Pegasystems Inc. (PEGA) Earnings Call Transcript & Summary

Okay. Good morning. Thanks to everyone for joining us around the globe. I'm Drew Foster. I'm a software analyst here on the team here at Citigroup. And this morning, we're kicking things off for day 1 of our virtual tech conference with Ken Stillwell, the CFO and COO of Pegasystems. So thanks for joining us, Ken. We're going to have about 40 minutes here for a fireside chat format, and feel free to send your questions to me, to [email protected]. I'll monitor my inbox and work those questions into the discussion as best as we can.

With that, why don't we sort of get started here, Ken, and team, thanks for joining us here. It's a pleasure to have you. You're not a covered company of ours, but looking forward to walking through your business and getting up to speed. Why don't we just kick things off with kind of a brief introduction of yourself, Ken, and kind of overview of Pegasystems.

Sure. Thanks, Drew. So Pega is -- I'll touch on Pega and then I'll hit maybe just a little bit of color to kind of kick this off. So Pega's been a -- in the software space selling to enterprise clients for what is -- it's kind of scary, but approaching 40 years. We started as more -- kind of more on the custom software development side where we would -- where we actually in the early years, we wrote code, but actually executed certain activities of workflows in an organization back in the '80s. We kind of turned that into where we commercialized workflow and process management. And I would say, if not created, certainly was a big part of creating the business process management space a number of years ago. And that was really our bread and butter for many years where the applications that we built weren't really applications in the kind of '80s and '90s. They were more of customized workflow use cases where we leveraged our technology. If you fast forward to today, we're a very different company. Even though we solve some of the same problems, companies in the industry in general don't solve workflow by writing custom code anymore, right? There's a lot -- it's a lot more kind of productized, certainly more application functionality. You're connecting with lots of best-in-breed third-party client interface applications. So it's not something like we all used to joke of the old blue screen systems, right, where you had to kind of almost write code to log in before there were browsers, et cetera. So we've certainly matured from where we were 30, 40 years ago to where we are now. I came in about -- I'm in my sixth year at Pega, which is another frightening thing because time flies so fast. But when I came in, we were largely a perpetual software business selling to clients that deployed on servers. That was really our business. And you can certainly argue that in the 2015, 2016 time frame, kind of when I started, you -- we probably should have matured past that. The cloud was certainly starting to get adopted and people were moving to at least virtualization, if not public clouds. But I would say we were probably admittedly a little slow to move toward the kind of cloud offering. When -- we went through a journey over the last 5 years where we shifted the business from a perpetual business into a subscription business. That shift into a subscription business originally was a little bit more of a buying need that clients wanted to buy in a subscription way. We certainly saw more value in those relationships at our kind of retention rates. And a lot of our expansion was happening with existing clients. 75 -- 2/3 to 75% of our business historically has come from our existing logos. So if you put that kind of recipe together, subscription -- a subscription model made more sense for us and made more sense for our clients. What happened in the middle of that transition was the cloud really emerged. And when I say the cloud, I don't just mean Pega Cloud. I mean everybody's cloud. Azure came on the scene. GCP came on the scene. AWS is growing 30%, 40%, 50% a year, even at significant scale. So I don't know that anybody in 2015 would have guessed that we would be as cloudy as we are now just in technology, right? It's been a very big shift. And now what's happening is you have this -- almost this reemergence of the private clouds, where people -- where clients 5 years ago didn't have the expertise to run their own virtual private cloud environment. Only a handful of the very largest, most mature companies have those kind of skills. Now you're seeing people that know how to run an Azure control plane or an AWS or a GCP, they're much -- there's much more talent in the marketplace. So I think what it gives, it gives clients an option of buying a third-party public cloud from somebody like Pega or they may say, "I want to buy your solution, but I really want to manage it on my private cloud." And that we call that client cloud. So that's kind of the evolution of where we started, my -- the convergence of me joining the company and our shift to recurring and then also the second wave of the recurring, which was really the big push for us to push a higher amount of SaaS as kind of our leading -- our primary go-to-market.

Thanks for the background there, Ken. I think all that color was really helpful. I want to rewind a little bit just in terms of the broader opportunity set that there is out there today, just in the context of all the digital transformation efforts happening. You mentioned kind of the historical background of where your company played and some of the other systems that you would sit alongside. Where -- like bring us up to speed today, like what are some of the -- what's the biggest opportunity set for you that you're going after today in the context of a higher mix of SaaS and everyone's tech stack and where people are really leaning into? Like where is growth really coming from in your business?

So there are parts of our business that I think are doing very well and will continue to do well. And then there are some parts of our business that I might say are growth levers, to your question. So things like -- we've supported the customer service, the CRM customer service segment for many years. It's our -- it was our first entrance into CRM was really through the customer service of the digital contact center. That's a very healthy business. Our intelligent automation business, which is really a combination of business process management, digital process automation, robotics is a very healthy business. Two that I would maybe say are I'm a little bit more intrigued by in terms of the growth equation is our one-to-one customer engagement. What that is, is that is a client deploying our solution in a digital environment, meaning it could be a website, it could be on a mobile app, it could be a combination, where you're kind of catching customers inbound and making split second, actually, millisecond decisions on what you do with them, what content do you show them, what journey do you take them on, what offer do you put in front of them. And it's a very -- it's a model that needs to be real-time iterated, means you -- meaning you set up with a model and as you watch the transactions and you see the outcomes, the model evolves and learns from the actual transactions. The biggest problem with that market in general is the way that decisioning is traditionally done is you send it to a lab, you do 6 months a year of studies on the decisions, you come up with a model and then you deploy it. As you can imagine, there's a lag there, where the decisions that you want to make are always behind. Sometimes early behind a month, sometimes they're behind 6 months or a year. And as you can imagine, something like COVID even, where if you go back to when we decided to do the initial lockdowns, as I'll call them, in like, say, March, April, May of 2020, who could have ever predicted the behavior that would come out of that if you did model 6 months, 8 months before that, right? You would have never even -- I don't even think anybody knew of COVID in the back of 2019. So that's an example of something where you're going to have a complete digital solution that is not relevant at all because markets change. Even things like the unfortunate events of Afghanistan, something like that, that changes what people search for, what people -- so just having some context of seeing that real-time change in how clients interact and being able to change your models to capitalize on whatever is the best kind of opportunity to put in front of that client. That's one solution area. The second one that I think is incredibly interesting is I'll give you -- I won't name the client, but I just had a conversation with a client on Friday. And what they're trying to do with Pega, very common use case that lots of our clients are doing and lots more and really scores and tons more are trying to do with us in the future. They have a number of applications. They like those applications. They do not have an orchestration engine to be able to manage work across those applications. So what they're doing is they either have humans taking data from one system to another. They're creating data warehouses. They're trying to use aspects of robotics. They're -- really, it's a very clumsy way to execute kind of work across this -- sometimes it's in logistics with supply chain, sometimes it's dealing with customer disputes and inquiries, sometimes it's onboarding, it's loan origination, it's insurance policy underwriting. There's a number of use cases. So what this client -- and this is actually a consumer retail products company, which is an interesting one for us because that's not a huge market for us traditionally. It's not one of our core markets. But what they're trying to do is allow Process Fabric, which is one of our solutions, and process mining, which is a component of what we have are connecting to Process Fabric to be able to watch the activity, to see the systems, to orchestrate the work automatically, robotically across the workflow so that humans, they could -- they're hoping to take something like 1/3 of the actual effort, the manual labor effort that happens to manage those out and redeploy those resources to more value-added activities because they're growing very fast and they can't even hire the amount of people that they need to do those activities. So that's -- those are 2 areas where people are trying to get immediate digital insights and really smart decisions and offers in front of clients instantaneously in digital channels. And the second one is they're trying to automate work across disparate applications, sometimes inside your company and sometimes third parties, to be able to really orchestrate that work in as automated a fashion as can be done. I think those are the 2 most interesting that I see.

Yes. No, those are definitely interesting use cases. It sounds to me like the common denominator on those 2 latter use cases seem to be, I think, one of the -- if you're helping clients think through those things, I think one of the prerequisites for something like a Pegasystems is really tight integrations across the software ecosystem. So like when investors are thinking about Pegasystems playing in this broader ecosystem and sitting in the tech stack with customers, what are some of the most important integrations that you have with other software systems today? And what are some of the other pieces on your road map that you're working towards?

So we have integrations with pretty much every software brand that you've heard of that has open APIs. Anybody that -- and people think about companies like SAP and Oracle and Microsoft, I mean they're very open platforms, right? They actually encourage people. That's -- if they didn't, they would really be run out of business if they actually didn't allow the kind of the open nature. If you look at companies like Salesforce, for example, which at this point in time, I would say most enterprise companies have a -- an instance of Salesforce, right? I mean it's a very pervasive solution across enterprise clients. Salesforce is a very open architecture, a very open platform. We have situations where people run Salesforce inside a Pega browser, meaning inside of the Pega product, and other ones where people run Pega inside of a Salesforce kind of tab. So I think that -- think of us as being someone that really -- there's really no hurdle to us integrate and working with an Adobe, with a Microsoft, with a Salesforce, with any of the ERP providers, just to name a few, so long as those platforms are open. And I can't imagine any of those companies trying to close off their platforms. I'm not sure -- that would be probably very damaging to their own businesses because clients would then feel restricted. So I think what we live in is an open world, Drew. And Pega seems to have built a niche of being maybe better and more willing to create some of those integrations with all of those different applications. There's like an important point, though. I suspect the reason why we might have maybe a slight advantage over others in the space is that many of those other companies that I mentioned have core businesses where they directly compete on a day-to-day basis with the other ones. So it's not likely that Oracle and SAP would build a really tight connection to each other, right? Because those are 2 ERP systems that seemingly compete against each other. So they might -- you wouldn't see that. So many times when you have companies that are operating with different divisions, et cetera, that might have different solutions, we tend to be a -- I would say, an arbitrator between some of those systems and, quite frankly, able to execute the work. So it's not just the power of our solution, it's also the fact that we've worked kind of openly with so many of these companies over the years.

Got it. Okay. Yes. So I guess that's a good seg into sort of the competitive landscape in this market right now, and it sounds like you're getting more and more into use cases that sound like robotic process automation. How do you think about -- as you think across the number of use cases that Pega is solving for, I mean how do you think about kind of competitive positioning in the market? Where do you differentiate yourselves? And ultimately, like what drives longer-term competitive differentiation in these markets?

So there are -- so it's a really good question and one that I think has been asked quite a bit over the last few years and rightfully so. There's different aspects of robotics. And maybe it's -- maybe it will help if I clarify where we are very excited. The aspect of robotics that we're excited about versus the aspect of robotics that I would say we paid less -- we put less focus on. So the one that we paid maybe less attention to or less focus is more what I would call the commoditized aspect of robotics, right? The screen scraping, the -- putting an unattended robot on the computer of an actual user and allowing them to do things like single sign-on repetition, meaning they're trying to copy and paste user and log in across different systems and different browsers to make it fast in the background. That is certainly a useful tool. It's not something that we view as differentiated for us nor do we think any of the participants in the market are really differentiated. So I think that, that's one we have a desktop automation tool to compete with the names that you would probably -- you could probably read off. But that isn't really where we think the core value of robotics. Where we think the core value of robotics is automating within the application, not at the screen, but actually in the application. I don't necessarily even mean in the code, but it has to be inside the workflow. So when you're taking an order that's booked in Salesforce and you want to start that order and go to a licensing application and get a licensing key and set them up as a customer in customer service and be able to send information to billings so that the billing and invoicing can be kicked off in ERP, those are all robotic transactions that should happen. You shouldn't have to kick an e-mail to somebody and say, please enter this client, right? And so that's where we think robotics is incredibly powerful is to automate the steps that a human might need to do when things hop across applications. And so the traditional RPA solution only can do that well when it's on a screen. So it has to render a screen and someone has to know where it is on the screen to kind of OCR it and move that data. We're trying to get it off the screen and say, who cares if it's not on screen, who cares if it ever touches a laptop. We should be able to robotically automate within the actual workflow. That's why we think robotics is really powerful.

Got it. Okay. And just -- there were a couple of, I guess, you could call them RPA vendors that went public in 2020. When we're thinking about the -- you have to think that the pandemic was somewhat of a tailwind for those businesses because I'm going to think it was a good time to enter the public markets, right? So as we're thinking about kind of Pegasystems overall, how did things shape up for you last year? What was the kind of the initial impact on your business? And where do we kind of sit today as we're heading into the second half?

Sure. So I anticipated the pandemic was going to do more harm than good to our business when it first happened. And thankfully, I was incorrect. And I would say on balance, the pandemic has probably been fairly neutral to us. There's been some tailwinds on certain solutions and certain urgency that clients have pushed forward. I actually think digital transformation is stronger because of the pandemic. So those are kind of things that helped our business. I think the things that became more headwinds or challenges is the virtual selling world was something that we as well as other companies needed to get acclimated with, right? We have a -- we sell to enterprise companies where we typically get face-to-face, where we typically do interact with them at events in physical context, not all the time, but there is physical interaction. This isn't something like if you're selling to small businesses and you never went to the small business and you were trying to sell QuickBooks or something like that, that we didn't have -- we don't -- that's not our solutions. So given that, I think there were some challenges with things like ramping a salesperson and getting them productive and getting that new logos and things that were certainly harder in a virtual world. Now I think we're much better now than we were 1.5 years ago, like we know now how to do some of those things. We've moved some of our digital -- some of our marketing spend to more digital channels. We've trained. We've gotten new clients, have gotten used to interacting. So I definitely think we're past that, but that was certainly kind of like a headwind, so to speak, in terms of just us getting used to that. I'm sure that's probably not that dissimilar to other companies like us.

For the pieces of your business where you felt like as customer priorities were changing, certain things were put in the back burner or other things were sort of pulled forward, for the pieces that were put on the back burner, has demand started to come back? And what pieces actually were sort of deprioritized? Which pieces were sort of pulled forward? And for the pieces that were pulled forward, do you sense that it was pulled forward from future periods? Or like this is sort of a new demand environment where there's more sustainable demand for those pieces over time?

So some industries were -- I would frame it as materially impacted by the pandemic. Thankfully, we don't -- that's not the majority of our customer base, but we did have some of those customers as well. And I would say those customers are not returning to normal at the same pace that I would have expected, mainly because the pandemic has just strung on for so long. And without identifying any specific countries or making this a political comment, there have been restrictions to certain activities for consumers, whether they be actual legal restrictions or kind of fear restrictions around getting people back to certain activities. Now that doesn't mean that the media or others have put that for your people or just more maybe aware of it, right? But it's -- but in general, people are not going to be as quick to travel. People are not going to be as quick to do certain activities that are in large kind of physical venues. Now you're seeing things come back, but that's just because of certain population is almost immune to those -- to that type of discussion. But some are not. So I think there are some businesses that -- I think it's going to take -- for those like the travel, hospitality, companies like that, even the airlines to some extent, I think they're all -- they all understand what's in front of them, but I do think it's going to take a few years for that to kind of settle out and for us to get to a new capacity, new supply/demand kind of equilibrium, so to speak. When you go to the second part of your question, which is the companies that really accelerated, I'll just generically call it digital transformation, I don't think those companies pulled things forward, meaning they were going to do it in '22 or '23 and they pulled it forward to '20 or '21. I think what happened was all of their priorities got accelerated, which means they went out and said, "Hey, we were going to do a little bit of this over the next 10 years. We're not going to do that now. We're going to actually do a lot of it over the next 10 years." I don't actually think that the amount of work is the same. I actually think the amount of work is more. And I actually think we pulled in because I think -- and the reason why I say that is the common thing that I hear from clients, and I talked to quite a bit of them, the most common thing that I hear is when business gets back to normal levels for us, which not everybody is, very few people are back to normal levels, but they're getting there, we won't be able to find the human beings to actually do the work that we need done when we continue to grow. And so because of that, they're thinking ahead going, "We can't wait 5 years to do these digital transformation, we need to do them now." It's actually interesting because 3 or 4 years ago, digital transformation was about cutting costs, cutting heads. That's actually not the reality -- the reality now is we don't -- some -- for some reason, we don't have the actual people to do this work that we need. And therefore, we need more automation because the supply of resources is much more scarce. I don't know if that's a temporary thing. It kind of baffles my mind to think where did all these people go like, where did all these workers go, right? I mean -- but I do think the freelancing and people moving into -- doing things more remotely has definitely changed the landscape of the supply of resources. So I think that is more the connection with why people will accelerate than it is like cost cutting or something else. It's more just like -- I think it's just the practicality of we can't afford to have this many people in a processing center. We can't find them.

Right. And just to put one last finer point on that question, if you could parse sort of the dynamics that you've talked about in terms of your solutions use cases, RPA use cases versus kind of the CRM use case. What was the -- what were the puts and takes among your customer base and for generating new business? And maybe give us the same commentary about -- just by use case.

So robotics is -- think of robotics for us as more of a feature than a solution, right? It's a capability. So how many people are leveraging robotics? Lots of our clients want to leverage it. How many people are buying a straight robotics solution from us? That's not really a growth engine for us. That's not where our focus is because of what I mentioned earlier about, price has been declining. It is a very commoditized market. And then although growing, price points have dropped. I mean they've dropped like 800% or something like that in the last 4 years in terms of what we were getting -- what we could have got. So that's really -- however, robotics capabilities within the solution have actually -- the price points have actually held pretty steady. So you can see where -- that we were more commoditizing the desktop robot, but actually moving to differentiated robotics within the workflow. The CRM is just a really critical part of our business. I mean we do -- we are so differentiated in one-to-one customer engagement around marketing automation and the way that we can serve up decisions and offers and outcomes for clients, for consumers and digital channels that I think that we've just -- the use cases just continue to pile on in terms of the number of clients that are doing that. We're not a sales automation solution, although we do sell sales automation certainly with our clients and our solution. We think it's pretty interesting for specific use cases. The type of sales automation, things that we do are more around underwriting, origination. They are more vertical-specific use cases. They aren't like the traditional pipeline management. So just -- and then the digital contact center, I mean, that's -- look, if there's anything that went digital, it was the contact center with every person being -- working at their house. So I definitely think you just can't have some desktop solution that everybody is tied in through a -- to a thick client server in an office, like that's just -- that's not our world, right? So I definitely think the movement to customer service being distributed, being follow the sun, meaning being in all time zones, all days of the week, and that's the world that we're in now because our clients are working those exact same hours at an increased pace. So I think that that's kind of the ones that are a little bit more kind of intriguing around CRM. Robotics is -- I think about robotics as a differentiated feature around our CRM and digital process automation solutions.

Got it. That's helpful. So you've reported twice this year so far, we're heading into the second half. What were some of the more exciting things coming out of your last report? And then how are sort of pipelines shaping up as you're looking at the complexion of those pipelines this year relative to -- maybe last year was a weird compare, but relative to where we were in 2019, 2018, just in terms of the types of deals that you have, the average ACV, average module attach and things like that, what are some of the things that you picked up on for your purview?

So we're seeing certainly more clients really want to kind of double down on this digital transformation thing, right, really make significant investments. And so our pipe, I think, reflects a number of those discussions with clients around how they go -- they get into digital transformation at a little bit of a bigger investment pace. So I think you're going to see clients put more money towards this. I think it's an inevitable part of our business. That's going to be a really important growth engine given that we're not selling to 50,000 clients. We're really concentrated in maybe 1,000 or less real big organizations that we think can spend a significant amount of money. So our pipe is -- we don't have a lot of $100,000 and $200,000 deals in our pipe, right, unless they're kind of -- they're starter deals with a large organization. Most of our deals tend to be in the $500,000 to $2 million range, really kind of repeated increasing penetration in our clients and also some net new logos as well. So I think that's kind of the pipe is maturing nicely. It's certainly skewed more towards -- kind of away from like sales automation, more towards one-to-one customer engagement, digital process automation and the contact center. Those are the kind of the more bigger ones that we tend to differentiate on or maybe just getting more campaign battles around those. In terms of what's -- what I would say is probably one interesting thing that's happened in -- it happened in Q2. We'll see if it happens the rest of the year and into 2022, is that we went through this trend where our Pega Cloud business, which is our SaaS solution, was a relatively low percentage of our business, and then it rapidly went to 50% of our business. And as I saw that, that's great because that allows us to get scale in that business, allows us to get operating leverage in the economics of the business. And we've got a pretty nice sized business now. That business has kind of stayed just north of 50% of our new bookings now for probably the better part of -- gosh, it's probably been about 2 years that it's kind of hovered around that like low 50% range. And the question that people ask me and what I always internalize is, is that number going to go to 60%, 70%, 80%, 100%. And I used to think that it would -- that was inevitable, right? People were just going to go to public clouds, and that was -- but I definitely think with the -- some of the things I mentioned earlier around Azure, AWS and GCP being now recognized as alternatives for managing your virtual private cloud, I think what you're seeing is that people -- many clients want to buy a public cloud solution like Pega Cloud, but some want to be able to manage it themselves. They want to be able to run it in their own environment. And because they're much more confident in doing that, you have a better chance of successful outcomes. And that is a very profitable option for us as well. So I think one of the observations I have is although Pega Cloud does seem to be creeping to a higher percentage of our overall bookings, I definitely think our client cloud solution, the ones where they buy our solution and manage it on one of the -- primarily those 3 vendors that I mentioned is really, I think, a very interesting opportunity for us as well. The solutions are the same solution, one we manage, one they manage, but the actual capabilities and technology is the same. So I think that's creating just an interesting balance where if clients wanted to move, be either they had a bad experience in a public cloud, they wanted to move into their own private or they maybe didn't want to manage, they had a -- maybe they had a vulnerability or a leak or a penetration or some type of an issue with a hacker, they wanted to move to a public cloud away from the -- they can with Pega. And that has always been something that we've been unique in letting clients do that. And I would say I'm more confident in that decision over the past year than I ever have been because of people wanting that flexibility.

Got it. So the products are actually at parity today. It's just a matter of the point of style and preference for the customer. Okay.

It's -- there's no capability gap in either of the 2 solutions. They are exactly the same. The only difference is, one, we have a full-service managed offering, which is Pega Cloud, which that's our primary go-to-market. But some clients kind of back off of that and say, I really want to manage it because it's sharing data inside our firewall and I don't want it to act -- I don't want these activities to have to go out into a public domain. That does happen. And so if that happens, then clients might opt for "client cloud."

Got it. Okay. So we've observed a number of companies that -- I mean, for other companies that have been around for -- I don't know that there are -- that many that are still around today that have been around for 40 years, but other software companies that started out perpetual and made the transition to cloud, I think there's a pretty well-understood playbook out there. So just to be clear, so there's not like a real sales motion in place to go and kind of incentivize your installed base to move toward the SaaS solution. It's really just more of a preference of deployment style on the customer part.

I might frame it -- yes, it's a good clarification. I might frame it slightly different. What you said is not completely incorrect, but I might frame it a little different. I would frame it as we motivate our sales team, we motivate our executive team. We're motivating our clients. We're selling our clients to move and to buy Pega Cloud. But when they say, no, I thought this through and I really need to manage it on my own client cloud, the objection will stop there. We will support our clients given that -- so I would say we certainly bias towards Pega Cloud. And even our sales teams are motivated, and we would be motivated to move clients when appropriate. But we won't go as far as to tell clients, you're not getting the same product, we're going to stop support. We're going -- our sales team can no longer sell it anymore. We -- some other companies that went through this process made that hard line of saying, you can only buy our SaaS solution. We decided not to do that. Now we're not selling perpetual licenses anymore. The only reason why you might see perpetual license show up in our numbers is because a client had a contractual right to buy a couple more seats or some more cases, et cetera, on a perpetual model, but no one is selling new perpetual business. So that's the difference. No new perpetual, but we are still open minded to clients managing it inside their virtual private cloud.

Got it. Okay. So what are some of the considerations that you really are -- incentives and levers that you're pulling with your customers when you have that initial, hey, why don't you take a look at our SaaS solution. I mean what are some of the levers that you're pulling to help incentivize that?

Well, the cost of our clients having us manage it through Pega Cloud is going to be less than that. Our clients will save money, they'll save headaches. Whether that be the actual hard costs or the people costs or the internal allocations from their IT groups, they will spend more to manage it internally only because we are so efficient at scale, and we try to talk to our clients about that. The reality is, though, our clients may -- that may be a much more complicated decision than that, right? It may just not be about it costs $5 million for Pega Cloud. And when I do it, it costs me $6 million. They may have data security issues. They may have control of the information. They may have certain compliance or security issues about what countries they hold the data in. So there are other things that maybe make that cost decision. There's a decision that's outside just our solution.

Right. So it's not a -- they're not paying you less, it's just a lower total cost of ownership for them...

Yes. They're paying us more, but we believe it's a lower cost -- they're paying us more as a vendor, but we know that it's a lower total cost of ownership, but the decisions are much more complicated than just that.

Right. What's kind of a typical uplift on those migrations to a SaaS deal?

So we typically charge -- so a migration is a little bit more complicated because it depends on the situation of the existing arrangement. But if someone were to go to buy Pega Cloud versus client cloud, there's -- kind of rough order of magnitude, there's a 25% to 40% increased rate for Pega Cloud over client cloud, if you were going to buy new. And that's a very small amount of cost to think about. We're managing the infrastructure, you're getting the infrastructure, all the security, the control plane, the operations center, everything that we're doing for that. But some clients -- like I said, some clients may choose to just say, I realize that, but I need to do it inside my own environment. And by the way, a lot of our competitors don't allow that. So that becomes a differentiator for us because -- certainly Salesforce does not permit someone to take their multi-tenant solution and put it inside their environment. And that's -- some clients just need that differentiation.

That's helpful. And then we are -- we got a few minutes here, but you do have a new hire in the go-to-market side, Hayden Stafford. Just wanted to touch on some of the changes to the go-to-market motion that have evolved underneath his leadership. And maybe just high level, like what are some of the kind of broader investments that you're making with the net sales and marketing organization that are driving growth for you?

Sure. So I think there's 3 that I'll mention. One is brand, spending a little bit more energy on brand, brand recognition, making sure that Pega's name gets out in front of the buyers. We've been probably on the shorter end of marketing in general over the years. Software companies don't spend as much as like consumer retail businesses and marketing, of course. But I do think you need to make sure your brand is out there, so I think we've recognized that. Second thing is partners. Using our global system integrators as a start, but then moving to ISVs where partners become a distribution or lead generation channel for us. And then the third one is really just the sales discipline, the management cadence around not just looking for kind of what we call whale deals, not going out and saying, "Hey, let's just try to go get 10, $10 million deals this year." We've got to build a pipe and consistent engagement with our clients. And sometimes a $500,000 deal is more important long term than a $10 million deal because of the expansion opportunity. So just building that kind of discipline into our sales org that looks like some of the companies that these individuals have come from and companies that are growing faster than us and at bigger scale. So we kind of aspire to have our profile look a little similar to theirs.

Right. As you started to train these salespeople to get comfortable with selling a smaller deal maybe initially and then work towards that expansion over time, on the expansion side of that motion, how much sure is the organization today in terms of that being a muscle that's well flexed and one that, say, a competency of the sales and marketing organization today is a key driver of the business? Or is there still kind of more investments being made around account managers and other kind of upsell motion?

So part of that, I think, we're very mature. We've always upsold and cross-sold and radiated with our existing logos. So we're -- I think we're as good at that as anybody in terms of penetrating and driving more spend with our existing logos. Part of it, we're learning and we're not at the maturity level that I'd like to, which is around the customer success process to continue enable that process, planting enterprise architects within our clients to help them with their road maps to drive out the adoption curve and the long-term kind of plan of how they invest. I would say that we're getting better, but that's an area that -- naturally in a recurring model, that's critical, right? In a perpetual model, that's a different model. So I think that's one we're maturing on. We've always been very good at upselling and expanding with our existing logos. So I would say, one we're really good at, one we're probably working on.

Helpful. Okay. I think we're out of time here. I just want to turn it back over to you for any closing remarks, anything that you'd like to leave investors with, Ken, and just any final thoughts.

Thanks, Drew. I appreciate it. I would -- maybe my one parting shot would be we started on this journey to move to recurring. We've put a plan together of how that would play out. And I would say it has largely played out to the exact script that we said. And now we have a plan to accelerate growth. COVID has certainly thrown a little curveball in there, but we're getting through it. And I would say that our plan to execute on that growth acceleration, which is kind of on the backs of the subscription move, I think, is equally diligent in the focus for the business. And so I would say that we've been -- over the last number of years, I think we've been -- we should be fairly credible in terms of what we said we were going to do and how we're getting there, we're executing. Admittedly, things change. SaaS moved faster, COVID threw in, changing and thinking about how we get productivity out of the sales team. But we're committed to accelerate our growth rate, and we think we have a great opportunity to do so.

Exciting.

Awesome.

Thanks for the time here, Ken. It was great chatting through the business and looking forward to keeping in touch and following you closely moving forward.

Thanks, Drew. Thanks, everyone.

Thanks a lot.