PEGA(PEGA) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total Annual Contract Value (ACV) increased by 21% year-over-year, reaching $738 million, up from $611 million in Q2 2019 [51] - Total revenue for the first half of 2020 was $493 million, an increase of 18% from the same period in 2019, driven by a 55% increase in Pega Cloud revenue [56][57] - Non-GAAP net loss was $0.28 per share, compared to a net loss of $0.30 per share a year ago [61] Business Line Data and Key Metrics Changes - Pega Cloud business grew by over 50% year-over-year, with its ACV increasing by 66% from $135 million to $211 million [9][51] - Subscription revenue for the first half of 2020 increased by 38% year-over-year, from $270 million to $373 million [58] - Professional services revenue declined by about 6%, primarily due to reduced reimbursable expenses for travel [58] Market Data and Key Metrics Changes - Approximately 80% of new license bookings in Q2 came from financial services, insurance, healthcare, and government sectors, which are less exposed to pandemic impacts [46] - The backlog increased by 30% year-over-year, from $628 million to $817 million, with Pega Cloud backlog increasing by 26% [55] Company Strategy and Development Direction - The company is focused on digital transformation, which has become increasingly critical for clients during the pandemic [10][30] - Pega is transitioning to a recurring revenue model, with over 90% of software revenue now recurring, which provides more stability during economic disruptions [44][45] - The company plans to invest in go-to-market resources to capture a larger share of client spending on digital transformation [53] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the urgency for digital transformation among clients, which is expected to drive growth [38][39] - The company has a strong cash position with over $0.5 billion in liquidity, allowing it to weather the current economic challenges [10][48] - Management believes that the current environment presents opportunities for growth, particularly in the federal vertical and among existing clients [96][98] Other Important Information - The company successfully pivoted to a nearly 100% remote workforce and has maintained effective operations during this transition [26] - Pega held a virtual event that attracted over 42,000 registrations, significantly higher than previous in-person events [27][29] Q&A Session Summary Question: Update on hiring plans for new sales reps and sales coverage - Management noted that the increased sales force has provided greater liability and has been effective during the pandemic, with successful onboarding in a remote environment [68][69] Question: Insights on project delays or pipeline growth - Management indicated that many clients are prioritizing critical digital transformation projects, and there is no significant evidence of sacrificing the second half for the first half [70][71] Question: Challenges with remote professional services - It was clarified that while some clients may struggle with remote work, it is rare and not significantly impacting overall operations [72][74] Question: Trends in product use cases and digital transformation - Management observed that organizations are recognizing previously unaddressed problems, leading to more strategic conversations about digital transformation [76][78] Question: Acceleration of backlog growth - The increase in backlog growth was attributed to hiring more account executives and improved client engagement, resulting in a strong Q2 performance [79][81] Question: Current pipeline status and top-of-funnel performance - The pipeline remains strong, with significant opportunities primarily with existing large customers [84] Question: Incumbency as a differentiator in capturing new customers - Incumbency has been beneficial, especially in large organizations, and there is still significant upside potential for growth [86][88] Question: Federal vertical growth and competitive landscape - The federal vertical has shown strong growth, with opportunities for further expansion and partnerships [92][95] Question: Opportunities to accelerate ACB growth - Management highlighted the potential for growth through existing client relationships and the federal vertical, which is still underpenetrated [97][98] Question: Trends in Pega Cloud deal sizes and commitments - The average deal size for Pega Cloud has remained consistent, indicating a balanced approach to new and existing customer commitments [102][103]