Pegasystems Inc (PEGA) 2017 Q4 法說會逐字稿

Good day, and welcome to the Pegasystems' Fourth Quarter and Full Year 2017 Earnings Conference Call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Ken Stillwell, Chief Financial Officer, Chief Administrative Officer and Senior Vice President.

Please go ahead.

Thank you.

Good evening, ladies and gentlemen, and welcome to Pegasystems' Q4 2017 Earnings Call.

Before we begin, I'd 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, could, should, estimates, may, targets, strategies, intends to, projects, forecasts, guidance, likely and usually 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 year 2017 and beyond could differ materially from the company's current expectations.

Factors that could cause the company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q4 2017 earnings and in the company's filings with the Securities and Exchange Commission including its annual report on Form 10-K for the year ended December 31, 2017, and other recent filings with the SEC.

Although subsequent events may cause the company's view to change, the company undertakes no obligation to revise or update forward-looking statements whether as a result of new information, future events or otherwise, since these statements may no longer be accurate or timely.

And with that, I'll turn the call over to Alan Trefler, Founder and CEO of Pegasystems.

Thank you, Ken, and I'm pleased to say that Q4 was a record quarter, capping off a solid year for Pega.

Last quarter, I mentioned some challenges related to changes in our approach to selling and customer engagement.

And though we're not near done, the changes we continue to make are bearing fruit and I'm excited about our progress.

As evidenced in this quarter's results, we had a strong finish to the year, and I'm pleased how our sales teams and the organization as a whole are embracing our change agenda.

As I've often said, it's important to look at our results in context, taking into account current revenue, changes to backlog and growth in our annual contract value.

We had solid revenue growth while also driving a strong increase in backlog and ACV.

We ended the year with the largest license and cloud backlog we've had in the company history, increasing 23% or $120 million.

And as we discussed last quarter, our shift to recurring continues to accelerate, consistent with our move to emphasize cloud and recurring-based arrangements.

We've deepened our management vouch to help drive efficiency and effectiveness across all selling regions and to help us meet our ambitions.

And that for example, to help us execute, earlier this month, we announced the addition of Jeff Taylor in a new role of Senior Vice President of Strategy and Go-to-market Operations.

Jeff has a proven track record of helping organizations achieve go-to-market results, and we're excited to have him on board.

While there's always room for improvement, I'm very happy with our Q4 and overall 2017 performance and believe our momentum will carry into 2018.

So let's talk a little bit about strategy.

As we review 2017 and look to 2018, I want to provide a little context about our market and competitive differentiators.

Pega has always been about helping organizations drive change in how they build, deploy and evolve enterprise software to really achieve material business impact.

And as I've mentioned, we believe that real digital transformation demands both exceptional customer engagement and a link to true digital process automation.

We have the privilege of working with many of the world's largest and most successful companies that are striving to achieve digital transformation but frankly face a world that often is characterized by digital chaos.

We're finding that organizations increasingly recognize they've been making 3 of the same well-intentioned mistakes.

First, there's a tendency to build in disconnected channels instead of thinking of and designing customer journeys.

What this means is they end up building new features into their mobile app, or their web team takes a shot, or they add capabilities to a cBOL or a Salesforce.com contact center.

However, this isolates intelligence and processes into disparate situations, meaning that a customer that engages across channels, for example, they start online but yet want to finish by talking to a person, really struggles and typically cannot get a coherent experience.

So the second mistake is organizations, in an effort for quick wins, can focus on automating tasks, doing fragmented improvements tied to specific back-end systems, sometimes using robotics, but typically unable to link a customer to an actual outcome.

So the third mistake that embodies all of this is the result is that the front and the back of the house end up, well, in silos.

Instead of thinking end to end, people think in little lumps.

And this creates a digital gap that decreases efficiency, increases cost and results in bad experiences for customers as well as for the staff trying to serve them.

We believe that Pega is tremendously positioned to help these organizations close that digital gap.

We provide real-time omnichannel AI that can embed itself seamlessly and work across channels.

We also provide end-to-end robotic automation that includes robots, process automation, case management and e-mail bots, all of which get the work done.

So we're the only provider in our space to unify these technologies to connect customer engagement to digital process automation, all on top of what we call the future-proof platform.

This powerful combination lets us and our customers deliver end-to-end outcomes.

Customers can attack their client engagement initiatives one journey at a time, addressing cross-sell and upsell, address changes, onboarding new customers, enabling them to rapidly make those journeys work across channels, starting where it makes the most sense for them and their customers and then continuing to build and evolve as their needs change.

And we do it on the cloud of choice for our clients.

So unlike others who may have started by building sales systems for mom-and-pop businesses, our heritage is delivering true automation systems that drive real business value and can do it at enterprise scale.

The addition of our CRM apps allows us to punch through to the front office with the power of our core digital process capabilities.

And every day, our software is powering millions of automated processes and trillions of dollars of business.

So as we think about this strategy, I'm pleased that we have 6 concrete differentiators that Pega is based on that really allow us to draw a distinction between other people who are in the space or aspiring to be in the space.

And I'm going to briefly touch on all 6.

First, real-time AI.

Over the course of 2017, we continued to enhance our real-time AI offerings.

Significantly, we introduced the industry's first-ever AI transparency controls to give organizations control over the transparency of their AI.

That's really how their AI makes its decisions, which can be particularly important in regulated industries and especially relevant with the GDPR deadline looming in Europe.

Our Customer Decision Hub continues to be one of our key competitive differentiators, bringing this AI across channels, and we continue to deepen our talent.

Recently, we hired Shoel Perelman as VP of Product for Pega Marketing.

He was previously VP of Engineering for Watson Commerce.

In end-to-end robotic automation throughout 2017, we've really boosted our CRM offerings to improve service and sales effectiveness.

We've introduced personal desktop robots to help customer service reps automate repetitive tasks and launched the first robotic automation capabilities to reduce the time and costs associated with managing end-to-end onboarding of customers and KYC processes, Know Your Customer processes.

We were pleased to be named a Hot Vendor in Robotic Process Automation by one of the leading industry research firms in this category.

And we're finding it's a major interest in many organizations, and our approach is unique and importantly differentiated to prospects.

Third, the underlying concept we have of software that writes your software.

Our mission continues to be changing the way the world builds software, and our model-driven development approach continues to deliver productivity gains not possible with traditional software methods.

While some of our competitors have so-called low code approaches, we offer a comprehensive no-code approach that's battle-tested and truly works.

And I was really pleased that last week, our client, Phillips, was highlighted in a major article in The Wall Street Journal and said of their developers embracing Pega, they'd rather be able to build 5 new apps that could change the world than be able to say they were the best Java developers.

Being able to get people out of the weeds in programming languages and into their businesses is exactly what Pega is about.

Now we've talked about journey at a time and the ability to let a client focus on an outcome and make it so that they can, well, overcome the confusion that exists when people try to put in systems and try to do digital transformation.

By giving them this ability to attack one customer journey at a time but do it across channels, they get to pick what's most important, deliver quickly and continue to accelerate time to value as they add journey after journey, eventually making it as broad and as wide as it makes sense for them.

We're able to do this so effectively, particularly in large organizations, because of the fifth critical differentiator, what we call the Situational Layer Cake which enables our architecture to organize the journeys, to differentiate, to specialize and get [reads] from their applications to support multiple products, regions and channels.

And then finally, sixth, this is all done on a Cloud Choice architecture.

We see ourselves as the only vendor in the space to provide true Cloud Choice, letting our clients decide where and how they want to run their applications without being locked into a single cloud or vendor technology.

This year, we enhanced our differentiation with new and/or strengthened collaboration with leading clouds from Amazon Web Services, Pivotal and Azure.

Now ultimately, these core differentiators continue to drive industry recognition, clients' interests, and most importantly, client successes.

Relative to the analysts, in 2017, we were once again recognized as industry leaders by Forrester and Gartner in all relevant customer engagement and digital process automation, that -- by the way, DPA is the new name encompassing the sector formerly known as business process management.

And we're really, really pleased because that enables us to go to clients and show them that we have an objective level of credibility.

And we've been using this with our land and expand strategy, our growth driven by both new clients and expanding relationships with existing enterprise clients across industries, applications and geographies.

We significantly increased the number of new logos we have in 2017, with great organizations as varied as a Boeing, Rolls-Royce and the [Sands Group], among many others.

We also expanded our relationships with organizations such as Anthem, Bank of America, the Commonwealth of Australia, Scotiabank, Toyota, Vodafone and Verizon.

So most importantly, we're seeing terrific results and are able to share quick go-lives with clients, particularly on our cloud environment.

This past quarter, we celebrated a couple of cloud go-lives with customers such as QBE Insurance, Australia's largest global insurer, now using Pega on the cloud to transform how they handle underwriting, consolidating multiple systems and manual processes into an integrated platform, using robotic automation to the extend the implementation and provide a really end -- true end-to-end solution.

Or very, very differently, Zimmer Biomet, a large global orthopedic device manufacturer, is using Pega on the cloud to consolidate disparate systems that's been acquired through multiple mergers and acquisitions.

This new approach is designed to provide a more efficient and better user experience for their surgeons to deliver optimal products and quality care to patients.

Now one of the things that we're doing as we look to continue to grow the business is to expand our ecosystem.

And we're working very, very hard.

This is a real focus.

We're pleased to welcome Rupen Shah as Vice President of Alliances and Strategy for Independent Software Vendors, to drive a new independent software vendor function to build more developers -- bring more developers into our community.

Past 15 years, Rupen's been doing this in a variety of situations, most recently at Salesforce.

And our certified ecosystem of trained and certified Pega staff strongly grew last year, boosted by our announcement of free training at last year's PegaWorld.

That program has proven so successful, we've now extended it through June of 2018.

And finally, we're getting good traction and early results from our Pega Ventures funded companies.

We continue to evaluate additional partners with the ability to build thriving Pega Consulting businesses which specialize skills, industry expertise and local geographic coverage.

I'm also pleased that along with 10 other global tech companies, we're one of the founding members of a new skilling initiative, introduced by the World Economic Forum at Davos, that will provide free access to our academy for workers looking for new careers in the tech industry.

So there's a lot going on, and on top of it, we're deep into PegaWorld 2018 planning and promotion.

We're going to have many exciting innovations to announce and great keynotes.

So I hope you'll join us this year, June 4 and 5 in Las Vegas.

So in summary, Q4 was a record quarter, capping off a solid year for Pega.

We're entering 2018 with momentum from the end of 2017.

And I'm optimistic we're making a lot of the right changes for the long-term health of this business.

I remain confident in our strategy and excited about the progress.

Before I turn it over to Ken, I also wanted to comment briefly on the letter to our shareholders that we filed as an 8-K this afternoon.

In coming months, we want to be able to talk to shareholders about how they'd feel about Pega looking to do more acquisitions than we've done historically and the possibility of our issuing a second class of equity.

This is intended to be an open-minded discovery exercise.

We don't have any specific plans.

However, to avoid any hint of issues around selective disclosure, we've decided to put out a 2-page letter to describe areas where we anticipate talking to shareholders and seeking feedback.

We're happy to talk to any and all shareholders regarding their thoughts on this or anything else.

And now, let me turn it over to Ken, our CFO.

Thank you, Alan.

Well, our finish to '17 -- 2017 was certainly an exciting one.

We once again experienced record license and cloud commitments and continued our trend to more recurring commitments.

Our revenue growth accelerated in Q4 as did our growth in license and cloud ACV.

Our backlog soared by over $100 million, again in 2017, with much of that growth coming in Q4, which is not unusual.

We had continued growth in recurring license and cloud ACV of 20%.

Our recurring commitments were 65% of total licensing cloud commitments for the full year 2017 and provided some headwind to our revenue growth, as we've talked about throughout the year.

For 2 consecutive years, we've seen the market, and specifically our clients, prefer to purchase under recurring contracts of term license and cloud.

Similar to last year, we have 3 whales in Q4 of 2017 and 4 whales for the full year of 2017 compared to 5 whales for the full year of 2016.

To remind everyone, our definition of a whale has been a customer software commitment of greater than $10 million.

Our mix of license and cloud contractual commitments shifting toward more recurring arrangement has an incredibly positive long-term effect.

The increase of recurring cash flows is fantastic for the predictability of the business but produce a near-term compression on the top line as you move through this shift.

Therefore, please keep in mind that this move reduced the reported revenue we have otherwise experienced had -- we would have otherwise experienced had the mix shift not occurred.

That said, we still achieved $841 million in revenue, with $240 million occurring in the fourth quarter.

Additionally, new client deals increased by over 40% year-over-year, highlighting the excitement of lots of new clients joining the Pega community.

For the full year 2017, we're reporting both GAAP and non-GAAP results.

A full reconciliation of all GAAP to non-GAAP measures is provided in the financial tables of the press release issued earlier today and is available on the Investor section of our website.

In our view, year-to-date results provide the most meaningful look at how our business is performing.

We are very pleased to report that year-to-date GAAP total revenue was $841 million, which is up 12% year-over-year.

As mentioned earlier, our GAAP revenue was negatively impacted by our movement to a much heavier recurring contract model.

To be specific, term and cloud ACV grew by 20%, while perpetual revenues slightly declined.

Consulting services revenue for the full year 2017 was $256 million, an increase of approximately 23% over the prior year.

In the future, we expect to continue growing our consulting business at a high single to low double-digits rate, consistent with our strategy to have customers and partners deliver the majority of our implementation services.

That being said, some opportunities may strategically require us to participate to a larger extent.

When that happens, like we saw in 2017, our service revenue could be a little larger than it might otherwise be.

Looking at our geographic non-GAAP revenue split for the full year 2017, the Americas, inclusive of the U.S., Canada and Latin America, produced 61% of total revenue, while non-Americas, international, that generated the remaining 39%.

Approximately 11% of our total revenue is generated from the United Kingdom.

The geographic mix is impacted by the strong U.S. dollar compared to other local currencies.

Over the past year, we discussed our financial awareness program designed to help drive margin expansion as we continue to scale the business.

Our financial awareness program is intended to reinforce certain fundamental business principles aimed at making sound and fiscally responsible decisions on investments, trade-offs, et cetera, while still ensuring that we capitalize on our market opportunity and growth of the business as a high priority.

As I mentioned, this is an exciting thing to see, this evolution of growth and margin balance and deeper accountability in the firm.

In addition, we experienced improvement in maintenance, cloud and consulting margins in 2017, reflecting our continued focus on margin expansion.

Turning to earnings.

On a per share basis, our non-GAAP 2017 fully diluted net income was $0.86 per share compared to $0.77 per share for the full year 2016.

We are excited with our earnings per share achievement, given the impact of the mix shift to recurring arrangements continuing to be a headwind to top and bottom line growth.

Moving on to backlog in the balance sheet.

We compute license and cloud backlog by totaling 2 components: Deferred license and cloud revenue, as posted on our balance sheet; and license and cloud contractual commitments that are signed but have not yet been recorded on our balance sheet.

As a reminder, you can find detailed both elements in Item 7 of our 10-K and a summary table in our press release, both of which we filed earlier today.

We finished 2017 with $648 million of total license and cloud backlog, an amazing increase of 23% from a year ago.

Backlog grew over $100 million from prior year for the second straight year.

The shift to more recurring revenue streams of term and cloud arrangements is the driver of this growth.

Our term and cloud contract commitment duration averages approximately 4 years, and we have not noticed a material change from previous periods.

Adding 3 whales, as mentioned in Q4, displays that customers continue to invest significantly in Pega's solutions.

We have significantly more term and cloud revenue than perpetual revenue in 2017, which highlights that our movement to recurring is being achieved and starting to be reflected in revenue.

As all of you understand, recurring cash flow streams where the client is committed for extended periods, combined with our over 90% retention rates, helps us have high confidence looking out to the consistency of our cash flow streams into the future.

From a cash flow perspective, we produced $158 million of operating cash flow in 2017 versus $40 million in 2016.

We've finished the period with total cash and marketable securities of $224 million.

Our improvement in cash flow was driven by our increased focus on managing our levels of working capital as we move to an increasing recurring contracting model.

Specifically, our improvement in days sales outstanding was a large driver in the improvement in operating cash flow.

For the full year 2017, through net settlement or open market purchases, we repurchased approximately 900,000 shares for $46 million.

As of December 31, we had a balance of $35 million available for repurchase through June of 2018.

On headcount, we finished the period with approximately 4,200 employees, up 8% from December 31, 2016.

The growth in headcount is disproportionately concentrated in lower-cost territories as we continue to expand our global client base and in our new markets.

We anticipate having a lower effective tax rate going forward with the changes to the U.S. tax law.

Given our existing global structure, we anticipate that the tax rate will be reduced by 5 to 10 percentage points from our existing levels.

We are providing a range because it is dependent on where we experience taxable income around the world.

In summary, we are happy with the finish to 2017, including but not limited to, our movement to recurring arrangements of term and cloud ACV and progress on margin expansion.

We are laser-focused on continuing the success in 2018 and beyond.

Our confidence is reflected in our full year 2018 GAAP and non-GAAP revenue guidance of $950 million, a 13% increase over fiscal '17 -- 2017.

Non-GAAP diluted EPS for the full year 2018 is expected to be approximately $1.20.

We also strive to achieve annual growth in ACV of 20% or greater.

Our revenue guidance includes anticipated changes under ASC 606, which is the new revenue standard, that becomes effective January 1, 2018, for Pega.

To summarize, we expect slightly accelerated revenue under 606 versus 605, which is the previous standard that was effective through 12/31/2017 when it comes to term arrangements.

This is because under 606, revenue related to term arrangements gets accelerated into the booking period.

This acceleration will be offset by our anticipation of shorter-duration contracts as we focus on improving business velocity of our deals.

As we mentioned previously, we have reinforced our commitment to recurring through implementing an ACV-based incentive plan with our sales teams.

We believe that our average duration will decline toward an average length of 3 to 3.5 years from our current 4-year duration.

Additionally, as we move to more cloud arrangements, it is reasonable to see some additional headwind from the continuing shift to cloud.

When you consider our term, cloud and maintenance ACV and add in our consulting billings, we have a direct line of sight to over 75% of our expected 2018 billings, highlighting the strong visibility that we have on operating cash flow for 2018.

And with that, operator, we'll open the call to any questions.

(Operator Instructions) And we'll take our first question from Mark Schappel with Benchmark.

Ken, starting off with you.

In your prepared remarks, you mentioned that recurring commitments were 65%.

Was that for full year 2017 or was that for the quarter?

That was for full year, Mark.

For full year 2017, we landed at recurring commitments of 65% and onetime at 35%.

So if you remember, we started -- through Q3, we were slightly below that.

So our Q4 continued the trend, if not a little bit greater in terms of recurring.

Okay, great.

And then for the revenue guidance for next year, what is your assumption for the recurring to perpetual mix?

We are assuming that we will have approximately the same mix of about 65% to 70% recurring versus the difference being perpetual.

Just to be clear though, it's recurring commitments.

Think of cash flow, Mark, because the term is not actually recurring anymore on revenue.

But I think you're asking the question just between perpetual and term in cloud, so you should think about a kind of 2/3, 1/3 kind of mix.

Okay, great.

And then under 605, where would your revenue have come out if you just didn't account for the accounting change?

You're talking about for guidance?

Yes, yes.

It's an interesting question, and what I would say is that it wouldn't -- our estimate is that it wouldn't have been largely different than what we're guiding because we would have had the offset of a little bit accelerated revenue under 606 for term against the kind of the headwind of less duration, if you follow my math there.

And those 2 factors would largely offset each other.

So we feel like we would have been kind of into a similar range.

Okay, great.

I'll let you go here, Ken.

But a question for you, Alan.

In your prepared remarks, you mentioned that you added AI capabilities -- excuse me, AI transparency control, I think that was the phrase you used, to your AI offering set.

And I was wondering if you could just go into a little bit deeper dive, a little bit more detail on what exactly that is.

Sure.

Well, as I think folks know, and if you want to see a really terrific 0.5 hour presentation on this, one of our luminaries, this guy named Dr. Rob Walker, gave a presentation on the Tuesday at PegaWorld.

It was one of the best I've ever seen on this exact topic.

And in a nutshell, a lot of these machine learning algorithms, which we're also able to take advantage of and we have elements of machine learning in what we do.

But a lot of machine learning algorithms really run serious risks of violating regulations.

They can find correlations that actually violate, for example, fair lending laws.

And if an organization follows that for either qualification or even for pricing, there's some serious potential exposure.

So with this transparency switch, we give organizations a chance to say, "Hey, this is the type of offer that I want to do with pure adaptive machine learning.

I don't have to worry about regulations at all.

I don't have to explain how I made the decision.

I can just let the machine optimize," which is what machine learning is really, frankly, very good for.

Or in other situations, they can say, "Well, this is perhaps a fraught area.

This is a place where we need to be transparent.

We need to have explained why we made a particular decision.

And so I want to use the power of machine intelligence, but I need to do it in a much more structured and responsive way." That's what the transparency switch does.

And frankly, I think, we're in a staggeringly better position than the folks who have just adopted machine learning and neural networks helter-skelter because frankly, you need to be able to weave good judgment into how you apply this technology.

And I think that's going to be true even more in the future.

Does that make sense?

It does.

That's very helpful.

And then one final question here.

Alan, could just run through just some of the meaningful changes to the sales org that you introduced in the coming year, in 2018?

I can give you a flavor.

I'll tell you that some of these were introduced in 2017 as well.

As I think I've mentioned, I think we introduced a bunch of changes in 2016.

We began heading in a certain direction.

As you'll hear in a second, we've really just sort of begun heading in that direction.

And I think one of the problems of our business is the quarters can be lumpy.

And it's really dangerous for, I think, either investors or even us, to overfocus on a given quarter.

So we had a really good Q4 2016.

We had a really good Q1 of 2017.

And to be honest, I think we thought we were a little further along, that in hindsight, we really were.

We quickly realized that and have redoubled down on some of the changes.

In terms of what they are, for example, we've moved the entire sales force, 100% of it, to an ACV model, from a model that previously have been based on total contract value.

And that's more than just the mathematical calculation.

That includes really rethinking, educating, getting everybody up to speed.

Frankly, it's gone, from my point of view, from what I've seen, extraordinarily well, given anytime we try to change things with the sales force that's always a little bit potentially fraught.

But as of Jan 1, we flipped that switch completely and we're really having the entire organization thinking about annual contract value, thinking about recurring as sort of a primary, not exclusive, but primary way of going to market.

We adopted what we call the challenger sales methodology, which is really moving people from a relationship selling to really actually saying, hey, just like we have with transparency as it relates to AI, we've got some things where we've got a position that challenges some of the conventional thinking.

And that involves a tremendous amount of sales enablement and, actually, in some cases, new salespeople and new sales managers who are really able to do that sort of differentiated, I would say, presentation and thinking.

We've uplifted not just the front-line team but a lot of support team to be able to be better able to talk to folks we didn't use to talk to as much, people like chief marketing officers or heads of sales operations.

So extensive changes in terms of both the operations and the orientation of the sales and the marketing organization and the whole business that sits behind it.

These things all need to work in some alignment.

So I don't want to pretend we're done.

But in terms of being along this journey, we've made a lot of progress, and I'm happy that, that progress is heading in the absolute right direction

I'll add one thing to that, Mark, that kind of gives you another flavor of this.

We have support functions that support our selling teams, and it's really important that the point of why we moved to ACV was not to reduce things like commission costs, because quite frankly, we'll have higher commission cost in that environment, it was to speed up the velocity of how we transact the deals so that we could get more things through the pipe.

And so we need to talk to our supporting functions around sales to make sure that they're following that lead as well.

And that we're focusing on speeding up where appropriate so that we don't think about sales cycles in terms of years, we think about sales cycles in the enterprise software in terms of how can we get this customer value.

And I think that, that's a cultural change, it's not just sales but it's the entire organization.

So that's -- it's further-reaching than just say a comp plan change, because that might be the simple way people think about it.

(Operator Instructions) We'll now hear from Joseph Winn from Wedbush Securities.

My first question is just on Pega robotics.

We continue to hear about accelerating proof of concepts in the field.

And I was just wondering, I guess, Alan, this one would be for you.

Can you give any color on what you're seeing from customers who are still kicking the tires?

And any adjustments you might be making in the sales process?

Also, I guess, as a standalone technology versus integrated BPM, any demand trends you're seeing there?

Sure.

One of the things when we've historically done acquisitions, which we've obviously been very selective about, is we've tried to do a lot of work to unify the technology into the rest of our platform.

So you don't have a bunch of things that are common products in name only, but we really want to make things work together.

And we see a natural connection between being able to run a process and being able to then use robotics to handle those pieces as a process that tend not to have really good interfaces.

And that's a big deal because so many of these other robotic competitors really start with the robot.

They don't think about the journey, they don't think about the process.

They put these little robots in.

And frankly, we're seeing customers starting to realize that, that's going to run out of runway.

I mean, you can use it in some situations, but generally, the purpose of the automation should not be around little tasks the robot is doing.

And by the way, the worst of all possible worlds, and we just had a very major client flip to our technology for this reason, is when a customer has done this a little bit, realizes that they've created all these little robotic silos, they start putting business intelligence into the robots, these disconnected robots can't hang together.

So we can do the disconnected stuff.

But our whole pitch this year especially is it's really about being able to think of the robot as augmenting a customer outcome.

And if a step in that outcome is best done with what's called a web service, well, we should do that.

And if a step needs a robot, we should do that.

But there better be a brain that's holding all of it together.

And that's where the Pega architecture -- and I think if you get to our website, you'll see we actually have a lot of good stuff on this.

I think that's where we're highly differentiated in ways that I believe this year, customers will increasingly appreciate.

Does that make sense?

Yes, that's great.

Actually, Mark covered my second question.

That will conclude today's question-and-answer session.

I will now turn the conference over to Mr. Trefler for any additional or closing remarks.

Thank you.

We're working hard.

We're doing lots of things.

I'm pleased that the company has a change agenda that's broadly adopted and there's a lot of enthusiasm in the firm, though a recognition that we've got a lot of work to do.

If you want to see a terrific example of what we're about and where we're going, I can think of no better place to experience that than PegaWorld on the 4th and 5th of June.

We do have an investor set of sessions that will be on Monday, June 4, this year.

And for those of you who might be interested, please don't hesitate to reach out to Ken.

We'd love to see you there.

And with that, thank you very much, everyone.

That does conclude today's conference call.

Thank you for your participation.

You may now disconnect.