Q4 2021 Pegasystems Inc Earnings Call
Let me stay on Bari.
Good day, and welcome to the Patriot systems fourth quarter and full year 2021 earnings results Conference call Today's conference is being recorded.
At this time I would like turn the conference over to Kim.
Oh, well Chief operating Officer. Please go ahead Sir.
Thank you good evening, ladies and gentlemen, and welcome to Peg. It systems Q4, 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 1095. The words expects anticipates intends plans believes will could should estimates may targets strategies projects forecast guidance.
It's likely and usually or variations of such warrants or other similar expressions identify forward looking statements, which speak only as of the date. 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.
Results for fiscal year, 2021, 'twenty, two and beyond could differ materially from the Companys current expectations.
After that could cause the companys results to differ materially from those expressed in forward looking statements are contained in the Companys press release announcing its Q4 2021 earnings 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, 2021, and other recent filings with the SEC.
You are cautioned not to place undue reliance on such forward looking statements and there are no assurances that the matters contained in such statements will be achieved.
Good 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 <unk> systems.
Thank you Ken and thank you to everyone who is joining today's call.
Im pleased that we ended the year with solid results.
Focus and leveraging our strengths with.
Grill ACG annual contract value.
The most important metric to over $1 billion for the first time ever.
Low code software platform for workflow automation and AI powered decisioning.
I think it's unmatched in the industry.
And the largest and most demanding enterprises and governments around the world.
Choose us to address their most mission critical challenges.
I think we were being selected as the enterprise workflow standard for activity done at scale.
From a simple to the most complex.
With pad, our clients don't need to sacrifice scale speed.
We support their digital transformation objectives with solutions that provide immediate value and what's the agility to tackle with every challenge as they may face in the future.
We continue to enhance this innovative technology, which consistently received some of the highest possible ratings from leading analyst firms like Forrester and Gartner.
And drive significant and meaningful outcomes for our clients.
We have a loyal client base.
Stands and values the power of what we offer.
And then leveraging <unk> to deliver inspiring results.
<unk> continues to provide ample opportunity for expansion.
We have a dedicated and deepening partner ecosystem.
Helping us accelerate our growth and bring even more value to our clients. Our partners continue to focus on delivery excellence.
Essential element.
Sharing successful adoption by our clients.
We have a culture built on inclusivity collaboration accountability innovation and excellence committed to giving back and making a difference in our communities I'm really proud that we recently scored 95 out of 100 on the human rights campaign foundations.
2022, corporate equality index.
This is a globally recognized benchmark and represents our team members coming forward and doing the right things.
And importantly, we have a team of more than 6000 people around the world that are dedicated passionate and resilient who make all of this possible and who make me proud every day.
Now in terms of market dynamics dynamics and competitive differentiation. Let me just say that digital transformation continues to be central to our clients' successes and is driving our business. Gartner is predicting continued growth in enterprise software spending driven largely by.
<unk> upgrading their software stack to software as a service and seeking continued flexibility and agility.
And our D. C is predicting investment in digital transformation software to grow about 25% every year from now through 2024.
Though initially accelerated by the pandemic. It is clear to me. This industry focus will continue and we're in a great position to capitalize on this trend for years to come and I'm energized about the terrific market opportunity. This represents for us and our ability to significantly help clients solve problems both today.
And.
For tomorrow.
We are working to be the low code software platform Z low code software platform for workflow automation and AI powered decisioning and these powerful capabilities allow us to crush business complexity. So our clients can more easily make decisions save time and get work done.
We differentiate on our architecture, which allows us to tackle mission critical issues our clients after day.
We will have.
Unpredictable future.
Our cloud choice approach, which allows clients to use our fully managed cloud services or to run our software on their cloud of choice supports the growing trends, we're seeing in multi cloud environments.
And our exceptionally powerful adaptable software is scalable.
Provide maximum three years, while enabling collaboration between business and it leaders for rapid innovation.
I'm pleased that we are trusted by many of the world's largest and most demanding enterprises and governments and they're using us to fundamentally evolve their businesses and to improve how they engage with their clients.
Hi.
Personalized and customer engagement to maximize customer value stream.
Streamlining customer service through increased customer satisfaction retention and agent productivity.
And improving the efficiency of Onboarding operations, and exceptional workflows to save time and cost, while increasing speed and agility.
Now over 2020 , one we continued to see the positive impact of our deep and profound client relationships and how they are able to drive.
Outstanding results for our clients, we expanded our reach in many clients in key verticals, including communications financial services healthcare insurance and government. We also continue to make in roads into organizations that represent new growth opportunities in places like manufacturing consumer services and technology services.
We continue to deepen relationships and see tremendous opportunity for growth within those existing clients. These clients become sustaining relationships. They routinely renew year after year and set the standard for successful examples of significant digital transformation are.
Clients continue to expand their use of pads, because we drive value today, and we see how they can drive value in the future.
Why so many of our clients are willing and we're honored that they are to publicly talk about their world about their work with us.
And they will this year again, when we're once again holding pedal world virtually in May.
No, we're holding pedal world virtually this year, but we're exciting excited to bring back in person events in the second half of this year and we'll be holding a variety of client and partner events around the world, including regional client engagement events and client and partner advisory boards now going back to paddle world one of the.
That's part of Peg a world is hearing from our clients.
This year, we'll once again feature incredible stories like Cigna, who is using pacbio to process more than 1 million critical and complex healthcare translates transactions each day and address the needs of customers and patients in a highly personalized way.
Forward, who has created a center of excellence using <unk> as their enterprise low code workflow automation capability to enable citizen developers to create applications and alleviate backlogs.
Hi, Mark who is leveraging <unk> to deliver enterprise wide health care consumer engagement and do it at scale across channels focused on improving health outcomes, improving the member experience and also reducing cost.
For the UK Royal Navy, who is using <unk> to transform and modernize its recruitment process.
A unified digital platform that provides candidates a better experience and the data.
Maybe needs for meaningful insights.
Well, Verizon who will showcase how they're using pack of decisions and decisions and Jen to influence and personalized customer relationships and increased sales velocity.
Wells Fargo, who is using cargo to ensure that each of their 5 billion Muslims monthly interactions with customers is targeted and relevant to the individual regardless of which channel they choose to connect through.
They've just rolled out this new system.
5000 U S branches within a year.
And they just published a new video that features this work. So you don't need to wait until paddle world to see their incredible story, just got a peg a dotcom.
I hope you'll check out the pedal World website Register and join Us live.
I would also otherwise they're delighted to recently here from our clients at Commonwealth Bank of Australia.
They've become the subject of a Harvard business School case study.
As that work is being considered a global best practice.
The case study is available online at the H B R store and is based largely on the work they are doing with <unk> to drive what they call their customer engagement engine.
And AI driven customer experience platform.
As a case study says well against the backdrop of a once in a century global pandemic.
<unk> their customer engagement engine helped the group deliver a strong financial performance, while also supporting customers with assistance packages designed in response to the coronavirus outbreak.
Before I conclude I.
Also want to provide an executive update.
I want to let you know that Hayden Stafford.
The president of global client engagement.
Has decided to pursue an opportunity with a pre IPO company and will be leaving Tiger.
And there's one or two months of a pad.
They didn't help cultivate and extremely strong go to market operation.
And we have an experienced and talented team.
I am confident the team we have is well positioned to continue to deliver three.
Through 2022 and beyond.
Collectively we wish hated all the best in his next endeavor.
So in summary, I'm excited that as we enter 2022, we are clearly a subscription business nearly 100% of our software business is now subscription.
You can see the significance of this transition in our full year financial results, which look much more like what you'd expect from a subscription driven business and which Ken will take you through shortly.
I'm, especially excited to see that our revenue growth.
Now more closely aligned with our <unk> growth, which as I said, we view as the critical measure.
And the need for enterprise software to support digital transformation initiatives in our client base continues to grow and I think we're in a great position to capitalize on that growth and provide solutions are unmatched in the industry.
We're really excited about the significant opportunity we have this year and.
Got it.
And I believe we have the right team to deliver on these opportunities.
To provide more color on the financial results. Let me now turn this over to <unk> C O O and CFO Ken Stillwell.
Thanks Alan.
A few highlights.
At the top of our business annual contract value ACB group.
<unk> grew just over 20% year over year, surpassing 1 billion as Alan mentioned, our currency negatively affected our ACB growth by about 1%. So in constant currency, we would have been kind of in the 21% range total revenue reached 121 billion for the full year.
Revenue would have been even higher if not for significant growth of 45% in our term license backlog and as many of you know the timing of the revenue under our client cloud model is is not.
Can have some lumpiness between quarters and is not as predictable as our peg a cloud revenue recognition. So it's important to look at revenue and backlog because it tells a complete story.
Prescription revenue grew 24% year over year.
<unk> made up almost 80% of our total revenue in 2021, we delivered the highest total gross margin that we've reported a 72% remaining performance obligation or RP O our backlog.
One 3 billion, an increase of 25% year over year.
It's great to see us get back to full year profitability again, it's non-GAAP EPS reached 22 now.
Now let me put this all in context.
'twenty one was another important year in the transformation of our business as we are now largely complete with our subscription transition remember, we're a subscription software business.
And we're almost at the end of our financial model transition.
When I first talked about this I talked about finishing the transition in 2022 going into the beginning of 2023 and we are still on that schedule now.
Now that we've wrapped up 2021, let's go back and refresh everyone.
I talked about in 2017 about how the subscription transition would evolve if we executed as planned the first Jeff step was to change the way we sold software moving away from selling perpetual licenses before we started the transition back in late 2017 that over 50% of our new client commitments were perpetual.
Arrangements and for the last couple of years, almost 100% of our new client commitments are now subscription arrangements, our sales team and our clients have clearly moved from a perpetual to a subscription buying and selling model, which is a very dramatic change in just a few years.
It's also great to see that our revenue growth rate and our ACD growth rate.
Really converged closely when we started the subscription transition I talked about our revenue growth rate declining in the early years of the transition, which is exactly what happened and as we moved away from selling perpetual licenses, where the license is largely recognized upfront and as you move to a ratable subscription model revenue.
Begins to reverse and normalize as you get closer to the exit of the transition.
The annual growth.
The annual revenue growth was flat in 2018 for example, and only grew 2% in 2019, but ACD was growing by over 20% in both of those years.
Now when you fast forward to 2021 Peg US revenue grew 19% in 2021, our subscription revenue grew 24% in 2021 and ACD grew just over 20% so largely as we envision this play as we envisioned this playing out.
We've also made progress and then normalization of cash flow and profitability. The final phase of the cloud transition, which we should complete in 2023 is when you begin to see that margin expansion and normalization in a business like peg where we have.
Very high retention rates and a lot of operating leverage with high gross margins you would expect cash flow generation to increase significantly as you exit at normalized out of the cloud transition in fact in 2021, we delivered the highest gross margin since.
We started this transition as I mentioned at 72% that's strong improvement with powered by an increasing pace of cloud gross margin, which reached 67% for the full year of 2021 for the full year non-GAAP EPS was <unk> 22 cents, a significant improvement over last year, but really just.
A step in the process of getting back to significant free cash flow generation coming out of this subscription transition is the perfect time to remind people of the cash flow potential inherent in a subscription business with high retention rates like Tiger I believe we're starting to see that return to operating <unk>.
Cash flow generation and is now reflecting upwards and we will continue to in 2022 would be on we're confident that we can increase margins even further to achieve our free cash flow targets and accelerate our AC ACB growth at the same time, we continue to see a tremendous market opportunity for us in the digital transformation space. So we.
We'll continue to invest in sales and marketing to help accelerate our ACD growth our sales and marketing expenses are declining slightly as a percentage of total revenue, but we know we still have work to do there, we're making progress we're not quite there yet, but we know we're going to continue to drive sales productivity improvements in two.
And 'twenty, two and beyond moving to cloud choice, we clearly benefited from cloud choice differentiation.
It's very clear to us that multi cloud is a real trend in January investment Bank RBC reported 77% of IC decision makers use two or more cloud vendors, while 35% used three or more cloud vendors and Gartner reported in September that 76% of firms use more.
And then one cloud provider offering our clients cloud choice as critical by the way. We're excited that our subscription software is now available for purchase on the Amazon marketplace, giving us another distribution channel.
On the topic of cloud choice, it's important to remind you that a dollar of incremental ACD is a dollar of incremental HCV, what's the client purchases peg a cloud or client cloud. The long term economics for us are very consistent as we cross and upsell to our largest organizations.
Our solid performance for the year is also evident in our remaining performance obligation or backlog total backlog represents expected future revenue from existing contracts with our clients total backlog reached over one 3 billion, an increase of 25% year over year or incremental basketball again with almost.
$300 million year over year, ultimately a subscription software companies revenue growth rate, our ACD growth rate and our backlog growth rate should all alive. The fact that these three growth metrics are much closer in 2021, and even converging closer in 2022 and beyond is.
Since then we've executed well on our subscription transition given the evolution of our business you may notice we updated the revenue categories in our financial statements to group our subscription revenue streams more clearly these new revenue line items better reflect the fundamentals and trajectory of how we think of our business.
Total revenue reached over $1 2 billion as I mentioned earlier, representing growth, 19% year over year and highlighting why it's very important to look at RPM and revenue growth together when evaluating our performance.
One challenge of our compelling cloud choice strategy is the revenue recognition for our offerings is not always ratable as you know in 2000 as I mentioned in 2021, our term license backlog increased 45% or $53 million year over year, which is unusually strong and with.
Significantly higher than the term license revenue growth of 26% for 2021.
Normally we would expect to see those growth metrics more in line with each other but a higher RPM growth. In 2021. Just shows you that we have greater visibility into term license revenue looking out in the future years.
Cloud subscription revenue grew 24% year over year and made up 79% of total revenue when you add our subscription revenue in our professional services revenue, it's in excess of 95% of the revenue in 2021.
Turning to our fiscal year 2020 to guidance I want to remind you that it's it's it's our practice to provide annual guidance at the beginning of the year, we do not update annual guidance during the year unless we do a material acquisition. We expect total revenue of 1.46 to one four.
Our $9 billion, an increase of 20% to 23% year over year and.
And for the first time, we're providing ACD growth guidance, which we expect to grow 20% to 22% year over year in 2022, we've created a range, which we believe provide some level of visibility to the business and the growth of the business without the.
Necessary predictability of guessing I think exact percentage number which as you know it's very hard to do from a profitability perspective, we expect 2022 non-GAAP EPS of between 75 and a dollar a solid improvement in our step in the right direction on the way to the rule of 40.
We realize that there is tremendous leverage inherent in our operating model and we plan to exhibit that leverage as the business scales and grows larger we continue to see solid demand for digital transformation in both the front and the back office and our product continues to be best in class with differentiated capabilities.
Before opening the call for questions I want to reiterate alan's invitation to each of you to our annual client conference Pegoraro inspire in May we also plan to hold an annual Investor Conference sometime in June more details to follow on that we're hoping maybe that that that investor conference can be live, but you know fingers crossed.
And with that operator, let's open the call to questions.
Thank you.
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Okay.
So we will take our first question from Rishi <unk> with RBC.
Wonderful.
Hey, Ken Thanks, so much for taking my question nice to see a bit of acceleration in the business and I appreciate the shout out for our a recent CIO survey.
Wanted to maybe drill down a little bit more into the guidance. So great that youre guiding for accelerating revenue growth and margin expansion, which is obviously a rare combination in software around so so really great to see that on the table.
But.
Two things I wanted to drill into that first as youre guiding to about 300 basis points of operating margin expansion.
No.
We understand you know, there's there's obviously puts and takes with the cloud transition.
The margin expansion side, but.
Can you maybe let us know how should we be thinking about the prior targets you laid on the table for hitting our rule of 40, let's call. It in 2023 is that still on the table because that would be assuming I think some pretty dramatic margin expansion in 2023, and then the C V guidance really a pre.
Yeah.
That will definitely help us all build a model.
Any any thing.
Anything that you can tell us in terms of what sort of opex assumptions are baked into that and then I've got a follow up.
So let me touch Okay, let's let me touch on a couple of those guys maybe go back so.
Yes, we're not our FX assumptions are are relatively muted in terms of the full year impact. So we don't see a tremendous amount.
About the FX impact a slight amount of headwind on FX Rishi, but we're not we're not making any big bigger bold predictions on.
Significant movement of the dollar one direction or the other.
As you know the currency moved around in the year. The dollar was weaker at the beginning of the year that was stronger at the end of the year, but overall it was it's going to be a little bit of a headwind year over year on currency in terms of margin expansion.
Yes, I think it's probably worth highlighting that you know we can make.
The margin of the business.
Quite frankly, what we wanted to be by just investing in the business I know you're not proposing that nor are we but.
The margin expansion trajectory that we're on will show an increased margin improvement in 2022, and it will show a noticeable increase in 'twenty three and in 'twenty for what we'd be it the rule of 40 in 2023, probably not well we'd be well on our way there in terms of the balance absolutely.
So I think that from that standpoint, we haven't seen the.
I would say the sales productivity kick in as fast as we had hoped and I think COVID-19 certainly wasn't helpful in that and that's probably the one thing that's probably drug out our rule of 40 achievement a little bit.
Got it that's all.
Well. Thanks, I appreciate that and then just on the cloud side, specifically you know look we all understand the cloud choice and that's obviously a major competitive advantage for you.
But it does look like there's a bit of a slowdown, especially on the cloud revenue side or even cloud CRP IL.
Can you maybe just let us know whats going on any kind of factors as you know that that would make that number a little wonky in terms of Rev. Rec and how should how should we be thinking about the potential for peg it cloud.
Growth to accelerate.
Maybe let's call it next year of 2023.
Sure so throughout 2021.
All of you are aware that our clients really are much more proficient at managing their own clouds, which actually has it strengthened our client cloud growth in 2021, when we started the year or even starting 2020 I don't think that it was obvious to us how important it.
Is for clients to be able to manage many of the solutions out there that there because they're buying from vendors like purger. So so that's one that is certainly one difference in the last few years that is that as you know we view as a positive because we really buy in to client embracing that with clients in terms.
Your question about peg at cloud, specifically, there isn't any Rev. Rec issues Theres nothing unique going on in <unk> cloud is a very traditional SaaS subscription revenue recognition model. So nothing there on that side, but I think the percentage of peg a cloud and client cloud has stayed relatively steady.
And our growth rate of HCV has stayed relatively steady it wouldn't be unusual for the cloud growth rates took converge a little bit and thats really what youre seeing happen as clients manage their own solutions on paid out at a little bit of a higher pace.
Got it and I totally understand and last one for me and I'll jump back into the queue.
Cloud gross margins you know obviously they've improved dramatically since you've started all of this cloud transition I know in the past you've talked about getting to more SaaS like a gross margin call it 70% plus and understandably. The single tenant architecture is always going to be a little bit of a drag there.
It's been relatively flat throughout the course of 2021 how should we be thinking about the potential for a cloud gross margin expansion from here.
You should probably expect a few hundred basis points of cloud gross margin expansion each year for the next few years.
Alright, and I want to say relative to market sure.
We've been doing a lot of work a technology called kubernetes other types of things that I think provide in coming years. So really good opportunities to achieve the types of things Kevin is talking about it in a pretty reliable one.
Alright wonderful. Thank you so much guys.
Just to confirm one thing because that's probably a question so rishi and others might have this our goal our goal for peg a cloud gross margins and the kind of timeless model have not have not.
Been reduced if anything I think some of the things that Alan mentioned in architectural improvements will give us opportunity to improve them. So we have plenty of scale of peg a cloud. So we're not worried about our peg a cloud gross margin targets that we talked about over the last few years.
Thank you next we will take our next question from Steve Enders with Keybanc.
Oh, great. Thanks for thanks for taking the question I guess I wanted to ask a little bit on what you're seeing from a demand function.
At this point and where the top of funnel activity stands.
Stands you know I think there's been concerns in the market.
Digital toleration, potentially causing a pull forward of demand into 2020 . One so just wondering what youre seeing on the demand front and how that top of funnel activity looks.
Today and into calendar 'twenty two here.
So I can I can I can take that you know as we look at the first half of the year and what's going on yeah. I think the demand is still robust people have.
Found needs and you know we have a real enterprise engagement organization, you're much more than what you described as kind of a read your broad region.
Bush's sort of organization, so we really have.
Are you focused on what I would describe as a target organization model and that I think is a pretty reliable way.
You get demand compared on you know just trying to be.
Exclusively pulsing for leads which some companies reward companies do so we're seeing tremendous amount of activity and interest in our customer base.
Yeah, I don't want to take anything for granted but I think that's going to persist and make things right.
Industry.
Okay, so on transformation and improving efficiencies and you know frankly, some of the great resignation, which is putting pressure on customers to find better ways to deliver their systems.
I think some of these actually have good long term promise for us as well as you know the early part of this year.
Okay great.
That's helpful and then just on the <unk>.
I guess, partially on the go to market front with with with Hayden, leaving I guess, how does that kind of change.
How youre thinking about the leadership, it and and and.
In that area and they go to market organization has been a bigger focus on the partner.
And channel strategy.
Is it going to any change on that front.
Moving forward.
No.
Strategy, we entered the year with is the strategy, where we're pursuing for the year.
Pleased that we have a strong and deep team that's gonna be able I believe to to take some of the good work that Hayden died as you know he brought us some new insights and some new capabilities.
There are some new talent and be able to.
To drive it and can continue to grow it. So I I believe we have in place a team that's going to be able to deliver this year and that's what we're planning to execute on.
Okay perfect. Thanks for thanks for taking my questions I'll jump back into queue.
Thanks, Dave.
<unk>.
Thank you we'll move on to Steve.
Kearney with F N B C Nico.
Great. Thank you very much hi, gentlemen.
So just building on Steve's question.
The organization has departure and then I've got one follow up it's a little bit more on the financial side.
Do you are you all looking to replace it.
It's a function that brought together.
A lot of the Geo focus activities with.
With the single role or or to go back to more about geography focused organization.
And functionally focused organizations within the go to market.
And then I've got one follow up for you guys. Thanks.
Thanks.
No we're not going to go back.
For folks who didn't know we used to have a pretty hard split between what we call the Americas and international and we are going to continue to have obviously people who are deployed in regions.
But we are.
Not going to go back to that sort of highly bifurcated regional sales and service organization, having a singular sales organization in a singular services.
Organization, having customer success management partners also be sort of in a global context.
We're happy with some of the things that's brought for us, particularly since a lot of our clients are global as well.
Absolutely not moving.
That off.
This year or any time in what I would say is a foreseeable.
Future. So I think we're I think we're structured in a way that is good and we're going to continue.
Great well, thanks for that Alan and then if I have a chance to give kind of a follow up here.
Ken can you explain your commentary on how the heavy term activity.
<unk> impacted Rev rack and give us any color you can on the cloud mix of bookings and then I'll just throw this out there you know total cloud bookings as we compute from the change in the backlog in cloud revenue.
It grew a whopping like 67% of it was actually a really bad so were there some big cloud contract longer term cloud contracts out there so and that's it thanks very much.
Sure Steve So let me see if I can go in order there and get this right. So the first the first thing is good question on it is it is it is difficult in a script to make this really Chris but when you have arrangements that where the client commits in a period.
But you don't get the revenue in the period. It goes to backlog of course, it goes into the backlog. So what happened at the end of 'twenty. One is all that we took we always have we always have term arrangements that go into backlog. It's just the nature of enterprise selling and the timing of when clients go live so that's kind of or when they when they are effective.
They start so that's always going to be the case, but when you see such a big jump from the end of 'twenty to the end of 'twenty. One. The first question you would say is oh that must have impacted revenue because if backlog grows that means you really kind of you really kind of had less revenue in the current period. So that's the connect.
<unk> that I was making their wishes revenue would have been bigger than Q4, but but for deals going into backlog that will then come into revenue in future periods. So that's the connection on the first piece of your question. The second one was around cloud growth, yes, having a cloud rose actually the mix.
Our business is slightly more pegged to cloud and client cloud and I'd say slightly like you know 50, 55 percentage kind of in terms of the mix of the business activity and that's fairly consistent over the last few years as you know because ive talked about that each quarter, but but Q4 didn't have.
Robust pick a cloud.
Amount of activity and to remind everyone Q4 is typically are not as strong peg a cloud quarters Q4 is typically have a little bit more client cloud in terms of the mix. So that that you have that dynamic going on but also RP O and I know when you talk about <unk>.
You can't you're calculating total contract value, which includes revenue and the change in <unk>.
You have to be careful just like I talked about in quarters that might well weaker it may just be a poor renewal quarter and quarters that look unusually strong you could have seasonality of renewals as well. So just remember that as a factor as well, although peg a cloud was stronger in Q4 of 'twenty, one versus Q4 of 'twenty four.
Sure, but you also do have some timing of renewals in there so hopefully that hits the questions that you asked.
Sure Dan Thanks, Thanks, guys.
Yes.
Thank you and next we'll move on to <unk>.
And gentlemen, Bora with J P. Morgan.
Oh, Great, Hey, Hey, everybody.
Thanks for taking our questions.
I wanted to ask about the sales we are our organization as well as you as you head into the new year now with the leadership change is the plan already in motion.
Have you made any kind of tweaks.
The sales organization to drive Rep focus at this point and then given the tight labor market.
Where do you.
You're welcome.
Where you want it to be in terms of sales capacity.
So we were we were already as we entered the year as we enter January we had already done the sort of set up for 2022 as you would expect there's a tremendous amount of work that goes into our sales kick off in January to both get the.
Salespeople structured so they can get off to a good start for the year.
Most people do not change their focus as you would expect yeah. We want people, who know these organizations and are building sustaining relationships with them, but of course, there's always some tuning some adjustments some introduction.
Here I would say, we probably didn't end the year exactly where we wanted it to be from a from a sales.
Staffing point of view, but we did as you can see in our numbers have very robust hiring.
And yards.
Yeah, we often set goals that we don't quite pick up too. So that's not really anything that I would view, a surprising or concerning but as a result of this change.
There is no strategic change no restructuring of kind of what the strategy is the strategy that we worked out coming into the year is the one that we're executing on and I feel.
Good about that.
Got it thanks, and one follow up on the ECB guidance and thank you for providing that.
I was yeah, it's more of a quantification I guess that you see growth of 20% to 22% obviously, it's it's.
It's kind of a continuation of what youre doing but it seems like it's a tad below the IDC number that you highlighted of 25% rate. So what my question is what takes you there right.
Is that that 25% number or higher.
Can we get there.
In the next couple of years.
So maybe I'll start out and then you can you can jump in so.
The primary lever so I think about I think about the way you grow in three dimensions, it's pretty straightforward one what's the market opportunity growth to how good is your solution to be able to capture some level of the market and cannibalize market share and three how much selling.
If selling capacity you have to be able to get there I'm not worried about the market knock on wood right I've actually certainly not worried about our solution and where it is positioned in the strength of it in the market and what we're really focusing on is trying to really improve and and in our sales productivity as we increase.
<unk> and ramp our sales productivity and that is you know that has not been an easy linear process for us, but that's what we're working really hard on is the third one so yeah I'll, let if you have other thoughts to add to that but that's kind of how I think about it.
Yeah.
Zinc sales productivity has lots of elements you know it relates to the effectiveness of our marketing message as it relates to our ability to to enable and bring new staff up the curve. It relates to the cadence that we use to manage the business on an ongoing.
And provide reinforcement.
It relates frankly to our clients being successful and themselves wanting to become sort.
It's sort of enabled and engines of growth and all of those are key elements that I think are part of being productive as a company.
Joe We aspire has kind of talked about it to be more productive as a company and I think that there is every opportunity for us to for us to do that so that's where some of the goals around increasing margins.
Come from there as we you know we've hired a lot of people we need to make sure that they become increasingly effective we need to I think we always count.
Improve how we talk to the market and we're going to be doing that too.
Got it thank you.
Okay.
Next we'll move on tumor cell.
<unk> with loop capital.
Alright. Thank you for taking my question, Ken starting with you with respect to renewals in the coming year 2022 going to have more renewals in the prior year.
2022.
Yes.
So the interesting thing Mark is just in general now at our size at this point the subscription transition we won't have years, where there is a there is a material difference between there were no opportunities that we have which is really I think the fundamental point, you're asking is there a is there a really really big.
Difference one year versus another that said 'twenty two is a healthy renewal year, which means it's certainly not lower than average in terms of the Renault ear, but we don't have a big deviation like if you think about like the standard deviation between a year for renewals back three or four years ago, you. It can be 10% to 15% of the <unk>.
When you actually look at it now it's kind of like you might have a 5% difference one year or the other but it's not it's not as material.
Great. Thanks, and then.
Wondering havens responsibilities was building up your partner programs.
It's been a big initiative over the past year or so what percent of your deals are now influenced by partners and maybe just give us a sense of where it was say a year or two ago.
So I would say the level of partner engagement.
<unk> has grown and at this point is really a very high I don't have the stat in front of me, but I would I would say that north of 70, 580% of our deals are involved.
Involved with partners partner engage.
If we partner supported the the nature of ideals as our customers.
Wanted to talk to us right and so the reality is that we are involved in.
I think the partner team has done a great job of deepening our relationship with the largest and most influential partners.
That's just going to continue where we're committed to that path, we figure its important and Oh my whole leadership team is completely bought into that.
And I'll add one.
One additional flavor to that Mark which is there.
Just to be clear partners or not.
Closing and booking and closing deals and sending us the paperwork just.
Maybe someday that will be the case I mean, that's certainly are inefficient distribution model for many companies, but that's but partner influenced which is what you mentioned partners are involved in 60% to 80% of our deals and we think that that's very healthy to have them involved, especially with the organizations that we're selling to.
Thanks, Thank you.
Okay.
Okay.
Thank you next we'll move on to Fred <unk> with Macquarie.
Hey.
A question I think that you know.
Many of them are or.
Another take on some of the ones that have been asked already so firstly, you know I want to begin with.
Just generally your go to market philosophy relative to what was described at your 2021 analyst day.
Just with you know Peyton departure.
So we understand that you know back during the analyst day.
There was a roadmap that was laid out talking about a number of different changes and initiatives I want to focus more on the product position side of things here.
Is there any change to your strategy of offering more prebuilt products or solutions or just items that could be offered off the shelf.
With any of these recent go to market changes or is that still on the roadmap.
Oh well yeah.
I'm going to defer at the end of this Ken because he was literally there so.
So you can tell me if I missed anything yeah. There is not a strategic change in terms of where we're going if you look at a.
Yeah.
And any sort of horizon.
The reality is I think we've had the right strategy.
For the last.
A couple of years I think this is very much around execution and are you.
Yeah, we're not expecting any shifts or revision in that overall big strategy picture strategy. John do you want to say something more specific because I know you were in those yes, I think I think so Fred I think I think you're referring to one aspect of it which is what we call our engagement strategy, which is which is customer service intelligent automation.
One to one customer engagement no those are still very core.
Seem areas for us in terms of how we go to market and certainly the solutions have have a more complete finish I mean, they are they are not a build off of our platform from scratch certainly the way bps was years and years ago. So from that standpoint, no strategy no strategy change at all I think maybe just to clarify one thing we are not.
We do not have shrink wrapped software that is actually you know kind of a click through your kind of like you know like Microsoft office or anything that's not that isn't our strategy nor is that our what we communicated at investor day, but in terms of the engagement strategies and the solutions really being common use cases and being much more kind of finish.
So to speak and ready for.
Faster time to value for our clients.
Deployment that is absolutely consistent.
And when you hear me talk or us talking.
I think very consistently talking about making decisions like do you look at the Commonwealth Bank of Australia customer engagement engine.
Yeah for existing sort of concept you you talked about you know driving worked to dawn or getting work done that's the intelligent automation engagement strategy. That's really kind of you can almost think about it the next generation.
Of workflow and low code in terms of being able to like do stuff, which I think has been a traditional strength and then you know one of the core places you apply that it's things that involve our clients' customer engagement goods, it's how our clients work with their customers across channels.
Across products and how I think we very very.
[noise] differentiate easily create a way for clients to create a holistic approach to their customers into their products, which some of our really unique architecture that we have around what we call the layer cake and around the things that give you an organization or the ability to be specific to different customers and custom.
Segments customer areas, but still get that leverage.
You built in which is which has been central those those are very much those three what we call engagement strategies that Ken was referring to and goes.
Sure.
Those are really what we're focusing on and what we're working with our partners on.
Thank you for the context on those engagement strategies around go to market again, I wanted to ask on the competitive landscape side of things.
At this point certainly there's a number of pure play low code no code vendors that are out there and we're also of course seeing companies like <unk>.
<unk> now really focus on and talk about you know low code enterprise workflows and their ability to facilitate that so I wanted to ask are you seeing any changes in your competitive landscape.
You're typically going against or going head to head against in deals and generally speaking any sort of shifts and use cases that customers are.
Prompting peg a floor.
So there's lots of competitors in this market I mean to be candid anything that is an alternative.
As a competitor.
Ranging from what you would call traditional programming to companies like service now in the last 18 months or so ever really been talking about workflows et cetera, which I find kind of ironic given our our long and storied history in all of the different things and stuff has been cold.
During the period.
This evolution there yeah, theres no shortage of competitors.
The things that we do I think we do very differently.
Then our competitors do very simple things there are.
Your competitors ranging from.
Programming, you know all the way to you.
The.
Chic people [laughter] yourself in terms of that the part of the market. We I think are.
Are you a uniquely good at is the ones, where they gotta be fast so they have to deliver something now they have to deliver something soon but they need to be able to do it in a way that's going to be able to grow and evolve.
And.
Your support ultimate enterprise needs and we can get customers to understand what we do that special in that area, we have an enormously strong competitive.
Message Yeah. That's one reason why I think you know having get engaged enterprise sales force is important to the way we're going to market.
And I think it is important to our clients and yeah. That's.
That's that's why that's been the strategy. That's what the strategy is going forward and I'm excited that yeah, we're going to continue to build these broader and deeper relationships with customers.
Which are T and have partners.
Really know how to help us leverage this year in the evolving world. So some of the competitors out there you know, it's nice being differentiated.
It's our job to make that difference visible.
Okay. Thank you there and then I think one final question for Ken on the financial side of things your commentary about the timing of deals.
Being shifted into backlog rather than revenue.
Thank you for that context earlier I wanted to ask if there's any read into say the Sn.
Essentially whether these deals would just be recognized.
Q1 revenue on a term license line or just generally you know any commentary or context, you could provide around how to understand the timing of these deals relative to.
Seasonality in 2022 is helpful. Thank you.
Yes, good question, Brad So im going to get so it's it's not always possible to exactly predict on these things because there are some things that are that can move between quarters that said when you have backlog growth is unusually high and one quarter. Some there is.
Some impact positive or well, let's say that it grew but you would have some impact.
In the next quarter in a positive way. So there is definitely a correlation between backlog growth slot being slower or faster in one quarter to the next quarter or two so certainly a strong robust term backlog at the end of the year, we'll have a.
Better impact on 2022.
And it will impact probably Q1, a little bit, but I don't think we should I don't want to get too precise on naphtha suggest because there are some variables there.
Understood. Thank you all.
Yes sure.
I think we have time for one more quick question.
We'll take our last question today from Raimo <unk> with Barclays.
Hi, This is I've been out on for right now I'm just two quick follow ups I think last year. You said your percentage of your sales force that was fully ramped with just under 58 can you give us a sense of where that is now and then secondly, as you expand your relationships with your partners is there an opportunity to maybe move down market a little bit focused on the U K.
Instead of just the top 500000.
Companies. Thanks, Thanks, so much.
Sure I'll take the first one Alan maybe you can take the second one.
So our percentage of salespeople that are what I would call reasonably ramped fully is a tough word I know I've used it before but I'll just say wrapped in a reasonable way is still just slightly under 50%. So I would say fifth fairly consistent nationally the number is higher but I would say fairly consistent.
With the last year or so and now if you want to take the one on going more down market through partners.
I think that the.
Strategy for this year was and is to of course take advantage of where our partners have existing relationships.
But there is so much I mean massive massive upside in the large customers that in many cases, we and our partners have meaningful relationships with but they're just doing a fraction.
Of what they're capable of doing with us because that's really where I see our focus continuing.
For.
This year and that's I think a very.
Sure.
Beneficial in and.
But you are highly I actually think believe productive area for us to work it.
And particularly.
Particularly when everyone's a little less sure what's going on with the economy more and more broadly.
Yeah, one of the things that haven't been around for a very long time is we have a good idea I think of what it takes to do well in boom times and bad times broke.
And I'm very comfortable that.
We're thinking about this the right way, particularly when you know we're all looking at all the unpredictability in the market. We know the people that were selling to with our partners are the ones who are going to keep buying it.
So our view so.
Thank God.
Unchanged in terms of a focus than we probably talked about you at the analyst conference or the analyst day last year, while we were focused on going into this year and what I've seen happen with the fed and some of the other stuff.
Thus far this year just makes me feel really good that we made some of those decisions the right way.
Got it appreciate it thank you.
Thank you Anne.
Let me just wrap up by saying thanks, everyone for joining our call today.
Delivered a solid performance in 2020 , one I think both in terms of extending our leadership.
In the product in the market and financially just awesome to have crossed that $1 billion Mark I think we're well positioned for another strong year in 2022.
And look forward to updating you guys should all know that we're all working hard for you. So thank you very much be well and look forward to talking who knows maybe meeting in person someday soon have a great evening.
And that does conclude today's teleconference. Thank you. Appreciate your participation you may now disconnect.
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