Thank you for standing by. This is the conference operator. Welcome to the Pegasystems' first quarter 2016 earnings conference call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask question. [Operator Instructions] I would now like to turn the conference over to Max Mayer, Chief Administrative Officer and Senior VP of Corporate Development. Please go ahead.

Thank you. Good evening, ladies and gentlemen, and welcome to the Pegasystems' Q1 2016 earnings call. Before we begin, I would like to read our Safe Harbor statement. Certain statements contained in this presentation, including but not limited to, statements related to future earnings, bookings, revenue and mix of license revenue maybe construed as forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The words expects, anticipates, intends, plans, believes, could, estimates, may, targets, strategies, intends to, projects, forecasts and guidance, and other similar expressions, identify forward-looking statements, which speak only as of the date the statement was made. Because such statements deal with future events, they are subject to various risks and uncertainties. Actual results for the fiscal year 2016 and beyond could differ materially from the company's current expectations. Factors that could cause the company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q1 2016 earnings, and in the company's filings with the Securities and Exchange Commission, including its quarterly report on Form 10-Q for the quarter ended March 31, 2016, it's Annual Report on Form 10-K for the year ended December 31, 2016 and other recent filings with the SEC. Although subsequent events may cause the company's view to change, the company undertakes no obligation to revise or update forward-looking statements, whether as a result of new information, future events or otherwise, since these statements may no longer be accurate or timely. And with that, I will turn the call over to Alan Trefler, Founder and CEO of Pegasystems.

Thanks Max. I think we are off to a really good start to the year. Q1 non-GAAP license and cloud revenue grew 20% year-over-year to $77 million. Q1 non-GAAP total revenue grew 16% year-over-year to $179 million and we grew cloud revenue year-over-year by 38%, so very, very pleased. Max will discuss the extremely strong EPS that we received as well. I think it's because our strategy is working. We're continuing to execute on our strategy of powering digital transformation to our clients to delivering strategic applications that help these enterprise better serve their customers. We're focused on four areas. First, continuing to deepen the capabilities of our strategic CRM applications in marketing, sales automation and customer service, to make our solutions of greater value to our buyers, especially in areas like speed of implementation and increased ease-of-use. We continue to gain recognition for leadership in CRM. And our product has received Product of the Year Award for Pega Customer Service from a leading technology publication who are ranked one of the top players by Ovum in their CRM report, actually ahead of Salesforce.com, Microsoft and SAP. We also received the maximum scores in process automation, customer analytics and mobility. In this area, we've launched two new applications we're going to be highlighting in our PegaWORLD show next month. The first is Pega Field Service for use across multiple industries to extend customer service capabilities to field technicians and mobile agents. And Pega Client Lifecycle Management, which streamlines and automates client onboarding, enhancing customer experience while reducing cost. This fixes a major issue, especially for financial services institutions, 88% of which say that know your customer regulations are negatively impacting expense and client onboarding time. We're also increasing our partnerships, for example, with our alliance with DocuSign to provide Pega…

Thank you, Alan. For the first quarter of 2016 we are reporting both GAAP and non-GAAP results. A full reconciliation of all GAAP to non-GAAP measures is provided in the financial tables of the press release issued earlier today and is available on the Investors section of our website. We are pleased to report first quarter 2016 non-GAAP total revenue of $179 million, up 16% year-over-year. This performance is particularly remarkable when compared to an exceptional first quarter 2015. This strong revenue growth resulted in significant increase in our earnings per share. Our first quarter 2016 non-GAAP licensing cloud revenue was $77 million, up 20% year-over-year, despite a stronger dollar that somewhat reduced our revenue denominated in foreign currencies. From a revenue mix perspective, during the first quarter of 2016, non-GAAP licensed cloud and maintenance revenue was 73% of total revenue, consistent with prior year results. This mix reflects the strength of our software business, and we would expect the software portion of revenue to continue increase relative to our services business. Our professional services business is 26% of total revenue, which is in line with prior year. Professional services revenue increased 19% year-over-year. And this growth is higher than typical, because we are comparing to relatively weak professional services first quarter 2015. Also, the first quarter of 2016 benefited from the recognition of revenue on a large project, which had been delayed from the fourth quarter of 2015. As previously stated, we expect to grow our professional services business at high single to low double-digit rates, consistent with our strategy to have customers and partners deliver the majority of our implementation services. Looking at our geographic non-GAAP revenue split. For the first quarter of 2016, the Americas, inclusive of U.S., Canada and Latin America, produced two-thirds of total revenue,…

[Operator Instructions] Our first question today comes from Steve Koenig of Wedbush Securities.

I wanted to ask a little bit about your ecosystem. You've made some really good progress in cultivating ecosystem partners, driving more service revenues to them, and likely helping you guys whether its deal cycles or kind of a bigger implicit market. But perhaps I wondered if you could talk a little bit about your sense of tangible benefits from having expanded that ecosystem? And also maybe just touch upon, what's the implication of making your applications easier to deploy with respect to your ecosystem. Does that make you a less attractive partner or more attractive partner or what's the implication for the ecosystems on your drive to sell at an application's go-to-market?

I think that's a great question. The reality is that the ecosystem is important to us, something we invest in and something we're very excited about continuing to build. And I think it's critical for clients to have available resources, and some of the work we're doing is actually intended to help our ecosystem grow. Things like this university program we've put out is actually for the benefit of our customers or partners to be able to bring trained, younger, Pega staff into their operations and really build up their pyramids in both environment. So we're doing many things at Pega Academy online training. Lots of other work to try to build it, and we think that a strong ecosystem is key. Relative to the implementation cost, I mean, on one hand it's logical that the system were really hard to implement that the ecosystem could make more money. But in fact the converse is really true. There is so much hunger in the client base, so many either solutions that they wish they had or solutions that they are putting in that aren't meeting their expectations. But they have something that really works like the Pega technology. Customers are anxious to find ways to get it in and get it in faster. And what we found working with our partners, and also for us, is the faster and easier it can be to put in the system, specifically facilitated by these applications that now really nicely build out. It actually increases the demand, because there is always continuous improvement and follow-on work that these clients want. And it's easier to afford, when every new installation and the benefits you get, costless to implement. So from our point of view and from the point of view of our partners, it's a real plus to improve the ease of use of our system and I think that that's going to continue.

Just to add a little bit of color to that. Our ecosystem continues to grow at about 30% rate. We see no slow down in that. And one of the more interesting aspects that's happening is, whereas traditionally our practices were focused on the BPM side of our partners, we're now seeing our partners embrace our strategic applications in CRM. And they are building strong practices in that CRM side of their business. We're particularly seeing big excitement and growth on Pega Marketing and a huge growth in our ecosystem, as our customers embrace our next best action marketing and decisioning products. We're seeing big growth on that side of their practices.

If I may ask one follow-up for you, Alan, I'm just wondering -- I assume you're making good progress headway with you CFO search. Any kind of change or tweaking of your thinking about what kind of person you're looking for, a blend of financial and operational talent, and any update on that search?

Well, I think we are looking for somebody who's got some real strategic experience and vision, a broad collection of background to draw on, and somebody who'd be a good team member for the management team and for the company as a whole. So there is no change. We're very comfortable with the ability of us to run the company with the staff that we have. So we're in no great hurry though. It is my hope that by the time we do the next one of these calls, we will have brought this search to a conclusion. That would be a reasonable goal, I think, at this stage. Well, I'd like to believe that Max and [ph] Efstathios, Principal Accountant, is doing a spectacular job and you folks can see that good result.

Our next question comes from Matthew Galinko of Sidoti.

I guess, on the OpenSpan acquisition, can you talk about their go-to-market and sales strategy today? How you think you can improve on that through kind of the sales force that you're billing out in your strategic applications? And maybe how you see the market size for them and how frequently you see an opportunity to sell that product into just the customers of yours?

We think that there will be a lot of opportunity to bring that technology into a much broader customer base. Obviously, we've got a vastly larger footprint and channel. And this isn't some wild add-on, this is something that's a very natural fit with the parts of our applications we either want to get data, improve service by making certain things faster and better and I think we'll be a natural extension. We've already had a number of our joint customers engage with us pretty enthusiastically about this. And I think clients, when they're dealing with a small firm like that, are always kind of worried, where a company like that might end up. That can create a certain level of anxiety in the buyers, because let's face it there are acquirers that have reputation for being pernicious or perhaps less than customer-friendly. We don't have that reputation with our clients and I think they are going to see this is a very natural thing to do. And given the way that it fits beautifully with the rest of our technology, I think we're going to find actually good bidirectional opportunities to make things workout. So we're really quite excited about that team.

And I'm assuming they have some element of a direct sales force. And I'm wondering, do you see that as sort of acquihire almost where you can utilize them to sell your strategic applications and expand your footprint or is it relatively smaller than your sales growth ambitions at this point?

Well, look, just to put things in perspective, their order of magnitude, $25 million in revenue and where we were prior to that, in order of magnitude, $780 million. So the sales team they have is a direct sales team and they certainly -- we're going to be excited to train and cross-train both sales forces and integrate them over the next couple of quarters. The reality is, though, that this isn't going to massively move the needle on sales headcount. It's great, it's good, and we're excited particularly. We're retaining the senior management of OpenSpan, who we think can play very important roles at Pega. But I don't think its acquihire move the needle sort of thing. I think it's really sort of acquihire bring some nice special skills in that we'll complement. And we've seen in the field already, can compliment our products and the type of customers we have.

Last one from me. Just curious, if you're seeing anything different competitively in the CRM space, just given you've been at Pega Can campaign for a while now?

Yes. I mean, we're seeing ourselves be successful. And we know we are being seen as not just a credible candidate, but actually winning business in very competitive situations. I think one thing a number of our prospects like is the fact that we've got the positioning that you can either run on-premise around the cloud or go back and forth, can be very, very powerful. I mean, the cloud is enormously popular and terrifically important. But for some types of applications, where you particularly need to do lots and lots of integration, it can be very convenient to run some or all of it behind the firewall. And the fact that we have the exact same application capable of running in both environments and we can give our customers that choice and that flexibility, I think is an important competitive advantage for us. And it's one that I think will increase as time goes on. So we feel really good about competing in that market.

There are no further questions at this time. I would like to turn the conference back over to Alan Trefler, Founder and CEO, for any closing comments. End of Q&A

Thank you for joining us today. And in closing, we want to thank all of our staff for their continued efforts, as well as welcome the OpenSpan team to Pega. And I want to reiterate our excitement about the combination of talent, technology, client value and market opportunities that OpenSpan brings. And we look forward to seeing many of you next week in Miami at the Jefferies 2016 Technology Conference on Wednesday. We'll be both presenting and doing a very significant number of exclusive one-on-one. So with that, thank you very much, everyone, and have a good evening.

This concludes today's conference call. You may now disconnect your lines. Thank you for participating. And have a pleasant day.