Q4 2020 Pegasystems Inc Earnings Call
Ladies and gentlemen, your career on hold for today's package systems fourth quarter and full year 2020 earnings conference call. At this time, we are still gaining additional participants and do plan to be underway on Chile. We appreciate your patience.
On.
[music].
Good day and welcome to the picking systems fourth quarter and full year 2020 earnings results Conference call Today's conference is being recorded.
Now at this time I'd like to turn the conference over to Mr. Ken Stillwell Chief Financial Officer. Please go ahead Sir.
Thank you.
Good evening, ladies and gentlemen, and welcome to Peg a systems fourth quarter 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 1995.
The words expects anticipates intends plans believes will could should estimates may targets strategies projects forecast guidance likely thank you.
Usually or variations of such warrants or other similar expressions identify forward looking statements, which speak only as of the day. The statements made on are based on current expectations on assumptions because such statements deal with future events. They are subject to various risks and uncertainties actual results for fiscal year 2021 and beyond could differ.
From the company's price expectations factors that could cause the company's results to differ materially from those expressed in the forward looking statements are contained in the company's press release announcing its Q4 and full year 2020 earnings and in the company's filings with the Securities and Exchange Commission, including its annual report on form 10-K for the year ended well.
31, 2020, and other recent filings with the SEC, Inc.
You are cautioned not to place undue reliance on such forward looking statements and there are no assurances that the matters contained in such statements will be achieved although subsequent events may cause our view 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 a result of new information future.
I'd, rather watch and with this I'll turn the call over to Alan Shaw flow founder and CEO of Peg It systems.
Thank you Kevin.
It's on.
But we feel good about what we've accomplished where we landed 2020, we adapt well to an extraordinarily difficult situations.
Moving on new ways of working with each other on clients and our partners, we introduced new solutions, Yeah. So on India.
Low code software to help our clients manage them shortly challenges while building for long term success.
And we made substantial progress on all transition.
Revenue model.
You can see clear signs of this progress on our full year results.
Completed the move of our public cloud players onto our next generation cloud Blackhawk setting yourself, a long per margin improvements, we accelerate even public cloud growth was demonstrated by public cloud annual contract value.
7% year over year.
Cloud backlog up 40% year over year.
Since we really began emphasizing public cloud three years ago, we've seen an explosion of cloud low code apps with a call.
Fuel growth rate over those two years on 85 per cent.
We also grew total annual contract value by 21%, we delivered record revenue crossed the $1 billion milestone and grew backlog to more than 1 billion people of course on.
We also invested in key sales and marketing initiatives to start to improve on brand awareness.
Due to balance the leading tech companies, including Kubacki assist rivals.
We made significant enhancements to our partner ecosystem strategy, an important long term accelerate our revenue and margin growth.
And we continue to enhance our solutions at one to one customer engagement customer service and intelligent automation.
Capabilities, improving functionality productivity and speed to value.
We drill deeper into long term clients.
Siding logos to our growing gross.
We maintain technology leadership in key areas that our clients Nirvana.
And continue to get recognition by influential industry analysts in more than a dozen reports coverage around robotic process automation low code customer engagement digital process automation decisioning on the real time interaction management.
We stayed true to our values culture and commitment to keeping the wellbeing of on staff, our clients would be expected value community.
You know hearts and minds through expanded philosophy that works on it.
We focus on inclusion and diversity.
And we did all of this while improving margins.
Finally, just a couple of Cognos all.
We'll be windows on the NASDAQ opening bell on Monday, the 20 soccer and celebrate our 1 billion revenue milestone.
And on the wire kicks a day.
Laid off book I, just know recently won the top award.
Who bears sponsored by one of our key Influencers.
Influencers.
It's nice to know what does the board wherever you have the likes of Salesforce Oracle ethnic so low.
What are the bad growth again.
Now in terms of the market dynamics digital transformation has never been more central to the way our clients are thinking.
Fundamentals are there continued prosperity and in some cases their continued existence. The ones. He was made abundantly clear that organizations need to accelerate their digital transformation journey.
It does.
Not just to survive.
Really compete and thrive in this wildly changing world and we feel we've never been better positioned to support this needs a solution to help clients wash business complexity, enabling better decision, making and saving time and helping them get work done on software is exceptionally powerful on adaptable.
With the scalable and unique central business architecture.
Good outcomes on customers other cool.
On a lot with scripted approach to design thinking range staff across the organization together.
Other design and deploy innovative solutions in weeks or days, leveraging our low carb growth platform.
And on a recently launched trademark.
Process fabric weaves together business processes.
Management and workflows to streamline the customer experience.
True employee productivity across the Europe growth.
Because I'm not sure we continue to enhance our solutions to meet our clients' long or short term needs and at the beginning of the plan that we quickly rolled out a set of industry brokerage solutions, specifically built to help manage some of our customers' most pressing needs like managing surges in unemployment claims for all.
Our free COVID-19 throughout the year.
One to one customer engagement, we introduced the ethical bonds check there.
To help eliminate bias.
So we can drive customer engagement nobody gets what you can share.
And watching the value partner to help customers deal with observed underserved segments with meaningful.
That it offers.
You talked on the service, we launched with SaaS unified messaging edition that help agents better handle increasing volumes of services inquiries.
Just a few weeks ago, we announced the acquisition of a curious on <unk>.
Developer of powerful AI speech analytics that will help customer services. It gives you real time analyzing service calls and recommend the next best actions every day.
Like for last year.
Preemptive customer service.
In intelligent automation, we launched ex recruiter younger fleets for self healing were bought.
On the process automation and we introduced the industry's first RPI auto balance in future would use them.
Help clients reduce robotic process automation cost related.
We've made it easier for clients to make progress on high impact digital confirmation of an expert on.
Bringing a new low code.
Express methodology and built directly into the platform with a new set of ways for customers to get started fast and improve outcomes.
To help clients and partners gain on advanced software skills faster, we introduced our new price Academy.
Based on what it ends up inherent seem to Pedro community can make it easier for clients partners and pleasure to share best practices.
We continue to work on these enhancements and report to share some important capabilities with you peg a world in spire, Inc.
Right.
Now in terms of acquiring the business highlights on your business continues to be strongest in non traditional areas such as financial services government telecoms health care insurance industry.
What's hard hit by the pathetic by the pandemic. We're thankfully we have had strong critical mass in 2020, we had a good mix of new business expenditures and existing clients like to hear from British Telecom.
<unk> Citigroup National Australia Bank and government agencies around the world.
<unk> also brought in some exciting new logos.
Emirates National Bank partners healthcare, Takeda pharmaceutical and continue to see more partner sourced deals that opportunity. We were focused on in 2021 could be off.
Our clients continue to leverage cloud to cut through the complexity of the business systems. So they can actually make better decisions and get work done.
And you know what's interesting on the government spaces on the heels of our successful census project. We are quickly becoming a preferred low code solution for government as demonstrated by our recent internal revenue service web and continued success on this market.
We've been able to stand up new systems quickly to meet the immediate needs and then help organizations snake.
Deeply about their future and there's nothing more rewarding for us and clients who are willing to tell their stories publicly.
A world inspire.
Again this year be held as a two and a half hour interactive virtual event and it's just around the corner on may 4th.
Well really have impressive list of clients lined up to tell their stories for example, five years and 70 plus applications into their Brexit, Germany. Scotiabank has built a large catalog of reusable packaging capabilities, we're going to talk about how you're gaining leverage with these assets to accelerate the global.
<unk> rollout and the formation of the Aircard business Center of excellence.
Maximize value and standardization and leaders.
Vodafone U K, we'll talk about driving transformation by automating business processes, delivering powerful intelligent automation of its scale across the two businesses leveraging agile low code delivery capabilities, we are building and updating applications with unprecedented speed.
New automation platform during the day.
April's multiple use cases radically simplifies operations and reduces cost.
As an example of worked so incredibly neither of this past year.
It's in the program on supported for step change debt surety of the debt.
Women were more than five 6 million people, who have been negatively impacted by the per day.
Debit.
With an accumulated 10 3 billion of debt have been helped by being able to apply the packet technology step change, we'll announce how they use the product to launch their COVID-19 favorite player on new online services built in a matter of weeks to provide short term assistance through up to a year for growth.
Qualified.
We're really proud that our technology is being used to help transform and improve the lives of millions of people who have been hurt by the pandemic and especially with these organizations and others are willing to step forward and speak publicly.
So in summary, we know the challenges of the pandemic will be with us for some time and it's going to take a while for the world to sort through what impact, but we've adjusted well over the last year to new ways of working and collateral requirements.
Feel that we delivered strong performance Nonetheless, and we are well positioned to continue to do with low cost required.
I will tell you that the need for digital transformation has never been greater and we are better positioned than ever to respond to that need in ways that are truly future book.
I think we're on a terrific terrific position to help our clients respond to both the short term.
On the long term problem for price.
Ways that we believe will remain inspired are just amazed that the continued support and commitment of our staff our clients and our partners.
So just think about this year.
Wrong drove growth of jumbo to provide some more color. Let me turn this over to a permanent chief financial Officer, Ken Stillwell debt.
Thanks Alan.
I'm going to start by recognizing a milestone, but also one that I'm not going to dwell on Juba gytha, but are by our count there are more than 1600 publicly traded software companies worldwide.
In less than four per cent of those firms exceed 1 billion net revenue with our 2020 full year results Purger joins this group with total revenue a little more than $1 billion.
We view this milestone is interesting, but more of a mile marker, we hope to far surpassed in some type of endpoints. However, there are some inherent benefits of scale on our journey to be a rule of 40 firms first there's operating leverage you can see pack of realizing the benefits of scale on our expanding cloud gross margin increasing from 51 per.
In 2000 1963 per cent for 2020, as we grow and scale, we can clearly perform activities more efficiently, which we expect to positively contribute to our goal of achieving the wall 40, as we exit our cloud transition things like virtualization and automation can be leveraged more effectively at our increased size.
Another benefit of scale as increased brand awareness, we anticipate investing in some incremental initiatives to ensure the market is aware of how pay that helps our clients advance their digital transformation initiatives. This increased brand awareness will help us reduce sales cycles decrease our customer acquisition costs and improve sales efficiency all big potential Val.
<unk> levers for peg.
Third our increase scale strengthens our ability to attract world class talent. A great example is the addition of Hayden Stafford to our team in June of 2020, as President Global client engagement, we expect net increasing sales productivity will be one of our most critical value drivers our ongoing journey.
To increase the scale of our business is not the only multiyear transformation underway Purger. We're also more than midway through the multiyear cloud transition I believe it's important to share about what we've accomplished and where we have more work to do a free.
Transition to recurring revenue for a software company normally takes about five years as I've mentioned previously and follows three major phases first the company loans from selling perpetual licenses to selling subscription licenses. When we started the cloud transition in late 2017 for example over 60 per cent of our new quite commitments where some.
Scripture.
We changed our sales compensation plan to focus on annual contract value.
Debt, a total contract value in 2018, and our clients prospects and sales teams jumped on board.
By the end of 2018 about 85% of our new client commitments were recurring contracts that increased 95% in 2020 so on.
We've done a solid job of completing the first phase the.
The revenue growth transition its next during the second phase revenue growth rates decline, especially in the first the first few years. This is because the business is moving away from selling perpetual licenses, where the revenue is recognized upfront just selling cloud arrangements.
The revenue is recognized over time.
For example, our revenue growth rate dropped from the mid teens before we started the cloud transition to the low single digits for a few years once the mid point of the transition is past the revenue growth rate starts to improve for example, our total revenue growth rate grew to 12% in 2020 and that growth was even in the face.
A significant reduction in perpetual license revenue from 2019 until cheap debt compared to 2020.
Final two years of the revenue growth transition growth accelerates approaching the growth rate in annual contract value at the end of the transition. That's why we expect revenue growth in ACB growth with both exceed 20 per cent in the final years of the cloud transition a very important point to highlight is that our subscription revenue grew by 26 per.
In 2020, when I say subscription revenue I mean, the total of all client and peg of cloud revenue.
The cash flow transition comes last during this final phase billings and cash collections and prove it.
In other words, our company has completed the transition of moving from a from a company that collected most of its cash billings from new client commitments upfront to a business that builds and collects its cash going some clients consistently over time, we expect our free cash flow to accelerate as we finish the call transition.
In late 2022 22 to early 2023, given that we are still in the middle innings of this cloud transition.
Annual contract value remains the most important operational metric that reflects the underlying growth of our business. Many of our other operational metrics don't properly reflect the underlying strength of the business. You know when you are partway through a transition like we have embarked on 2020 total HCV grew by 21% year over year.
Year, reaching 835 million currency was about a 1% to 2% tailwind to this growth in 2020.
Total HCV is the sum of recurring peg, a cloud and client cloud commitments, representing annualized recurring spend from our clients for cloud term license.
Since arrangements.
Notable that perpetual license decreased from about 10 per cent of new client commitments in 2019 to about 5% of new quite commitments in 2020, while this dynamic has a dampening impact on near term revenue results in 2020, it sets us up for even greater recurring revenue in the future.
Sure it's remarkable to see the peg a cloud ACD growth accelerated in 2020, increasing to 57% increasing 57% from 169 million in 2019 to 267 million in 2020 as cloud demands for our customer from our <unk>.
Customers continue to grow the second most important operational metric during the cloud transition is remaining performance obligation or backlog backlog represents the total quite commitments pay guys book. The company has not taken into revenue yet and then 2020 total arps grew by 28 per cent or an impressive two on.
$136 million year over year growing from 836 million to 1.07 Elliot. This is the first time in our company history that backlog has exceeded $1 billion.
So great to see peg a cloud backlog increased by over 40% on the same period.
Total current backlog, which is the backlog can.
Can you recognize within 12 months.
Increased by 24% from $493 million at December 31, 2019 to 613 million as of December 31, 2020. This is the short turn back well I guess I mentioned that will come into revenue in the next fiscal year, which supports our expectations for total revenue growth.
I have over 20% in 2021.
Turning to revenue take our cloud revenue grew by 56% increasing from $134 million in 2000 $19 million to $208 million in 2020, and as I mentioned earlier subscription revenue, which includes paying a cloud maintenance on term license revenue jumped an impressive 26% in the same period.
<unk>.
Total annual revenue increased by 12% going from $911 million in 2019 for 1.82 billion in 2020, so really understand the financials of the busy on starting the cloud transition. It's important to not just look at any one measure that you need to look at ACB revenue and backlog for example.
He goes up the basketball goes down well, we haven't done as good a job as Peter.
Feeding ourselves for the future and this was further compounded by the cloud transition, which has a deferral effect on our reported revenue, which is why we're looking so much the ACB growth mentioned measure our business momentum taken together our financial results in 2020, you put us on the right track to meet or exceed our long term targets that were set in two.
17, $1 3 billion in total ACB and $1 6 billion and total revenue by the end of 2022, even though we're on target with our plan, we aspire to grow faster. That's why we've made major investments in Sally capacity partner support and customer success.
Turning to our fiscal year 2021 guidance, assuming a peg a cloud continues to be a little bit more than half of all new quiet commitments in 2021, we expect total revenue of one.
1.25 billion net increase of 23% year over year.
As typical we expect our bookings to be skewed towards the back end of 2021, which means that our revenue will be skewed more towards the backend of 2021 as usually is the case in enterprise software move.
Moving to non-GAAP EPS, we project 2021 full year non-GAAP EPS of <unk> 25.
We expect non-GAAP EPS doing true from 2020, because we anticipate that our revenue will grow faster than our expenses. We also anticipate non-GAAP EPS will improve due to increases in peg a cloud gross margin, which is becoming a bigger impact on the business Inc.
Conclusion like many companies we are happy to welcome in 2021, our full year results are very impressive given all the market disruption from COVID-19. This is the first year on our history that revenue backlog and cash collections, each exceeded $1 billion and were optimistic that 2021 share.
<unk> growth in our key metrics before opening the call for questions I'd like to invite each of you to our annual customer conference take a world expire on Tuesday May Force you bet.
It will be virtual again this year and you can register at Www Dot Peg a dot com slash peg a world.
We plan to hold our annual Investor session. Shortly after on Thursday June 3rd we will release additional information about the investors' session. During our Q1 2021 earnings call in the spring and with that operator, please open the call to questions.
Thank you.
If you'd like to ask a question. Please take on more pressing star one on your telephone keypad.
If youre using a speakerphone.
Make sure your mute function is turned off for on your signal to reach our equipment. We do ask you. Please limit yourself to one question and one follow up before reentering the queue on skin that is star one if you'd like to ask a question.
We'll take our first question from Steve Koenig with F. N B C. Nikko Securities. Please go ahead.
Hey, great. Thanks, guys for taking my question.
Our first question is gonna be per Ken here.
Ken can you give us some color on cloud mix in Q4 and conversions to cloud and then maybe just.
For our benefit ties.
Tied back to Q4.
Topline results to your to your bridging to your prior commentary about what happens if your cloud mix changes.
So that I can tie I'd like to tie it back to kind of your initial guidance for the year. Then then how your view of the year evolved as it went on and then lastly on that maybe.
Maybe help us with what are some of the variables that could impact fiscal 'twenty one I'm on.
Maybe a little surprised that you didn't as a baseline.
On your cloud mix would be more significantly higher than 50%. So thanks for that and then I've got one quick follow up.
Sure Steve So so I'll I'll hit on your questions and hopefully I catch them. All so the first point that I think is important is to think about the mix for the year, which the mix for the last three years take it cloud it's been about 50% of our all of our new client commitments in Q4 is that.
A year that number tends to skew a little bit lower than 50 per cent in Q4.
The reason for that and this is speculation on my part, but the reason for that is that clients tend to use year end budget money, which may have a slight skew to more client cloud arrangements versus SaaS arrangements that has been the trend it hasn't been a significant skew, but its typically a little bit less than.
Take a cloud in Q4 and the other three quarters typically end up being a little bit more than paid to cloud I cut you off.
Percentage on bookings now in terms of 2021, we believe there is an opportunity for peg a cloud to be a much bigger part of our business, but we also feel that because we've had such a pattern of so many clients really enjoying the peg it.
Cloud choice message, Inc, and their flexibility on how they deploy that we really don't have a crystal ball to suggest that that number would be noticeably higher than what we've seen for the last few years. So that's kind of on the peg a cloud percentage I wanted to talk about Q4 and 2020 the biggest GAAP.
GAAP that we saw in 2020 once the movement away from perpetual licenses into either are pegged to cloud or client cloud recurring arrangements and that you may think well if it's if it's term or if it's perpetual wouldn't it be the same amount of revenue it's not the same amount.
On a revenue does not come in the current period. When you book, an equivalent term or perpetual deal perpetual does have more revenue and you can see the big drop in perpetual revenue in 2020, So that was our biggest factor out when we originally modeled we thought the pickup excuse me perpetual would still stay kind of some.
Just south of 10%, but not go as low as it actually did in 2020. So that's probably the biggest lever points in terms of what changed in 2020 had been and in Q4.
So that's kind of the biggest factor that I would say as you.
You know positive I mean, we're super happy that that happened don't get me wrong, but that was a variant from the original model that we had built up for 2020.
Got it okay. That's what I can and this one is probably for Alan here.
Project Phoenix, maybe a quick update there.
And kind of remind us what functionalities are use cases do you think are going to benefit most immediately.
As you innovate you know around your platform and adopt adapt micro services et cetera, where where are you taking them out on the short term Alan.
Well you know we have we.
We have a really interesting agenda in that front, you know you'll see some of it pretty directly and the improvements in cloud margin and obviously, if a client cloud.
And we.
We lost as a cloud or a rather good applause on acquiring five but we're in the client cloud business day, we believe in cloud, Georgia I think this helps all of our customers in terms of their ability to save money, our ability to save money and our ability to innovate innovate faster. We've also been able to improve on on cycle time in development for the free.
Things that have been broken out as micro services and.
I would tell you it's working.
On your beautiful your math on it.
A lot of what we're doing that we've talked about that you'll see in theaters. You are based on the release late last year on where we go on here is being able to allow our clients many new options and ability to.
Can you reflect the injected eye drops into their existing farm downs because of our ability to incorporate react based on technology as part of our digital experience API, which is a big part of moving through the API centrally.
Model, So we're seeing internal advances.
Customers are years ago used to think that our architecture was bigger, perhaps debbie, saying, but we really like what we do on architectural.
Whereas architect sometimes would be pretty critical anybody who looks at this architecture.
She is responding positively to both what we've accomplished and where we're going to continue to grow over the next 48 months 24 months or and so on.
I think it's gotten us a lot of Boston wide.
With our customers.
Alright, Thanks, a lot out in fact on.
Thank you, we'll now move on to our next question from Jack Andrews with Needham.
Well good afternoon, and thanks for taking my question.
See if you could provide some more.
Commentary in terms of just how your partner <unk>.
<unk> are progressing in terms of just any commentary you can provide in terms of just new logo wins that are being generated from partners or how should we expect that too to ramp over time.
So on the second half of the year.
Under the auspices of behaviors to operator, you may remember Hayden.
The business you have Microsoft in the CRM space with free in a half a billion.
Quite rapidly, we're starting well on $1 billion and also the.
I think slowing partner experience from Salesforce and his background. He really has embraced the major push towards partners and getting significant mutual commitments with partners that we're going to really go to market together so.
As Kevin talked about we're investing in sales and marketing on a big part of it is making sure that the partner ecosystem is positive center, how we go to market I can tell you that the number of partner <unk>.
Involved in partner sourced deals with.
Materially off of the pipeline and we're pretty excited to see really the.
But the big acceleration only happened on their only started in the second half of last year.
No that's great. Thanks for the color around that and just as a follow up I wanted to ask you about if you could flush out some of your comments on the the government opportunity in particular.
You you mentioned, becoming potentially a standard for certain use cases any thoughts in terms of how under a new administration debt that might provide opportunities for you know more broadly.
Well.
I think there are opportunities under the previous into the flow and we don't see them abating under the colored warm and he.
He doesn't reality is that there's a tremendous amount in government that needs to be made more efficient debt.
It needs to be made more easy to change and needs to get rid of a lot of the paper and the waste now the eye on routes has been public about how they have over 60 based on management systems and.
One head to head competition against numerous numerous other providers.
Celesio is publicly available body on arrest and that's work that is going to go on over years and how has already led to it.
Our initial production years. So I think we've got a terrific government story and I'll tell you that paid and it does give us that said, we should double down on our government business and by the way. He is another place where partners obviously are keen on.
I would tell you it's exciting that our government business not just in the U S is growing so well, but if I take a look at Australia, the UK and the German government.
We're really seeing a nice push there and the nice community of government views with over there.
Wanted to ask.
On partner on.
I'll make one additional comment on partners, we did our first ever partner sales kick off this year, where we actually engaged in a working kind of session with our partners and we've had numerous partners upsize I won't mention the exact names that are really committing to sign up for very large commitments to drive mutual bill.
Net between <unk> and their practices that hasn't that didnt happen prior to.
This year. These 2021, just in the lifestyle month or so so that's about that's an example of another a big change in our engagement with partners.
That's really helpful. Thanks, a lot for taking my questions.
Thank you on that take our next question from Mark Murphy with JP Morgan.
Oh, Hey, Thank you this is thinking of them sitting in for Mark Thanks for taking our questions.
Alan a quick question on the process fabric for that debt.
On that you're talking about in the conference last year.
Any updates on that how that has been doing or what is the initial feedback from customers and then I'm curious to hear how how are you thinking about this this hot space that's emerging around process mining.
And what is that being around that.
Sure.
I'll touch on both of those so when we talk about process fabric was middle of last year. It was very much to make people understand that when we talk about our center our architecture, where you really want to think about the walk across what might be a very large organization.
The.
Do you want to do is non have some big massive system hunkering into little debt you want to have the illusion of a virtual integrated system, where the work.
We live in multiple system process with multiple systems I was including in some cases on another system, what do you need to be able to be part of the fabric with not only on our first couple of customers using here quite successfully and.
We're continuing to enhance it and growth under the auspices of Themis and into normal enormously excited on imagine on the organization just to draw an analogy.
And if that's having Google volume for all of the work you and your company, but done on the way that is safe and secure.
It matters and being able to provide access and deliver that work.
<unk> World as you know because it was all small in there, but I think it's extremely exciting to build on the on the Phoenix work that we've been doing and it's.
Give me a lot of positive reception on it.
Drives not just across the fabric system, but it drives the further use of cash out, particularly in a low.
And material customers. So you asked about process mining process mining is one of those things that.
It's very popular there and sometimes it's not for profit was very popular with vast popularity again, we've been doing some really interesting work as part of our workforce intelligence on robotics initiatives.
Allow us to watch and mind the processes.
Bob where people are really doing as opposed to what they tell you that February yeah, No I think that that's one of those examples on the other complementary technology to our core core automation because when you really want to do is understand what people are doing but doing very possibly not do it on the exact same right. That's on the state.
Robotic process automation non incorrectly if people were kind of on the screen scraping and Annualizing heatstroke, we taped out and with the mining work on some of the other work with you on what was $1 a hurdle of pull that in and then it really figure out how to drive end to end outcomes without having to train people in there and I would tell you that on.
Much more sustainable.
A much stronger on a much more resilient way to handle these sorts of things. So we feel good about what we're doing there as well.
Understood. Thank you for the details.
Ken one quickly for you on <unk> growth rate.
When I'm looking at that 20 to any one per cent around I think you said one to two points of currency headwinds, so if I adjust for that.
Seems like it might have dipped below 19, I mean don't get me wrong, it's still good at that scale.
But if I compare it to a year ago, maybe it was 22% and now maybe sub 20 is Theyre Inc.
Kenny can you read out what has what is causing that have you seen actually more impact from COVID-19.
Q4, or anything thing debt to call out.
Yeah. Good question. So so no we haven't there's no there's no impact.
That we've seen from Covid I would say positive quite frankly positive or negative and it certainly hasn't been a tailwind I don't believe it's been a headwind either.
For the year landed us is directionally in line from an ACB growth standpoint to where we thought the year would lay on that.
<unk> really is I think the more important question is when when do we expect to see the acceleration in ACB growth beyond kind of the twentyish percent growth that we've seen now for the last number of years, because we're certainly investing in a market opportunity that should yield better growth to that so I think that's kind of.
More the angle that we're looking at which is why why and when do we expect.
Celebration and our ACD growth a percentage movement in ACB growth, one way or the other is to be honest with you not a noticeable change in the longer term.
On the strategy, we also have situations, where and I've mentioned this a little bit before over the years. We also have situations, where ACB moves in and out of a quarter, depending on effective dates and that can easily be a percentage skew one way or the another one way or the other as well so I don't focus too much on that number being any real too.
<unk> 'twenty 'twenty, one 'twenty two even 19 kind of in that range is to me kind of our historical it's really the focus for US is how do we get that number up to 25 to 30 something that is feel on the where we've seen the growth rate.
Understood. Thank you.
And keep them on.
Our next question from Rohit <unk> from Barclays.
Hey, guys. Thanks for taking my questions as well.
So I don't know I was just wondering if you can give us.
Sort of like the live rely on in terms of your automation portfolio relates to you you acquired an RFP vendor a few years back obviously you have been on buying your are your flagship product is low code right.
So just just give us some sales and then as to what competitive landscape have you seen and what do you expect to see in the next few years than it has been sort of like some vendors talking about this end to end automation offering across RPM process mining low quarter, and I think you briefly touch on that but those vendors.
Maybe in the IPO pipeline, so there's going to be more investment noise on that so just help us understand how you fit into that space on how you've put into the Americas and then I have a follow up question for Ken.
Sure. So you know when we think about there's a lot of noise in the market.
And a bunch of experimentation.
And I think there's a tremendous amount of BFS.
In my view here.
The whole robotic process automation somebody does a little now and takes the number of customers that are claimed by some of these vendors.
You divide that into the revenue.
You'll see that a lot of what's going on here is a little experimentation and is not game changing for the customers frankly would be able to work more revenue on a lot more consistent growth. So we think the approach we have which is the really thing.
Process automation with the core.
They'll be able to have robotics is a really powerful way to deal with systems that do not yet have a P. I.
Is the right way to do it and we're getting a lot of reinforcement from customers and prospects that our way of thinking the center out what you're thinking as opposed to kind of like price of the desktop where your thinking is the right way to do it. So I I think we will be vindicated in my view and ER.
She worked that makes me more confident though.
A competitive landscape on the competitors everywhere.
You said you had another question for debt.
Yes.
Yes again.
Really helpful color on the CV growth adjusted for FX tailwind, but I mean your guidance, obviously, a strong right I mean, you're guiding for 23% revenue growth, which force in line somewhat with your CRP growth this quarter, but at the same time on assuming that we also look to fiscal 'twenty two targets that you'd be true.
On your analyst day.
I mean day, there will be an implied acceleration on the SCB for fiscal 'twenty. One if I look at all of those are where you're going to strike and you have discuss drivers for back previously along sales capacity.
<unk> and productivity, but help us understand like which of those drivers do you think will have a more of a new York on impact early in fiscal 'twenty, one versus maybe for example to be higher than inflation.
Customer base, maybe more of a long term pieces right. So give us an overview of those strike force and which of those we think will already start to show up in fiscal 'twenty one.
Yeah. So the the obvious so the way to think about the investments that we're making so I'll give you kind of the ones that I think have you know I'm going to say more near term, meaning 2021 and more mid term, let's just call that 'twenty two into 'twenty three 'twenty, one is going to be.
Driven by the ramping of the sales capacity and those and those individuals' becoming more seasoned on average in 2021 and 2020 or 2019. When you think about something that might be more about 18 months 24 months is probably somebody Inc.
What's that we're making in partners right because those things tend so mature.
Over there.
Typically you know, they're kind of on a kind of a one quarter kind of turn on those investments and I think there's another aspect of that.
Debt, we're thinking about it as well we haven't noticeably.
Steve mentioned it early on and we actually I tried it didn't intentionally skirt. This part of his question, but but but I will highlight it now we are not we have not to date nor is it part of our core strategy to just move all of our client cloud people on to Peg a cloud.
It happens from time to time as clients want to move, but I do think as as we get out into 2022, and 23 with process fabric with the evolution of the product with a cloud being our primary go to market with everybody really looking to move to the cloud there is the potential debt.
<unk> cloud will accelerate as a percentage of our business. So those are kind of some things that I don't think it's going to happen in Q1 or Q2 of 'twenty, one, but there certainly is that potential for it to happen.
Into the end of 'twenty, one into 'twenty, two so that kind of gives you almost like you know productivity more.
More people buying pig of cloud partners, playing a bigger role those are kind of the 24 months the levers.
Perfect. Thanks, guys.
Thank you, we'll hear next from Chris Merwin with Goldman Sachs.
Okay. Thanks, very much for taking my question.
I think first off I just wanted to ask about the CRM business that can grow.
Yes.
The broader category that CRM did very well.
Right.
<unk> started to just curious how that piece of your business that's true.
Nevertheless, 12 months in particular in the last quarter, and then I had a follow up thanks.
Yeah, So we're seeing a lot of interest.
Interest in CR out, particularly in the sort of omni channel approach to CRM and as part of some of the investments that we've done.
What we've done is we've actually brought some very strong leadership into each of the sort of free sort of general areas of.
C O M intelligent automation and one two on engagement.
So where we're really doubling down on all our growth remember across your on them can be everything from the full contact center desktop on.
All the way to the <unk>.
Omni channel approach of average common process was uncommon decisioning across <unk>.
Mobile web service desktop et cetera.
Think that's actually a much better story than people, who are coming in or just trying to sell to us.
It's easier for customers to get started and frankly for them to get the benefit faster.
With the style of the price.
So I think that'll flow into CRM that is.
Important to our business it will be going forward as well.
Okay, great. Thank you Alan one just my only question Yeah, if I look at the ACB growth exiting the year right.
<unk> 21 per cent right and then the revenue guidance is 23 into that as you get through the transition I think there is growth.
Gross rates are going to converge more over time.
A piece on the ECB.
It would be great because every year with with revenue growth in 'twenty 'twenty. One so just wanted to tie that together.
If I could please.
Sure. So the revenue growth so that the way. This typically works and I think we're a little bit skewed by the percentage of business. That's professional services I know that kind of does.
Screw with the numbers a little bit, but if you think about ACD growth I'll just use a number use 20 to make around basically the growth of 20% when you get to the back end of the cloud transition you do you should expect that your subscription revenue lines that connect the ACB will start to actually outpace your HCV.
Growth because you're catching up.
Almost an easier compare in some cases, which is why we kind of I don't Wanna say hockey stick, but the slope kind of slopes upward in the backend of the cloud transition services revenue growth does actually grow a little faster than your ACB growth, that's what youre seeing happening in 'twenty, one will happen in 'twenty two so.
There isn't a.
A direct connection between ACD growth in revenue, so really you get to the end of the transition so gross slower in the beginning that it accelerates it kind of catches up to.
You see them being more closely aligned when you actually per transition that's what you see happening in 'twenty one.
Got it thank you.
He came on here next from.
Genre.
Hey, guys, that's it for HAE jewelry Alan.
Got it.
Quarter nice to see continued strong results.
I'd just start by looking at.
The cloud gross margins I know, it's been really strong this year in improving it.
As it has gone on.
How should we be thinking about.
The opportunities for future cloud gross margin expansion from here.
Can you have said in the past is over time, it might be able to get above 70% maybe speak to how we should expect that in any areas, where you think there is more opportunity for <unk>.
Our infrastructure efficiency or could you just get better margins out there and I've got a follow up.
Sure Rishi.
So one thing that probably most of you know.
Is that I kind of took a took responsibility for our cloud business.
In December of 2019, so it's been about a year and one of the reasons why you know Alan.
Decided that that was a that was a sensible move was because of the importance of really running that says that's a P&L on driving margin expansion and the and the team has done an amazing job.
You know in terms of driving that over the last year. So really good progress you might say, okay, well. So youre mid sixties now are approaching mid 60, how do you get to 70 75, and one of the levers first off scale is the big lever right scale not only in the number of clients book the size of the clients.
And in the cloud because that's that goes up there is some variable on some fixed costs and you are able to leverage people over a larger pool of clients at a larger pool of HCV. So some of it is just typical operating leverage Rishi that happens.
I want to say any business model, but technically speaking when we start leveraging at scale things like Cooper getty's right to create virtualization in the cloud environments, which all of our clients are deploying on some version of Super Daddies in terms of driving efficiency. It's really you know virtualization and the cloud as I'm sure you know that is a big lever.
For Us in addition clients that are adopting tiger cloud on on on Peg Infinity is actually another lever point because the expansion that they have on the applications really becomes kind of a larger spend pattern and really creates us ability for us.
To make certain investments in those step or breakpoints, so that we can actually create.
Essentially more efficient.
Cloud environments for our clients. So it's really about scale, it's about the new product tag as new product, which is again Trinity right. The product that is a net new generation.
About leveraging some very.
Common tools like people and how do you said lots of all of our clients quite frankly than our competitors and other companies are leveraging to build that level of efficiency. So those are kind of the some of the key tenants of getting there but to be honest with you. It's really driven by a business P&L mindset of running our business license SaaS.
Business like an as a service business for our clients and we're starting to really see some some great pickup in our results.
From that from that focus.
Got it that's really helpful. And then my follow up I wanted to maybe get your sense on the sustainability of some of the trends that you've seen out of Covid going forward and you know, let's say optimistically back half of this year starts to look a little bit more normal.
And so from that I'm on I'm talking as a kind of acceleration of digital transformation projects and efforts from customers, even if that hasnt been a driver on the revenue side, just yet that the sustainability of those tailwind and then on on the cost savings side as well because I you know not not having travel.
Really helping on the margin side I mean, if you look at the growth rate of just your sales and marketing.
It's dramatically lower this year than it has been historically I think he didn't have on 2019 day growth rate. So how should we be thinking about the sustainable at the end of those cost savings going forward post pandemic.
Well I'll tell you. It's you know, it's honestly hard to predict but I think there will be sustainable cost centers.
These cost savings because I think behavior is true.
You know, it's easy to do a video meeting, whereas otherwise you would have got to a range of trip to show people that you respect of them you know.
We're trying to make sure the right price with the right time I think of water that is going to persist I think a walk of implementations, where we've learned to do things remotely will not be entirely remote people still going to want to get in and do a physical walk through.
You'll get together on the conference.
Table, there, but I'm optimistic that we'll look at every possible.
Second half of the year by the end of the year brought up.
I think there will be some sustainable cost savings there certainly be improvements this whole project Phoenix, which has been part of our move to prove it out as part of on the other changes that we've been doing is there's a lot of runway because we think of what we could do that to create sustainable cost savings on sustainable technical scalability of income.
A couple of years, so I feel.
I also feel really good about that.
Alright wonderful thanks, guys.
And Ken we will take our next question from Mark Scheffel with benchmark.
Hi, Good evening. Thank you for taking my question.
I was wondering if you could just prior to some additional commentary on what you're seeing in Europe in particular your business in the UK.
So it's it's it's interesting obviously the UK has undergone some confusion.
Before Brexit thing happened on top of the Covid thing I would tell you that as I think about it.
The U K, particularly areas like some of the Big U K financial institutions.
With in some cases, very very big interest and we're moving things to the cloud with historically they have been more conservative on but also some of the large governmental.
Entities.
It has been.
I would describe has been powerful and intelligent.
So I'm feeling pretty good about.
The U K at a time, where it's really hard to true.
Appreciate it.
Given what was going to happen as a result of some of the Brexit stuff on top of growth.
On top of the Covid. So there's a tremendous amount of activity. There I just wish I could go back to the visits on debt.
So yeah.
And then Ken a question for you on the December quarters are typically pick renewal quarters for our company and also a big revenue quarters.
Seasonally how should we be thinking about your Q fours with respect to our UCB growth in our PEO growth.
Seasonally so.
The.
Let me clarify one thing so.
Force do have more windows volume.
On average than other quarters, however, as we've gotten bigger renewals do start to spread across quarters in the year and across years, such that it isn't as big of an impact as we as Morris taking more of a stack of cloud and as the company growth. The reason why Q fours are typically vigorous because there.
More new business activity and a Q4 more selling activity that's actually a bigger factor for Q4, and that's really the only factor for ACD growth because our renewals unless there is an up sell there isn't really any change to the ACB now in terms of RP O backlog that is really.
One is a tough one because market does become out it does become theres.
There is definitely lumpiness around RP O in terms of the total amount, where it's not as lumpy as in the next 12 months number right and that number that's why I focus on that number because that really is a validation that how much of the next year's revenue is already kind of baked in.
And you know kind of in the in the in the backlog to be able to come into revenue. So if you're comparing a Q4 over Q4 ACB is is it is a very valid measure and the next one year is a very valid measure when you look at the gross amount of RP O. Then you get into differences, where there were no.
It was four years versus three years in the cycle. The renewals is not linear in terms of that so that's kind of where it kind of screws with you a little bit not so much on revenue not on a C V at all and really not much on that next 12 months number so that helps out kind of on the way to think about Q4.
I think that.
The other thing that's happened there we've talked about this a little is when we did book flipped through recurring we massively reduce the incentive.
Or.
Long deals.
The incentive used to be frankly volume.
A little out of whack.
Around total contract value and that is debt is massively reduced so yeah, I think youre going to continue to see less lumpiness in RFP out.
And the real measure I would say as you know.
Coupled with our per yard that's always what I love that.
Thank you.
E C.
I think we're getting to the top of the hour.
So operator, if it's okay with everyone on going through.
Then I would just say to folks.
You know it was up it was obviously a pop and rock this year, we need really to.
Turning to the whole team.
Or just buckling down and doing tremendous work like our customers free standing by us and I want to thank on Investor Day, We're working hard for you.
And with all of you stay safe and let's work through this.
We're actually feeling like we're moving into low like this year. Thank you very much everyone take care.
Thank you that does conclude today's conference. Thank you all for your participation you may now disconnect.
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