Q1 2025 Pegasystems Inc Earnings Call
Krista: Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time I would like to welcome everyone to Pegasystems first quarter 2025 earnings conference call.
Krista: All Lions have been placed on mute to prevent any background noise. [inaudible]
Speaker Change: After this speaker's 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 your question, simply press star one again. Thank you.
Speaker Change: I would now like to turn the conference over to Peter Welburn, Vice President of Corporate Development and Investor Relations. Peter, you may begin.
Peter Welburn: Thank you, Christa. Good morning, everyone, and welcome to Pegasystems Q1 2025 earnings call. Before we begin, I would like to read our safe hardware statement.
Peter Welburn: Certain statements contained in this presentation may be construed as forward-looking statements asked to find in the private security litigation reform act of 1995.
Peter Welburn: The words expects, anticipates, intense plans, believes, will, could, should estimates, may, forecast, and guidance or variations of such words and other similar expressions identify forward-looking statements which speak only as of the data statement was made and are based on current expectations and assumptions [inaudible]
Peter Welburn: Because such statements deal with future events there are subject to various risks and uncertainties actual results for fiscal year 2025 and beyond could differ materially from the company's current expectations
Peter Welburn: 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 Q-1 2025 results.
Peter Welburn: and in the company's filings with the Securities and Exchange Commission, including its annual report on Form 10K for the year ending December 31st, 2024, and in other recent filings with the Securities and Exchange Commission.
Peter Welburn: Investors of caution not to place undue reliance on Judge Ford-looking statements, and there are no assurances that the matters contained in such statements will be achieved
Peter Welburn: Although subsequent events may cause our view to change, acceptance required by law, we did not undertake them specifically to claim any obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future results or otherwise.
Peter Welburn: Our non-GAAP financial measures discussed in this call should only be considered in conjunction with our consolidated financial statements prepared in accordance with GAAP.
Peter Welburn: They are not a substitute for financial measures prepared under US gap. [inaudible]
Speaker Change: Constant currency measures are calculated by applying the March 31st, 2024 for an exchange rate style period shown. Reconciliation of gap and non-GAAP measures can be found in the company's press release announcing its Q1 2025 results. And with that, I turn the call over to Alan Treffler, founder and CEO , Pegasystems.
Alan Trefler: Thank you, Peter, and thank you to everyone on today's call. It's great to be off to such a strong start in 2025 and to see how the changes we made continue to drive profitable growth around the world and across industries.
Speaker Change: Campbell walked you through the financial highlights in a few minutes, but let me talk a little bit about having been on the road into one and having met with clients, partners in Europe , Asia, and the US.
Speaker Change: Now more than ever, we're seeing that organizations want to accelerate digital and legacy transformation to be more efficient and effective in serving their staff and customers.
Speaker Change: And they also, I think, are really looking for help, kind of through that hype that exists and keeps getting deeper, frankly, about how to go about implementing the newest AI technologies with additional risk.
Speaker Change: We're finding that they're really interested in solutions that give them practical approaches and proven capabilities with predictability and governance, but that can help them achieve the critical objectives that they have.
Speaker Change: And I believe Peg is perfectly positioned to be the strategic software partner for clients who are serious about driving the transformation they need to compete with [inaudible]
Speaker Change: Our team has never been more confident, more capable, more prepared to meet the needs and seize this opportunity to help our clients achieve their digital and legacy transformations . . .
Speaker Change: Now, over the past year, Pegg Jenai Gouprent has been front and center in pretty much every client conversation we have, providing a differentiating hands-on experience that quickly and dramatically demonstrates the power better.
Speaker Change: Blueprint is, in fact, an agent that uses the power of AI to take advantage of proven best practices and our clients and partners' knowledge to make it easy for business and IT to collaboratively design enterprise workflow applications in the midst.
Speaker Change: It supersedes the slow, failure-prone, traditional app design process, but it's not just faster, it's better, it uses the AI to stimulate design thinking [inaudible]
Speaker Change: and to trigger a whole better way to go at building and rebuilding systems. [inaudible]
Speaker Change: It creates a sheer understanding of the application design, a faster path to value, and apps that are built for change, not just for launch.
Speaker Change: Pagaboodford gives our clients a differentiated approach. It doesn't generate code, it generates clarity.
Speaker Change: It's not just faster, it's sustainable, and that is a game changer [inaudible]
Speaker Change: This powerful tool enables our teams to effectively demonstrate real use cases and showcase Pegas' fault capabilities. It makes the case for transformation.
Speaker Change: Clear than ever. And we're seeing our partners really become really interested in engaging around Blueprint, and I think we're going to be seeing them adopting Blueprint as a powerful tool that they can use.
Speaker Change: to showcase more and more of their own IP and to leverage with clients. Now remember you didn't experience the magic of Blueprint for yourself by going to Pegger.com slice Blueprint. We continue to add new functionality and delivering increased value to our clients, partners, and our field. For example,
Users can now upload documents directly to Blueprint.
Speaker Change: such as specifications, requirements, docs, or even application documentation for legacy systems that the customer wants to retire. [inaudible]
Speaker Change: And this new feature makes it easier than ever for clients to tackle technical debt. We think they're legacy systems and begin the process of replacing them to transform the future.
Speaker Change: We've also made it, so workflows designed in Blueprint are inherently agentive. Now, agentive is a term we're hearing a lot, it's kind of a new term, let me explain what it means because I think we've got a really, really interesting approach to this. [inaudible]
Speaker Change: Users can interact with Blueprint workflows or even chat with them in phone calls, even literally make a phone call to either workflows and ask them to do things for you, like create a new account or fix a bad charge on your statement.
Speaker Change: Now, workflows built in Lutheran can use agents at any step to automate document processing or perform additional research, all under the governance.
and Workless Provide.
Speaker Change: And the response to these innovations has been overwhelmingly positive and it's exciting to see the momentum bill reflected in the increasing number of blueprints that get created.
Speaker Change: We're now seeing over 1,000 new blueprints created every week. Wouldn't double what we saw just months ago.
Speaker Change: In response to this interest, this past quarter, we introduced two new versions of flavor to Bloomberg.
Speaker Change: For Government Clients, we introduce Blueprint for Government Efficiency Toolkit, a Jenny I offering that helps public sector agencies accelerate digital transformation and increase efficiency, while remaining compliant with standards.
Speaker Change: And as a reminder, for over a decade, we've also offered a really important product called Customer Decision Up.
Speaker Change: or CD-H for sort, which is a significant part of our business, a forced or sad quote.
Set the gold standard for enterprise real-time interaction managed with different mutations
Speaker Change: CDH is our always on centralized brain that uses statistical AI and predictive analytics to enable personalized interactions
Speaker Change: And we still believe statistical AI is very important and is perfectly, perfectly complementing our use of generative AI. We think having both of those in our bag gives our clients and us some huge advantages.
Speaker Change: And now that we're beginning to roll out a blueprint aimed at CDH, it's going to really help our customer visualize their customer journeys and quickly design engagement programs with speed and clarity.
Speaker Change: So, let's go back to that agentic work and talk a little bit about our perspective on ages.
Speaker Change: Now the promise of agents is potentially enormously transformative. The notion that these concepts of agent and the Genetic, but the system is doing things for you is, whoop!
Speaker Change: It sounds and looks magical and they become ubiquitous bunch of buzzwords and vendors are flooding the market.
with thousands of undifferentiated solutions.
Now, our designs.
Speaker Change: are really quite different than I think reflect a unique understanding and leverage of unique capability that we've developed over years. And we've taken the start with a different approach because we think it's going to give us and our clients a competitive advantage. [inaudible]
Speaker Change: The fundamental flaw in most aggentic solutions lies in the independence on France.
Speaker Change: Free text instructions, give it to AI models that can require extensive five-duty, sometimes by armies of specialized front engineers, but the problem with this is not the effort.
Speaker Change: The problem is that this approach creates inherent unpredictability, making it impossible to guarantee consistent results, especially in an enterprise scale.
Speaker Change: For mission critical processes like insurance claims or business critical decision, the lack of predictability presents an unacceptable risk.
Speaker Change: And as a fundamental challenge for the many enterprises trying to manage thousands of mission-critical agents as they map their future on.
Speaker Change: Now, enterprises want the promise and power of automation that agents could offer, but we don't think they want thousands of agents running unchecked, producing unreliable, undesirable results [inaudible]
Speaker Change: They need an agent to work every possible follow a consistent process with full transparency on how a guy has worked out.
Speaker Change: and this is where our unique approach comes in, combining the power of language model driven ages.
with the predictability of worthless.
With our latest enhancements of Blueford and Dougan Synodic [inaudible]
All of the enterprise workflows are intrinsically agentic. [inaudible]
both in the creation and the execution. . .
This means the workflows are designed by AI agents. [inaudible]
Speaker Change: who challenged the users to optimize them, who used that reasoning power to figure out the best way to do something.
Speaker Change: And this can suggest new and better ways of getting work done, which is powerful and profound.
Speaker Change: They work collaborative with the business people and IT to perfect the best way for an organization to work.
But incorporating this reasoning is the side time.
Provide this advantage without this exposure. [inaudible]
Speaker Change: by spontaneously doing reasoning at runtime, when the end users are actually using the application, and this is precisely what we build with Pegger Janai, but so what food is designed and importantly approved by humans? It is catalogued! [inaudible]
Speaker Change: and prepared for use at the right time. And when an agent is about to run time, Pega leverages language models to directly find and send requests to the right workflow. [inaudible]
Speaker Change: Leveraging the design and approved workflows, but providing the flexibility and fluidity of a conversational approach and having the system be able to kick off multiple workflows as well. The workflows become the knowledge base.
Speaker Change: Helping the system gather the right information and take the right action [inaudible]
Speaker Change: You can now experience this bright and blueprint, and as I said, it's literally getting better every two weeks.
Speaker Change: You can design an application with many specific workflows and in preview, use a conversational agent to chat with that whole application .
Speaker Change: Have the application find the right work level he's trying to do, and it's beautifully interactive.
Speaker Change: This means enterprises can harness the power of agents while maintaining the predictability of workloads.
Speaker Change: The best of both worlds, and it's in stark contrast to what our competitors are offered, which are agents that are black boxes of dust, text, and we don't think it will rely on to follow processes that govern large or regulated businesses. [inaudible]
Out.
This capability is unique to backup. [inaudible]
because of our extensive workflow evidence. [inaudible]
Speaker Change: And we don't think it can be easily replicated. That's why I believe we're perfectly positioned.
Speaker Change: to take advantage of a gentic AI, but do it in a way that is going to have a higher level of quality and reliability. You can see more about these exciting innovations.
Speaker Change: Leading up to, and asked Pagolope, so as we enter this era of a tentacle or plus.
Alan Trefler: Think of Pega as position to lead this transformation with our clients and our partners [inaudible]
Alan Trefler: Let me say a few things about Pegaworld as well. At Pegaworld starting on June 1st, you can experience all these innovations firsthand and explore over 200 live product demos in our 100,000 square foot innovation app.
Alan Trefler: This will really show you what the possibilities are as well as the people are really, really doing.
Alan Trefler: Enders with great clients talking, just that there's mention a few robber bank will be describing how they're empowering employees to serve customers in society while keeping criminals outside of the financial system [inaudible]
Unilever
Alan Trefler: We'll be discussing how they transformed distributor onboarding and unlocked vast efficiency gains
Speaker Change: and Verizon will explain how they're financing the combined power of generative AI, intelligent case management, and hyper-personalization. I hope you'll join us for this unmistakable event, including our investor day.
Ken will provide information about how to register [inaudible]
Speaker Change: So to wrap up, we're off to a great start in 2025. The changes we made to our business are delivering for us financially and organizationally.
Speaker Change: A unique architecture and approach to AI gives us what we see as a major competitive advantage.
and across the board.
Speaker Change: that he was excited and more confident than ever to deliver for the company, our clients, our partners, and our investors.
Speaker Change: To provide more color on financial results, I will now turn it over to you
Thanks, Alan [inaudible]
Kevin: We're off to an amazing start in 2025. The first quarter was outstanding on nearly every measure, with our most important metric, annual contract value adding 74 million.
Kevin: Strong leadership and excellent execution by our sales teams worldwide driven by enthusiasm for Pega Genai Blueprint sparked an acceleration in the ACV growth to over 13% year-over-year
Kevin: Package NAI Blueprints is changing the way Pegate teaches with our clients, partners, and prospects around the world. It's also giving our sales teams a new level of confidence by enabling them to visually showcase
Kevin: The power and capabilities of Pegas unique platform within minutes, rather than weeks or months because Blueprint makes it so fast and easy to demonstrate Pegas. That's a massive difference.
Kevin: In our investor session, in June 2024, we set a strategic growth target of 20% or higher for peg-a-cloud ECB.
Kevin: Accomplishing this goal is critical because our transformation strategy calls for Pegat Cloud ACV to expand in the coming years. As Pegat Cloud becomes a larger and larger portion of Total ACV, there's also an opportunity for us to blend off our ACV growth rate.
especially given our high client retention rates. [inaudible]
Kevin: Only 50 million when we started this subscription transition jury in late 2017. And now Pegacloud represents approximately half of our total ACB. So we're on the right trajectory to becoming an even more durable and predictable business. [inaudible]
Kevin: Moving to free cash flow, we deliver 202 million of free cash flow in the first quarter, an amazing result given that we generated additionally 201 million of free cash flow for the entire year of 2023.
Kevin: We dramatically improved our free cash flow generation for two primary reasons. First, we're increasing ACV growth, which drives collections and therefore drives cash generation.
Kevin: ACV, a proxy for subscription billings increased by over 170 million Euro per year in constant currency from the first quarter of 2024 to the first quarter of 2025. Higher ACV and expanded billings in turn will drive accelerated cash flow performance.
Kevin: Second, we're efficiently managing the business which is translated to stronger cash flow. Our robust cash flow allows us to optimize capital allocation and deepen the power of our platform.
Share repurchases.
Kevin: are becoming an increasingly key element of our efforts to optimize capital. In the first quarter, we were repurchased approximately 1.5 million of our shares for $120 million.
Kevin: Much more than offsetting Q1 dilution. In fact, we reduced the number of outstanding shares by nearly 550,000 shares in the first quarter.
Kevin: Given our confidence in Pegas' future and the value we see in our stock, our board has authorized an additional $500 million for share repurchases. Our repurchase program gives us flexibility to return free cash flow to shareholders while maintaining a very healthy balance sheet.
Kevin: We fully repaid our remaining convertible note balances of $468 million and $1 million.
Kevin: Achieving debt-free, achieving the debt-free status marks an important achievement and represents a significant milestone in our transmission journey.
Kevin: The Capitol Race through these convertible notes was instrumental in funding our subscription model transition and helped us on our rule of 40 journey
Kevin: Achieving the Rule of 40 required a deep cultural change and significant effort from all of our team members around the world. We clearly have Rule of 40 in our DNA. Thank you to everyone at Peg up for embracing a Rule of 40 mindset.
Kevin: Our Q1 results demonstrate the various strategies we're employing to increase free cash flow for share Going forward, we believe that growing free cash flow for share will drive meaningful value for our shareholders With increased free cash flow generation, we have additional capacity to return capital through buybacks [inaudible]
Kevin: We plan to share more information at our investor session which will be held at Pegaworld at the MGM Grand Hotel in Las Vegas on Monday, June 2nd at noon.
To register, please email Pegatinvestorrelations at pegga.com
Kevin: I've received feedback over the years that it's helpful when I share some thoughts on modeling, so I'll do that again.
Kevin: While Q1 was exceptionally strong, we are only one quarter in the year, and as usual, we have lots of work throughout the remainder of 2025. We believe revenue and free cash flow will continue to follow seasonality patterns.
Kevin: which means we expect our term license revenue and free cash flow to be stronger in Q1 and Q4 of 2025.
Kevin: Please keep in mind currency fluctuations may create noise in the next few quarters, especially in the revenue line items of our PIDL. For example, we mention
Kevin: At the end of the year of 2024 that we had some currency impact to peg-a-cloud backlog and you're seeing some of that flow in to peg-a-cloud revenue in 2025.
Kevin: We started our subscription transition with the vision of transforming peg up into a more durable, recurring subscription business that balanced revenue and profitability as a rule 40 company
Kevin: Now that we've finished our subscription transition and achieved the rule of 40, we're in a great position to continue to improve our profitability while attempting to drive higher growth [inaudible]
Kevin: In conclusion, we exceeded our expectations. It feels amazing to be in this position and to execute the way that we did. As I've always said, one quarter does not make a trend and we still have...
Kevin: Work to do in 2025, but it sure does feel great to start the year this way. And with that operator, please open the line for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: And if you'd like to withdraw that question, again, press star 1. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please re-q .
Speaker Change: And your first question comes from Raimo Lenschow with Mark Lease. Please go ahead.
Speaker Change: He congrats for me as well, that's an amazing first quarter, especially in this environment, and the one quick question, if you looked, there was a big outperformance on term licenses.
Speaker Change: Can you speak a little bit about the factors here and the one question I got from investors was like
Speaker Change: Very, very strong ACV bookings on Pigger Cloud as well. Pigger Cloud Revenue came in slightly lower. Can you talk about the difference there? I would expect this currency, but maybe can you elaborate on that a little bit? Thank you.
Speaker Change: Yes, absolutely. So you're absolutely right. I mean, you know us well that we try to, we try to really explain that revenue does move around because of the term license revenue. Some quarters you have, term license revenue like we have in Q1, other quarters you don't have as much term license revenue. So it is the unfortunate accounting for ASD 606. So we just like to clarify with, you know, and you, I think you're leaning, your question leans into this point, which is, [inaudible]
Speaker Change: You shouldn't expect the term revenue as being something that is kind of linear and consistent, lots of seasonality there, so you absolutely could call out on that. The second point that you're on, which is ACV and backlog
Speaker Change: ACV and Backlog and Revenue will be aligned for something like peg-and-plow. However, it doesn't happen in a sequential nature like immediately the next quarter. We've kind of highlighted that it typically takes a few quarters. The next quarter will be the next quarter.
Speaker Change: for the backlog in ACV to convert into revenue. So some of it is that just that normal lag in the way that the revenue flows through our model. But
Speaker Change: We also did have a currency impact that rolled over from last year as well into pegad cloud and quite frankly, you know, we're not going to guess what that will be in the future because naturally currency rates move around. But I think there is, it is a very important call out to say that ACB does not immediately flow into pegad cloud revenue to the subsequent quarter, it takes a few quarters. And so that's what's happening in our model. [inaudible]
Luffy, very clear. Thank you, congrats.
Speaker Change: Your next question comes from the line of Pinjalim Bora with JP Morgan. Please go ahead.
Pendulin Borah: Oh, great. Thank you for taking the questions and congrats on the quarter. Alan Arken, I think everybody is trying to figure out kind of the macro environment post-march. Maybe talk about what are you hearing from customers.
Pendulin Borah: in April and Q1 so far. How are they kind of bracing some of the macro uncertainties? Have you seen any changes in customer buying behavior in April ? Or are you seeing any changes in the sales cycle? Any color would be helpful.
Pendulin Borah: Well, I don't be with April in particular, I mean, the last couple of months. [inaudible]
Pendulin Borah: There's been a higher level of uncertainty and anxiety that comes along with that. And that's I think especially true in some of the European countries where
Pendulin Borah: So what's going on? I think it's been taken almost a bit personally as it were. The level of engagement with customers across the board continues to be extremely high. And you know, we as a company tend to do pretty well in things like that. [inaudible]
Yeah, I see. Okay.
Pendulin Borah: and then can obviously the ACV results are pretty solid. You probably added one of the highest sequential ACV ever in the company's history for Q1.
Speaker Change: But that follows a Q4 when the ACV added was a little bit of a low bar for Q4 so wondering how much of the ACV out performance is kind of based on timing of deals from Q4 to Q1, or did you see any kind of a pull in from Q2 or rest of the year?
Speaker Change: Yeah, I mean, that's a, I think that's a first off. I think that's a very fair question to say the deals flow from Q4 to Q1, or conversely did you pull deals in from the future? If you look at the deal structuring Q1, I can credibly say that there was not a role over effect from Q4, then there was not what we would consider to be a pull in effect from... [inaudible]
Speaker Change: Future quarters. I think we were set up at the end of the year with our pike to be able to really have a good Q1, but to be honest with you, we did better in Q1 than I had initially thought we would do. So Q1 was just a very good execution quarter.
God, thank you so much.
Speaker Change: Your next question comes from the line of Steve Enders with City, please go ahead.
Steve Enders: Was there, I guess, what was the maybe quarter quarter effects impact on ACV or is there a way to think about what the, you know, cost and currency like net new ACV growth was and for one kill. .
Speaker Change: We would have done Concentre Currency that that ad would have been in the kind of low sixties [inaudible]
Okay, perfect. All right, that's... [inaudible]
Speaker Change: Yeah, that's very, very helpful there. And then just in terms of it seems like, you know, macro seems like it's okay, but I guess when you're thinking about the future pipeline dynamics and, you know, maybe kind of building off of the pendulum's question as well of just, you know,
Speaker Change: With the uncertainty going on, have you seen any kind of change in? [inaudible]
Speaker Change: I'll customers are talking about their kind of future deal flow with you or, you know, is it been any pauses and I know there is some federal exposure there so I guess what impact is maybe, you know, the do's conversations had on add specifically within the federal side of the business. Thank you very much.
Speaker Change: I'll maybe start and then I'll let Alan add some color on.
We...
There's always-
Speaker Change: I would say when you have times of uncertainty, you know, it's not, I don't think I'm saying anything that's rocket science that clients, you know, have to rethink their priorities and their initiatives and that happens in the commercial sector as well as public sectors. What we have found is that legacy transformation and digital transformation is at the top of everyone's list. And Gen AI fits squarely into that camp. So we have seen continued momentum.
Speaker Change: around the way that we solve and help our clients solve problems. Naturally, when spending environments change, everybody will be impacted to some extent, but we have not seen, you know, the level of anxiety around the solutions that we're providing for our clients. We actually think in many ways.
Speaker Change: that, you know, as an example, the Doge situation, one of the primary initiatives around that, around Doge is to...
Speaker Change: is to streamline and modernize lots of the technology that the federal government has that is very old.
Speaker Change: And so that's it squarely into what we can do. So I do think this is a great opportunity time for us. And you will see the natural anxiety, but I don't think that it's, you know, I don't think it's, it's, I don't think what we're doing with our clients are things that people want to wait, you know, on. I think they're already behind. And so that's what we're going to do.
Speaker Change: Yeah, I would say relative to some of the those initiatives. You know, Peg got years ago, began moving our customers off of user-based licenses.
Speaker Change: which I think has been one of the targets that they have been going after to basically work-based licenses which it's really well with the idea of automation and getting work done.
Speaker Change: The number of users is going to go down if systems like ours did what they were supposed to do. So we really didn't want to be linked to that. So that's been something we've done very much across the board here. And I think it really is.
Ken: It's well, there is a lot of uncertainty, you know, people don't know a lot of changes in terms of the leadership. I'm hoping it will settle down over the next couple of months or quarters, because that would definitely make it easier to work with. But as Ken said, I think this...
Ken: As much opportunity as there is risk here, and so we just need to really, really work here [inaudible]
Ken: Effectively, you know, being able to point to workflows as stuff that can really show customers' improvements in their business is a wonderfully reliable thing.
To be able to show quite...
Ken: And the fact that we can use the AI the way we can to create them scale, and then use the AI to find the best one and operate it is almost like the perfect.
Ken: Make sure of what you do as a language model and what you want to do as a workflow that's really known.
Ken: Nail Down and Auditable. And so we think we've got a message here that people are really understanding, and we'll continue to see.
So, we'll link that please don't forget that
Speaker Change: Okay, awesome, those great two great to hear and thanks for taking the questions.
Thank you.
Speaker Change: Your next question comes from the line of Patrick Walravens with city citizens, JMP, please go ahead
Oh great, can you guys hear me?
Yeah, we can do it that way
Speaker Change: All right, perfect. Congratulations, first of all, it's great to see. Alan, I would love you to go a little deeper on the topic that you mentioned your prepared remarks, where you were talking about how noisy it is out there with so many different vendors, claiming to have...
Speaker Change: Agenic types of solutions. So can you talk a little bit more about what you're seeing there? How hard is it to cut through that noise? And then maybe specifically, you know, in terms of solutions, you see from Salesforce and Microsoft, what do you think?
Speaker Change: Look, I think customers have been subject to lots of AI hype for a couple of years now, and so the level of bub [inaudible]
Speaker Change: Oh, really? Skepticism? I think it's pretty high in the customer base that we deal with, happens to pretty sophisticated customer base. I believe we can explain to them.
Speaker Change: Pretty clearly, why a mix of language models and workflows is the ideal combination?
Speaker Change: And, you know, the reality is, when we build, you know, blue print people talk about blue print like a skew, it's really not a skew, it's really a whole new way.
Speaker Change: I'm doing what we've been doing all along and it really builds on all of this.
Speaker Change: We had, and that's why I think we've been able to come a lot, you know, relatively short period of time, and I really love the runway of where this is going to go in this, quote, agentic world, unquote, but look, the buzz world, the height, it's
Speaker Change: and the disappointment. I think it's going to be huge out in the market. Just huge. You know, all these people do it prompt engineering, quote, thousands of prompts, unquote, how the hell you're going to test that when the language model changes? [inaudible]
His language model is changing a couple times a year.
You've got a business running off of pranks? [inaudible]
Speaker Change: The Language Monitor, does he get a new version? What's he going to do? [inaudible]
Speaker Change: I know exactly what we do, you know, we're running an execution time to work for us, but I don't know what these other guys are going to do [inaudible]
Speaker Change: All right, that's great. Peter, can I just ask you a follow-up, which is, you know, investors are so worried about the impact on closing rates and you guys sound good and SAT sounded good last night.
Speaker Change: Are you you're just saying why are software companies having? [inaudible]
Speaker Change: Yeah, no, you don't sound bad at all, right? And SAP sounded pretty good. And so yeah, I'm just looking at, you know, you can see from all the stocks how worried we all are. So it's just interesting that maybe it's not quite as bad out there, I don't know.
Speaker Change: Any thoughts you have on that? Yeah, no, that's a...so I...so I...
Speaker Change: I'll give you, I can tell you two things. One, what we're seeing. [inaudible]
Speaker Change: and I can also tell you an observation that I have. So, what we're seeing is the clients are still engaging and very much trying to modernize digitize through the cloud, leverage Gen AI, figure out how to ways to drive efficiency and better client experience. That has not changed. Quickly, I didn't see that change at all in the last...
You know, three months. So from that standpoint, there's a lot, there's a lot of opportunity.
Speaker Change: What I would say on the point that you're making about very results that you're hearing from different vendors...
Speaker Change: There's that some people, some companies businesses are just not doing as well from time to time and sometimes...
People use the macro as the reason why that's happening
Speaker Change: And I think there's a little bit of that going on. I think that you may have seen the same results in a neutral macro environment or a good macro environment or a bad one, but I think sometimes companies point to that as the reason why they don't execute. And I think there's a little bit of that going on, but I think there's a little bit of that going on.
Speaker Change: And so I think there's a little bit of that going on Pat. I would definitely say what Alan said is that, of course, the environment is less certain now. I mean, you have to watch the news every morning to figure out what's going to happen when the futures move 500 up or down day to day. That's not, that's not great. Volvo environments aren't great. That said, we've seen our clients continuing to lean in on the problems that we saw with them. We've seen our clients continuing to lean on the problems that we saw with them. We've seen our clients continuing to lean on the problems that we saw with them.
Okay, great. Thank you both. Yeah Thank you.
Speaker Change: Another reminder, if you would like to ask a question, please press star one. Your next question comes from Devin Au with Keybank. Please go ahead.
Devin O.: All right, good morning, thanks for taking my question. First one I have is I also want to date
Speaker Change: A little bit deeper into the strong ACB results in the quarter, but maybe want to ask it through a lens of blueprint. I know the last quarter you guys mentioned.
Speaker Change: hundreds of millions of pipeline was driven by blue pins, some kind of curious if you can share any more color on that, you know, it would be...
Speaker Change: You know, great to hear if you have any updates to share regarding what Blueprint has influence deals wise in the quarter.
Speaker Change: Yeah, I would tell you that every single piece of business will write in its influence by the press.
Speaker Change: That, every single one, it's, you know, it's become your big one, I think it's wonderful because it really broke down
Speaker Change: Some of the the boundaries between you know business and technical people it really gets people on the same page and if you haven't tried it
Speaker Change: Anybody who is on the call, I recommend you give it a shot. I think it's really very pragmatic, but in a bit of a use of air.
Speaker Change: is what I would say. So yeah, I think blueprint is profoundly changed our business. And with the new capabilities we're adding to it, we're expecting that that's going to continue and it's dead. Thank you very much.
Speaker Change: Todd, okay, that's helpful. And then just one quick one on backlog. I think you just posted backlog growth of 21% quite a meaningful step up from the 14% and 4Q.
Speaker Change: Peter, or can curious if you have any additional commentary on what drove that strong acceleration? I think we've seen contact durations change one way or the other, any color that would be helpful. Thank you.
Yeah, so I would advise to pay...
More attention! [inaudible]
Speaker Change: with the ACV growth, and I think that's a really, in terms of thinking about the growth of the business, the total RTO does move a little depending on multi-year clout peg and clout renewal cycles which can, and you can kind of see that kind of in the laddering. We do, we have a pretty robust disclosure and you can kind of see that in some of the laddering. So I would say if you look at backlog, backlog is a healthy indicator, you can see that there's a lot of work going on in the laddering. So I would say that there's a lot of work going on in the laddering, and I would say that there's a lot of work going on in the laddering.
Speaker Change: of the clients making, you know, long-term commitments to us. We love that. Current RPO is very aligned with the kind of the ACV growth in the business.
Speaker Change: We got it. Thank you for taking my questions and congrats on the strong start of the year.
Thank you [inaudible]
Speaker Change: Your next question comes from the line of Mark Schappel with Loop Capital. Please go ahead.
Mark Chappell: Hi, thank you for taking my question and a nice job on the quarter. Can with respect to the upside in the quarter, how much of that would you attribute to the sales changes that have been put in place over the past year to versus say, you know, new product introductions like BluPrint? [inaudible]
Um...
Speaker Change: It's tough to like separate that, but what I would say is Mark that...
Our sales model changes that we made have yielded. [inaudible]
really
Speaker Change: Good behaviors, like the behavior of how our sales teams are managing, how we're managing pipe, how we're engaging, I'm really very very
Speaker Change: Pleased with the activity in the progress. Naturally, we can get better, we will get better and we will push, but I do think there's been a noticeable change in that in our process.
Speaker Change: And then you shift from that and say, how much does Blueprint play into that? [inaudible]
Speaker Change: How Pagot can help, and this helped quite visualize how Pagot can help
Saul, their digital and lengthy transformation challenges.
Speaker Change: I mean it's just you know without with you try to walk through like well let me explain what it is let's do an operation to walk through can we actually get a few weeks to do discovery with you we'll go build a demo come back and show you that demo I mean that's a that's the way our process wasn't that's
Speaker Change: Very time and labor intensive on us and the client, and I think that that's where Blue Princess really just changed the game for us because...
Are we that we have? [inaudible]
Speaker Change: You know, scores of examples for our salespeople say, I went in with a blueprint I showed the client immediately jumped to the second level, the third level, the fourth level discussion in a way that just could never have happened without it. And that, that's any, those are separate things, but I think both equally impactful to Q1. Thank you very much.
Speaker Change: I would say one additional thing, which is I'm a product guy, so I probably have a strong bias towards saying that the product is what matters, but in reality these are products that have to be solved.
Speaker Change: And what I will tell you that I'm really pleased about that we saw it in Q1, is that we didn't have it
The business wasn't driven by whales.
You know, you know, you used to talk about getting a whale from the poor person, so...
Speaker Change: It would really be tied to sometimes just a deal or three, you know, in terms of making whether it was a good quarter or a mediocre quarter. And, you know, they show up the next quarter sometimes, right? So, you know, but what's happened, I think, is the sales force has gotten tremendously more disciplined about really working the business.
Speaker Change: And I think this quarter that just showed up in a very, very broad, strong performance.
Speaker Change: which, by the way I love it, it makes the last weeks of the quarter a lot more relaxing. [inaudible]
Speaker Change: Great, that's helpful. One other question, Ken, with respect to the rule of 40 targets, what are your thoughts with respect to the mix between ACV growth and pre-cashable margins going forward here, given the other result you don't want?
Speaker Change: We're not adjusting our guidance for the year. Our model has really been that we believe we can accelerate growth.
Speaker Change: and still get operating leverage through the system. So I think there's an opportunity for us to both accelerate growth and expand free cash flow margin.
Speaker Change: Certainly, if our growth does not accelerate, pre-tashable margins will expand. So I mean, I think we are very optimistic on that. I think that, um...
Weep
We have a...
The really, the really difficult, you know?
Speaker Change: Strategy decision on how much are you willing to dial up the try to accelerate growth but we're very committed to not allowing that to impact
Speaker Change: Our Free Cash Flow Trends, so that's what we're paid to do, so we got to really manage that, but we can do both. We can expand growth in the future, and expand our free cash flow margin.
Speaker Change: Rule of 40 is kind of just a number and point frankly we're not looking back
Great, thank you.
Thank you.
Speaker Change: If you'd like to ask a question, please press star one. Your next question comes from Blair Abernethy with Rosenblatt Securities. Please go ahead.
Blair Abernathy: Thanks very much, great quarter guys. Just a question on the key one term license. Was there a change or an impact from contract term lengths like duration of what you signed in the quarter?
Blair Abernathy: No, Blair, there was, it's just the timing of our, it's just the timing of our term license, Reynolds, Q1 just happened to be a quarter with more revenue.
Blair Abernathy: Okay, great. And then in terms of you go to market at this point, 25, are you looking at sales and market capacity at all and particularly around, you know, new customer opportunities?
We are, we have them.
Blair Abernathy: You know, if built into our plan, we have room for capacity increases in our sales model and we will, we will, you know, selectively invest in those areas. I do think the new logo part of that is an interesting one because what we've found with Blueprint now
Blair Abernathy: is because the engagement is so fast, the visualization is so fast, the solutioning in the ideation is so smooth with blueprint. It does give us increased interest.
Blair Abernathy: and how we could cover more logos, and how could we do that and still be, you know, very efficient on the go-to-mark, on the go-to-market cost? So we aren't, that is the one thing that is different in our mind, is just figuring out like how do we help more clients? [inaudible]
Blair Abernathy: You know, change the way they build software. [inaudible]
Great. Thanks, guys.
Thanks for it.
Blair Abernathy: and that does conclude our question and answer session, and I will now turn the conference over to Alan Trefler, founder and CEO for closing comments.
Blair Abernathy: Well, thank you everyone. I want you to know who we're working hard, hoping to see all of you at Kedra World on June 2nd. What we're going to have on our investor day, but we're also at terrific, horrific slate of announcements.
Blair Abernathy: and demos that we're going to be able to show people that I think are going to be really very exciting. And it's...
Blair Abernathy: We've been a terrific start to the year, and we're pretty jazz, and thank you all for the project you're going to serve.
Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect the next.