[Executive Summary](index=1&type=section&id=Executive%20Summary) Pegasystems Inc. reported accelerated Q1 2025 results, driven by Pega GenAI and its subscription model, with significant growth in key financial metrics and positive commentary from leadership [Q1 2025 Highlights](index=1&type=section&id=Q1%202025%20Highlights) Pegasystems Inc. reported accelerated Q1 2025 results, driven by Pega GenAI and the benefits of its subscription model, with significant growth across key financial indicators - Operating cash flow grew to **$204 million** and free cash flow grew to **$202 million** in Q1 2025, both increasing by **13% year over year**[7](index=7&type=chunk)[34](index=34&type=chunk) - Annual Contract Value (ACV) growth exceeded **13% year over year**, reaching **$1,445 million**[7](index=7&type=chunk)[6](index=6&type=chunk) - Pega Cloud ACV grew **23% year over year**, and total backlog grew **21% year over year**[7](index=7&type=chunk)[37](index=37&type=chunk)[43](index=43&type=chunk) [CEO and CFO Commentary](index=1&type=section&id=CEO%20and%20CFO%20Commentary) CEO Alan Trefler highlighted Pega GenAI's transformative impact on client engagement, while COO & CFO Ken Stillwell emphasized accelerated ACV growth and record free cash flow - Pega GenAI has dramatically transformed client engagement and enables clients to accelerate digital and legacy transformation goals[2](index=2&type=chunk) - The company accelerated ACV growth and delivered record free cash flow in Q1 2025, reflecting the benefits of the subscription model[2](index=2&type=chunk) - Operating as a 'Rule of 40' company allows a focus on accelerating profitable growth while thoughtfully returning capital to shareholders[2](index=2&type=chunk) [Financial Performance Overview](index=1&type=section&id=Financial%20Performance%20Overview) Pegasystems achieved substantial revenue growth, returned to GAAP net income, and saw significant increases in ACV and backlog in Q1 2025, reflecting strong operational performance [Key Financial Metrics](index=3&type=section&id=Key%20Financial%20Metrics) Pegasystems reported a significant increase in total revenue and a return to GAAP net income and diluted EPS in Q1 2025, alongside substantial growth in non-GAAP net income and EPS compared to Q1 2024 **Q1 2025 Key Financial Metrics (YoY Change):** | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change | | :-------------------------------- | :-------- | :-------- | :----- | | Total revenue | $475,633 | $330,147 | 44 % | | Net income (loss) - GAAP | $85,422 | $(12,124) | * | | Net income - non-GAAP | $140,542 | $42,154 | 233 % | | Diluted earnings (loss) per share - GAAP (per share) | $0.91 | $(0.14) | * | | Diluted earnings per share - non-GAAP (per share) | $1.53 | $0.48 | 219 % | [Revenue Breakdown](index=4&type=section&id=Revenue%20Breakdown) Total revenue for Q1 2025 increased by 44% year-over-year, primarily driven by a 195% surge in subscription license revenue and a 15% increase in Pega Cloud revenue **Q1 2025 Revenue by Type (YoY Change):** | Revenue Type | Q1 2025 (in thousands) | % of Total (2025) | Q1 2024 (in thousands) | % of Total (2024) | Change (in thousands) | % Change | | :------------------ | :--------------------- | :---------------- | :--------------------- | :---------------- | :-------------------- | :------- | | Pega Cloud | $151,123 | 32 % | $130,902 | 40 % | $20,221 | 15 % | | Maintenance | $76,368 | 16 % | $81,001 | 24 % | $(4,633) | (6)% | | Subscription services | $227,491 | 48 % | $211,903 | 64 % | $15,588 | 7 % | | Subscription license | $186,555 | 39 % | $63,338 | 19 % | $123,217 | 195 % | | **Subscription (Total)** | **$414,046** | **87 %** | **$275,241** | **83 %** | **$138,805** | **50 %** | | Consulting | $60,421 | 13 % | $54,047 | 17 % | $6,374 | 12 % | | Perpetual license | $1,166 | — % | $859 | — % | $307 | 36 % | | **Total revenue** | **$475,633** | **100 %** | **$330,147** | **100 %** | **$145,486** | **44 %** | [Annual Contract Value (ACV)](index=1&type=section&id=Annual%20Contract%20Value%20(ACV)) Total Annual Contract Value (ACV) grew by 13% year-over-year to $1,445 million as of March 31, 2025, primarily driven by a 23% increase in Pega Cloud ACV **Annual Contract Value (ACV) (YoY Change):** | Metric | March 31, 2025 (in millions) | March 31, 2024 (in millions) | 1-Year Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :------------ | | ACV | $1,445 | $1,273 | 13 % | | Constant currency ACV | $1,445 | $1,273 | 13 % | **ACV by Type (YoY Change):** | ACV Type | March 31, 2025 (in thousands) | March 31, 2024 (in thousands) | Change (in thousands) | % Change | Constant Currency % Change | | :------------------ | :---------------------------- | :---------------------------- | :-------------------- | :------- | :------------------------- | | Pega Cloud | $701,311 | $570,356 | $130,955 | 23 % | 23 % | | Maintenance | $298,422 | $313,550 | $(15,128) | (5)% | (5)% | | Subscription services | $999,733 | $883,906 | $115,827 | 13 % | 13 % | | Subscription license | $445,677 | $389,431 | $56,246 | 14 % | 14 % | | **Total ACV** | **$1,445,410** | **$1,273,337** | **$172,073** | **13 %** | **13 %** | - ACV represents the annualized value of active contracts as of the measurement date, calculated by dividing the contract's total value by its duration in years[36](index=36&type=chunk) [Backlog](index=12&type=section&id=Backlog) Total remaining performance obligations (backlog) increased by 21% year-over-year to $1,728 million as of March 31, 2025, with Pega Cloud constituting the largest portion **Total Backlog (YoY Change):** | Metric | March 31, 2025 (in millions) | March 31, 2024 (in millions) | 1 Year Growth Rate | | :-------------------- | :--------------------------- | :--------------------------- | :----------------- | | Backlog - GAAP | $1,728 | $1,425 | 21 % | | Constant currency backlog | $1,723 | $1,425 | 21 % | **Backlog by Type and Duration (March 31, 2025):** | Duration | Pega Cloud (in thousands) | Maintenance (in thousands) | Subscription license (in thousands) | Perpetual license (in thousands) | Consulting (in thousands) | Total (in thousands) | % of Total | | :--------------- | :--------- | :---------- | :------------------- | :---------------- | :--------- | :---------- | :--------- | | 1 year or less | $572,341 | $229,180 | $33,202 | $317 | $45,320 | $880,360 | 50 % | | 1-2 years | $331,572 | $73,500 | $3,718 | — | $2,291 | $411,081 | 24 % | | 2-3 years | $161,259 | $37,779 | $731 | — | $144 | $199,913 | 12 % | | Greater than 3 years | $185,939 | $43,939 | $7,215 | — | $52 | $237,145 | 14 % | | **Total** | **$1,251,111** | **$384,398** | **$44,866** | **$317** | **$47,807** | **$1,728,499** | **100 %** | | **% of Total** | **72 %** | **22 %** | **3 %** | **— %** | **3 %** | **100 %** | | **Backlog Change since March 31, 2024 (in thousands):** | Pega Cloud (in thousands) | Maintenance (in thousands) | Subscription license (in thousands) | Perpetual license (in thousands) | Consulting (in thousands) | Total (in thousands) | % Change | | :--------- | :---------- | :------------------- | :---------------- | :--------- | :---------- | :------- | | $259,998 | $39,238 | $(2,128) | $(2,410) | $9,059 | $303,757 | 21 % | | 26 % | 11 % | (5)% | (88)% | 23 % | 21 % | | [Consolidated Financial Statements (GAAP)](index=7&type=section&id=Consolidated%20Financial%20Statements%20(GAAP)) Pegasystems reported a strong financial turnaround in Q1 2025 with increased revenue, a return to operating and net income, and improved cash flow from operations, despite a decrease in total assets due to debt repayment [Statements of Operations](index=7&type=section&id=Statements%20of%20Operations) For Q1 2025, Pegasystems reported total revenue of $475.6 million, a gross profit of $373.2 million, and income from operations of $127.0 million, a significant improvement from an operating loss in the prior year **Condensed Consolidated Statements of Operations (Three Months Ended March 31, in thousands):** | Metric | 2025 | 2024 | | :------------------------------------------ | :--------- | :--------- | | Total revenue | $475,633 | $330,147 | | Total cost of revenue | $102,450 | $94,658 | | Gross profit | $373,183 | $235,489 | | Total operating expenses | $246,194 | $255,901 | | Income (loss) from operations | $126,989 | $(20,412) | | Income (loss) before provision for income taxes | $126,310 | $(15,162) | | Provision for (benefit from) income taxes | $40,888 | $(3,038) | | Net income (loss) | $85,422 | $(12,124) | | Diluted earnings (loss) per share (per share) | $0.91 | $(0.14) | [Balance Sheets](index=8&type=section&id=Balance%20Sheets) As of March 31, 2025, total assets decreased to $1,322.0 million from $1,768.3 million at December 31, 2024, primarily due to a reduction in cash and marketable securities and the repayment of convertible senior notes **Condensed Consolidated Balance Sheets (as of, in thousands):** | Metric | March 31, 2025 | December 31, 2024 | | :------------------------------------------ | :--------------- | :---------------- | | Total cash, cash equivalents, and marketable securities | $371,736 | $739,973 | | Total current assets | $846,492 | $1,333,704 | | Total assets | $1,321,950 | $1,768,273 | | Convertible senior notes, net | — | $467,470 | | Total current liabilities | $609,136 | $1,086,058 | | Total liabilities | $710,681 | $1,182,793 | | Total stockholders' equity | $611,269 | $585,480 | [Statements of Cash Flows](index=8&type=section&id=Statements%20of%20Cash%20Flows) Cash provided by operating activities increased by 13% to $204.2 million in Q1 2025, though the company experienced a net decrease in cash due to significant financing activities **Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, in thousands):** | Metric | 2025 | 2024 | | :------------------------------------------ | :--------- | :--------- | | Net income (loss) | $85,422 | $(12,124) | | Cash provided by operating activities | $204,228 | $180,146 | | Cash provided by (used in) investing activities | $261,895 | $(132,399) | | Cash (used in) provided by financing activities | $(575,986) | $17,899 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(106,293) | $62,843 | | Cash, cash equivalents, and restricted cash, end of period | $235,236 | $295,670 | [Non-GAAP Financial Measures Reconciliation](index=5&type=section&id=Non-GAAP%20Financial%20Measures%20Reconciliation) Pegasystems demonstrated significant non-GAAP net income and EPS growth in Q1 2025, providing a clearer view of core operating performance by adjusting for non-recurring and non-cash items [Net Income and EPS Reconciliation](index=9&type=section&id=Net%20Income%20and%20EPS%20Reconciliation) Non-GAAP net income increased by 233% to $140.5 million, and non-GAAP diluted EPS increased by 219% to $1.53 in Q1 2025, primarily due to adjustments for stock-based compensation and other non-recurring items **Reconciliation of GAAP and Non-GAAP Net Income and EPS (Three Months Ended March 31, in thousands, except per share amounts):** | Metric | 2025 | 2024 | Change | | :------------------------------------------ | :--------- | :--------- | :----- | | Net income (loss) - GAAP | $85,422 | $(12,124) | * | | Stock-based compensation | $41,425 | $34,781 | | | Restructuring | $11 | $163 | | | Legal fees | $6,544 | $1,942 | | | Litigation settlement, net of recoveries | — | $32,403 | | | Amortization of intangible assets | $701 | $964 | | | Interest on convertible senior notes | $394 | $617 | | | Capped call transactions | $223 | $(3,299) | | | Foreign currency transaction loss | $5,325 | $3,262 | | | Other | $(751) | $(1,628) | | | Income taxes | $1,248 | $(14,927) | | | **Net income - non-GAAP** | **$140,542** | **$42,154** | **233 %** | | Diluted earnings (loss) per share - GAAP (per share) | $0.91 | $(0.14) | * | | non-GAAP adjustments (per share) | $0.62 | $0.62 | | | **Diluted earnings per share - non-GAAP (per share)** | **$1.53** | **$0.48** | **219 %** | [Free Cash Flow Reconciliation](index=11&type=section&id=Free%20Cash%20Flow%20Reconciliation) Free cash flow increased by 13% year-over-year to $202.3 million in Q1 2025, calculated by subtracting investments in property and equipment from cash provided by operating activities **Reconciliation of Free Cash Flow (Three Months Ended March 31, in thousands):** | Metric | 2025 | 2024 | Change | | :-------------------------------- | :--------- | :--------- | :----- | | Cash provided by operating activities | $204,228 | $180,146 | 13 % | | Investment in property and equipment | $(1,880) | $(604) | | | **Free cash flow** | **$202,348** | **$179,542** | **13 %** | [Explanation of Non-GAAP Adjustments](index=5&type=section&id=Explanation%20of%20Non-GAAP%20Adjustments) Pegasystems uses non-GAAP financial measures to provide investors with a clearer understanding of its core operating results, excluding the impact of often one-time charges and other items outside normal operations - Non-GAAP financial measures help investors understand core operating results and prospects, consistent with how management measures performance without the effect of often one-time charges and other items outside normal operations[13](index=13&type=chunk) - Key non-GAAP adjustments include stock-based compensation, restructuring, legal fees, litigation settlement, amortization of intangible assets, interest on convertible senior notes, capped call transactions, foreign currency transaction loss, and other venture investment gains/losses[30](index=30&type=chunk)[32](index=32&type=chunk) - The non-GAAP income tax rate is determined using applicable rates in taxing jurisdictions and assessing certain factors, including historical and forecasted earnings by jurisdiction, discrete items, and ability to realize tax assets, to align with the annual plan's effective income tax rate[31](index=31&type=chunk) [Additional Information](index=5&type=section&id=Additional%20Information) This section provides details on the Q1 2025 conference call, outlines forward-looking statements and associated risks, offers an overview of Pegasystems' business, and lists contact information [Quarterly Conference Call](index=5&type=section&id=Quarterly%20Conference%20Call) Pegasystems will host a conference call and audio-only webcast on Wednesday, April 23, 2025, at 8:00 a.m. EDT to discuss the Q1 2025 financial results - A conference call and audio-only webcast will be conducted at 8:00 a.m. EDT on Wednesday, April 23, 2025[11](index=11&type=chunk) - Participants can join by dialing 1 (800) 715-9871 (domestic) or 1 (646) 307-1963 (international) using Conference ID 5846616[12](index=12&type=chunk) - The webcast is accessible via https://events.q4inc.com/attendee/866591284 or the Investors section of www.pega.com[12](index=12&type=chunk) [Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) The press release contains forward-looking statements subject to risks and uncertainties, and investors are cautioned not to place undue reliance on them as the company does not undertake to update these statements - Certain statements in this press release are 'forward-looking statements' as defined in the Private Securities Litigation Reform Act of 1995, identified by words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, projects, forecasts, guidance, likely, and usually[14](index=14&type=chunk)[15](index=15&type=chunk) - These statements represent views as of April 22, 2025, based on current expectations and assumptions, and are subject to difficult-to-predict risks and uncertainties[15](index=15&type=chunk)[16](index=16&type=chunk)[18](index=18&type=chunk) - Risks include intellectual property rights, future financial performance, liquidity, AI investment execution, dividend payments, revenue recognition, demand variation, reliance on key personnel/third parties, debt obligations, foreign currency, cyber-attacks, security breaches, ongoing litigation (Appian Corp.), client retention, and growth management[16](index=16&type=chunk)[19](index=19&type=chunk) [About Pegasystems](index=6&type=section&id=About%20Pegasystems) Pegasystems Inc. is 'The Enterprise Transformation Company' that helps organizations 'Build for Change' with enterprise AI decisioning and workflow automation, serving influential businesses since 1983 - Pega is 'The Enterprise Transformation Company' that helps organizations 'Build for Change®' with enterprise AI decisioning and workflow automation[20](index=20&type=chunk) - Many influential businesses rely on Pega's platform to solve challenges from personalizing engagement to automating service and streamlining operations[20](index=20&type=chunk) - Since 1983, Pega has built a scalable and flexible architecture to help enterprises meet current customer demands while continuously transforming for tomorrow[20](index=20&type=chunk) [Contacts](index=6&type=section&id=Contacts) Contact information for press and investor relations is provided - Press contact: Lisa Pintchman, VP, Corporate Communications, lisapintchman.rogers@pega.com, 617-866-6022[21](index=21&type=chunk) - Investor contact: Peter Welburn, VP, Corporate Development & Investor Relations, PegaInvestorRelations@pega.com, 617-498-8968[21](index=21&type=chunk)

Core Viewpoint - Pegasystems (PEGA) is expected to report quarterly earnings of $0.46 per share, reflecting a 4.2% decline year-over-year, while revenues are forecasted to increase by 7.8% to $356 million [1] Earnings Estimates - Revisions to earnings estimates are crucial indicators for predicting investor actions regarding the stock, with empirical research showing a strong correlation between earnings estimate trends and short-term stock performance [2] Key Metrics Projections - Analysts estimate 'Revenue- Subscription services' will reach $238.52 million, a 12.6% increase from the prior-year quarter [4] - 'Revenue- Subscription license' is projected at $62.49 million, indicating a 1.3% decline year-over-year [4] - Total 'Revenue- Subscription' is expected to be $301.01 million, reflecting a 9.4% increase from the previous year [4] - 'Revenue- Consulting' is estimated at $54.84 million, showing a 1.5% year-over-year increase [5] - 'Gross Profit- Subscription services' is forecasted at $196.25 million, up from $176.08 million in the same quarter last year [5] - 'Gross Profit- Subscription' is expected to be $259.15 million, compared to $238.77 million a year ago [6] - 'Gross Profit- Subscription license' is projected at $62.90 million, slightly up from $62.70 million in the same quarter last year [6] Stock Performance - Pegasystems shares have declined by 6.2% over the past month, underperforming the Zacks S&P 500 composite, which decreased by 5.6% [7] - The company holds a Zacks Rank 4 (Sell), indicating expectations of underperformance in the near future [7]

Core Viewpoint - The recommendation for Pegasystems (NASDAQ: PEGA) is a buy, driven by positive developments in its Blueprint and AgentX products, which are experiencing strong early adoption, alongside a transition to Pega Cloud [1]. Company Analysis - Pegasystems is positioned favorably due to its innovative products and the shift towards cloud solutions, indicating potential for scalability and long-term value creation [1]. - The investment approach emphasizes understanding the core economics of Pegasystems, including its competitive advantages, unit economics, and management quality, which are crucial for generating long-term free cash flow [1]. Investment Strategy - The focus is on fundamental research within sectors that exhibit strong secular tailwinds, suggesting a strategic alignment with growth opportunities in the technology sector [1]. - The analysis aims to provide insights that help investors concentrate on factors that drive long-term equity value, enhancing the understanding of investment opportunities in Pegasystems [1].

Financial Performance Highlights - Total Annual Contract Value (ACV) grew by 9% year-over-year, reaching $1372 million[5], or 11% in constant currency[5] - Pega Cloud ACV experienced significant growth of 18% year-over-year, reaching $652 million[5], or 21% in constant currency[6] - Operating cash flow increased by 59% to $346 million[6][9] - Free cash flow increased by 68% to $338 million[6][10] - Total revenue increased by 5% to $1497180 thousand[11] Revenue Breakdown - Pega Cloud revenue increased by 21% to $558734 thousand[11] - Subscription revenue increased by 7% to $1280140 thousand[11] Profitability - GAAP net income increased by 46% to $99189 thousand[11] - Non-GAAP net income increased by 29% to $270542 thousand[11] Backlog - Total backlog increased by 11% to $1623492 thousand[47] - Subscription services backlog increased by 17% to $1127159 thousand[47] 2025 Guidance - The company projects ACV growth of 12%[6][13] - Revenue is projected to be $1600 million[13][52] - Free cash flow is projected to be $440 million[6][13][52]

Financial Data and Key Metrics Changes - The company achieved an 11% year-over-year increase in Annual Contract Value (ACV) growth in constant currency, driven by a 21% increase in Pega Cloud ACV [46] - Cash flow from operations grew 59% year-over-year to $346 million, while free cash flow increased 68% year-over-year to $338 million [48] - Pega Cloud non-GAAP gross margins increased by approximately 300 basis points year-over-year, rising from 75% in 2023 to 78% in 2024 [50] Business Line Data and Key Metrics Changes - The Pega GenAI Blueprint is central to client interactions and has been instrumental in driving new business opportunities, including a significant engagement with the U.K. Armed Forces [11][12] - The company is focusing on enhancing legacy transformation capabilities through Blueprint, allowing clients to rethink and replace outdated systems [13][14] Market Data and Key Metrics Changes - The company anticipates a 12% year-over-year growth in ACV for 2025, with Pega Cloud expected to materially contribute to this growth [51] - The strengthening U.S. dollar is expected to be a headwind to Pega Cloud revenue growth in 2025, impacting total current backlog [56] Company Strategy and Development Direction - The company is committed to becoming a Rule of 40 company, balancing growth and profitability, and aims to accelerate growth while maintaining margin discipline [44][75] - The introduction of Pega Agent Experience (AgentX) is part of the strategy to leverage AI and automation to enhance decision-making and operational efficiency [29][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in entering 2025 with strong momentum and competitive advantages, particularly in leveraging AI for transformative growth [42] - The company is focused on deploying AI in ways that empower clients, allowing them to concentrate on innovation and strategy [41] Other Important Information - The Board has approved a 2-for-1 stock split, subject to shareholder approval, to enhance liquidity for employees and investors [50] - The company has a strong cash and investment position of $740 million as of December 31, 2024, providing financial flexibility for future initiatives [49] Q&A Session Summary Question: Can you talk about the investments in increasing sales coverage? - Management highlighted that the new approach using Blueprint has changed the sales process, allowing for more effective engagement with clients and reducing the need for a large sales team [62][71] Question: How should we think about the durability of maintaining the Rule of 40? - Management indicated that there is no endpoint to improving the business and aims to achieve a Rule of 45, focusing on accelerating growth while maintaining profitability [73][75] Question: Can you provide clarity on the deal environment and any potential push into Q1? - Management acknowledged that currency impacts were significant in Q4 but noted that the overall deal environment remains strong, with expectations for a balanced year in 2025 [80][82] Question: What are the use cases for legacy replacement opportunities? - Management discussed the capability to rethink and replace legacy systems, which has resonated well with clients, particularly in light of ongoing SAP migrations [91][92] Question: How is the Pega Agent Experience monetized? - Management confirmed that the Pega Agent Experience is integrated into the Infinity experience, with pricing based on the level of consumption and ongoing use [118][120]

Core Insights - Pegasystems reported revenue of $490.83 million for the quarter ended December 2024, reflecting a year-over-year increase of 3.5% and a surprise of +1.76% over the Zacks Consensus Estimate of $482.32 million [1] - The company's EPS was $1.61, down from $1.77 in the same quarter last year, with a surprise of +5.92% compared to the consensus estimate of $1.52 [1] Revenue Breakdown - Subscription services revenue was $230.90 million, below the average estimate of $236.97 million, with a year-over-year increase of +11.6% [4] - Subscription license revenue reached $204.70 million, exceeding the average estimate of $186.13 million, but showed a year-over-year decline of -1.4% [4] - Total subscription revenue was $435.59 million, surpassing the average estimate of $423.13 million, with a year-over-year change of +5.1% [4] - Perpetual license revenue was $2.42 million, slightly above the average estimate of $2.41 million, but down -55% year-over-year [4] - Maintenance revenue was $81.26 million, below the average estimate of $84.96 million [4] - Consulting revenue was $52.82 million, compared to the average estimate of $57.28 million, reflecting a year-over-year decline of -2.7% [4] - Pega Cloud revenue was $149.64 million, slightly below the average estimate of $152.01 million [4] Profit Metrics - Gross profit from subscription services was $189.91 million, below the average estimate of $196.46 million [4] - Gross profit from perpetual licenses was $2.41 million, compared to the average estimate of $3.19 million [4] - Total gross profit from subscriptions was $394.22 million, exceeding the average estimate of $376.28 million [4] - Gross profit from subscription licenses was $204.31 million, surpassing the average estimate of $179.82 million [4] Stock Performance - Pegasystems shares have returned +10.2% over the past month, outperforming the Zacks S&P 500 composite's +4.3% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Financial Performance - Pegasystems reported quarterly earnings of $1.61 per share, exceeding the Zacks Consensus Estimate of $1.52 per share, but down from $1.77 per share a year ago, representing an earnings surprise of 5.92% [1] - The company posted revenues of $490.83 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 1.76%, compared to $474.23 million in the same quarter last year [2] Market Performance - Pegasystems shares have increased approximately 10.9% since the beginning of the year, outperforming the S&P 500's gain of 3.2% [3] - The current consensus EPS estimate for the upcoming quarter is $0.46 on revenues of $356.71 million, and for the current fiscal year, it is $3.15 on revenues of $1.59 billion [7] Industry Outlook - The Computer - Software industry, to which Pegasystems belongs, is currently ranked in the bottom 47% of over 250 Zacks industries, indicating potential challenges ahead [8] - Blackbaud, another company in the same industry, is expected to report quarterly earnings of $1.08 per share, reflecting a year-over-year decline of 5.3%, with revenues projected at $304.87 million, up 3.3% from the previous year [9][10]

Product and Technology - Pega's platform for enterprise AI decisioning and workflow automation enables organizations to optimize decisions and processes in real-time, enhancing customer experiences and operational efficiency[15]. - The latest version, Pega Infinity™, integrates AI-powered decisioning and workflow automation, allowing clients to improve customer engagement and streamline operations[17]. - Pega's Customer Decision Hub™ utilizes real-time AI to predict customer behavior and recommend actions, enhancing customer acquisition and experience across multiple channels[17]. - The Pega Customer Service™ application automates customer interactions and improves service efficiency, leading to higher customer satisfaction and reduced operational costs[18]. - Pega's workflow automation capabilities unify technologies like Robotic Process Automation (RPA) and AI, enabling end-to-end digital transformation for clients[19]. - The company emphasizes rapid, AI-enabled transformation through its Blueprint tool, which leverages generative AI to streamline project initiation and development[29][30]. - Pega's competitive differentiation lies in its unified platform that allows for faster application development and adaptability compared to disjointed architectures offered by competitors[41]. Market and Competition - The company targets Global 2000 organizations and government agencies, focusing on industries such as financial services, government, communications, media, and healthcare[35][37]. - The market for Pega's offerings is highly competitive, with major competitors including IBM, Microsoft, Oracle, Salesforce, SAP, and ServiceNow[40]. - The market for the company's offerings is highly competitive, with major competitors like IBM, Microsoft, and Oracle having greater resources, which may pressure the company to reduce prices[80]. Financial Performance - As of December 31, 2024, the company expects to recognize $1.6 billion in revenue from backlog on existing contracts in future periods[47]. - The company aims to achieve a combined Annual Contract Value (ACV) growth rate and free cash flow margin of at least 40% as part of its strategic initiatives[60]. - Pega Cloud revenue increased by 18% to $652.4 million in 2024 from $553.0 million in 2023[157]. - Subscription services revenue rose by 8% to $944.3 million in 2024, compared to $877.1 million in 2023[157]. - Annual Contract Value (ACV) grew by 9% from $1.255 billion in 2023 to $1.372 billion in 2024[158]. - Total revenue for 2024 was $1,497,180, representing a 5% increase from $1,432,616 in 2023, with subscription services growing by 11%[162]. - Cash provided by operating activities increased to $345,926,000 in 2024 from $217,785,000 in 2023, reflecting growth in client collections and cost-efficiency initiatives[173]. - Total cash, cash equivalents, and marketable securities rose to $739,973,000 in 2024, up from $423,338,000 in 2023, indicating improved liquidity[173]. Employee and Talent Management - The company had 5,443 employees as of January 31, 2025, with 1,995 in the Americas, 1,223 in Europe, 1,904 in India, and 321 across Asia-Pacific[48]. - The company emphasizes a competitive total rewards package to attract and retain qualified personnel, which is crucial for its success[51]. Research and Development - The company has invested significantly in research and development to enhance the Pega Platform and applications, leading to increased fixed costs that may impact profitability if demand does not continue to grow[72]. - The company is investing significantly in AI technologies, including the Pega Customer Decision Hub and Pega GenAI Blueprint, to enhance its product offerings[61]. Risks and Compliance - The company faces risks related to compliance with various international laws and regulations, which could adversely affect its operations and financial condition[76]. - The company must continuously adapt its products to meet changing technology and client requirements, which requires substantial investments in product development[79]. - The company relies on third-party relationships for sales and marketing, which poses risks if these partners develop competing offerings or limit their collaboration[73]. - The company has established a Compliance and Risk Governing Committee to oversee cybersecurity measures, but risks of data breaches and cyber-attacks remain significant[88]. - The company faces risks related to intellectual property claims, which could be costly to defend and may limit the use of certain technologies[99]. - The company is subject to increasing compliance costs due to data privacy laws, including the EU General Data Protection Regulations and the California Consumer Privacy Act, which may challenge business expansion[105]. Legal and Litigation - The company is currently involved in litigation with Appian Corp., with a judgment amounting to $2,060,479,287, which could significantly impact its financial condition if the appeal is unsuccessful[83]. - The company expects to continue incurring legal fees related to ongoing proceedings outside the ordinary course of business[175]. - The company is subject to various claims, including legal actions and investigations, which may result in liabilities that are difficult to estimate[201]. Cybersecurity - The company has established a comprehensive cybersecurity program, integrating risk management practices based on industry standards[125]. - Cybersecurity risk assessments are conducted annually, with findings used to enhance security controls and inform enterprise-level risk assessments[128]. - The company actively works to improve security measures, but security breaches could lead to significant financial losses and damage to reputation[90]. Financial Obligations and Capital - The company had $467.9 million in aggregate principal indebtedness under convertible senior notes due March 1, 2025, with an effective conversion price of $135.05 per share[94]. - The company may require additional capital in the future, and raising funds through equity or convertible debt could lead to significant dilution for existing stockholders[94]. - The company had $622,855,000 in contractual obligations due in 2025, including $469,618,000 for convertible senior notes and $134,631,000 for purchase obligations[183]. Foreign Currency and Economic Factors - Global economic uncertainty, including high inflation and geopolitical tensions, may negatively impact customer purchasing decisions and delay technology investments[114]. - The company does not currently hedge foreign currency exchange rate exposure, which could affect financial results and cash flows[116]. - A hypothetical 10% strengthening in the U.S. dollar would lead to a 4% decrease in revenue and a 9% decrease in net income for 2024[205]. - The company incurs transaction gains and losses from remeasurement of monetary assets and liabilities in foreign currencies[206]. - The company has a significant exposure to changes in foreign currency exchange rates, particularly with the Australian dollar, Euro, and U.S. dollar[207].

Financial Performance - Total revenue for 2024 was $1,497 million, reflecting a 5% increase from $1,432 million in 2023[8] - Total revenue for Q4 2024 was $490.83 million, a 3.4% increase from $474.23 million in Q4 2023[24] - Subscription services revenue increased to $230.90 million in Q4 2024, up 11.5% from $206.99 million in Q4 2023[24] - Net income for the year ended December 31, 2024, was $99.19 million, representing a 46% increase compared to $67.81 million in 2023[28] - Free cash flow for the year ended December 31, 2024, was $338,214,000, representing a 68% increase from $201,004,000 in 2023[36] - Pega Cloud revenue increased by 18% to $652,443,000 in 2024 compared to $552,998,000 in 2023[40] - Subscription services revenue grew by 8% to $944,250,000 in 2024 from $877,089,000 in 2023[40] Cash Flow and Assets - Operating cash flow reached $346 million and free cash flow was $338 million in 2024[5] - Cash provided by operating activities for the year was $345.93 million, compared to $217.79 million in 2023, reflecting a significant increase[28] - The company’s cash, cash equivalents, and marketable securities totaled $739.97 million at the end of 2024, up from $423.34 million in 2023[27] - Total assets grew to $1.77 billion as of December 31, 2024, up from $1.51 billion in 2023[27] Future Projections - The company expects 12% ACV growth and $1.6 billion in revenue for 2025[10] - Diluted earnings per share (GAAP) for 2025 is projected to be $1.60, while non-GAAP is expected to be $3.10[10] - Pega's cash flow from operations is projected to be $455 million in 2025, with free cash flow expected to be $440 million[10] - Revenue guidance for 2025 is projected at $1,600,000,000[48] - Net income guidance for 2025 is $149,000,000 under GAAP and $289,000,000 under non-GAAP[48] Growth Metrics - Annual Contract Value (ACV) increased by 9% year-over-year to $1,372 million, with a constant currency growth of 11%[4] - Pega Cloud ACV grew by 18% year-over-year, with a constant currency growth of 21%[5] - The backlog as of December 31, 2024, was $1,623,492,000, reflecting an 11% growth from $1,463,368,000 in 2023[45] - The company achieved a Rule of 40 status in 2024, indicating a balance of growth and profitability[3] Expenses and Liabilities - Research and development expenses for the year were $298.07 million, slightly up from $295.51 million in 2023[24] - Total current liabilities increased to $1.09 billion in 2024, compared to $577.06 million in 2023, primarily due to the issuance of convertible senior notes[27] Taxation - The GAAP effective income tax rate for 2024 was 30%, up from 29% in 2023[1] Innovation and Strategy - New product innovations and AI solutions have led to increased client engagement and opportunities[2] - The company plans to continue focusing on market expansion and new product development to drive future growth[31]

Core Viewpoint - Pegasystems (PEGA) is expected to report its fourth-quarter 2024 results on February 13, with earnings anticipated to decline year-over-year while revenues show slight growth [1][2]. Financial Expectations - The consensus estimate for PEGA's fourth-quarter 2024 earnings is $1.52 per share, reflecting a year-over-year decline of 14.12% [2]. - The revenue estimate stands at $482.32 million, indicating a year-over-year growth of 1.71% [2]. - Pegasystems has surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average surprise of 50.23% [2]. Factors Influencing Performance - The demand for business process automation is rising, which is expected to benefit Pegasystems as organizations shift towards low-code automation platforms [4]. - The adoption of Pegasystems' GenAI Blueprint tool is anticipated to positively impact results in the upcoming quarter [4]. - Innovations in the product portfolio, including updates to the GenAI Blueprint and Pega Smart Investigate, are expected to enhance client attraction by addressing manual processes and regulatory requirements [6][7]. Earnings Prediction - The earnings prediction model suggests a potential earnings beat for PEGA, supported by a positive Earnings ESP of +4.99% and a Zacks Rank of 3 (Hold) [8][9].