Pegasystems Inc Q1 2022 Earnings Call Transcript

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

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Great. Congrats on a pretty solid ACV growth here. Alan, you characterized the environment as the most volatile environment you have seen in decades. Maybe help us understand what are you seeing in the field from a demand environment perspective, especially in the different theaters. And maybe if you can double-click on Europe, any indication that there is kind of a slight wind of change blowing? More scrutiny or any kind of signs maybe you're not seeing or you're seeing, would love to hear. And then, Ken, on that topic, I mean, I know you don't update guidance, but how are you feeling about hitting that ACV guide for the year at this point?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Understood. And one more for you, Ken. It seems a solid result in the Pega Cloud ACV growth rate into the 40s. But I wanted to ask you about the cloud backlog growth. When I look at the cloud backlog growth, that seems like decelerated while ACV accelerated. Shouldn't those to be more typically directionally aligned? Is that maybe FX acting up on RPO?

Question: Pinjalim Bora - JPMorgan Chase & Co, Research Division - Analyst : Got it. Very clear.

Question: Steven Richard Koenig - SMBC Nikko Securities America, Inc., Research Division - Analyst : Congrats on the quarter. Maybe just a question for Ken and then a follow-up for Alan. Ken, maybe a multipart question that could be related. So good Pega Cloud mix in Q1, and you're seeing signs of a similar mix, 67%, I think, in Q1 was what it was. But you're seeing signs of a similar percent in Q2. What is your thinking on kind of the durability of that trend? Is -- are you -- do you think Pega is going to keep moving up from -- it's been kind of -- we thought it was going to go above 50 to 60, and then it was kind of more in the 50s last year. And I know that it's hard to predict where it's going to end up, and there'll always be prem clients for a while. But is that going to be sustained -- a sustained upward move from here? What is your thinking?

Question: Steven Richard Koenig - SMBC Nikko Securities America, Inc., Research Division - Analyst : Sure. Got it.

Question: Steven Richard Koenig - SMBC Nikko Securities America, Inc., Research Division - Analyst : Got it. Got it. Okay. Great. And if I could ask a follow-up, so actually, Ken, I did want to ask you about your trajectory towards the Rule of 40. What are you thinking timing-wise? Just remind us. And then, Alan, I wanted to ask you. When it comes to low-code competition, if I were to characterize Pega's traditional reputation as being, I would have said the BMW on autobahn, now I'll say the Tesla on the autobahn. Apologies to BMW. But some of the other low-code competitors being more like an MG and a road rally through the suburban streets. From a technology and product perspective, maybe give us an update on your intentions and your ability to compete in that road rally as opposed to the autobahn -- in addition to the autobahn.

Question: Rishi Nitya Jaluria - RBC Capital Markets, Research Division - Analyst : Wonderful. It's really good to see Pega Cloud accelerate from last quarter. One, a multipart question for Ken, just on better understanding of the cloud dynamics. And then I have a follow-up for Alan. So Ken, on the cloud ACV side, I want to maybe expand on an answer that you gave earlier on the cloud ACV growth versus cloud RPO growth. Part one, can you maybe remind us the dynamics or waterfall of Pega Cloud ACV accelerating to when that translates to Pega Cloud revenue growth accelerating because that line did not pick up this quarter? And then maybe alongside that, if we look at current cloud RPO, that actually ticked down sequentially for what I believe is the first time ever, at least as far as you've been going down this cloud transition. I know there's some FX headwinds there. Is that purely -- putting the FX stuff aside, is that purely just deal timing and there's maybe a lag from when it gets signed at ACV till you can recognize it as RPO under GAAP? And -- or is there something else there that we should understand? And then I've got a follow-up for Alan.

Question: Rishi Nitya Jaluria - RBC Capital Markets, Research Division - Analyst : Got it. Okay. That's really helpful. And then, Alan, I want to build on some comments you had kind of made earlier. I was just thinking about the macro environment, but one of the pieces that you didn't touch on as much is just a tough hiring environment out there. And a few of your peers that also deal with automation in different ways, so not competitors, but more adjacent. Talk about how the labor shortage out there is actually serving as a tailwind for them, right, that there is more importance on making your existing employees more effective and more productive and that's serving as a talent for demand. Is that something you're seeing outside of your own hiring? How are you thinking about how you may be benefiting or how the labor shortage is maybe impacting the demand environment for you?