Pegasystems Inc.

Please stand by, we're about to begin. Good day and welcome to the PegaSystems third quarter 2021 earnings results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to PegaSystems COO and CFO, Mr. Ken Stilwell. Please go ahead, sir.

Thank you. Good evening, ladies and gentlemen, and welcome to PegaSystems Q3 2021 earnings call. Before we begin, I would like to read our safe harbor statement. Certain statements contained in this presentation may be construed as forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, 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 of 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 2021 and beyond could differ materially from the company's current expectations. Factors that could cause the company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q3 2021 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, 2020, 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 a result of new information, future events, or otherwise. And with that, I will turn the call over to Alan Treffler, founder and CEO of Pegasystems.

Thanks, Ken. And I'd like to say that I'm really pleased with our results here today, and we continue to see strong adoption of our low-code digital transformation technology. 3Q3, our total annual contract value, or ACV, which we think is the best indicator of our performance, increased by 22% year over year, and our subscription revenue grew 32% year over year. The benefits of our recurring revenue model are increasingly visible, and we're happy with our progress. Now, to provide an update on the pandemic and some industry trends, though the status of the pandemic still varies region to region, we are seeing the global economy recovering And there are positive signs that the worst is behind us. The demand for digital transformation solutions continues to be strong and is expected to be one of the fastest growing enterprise software markets in coming years. The IVC reports that the market for digital transformation software is growing globally at about 19% CAGR and is expected to reach $619 billion by 2024. We believe we're in a great position to benefit from the growth in this market. Driven in large parts by the challenges of the last 18 plus months, organizations know they must adapt to today's needs while preparing for inevitable additional changes that will come tomorrow. And that's where Pega comes in. In an unpredictable world, we help our clients crush business complexity so they can work smarter, simpler, and faster. Our tagline, Build for Change, is as relevant as ever, given the imperative that organizations establish a technology and a business architecture that empowers them to adapt and thrive in constantly changing markets. The Customer Decision Hub, our real-time decisioning engine, helps customers predict their customers' needs, personalize interactions, and deliver across channels to deepen relationships and maximize value. Our customer service solutions leverage automation and AI so reps can handle any engagement quickly and effectively, ensuring customers get what they need. And our intelligent automation solutions boost efficiency by streamlining any process, often the most business-critical, sophisticated workflows that require a high degree of intelligence and automation. And we continue to benefit from offering our customers cloud choice, which we pioneered in 2017. Offering cloud alternatives plays perfectly to where we see the future going. Historically, organizations have thought of and implemented cloud as a collection of islands. And that's fine for many types of cloud usage. However, PENTA is often used as a strategic backbone for an organization. And in those cases, clients will often want to weave Pega into and across their existing cloud infrastructure. And that's what Cloud Choice does. It lets Pega become part of their fabric, part of a client's strategic future, improving their effectiveness and fostering a longer-term commitment to Pega. And it's going to recommend CIOs are aggressively skilling up on cloud capabilities. This makes our cloud solutions more effective and whether we're operating them or the client is. And it's good news for us and our client because we support both options. And regardless of our clients' deploy, the software is the same. So they benefit from the same industry-leading software and all that comes with it. A center-out approach that puts the outcomes they are achieving at the center of their solution. Designed thinking that brings people and technology together to design and deploy innovative solutions. in weeks or even days, and the industry's only low-code platform built with a prescriptive approach to business and IT collaboration. We're proud of how central our software is to the strategic operations of our clients, many of the most recognized and successful brands on the planet. We're most successful when we engage with the senior leaders in these large enterprises, where the focus is on strategic big bet initiatives that are crucial to their success. That means the commitment on both sides can be very significant. And once clients experience the value we bring, we have tremendous opportunity to deepen and expand those relationships. For example, on the commercial side of our business, in this last quarter we expanded our footprint with three of the world's largest telecommunications companies, three of the world's largest financial services companies, and three of the world's largest healthcare companies. And just this past week, our client Lloyd's Banking Group won a Digital Transformation of the Year Award for the work that they're doing with Pega. It really gives their employees and their customers the best experience at key moments of truth. I'm very proud of the work that we're doing together. Additionally, the government sector continues to drive significant business, and we increased our presence in government clients in every region around the world. Government leaders know that the next few years are going to be challenging and that the flood of service and program needs that we have experienced over the past year and a half will continue. They know they have to deliver a wide portfolio of critical services, and yet outdated systems and efficient processes and disconnected channels can slow down that service and make it hard to keep pace with needs and changes. We help government clients go live quickly and drive amazing outcomes, whether it's starting with one small critical application like we rolled out for the state of Bavaria, which, by the way, has led to new opportunities across EMEA, or at massive scale like at the U.S. Census. We've been wildly successful with our government clients over recent years who find the platform is built for change, sophistication, and scale. By the way, our outstanding work for the Census is now documented in a recent video available on Pega.com highlighting success. As Michael Thiem, the Census Assistant Director to the Decennial Program said, quote, everything worked as it was supposed to. It was smooth. I would almost call it historically smooth. And not just in this continent. In Australia, our software is being used by the Department of Home Affairs to develop what they call their permissions capability platform as part of an overhaul of their visa processing system. They wanted an integrated enterprise-scale workflow system capable of being used across the government. They expect to roll out new digital incoming passenger cards, which will include vaccination status, to airports around the country by the end of the year, paving the way for border reopening. And in the UK, our software is being used by the Royal Navy and Royal Air Force to develop new end-to-end recruiting platforms. The goal is to provide a better digital experience for the 180,000 annual potential candidates and help reduce recruitment cycles. Now, as we emerge from the pandemic, we are gauging our clients' and partners' comfort level in meeting in person, and we're gradually bringing back in-person events and getting our selling teams back on the road where we can. We continue to raise our visibility among our key clients and prospects with targeted selling and marketing approaches. For example, you may have seen that we sponsored the Ryder Cup this year, a new initiative for us to increase our visibility, and it provided an excellent opportunity to connect with some of our most senior and strategic clients and partners. We just held our inaugural Executive Partner Advisory Council meeting with senior contacts from some of our most strategic partner organizations who have broad and deep and established relationships with many of our clients. We're excited to be able to hold this meeting in person. And our new streamlined partner program that was rolled out this summer is being well received, and we will continue to focus on deepening these relationships to make it easier for partners to engage with us in joint solution development, co-selling, and client referrals. As a result, we're seeing increases in partner engagement and partner source business. And we have plenty of opportunity to fully leverage, we think, a strong and growing partner network and feel very positive about the overall direction of momentum. So in summary, I'm pleased with how we're executing on our strategy and how it's reflected in our results through Q3. We continue to make excellent progress on our transition to a recurring revenue model. our clients recognize the need for digital transformation solutions that can solve both their short-term challenges and long-term strategic needs. And we feel we are uniquely available and able to help them. And we continue to focus our strategic investments to leverage this great opportunity while thoughtfully managing margins. So to provide more color on these results, I'll now turn it over to our COO and CFO, Ken Stilwell. Take it away, Ken.