Q2 2021 Pegasystems Inc Earnings Call
Ladies and gentlemen, you currently standing by for the payer systems second quarter 2021 earnings results call. At this time, we are still admitting additional participants and plan to be underway shortly.
We do appreciate your patience Inc. Please remain online.
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Yeah.
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Good day everyone.
And welcome to the payer systems second quarter 2021 earnings results call. Today's call is being recorded at this time I would like to turn the conference over to Ken Stillwell, Chief Operations Officer and CFO. Please go ahead.
Thank you.
Good evening, ladies and gentlemen, and welcome to <unk> systems Q2.2000.
From 'twenty, 1 earnings call before we begin I'd like to read our Safe Harbor statement certain statements contained in this presentation may be construed as forward looking statements as defined in the private Securities Litigation Reform Act of 1995, the words expects anticipates intends plans believes will.
<unk> could should estimates may targets strategies projects forecast guidance likely and usually or variations of such words or other similar expressions identify forward looking statements, which speak only as of the date of the statement was made and are based on current expectations and assumptions.
Because such statements deal with future events, they are subject to various risks and uncertainties actual results for fiscal year 2021, and beyond could differ materially from the company's current expectations factors that could cause the company's results to differ materially from those expressed in forward looking statements are contained in the Companys press release announcing its Q2.
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 to place undue reliance on such forward looking statements as debt.
And there are no assurances that the matters contained in such.
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 the rather as the result of new information future events or otherwise and with.
I will turn the call over to Alan traveler, founder and CEO of Peg a systems.
So as you can and thank you to our shareholders I'm pleased with our results for the first half of the year and they reflect the strong demand for our digital transformation technology and our continued progress.
That's a recurring revenue model, our total HCV, which we consider to be the best indicator of our performance increased by 22% year over year as our backlog continued to grow as well.
The trend that we're seeing really strong cloud adoption led by Petro cloud, which is the majority of our new business.
George complemented by great success in client cloud.
Now as parts of the world begin to emerge from the acute conditions of the pandemic digital transformation remains at the forefront of our clients' priorities. It's.
It's more apparent than ever that there is no straight line back.
MS, who are pre pandemic environment and client I think our understanding of the need for agility and there is more important than ever if theyre going to thrive in an increasingly unpredictable world.
We're also benefiting from a renewed interest in workflow.
Category, we helped pioneer and it is being heavily discussed.
And the market.
However, we believe that our low code platform and.
Our outcome centric approach to work flow truly differentiates us and uniquely positions us to help our clients solve their business complexity, while maximizing flexibility and delivering excellent.
Back to you now and in the future.
Our strategy is to continue to focus our efforts on building solutions and an ecosystem directed at improving efficiency usability accessibility and time to value.
When we last spoke we were days away.
Value of pedal world inspire user conference and saw several significant amounts of since we launched the next major release of Infinity that includes enhanced low code intelligent automation and AI capabilities.
This newest version empowers business users to deliver differentiated user experience.
Ive images with powerful development capabilities that deliver digital transformation.
Scale for even the largest and most sophisticated global enterprises.
Using a centralized approach the latest enhancements help improve backend process efficiencies streamline front end customer.
Experience processes and enable real 1 to 1 customer engagement to drive meaningful and lasting transformation.
Employees can work smarter to drive impactful outcomes, while end customers can enjoy faster easier and more personalized experiences.
Truly help our customers.
Deliver satisfaction and loyalty.
We also launched our new streamlined per partners program designed to help clients rapidly accelerate their digital transformation initiatives.
Easily identifying the partner that best fits their needs through new distinctions.
In addition to the implement.
Implementation of all of our partners have historically played the program makes it easier for them to engage with us and join solution development co sell and even on incentives from referring clients.
This is the second year, we held peg a world inspire virtually.
And we were able to incorporate a lot of learning and innovation.
To make this year's event, even more engagement I hope many of you were able to join live work can still watch from replaced after more than a year of essentially all global events become in virtual we had some concerns about digital event burner, but we had a great response with more than 18.
18000 attendees from almost 800 unique client organizations.
Additionally, since the live event, we've seen more than 16000, a replay of years significantly broadening the impact and effect of the content.
As successful as our last 2 virtual Padua wheels have been.
We are looking forward to being back in person in Las Vegas in 2022.
Hope you'll be able to join us.
Now in terms of new business and some of the client work we've been doing in Q2, we continued to say I see a good mix of business globally within our key verticals and a cross all.
3 major solution areas, while making some inroads in some emerging spaces.
We continue to see both net new business and expansion of business with within existing clients indicative of the continued opportunity to extend our footprint within our installed base.
I love winning business, but I'm still most.
Excited by seeing the great results, we've been able to help our clients achieve many of whom did share their stories and pedal world in may like.
Top 10 Global Bank HSBC is following a highly successful deployment of peg a marketing and real time Decisioning in.
Earlier by using Pentagon across the entirety of its retail banking and wealth management customer base there.
They are maximizing we use and deploying to a number of markets across multiple sales and service channels and this resulted in significant improvements in customer and colleague experience as well as revenue.
Plus book.
Blue Shield of California is lowering cost per customer while growing in the highly competitive California market. They are improving customer service to deliver personalization with every engagement.
Reading, an integrated service model that thrills, both customers and staff.
What's it 500 insurer insurer Unum has successfully implemented hedge on natural language processing to support 1 of its largest contact centers, providing business users better insight into the types of request being made by customers.
And UPC, Switzerland.
The country's largest cable operator.
And part of the Liberty Global group is responding to the challenge of massive changes in the telecoms industry, Pat just helping you be safe with a radical digital transformation.
Seamless customer experience across channels.
Keeping cost down and productivity up.
You can hear more.
These successes directly from our clients.
I Watch Inc. Peddled world inspire replays on our website just click on the events tab on the homepage and I think you'll find it really worthwhile.
No no permanent operational perspective.
We continue to Hunter strategic right.
Attracting talent from peers and competitors, while we invest in.
And retaining and developing our own high caliber team around the world I continue to be impressed with the tasks and a commitment and passion of our team has shown to get us through these new challenges and to show new things to our clients.
We're about we're just starting to support travel and allowing people back into offices as of course local conditions and regulations allow while prioritizing the health and safety of our staff clients and partners.
Now look we all know the pandemic has had a profound effect on how we work some of it.
Very challenging.
But it's also stretched our limits in positive ways and we found innovative new approaches in working together with our clients to become an even tighter and more connected organization.
Many of these changes will persist and continue to being positive change going forward and.
We're seeing with many organizations around the world that we've collectively learned that we can be much more flexible than we thought possible.
This creates new opportunities.
From everything from recruiting to retaining the best people to being able to engage differently with our clients.
You may have seen that our headquarters.
It is building in Cambridge.
Suddenly sold and we are ending our lease there rather than simply find another similar space in Cambridge. We took this opportunity to rethink what are worth workforce would look like in the future based on employee surveys and discussions with peers.
As a result, we're leasing a smaller headquarters.
Cambridge that will include a state of the art client briefing center.
And also a second space west of the city in Waltham, which we're building out now and will be custom designed to support our future workforce.
We also in the region have beautiful offices in Salem, New Hampshire North of.
The city.
We think for example, this approach will give current and future staff more options for wear to work and support a flexible work environment that we see employees seeking we believe our officers should be a magnet not a mandate and that this approach will benefit our recruitment and retention.
There is interest.
So in summary.
I think we're executing well on our strategy and this is reflected in our results from the first half of 2021, we're making terrific progress on our transition to the recurring revenue model.
Our clients are leveraging our software to address both immediate and short term challenges.
Oh, Wow, that's preparing and building for long term opportunities.
I think we're making the right strategic investments to take advantage of a heightened focus on digital transformation.
And we have our unique outcome driven workflow.
That will enable this to be possible all why we all while we are collectively.
I think to judiciously manage margins.
And we continue to see significant opportunities among both our existing and new clients.
To provide more color on the financial results. Let me now turn this over to our C O O and CFO Ken Stillwell.
Thanks Alan.
For those of you who are interested.
I'm excited to say that since my 20th earnings call as Peg as CFO are the economy is that certainly looks like its recovering and we continue to execute well on our cloud transition.
During this transition there are 2 key metrics debt.
I've mentioned that are how we measure our business success. The first key metric is the growth in annual contract value, we call ACB ACB growth represents the annual contract value of recurring arrangements between Peg Inc, and its.
Clients I'm really excited to see Q2 finished with ACD growth.
22% year over year inclusive of a 3% to 4% tailwind from FX total ACB reached $899 million, an increase of 161 million from the same period 1 year ago.
Biggest contributor to our ACB growth was peg a cloud peg a cloud ACD grew by.
A total of 46 per cent to 307 million client cloud ACB grew by 12% year over year, reaching $592 million. The second metric to measure our business success. During the cloud transition is growth in remaining performance obligation or backlog.
Total backlog.
Log at the end of the second quarter crossed the $1 billion, mark to $1 billion and $30 million.
The increase of 26 per set from a year ago the growth in current backlog, which is backlog.
1 year the growth in current backlog, which is backlog of 1 year or less.
And also strong increasing 23% to $567 million over the same period powered by current peg a cloud backlog growth of 47% with these ACB in backlog metrics in mind Q2 was a solid quarter.
And it was sequentially.
Better.
What was the Q1.
As I explained last quarter, our cloud transition includes 3 major phases.
Currently in the second phase of the cloud transition I call. This the revenue growth transition in the first few years of the cloud transition our revenue growth rate decline as new quite commitments transition from perpetual license agreements.
Better than subscription arrangements most of these new arrangements most.
Most of these new arrangements, our subscription bookings and go into backlog for recognition as revenue in future periods. For example in the first half of 2018 and 19 Peg is total revenue growth rate declined year over year. However, once a company.
Past the midpoint of the cloud transition revenue growth starts to accelerate again and could even exceed the ACB growth rate, which is what <unk> experienced in the first half of 2021 total revenue in the first half grew by 30% year over year, reaching $639 million. This is the fastest total revenue growth and peg as does the <unk> business has experienced.
And over a decade, when comparing first half revenue of the current year to first half revenue of a prior year. However, it's important to point out the total revenue in the first half of 2020 included the impact of the pandemic are slightly lower renewal period, and the revenue trough of being in the middle of the cloud transition.
Subscription revenue for the first half of the year was $511 million or 37% increase from the same period, 1 year ago subscription revenue, which includes peg a cloud term and maintenance now contributes about 80% of total revenue up from just over 50% when we started the cloud transition.
In late 2017, you'll notice that we disclosed in our 10-Q that in the second quarter of 2021, we had a large existing client that renewed an existing multiyear contract also expanded their use of peg a software and extended the term of the agreement earlier in the.
Sure.
We had anticipated the accounting for this deal under 606 led to over $30 million of reported revenue in Q2, which would have otherwise been anticipated in future periods that deal was the biggest single variant to our expected revenue results for the quarter and the first half.
A core element of our go to market strategy is to increase sales coverage for our large target accounts win new deals and cross sell and up sell into those client basis. Our first half results are just 1 more proof point that our strategy is working some of our clients are doubling or tripling down on their pegging.
Investments because they need a low code platform to help them advance digital transformation initiatives and improved workflows. As a result, we plan to continue to invest in technology leadership and additional sales capacity as we win more than our fair share of the $65 billion plus market opportunity.
Transformation.
Our non-GAAP earnings from the first half of the year was 42 million or <unk> 49 per share. This improvement resulted from a combination of solid revenue growth and improved expense management. However was impacted by the large term deal in Q2 I want to reiterate.
That ACB in backlog are the 2 most important growth metrics for the business Peg a cloud is our software as a service offering for these customers we manage the cloud infrastructure on behalf of our clients client cloud revenue includes revenue from maintenance and term license contracts. The client manages these deployments.
On the infrastructure of their choice.
The final phase the cloud transition is the cash flow transition, we expect our cash flow will normalize in the coming years and has already improved in the past year. We believe it will be important to balance growth and profitability over the long term, we think of the world.
40 metric the combination of ACB growth and free cash flow margin to calibrate the trade off between profitability and growth. We continue to expect that as we complete the cloud transition in 2023, we will make increasing progress toward that goal in conclusion. This was certain.
Roy solid quarter on all fronts.
Operator, please open the line for questions.
Thank you if you'd like to ask a question at this time. Please press star followed by the number 1 on your telephone keypad, if you're calling from a speaker phone. Please make sure. Your mute function is off to ensure you're saying how can we share equipment and.
Certainly its star 1 to ask a question first we'll go to Chris Merwin from Goldman Sachs. Your line is open.
Hi, This is Kevin on for Chris Thanks for taking my question.
I had a question around the partner channel given you've had several changes in the way that you collaborate with your partners are.
Are you seeing any early signs of improvement in engagement.
Thanks.
So this is Alan I think the engagement is visibly more intense and we've added to that team to be able to work more closely with partners and I will tell you that the level of partner engagement on.
Actual deals and prospective opportunities are both visibly so I'm feeling good about the <unk>.
We're putting in our partners and obviously, we need to continue to cultivate and develop that but we're hearing from them a lot of enthusiasm about cargo which is great.
Thanks.
Great and then.
1 more from me great to see ATV growth accelerate.
Curious about kind of the CRM side of the business how has deal activity been it's been in that segment and kind of what types of use cases are you seeing with your customers.
Well you know for example.
That big expansion that we talked about I think is a very squarely in what people would consider to be a set of CRM and broad CRM use cases, I think CRM of course, it means different things to different people, but the significant majority.
Majority of our software is used in ways that positively impact.
Customers, while trying to save a place the other customer or client money and those are just going to continue and we.
We see a lot of interest and a lot of hunger for continuing to improve customer engagement.
Great. Thank you.
Next we'll go to Jack Andrews from Needham Your line is open.
Good afternoon. Thanks for taking my question I wanted to ask.
Alan you mentioned.
<unk> interest in workflow in your prepared remarks, I was curious if you could drill into what specific types of use cases are you seeing customer interest and on that front.
And so I think it varies a little bit by.
By industry for example in the healthcare space the conversations in many cases are around.
How do you improve care management and population health to to make it. So that for example, you can both make.
Well I was better at the same time that you're saving money.
Which is the best of all possible worlds.
I'd tell you in financial services, which has been and continues to be a strong area for US also the workflows are about trying to get.
A lot of people used to refer to as the middle office out of the picture and.
People, who are saying that with a high level of automation. So that you can go directly from a <unk>.
Multi channel omni channel need all the way through execution, whether that's through a packer front end or by plugging us in to 1 of the other channels.
I've never loved the word workflow to be honest, though.
It's been Popularised of late and we are really outstanding at it I've always Preferreds Award work do because you don't really want to flow. The work around you really want to actually execute and do it and that is truly where we excel and frankly I think we're miles beyond lots of other people who.
We have been.
Our claim to be in that space. So.
I'm happy to have that word become more prominent.
And I think that it plays to our differentiation.
I appreciate that and just as a follow up question could you update us in terms of your hiring plans for the year and any metrics in.
Just a you know.
Productivity and things like that and how we should expect the balance of hiring to unfold throughout the year.
Well I'll turn it over to Ken from the numbers I'll just comment that you hired you do in a given year is really to be honest about improving productivity for the upcoming ones.
Right. So you know you don't.
In terms of certainly as you enter the second half anything we do is not going to be seen as productivity until we get it sometime into next year.
Being the nature of Onboarding et cetera can you want to comment about how you think the staff numbers are going to look.
Yes, sure so Jack we had we.
We were targeting kind of.
Just round.
Certainly for us around kind of the 20% increase.
Selling capacity I would say our target for the year is not.
Our off of that number I would say that we're a little bit we've grown a little slower.
In the first half of the year, it's not linear in.
Nominal growth.
So whether we actually achieved that growth rate by the end of the year, it probably might be a little less than that just because of the.
The competitive market out there and we.
We were a little bit more I would say.
Thoughtful about hiring into the back of the year in the first quarter because.
In terms of what's kind of still lingering a little bit, but certainly where you know the economies holding up really well our clients are very active and like Alan said hires that we do this year you know even hires that we bring on in this quarter are just really starting to have a chance to impact next year, that's really a higher for 2000.
23, so we really need to keep the growth rate up so kind of think of that number probably a little short of 20 per cent for the year.
Got it thanks very much.
And next we'll go to Mark Murphy from J P. Morgan Your line is open.
Yeah.
Yes, Thank you very.
Covid.
I'm interested in whether you have any metrics you could provide that that might help us just understand your scale of adoption and the low code market for instance, how many.
Peggy users or how many seats do you think you have that would say that they are citizen developers they kind of.
Much business side, rather than on the <unk> side, and just what does that mix look like for you in terms of seats on the I T side versus the business side.
So the work that we've done actually from the past 24 to 36 months. If you go onto our website and you look up what we call our Purger Express methodology.
Sit on the and you actually look at some of the short videos are customer testimonials or other things you'll see that we have really worked.
To make the technology accessible to the business.
And the real key for us.
As our software is designed to be accessible for the business.
Business, but not to do little sort of.
What I would describe as kind of tiny toy solutions that might almost compete with spreadsheets. That's not that's not where we're we think the needle is going to get moved for material organizations. So if you take a walk.
<unk>.
The.
Latest release, we have $8.6 which we just.
Announced at Peg a world and are now actively shipping up we've got dozens of clients who are in the low code.
Factory space trying to set up factories.
Our there.
Quote citizen developers or their populations to be able to both build apps, but also really facilitate a collaboration between the business and it.
Where they can reuse things that it provides but do it in a way that has the right sort of security relative.
Reliability and other types of things built in.
When I listen to.
Some of the low code mantras. It just sort of brings you back to the areas of.
The Lotus notes and power builder in all sorts of other things.
Frankly ended up having a bit of a let's just say limited.
For necessarily fortunate life per rep, and what I'm excited about is that we've been able to empower those sorts of business developers, which I prefer as a better words and citizen developers, which sounds a little sort of <unk>.
Article.
But being able to really empower those developers to participate in a completely different way.
Not instructive way on things that are going to end up being important apps for their organization and theyre going to be things that can start small and grow at a real big and we have you know.
I'm thinking of a couple of my Fortune 50 customers, who actually have these sorts of developers who have built more than 500 applications.
And are running.
Substantial numbers of apps that are being used by tens of thousands of staff in those organizations. All powered by people you wouldn't think of as traditional I T at all.
Okay. Thank you very much.
Thank you for that Alan.
Also on.
On the customer.
And Workman segment following up on that.
<unk> from Chris Merwin team.
I think I'm trying to understand where did you see the strongest growth factors and Keith you would be more of the customer service and support more than the sales automation or the.
The other piece that does like the cross sell.
We're engaged best action piece.
Client to understand what is getting prioritized as the economy reopens and starts building momentum here.
A lot of a lot of next best action, coupled with service and end to end fulfillment.
There's a lot of people who've seen the book.
The next thing wire in their internal operations and know that they need to really makes us better.
Trying to make things more efficient and.
That is primarily something that has to do with customers.
He is about an efficiency play and about an automation play.
Inside those.
Those words, so I'd put it very much more in the sort of.
Fulfillment and.
Deepening client relationships I think a lot of organizations have realized that the way theyre going to get their sales as in many cases is gonna be by deepening existing relationships.
As opposed to necessarily going out after a whole sorts.
New companies and we're being used heavily in those sorts of environments.
Okay understood and then I just had a final quick 1 for Ken.
I think.
It's kind.
You spoke to the kind of the Mega deal that landed in Q2.
And so it helps us.
Stan why that term license line can show so much volatility.
It almost looked like it might have gone a bit beyond that can you help us understand.
When we look at the upside in that term license line, how many distinct deals maybe are driving kind of that.
Under the full magnitude of upside if you will.
So.
Maybe maybe I might.
Maybe answer your question and kind of.
Maybe a little a little more direct so I'll say.
I think that some of the view.
That was our Q2 revenue, we're probably a little conservative in the term line. So let me start there.
We you know we don't guide, but we certainly saw an opportunity to perform well on the term line. So that that would be 1 statement I would make and absent that.
<unk> 30 plus million dollar deal there as you know in a typical quarter youre going to have.
<unk> deals are so that contribute to revenue in a quarter, but only and only a very small number of them that will contribute say over a million dollars in a quarter. So.
You you don't think about Q2 is like the big deal plus 2 more it was more that I think that there was probably a more of a.
A lesser expectation on that term line than maybe what we thought might occur in terms of the.
This.
1 of the sell side targets so to speak.
Yep understood very clear thank you Beth.
Yep.
And next we'll go to Ricci jewelry from RBC. Your line is open.
Hey, guys. Thanks for taking my questions and nice to see a continued.
Solid execution I wanted to start off by maybe drilling a little bit more into the a C V. In cloud numbers, because we did see a bit of a drop off and pick up cloud ACB growth rates and look I understand the story about cloud choice, but maybe if you could help us understand that as well as the slight diesel that we saw in the cloud revenue side.
What.
Were these were there any factors that you'd call out in the quarter and should we expect that line to maybe reaccelerate over the over the coming year, and then I've got a follow up.
Yeah. So let me take that 1 Alan so yes Rishi.
And I realized you know that we just released earnings like an hour ago. So you guys need time to digest all the.
Numbers before you know it takes it takes more than 30 minutes.
But I will highlight 1 thing the actual growth in Hagen cloud HCV sequentially. In Q2, what was was I think maybe like the biggest quarter, we've ever had and take a cloud.
Absent a Q4. So it was it was a very strong quarter in sequential peg a cloud ACB growth here's what's happening you know have a big denominator when you're doing these for these growth numbers right and so by definition growth trying to keep a 50% growth rate into.
When we're getting 300, 400, 500 and $600 million overtime of Peg a cloud ACB.
<unk>, probably be an unrealistic expectation, but what I would say is that also that number is a 12 month number and does does have some you know depends on.
Sequential or excuse me prior.
Your year quarters, and how that works out, but what I would tell you. Though is just look at the sequential Q1 to Q2 growth in HCV I think if my math was right. We grew peg a cloud ACB something like $25 million and we grew client cloud something like $21 million of NASA those that growth number pretty remarkable growth.
Growth numbers, but I don't think there's any.
Weakness at all or any.
Thing that that we should be thinking about for peg, a cloud or cloud or ACB in general I, just think sometimes the math gets a little bit kind of screwy, depending on which quarter and also we got a bigger we got a bigger base number that's.
Really what's happening.
Okay, great now that that that makes sense I totally understand.
And then following up just on the ACD line, you know, it's nice to see a CV growth tick up.
A point or 2 on a constant currency basis from last quarter am.
I imagine you you still have ambitions to not to see it get back up to that 20% mark that it.
Pretty consistently above it but accelerated further from there can you maybe talk about what what what kind of the roadmap to get drive that reacceleration looks like and what sort of progress you're seeing on some of those initiatives, including the improvement in sales motion and better leveraging the partner ecosystem.
Well I'll take 1 piece of that now and feel free to add any any color here. So.
In terms of 2021.
Versus say 'twenty 2 'twenty 3 'twenty 4 if you think about the difference this year right.
We absolutely are expecting our E C V growth.
Constant currency to.
Just stay kind of at that 20 per cent and hopefully even north of 20% number. So that's certainly our expectation and our hope for the year now I don't think you're going to see much opportunity to accelerate HCV Ah in 2021, I just don't think it's it's just.
You know, we got a new <unk>, we got a new sales leader that their new go to market leader that came in last year. We've got changes we've got a new partner motion going on is as you know I don't think it's realistic to think that that's a 2021 big impact maybe maybe I'll be wrong and I'll be happy to be wrong on that but I, just think setting expectation 22.
3 are years that we should really see the benefit of the of the great work that he and his team are doing to really build some of those additional kind of relationship connections that lever points like the engagement with our partners.
And they're in really pushing the tighter operational cadence.
Those are those things that we are where we're hoping and expecting to see an impact in 2022 and beyond but I would say for 2021 I definitely am looking for HCV to improve over where it is now but I don't think to think that it's going to be a big acceleration probably is a little bit.
Unrealistic, given where we are in the in the in the growth curve.
Got it okay.
I'll start.
Just to add a little bit of color to the future I think cash.
Zero on 'twenty, 1 just represents where we are in the year and the recency of some of the changes we've.
But if you go take a look at the linked in and see the senior people that we've added from some pretty.
Remarkable other organizations, obviously, we're bringing on we brought on.
A lot of new and very senior leadership across the across Europe and the APAC.
Pac region. We've added we've added in the Americas up we're bringing these people on because it's our belief that the market has the potential to grow faster than.
Is that in the past is there is nothing that we would say differently about what we've been saying that the goal clearly is in 'twenty, 2 and 'twenty 3.
They get a return on that talent that we've been bringing in.
And we will see how we do this year you know they've got it but a little bit of a past because it takes some time.
To bring things up to get people up to speed, but also.
You'll get an organization moving but I'm very excited by the some of the talent that we have.
I would say not just fine, but really attract.
So are you more excited.
Yeah got it that's helpful and last 1 and I'll hop off but I.
D and getting the right talent.
You know, maybe if you could talk a little bit about what you're seeing from from that perspective, and you know if if I recall correctly you know if we rewind the tape back to the depths of the pandemic right in in April and in May you kind of made this deliberate decision to me you know keep keep kind of hiring and not.
Put on a hiring freeze not slow down hiring to take advantage of the environment can you talk a little bit about how some of those hires have panned out in and maybe what sort of position that leaves you in relative to if you had put on a hiring freeze like many many companies in software had.
So I think that was 100 affects us in a variety.
City of places and in a variety of ways.
Think about we were just talking about go to market.
I believe we've been able to put together routine debt.
We'll have very exciting prospects for us over the next several years from a product point of view.
We've talked to peg a world about the continued.
<unk> of what we had announced a 2 and a half years ago with project Phoenix, which is the real.
The continued motion of our products to be state of the art and seen in newer and more exciting ways and I loved what we were able to show peg a world and concepts that we.
The idea of a process fabric being able to ensure we've processes across systems, including nonferrous systems.
As I believe exactly on target and those sorts of concepts some of the new work, we're doing in terms of working with both highly advanced Peggy.
And being able to handle this digital experience API that can work in other settings et cetera, I love, what we're seeing and I spent some time on the website I think you'll hear from just tremendous.
Okay studies that are all being empowered by being able to bring the right people on being able to grow the product.
Have the culture overall, and our go to market, so I'm feeling pretty good across the board.
Alright wonderful thank you guys.
And next we'll go day, Steve Coning from NBC Nico Your line is open.
Hi, gentlemen, thank.
Product I've got 1 for Ken and then.
1 for Alan a multipart question.
So can you.
You talked a little bit about what the quarter looked like taking out there the big term renewal.
So we heard about it wasn't a quarter driven by other whales cloud was strong sequentially.
Ex that term renewal any color you can give us on duration cloud mix in your business.
The conversions to cloud I think you have some big ones in the year ago quarter, and then I got 1 for Alan.
Yeah sure Steve So.
It was a it was a slightly.
Hey, good cloud.
<unk> was a little over 50% of new client commitments, you can kind of see that if you look at the sequential ACB growth you know what I mean, you can you can cut out a little bit it wasn't it was somewhere in the kind of mid fifties I believe in terms of the amount.
The amount of new peg a cloud versus <unk>.
On the cloud.
No.
Migrations of size, that's not how we did it.
We are always talking to clients, but there wasn't any big shift that would have driven that number.
The duration is not an impact to revenue at all we didn't do anything.
Typically sell.
L..3 year deal, that's kind of the standard and clients renew for like terms or sometimes slightly.
Short term terms.
In terms of you know in terms of the renewals so nothing weird happening there.
At all so I would say looking at the.
The number Steve no migration and no impact from Oh, sorry, and slightly more than 50% impact.
Impact from from Peg a cloud in terms of debt and Steve you know not not from I would.
Feel the need to defend a renewal, but I guarantee you that.
You know very substantial deal.
It did come in a little earlier in the year than we might've expected in 1 big lump.
[laughter], calling this a renewal with a major understatement. This was a very.
Very meaningful reflection of our competitive position.
Physician, Inc against topline competitors and 1 of the biggest and most important companies in the world.
Ended up deciding that they were very much in with better.
And so.
<unk> is a renewal I think under shoots it by more by the majority just.
I Gotcha very helpful very helpful. Thanks, Alan.
And then Alan maybe 2 topics for you that might be related so I'll ask them both.
You know when we talk about workflow or as you say work do.
Competitors talk about automation they talk about integration.
It became about machine learning.
You guys have.
Technology that is.
Leading edge for automation in Decisioning.
Don't talk as much about integration I kind of wonder what's your.
Kind of what's your what direction you're headed there.
And and then I'll just ask related to that.
Other things that could be enabled by FX can you give us any color on your thinking about builds.
Building, an application ecosystem, some kind of marketplace.
You're looking at some kind of multi tenant I E R.
Would you stick with your current approach.
Approach.
Any thoughts there about stuff that would be enabled by FX in terms of your ecosystem, where client development that would be really interesting.
Sure so what.
What I will tell you is that.
To start with the last Betsy after next part.
Is.
It really represents and we talked about the very broad gang and evolution of how we want.
We want to go forward and.
We've done this numerous times before.
We've been around a long time and have seen lots of technology transitions. So I think we've got an unusually.
Julie good not just.
Understanding of the types of things you need to do but understanding how to not lose a customer base hopefully in the process of doing it and so.
We've talked about how FX will as it as it continues innate.
Enable multi tenancy as an option for.
Simple not that I think our major standalone customers are going to want to run.
And necessarily their own tenant, but certainly being able to support that gives us additional options.
That's been on our road map here and we've been doing the work to be able to support it relative to being able to support a marketplace.
Yes.
I think clearly stated that supporting the ability to develop purger based components and being able to have them available and shippable and sellable by other parties.
As a very important part of this Phoenix journey and if you take a look at what's actually been deliberate this is not some.
We designed waterfall approach this really is a lot of iteration.
Bringing many of these capabilities into the 4 right now and you can see a lot of it in 8.6 youll be able to see more of it in 8.7 relative to it.
Integration, we are so deeply integrated in our customers and it is so central.
To what we do debt, we almost don't talk about it because we do integration like we were falling off a log it's just absolutely standard and you can't do the sort of automation in the sort of end to end service we do.
With.
Out.
Being able to integrate easily and what I love is the way that we integrate actually insulates. The cloud workflows are insulates the decisioning.
It insulates it from variations in the backend systems, so that average.
Remember talking to a CIO.
With standardized at a very very large company on S E T and said that they.
They had 4 identical S E T instances.
And I said really identical and they said well kind of well we make those systems all look identical to the various supply.
Fly chain and other service related processes that we do and they can now modify adjust full dose together acquiring another company.
And our integration is built into our architecture and frankly I look at pretty much everybody else that's out there.
It's an add on.
I mean, your sales force how to go buy.
By another company to add on integration ours is really part of the peg a model and so maybe we should mention that more Steve I don't think were getting enough credit for it.
Got it okay. Thanks, a lot Alan Thanks, Ken.
And next well go to Pat Walraven from JMP.
Your line is open.
Oh, great. Thanks, and let me add my congratulations.
Ken.
On a constant currency basis ACB growth is still below 20% right. So.
Is the sales team humming the way you want it to be and.
If not what are.
Secure top 1 or 2 things that you can get it to.
The point you wanted to be at.
Well.
First off of course of course, I wouldn't call it humming.
We are not your sales productivity in terms of ACB.
Gross.
That's compared to our sales and marketing expenses, not where we want it to be so I wouldn't I would definitely not say, it's humming I would say Q2 was.
A very strong quarter for our sales team and I think they should be you know you know how it is with quarters right. I mean, you celebrate for exactly 30 seconds. Then you start the next quarter.
Growth I do think our sales team performed well in Q2 and in all of our regions quite frankly, so so I definitely think good Si that's exactly 1 quarter, but it's a good sign I think that Hayden and the cash.
Debt has been brought in is certainly promising Alan mentioned that earlier I'm very excited.
About the team that we have and the.
Potential to really see that turn north end up in a meaningful way. So I would say more optimistic now than then.
And then I have been that said no I'm not happy with our productivity from the sales and marketing spend nor as Hayden. So we certainly have worked.
Work to do there.
Okay. That's super helpful. And then this is I don't know if you can address this 1 but.
And I know you guys don't update your guidance, but 25.
125 billion for the year.
I mean, you're already at 49.
Just the first half of the year.
So.
Big picture thoughts you can share with us in terms of how.
To think about Q3 and the year.
Well, so 1 thing I would say is certainly having a a deal of the size that we had have revenue being recognized in Q2, where it otherwise would've been record.
And as you know.
Later in the year or later in later periods.
Certainly doesn't necessarily change a year theoretically in that model right, but it does change the distribution of revenue and EPS between the first and the second half so that you.
You can't you almost have to take that deal out a little.
Bit in debt and see what you think about you know what I mean, Steve that I did not.
I mean path that is that's kind of my thinking on that if if if naturally if we knew something that was that was materially different we would yeah. We would certainly have to reevaluate whether that was meaningful or not but.
We're not a business that is kind of you know we have with 606, there's some variability there and when revenue is recorded naturally when revenues recorded that impacts EPS.
I wouldn't I.
I think 1 of the biggest mistakes that people can make is looking at a you know a quarter or a half a year and then just extrapolate.
<unk> like where Starbucks or something right. It's not that so that's probably the 1 message I'd like to make sure people don't jump to that conclusion kind of it's almost like you're struggling or the lumpy word which I normally do.
[laughter].
Alright, great. Thank you this 1.
Yeah, that's lumpy as a fair word.
And I think that you just got it you know we gotta just remember that I don't look at it.
Is nice even if the $30 million have come in at a you know.
Small or more typical deal size.
You know the quarter wasn't good anyway, so I feel positive about that.
I'd say Ken is absolute.
Absolutely right about not getting carried away with considering 1 quarter, a trend or if anything we'd kind of known that some of this business was coming in this year or was likely to come in this year. When we did our original planning, it's just hitting in Q2 and we're thrilled to do it we're thrilled with the customer was that a sort of about getting things done.
And next we'll go to you and Kim from Loop capital markets. Your line is open.
Thank you so following up on Steve's earlier question about converting tiger client customers to pick our cloud.
It seems like you know we get this question almost every call can you just talk about why.
That conversion has not been happening more quickly.
Is it not possible for a customer to have both client cloud and hybrid cloud architecture.
What are you just kept the old stuff, where it is and just deploy new stuff on the cloud you know what would it take for for that dominoes to start falling.
So there is a little bit of a absolutely we have lots of customers who have you know.
Client cloud or where a more traditional clients even in a sort of a pre cloud mentality, who have moved and begun bringing our.
Instances of pegged up on bigger cloud, so they're not they're not mutually exclusive there.
Absolutely absolutely not.
Big Bang sort of.
A big Bang sort of thing you know I think that some companies.
Almost maniacally in some cases look to quote move their base to a.
You know internal cloud so they can get more credit for it and to tell you. The truth that we're really encouraging our base or our sales teams to sell new to either existing or.
New client I, just think that's a better heartburn you know given our extreme.
Retention rates, whether it's cloud or client fraud, I think that's just a better rate.
Provides value.
We unlike a lot of other companies out there that I've read about don't have a hey, let's just convert the whole base sort of strategy, which I do see it in other places.
I think ultimately that's going to add more long term value from our clients and for our customers.
Thank you and there was a misunderstanding.
It was a misunderstanding out there and probably this is a good time to reinforce this.
Client cloud is not old stuff and peg a cloud is new stuff right. It's the same.
Solution and I think that because so many companies that have went through the subscription transition debt.
The on premise stuff and the other companies is like the old legacy stuff that you just stop supporting and you move everybody to your SaaS solution, that's not what we're doing and so some clients.
Want to move, but but just like the the deal the expansion deal that we talked about in Q2 that had all the revenue that wasn't an old solution. That's a state of the art new modern digital transformation use case at that quiet is expanding on a relationship that they expanded on a few years ago as well so.
I think that there is a misunderstanding with peg that debt client cloud as old and legacy and old versions and not valuable and although some clients do have maintenance from perpetual licenses on versions in the past lots of clients that we have are on the new state of the art stuff on.
Client cloud.
Gotcha, I think that really help the thing for that 10. So I'm just maybe some housekeeping kind of question you know from what are you seeing in terms of our new and existing customers makes no I am assuming with our in our partner ecosystem ramping maybe youre seeing the.
New customer mix kind of increase.
No not yet we still have the majority of our bookings coming from our existing install base kind of you know over 75 per cent of our of our business activity is from clients that we have done business with we would expect that to be an.
Impact in the future, but I would not for this year you just still been in say with Covid still virtual selling you would expect it to kind of still stay that way a little bit until you. You know so you have people kind of you know a little bit out in interacting come alive more than we are right now.
Okay, Great and then last.
Question from you can from pick up.
Can you just talk about the any kind of trends that you're seeing around the deal.
I don't know deal sizes are pretty consistent there's not deal sizes and deal duration and contract durations are pretty consistent I wouldn't say, there's anything noticeable that.
That that I've seen.
Seen that would suggest we're moving in some dramatic direction either way.
Okay, great. Thank you so much guidance.
And next we'll go to Mark Chapelle from benchmark. Your line is open.
Alright. Thank you for taking my question just 1 question here Alan.
For you your September quarter coming up is usually a good quarter for your federal government business you.
You've got your fed ramp certification a couple of years ago, and just wondering if you could just give us some additional color of how you think the ramp up or submit your federal business is progressing.
Yeah, we're pretty.
We're pretty happy with our federal business actually.
I was just talking to the CEO of services, Australia, which is the Australian federal business, we're seeing a water success not just in the U S. But they actually published an article about how they're ramping.
If I go down under and.
You know obviously, Germany has been just terrific for us as we've as we've talked about that as the U K government to so I think I'm not just around the fed ramp successes that we're having I think some of you guys may know debt you know it's been it's been out there and he says in the public domain.
We wanted the census, a couple of years ago in a very very tight competition I'm I'm thrilled that it's now.
Deemed a success and we've heard that they are really really happy with the way that all worked in.
That all played out where their software and yeah. We've got a lot of agencies we're doing.
Work with some of which have a lot of potential like you're frankly.
The IRS, which.
We don't tend to announce those too much in advance of them being rolled out but you know what's in the public domain. If you. If you were to look at some of the federal website. So you know timing is always hard to predict.
Yeah, when I think in the government that can be a little trickier than anywhere else, but those businesses that that whole government arm is going to continue I think to be extremely strong.
The governments continue toward know that they have to modernize and there's just so much need. So we're really excited about that business.
Thank you.
Yeah.
And we have no further questions at this time.
Well, that's great because we were gonna have to wrap I do have a I don't want to steal Ken's Thunder and I do want to congratulate Ken you can on the 20th.
Earnings announcement that you've done in.
I will tell you it's been a privilege to be on this this wild ride with you.
It moved from a very very different shape of company in the markets to 1 that I'm extremely excited as we begin to.
Heading into the final phases of the <unk>.
Cloud transition I will just share.
And this is a mind numbing thing to acknowledge that this is my 100 earnings call.
I'm very thankful to those investors who've been along with us for in some cases, a pretty good part of that journey.
I want you guys to all now and all of you to realize that we've got a terrific.
It is working hard.
To live up to your.
Our expectations and.
To your to your desires and we are very excited about whats potential well the potential is so with that let me say. Thank you. Thank you for the 100 calls.
<unk>.
We're looking forward to getting back to work on your behalf talk to you all soon.
Yeah.
And that does conclude our call for today. Thank you for your participation you may now disconnect.
Okay.
Okay.
Perfect.
Okay.
Okay.
Yeah.
Okay.
Sure.
Okay.
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