Pegasystems Inc. (PEGA) Earnings Call Transcript & Summary

Everyone, I think we're going to go ahead and get started. I'm Kevin Kumar. I cover software here at Goldman. And I'm pleased to have Ken Stillwell, COO and CFO of Pegasystems. Thank you so much for being here.

Thanks, Kevin.

I think a place to start would be maybe just a quick rundown and intro of Pegasystems and maybe an example of kind of the use cases that you support.

Sure. So Pega's a no-code development platform. So what does that mean? If you're trying to build enterprise scale applications, you have a couple of options. You can just drop right in and start writing code. That's certainly one option. The other extreme is you can try to buy an application that is largely finished and just try to fit your business processes within that application. And then there's something in the middle that's more like you want the ability to build an application that suits your needs, but you don't want to have to actually write code. So we have our model, our framework, so to speak, allows our clients to get the best of both worlds, which is they have the ability to really customize the application, but they're doing it in a way that when they make changes in the future, they don't actually have to deprecate code and rewrite code. They can simply change a shape or change a [indiscernible], or change integration. And so that's a kind of a macro level what -- how we sit in the landscape. The types of solutions that serve really well to that is things that tend to sit -- there's a couple of buckets. CRM is a very common area. Applications that sit around the ERP systems is another one, things that -- things like a collection module or some type of an investigation of a dispute or refund, things that relate to integration of systems that are nontraditional like so if you have custom systems, mainframe systems that have to integrate in with other best-in-breed applications. You need something to orchestrate. So Pega serves as like a workflow integration and orchestration of sorts. So we have about half of our business, a little bit more than half of our business that's doing more the front-office CRM type use cases. And then maybe another half or so is doing things that aren't necessarily in the kind of URL to a consumer kind of application. But much of our business relates to customer service even if it's not actually in the front-facing like the pane of glass, so to speak, that a consumer or a customer service rep uses. A lot of what we do ties into that customer service area.

Yes. No, that's really helpful. I wanted to touch on some of your growth metrics. And you've been -- you've undergone a model transition increasingly towards a subscription model, and you focus a lot on annual contract value.

Yes.

Why does that still make sense as a metric, particularly as you get closer to the end of that transition? And how do you think about kind of the right growth metrics for the business?

Sure. So let me start from the back of that question, which is, at the end of the day, my view is the only thing that matters in terms of valuing the business is the amount of free cash flow, the consistency of that cash flow and the growth of that cash flow. So if you start there, you believe that premise, and then you kind of go upstream from that, what's the most important metric that is a leading indicator to drive expanded cash flow, it's the amount of billings that you have with your clients and how fast those billings are growing. That's ACV. So ACV ties exactly to the billings that we have. Your point about, at some point, is an ARR, ACV and revenue kind of all the same when you're a SaaS company? That will be true when we are maybe 80-plus percent Pega Cloud. Right now, we're more in the mid-40s, approaching 50. So we still have a little ways to go. We still do have some kind of awkwardness in the revenue translation of 606. But you're -- the point you're making is absolutely true. We're probably still a few years away from that, though. So we stick with the most important metric, which is billings growth and then the transformation of that billings growth into cash generated by the business, we feel like those are the 2 most important.

Yes. Understood. That makes perfect sense. I guess maybe sticking to ACV then. Last quarter, you saw some acceleration. ACV grew 13% versus 9% the prior quarter. So a nice kind of uptick there. I guess what was incremental in the quarter that kind of helped drive that acceleration?

Sure. So just being transparent, some of that acceleration was last year, we had a little bit of an easier compare in the second quarter. And in the first quarter, we had a much harder compare. So some of that acceleration was, I think, more just kind of the math of it. However, that said, if you look at the first 6 months of the year and you look at net ACV add over the first 6 months of last year, I think we're up something like 40% growth in net ACV add. So there is real momentum in terms of the first 6 months. And when I look back to Q2 and say, "What might have been different in Q2?" We seemed to have executed better, specifically in the last month of the quarter. You have -- we're an enterprise. So a lot of our deals don't -- either don't materialize into deals or you don't win them, right? I mean that's just -- there's a lot of vendors in the space. So it's just that you don't win -- you're not going to win one out of every 2 deal, nobody does. So that part of it, and then the other part of it is that a lot of these deals, they take consensus buying. So there's a lot of influencers in the buying process. So that's why you need -- you might need pipeline coverage of 3x to 5x the number that you actually want to get because of those factors. In Q2, we seem to just have better conversion. And some of that, I believe, is really the anchoring of the sales transformation that we did last year and the fact that we're really -- we're executing very well in the target work model. And our coverage seems to be -- like seems to be pretty balanced. So that's what leads us to maybe another question that you might have, which is just to connect the dots on that. That's why we started to look at new logos and say like, "We really feel like we've got the model executing." Now we want to start looking for the same types of companies looking -- the companies that look the same as our existing clients, same vertical, same profile, same propensity to spend and then trying to be very selective and thoughtful about how we add those at a pace that we don't actually lose the momentum that we have on our operating discipline.

Yes. I guess on that point, I mean you've said in the past, you're still very much focused on the installed base. There's a huge opportunity there. How do you think of the -- like is it just kind of incremental -- like is that still kind of the largest source of kind of growth at least in the short to medium term than maybe opportunistically, like you said, kind of finding those right logos while maybe perhaps being so efficient with the go-to-market? Is that the right way to think about it?

Yes. I use kind of a -- I thought of it like a simple analogy a few weeks ago, which is if you're a farmer and you're planting crops to yield at the end of the season, the things that you plant at the beginning of the year, you might not yield something from that for 2 or 3 seasons, right? But the stuff that's more mature is where you're going to get most of your yield. Our business is similar to that, right, which is we were going to get most of our yield from the more seasoned crop, which is our clients that are actually already clients. But we also have to sow the ground and plant the seeds for actually new expansion if we want the total yield to grow. And so that's the way to think of new logos versus existing logos. That's at least a way to think about it.

Yes. Understood. And then maybe thinking a little bit longer term, you're at about $1.3 billion in ACV. You set out some targets during Analyst Day, I think in June, $2 billion in 3 to 5 years. I guess so that's an incremental $700 million. I guess kind of how do you think about kind of attacking that opportunity? Where does that $700 million come from? You kind of talked about the new versus existing. But when you look at the opportunity set over the next 3 to 5 years, how do you think that evolves?

So I think you're still going to get the majority of that $700 million is going to come from people that are already clients of Pega right now. But as you start to get out a couple of years, an increasing percentage of that will come from people that -- clients that are not current clients of Pega. So the clients that we booked as new logos in 2024 may not yield much in terms of the impact to '24. But increasingly, the '25 to '26 and '27 will be higher. So I would say still thinking about that $700 million is still largely probably $500 million plus of that is actually going to come from the existing logos that we have. But we will get -- we will start to get a higher and higher percentage as we go out of clients that are not currently logos. The other piece of that is thinking about the 3- to 5-year kind of [indiscernible] of that. The reason why it would take us 5 years versus the reason why it would take us 3 years, the reason why it would take us 5 years one of the reasons would be is that clients don't move faster to Pega Cloud. And they stay in the more legacy model of them managing on their own cloud or on their own infrastructure. The reason why we might move faster to that $2 billion is a pronounced acceleration in the focus of Pega and also the focus of our clients on cloud. We think there's a good opportunity that, that happens, given that if you go out and look at some of the studies that are out there, I know McKinsey published a report a month or 2 ago, and actually Forrester did one, too, that talked about cloud -- digital transformation around cloud is something like 20% to 25% of the way there. I actually think -- you heard Matt at AWS talk yesterday at your fireside chat and say he thinks it's 15% to 20% of the way there, right, in terms of the workload to the move to cloud. So there's a tremendous opportunity in terms of that. So we think that, that's where the market is going to move. That's that difference between whether we get there in 3 years versus 5.

Yes. I guess on that point, another dynamic has been -- and this has been pretty recent, I think, in cloud migrations. Can you maybe just walk through kind of, I guess, the journey for a customer to migrate? When does it make sense? And then I think you have about $700 million in maintenance and term license revenue. How do you -- can you convert all of that? What's the kind of the cadence there? It's still early, I guess, but how do you think about that? And maybe walk through any pricing uplifts that you think could materialize there?

Sure. So maybe let's just start for a second with what made us ready to push harder. And there were a couple of pieces. One, when we first started to move into Pega Cloud, we're maybe I'm talking 5, 6, 7 years ago, the -- we really wanted to make sure that the full offering and the full operation was mature. And we also wanted to get the margins up to a reasonable level before we made a big push to migrate a lot of clients. So I think if you fast forward to today, our margin is approaching 80%, I think, which is pretty respectable for a $500 million SaaS business. And we have a lot more investment in Pega Cloud, the technical expertise, the partners. We have lots of our larger clients that already have a Pega Cloud environment. So that all set us up for clients being ready, for us being ready to push harder. What does it take for a client to move? There's a second dimension, which is are the clients on the most current version of the product whether they're actually on Pega Cloud or not. If they're on the most current version of the product, the migration of Pega Cloud is not as complicated. If they're on a much older version, it's a bigger lift. So what we did in parallel to that was knowing that we would be at this point where we are now, we went really hard at the clients that were on-premise and tried to help make sure that they were all current. Now if you look at the clients that are not -- I'm using the client cloud on-premise managing themselves all in one bucket, if you look at the currency of those clients, massively improved over the last 3 to 5 years. Most clients are on 1 or 2 versions back, if not on the current version. They're now in a position to actually think on that migration journey. So that was the -- we did that kind of quietly in the background so that we would be prepared for this. And then the third thing is business -- that there's a sequencing when does the client want to do it. They want to do it typically not at their busiest time of the year, right? If somebody is a retailer and they're touching systems that are heavily -- they're not going to probably do it during Black Friday or Cyber Monday, right? They're going to probably try to pick a time that -- so that's a sequencing thing, and then there's resources in there. When you talk about markups, so there's -- it's challenging to generalize because some clients will have a 2x plus markup. And some clients, quite frankly, won't have any markup because the pricing is already economic for the cloud. So we have to go through. It's client by client. We have to look at really the model that they had, the licensing metrics. Some of them have users we might want to move to. So there's a modernization at the contract level. And then the last question you asked was, do we think we can move all of it? We think the $700 million, would it all move? Just being pragmatic, no. All of it's not going to move. There's going to be -- might it move in 10 years? That's a different question. How much can move in the next couple? Some clients are just not ready to move. I mean we've had large clients tell us like system works. We're going to keep upgrading it. We're not willing to put resources on that right now. Like we just want to -- and I think that we found over the years that the long tail for some of these noncloud solutions is actually pretty long. So clients have a lot of tolerance for that, but the majority of that should be ripe to move. I would say $500 million plus of that $700 million is definitely a target to move. And then once we get that, then we can go after the last but -- because those clients may be then ready to actually move.

Okay. That's super helpful. Maybe shifting gears to cash flow. You said at the start of the conversation, that's a very critical metric. Pega has been seeing some really nice inflection there. I think $218 million in the first half of the year. I guess you've -- this has been a long time coming, I think. But maybe just walk through kind of the drivers of the strength there especially, call it, over the last 12 months, any nuances you think are kind of important to highlight in terms of kind of the inflection in the cash flow?

So you're right. I mean some of the inflection in cash flow is just the exit of the model and the fact that we went from billing. The first year was 1 year and 2 years. Now we're fully transitioned in terms of the billing. So that -- some of the cash flows, quite frankly, just the billing normalization. But I would say there's a reason why our cash flow is not only where it is but also growing at the pace that it's growing, which is we have fundamentally changed the DNA of the company to be focused on Rule of 40 and to be focused on the balance of growth and margin, profitable growth, maybe just being very simple. And that is something that when you make that kind of change, it is painful. It does take a few years, but it is, quite frankly, hard to reverse from, right? And I mean that as a positive. So I think that we are -- we built -- we've got built in this kind of DNA of we're going to grow, but we're going to grow profitably. And there's a series of operating metrics that we're looking at, the cost of sales and marketing to a new dollar of ACV, our cost to retain, our cost of R&D around the different pockets of ACV and the growth of those ACV around solutions. There's things that we're building into the -- to be able to help that be something that's naturally kind of organic in terms of that focus. But to bring in Rule of 40 to the company, going through the cloud transition and making, quite frankly, some difficult decisions around making sure we were on pace, which is what we did last year are all, I think, signs of our maturity around our free cash flow generation.

Yes. A metric that we look at and we published in our reports is free cash flow per share. Any thoughts there in terms of that metric? And is that something you look at? And not that there's a ton of dilution at Pega necessarily, but curious your thoughts on kind of that as a metric you guys kind of look into.

Yes. I think I mean -- so it's funny because we went from -- in 2021 when nobody cared about cash and everybody cared about growth, and now we're back to like a more normal model. But I think free cash flow per share is not a revolution, right? I mean it's all -- we've always -- as investors, we've always thought about how much cash you generate, what is the discounted value of that cash flow? But this dilution thing was always something that was -- some companies diluted 1%. Some companies diluted 5%. So you have to try to balance that, you try to -- so I think the free cash flow per share helps us balance that. The second thing is I think we've matured away from using like non-GAAP EBITDA as a measure and said at the end of the day, if non-GAAP EBITDA is a proxy for cash flow, just show me the cash flow, stop showing me some made-up number that's supposed to indicate the cash flow. So I think actually that's a maturity. Moving away from the growth, the feverish growth focus that we had. And then this last thing is balancing dilution. I think the thing that free cash flow per share really does well that was not something that was -- that we obviously talked about, maybe some -- maybe investors did that wasn't commonly understood is that the free cash flow per share does a great job of balancing companies that grow organically and buy back shares versus grow through stock dilution inorganically. It helps to synchronize those models to say if you want to use shares to buy assets, fine. You just have to buy assets that generate free cash flow growth over periods of time. So I do think that's one area where it does make it more simple to actually look across different business models and try to compare them, where that was a little harder without looking at the more traditional measures. So we're all in. Naturally, the FCC doesn't like those types of metrics, and so they really round up on it. But we can certainly put all the information for investors like what is our free cash flow, what's our free cash flow growth, what's our shares outstanding, what's our intent in terms of using cash to buy back, and then we can let investors make informed decisions.

Yes. Great. Maybe shifting to kind of macro demand environment. That's something that's watched closely. It's asked every earnings call. It's one of the first questions. So just kind of maybe just give us an update what you're seeing in terms of macro. And there's a few weeks left in the quarter. So just any comments on kind of how you're thinking about, feeling about Q3? Anything incremental in terms of macro since last time we kind of talked about it?

Sure. And this is -- of course, this is the most important question that we can talk about, which is what's the -- another analyst starts every single call by saying, how is business? It's kind of quirky, but it's actually kind of a very relevant question. I think the macro is okay, not great. And I feel like it's been that way for probably a couple of years for us anyway. It's certainly not a bad environment. I don't -- we don't feel that, but it's also there is scrutiny. There's always the tough trade-off decisions that clients are making. If there was one thing that I would say I think is starting to inflect up a little bit in the last couple of quarters is the focus on cloud. And that will come with some negative consequences for Pega and just the optics because the more we move to cloud, the more our revenue, a little weird, and we can actually have less revenue. And then -- so the top line, people, the bots that report, that will get -- but for those of you that -- all of us that look through to the metrics that matter, ACV and cash flow, those won't be affected. In fact, it can actually help ACV growth. And it won't change cash flow because the billings are unchanged. So that's the one thing, I think, is different. I see clients really every client, I think, has a plan for how they're going to get to cloud. And that plan may take 5 years, right, or that plan may be this year. But every client is focused on it. And I think that, that's a noticeable shift in the last, say, 6, 12 months.

Yes. No, that's helpful color there. Shifting gears a bit, GenAI, obviously, a very topical dynamic here. I guess for Pega, it's -- I think the focus has been on Blueprint, right? And so maybe walk through that. It's still relatively new. Can you walk through that? Why is that important for clients? Maybe start with kind of an overview there.

Sure. So I mean, GenAI is -- there's -- it is real, and there are -- it's tremendously powerful to see and to experience. I think we're all trying to figure out what does that actually mean? Like does that mean less jobs? Does that mean more work? Does that mean more sophisticated systems? What does it mean? But it's definitely -- I mean there's no doubt it's here. We took a different angle on -- and if we are right, we think it will be a very differentiated approach to how to leverage GenAI, which was we went right at the problem -- the reason why our clients are only 15% to 20% on cloud. And the reason why that is, is they have very complicated, very sophisticated legacy environments, many of which have risk and compliance challenges. And they want to get those to something modern, but it just takes a lot of resources. So what we did was we said if we can use AI to leverage the library of best practices that we have, to be able to show clients in a very simple way how they can envision the future state of their legacy applications and quick start them to an actual production-ready application such that they didn't have to spend a year or 2 years implementing that application, they can focus on data migration and APIs, integrate and testing that we felt like that would help clients accelerate faster than they've been able to accelerate. And the early feedback that we've received from our clients, from our partners, and quite frankly, from our teams in that selling process is that our clients are blown away by it and have not seen anybody else take an approach like that. Now where it manifests itself into actual results is when we actually are able to convert transformations that wouldn't have otherwise happened, right? If the transformation was already going to happen, that -- maybe it's faster, but that's not the same impact. It's actually helping clients transform where they otherwise wouldn't have. And we've got a significant amount of our pipe is tied to actually involvement with Blueprint. We've got partners that have used Blueprint and closed deals like in the matter of days, right, on getting kind of first momentum around new solutions. So we're seeing the frothiness around it. We feel the energy. We're still a little early in terms of that conversion, like me being able to say 10% of our bookings were driven by so -- but that will come.

Yes. No, I heard that -- I mean the activity in terms of Blueprints have been pretty great. I think 50,000 [indiscernible]. So there's a lot of activity there from the customer base. I guess when does -- to your point, like when do you think that kind of eventually because I don't think -- you're not selling the group -- there's no pricing there, right?

It's a solutioning, it's architecture pool.

Right. And so when do you think that activity kind of materializes into kind of [indiscernible].

I think there's a chance that we [indiscernible] that before the end of the year. I think it's more likely that 2025 is a year which will be the year of Blueprint.

Yes. And then in general, I think you've commented on AI, GenAI as maybe a catalyst for deal activity, and there's some enthusiasm in the customer base. I think there was a period of time where maybe it was causing some not paralysis, but people were kind of figuring out what to do. It seems like the interest is building, like is that kind of -- do you see that kind of going into the remainder of the back half of the year in terms of kind of that enthusiasm to kind of engage outside of Blueprint, but just more generally in terms of kind of demand activity?

Yes. I would say March of 2023, which is what I remember when ChatGPT was first available. I would say Q2 and Q3 of last year was just paralysis. Client -- like nobody knew what was GenAI, got to move fast, what -- they're trying to move budgets around. Like it was a very negative impact to the selling environment for us. That's settled down towards like beginning of Q3 into the beginning of Q4. So it's probably a 4- to 6-month kind of impact. If you fast forward to today, every one of our clients talks about what's your GenAI -- I mean on every one of our presentations, we have a GenAI strategy slide. We talk through what we have, what our strategy is, how they can leverage it. So every client is talking about it. Clients are being much more targeted with what they do with GenAI. And I think that they're now that they kind of have a better idea of where there's really quick wins and where, quite frankly, it's a little bit more magic, right? They're not really sure exactly. And then there's compliance challenges for some of our industries. But where I think -- what I think GenAI did help Pega quite a bit was it really reinforced with our clients that Pega was an innovator. And when you have a company that's been around for 40-plus years and has systems that have been around for 30 to 40 years, there is that risk that you're viewed as more of a mainstay kind of application and not like the cutting edge. And that is just -- it's the challenge that any company would have, including the likes of Salesforce and ServiceNow, too, right? So -- but when you start to show clients your innovation and you're using GenAI as an example of that, we saw that last quarter, we mentioned it. Like we saw clients really saying, wow, this is like a different view of Pega. And that's where it kind of weaves into -- because if we're viewed in that innovative -- we're viewed right now as the best-in-class solving the biggest problems, enterprise scale, digital transformation and now moving to cloud. If we can layer in the -- and by the way, we have a best-in-class way for you to leverage GenAI, that's just another layer of advantage.

Yes. Maybe a follow-up to that on competitive dynamics. Anything kind of changing -- I mean as there's other vendors out in the space, they're trying to also capitalize on kind of this GenAI kind of wave that's happening. So any [hint] you're seeing, whether that's like a Salesforce or some of the bigger vendors, some of the more specialized vendors, anything kind of incremental you'd add?

The competitive landscape is a little boring answer that we give because it's basically been the same. I've been at Pega for 8 years, and I'm not sure the competitive landscape has changed all that much in those 8 years. Their -- people have moved around and -- but the horses are pretty much the same. So that's -- it's just a hard space to break into. You're not going to start off as a company and break in to be doing enterprise digital transformation for largest organizations in a 10-year period even. So I think that, that's the reason why I think you see such a large share of ownership by the biggest vendors. Now when you go to what are they -- what are people doing that are interesting around GenAI, I think that there's -- thankfully, we're starting to see this slow down. I think there was this fever pitch of I just have to say I have something for GenAI. I just got to start saying that I'm selling GenAI. But if you actually look at it, if your growth rate is 10% and your growth rate stays 10% and 20% of your deals are GenAI, what's really happening with your business, right? I mean like -- so I think there's a skepticism for me around whether that was just repackaging things and just giving piece parts in but not just to be able to tell some -- so I think that has started to slow a little because I think people realize like that's not really what we want from this. We want to show marked improvement in your performance. We want to show more clients coming to your solutions, not just the fact that you were able to throw in some GenAI accelerator on 20% of your deals. So I definitely think that, that skepticism I had is, I think, starting to die. I think what people are focused on now is don't -- you can't just have GenAI. What is the real value proposition that clients are going to go after? And there are some we know. Learning, right? Self-service, right? I mean there's some -- there's pieces where they -- you really can see the value of taking heads and time and increasing the quality of the engagement. But then there's other ones where maybe it's not as -- it's more commoditized. So I think the writing code to write more code, I'm sure there's use cases that will be helpful there, but I don't think that's the biggest value of GenAI. I think the biggest value of GenAI is to take all the knowledge that you have inside your environments and use that to improve the customer experience and the cost to support the customer. To me, that's like -- that's the circle that I would draw.

Yes. So I have a few more questions, but any questions from the audience? So maybe touching on capital allocation, Ken. You have a convert that's coming due, a $500 million convert coming due in March, and maybe starting there, how are you thinking about kind of that dynamic here?

So if you -- if the convert were due tomorrow, we would pay it off. The fact that it's not due till March gives us a little bit of time to kind of see what we think. But I would say right now, it's not likely that we would continue on with the convert unless we have a really good idea of what we're going to do with the cash proceeds but -- and we're going to generate a decent amount of cash between now and March 1. So I would say the convert is likely to be retired. But like I said, we'll leave ourselves open to some options there. And then we're really shifting to trying to identify what should be our buyback program that we ramp up. We weren't really buying back much as we were going through the cloud transition because just have to be thoughtful about conserving cash, and we want to make sure that we -- and it turns out that we didn't need the convert at the dollar amount that we got, which is fine. It was -- because it was a low cost of ownership. But we're really shifting over now past the convert to a more aggressive capital allocation strategy and leveraging buybacks. I mean we think the stock is incredibly attractive right now for us. So we'll take advantage while it is.

Yes. That's great. And maybe last one here. Just on, I guess, the federal market. That's one of your core kind of verticals. You got recently FedRAMP high certification. So maybe walk through that briefly just like the implications of that. How important is that vertical? And what does this mean in terms of kind of net new opportunities?

So FedRAMP moderate versus FedRAMP high, FedRAMP high allows you to get into classified programs like secret programs. So we -- without FedRAMP high, we were only able to sell our solutions where the client would manage it themselves. FedRAMP is on Pega Cloud just to be clear. So we could still sell kind of on-premise solutions that the government would run. But with FedRAMP high, we can now bid on all classified programs -- sorry, all secret classified programs, which there are a lot in the Department of Defense. And we can do it through Pega Cloud. So that was the reason why we went after it. That's -- there's also a number of agencies and other companies that aren't government agencies that require that because they could be vendors to the U.S. government. So it also helps us with things like health care insurers and credit unions and banks and insurance companies that need to have classified environments and therefore, need FedRAMP high. So it's a -- we think it's a great opportunity. And there's not a significant amount of vendors that have FedRAMP high. It's a pretty high standard, but it's -- we think there's -- it just opens up the TAM in the government space significantly for us.

That's great. And question here?

[indiscernible] to bring it back in and what to think about in terms of milestones and how that impacts what you were talking about earlier with cash on hand in order to potentially address anything?

Sure. So as you're referring to the -- we had a successful outcome from our appeal about a month ago or so, somewhere in the last month or 2. And that was -- I'm not going to say that, that was -- I'm not going to say that was unexpected because we had said we felt very strong about our position. The time frame for how that plays out is it could be a significant time frame, Bob, to be honest with you, because there's got to be a new trial, it's got to be a -- there's a process for that, et cetera. So we're kind of moving forward with running the business and driving ACV growth, driving increased free cash flow. And in the event that you had a situation where we need to deal with something, the more cash flow that we have, the better our market cap is, et cetera, it gives us all kinds of flexibility with converts, et cetera. But there's nothing that we believe is imminent around that. And so we're going to run the business and do what's right for our shareholders.

Great. Well, Ken, I heard it's your birthday tomorrow. So happy birthday, and thanks for being here.

Infamous birthday.

There you go. Cheers. Yes, thanks a lot. Appreciate it.

Thank you.

Thank you.