Q2 2024 Pegasystems Inc Earnings Call

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Peter Welburn: I would now like to turn the call over to Vice President Corporate Development and Investor Relation of Negative Systems. Peter, Robert, please go ahead.

Speaker Change: I'd now like to turn the call over to Vice President corporate development.

Speaker Change: And then that stimulation that ecosystem beat their library preschool ahead.

Alan Trefler: Good morning, everyone, and welcome to Pegasystems' Q224 earnings call.

Peter Welburn: Good morning, everyone, and welcome to Pegasystems' Q224 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, 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.

Speaker Change: Good morning, everyone and welcome to packaging systems Q2, 24 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.

Peter Welburn: Because such statements deal with future events, they are subject to various risks and uncertainties. The 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 Q2 2024 results 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 in other recent filings with the SEC.

Alan Trefler: Before we begin, I would like to read our State Barber statement. Certain statements contain this presentation, maybe 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, forecast, guidance, or variations of such words and other similar expressions identified forward-looking statements, which speak only 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.

Peter Welburn: Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause our views to change, except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise. And with that, I turn the call over to Alan Trefler, founder and CEO of Pegasystems. Thank you, Peter.

Speaker Change: Words expects anticipates intends plans believes will could should estimates may forecast 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 expectations and assumptions because such statements deal with future events. They are sub.

Speaker Change: 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 Q2 2024 result, and in the company's filings with the securities.

Alan Trefler: 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 Q2 2024 results and in the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year end of December 31, 2023, and in other recent filings with the Securities and Exchange Commission. Investors are cautioned not to place under reliance on such forward-looking statements, and there are no assurances that the matters contained in such statements will be achieved.

Speaker Change: And exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2023 and in other recent filings with the Securities and Exchange Commission and investors or investors are cautioned not to place undue reliance on such forward looking statements and there are no assurances that the matters contained in such statements will be achieved although.

Alan Trefler: Although subsequent events may cause our views to change, except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements, whether it's the result of new information, future events, or otherwise.

Alan Trefler: What events may cause our views to change except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward looking statements whether as a result of new information future events or otherwise and with that I'll turn the call over to Alan traveler, founder and CEO of <unk> systems.

Alan Trefler: And with that, I turn the call over to Alan Treppler, founder and CEO of Pegasystems. Thank you, Peter, and to everyone who's joined today's call. I'm very pleased with our performance of the first half of 2024. We continue to improve execution, and I'm happy to see that our focus on profitable growth is working well. We're accomplishing our financial goals while continuing to deliver breakthrough technology innovation. Our center of architecture and approach to statistical AI and generative AI continue to be significant differentiators that we think our competitors can't easily replicate. Our newest offering, especially PegasGenAI Blueprint, has captured the imagination of clients, prospects, and partners, allowing them to identify new possibilities and help us drive deeper engagement.

Alan Trefler: Thank you, Peter, and to everyone who's joined today's call. I'm very pleased with our performance in the first half of 2024. We continue to improve execution, and I'm happy to see that our focus on profitable growth is working well. We're accomplishing our financial goals while continuing to deliver breakthrough technology innovation. Our set-around architecture and approach to statistical AI and generative AI continue to be significant differentiators that we think our competitors can't easily replicate.

Thank you Peter.

Alan Trefler: The one who has joined today's call.

Alan Trefler: Very pleased with our performance in the first half of 2024, we continue to improve execution and I'm happy to see that our focus on profitable growth.

Alan Trefler: Well.

We're accomplishing our financial goals, while continuing to deliver breakthrough technology innovation.

Alan Trefler: Our center led architecture and approached statistical.

Speaker Change: General debate.

Speaker Change: Turning to be significant differentiators that we think our competitors can't easily replicate our newest offerings, especially peg a good journey blueprint has captured the imagination of clients prospects and partners, allowing them to identify new possibilities and help us drive deeper engage.

Alan Trefler: Our newest offerings, especially Pegagen AI Blueprint, have captured the imagination of clients, prospects, and partners, allowing them to identify new possibilities and help us drive deeper engagement. The client discussions I've had since launching Blueprint are some of the most positive I've had in Pega's 40-year history. In fact, when our clients see what we've delivered, they quickly recognize the power and the opportunity. I believe that the energy and confidence in our vision are increasing and is helping to drive the kinds of results we're talking about today.

Alan Trefler: Client discussions I've had since launch with Blueprint are some of the most positive I've had in the Pega 40-year history. In fact, when our clients see what we've delivered, they quickly recognize the power and the opportunities. I believe that the energy and confidence in our vision is increasing and is helping to drive the kinds of results we're talking about today. With tens of thousands of Becca Blueprints created over the last few months, we're identifying opportunities to accelerate growth and creating additional momentum for Peter Cloud, which will contribute to monetization. And we've clearly scratched the surface of what we, our clients and our partners can do with this game-changing technology, and we're really energized by this.

Speaker Change: Client discussions I've had since launching blueprint are some of the most positive.

Speaker Change: In the paragraph 40 year historically in fact, when our clients see what we've deliberately vague quickly recognized for powered and the opportunities.

Speaker Change: I believe that the energy and confidence in our vision is increasing and is helping to drive the kinds of results we're talking about today.

Alan Trefler: With tens of thousands of Vega blueprints created over the last few months, we're identifying opportunities to accelerate growth and create additional momentum for Vega Cloud, which will contribute to monetization. And we've barely scratched the surface of what we, our clients, and our partners can do with this game-changing technology, and we're really energized by it. I do believe that Blueprint is fundamentally changing how we engage, sell, and deliver for our clients. Now, I want to take a few minutes to remind you about what makes our approach to AI unique and powerful, because a lot of the language we see in the industry is very buzzy and sounds very similar.

Speaker Change: Tens of thousands of blueprints created over the last few months, we're identifying opportunities to accelerate growth and creating additional momentum for major cloud, which will contribute to monetization and we've barely scratched the surface of what we our clients and our partners can do with this game changing.

Speaker Change: And we're really energized filings I do believe that with Brexit is fundamentally changing how we engage shell and deliver with our clients.

Alan Trefler: I do believe that Blueprint is fundamentally changing how we engage, sell, and deliver with our clients.

Alan Trefler: Now, I want to take a few minutes to remind you about what makes our approach to AI unique, powerful, because a lot of the language we see in the industry is very fuzzy and sounds very similar. But at the core, if you strip away all the text, we're moving our clients way beyond the ability to write more, faster code, which isn't part of many of our companions. The editors are doing. This is a hundred percent wrong focus. No client has ever told us they want more code. They are drowning in code and legacy systems. They want to drive innovation, ensure their employees are satisfied and productive, and ultimately serve their customers better, so the customers are satisfied, loyal, and profitable.

Now I wanted to take a few minutes to remind you about what makes our approach to AI unique powerful because a lot of the language. We see in the industry is very buzzy sounds very similar.

Alan Trefler: But at the core, if you strip away all the, We're moving our clients way beyond the ability to write more faster code, which is what many of our competitors are doing. This is the 100% wrong focus.

Speaker Change: Evercore.

Speaker Change: Drip away all the tax fee.

Speaker Change: We're moving our clients way beyond the ability to write more faster.

Speaker Change: As part of many of our competitors are doing.

Alan Trefler: No client has ever told us they want more code. They're drowning in code and legacy systems. They want to drive innovation, ensure their employees are satisfied and productive, and ultimately serve their customers better, so customers are satisfied, loyal, and profitable. As we've always done, we're using AI to help clients solve business challenges by giving them the ability to completely reimagine their workflows and then execute quickly and effectively. Gen AI allows us to take this to a whole new level, and, for decades, we've been investing in an application development approach centered around business outcomes, not code. Things like enterprise processes, rules, data models, and user interfaces.

Speaker Change: And this is about 100% wrong focus no client ever told us they wanted more color there.

Speaker Change: Routing and counter and legacy systems, they wanted to drive innovation and shorten their employees are satisfied and productive and ultimately serve their customers better. So the customers are satisfied loyal and profitable as.

Alan Trefler: As we've always done, we're using AI to help clients solve business challenges by giving them the ability to completely reimagine their workflows, and then execute quickly and effectively. Genai allows us to take this to the whole new level, and for decades, we've been investing in an application development approach centered around business outcomes on code. Things like enterprise processes, rules, data models, and user interface, and this man was perfect with our approach to Genai. Now, this allows business and IT to come together with a common visual language focused on business concepts and the customer journey, not on any particular technology or channel.

Speaker Change: As we've always done we're using AI to help clients solve business challenges by giving them the ability to completely re imagine their workflows, and then execute quickly and effectively.

Speaker Change: <unk> allows us to take this to a whole new level and for decades, we've been investing in an application and development approach centered around business outcomes.

Speaker Change: Seems like enterprise processes rules data models and user interface and this amount was up perfectly.

Alan Trefler: And this marries up perfectly with our approach to Gen-AI. Now, this allows business and IT to come together with a common visual language focused on business concepts in the customer journey, not on any particular technology or channel. Infusing Gen AI into our approach lets users unlock new ideas and implement them efficiently and effectively. And because so much of our architecture is patented, we believe it can't be easily copied or reproduced, and we don't see anyone going at this problem the way we do.

Speaker Change: Our approach to Jennie O.

Speaker Change: Now this allows business in 19 and come together with a common visual language focused on business concepts on the customer journey no on any particular technology or channel.

Alan Trefler: Infusing Genai into our approach lets users unlock new ideas and implement them efficiently and effectively, and because so much of our architecture's patented, we believe it can't be easily copied or reproduced, and we don't see anyone. Going at this problem the way we are.

Speaker Change: Using <unk>.

Speaker Change: Lets users unlock new ideas and implement them efficiently and effectively.

Speaker Change: And because so much of our architectures patent that we believe it can be easily copied or reproduced and we don't see anyone going at this problem. The way we are.

Alan Trefler: Now, I'll ask you calls that talked about the four major areas we believe our GenAI approach will have a massive impact for us and our clients. By delivering situate solutions at first, double developer productivity by putting Pegas skills at their fingertips. Secondly, ignite enterprise innovation to a powerful blend of industry expertise, packet technology, and incorporating client insights, all driven by gendered avail. Third, maximize revenue and efficiency with real-time optimization and personalization of customer interaction to the workplace. And finally, streamlining their work processes and customer experiences by giving the right people the right access, enterprise knowledge, and putting processes in their hands to execute based on that.

Alan Trefler: Now, our last few calls talked about the four major areas we believe our Gen-AI approach will have a massive impact for us and our clients, by delivering situated solutions at first. Double developer productivity by putting PegaSkills at their fingertips. Secondly, ignite enterprise innovation with a powerful blend of industry expertise, technology, and client insights, all driven by generative AI. Third, maximize revenue and efficiency with real-time optimization and personalization of customer interactions and workflows.

Speaker Change: Now our last few calls Ive talked about the four major areas. We believe are Jimmy I approach will have a massive impact for us and our clients.

Speaker Change: Delivering situate solutions that first.

Speaker Change: Developer productivity by putting CAGR skills at their fingertips.

Speaker Change: Secondly.

Enterprise innovation to our powerful brand of industry expertise packet technology, and incorporating client insights all driven by general debate on it.

Speaker Change: Third maximize revenue and efficiency with real time optimization of personalization of customer interactions and northwest.

Alan Trefler: And finally, streamlining their work processes and customer experiences by giving the right people the right access to enterprise knowledge and putting processes in their hands to execute based on that knowledge. We continue to deliver on that strategy, which we showcased at Peggle World last month. We've added Gen-AI capabilities that help all who use Pega do more. Business and IT teams who design and plan their applications, well, Pegagen AI Blueprint is helping them collaborate, dramatically accelerate the design phase, inject new ideas and best practices, and use the power of AI and the Internet to stimulate best practice thinking in their applications. And developers, where PegaGEN AI Autopilot helps them turn blueprints into live applications, providing the ability to move from blueprint to application and providing contextual guidance and assistance in every step of the development journey.

Speaker Change: And finally streamlining their work processes and customer experience.

Speaker Change: By giving the right people the right access to enterprise knowledge.

Speaker Change: Putting processes in their hands to execute based on that knowledge.

Alan Trefler: We continue to deliver on that strategy, which we showcased the Peggle World last month. We've added Gen AI capabilities that help all who use Pegga do more. Business and IT teams who design and plan their applications, well, Pegga Gen AI Blueprint is helping them collaborate, dramatically accelerate the design phase, inject new ideas and best practices, and use the power of AI in the Internet to stimulate best practice thinking in their applications. And developers, where Pegga Gen AI Autopilot helps them turn Blueprints into live applications, providing the ability to move from Blueprint to an application, and providing contextual guidance in the systems in every step of their development journey.

Speaker Change: We continue to deliver on that strategy, which we showcased at <unk> World last month, we've added jenne AI capabilities that help all who use purger do more.

Speaker Change: Business and it teams, who design and plan to your application as well.

Speaker Change: Jimmy I blueprint is helping them collaborate dramatically accelerates the design phase inject new ideas and best practices and use the power of AI and the internet to stimulate best practice thinking in their applications and developers were pegged Jenny on autopilot help some term blueprint is alive.

Speaker Change: <unk>, providing the ability to move from broker to an application and providing contextual guidance in our systems in every step of the development journey and.

Alan Trefler: And you know, I also love Pegga Gen AI Socrates, a first of its kind, Gen AI Tutor, that revolutionizes learning by creating an interactive tailored dialogue with each individual student to help them learn Pegga skills. Now, users of Pegga applications across operation service and customer engagement, well, we have a powerful integrated suite of more than 20 productivity boosters aimed at different use cases, are all seen enormous benefits. Customers are leveraging self-service to get answers using Gen AI Knowledge Body. Employees get their work done faster with expert guidance, and the direction from the AI through the Gen AI coach.

Alan Trefler: And you know, I also love PEGA Gen AI Socrates, a first of its kind Gen AI tutor that revolutionizes learning by creating an interactive tailored dialogue with each individual student to help them learn PEGA skills. Now, users of PEG applications across operations, service, and customer engagement, where we have a powerful integrated suite of more than 20 productivity boosters aimed at different use cases, are all seeing enormous benefits. Customers are leveraging self-service to get answers using the GenAI Knowledge Body.

Speaker Change: I also love Tiger Jenny Isocrates, a first of its current Gen AI tutor revolutionaries luminary by creating an interactive tailored dialogue with each individual students to help them learn packer skills.

Now users of peg applications across operations service and customer engagement, where we are.

Speaker Change: A powerful integrated suite of more than 20 productivity boosters aimed at different use cases are all seeing enormous benefits customers are leveraging self service to get answers using Jamie.

Alan Trefler: Employees get their work done faster with expert guidance and direction from the AI through the GenAI code. Service agents can serve their customers better using Pedagene AI Analyze to summarize conversations and do more relevant follow-up. And marketers can effectively create, action, and manage holistic customer engagement. Gen AI, CDH, assist.

Speaker Change: Bobby employees get their work done faster with expert guidance.

Speaker Change: <unk> from the AI to the Gen AI coach.

Alan Trefler: Service agents can serve their customers better using Pegga Gen AI analyzed to summarize conversations and do more relevant follow-up, and marketers who can effectively create action and manage holistic customer engagement with Gen AI CDH system. As you can see, we've percolated Gen AI through our entire product suite. This is the basis of how we want our clients to advance in the future.

Speaker Change: Service agents can serve their customers better using gen AI NOI to summarize conversations and do more relevant follow up and marketers, who can effectively create action and manage holistic customer engagement with Gen. AI CD H a system as you can see.

Speaker Change: We've percolating.

Speaker Change: Through our entire product suite. This is the basis of how we want our clients to advance in the future.

Alan Trefler: Now, a moment on Pegga World, it was really inspiring, and as exciting as any that I've seen in more than 30 years. The attendees were super eager to explore the innovations, especially Pegga Blueprint, where we had multiple Pegga Blueprints teost around the event, and there were lines of people up to 5D waiting to get their hands on it, where the 1,000 new Blueprints were created in just the two days of Pegga World. And in client meetings I've had this quarter, including some of those in Pegga World, clients are excited about our vision for Gen AI and the potential impact it can have on their business.

Alan Trefler: Now a moment on Pegaworld. It was really inspiring and as exciting as any that I've seen in more than 30 years. The attendees were super eager to explore the new innovations, especially Pegablueprint, where we had multiple Pegablueprint kiosks around the event. And there were lines of people up to 5D waiting to get their hands on it.

Speaker Change: Now a moment on peg a world.

Speaker Change: It was really inspiring.

Speaker Change: As exciting as anything I've seen in more than 30 years.

Speaker Change: And these were super eager to explore the new innovations, especially.

Speaker Change: Our specialty peg, a blueprint, where we have multiple peg a blueprint kiosks around the event and they were wanting to people up to five.

Speaker Change: Waiting to get their hands on it.

Alan Trefler: More than 1,000 new blueprints were created in just the two days of Pegaworld. And in client meetings I've had this quarter, including some of those at Pegaworld, clients are excited about our vision for Gen AI and the potential impact it can have on their business. In those early days, several clients spoke about their Blueprint experience, and I found what Aflac said particularly inspiring. For the second year in a row, they ran what we call a Pegathon, which brought together about 70 of their teammates across the company for two half days to develop application prototypes for key business units, all using Pega. The team included business stakeholders with no software experience, developers with no Pega experience, representatives from their partner, Coforge, as well as VPs from the business units involved.

Speaker Change: Thousands of new blueprints were created in just the two days of megawatt.

Speaker Change: And then client meetings I've had this quarter, including some of those are <unk> clients are excited about our vision for <unk> and.

Speaker Change: The potential impact it can have on their business and that was early days.

Alan Trefler: And that was early days. Several clients spoke about their Blueprints experience, and I find what ATHLAC said particularly inspiring. For the second year, they ran what we call a Pegathon, which brought together about 70 of their teammates across the company for two half days to develop application prototypes for key business units, always in Pegga. The team included business stakeholders with no software experience, developers with no Pegga experience, representatives from their partner Code Forage, as well as VPs from the business units. Charles, this year he used Blueprint to create the workflows for apps they had defined that really fundamentally have the prospect of changing their business and driving a digital transformation strategy.

Speaker Change: Several clients spoke about their blue print experience and what.

Speaker Change: Aflac said, particularly inspiring for the second year. They ran what we call Tiger funds.

Speaker Change: Which brought together about 70 of their teammates across the company for two half days to develop applications prototypes for key business units all using Tiger. The team included business stakeholders with no software experienced developers with no peg experienced representatives from their partner <unk> as well.

From the business units involved.

Alan Trefler: This year, they used Blueprint to create the workflows for apps they had defined that really fundamentally have the prospect of changing their business and driving a digital transformation strategy. Terry Henry, the digital service delivery lead at Afflyc, who delivered a presentation at Pegaworld, said what I'm hoping that all clients will say: Well, we've been quite impressed. It helped us optimize workflow designs across an array of business scenarios and for a number of different business departments.

Speaker Change: This year, they use blueprint to create workflows for apps, we have defined.

Speaker Change: Really fundamentally have the prospect of changing their business and driving a digital transformation strategy.

Alan Trefler: Terry Henry, the Digital Service Delivery Lead in Afford, who delivered a presentation at Pegaworld, said, "but I'm hoping that all clients will say, well, we've been quite impressed with the speed, agility, and intelligence of PegawGenei Blueprint." It helped us optimize workflow designs across an array of business scenarios and for a number of different business departments. By drawing on Pegaw's best practices via generative AI, we can quickly create apps and processes that meet our requirements and rapid time. This is truly a differentiated use of generative AI that will help propel our digital transformation project forward for the ultimate benefit of our employees and customers.

Henri: Henri Henri <unk>.

Speaker Change: Digital service delivery leads that effort and.

Speaker Change: <unk> delivered a presentation in February.

Ed.

Jenny: Im hoping that all clients will say well we've been quite impressed with the speed agility and intelligence of CAGR, Jenny I footprint. It helped us optimize workflow designs across an array of business scenarios and for a number of different business departments by drawing on <unk> best practices, we have general debate.

Alan Trefler: By drawing on PEGA's best practices via generative AI, we can quickly create apps and processes that meet our requirements in record time. It's just terrific when customers stand up and say, that's what, and we help them create new services.

Speaker Change: We can quickly create apps and processes that meet our requirements in record time. This is truly a differentiated use of generative AI that will help propel our digital transformation project forward for the ultimate benefit of our employees and customers.

Alan Trefler: Just terrific with customers. Stand up and say, that's sort of thing.

Speaker Change: Just terrific with customer stand up and say that sort of thing.

Alan Trefler: We're also very excited to see that our partners have embraced Blueprint's value and have themselves created over 10,000 Blueprints. With the latest release, we can upload there for proprietary Blueprint's to Pegaw's best practice library for them to use in their client engagements and to help them create new services. About a dozen partners have already taken advantage of this new capability and have created about 70 best practice Blueprints to use with their clients. It was a terrific opportunity, I think, for us to broaden the way we go to market by empowering our partners to take advantage of this new capability.

Speaker Change: We were also very excited to see that our partners have embraced blueprints value and have them Charles created over 10000 look rich with the latest release, we can upload their proprietary <unk> to Pac as best practice library for them to use in their client engagements.

Speaker Change: And to help them create new services about a dozen partners have already taken advantage of this new capability and have created about 70 best fastest blueprint to use with their clients now.

Alan Trefler: Now, it was a terrific opportunity, I think, for us to broaden the way we go to market by empowering our partners to take advantage of this new capability. And one thing I love is that the Pega team in the first quarter of this year engaged with our partners to make sure that they were really up to speed and able to get on their front foot with this new facility, even as it continues. Now, I know many of you attended Pegaworld and came to our Investor Conference, and it was great to see you there.

Speaker Change: Was a terrific opportunity.

Speaker Change: Perhaps to broaden the way we go to market by empowering our partners to take advantage of this new capability and one thing I love is that the peg a team I think the first quarter of this year and engage with our partners to make sure that they were really up to speed and able to get on their front foot with this new facility, even if it <unk>.

Alan Trefler: One thing I love is that the Pegaw team, in the first quarter of this year, engaged with our partners to make sure that they were really up to speed and able to get on their front foot with this new facility, even as it continues to evolve.

Speaker Change: <unk> to evolve.

Alan Trefler: Now, I know many of you attended Pegaworld and came to our investor conference, and it was great to see you there. For those who did it, or missed Day Two, I encourage you to check out our website and watch the key notes. Now, if you want to hear the rest of what I was saying, that is, the dozens and dozens of videos is there as well.

Speaker Change: Now I know many of you attended Peglow, who came to our Investor Conference and it was great to see you there for those who did it or they too I encourage you to check out our website.

Alan Trefler: For those who didn't or missed day two, I encourage you to check out our website and watch the keynotes. And if you want to hear the rest of what Affleck was saying, that is, dozens and dozens of videos are there as well.

Speaker Change: What's the key notes if you want to hear the rest of what Aflac, we say that is.

Speaker Change: Dozens and dozens of videos is there as well.

Alan Trefler: Now, in addition to the incredible client stories, we also made several important product announcements. The move our vision forward, including enhancements to Pegaworld, that accelerate transformational design, including an improved, more intuitive user interface, the ability for clients to import existing assets, content, and knowledge that jumpstart their develop designs, the ability to have multiple people collaborate directly on Blueprints, and the ability to upload and save their workflow templates into our best practices library. You know, Blueprints is getting better every week as a SaaS app that runs on Pegaworld.com. It's really empowered us to operate at an incredibly rapid pace with our clients.

Alan Trefler: Now, in addition to the incredible client stories, we also made several important product announcements to move our vision forward, including enhancements to PegGen AI Blueprint that accelerate transformational design, including an improved, more intuitive user interface, and the ability for clients to import existing assets, content, and knowledge that jumpstart their design. We have also announced PegaGen AI Socrates, which completely transforms the process for learning PegaSkills. This dynamic learning environment fosters interactive dialogue.

Speaker Change: Now in addition to the incredible client storage. We also made several important product announcements to move our vision forward, including enhanced reps to peg journey outflow.

Speaker Change: Does it accelerate transformational design, including an improved more intuitive user interface the ability for clients to import existing assets content and knowledge to jumpstart their designs.

The ability to have multiple people collaborate directly on blueprint and the ability to upload and say partner workflow athletes into our best practices wide rate.

Speaker Change: Blueprint is getting better every week as a SaaS app that runs on <unk> dot com.

Speaker Change: Really empowered us to operate incredibly rapid rapid pace with our clients in fact, just last night.

Alan Trefler: In fact, just last night, we added facilities to allow the import of BPM and business process management notation, diagrams, to be able to turn them into the key workflows of a Blueprints. BPM and IS, from my point of view, an ancient and derelict standard from the early 2000s that Pegaw has long passed by, but many people still use. We're going to make it much easier for people to do a legacy transformation of these old sort of... with difficult update systems into the extremely modern model-driven design that underlies Pegas.

Speaker Change: We added facilities.

Speaker Change: To allow the import of BPM.

Speaker Change: Business process management notation.

Speaker Change: Diagrams to be able to turn them into the key workflows of a blueprint <unk> is up from my point of view of an ancient and Dara with standard from the early two thousands that pack.

Speaker Change: <unk> has long passed by with many people still use we're going to make it much easier for people to do a legacy transformation of these all sort of differ.

Speaker Change: Difficult to update systems into the extremely modern model driven design.

Otherwise packer.

Alan Trefler: Now, we also announce Pegas and AI Socrates, which completely transforms the process for learning Pegas skills. This dynamic learning environment fosters an interactive dialogue. And it's very new, but I think it's incredibly exciting, and we've actually had clients who have begun to put their assets and their information into some Socrates classes so that they can do a better job of teaching their staffs, things that don't even apply to Pegas. And we think this represents a really interesting opportunity to look at going forward. And we expanded our Gen AI framework with new connectors to Google Cloud and AWS that give our clients more options to use a different LLM if there's a good reason to.

Speaker Change: Now, we also announced Petrochina isocrates, which completely transforms the process for learning skills. This dynamic learning environment fosters an interactive dialogue and it's very new but I think is incredibly exciting and we've actually had clients.

Alan Trefler: And it's very new, but I think it's incredibly exciting. And we've actually had clients who have begun to put their assets and their information into some Socrates classes so that they can do a better job of teaching their staff things that don't even apply to Pega. And we think this represents a really interesting opportunity to look at going forward. And we expanded our Gen-AI framework with new connectors to Google Cloud and AWS that give our clients more options to use a different LLM if there's a good reason.

Speaker Change: Begun to put their assets and their information into some software teach classes. So that they can do a better job of teaching the SaaS things.

Speaker Change: Well don't even apply to pickup and we.

Speaker Change: This represents a really interesting opportunity to look at going forward.

Speaker Change: We expanded our Gen AI framework with new connectors to Google cloud and AWS that give our clients more options to use a different <unk> is a good recent show our.

Alan Trefler: Now, clients now have a product set of capabilities to build Gen. AI applications. And we've really focused on trying to bring the security, privacy, and key aspects of responsible AI into one of the technology does.

Alan Trefler: Our clients now have a broader set of capabilities to build generative AI applications, and we've really focused on trying to bring the security, privacy, and key aspects of responsible AI into what our technology does. I'll also mention that this morning we announced that we had received FedRAMP high-ready compliance and in-process status for Pegacloud for government. We've been FedRAMP moderate for a long time; now being raised to FedRAMP's most rigorous standard is something that we're very excited about and we'll be working on completing in the coming months. As you know, government business is quite important to us, so we think this just helps give us another vote of confidence in the U.S. and even around the world as people look at it.

Speaker Change: And our clients now have a broader set of capabilities to build generative.

Speaker Change: Applications, and we've really focused on trying to bring the security.

Speaker Change: Oversee and key aspects of responsible AI into what our technology does.

Alan Trefler: I also mentioned that this morning, we announced that we have received FedRAMP High-Ready compliance and in-fossil status for Pegas Cloud for government. We've been FedRAM moderate for a long time. Now, being raised to FedRAM's most rigorous standard is something that we're very excited about, and we'll be working on completing in the coming months. As you know, the government business is quite important to us. So, you know, we think this just helps give us another vote of confidence in the U.S. and even around the world as people look at it.

Speaker Change: I also mentioned that this morning.

Speaker Change: <unk> announced that we have received fed ramp Hy ready compliance and in process status for peg a cloud for government, we've been fed ramp moderate for a long time.

Speaker Change: Now being raised to fed ramps most rigorous standards is something that we're very excited about and we'll be working on completing in coming months. As you know the government business is quite important to us. So we think there is to just just helps give us another vote of confidence in the U S and even around the world as people look at it so.

Alan Trefler: So, in summary, we continue to improve execution to do a profitable growth while delivering, I think, revolutionary innovation. We have a vision for leveraging AI and Gen. AI that is driving deeper engagement and absolutely inspiring increased confidence with our stakeholders. Now, while we have a lot of competitors talking, we're delivering tangible, groundbreaking solutions. And there is an architectural approach that we don't think competitors can match. And this approach and architecture are unique. It's been the basis of Pegas and developed by Pegas over our decades. And what I love about the way we put statistical AI, Gen.

Speaker Change: In summary.

Alan Trefler: So, in summary... We continue to improve execution to drive profitable growth while delivering, I think, revolutionary innovation. We have a vision for leveraging AI and Gen AI that is driving deeper engagement and absolutely inspiring increased confidence among our stakeholders. Now, while we have a lot of competitors talking, we're delivering tangible, ground-breaking solutions, and they're in an architectural approach that we don't think competitors can match. And this approach and architecture are unique.

Speaker Change: We continue to improve execution to drive profitable growth, while delivering I think revolutionary innovation, we have a vision for leveraging AI and <unk> AI that is driving deeper engagement and absolutely inspiring increased confidence with our stakeholders now while we have a lot of competitors talking.

Speaker Change: We are delivering tangible groundbreaking solutions and there is an architectural approach that we don't think competitors can match.

Alan Trefler: It's been the basis of Pega and developed by Pega over decades. And what I love about the way we put statistical AI, and generative AI to work is how perfectly it fits in with this heritage. Now, to provide more color on our financial results, I'll now turn it over to Head of COO and CFO, Ken Stillwell. Take it away, Ken. Thanks, Alan. Our execution was...

Speaker Change: This approach and architectural unique.

Speaker Change: I've been the basis of <unk>.

Kenneth R. Stillwell: Developed by <unk> over our decades, and what I love about the way, we put statistical AI a generative AI to work is how perfectly fits in with this heritage now to provide more color on our financial results I'll now turn it over to <unk> CFO Ken Stillwell.

Alan Trefler: AI, the word is how perfectly it fits in with this heritage.

Ken Stillwell: Now, to provide more color on our financial results, I'll now turn it over to Pega's COO and CFO, Ken Stillo.

Ken Stillwell: Take it away, Ken. Thanks, Alan. Our execution was truly exceptional in the first half of the year, and I'm really proud of the way our team is improving profitability, but also focusing on driving growth.

Kenneth R. Stillwell: Thanks Alan.

Kenneth R. Stillwell: Our execution was truly exceptional in the first half of the year and I'm really proud of the way our team is improving profitability, but also focusing on driving growth. This success reflects our continued commitment to delivering efficient growth and demonstrates that we're fully implanted a rule of 40 mindset in the business. The most important.

Ken Stillwell: This success reflects our continued commitment to delivering efficient growth and demonstrates that we're fully implicit in a Rule of 40 mindset in the business. The most important metric to measure the success of our business is growth and annual contract value. ACV grew 13% year over year in constant currency, exceeding 1.3 billion. Our ACV growth re-accelerated from Q1 to Q2 for three reasons. First, we significantly increase client engagement thanks to the go-to-market changes we made in 2023 and the enormous interest in what we're doing with artificial intelligence. Clients are very excited about our AI vision and execution.

Kenneth R. Stillwell: This success reflects our continued commitment to delivering efficient growth and demonstrates that we've fully implanted a Rule of Forty mindset in the business. The most important metric to measure the success of our business is growth in annual contract value. ACV grew 13% year-over-year in constant currency, exceeding $1.3 billion. Our ACV growth re-accelerated from Q1 to Q2 for three reasons. More specifically, Pegagen AI Blueprint is dramatically changing the way our field teams engage with our clients and prospects. Nailing down an app design used to take weeks or months; now it takes hours.

Kenneth R. Stillwell: <unk> to measure the success of our business is growth in annual contract value ACB grew 13% year over year in constant currency exceeding $1 3 billion, our ACB growth Reaccelerate. It from Q1 to Q2 for three reasons first we significantly increased client engagement. Thanks.

Kenneth R. Stillwell: To the go to market changes, we made in 2023 and the enormous interest in what we're doing with artificial intelligence clients are very excited about our AI vision and execution, we have reinvigorated their enthusiasm about <unk> and its driving strategic conversations.

Ken Stillwell: We've reinvigorated their enthusiasm about Pega and its driving strategic conversations. More specifically, Pega GenAI Blueprint is dramatically changing the way our field teams engage with our clients and prospects. Nailing down in the map design used to take weeks or months; now it takes hours. Pega GenAI Blueprint helps businesses and technical teams align on a vision quickly. We've seen tens of thousands of new Blueprints created so far. A strong sign that Blueprint is transforming our overall selling process. Our decisions permeate our product line with AI is really energizing clients to make them more medible to moving forward with us, which is also transforming our selling cycle and culture.

Kenneth R. Stillwell: More specifically peg a jet AI blueprint is dramatically changing the way our field teams engaged with our clients and prospects nailing down and App design used to take weeks or months now it takes hours peg a jet AI blueprint helps businesses and technical teams are aligned on our vision quickly we've seen tens of thousands of.

Kenneth R. Stillwell: Pegagen AI blueprint helps businesses and technical teams align on a vision quickly. We've seen 10s of 1000s of new blueprints created so far, a strong sign that AI blueprint is transforming our overall selling process. Our decision to permeate our product line with AI is really energizing clients and making them more amenable to moving forward with us, which is also transforming our selling cycle and culture. To be very clear, we don't view the monetization of Gen AI primarily as the selling of new priced offerings, although we did see some of that activity in Q2. Instead, we see Gen AI as a totally different way to engage and collaborate with clients to modernize legacy applications and enable digital transformation.

Kenneth R. Stillwell: <unk> created so far a strong side that blueprint is transforming our overall selling process our decision to permeate our product line with AI.

Speaker Change: Really energizing client to make them more amenable to moving forward with US which is also transforming our selling cycle and culture to be very clear, we don't view the monetization of jet AI, primarily as the selling of new priced offerings. Although we did see some of that activity in Q2 instead BC.

Ken Stillwell: To be very clear, we don't view the monetization of GenAI primarily as the selling of new priced offerings. Although, we did see some of that activity in Q2. Instead, we see GenAI as a totally different way to engage and ideate with clients to modernize legacy applications and enable digital transformation. The second reason ACV accelerated from Q1 to Q2 is because our latest innovations are serving as a catalyst for clients to build new workflows on or move existing workflows to Pega Cloud, where they can get access to our latest capabilities. Pega Cloud Net New ACV contributed 81% of the total Net New ACV added in the first half of the year, which is an acceleration and amazing to see.

Speaker Change: AI is a totally different way to engage at IAA with clients to modernize legacy applications and enable digital transformation.

Kenneth R. Stillwell: The second reason ACV accelerated from Q1 to Q2 is because our latest innovations are serving as a catalyst for clients to build new workflows on or move existing workflows to PegaCloud, where they can get access to our latest capabilities. PegaCloud Net New ACV contributed 81% of the total net new ACV added in the first half of the year, which is an acceleration and amazing to see. PegaCloud ACV grew 19% year over year, and PegaCloud Backlog passed $1 billion for the first time ever in Q2, which is just awesome.

Speaker Change: Second recent ACB accelerated from Q1 to Q2 is because our latest innovations are serving as a catalyst for clients to build new workflows on or move existing workflows to peg a cloud where they can get access to our latest capabilities peg a cloud net new ACB contributed 81% of the total net new ACB added in.

Speaker Change: The first half of the year, which is an acceleration and amazing to see take a cloud ACD grew 19% year over year and peg a cloud backlog past $1 billion for the first time ever in Q2 just awesome.

Ken Stillwell: Pega Cloud ACV grew 19% year over year, and Pega Cloud backlog passed $1 billion for the first time ever in Q2.

Ken Stillwell: Just awesome. Third, our growth was more balanced in the first two quarters of 2024 and 2023, in contrast. ACV growth in Q1 was much stronger, while ACV growth in Q2 was far more subdued. So what you're seeing now is one of the reasons we love SaaS. Pega Cloud ACV is up 19%, Pega Cloud RPO grew 18%, and Pega Cloud revenue is up 19% for the first half of 2024.

Kenneth R. Stillwell: Third, our growth was more balanced in the first two quarters of 2024. In 2023, in contrast, ACV growth in Q1 was much stronger, while ACV growth in Q2 was far more subdued. So what you're seeing now is one of the reasons we love SAS.

Speaker Change: Third our growth was more balanced in the first two quarters of 2024 and 2023 in contrast, ACB growth in Q1 was much stronger while ACB growth in Q2 was far more subdued so what youre seeing now is one of the reasons, we love SaaS Peg at cloud ACB is up 19%.

Kenneth R. Stillwell: Pegacloud ACV is up 19%, Pegacloud RPO grew 18%, and Pegacloud revenue is up 19% for the first half of 2024. Free cash flow is another important metric to measure the success of our business and our execution. Free cash flow totaled $218 million in the first half of 2024, a record for the first half of the year for us. The 119% year-over-year increase in first-half cash flow was driven by two factors. First, our continued improvement in sales execution is really resulting in a strong net ACV of $146 million year-over-year in constant currency. ACV is a proxy for subscription billing.

Speaker Change: <unk> cloud <unk> grew 18% and peg a cloud revenue was up 19% for the first half of 2024.

Ken Stillwell: Free cash flow is another important metric to measure the success of our business and our execution. Free cash flow total $218 million in the first half of 2024 are record for the first half of the year for us. The 119% year-over-year increase in first half cash flow was driven by two factors. First, our continued improvement in sales execution was really resulting in a strong net ACV out of $146 million year over year in Concentrancy. ACV is a proxy for subscription billings, so greater ACV means greater recurring billings. The second key driver was our continued focus on operational discipline.

Speaker Change: Free cash flow is another important metric to measure the success of our business and are executed.

Speaker Change: Free cash flow totaled $218 million in the first half of 2024, a record for the first half of the year for us.

Speaker Change: 119% year over year increase in first half cash flow was driven by two factors first our continued improvement in sales execution or is really resulting in a strong net ACB added $146 million year over year in constant currency ACB as a proxy for.

Speaker Change: <unk> billings.

Kenneth R. Stillwell: So greater ACV means greater recurring billing. The second key driver was our continued focus on operational discipline. One of the biggest levers we have for Freecast Flow is gross margin expansion, and the biggest factor for gross margin expansion is our PegaCloud business. PegaCloud gross margin increased to 78% in Q2, a series of consecutive increases in gross margin for PegaCloud.

Speaker Change: So greater ACB means greater recurring billings. The second key driver was our continued focus on operational discipline and one of the biggest levers we have for free cash flow was gross margin expansion.

Ken Stillwell: One of the biggest levers we have for free cash flow is gross margin expansion. And the biggest factor for gross margin expansion is our Pega Cloud business. Pega Cloud gross margin increased to 78% in Q2. A series of consecutive increases in gross margin for Pega Cloud. We're going to keep pushing to expand Pega Cloud gross margin with increased scale and automation. If I go back a few years, you might remember that we were targeting 70% gross margin for Pega Cloud. And then 75% and now 80%, and we believe that this business continues to scale their significant ability to get that our gross margin increasingly higher while still delivering amazing service to our clients.

Speaker Change: The biggest factor for gross margin expansion as our cloud business Peg a cloud gross margin increased to 78% in Q2, a series of consecutive increases in gross margin for peg a cloud we're going to keep pushing to expand peg a cloud gross margin with increased scale and automation if I go.

Kenneth R. Stillwell: We're going to keep pushing to expand PegaCloud's gross margin with increased scale and automation. If I go back a few years, you might remember that we were targeting 70% gross margin for PegaCloud, then 75%, and now 80%. And we believe as this business continues to scale, there's a significant ability to get that gross margin increasingly higher while still delivering amazing service to our clients. Our sales and marketing expenses in the first half of 2024 decreased by 26 million year over year.

Speaker Change: Back a few years you might remember that we were targeting 70% gross margin for peg a cloud and then 75 and now 80 and we believe as this business continues to scale their significant ability to get that our gross margin increasingly higher while still delivering amazing service to our clients our sales in <unk>.

Ken Stillwell: Our sales and marketing expenses in the first half of 2024 decreased by 26 million year over year. Our view is that reducing expenses and therefore increasing cash flow is providing us the capacity to make strategic investments in innovation that help our clients drive digital transformation. Our free cash flow momentum provides numerous options for executing our capital allocation strategy that will also lead to increased shareholder value. The combination of our solid ACB growth and robust cash flow margin demonstrates that our team adopted the rule of 40 mindset. We define rule of 40 as our ACB growth rate plus our free cash flow margins adjusted for things that are not representative to core business operations.

Speaker Change: Marketing expenses in the first half of 2024 decreased by $26 million year over year, our view is that reducing expenses and therefore, increasing cash flows provide us the capacity to make strategic investments in innovations that help our clients drive digital transformation, our free cash flow momentum provides numerous off.

Kenneth R. Stillwell: Our view is that reducing expenses and, therefore, increasing cash flows provides us the capacity to make strategic investments in innovation that help our clients drive digital transformation. Our free cash flow momentum provides numerous options for executing our capital allocation strategy that will also lead to increased shareholder value. The combination of our solid ACV growth and robust cash flow margin demonstrates that our team has adopted the Rule of Forty mindset. We define Rule of Forty as our ACV growth rate plus our free cash flow margins adjusted for things that are not representative of core business operations.

Speaker Change: Options for executing our capital allocation strategy that will also lead to increased shareholder value. The combination of our solid ACB growth and robust cash flow margin demonstrates that our team has adopted the rule of 40 mindset. We defined rule of 40, as our ACB growth rate plus our free cash flow margins adjusted.

Speaker Change: Or things that are not representative to core business operations.

Ken Stillwell: We're committed to being a balanced growth and profit company. While we always will strive for faster growth, we're going to do it in a smart way.

Kenneth R. Stillwell: We're committed to being a balanced growth and profit company. While we will always strive for faster growth, we're going to do it in a smart way. Many of you have said it's helpful when I share some thoughts on modeling, so I'll continue to do that.

Speaker Change: We're committed to being a balanced growth and profit company, while we always will strive for faster growth, we're going to do it in a smart way.

Ken Stillwell: Many of you have said it's helpful when I share some thoughts on modeling, so I'll continue to do that. In the first half of 2024, subscription license revenue was stronger than many of you might have expected. Although subscription licenses recurring, we believe Pegacloud is the best place for our clients, and it's great to see more workloads transitioned to Pegacloud. Given our Pegacloud momentum, we believe subscription license revenue will decline year over year in 2024. We have a very low number of subscription license renewals planned for Q3 and expect the majority of any remaining renewals in 2024 to shift towards the back end of the year in Q4.

Speaker Change: Many of you have said it's helpful. When I share some thoughts on modeling. So I'll continue to do that in the first half of 2024 subscription license revenue was stronger than many of you might have expected although subscription licenses recurring.

Kenneth R. Stillwell: In the first half of 2024, subscription license revenue was stronger than many of you might have expected. Although subscription licenses recurring, we believe Pegacloud is the best place for our clients, and it's great to see more workloads transition to Pegacloud. Given our Pegacloud momentum, we believe subscription license revenue will decline year over year in 2024.

Speaker Change: We believe peg a cloud is the best place for our clients and it's great to see more workloads transitioned to peg a cloud given our peg a cloud momentum. We believe subscription license revenue will decline year over year end 2024, we have a very low number of subscription license renewals planned for.

Kenneth R. Stillwell: We have a very low number of subscription license renewals planned for Q3, and expect the majority of any remaining renewals in 2024 to shift toward the back end of the year in Q4. Keep these dynamics in mind when you're modeling our subscription license revenue for the second half of 2024, with a particular focus on Q3. I also want to point out that Pegagen AI is making implementations easier to deliver, and our partners continue to play a critical role for our clients. As a result, consulting revenue is growing at a more moderate pace than total revenue.

Speaker Change: Q3, and expect the majority of any remaining renewals in 2024 to shift towards the backend of the year in Q4 keep these dynamics in mind. When you are modeling our subscription license revenue for the second half of 2024 with a particular focus on Q on Q3, I also want to point out that Peggy.

Ken Stillwell: Keep these dynamics in mind when you're modeling our subscription license revenue for the second half of 2024. I also want to point out that Pega GenAI is making implementations easier to deliver, and our partners continue to play a critical role for our clients. As a result, consulting revenue is growing at a more moderate pace than total revenue. We expect that trend to continue through the second half of 2024.

Speaker Change: AI is making implementations easier to deliver and our partners continue to play a critical role for our clients. As a result consulting revenue is growing at a more moderate pace than total revenue, we expect that trend to continue through the second half of 2024 closing closing out my thoughts on modeling I'll wrap up with a few comments Rick.

Kenneth R. Stillwell: We expect that trend to continue through the second half of 2024. Closing out my thoughts on modeling, I'll wrap up with a few comments regarding free cash flow. Once a contract is signed, we typically bill one year in advance, or, in some cases, one quarter in advance.

Ken Stillwell: Closing out my thoughts on modeling, I'll wrap up with a few comments regarding free cash flow. Once a contract is signed, we typically bill one year in advance, or in some cases, one quarter in advance. ACV ties directly to buildings, so the seasonality of our free cash flow often follows the seasonality of our contract renewal cycle, which is typically stronger in the first quarter and the last quarter of a year. As a result of these dynamics, we believe it's more instructive to look at our free cash flow on a trailing 12-month basis. Over the last four quarters, our free cash flow was just over $300 million.

Speaker Change: <unk> free cash flow once a contract is signed we typically bill one year in advance or in some cases, one quarter in advance ACB ties directly to billings. So the seasonality of our free cash flow often follows the seasonality of our contract renewal cycle, which is typically stronger in the first quarter.

Kenneth R. Stillwell: ACV ties directly to billings, so the seasonality of our free cash flow often follows the seasonality of our contract renewal cycle, which is typically stronger in the first quarter and the last quarter of a year. As a result of these dynamics, we believe it's more instructive to look at our free cash flow on a trailing 12-month basis. For the last four quarters, our free cash flow was just over $300 million.

Speaker Change: <unk> in the last quarter of a year as a result of these dynamics, we believe its more instructive to look at our free cash flow on a trailing 12 month basis over the last four quarters, our free cash flow was just over $300 million.

Ken Stillwell: In conclusion, we've been working hard to rev off our ACV growth and drive free cash flow. Our first half results show that the changes we made to our go-to-market strategy in 2023, increasing seller focus and productivity, and also coupled with our latest AI innovations, are working. Therefore, we can selectively and strategically grow from here and expand quota-bearing resources in a smart way using a disciplined approach and also evaluating the impact of new logos on our growth strategy.

Kenneth R. Stillwell: In conclusion, we've been working hard to rev up our ACV growth and drive free cash flow. Our first half results show that the changes we made to our go-to-market strategy and our go-to-market strategy in 2023, increasing seller focus and productivity, and also coupled with our latest AI innovations, are working. Therefore, we can selectively and strategically grow from here and expand quota-bearing resources in a smart way using a disciplined approach and also evaluate the impact of new logos on our growth strategy.

Speaker Change: In conclusion, we've been working hard to wrap up our ACD growth and drive free cash flow. Our first half results show that the changes we made to our go to market and our go to market strategy in 2023, increasing stellar focus and productivity and also coupled with our latest AI innovations our work.

Speaker Change: <unk>.

Speaker Change: Therefore, we can selectively at strategically grow from here and expand quota bearing resources in a smart way using a disciplined approach and also evaluating the impact of new logos on our growth strategy.

Ken Stillwell: It was great to see so many of you in person during our investor session in June and Las Vegas. We're also looking forward to seeing you on the road in August and September.

Kenneth R. Stillwell: It was great to see so many of you in person during our investor session in June in Las Vegas. We're also looking forward to seeing you on the road in August and September. And with that operator, please open the line for questions.

Speaker Change: It's great to see so many of you in person during our Investor session in June in Las Vegas. We're also looking forward to seeing you on the road in August and September and with that operator. Please open the line for questions.

Unknown Executive: And with that operator, please open the line for questions. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, please press start one again.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Steve Enders with Ziki, please go ahead.

Speaker Change: Thank you.

Speaker Change: We'll now begin the question and answers.

Speaker Change: If you have like that.

Steven Enders: Okay, great. Thanks for taking the time to answer the question this morning.

Speaker Change: I'll ask a question.

Speaker Change: Please press star one at this time.

Speaker Change: Great. Thank you.

Speaker Change: If you would like to withdraw your question. Please.

Speaker Change: Alright, okay.

Unknown Executive: If you are called up on to ask your question and are listening via loudspeaker on your device, please pick up your hands and ensure that your phone is not on mute when asking your question.

Speaker Change: Yes, I called that from to answer your question.

Speaker Change: Okay all right.

Speaker Change: That's helpful.

Speaker Change: As you read that your phone is not on mute.

Speaker Change: Asking your question.

Steve: Your first question comes from the line up, Steve, and this weird seek. Please go ahead. Okay, great. Thanks for taking the question this morning. I guess maybe just to start, I mean, pretty impressive ACV, new ACV ads in the quarter year. Can you just maybe talk a little bit about, you know, what's helping drive the performance in 2Q specifically and looking back it looks like one of the better 2Qs from an ACV ad perspective and quite some time. So, can you just give a little clarity about maybe what's going on in the deal environment and that there's any pull forwards or kind of like what drove the strings in the UCV ads here?

Speaker Change: Your first question comes from the line of Steve.

Speaker Change: Yes.

Steve: Please go ahead.

Kenneth R. Stillwell: I guess maybe just to start, I mean, pretty impressive ACV, new ACV ads in the quarter here. Can you just maybe talk a little bit about, you know, what's helping drive the performance in 2Q specifically? And I think looking back, it looks like one of the better 2Qs from an ACV ad perspective in quite some time. So can you just give a little bit of clarity around maybe what's going on in the deal environment and if there's any pull forwards or kind of like what drove the strength in the ACV ads here?

Steve: Okay, great. Thanks for taking my question this morning.

Steve: I guess, maybe just to start.

Steve: Pretty impressive ACB.

Speaker Change: New ACB adds in the quarter here.

Speaker Change: Can you just maybe talk a little bit to worry about what's helping drive the performance in <unk>, specifically and I think looking back it looks like one of the better <unk> for many TV AD perspective in quite some time. So can you just give a little clarity of them, maybe what's going on in the deal environment.

Speaker Change: If there was any pull forwards or kind of like what drove the strength in ECB adds here.

Kenneth R. Stillwell: So I'll start, and then Alan, feel free to jump in. I think that one of the big changes, Steve, that we made in 2023 that is really paying off is because of the focus on dense coverage of target orgs and really, you know, the approach to selling Pegacloud. We're not as dependent on very large kinds of episodic deals to actually, you know, for our sales team to make numbers. That's not to say that they don't happen, and they won't happen, but our sales team is in a constant motion of continual prospecting, selling, pipeline development, and advancement, and we really embrace that because it helps to put less dependency on the back end of the year and larger deals.

Ken Stillwell: So, I'll start to then Alan, feel free to jump in. I think that one of the big changes, Steve, that we made in 2023 that is really paying off is because of the focus on dense coverage of target orgs and really, you know, the approach of selling Peg a Cloud. We're not as dependent on very large kind of episodic deals to actually, you know, for our sales team to make numbers. That's not to say that they don't happen, and they won't happen. But our sales team is in a motion of much more of continual prospecting, selling pipeline development advancement.

Speaker Change: So I'll start and then Alan feel free to jump in.

Alan Trefler: One of the big changes Steve that we made in 2023 that is that is really paying off is because of the focus on our dense coverage of target works and really the approach of selling peg a cloud.

Alan Trefler: We're not as dependent on very large kind of episodic deals to actually for our sales team to make numbers thats not to say that they don't happen and they won't happen, but our sales team is in a motion of much more of continual prospecting selling pipeline development advancement and we re.

Alan Trefler: And we really embrace that because it helps to put less dependency on back end of the year and larger deals. That's not to say that we will be a completely linear business. It just helps to keep that focus quarter in and quarter out to produce and get numbers on the board. And I think that's kind of well ingrained in our culture right now. And I think you're seeing that in the first couple quarters. So that's just from an operational execution.

Alan Trefler: We really embrace that because it helps to put less dependency on back end of the year and larger deals that's not to say that we will be a completely linear business. It just helps to keep that focus quarter ending quarter al to produce and get them get you'll get you'll get numbers on the board and I think thats it.

Kenneth R. Stillwell: That's not to say that we will be a completely linear business; it just helps to keep that focus quarter in and quarter out to produce and get numbers on the board, and I think that's kind of well ingrained in our culture right now, and I think you're seeing that in the first couple quarters. So that's just from an operational execution point of view. I'll also let Alan touch on just, you know, Gen AI and Blueprint and how that's really reinvigorated the discussions. Yeah, I think if you go back close to a

Alan Trefler: Kind of well ingrained in our culture right now and I think youre seeing that in the first couple of quarters. So that just from an operational execution also let al I'd touch on just jet AI at blueprint and how that's that's really reinvigorated. The discussions I think as you go backdrop close to a year ago, we have made some organizational changes too.

Alan Trefler: I also let Alan touch on just, you know, Jen AI and Blueprint and how that's it. That's really reinvigorated the discussions. Yeah, I think if you go back, mostly a year ago, we made full derisational changes to bring together what we used to call the catalyst group, which was a distinct group back then with our solution consultants, you know, the people who actually do the demos and touch the sort of systems our customers used to figure out if you really want to buy something with our professional services people who actually would do work on delivery.

Alan Trefler: When we go back close to a year ago, we made some organizational changes to bring together what we used to call the catalyst group, which was a distinct group back then, with our solution consultants, you know, the people who actually do the demos and touch the sort of systems our customers use to figure out if they really want to buy something, with our professional services people, who actually would do work on the delivery, and with our partner teams, because our partners are obviously absolutely critical to delivery. When we saw what was going to happen with Gen-AI last July, and what was happening, we said, we're going to bring these teams together and really use generative AI as a way to rethink how we engage with the customers, and as a result of that, I think, make their ability to see what an application might look like and understand what it will take to deliver an application much, much clearer to them, and I think this is still in process, But I think it's working really well, and I believe that the energy that we're seeing from our clients really has a lot to do with having connected that chain together, but also to do something to that chain, which previously we really didn't used to do all that much, which is to actually have our account executives, the frontline people who are in the field, actually be able to participate in the demoing and the seeing and the real invigorating of the clients, with a hands-on level of involvement, all based around how Gen AI empowers people to think differently.

Alan Trefler: Bring together, what we used to call the catalyst group, which was of the <unk> with our.

Alan Trefler: Solution consultants, who are the people, who actually do the demos and touch disorder systems, our customers used to figure out if you really want to buy something with our professional services people, who actually would do work on delivery and with our partner because our partners are obviously, absolutely critical to delivering when we saw what was going to happen with <unk>.

Alan Trefler: And with our partner teams because the partners are obviously actually critical to the delivery, when we saw what was going to happen with Jen AI last July, we and what was happening. We said, we're going to bring these teams together and really use generative AI as a way to rethink how we engage with the customers. And as a result of that, I think make their ability to see what an application might look like and understand what will take to deliver an application much, much clearer to them. And I think this is still a process, but I think it's working really well.

Alan Trefler: Last July we.

Alan Trefler: And what was happening we said we were going to bring these teams together and really used generative AI as a way to rethink how we engage with our customers as a result of that I think make.

<unk> ability to see what an application might look like and understand what it will take to deliberate application much much clearer to them.

Alan Trefler: I think this is still in process.

Alan Trefler: I think it's working really well and I believe that the energy that we're seeing from our clients really has a lot to do with having to connect having connected that chain together, but also introduce something into that chain, which previously we used to do all that much which is actually have a recount executives of frontline people who are.

Alan Trefler: And I believe that the energy that was seen from our clients really has a lot to do with having to connect, having connected that chain together, but also to do something into that chain, which previously we really didn't just do all that much, which is actually have our account executives, the frontline people who are in the field, actually be able to participate in the demoing and seeing and the real invigorating of the clients with a hands-on level of involvement, all based around how Jen AI empowers people to think differently. So we need more than one quarter or two quarters here to make us feel that we've got this whole nail.

Alan Trefler: In the field actually be able to participate in the demo ing and seeing.

Alan Trefler: The real invigorating of the clients was a hands on level of involvement all based around our champion empowers people to think differently. So.

Alan Trefler: So, you know, look, we need more than one quarter or two quarters here to make us feel that we've got this all nailed. But the early signs of what I see, as evidenced by the enthusiasm and the results from Q2, are actually pretty exciting.

Alan Trefler: We need more than one quarter or two quarters here to make us feel that we've got this whole mail, but the early signs of what I see.

Steve: But the early signs of what I see as evidenced by the enthusiasm and the results from Q2 are actually pretty exciting. Okay, that's great to hear and helpful context there.

Alan Trefler: As evidenced by the enthusiasm.

Alan Trefler: The results from Q2 are actually pretty excited.

Unknown Attendee: Okay, that's, that's great. Great to hear and helpful context there.

Alan Trefler: Okay.

Speaker Change: Great great to hear and helpful context there.

Steve: It's maybe a little bit more pointedly, I think at the analyst day on the Genai front, if you've maybe expected some contribution coming in, in Q3, from Blueprints, are you kind of feeling the same way from Maligre, seeing the pipeline, are you seeing this conversation build into pipeline and how are you kind of feeling about that pipeline converting over to the deals at this point? Well, I think one of the things that's different about Patrick's approach is, if you go back and listen to my 20-minute keynote at Peggo World, we talk about the three forms of GenAI of AI.

Speaker Change: I guess, maybe asked a little bit more pointedly I think at the analyst day on the journey II front and can you may be expecting some contribution coming in thank you.

Speaker Change: <unk> three.

Speaker Change: From blueprint for a kind of feeling the same way from that or anything in the pipeline are you seeing those conversations building that pipeline and how are you kind of thought about that pipeline converting over to <unk>.

Speaker Change: The deals at this point.

Unknown Attendee: I guess maybe a little bit more pointedly, I think at analyst day on the Gen AI front, you've maybe expected some contribution coming in from Blueprints in Q3. Are you kind of feeling the same way about that? Like, are you seeing the pipeline? Are you seeing those conversations built into pipeline? And how are you kind of feeling about that pipeline converting over to deals at this point?

Speaker Change: Well I think one of the things that's different about <unk> approach is.

Alan Trefler: Well, you know, I think one of the things that's different about Pega's approach is, and if you look, if you go back and listen to my 20-minute keynote at PegaWorld, you know, we talk about the three forms of AI, statistical AI, machine learning. We've done that for, you know, 15 years, really, really critical to next best action, making recommendations, doing process improvement.

Speaker Change: And if you look if you go back and listen to my 20 minute keynote at <unk> World. We've talked about the three forms of journey II Statistical AI machine learning, we've done that for 15 years really really critical to next best action, making recommendations doing process improvement of the <unk>.

Alan Trefler: Statistical AI, machine learning, we've done that for 15 years, really, really critical to next best action, making recommendations, doing process improvement. The second form being these productivity tools, of which we've got several dozen, that do the nice stuff like summarization and other sorts of bits that can be important. But the third time of AI, we spoke about, was AI that was transformational, which is using generative AI to profoundly change how the organization did its very processes. And we had an enormous opportunity to do that because we're in model driven. We don't go from the Genai input from customers to code, which can't be more code; it's just more mess.

Alan Trefler: The second form is these productivity tools, of which we've got several dozen, that do the nice stuff like summarization and other sorts of bits that can be important. But the third type of AI we spoke about was AI that was transformational, which is using generative AI to profoundly change how the organization does its very processing. And we have an enormous opportunity to do that because we're model-driven. We don't go from the Gen-AI input from customers to code, which, candidly, more code is just more mess.

Speaker Change: Second form being these these productivity tools of which we've got several dozen that do that.

Speaker Change: Stuff like summarization, and other sorts of pits.

Speaker Change: Or it can be important but the third type of AI. We spoke about was as it was transformational which is using generative AI to profoundly change how we organization did it's very processes and we had an enormous opportunity to do that because we're modeled we don't go from the Gen eight.

Speaker Change: Input from customers to code with sure candidly more code is just more mess. We go into the model the same model that.

Alan Trefler: We go into the model, the same model that we've been perfecting for decades, and that means that we've got Gen-AI plugged in in a way that is not just faster, but is also transparent to the customers. They can see what's happening and it's also changeable. So I think that this energy from Gen-AI represents a fundamental change to all aspects of our business. We've really woven it in everywhere, which is why we don't sit around talking about Gen-AI SKUs anymore. I would say that there is not a single sale anymore or a single pursuit that does not have Gen-AI at the heart of it, because that's now the way you use our products.

Alan Trefler: We go into the model, the same model, that we've been perfecting for decades. And that means that we've got Genai plugged in in a way that is not just faster, but it's also transparent to the customer so you can see what's happening and also changeable. So I think that this energy from Genai represents a fundamental change to all aspects of our business. We've really woven it in everywhere, which is why we don't sit around talking about GenAI excuse. I would say that there's not a single sale anymore or a single pursuit that does not have GenAI at the heart of it because that's now the way you use our promise.

Jeremy: Been progressing for decades and that means that we've got Jeremy I plugged in and in a way that is.

Jeremy: It is not just faster, but it is also transparent to the customers who can see what's happening and also changeable. So I think that this this energy from Gen II.

Speaker Change: It represents a fundamental change to all aspects of our business. We've really we've woven again everywhere, which is why we don't sit around talking about Gen. AI Skus I would say that there's not a single sale anymore or single pursued that does not have <unk>.

Speaker Change: Part of it because thats now the way you use our products.

Operator: We do request for today's session that you please limit one question and one follow-up. Your next question comes from the line of Kevin Kumar with Goldman Sachs. Please go ahead.

Kevin Kumar: We do request for today's session that you please limit one question and one follow-up. Your next question comes from the line of Kevin Kumar with Goldman Sachs. Please go ahead. Hi, thanks for taking my question. Alan, you had mentioned the federal segment, so maybe if you can give an update there, the trends are seeing it with the federal business, how is growth trending that are relative to the broader peg of growth. And maybe if you can add touch on the strategy there, similar to the broader peg of strategy of going deeper into the existing counts, any color that would be helpful.

Speaker Change: The real question for today's session. Please go ahead.

Jeremy: One question and one follow up.

Speaker Change: Next question comes the line of.

Kevin Kumar: Kevin Kumar.

Speaker Change: All right.

Speaker Change: Please go ahead.

Kevin Kumar: Hi, thanks for taking my question. Alan, you mentioned the federal segment. So maybe if you could give an update there, kind of the trends you're seeing with the federal business, you know, how's growth trending there relative to kind of the broader PEGA growth? And maybe if you could touch on kind of the strategy there, similar to the broader PEGA strategy of going deeper into the existing accounts, any color there would be helpful. Yeah, I...

Kevin Kumar: Hi, Thanks for taking my question Alan You had mentioned that the federal segment. So maybe you can give an update there kind of the trends youre seeing with the federal business.

Speaker Change: Gross trending there relative to kind of the broader pegged.

Speaker Change: Growth and maybe if you can at touch on kind of the strategy there similar to the broader panga strategy of going deeper into the existing accounts any color there would be helpful.

Alan Trefler: Yeah, I think that one of the things you need to realize when we go deeper into an existing account, that actually involves things that are as much new pursuits and new accounts as anything else. I mean, you know, the Department of Commerce is an existing account, the Department of Justice, the U.S. Army, those are existing accounts, the IRS, the ability to do massive things is huge, right? I mean, we're only doing a tiny fraction of what that potential landscape is.

Alan Trefler: Yeah, I think that I want to think you need to realize when we go deeper into an existing account that actually involves things that are as much new pursuits and newer counts as anything else. I mean, the Department of Commerce is an existing account, the Department of Justice, the US Army, those are existing accounts, the IRS. The ability to do massive new things for them is yours, right? I mean, we're only doing a tiny fraction of what that potential landscape is. So we definitely have a target or strategy. I think that's something that helps our business be more reliable as a business.

Alan Trefler: Yes, I think that will continue to realize when we go deeper into our existing account.

Speaker Change: I think that actually involves things that are as much new pursuits in new accounts as anything else.

Speaker Change: The department of Commerce is in existing accounts the department of Justice U S. Army those are existing accounts.

Speaker Change: The IRS the ability to do massive new things for them.

Speaker Change: Is <unk>.

Speaker Change: As you drive I mean, we're already doing it.

Speaker Change: A fraction of what that potential landscape. So we definitely have a target or strategy I think that's something that helps our business be more reliable as a business, but also frankly helps us do a better job for our clients.

Alan Trefler: So we definitely have a target org strategy. I think that's something that helps our business be more reliable as a business, but also, frankly, helps us do a better job for our clients, which is key. So we've definitely taken a target strategy there, and I'm thrilled with what I'm seeing. I'm filled with, you know, big organizations experiencing success and looking for ways to get bigger. By the way, not just in the U.S., but we've had massive work recently with Her Majesty's Revenue and Customs doing work across, well, across the globe in governments, and I think it's going to continue to be really important for us.

Ken Stillwell: But also, frankly, helps us do a better job for our clients, which is key. So we've definitely taken a target strategy there. And I'm thrilled with what I'm seeing. I'm filled with, you know, big organizations themselves experiencing success and looking for ways to get broader. By the way, not just in the US, but we've had massive work recently with Her Majesty's Revenue and Customs doing work across, well, across the globe in governments. And I think it's going to continue to be really important for us.

Speaker Change: Which is Q. So we've definitely taken a targeted strategy, there and I'm thrilled with what im seeing silver.

Speaker Change: Big organizations themselves experiencing success and looking for ways to.

Speaker Change: We get broader by the way not just in the U S. But we've had massive.

Speaker Change: Work recently with her Majesty's revenue and customs doing work across well across the globe.

Speaker Change: Governments and I think it's going to continue to be really important for us.

Ken Stillwell: So Kevin just add one thought on. So what an interesting dynamic that maybe kind of similar to what happened a few years ago is that the government went from being a little bit more skeptical of SaaS and cloud, say 10 or 15 years ago, to really embracing it in the last five years or so. Maybe a little longer. But, so they're really, and I think you're seeing that same trend around Gen AI, right? The government, you know, companies are always skeptical of kind of like the risks of something like Gen AI because they want to understand how to control and how to, you know, how to risk changes to their business that, you know, that they might not have anticipated.

Kenneth R. Stillwell: So Kevin, just to add one thought on how interesting an interesting dynamic that may be kind of similar to what happened a few years ago is that the government went from being a little bit more skeptical of SaaS and the cloud, say 10 or 15 years ago, to really embracing it in the last say five years or so, maybe a little longer. But so they're really, and I think you're seeing that same trend around Gen AI, right, the government, you know, companies are always skeptical of kind of the risks of something like Gen AI because they want to understand how to control and how to, you know, how to risk changes to their business that, you know, that they might not have anticipated.

Speaker Change: So Kevin just to add one thought on it.

Kevin Kumar: An interesting dynamic that that maybe kind of.

Kevin Kumar: Similar to what happened a few years ago as the government went from being a little bit more skeptical of SaaS and cloud say 10, or 15 years ago to really embracing it.

Kevin Kumar: In the last say five years or so maybe a little longer but they are really and I think youre seeing that same trend around gen AI right the government.

Speaker Change: Companies are always skeptical of quite of like the risks of something like <unk>, because they want to understand how to control it.

Speaker Change: How risk changes to their business that they might not have anticipated, but I do think youre going to see the public sector. The U S government and other governments really leverage <unk> AI. So we're focused on the impact of jet AI into our government solutions as well because we think it's going to be relevant there too including blueprint.

Kenneth R. Stillwell: But I do think you're going to see the public sector, the US government, and other governments really leverage Gen AI. So, you know, we're focused on the impact of Gen AI on our government solutions as well, because we think it's going to be relevant there too, including Blueprint.

Kevin Kumar: But I do think you're going to see the public sector, the US government and other governments really leverage Gen AI. So, you know, we're focused on the impact of Gen AI into our government solutions as well. So we think it's going to be relevant there too, including Blue Press. Yeah, no, that's great color. Thank you.

Unknown Attendee: Yeah, no, that's a great color. Thank you.

Speaker Change: Yes.

Speaker Change: Great color. Thank you.

Kevin Kumar: And then can you have talked about license, term license, maybe being a bit stronger this quarter, but it doesn't sound like you're full your expectations change. So that just really kind of pull forward. Maybe you see a weaker 3Q, and you see that typically strong for you, and anything else you got there or any changes in customer matters. Yeah, that's a great question. And you actually caught that in my script. So I was consciously trying to give you guys some insights on that. We actually think if anything, our term license will be lower for the year as opposed to higher.

Speaker Change: And then Ken you had talked about license.

Speaker Change: Term license, maybe being a bit stronger this quarter, but it doesn't sound like your full year expectations changed so was that just really kind of pull forward, maybe you see a weaker <unk> and you see that typically strong work do you have anything else you'd add there or any changes in.

Speaker Change: In customer buying patterns.

Kenneth R. Stillwell: Yeah, that's a great question, and you actually caught that in my script. So I was consciously trying to give you guys some insight on that. We actually think, if anything, our term license will be lower for the year as opposed to higher. There are more and more clients moving to Pegacloud. What happened in Q2 was just timing of renewals, right? So what you should anticipate, Kevin, is exactly what you said.

Kenneth R. Stillwell: And then, Ken, you talked about the license, term license, maybe being a bit stronger this quarter, but it doesn't sound like your full year expectations have changed. So was that just really kind of a pull forward, maybe you see a weaker 3Q, and you see that typically strong 4Q. Anything else you could add there? Or any changes in customer buying patterns? Yeah, that's the

Speaker Change: Yes, that's a great question and you actually caught that in my script. So I was I was consciously trying to giving you guys. Some insights on that we actually think if anything our term license will be lower for the year as opposed to higher there's more and more and more clients are moving to peg a cloud what happened in Q2 was just timing of renewals right.

Kevin Kumar: There's more and more clients are moving to peg of cloud. What happened in Q2 was just timing of renewals, right? It's just so, so what you should anticipate, Kevin, is exactly what you said: Q3 will be pretty weak in terms of renewals on the revenue side because, you know, this something, you know, it's just like, you know how that is. It's just our business isn't linear on the timing of renewals. Q4 will still have term renewals in it, but Q3, not many. And we think, you know, we still think the term revenue is likely to be down low double digits, right?

Speaker Change: It's just so so what you should anticipate Kevin is exactly what you said Q3 will be pretty weak in terms of renewals on the revenue side because it just.

Kenneth R. Stillwell: Q3 will be pretty weak in terms of renewals on the revenue side because, you know, this some, you know, it's just like, you know how that is. It's just our business isn't linear in terms of the timing of renewals. Q4 will still have term renewals in it, but Q3, not many. And we think, you know, we still think that term revenue is likely to be down low double digits for the year because more of it is moving to Pegacloud.

Speaker Change: All of that is just our business isn't linear on the timing of renewals Q4, we'll still have tariff renewals and it but Q3, not many and we think.

Speaker Change: We still think that term revenue is likely to be down low double digits right for the year because more of its moving to peg a cloud.

Kevin Kumar: For the year because more of it's moving to peg of cloud.

Speaker Change: Yeah.

Jake: Your next question comes from the line of take coverage. Please go ahead. Results, it was great to hear the traction, but you're seeing with those Gen AI blueprints. I'm curious when you think these blueprints actually go live into production. Like, are you seeing starting to see some customers take the blueprints in the live runtime today, or is that still a few quarters away to actually really impact that ACV group? So it's interesting, Jake. We actually just met yesterday with one of our key partners who has actually closed two engagements where they were driven from Blueprint.

Jacob Roberge: Your next question comes from the line of Jake Roberge with William Blair. Please go ahead.

Speaker Change: Your next question comes from the line of Keith.

Keith: Please go ahead.

Kenneth R. Stillwell: It was great to hear the traction that you're seeing with those Gen-AI blueprints. I'm curious when you think these blueprints will actually go live into production, like are you starting to see some customers take the blueprints into live runtime today, or is that still a few quarters away to actually really impact that ACV growth?

Speaker Change: Results.

Keith: It was great to hear the traction that youre seeing with those those gen. AI blueprints I'm curious when you think these blueprints actually go live into production.

Keith: Are you seeing starting to see some customers take the blueprints and the wife run time today or is that still a few quarters away to actually really impact that ACB growth.

Kenneth R. Stillwell: So it's interesting, Jake; we actually just met yesterday with one of our key partners who has actually closed two engagements where they were driven from. So they've actually done blueprints, and they've turned them into engagements for them. Now, that doesn't necessarily mean they're license orders for us, but that's okay. Those are the conversations that lead to license orders. So we see our partners, you know, really on the front end of this, which is really amazing because, typically, companies like Pega typically move fast, and we have to help enable our partners to keep up.

Speaker Change: So it's interesting Jake we actually just met yesterday with one of our key partners, who has actually closed two engagements.

Speaker Change: They were driven from blueprint, so like they've actually done blueprints and they've turned into engagements for them now that doesn't necessarily mean, they're license orders for us, but thats. Okay. Those those are the engagements that lead the license orders. So we see our partners really on the front end to this which is which is really amazing because typically companies.

Alan Trefler: So like they've actually done blueprints and they've turned into engagements for them. Now that doesn't necessarily mean their license orders for us, but that's okay. Those are the engagements that lead the license orders. So we see our partners, you know, really on the front end of this, which is really amazing. Because typically companies like Pega, we typically move fast, and we have to help enable our partners to keep up. Our partners are actually kind of out in front on this and a lot of cases and really leveraging Blueprint to be able to deliver solutions to our mutual clients.

Speaker Change: Like <unk>, we have.

Speaker Change: We typically move fast and we have to help enable our partners to keep up our partners are actually kind of out in front on this in a lot of cases, and really leveraging blueprint to be able to deliver solutions to our joined our mutual clients. So so we're already seeing that and I think thats met momentum is going to pick up.

Kenneth R. Stillwell: Our partners are actually kind of out in front on this in a lot of cases and really leveraging Blueprint to be able to deliver solutions to our joint, our mutual clients. So we're already seeing that, and I think that momentum is going to pick up. Yeah, I've seen it all.

Alan Trefler: So we're already seeing that. And I think that's met momentum is going to pick up. Yeah, and I've seen it also with some direct clients who have used Blueprints to accelerate your applications that they've brought live. When can't talk about these always don't lead to an immediate license sale, we've been moving for a number of years. Our customers to more of a kind of consumption model based on levels of consumption. So that it's easier for them, or candidly, years ago, I think we made it really hard for our customers to get started on a new application.

Alan Trefler: Yeah, I've seen it also with some direct clients who have used blueprints to accelerate products and applications that they've brought live. When Ken talks about these, these always don't lead to an immediate license sale; we've been moving for a number of years our customers to more of a kind of consumption model based on levels of consumption so that it's easier for them, or, candidly, years ago, I think we made it really hard for our customers to get started on a new application.

Speaker Change: Yeah, and I assume that also some direct clients who have used blueprints to accelerate products.

Speaker Change: Applications that they brought live when Ken talks about these always don't lead to an immediate license sale, we've been moving for a number of years, our customers to more of a kind of consumption model based on levels of consumption. So that it's easier for them are candidly years ago I think we.

Speaker Change: Made it really hard for our customers to get started on a new application that we want our customer to be able to find it easy to start on a new application to not have to sign a piece of paper with us to be able to do that in most cases up the side effect of that is we've got a real interest in them getting benefit and I'm using our system. So.

Alan Trefler: Now we want a customer to be able to find it easy, https://www.youtube.com.uk I think that the level of enthusiasm that we have is touching the entirety of the Pegaproduct suite, both where we've got Blueprint implemented and where we've talked about putting Blueprint in, in the third and fourth quarter, generating a level of excitement and an understanding about how AI can really help their business. That's unlike anything I've ever seen.

Alan Trefler: Now we want a customer to be able to find it easy to start on a new application to not have to sign a piece of paper with us to be able to do that in most cases. The side effect of that is we've got a real interest in them getting benefited and I'm using our system. So we're thrilled with increases to this consumption. Whether it leads to an immediate license or to the next time in their agreement, what we take a look at is what they're doing and true it up. Both of those are fine outcomes from our point of view.

Speaker Change: We're thrilled with increases to this consumption whether it leads to the immediate license or to the next time in their agreement, where we take a look at what they are doing it through without both of those are our fine outcomes from our point of view.

Alan Trefler: I think that the level of enthusiasm that we have, that's touching the entirety of the packet product sweet, both where we've got Blueprints implemented and where we've talked about putting Blueprints in in the third and fourth quarter. This is generating a level of excitement and understanding about how AI can really help their businesses that's unlike anything I've seen before. Yeah, that's great to hear.

Speaker Change: Yes.

Bill: Thanks Bill.

Speaker Change #109: The level of enthusiasm that we have.

Speaker Change #103: That's touching the entirety of the pattern bag of products.

Bill: Sweet, both where we've got blueprint implemented and where we've talked about putting blueprint in in the third and fourth quarter is generating a level of excitement and understanding about how AI can really help their businesses.

Bill: Unlike anything I've seen before.

Unknown Attendee: Yeah, it's great to hear, and it's also good to see Pegacloud representing 81% of net new ACV growth. How are you seeing Gen AI impact the cloud migration timeline for your customers? Are you seeing any of those customers accelerate the journey to Pegacloud? And then Ken, how should we kind of think about that mix heading into the back half of the year, just in terms of Pega's net new ACV growth? Thanks. Sure. So you're gonna do it. You're

Speaker Change: Yes, that's great to hear and then also good to see you peg it cloud representing 81% of net new ACB growth.

Jake: And then also good to see Pager Cloud representing 81% of net new ACV growth. How are you seeing Gen AI impact the cloud migration timeline for your customers? Are you seeing any of those customers accelerate the journey to Pager Cloud, and then how should we kind of think about that mix heading into the back after the year, just in terms of Pagan net new ACV growth. Thanks. Sure, so you're going to see, you're going to see Jake. Like the clients were already on a pace of migrating to Pagan Cloud, and we have been, I would even say, more patient with that move and not really pushing anyone.

Speaker Change: What are you seeing gen AI impact the cloud migration timeline for your customers are you seeing any of those customers accelerate their journey to peg a cloud and then Ken how should we kind of think about that mix heading into the back half of the year.

Speaker Change: In terms of peg a net new ACB growth. Thanks.

Kenneth R. Stillwell: Sure. So you're going to see, Jake, clients were already on a pace of migrating to Pegacloud. And we have been, I would even say, more patient with that move and not really pushing anyone. And I think there's just a lot more incentive for clients now with JetAI. They want to move to the cloud anyway, so this is part of their digital transformation plan. So I think JetAI just gives them another reason and a very important reason to actually make that transition. So I think you'll see the pace of our clients migrating to Pegacloud accelerate as we go.

Ken: Sure, so youre going to youre going to see you're going to see Jake like <unk>.

Speaker Change: Clients were already on a pace of migrating to peg a cloud and we have been.

Speaker Change #114: I would even say more patient with that move in and not really pushing anyone.

Jake: And I think there's just a lot more incentive for clients now with Gen AI. They want to move to the cloud anyway. This is part of their digital transformation plans. So I think Gen AI just gives them another reason and a very important reason to actually make that transition. So I think you'll see the pace of our clients migrating to Pagan Cloud accelerate as we go into 2025.

Speaker Change: I think theres, just a lot more incentive for clients now with jet AI. They wanted to move to cloud anyway right. This is part of their digital transformation plans. So I think Jenny I just gives them. Another reason and a very important reason to actually make that transition. So I think youll see the pace of our our clients migrating to peg a cloud.

Speaker Change: Accelerate as we go into 2025.

Pinjalim Bora: Your next question comes from the line of Pinjalim Bora with T.P. Morgan, please go ahead. Hey, thank you so much, and congrats on the quarter. Alan, what are you hearing from customers around kind of that last mile implementation of Blueprints? It's clear that to create Blueprints it's pretty easy, and people are probably getting a lot of value from creating those Blueprints, but I'm thinking about actual go live from creation of Blueprints to the actual go live. What are there any hurdles people are facing is that actually easy? What is the feedback from customers at this point?

Pinjalim Bora: Your next question comes from the line of Pinjalim Bora with JP Morgan. Please go ahead.

Speaker Change #101: Your next question comes from the line of.

Brian: Morning, Brian.

Keith: Keith Please go ahead.

Unknown Attendee: Hey, thank you so much. And congrats on the quarter.

Brian Keith: Hey, Thank you so much and congrats on the quarter.

Brian: And then what are you hearing from customers around kind of that last mile implementation of blueprints, it's clear that to create blueprints, it's pretty easy and people are probably getting a lot of value from creating those prints, but im thinking about actual go live from creation of blueprints through the actual go lives.

Alan Trefler: Alan, what are you hearing from customers around kind of that last mile implementation of blueprints? It's clear that to create blueprints, it's pretty easy. And, and people are probably getting a lot of value from creating those blueprints, but I'm thinking about actual go live experiences from the creation of those blueprints to the actual go lives. What are the, are there any hurdles people are facing? Is that actually easy? What is the feedback from customers on this? Well, he...

Speaker Change #111: What are are there any hurdles people are facing is that action easy what what is the feedback from customers at this point.

Alan Trefler: Well, the feedback continues to be very excited. What we're seeing customers tell us is this has fundamentally changed the way they do design thinking about new applications. You know, they're able to take ARBIS practices, their input, things we're able to glean from the Internet, bring them together and use that to challenge the conventional way that they would have thought about doing a business process or building a system. And it's really, you know, it's... As you will have seen, and everybody is welcome to use it on beggar.com.

Alan Trefler: Well, the feedback continues to be very excited. What we're seeing customers tell us is this has fundamentally changed the way they do design thinking about new applications. You know, they're able to take harvest practices, their input, things we're able to glean from the internet, put them together and use that to challenge the conventional way that they would have thought about doing a business process or build the system. And it's really, you know, as you will have seen, and everybody is welcome to use it on Beggar.com. It's very innovative. I mean, even if it never, never made it into the application, the fact that this changes the way to think about a business process and does it literally in hours as opposed to weeks is, all by itself, a huge advantage.

Speaker Change #107: Well the feedback continues to be very.

Speaker Change #104: Youre excite.

Speaker Change #105: We are excited.

Speaker Change: What we're seeing customers tell US is this has fundamentally changed the <unk>.

Speaker Change #102: They do design thinking about new applications. They are able to take harvest practices their input things, we're able to glean from the internet bring them together and use that to challenge the conventional way.

Speaker Change #102: They would have thought about doing a business process or build the system and it's really.

Speaker Change #102: As you will have seen and everybody is welcome to use it on <unk> Dot com.

Alan Trefler: It's very innovative. I mean, even if it never, never made it into the application, the fact that this changes the way you think about a business process and does it literally in hours, as opposed to weeks, is, all by itself, a huge advantage. And I do know of some customers who are playing with this for systems that may never actually become Pegasystems. But by the way, I think it's just brilliant.

Speaker Change #102: It's really innovative I mean, even if it never never made it into the application. The fact that this changes the way you think about our business process.

Speaker Change #102: Does it literally hours as opposed to.

Speaker Change #102: <unk> is all by itself a huge advantage and I do know of some customers who were playing with this up for systems that may never actually become a bigger system, which by the way I think we're just fine.

Alan Trefler: And I do know of some customers who are playing with this for systems that may never actually become a beggar system, but by the way, I think it's just fine.

Alan Trefler: Now, having said that, the ability that we introduced at Beggar World, so realize how incredibly new this is, to be able to import this into an actual new or existing Beggar system, have it blend with existing rules and processes. Nowadays, that's got a tremendous amount of excitement. Unsurprisingly, it's led to a lot of enhancement requests from clients. And we are pounding those in, which we're able to do because Blueprint is a SaaS system. So we're able to do this weekly and bi-weekly release cycle, which is adding value. So the feedback we're getting from the clients is they love what they're saying.

Speaker Change #102: Now having said that the.

Speaker Change #102: Our ability that we introduced at <unk>, so realize how incredibly new this is to be able to import this into an actual new or existing packer system habit blend with their existing rules and processes up that's gotten a tremendous amount of excitement unserved.

Speaker Change #102: Unsurprisingly has led to a lot of enhancement requests from clients and we are pounding those in which we are able to do because blueprint as SaaS system. So we're able to do this weekly and biweekly release cycle, which is adding value. So the feedback we're getting from our clients is they love what they are saying.

Alan Trefler: They want some more stuff, which is always a good thing when, you know, a thousand customers are really interested. And we're providing it. So, you know, I would say unlike many things I've seen in my life and technology roll up, you know, this is all good.

Speaker Change #102: They want some more stuff, which is always a good thing.

Speaker Change #102: Those customers are really interested and we're providing it so.

Speaker Change #106: I would say.

Speaker Change #116: Like many things I've seen in my life and technology rollout. This is all good.

Pinjalim Bora: Understood. Thank you very much.

Unknown Attendee: Understood. Thank you very much. One question for you, Ken.

Ken: Understood. Thank you very helpful. One question for you Ken.

Ken Stillwell: One question for you, Ken. You just in the previous answer before me, I think you said the pace of migration to cloud should continue to accelerate. In that context, how should we think about kind of the maintenance line forward? And the kind of the dollar of maintenance converting to cloud that multiple that you typically get. How should we kind of think about that, you know, as we think about the next couple of years? Yeah, so it is a tough one for even for us, because not every situation is exactly the same. But if you think about $700 million of non-tagged cloud ACV, if you just think about that number, you know, and if all of it converted, right?

Ken: You just in the previous.

Ken: Sir before me I think you said the pace of migration to cloud should continue to accelerate in that context, how should we think about kind of the maintenance line forward and.

Kenneth R. Stillwell: In the previous answer before me, I think you said the pace of migration to the cloud should continue to accelerate. In that context, how should we think about kind of the maintenance line forward? And the kind of the dollar of maintenance converting to the cloud that multiple that that you typically get, how should we kind of think about that, you know, as we think about the next couple of years?

Ken: And kind of the dollar of maintenance converting to cloud that multiple that you typically get how should we kind of think about that as we think about the next couple of years.

Kenneth R. Stillwell: Yeah, so it is a tough one even for us because not every situation is exactly the same. But if you think about $700 million of non-renewable energy, the Hega Cloud ACV.

Speaker Change #106: Yes.

Speaker Change #151: It is a tough one and even for us because not every not every situation is exactly the same but if you think about $700 million of term.

Speaker Change #106: Non <unk> cloud ACB, if you just think about that number.

Kenneth R. Stillwell: If you just think about that number, you know, and if all of it converted, right, you should see somewhere between, you know, a 25 and a 50% expansion off of that number. Now, in some cases, the number will be two to one, right, or more. And in some cases, it will be more modest; it really kind of depends on the actual situation with each client. So we do have now, there will be some markup for all clients, because naturally, there's a managed service that we're providing and infrastructure, etc. But I think just using a rule of thumb, I'd say 25 to 50% across that. So you're talking about a few hundred million dollars of incremental opportunity.

Speaker Change #112: And if all of it converted right.

Ken Stillwell: You should see somewhere between, you know, a 25% and a 50% expansion off of that number. Now, in some cases, the number will be two to one, right? Or more. And in some cases, it will be more modest. It really kind of depends on the actual situation with each client. So we do have that. Now there will be some markup raw clients because naturally there's a managed service that we're providing and infrastructure, et cetera. But I think just using a rule that saw my say 25% to 50% across that. So you're talking about a few hundred million dollars of incremental opportunity.

Speaker Change #106: Should see somewhere between.

Speaker Change #106: At 25, and that 50% expansion off of that number now in some cases, the number will be two to one right or more and in some cases it will be more modest it really kind of depends on.

Speaker Change #106: The actual situation with each client. So we do have that now there will be there will be some markup for all clients because naturally there is that there is there is a managed service that we're providing an infrastructure et cetera, but I think just using a rule of thumb I'd say, 25% to 50% across that so youre talking about a few hundred million dollars of incremental opportunity.

Unknown Executive: Next question.

Speaker Change #108: Next question.

Speaker Change #108: Hello.

Unknown Attendee: Hi Rishi, I think your line is muted.

Unknown Executive: Hi Rishi, I think your line is here. Thank you. Oh, yeah, sorry, I did not hear my name getting called up. Thanks, Alan, thanks, Ken, for taking my question. Maybe to starting with the blueprint, really exciting to see the momentum here. Can you talk a little bit about some of the more common applications and workflows that you're seeing going into production, and maybe if we think about some of those use cases over time, maybe over the next one, two, three years, how do you see that evolving? So I'm one of the uses, as you would expect, after a customer service and aspects of it like the onboarding or the dealing with addition of a new product and how you make those choices and how you get the right approvals and implement that.

Speaker Change #113: Hi, thank.

Speaker Change #110: Thank you.

Speaker Change #108: Yeah.

Unknown Attendee: Thank you. Oh, yeah. Sorry, I did not hear my name being called out.

Speaker Change #123: Oh, yes, sorry, I did not hear my name getting called out thanks.

Speaker Change #108: Hello, and thanks again for taking my question.

Alan Trefler: Thanks. Thanks, Alan. Thanks, Ken, for taking my question. Maybe start with the Blueprint, really exciting to see the momentum here. Can you talk a little bit about, you know, some of the more common applications and workflows that you're seeing going into production? And maybe if we think about some of those use cases over time, you know, maybe over the next one, two, three years, how do you see that evolving?

Speaker Change #106: Maybe to start with.

Speaker Change #106: The blueprint really exciting to see the momentum here can you talk a little bit about.

Speaker Change #106: Some of the more common applications and workflows that youre seeing going into production and maybe if we think about some of those use cases over time.

Speaker Change #126: Maybe over the next 123 years, how do you see that evolving.

Alan Trefler: So a lot of the uses, as you would expect, have to do with customer service and aspects of it like onboarding or dealing with the addition of a new product and how you make those choices and how you get the right approvals and implement that. Those are very common types of workflows. But we're seeing lots of workflow uses that fall into what you'd call the master data management space. How do you sit in front of an SAP system or some other old, big system that is maintaining the records of your business and make sure that your products are defined correctly or parts of your business are defined correctly, really putting those types of workflows in front, which leverage our ability to work so well with some of these big, old backend systems but give them a So it's incredibly broad, is the way I would describe it.

Alan Trefler: and so on. I love the... I love the...

Speaker Change #122: So a lot of the <unk>.

Speaker Change #121: A lot of the users as you would expect absolute customer service aspects of it like the <unk>.

Speaker Change #106: On boarding or the dealing with.

Speaker Change #106: The addition of a new product and how do you make those choices and how are you.

Speaker Change #106: The right approvals and implement that those are very common types of workflows, but we're seeing lots of workflow uses that fall into what you would call. The master data management space, that's kind of how do you sit in front of an SAP system or some of big system that is maintaining the records of your.

Alan Trefler: Those are the very common types of workflows. But we're seeing the lots of workflow uses that fall into what you call the master data management space. That's kind of how do you sit in front of an FAP system or some old bid system that is maintaining the records of your business and make sure that your products have defined correctly or your pots of your business have defined correctly. Really putting those types of workflows in front, which leverage our ability to work so well with some of these big old backend systems, but give them a state of the workflow that brings AI to how they want to operate.

Speaker Change #106: Business and make sure that your products are defined correctly or Europe.

Speaker Change #106: What's are your businesses five correctly really putting those types of workflows in front, which leverage our ability to work so well with some of these big old.

Speaker Change #106: Backend systems, but give them a state of the art workflow that brings.

Speaker Change #106: AI.

Speaker Change #106: How they want to operate so incredibly broad is the way I would describe it.

Alan Trefler: So it's incredibly broad is the way I would describe it.

Ken Stillwell: Great, that's really helpful. And then if we just think about kind of the increasing mix towards consumption and then blueprints probably going to accelerate that. How should we be thinking about just kind of the overall revenue mix of, you know, kind of more traditional subscription versus its consumption component over time? Or is that just not the right framework to use? Thanks. So I understand your question completely, which is fixed versus variable revenue, Rishi. And I don't know that that's necessarily the right way to think about it because what Alan said was the way that this works is think about it as a commit with flexibility, right?

Unknown Attendee: Great, that's really helpful. And then if we just think about kind of the increasing mix towards consumption, and then Blueprint's probably going to accelerate that, how should we be thinking about just kind of the overall revenue mix of, you know, kind of more traditional subscription versus its consumption component over time? Or is that just not the right framework to use? Thanks.

Speaker Change #115: Great. That's really helpful. And then if we just think about kind of the increasing mix towards.

Speaker Change #115: <unk>.

Speaker Change #106: And then <unk>.

Speaker Change #106: Probably going to accelerate that.

Speaker Change #125: How should we be thinking about just kind of the overall revenue mix of kind of more traditional subscription versus as consumption component over time or is that just not the right time oculus. Thanks.

Kenneth R. Stillwell: So, I understand your question completely, which is fixed versus variable revenue, Rishi, and I don't know that that's necessarily the right way to think about it, because what Alan said was the way that this works is to think about it as a commitment with flexibility, right? Clients are committing to a certain amount of usage because that gets them better economics on pricing. They have the ability to flex up. As they flex up, they typically commit to higher levels.

Speaker Change #131: So I hope I understand your question completely which is fixed versus variable revenue Richie and I don't know that that's necessarily the right way to think about it because what Alan said was the way that the way that this works is think about it as.

Speaker Change #135: As a as a cabinet.

Speaker Change #117: With flexibility right clients are committing to a certain amount of usage because that gets the better economics on pricing. They have the ability to flex up as they flex up they typically commit to higher levels that guests have once again better economics as they scale as you get volume discounts and it's very similar to Amazon or Google.

Ken Stillwell: Clients are committing to a certain amount of usage because that gets them better economics on pricing. They have the ability to flex up. If they flex up, they typically commit to higher levels that gets them once again better economics as they scale, as you get volume discounts. And it's there's better discounts you can get by making annual commitments. So it's a very similar model to that. So there's still going to be a commitment level. But there's going to be the ability to allow clients to almost grow organically within their arrangements, as opposed to having to go through and contracting and paperwork process every single time they want to get a new application, a new workflow, a new case type started.

Kenneth R. Stillwell: That gets them, once again, better economics as they scale, as you get volume discounts, and it's very similar to Amazon or Google, where they actually have pricing discounts, but then there's better discounts you can get by making annual commitments. So, it's a very similar model to that, so there's still going to be a commitment level.

Speaker Change #117: Where they actually have pricing discounts, but then there is there is there is a better discounts you can get by making annual commitments. So its a very similar model to that so theres still going to be a commitment level, but theres going to be the ability to allow clients to all those grow organically within their arrangements as opposed to having to go through it.

Speaker Change #117: Contracting and paperwork process every single time, they want to get a new application or new workflow a new case type started so I don't I don't think we're not we're not bifurcated those numbers because we view it as all part of a continuum of how we grow with our clients.

Mark Schappel: So I don't think we're not, we're not quite rotating those numbers because we view it as all part of a continuum of how we grow with our. Your next question comes from the line of Part Tick Walravens with Citizen St.

Operator: Your next question comes from the line of Patrick Walravens with Citizens JMP. Please go ahead.

Speaker Change #132: Your next question comes from the line of work.

Speaker Change #106: Okay.

Mark Schappel: Anthony. Please go ahead.

Speaker Change #106: Jason.

Jason: Please go ahead.

Austin Cole: Hey there, this is Austin Cole on Sir Pat Walravens. Ken, I think at the analyst day, you made a comment that the kind of long term getting to that $2 billion ACV in three to five years, that there's an upside case that's driven by Blueprint. Did you mean that that upside case with Blueprint is getting to that $2 billion kind of closer to the three years rather than five? Yes, naturally we're going to do everything we can to get there as fast as possible, and we think Blueprint could help us get there faster, which is where that range came up, Austin.

Austin Cole: Hey there, this is Austin Cole on for Pat Walraven. Ken, I think at analyst day you made a comment that the kind of long term getting to that two billion ACV in three to five years, that there's an upside case that's driven by blueprint. Did you mean that the upside case with blueprint is getting to that two billion and kind of closer to three years rather than five?

Austin Cole: Hey, there this is Austin coal on for Pat Walsh.

Jason: Ken I think at the at the Analyst Day, you made a comment that the kind of long term getting to that 2 billion ACB in three to five years.

Speaker Change #124: There is an upside case, that's driven by blueprint did you mean that.

Kenneth R. Stillwell: Yes, naturally, we're going to do everything we can to get there as fast as possible, and we think Blueprint could help us get there faster, which is where that range came up, Austin.

Unknown Attendee: Okay, and then just I know it's super, super early days, but following that event, you know, in the one month since that event where it was definitely very centered on blueprint with the interest you're seeing, is there anything in these early days to suggest that we're not going to be close to that three years rather than five from a blueprint standpoint?

Austin Cole: Okay, and then just, I know it's super, super early days, but following that event in the one month since that event where definitely it was very centered on Blueprint with the interest you're seeing, is there anything in these early days to suggest that we're not going to be closer to that three years rather than five from a Blueprint standpoint? I would say given where we are now, Blueprint's excitement, momentum, even the improvement and the advancement of some of the capabilities of Blueprint are really on pace with what we had hoped.

Kenneth R. Stillwell: I would say, given where we are now... Blueprint's excitement, momentum, even the improvement and advancement of some of the capabilities of Blueprint are really on pace with what we had hoped. Jumping to three years versus five years is probably a little premature to start to predict when we think we can get there, but I would say we feel great about the opportunity, and naturally, we're, you know, internally we're pushing to get there as fast as possible in three years.

Austin Cole: Jumping to the three years versus five years is probably a little premature to start to predict when we think we can get there, but I would say we feel great about the opportunity, and naturally we're internally, we're pushing to get there as fast as possible. And then three years would be our desired state, but once again, this was a month in from when we talked.

Speaker Change #153: Right about the opportunity and naturally we're internally, we're pushing to get there as fast as possible and in three years would be are you know that's like that's our that's our desired state, but once again, it's four months in from when we talk.

Raimo Lenschow: Your next question comes from the line of rainbow lens tool. Please go ahead. Perfect. I had two quick questions. One, given the uncertainty that we had on the software spending side with the off-cycle Q1, and I don't know if you followed what we saw, it was working, etc. What did you see this quarter kind of playing out, and did you change anything in terms of kind of penciling and being a little bit more sharper on sales execution, etc. Because the leverage is very, very strong quarter. The questions that we all have are certain pockets in software spending, like yours, that is with Jenny. I is doing better than others, or can you talk a little bit about what's installed slightly broader on terms of sales, and then I have a quick follow on.

Raimo Lenschow: Your next question comes from the line of Raimo Lenschow. Read more, please. Please go ahead.

Speaker Change #120: Your next question comes from the line of framework that's tough.

Speaker Change #119: Please go ahead.

Alan Trefler: Perfect. I had two quick questions. One, given the uncertainty that we had on the software spending side with the off-cycle Q1, and I don't know if you followed what we saw at Salesforce Workday, etc. How, what did you see this quarter kind of playing out, and did you change anything in terms of kind of penciling, you know, like being a little bit sharper on sales execution, etc. Because, you know, you delivered a very, very strong quarter, so the questions that we all have are, like, are there certain pockets in software spending, like yours, that NAI is doing better than others? Or, like, can you talk a little bit about what you saw slightly wider in terms of sales? And then I have a quick follow-on.

Speaker Change #130: Perfect I have two quick questions one given the uncertainty to be had on the software spending side with the upside in Q1 when it I don't know if you followed what we saw at Salesforce Workday et cetera, how what did you see this quarter are kind of playing out until you change anything in terms of kind of.

Speaker Change #146: Penciling in or like being a little bit more sharper on ceilings execution et cetera. Because you know you delivered very very strong quarter. So two questions that we all have is like.

Speaker Change #137: Is it a certain pockets in sulfur spending like yours that is with Jenny I is doing better than others or like you know can you talk a little bit of once it's sold it's like your broader.

Speaker Change #128: And then I have a quick follow on.

Kenneth R. Stillwell: Yeah, there were, you know, this is an example of a quarter where there were really no, what we used to call, whales. We love whales, but it's okay. Being able to have a good quarter without any, that's, we'll take lots of tuna, you know, is the way we think about it. So there weren't any whales, there weren't any regional differences that were massive or driving the outcome. And I do think our sales execution has improved as we've really moved to adopt the target org model.

Speaker Change #129: Yes, they were.

Alan Trefler: This is an example of a quarter where they really know what we used to call Wales. We want Wales, but it's okay to be able to have a good quarter without any. We'll take lots of tuna. It's just the way we think about it. There weren't any Wales. There weren't regional differences that were massive or driving the outcome. I do think our sales execution has improved as we've really moved without the target world model, and as that has now become part of the DNA of the company. What we need to make sure is that as we grow, as we continue to go forward, that the organization continues to base its energy on the things we've learned about doing it in a more efficient manner, and paying attention to the cost that's envelope, as well as getting the growth targets.

Speaker Change #133: This is an example of a quarter, where there were really no what we used to call whales.

Speaker Change #133: We loved whales focus okay, but you have to have a good quarter with I think that's what will take lots of tuna.

Speaker Change #133: The way, we think about it.

Speaker Change #128: So they weren't anywhere else they werent.

Speaker Change #134: Differences that were massive or driving the outcome and I do think our sales execution has improved as we've really moved to adopt the target model and as that has now become part of the DNA of <unk>.

Kenneth R. Stillwell: And that has now become part of the DNA of the company, and what we need to make sure is that as we grow, as we, as we continue to go forward, that the organization continues to base its energy on the things we've learned about doing it in a more efficient manner and paying attention to the cost as an envelope, as well as hitting the growth targets.

Alan Trefler: But now it was a nice, broad, and fresh outcome. Let me add one little piece of information that I know you're aware of, just to remind you. We are not as dependent on licensing at the user level. I think a lot of software companies that license at the user level actually do have for risk with this whole automation, Gen AI, trying to get efficiency. And, quite frankly, our entire solution is about automating end-to-end to drive efficiency, optimization, and consistency. So we think that it's not to say that we are insulated from good point of working on a trend because we are absolutely subject to all that.

Unknown Attendee: But no, it was nice. [inaudible]

Alan Trefler: So Raimo, can I let me add one one little piece of information that I know I know you're aware just to remind you We are not as we are not as dependent on Licensing at the user level and so so I think a lot of software companies that license at the user level Actually do have more risk with this whole like automation gen AI trying to get efficiency and quite frankly our entire Solution it's about automating end-to-end to drive efficiency and optimization and consistency So we think that did not to say that we are insulated from Global economic trends because we we are absolutely subject to all that I do think our licensing model being more of a consumption value based licensing model where the amount of transactions that peg it does Ties to the value ties to our our business helps us and also the needness the space in which we sit is Very congruent with what we're trying to put what the market's trying to do with AI, which is to drive efficiency and automation So maybe that helps us a little those two levels. Yeah, I think Our philosophies the more work the system does If the system is doing more work, then the customer should be willing to pay more The folks who are doing this based on users, I think

Alan Trefler: I do think our licensing model of being more of a consumption value-based licensing model where the amount of transactions that Pega does tie to the value ties to our business helps us, and also the space in which we set is very congruent with what the market is trying to do with AI, which is to drive efficiency and automation. So maybe that helps us a little; those two levels. The more work the system does, if the system is doing more work than the customer, should be willing to pay more. The folks who are doing this based on users, I think that's just an antiquated model; that's our whole point. Is we are going to go to an autonomous enterprise that is more self-driving, and the number of users has been massively reduced, doubled with self-service.

Speaker Change #134: So lots of things the more work the system does.

Speaker Change #134: If the system is doing more work than the customers should be willing to pay more.

Speaker Change #134: The folks who are doing this based on users I think that's just an antiquated model that's all.

Speaker Change #134: Our whole point is we're going to go to an autonomous enterprise that is more self driving and the number of users has been massively reduced.

Speaker Change #134: Doubled with self service so.

Raimo Lenschow: So I'm really happy that we have the right thinking when it comes to our model. Yeah, okay, perfect. Okay, thank you.

Speaker Change #134: I'm really happy that we have the right thinking when it comes to our model.

Speaker Change #134: Yeah, Okay perfect. Thank you and then Ken on the cash flow number very strong for the first half.

Ken Stillwell: And then, Ken, on the cashflow number, very strong for the first half. Obviously, you know, like the Q1 was the strong one; Q2 is never the strong one because of the seasonality. Like, if you think about the cashflow performance so far this year, is there any thinking from you that the trajectory is changing, or we still kind of good bit what you kind of communicated before? Thank you and congrats for me as well. Thanks, Raimo. So, I think so, first off, I think we'll try really hard to have positive cash flow in Q3. I think it will happen, but you know, when you have, when you have lower billing quarters, it is harder to generate lots of cash.

Ken: Obviously Q1 was a strong one Q2.

Ken: There's never just draw one because of the seasonality like if you think about the cash flow performance. So far this year.

Speaker Change #141: Thinking from you that the trajectory is changing or are we still kind of good bid what you kind of communicated before thank you and congrats from me as well.

Speaker Change #142: Thanks, very much. So I think so first off I think will well, we'll try really hard to have positive cash flow in Q3, I think it will happen, but keep but yeah. When you have when you have lower billing quarters. It is harder to generate lots of cash Q4 is always a bigger billings quarter. It doesn't always.

Ken Stillwell: Q4 is always a bigger billings quarter. It doesn't always mean the cashflow is big because some clients may pay you in Q1 or Q4. So I think that teetering of when you get collections continues to make you want to keep for the biggest quarters, but for the year, we still see the year, like, kind of shaping up as we thought it would be. But Q1 gave us a really good start. Q2, quite frankly, was better from a cashflow standpoint than we thought. I think Q3, we will try to keep our positive cashflow momentum, but it is hard when you don't have as much billings in a quarter.

Speaker Change #142: I mean, the cash flow is because some clients may pay you in Q1 or Q4, so I think that teetering of when you get collections continues to make Q1 and Q4, the biggest quarters, but for the year, we still see the year like kind of shaping up as we thought it would be but Q1 gave us a really good start Q2 quite frankly was better from a cash flow standpoint.

Mark Schappel: Your next question comes from the line up Mark Shuffle with Blue Capital Markets. Please go ahead. Hi, thanks for taking my question, and a nice job on the quarter. Can during the investor day, it was noted that the company was planning to target new logos that have the potential to be, you know, 1 billion ACB accounts. It's a little bit of a departure from the past. So I wonder if you just provide some additional details on how you plan to go about this market or go to market wise.

Alan Trefler: So, for instance, you know, should we expect like a dedicated sales team to go after these new clients? Sure. So let's go back a year or two ago. We wanted to transform our go-to-market team. We knew that by doing that and changing the way we sold to add a bunch of new logos was going to be terribly disruptive to the progress on that. So just a reminder of why we are where we are. We are really limited in that new logos. It was a very, very small amount and very targeted. And when we go forward, we are going to be just as targeted in terms of the new logos, but we are feeling like it is time to add more focus on new logos.

Alan Trefler: Those new logos will not be a new team that we have. Our teams already segmented where some of our teams actually focus on more prospecting, more logo. We call that major accounts, which is an account that is very significant, that it typically looks just like one of our existing organizations that we feel like we can sell into. So it is going to be a very target work bottle and it will be focused in some of our teams right now globally that already have prospected for some new logos. But once again, they are going to be targeted.

Speaker Change #142: Prospecting for some new logos, but once again, they're going to be targeted and with tons of it means is that you know you don't give somebody some random territory and say go Hunt you basically say, Hey, Hey, Paula John here of six doors. This is where you're going to play.

Alan Trefler: And what positive means is that you don't give somebody some random territory and say, go hunt. You basically say, hey, you know, hey, Paula, hey, John, here are six orgs. This is where you are going to fly. Get one of these, or maybe even here's one word that we want you to break into. So a very target or driven so that we don't have this investment in general purpose marketing expense, which we found when we did it before. We just didn't get the return from. We're very comfortable with it on a hand-hand combat that with orgs.

Speaker Change #142: One of these or maybe even here is one word that we want you to break into so very targeted or driven so that we don't have this.

Speaker Change #141: This investment in general purpose marketing expense, which we found when we did it before we just didn't get the just didn't get the returns from we're very comfortable that on a <unk> com.

Speaker Change #141: With ore so.

Mark Schappel: We've been working our way through this. And one last little piece of color there, Mark, organizations that we will target will probably look like the organizations that we already have and also may have former Pegabires and influencers that have moved to those organizations, which actually helps as well, meaning somebody that already used Pegga at another organization and took a new role. That's kind of how we're thinking about that strategic target. Great. Thanks.

Speaker Change #141: We can work our way through that.

Speaker Change #139: And one last little piece of color there Mark organizations that we will target well will probably look like the organizations that we already have and also may have former peg of buyers and influencers that have moved to those organizations, which actually helps as well meaning somebody.

Speaker Change #139: That already used pegged at another organization and took a new role that's how that's kind of how we're thinking about that strategic targeting.

Mark: Okay, great. Thanks.

Speaker Change #134: Okay.

Daniel Ives: Your next question comes from the line of Daniel Ives with Web Flash. Please go ahead. Yeah, thanks. Can you talk about on these AI cycles? How's that changing your overall spending environment? I mean, you get brought into more what I'll call AI-driven deals. Yeah, we are people. People have seen what we've done and are intrigued. And so we're really being seen by our customers, in many cases, as the way that they should go about implementing AI. I mean, what better way to implement AI than to make the way your workflows work better, or to cut down on manual steps, or to make better decisions for clients.

Speaker Change #152: Your next question comes from the line of.

Speaker Change #149: Please go ahead.

Speaker Change #148: Please go ahead.

Speaker Change #150: Yeah. Thanks can you talk about.

Speaker Change #138: On these AI cycles.

Speaker Change #145: How that's changing your overall spending environment I know you get brought into more what I'll call AI driven deals.

Speaker Change #154: Yeah, we are.

Speaker Change #147: People people have seen what we've done.

Speaker Change #155: And are intrigued.

Speaker Change #155: And so where we're really being seen by our customers.

Alan Trefler: Those are perfect use cases for AI. So, you know, we're a way for company to incorporate AI in the core of their business without having to craft it by hand from, you know, something from Azure AWS. You know, this is a way for them to incorporate AI as part of something that's very. And of those, how many tend to be more new customers versus existing? Well, here we are.

Alan Trefler: Strategy was very much about expanding into other areas of existing customers. And that has been our strategy, but I consider another area of a new customer. I mean, another, another part of the U.S. Department of Commerce. That's really kind of breaking into something new. So it's not as clean as you might want, but we're definitely going to be looking at figuring out how do we open that aperture and bring it to more new organizations, but do it in the style of already using it.

Alan Trefler: And by the way, and just add one, just add one other piece of color. Our partners are actually very helpful in assisting us in the selection of some of those target organizations, because they may actually be talking to those exact organizations and make recommendations for ones that we should cover. So that's where that's where another, another helpful connection to AI as well.

Alan Trefler: That concludes our Q&A session.

Alan Trefler: I will now turn the conference back over to Alan Cressler, founder and CEO of Legacy System, for close and remark. Please go ahead. Thank you, everyone. We're working hard. We're seeing our customers engage with us, which is enormously invigorating. When we talk about Gen and I excitement, I will say that it is palpable, and we're going to continue to improve it, to drive it, and hopefully continue to show the good results. Thank you very much, everyone.

Unknown Attendee: [inaudible]

Raimo Lenschow: Okay, perfect. Okay, thank you.

Kenneth R. Stillwell: And then Ken, on the cash flow number, very strong for the first half. Obviously, you know, like Q1 was the strong one, Q2 is never the strong one because of the seasonality. Like, if you think about the cash flow performance so far this year, is there any thinking from you that the trajectory is changing? Or are we still kind of good with what you kind of communicated before? Thank you, and congrats on behalf of me as well.

Unknown Attendee: Your next question comes from the line of Daniel Ives with Webfash. Please go ahead. Yeah, thanks. Um, can you talk about

Kenneth R. Stillwell: Thanks Raimo. So first off, I think we'll try really hard to have positive cash flow in Q3. I think it will happen, but when you have lower billing quarters, it is harder to generate lots of cash. Q4 is always a bigger billing quarter, but it doesn't always mean that cash flow is big.

Daniel Harlan Ives: Yeah, we are. People have seen what we've done and are intrigued. And so we're really being seen by our customers, in many cases, as the way that they should go about implementing AI. I mean, what better way to implement AI than to make your workflows work better, or to cut down on manual steps, or to make better decisions for clients. Those are perfect use cases for AI. So we're a way for companies to incorporate AI into the core of their business without having to craft it by hand from, you know, something like Azure or AWS.

Unknown Attendee: Some clients may pay you in Q1 or Q4. So I think that teetering of when you get collections continues to make Q1 and Q4 the biggest quarters, but for the year, we still see the year kind of shaping up as we thought it would be, but Q1 gave us a really good start. Q2, quite frankly, was better from a cash flow standpoint than we thought. I think Q3, we will try to keep our positive cash flow momentum, but it is hard when you don't have as much billings in a quarter. Your next question comes from the line of Mark Schappel with Loop Capital Markets. Please go ahead. Hi, thanks for taking my question and nice job on the quarter.

Daniel Harlan Ives: You know, this is a way for them to incorporate AI as part of something that's very tiny. And of those, how many tend to be more new customers versus, Well, you know, our strategy was very much about expanding into other areas of existing customers. And that has been our strategy. But I consider another area of a new customer, I mean, another part of the U.S. Department of Commerce, that's really kind of breaking into something new.

Mark William Schappel: Your next question comes from the line of Mark Schappel with Loop Capital Markets. Please go ahead. Hi, thanks for taking my question and nice job on the quarter.

Daniel Harlan Ives: So, it's not as clean as you might want, but we're definitely going to be looking at figuring out how we open that aperture and bring it to more new organizations, but do it in the style we're already using.

Kenneth R. Stillwell: Sure. So let's go back a year or two ago. We wanted to transform our go-to-market team. We knew that by doing that and changing the way we sold, adding a bunch of new logos was going to be terribly disruptive to the progress on that. So just a reminder of why we are where we are. We really limited the number of net new logos. It was a very small amount and very targeted.

Alan Trefler: And by the way, Dan, just to add one more piece of color, our partners are actually very helpful in assisting us in the selection of some of those target organizations because they may actually be talking to those exact organizations and making recommendations for ones that we should cover. So that's where AI is another helpful connection to AI as well.

Kenneth R. Stillwell: And when we go forward, we are going to be just as targeted in terms of the new logos, but we feel like it is time to add more focus on the new logos. Those new logos will not be a new team. We have our teams already segmented where some of our teams actually focus on more prospecting, and more logos. We call that major accounts, which is an account that is very significant, that typically looks just like one of our existing organizations that we feel like we can sell into. So it is going to be a very targeted org model, and it will be focused on some of our teams right now globally that have already prospected for some new logos.

Unknown Attendee: That concludes our Q&A session. I will now turn the conference back over to Alan Trefler, founder and CEO of Pegasystems, for closing remarks. Please go ahead.

Unknown Attendee: [inaudible] Get one of these, or maybe even here's one org that we want you to break into. So, very target org driven, so that we don't have this investment in general purpose marketing expense, which we found when we did it before, we just didn't get the returns from. We're very comfortable that in hand-to-hand combat with orgs, we can work our way forward. And one last little piece

Kenneth R. Stillwell: And one last little piece of color there, Mark, organizations that we will target will probably look like the organizations that we already have and also may have former PEGA buyers and influencers that have moved to those organizations, which actually helps as well. Meaning somebody that has already used PEGA at another organization and taken a new role. That's kind of how we're thinking about that strategic targeting. Great, thanks. Your next question.

Alan Trefler: Thank you, everyone. We're working hard. We're seeing our customers engage with us, which is enormously invigorating. When we talk about Gen AI excitement, I will say that it is palpable, and we're going to continue to improve it, drive it, and hopefully continue to show good results.

Speaker Change #144: Improvements to drive us and hopefully continue to show the good results. Thank you very much everyone.

Operator: Thank you very much, everyone. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Unknown Executive: Ladies and gentlemen, that's good for this course. Thank you all for joining.

Speaker Change #143: Ladies and gentlemen that does conclude today's call. Thank you all for joining you may now disconnect.

Unknown Executive: You may now disconnect.

Operator: Thanks for watching!

Speaker Change #143: [music].