Q3 2024 Pegasystems Inc Earnings Call
Ladies and gentlemen, thank you for standing by my name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to pack a systems, Inc. Third quarter 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker.
Those remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press star. One. Thank you I will now like to turn the conference over to Peter Welborn, Vice President of corporate development.
Investor Relations you may begin.
Peter Welborn: Thank you so much krista good morning, everyone and welcome to Peg a systems Q3 2024 earnings call before we begin I would like to read our safe Harbor statement certain statements contained in this presentation may be construed as forward looking statements as defined in the private Securities Litigation Reform Act of 1095, the words expects anticipates into.
Peter Welborn: <unk> plans believes will could should estimates may forecast and guidance or variations of such words and other similar expressions.
Peter Welborn: <unk> forward looking statements, which only which speak only as of the date. The statement was made and are based on current expectations and assumptions because such statements deal with future events. They are subject to various risks and uncertainties actual results for fiscal year 2024, and beyond could differ materially from the company's current expectations factors.
Peter Welborn: 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 Q3 2024 results and in the company's filings with the Securities and Exchange Commission, including it.
Peter Welborn: Annual report on Form 10-K for the year ended December 31, 2023, and other recent filings with the Securities and Exchange Commission investors are cautioned not to place undue reliance on such forward looking statements and there are no assurances that the matters contained in such statements will be achieved although subsequent events may cause our view to change except as required by applicable.
Speaker Change: We do not undertaken 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 <unk> founder and CEO of <unk> systems. Thank.
Alan: Thank you Peter and thanks to all who are joining today's call.
Alan: I'm really pleased with our performance for the first nine months of 2024.
Alan: The team is executing extraordinarily well and I'm optimistic about the momentum that's evident in our results. The energy is palpable across the company and our sales teams are fired up.
Alan: It's great to see that we're driving profitable and balanced growth across industries and geographies, while delivering transformational innovation.
Alan: The enormous excitement we're seeing from our <unk>.
Alan: Offerings, especially <unk>.
Alan: Jenny item price is fundamentally changing the way, we engage with prospects and clients.
Alan: Our distinctive AI approach is showing clients how they can accelerate their digital transformation.
Alan: And move to the cow autonomous character prices.
Alan: Blueprint is now part of virtually every client and prospect discussion.
Alan: <unk> continues to inspire our prospects our clients and partners with possibilities.
Alan: And they're continuing to evolve.
Alan: Your next profoundly change how we engage shell deliver and is helping us work.
Alan: Even with clients more deeply and across bigger pieces of your business. The number of new blueprint continues to grow dramatically, it's helping us identify opportunities to accelerate growth and creating additional momentum prepared to cloud, which is growing at a faster rate than even we predicted and Ken will discuss in more detail.
Alan: The tremendous engagement from clients and partners is also accelerating innovation.
Alan: As together, we continuously discovering new ways to leverage and to improve blueprint. For example, we've recently added support for many additional languages and added a new collaboration feature that summarizes who he is making changes to the blueprint to help our clients collaborate among themselves.
Alan: As a reminder, you can experience blueprint for free by going to <unk> dot com and searching on blueprint.
Alan: I think perhaps most importantly, this is unique to Pandora.
Alan: I don't think it can be easily if ever replicated by competitors would have a major rework of what they do.
Alan: Just we're getting that feedback from clients partners and industry experts, who are also saying that blueprint is one of the most compelling examples of actually putting AI don't work with.
Alan: Something I heard last week, when I was in EMEA and met with some of our largest clients.
Alan: This changes how we operate and I think gives us a distinct competitive advantage and an approach to monetization of AI. There is not dependent on product skus, but rather reflective of building and growing strategic long term client relationships.
Alan: For example, recently one of our large multinational financial services clients asked us to help you improve your teams.
Alan: Digital savvy to us so we have organized more than 40 blueprint exploration sessions over four days gives about 800 employees and on experience with blueprint.
Alan: He was so impressed they've asked us to help programmatically put blueprinting deflector and included citizen developer training.
Alan: The people, who can get access to this.
Alan: Our European clients to provide health care services has given blueprint to nurses caregivers and others from across 11 Hospital networks.
Alan: You can directly design and rethink their workflows that they need to Blue Bird service for their citizens to date created more than 150 blueprints.
Alan: And recently, our team use blueprint to identify and accelerate potential pipeline in new areas of business with a long term insurance quantity.
Alan: This level of excitement about blueprint and the client engagement is driving good.
Alan: Candidly unprecedented and packaged history.
Alan: Has the entire company and our partners.
Speaker Change: I wanted to talk a few minutes about what we're hearing from clients and how we're responding.
Speaker Change: Furniture focused more than ever on digital transformation.
Speaker Change: Good luck.
Speaker Change: It's for commented powder that they see as critical to their competitive survival.
Speaker Change: Talking with them and thinking about what we're doing now and into the new year.
Speaker Change: We're uniquely positioned to help our clients with this journey in three ways.
Speaker Change: First support for rethinking and replacing legacy applications.
Speaker Change: It's common for our clients to have less of the applications. They hate the ones. They want to replace and there is an increased urgency to modernize these apps. So they can both leverage AI and also move to the cloud, which many of these are not able to do we see a huge opportunity to help them rethink and replace this ever growing.
Speaker Change: Technical gap Luke.
Speaker Change: Blueprint deployed AI to eliminate the drag of legacy applications.
Speaker Change: It connects all process of rethinking the App.
Speaker Change: The internet and with AI in a way that really helps drive both the right way to do things and faster outcomes.
Speaker Change: Clients can important information about applications, and then use blueprint to update and enhance or completely re imagine their workflows and then execute quickly and effectively will continue to enhance our offerings to support clients. In these efforts and we will be introducing new capabilities. This year and next.
Speaker Change: I've been speaking with partners and clients about this over the past few weeks and the response to this legacy transformation vision has been universally positive.
Speaker Change: Power of this approach is clients aren't just lifting and shifting applications blueprint allows them to rethink their workflows, while moving them onto a modern cloud platform, which brings me to the second advantage. We believe we have.
We believe we are an ideal monitoring application platform for the content business that involve workflows and involve getting worked out recently Gartner noted that quote overlapping automation capabilities are driving market consolidation encore and promptly enterprise.
Speaker Change: Application leaders to search for platforms that can cater to the.
Speaker Change: Needs of a wide range of automation use cases.
Speaker Change: They actually introduced a new concept to address this the collared boat.
Speaker Change: Business orchestration and automation technologies.
Speaker Change: This describes what we also see in the market and it's really the convergence of robotic process automation will be strong interest.
Speaker Change: This automation.
Speaker Change: <unk> BPM and low code application.
Speaker Change: Platforms.
Speaker Change: Gartner describes as.
Speaker Change: As a class of software technologies that allow enterprises to automate and orchestrate end to end business processes, while connecting multiple enterprise systems of record through any applicable integration records.
For much of its history has been saying almost the exact same thing and this is exactly how we think about our center out business architecture groups together the process automation orchestration and using AI to have decisioning that helps make the right.
Speaker Change: Decisions at every moment and making it work across funded channels and across data sources. We believe we are.
Speaker Change: Equally positioned to be the business orchestration and automation technologies platform for our clients.
Speaker Change: That platform, that's our clients up for the third advantage record delivers a path to what we referred to as the autonomous enterprise.
Speaker Change: Our mission to change the way the World go software.
Speaker Change: It starts with building the software around the outcomes with clients wanted to deliver helps organizations maximize the potential for automation and AI. We have spoken before about this approach to building outcomes in workflows in a way that is center out.
Speaker Change: This is radically different from others, who still build their software around user screens.
Speaker Change: Database structures and we believe that those approaches are fundamentally youll suited to a world that expects ubiquitous self service and a jet take automation.
Speaker Change: Send around the right architecture for AI agents, because it's built around outcomes.
Speaker Change: Not around the screen's not around the database tables, but in fact around what the organization is trying to deliver regardless of the screen as users regardless of the database that it has to go through to get the information.
Speaker Change: It allows us to define things in ways that we can make really good decisions, we can drive optimize outcomes and do it.
Speaker Change: Across the channels and the back half.
Speaker Change: The approach not only allows for automation and it also helps ensure governance with agents following define best practices in predictable ways and in ways that we'll be able to pull in a human for assistance when appropriate however doesn't assume that as human driven.
Speaker Change: Already seen the fruits of this approach.
Email and message agents, which have automatically process hundreds of millions of emails and messages for our clients all while adhering to best practices and regulations and reliable outcomes and peg agenda.
Speaker Change: <unk> knowledge body, an agent that can retrieve and synthesize information from an enterprise knowledge base is delivering answers with attributions that employees can trust and peg a jet AI coach and agent that delivers the structure and data aggregation to provide real time guidance for users to help them.
Speaker Change: Sure that they are working in the most effective way.
Speaker Change: The systems are not able to handle everything completely automatically so.
Speaker Change: Upcoming release pattern in <unk> 2004 to continued enhancements to coach knowledge body and our data virtualization architecture add more youll see that knows next week.
Speaker Change: No there's nothing on our bedroom and spending time with clients.
Speaker Change: I was in Europe last week, I met with dozens of senior contacts and partners and with some of our most strategic customers. Those meetings were frankly, all incredibly positive and in every interaction we talked about how blueprint and our approach to AI could accelerate their digital transfer mentioned act initiatives and I would.
Speaker Change: I see that our customers and our partners are seeing here and it's terrific to hear how they are using our software to make positive tangible impacts on payer organizations.
So in summary, I'm very pleased with how we performed for the first nine months of the year and I would tell you that.
Speaker Change: <unk> profitable growth has been coupled with the levels of innovation in.
Speaker Change: And the way that we bring both intelligent automation and intelligent decisioning to market.
Speaker Change: I think put us with an innovation agenda that is top shelf.
Speaker Change: Jenny I blueprint continues to generate excitement and has fundamentally changed how we engage with prospects clients and partners and a very positive way and I believe our approach to EUR to AI.
Speaker Change: We're really focused on changing the heart.
Speaker Change: The business of our clients that focusing on business outcomes, rather than just coding faster is markedly different from what we see out there in the market and I believe we can help our clients and prospects to understand that and it's going to provide a competitive advantage and support long term client relationships.
Speaker Change: We will continue to deliver tangible and I believe groundbreaking solutions focus on providing real value in a strategic and architectural manner.
Speaker Change: Given that our approach and architecture is unique I think we have a tremendous long term opportunity and editor for growth.
That let me turn this over to Ken.
Ken: Thanks Alan.
Ken: It's fantastic to see our team.
Ken: Consistently deliver solid quarters of profitable growth for the third time. This year clearly we have momentum and we're executing very well.
Ken: Contract value grew 14% in constant currency and 16% as reported year over year, our ACB growth acceleration was powered by peg a cloud, which grew 26% year over year in constant currency peg. It cloud represents the vast majority of our net new ACB in the quarter and for the year.
Ken: Our team is selling Purger clouds, our primary offering which is pretty at a pretty significant change from our approach to several years ago overall, our ACB growth acceleration in Q3 was powered by the successful execution of our strategy as you may recall in 2023, we shifted our go to market strategy to focus on our target organization.
Ken: Model by minimizing distractions and having our sales teams laser focused on the right organizations, we have greatly improved.
Ken: Improved sales efficiency and effectiveness. This change coupled with our latest Gen. AI innovation has enabled us to significantly increase client engagement peg a journey I blueprint is having a profound impact on the way our sellers and partners engage with our clients and prospects around the world. It also enables us to <unk>.
Ken: And our addressable market with existing and new clients by helping them to modernize legacy systems that were not in scope before but are in scope now.
Ken: Last week for example, why tend to take a seventh annual government empowered conference in Washington D. C. It was great to see government agencies at the event like Social Security administration. The department of Justice, the IRS and Veterans Affairs. Each agency, it's using peg that to build modern platforms that will allow them to deliver more effectively on their missions.
Ken: With peg a journey I blueprint and our new fed ramp certification peg has never been in a better position to help government organizations transform employee and constituents experience.
We get asked all the time, what's the significance of AI and I will tell you that our conversations with clients have massively changed now we lead with AI, we talk with potential new logos and clients about our journey I blueprint innovation, it's going to help them rethink differently about digital transformation and accelerate those things.
Ken: We also talked with them about how we bring our best practices together with the best practices from the Internet in a way that creates productivity. We're starting to see early signs that our unique approach to Jenny is positively impacting deal closure rates reduce time to value increased expansion rate and improving our partner relationships.
Ken: Clarity that blueprint activity is translating into ACB growth acceleration and it provides us with a fantastic opportunity to accelerate peg a cloud migrations as well.
Speaker Change: Moving onto cash flow through the first three quarters of 2024, we nearly doubled the cash flow from operations and free cash flow, we generated $250 million of cash flow from operations and $246 million of free cash flow both record amounts for the first nine months of the year Q3, 2024 was our eighth consecutive quarter.
Speaker Change: Our positive free cash flow after completing our subscription transition my view is that free cash flow is really the true thing that matters in terms of creating shareholder value the amount of free cash flow the consistency of free cash flow and actually more importantly, the growth of free cash flow. So if you start there <unk>.
Speaker Change: I'll leave that premise then you go upstream from that what's the most important metric that is leading is the leading indicator to drive expanded cash flow. It's the amount of billings that you have with your clients and how fast those billings are growing that is annual contract value. So ACD represent subscription billings, which ties to cash.
Speaker Change: <unk>, which ties to free cash flow generation.
Speaker Change: Now that we've completed our subscription transition our free cash flow trajectory as I mentioned as well anchored and we have ample liquidity to pay off our convert debt is due in March also you'll likely notice that we started buying back shares.
Speaker Change: In Q3 and continue that activity through the end of the quarter spending about $12 million on share buybacks.
Speaker Change: Our board also increased the offer is authorized repurchase amount of an additional $250 million. We're evolving our rule of 40 mindset to deliver profitable growth increase free cash flow per share, which is the right strategic balance of capital allocation and key to delivering increased shareholder value over time.
Speaker Change: As I look forward, we are in a fantastic position and have an amazing opportunity to help our clients digitally transform our business and migrate to take our cloud you've heard US recently mentioned our commitment to dedicated leadership on peg of cloud adoption and that's why we named Frank <unk>, Our Chief Cloud officer in the third quarter as I explained during our investor session in June.
Speaker Change: We aspire to exceed $2 billion in ACB in the next few years today Peg a quad ACB is less than 50% of our total ACB that means there is a significant opportunity for us to accelerate peg a cloud.
Speaker Change: We received feedback from many of you.
Speaker Change: That is helpful. When I share some thoughts about modeling so I'm going to continue to do that first Q4 2023 was a very strong net new ACD quarter for us. So we do face a tougher compare in the final quarter of the year that said, we're still confident that we will finish the year strong and that's targeted in the past we.
Speaker Change: We'll be a rule of 40 company as we complete 2024 as a reminder, we define the rule of 40 is the combination of our ACB growth in our free cash flow margin adjusted for items, such as restructuring charges.
Speaker Change: Second we continue to experience success at moving clients to take our cloud is that trend gains momentum. We expect term license revenue and maintenance revenue to decline over time as that revenue moves to peg a cloud.
Speaker Change: We anticipate declines in maintenance and subscription revenue for the full year 2024 versus 2023 that said I want to remind everybody that the accounting for term license says, it's not as predictable as the accounting for a SaaS business. So there can be some variability in that in those numbers.
Speaker Change: As Youre modeling peg a cloud revenue I want to point out that there is typically a delay of a few quarters in between the time that net new peg a cloud ACB is added and when it translates into peg of cloud revenue.
Speaker Change: In conclusion, we're focused on closing the year strong we managed the business very well in 2024 with accelerating ACB growth and record free cash flow and cash flow from operations Im really happy with our teams performance I also want to congratulate our sales team for a great first nine months of 2020.
Speaker Change: And best of luck, finishing strong in the fourth quarter, specifically, our client facing teams around the world have done an amazing job with our go to market transformation.
Speaker Change: Clearly executing very well I'll also add that the energy as we as we entered Q4 is as high as it's been in Peg us for many years and with that operator. Please open the call for questions.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you would like to withdraw that question again press Star one and just as a reminder, we would like you to ask one question and a single follow up.
Speaker Change: Your first question comes from the line of Steve Enders with Citi. Please go ahead.
Steve Enders: Okay, great. Thanks for taking the questions. This morning.
Steve Enders: Yes, maybe just to start I want to ask on <unk>.
Steve Enders: The momentum that Youre seeing with Blue brands, and maybe what impact is that beginning to have on either ACB.
Steve Enders: Celebrations on ECB in this quarter or on the on the pipeline and maybe what that looks like for Q4 and into 'twenty fives.
Steve Enders: Yes, I think so.
Steve Enders: Blueprint is lifted all boats.
Steve Enders: Here's the way to describe it and I think it's done that because when clients here and internalize our allows them to think differently about their business.
Steve Enders: Even even if we were already talking to them. So they didn't get the advantages of blueprint early in the sales cycle.
Steve Enders: I think really helps conviction with peg as an organization Division Calgon has continued to grow with <unk>.
Steve Enders: Also began to show off another blueprint that we are going to be releasing around the end of the year for our decisioning capabilities, which are going to bring a lot of the same AI powered.
Steve Enders: Analytics to helping our customers do next best action, which as you know is a very very important part.
Steve Enders: All of our business. So I think blueprint is just changing the overall attitude.
Steve Enders: Has it.
Speaker Change: Sounds like if I can tease apart the pieces that are related to blueprint because it is so incredibly pervasive.
Speaker Change: Just generally engagements.
Speaker Change: Okay got you.
Speaker Change: Thats helpful.
Speaker Change: And then I guess, maybe just on the ACD acceleration that you are you are seeing here for I guess three quarters in a row now.
Speaker Change: But can you just maybe help us think about maybe what is helping.
Speaker Change: Helping to drive that acceleration like are there certain use cases or industries or geographies that are helping to support that and I guess secondarily, it and just maybe change how you.
Speaker Change: View that.
Speaker Change: I guess initial 11% annual guide that you've had for HCV growth for the year.
Speaker Change: Yeah. So.
Speaker Change: Steve This is Ken so couple of things one.
Ken: We are seeing accelerated ACB growth in every region. The U S EMEA and AP, Jay So I'll start there.
Ken: Not every vertical is accelerating at the same level, so that when you get into verticals and geographies naturally or reducing the sample size, so, but I would say across the globe.
Ken: Yes geographies are all growing they are all accelerating.
The second part of that is where are we getting a front, we're getting it from new logos that we're getting it from new workflows and we're getting it from existing clients increasing the volume of its really across the board. We've had net new logo growth in Q3, we had expansion of new workloads with existing clients, we had actually expansion of existing workloads with new clients.
Ken: Actually a little bit of the startups the migrations to take a cloud I mean, we're still very early in the migration, but we have had some so I think it's just been across the board new logos existing logos migrations and across the globe across the world. So I really couldnt point to just one thing and say its north American.
Ken: Healthcare, just making that up it's not something that that is not the dynamic which is incredibly encouraging which means that blueprint and the way we're engaged with our clients are universally driving acceleration in our business. When you get to look at the next two to five years, you say what might this do to change the business. This is a this is <unk>.
Ken: A transformational opportunity for peg to Reaccelerate, our business back up to levels that we haven't seen for probably three to five years right. So I think and there is no reason that even that those growth rates or something that could be a ceiling. We have to execute of course. So we have to and we are going we are going to be dependent on not only our existing clients, but actual.
Ken: Exploring new logos strategically in our target Org model, new logos, so great opportunity for us in terms of this year, which is the last part of your question.
Ken: Certainly the energy as I mentioned in Q4. Its high also that Q4 activity that we have is very high but also there's always a lot of work to do in Q4.
Ken: So I think that we were certainly feeling good about where we are but we're not in the habit of re guiding so I think we just get what we want to do is we want to beat our targets.
Ken: That's a fundamental DNA that we want to have but we've got to execute and we've got work to do in Q4 is by far the toughest compare of the year.
Ken: Q4 is always there is always a tough quarter and the last point I would make it any growth in any scenario, where our growth would exceed our model for 2024 and that is not that's not a re guide I'm just making this clarification, it's probably not likely to lead to any change in our cash flow modeling because the billings have a tour.
Ken: The end of the year would give us however upside for free cash flow next year in 2025, I just want to make that very clear so for anyone that's thinking about the relationship between the two with us.
Speaker Change: Okay, perfect that makes us that makes sense. Thanks for taking the questions here.
Speaker Change: Thanks, Nick.
Speaker Change: Your next question comes from the line of Jake Roberge with William Blair. Please go ahead.
Jake Roberge: Yes, thanks for taking my questions and great to see ACB growth continue to accelerate.
Jake Roberge: You all made the comment that Ginny I blueprint is expanding your Tam by bringing new applications into the scope of what you can address can you provide examples of that and is there any thought of pouring any gas or put a more go to market capacity behind those initiatives.
Speaker Change: So I think that.
Speaker Change: Big part of the example, I would give.
Speaker Change: Would be the idea of helping organizations replace some of your legacy systems.
Speaker Change: A different way historically, we used to talk about going into an organization.
Speaker Change: We're seeing the power of our peg a workflow with a power pack of decisioning to wrap and renew their existing systems.
Speaker Change: And yes that.
Speaker Change: Once again built a meaningful business, but what we've now realized with some of these new capabilities and with what AI can do we can more directly target the systems that our customers just want to kill.
All of these organizations, particularly as they try to move to the cloud and sometimes trying to as many as two thirds of their applications are incapable of being moved to the cloud and their coverage form they want to rethink what they are gone, but they don't really want to start over and Thats daunting, we couldnt use blueprint and we can use.
Speaker Change: Some of the new capabilities that we continue to add to be able to really target replacement in a way that moves the systems onto our cloud native platform moves them into a thoroughly modern architecture and that's in both go to the cloud, but also just runway more effectively.
Speaker Change: Unlock the data that's buried in some of these applications.
Speaker Change: They just can't get too so.
Speaker Change: I think that this legacy transformation approach.
Speaker Change: Is one that youre going to see us doubling down on as we enter next year and it is pretty exciting relative term.
Speaker Change: Ramping up investment.
Speaker Change: Kind of come to enjoy.
Speaker Change: The reality is generating cash and spending our money, perhaps more carefully than I might have done earlier in our career. So we're open to doing smart investments but.
Speaker Change: I'd really become.
Speaker Change: Become a believer that candidly, what we really focused on ourselves, we actually increased our growth rate.
Speaker Change: So we're going to be cautious about opening an office or two Broadway too fast.
Speaker Change: To be candid Theres big opportunity. This year, they are not going to go away in a year or three they're going to be here for quite some time.
Speaker Change: Yes, that's great to hear and then Alan it sounds like you've been on the road meeting with a lot of clients recently can you maybe just give us a pulse on the market is that excitement all around blueprint are you starting to see potentially more budget dollars actually flow into AI and automation as we as we get into potentially a more normalized budget environment.
Alan: Yeah. So the customers are really hungry for automation.
Speaker Change: There's a lot of confusion out there I mean, you only have to.
Speaker Change: Read the press releases of the players of these spaces to realize how much noise there continues to be.
Speaker Change: In these markets.
Speaker Change: With AI to better understand what your current applications are and then use AI to challenge a lot of the assumptions about how an app should be built and then to actually help execute that well.
Speaker Change: Our advantage that we talked a lot about blueprint, but the reality is as the blueprinting itself.
Speaker Change: It is not.
Speaker Change: Truly the core the core is the peg a architecture the model driven architecture that knows how to really automate with AI principles and with high levels of channel independence. The blueprint just happens to perfectly fit into so I think that a lot of confusion about AI still but boy.
Speaker Change: When customers see what we're able to do and when they put their hands on like I talked about how many customers are approaching this now.
We got a really positive reaction.
Speaker Change: Hey, Jake one one thing I'll add is just that just as sandy check for everybody here, we've got it we got it.
Speaker Change: A war in eastern Europe, that's been going on for two and a half years, we have a conflict in the middle East certainly doesn't look like it's going to end anytime in the next.
Speaker Change: Two months, we've got an election in 12 days that we still don't have inflation in check. So I do think there is still nervousness in the market that said you know I think that you know.
Speaker Change: Clients are committed to digital transformation, but I do think there are a lot of market events that are going to are going to cause clients to still be a little bit pivoted some of their bigger decisions and so just just that's just a sanity check on that there's a lot of stuff going on out there.
Speaker Change: Yeah, that's helpful well congrats again on the great results.
Jake Roberge: Thanks Jake.
Speaker Change: Your next question comes from the line of Rishi <unk> with RBC. Please go ahead.
Rishi <unk>: Wonderful. Thanks, so much for taking my questions and great to see continued momentum in the business.
Speaker Change: Maybe Alan I wanted to start with you you talked about.
Speaker Change: What youre doing on the adjunctive automation on Jeff with AI side can you help us understand maybe what separates.
Speaker Change: And what Youre doing that is truly a gentle AI, whether thats tackle use cases, and maybe have a separated from some other large players that have been messaging.
Speaker Change: Answer or ask a question and that's where we've married the.
Speaker Change: The objective world with the workflow world in a way that I think fits perfectly in I believe customers.
Speaker Change: R R.
Speaker Change: Seeing that.
Speaker Change: Quite a lot of the agents talk now too.
Speaker Change: Some of the early talk in AI in general where it candidly I think led to a lot of confusion, having said that we're all bought and we've had agents for years.
Speaker Change: Doing things like parsing and responding automatically to two emails to stimuli to working as a chatbot. We just don't want to build the organization around the assumption that there are humans in the loop, we want to build around the work itself. What are the products that are companies offering was the services, they're offering how do we <unk>.
Speaker Change: After those and workflows and then.
Speaker Change: Yes people would need to use the AI where needed user interfaces with it and that is exactly.
Speaker Change: Xactly, what the set of architectures, which I'm sure. Many have heard me talked about now for three years four years.
Speaker Change: Okay wonderful. Thanks, that's really helpful. And then maybe maybe for both Alan and Ken If we think about maybe the Q4 outlook now that we're a little bit.
Speaker Change: The transition to the quarter, how should we be thinking about the potential for budget flush so that Ken I know you outlined it was a tough comp Sean.
Speaker Change: Strong Q4 of last year.
Speaker Change: There are rumblings that Q4, a bunch of question issue could be even stronger.
Speaker Change: Some of those kind of earmarked AI dollars are put to work before year end can you maybe walk us through how we should be thinking about the potential for a Q4 budget flush from here. Thanks.
Speaker Change: Well so.
Speaker Change: Just one clarification there Rishi last year. The reason why Q4 was stronger for US is that we actually had a lot of our business activity that just kind of kind of delayed it slipped into the back end of the year and that didn't happen. This year. So just from a from the standpoint of peg.
Speaker Change: So I can see you don't.
Speaker Change: Terms are certainly in the last six eight weeks.
Speaker Change: We don't have a single sales Guy who can't do a blueprint with a client and we've gone from you know what.
Speaker Change: Sales person would try to have a bunch of meetings and then try to bring a solutions consultant then maybe the third or fourth meeting to do a client specific demo that whole engagement model is already meaningfully changed and then I'll do the demo and the first meeting.
Speaker Change: Almost always and it's client specific because that's what blueprint gives you the the.
Speaker Change: The effect this has on business as projects that were already underway. Some of them blueprint is coming in a little too late to really be able to help them. So the stuff that was going live in Q3, we'll see something meaningfully I think go live in Q4, and the first half of next year.
Speaker Change: Yeah.
Speaker Change: Yeah got it okay.
Speaker Change: So Ken maintenance ACB is declining.
Speaker Change: It is this year, which makes sense given the cloud trend, but I'm trying to understand how much of that is just because of mix shift to new bookings being cloud versus kind of one premise customers, making a concerted effort to migrate to cloud is that migration starting to take hold is that going to be even bigger piece in 2025.
Speaker Change: Yeah.
Speaker Change: Yes, so pendulum not much.
Speaker Change: Got some migrations, but not but not a not a material amounts of them when they will become bigger in 2025 and 26.
Speaker Change: So you're absolutely right their maintenance will continue to decline and probably at a steeper pace in terms of that maintenance decline, but then the maintenance decline that will happen at peg can happen in two ways. It could be that someone moves off of a historically moved off a perpetual license arrangement into.
Speaker Change: A term license arrangement, which means that the proportion of what they do the business that they do with peg it as less maintenance and another one it could be a migration to pick a cloud. So those are just just to clarify those are two ways maintenance could drop but there havent been you know we've got some momentum on migrations, we've had some through the year for sure but it's not.
Speaker Change: And then it was a waiting game to figure out where they landed in terms of the actual appeal. So I do think incrementally over the last few years things have gotten better from what was quite frankly very difficult time in 'twenty two because not only were clients hearing. It. There was you know quite a lot of marketing done around the actual verdict as well again.
Speaker Change: Peg out and so we you know we had to really fight some things on multiple fronts. There now that the appellate court has clearly pointed out what we have said since may 9th of 2022, which was this was really just a series of errors that actually caused this it's certainly made those conversations much better which made it easier for our sales team.
Speaker Change: Which make our sales teams to be able to spend more time selling so there certainly are.
Speaker Change: A wind there and in our favor.
Speaker Change: Okay.
Speaker Change: Great that's super helpful. Thank you.
Speaker Change: Yep.
Speaker Change: Your next question comes from the line of Dan Ives with Wedbush Securities. Please go ahead.
Speaker Change: Thanks, and a great great quarter.
Speaker Change: So you know from a partner perspective, Chris Stevens changes were more common to you in terms of looking to partner, especially as you kind of go into this next phase of cloud.
Speaker Change: Yeah.
Speaker Change: Oh, I think there's a lot of enthusiasm from the partners. We just had.
Speaker Change: A couple of partner meetings, and we do our partners.
Speaker Change: Very very interested in figuring out how they can leverage blueprint. We've we've actually had partners create I think the number is more than 70 now blueprint that we've loaded in for their use.
Speaker Change: There are private to them that they can use with their customers to try to convince them that they've got some good extra IP to be able to add into it and so that's actually very encouraging to see more than a dozen partners look more than 70 blueprints into our system.
Speaker Change: I think I'll say.
Speaker Change: Would you attribute to changes in the overall demand environment versus say they go to market changes that were made about a year or so ago.
Speaker Change: I would attribute that.
Speaker Change: Two things honestly and I don't think either of them or the demand environment I would say I wouldn't attribute it to our selling transformation that we made and quite frankly, Alan mentioned something that you know scarcity is a powerful tool to use for focus right in the fact that we actually really focused on driving.
Speaker Change: The right people on the right <unk> and the right level of density has really helped us a lot in the second one is quite frankly, you know I think the.
Speaker Change: I Wouldnt minimize the you know the.
Speaker Change: The impact of the appeal and helping us helping us with with a bunch of more positive engagement with our clients I mean, I think the reality is that was that certainly was not hurtful right for the appeal to actually get reversed, but I think it's largely the targeted work transformation Mark I think the market is pretty much the same as what it was a year ago. Yeah honestly I also think that.
Speaker Change: The product portfolio, we have.
Speaker Change: You know what.
Speaker Change: I think of.
Speaker Change: What we've been able to put together in the last 12 to 18 months.
Speaker Change: Oh I think it is.
Speaker Change: Candidly, just more appealing and more effective.
Speaker Change: You know gaining the interest of our clients. So yeah I would agree it's not the demand environment, which I think still.
Speaker Change: A lot of dour outlooks out there.
Speaker Change: Great. Thank you and then.
As a follow up.
Speaker Change: September September quarter is typically a strong federal period for the company I was wondering if you could just talk about how the federal business performed this quarter.
Speaker Change: And maybe just a little bit on the impact of the new fed Rob Hi.
Speaker Change: The impact that's having on your business. So so fed ramp high what.
Speaker Change: It wouldn't have impacted our business at all because that takes that requires pipe pipeline time to build up.
Speaker Change: And I think that's gonna open up lots of new opportunities.
Speaker Change: That's what we're chasing with all of that so I think we're really quite advantage when it comes to and AI and an overall transformation story.
Speaker Change: Awesome. Thank you.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen that does conclude our question and answer session and now I will turn the call back over to Alan at Trexler for closing comments.
Speaker Change: Well. Thank you everybody for listening, we're very excited about where we are and what we see going on.
I think it's going to be an interesting end of year and we're going to work to set ourselves up for a terrific 45. Thank you very much everyone.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.