Pegasystems Inc.

Good day, and welcome to the Pega Systems third quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ken Stilwell. Please go ahead.

Thank you. Good evening, ladies and gentlemen, and welcome to Pega Systems Q3 2020 earnings call. Before we begin, I'd like to read our safe harbor statements. 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, targets, strategies, intends to, projects, forecasts, guidance, likely, and usually, or variations of such words and other similar expressions identify forward-looking statements, which speak only as of the date the statement was made and are based on current expectations and assumptions. Because such statements deal with future events, they are subject to various risks and uncertainties. Actual results for fiscal year 2020 and beyond could differ materially from the company's current expectations. Factors that could cause a company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q3 2020 earnings and in the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2019, and other recent filings with the SEC. Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise. And with that, I'll turn the call over to Alan Treffler, founder and CEO of Pegasystem.

Thank you, Ken. You know, the highlights were strong. Our results through Q3 demonstrate our ability to forge through and succeed during this challenging time. Our business continues to perform well due to several major factors. Digital transformation is existential for our clients. It is central to their continued existence and prosperity. And an increasing percentage of our revenue is predictable and recurring. Through Q3, our total ACV, which we consider the best indicator of our improving cash flows and underlying business growth, increased by 21% year-over-year in cost and currency, with two-thirds of our new business coming from private cloud in this quarter. We continue to extend our leadership in key markets that are less adversely affected by the pandemic, markets such as financial services, government, healthcare, and insurance, and telecom. And by working closely With large global organizations, we're agile to work with organizations that can withstand the short-term effects of today's market and, in fact, find their needs increased. As noted previously, we have a strong cash position to help us through this period of uncertainty so we can continue to invest for long-term growth. Now, we are now more than about halfway through the transition to recovery. And as we start to get closer to completing this transition, Unsurprisingly, our cash flow should and will start to improve. We anticipate that both cash and revenue will start to be a better reflection to help the business, notwithstanding the lumpiness of any. Our team remains strong, resilient, and committed to the success of our clients and Pega. And I remain deeply respectful of how they and our clients are engaging as we collectively navigate through this ongoing time of uncertainty. Now, in terms of client trends, our software is ideally suited for organizations that continue to face immediate challenges today, even as they know they need to transform for tomorrow. We have problems that, in many cases, no one else can solve, from visionary goals to quick fixes, and everything in between. Heather crushes business complexity in this well, complicated and ever-changing world. Our software is the engine that makes solutions clearer, relationships smoother, and helps our clients delight their customers and bring siloed teams together. We continue to improve our software to make it easier for clients to enhance customer engagement, boost their employee satisfaction, all while they increase efficiency and reduce costs. Now, key industry analysts continue to see Pega improving. And our Pega Infinity ratings is one of the important ways that we develop confidence that our significant R&D investments are successful. For example, since we've lost both, we are the undisputed overall leader in the just-published Forrester prestigious real-time interaction management wave. Ahead of 12 other players, including Salesforce and SaaS, The reality is that this idea of having a brain, a brain to drive and control and optimize interactions, really is resonating with organizations. We released our last version of our unified Pega Infinity product suite. And I want to give a big thank you to everyone across the Pega organization who put so much effort into planning, developing, and delivering the tremendous features and working so closely with our clients to make sure we were working on the right stuff. We launched Value Finder, a new AI-powered capability that helps organizations engage underserved customers with messages and offers designed for their specific needs. This is part of the Pega Customer Decision Hub and expands the power of our one-to-one customer engagement to ensure that all customers get personalized, high-empathy treatment, such as the premier customers that historically have typically gotten the most attention. And we were named the visionary in Gartner's magic quadrant for robotic process automation. Now, our new business continues to be strongest in our traditional areas of financial services, government, telecom, healthcare, insurance, and the industries that I indicated are more resilient during the pandemic. And this quarter, our largest new business assessment worked with other divisions of existing clients, but we continue to score new logos as well. This is a good indication of our ability to continue to radiate to our excellent customer base, where there remains enormous potential, but also being able to find new clients to move into. We've been doubling down on our efforts to further penetrate our largest clients, particularly as we believe they will be least impacted by an ongoing pandemic. They have major strategic digital transformation needs that we can help with. For example, in terms of some of the recent work that we've done, In financial services, an existing banking client, CIBC, is making major use of the Pega Customer Decision Hub at the center of the bank's enterprise decisioning and servicing platform to really support their full-fledged modernization. A great example of the power of cloud choice, we're also working with the bank to migrate their Pega applications to Pega Cloud and double their capacity. This is for the system that will be used to support more than 11 million customers across 30,000 bank personnel. It will connect everything, all facets from onboarding to account servicing. In telecoms, our client Telefonica expanded their use on Pega Cloud to be able to have Pega orchestrate intelligent customer journeys across all engagement channels for their 25 million customers. Part of a broad digital transformation to reimagine their customer experience and consolidate technology. leading to a more effective marketing and service operation for customer satisfaction and growth. And in government, the Air Force, who has been a client since 2016, when they were looking for a solution that could truly scale and handle their modernization, has chosen Peggy to be a major part of their plans for the interim and future. And we're expanding our work with them with plans to expand from six applications to more than 100, supporting more than 10,000 users. This is a great example also of choice. And we continue to find that these government agencies have needs in the present and will have needs in the future, not just driven by the pandemic, but driven by a well-understood requirement to monitor that. I also want to take a minute to acknowledge our work with the U.S. Census Bureau. The census ended its 2020 decennial count on October 15th, and it was the largest peacetime mobilization in our country And, of course, the census is a cornerstone of our democracy. Our software was used in multiple ways throughout the project. Most importantly is the case management system processing every single survey response, regardless of whether it came in online, by phone, or through the mobile devices powered by our software. Now, it's clear that they were and continue to be lots of politics around this program. However, we're happy that our part worked at massive scales. supporting hundreds of thousands of concurrent mobile users. It was a tremendous technical success, one we're proud of, and that demonstrates that Pega Software and our team are capable of handling really critical and mission-critical projects. And finally, as a reminder, we can also support smaller organizations. We extended work this quarter with Water New South Wales, which manages a water allocation territory in a state roughly the size of Texas. Our software is being used to manage about 50,000 allocation licenses, and it's part of a modernization program designed to put their customers at the center of a new digitally-enabled and managed water network. So it's great to be able to have technologies that can both do sophisticated and capable and crush complexity there, and at the same time be able to handle the entirety. And that's what we are continuing to invest in and continuing to build. Well, I'm asked sometimes about the impact of COVID and our response. We continue to look at our response to the pandemic and adjust if necessary. And I'm frankly extremely pleased with our ability to operate effectively during this difficult and uncertain time. We continue to function successfully as a nearly 100% remote workforce and expect we will do so through the winter. re-evaluating how we work as a result of the pandemic and know our clients do as well, I actually think we're going to continue to see more interested in clients for profound digital transformation that is just being reinforced by what organizations are going through. We are confident in our ability to come out of this crisis a much stronger company in the long term, and we remain very grateful for the continued support of our staff, our clients, and our partners. and the strong commitment of those who have worked with us. We continue to support the greater Pega community and those who are particularly challenged by this crisis. In summary, our results through Q3, in particular our ACV growth and cloud momentum, demonstrate our ability to manage through this pandemic. It's terrific to see how industry analysts and prospects are viewing the power of what we do. We're focused on finishing up the year very strongly and driving business to really continue to move Peta forward. And I also want to mention that you may recall that we announced on June 1st that we had hired Hayden Stafford as president of Global Client Engagement. This is a new role to unify Peta's corporate strategy, marketing, go-to-market, and services functions. I'm really pleased how he has engaged with the team and clients during his first full quarter at Pega, and I'm very, very excited. So with this, and to provide more color on the financial results, Ken, let me turn it back to you. Thanks, Alan.