Q4 2023 Pegasystems Inc Earnings Call

Good morning, My name is Jamie and I will be your conference operator today.

Operator: Good morning. My name is Jeanne, and I will be your conference operator today. I would like to welcome everyone to the Pegasystems Q4 and Fiscal Year 2023 Earnings Conference. All lines have been placed on mute to prevent any background noise.

Jamie: I'd like to welcome everyone to the Peg a systems Q4 and fiscal year 'twenty twenty-three earnings conference call.

Jamie: All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again.

Jamie: After the Speakers' remarks, there will be a question and answer session.

Jamie: If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad.

Jamie: If you would like to withdraw your question Press Star one again.

Operator: Thanks. I would now like to turn the conference over to Peter Welburn, VP, Corporate Development and Vestamer Relations. You may begin your presentation. Thank you, Jeanne.

I would now like to turn the conference over to Peter Welborn, VP Corporate development Investor Relations you May begin your conference.

Peter Welburn: Good morning, everyone, and welcome to Pegasystems' Q4 and full year 2023 earnings call. Before we begin, I would like to read our safe harbor statement. Certain statements contained in this presentation may be construed as forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. The words expects, anticipates, intends, plans, believes, will, could, should, estimates, may, forecasts, and guidance are variations of such words and other similar expressions.

Peter Welborn: Thank you Jamie good morning, everyone and welcome to <unk> Systems' Q4, and full year 2023 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.

Peter Welborn: <unk> expects anticipates intends plans believes will cope will could should estimates may forecast and guidance or variations of such words and 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.

Peter Welburn: 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. Actual results for fiscal year 2024 and beyond could differ materially from the company's current expectations. Factors that could cause the company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q4 2023 and full-year earnings and in the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2023, and other 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.

Peter Welborn: They are subject to various risks and uncertainties actual results for fiscal year 2024, 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 Companys press release announcing its Q4 2023 and full year earnings and then the companies.

Peter Welborn: Filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2023, and other recent filings with the Securities and Exchange Commission 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.

Alan Trefler: Although subsequent events may change our views, except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise. And with that, I turn the call over to Alan Trefler, founder and CEO of Pegasystems Inc. Thank you, Peter, and to everyone who's joining today's call. It's terrific to see how well the team performed in 2023.

Peter Welborn: Although subsequent events may change our views to change except as required by applicable law, we do not undertaken specifically disclaim any obligation to publicly update or revise these revise these forward looking statements whether as the result of new information future events or otherwise and with that I'll turn the call over to Alan traveler.

Alan: <unk> founder and CEO of <unk> systems.

Thank you Peter.

Everyone, who is joining today's call you have terrific to see how well the team performed.

Alan: 2023, the organization responded to our new go to market strategy and we finished the year with a very strong Q4, we continue to deepen and expand our client relationships. We have been doing a terrific job I think of applying AI to introduce innovative industry changing technology.

Alan Trefler: The organization responded to our new go-to-market strategy, and we finished the year with a very strong Q4. We continue to deepen and expand our client relationships. We've been doing a terrific job, I think, of applying Gen AI to introduce innovative, industry-changing technology, and we generated a good mix of growth and cash flow, which Ken will discuss in more detail in a few minutes. Now, this year continues the important themes we've been talking about.

Alan: Generated a good mix of growth and cash flow, which Kevin will discuss in more detail in a few minutes.

Alan: This year continue the important themes, we've been talking about and I'm more convinced than ever.

Alan Trefler: And I'm more convinced than ever that there's still amazing opportunity for growth within our client base, and I'm confident in our org-focused, deep engagement model. I continue to engage with our most senior clients, most recently in Davos for the World Economic Forum annual meeting.

Alan: Amazing opportunity for growth within our client base.

Alan: Confidence in our <unk>.

Alan: Org focused deep engagement model or <unk>.

Alan: To engage with our most senior clients most recently at Davos The World Economic Forum annual meeting.

Alan Trefler: I talked to dozens of C-suite clients and partners about how they're responding to change, their business opportunities, the challenges, and plans for 2024 and beyond. AI is still central to almost every client conversation as they continue to try to understand and explore where and how to leverage AI effectively and safely in their organization, and we're showing them how Pega can help.

Alan: Dozens of C suite clients and partners about how they're responding to change their business opportunities the challenges.

Alan: For 2024 and beyond.

AI is still central to almost every client conversation as they continue to try to understand and explore where and how to leverage AI effectively and safely in their organizations.

Alan: And we're showing them how <unk> can help these conversations reinforced for me that.

Alan Trefler: These conversations reinforce for me that what we have is unique and perfectly suited to entrepreneurship. I couldn't be more excited about the incredible opportunity to leverage JetAI and revolutionize the way clients use our technology to drive success in 2024 and beyond. Let me tell you why Pega is perfectly positioned to help clients deliver on the Gen AI opportunity. Since our founding, we've been incorporating the principles of AI, generally, statistical as well as now generative, into our offerings and really focused on building products designed for the needs of sophisticated enterprises. Our clients come to us because they want to transform their businesses to become more efficient, more profitable, or improve loyalty, creating better experiences for their customers and employees. And our enterprise AI decisioning and workflow automation platform enables clients to unlock business-transforming outcomes with real-time optimization and continuity. You can find great case studies on our website that explain how our clients are using the software to, one, improve customer engagement by customizing conversations real-time at their scale.

What we have is unique and.

Perfectly suited to enterprise needs.

Alan: Shouldn't be more excited about the incredible opportunity to leverage <unk> AI and revolutionize the way clients use our technology to drive success in 2024 and beyond.

Alan: Let me tell you why peg is perfectly positioned to help clients deliver on the journey II opportunity.

Alan: Since our founding we've been incorporating the principles of AI.

Alan: Generally statistical as well as now agenda into our offerings and really focused on building products designed for the needs of the sophisticated enterprise.

Alan: Clients come to us because they want to transform their businesses to become more efficient more profitable or improved loyalty, creating better experiences for their customers and employees.

Alan: And our enterprise AI, Decisioning and workflow automation platform enables clients to unlock business transforming outcomes with real time optimization and continuous improvement you can find great Doug Great case studies on our website.

Alan: Explain how our clients are using the software too.

Alan: One groove customer engagement by customizing conversations real time at scale for instance, Wells Fargo describes how theyre using our customer decision hub to provide targeted and relevant responses to the billions of interactions they receive monthly from customers.

Alan Trefler: For instance, Wells Fargo describes how they're using our Customer Decision Hub to provide targeted and relevant responses to the billions of interactions they receive monthly from customers. Secondly, to enhance client service through AI-powered guidance that delivers amazing experiences for customers and employees, boosting loyalty, supporting retention, and driving down costs. Affleck describes on the website how we're simplifying and automating the processing of thousands of emails per week from intake to resolution, improving customer and employee satisfaction. And finally, what we've always done, streamlining operations by automating operations with intelligence. This is what Lloyds talks about, automating their business processes to resolve fraud and dispute cases faster and more effectively, even while on the phone with the client.

Alan: Secondly to enhance client service through AI powered guidance that delivers amazing experiences for customers employees boosting loyalty and.

Alan: Supporting retention and driving down cost.

Alan: That defy described on our website, how we are simplifying and automating the processing of thousands of emails per week from Integra resolution, improving customer and employee satisfaction.

Alan: And finally, what we've always done streamlining operations by automating operations with intelligence. This isn't Lloyds talks about automating their business processes to resolve fraud and dispute cases faster and more effectively even while on the phone with required.

Alan Trefler: These results are what matter to our clients. They're looking to transform their businesses, not simply crank out more code. So when we apply GenAI, we're not just using it to generate code.

Alan: These results are what matter to our clients. They are looking to transform their businesses not simply crank out more code. So when we apply AI, we're not using acute generate curve, we're using it to optimize the business concepts adhering to best practices for example, suggesting the most efficient.

Alan Trefler: We're using it to optimize business concepts, adhering to best practices. For example, suggesting the most efficient and effective way to process a mortgage or insurance claim or how to create the best offer and marketing treatment for a client. We have a unique structure built around this. An enterprise has processes, rules, data models, UI, all of those are organized into layers, so they can be built on, reused, and specialized to support the needs of different product lines, customer segments, or geographical jurisdictions that an enterprise might need to manage.

Alan: The effective way to process, our mortgage reinsurance clients or how to create the best offer in marketing treat refer clients.

Alan: We have a unique structure built around business concepts and enterprise process rules data models UI all of those are organized into layers. So they can be built on reuse and specialized to support the needs of different product lines and customer segments or geographical jurisdiction.

Alan: Is that an enterprise might be to merit.

Alan Trefler: This layered architecture is the perfect architecture for Gen-AI and what I believe gives Pega a unique advantage because we use Gen-AI not to write code but to directly author, control, and influence the business concepts themselves. This unique layer keg architecture has enabled us to develop, integrate, and deliver new JED-AI capabilities and services very quickly, and it's based on a patented architecture that we've studied and evolved for decades and can't readily be copied or reproduced. I think this gives us a clear competitive advantage. So, in terms of our strategy for this year and next, there are four major areas where we believe our approach to Gen AI will drive a massive impact for our clients and for PECA. First, we're looking to double developer productivity in Pega with Pega skills always at their fingertips.

Alan: This layered architecture is the perfect architecture for generic.

Alan: And what I believe gives <unk> unique advantage because we use the journey II not to write code, but to directly offer and control and influence the business concepts themselves.

Alan: This unique layer CAGR architecture has enabled us to develop integrated deliver new jet AI capabilities and services very quickly.

Alan: Yes based on our patented architecture that we've studied it evolved for decades and can readily be copied or reproduced I take this.

Alan: This gives us a clear competitive advantage.

Alan: So in terms of our strategy for this year or next there are four major areas. We believe our approach to jet AI will drive a massive impact for our clients and four paragraph.

Firstly, we're looking to double developer productivity in CAGR with Pegasus skills always at their fingertips.

Alan Trefler: Second, we're looking to ignite enterprise innovation by being able to bring together industry expertise, pedagogy, the wisdom of the internet, and our clients. Third, we're looking to try to maximize revenue and efficiency for our clients by giving them real-time optimization and personalization of customer interactions and making it so that they can continually optimize. And finally, being able to streamline work processes and customer experiences by giving the right people instant access to the right real-time systems and capabilities so they can literally get the work done.

Alan: Second we are looking to ignite enterprise innovation.

Alan: By being able to bring together the industry expertise header technology, the wisdom of the Internet and our client insights.

Alan: Third we're looking to try to maximize revenue and efficiencies for our clients by giving them real time optimization and personalization.

Alan: <unk> of customer interactions and making it so that they can continually optimize.

Alan: And finally being able to streamline work processes and customer experiences by giving the right people.

Alan: Access to the right real time systems that capabilities. So they can literally get the work done let me tell you how we're delivering on the strategy today and what to expect in the future now we started by introducing 20 Gen. AI boosters as part of Purger Infinity 23, as the fourth quarter <unk>.

Alan Trefler: Let me tell you how we're delivering on the strategy today and what to expect in the future. Now, we started by introducing 20 Gen-AI boosters as part of PEGA Infinity 23 in the fourth quarter, supporting our goal of improving developer productivity and showing our clients how these tools can be used safely and responsibly. We launched an interactive demo on our website that lets clients immediately experience the power of our GenAI capabilities. You enter the description of a business process you want to optimize, and Pegagen AI helps you design the optimal process, the stages, the steps, the data model, the user personas, all in seconds. It's available to any... And since its launch, thousands of visitors have experienced the demo, entering workflows from client onboarding to 5G network rollout, and we're hearing terrific things. Get on it.

Alan: Putting our goal of improving development productivity and showing our clients. How these tools can be used safely and responsibly, we launched an interactive demo on our website that lift clients immediately experienced the power of our Gen AI capabilities.

Alan: The description of our business process, you want to optimize and Petro jet AI helps you design the optimal processes that stages. The steps the data model the user personas all in seconds. It's available to any of you since its launch thousands of visitors have experienced with demo entering workflows from.

Client Onboarding, two five <unk> network rollout and we're hearing terrific tax do get on try it yourself.

Alan Trefler: And in the last few weeks, we announced two new powerful offerings that I think are going to be game-changers. The PEGA-AI Gen-AI Knowledge Body and the PEGA-Gen-AI Blueprint. The KnowledgeBuddy is an enterprise-grade generative AI-powered knowledge assistant to quickly and easily help customers and employees get specific answers based on a company's own content, but synthesized by generative AI. So employees don't have to search across silos and scattered knowledge bases. Now, there are lots of Gen AI-based assistants in the market that ingest content or answer questions. But when we looked at them, we think that they're generally not built for true enterprise needs.

Alan: And in the last few weeks, we announced two new powerful offerings that I think a very good game changing the.

Alan: The peg.

Alan: AI generally acknowledged body and the <unk> blueprint.

Alan: The knowledge body is an enterprise grade generative AI powered knowledge assistant to quickly and easily help customers and employees get specific answers based on a company's own continent, but since have sympathised biogenerative AI.

Alan: Employees don't have to search across Siloed and scattered knowledge bases now they're allowed to gen. AI based assistance in the market that ingest content or answer questions, but when we looked at them. We think that they are generally not built for true enterprise needs. So we've designed a product that has fortified with enterprise grade integration.

Alan Trefler: So, we've designed a product that is fortified with enterprise-grade integration, auditing, and controls. It puts organizational knowledge at employees' and customers' fingertips, allowing them to ask questions through simple conversational interfaces and get specific, accurate, and concise responses with transparent attribution to where the source content is. We're using KnowledgeBuddy to embed all of PEGA's documentation and support library into our design environment, so developers can easily find answers about how PEGA can make them more productive and operate faster and with less training.

Alan: Auditing and control it puts organizational knowledge and employees and customers fingertips, allowing them to ask questions with simple conversational interfaces and get specific accurate and concise responses with transparent attribution to where the source content is coming from.

Alan: What are you using knowledge baidu to embed all the pegs documentation and support library into our design environment. So developers can easily find answers about how peg can make them more productive and operate faster and with less training. This powerful combination of our innovative AI architecture with security features music.

Alan Trefler: This powerful combination of our innovative AI architecture with security features means that our clients can use this latest technology and feel confident and safe, knowing they're adhering to high standards of trust and responsibility. And just a few days ago, we announced something I think is going to be truly remarkable as it develops. It's the PegUp GenAI Blueprint.

Alan: Our clients can use this latest technology and feel confident safe knowing they're adhering to our high standards of trust and responsibility.

Alan: Just a few days ago, we announced something I think is going to be truly remarkable as it develops.

Alan: Jen AI blueprint. This is a collaborative SaaS application that automate enterprise grade workflow application designs.

Alan Trefler: This is a collaborative SaaS application that automates enterprise-grade workflow application designs to catalyze enterprise innovation and significantly increase developer productivity. I'm going to ask Priya McKinnell, our Chief Product Officer, to tell you about this groundbreaking project. Great. All right.

Alan: Catalyze enterprise innovation and significantly increase developer productivity.

Alan: So to ask Scott <unk>, our chief product officer to tell you about this groundbreaking product Bret alright. Thank you. Thank you Allen.

Priya McKinnell: Thank you. Thank you, Alan. Yes, the Gen-IV Blueprint is very, very exciting. And it really stems from the fact that we all know that traditional design processes are often unsuccessful and are always very time-consuming, mostly because they don't really stimulate design thinking, they don't drive a vision, they don't really drive stakeholder alignment. And these days, most generative AI approaches focus solely on churning out software code. They're not focused on organizing outcomes or driving business alignment.

Jane I have lupron is very very exciting and it really stems from the fact that we all know that traditional design processes are often unsuccessful and are always very time consuming mostly because they don't really stimulate design thinking they don't drive a vision made ultimately driving stakeholder alignment in these days.

Alan: Most generally today Io approaches focused solely on churning out software code, they're not focused on organizing the outcomes or driving business alignment.

Priya McKinnell: But Pegagenair Blueprint is entirely focused on driving incredible outcomes with amazing speed for enterprise applications. It combines Pega's robust library of industry expertise and process templates with general internet knowledge. It uses generative AI to synthesize all of that information and automatically recommend best practices for workflows, data models, and more, all just from an application name and brief description.

Alan: But <unk> blueprint is entirely focused on driving incredible outcomes with amazing speed for enterprise applications.

If you combine <unk> robust library of industry expertise and process tablets.

Alan: General Internet knowledge.

Alan: And uses joining today to synthesize all of that information and automatic recommended best practice workflow data models and more all just for one application named in brief description.

Priya McKinnell: We even get to layer in a client's best practices to ensure effectiveness in their reuse. And there is absolutely nothing else like this in the market today. Business leaders across every industry can rapidly capture their vision and even rethink their business processes to drive innovation in their organizations, sparking brand new ideas that they wouldn't have thought of on their own. The interactive application blueprints it generates are easily understood and collaborated on by all stakeholders to drive alignment. They can take blueprint suggestions and alter them to meet their needs, and once agreed to, they are ingested into Pega to generate the enterprise-grade cloud-architected application. And this is how you can leverage GenAI to actually drive transformation in an enterprise. And when you get a chance to see this product, you'll be astonished at the speed of innovation and how widely applicable it is across every industry and geography. The response from our early adopter clients and partners has been incredibly positive for this specific use case. And what's important is that PegaGNI Knowledge Buddy and PegaGNI Blueprint will help our clients and partners more quickly and easily learn how to build Pega applications.

Alan: We didn't get to layer in a client's best practices to ensure effectiveness and reuse.

Alan: There is absolutely nothing else like this in the market today.

Alan: Business leaders across every industry can rapidly capture their vision and even rethink their business processes to drive innovation in their organization, sparking brand new ideas that they wouldn't have thought of on their own.

Alan: This interactive application blueprints and generate are easily understood and collaborated on by all stakeholders to drive alignment.

Alan: They can take blueprint suggestions and all three of them to meet their needs and what degree too they are ingested into peg to generate the enterprise grade cloud Architected applications.

Alan: And this is how we can leverage and AI to actually drive transformation in the enterprise.

Alan: And when you get a chance to see this product UBS.

Speed of innovation and how widely applicable it is across every industry and geography.

The response with our early adopter clients and partners see it has been incredibly positive for the specific use cases.

Alan: And what's important is that packaging their knowledge body and peg a generic blueprint will help our clients and partners more quickly and easily learn how to build peg applications.

Priya McKinnell: And SynthPeg has always been known as one of the most powerful platforms for creating applications, and we're now significantly reducing the barrier to entry and speed to value by making it much more accessible. And we think we've just really just scratched the surface of what GNI can do. These new products are the start of a series of exciting offerings that we'll be offering between now and Pegaworld on June 9th that we'll continue to deliver on our strategy. I'll turn it back over to Alan. Thanks, Kermit.

Alan: And since there has always been known as one of the most powerful platform for creating applications and were announced significantly reducing the barrier to entry and speed to value by making them much more accessible.

Alan: And we think we've just really just scratched the surface of what July I can do these newest products are the start of a series of exciting offerings that we will be offering between now and peg overall in June <unk> that will continue to deliver on our strategy.

Alan: Ill turn it back to Alan Thanks, correct.

Alan Trefler: It's very exciting, and we're very excited to be going back to Las Vegas again this year for Pegaworld from June 9 to June 11. Please mark your calendars.

Alan: Very exciting and we're very excited to be going back to Las Vegas again this year for peg a world from June nine to move on June 11th. Please Mark your calendars, we have an exciting lineup of clients who are presenting for example, national Australia Bank will be featuring its ground.

Alan Trefler: We have an exciting lineup of clients who are presenting. For example, National Australia Bank will be featuring its groundbreaking initiatives using the customer decision hub to drive value for the bank and its customers, developed and into production in under six months. And Verizon.

Alan: <unk> initiatives using the customer decision hub to drive value for the bank and its customers developed and into production in under six months and Verizon will be talking about how it permeated selling into all of these customer facing teams and delight customers by leveraging deep intelligence about the client marketing side.

Alan Trefler: We'll be talking about how it permeated selling into all its customer-facing teams and delighted customers by leveraging deep intelligence about the client, marketing science, and real-time signals. So check out the agenda on pega.com to see the dozens of other great client stories you'll be able to hear about in person and talk to the customers directly. And, of course, we'll be talking about and showing our newest innovations and what to expect for the rest of the year. Now, we've scheduled our investor session for Monday the 10th at noon, local time. And we hope to see you then, if not before. I'll be joining Ken to meet with some investors this year while on the road visiting clients. So keep an eye out for an invite and be sure to register.

Alan: <unk> and real time signals, so check out the agenda on <unk> dot com to see the dozens of other great client stories youll be able to hear about it first and then talk to the customers directly.

Alan: Of course, we'll be talking about and showing our newest innovations and what to expect for the rest of the year now we have scheduled an investor session for Monday, the 10th of new local time.

Alan: Hope to see you then if not before I'll be joining tend to meet with some investors on the road visiting clients.

Alan: So keep an eye on for Goodbye and be sure to register its going to be tremendous.

Ken Stillwell: It's going to be tremendous. So, in summary, we're delivering transformative innovation to truly change the way the world builds software. I'm pleased that our go-to-market strategy and org-focused model is working, and our focus on balancing growth and profitability is evident in our results. I believe we have a competitive advantage through our architecture, and we're going to be able to leverage Gen AI to bring significant value to clients in a way our competitors can't easily match. And I think there is a tremendous opportunity for success in 2024 and beyond to provide more Colorado financial resources. Let me now turn it over to Ken Stillwell, our CLO and CFO. Thanks, Alan.

Alan: So in summary, we're.

Alan: We are delivering transformative innovation to truly change the way the world build software.

Alan: Pleased that our go to market strategy and Org focused model is working and our focus on balancing growth and profitability is evident in our results.

Alan: I believe we have competitive advantage of our architecture, and we're going to be able to leverage gen AI to bring significant value to clients in a way our competitors can't easily match and I think there is a tremendous opportunity for success in 2024 and beyond.

Alan: To provide more color on our financial results, Let me now turn it over to Ken Stillwell, our COO and CFO. Thanks Alan.

Ken Stillwell: You know, Pega has truly entered a new financial frontier. We finished the year with extremely strong growth and free cash flow and a nice reacceleration of PegaCloud ACV. In the 40-year history of Pega, we've never seen the level of cash flow generation we experienced in 2023, and quite frankly, we're just getting started. The shift to a new subscription business model provides us with improved visibility, which allows us to better manage the operating efficiency of the firm and drive superior cash generation. That dynamic, coupled with our strong go-to-market execution in the fourth quarter of 2023, resulted in impressive results in a challenging market. Annual contract value, or ACV, continues to be the most important metric to measure the success of our business. ACV growth in constant currency accelerated in Q4, growing by 11% year over year.

Ken Stillwell: Peg is truly entered a new financial frontier. We finished the year with extremely strong growth in free cash flow and a nice reacceleration of Tiger cloud ACB in.

Ken Stillwell: In the 40 year history of Peg that we've never seen the level of cash flow generation, we experienced in 2023 and quite frankly, we're just getting started the shift to a new subscription business model provides us with improved visibility, which allows us to better manage the operating efficiency of the firm and drive superior cash generation that.

Ken Stillwell: And that coupled with our strong go to market execution in the fourth quarter of 2023 resulted in impressive results in a challenging market annual contract value or <unk> continues to be the most important metric to measure the success of our business ACB growth in constant currency accelerated in Q4 growing by 11% year over year or double digit ACB growth.

Ken Stillwell: Our double-digit ACV growth was powered by an extremely strong net new ACV ad in the fourth quarter. In fact, our sales team booked more net new ACVs in Q4 of 2023 than it did in Q4 of 2022, a clear indication that our new go-to-market strategy is working. The surge in net new ACV was a result of extremely strong growth in Pegacloud. We added $58 million in Pegacloud ACV in the fourth quarter alone, the highest of any quarter ever. As a result, Pegacloud ACV growth reaccelerated in Q4 to 21% year over year. It's just awesome to see.

Ken Stillwell: Was powered by an extremely strong net new ACB added in the fourth quarter in fact, our sales team more net new ACB in Q4 of 2023 than it did in Q4 of 2022, a clear indication that our new go to market strategy is working.

Ken Stillwell: The surge in net new ACB was a result of an extremely strong growth in peg a cloud we added $58 million in peg a cloud ACB in the fourth quarter alone the highest of any quarter ever as a result, peg a cloud ACB growth Reaccelerate in Q4 to 21% year over year is just awesome.

Ken Stillwell: PEGA Cloud is now our primary offering that clients are demanding as it enables our clients to focus on developing innovative business applications on the PEGA platform without having to manage an underlying cloud infrastructure. It also helps keep our clients current on the latest and greatest PEGA technology, which is also a tremendous benefit. Moving on to revenue, we achieved total revenue of $1.43 billion. Revenue growth was driven by two key factors. First, 2023 had a larger number of term renewals than in 2022.

Ken Stillwell: Peggy.

Ken Stillwell: <unk> cloud is now our primary offering that clients are demanding as it enables our clients to focus on developing innovative business applications on the peg a platform without having to manage an underlying cloud infrastructure. It also helps keep our clients current on the latest and greatest peg a technology, which is also a tremendous benefit.

Ken Stillwell: Moving onto revenue, we achieved total revenue of $143 billion.

Ken Stillwell: Revenue growth was driven by two key factors first 2023 had a larger number of term renewals than in 2022 second we had a handful of clients in Q4, who chose to renew term license contracts for longer durations than we forecast.

Ken Stillwell: Second, we had a handful of clients in Q4 who chose to renew term license contracts for longer durations than we forecast. Under ASD 606, as many of you are aware, a significant portion of multi-year term license bookings are recognized as subscription license revenue in the quarter that the deals are booked. Moving to cash flow, cash flow from operations was $218 million, an increase of over 800% from the prior year's total of $22 million.

Ken Stillwell: Under ASC 606, as many of you are aware the significant portion of multiyear term license bookings are recognized as subscription license revenue in the quarter that the deals are booked.

Ken Stillwell: Moving to cash flow cash flow from operations was $218 million, an increase of over 800% from the prior years total of $22 million free.

Ken Stillwell: Free cash flow has surged year-over-year to $201 million, once again, the highest free cash flow in the history of the company. This strong increase demonstrates the core strength and completion of our subscription transition and the team's success in managing operating costs. We achieved this amazing number even though we had over $50 million in items like restructuring and legal costs. We expanded non-GAAP PegaCloud margin from 70% to approximately 75%. We also improved operating leverage across all three operating expense lines. We reduced non-GAAP sales and marketing expenses as a percentage of total revenue from 43% to 35%, making the very difficult decision to execute the two reductions in force in 2023. These two actions brought together our sales and client success teams, reduced operational silos, and focused our teams on cross-selling and up-selling to existing clients. Capital expense also normalized since we had completed the build-out of our WALFAM Massachusetts office. Moving on to earnings per share, full-year GAAP EPS came in at $0.73, and non-GAAP EPS was $2.48. Non-GAAP EPS exceeded $2 per share for the first time in the company's history.

Ken Stillwell: Free cash flow has surged year over year to 201 million once again, the highest free cash flow in the history of the company. This strong increase demonstrates the core strength and completion of our subscription transition and the team's success in managing operating costs. We achieved this amazing number even though we had over $50 million in items like restructuring.

Ken Stillwell: <unk>.

Ken Stillwell: And legal costs, we expanded non-GAAP peg a cloud margin from 70%.

Ken Stillwell: Approximately 75%, we also improved operating leverage across all three operating expense lines, we reduced non-GAAP sales and marketing expense as a percentage of total revenue from 43% to 35%, making the very difficult decision to execute the two reductions in force in 2023. These two actions.

Ken Stillwell: Brought together, our sales and client success teams reduced operational silos and focused on teams focus our teams on cross selling and up selling into the existing clients capital expense also normalized since we had completed the build out of our Waltham, Massachusetts office.

Ken Stillwell: Moving on to earnings per share full year GAAP EPS came in at 73, and non-GAAP EPS was $2 48.

Ken Stillwell: non-GAAP EPS exceeded $2 per share for the first time in the company's history. Many of the same factors that powered our strong cash flow growth were key drivers in our year over year improvement in EPS as well I'm really happy with our double digit ACB growth and a robust increase in free cash flow.

Ken Stillwell: Many of the same factors that powered our strong cash flow growth were key drivers in our year-over-year improvement in EPS as well. I'm really happy with our double-digit ACV growth and our robust increase in free cash flow. We wanted to exit 2023 as a Rule of 30 company, which we have done. We define the Rule of 30 the same way we define the Rule of 40, as a combination of our ACV growth plus our free cash flow margin adjusted for any items like restructuring, legal fees, interest expense, and taxes, essentially making it an EBITDA-like equivalent measure.

Ken Stillwell: Wanted to exit 2023, as a rule of 30 company, which we've done we define the rule 30. The same way we define the rule of 40 is a combination of our ACB growth plus our free cash flow margin adjusted for any items.

Ken Stillwell: Restructuring legal fees interest expense taxes, essentially making it an EBITA like equivalent measure achieving the rule of 30 demonstrates progress we have made in sterling much greater operational rigor and performance transparency in our business.

Ken Stillwell: Moving to our guidance for 2024 as a reminder, we provide annual guidance at the beginning of the year and we do not typically update annual guidance unless we do a material acquisition, we do not provide quarterly guidance.

Ken Stillwell: Achieving the Rule of 30 demonstrates progress we've made in instilling much greater operational rigor and performance transparency in our business. Moving to our guidance for 2024. As a reminder, we provide annual guidance at the beginning of the year, and we do not typically update annual guidance unless we make a material acquisition. We do not provide quarterly guidance.

Ken Stillwell: Starting with our growth metrics for 2024, we expect <unk> to grow 11%.

Ken Stillwell: We expect total revenue of approximately $1 5 billion revenue growth will be slower than ACB growth in 2024, because we have a slightly lower mix of multiyear term license renewals and we're modeling an uptick in cloud based bookings as clients continue to buy peg a cloud.

Ken Stillwell: Starting with our growth metrics for 2024, we expect ACV to grow 11%, and we expect total revenue of approximately $1.5 billion. Revenue growth will be slower than ACV growth in 2024 because we have a slightly lower mix of multi-year term license renewals, and we're modeling an uptick in cloud-based bookings as clients continue to buy PegaCloud as the primary offer. Moving to our profitability metrics, We're guiding cash flow from operations to $365 million. We forecast free cash flow to increase about 75% year-over-year to $350 million. We expect GAAP EPS of $1.18 per share and non-GAAP EPS of $2.75 per share.

Ken Stillwell: The primary offering.

Ken Stillwell: Moving to our profitability metrics, we're guiding cash flow from operations to $365 million, we're forecasting free cash flow to increase about 75% year over year to $350 million.

Ken Stillwell: We expect GAAP EPS of $1 18 per share and non-GAAP EPS of $2 75 per share.

Ken Stillwell: I have received feedback that's helpful helpful. When we share thoughts on modeling our business. So I'll continue to offer a few suggestions starting with ACB growth, we expect ACB growth to once again be backend loaded in 2024 as we experienced in 2023 many of our existing client contracts are up for renewal at the end of the.

Ken Stillwell: A year and since we plan to focus our go to market motion on cross selling upselling into our existing clients. We expect to see a significant portion of our net new ACB that gets added in the final quarter of the year. This is very common for enterprise technology companies and quite frankly in the environment that we've seen in <unk>.

Ken Stillwell: I've received feedback that it's helpful when we share thoughts on modeling our business, so I'll continue to offer a few suggestions, starting with ACV growth. We expect ACV growth to once again be back-end loaded in 2024. As we experienced in 2023, many of our existing client contracts are up for renewal at the end of the year, and since we plan to focus our go-to-market efforts on cross-selling and up-selling to our existing clients, we expect to see a significant portion of our net new ACV get added in the final quarter of the year. This is very common for enterprise technology companies, and quite frankly, in the environment that we've seen in 2023 and that we predict in 2024, we will continue to see a significant number of transactions that tend to happen toward the end of a buying cycle or a fiscal year.

Ken Stillwell: 2023, and we predicted that 2024, we will continue to see a significant amount of transactions that tend to happen towards the end of a buying cycle or a fiscal year <unk>.

Ken Stillwell: Given that we have added any such unusually high amount of net new ACD in Q1 of 2023, we faced a very tough ACB compare in the first quarter of 2024 as a result, you would expect that our ACB growth rate would slow a little in the first quarter and then bounce back at.

Ken Stillwell: The later part of the year move.

Ken Stillwell: Moving to term license revenue, we expect total term license revenue to decrease year over year in 2024 as existing clients and new clients.

Ken Stillwell: Choose peg a cloud.

Ken Stillwell: We also have a slightly lower number of multiyear renewals coming due in 2024 than we did in 2023.

Ken Stillwell: Given that we've added such an unusually high amount of net new ACV in Q1 of 2023, we face a very tough ACV comparison in the first quarter of 2024. As a result, you would expect that our ACV growth rate would slow a little in the first quarter and then bounce back in the later part of the year. Moving to term license revenue, we expect total term license revenue to decrease year over year in 2024 as existing clients and new clients choose Pegacloud. We also have a slightly lower number of multi-year renewals coming due in 2024 than we did in 2023. We also expect to book shorter-duration term license contracts as more of our clients value the consumptive nature of their growth. Under ASC 606, a shorter-duration term license contract results in less term license revenue booked up front than a traditionally longer-duration contract.

Ken Stillwell: We also expect to book shorter duration term license contracts as more of our clients value the consumptive nature.

Ken Stillwell: Their growth under ASC 606, a shorter duration term license contract results and less term license revenue booked upfront than traditionally longer duration contract. However, more frequent contract renewals provides us with a greater opportunity to cross sell up sell and support and assist our clients as.

Ken Stillwell: They moved to peg a cloud and also initiate new workloads and new use cases on peg a cloud.

Ken Stillwell: Next I want to remind you that peg a world our annual client and partner that as Alan mentioned, we will be held from Sunday June night through Tuesday June 11th at the MGM Grand in Las Vegas. Please Mark your calendars, we'd love to have you join us in person as you have in previous years, our annual Investor session is planned for Monday June 10th.

Ken Stillwell: During the Peg World session. In addition, we will be on the road at several sell side conferences in March as well as a few <unk>, we look forward to catching up with you all of you soon.

Ken Stillwell: However, more frequent contract renewals provide us with a greater opportunity to cross-sell, up-sell, and support and assist our clients as they move to PegaCloud and also initiate new workloads and new use cases on PegaCloud. Next, I want to remind you that PegaWorld, our annual client and partner event, as Alan mentioned, will be held from Sunday, June 9th through Tuesday, June 11th at the MGM Grand in Las Vegas. Please mark your calendars.

Ken Stillwell: In conclusion.

Ken Stillwell: We focused on providing outstanding experiences and value to our clients and believe that well managed firms drive responsible levels of free cash flow for their shareholders and as we've demonstrated in 2023, we're very focused on balancing growth and profitability and made outstanding progress on both of these metrics. We've set the course for achieving the role of <unk>.

Ken Stillwell: As we exit 2024 with double digit ACB growth and robust free cash flow.

Ken Stillwell: We'd love to have you join us in person, as you have in previous years. Our annual investor session is planned for Monday, June 10th during the PegaWorld session. In addition, we'll be on the road at several sell-side conferences in March, as well as a few NDRs. We look forward to catching up with all of you soon.

Operator, please open the call for questions.

Ken Stillwell: Again, if you would like to ask a question.

Ken Stillwell: Star followed by the number one on your telephone keypad.

Ken Stillwell: Your first question comes from the line of Steve Enders with Citi. Your line is open.

Operator: In conclusion, we've focused on providing outstanding experiences and value to our clients and believe that well-managed firms drive responsible levels of free cash flow for their shareholders. As we demonstrated in 2023, we're very focused on balancing growth and profitability and made outstanding progress on both of these metrics. We've set the course for achieving the Rule of 40 as we exit 2024 with double-digit ACV growth and robust free cash flow. Operator, please open the call for questions. Again, if you would like to ask a question, press Star followed by the number one on your telephone key.

Ken Stillwell: Yes.

Steven Enders: Okay, great. Thanks for thanks for taking the questions questions here this morning.

Steven Enders: I guess moving to some <unk> will be joining me here on what you are seeing out there.

Steven Enders: And the macro landscape it sounds like it's still a pretty challenging environment.

Steven Enders: Pretty good results here on the ACD. So yeah, maybe just to get an update on how things are trending and how youre thinking about the macro economy for 24 here.

Speaker Change: Sure well I think that's it.

Speaker Change: It is a challenging environment theres a lot of uncertainty out there, but we're seeing great receptivity to our approach to the use of AI and how we're looking to weave it in to our product lines, which as I said I think we have a really unique architecture was this layer cake you've heard me talk about which is at the heart of our.

Alan Trefler: Your first question comes from the line of Steve Enders with Citi. Your line is open. Okay, great. Thanks for taking the questions here this morning. I guess maybe just to start, it would be great to hear what you are seeing out there in the macro landscape. It sounds like it's still a pretty challenging environment, but, you know, pretty good results here at UACB. So, yeah, maybe just to get an update on how things are trending and how you're thinking about the macro setup for 24 here. Sure. Well, I think it's a challenging environment.

Speaker Change: Our model driven architecture.

Speaker Change: Different from the way other people look and candidly really fits beautifully with how to incorporate the journey. So as we get our customers to see that we're seeing a lot of enthusiasm.

In reality all of this stuff is really new and people are just sort of trying to understand what it's going to mean for them.

Speaker Change: So much hype around this stuff that I think customers are appropriately.

Speaker Change: A little skeptical and we actually welcome that because we think by exploring which will be there we're going to be able to tell the difference between the stuff that's going to leave.

Alan Trefler: There's a lot of uncertainty out there, but we're seeing great receptivity to our approach to the use of AI and how we're looking to weave it into our product lines, which, as I said, I think we have a really unique architecture with this layer cake you've heard me talk about, which is at the heart of our model of an architecture that is just different than the way other people look, and candidly really fits beautifully with how So as we get our customers to see this, we're seeing a lot of enthusiasm. In reality, all this stuff is really new, and people are just sort of trying to understand what it's going to mean for them. There is so much hype around this stuff that I think customers are appropriately a little skeptical, and we actually welcome that, because we think by exploring what's really there, they're going to be able to tell the difference between the stuff that's going to leave them high, dry, and disappointed and what we think we're going to be able to do.

Speaker Change: Hi, driving disappointed in what we think we're going to be able to do but I will tell you the level of enthusiasm for not just what we're talking about how we're doing it I think is very high.

Speaker Change: I'll add one other piece of one of the perspective on that Steve.

Speaker Change: Given that we have.

Speaker Change: A war going on in Eastern Europe, certainly a war going on in the middle East inflation rates still kind of bouncing around in the global economy are.

Speaker Change: Our clients have been pretty resilient through that theyre buying patterns. There investment in technology has actually stayed pretty strong. So although I think there is still some we are still.

Speaker Change: Watching the back row backdrop, it's actually been pretty resilient in 2023 and into 2024. So we think we're pretty optimistic about the economic landscape going forward, but there are a lot of things out there that are risks a couple of the ones I just mentioned that we just have to watch.

Alan Trefler: But I'll tell you, the level of enthusiasm for not just what we're talking about but how we're doing it, I think is very high. I'll add one other perspective on that, Steve. Given that we have a war going on in Eastern Europe, certainly a war going on in the Middle East, inflation rates still kind of bouncing around in the global economy, our clients have been pretty resilient through that, right?

Speaker Change: Okay great.

Speaker Change: That's helpful.

And then how are you you're talking quite a bit about <unk>.

Speaker Change: Yes.

Speaker Change: Clients are thinking about it.

Ken Stillwell: Their buying patterns, and their investment in technology, has actually stayed pretty strong. So although I think there is still some, you know, we are still, you know, watching the macro backdrop, it's actually been pretty resilient in 2023 and into 2024. So we think we're pretty optimistic about the economic landscape going forward. But there are a lot of things out there that are risks, such as a couple of the ones I just mentioned that we just have to watch.

Speaker Change: I guess, how do you kind of cut through the noise out there.

Speaker Change: <unk> <unk> two.

Speaker Change: Yes.

Speaker Change: <unk>.

Speaker Change: And one of my first calls people Omega as they look to implement an AI.

Speaker Change: Maybe for Ken how are you thinking about modeling adoption.

Speaker Change: And the impact to the.

Speaker Change: The model here.

Ken Stillwell: So we are not just positioning but implementing gen. AI is core to our product lineup. So this isn't some standalone skus, it's off to the side. This is something thats going to empower our entire product line and the way that our customers.

Alan Trefler: Okay, great. That's helpful. And then, Alan, you were talking quite a bit about Gen AI and how clients are thinking about it. And I guess, how do you kind of cut through the noise out there to position Pega to be, you know, one of the first calls that people make as they look to implement Gen AI? And I guess maybe for Ken, how are you kind of thinking about modeling adoption through the year and the impact on the model here? So, look, we are not just positioning but implementing Gen AI as core to our product lineup. So, this isn't some standalone SKU that's off to the side.

Ken Stillwell: Work generally and what I'll tell you is that if you go look at the.

Ken Stillwell: The headwinds <unk> generative AIG demo that we've had on our website since November or if you go look at blueprint, which was announced at the beginning of this week and I believe is just another game changing evolution.

Ken Stillwell: What we showed in November I think youll be able to see our clients realize this doesn't just let the Ramadan code faster.

Ken Stillwell: This lets them rethink their business in an organized structured and most importantly, extensible way and I think that will become very clear. If you take a look at it certainly the demos will be giving our clients and partners over the last two weeks.

Ken Stillwell: This is something that's going to improve our entire product line and the way that our customers work, generally. And what I'll tell you is that if you go look at the Pega Generative AI demo that we've had on our website since November, or if you go look at Blueprint, which was announced at the beginning of this week and I believe is just another game-changing evolution of what we showed in November, I think you'll be able to see how clients realize this doesn't just let them, like, vomit up more code faster. This lets them rethink their business in an organized, structured, and, most importantly, extensible way. And I think that will become very clear if you take a look at it. Certainly, the demos we've been giving to clients and partners over the last two weeks have... and Graydon Ebrilli. So we're doing good. Thank you. Your next question comes from the line of Rishi Jaluria with RBC Capital Markets. Your line is open.

Ken Stillwell: Garden's brilliant response.

Ken Stillwell: We're feeling good about that.

Ken Stillwell: Okay.

Ken Stillwell: Questions.

Speaker Change: Thanks, Steve.

Speaker Change: Your next question comes from the line of Richie Deloria with RBC capital markets. Your line is open.

Richie Deloria: Hello again.

Richie Deloria: Thanks, So much for taking my question I wanted to stick.

Richie Deloria: First on the topic of <unk>.

Richie Deloria: No go lives.

Richie Deloria: Ken I remember at the Analyst day last year, you talked a lot about how ultimately this is going to manifest itself and driving consumption rather than just scrutiny pricing for it.

Richie Deloria: Stinker SKU mix can you help us understand.

Richie Deloria: Number one.

Alan Trefler: Oh, wonderful. And again, thanks so much for taking the time to answer my question. I wanted to stick first on the topic of generative AI. Ken, I remember at analyst day last year you talked a lot about how, ultimately, this is going to manifest itself in driving consumption rather than, you know, discreetly pricing for it as a distinct skew. Can you help us understand, number one, what the adoption rates look like for a lot of your Gen AI capabilities today? And how could that adoption rate trend maybe over the next one, two, three years? And alongside that, let's assume that we're going to get no real AI revenue this year. But at a certain point, how do you start to measure that this usage is actually translating to revenue on the consumption line above typical trends?

Richie Deloria: Water absorption rates look like a whole lot of your gen wall capabilities today, and how can that adoption rate trend maybe over the next one to three years on alongside that.

Richie Deloria: Yes.

Richie Deloria: I assume that we're going to get no real revenue adjustment and then assume client how do you measure that this usage is actually translating to revenue.

Richie Deloria: Consumption line above typical trends, maybe help us understand your framework for that and then I've got a quick follow up.

Speaker Change: Sure. So let me take let me let me take a piece of that and then Alan can chime in so you are correct and we still believe that the primary value that Gen II and the application like Blueprint for example, what it really does is it helps to reduce the barrier to clients being able to <unk>.

Ken Stillwell: Maybe help us understand your framework for that, and then I've got a quick follow-up. Sure.

Ken Stillwell: So let me take a piece of that, and then Alan can chime in. So you're correct, and we still believe that the primary value that Gen AI and an application like Blueprint, for example, really do is it helps to reduce the barrier to clients being able to leverage Pega to automate parts of their business. So we believe that strongly.

Alan: Average <unk> to automate parts of their business. So that is that we believe that strongly and when you see it and you will see it soon and you will see it youll understand that youll be able to real time be able to exceed that experience as we have as our clients and our partners out.

The second part of that is so what does that reducing that barrier to entry do well given that we believe that <unk> is the leader.

Ken Stillwell: And when you see it, and you will see it soon, you'll understand that you'll be able to see that experience in real time, as we have, as our clients and our partners have. The second part of that is, so what does reducing that barrier to entry do? Given that we believe that Pega is the leader in workflow automation, we see that as an opportunity to expand the use cases, the number of companies, and the speed at which those companies deploy those applications. So generative AI, for us, is not a $30 add-on of a feature that a user can use in an environment because we think that is a very limited value in terms of the company. It's a price that will ultimately get commoditized over time. We believe generative AI will allow our clients to allow Pega to be much more pervasive in their application landscape to allow them to power their businesses. In terms of measurement, the measurement is quite clear.

Alan: In workflow automation.

Alan: We see that as an opportunity to expand the use cases, the number of companies the speed at which those companies deploy those applications. So generative AI for US is not a 30 dollar add on of a feature that a user can use in an environment. Because we think that is a very limited value in terms of.

Alan: The company itself.

Alan: It's a price that will ultimately get commoditized over time, we believe Jared with AI will allow our clients.

Alan: To allow peg out to be much more pervasive into their application landscape to got to allow them to power their businesses in terms of the measurement. The measurement is quite clear it's the growth in our ACB accelerating through the use of Jeremy of AI tools like blueprint with our clients and I think.

Ken Stillwell: It's the growth in our ACV accelerating through the use of generative AI tools like Blueprint with our clients. And I think that's, I know that the question that you're really asking is, will we be able to see a line in the actual financial statements that says AI? I would say we won't say no because you never know how pricing and packaging may evolve over time.

Speaker Change: I know that the question that Youre really asking is will we be able to see a line in the actual financial statements that says AI I would say, we wont say no because you never know all pricing and packaging may evolve over the over time, but the primary value for us is to allow clients to get value from.

Alan Trefler: But the primary value for us is to allow clients to get value from enterprise-grade applications like ours faster, and we think that is a powerful differentiator. I mean, I would say that unlike the way some people are going at this.

Speaker Change: Enterprise grade applications like ours faster and we think that is a powerful differentiator.

Speaker Change: I would say that unlike the way some people are going at this.

Alan Trefler: This is actually, we've actually incorporated NAI at the very heart of everything. And what that means is that it's going to power the engine, or it should power the engine for faster adoption and faster growth. And that's where you'll see it.

Speaker Change: This is actually a phone.

Speaker Change: We've actually incorporated NII at the very heart of everything that we're doing and what that means is that it is going to power the engine.

Speaker Change: Or should power the engine for faster adoption and faster growth and Thats, where youll see it by the way I think that's a much better and more appropriate word.

Ken Stillwell: I, by the way, think that's a much better and more appropriate way to apply technology that's dramatic than having it be sort of an add-on individual set of SKUs. Doesn't mean there won't be some SKUs off to the side, but the real meaning is what this does to the heart of our entire. And I would say there's maybe one exception where you will actually see us have a skew that will, you know, potentially have some transactional value to it, which is our buddies, right? Where we would actually sell our knowledge buddy capabilities or embed them, and you may actually see us have that be something that is worth talking about. In the future, I'd say yes, because we have to decide whether that's appropriate or not. But I would say that's kind of how we're thinking about Gen AI, you know, in our business. Yeah, but these buddies represent a tiny fraction of how Gen AI is changing this process. All right, I hope that helps. Thanks.

Speaker Change: To acquire technologies is dramatic.

Speaker Change: Have a good view sort of an add on individual set of Skus doesn't mean, there won't be some skus off to the side, but the real meaningful change is what this does to the heart of our entire business.

Speaker Change: What I would say there is maybe one exception that you will actually see us have a SKU that will that will.

Speaker Change: <unk>.

Speaker Change: Potentially have some transactional value to which is our bodies right, where we would actually sell our knowledge buddy capabilities or embed them and that you may actually see us have that be something that is worth talking about the future I say may because we have to we have to decide whether that's appropriate or not but I would say that that's kind of how we're thinking about jet AI.

Speaker Change: Hi.

Speaker Change: Our business, yet, but good buddies represents a tiny fraction of our journey on it is changing the strongly so hope that helps thanks, yes wonderful that's super helpful. Color. Then just a quick follow up I mean, I know cloud.

Alan Trefler: Yeah, wonderful, that's super helpful, Collar. Then just a quick follow-up. I know Cloud Choice has always been at the heart of Pega and part of your value proposition. As we think about Gen AI adoption, especially given the resource intensity of Gen AI workloads that can be 10x more resource intensive than traditional workloads, can you maybe talk about how Gen AI plays into the whole Cloud Choice?

Speaker Change: Cloud choice has always been at the heart of Peg and part of your value proposition as you think about Gen AI adoption.

Speaker Change: Especially given resource intensity of January workloads that can be 10 next March resource intensive than traditional workloads can you maybe talk about how the journey I play into now the whole cloud choice does it maybe push.

Alan Trefler: Does it maybe push customers more towards adopting Pega Cloud in a soft manner because some of these Gen AI services can be Cloud-only services? Maybe help us understand how that all works out, thanks. Sure, I'm going to try to avoid drifting too technical, but we're glad to go as deep as anybody wants later.

Speaker Change: Customers more towards adopting panga cloud.

Speaker Change: Soft manner, because some of these jennie Ais services can be cloud only services, maybe help us understand how that all works out thanks.

Speaker Change: Sure I'm going to try to avoid drifting too technical but we're glad to go as deep as anybody wants.

Speaker Change: Subsequently so.

Alan Trefler: So, to be able to operate and use Gen-AI effectively, we do need to be in a cloud environment. And we are seeing clients say, hey, we'd like to be on Pegacloud. Gen-AI is just another reason why that's an advantage, in addition to the other advantages Ken mentioned during his script.

Speaker Change: To be able to operate and use gen AI effectively we do need to be in a cloud environment and we are seeing clients, saying, hey, we'd like to be on pure cloud journey. I was just another reason why that's an advantage. In addition to the other advantage as Ken mentioned earlier.

Speaker Change: This script, but we've also introduced a new capability, we call Prem bridge, which allows an on premise customer.

Alan Trefler: But we've also introduced a new capability we call PremBridge, which allows an on-premise Pegacustomer to create, in effect, a digital twin of the AI capability on Pegacloud so they can keep their main system in their environment but bridge from their premise to Pegacloud for the use cases of generative AI. That way, we get to do generative AI at the speed of the cloud and continue that moving along fast. But for some of our customers who are, candidly, increasingly open to being 100% cloud, some of our customers do want to keep those things on premise. And I think cloud choice keeps everyone honest.

To create an effective digital twin of the AI capability on figure cloud. So they can keep their main system in their environment, but bridge from their premise to peg a cloud for the use cases of generative regularly that we get to do Gen AI suite.

Speaker Change: Of cloud and continue that moving along fast but for some of our customers who are you candidly, though increasingly more open to being 100% cloud some of our customers do want to keep those things on premise and I think cloud choice keeps everyone honest so from a value system point of view are kind of like it.

Alan Trefler: So from a value system point of view, I kind of like it. That, you know, it's not captivating; you're creating captive customers. And this is a way we can, I think, support the best of all worlds. Awesome. Thank you so much for the helpful color.

Speaker Change: <unk>.

Speaker Change: <unk> not capture the exact.

Speaker Change: Exact pro customers.

Speaker Change: This is a way we kind of think support the best of all worlds.

Speaker Change: Awesome. Thank you so much for the helpful color.

Operator: Thank you. Your next question comes from the line of Jake Roberge with William Blair. Your line is open.

Speaker Change: Thanks Rajiv.

Speaker Change: Your next question comes from the line of Jay <unk> with William Blair. Your line is open.

Ken Stillwell: Hey, thanks for taking the questions. Ken, if you just take a step back and look at the model and how that's shaping up, do you think this is the last year that we should see the gap between revenue and ACV growth so that heading into next year those metrics could actually start to converge a bit more? Yeah, that's a great question, Jake.

Jay: Hey, thanks for taking the questions.

Jay: Ken.

Jay: When you step back and look at the model and how thats shaping up.

Jay: Do you think this in the last year that we should see the gap between revenue and ACB growth heading into next year those metrics could actually start to converge a bit more.

Ken Stillwell: Yes, it's a great question Jake certainly the variances will continue to shrink we have we're going to have over 50% of our HCV peg a cloud, but we still do have a significant percent thats not peg a cloud so to the extent that that percentage continues to go down and really it's not it's not.

Ken Stillwell: Certainly, the variances will continue to shrink. We have, and we're going to have over 50% of our ACV on Pegacloud, but we still do have a significant percent that's not on Pegacloud. So to the extent that that percentage continues to go down, and really, it's not the maintenance line; it's, of course, the term license line, as soon as that continues to go down as a percentage of our business, you'll have less risk of variability. And so I do think that you are correct in that when you go into 25, 26, 27, the gap, the difference between, say, when you look at our operating margin and you look at our free cash flow, those two, you would think that they would be very close together at the point you're at, but they do vary based on term revenue.

Ken Stillwell: The maintenance line. It's of course, the term license slide as soon as that continues to go down as a percentage of our business youll have less risk of variability.

Ken Stillwell: So I do think that that you are correct in that when you go into 'twenty five 'twenty six 'twenty seven.

Ken Stillwell: The gap the difference between say when you look at like our operating margin and you look at our free cash flow. Those to you would think that they would be very close together. That's the point you're on but they do vary based on term revenue that will continue to become more muted over time.

Ken Stillwell: That will continue to become more muted over time. You know, if we didn't have the 606 insanity where you have to present value, some revenue, even though it comes in on an annual basis, I think it would all be beautifully more consistent. The reality is, because of that, especially, I think we get a lumpiness from time to time. But if you look over a year, that should also be less and less.

Ken Stillwell: We didn't have the 606 and 70, where you have to present value some revenue even though it comes in on an annual basis.

Ken Stillwell: We'd all be beautifully more consistent the reality is because of that especially I think we get a lumpiness from time to time, but if you look over a year that should also be less and less and let me just touch on one thing that could be a question behind your question Jake or what other other investors might be thinking about if you look at our business for 2024, and you say which is.

Ken Stillwell: And let me just touch on one thing that could be the question behind your question, Jake, or what other investors might be thinking about. If you look at our business for 2024 and you say, which is the more representative normalization of the business, free cash flow or your operating profit? In 2024, it will be free cash flow. There is nothing unusual happening with free cash flow.

Ken Stillwell: The more representative normalization of the business free cash flow or your operating profit in 2024. It is free cash flow. There is nothing unusual happening with free cash flow, but with revenue. When you have more peg a cloud opportunities you do have the revenue being spread out a little more.

Speaker Change: So I that may be a question that other investors have let's be very clear with that free cash flow is the normalization of the business, sometimes revenue and EPS are a little bit off from that either slightly higher slightly lower.

Ken Stillwell: But with revenue, when you have more pay-per-cloud opportunities, you do have the revenue being spread out a little more. So that may be a question that other investors have. Let's be very clear about that. Free cash flow is the normalization of the business. Sometimes revenue and EPS are a little bit off from that, either slightly higher or slightly lower. Okay, very helpful. And then it feels like the macro market started to stabilize a little in Q4.

Speaker Change: Okay very helpful.

Speaker Change: And then it feels like the macro started to stabilize a little in Q4, and then Youre also seeing some nice demand trends for AI heading into 2024 as you constructed the guide for this year did you take those trends into account or would you say that you're still factoring in just some potential macro uncertainty that's out there.

Ken Stillwell: And then you're also seeing some nice demand trends for AI heading into 2024. As you constructed the guide for this year, did you take those trends into account? Or would you say that you're still factoring in just some potential macro uncertainty that's out there? We're still factoring in some amount of, you know, macro questions about interest rates, you know, in elections, etc.

Speaker Change: We're still we're still factoring in some some amount of macro question about interest rates and election et cetera. Those are all things that will factor into how we think about guidance.

Okay very helpful. Congrats again on the great results.

Speaker Change: Thanks Jake.

Speaker Change: Your next question comes from the line of Kevin Kumar with Goldman Sachs. Your line is open.

Kevin Kumar: Alright, Thanks for taking my question.

Ken Stillwell: Those are all things that would factor into how we think about guidance. Okay. Very helpful. Congratulations again on the great result.

Kevin Kumar: Wanted to ask about your investment priorities for the year I guess guidance shows a pretty nice uptick in free cash flow.

Operator: Thanks, Jake. Your next question comes from the line of Kevin Kumar with Goldman Sachs. Your line is open. All right, thanks for taking my question. I wanted to ask about investment priorities for the year.

Kevin Kumar: Ken can you talk about where you're seeing opportunities for leverage obviously cloud gross margins continued to expand but how are you thinking about maybe the other opex categories and maybe just touch on kind of key investment priorities for the year.

Ken Stillwell: I guess guidance shows a pretty nice uptick in free cash flow. So Ken, can you talk about where you're seeing opportunities for leverage? Obviously, cloud gross margins continue to expand, but how are you thinking about maybe the other OpEx categories and maybe just touch on key investment priorities for the year? So you will still, in 2024, we're still gonna see operating leverage in pretty much every line, right? And I shouldn't say pretty much every line, right?

Ken Stillwell: So you will still in 2024, we're still going to see operating leverage in pretty much every line that.

Ken Stillwell: That shouldn't they pretty much every line right.

Ken Stillwell: Youre going to see gross margin expand youre going to see sales and marketing become more leverage going to see R&D G&A. So youll see youll see contributions from everything Kevin in terms of the investment priorities I think the our go to market transformation, we really what we really love where we are in terms of the focus on our core.

Ken Stillwell: You're gonna see gross margin expand. You're gonna see sales and marketing become more leveraged. You're gonna see R&D and G&A. So you'll see contributions from everything, Kevin. In terms of the investment priorities, I think our go-to-market transformation. We really love where we are in terms of the focus on our clients. And so the decision, the strategic decision we need to start making is, how do we wanna think about introducing new logos or new expansions, and at what pace do we wanna do that?

Ken Stillwell: Clients and so the decision the strategic decision we need to start making is how do we want to think about introducing new logos or new expansion and how and at what at what pace do we want to do that and we want to make sure thats really thoughtful so that we can leverage the model that we have which is a deep client engagement model in terms of R&D.

Ken Stillwell: Do you see a lot of investment.

In Gen AI right.

Ken Stillwell: We really we really feel like the.

Ken Stillwell: The combination of jet AI and the power of our platform. It's just it really is just.

Ken Stillwell: And we wanna make sure that's really thoughtful so that we can leverage the model that we have, which is a deep client engagement model. In terms of R&D, you see a lot of investment in Gen AI, right, and we really feel like the combination of Gen AI and the power of our platform is just, it's just mind-blowing in terms of the opportunity we have in front of us. So there's gonna be there, including investment, continued investment in Launchpad, right, as we actually scale Launchpad. So we see efficiency, though, across all of the lines because our cost will grow less than our ACV.

Ken Stillwell: Mind blowing in terms of the opportunity we have in front of us so theres going to be there, including including investment continued investment and launch path right as we actually scale launch pad. So we see we see efficiency, though across all of the lines because our cost will grow less than our HCV to us.

Ken Stillwell: And we're going to have probably also one question for a party for the rest because it looks like it was a pretty good start.

Ken Stillwell: So.

Great. Thank you all right.

Speaker Change: Thanks, Kevin.

Speaker Change: Your next question comes from the line of pendulum Barra with Jpmorgan. Your line is open.

Pendulum Barra: Oh, great Hey, thanks for taking the questions Ken one quick one for you.

Ken Stillwell: And we're probably going to have to hold to one question, for a party for the rest, because it looks like it's a pretty good size. So. Great. Thank you all. Your next question comes from the line of Pinjalim Bora with J.P. Morgan. Your line is open.

Pendulum Barra: Talked about charter contract duration can.

Pendulum Barra: Can you help me understand what has changed in the business because your consomme consumption based nature of the business has always been there. So what has changed for customers to kind of drive towards shorter contracts. Thank you.

Ken Stillwell: Oh, great. Hey, thanks for taking the questions. Ken, one quick one for you. You talked about shorter contract duration. Can you help me understand what has changed in the business? Because your consumption-based nature of the business has always been there. So what has changed for customers to kind of drive towards shorter contracts?

Ken Stillwell: So a pendulum we.

Ken Stillwell: What we're really talking about is as clients have.

Ken Stillwell: Opportunities to leverage scaling up the peg at usage within their contract the commitment or the reach of the reset periods tend to be shorter than a three year or five year type fixed commitment and so that.

Ken Stillwell: There is a connection there between more of our larger clients actually enjoying that consumptive growth nature and actually the durations coming down a little bit. So it's those two things are connected.

Ken Stillwell: Thank you. So, Pinjalim, what we're really talking about is, as clients have opportunities to leverage scaling up the PEGA usage within their contract, the commitment or the reset periods tend to be shorter than a three- or a five-year-type fixed commitment, and so there's a connection there between more of our larger clients actually enjoying that consumptive growth nature and actually the durations coming down a little bit, so those two things are Yeah. Your next question comes from the line of Austin Cole with Citizens JMP. Your line is open.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Your next question comes from the line of Austin <unk> with citizens JMP. Your line is open.

Austin: Great. Thanks for taking the question.

Austin: So it sounds like obviously you guys have a lot going on with generative AI I'm wondering.

Austin: And with blueprint specifically.

Austin: How is it helping you and more customers and stay competitive thank you.

Alan Trefler: Great. Thanks for taking the question. So it sounds like you guys have a lot going on with generative AI. I'm wondering, and with Blueprint specifically, how is this helping you land more customers and stay competitive? Thank you. Oh, sure. So I think actually, if you go look at it, it will...

Speaker Change: Oh sure. So I think actually if you go look at it it will speak.

Speaker Change: For itself, you'll reaction I had from a couple of C suite executives two hours just on the call.

Speaker Change: Several of them showing just as.

Speaker Change: They were kind of stunned.

Alan Trefler: The reaction I had from a couple of C-Suite executives who I was just on a call with and were actually demoing and showing this to them was that they were kind of stunned because what it lets you do is it lets you, from a couple paragraphs of a description of something you want to do with your business, really stimulate new thinking. And not just do that, but actually go from this sort of design thinking approach to what you're trying to achieve. You know, because let's face it, we live in businesses where they're all workflows, they're all doing work, they're all posting transactions, they're all engaging with clients. Being able to bring generative AI to both help you understand what workflows you need for your business. And then what should each of those processes look like? Who are the participants in these works? What channels do they come on?

Speaker Change: Cause what it lets you do is it lets you from Cabo.

Speaker Change: A couple of paragraphs of a description or something you want to do with your business really stimulate new thinking.

Speaker Change: And not just do that but actually go from this sort of design thinking approach of what youre trying to achieve because let's face. It we live in businesses, where they're all workflows. So theyre all doing work theyre, all posting transactions theyre, all engaging with clients being able to bring generally.

Speaker Change: They are to both help you understand what workflows do you need for your business.

Speaker Change: And then what should each of those workflows look like.

Speaker Change: Who are the participants in those workflows.

Speaker Change: What channels do they come in.

Speaker Change: And what data will those workflows either consumed from your back end systems, where will you need to acquire we want to post back to your back end systems when that workflow is done all of those concepts.

Alan Trefler: And what data will those workflows either consume from your back-end systems, or will you need to acquire, or you want to post back to your back-end systems when that workflow is done? are now in a position where, literally, in a couple of minutes... You get something that is awesome. It's just a terrific point that you can edit and you can evolve and you can make yours, but you're not starting from a whiteboard. You're starting from something that, historically, would have taken us two, three, four weeks, and many more. And that now is literally two, three, four minutes. It completely changes the game. Now, you know, this is brand new. It's evolving. Our real target for a lot of this stuff, fully hitting its stride, is we've sort of set our team up internally at PegaWorld, being the place where this all comes to fruition, to wow all of you who are there. But we're showing it now, and it's going to be available now, and it's going to be available in a way that existing Pega 23 and 24 customers will be able to use. And the reaction is just... It's actually very, very gratifying.

Speaker Change: Are now in a position where literally in a couple of minutes.

Speaker Change: You get something that is.

Speaker Change: Awesome.

Speaker Change: Terrific Board.

Speaker Change: Can edit and you can evolve you can make doors.

Speaker Change: Not starting from a whiteboard.

Speaker Change: Starting from something.

Speaker Change: Historically would have taken us 234 weeks.

Speaker Change: To get to.

Speaker Change: And that now is literally 234 minutes.

Speaker Change: Completely changes the game now.

Speaker Change: And new it's evolving our real target for a lot of this stuff fully hitting its stride.

Speaker Change: Sort of a set our team up internally at <unk> World.

Speaker Change: Place, where this all comes to fruition, while all of you who are there, but we're showing it now and it's going to be available now and it's going to be available in a way that existing <unk> 23, and 24 customers will be able to use.

Speaker Change: The reaction is just.

Speaker Change: It's actually very very gratifying. So if you go to the website checking out and this is something you can see by the way about questions. We're not hiding from questions. We're going to do questions. After this call. We just have a company call immediately after this.

Alan Trefler: So go to the website, check it out, there's something you can see. By the way, about questions, we're not hiding from questions; we're going to answer questions after this call. We just have a company call immediately after this. If you have a second question, just get back in queue again, and we'll get started. Thank you. Your next question comes from the line of Dan Ides with Wedbush. Your line is open. Yeah, thanks.

You have a second question just get back in queue again, we will get to you. If we go thank you.

Speaker Change: Your next question comes from the line of Dan Ives with Wedbush. Your line is open.

Yeah, Thanks, great great quarter guidance.

Alan Trefler: Great, great quarter guidance. Now, to that last question and your point, I mean, does it really feel like it's starting to become just a more strategic conversation for PEGA with existing as well as new logos? I mean, is that the view you have?

Dan Ives: So to that last question and your point I mean does it really feel.

Dan Ives: It's starting to become just a more strategic conversation.

Dan Ives: With existing as well as new logos I mean is that is there.

Alan Trefler: Yeah, I would say that's very much my perspective. In fact, we've had this conversation with many, including long-standing customers, in which we say, Look, you've historically thought of us in a certain way, as a way that we can do certain types of, you know, exceptions and disputes for you, or the way that we can help you sell certain things in a certain area. We'd like to talk now about what this looks like at a much more strategic level. And we have several clients where we've completely changed that conversation.

Dan Ives: From your perspective.

Speaker Change: Yes, I would say that's very much my perspective in fact, we've had this conversation with many include longstanding customers in which we say look you've historically thought of us.

Speaker Change: <unk> way as a way that we can do certain type of exceptions and disputes for you or the way that we can help you sell certain things in a certain area. We want to talk now about what this looks like at a much more strategic level and we have several clients, where we've completely changed that Congress.

Speaker Change: Recession, we will talk to the senior people before.

Alan Trefler: You know, we were talking to senior people before, but they were thinking of us as being more of an area solution. Now we're really being thought of by a number of key clients as a way that they want to do business. And I think that's very, very gratifying.

Speaker Change: But they were thinking of us as being more of a area solution now, we're really being sort of at a number of key clients as a way that they want to do business and I think thats very very gratifying that was part of the goal of moving to the Org focused deep engagement strategy and I think it is also something we are going to be.

Alan Trefler: It was part of the goal of moving to the org-focused, deep engagement strategy, and I think it's also something we're going to be able to scale up to additional organizations as, you know, we get our legs under us with this new Gen AI capability. I'll say one more thing about Gen AI. Historically, everyone thought Pega was very powerful, but in all candor, the rap on us was that... You know, it could be a little harder to use, and maybe the resources weren't as prevalent.

Speaker Change: We're able to scale up to additional organizations as.

Speaker Change: We get our legs here under us with this new generic capability.

Speaker Change: One would think about Ginnie historically, everyone thought Pedro was very powerful but in all candor the wrap on us was that.

Speaker Change: It could be a little harder to use and maybe the resources weren't as prevalent we've gone directly app those things with <unk>.

Alan Trefler: We've gone directly at those things with Gen-AI, and we have all of the power. We have more power than we ever have. But, boy, I think that those traditional, long-standing challenges are going to look completely different this year.

Speaker Change: And we have all of the power we have more of the power than we ever have but boy I think that those traditional longstanding challenges are going to look completely different.

Speaker Change: This year.

Speaker Change: Thanks.

Speaker Change: Your next question comes from the line of Brad <unk> with Macquarie. Your line is open.

Alan Trefler: Your next question comes from the line of Fred Havemeyer with Macquarie. Your line is open. Hey, thank you. Good morning.

Brad: Hi, Thank you good morning, and congratulations on the results here I wanted to ask regarding another getting a question sorry to be a.

Alan Trefler: And congratulations on the results here. I wanted to ask regarding another GEN-AI question, sorry to be a little bit, I'm not original here, but I've been seeing a lot of interesting work coming out, for example, like Brett Taylor's new startup, Sierra, coming out from customer service agents and client-facing agents that are taking on more like generative AI-powered agentic characteristics, and I'm curious. I know that Pega has a deep expertise in building out But just generally, how do you think about agents, like autonomous agents powered by Gen-AI, as part of the overall product roadmap at Pega? Thank you. So, there are two thoughts there.

Brad: A little bit.

Brad: Non original here, but I, just think a lot of interesting work coming out.

Brad: For example, like Bret Taylor's new startup Sierra coming out from customer service agents and client facing agents that are taking on more like generative AI powered E. Gen Tech.

Brad: Characteristics I'm curious I know that <unk> has a deep expertise in building our clients see thing.

Brad: Parts and service portals and so forth.

Brad: How do you think about agents agents powered by <unk> as part of the overall product roadmap.

Yes.

Brad: So one to.

Speaker Change: Two thoughts there one.

Alan Trefler: One, we introduced recently this concept of what we call the Autonomous Enterprise, which is, you know, how do you not just think of agents as little one-off things, but how do you think about structuring your entire enterprise so it's not built for, quote, users, unquote, but it's built around the work itself you want to achieve, so that you build it for efficiency, but when it's appropriate, you let people put their hands So we've actually designed this whole new way of thinking. This whole idea of an autonomous enterprise, what we sometimes call a center-out enterprise, which doesn't focus on either the front-end UI or the back-end systems but really lets you focus on what is the very work that defines your institution and how do you build that in so it can run with automation and autonomy.

Speaker Change: We introduced recently this concept of what we call the autonomous enterprise.

Speaker Change: Which is.

How did you not just think of agents as little one off things, but how do we think about structuring your entire enterprise. So it's not built for quote users on growth, but it's built around the work itself you want to achieve so that you build it for economy, but when it's appropriate to let people put their hands on the wheel.

Speaker Change: And takeover so we've actually designed into this whole new blueprint, where youre thinking this whole idea of an autonomous enterprise, what we sometimes call a center out enterprise, which doesn't focus on either the front end UI in the backend systems, but really lets you focus on what is a very.

Speaker Change: We work with defined your institution and how do you build that in so we can run with the automation of autonomy that naturally lends itself.

Alan Trefler: That naturally lends itself to Agents and Automation as due work. Also, for call center agents, to the extent that a little bit of your question might take you to that, we just rolled out in Q4 really exciting voice AI capabilities, which you can read about on pego.com also, where we are listening to the conversation, actually filling in fields on the screen, allowing the operator to validate them, and then using that information in the wrap-up and in the other sorts of elements and summarization.

Speaker Change: To agents and automation as to as to workflows also for call center agents to the extent that a little bit of your question I think you have that.

Speaker Change: Just rolled out in Q4 really exciting voice AI capabilities, which you can read about on <unk> Com also where we are listening to the conversation actually filling in fields on the screen, allowing the operator to validate them and then using that information in the wrap up and then the other sort of elements.

Speaker Change: Summarization, and we now have that in production and initial clients, so very very exciting time with them.

Alan Trefler: And we now have that in production at initial clients. So, very, very exciting. Your next question comes from the line of Blair Abernethy with Rosenblatt Securities. Your line is open. Thank you. Great quarter, guys. Just, you know, as you have... Thank you. P. I. J. N. A. I, and Chris Huffman.

Speaker Change: Your next question comes from the line of Blair Abernethy with Rosenblatt Securities. Your line is open.

Blair Abernethy: Thank you Greg.

Blair Abernethy: Great quarter guys.

Blair Abernethy: Yeah.

Blair Abernethy: As you have.

Blair Abernethy: Discuss AI and AI, becoming more strategic to your customers and how youre going to market what is the impact or how are you looking at your.

Alan Trefler: Thank you. Thank you, www.globalonenessproject.org. What's the impact, or how are you looking at your consulting and channel partners? Investing more in or

Blair Abernethy: Consulting and channel partners in over the next couple of years in this scenario you will be investing more in or do you think youre going to be taking more of those back into your control. Because obviously you guys will be the experts in this area.

Alan Trefler: Thank you guys. Sure. So we will only be successful if our application of AI, Man, helps everyone. This whole idea of reducing the barriers to entry is also going to be very helpful, not just for our clients and not just for our own staff but our partners. I do not see that Pega is going to be taking over the work of our partners. In fact, to the contrary, Karim, over the last two weeks, has done, which is probably more than a dozen, a dozen, several thousand people, yeah, with exclusively partners, to give them a head start on Blueprint.

Speaker Change: Sure. So we will only be successful if.

Speaker Change: Our application of AI.

Speaker Change: Makes everyone more expert this whole idea of reducing the barriers to entry. There is also going to be very helpful. Not just for our clients and not just for our own stuff, but our partners are do not see that.

Speaker Change: <unk> is going to be taking over the work of our partners in fact to the contrary career over the last two weeks.

Speaker Change: Done, what's probably more than it does in Cola federal government.

Speaker Change: With exclusive partners to give them a head start on blueprint and one of the most exciting things is that he is building into the ability for our partners to create their own blueprints.

Alan Trefler: And one of the most exciting things is that he's building in the ability for our partners to create their own Blueprint, which when they go to a customer, they'll be able to bring their best practice blueprint on a particular topic to the client. And we'll then add in what our practices are, the best practices from the internet. Gen AI pulls that all together and gives you a consolidated blueprint that I think is going to be really good for partners to come in with more packaged IP. So, yeah, I think this is going to be terrific for partners. It's also going to make it easier for them to learn.

Speaker Change: When they go to a customer they will be able to bring their best practice blueprint on a particular topic to the client will then add in what our practices are the best practices from the Internet Gemini pools that altogether and gives you a consolidated blueprint.

Speaker Change: I think it was going to be really good for partners to come in with more packaged IP. So yes.

Speaker Change: I think this is going to be terrific for partners. It is also going to make it easier for them to learn but let's face. It Jimmy is going to change all of the businesses that we're in and that's true for our partners' businesses as well.

Alan Trefler: But let's face it, Gen AI is going to change all business, and that's true for our apartment business. Great, thank you. Your next question comes from the line of Mark Chappelle with Loop Capital Markets. Your line is open. Hi, thank you for taking my question and a nice finish to the year. Alan, just one question for you.

Speaker Change: That's great. Thank you.

Speaker Change: Your next question comes from the line of Mark <unk> with loop capital markets. Your line is open.

Mark: Alright. Thank you for taking my question and nice finish to the year Alan just a question for you.

Alan Trefler: There's little discussion, or not much discussion, about LaunchPad. You're prepared to march this quarter. I was wondering if you'd just give us a quick update on the solution, and mainly around the status of your early adoption. Absolutely, so I'm very excited about Launchpad, but we have a massive business here to run and to grow, and I want to make sure that people know we're taking care of that, and we're spending money wisely on it, and we're growing that business. So Launchpad, I'm thrilled to say that in Q4 we got our initial couple of clients lined up, and it's going well.

Mark: A little discussion on that much discussion about launch pad Youre prepared remarks. This quarter was wondering if could just give us a quick update on.

Speaker Change: On the solution.

Mark: Mainly around the status of your early adopter program.

Speaker Change: Absolutely no.

Speaker Change: Very excited about launchpad, but we have a massive business here to run and to grow and I want to make sure that people know we've taken care of that and we're spending money wisely on that and we're growing that business up so launchpad I'm thrilled to say that in Q4, we got our.

Speaker Change: The initial couple of clients live.

Speaker Change: And that's going well.

Alan Trefler: This interest; we're working with partners in particular to get them to capture their IP, because that seems to be something that our partners are very, very interested in, using Launchpad as a way to bring their intellectual property and their practices to market. And I'm hoping we will have some nice, exciting things to talk about by the time we get to Pegaworld when it comes to Launchpad as well. So you're also going to see that we're updating those pages on our website, and it's going to make it a lot easier for people to see, understand, and get involved in Launchpad as the year goes along. So I think that's going to be a terrific addition to our business and very good for our partners. Thank you. Your next question comes from the line of Anthony Hong with KeyBank Capital Markets. Your line is open.

Speaker Change: Interest, we're working with partners in particular to get them to capture their IP because that seems to be something that our partners are very very interested in to use launch pad as a way to bring their intellectual property in their practices to market and I am hoping we will have some nice exciting things to talk about by the time, we get to peg a world when it comes to.

Speaker Change: When it comes to launch back as well so you're also going to see that we're updating those pages on our website and go to make it a lot easier for people to see understand and get involved in launch proud as the year goes along.

Speaker Change: I think thats its.

Speaker Change: Is going to be a terrific augmentation to our business and very good for our partners as well.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Anthony Hong with Keybanc capital markets. Your line is open.

Ken Stillwell: Hi, thanks for taking my question. I just wanted to ask, provided in improving the cash flow position and a strengthening balance sheet, could you provide an update on Pega's view regarding its debt, including debt retirement or refinancing, given the current interest rate environment? Thank you.

Anthony Hong: Hi, Thanks for taking my question.

Anthony Hong: Wanted to ask providing and improving.

Anthony Hong: Free cash flow position.

Anthony Hong: <unk> balance sheet could you provide an update on peg as view regarding it.

Speaker Change: <unk> debt retirement.

Speaker Change: Financing given the current interest rate environment. Thank you.

Sure. So as you can see with the cash that we have on the balance sheet and the free cash flow, we're going to generate in 2024.

Ken Stillwell: So, as you can see, with the cash that we have on the balance sheet and the free cash flow we're going to generate in 2024, we'll be in a net positive cash position very soon, certainly well before the end of the year. And with our convert coming due in the first quarter of 2025, we'll have more than enough cash on the balance sheet to fully satisfy that convert retirement if we so choose to do so. So, I would say, point one, we certainly have no concern about being able to retire the convert as scheduled. The second point is that it provides lots of flexibility in terms of how we want to think about capital allocation and the leverage of things like convertible or traditional debt on the balance sheet. So I would say we're evaluating how we want to think about that as we are now becoming a multi-hundred-million-dollar consistent and predictable free cash flow generator. But right now, with respect to the existing conversion, we'll have plenty of cash to satisfy that if we choose to do so.

Speaker Change: Will be it will be in a net positive cash position very soon.

Speaker Change: Certainly well before the end of the year and with the with our convert coming due in the first quarter of 2025, we will have more than enough cash on the balance sheet too to fully satisfy that convert retirement, if we so choose to do so so let's say.

Speaker Change: One we certainly have no concern about being able to retire the convert as scheduled.

Speaker Change: Second point is that that provides spots effects flexibility in terms of how we want to think about capital allocation and the leverage of things like convertible or traditional debt on the balance sheet. So I would say we are evaluating how we want to think about that as we now are becoming a multi hundred million dollar consistent and predictable.

Speaker Change: Free cash flow generator, but but right now with respect to the existing convert.

Plenty of cash to satisfy that if we do if we choose to do so.

Speaker Change: There are no further questions at this time I will now turn the call back over to Alan <unk>, founder and CEO Tiger system for closing remarks.

Alan Trefler: There are no further questions at this time. I will now turn the call back over to Alan Trefler, founder and CEO of Pegasystems, for closing remarks. Thank you very much to everyone who joined the call, especially those of you who got up early on the West Coast. We definitely do appreciate that. We want you to know that we're excited about where we are. The folks on the team are working extremely hard, and I think everyone who can should come to Pegaworld because I think what you see there is going to be really eye-opening.

Alan: Thank you very much to everyone, who joined the call, especially those of you who got up early on the West Coast, We definitely do.

Alan: We shared that we want you to know that.

Alan: We're excited about where we are the folks and the team are working extremely hard and I think everyone, who can and should come to peg a world because I think what you'll see there is going to be really.

Operator: So thank you very much to all of you, and I look forward to talking to you again next quarter. This concludes today's call. You may now disconnect. Copyright 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced

Speaker Change: My opening so thank you very much all of you and I look forward to talking to you again next quarter.

Speaker Change: Okay.

Speaker Change: This concludes today's call you may now disconnect.

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