Pegasystems Inc.

And welcome to the Pegasystem 3rd Quarter 2023 Honors Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Peter Welburn, Vice President, Corporate Development and IR for Pega Systems. Please go ahead.

Thank you, Priscilla. And good morning, everyone, and welcome to Pega Systems Q3 2023 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, forecasts, and guidance, 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 2023 and beyond could differ materially from the company's current expectations. Our press release announcing our Q3 2023 earnings and our SEC filings, including our most recent annual report, describe factors that could impact our results and cause them to materially differ from those expressed in forward-looking statements. Investors should not place undue reliance on forward-looking statements. Matters contained in forward-looking statements may not occur. Later events, new information, or other factors may cause our views to change, but we will not publicly update or revise forward-looking statements unless required by law to do so. And with that, I will turn the call over to Alan Treffler, founder and CEO of Pegasystems.

Thank you, Peter, and to everyone who's joined today's call. It's great to see us improve performance in an uncertain macroeconomic environment. Now more than ever, we are focused on running a business that balances growth and free cash flow. And it's especially good to see record cash flow as we come out of our subscription transition. and we're just getting started. Ken will go into more detail on our financial results in a moment. As I mentioned last quarter, we've been finding additional ways to engage effectively and efficiently with our clients. The transformation of our go-to-market model is delivering on our goal of deepening client relationships. This helps drive more meaningful engagement across multiple teams as those relationships strengthen. And I was excited to spend most of Q3 on the road, meeting with clients, prospects, and partners globally. Coming off the tremendous momentum from Pega World and the launch of Infinity 23, it was terrific to spend this direct time with these constituencies. And I recently had a round-the-world trip, and it was good to see folks I had not had a chance to see at Pega World. I met face-to-face with over 100 clients and partners and had terrific conversations across the board, across the U.S., Amazon, Bank of America, United Health Group, and then even to India with Verizon, where they, like many of our clients, are establishing global competency centers, and we're having a chance to engage our Indian team directly with them. Going down to APAC with ANZ Bank, National Australia Bank, and multiple government agencies across APJ. And in London with HSBC, Lloyds, and Vodafone. as well as with dozens of our partners around the world, including Accenture, Capgemini, Cognizant, EY, and Infosys. So what I'll tell you also is our U.S. briefing center continues to be extremely busy this year. We've had hundreds of meetings with clients like ING, Mondelez, Navy Federal Union, and Scotiabank, where their staff have really come in to do a deep dive on topics ranging Many more planned for Q4. And in Q3, we kicked off a series of account-based marketing client events to continue the momentum of PegaWorld, with 75 regional and client-specific events planned, and we're going to have even more before the end of the year. I'm really enjoying being back on the road in a significant way, and I'm terrifically excited about the level of engagement and dialogue we're having. And even though you can accomplish a lot remotely, meeting in person provides a different type of opportunity to dig in and understand what's top of mind for our clients. Now, as I've done this, I have had a chance to really hear firsthand what the client's interests and questions are about what Pega can do. And does Pega have a unique advantage in this environment? And what I'll tell you is that AI, not a surprise, has become central to nearly every client conversation. And their questions are falling into a few categories. First, what should their AI strategy be? And where does Pega fit in? Second, how can they protect and govern their proprietary customer data? And third, how can they address the risks associated with AI, such as hallucinations where the AI provides a response not backed up by data or best process? And this, these places are where Pega technology and experience gives us a unique competitive advantage, in my view. Let me elaborate. First, in terms of strategy, we have decades of hands-on experience helping clients leverage AI, and we can use it to help them with their strategy. We have terrific insights into the most successful early use cases for Gen AI, and those we believe will deliver the highest return on investment, and we're showing them to our clients and getting tremendous, tremendous positive feedback. One of the best things that actually any of you can try is this interactive demo on Pega.com that shows how we have linked generative AI into the core thinking of how Pega workflow should work and how it can help you create all the necessary elements using the knowledge of the Internet to be able to bring best practices into a business. You'll see within seconds the workflows, the users, the data model, and the other key elements identified. We launched it when PEG Infinity went live in mid-September, and in the first month, thousands of people from around the world accessed the demo and did over 6,000 workflow generations, from employee onboarding to a cricket scoreboard generator. Now, I would suggest that anybody interested in understanding how this can be done really practically can Go find it and try it. It's free. It's on Pega.com. Just go to the site. Either take the interactive tour that we have or just search for Gen AI and check out the interactive demo, which is what I've just been talking about. Try building an app for your current firm or a business that you've been thinking about starting when you retire. And I think you'll share with the excitement of how Pega is in a position to to really bring this technology home in a very unique way. We've had a lot of fun, and a lot of clients have gotten very jazzed and interested in this. You can even try it on your mobile phone, and you can be building these sorts of things right from your mobile phone, and it's also quite a good demo there. So when customers see what we're able to do, see what we're shipping in Infinity 23, we get a very positive reaction in terms of how we can add powerful and pragmatic capabilities to their businesses. Now, in terms of where Pega fits into their strategy, you need to remember that while most companies continue to think about Gen AI as a co-generator, Pega at its core is based on the concept of a business model that brings a structure and system that can evolve as the client needs or the industry needs and the customer needs evolve. Instead of code with our gen ad, we generate business logic into a model that organizes the business objectives and lets the AI be understood, lets it be reviewed, adjusted, sure-ranked, and approved. And the center of this is what you've heard me refer to as our unique situation layer cake. This is something that organizes the way a business runs into layers, with some elements operating across the business as a whole, some on a division, some perhaps in its department, and some for different customer segments or different regions or geographies. This unique structure organizes all the enterprise assets, the processes, the rules, the data models, and UI into these layers, which are designed for reuse. They're the perfect architecture for using Gen AI with. And it's what gives Paget a unique and, I believe, sustaining advantage. Because you'll plug Gen AI in when the rules and workflows are defined, and they'll be able to complement what already exists. They'll be able to let you change pieces of your business or workflow at a time. And they provide, I think, a power that's very, very different than a lot of the hype that's out there. Because users are looking at a model versus looking at code, they can actually collaborate. The business users have transparency working with IT. It provides that vehicle for governance when changes are introduced and makes them all manageable. So in short, it takes the output from the AI and organizes it in a way that really helps businesses build for change. And it's proprietary to BEGA. I don't think it can be readily copied or reproduced. And we don't see anybody else taking this approach, and we really feel good about what this means for us. So we've also created about 20 Gen AI boosters with Pega Infinity that makes the Gen AI practical and makes it all real. And you can also see those described at Pega.com. Now, secondly, relative to data, we will be able to help clients protect and govern customer data through the powerful capabilities in our software. Pega's audit trail capabilities, which have been described as the best in the industry, are robust and comprehensive. And third, we address Gen AI risks by leveraging a platform which is designed to help customers deploy all of their processes and their AI effectively and responsibly. Clients can see what's happening and help identify where AI is working in their models, and help them understand when the AI is doing something that makes sense and when it's generating nonsense. Our robust capabilities also help clients confirm that the data that powers AI decisioning is unbiased and comprehensive using our unique ethical bias check, which helps identify and eliminate biases hidden in the AI. flagging possible discriminatory offers and messages generated by AI before they reach the customer. This unique capability helps clients pinpoint any offending elements and adjust the algorithms to ensure fair outcomes. Now, the client response we're having to this is very, very exciting and inspiring, and it's wonderful to see our clients now beginning to work on this and taking it very, very much to heart. I think as we move into 2024, we're going to complement what we've already released here in 23 with great new pipeline of features that are going to very, very aggressively continue to extend the power of these game-changing capabilities, but also leveraging our unique architecture. Before I wrap up, I also want to provide a quick update on Pega Launchpad, our new cloud-based low-code application development platform for building business-to-business SaaS applications that we announced last year. It's a gorgeous piece of software, and the team has done a tremendous job in staying focused and supporting our early adopters, and we now have our first handful of Launchpad clients. We're really excited to ramp this business up in 2024 and beyond. So in summary, we continue to improve our performance, And as we come out of the subscription transition, we see the cash improving despite the uncertain macro environment. The transformation of our go-to-market model is improving our sales efficiency and our engagement, focusing on really deepening the critical relationships that drive our business. And our unique technology architecture is a competitive advantage that lends itself to really leveraging Gen.A.I. in a way that I don't see our competitors easily replicating, is going to be a big and long-lasting distinction. So we continue to make good progress. We continue to make good progress in becoming a Rule of 40 company, balancing growth with fiscal discipline. And to provide more color on the financial results, let me now turn it over to our COO and CFO, Ken Stilwell. Ken.