Pegasystems Inc at JPMorgan Global Technology, Media & Communications Conference Transcript

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

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : That's great. I want to dig into the Pega portfolio a little bit, right? It is pretty unique. You have the low-code new code angle, the workflow automation platform on one side. You have the CRM packaged apps on the other side that's built on top of it. Help us understand what part of the portfolio do you see is kind of the strongest, right, in terms of resonating a lot on customers? And maybe which part you kind of are coming up the curve, the maturity curve, right?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Understood. The other point I want to touch upon was, I think you kind of alluded to it, the tight labor market, right? And automation, you probably said the word many times in the last 2 minutes is a big core tenet of Pegasystems, right? So in this environment, would you say that has become kind of a tailwind for you, there is a tight labor market, there is a shortage of skilled labor. Is that coming up more and more in the planned conversations in here or in Europe?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Yes. On that point about digital transformation, I think your -- you have come up with the Pega voice AI, which was the Qurious acquisition, which has a fantabulous demo. I've seen one of those. And I think your process fabric is also out, I believe, in the latest version. How do they kind of -- help us understand what is Process Fabric, where does it fit in, in this discussion?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : It's like a control center is actually... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2022 / 12:40PM, PEGA.OQ - Pegasystems Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Right, right. Okay. I want to change gears a little bit and talk about the demand environment, right? There is so much volatility, obviously, in the stock market, but then you have the macroeconomic problems, you fearing interest rate hikes. -- you have the geopolitical risk in Eastern Europe. How are you thinking about -- or how are your reading, I guess, the demand conditions, right, as you go into June? And what should investors kind of expect in the second half from your point of view?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : So it's all systems go, but we don't know about it later out.

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Yes, that's probably fair. The other point is, which is probably the biggest topic of discussion around Pega in the stock right now is the litigation with Appian. I don't know how much you can talk about it, but maybe is there anything you want to talk about just to clear the air. Have you -- is there any change in the business strategy from that point of view? Just touch upon all those things. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2022 / 12:40PM, PEGA.OQ - Pegasystems Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : So just to double click for one second here. You talked about distractions, which is a word people sometimes get freaked out it. Is there -- help us understand, I mean, with that -- you just said the demand environment is good. You're not seeing anything, but there could be some distractions, right? Should people be conservative on the ACV growth guidance that you had for the year?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Maybe touch upon that, the mix between existing new how much of the ACV growth is driven by existing versus new today? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2022 / 12:40PM, PEGA.OQ - Pegasystems Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Got it. Again, shifting gears a little bit. The go-to-market side, right? You have Hayden leave earlier this year. Help us understand where does the go-to-market organization sits today in terms of structure. You didn't miss a beat in Q1, of course, the ACV growth actually accelerated in Q1. So at this point, is it fair to say that all the distraction from that point of view that Hayden left, right? all the distractions are gone. It's more stable apart from whatever is happening on the litigation side, but other than that.

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Got it. Got it. I want to touch on Pega Cloud, which kind of has accelerated last quarter. It was a big topic of discussion last year when I think it seemed like you hit an air pocket, it slowed a little bit. But I know you're focusing on total ACV growth but it did accelerate in Q1, right? So help us understand if you look back, I mean, what had happened and why did you hit kind of an air pocket in cloud? And how should we think about that trend going forward? Because now I think you're clocking in something like 67% of your new commitment is cloud now? And it seems like Q2 would be similar from what you had said before. So help us understand the trend going forward as well as what happened last year?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Yes. Yes. Understood. Okay. I wanted to open it up to audience in a bit. So if you have questions, feel free to think about it. I'll just ask one more. It seems like the last quarter, it sounded like there is a little bit more focus on profitability. You were talking about more profitability you brought up. Is there a change in the thinking going to this a little bit, maybe slower economic environment to shift more towards profitability?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Yes. Yes. I want to open it up to people if anybody has any questions, please raise your hand. Okay. Let me double-click on that last point again. Rule of 40, I think your definition is ACV growth plus free cash flow margin, if I'm right. So if I think back before the transition, your free cash flow margin was in the teens like 16%, 17%, right? You're ending the transition in calendar '23 about, so should we expect that level of free cash flow margin to be apparent in the business in calendar '24? Or as you're pivoting more towards profitability, could that be actually even more than mid-teens or...

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Okay. We have 1 minute left. Any more questions? Okay. I'll probably ask you last one then. You have your user conference starting tomorrow. You have an Investor Day coming up. What should -- I think Investor Day is last next week, right?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : What should people kind of expect? Do you -- is there a big production announcements in the user conference? What should people expect?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Okay. With that, we're -- let's wrap it up. Thank you, Ken for your time.