Q1 2022 Pegasystems Inc Earnings Call
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For everything.
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Good afternoon, and welcome to the payer systems first quarter 2022 earnings results Conference call all participants will be in listen only mode.
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I would now like to turn the conference over to Ken Stillwell, Chief Operating Officer, and Chief Financial Officer. Please go ahead.
Thank you.
Good evening, ladies and gentlemen, and welcome to <unk> Q.
Q1, 2022 earnings call before we begin I would like to read our safe Harbor statement certain statements contained in this presentation may be construed as forward looking statements as defined in the private Securities Litigation Reform Act of 1995, the words expects anticipates intends plans believes well but.
Sure.
<unk> 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 day. The statement was made and are based on current expectations and assumptions because such statements deal with future events.
And are subject to various risks and uncertainties actual results for the fiscal year 2022, and beyond could differ materially from the company's current expectations factors that could cause the companys results to differ materially from those expressed in forward looking statements are contained in the company's press release announcing its Q1 2020 to earnings and in the company's final.
So 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 investors are cautioned not to place undue reliance on such forward looking statements and there are no assurances that the matters contained in such statements will be achieved.
Although subsequent events may cause our view to change except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward looking statements whether as a result of new information future events or otherwise and with that I'll turn the call over to Alan traveler founder and CEO .
Systems.
Thank you Kat.
Thank you to everyone Who's joined today's call.
I'm pleased to kick off the year with solid results as we continue to stay focused and leverage our strengths.
We grew ACB.
Annual contract value, which is our most important metric by 21% year over year.
While improving margins.
Our low code chocolate platform or AI powered decisioning and workflow automation.
Unmatched in the industry and continues to be the choice of many of the world's leading organizations.
And we helped the most demanding enterprises.
Work smarter unified experiences.
That instantly.
So they can always be ready for whatever is next.
No.
Today this is more important than ever.
This is one of the most volatile environments I've seen in decades.
Clients continue to face challenges related to the pandemic and certainly no unexpected water breakout in Europe , which is affecting both the world's economy and business requirements generally in ways. We just didn't anticipate a few short months ago.
Our clients and their customers are grappling with labor shortages rising inflation increased oil prices supply chain interruptions and economic and security.
Purger is built to help enterprises manage through uncertainty.
Our solutions are as effective for clients, whose businesses are under pressure.
There are four I was focused on growth and expansion.
We understand there's a company how do we adjust our go to market approach to support clients equally well.
Godless, what dynamic is driving their decision making.
Before we move on.
I'd like to take a minute to address what's happening would be great.
We are as I think as most of the world are horrified by putting this brutal actions.
And what's happening to the Ukrainian people and others being affected by the violence.
In 2020 , one before Russia's invasion of Ukraine, we had already taken the action to wind down our Russian operation.
Which wasn't insignificant part of the company's business.
As such we stopped pursuing new Russian business close to regional office and we have no remaining employees there.
We do have a large team in EMEA.
And specifically in Poland, who are being most directly affected given their physical proximity to the war.
We also have staff around the world, who are Ukrainian into Russia, and their families and loved ones and arms work.
Our focus has been to support those most in need with financial and other needed resources.
Our staff and Poland have helped those fleeing the violence.
Expectation from the border.
Housing food care packages and our teams around the world.
I have raised additional money through a variety of other regional initiatives.
I am proud of our employees, who have demonstrated compassion and generosity are donating financially.
As well as to action.
Complement our corporate donations.
And we are hoping for peace and an end to this horrific situation.
And our Hearts go out to the Ukrainian people.
Yeah.
Regarding the business.
Let me hit some highlights regarding what we are saying.
What's the level of volatility in the world today, our clients are looking for solutions that can help them be more resilient.
While they prepare for whatever else may be comment.
Yes, I shouldn't say is becoming an increasing focus right now.
And our solutions are ideally suited to support organizations focused on productivity gets.
Because it makes it possible for them to adjust readily as circumstances change.
And many of our clients have their own customers, who are experiencing financial hardship.
Were solutions that support compassionate collections can be very helpful.
Our clients step change the uk's largest debt charity.
A great example of the type of solution needed today.
They've leveraged pack out to build a single unified system.
It's faster and easier to use.
How's the organization to improve their customers experience and streamline their operations.
More generally we continue to enhance our software.
Our clients deploy apps faster.
Create smarter workflows and create better total experiences for their customers and their staff.
What does that end in Q1, we released the latest edition of our Infinity software suite.
Which features new intelligent low code capabilities for AI powered decisioning and workflow automation.
One of the coolest enhancements as new voice AI and messaging solutions for customer service agents kind of acts as a copilot providing.
Providing hands free capabilities during their live real time interactions.
Software license and analyze those conversations as they happen, making suggestions to agents and helping them with time consuming.
Error prone manual data entry.
There are also enhancements to peg as customer decision, though too.
To improve engagement with customers, who are better understanding of omnichannel interaction histories and by being able to create better insights on the success of the next best action recommendations.
We're excited to bring these capabilities to our clients.
We're also very excited about peg a world scheduled for a little less than a month from now on may 24th at.
At nine a M eastern daylight time.
And for those in Asia on May 25th.
Yeah, Hey E S T.
We have some exciting news lined up for the morning of the show related to enhancements to our process mining capabilities and a new enhancements to the customer decision hub as well as our cloud choice offerings.
Last quarter I mentioned, a few of the clients will be sharing the success stories during peg a world.
We've announced our keynotes and they include some incredible brands with inspiring stories and these include what.
Lloyds banking group.
<unk> C T O will share their digital transformation journey.
They are leveraging pegged to become a champion of adaptability and driving intelligent automation to ensure their business is ready for anything that's coming.
T mobile.
Their vice President customer strategy, and planning will reveal how old they are achieving true relevance and <unk>.
Excellent personalization by putting customers at the center of everything.
They are leveraging peg is decisioning capabilities to enable hyper personalized customer experiences.
Deepened relationships with their customers.
And looking to create a mission critical application for.
For the organizations team of experts.
And booking dot com.
Being a global innovation, we will talk about their mission to create a simplified and connected experiences.
Leveraging <unk> to enable their frontline teams the new system to make it easier for employees to support every customer and partner with any query.
First time around.
Be sure to check out the peg a world website.
To register.
Join us live to hear the latest news and inspirational client stores.
Just got a peg a dot com and click on vote link feature on the homepage.
I personally by the way I'm also delighted to being able to do more travel recently to see clients and it's great to see that we're actually booking clients into our new briefing center in our <unk>.
<unk> headquarters.
I hope all so our investors will join US there for our in person Investor meeting.
Scheduled for June .
Finally, I'm excited to say, we launched our inaugural impact report.
Which provides a consolidated view of our current efforts.
E S G.
Environment, social and governance.
Corporate social responsibility.
Talking about that across our business I'm very proud of this report, which showcases terrific work Purger team members are accomplishing.
We are focused on more efficient and sustainable business operations.
Building and supporting diverse teams, who challenge each other to think differently and.
Helping our communities with needed support and resources and so.
Supporting the strong governance, we have in place to keep our business focus on what matters.
Our commitment to making a positive impact has never been stronger.
And we're looking forward to keeping the momentum going.
So in summary, we've gotten off to a good start in 'twenty or 'twenty two.
Our business and our people continue to demonstrate resilience in an increasingly volatile woodbine.
The need for enterprise software that can help our clients navigate these challenging times.
It's been a significant driver of our success.
And our transition to a software business.
Which is now nearly 100% subscription is paying off.
It enables us to shift our focus to balance growth.
With profitability.
And we continue to be excited about the significant opportunity in front of us.
And I have a lot of confidence in our team's ability to deliver on this opportunity.
To provide more color on the financial results.
I will turn it over to C O O N CFO Ken Stillwell.
Yeah.
Thanks Alan.
To start just a few highlights from the quarter.
<unk> grew 21% as reported.
There were about two percentage points of constant currency.
That went against US so 23% constant currency was a was a result of our ACB growth.
Correct and total backlog increased 20% year over year. Our total revenue also grew 20% year over year.
And you're starting to see signs of the completion of the subscription transition.
The improvements to margins.
Although I have and will continue to focus on total HCV I realize also that many of you pay much more attention to our peg a cloud offering which represented 60% 67% of new client commitments in the quarter.
The most important metric that we measure for success of our business during the subscription transition is growth.
Annual contract value or ACB, just as I mentioned ACD grew 21% as reported and 23% in constant currency to $1.034 billion at the end of the first quarter driven by continued demand for digital transformation.
In the last several years, we've invested to accelerate our ACB growth rate and are increasing our focus now on ensuring we realize the benefit from those investments through improving sales productivity and prudent cost management, although we're pleased with our ACD growth in Q1 of 2022, it's important when measuring.
Success of our business to look at a longer time horizon than one quarter, we focus on total weight TV growth for the full year and we are still early in our 2022 cycle that said our team has demonstrated that we can maintain strong ACD growth during uncertain times, our global pandemic shifting to remote work hard.
Your inflation and as Alan mentioned and unforeseen war in Europe are some choppy waters that our team has successfully navigated we haven't missed a beat when it comes to maintaining our ACB growth rate and that gives me confidence that we can continue to perform despite the uncertainties around us we're very proud of our team and I want to thank each and every pack employ.
<unk> for their ongoing commitment to our clients.
I'm excited that we're returning to some level of normalcy in the field.
Our field teams have begun doing increasing levels of face to face worked with clients, which is just awesome to see and we've also started to do in person regional events to engage with clients and prospects.
We were optimistic that client engagement in the second half of 2022, well look the most normal since 2019.
Moving to backlog backlog increased 20% in the same period to $1 2 billion backlog that will convert to revenue in the next 12 months also grew 20% to $654 million.
Turning to revenue revenue for the quarter was 376 million a 20% increase year over year powered by a 21% increase in total subscription revenue subscription revenue was $308 million in Q1, which is now about 82% of our total revenue as I mentioned last quarter.
We ended Q4 2021 with an unusually high term license backlog balance, which contributed significantly to the higher revenue performance in this quarter Tiger as reported revenue is typically strongest in Q1, and Q4 and soft during Q2 and Q3 we.
This trend to continue in 2022.
Also important to point out as we discussed on our Q2 2021 earnings call. We had an unusually high mix of client cloud last year in the first half of 2021, which makes for a tougher quarter revenue compare when thinking about the first half of two.
2022, when we started the year, we projected the 2020 to peg a cloud mix would be slightly more than 50% as.
As I mentioned earlier in Q1 2020 to peg a cloud mix was 67% and if that trend continues in Q2, which my early view suggests it's likely that we could it would also contribute to a lower amount of revenue in the first half of 2022 and have an impact to full year.
Our revenue of 2022, I've been consistent with saying that I care about total ACB and that's not changed but I thought that it would be helpful. In terms of connecting the mix of peg a cloud.
The reported revenue in 2022.
Now that we're in the final phase of our subscription transition, we're beginning to show signs of improving profitability were not fully complete with the transition yet, but our Q1 results are a good side that we continue to move in the right direction. For example, total gross margin increased and improved in Q1, driven by peg a cloud gross margin.
<unk>, reaching almost 70% in the quarter the highest level, we've ever seen for peg o'clock.
In the current environment, our clients are really working on improving cost efficiency and the use of pay there's low code intelligent automation tools is one of the most effective ways to tackle. This challenge. That's one of the reasons, we feel confident in our ability to grow regardless of the economic environment, We provide mission critical.
<unk> that help clients increase revenue and decrease cost we started the world's largest enterprises, who tend to weather economic uncertainty better than smaller organizations and we built a recurring revenue stream that features multiyear contracts with best in class renewal rates.
We get closer to the completion of the subscription transition our emphasis increasingly shifts to managing growth and profitability as we had planned I'm excited to see these improvements in managing profitability that indicate we are on track to become a rule of 40 company. We're very focused on continuing to build a high quality business that feature.
Profitable growth for the long term for all of our stakeholders as we've explained in the past we expect to complete the subscription transition in the middle of 2023.
Alan mentioned, our direct financial exposure to Ukraine, Russia, and Belarus is not material in 2021 before Russia's invasion of Ukraine, We made a business decision to stop pursuing new clients in Russia, and we closed our local office for the year ended December 31, 2021 revenue from <unk>.
It's located in Ukraine, Russia, and Belarus was less than $4 million and the region has never been a growth engine for us.
As you heard earlier peg a world as virtual again this year I welcome you all to attend to hear the latest about our clients' success project Phoenix and our solution innovation.
I'd also like to invite you to attend our annual Investor session, which will be held at our new corporate headquarters in Cambridge Mass, Massachusetts event is scheduled to start at 10, a M. Eastern daylight time on Thursday June 2nd and end around noon, we will offer both an in person option and a virtual option for attendees to register.
For this event, please email purger investor relations at Peg a dotcom speakers at our Investor session will include our founder and CEO , Alan traveler as well as leaders from our go to market and product teams and of course I'll be there as well and with that operator. Please open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from pendulum Bora with J P. Morgan. Please go ahead.
Oh, great. Thank you for taking the question and congrats on a pretty solid ACB growth here I'm, telling you you characterized the environment is the most volatile environment. He has seen in decades, maybe you help us understand what are you seeing in the field from a demand environment perspective, especially in the different theaters.
And maybe if you can double click on Europe any indication that there is.
Kind of a slight windows change blowing more scrutiny or any kind of signs that maybe youre not seeing or are you seeing that would love to hear and then Ken on that topic I mean.
I know you don't update guidance, but how are you feeling about hitting that E. C V guide for the year at this point.
So in terms of what we're seeing especially in.
In Europe , I would say being xiety level of clients is up.
Some ways that makes them more receptive to things that are going to improve their processes and automate I think there is more question.
In the minds of clients and by the way when I say, even decades I haven't been around now for.
Sure.
25 years of being a public company.
Lager in the business.
I can remember when inflation wasn't very solidly at this level, but much higher the anxiety level. Just goes up it's just natural when economic times are tough we tend to shift our value props to be much more focused on hey, how do we make sure the customer is going to get a return.
The six to 12 months.
How do you look to make it possible for them to save.
Save money and frankly deal with the unavailability of staff, which can be addressed in terms of both your operations work we do.
And in providing low code environment, because I think you're going to find that you're finding programming staff is going to get harder and harder and harder for our prospective clients. So there's there's go to market shift I would say it is.
It's it's definitely tangible in Europe .
But I think there is a level of global anxiety that we just need to acknowledge that.
Can you use that and how we tune our go to market messaging and how we just work as a company having seen this stuff before I have a high level of personal ability I think to.
Hopefully provide useful device, but it's it's there and it's real and I don't think it's going to be just us Jack Yeah. So I think the question that you asked pendulum was you.
You know how do we feel about the ACD range that we had talked about about a quarter ago, which which was which was kind of 20% to 22% is what we had said before.
I'd say, yes, there is.
At the scale of our business.
You know a percentage point is about $10 million of ACD growth I mean, the math is pretty easy.
[noise] herself.
So do I do I think that.
There is a you.
You know risk in the market now that wasn't there six months ago. Yeah, I think I think that's a fair point do I do I think that that changes the prospects for panga or the or the solutions that we have and the value proposition or quite frankly, even the demand environment of our clients I don't think it does actually.
I definitely think there will be it won't be like Allen mentioned, the trick will be making sure. We put the right capacity on the right verticals in the right organizations to capitalize but I think when with inflation I don't think our clients are looking to stop investing in digital transformation I actually think they need automation to deal with the labor.
For shortage and the cost of labor issues that are in those markets. So.
I'm I'm I'm optimistic that that will work in our favor, but yes, there is definitely uncertainty in the market.
Understood. Thanks for that thoughtful answer and one more for you can it seems our solid results in the pick a cloudy CV growth tweak with into the Forty's, but I wanted to ask you about the cloud backlog grew its when I look at the cloud backlog growth that seems like decelerate did with P. C V accelerated she goes to.
More typically you know directionally aligned is that means that maybe FX acting up on an IPO.
So FX actually hits a C. D N R. P. L. So FX is definitely a couple of points of headwind on both of those numbers, but no I think the point you're on.
In a perfect World RP O and AC D go in lockstep, but unfortunately, we don't have 25000 clients to kind of like kind of normalized the growth. So we are subject to when renewals happen for certain clients. In Q2 was just not I mean excuse me Q1 was just not a big renewal.
That's really what you see in digital and it's not as though your your assumption is right. They should connect but some quarters. They just they they diverge because of that the timing of renewals.
Got it very clear thank you for taking the questions and congrats.
Thank you.
The next question is from Steve Koenig with S. M. B C. Nikko. Please go ahead.
Thank you hi, gentlemen, congrats on the quarter.
Maybe just a question for Ken and then a follow up for Allen.
Ken maybe a maybe a multi part question that could be related.
So a good peg a cloud mix in Q1, and you're seeing signs of a similar mix you know, 67% I think in Q1 was what it was but you're seeing signs of a similar.
In Q2.
What is your thinking on kind of the durability of that trend is it are you do you think peg is going to keep moving up from you know it's been kind of we thought it was gonna go about 50 to 60 and then it was kind of more on the 15th of last year.
And I know that it's hard to predict where it's going to end up and they'll always be prem clients for a while but but is that gonna be sustained a sustained upward move from here what is what is your thinking.
Well I'll give you my thoughts and then Alan can I can give his as well because we got and so my comment about Q2 is really based on the visibility I have of Q2, which is driven by specific deals and pipe. If you go out past a quarter or two naturally you know in any company pipeline starts to become less credible when you're too.
Three or four quarters out is as we all know I don't know I honestly don't know where the trends will happen in the marketplace. What I do know is Q1 was a pretty strong pack of cloud quarter in Q2 looks to be the same and even if the even if the Q3 and Q4 revert back it still wont have an impact for revenue in 2022, we can't.
You know you can't kind of reverse one actually cause deal.
I do I think that it will go the other direction like client cloud will be 70, but I don't see that happening, but I I don't really have a great crystal ball to say.
And the cloud is like here to stay and it's gonna be a you know continuing to outgrow, Ohio, I know everybody wants that to happen, but just being honest I just don't know our got it got it.
So I would say that the client receptivity to peg a cloud.
Posed to work.
The message of cloud choice.
Think is a terrific company message to have is differentiated from a lot of companies and I think it gives customers and will in.
The future of your customers.
Level of.
Sure intellectual freedom that there, they're making something to do with the choices are having said that the fact that we were kind of like two two to one.
Getting a bigger club, where historically, our kind of thought of it as kind of a one to one sort of thing so that's great.
I'm seeing that level of receptivity.
In the short term as well, whether it's going to continue through Q4.
Well, that's what these things are hard to know, but the clients would be very successful I think we increase.
Margins here, which shows that we're viewing.
Recently effective at being able to work with our clients in these environments. So I view that as kind of it's kind of all good and to be honest clients moving to the cloud in general.
I think there are triggers a lot of need for a system like backup.
To help them coordinate in some cases there are other systems, which is a big part of the process fabric concept that we introduced a lot of peg a world.
We'll be talking about more this year.
It was all about it's the idea of being able to have a set of our interconnected architecture without putting everything on one big infrastructure, which I can guarantee you.
We're not gonna be like Doctor So yeah.
Yeah, that's correct, it's going to be due to one I'd love to see that.
Got it got it okay, great and if I could ask a follow up.
So acts.
Actually can I did want to ask you about your trajectory towards the rule of 40, you know what what are you thinking timing wise, just remind us and then Alan I wanted to ask you when it comes to low code competition.
You know if I were to characterize you know peg as traditional reputation as being.
I would've said the BMW on the Autobahn the I'll say, the Tesla, the Autobahn and apologize to BMW.
But you know some of the other low code competitors being more like an N G and a road rally to the suburban streets.
From a technology and product perspective, maybe give us an update on your your intentions and your ability to compete in that road rally as opposed to the Autobahn.
In addition to the Autobahn thanks very much.
So.
Yeah, I've always you know in the days before electric cars I've always prefers a mack truck analogy.
So the up the auto analogy, we want to be the company that is capable of who are our customers do the lifting they need to do as opposed to.
You know getting started and running out of runway.
Low code space, it's full of lots of companies I would say that a.
A lot of the competition that I, what I would describe as a kind of very low and is not actually I don't believe are going to compete with what our core value prop is which is to be able to help organizations that are working with multiple product lines multiple types of customers multiple geographies.
We've got even for companies that aren't enormous we've got a very unique and differentiated approach to thinking about that and we are doing everything we can to continue to make that.
Youre more accessible easy to use cloud helps a lot.
And we're going to continue to continue to push on that but I think the movement to low code.
Or.
Model driven as I've always liked to talk about it.
As.
You won't find another company that has been more in that way and I think there's a greater understanding of what that means.
Tiger and I see that some of the competitors that are coming in and you see companies like Microsoft start to talk about this.
It's companies took a spin out I don't know if he gets worked out forgot currently for them I think we are still highly distinguished and we are.
Are doing everything we can to well think about opening that aperture with large companies and overtime smaller ones.
And taking the first part of your question, Steve So and I I I I didn't I'm not I didn't intentionally.
The coy on this answer but I'll be much more specific now we are not going to be a rule of 40 company. In 2022, we are not going to be a rule company a rule of 40 company in 2023, because we are just finishing the clock the subscription transition in 2024, we will be a rule of 40 company it may be.
A few quarters before the end of 2024, so think about us hitting it like middle of 24 to the end of 'twenty four and you may say well I thought you said the subscription transition was ending in the middle of 'twenty three it will but you wouldn't really be a rule of 40 company until the next 12 months after it and so on.
I'm kind of targeting instead of playing around with quarters I'm just going to say 2024, we should be a rule of 40 company. If we're not then we have work to do that's on us, but that's our target.
Great. Thanks, so much guys.
Yep Thanks, Steve.
Next question is from Rishi Deloria with RBC. Please go ahead.
Oh wonderful. Thanks, Thanks, guys for taking my questions really good to see peg it cloud.
Celebrate from last quarter.
What one multipart question for Ken just on on better understanding the cloud dynamics.
I have a follow up for Alan So Ken on the cloud ACB side I wanted to maybe expand on the answer that you gave earlier on.
Clottey CD growth versus a cloud RP O growth part one can you maybe remind us.
The dynamics are a waterfall.
Peg it cloud a C D accelerating to win that translates to peg a cloud revenue growth accelerating because that line did not pick up this quarter.
And then maybe alongside that.
If we look at current cloud or P. L. A that actually ticked down sequentially for what I believe is the first time ever I at least as far as you've been going down. This cloud transition I know, there's some FX headwinds there is that purely putting the FX help aside is that purely just deal timing.
And there may be a lag from when it gets signed SEC D. So you can recognize it as as RP O under GAAP.
And and and and and ease or is there something else there that we should understand and I've got Paul Brown.
So I'm going to start with your P. O. One no there's no timing when we book when we book a deal Richy. It goes into a C. D. It goes into RPM, there's no acceptance clauses or anything like that if there was it wouldn't go into either meaning you wouldn't even see it wouldn't be an RPI wouldn't be it's surely the timing of renewals.
That's the only variability that happens with RP O is the there's two its duration its contract duration and we're not we're not booking shorter contra.
Contract duration, but there is the dynamic of renewal timing and next quarter. We could have the complete opposite happened I'm, just that's a hypothetical comment but like it could absolutely. So don't even for me I would say our P. O is a confirming indicator. It is it is not it is not there.
Nothing Murphy in there its just renewal timing on your first point around when will he got cloud rather than a C V convert to revenue with that growth rate.
Whatever is in peg a quality ECB right now.
We will be the next 12 months of revenue that's the way to think about it. So whenever you see at a C D and I understand currency messes with this little bit, but you shouldn't you shouldn't be able to we should be able to predict that that will be the that would be a kind of revenue compare so whenever we ended a whenever we ended up.
Hey, good quality ECB at the end of Q1, 'twenty, one compared to Q1 'twenty two effect grew 42% that would be a very good directional indicator of the next 12 months are pegged at cloud revenue compared to the last 12 months. So that's the way to think about it.
Got it Okay. That's really helpful. And then Alan I wanted to build on some comments you had kind of made earlier, which was just thinking about the macro environment, but one of the pieces that you didn't touch on as much is yes, a tough hiring environment out there and a few of your peers that that also deal with automation and in.
Different ways, so not competitors, but more adjacent.
Talk about how the the labor shortage out there is actually serving as a tailwind for them right that that there is more importance on making your existing employees are more effective and more productive and and and that's that's serving as a catalyst for demand is that something you're seeing you know outside of your own hiring how are you thinking about you know how you may be.
Benefiting or how was the labor shortage is maybe impacting the demand environment for you. Thanks.
Thank God the shortage of labor is positively impacting how people are receptive to what we do and the <unk> to.
To be blunt the increased volatility of the workforce you know the whole grain resignation and people worried about the ability to retain.
People means that you need to be able to have in the.
<unk> realm better processes.
Those are going to be dealing with people who might not have quite the depth of experience and then the tactical realm you Ya.
You need to frankly require less.
Nickel expertise.
Because retaining some of their technical expertise.
To be blunt harder.
And more expensive.
So both of those I would say are structurally very positive and that's not going to go away I do think you have businesses trying to figure out what the current inflation levels mean.
And that just naturally in any business is going to have some adverse effects was gonna make them worry about the size of the commitment Fisher Meg other types of things of that type, but a positive and I think that structurally positive.
The other question I'm, sorry, I figured it ultimately very very positive for our business.
Alright wonderful thank you guys.
The next question is from Joseph mirrors with Truest. Please go ahead.
Hey, Thanks for taking the question I appreciate it.
I believe last quarter, you noted that sales productivity was slightly below 50% can you just remind us how you define sales productivity and then what do you think that number what that number looks like today and what you think it could be exiting 2022.
So yeah, let me clarify Joe what I, what I said was.
And I know, we all in industry use different terms, so I might have I might have confused what I said was that we had slightly less than 50% of our sales reps that were that were at a at a fully ramped to stage right, which means that they had tenure.
Greater than they were tenure in that in a cycle, where we felt like they would be kind of more normally productive and that number is still below 50% as of the end of Q1 that was what I was talking about in terms of.
We use productivity measure is a little different because we expect different productivity in their first year their second year of their third year. So if you want to drill into that question, but just wanted to clarify.
Yeah do you have an expectation for what that what that would be by the end of by the end of 'twenty and then just as a follow up question.
Never added another logo, what's the current revenue opportunity within the current customer base like what's the maybe the percentage penetration from a revenue perspective of the customer base. Thanks. So much yeah. So let me let me touch with your first question and all in all I'll give you a perspective on the second question and then Alan can chime in on the second part of your question too so the.
The first question was you asked where do we think we'll be at the end of 2022.
Aye.
Just like just like I don't want to predict I didn't want to predict the end of Covid I'm, a little cautious on predicting the end of high attrition, but I would say that that every statistic that you see in the market would suggest that the attrition, it's not getting worse in Q1 and Q2 than it was last year. So that's a good sign for us because naturally we're going to see.
Attrition too and then it's hard to get so I would hope that by the end of 2022 would be no worse off than we are now and hopefully slightly better in terms of the percentage of sales reps that we'd be getting into that productivity. We have a we have a lot of salespeople that are in that one to two year period. So we are hoping many of those just kind of shift over that two year.
Not magic, but it certainly does help it helps that the statistical productivity the second.
The second question Alan do you want to.
Give a perspective on the second part of his question.
Yeah.
So you don't.
Yes.
In terms of how I think of productivity, which I think is worthy.
Could you repeat the second part of your question again, Yeah, Yeah sure.
The question was if you never added another logo.
Robert So much Wayne.
Sorry, we don't have enormous yeah, we have an enormous amount of them.
A white space with our customers I would tell you that if you looked at our top.
2025 customers and asked how thoroughly penetrated we were in those.
You would you would conclude that we were under 25% penetrated we could grow usually a several hundred percent without adding a single logo. We trust me, we don't want to have the occasional lager arm and I think adding new logos is good but I'm really focused I think at this time about trying to make sure we're cultivating our relationship.
Trips with these marquee organizations that in my view, we're going to do the best.
In this more difficult and uncertain time in the next two years. So we are we have a tremendous amount of white space.
Our current organization and that gives me a lot of.
Let me give some reassurance frankly.
And I'll give you a more of a statistical answer to that Joe we have about 100 logos ballpark 800 clients. We left the 200 of those spend a million dollars with us and many of them could spend 2025 $30 million without some of them can spend 100 million or more with US just if you just do the math.
Like it works out that you'd probably have you know years and years actually booking potential for us like more than five years, maybe five years right of runway just to be able to just grow those 800 look that's not to say that's our goal right. We do want to grow logos as well, but I just think it's important just from a perspective we are.
So many fish in the ponds that we've already kind of got fishing like we don't need to go and go into new regions and new logos and it is helpful to get new logos of course, but I do think there is a lot in our in our in our core customer base.
That's great. Thanks, so much.
The next question is from and please excuse any mispronunciation <unk> vascular Gavin from Barclays. Please go ahead.
Thank you for the question and nothing bad on the pronunciation.
Uh huh.
And that you guys had mentioned some of the peg at Infinity features Union leaders beliefs, and you know I thought the service industry workflows look pretty interesting I'm.
Just to clarify are these bundled packages and are you able to monetize them at higher prices.
Well there are two ways, we monetize that is one awesome down on costs.
For some of the pads some of the add ons and additional capabilities that we have and the other is all of these drugs.
Our pricing works the way, we think about it is the more work the customer does using our system.
The more there's a pack and so to the extent these also drive additional workloads.
From our customers, but also creates the expansion potential.
As you as you continue to spread out and discussed so there's been some incremental cause I think.
Greg its value comes from being able to open up new opportunities when customers decide they need compassion to collections and they do some of the types of things that we can do it well that opens up whole new functions that we might not be yet.
And many of those 800 customers for example, who I was talking about.
Got it and you guys mentioned kind of NR are in the mid teens from time to time.
Fair to say that it's still kind of in that range or have you seen any kind of movement in either direction.
Our net retention rate has actually been going up slightly over the last few years and a little bit of that as COVID-19 right. Because we actually have sold to existing logos. So I'm not sure that that is a little hard to say, whether that's like the actual just the trend of like virtual selling or whether that's something but yeah, but with mid teens.
That's kind of where we still set.
Got it thank you.
The next question is from Mark Chapell with loop capital. Please go ahead.
Hi, Thanks for taking my question and nice job on the C D printed.
For you starting off you know building up your partner programs has been a big initiative at the company over the past few years, especially you're building up your global I'm, sorry, our practices.
Can you just discuss as much as you can how much of a role your partner programs contributed to the Oh.
ACD print this quarter.
Well I think partners are.
Super important for us and being able to work with our partners, particularly to make sure that our footprints are expanding in those.
Few organizations that we've identified is something that is absolutely central to our level of partner attach is extremely high and I would say is contributed to the results. This quarter I also think a contributor to some of the results.
Last year as well so it's not that's not all brand New board will go to <unk>.
And Oh.
I think that we've got deeper and broader relationship with burgers than ever before so mark one clarification, because I get this I get there is sometimes an investor discussion Park partners for some companies are completely new distribution channel, which means you go set up a partner you say you're going to sell in the U S. Latin America for US partners I would say are less.
Relevant for us there than they are in the actual largest organizations like that we want to go arm in arm with our partners and the logic is there they're the largest clients for our partners as well, so that's where it's really and I know sometimes.
People get confused about thinking about us going down market going into new territories or new regions or new logos, it's it's less that and really working arm in arm with our partners on exactly the logos that we both want to support.
Great. Thanks, and then as a follow up.
A question on staffing you know the company has always had relatively aggressive hiring targets I was wondering if you'd just give us a sense of whether you're on plan hiring wise. This year. So far I know, it's still early in the year, whether you're a little bit behind and then also along those lines.
Are you having to raise comp more so than normal just to stay competitive.
Well I'll answer the second question first.
No question.
<unk> is a hiring organization is subject and has been subject and we've done quite a bit of work with.
Our team to understand what we need to do to make sure that we stay competitive from a compensation point of view and we're seeing you know, particularly for some roles some pretty material increases and we're thinking about how this affects our overall staffing plan. So I think if you asked me.
A year ago, where we would be at the end of this year. So you don't think it was more than a 12 month sort of period I would've expected that.
We probably have more staff than I believe at the end of this year, we're going to end up having because we are trying in a per yoga ken's commentary on trying to make sure. We're being financially responsible if we are in fact, raising com Oh, we need to make sure we're getting.
Absolutely top notch people will give them tremendous value from them retaining we have a lot of great talent retaining great talent out of that cost more than it will for my mind unquestionably influence. The end of your staffing numbers that we end up targeting and frankly, all companies will end up targeting which by the way I think.
Can be good for productivity software.
It does have a virtuous sort of back into it.
Makes sense.
It does thank you I appreciate it that's all for me.
Excellent.
The next question is from Joey Marin checks from JMP Securities. Please go ahead.
Great. Thank you so much for the question earlier can you mentioned about making sure you're putting the right capacity in the right verticals. So from a vertical perspective, where do you feel like you have the most room to run within the current client base and then separately how do you think about your ability to move down market overtime.
The work you're doing projects.
Thank you so much.
I'll, let Alex take the second part of that about going with project Fenix.
Look the we are verticals.
The two the two that.
Our clearly immense.
Size are certainly public sector and financial services or other verticals are.
Very large as well, but I think those two just if you go and look at that.
Just look at the market data that would suggest that those two are very large for automation and certainly platform companies.
Companies like peg.
But I think we're not quite.
Clarify, we're not looking at new verticals and in a way that we're saying we think we're sold out in our existing verticals or that we somehow cannot expand in those verticals, where we have to go too far down market. So if you think about the verticals that we're in many of those verticals are going to have the same use case of trying to manage automation.
Cause cost of labor and accessibility to labor is very challenging in 'twenty, two and beyond and so the use case, it's kind of a horizontal use cases really around automation. So in kind of an interesting way, it's actually not really as much vertical specific in terms of the problem that you're solving its more of a horizontal solution and so with that I just think there.
I think theres almost opportunity everywhere because every single company is dealing with labor every single company is dealing with inflation and what we aim to do is help them with that at least one angle that we take all of our solutions is certainly to help them be more efficient.
That is very relevant now I kind of view it is almost more of a horizontal problem that gets verticalizing young and relevant.
The project Phoenix, I mean, I think you're seeing the evidence of the results of project Phoenix in our improved cloud margins project Fenix helps the entire client base.
Yeah that includes broke some of our very large customers who want to make sure that our architecture is extremely current.
There are about that as well as offering us the potential for other market choices as we go forward I would just tell you based on my experience times of enormous enormous uncertainty are not the right moment.
Oh wholesale push.
Down market you know.
And regardless of the readiness of our technology, that's not the right place that we should be focusing in my view.
In.
To be candid probably for the rest of this year.
If I put the let's talk about next year on that and it's great to be able to have other things to think about there, but Phoenix is alcohol wine I think you're going to see some of the results very clearly and some of the improved margin numbers.
That's super helpful. Thank you so much and congrats.
Thanks, Sean.
The next question is from Fred Haven Meyer with Macquarie. Please go ahead.
I hope everyone's well I really just wanted to check in on Europe from two different points here. Firstly I wanted to just check and ask are you seeing any impacts in terms of your partner's ability to.
To be able to work on and deliver applications because of some of the disruption to eastern European Outsourcers and systems integrators.
And then secondly, looking at some of the EMEA results here, obviously, there's a lot going on in the world is quite anxious I'm. Just wondering if you could kind of contextualize regionally, where youre seeing the pockets of strength or weakness within Europe . Thank you.
So I'll take the first part of that and then Alan you could tell us. So we don't have you know our are our partners and our clients.
I don't have a tremendous concentration of <unk>.
Process outsourcing happening in eastern Europe .
The Asia Pacific more so.
From that standpoint, there hasnt, we have not seen other than just the emotional distraction of everybody knows someone that's affected by this this.
The situation there is not large are clients of ours that had huge centers in those regions that are not able to operate so that has not been in I don't know something he was out from our partners and the partners that we have the al don't have large for example, Ukrainian.
Technology operations like some companies do so we're just happen to be fortunate obviously, we individually as a firm are.
We're very sensitive to what goes on in Poland.
But the team is just frankly been doing remarkably well.
On every front.
Julian with humanitarian issues as well as continuing to be a highly effective team.
I'm pretty pleased there you were asking about the business environment and unpredictable, Germany, which is such a powerful economy there.
Yeah, they're still trying to figure out what this is all going to me.
So.
I think as I said earlier, that's just a time of.
Enormous uncertainty and I think the closer countries are physically to Russia.
More uncertain.
It is for them.
From a business perspective, our exposure to both of those.
Eastern European countries. After Russia itself is nominal so that's not going to affect us directly but indirectly I think.
We're all guessing exactly what's going to happen there over the next 60 days.
Just trying to be candid about it.
Okay.
I think that was.
Okay. This concludes our question and answer session, Let's turn the conference back over to Allan Tessler for any closing remarks.
That's good argument for Tommy just waiting for that invite John Thank you very much everyone I'd like to make sure that in closing.
All of you have on your radar pedal world.
Go to the website Register.
Going to be a very exciting two and a half hours I promise you that thank you very much everyone.
The conference has now concluded thank you for.
Attending today's presentation you may now disconnect.
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Yeah.