Pegasystems' (PEGA) CEO Alan Trefler on Q2 2016 Results - Earnings Call Transcript

| About: Pegasystems Inc. (PEGA)

Pegasystems Inc. (NASDAQ:PEGA)

Q2 2016 Earnings Conference Call

August 03, 2016 05:00 PM ET

Executives

Alan Trefler - Founder, CEO

Ken Stillwell - CFO

Analysts

Steve Koenig - Wedbush Securities

Greg McDowell - JMP Securities

Matthew Galinko - Sidoti

Operator

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.

Ken Stillwell

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.

Alan Trefler

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.

Ken Stillwell

Thanks, Alan.

Alan Trefler

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 about in the past we're focused on four major initiatives, two was your product oriented and two which you go to market. From a product perspective, we're continuing to deepen the capabilities of our engagement apps in marketing, sales automation and customer service to make our solutions of greater value to our buyers and the speed of implementation, increased ease of use and the support faster sales. Once again, this quarter we gained important recognition for our leadership in customer relationship management. This May, we were listed as a leader in the Gartner Magic Quadrant for the CRM Customer Engagement. I heard of Microsoft who work when ASAP.

And it's one of the top three sought leaders in the CRM industry. To quote from that report, "The Gartner reports that Pega has quote the best cost of value rating of any solution assess the vendors in the leader's quadrant." "And parallel ability to handle complex cases." "Stronger stability in and receiving the higher scores from reference customers for modelling and predicting customer's behavior and for communicating the next best action to agents."

Furthermore, the strength of our out-of-the-box marketing application which saw when we were named a strong performer in Forrester cross-channel campaign management wave. It lists us as leading in what they call new time interaction management. A critical requirement that brings the insight to the moment of truth when an agent is dealing with a customer or a customer is themselves engaging with the system. We feel that no other provider is able to provide their up clients with a single unified platform to support complete end-to-end customer experience the way that we can.

We'll with some announcement that PegaWORLD was seeing tremendous excitement from our clients and partners with the customer decision hub which we highlighted there, which offers the ability to unify insight and intelligence across marketing, sales, and customer service application. We're seeing a lot more momentum from other organizations interested in partnering to add value to their own offering to our applications. For example, we're pleased about the collaboration we have with Phillips, announced in June to improve patient care, to connect the devices, cloud and analytics.

The new partnership built on an existing client relationship we have with Phillips that rise with the intersection of IoT Internet of Things and care management. Today when somebody contacts the Phillips lifeline, either with a question or because someone has fallen, so their machine automatically calls, they're contacting a Pega software system. We're working with Phillips to connect Pega Care Management application which does specialties, functions, in the area of optimizing population health with Philips HealthSuite Cloud platform.

Because it's going to enable care teams to better leverage connected devices and outdated a personalized care, increased in adherence, improve health outcomes and lower costs. We also announced an important partnership with Merkle, a state of the art performance marketing agency, which are earlier this year had bought a Comet, a Pega centered integrator focused on customer engagement implement and managed services. This partnership will enable businesses to connect advertising and marketing in and across the customer channels into the paid channel. To be able to drive more personalized relevant and timely customer experience whatever the customer engages with that client.

With unified first party data from our customer engagement apps which are collecting what's happening in real time on our sites and drive some though the decision hub to be able to support improvements to service across every channel. Also on the product side, we continue to enhance Pega 7, our unified model driven platform with a focus on mobile analytics and cloud. Pega 7 is the foundation on which one applications are built, a critical competitive differentiator and a platform for digital transformation.

For example, we launched the enhanced Pega exchange, a curated online market place for applications add on components and useful utility. This expansion provides business uses and developers with access to over 90 apps and reusable components. From our partners, from Pega itself and from the broader software delivery community. These can really help enhance Pega Solutions, easier and faster. It include software from company such as Bosch, Ubers and dock your time and we will continue to actively expand this with new partners and generated content we get from users.

As you likely recall, we acquired open stance this past April and are really pleased with how we want to gather the Pega technology and the Pega marketing with this leading provider of robotic automation and workforce intelligence software. We show the integration Pega 7 that opens Pega robotics, so a PegaWORLD. Well down the path to installing this at clients. The additional of Ken's management and auditing controls to the robotic software add significant value to the clients just in robotics. And adding robotics o this usual Pega platform means that we can now get into any system, API or not and provide power and automation.

Now, from a billion market perspective, we've been actually working to improve how people think about our products. We've introduced a new site called design.pega.com which is a design platform that provides a resource for Pega user experience design and really helps up the standard to how people should crate state-of-the-art and forward-looking systems. Check it out. And we're actively supporting the move to digital buying, coupled with awareness marketing to bring prospects and clients to our digital platform. This program's continue to go on an interest and we're being able to leverage terrific new content from PegaWORLD based on client keynotes, breakout session. I hope you check them out, both to excite people, we have come to our side and they help people tour side.

We're going to continue to use our cloud based trials of Pega 7 express in campaign to drive interest registrations. We're also investing in broader market coverage within enterprise accounts. We see a lot of momentum this year in the public sector around the world, it's such a terrific place for case management and for service affiance. This includes a recent winds of companies, organizations, like HMRC, Her Majesties revenue and customs in the UK which now has over 30,000 users. As well as the justice, commerce, treasury and veterans of fair department in the US. And a number of division of the Australian government as well.

But one of the most notable winds this quarter is with the US centers. Its early days but we would like to highlight the process that got us to where we are and why we are so confident about our ability to drive excellence into even sophisticated and important programs. The census bureau has a really incredible task in terms of up as till designated by the US constitution, counting everyone in the US but more than doing that every 10 years, there is also a place where data is routinely collected for all sorts of other government agencies.

And then they really wanted to come up with a true state of the out of approach to both handle the upcoming censuses and do the work that lies between. To ensure the decision was effective and objective and resulted in the best technology, they actually engaged Carnegie Mellon Software Engineering Institute, and they published a 122 page document about the process they went through and how they made the selection. It is actually the most rigorous and responsible selection that I have ever seen.

Their initial market research started with formal responses from 29 software vendors and they didn't just be white papers, they actually studied what they provided. They then down selected to five vendors from whom they actually bought software. Brought in house and used it. They then down selected to two finalist each of which was given 90 days to deliver an actual system and to make sure that the competition was most intense, they competed those two against their whole in house development team. At the end of it, Pega came out clearly victorious. They said that they had 98% of what they needed out of the box with Pega.

That Pega has the superior mobile capabilities. That Pega has the models of the architecture that would give them the flexibility. And that Pega would enable them to deliver this more reliably and at a more reasonable cost and with the greater ability to change. Exactly the message proven at scale. Very very exciting and an example of something we can do and I think other governmental agencies and I would invite others to take a look at this document, it's really terrific. We have also seen great momentum in a number of other targeted industries.

For example in health care we are really being able to show that we can actively influence the cost structure and the service structure of our clients. Two simple examples would be Express Scripts which recently extended the relationship with us and CareFirst using Pega 7to drive health care plans processing efficiency for the federal employee's health plan.

Our manufacturing business has also been doing extremely well. We have Toyota now running Pega 7 on the cloud to automate and improve quality compliance management and accountability from their hundreds of third party suppliers. And FedEx using our open stand technology to support first call resolution by more than 5000 agents. On the technology space, Siemens continuing to drive digital transformation across all their business lines in the globe. And our corporate market team which is from my point of view that exciting new set of staff we brought on little over year ago continues to do well and brought to us firms we never would have historically sought.

Companies like Nielsen where the AICPA accountants successfully sold and being delivered by the corporate market team. So, I am pleased from the selling perspective we have really got our business system that is working and that makes a lot of sense and that can do everything from the extremely large design win deals like we would do at census to things that are going live in 90 days powered by Pega cloud and by our out-of-the-box application. Very much from the past that we described when we said we wanted to do embark on the strategy a year and half ago.

I would like to take few moments and just talk about PegaWORLD. It was the highlight of Q2 and this year didn't disappoint. Biggest in our history about 35,00 attendees and it's a terrific venue for building businesses, business opportunity sorting sell cycles and importantly connecting our clients, prospects and partners together which makes them all much more efficient. We significantly increased the size of our technology resilience and was busy throughout the conference but especially with the robotics booth, where the lines were consistently long, waiting to see the demo.

We showed some of the IoT technology with an actual bringing an actual corvette on the floor to show clients how Pega is able to make decisions manage complications like warranty clients and even drive personalized marketing campaigns by leveraging the data from the vehicle, city, and road sensors as well as real time weather information. We have excellent presentation from companies like CSAA, the California AAA, CISCO, GE Healthcare, Orange Business Services, Spirit, UnitedHealthcare and Zira [ph] and over the last six weeks we have seen clients really beginning to apply the lessons from PegaWORLD.

We are seeing clients who're being able to take back stories and messages and are thinking and talking differently about how they want to drive digital transformation. How they want to break down application and channel silence. Integrate customer data and deliver a great customer experience and operational excellence. Glad to see so many that attended and have come back to us and are deeply engaged with us now. So, Vegas turned out to be a terrific venue. And we will back there for PegaWORLD 2017 and I hope you will join us there.

So, in summary, a good first half. Pleased with the continued progress to position Pega as the leader who filled the gaps for customer engagement and the platforms for digital transformation. We are positive about how our software perceive and leverage in the marketplace and we continue to be confident in our competitive differentiation and our long term growth opportunities and initiatives. To provide more color on the financial let me turn it over to Ken.

Ken Stillwell

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 revenue in the second quarter of 2015.

From a revenue mix perspective, during the first half of 2016, non-GAAP licensed cloud and maintenance revenue was 73% of total revenue, compared to 74% during the first half of 2015. We do expect to see continued improvement in our software to services mix which we mean by that the software portion of revenue relative to our consulting services. During the first half of 2016, non-GAAP recurring revenue which includes maintenance, cloud, and term license was 55% to total revenue compared to 54% for the same period of 2015. As we discussed in the past we offer our customers a number of options when licensing our software including perpetual, term and cloud arrangements. We continue to expect that our business will shift away from perpetual licenses toward recurring license revenue streams of term and cloud. Although the timing of a small number of larger value perpetual transactions would continue to impact license mix results in the foreseeable future.

Non-GAAP consulting services revenue for the first half of 2016 was $98 million, an increase of approximately 21% over the prior year. This course appears high because of the comparatively week first quarter 2015 of services revenue. We expect to continue growing our consulting services business at high single to low double digit rate 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 half of 2016, the Americas inclusive of United States, Canada and Latin America produced 65% of total revenue while non-Americas international generated the remaining 35%. Approximately 15% of our total revenue is generated from the UK. The Brexit both has created some uncertainty and volatility in global markets which may affect customer purchasing patterns and demand for our products and services in future periods.

Turning to our non-GAAP gross margin. We finished the first half 2016 with the gross margin of 71% up from 69% in the prior year. Consulting services margin for the first half of 2016 were 14% up from 7% during the same period in 2015. The margin in the first half 2016 benefited primarily from two large projects which all or a significant portion of the associated cost were incurred in the prior year. If we adjusted for this timing difference, our consulting services margin would have been approximately 11% consistent with our expected run rate of 10% for 2016.

Our year-to-date 2016 operating expenses totaled $211 million on a non-GAAP basis, an increase of 15% over the prior year. Our year-to-date non-GAAP operating margin improved to 14% compared to 11% for the same period of 2015. This improvement occurred despite our continued investments in building our strategic applications, improving digital engagement for our customers and expenses related to the significantly increase attendance at our annual PegaWORLD user conference. In terms of some other non-GAAP operating expenses, we increased sales and marketing headcount by 177 people year-over-year the majority of which were in sales. We are very pleased with the continued progress we are making to add sales and marketing capacity to expand our market coverage.

R&D costs continue to run at about 18% of revenue, we expect this rate of investment to continue through the remainder of 2016 as we continue to enhance our leading Pega 7 platform and expand our strategic application offerings.

Turning to earnings. On a year-to-date basis, we posted $32 million of non-GAAP earnings. On a per share basis, our non-GAAP fully deluded earnings were $0.41 per share compared to $0.27 per share for the first half of 2015. Any future earnings impact from currency fluctuation as a result of Brexit or other market events would be partially mitigated by the expenses in that currency which create an natural hedge for us.

Moving on to backlog and the balance sheet. We compute licensing cloud backlog by totaling two components. Deferred licensing cloud revenue, as posted on our balance sheet; and licensing cloud contractual commitments that are signed, but have not yet been recorded on our balance sheet. As a reminder, you can find details of both elements in our 10-Q and a summary table on our press release, both of which we filed earlier today. We finished the first half of 2016 with $393 million of total licensing cloud backlog, backlog remain stable as compared to the first half of 2015 and the first quarter of 2016 despite a $4 million reduction caused by an approx decline of the Pound and the Euro as a result of Brexit.

Consistent with many software companies and with our experience in most of the last five years we have consumed backlog in the first half of the year and have built backlog towards yearend when license signings tend to be stronger. We continue to focus our efforts on converting our strong pipeline to backlog, while growing our revenue.

From the cash flow perspective year-to-date the company produced $9 million of operating cash flow compared to $39 million for the first half of 2015. This variance is primarily due to the timing of our billings. We finished the period with total cash, and marketable securities of $138 million, cash was lower this quarter as compared to last quarter primarily due to the cash payment of $49 million to acquire OpenSpan which is net of the cash acquired. During the first half of 2016, we repurchased approximately 795,000 shares for $19 million. At June 30, we had a balance of $47 million available for repurchase through June of 2017 and this was inclusive of an increase of 26 million of a repurchase amount approved by our board in May of 2016. On headcount, we finished the period with approximately 37,00 employees, up 21% from June 30 of 2015.

In summary, we had a strong first we had strong first half revenue earnings and pipeline while still maintaining backlog and seeing compelling progress in developing our strategic application. We remain focused on achieving our 2016 target with a power of our strategic applications in the momentum of PegaWORLD helping to drive continued growth in the business through the second half of 2016. And with that operator we will open the call to questions.

Question-and-Answer Session

Operator

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

Steve Koenig

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.

Alan Trefler

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.

Steve Koenig

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.

Alan Trefler

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 wire case that lets you build things once and reuse it enormously. If you look at it, they use the wire case because it actually I think close to two dozen flavors of Swedish unemployment each of which offers something a little bit different and different look and feel. People will have to sign up with their own unemployment agencies as it were and then able to use the SQL Pega platform to create a mobile driven personalized experience that works across the board here and then also enables them to handle the back-end of another parts as well.

But my final comment on mobile is the census is in 2020 if all goes well, is going to be by far the world's largest ever mobile field service application. On its peak day there will be over 400,000 what they call mobile enumerates people out in the field with tablets going and getting names, addresses, all the other sort of things they need to complete the census. So. for Pega to have as powerfully as we did one that business on top of our models of an architecture I think shows how far we have come in mobile and how our vision of mobile is not being a separate thing but being caught actually having an effective application I think it's going to be increasingly strategically beneficial to go forward.

Steve Koenig

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

Alan Trefler

Take care.

Steve Koenig

Thank you.

Operator

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

Greg McDowell

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.

Alan Trefler

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.

Greg McDowell

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?

Alan Trefler

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.

Greg McDowell

Okay, great. Thanks gentlemen.

Alan Trefler

Thanks.

Operator

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

Matthew Galinko

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?

Alan Trefler

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.

Matthew Galinko

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.

Alan Trefler

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.

Ken Stillwell

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.

Matthew Galinko

Great. All right, thanks guys.

Operator

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

Alan Trefler

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.

Operator

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

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