Q1 2021 Pegasystems Inc Earnings Call
Please standby.
Good day, everyone and welcome to the Pecos Systems' first quarter 2021 earning results conference call. Please note that today's call is being recorded and at this time I would like to turn things over to Ken Stillwell C. E O C O O N E. S. Oh. Please go ahead.
Thank you good evening, ladies and gentlemen, and welcome to Vegas systems first quarter 2021 earnings call before we begin I would 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 projects forecast guidance likely and usually or variations of such words and other similar expressions identify forward looking statements, which speak only as of the day.
For the statement was made and based partner based on current expectations and assumptions because such statements deal with future events. They are subject to various risks and uncertainties actual results for the fiscal year 2021, and beyond could differ materially from the company's current expectations factors that could cause the companys results to differ materially.
From those expressed in forward looking statements are contained in the company's press release announcing its Q1 2021 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 December 31, 2020, and other recent filings with the SEC investors are cautioned not.
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 events, or otherwise and with that I will turn the call over to Alan traveler, founder and CEO of Tyco systems.
Thank you Ken and thank you for all our investors. Our Q1 results demonstrate the continued progress we're making in our shift to a recurring revenue model.
Our total ICD the best indicator, we think of our future revenue guidance gross increased by 20 per cent for the quarter year over year. While revenue grew 18% will continue to accelerate hybrid cloud gross with public cloud <unk>, a 55% year over year. In addition, more than 50 per.
For some of our new commitments, if you want other Clos.
So last year at this time, we were at the very beginning of a global pandemic and the transition to remote work was left for two months old.
We realized we'd be in the situations for some time I don't think anyone then would've predicted we still be more than a year later.
Still unclear as to when it will really end.
I continue to be pleased and proud of hollow entire global team adapted to conduct business virtually and will continue to see clients and prospects ex.
Celebrating their digital transformation initiatives.
We expect this acceleration to continue irrespective of when do we reach a new normal.
That may look odd.
Our clients recognize that their needs are getting more complex not less.
And as we've proven we believe we're uniquely positioned to help organizations crush business complexity.
Accordingly, the demand for scalable low code solutions.
Solve the problems of business complexity non went for the future continues to drive our business.
Now most organizations that will be on solving the acute needs of the here and now and we've seen this crisis as a catalyst to get organizations to build stronger businesses for a very different future in 2021 and beyond.
No one wants to be caught unprepared for the next crisis hits whatever that might look like.
In response, we continue to focus our efforts on building solutions.
System to support the evolving needs of our clients improving efficiency usability accessibility and time to value.
For example, since we last spoke we delivered enhancements for low code development that enables anyone to deploy powerful apps with just clicks.
Features makes it easier and faster for both professional and citizen developers to create seamless apps from any desktop application using a intuitive low code interface and new offerings enhancements.
We've also enhanced our software to the industry's first capability that uses AI to deliver self observation optimizing process automation.
There's a process they are intelligently triage as incoming customer requests and other events in near real time, and enables fast and efficient resolutions, while helping to lower operating costs and simplify staff and customer experiences. It helps organizations drive greater process efficiency and effectiveness.
At enterprise scale.
We continue to focus on enhancing our enterprise grade intelligent automation capabilities, leveraging robotics as part of a holistic approach to go beyond the incremental improvements and drive true transformation.
Intelligent automation needs to do more than simply automates repetitive tasks on the desktop it needs to be part of a center out approach there for.
For customers the center of the business architecture, and helps drive customer journeys or as we call them micro journeys.
This approach brings task automation process automation and case management together to create a consistent experience for both customers and employees.
Ross all channels from the front office all the way for the back office, all the way to other cloud.
Per the world inspire next week.
Maybe for will be showcasing the next major release of Pac Infinity.
As well as a re imagined partner program that will provide clients with a deeper portfolio of expertise and also provide our partners additional opportunities to expand their business and drive more revenue.
The set of new capabilities. Other infinity reflects the ongoing evolution of our underlying architecture. We've made tremendous progress in evolving the runtime architecture to allow for increased surface isolation support of cloud native technologies, such as kubernetes and the use of leading edge technologies for caching.
Search and data storage.
Throughout its history that guys provided modern next generation solutions.
Technical technological leadership is can we believe to accelerating growth and we're excited to showcase. These advancements next week I hope you'll join US for this two and a half hour virtual events, which I guarantee you, we'll be engaging and informative you can go to our website to register or reach out to Ken's office, if you need it.
Yes.
Now we built on our successes from last year to make this year's event, even better with life product demos interactive Q&A digital transformation best practices and success stories from industry leading organizations.
For the World is always an opportunity for us and our clients to share client success stories.
This year was no exception for example.
Gerald Richardson, the new head of personalization of wealth Wells Fargo will talk about how the bank is using <unk> to create a scalable intuitive solution with powerful AI decisioning and it's hard to improve customer engagement and increased conversion rates.
Eric Petty portfolio manager at Pfizer will share how the companies born digital transformation efforts, including how they're using <unk> to improve accuracy and increase operational efficiency is helping their drug development process.
And Jason for a Brown senior Vice President head of customer retention at Sirius XM will talk about how the use of tiger customer decision out for customer retention to identify the right. One on one experience enables them to balance churn and revenue around 34 across 34 million global customers supported.
I turn call centers around the globe.
And is there still.
A technical program manager, Google will discuss how they're using tableau to automate tedious and mangle interactions to optimize resource efficiency. So they can scale sites axis and dispatch for quest.
This is a great example of cloud choice as they run their system on the Google Cloud platform and.
Much much more.
Now, we're finding more and more opportunity to attract talent with strong relevant experience and a relationship from peers and competitors, including sales Force service now and Microsoft We continue to invest selectively hiring to build out our senior management bench and our sales capacity.
You may recall, we brought in Hayden Stafford last year in her new role as president of global customer engagement.
It is made and.
We'll continue to make additions to the senior leadership team, bringing in talent from hi, crush for organizations and I believe these changes create a foundation for accelerated growth.
And that will support a sales and partner ecosystem that will help us worldwide bring our market execution for the next level.
We're excited about these investments from the impact we expect it will have in the second half and beyond.
We're also investing more in brand awareness. For example, you may have seen our logo on the clothing, a few very promising golfers Mel Reed and Mark Hirschmann.
We'll be sponsoring them over the next few years. It was very exciting to see Mark finished in the top five at the Masters and when Zurich Classic over last weekend, and we will have some extensional exciting news related to brand day coming up in the weeks after peg a world.
So.
In summary, we're executing on our strategy and are optimistic about 2021 in future years, our transition to a recurring revenue model is continuing a pace well.
We have the right solutions to help our clients address both the short term and long term effects of the pandemic, while they build for the future whatever that may break.
And when we have the right go to market strategy structure and team to meet our goals. We will continue to make necessary investments required to scale, while carefully considering margins and we continue to see significant upside among both our existing clients and new opportunities.
To provide more color on the financial results. Let me now turn this over to our Chief operating officer and CFO Ken Stillwell.
Yeah.
Thanks Alan.
Today, I'll talk a little bit about our Q1 results and also provide insight into the revenue growth acceleration phase of our cloud transition.
You'll remember in late 2017, we started out migration from selling perpetual licenses to selling subscription licenses. Our expectation is that we will wrap up our cloud transition in late 2022 for.
For early 2023, the two most important metrics to measure our business momentum as the cloud company, our annual contract value and.
And remaining performance obligation or called backlog, let's talk about ACD growth first steam in the first quarter total ACB grew 20% year over year, reaching $853 million.
<unk> continues to be a few percent tailwind to our results are a C. D growth was powered by peg a cloud ACB growth of 55 per set year over year.
Hey, good cloud is our software as a service offering it represents client commitments, we're paying a fully manages the solution for our clients.
Our other subscription offering its client cloud client cloud deployments are managed by the client on the cloud of their choice. It's important to note that peg a cloud H C V reached $282 million in Q1, increasing more than 100 million year over year.
It's quite amazing to remember that business as being a 30 or 40 million dollar business just five years ago, when I joined Tiger.
It's really excited moving to backlog, which represents client commitments that are booked but have yet to be had not yet been taken into revenue total backlog increased by an amazing 226 million or <unk> 30 per soft year over year and take it cloud backlog increased by 36 per set on the same theory.
Our multi year cloud transition was strategic and very deliberate we believe that a subscription based software company generates more predictable revenue and cash flows our cloud transition typically takes an enterprise software company five years as I've mentioned previously the complete and includes three major phases.
The first phase is where the company transitions from selling perpetual licenses to subscription licenses. When we started our cloud transition about two thirds of our new client commitments were perpetual.
In the first quarter of 2021 over 95% of our new client commitments for subscription arrangements pretty much in line with our expectations. Clearly this first phase of our cloud cloud transition is complete.
The second phase of the cloud transition as the revenue growth transition during the second phase revenue growth rates decline, especially in the first few years. This is because the business is moving away from selling perpetual licenses, where most of the revenue is recognized upfront for selling cloud arrangements, where most of the revenue is recognized over time for example.
Our revenue growth rate dropped from the mid teens before we started the cloud transition to low single digits for a few years.
Now the pig has passed the midpoint of the cloud transition. Our total revenue growth is accelerating approaching the growth rate in ACB as expected in the first quarter total revenue grew 18% year over year and subscription revenue outpaced ACB and grew at 23%.
Hey, your cloud revenue grew 56% almost identical to the peg a cloud ACB growth rate of 55 per cent in the same period. These results represent an important inflection point in our cloud transition and are another example of pegging keeping its promises along the way to becoming a cloud company our subscription growth.
<unk> revenue growth of 23% year over year powered our total revenue growth in Q1.
Subscription revenue includes cloud term and maintenance agreements. It is also very exciting to see the evolution of our business model continue to progress as expected in the quarter. The company's subscription revenue reached 81 per set of total revenue up from around 50%. When we started the cloud transition in the for.
Fourth quarter of 2017, the final phase of the cloud transition as the cash flow transition. During this final phase billing and cash collections improve and normalize in other words. The company has completed the transition of moving from a company that collected most of its cash goings for new client commitments upfront to a business that.
Bill and collect it's cash billings from quite consistently over time.
In Q1, we continue to make solid progress on our efforts to improve our cash flow. We're reinventing the way we develop go to market and service our products and solutions you can see the pay off in our margin improvement positioning the company to pursue stronger free cash flow in the future. We still have work to do on this front.
But we feel like we're making good progress in the first quarter total gross profit margin increased by four percentage points year over year and peg a cloud gross margin increased by seven percentage points going from approximately 60% gross margin for 67% gross margin in the same period.
Our non-GAAP earnings for the quarter were $22 million or 26 cents per share one of our key goals is to achieve the rule of 40. After we complete our cloud transition in late 2022 or early 2023.
And to remind you we define the rule of 40 is a combination of our ACD growth rate plus our free cash flow margin.
We believe growth in profitability go hand in hand, when it comes to business success, especially now that we're nearing the end of the cloud transition.
As we work with our clients we are very focused.
When helping them as we hopefully come to a conclusion of this.
Pandemic that we've been all dealing with and we're really really excited and around the efforts of our employees and our work that we've done with our clients and partners.
Before opening the call for questions I'd like to invite each of you to our annual customer conference as Alan mentioned earlier Peg a world inspire on Tuesday may for sure.
Its at nine a M and will conclude around 11 30 a M.
Unfortunately, as virtual again, but we're super excited to share incredible stories from over 40 clients and partners and features keynotes from a number of really really important clients, where we're doing great work to learn about the latest would take a technology and to see how we're driving these incredible outcomes for our client.
I encourage you to register at Peg a world Dotcom.
Our annual Investor session is on Thursday.
June 3rd with a start time of a M. Eastern time, we'd love to have you all join US to register please send an email to peg us Investor Relations and Hagen Dazs com or you can send them out to Peter welborn or myself.
And with that operator, please open the call for questions.
Certainly and everyone to ask a question that is star one on your telephone keypad. Please note that if you're on a speaker phone to pick up your handset or de press your mute function to love that signals for HR system.
Again that is star one to ask a question and we'll go first to Mark Murphy of J P. Morgan.
Okay.
Yes. Thank you very much Alan what are the spending intentions that you're picking up on from some of your key verticals like financial services for.
2021, as a whole just in terms of our I T budgets, how they're looking at that and I'm wondering is are.
Are you sensing any on Prem a bounce back or do you think that the viewpoint is gonna be more structurally tilted toward a public cloud this year.
So it's it's it's interesting I think some organizations are non related to peg a projects they have.
Have have experienced a little bit of sticker shock on some of their cloud experiments and yeah. There is I think a real question about.
How about drugs is going to go but relative to our clients. We're seeing a lot of enthusiasm about moving new business and even some of their existing systems onto pecker clock.
The real advantage is not a cost advantage on hardware.
Hardware or Opex. It really is what type of cloud, we've really mastered a lot of the ability to keep our customers much more covered and let them take advantage of the new things, we're putting into our technology faster. So I think the appetite in all industries I think there's going to continue to be strong.
We were fortunate that we were not heavily exposed to some of the industries that were most.
But we are now seeing interest in places like airlines and retail.
As well as our traditional markets around.
Financial services health care and insurance.
Okay, and Alan I guess since you made that last comment on the on the heavily hit industries I I wanted to actually ask can you know how how did you feel about maintenance renewals during Q1 and we're understanding your exposure there is low.
And you've actually seen you know cement. Some are you know positive demand. There. What was was there anything there that might have held back our maintenance renewals or renewal rates at all or where or maybe just any timing differences that are.
Pushed some of that into April or May.
Yeah, that's a great question Mark So two comments on the on the maintenance line specifically.
So first no retention rates, we're not seeing renewal rates retention rates, not seeing any softness or weakness that we are.
You know that maybe would have been a risk from the pandemic. So we havent nothing there you may I'll remind everyone, but this is a little nuance, but the way that we calculate.
Our a C V for maintenance is that we take the quarterly revenue when we multiply it by force a little bit different than the way that it's it's it's directionally the same in spirit of ACB, but the math of it can cause slight variances between quarters in that particular number and so and so and and and.
Also to make another comment on that Q1 was not a very big renewal quarter in general for peg that isn't a big surprise renewals tend to be more towards the back end loaded in terms of the timing of renewals, but Q1 of 2021 was not a terribly strong strong, meaning a lot of activity and renewals.
That tends to be more back end loaded for 2021, so nothing nothing at all in the in terms of the strength of the business Mark but there. They're all there are some timings around the way the calculation for maintenance ACB works quarter to quarter and that.
That can that can that can change the ACB number slightly within any one quarter for maintenance.
I understand yeah. Thank you for shedding light on that Ken that's very clear. Thank you.
Okay.
Okay.
Our next question will come from Steve Delaney of S. M D C newco.
Great. Thanks very much.
Maybe one multipart and one follow up for you guys.
So on ACB.
Grew 20% with a little bit of that.
Tailwind from currency.
I just didn't decomposing the numbers it looks like term ACB didn't increase that much quarter to quarter.
So.
And more I guess more generally the question is what needs to happen to accelerate ACB and I'll kind of throw in that as well.
Maybe talk a little bit because it's that'd be relevant about 'twenty 'twenty. One sales changes that Hayden has made or is making and and the hiring that you're doing you know we noticed some key hires that total hirings accelerating sharply as well and I've got one quick follow up play as well.
So let me let me take the first part of that and then Alan maybe you might want to talk about the sales hiring the ramping and I'll remind steve on something.
Something that I said last quarter as you know these these sometimes these little nuances. It's helpful to just reinforce it I wasn't expecting or I was expecting excuse me 2021 bookings to to lean even more towards the back end of the year than a typical year. So I didn't expect.
CV growth to accelerate in Q1 or quite frankly, even in Q2. So so so the the fact that HCV constant currency or as reported kind of dipped slightly in Q1 by about a percentage point what wasn't wasn't a surprise to me in terms of what I saw I thought the year would play out second.
Point on that you asked the question about how does the C V. How ACB accelerate its really its significantly impacted by the booking momentum through the year. So when you do have you know a year that starts out a little bit slower than we kind of we thought that all along.
Typical year, you will see the E C V you'll need more of the ACB growth towards the middle to the back of the year to get back growth rate up.
And.
Relative to some of the sales changes. So if you look on a linked Dan in terms of Peg is recent.
<unk> hires over the I would tell you the last.
<unk> for months or you'll see we brought in from really extraordinary talent. We are in a new head of Europe, who I think is off to a terrific start.
We brought in a very some very senior people in the Americas and I think we're pretty close to done with with any material changes and now we need to better down and turn it into accelerated revenue growth.
And accelerated ACD grubhub.
Great. Thanks, Alan and thanks, Ken and maybe a quick follow up so Alan I was intrigued by your comments about how.
How organizations are looking at cloud migrations and things sticker shock in some circumstances.
Obviously, not impacting pegged out if you just look at the numbers I'm wondering you know do you see that in relation to you know cloud native competitors in your space.
Or are you seeing that more generally I'm just kind of wondering about maybe some color about behind that comment.
Well I think there's more generally one of the things about the efficiency of running them for cloud is if you've got a group of engineers, it's really easy for them to spin up many system [laughter] than the bill than the Bill comes due so I I think it was really I was just making a general comment on the industry. The reasons to go to cloud for.
Frankly are not to achieve data center.
Savings.
Because it's hard to close down a data center I think are real reasons to go to cloud is for the acceleration of revenue.
Revenue ability to change faster ability to just be more agile.
Yeah.
In the alternatives and I think that will continue.
I just expect that fewer people are going to obsess about the data center cost reduction, but who knows you know it's hard to predict that in any case I don't think its going to affect us at all.
Yeah, Okay, great. Thanks for the color thanks, guys.
And now we'll go to Chris Merwin of Goldman Sachs.
Alright, thanks, so much for taking my question.
Wanted to ask your day about the margins in the quarter, obviously really strong number there I know you're investing in the business and that can be driving faster growth as we go through the year.
Can you talk a bit about what drove that beat and anything you can share about how you're trending so far this year relative to the full year guidance that you provided thank you.
Sure Chris So the beauty other subscription model when you're done with the transition is that the revenue isn't as as dependent on your performance in any individual quarter now with 606 and the screwing us of the way the accounting is around that.
And us having client cloud, which means that some of the accounting is under the term accounting model, we still do have a little bit more movement in the quarters than if we were 100% peg a cloud, but but I think the growth rate that we kind of thought for the year. When we originally started the year.
We didn't expect that to be kind of flat all year, and then a huge hockey stick in Q4 like it used to be when we were a perpetual business. So I think seeing that steady growth rate is really encouraging to me just to kind of just to confirm something that I that I knew would happen, which is as you exit the transition the revenue starts to really.
Get matched up against the a C D and I think Q1 is our is kind of a good indication that.
We're kind of hitting that stage now so that's exciting in.
In terms of the cost Chris.
We.
<unk>.
Sometimes you know the timing of hiring and the timing of events through the year, we'll sprinkle things between quarters. You know we are marketing spend we have travel spend which certainly is low under COVID-19 and we have just the timing of when new hires that we're as we're growing the organization start some.
Those things can kind of just flip between quarters, a little bit. So I think I'm I'm happy that we started off strong and EPS, but but I don't think that that suggests that the margin profile is different than what we originally thought.
When we talked about 2021.
Sometimes it's just the timing is a little different between the quarters.
Okay, perfect that makes sense and then maybe one follow up.
As it relates to that <unk> targeted.
<unk> 22, I mean, you know in terms of zone, you're still going to this in the past, but I imagine as cloud becomes a bigger percentage of the mix I mean, the overall ACB growth is going to track more closely to that.
Should we think of that as the primary.
Driver of the overall acceleration in ACB growth as we head towards the end of 2022 or <unk>.
Just wondering what else you know, what's being contemplated there whether it's an improvement in the demand environment or whether that's not even necessary.
You can in fact unpack some of those drivers and how you're progressing against that would be helpful. Thanks.
So in order to accelerate HCV a.
A couple of things need to happen. One you know naturally the investments that we've made in sales and marketing will come to fruition right and as Alan just mentioned a few a few moments ago. Yeah. We've we've had a lot of change in the organization for the good but that change you know naturally needs to anchor and I think.
That we have plenty of opportunity to meet or like.
To achieve or beat any of our ACB growth targets that we have it's really about us executing and executing consistently to be able to expand our relationships with the most important companies.
In the industries that we serve how.
How will that HCV growth play out NAV.
Naturally ACB growth tends to be a little bit softer in the first second third quarter tends to normalize in the fourth quarter because of the timing of our bookings and I think the biggest and most important factor for our ACB growth as Tiger cloud peg of cloud adoption is growing above 50% quite frankly longer.
Then I thought it would stay above 50% and I think that has been a really important factor to our success and we expect that growth rate you know to stay very high and that is the key lever I believe for us expanding and growing our client base and also accelerating our ACB.
Oh.
Thanks very much.
And now we will go to Steve Enders Keybanc capital markets.
Yeah.
Great. Thanks for taking my question I, just wanted to tell you a little bit about the investments that you're making and in the partner community and the channel community.
And how those investments in tracking and kind of how we should think about those going forward in terms of in terms of ACD growth and potential for accelerating that.
Alan could you repeat the first part of that question. It was kind of a glitch on my line.
Yeah.
Sure Yeah. It was asking about the other partner community and the channel and the investments you're making there.
And the ability for that to accelerate growth going forward.
Yeah, I think it's going to be very very promising.
Particularly in the future years, we've already very dramatically increased our partner stuff.
To really be able to enable the partners to understand peg them more and put it in more bids and we're seeing that happening Hayden is a big proponent of using partners extensively and I would say that we have are a record number of deals that have partners involved.
And a couple of different ways. So I think that's going to be key and that is a place where we've already hired a significant number of people to be able to deepen that for this year index.
Okay, Great and then just a quick follow up just want to get a better sense of some of the deals kind of came together in the quarter. It seems like there's a bit more of a focus on when you were talking about on the logo side at least for the past couple of quarters ago, I'm wondering how those kind of trends translating over to E.
The CRM side of the business ends and supporting those initiatives.
Well, what we're seeing activity on all three fronts that we really tried to go to market and we do a lot of work in customer service a lot of those are really sort of your antenna workflows that snap into a variety of channels in front ends.
Yeah, we we have what we call. The next best action capability, that's used by some of the world's largest companies.
Really optimize the response to customers and we have the intelligent automation, which is you know think of that as being the same sort of workflows power in customer service, but being able to do it in lots and lots of different settings. We've been low code at all three of those are frankly going back for men.
Decades.
We've been around we've always believed in a model driven architecture.
Which frankly is I think.
No code low code is truly intended to be and I'm pretty pleased and I think we're being effective in serving our customers, how we have a depth and sophistication.
They don't have to just use your low code for sort of crappy little systems.
Think back to Lotus notes applications, that's what a lot of it's low code for it but they can use some.
Our common platform to do those but also to do things that are truly enterprise scale and they have tens of thousands of concurrent users across an enterprise undergone and that threats I think is unique.
Unique to us.
But we're using the low code concept and term up really to power us across all day.
Other markets we go after.
Okay, great. Thanks for taking my questions.
Sure.
And now we will take our next question from Jack Andrews has meet them.
Good afternoon, and thanks for taking my questions. I was wondering if you could dig a little bit deeper into the partner side of things you hinted at this a re imagined partner program coming out on day for so I was just wondering I mean have you reached the point where partners are effectively committing to.
Go to market strategy, with you or Andrew or I mean could you just talk about maybe some how these how the partner deals that you're involved with right now are maybe comparing in terms of either size or just other characteristics relative to what you've historically seen with your direct sales efforts.
So I think there are two parts one that's really good and one that introduces.
From our point of view.
From potential timing questions. So we've already.
Been able to get major commitments from extremely large hop to your partners that theyre going to build highly material practices and better and you know it's interesting we're seeing things where.
Organizations are actually willing to buy small companies Omnicom recently bought a significant drag a partner to really beef up its effort. It is going to market the whole sort of advertising arena and so I think.
The other partners really really provide enormous leverage and we have seen a real reciprocation from them as we have been investing more in and bringing new people into <unk> to really drive those relationships.
[noise] difference I think between partner driven sales.
And sales that our sales organization is driving is that you you have a little less visibility and control into exactly where things are you have you you can't run around your partner.
Brian You went someplace you got a really respect that.
That can just lead to a little less clarity on exactly what the deal is but I like what I'm, saying and we're going to continue to double down on it.
I appreciate that just to sort of follow up with a broader question.
Can you maybe just talk about what are your expectations for a new logo growth here. In 2021 are you expecting sort of an acceleration of new customer adds coming out of the pandemic.
Well I think once we're out of the pandemic and everybody's sort of back it will be easier to achieve new logo growth.
But we are not at all limited in our existing logos. We are you know as I've said before.
When you think about our top 10 customers.
We're on average no more than 20% penetrated compared to what we think we were able to do with those customers from those tariffs, but I.
We are scoring new logos, including some pretty impressive names, but yeah looks for.
You said you're in a pandemic people are more likely to work with the people that they already know and so I think we're going to see that pick up as we.
And this year enter 'twenty two.
Got it thanks for the thanks for thanks for the color.
Sure.
And next we have Dan Ives of Wedbush.
Yeah. Thanks first congrats on the leishman sponsorship.
So could you maybe hit on.
From a marketing perspective in terms of for the the go to market strategy here.
Are you going to see more and more partnerships.
As well as just building out.
Some of the channel can you just talk about that especially given the broadened offerings.
Yeah. So we're we're definitely gonna see partners is being increasingly important.
To our to our go to market and that's an area that we've as I said already made commitments to have hired people and gone and gone forward. So that's gonna be quite material quite bigger than I think is a real force multiplier.
This agent likes to say.
Regarding marketing the golf, who could who could know that my CMO was going to turn out to be so brilliant.
[laughter] of selecting people for us to sponsor.
As Rotten Sleuth of Txdot and you don't have to you know leishman appeared.
Literally a winning the Zurich this past weekend and you know being shipped from the master. So yeah, I think he's doing sort of an outsize job and yeah. We're pleased that.
We've been able to do the sponsorship with her.
Yeah.
Great for me, maybe where there's no way you who he picks again and we can do just draft kings before that.
I've been asking him if he gave me Super Bowl recommendation for we haven't exactly okay. I'm just could you just hit on M&A.
M&A appetite is an increased just given.
The strength that you're seeing thanks.
Well, we continue to.
Look for technology or other sorts of things that would complement or tuck in to our value proposition you know, where we're not a company.
We and I think this is going to become increasingly important in the future are very focused on making sure. We don't destroy our architecture by buying your revenue that doesn't fit together and so in fact, we are much more likely to buy companies that are either early in revenue or in some cases free revenue, but that have very very creative.
Visions that would fit in to this concept of end to end set around work management. So we've got the resources to do it I would say that we're very.
Selective and I'm already hearing from a lot of customers.
We've worked with other organizations that Greg for you.
Call frankly sex.
They're really thinking that the technical debt is hurting them you know, even if it's running other cloud.
They really have not suffered with the seams so.
We have an appetite youre not going to see us going and trying to.
Frankly, I just saw economic.
Purchase, which there's lots of purchases out there, but I just think are a little crazy.
Great. Thanks.
Okay.
And now we'll go to Mark shovel of benchmark.
Hi, Thank you for taking my question just one question here most others have been answered with respect to our process fabric. Alan you know, it's been about a year or so now since the introduction of the the solution.
And I know last year was pretty much all about building pipeline for the product I was wondering if you could just address a little bit what your outlook is for a process fabric with respect to you know being a meaningful contributor to revenue this year.
Well I think process fabric as a meaningful contributor in a couple of ways. One is it itself as a source of some revenue, but the best thing.
Is that it lets you hooked together lots of applications.
So.
I.
Finding a way that you can create a single fabric as opposed to trying to either create some massive single system, which isn't the way we want to do things from a cloud world or how stuff that has to be manually cobbled together. So the fabric is really sort of an out of the box right.
<unk> introduced as last year, there was quite new it's now been adopted by several clients and I think it's gonna be a very important part of our go forward both.
In terms of itself, you know, allowing us to generate revenue, but more making it easier to drop in package systems or talk to other systems or even if they are distributed.
Okay, great. Thank you.
And next we have a Fred Haven, where hasn't Macquarie.
Yeah.
Hi, Thank you very much for taking my question. So I'm curious to ask a couple of questions actually around your pre configured product portfolio here. So I'd like to ask how generally or do you see yourself landing across your portfolio of pre configured solutions and where you're seeing the most customer traction there.
Okay.
So there's a lot of peso I'm sorry for from the moment.
From your Oh, Yeah, there's I would say a lot of customer traction.
In areas that involve things like Onboarding.
Yeah, because our.
People are really worried particularly in some industries about fraud, and also being able to manage claims because we've had some organizations that have had forbearance claims other types of things spike.
No. That's just something we're really extremely good at so for example, I don't know your customer pre packaged solution or some of our onboarding capabilities are things that we're seeing quite a bit of interest from.
Particularly from from banks.
Thank you that's helpful. There and then as a follow up as Hayden is is take a range across the sales organization.
Are there areas that you think that he would be interested in or peg a generally would be interested in adding to their pre configured or prebuilt product portfolio and perhaps also leveraging some of your experience with customer implementations that could really help to accelerate that go to market.
So I think there are areas, but as part of our new push with partners and you'll see them. These.
<unk> coming to market, we're really looking to get.
Sort of.
One or a couple of partners in each vertical who themselves specialize.
And have their own out of the box things because.
The reason partners like that is if they're bringing IP to the table when they are bidding on a customer piece of business.
Even your pet is going to be the underpinnings, but they're bringing a piece of the table than that frankly makes them more competitive. So that's a good way to for us.
For us to get this done without going through all of the expense of every day build it all herself.
Great. Thank you very much for that that makes sense.
Okay.
And now we'll go to Ian Kim of loop capital markets.
Thank you Hey, Ken going back to Steve's earlier question on the client cloud business.
Are you expecting a big renewal year for that business this year.
Obviously, it could potentially provide tailwind for that for the year or are you expecting some of the some of the client cloud customers to start moving over to the cloud, which obviously could limit some of the cloud client cloud ACD cool.
So good question unit out and I'm glad you asked because it's probably good for anybody listening to me so that I can clarify that so renewals wouldn't.
Wouldn't.
A large renewal years, let me clarify wouldnt impact a C V positively or negatively unless we up sold or radiated with that client if if you're a client moved from client cloud to peg a cloud during a renewal cycle or even in the middle of it that absolutely would reduce one and add to.
The other we don't have much of that going on right now we have a little bit and we certainly would like to see more but we're not we didn't we didn't think about 2021 as being a massive shift of people moving from client cloud the peg o'clock, Although we would love to see it I think client software.
That will happen for some clients over time, what it does impact the renewal cycle impact is revenue for term license because if you know under 606 that revenue from dead. When a renewal was essentially executed so renewals tend to be more backend loaded we do have a I think a fairly.
I would say I'm going to use the word normal, but a fairly kind.
Todd a typical year for renewals around client cloud. So we do have some revenue assumptions typically coming more towards the back end of the year, but we don't anticipate renewals impacting ACB directly because our retention rates are very high and if we did actually have clients that decide.
Added to move on to Peg a cloud from client cloud that would be that would that certainly would reduce client cloud ACB, but it would increase peg a cloud ACB by a larger amount. So I think that that would be a good outcome if that did happen, but but renewals are not a big factor in ACB specifically.
Okay, but typically when a customer's renewal day.
I'm, hoping that day renew at a much larger.
Yeah that would expand our credit deployment. So that's the.
That's the question.
Particularly that is that is that is true and that's why I had mentioned that our renewals tend to be more backend loaded and our bookings tend to be more backend loaded because I, because we do radiate with lots of our existing client a renewal is an opportunity. It is a compelling event to sell more so.
You're absolutely right there.
But I don't know I don't think it's sensible for.
<unk> us to wait for renewals to upsell the customer yeah typically in our agreements if we're able to work with the customer find greater usage.
There's typically a pricing schedule, where you'll see the a C V increase independent of the renewal.
Okay, Great, we'll do a modification to an existing contract is what Alan saying and that happens all behind that.
That makes sense. So so on the cloud side of the business.
Can you at least qualitatively give us.
How as you know how much of that business is driven by you know the.
The expansion rate and how that's been trending.
This new customer adds.
The peg a cloud.
From a dollar standpoint, the overwhelming majority of our ACB growth is from clients growing their spend with peg existing purger clients growing their spend with <unk>. So we do not we are not growing purger cloud with getting tight.
These are brand new logos that have never done business with peg.
The number that we've had is somewhere north of 75% of our bookings up our client business is actually business with existing clients and take a cloud has.
A similar I don't know I'm not dissected it at that level, but peg a cloud I might I would tell you, we'd probably have a similar profile to that so it is it is largely expansion with logos that peg a house.
Okay, great. So those expenses might be a new division in the department.
New projects those types of things and you know from my point of view those are very reliable projects because the customer already has for good experience and so they're just you know maybe they're just amping up the number of cases per year, they do or maybe we're adding on for example, decisioning or in Mexico.
The action to a customer who was our work management customer.
Okay, great. That's it for me. Thank you so much.
Thanks Alan.
Okay.
And now we will go to Pat well reasons of JMP Securities.
Oh, great. Thank you. This is Joe Marines had gone for Pat just one for US you know I wanted to go back for those sales investments and maybe how are you tracking from a sales productivity standpoint.
And then just qualitatively how are you thinking about the pipeline for 2021. Thank you.
Well I think of other things.
Positive.
Is with the introduction of Hayden and some of the other new sales management that we have we've we've really internally been able to create a much more disciplined cadence. So that you know, we're really I think getting frankly a better.
<unk>.
Observer ability of not just whats closing, but the bills in the pipeline and making sure things are properly categorized in making sure that offers a thought of the right way. So I think I'm I'm encouraged that starting Jan one. So some of these changes are really only happened.
Yes.
You know three or four months, starting Jan one I think we've got a much better up.
Selling discipline.
As a result of not just hate them, but some of the other team members for these broader so that makes me feel a we will have good visibility into the productivity as we go through the year and be.
Very much like what I see about this improve.
Marriage with the seller engagement.
And just to add one just out of a little color on another part of your question you know our pipeline not only is growing healthily at a healthy clip year over year, but to Alan's point.
We also believe the quality of our pipe is better now and so the so the combination of higher quality and growth in pipe you know really creates an environment to see that sales productivity improvement in the future.
Yeah.
Awesome. Thank you still have cash.
Thank you.
And this does conclude today's question and answer session I would like to turn the call back to Alan Kessler for any additional closing comments.
Thank you Oh, I hope you all get a chance to visit peckerwood inspire.
Next week, it's gonna be a terrific show and I think.
There's a there's a lot that's going on and I think people would find it really interesting.
Relative to our investors I want you guys to know that we're all working really hard.
And I think for team is energized about where we are so thank you all and look forward to talking to you in the Q&A Tiger World volume.
One.
And this does conclude today's call we'd like to thank you again for your participation you may now disconnect.
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