Pegasystems Inc. (NASDAQ:PEGA) Q3 2020 Earnings Conference Call - Final Transcript

Oct 28, 2020 • 05:00 pm ET

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Pegasystems Inc. (NASDAQ:PEGA) Q3 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] And we'll take our first question from Chris Merwin from Goldman Sachs. Please go ahead.

Analyst
Kevin

Hi. This is Kevin [Phonetic] on for Chris. Thanks for taking my question. Congrats on a great quarter. I guess a question on cloud backlog, which accelerated nicely in the quarter. Can you talk maybe a bit more about the drivers of strength there? Are you seeing improvements to sales cycles? And how is duration trending for deals?

Executive
Kenneth Stillwell

So, I find that first, but -- oh, go ahead, Alan.

Executive
Alan Trefler

No, go ahead. Go ahead, Ken.

Executive
Kenneth Stillwell

So, what I was going to say is some of it is math. And the fact that we had such a big cloud mix in the quarter, 66%, you would expect that our revenue would be lower in the quarter, and you would build more backlog, but that -- if that trend continues, naturally, that Pega Cloud backlog is the lifeline for our future revenue.

So, some of it is just the very strong momentum of Pega Cloud that actually helps build that, and some of it is the fact that clients, when they look at Pega's offerings -- our Pega Cloud offering is now much more prominent and much more interesting for our clients than when we first started to talk about it, three or four or five years ago. So, some of it is the momentum of just the math of a quarter. But in general, we're seeing more and more clients engage with us around Pega Cloud. So sorry, Alan, go ahead.

Executive
Alan Trefler

And I was going to say, we've seen a number of clients think that Pega is the best company to run Pega. Client Cloud, I think, is very important. And when a customer is moving its entire data center infrastructure to an Azure or Google app, then they may want to have their Pega infrastructure since we're so tied into their systems, really is part of the way they think about their technology sector. But for lots of customers that say, "Hey, we know that you'll be able to make it easier for us to tune, to grow and to build," so I think it's just a maturation in the market of how we talk about it and our very strong success with it.

Analyst
Kevin

Great. That's helpful. And then I guess one on cloud gross margins. Obviously, you saw a really nice sequential improvement there, more than we've seen typically. Anything to call out other than kind of general scale efficiency that's helping that metric?

Executive
Kenneth Stillwell

Yes. So the great thing about -- as I'm sure many of you know, the great thing about software is that it's highly leveraged at the margin line. The thing with SaaS is that it is also highly leveraged as you scale at the margin line if you have an efficient cloud operations or SaaS operations. And as we -- when we were a smaller scale, we weren't as efficient.

And now that we have more scale, there are