Greetings and welcome to the Pegasystems' second quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host Ken Stillwell, Chief Financial Officer for Pegasystems. Thank you Mr. Stillwell, you may begin.

Good evening, ladies and gentlemen. And welcome to Pegasystems Q2, 2016 earnings call. Before we begin, I'd 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 may be 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, plan, believe, projects, forecasts and guidance, and other similar expressions, identify forward-looking statements, which speak only as of the date the statement was made and are based by current expectations and assumptions. 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 June 30, 2016, its Annual Report on Form 10-K for the year ended December 31, 2015 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.

Thank you. On our last call, I said we are expecting of our new CFO on this earnings call. And so I'm pleased to introduce Ken Stillwell we just heard from. Ken joined us on July 7 and you will be hearing from him again later on this call. We have lots of good candidates, we ran a very disciplined and extensive process and we're thrilled. We really feel we picked the best. Ken's helped similar roles of companies include Dynatrace, SOVOS and PTC. He's got the right mix of financial leadership, operational skill, tech sector, and public company experience to make him the right addition to our team. So, welcome aboard, Ken, thank you.

Thanks, Alan.

In terms of our results, I think we had a solid first half. The first half non-GAAP license and card revenue grew 18% year-over-year to about a $159 million. And the first half non-GAAP total revenue grew 17% to a $369 million [ph]. We have seen some anxiety from certain clients, we regarding Brexit and other elements of global uncertainty or some value loss and currency. It's too early to know what it might mean to the broader business impact, but would be watchful and we don’t anticipate more than a modest impact either short term or long term. Now, regarding our strategy, we'll continue to execute on our strategy of delivering strategic applications for customer engagement, on top of the world's leading platform for digital transformation and we thought to see a large number of organizations were choosing our strategic customer engagement apps, seen the business outcomes they can achieve from combining insight, action and the power to evolve in how we approve customer experience and save money. We think leading organizations in governments adopt Pega as a platform even beyond the apps to drive new initiatives and we are also pleased or talk a regular bit about our initiatives to broaden our market through digital marketing and to our expansion to the Global 3000. To recall the key elements that Pega does, we provide our clients with the unique ability to rapidly deliver strategic advantage in the areas of marketing, sales automation and customer service, to build their own applications on our platform, we'll complement the existing technology to digitally transform with a leverage partner developed apps. And with the only architecture that really facilitates our clients moving seamlessly back and forth among our Pega cloud, our clients own private cloud or traditional long terms. As we talked…

Thanks, Alan. I am really excited and feel fortune to join Pega at such an exciting time. The strategic CRM market that we are in is an incredible growth opportunity for managing connectivity for our customers in this every changing world. Pega is well positioned to leverage our offerings and expertise to deliver on the promise of enabling better customer engagement. I have been here for a month or so and the team here at Pega is just awesome. I saw some of that in the interview process and my view has been confirmed now that I am in the mix. I am excited to help contribute to shaping and driving our customer success as Pega scales. For the second 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 table of the press release issued earlier today and is available on the Investor section of our website. As we discussed in the past quarter to quarter comparison to not necessarily reflect the underlying momentum of our business as the timing of the small number of large transaction and the mix of license type can significantly impact our results. In our view year-to-date results provide the most meaningful walk at how our business is performing. We are very pleased to report that year-to-date non-GAAP total revenue was $369 million up 70% year-over-year. Foreign currency fluctuation as result of Brexit were not material to our first half results because Brexit occurred so late in our Q2. Depending on future developments of Brexit, fluctuations primarily of the British Pound the Euro could affect revenue results of future periods. Our year-to-date non-GAAP licensing cloud revenue was $159 million, up 18% year-over-year, despite two large license deals recognized as…

Thank you. [Operator Instructions] Our first question come from line of Steve Koenig with Wedbush Securities. Please proceed with your question.

Thanks gentlemen for taking my question and welcome to Ken and for Pegasystems. I am going to ask a maybe a multi-part question so I can squeeze another one in, I got a quick follow-up if that's okay. So, you talked quite a bit about how Brexit might affect you. So, but I would like to ask in terms of the first half performance particularly Q2 was looking very strong in terms of the booking against really tough comp for break Q2 last year. Can you talk a little bit about what drove the strength in Q2? You still have the sales accelerator, the first half performance? Did that help at all? Were there other market factors or product factors, big deals, etcetera? And then on the Brexit issue, even though you mentioned it several times, are you signaling that we should expect any variance from guidance to be more likely to queue down now? Is that the interpretation in wise of the intact being large and then I do have one quick follow-up if guys will allow me.

Sure. So, there were no as people may know from our nomenclature, we refer to whales as being 10 million plus pieces of business. We achieved our first half in Q2 without whales. So, we talked to you about that. We had a healthy number of tuna, those being the 5 million to 10 million ones as well. So, it was I think was just a generally pretty strong performance frankly we wanted to do even better but we are happy with what has come in. Relative to the whole Brexit and yes I take a look at some of the turmoil that's going through the world, Turkey will have a couple of bags as obviously bit of stress. It's hard to predict what's going to happen. I think that the world has become somewhat less friendly to international world business and certainly some of our large clients which are the banks are really wondering exactly what Brexit is going to do them. And it would be entirely natural for there to be some level of either the full or taking more modest steps as a result of that level of uncertainty with the financial institutions in particular that are pretty big. So, we don't issue quarterly guidance and we don't update guidance in the course of the year but certainly looking at those things, anybody rational anybody looking at the currency effects that have already happened and will happen can realize that we got some natural hedges from the fact that we are globally expense is globally but from the revenue perspective it wouldn't be shocking to expect more volatility than we would have as at the end of the year and that volatility more likely to be negative than positive.

Yes. Okay. That's helpful Alan. So my quick follow-up maybe more about the product in market. So, given that we are seeing the market and your customers as well focus more on additional business transformation. Can you talk a little bit about how Pega has been using specifically where the form factor is mobile, are you sometimes doing the front end and sometimes just integrating Pega with other tools and kind of being used maybe just update us on where you are with mobile form factor and how that relates to business transformation.

Sure. So, one of the things that we believe is we need to be able to fit into a variety of architectures. So, some of these got a mobility platform that they love and they just want to call us as a service, we let them do that. However, one of the things that's kind of cool about Pega is models of architecture, enables you to design kind of how you want your business to work and then we generate the code in the HTML appropriate to do with form factor. So, we will generate it for desktop, we will generate it for a tablet, we will generate it for Android, iOS even Windows phone as it makes sense and the fact that you get on to Pega Express, one of the cool thing you can do there you can build you app and then hit this little button and the system will show you exactly what it would look like on all those different form factors. Now that's based on the antenna technology that we bought. We bought the antenna technology. We took a lot of the goodies from there that sort of shell that lives natively on the individual phones and then we augmented it with capabilities from our model to be able to do that if you want to see a really cool video, there is four minute customer video from the Swedish unemployment office. And the Swedish unemployment that was very important for the people not only to be able to come to the office but to be able to see with their unemployed benefits from their various phones. And they built a gorgeous system to really help people keep track of that. And the great thing about it is, we have to think of the…

Awesome. [Indiscernible] thanks a lot Alan. Thanks guys.

Take care.

Thank you.

Thank you. Our next question comes from line of Greg McDowell with JMP Securities. Please proceed with your question.

Great, thank you. Hi Alan and welcome Ken. I am not sure I heard did you guys reiterate the full year plan of 800 million in revenue and $0.95 in EPS and I guess part be that question is if you could help us think a little bit about seasonality between Q3 and Q4 I guess in the second half of the year and if we should think about it any differently compared to sort of historic seasonality in light of Brexit, that's my first question.

Yes. So, as I think you and others who listen well know that the only times we ever do anything that’s low becomes closed updating guidance is in the light of an acquisition that we might do. And we did not talk about and nor would be our practice to talk about the previously discussed revenue or EPS guidance. I think we have alluded to the possibility that there is going to be more volatility in the second half and that is just harder to know. And certainly we didn't expect Brexit for example and we didn't expect some of the other stuff we seen going on when we put those original plans together or we updated them at the end of Q1 when we talked about the impact of OpenSpan, the world frankly from my point-of-view is different there. Historically, we have seen a lot of volatility in Q3s and Q4s tended to be very heavy and we have handed year-over-year to be very dependent on them. That's certainly not going to be any different this year. I mean in reality with some of the attention that you see in the marketplace coupled with the fact that Q3s are always a crapshoot because large parts of the world is not available, touch with couple of weeks of September. We, expect we will continue to see a very Q4 heavy pattern. But we are kind of built for that and we are excited about the uptake in the software in the marketplace, our internal pipelines are good and up and so we still feel good about the year but Q3s will tell you always is a crapshoot.

Yes, okay, that's fair. Thank you and that's helpful. Since you brought up OpenSpan and again I am not ask you to update guidance but Max has talked about maybe around $25 million revenue contribution in 2016 with $20 millionish coming in the second half of the year. So, I guess just broad question is how is OpenSpan trending so far and virtually your first full quarter of OpenSpan as a business and is it meeting your expectation so far?

Yes, I am feeling quite good about the enthusiasm we get from OpenSpan. We as a company like to make sure that we don't just kind of blew off the market material but actually make sure the software is really integrated. So, we did take a chunk of the second quarter and try to make sure that we have the products with up the way we wanted to showed with PegaWORLD. And this is subject to all the OpenSpan technology is subject to all the sorts of vagaries of the center Pega technology in terms of attentions units and other things in terms of what's going on. But I am quite encouraged that OpenSpan is going to be a very successful part of the long term Pega story and by the way we have been able to keep all the senior folks on there. Our retention has been terrific in terms of the people we wanted. And that's also very much the way we go about bringing up the firms into the full. It feels good.

Okay, great. Thanks gentlemen.

Thanks.

Thank you. [Operator Instructions] Our next question comes from the line of Matthew Galinko with Sidoti. Please proceed with your question.

Hey, good afternoon guys. You touched on digital marketing and digital buying and the script so I was hoping you could explain on that strategy a little bit. I guess more broadly if we think about this strategic application, do you see an impact on the sales cycle coming down at all?

Yes. So, a couple of things. One is that we are definitely seeing much better web traffic. People coming to our sites, monitoring who is looking at our materials and I think that's part of supporting digital buying that we are very excited about, our PR in the first half was just spectacular. We got mentioned in dozens of magazines internationally in lots of publications in periodicals. We can actually see excerpts of those if you come to our website. So, I think the idea that we are supporting people other than knocking on their door which is of course the way we traditionally saw is continued to be well under way and it's something that is obviously central to our future. One thing that I am excited about is we put our Pega express software online and that means basically allows people, you need to realize what a radical change this is from where we were three or four years ago. We actually allow people to register and to go into a 30 days play with the software, which so there is a couple of things. One is we have really gone to be a lot easier to use because it doesn't require the traditional weeks of training to really understand that. And we found the experience to be a very positive experience of 1000s of people doing it. One thing I have noticed is that a lot of the deals that close more quickly have people who went online and played with it. And we are going to continue to double down on this. You are going to see us put some of our additional products online with the same sort of try it that we have done with now Pega express. I don't think when we talk about going to the corporate markets, we are not talking about going to companies that might have 30 users. Right. We are still a company where we design for people who want to differentiate themselves and that means they are typically going to be somewhat larger firms but the corporate markets team in particular finds this hugely beneficial to direct clients to just try it and you will see us put more products out in the second half of the year in that same way beyond what we currently have on Pega Express.

Got it, thanks. And then on the sale as an equation, you know, you added fairly significant sales over the past years. So, I was hoping you could give a little more color on and whether you're still pushing ahead on higher or are those predominately [indiscernible] kind of a mix and if you're satisfied with how quickly you are on boarding it and bringing at least prototype hire a productive view.

Yes. We are really trying to hire a greater proportion of people who actually can recruit. Now in the corporate markets group, which is selling to the smaller firms that quite as will be somewhat smaller which you would expect if you are not selling to the fortune 400 but this is still meaningful and we are really trying to not increase what we call internally the tail which is the number of people who kind of follow a sales person around. We think that we have strong product and better product with excellent digital marketing and we have the ability for people to try things and the videos we have now got online that show demos, we are actually looking to make it so that we can increase the sales force without having to proportionally increase the supporting infrastructure which is one of the basis that Ken's driving us to improve margins in coming years which I know is the mission of it.

One additional comment for color as well as Canada it's in the profile that we are looking for primarily in the corporate markets area, the recruiting time is much shorter because there is a lot more Canadites in the market and so we had a lot of success with bringing those Canada, it's on and on boarding them and getting them out in the field to be productive much faster.

Great. All right, thanks guys.

Thank you. There are no further questions at this time. I would like to turn the floor over to Alan for closing comments.

I would like to thank all of you who came to PegaWORLD and really now we would like to see you again in next year. We got to make sure we have a great show for you. And for all of you who have listened and for all of our stockholders, thank you for your interest and support. And know that we are working very hard on your behalf. Have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.