Pegasystems Inc at Goldman Sachs Communacopia & Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kevin Kumar - Goldman Sachs - Analyst : I think a place to start would be maybe just a quick rundown and intro of Pegasystems and maybe an example of kind of the use cases that you support.

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. No, that's really helpful. I wanted to touch on some of your growth metrics. And you've been -- you've undergone a model transition increasingly towards a subscription model, and you focus a lot on annual contract value.

Question: Kevin Kumar - Goldman Sachs - Analyst : Why does that still make sense as a metric, particularly as you get closer to the end of that transition? And how do you think about kind of the right growth metrics for the business?

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. Understood. That makes perfect sense. I guess maybe sticking to ACV then. Last quarter, you saw some acceleration. ACV grew 13% versus 9% the prior quarter. So a nice kind of uptick there. I guess what was incremental in the quarter that kind of helped drive that acceleration?

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. I guess on that point, I mean you've said in the past, you're still very much focused on the installed base. There's a huge opportunity there. How do you think of the -- like is it just kind of incremental -- like is that still kind of the largest source of kind of growth at least in the short to medium term? And then maybe opportunistically, like you said, kind of finding those right logos while maybe perhaps being so efficient with the

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. Understood. And then maybe thinking a little bit longer term, you're at about $1.3 billion in ACV. You set out some targets during Analyst Day, I think in June, $2 billion in three to five years. I guess so that's an incremental $700 million. I guess kind of how do you think about kind of attacking that opportunity? Where does that $700 million come from? You kind of talked about the new versus existing. But when you look at the opportunity set over the next three to five years, how do you think that evolves?

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. I guess on that point, another dynamic has been -- and this has been pretty recent, I think, cloud migrations. Can you maybe just walk through kind of, I guess, the journey for a customer to migrate? When does it make sense? And then I think you have about $700 million in maintenance and term license revenue. How do you -- can you convert all of that? What's the kind of the cadence there? It's still early, I guess, but how do you think about that? And maybe walk through any pricing uplifts that you think could materialize there?

Question: Kevin Kumar - Goldman Sachs - Analyst : Okay. That's super helpful. Maybe shifting gears to cash flow. You said at the start of the conversation, that's a very critical metric. Pega has been seeing some really nice inflection there. I think $218 million in the first half of the year. I guess you've -- this has been a long time coming, I think. But maybe just walk through kind of the drivers of the strength there especially, call it, over the last 12 months, any nuances you think are kind of important to highlight in terms of kind of the inflection in the cash flow?

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. A metric that we look at and we published in our reports is free cash flow per share. Any thoughts there in terms of that metric? And is that something you look at? And not that there's a ton of dilution at Pega necessarily, but curious your thoughts on kind of that as a metric you guys kind of look into.

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. Great. Maybe shifting to kind of macro demand environment. That's something that's watched closely. It's asked every earnings call. It's one of the first questions. So just kind of maybe just give us an update what you're seeing in terms of macro. And there's a few weeks left in the quarter. So just any comments on kind of how you're thinking about, feeling about Q3? Anything incremental in terms of macro since last time we kind of talked about it?

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. No, that's helpful color there. Shifting gears a bit, GenAI, obviously, a very topical dynamic here. I guess for Pega, it's -- I think the focus has been on Blueprint. And so maybe walk through that. It's still relatively new. Can you walk through that? Why is that important for clients? Maybe start with kind of an overview there.

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. No, I heard that -- I mean the activity in terms of Blueprints have been pretty great. I think 50,000 (inaudible). So there's a lot of activity there from the customer base. I guess when does -- to your point, like when do you think that kind of eventually because I don't think -- you're not selling the group -- there's no pricing there.

Question: Kevin Kumar - Goldman Sachs - Analyst : Right. And so when do you think that activity kind of materializes into kind of --

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. And then in general, I think you've commented on AI, GenAI as maybe a catalyst for deal activity, and there's some enthusiasm in the customer base. I think there was a period of time where maybe it was causing some not paralysis, but people were kind of figuring out what to do. It seems like the interest is building, like is that kind of -- do you see that kind of going into the remainder of the back half of the year in terms of kind of that enthusiasm to kind of engage outside of Blueprint, but just more generally in terms of kind of demand activity?

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. Maybe a follow-up to that on competitive dynamics. Anything kind of changing -- I mean as there's other vendors out in the space, they're trying to also capitalize on kind of this GenAI kind of wave that's happening. So any hint you're seeing, whether that's like a Salesforce or some of the bigger vendors, some of the more specialized vendors, anything kind of incremental you'd add?

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. So I have a few more questions, but any questions from the audience? So maybe touching on capital allocation, Ken. You have a convert that's coming due, a $500 million convert coming due in March, kind of maybe starting there, how are you thinking about kind of that dynamic here?

Question: Kevin Kumar - Goldman Sachs - Analyst : Yes. That's great. And maybe last one here. Just on, I guess, the federal market. That's one of your core kind of verticals. You got recently FedRAMP high certification. So maybe walk through that briefly just like the implications of that. How important is that vertical? And what does this mean in terms of kind of net new opportunities?

Question: Kevin Kumar - Goldman Sachs - Analyst : That's great. And question here? Unidentified Participant (inaudible) to bring it back in and what to think about in terms of milestones and how that impacts what you were talking about earlier with cash on hand in order to potentially address anything? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 2:30PM, PEGA.OQ - Pegasystems Inc at Goldman Sachs Communacopia & Technology Conference

Question: Kevin Kumar - Goldman Sachs - Analyst : Great. Well, Ken, I heard it's your birthday tomorrow. So happy birthday, and thanks for being here.

Question: Kevin Kumar - Goldman Sachs - Analyst : There you go. Cheers. Yes, thanks a lot. Appreciate it.