really just on the type of work that.
That would do it so it's a it's an awesome set up.
For Modernizations and they know they need to monitor.
Great. Thank you and then Ken one for you a question on extended payment terms last quarter, you mentioned that.
You are seeing some customers requested extended payment terms is running for so some customer sales from that.
So again it does happen it doesn't happen you know you know infrequently, but it does happen, but I'll I'll use a better metric for that.
And Mark and it is yeah. So if you look at day sales outstanding our day sales outstanding at the end of Q3 have it they peak in Q2 and they've now come back to Q4 and Q1 levels of last year. So I think what happened was in Q2 of this year. Our Q2 June 30, we did see some p.
People dragging out payments a little bit that seems to have corrected at the end of Q3.
Great. Thank you.
That's all thanks.
Well now take our next question from Rishi Jaluria from D.A. Davidson. Please go ahead.
Hey, Alan can thanks, so much for taking my question one of them will start by going back to a new logo lands.
You know it sounds like it's it's healthy and definitely the phone from year end sounds.
Got it and not the beginning of the plum biomarker or even last quarter.
Can you speak a little bit to what why are you seeing better traction with the new logo and then there's not just customers in a deeper into the pen down that come out of Treehouse note are more willing to have those conversations is it better sales execution and better adapting to the current selling environment isn't a investments in clinical use.
They are paying off maybe help us understand that.
Sure.
Sadly I think this is going to have to be the last question, because we're really fun and just like Oh, Oh God I I would say that a lot of it is changes in our behavior in terms of stepping back and thinking about how we need to reach out differently being more focused that's using a lot of this is is in our hands.
And also being more selective about where we go because some of the folks who you would have perhaps markets are doing Janet good anywhere.
As new logos are clearly off the right places to grow now, though we have been advised but I think I mentioned on the previous earnings call about how you know per se the airline decided that they needed us to help them get out of you know the current problems and put controls and so we decided to go out except a lot of people decided to be more selective.
And smarter about where we are.
Okay. That's helpful. I'll I'll check I look we'll talk a deadly sheet. Thank you hey, Aldo the Russian I classify call that thing.
[laughter].
So operator, I'll just close it out right now is it where I'd just like to thank all of our investors and the analysts and everybody who joined us in the past that from customers who would be on the call. Thank you very much everybody know up we have a lot of work to do but we're working really hard and we're.
We're we're feeling like you know we're all in the same boat, but we're on the same store on but we're in very different boats and thankfully, our but as long as it has made us through these first three quarters I think in your if you look at a CV growth and if you look at backlog, which are the two things. We think are the critical ways to judge our business has done well our business is done.
It's been terrific. So thank everybody. Thank you everyone for your your support and look forward to talking to you at the end of the next quarter Bye everybody.
And with that that does conclude today's call. Thank.
Thank you for your participation you may now disconnect.
Oh.