Pegasystems Inc. (PEGA) Earnings Call Transcript & Summary

All right. Thank you very much for joining us today. I am Mike Cikos, lead analyst for infrastructure and analytics. This is Needham's 17th Annual Tech and Media Conference. So thank you for joining us. And with us today for our fireside, we have COO and CFO, Mr. Ken Stillwell from Pegasystems. So Ken, thanks again for participating. We really do appreciate it.

Thanks for inviting us, Mike. Great to be here.

Awesome. Awesome. And just 1 quick item for the listeners. If at any time you guys have a question, please feel free to submit it in the chat function. I will do my best to make sure that I'm tracking that during this fireside and definitely want to make sure that we're using your time wisely.

And with the logistics out of the way, Ken, just a quick intro. Can you help maybe investors who are new to the story, get familiar with the Pegasystems story, what they do and the pain points, I guess, you're solving for your customers?

Sure. So Pegasystems works in the -- primarily in the enterprise segment, helping clients automate work that happens across their organization. We kind of generally think about that work being done in 2 areas, although there are numerous use cases that you could touch and some of the use cases actually cover both. One area is kind of what we call a front office, which some people call CRM, which is really when you're dealing with clients, you're dealing with customers you're dealing with prospects, everything from trying to manage selling activity, managing some type of inbound decisioning, marketing when someone comes to your website, what you show them, how do you direct them, all the way over to dealing with either a virtual or physical or even a robotic-type customer service environment or someone's coming in to explore something to ask a question, to create a ticket, to return a product, et cetera, change in address, all kinds of different use cases. That's the kind of one area. And the other area is what is generally called the back office, which is when you're trying to really work on an issue, on an incident, on a transaction as opposed to working on a customer. The activities are -- and the workflow is very similar, right? You're going to take something, you're going to go through a series of steps, you're going to touch other systems, you're going to update records, you're going to have certain steps, you might approve something, decline something, initiate something, some of logistics request. And then there's an end to it, right? I'm done with this loan origination or I'm done with this reissuance of a credit card or I'm done with this dispute or claim or whatever that thing is. The differentiation for Pega is that when clients are trying to do complex workflow, which enterprise transactions means scale and typically sophistication of the technology landscape, they have a challenge because they have to kind of hop between different systems. And they have to log into one and enter certain data and then get something and go to another one or they try to create these one-to-one API connections between these applications, and it's really clumsy and it's very slow, and it takes a lot of physical labor and poor client experience and elongated cycles to get the work done. And so what Pega really does, one of the things we're really differentiated is this ability to orchestrate that workflow, really kind of almost take these pieces of steps that exist in different applications and organize them into one workflow where you're transacting through the Pegasystems to be able to execute that work. And so that's kind of the way we think about how the use cases connect how we're differentiated. We have robotics native to the platform. We have AI native to the platform. We have real-time just very differentiated. We are able to capture data inside kind of a container or a case as we call it, to be able to compare different incidents to each other, to be able to deal with maybe even compliance requirements around managing incidents. So the sophistication level not only how that we can do end-to-end work automation but how we containerize, capture the data and manage it is highly differentiated. And then lastly, it's low code, which means that you don't need to write -- you don't need to go out and have some of the write Java code to be able to make a change to add a step in the process. You can do it right in the UI. You and I can do it, right? It's literally like a business analyst with some small amount of training can start that process of, let me start a step, let me create an integration to that step, and we have certain data fields where we capture information and then rules on how that actually progresses. So that's kind of who Pega is.

Terrific, terrific. And I know just in the interest of clearing the air in recent news, but earlier this month, obviously, the $2 billion verdict. Can you walk us through, I guess, what happened? And then a follow-up for you in addition to that.

Sure. So yes, surprisingly, last Monday, I believe it was, there was an announcement of a jury decision in a local court in Virginia that -- at the state level that the jury decided damages in favor of Appian against Pega. We don't believe the facts of that case support any amount let alone ridiculous amount like that. So we will -- we have a process that we need to go through. The judge has not actually ruled on the jury verdict. It's -- that will happen sometime in the next 90 to 120 days as we understand. And there's certainly avenues for appeal and lots of appealable items in this particular case. And I think really what it comes down to is that competitive intelligence is very common across organizations. We admitted and we don't believe there's anything inappropriate with competitors looking at free trials of other competitors. Appian's employees have obtained free trials of Pega. We've obtained free trials of Appian. I think it's very common for competitors to do evaluation of their products. So I think that it's really unfortunate, the amount of distraction and for us and our clients and our partners, but we just don't believe there's any facts of any wrongdoing, certainly no damages that would ever suggest a dollar amount, let alone a dollar amount like this. So we will be vigorously defending the -- to get to the right outcome from this.

Okay. Okay. And you're already starting to address some of the other follow-ups that I had, right? So first, I think you already tackled it, but the idea that engineers use competitors' products to get a better sense of what the product involves through that free trial, right? The second item that you already tackled to a certain extent is that the judge has not ruled but the understanding that a ruling should take place in the next 90 to 120 days, if I'm understanding correctly. So beyond that, I guess, Ken, is there anything firmer that we should think about from either a timeline perspective or what the appeals process looks like in conjunction with that judge timeframe? I'm sorry. I'm just not a lawyer by trade by any means.

Yes. Yes, nor am I. So I think I know more about the legal system through this process that I care to. I say I think through the process of the judge finally ruling and a follow-on appeal, you're probably looking at this being many years; in the event that it didn't go in our favor, it would take many years; in the event that it goes in our favor, it could take a shorter period of time, actually a much shorter period of time because the judge could throw the verdict out within 90 to 120 days. So we don't -- we have no real idea how any of this is going to land right now in terms of with the judge. But we do know that we have a very, very strong appellate arguments and we'll process through those as time goes on. But this is something that's not going to be decided or settled for probably many years in the event that it actually last that long.

Sure, sure. Okay. And then the followup, if I'm moving away from the legal, I know it's still brand new, but what's the situation like if I'm thinking about your relationships with prospects or customers for that matter? Have you -- what have conversations been like on that front?

Yes. So the first -- there are 2 questions typically that clients want to understand. The first one is, is a payment imminent and when? And I just kind of talked about that a second ago. It certainly is not imminent. There's no -- and then if there was any type of exchange of payment here at some point in future? It would be very far out in the future. That's normally one question. I just want to understand -- does that -- how would you fund that? When does that happen? So I think once clients realize this is not anything happening anytime soon if it ever does, that kind of is one area. The other area is the way the messaging was from the other side of this dispute was, it was, I would say, at least a little bit misleading in terms of there's somehow being a connection to our product, right? The reality is the claim was not about the product. The claim was really about monetary only. And so once clients understand that there's nothing -- there's no restrictions on our product, there's no tainting of our product, nothing -- and this was in their words, monetary damages only. So I think that, that helps with clients understanding, okay. So there's -- I have no issue using my product. I have no issue buying more of your product. Partners want to understand that as well, like system integrators. So I think those are really the 2 main themes. And once you get through those conversations, normally, customers kind of are much more comfortable. They also have seen these kind of competitive disputes that happen in the marketplace. It's not -- we're not the first, we won't be the last, right? And much of it is, there's a lot of smoke out there when competitors try to use the legal system to fight what should otherwise be competitive fight within the marketplace. So that's kind of our perspective.

Okay. And it sounds like you addressed it already, but just to put a finer point on it, with the decision coming out of Virginia and again, monetary, right? But are there risks at all to existing federal or public sector contracts? Or again, is it just a matter of educating those clients on exactly what's going on under the hood?

So I won't ever minimize anything to say there are never risks, but I would just put a -- I would maybe put a couple of pieces of color around that. One, these are civil claims, not criminal, right? So that's an important point. They're civil. They will -- they would need to be disclosed for sure in the event that there is a final judgment post appeal. We've just been very direct with our clients in explaining to them exactly what's going on because there's no -- we're very comfortable with our position. It's in the public domain already. So we'll have -- disclose is kind of in 2 ways. We're talking to our clients very openly about it, making sure they're very comfortable with what is going on. But then there will be like there's a formal disclosure process that happens kind of almost as like one of the items in a many page kind of like almost contract checking kind of checklist. And that would be a place that any company, any company that has a civil lawsuit with more than $5,000 of payments, which is pretty much any civil lawsuit has to disclose that. So it's a pretty common thing.

Okay. Okay. I guess if we could switch gears to recent financial results, right? So I think in the most recent quarter, you guys had delivered ACV growth of 23% constant currency. So -- and that's -- it sounds -- correct me on that number, if I'm wrong, but I guess how does the company feel about where it is from an execution standpoint, how things are trending, underlying drivers behind that growth?

Sure. So you are right. We grew 21%, 23% in constant currency. We did have a little bit of an easier compare this year Q1 versus last year Q1. Last year, our Q1 was a little softer. Our Q2 was a little stronger. This year, our Q1 started off strong. So I think that's just -- I always like to kind of try to be as transparent as possible. I don't think that this Q1 necessarily means that we're up 23% or 25% grower overnight. I think it's more -- a little bit more of that easier compared to start the year. So that's kind of the first thing. I think we're still growing above 20%. That's kind of what our goal was. Second part of this is, what is really interesting is that for Q1, we had just over 2/3, 67%, I believe, to be exact, of our bookings were Pega Cloud. And that number has been around 50% for the last probably 4 years. So that's a noticeable uptick. Now it's just one quarter, except my early view into Q2 suggests that our Pega Cloud will be at a similar level in Q2. So to start off the year with Pega Cloud moving could be a meaningful movement up, that has 2 ramifications. One, I know a lot of investors love Pega Cloud, so they will probably celebrate that, but practically speaking, that has a revenue headwind issue, right? Because Pega Cloud, the revenue is taken over time in the future and client cloud has some of the revenue or more of the revenue taken upfront. So that just kind of more trying to explain to investors that if we did have Pega Cloud stay at that high 60s, that will have a headwind to revenue in 2022, but those commitments will go to backlog. And it's -- there's still -- the revenue will still be the same over the course of the contract. It's just the timing of it. So that's kind of what -- how to think about Q1.

And can you help us think to 50% versus 2/3 of new bookings moving over to Pega Cloud. I know we're not calling it trend just yet. But is there anything on a go-to-market front that would be driving that? Or I guess, what is causing that uptake now?

So we support whatever way our clients want to buy, we're supportive of them. So I don't believe it's us trying to [ incent ] or control clients in a way that they want to buy more Pega Cloud. I really think Pega Cloud solution is just so much better and so much more mature over the last 3 to 5 years that I just think clients are really gravitating there. And we hoped that, that would happen, but we knew that it might not because clients have different needs and sometimes they like to roll their own cloud versus actually having somebody else manage it. The use case plays in to where some use cases are much more kind of more relevant for Pega Cloud than others are. So I think the way I would read it is that clients want cloud. And increasingly, they seem to be -- at least this year, they seem to be moving toward Pega Cloud. So we'll see how that goes.

Okay. And another item as well. But just given the current market environment, and it seems like you guys maybe I'm over-analyzing, but if I think about profitability and the push on profitability and cash flow, is that something that you guys have been going down now for a while? Or is it more market reaction? And then maybe secondarily, how do you guys strike that balance between growth and profitability as it pertains to the current market?

So for the last couple of years, we took an approach that we believed in, but I would say, has not yield -- we've not yielded the fruit from that, which was we were going to accelerate our go-to-market spend and investment. And we were connecting our potential to see our ACV growth acceleration kind of hit a higher level from that investment that we made. [ Throw ] COVID in there, a long ramp cycle for AEs, the great resignation, right, clients being disrupted, no live meetings, everything; we didn't see that realization on the other side. And so now we're in a little bit of a different economic climate, right? Now we're in a -- recession is a higher risk, inflation is higher, you got a war. You've got to keep -- it's a little -- it'll be thoughtful to maybe pause to think about your growth rate and what's achievable with the risk backdrop that we might have now versus what we had, say, 3 or 4 years ago. So kind of thinking about from that context, we believe that it is easier and maybe even more prudent at this stage to try to manage our profitability up a little bit higher than what we were thinking before while maybe almost accepting the growth rate that we've been seeing for the last 4 or 5 years. So much of the investment in go-to-market that we have is not actually needed to grow at the rate we're at, it was more to accelerate the growth to which we weren't yielding that benefit. So I think that's kind of the way we're thinking about it. Maybe we just need to think about getting our EBITDA margins and our free cash flow margins up now that the subscription transition is going to be complete and we're exiting it. And then once we anchor ourselves to Rule of 40 company, on that stabilize our growth rate, start to see the profitability and cash flow production, then you can maybe think about whether you want to grow faster from there.

Okay. Okay. And I know -- I think historically, the company has spoken about Rule of 40 as being a metric that you guys are definitely keen on, right, and defined as ACV growth plus free cash flow margin. With the change in profitability, the definition goes unchanged when thinking about that ACV plus free cash flow margin. Correct?

Yes, that is true.

Okay. I think another thing I've been asking my companies, and I'm just curious to hear your response. But where we were, let's say, a year ago, entering calendar '21 -- midway through calendar '21. It felt like things might have been loosening up post-COVID, we weren't out of it yet, but maybe companies were willing to start saying, "All right. Well, we think that there will be some OpEx headwinds as we return to more normalized commercial activities post-COVID." Whereas if I look at where we are today, the economic impact, potential from inflation, potential from war, is it fair to think that when you guys are looking at this year -- and it probably harkens back to your earlier comments on this balance of growth and profitability. But fair to think that in the -- even versus a year ago, maybe a little bit more of a tenuous situation when thinking about the backdrop, then necessarily what Pega is executing against but some of those external factors this year versus last year.

[ So you know it ] -- we have not experienced our clients taking their foot off the pedal in any noticeable way. So that's good. Maybe they will, maybe they won't. We believe that's because digital transformation and modernization and automation is really important for our clients and quite frankly, every company that's trying to solve these problems. So that could be something that helps us kind of navigate this economic cycle different than other sectors of software. So that's one kind of -- one thing to kind of put off to the side there. But I would say the market is less willing to accept growth at all costs. We know that, right? Things have changed dramatically in the last year. And so that's one obvious thing. And the second one is when you have a backdrop of more risk, you can't ignore that backdrop of more risk. So I think given that, you have economic risk out there that we should all recognize. It hasn't manifested itself yet, but we should be thinking about it, you have inflation, you have other risks. And you've got the market recognizing that by saying we are going to reward companies that actually have higher amounts of profitability and more durable business models. So you have both of those things today they're connected, but they are different points. So I think I would say it's a smart time for all companies to kind of rethink this balance between growth and profitability.

Okay. And just to make sure to punctuate the point, but at this time, from a demand perspective, inflation, economic uncertainty really not showing up in your customer conversations or pipeline at this time?

That -- not in any noticeable or material way, that is correct. We always have companies here and there, but it's not something that's prominent.

Okay. Okay. And just as a reminder to our webcast listeners, again, if you guys have questions, please feel free to submit them. Otherwise, Ken and me will just keep going. But Ken, another thing that I wanted to touch on, again, if we're trying to think through all the different puts and takes here. Can you remind us on the geographic revenue exposures that you guys have? And then maybe in conjunction with that, should we be thinking about FX risk? Or do you guys have a hedging program in place?

So we have about 60% of our revenue in the Americas, we have, with the majority of that being in the U.S., of course, that's most -- probably most software companies. We have about 30% of our revenue in Europe. About half of that 30% is in the U.K. and about half of that is outside the U.K. Not much in Eastern Europe, typically kind of the Nordics, Southern Europe, a little bit -- Germany is not a huge market for us. And then we have the other -- the remaining 10% or so in APAC. The primary 3 currencies are the Australian dollar, the euro and the pound. We have enough natural hedge in those countries in terms of our own cost against our revenue that we have not entered into any significant hedge programs.

Okay. Got it. Got it. And so I'm losing track of days here, but I'm just thinking, you guys have PegaWorld coming up as well, right, maybe in the next week or 2. So is there anything specifically that either investors or market should be looking to, whether it's product road map, go-to-market, maybe capabilities or functionalities that because I have to imagine that customers are constantly engaged with you as far as, hey, could we do this? Or how about this? And that probably steers that road map as well. But curious if you could give us any insight on that front as well.

I think the -- one of the most important evolutions of Pega, and when I say Pega I mean the company and the product, is our ability to kind of distribute our capabilities, our technological capabilities of our low-code platform into a broader audience. There's a couple of ways to do that. You can do it yourself. We can build an SMB market trying to sell it ourselves. We can go through third parties, distributors and say, here's the product, and you sell it, you deploy it and you give us a cut. That's a very common model that technology company use. And there's a third one that's used at a -- I would say, at a much lower pace. That's a pretty interesting one for us, which is we almost create the engine of the low-code platform for our largest existing clients so they're building applications that they're selling those applications to their clients. So similar to kind of an ISV model, but instead, you're using a company like Boston Scientific that may want to do service and maintenance on all of the equipment in the hospitals. And so building -- kind of using the Pega platform to build a customer service and warranty and reporting, that's just -- that's a hypothetical example of a way that you could actually allow our clients to create revenue streams for their consumers, for their clients. So you're accessing some of those markets without actually directly distributing into them. And so there's -- I think that, to me, is one of the most interesting future aspects of the product. How do you go from us just selling to a few hundred large organizations to being able to get this capability out in the hands of many of additional use cases and more people touching our product.

Okay. Okay. And I think almost right on the heels of that, there's the annual investor session as well, right? So a similar question as far as speakers, topics of conversation, any input there would be incremental.

So we do have, I would say, a little bit of a predictable approach that we've taken in our Investor Day, which is we will have Alan Trefler, our Founder and CEO, kick off the meeting. We'll then go into talking about our technology. We'll also talk about then our customers, our go-to-market, customer success adoption, some interesting information on how we're thinking about expanding and growing our relationship with our clients. And then we kind of go into the kind of the business model, the operating model, right, the financial model. And then I will go through and talk about what we to see in the coming year, years depending on where we are in that cycle, how will it look when we now accept the cloud transition? Will be done with that here in the -- almost a year from right now. And how will the business look? And what are some of the things to think about this year and for follow-on years around how that value manifests itself in our results? So that's kind of the structure of our [indiscernible]. And it's very -- it's not unusual for us to kind of take that approach of product, go-to-market financial/business model.

Sure. Okay. On the competition side, I guess, is there -- are there any new entrants to market that we should be thinking about? How is that competitive landscape as we look at the market today?

So someone asked me this earlier, and I said, I really -- I feel kind of boring saying that the competitive landscape looks purely similar to when I started 5 or 6 years ago. And in fact, I'd say in 2022, it might just be because of the valuations in tech and the ultimate reality around that. But it feels like there's less chatter around, low newer entrants this year than there have been in the past. It feels like we're hearing a lot more about the brands you would expect. And I think I would view that as less distraction for our clients and probably thinking about solving more real end-to-end work automation problems as opposed to piloting different types of cool new tech. So I think -- if I think about our top 5 competitors 6 years ago and I think about them now, it's the same list. They might move a little bit in the order, but it's not noticeable.

I think it's -- let me ask you that question a little bit differently. So I think it's probably fair to maybe say that competitors get ruled out in certain use cases quicker than others, right, depending on what the mandate is from the customer. So if I'm thinking about mandates from customers where Pega stands out for stronger win rates, right, because the customer is looking for X and Pega has X, right, or looking for Y and Pega has Y. So could you help us better break out maybe those scenarios because I think that's a little bit more granular than the kind of full-fledge competitive landscape question.

So when we compete in the low-code space, there are a handful of more recent entrants in that space that don't have -- maybe aren't yet at the level of enterprise acceptable solution, right? So like that's kind of one dimension, right? There are some -- there are companies that have a low-code platform that you can do some stuff on it, but you probably can't build a loan origination system for a top 5 banks in Europe. Like it's -- you can do some call center type customer service type work, but you probably aren't going to have the level of sophistication or even the scalability to be able to build a digital contact center, right? So there are things like just -- it's just the solution just isn't at that level of maturity. That tends to be one differentiator, right, which is just the enterprise scale grade of Pega versus some of the competitors. When you get into companies that are kind of more like, I don't want to say our size, but I would say our level of sophistication in terms of the platform, then you start thinking about, well, who has native robotics, who has native AI, who has demonstrated real-time kind of capabilities to be able to -- who has the ability to really have the best-in-class kind of case management structured product that can integrate with pretty much any application and be able to manage end-to-end work. Who has the ability -- who can work on multiple clouds. We can manage it, you can put it on the cloud of your choice. When you start to go through each one of those, the funnel kind of narrows, right, in terms of what people can do and how they compete, sometimes we lose people before they even get to some of those dimensions that I mentioned. But as you get through that, there's a lot of use cases and a lot of clients that would probably get through that and land with just -- there's probably only a few of us that can do what I just mentioned, right? And we believe nobody can do it like we can. So that's kind of the way to think about that landscape. The differentiation is robotics, AI, real-time and the ability to end-to-end case management in a low-code environment. Like those are the pieces. Some people have pieces of that, but we don't think anybody has the whole enchilada.

Okay. And maybe just to come back to that final point because I know real-time and AI were 2 things that we just spoke about. But I'm curious, and maybe it is just a little bit more difficult coming from the financial backdrop, but I feel like every Chief Marketing Officer who is [indiscernible] has the playbook to say real-time in AI, right? And I can't differentiate those products looking from the outside in, but I'm curious how quickly the customers are able to snap that up? Or is that still maybe an education process as far as walking them down that path as far as being able to say, now I get it, this is why Pega's real-time or AI is different from XYZ company's real-time AI, like because AI is just -- those are 2 letters that every company is talking about.

Yes. So what clients -- what competitors typically try to talk about is they either say they are an AI company or they say they can partner with an AI company. And if we put the solutions together, we can solve certain use cases, but really, the proof is in the pudding. And the way that we win is we just show clients examples; we say, look, here's an example. Here's client deck. We can go -- you can get on the phone with them. And we can talk about how fast they implemented it, how -- the biggest gap in decisioning and real-time AI for things like one-to-one client engagement is most of the decisioning that our competitors do, they do it in a lab. By the time it gets to the market, it's 6-8 months delinquent. You can't deal with anything that happens in the market. For instance, when COVID happened, don't you think all the behaviors that changed in COVID were like immediate. But you don't even -- by the time you go to a decisioning lab and run all the different scenarios and you come back and say, here's how people are going to be reacting in COVID, it's over, right? So you really need a dynamic -- you need it to be real time, literally updating logic, decision trees, et cetera, in the live application. That isn't the way the traditional competitors do it. They kind of do it in batch. They essentially set up a model and then on the side, they're doing it in their labs. And then when they feel like the lab data looks [ good ]they come back out and they drop it in the market, and there's a huge gap there. And that's why people are struggling with this because they don't know how to do contextualize marketing because it literally changes within weeks, within days, and they can't respond that fast to update.

Terrific, terrific. So I had 2 more questions, and I'll leave it there. But the first -- and these are both more from an information flow perspective. I'd be curious, what are some of the top-of-mind questions that you're receiving as you're going through different investor meetings would be the first one. And then the second, if you wanted listeners to be struck or hit people with 2 to 3 main takeaways from today, right, what would you be leaving them with?

I think -- so without making that the same point, I'll pick 2 different points on your 2 question. So the first question, I would say it's something that investors are always curious about is why doesn't everybody just buy Pega Cloud? Why don't you just force everybody to buy your SaaS solution? Why do you give clients options? And I can understand that investors primarily say that. Clients don't say that, of course, but investors want to understand because naturally, if we were all SaaS and we're all Pega Cloud, the company is much easier to model, like just -- we are just complete. So it's a very fair point. It would be easier for me to right? But the reality is clients don't just want to buy the way we want them to buy. They have use cases. They may already have a virtual private cloud that we established. And so when you start to say things to clients like we're going to make you deploy [ this way exit ] because [indiscernible] economics are better for us, you have to be careful because in the enterprise space when you're dealing with CTOs of the largest and best brands in the world, their needs are more important than the way we want to sell the product. And so we've learned that over the years. So that's kind of the first thing clients -- investors really struggle with, just make everything SaaS. It will be easier for us to model you. Though the thing that I think -- the one takeaway that I think that is certainly at least a little bit misunderstood with some parts of the investor community is the inherent profitability and cash flow generation opportunity of a company like Pega. We're at reasonable scale now. We have retention rates. We have gross retention rates that approach 100%. We get 75% to 80% of our new bookings from existing clients. For enterprise, extremely sticky. That's a model that really could print profit, right? The reason why we are not printing profit is threefold. We're in the middle of the cloud transition, we're not done, right? So that's that kind of you hit the trough and you come out right? We've consciously said we want to focus on increased investments, of which we are dampening down to make sure our cost investment matches our growth rate. And our Pega Cloud gross margin is not yet at optimized scale. So that's simply just a matter of kind of getting to that higher scale level of Pega Cloud, our gross margin will get more to best-in-class. So those 3 factors, 2 of which are just time bound, right, exiting the transition, getting Pega Cloud the scale. The other one is something that is more of an execution activity. I'm not sure that investors fully understand, or in fact even believe where this business could go in terms of free cash flow if we were really running it the way that we could without some of these other distractions.

Okay. Okay. And with that, I think time is up, unfortunately. But Ken, thank you very much for the participation. Thank you to the listeners. This was great. Thank you very much.

Thanks, Mike.

Take care.