Good afternoon and welcome to the Pegasystems First Quarter 2022 Earnings Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ken Stillwell, Chief Operating Officer and Chief Financial Officer. Please go ahead.

Thank you. Good evening, ladies and gentlemen and welcome to Pegasystems' Q1 2022 earnings call. Before we begin, I would like to read our safe harbor statement. Certain statements contained in this presentation may be construed as forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, projects, forecasts, guidance, likely and usually or variations of such words or other similar expressions identify forward-looking statements which speak only as of the date the statement was made and are based on 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 2022 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 it’s Q1 2022 earnings and in the company's filings with the Securities and Exchange Commission, including it’s annual report on Form 10-K for the year ended December 31, 2021 and other recent filings with the SEC. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise. And with that, I'll turn the call over to Alan Trefler, Founder and CEO of Pegasystems.

Thank you, Ken and thank you to everyone who has joined today's call. I'm pleased to kick off the year with solid results as we continue to stay focused and leverage our strengths. We grew ACV, annual contract value which is our most important metric, by 21% year-over-year while improving margins. Our low-code software platform for AI power decisioning and workflow automation is unmatched in the industry and continues to be the choice of many of the world's leading organizations. And we help the most demanding enterprises work smarter, unify experiences and adapt instantly so they can always be ready for whatever is next. Now today, this is more important than ever. This is one of the most volatile environments I've seen in decades. Clients continue to face challenges related to the pandemic. And certainly, no one unexpected war to break out in Europe which is affecting both the world's economy and business requirements generally in ways we just didn't anticipate a few short months ago. Our clients and their customers are grappling with labor shortages, rising inflation, increased oil prices, supply chain interruptions and economic insecurity. But Pega is built to help enterprises manage through uncertainty. Our solutions are as effective for clients whose businesses are under pressure as they are for those focused on growth and expansion. We understand, as a company, how to adjust our go-to-market approach to support clients equally well, regardless of which dynamic is driving their decision-making. Before we move on, I'd like to take a minute to address what's happening in Ukraine. We, as I think is most of the world, are horrified by Putin's brutal actions and what's happening to the Ukrainian people and others being affected by the violence. In 2021, before Russia's invasion of Ukraine, we had already taken the…

Thanks, Alan. To start, just a few highlights from the quarter. ACV grew 21% as reported and then were up about 2 percentage points of constant currency that went against us. So 23% constant currency was our results for ACV growth. Both current and total backlog increased 20% year-over-year. Our total revenue also grew 20% year-over-year. And you're starting to see signs of the completion of the subscription transition and the improvements to margins. Although I have and will continue to focus on total ACV, I realize also that many of you paid much more attention to our Pega Cloud offering which represented 67% of new client commitments in the quarter. The most important metric that we measure for success of our business during the subscription transition is growth in annual contract value, or ACV. Just as I mentioned, ACV grew 21% as reported and 23% in constant currency to $1.034 billion at the end of the first quarter, driven by continued demand for digital transformation. In the last several years, we've invested to accelerate our ACV growth rate and are increasing our focus now on ensuring we realize the benefit from those investments through improving sales productivity and prudent cost management. Although we're pleased with our ACV growth in Q1 of 2022, it's important when measuring the success of our business to look at a longer time horizon than 1 quarter. We focus on total ACV growth for the full year and we are still early in our 2022 cycle. That said, our team has demonstrated that we can maintain strong ACV growth during uncertain times. A global pandemic, shifting to remote work, higher inflation and, as Alan mentioned, an unforeseen war in Europe are some choppy waters that our team has successfully navigated. We haven't missed a beat…

[Operator Instructions] Our first question is from Pinjalim Bora with JPMorgan.

Great. Congrats on a pretty solid ACV growth here. Alan, you characterized the environment as the most volatile environment you have seen in decades. Maybe help us understand what are you seeing in the field from a demand environment perspective, especially in the different theaters. And maybe if you can double-click on Europe, any indication that there is kind of a slight wind of change blowing? More scrutiny or any kind of signs maybe you're not seeing or you're seeing, would love to hear. And then, Ken, on that topic, I mean, I know you don't update guidance but how are you feeling about hitting that ACV guide for the year at this point?

So in terms of what we're seeing, especially in Europe. I would say the anxiety level of clients is up. In some ways, that makes them more receptive to things that are going to improve their processes and automate I think there's more question in the minds of clients. And by the way, when I say in decades, having been around now for 25 years of being a public company and longer in the business, I can remember when inflation was at rates not only at this level but much higher. The entire level just goes up. It's just natural. When economic times are tough, we tend to shift our value props to be much more focused on, "Hey, how do we make sure the customer is going to get a return in the 6, 12 months? How do you look to make it possible for them to both save money and, frankly, deal with the unavailability of staff which can be addressed in terms of both the operations work we do and in providing low-code environments. Because I think you're going to find that finding programming staff is going to get harder and harder and harder for our prospective clients. So there's a good market shift. I would say it is -- it's definitely tangible in Europe but I think there is a level of global anxiety that we just need to acknowledge and use that in how we tune our go-to-market messaging and how we just work as a company. Having seen this stuff before, I have a high level of personal ability, I think, to hopefully provide useful advice but it's there and it's real. And I don't think it's going to be just us. Ken?

Yes. So I think the question that you asked, Pinjalim, was how do we feel about the ACV range that we had talked about, about a quarter ago which was kind of 20% to 22% is what we had said before. And I would say there is -- at the scale of our business, a percentage point is about $10 million of ACV growth. I mean the math is pretty easy, $1 billion or so. So do I think that there is risk that's in the market now that wasn't there 6 months ago? Yes, I think that's a fair point. Do I think that, that changes the prospects for Pega or the solutions that we have or the value proposition or, quite frankly, even the demand environment of our clients? I don't think it does, actually. I definitely think there will be -- it will be -- like Alan mentioned, the trick will be making sure we put the right capacity on the right verticals and the right organizations to capitalize. But I think when -- with inflation, I don't think our clients are looking to stop investing in digital transformation. I actually think they need automation to deal with the labor shortage and the cost of labor issues that are in those markets. So I'm optimistic that, that will work in our favor. But yes, there is definitely uncertainty in the market.

Understood. And one more for you, Ken. It seems a solid result in the Pega Cloud ACV growth rate into the 40s. But I wanted to ask you about the cloud backlog growth. When I look at the cloud backlog growth, that seems like decelerated when ACV accelerated. Shouldn't those to be more typically directionally aligned? Is that maybe FX acting up on RPO.

So FX actually hits ACV and RPO. So FX is definitely a couple of points of headwind on both of those numbers. But no, I think the point you're on, I would -- in a perfect world, RPO and ACV go in lockstep. But unfortunately, we don't have 25,000 clients to kind of like kind of normalize the growth. So we are subject to when renewals happen for certain clients. And Q2 was just -- I mean, excuse me, Q1 was just not a big renewal quarter. That's really what you're seeing, Pinjalim. It's not -- your assumption is right. They should connect. But some quarters, they just -- they diverge because of that -- the timing of renewals.

Got it. Very clear.

The next question is from Steve Koenig with SMBC Nikko.

Congrats on the quarter. Maybe just a question for Ken and then a follow-up for Alan. Ken, maybe a multipart question that could be related. So good Pega Cloud mix in Q1 and you're seeing signs of a similar mix, 67%, I think, in Q1 was what it was. But you're seeing signs of a similar percent in Q2. What is your thinking on kind of the durability of that trend? Is -- are you -- do you think Pega is going to keep moving up from -- it's been kind of -- we thought it was going to go above 50 to 60 and then it was kind of more in the 50s last year. And I know that it's hard to predict where it's going to end up and there'll always be prem clients for a while. But is that going to be sustained -- a sustained upward move from here? What is your thinking?

So I'll give you my thoughts and then Alan can give his as well because we -- and so -- my comment about Q2 is really based on the visibility I have of Q2 which is driven by specific deals in pipe. If you go out past a quarter or 2, naturally, in any company, pipeline starts to become less credible in your 2, 3, 4 quarters out, as we all know. I don't know. I honestly don't know where the trends will happen in the marketplace. What I do know is Q1 was pretty strong Pega Cloud quarter and Q2 looks to be the same. And even if the Q3 and Q4 revert back, it still will have an impact for revenue in 2022. We can't -- you can't kind of reverse once you actually book those deals. Now, do I think that it will go the other direction like client cloud will be 70%? I don't see that happening. But I don't really have a great crystal ball to say Pega Cloud is like here to stay and it's going to be continuing to grow. I know everybody wants that to happen. But just being honest, I just don't know.

Sure. Got it.

Yes. So I would say that the client receptivity to Pega Cloud as opposed to -- look, the message of Cloud Choice, I think, is a terrific company message to have is differentiated from a lot of companies and I think it gives customers and will in the future give customers a level of sort of intellectual freedom that they're making something that they will approve the choices of. Having said that, the fact that we were kind of like 2 to 1 getting in on Pega Cloud, when, historically, I kind of thought of it as kind of a one-to-one sort of thing, that's great. And I'm seeing that level of receptivity in the short term as well. Whether it's going to continue into Q4, I mean it's -- these things are hard to know. But the clients are being very successful. I think we increased our margins here which shows that we're being increasingly effective at being able to work with our clients in these environments. I view that as kind of all good. And to be honest, clients moving to the cloud in general I think triggers a lot of need for a system like Pega to help them coordinate, in some cases, their other systems which is a big part of the Process Fabric concept that we introduced at last PegaWorld and we'll be talking about more this year is all about. It's the idea of being able to have a center out interconnected architecture without putting everything on one big infrastructure which I can guarantee you customers are not going to be getting back to. So yes, no, it's great. It's going to be 2:1. I'd love to see that.

Got it. Got it. Okay. Great. And if I could ask a follow-up, so actually, Ken, I did want to ask you about your trajectory towards the Rule of 40. What are you thinking timing-wise? Just remind us. And then, Alan, I wanted to ask you. When it comes to low-code competition, if I were to characterize Pega's traditional reputation as being I would have said the BMW on autobahn, now I'll say the Tesla on the autobahn. Apologies to BMW. But some of the other low-code competitors being more like an MG and a road rally through the suburban streets. From a technology and product perspective, maybe give us an update on your intentions and your ability to compete in that road rally as opposed to the autobahn in addition to the autobahn.

So I've always -- the days before electric cars, I've always preferred the MAC truck analogy to the auto analogy. We want to be the company that is capable to let our customers do the lifting they need to do as opposed to getting started and running out of runway. The low-code space, it's full of lots of companies. I would say that a lot of the competition about what I would describe as the kind of very low end, is not actually, I don't believe, going to compete with what our core value prop is which is to be able to help organizations that are working with mobile product lines, multiple types of customers, multiple geographies. We've got -- even for companies that aren't enormous, we've got a very unique and differentiated approach to thinking about that. And we are doing everything we can to continue to make that more accessible, easier to use. The cloud helps a lot and we're going to continue to push on that. But I think the movement to low code or model-driven, as I've always liked to talk about it, is you won't find another company that has been more in that lane and I think has a greater understanding of what that means than, I think, Pega. And I see that some of the competitors that are coming in and you see companies like Microsoft talk about this, robotics companies took a spin at it. I don't think it's worked out for them. I think we are still highly distinguished and we are doing everything we can to, well, think about opening that aperture with large companies and over time smaller ones.

And taking the first part of your question, Steve. So I didn't -- I'm not -- I didn't intentionally be coy on this answer but I'll be much more specific now. We are not going to be a Rule of 40 company in 2022. We are not going to be a rule company -- Rule of 40 company in 2023 because we are just finishing the subscription transition. In 2024, we will be a Rule of 40 company. It may be a few quarters before the end of 2024. So think about us hitting it like middle of '24 to the end of '24. And you may say, "Well, I thought you said the subscription transition was ending in the middle of '23." It will. But you wouldn't really be a Rule of 40 company until the next 12 months after it ends. So I'm kind of targeting -- instead of playing around with quarters, I'm just going to say, 2024, we should be a Rule of 40 company. If we're not, then we had work to do. That's on us but that's our target.

The next question is from Rishi Jaluria with RBC.

Really good to see Pega Cloud accelerate from last quarter. One multipart question for Ken, just on better understanding the cloud dynamics. And then I have a follow-up for Alan. So Ken, on the cloud ACV side, I want to maybe expand on an answer that you gave earlier on the cloud ACV growth versus cloud RPO growth. Part one, can you maybe remind us the dynamics or waterfall of Pega Cloud ACV accelerating to when that translates to Pega Cloud revenue growth accelerating because that line did not pick up this quarter? And then maybe alongside that, if we look at current cloud RPO, that actually ticked down sequentially for what I believe is the first time ever, at least as far as you've been going down this cloud transition. I know there's some FX headwinds there. Is that purely -- putting the FX up aside, is that purely just deal timing and there's maybe a lag from when it gets signed at ACV till you can recognize it as RPO under GAAP? And -- or is there something else there that we should understand? And then I've got a follow-up round.

Yes. So I'm going to start with your RPO one. No, there's no timing. When we book a deal, Rishi, it goes into ACV, it goes into RPO. There's no acceptance clauses or anything like that. If there was, it wouldn't go in either, meaning you wouldn't even see it. It wouldn't be an RPO. It wouldn't be it. It's purely the timing of renewals. That's all -- that's the only variability that happens with RPO is that there's 2 -- it's duration. It's contract duration. We are not booking shorter contract duration but there is the dynamic of renewal timing. And next quarter, we could have the complete opposite happen. I'm just -- that's a hypothetical comment but like -- absolutely. So don't even -- for me, I would say RPO is a confirming indicator. It is not -- there's nothing messy in there. It's just renewal timing. On your first point around when will Pega Cloud revenue ACV convert to revenue at that growth rate. Whatever is in Pega Cloud ACV right now will be the next 12 months of revenue. That's the way to think about it. So whenever you see an ACV -- and I understand currency messes with this a little bit but you should be able -- we should be able to predict that, that will be a kind of revenue compare. So whenever we ended Pega Cloud ACV at the end of Q1 '21 compared to Q1 '22, if that grew 42%, that will be a very good directional indicator of the next 12 months of Pega Cloud revenue compared to the last 12 months. So that's the way to think about it.

Got it. Okay. That's really helpful. And then, Alan, I want to build on some comments you had kind of made earlier. I was just thinking about the macro environment but one of the pieces that you didn't touch on as much is just a tough hiring environment out there. And a few of your peers that also deal with automation in different ways, so not competitors but more adjacent. Talk about how the labor shortage out there is actually serving as a tailwind for them, right, that there is more importance on making your existing employees more effective and more productive and that's serving as a talent for demand. Is that something you're seeing outside of your own hiring? How are you thinking about how you may be benefiting or how the labor shortage is maybe impacting the demand environment for you?

I think that the shortage of labor is positively impacting how people are receptive to what we do. And the -- to be blunt, the increased volatility of the workforce, the whole Great Resignation and people worried about the ability to retain people means that you need to be able to have in the operations realm better processes because you're going to be dealing with people who might not have quite the depth of experience. And in the technical realm, you need to, frankly, require less deep technical expertise because retaining some of the technical expertise is harder and more expensive to boot. So both of those, I would say, are structurally very positive and that's not going to go away. I do think you have businesses trying to figure out what the current inflation levels mean. And that just naturally in any business is going to have some adverse effects. It's going to make them worry about the size of the commitments they should make, other types of things of that type. But the positive and I think it's structurally positive, the other questions will get answered, I think it's ultimately very, very positive for our business.

The next question is from Joseph Meares with Truist.

I believe last quarter, you noted that sales productivity was slightly below 50%. Can you just remind us how you define sales productivity and then what you think that number -- or what that number looks like today and what you think it could be exiting 2022?

So yes, let me clarify, Joe. What I said was -- and I know we all in the industry use different terms, so I might have confused. What I said was that we had slightly less than 50% of our sales reps that were at a fully ramped stage, right which means that they had tenure greater -- they were tenured in a cycle where we felt like they would be kind of more normally productive. And that number is still below 50% as of the end of Q1. That was what I was talking about. In terms of -- we use productivity measures a little different because we expect different productivity in their first year, in their second year and their third year. So if you want to drill into that question, I just wanted to clarify.

Yes. Do we have an expectation for what that will be by the end of '22? And then just as a follow-up question, if you guys never added another logo, what's the current revenue opportunity within the current customer base? Like what's the maybe the percentage penetration from a revenue perspective of the current customer base?

Yes. So let me touch on your first question and I'll give you a perspective on the second question and then Alan can chime in on the second part of your question, too. So the first question was you asked where do we think we'll be at the end of 2022. Just like I don't want to predict -- I didn't want to predict the end of COVID, I'm a little cautious on predicting the end of high attrition but I would say that every statistic that you see in the market would suggest that the attrition is not getting worse in Q1 and Q2 than it was last year. So that's a good sign for us because naturally we're going to see attrition, too and then it's hard to -- so I would hope that by the end of 2022 we would be no worse off than we are now and hopefully slightly better in terms of the percentage of sales reps that would be getting kind of into that productivity. We have a lot of salespeople that are in that 1- to 2-year period, so we're hoping many of those kind of shift over that into the 2 years. It's not magic but it certainly does help -- it helps the statistical productivity. The second -- the second question, Alan, do you want to give a perspective on the second part of his question?

Yes. The -- so in terms of how I think of productivity which I think is what the -- could you repeat the second part of your question again?

Yes. Yes, sure. The question was, if you never added another logo, what's the revenue opportunity

Yes, we have an enormous amount of white space in our customers. I would tell you that if you looked at our top 20, 25 customers and asked how thoroughly penetrated we were in those, you would conclude that we were under 25% down trade. We could grow easily several hundred percent without adding a single logo which doesn't mean we don't want to add the occasional logo. And I think adding new logos is good. But I'm really focused, I think, at this time about trying to make sure we're cultivating our relationships with these marquee organizations that, in my view, are going to do the best in this more difficult and uncertain time in the next 2 years. So we have a tremendous amount of whitespace in our current organizations. And that gives me a lot of reassurance, frankly, in a time of uncertainty.

And I'll give you more of a statistical answer to that, Joe. We have about 800 logos, ballpark 800 clients. Less than 200 of those spend $1 million with us. And many of them could spend $20 million, $25 million, $30 million for us. Some of them can spend $100 million or more with us. Just -- if you just do the math, like it works out that you probably have years and years of actually booking potential for us, like more than 5 years, maybe 5 years, right, of runway to be able to just grow those 800 logos. That's not to say that's our goal. We do want to grow logos as well. But I just think it's important from a perspective, we have so many fish in the ponds that we've already kind of got fish in. Like we don't need to go and go into new regions and new logos. And it's helpful to get new logos, of course but I do think there's a lot in our core customer base.

The next question is from -- and please excuse any mispronunciation -- Vinod Srinivasaraghavan from Barclays.

Not too bad on the pronunciation. You guys had a mentioned some of the Pega Infinity features in your later release. And I thought the service industry workflows look pretty interesting. Just to clarify, are these bundled packages? And are you able to monetize them at higher prices?

Well, there are 2 ways you monetize. One, [indiscernible] some of that on cost for some of the tech, some of the add-ons and additional capabilities that we have. And the other is all of these broad -- the way our pricing works, the way we think about it is the more a customer does using a Pega system, the more they should pay. And so to the extent these also drive additional workloads from our customers, that also creates the expansion potential as you continue to spread out in these customers. So there's both some incremental but I think the greatest value comes from being able to open up new opportunities. When customers decide they need [indiscernible] collections and they do some of the types of things that we were doing. So that opens up a whole new functions that we might not be yet in many of those 800 customers, for example, that I was talking about.

Got it. And you guys have mentioned kind of NRR in the mid-teens from time to time. Is it fair to say that it's still kind of in that range? Or have you seen any kind of movements in either direction?

Our net retention rate has actually been going up slightly over the last few years. And a little bit of that is COVID, right? Because we actually have sold to existing logos. So I'm not sure that, that it's a little hard to say whether that's like the actual just the trend of like virtual selling or whether that's something -- but yes but with mid-teens is kind of where we still sit.

The next question is from Mark Schappel with Loop Capital.

Nice job on the ACV front. Alan, a question for you starting off. Building up your partner programs has been a big initiative at the company over the past few years, especially building up your global SI practices. Can you just discuss as much as you can how much of a role your partner programs contributed to the good ACV print this quarter?

Well, I think partners are super important for us. And being able to work with our partners, particularly to make sure that our footprints are expanding in those key organizations that we've identified, is something that's absolutely central. Our level of partner attach is extremely high. And I would say it contributed to the results this quarter. I also think it contributed to some of the results last year as well. So it's -- that's not all brand new but we're going to continue it. And I think that we've got deeper and broader relationship with partners than ever before.

So Mark, one clarification because I get this sometimes in investor discussions. Partners for some companies are completely new distribution channel which means you go set up a partner and you say, U.S. and Latin America for us. Partners, I would say, are less relevant for us there. they are in the actual largest organizations like that. We want to go arm in arm with our partners in the larger -- they're the largest clients for our partners as well. So that's where it's really -- and I know sometimes people get confused about thinking about us going down market or going into new territories or new regions or new logos. It's less that than really working arm in arm with our partners on exactly the logos that we both want to support.

Great. And then as a follow-up, Alan, a question on staffing. The company has always had a relatively aggressive hiring targets. So I was wondering if you could just give us a sense of whether you're on plan hiring-wise this year so far. I know it's still early in the year, or whether you're a little bit behind. And then also along those lines, are you having to raise comp more so than normal just to stay competitive?

Well, I'll answer the second question first. There's just no question that us as a hiring organization is subject and has been subject and we've done quite a bit of work with our team to understand what we need to do to make sure that we stay competitive from a compensation point of view. And we're seeing, particularly for some roles, some pretty material increases. And we're thinking about how this affects our overall staffing plan. So I think if you asked me a year ago where we would be at the end of this year -- so thinking more than a 12-month sort of period -- I would have expected that we probably have more staff than I believe at the end of this year we're going to end up having. Because we are trying for -- Ken's commentary on trying to make sure we're being financially responsible, if we are, in fact, raising comp, we need to make sure we're getting -- we're hiring assets, topnotch people, getting tremendous value from them, retaining. We have a lot of great talent retaining that great talent ended up cost more. That will, to my mind and questionably influence the end of your staffing numbers that we end up targeting and that, frankly, all companies will end up targeting which, by the way, I think, can be good for productivity software. So that does have a virtuous sort of back end to it. Does that make sense?

It does.

The next question is from Joey Marincek from JMP Securities.

Great. Earlier, Ken, you mentioned about making sure you're putting the right capacity in the right verticals. So from a vertical perspective, where do you feel like you have the most room to run within the current client base? And then separately, how do you think about your ability to move down market over time, just given the work you're doing with Project fnx?

I'll let Alan take the second part of that about going with Project fnx and what -- look, the -- we -- our verticals, the 2 that are clearly immense in size are certainly public sector and financial services. Our other verticals are very large as well. But I think those 2, just if you go and look at the -- just look at the market data, that would suggest that those 2 are very large for automation and certainly platform companies like Pega. But I think we're not -- to clarify, we're not looking at new verticals in a way that we're saying. We think we're sold out in our existing verticals or that we somehow cannot expand in those verticals where we have to go too far down market. So if you think about the verticals that we're in, many of those verticals are going to have the same use case of trying to manage automation because cost of labor and accessibility to labor is very challenging in '22 and beyond. And so the use case is kind of a horizontal use case really around automation. So in kind of an interesting way, it's actually not really as much vertical-specific in terms of the problem that you're solving. It's more of a horizontal solution. And so with that, I just think there's almost opportunity everywhere because every single company is dealing with labor, every single company is dealing with inflation. And what we aim to do is help them with that, at least one angle that we take on our solutions is certainly to help them be more efficient. And that is very relevant now. So I kind of view it as almost more of a horizontal problem that gets verticalized.

Yes. And relative to Project fnx, I mean, I think you're seeing the evidence of the results of Project fnx, our improved cloud margins. Project fnx helps the entire client base. And that includes both some of our very large customers who want to make sure that our architecture is extremely current and care about that as well as offering us the potential for other market choices as we go forward. I would just tell you, based on my experience, times of enormous, enormous uncertainty are not the right moments to make a wholesale push down market. And regardless of the readiness of our technology, that's not the right place that we should be focusing in my view in -- to be candid, probably for the rest of this year. I mean I put -- let's talk about next year on that and it's great to be able to have other things to think about there. But fnx has helped the whole line. I think you can see some of the results very clearly in some of the improved margin numbers.

The next question is from Fred Havemeyer with Macquarie.

I really just wanted to check in on Europe from 2 different points here. Firstly, I wanted to just check and ask, are you seeing any impacts in terms of your partners' ability to be able to work on and deliver applications because of some of the disruption to Eastern European outsourcers and systems integrators? And then secondly, looking at some of the EMEA results here. Obviously, there's a lot going on and the world is quite anxious. Just wondering if you could kind of contextualize regionally where you're seeing the pockets of strength or weakness within Europe.

So I'll take the first part of that and then Alan, you can talk -- so we don't have -- our partners and our clients don't have a tremendous concentration of process outsourcing happening in Eastern Europe. Asia Pacific, more so. So from that standpoint, there hasn't -- we have not seen -- other than just the emotional distraction of everybody knows someone is affected by this situation, there's not large clients of ours that had huge centers in those regions that are not able to operate. That has not been an issue.

I don't know that you would -- from our partners. And the partners that we happen to have don't have large, for example, Ukrainian technology operations like some companies do. So we're just happening to be fortunate. Obviously, we individually as a firm are very sensitive to what goes on in Poland. But that team has just frankly been doing remarkably on every front on both the dealing with humanitarian issues as well as continuing to be a highly effective team; so I'm pretty pleased there. You're asking about the business environment. It's unpredictable. Germany which is such a powerful economy there, they're still trying to figure out what this is all going to mean. And so I think, as I said earlier, it's just a time of enormous uncertainty. And I think the closer countries are physically to Russia uncertain it is for them. From a business perspective, our exposure to both those various European countries and to Russia itself is nominal. So that's not going to affect us directly. But indirectly, I think we're all guessing exactly what's going to happen there over the next 60 days and just trying to be candid about it I think that was.

This concludes our question-and-answer session. I would like to turn the conference back over to Alan Trefler for any closing remarks.

That's got, I know what we're turning out just waiting for that invite. So thank you very much, everyone. I'd like to make sure that in closing, that all of you have on your radar PegaWorld. Go to the website, register. It's going to be a very exciting 2.5 hours. I promise you that. Thank you very much, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.