Pegasystems Inc.

Good day and welcome to the Pega Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Kenneth Sewell, CFO. Please go ahead, sir.

Thank you. Good evening, ladies and gentlemen, and welcome to Pega Systems Q2 2022 Earnings Call. Before we begin, I'd 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 and assumptions. Because such statements deal with future events, they are subject to various risks and uncertainties. Actual results for fiscal year 2022 and beyond could differ materially from the company's current expectations. Factors that could cause the company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q2 2022 earnings and and the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31st, 2021, 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 Pegasystems.

Thank you, Ken, and thank you to everyone who's joined today's call. This year has turned out to be an extremely volatile business environment. Our clients face challenges related to the pandemic, labor shortages, the war in Europe, Everything is causing global disruptions, as well as, of course, rising inflation, high oil prices, supply chain challenges, economic insecurity, and most recently, currency exchange headwinds. Some of these trends actually make the need for our software even more pronounced. In fact, we believe TAG is uniquely suited to help enterprises manage through such uncertainties. However, it does impact the market. And with the threat of recession looming, we've pivoted to lean more heavily on our build for change messaging. We've been updating our marketing and sales positioning, which you can see on Pega.com. In an environment where efficiency and productivity are paramount, our low-code software platform for AI-powered decisioning and workflow automation helps demanding enterprises work smarter, unify experiences, and adapt instantly so they can tackle what's next. At Pega, we're taking the volatility and macroeconomic environment seriously. We're making cost management as much of a priority for us as it is for our clients, with us having a focus on operational efficiency and limiting increases to our cost structure. We've taken steps to make sure we're staying close to our clients by removing some of the layers that have crept in over the last few years. And by ensuring our talent is directly connected to clients, we believe we'll both improve outcomes and our long-term relationships. At the same time, we continue to focus on innovation to ensure we're able to provide the most advanced technology platform for our clients' needs today and into tomorrow. Peg will talk about some of the financial impacts on our business in a few moments. Now, in terms of some highlights, since we last spoke, we've continued to enhance our software and drive strategic partnerships to make it easier for clients to be productive and address their customers' needs with our market-leading Pega Infinity software. For example, we launched an updated component that makes it easy to embed Pega into Salesforce environments. to further automate customer service workflow. Called Pega Process Extender for Salesforce, it's now available on the Salesforce App Exchange and allows organizations an easy way to drag and drop Pega Infinity workflow automation and AI-powered decisioning directly into existing Salesforce Lightning deployments. This makes the whole experience operate within users' familiar Salesforce desktop even as Pega drives the business logic and workflows. And we're also very excited about the low-code app factory concept. We're pleased to see our clients adopt our governed approach to low-code development. The goal is to have clients get the benefit and speed and collaboration capabilities of our development platform, while at the same time ensuring they're building apps that can evolve, scale, and deliver value well into the future. It's very important that there be governance capabilities, because over the years, people have often tried to drop in little systems to do an improvement here, an improvement there. And frankly, large, sophisticated organizations realize that that leads to just the next generation of technical debt. and they find themselves trying to rip out all the Lotus Notes apps or all the SharePoint apps. By us having a governed approach, we can share best practices and make sure that the right capabilities are baked into every low-code project and have them all hang together with this Pega app factory concept that brings business and IT together in support of organization-wide deployment. This is coupled with our Pega process fabric that makes distributed workflow applications tie together to create a single view of work that might be done for a specific purpose or that might be related to a specific customer relationship. The case study that Ford Motor Company presented at our recent Pega World is a great example of this approach. They've embraced best practices the Pega App Factory, which enables citizen developers to create applications while following governance guidelines with support from an IT coach. Forge created a center of excellence and shared platform teams have joined forces to deploy the App Factory apps while working with Pega to develop best practices and alleviate IT backlog. Now, another exciting development is that we've extended our cloud choice offering by expanding our multifaceted partnership with Google Cloud to help our joint customers accelerate the digital transformation. And we've also made the Google Cloud environment available on Pega Cloud as a fully managed as a service offering. We acquired Everflow. software company whose intuitive software will enable Pega clients to uncover and fix hidden processing efficiencies. These can often bog down organizations, and making them visible is key to improvement. Combined with Pega's market-leading AI-powered decisioning and workflow automation capabilities, this will evolve process mining beyond traditional static modeling to deliver real-time process optimization. What we sometimes refer to as true hyper-automation on an enterprise scale that will improve operational efficiency and customer experiences. And finally, we continue to really receive industry recognition from leading analyst firms. In late May, Forrester named Pega a leader in the Forrester wave for real-time interaction management. This is how you use AI to make decisions to provide a next best action to the customers of one of our clients. Out of 14 of the most significant players in this broad category, Pega received top scores in the current offering and strategy categories, and the highest score possible in 25 of 28 criteria, including the highest possible score in the market presence categories. Forrester said, quote, Pega sets the gold standard for sophisticated enterprise deployments. Its value-based approach and innovation track record earn Pega near-perfect marks across our strategy criteria. I'm also really pleased that just today, Forrester released its core CRM solutions report, in which Pega received the top score in the current offering category as well as the highest score possible in 16 of 35 criteria. Out of four companies that were considered leaders, Pega received top scores in categories including CRM user productivity, assistance, guidance, next best action, digital sales, customer success, actionable insights, and omni-channel engagement. The report states, Pega Systems offers exceptional Pegasystem's vision is one of an autonomous CRM, where automation offloads repetitive work and AI assists users, increasing their efficiency and the customer experience. Pega uses real-time customer context and journey data to anticipate customer needs and proactively, even preemptively, engage. Reference clients stated that Pega provided a, quote, one-shot stop. for our frontline team and praised the product's configurability. Really pleased to hear that sort of assessment. I'm also very proud of the work our team continues to do to ensure Pega's creating and maintaining a diverse and equitable culture. Most recently, we were recognized as a best place to work for disability inclusion, scoring the highest possible score of 100 on the Disability Equality Index, which is recognized and communities by providing a safe and inclusive work environment. Congratulations to the many at Pega and around the world responsible for this recognition. Now, you may have noticed that we put out a second press release, and I'll just talk for a moment about it. We've noted interest in our technology over the years, from organizations interested in leveraging our workflow capabilities to launch their own workflow-based applications into the market. And to address this need, today we announced a new product called Pega Launchback, a cloud-based, low-code application development platform that will empower anyone to efficiently build and launch B2B software as a software-as-a-service application for commercialization. This is a long-term strategy that will be run as a separate commercialization unit, giving Pega new routes to market through an expanded third-party ecosystem and without requiring the involvement of our Salesforce. We'll be working with a select group of early adopters for the remainder of 2022 as we prepare to roll out more generally in 2023. Once application providers are ready to bring new products to market, will work together through a revenue sharing model that we expect. Now, I'm going to circle back to PegaWorld for a moment. I hope you were able to join PegaWorld in May. If you missed it live, I encourage you to watch the replays on Pega.com, and there are terrific sessions available, especially the inspiring client stories told in their own words. Through our virtual PegaWorld events, we have been successful over the last several years Nonetheless, I'm very excited to bring our live event in Las Vegas back in play next year as we get back to a more normal cadence of in-person meetings with clients and prospects. There's been a lot of change on that front. I attended Davos this past May in person, was able to see many of our most senior client contacts in person, and I mentioned a new briefing center being built on our last call. It's now, and some of you saw that on Investment Day, it's now fully open and has been booked with client and prospect meetings and has gotten a great reception, and we're excited about the customers coming to visit us. So in summary, we're operating in an environment of significant volatility, one that our software is uniquely suited to address, but one that obviously puts lots of pressure on lots of businesses. We continue to structure our business and evolve our software to both address the needs of our clients to maximize our ability to respond quickly to changes in the market. Our transition to a subscription business and our loyal and stable client base are meaningful contributors to our ability to remain successful in today's business climate. And we continue to be very excited about the significant opportunity in front of us and confident in our team to deliver on that opportunity. To provide more color on the financial results, let me turn it over to Ted Stilwell.