Core Insights - Pegasystems (PEGA) reported strong second-quarter 2025 results with non-GAAP earnings of 28 cents per share, exceeding the Zacks Consensus Estimate by 16.67% and reflecting a year-over-year increase of 7.7% [1][8] - Revenues reached $384.5 million, surpassing the Zacks Consensus Estimate by 4.27% and showing a year-over-year growth of 9.5% [1][8] Performance Highlights - The company's performance was driven by its AI strategy, particularly the Pega Blueprint platform, which enhanced AI-integrated workflows and cloud subscriptions, leading to higher Annual Contract Value (ACV), backlog, and margin gains [2] - Subscription services revenues, including Pega Cloud and Maintenance, totaled $246 million, accounting for 64% of total revenues and increasing by 14.7% year over year [4] - Total Subscription revenues rose 9% year over year to $326 million, contributing 84.8% to total revenues [4] Revenue Breakdown - Subscription license revenues were $80 million, representing 20.8% of total revenues, but declined by 5.5% year over year [4] - Consulting revenues increased by 11.1% year over year to $57.8 million, making up 15% of total revenues [5] - Perpetual license revenues surged 1,875% year over year to $0.7 million, although this segment remains a minor contributor [5] Growth Metrics - Pega Cloud's ACV increased by 28% year over year to $761 million, while Client Cloud ACV rose 6% year over year to $753 million [5] - Total ACV grew 16% year over year, reaching $1.514 billion, with backlog increasing by 31% year over year, indicating strong demand for services [6][8] Operating Results - Gross margin contracted by 90 basis points year over year to 71.5%, while total operating expenses rose by 6.8% year over year to $257.7 million [7] - Operating income increased by 33.3% year over year to $17.3 million, with the operating margin expanding by 80 basis points to 4.5% [9] Financial Position - As of June 30, 2025, cash and cash equivalents and marketable securities stood at $411.6 million, up from $371.7 million as of March 31, 2025 [10] - Year-to-date operating cash flow rose over 32% year over year to $290 million, while free cash flow grew by 31% to approximately $286 million [10] Market Position - Pegasystems currently holds a Zacks Rank 1 (Strong Buy), indicating strong market confidence [11]

Financial Data and Key Metrics Changes - Annual contract value (ACV) grew 16% year over year, with a 14% increase in constant currency [29] - Net new ACV added increased by 60% year over year in constant currency, indicating significant acceleration [29] - Total ACV exceeded $1.5 billion for the first time in company history, driven by Pega Cloud ACV growth of 28% as reported and 25% in constant currency [30] - Free cash flow growth reached $286 million in the first half of 2025, supported by accelerated ACV growth and margin expansion [31][34] Business Line Data and Key Metrics Changes - Pega's GenAI Blueprint is transforming the go-to-market strategy, resonating well with clients and expanding the company's footprint in key verticals [30] - The majority of Pega Cloud bookings contribute to backlog, creating a more predictable future revenue stream [34] Market Data and Key Metrics Changes - The company is experiencing increased engagement and interest in its offerings, particularly in the context of legacy transformation and AI adoption [53][60] - More than a thousand organizations are currently building Blueprints, driving increased awareness and engagement [22] Company Strategy and Development Direction - The company is focusing on leveraging its unique AI-driven architecture and the Pega Infinity platform to enhance application development and deployment [10][18] - Pega is expanding its partner ecosystem, including a strategic collaboration with AWS to accelerate legacy transformation projects [21] - The introduction of partner-branded Blueprints is expected to enhance visibility and collaboration with partners' customers [20][68] Management's Comments on Operating Environment and Future Outlook - Management noted a level of anxiety among customers due to global unpredictability but emphasized that there are no significant headwinds affecting business [52] - The company is optimistic about the ongoing demand for AI and legacy transformation solutions, which are expected to drive growth in the coming years [53][60] - Management highlighted the importance of maintaining momentum in ACV growth and free cash flow generation throughout the year [54][39] Other Important Information - The company has repurchased approximately $251 million of its shares, representing over 85% of total free cash flow generated during the period [35] - The company is committed to investing in its core business while evaluating capital allocation options for long-term value creation [36] Q&A Session Summary Question: On Pega Cloud and ACV growth - Management indicated that Pega Cloud ACV is significantly driven by the Blueprint, which is central to sales campaigns [44] Question: Deal renewals and quarterly performance - Management noted that Q1 had a higher renewal cycle, but Q2 was consistent with expectations [46] Question: Customer focus and deal environment - Management observed that customers are increasingly focused on AI adoption and legacy transformation, driving accelerated discussions [53] Question: ACV strength and FX impact - Management confirmed that the strong ACV growth is not a substitute for future performance and noted a consistent currency headwind of about two percentage points [55] Question: Public sector engagement - Management acknowledged some project delays but expressed optimism about opportunities in the public sector for efficiency improvements [75] Question: Booking momentum post-conference - Management reported increased customer engagement and a growing pipeline following the Pega Cloud conference [96] Question: Margin expansion outlook - Management emphasized that margin expansion is dependent on growth and that they are executing well on cost management [100]

Financial Data and Key Metrics Changes - Annual contract value (ACV) grew 16% year over year, with a 14% increase in constant currency [28] - Net new ACV added increased by 60% year over year in constant currency [28] - Total ACV exceeded $1.5 billion for the first time in company history, with Pega Cloud ACV growth of 28% reported and 25% in constant currency [29] - Free cash flow growth reached $286 million in the first half of 2025, driven by accelerated ACV growth and margin expansion [30][31] - Total remaining performance obligation increased by 31% reported and 27% in constant currency year over year [31] Business Line Data and Key Metrics Changes - Pega's GenAI Blueprint is transforming the go-to-market strategy, leading to significant business activity in Q2 [28][29] - Pega Cloud bookings primarily contribute to backlog, creating a predictable future revenue stream [32] Market Data and Key Metrics Changes - The company is experiencing increased engagement and interest in its offerings, particularly in the context of AI and legacy transformation [50][72] - The public sector is showing strong demand for cloud and digital transformation solutions, with significant projects ongoing [71][72] Company Strategy and Development Direction - The company emphasizes a unique AI-driven approach that combines creativity during the design phase with predictability during production [12][15] - Pega Blueprint is positioned as a key differentiator, allowing users to design applications quickly and effectively [10][19] - The company is focusing on expanding its partner ecosystem and enhancing collaboration with global systems integrators [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledges a level of unpredictability in the market but does not see significant headwinds affecting business [49] - The focus on AI and legacy transformation is expected to drive growth in the coming years [50][59] - The company aims to maintain momentum in ACV growth and free cash flow generation throughout the year [52][39] Other Important Information - The company has launched partner-branded Blueprints, attracting interest from major systems integrators [19] - A five-year strategic collaboration agreement with AWS was announced, enhancing the accessibility of Pega's software [20] Q&A Session Summary Question: Inquiry about Pega Cloud's ACV growth - Management indicated that Blueprint is a significant driver of business activity and is engaged in every sales campaign [43] Question: Discussion on renewal cycles - Management noted that Q1 had a higher renewal cycle compared to Q2, but Q2 was not unusual [45] Question: Deal environment and customer focus - Management observed a trend of increased interest in legacy transformation and AI adoption among clients [50] Question: Impact of ACV strength on future expectations - Management aims to maintain momentum and not view strong first-half performance as a substitute for second-half results [52] Question: Public sector deal elongation - Management noted some projects may have been reshuffled but sees potential tailwinds from government efficiency initiatives [70][72] Question: Competition for Blueprint - Management stated that Blueprint does not have direct competitors but faces competition from other software vendors like Salesforce and ServiceNow [99]

Financial Performance - ACV (Annual Contract Value) grew by 16%, or 14% in constant currency, reaching $1.514 billion as of June 30, 2025[60, 62] - Pega Cloud ACV experienced significant growth of 28%, or 25% in constant currency[21, 71, 75] - Free cash flow year-to-date (YTD) reached $286 million[21] - Total backlog increased by 31% to $1.835 billion[84] - Net ACV add for the first half of 2025 was $99 million, a 60% increase compared to the first half of 2024[78, 79] Market and Business Strategy - Pega is targeting a large market opportunity, estimated at over $90 billion in FY25 and projected to exceed $150 billion by FY29[26, 56] - The company is focused on a recurring subscription model and aims to drive ACV growth and leverage Pega Cloud[54, 66] - Pega emphasizes its technology leadership in customer engagement and intelligent automation[26] Technology and Solutions - Pega's platform offers enterprise AI decisioning and workflow automation[11] - Key solutions include 1:1 Customer Engagement, Customer Service, and Workflow Automation[12, 30] - Pega's architecture is designed for scalability and rapid innovation, featuring the Situational Layer Cake and Pega Express[13, 14]

Core Insights - Pegasystems reported revenue of $384.51 million for the quarter ended June 2025, reflecting a year-over-year increase of 9.5% and surpassing the Zacks Consensus Estimate by 4.27% [1] - The company's EPS for the quarter was $0.28, up from $0.26 in the same quarter last year, exceeding the consensus estimate of $0.24 by 16.67% [1] Revenue Breakdown - Subscription services revenue was $246.01 million, below the average estimate of $251.35 million, but showed a year-over-year increase of 14.7% [4] - Subscription license revenue reached $79.96 million, exceeding the average estimate of $53.75 million, but represented a decline of 5.5% compared to the previous year [4] - Total subscription revenue was $325.98 million, surpassing the average estimate of $305.08 million, with a year-over-year growth of 9% [4] - Perpetual license revenue was reported at $0.71 million, significantly higher than the average estimate of $0.07 million, marking a year-over-year increase of 1875% [4] - Maintenance revenue was $79.27 million, falling short of the average estimate of $106.67 million [4] - Consulting revenue was $57.82 million, slightly above the average estimate of $54.62 million, with an 11.1% increase year-over-year [4] - Pega Cloud revenue was $166.74 million, below the average estimate of $172.96 million [4] Stock Performance - Pegasystems' shares have returned +2.8% over the past month, compared to a +5.9% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 1 (Strong Buy), indicating potential for outperformance in the near term [3]

Core Insights - Pegasystems (PEGA) reported quarterly earnings of $0.28 per share, exceeding the Zacks Consensus Estimate of $0.24 per share, and showing an increase from $0.26 per share a year ago, resulting in an earnings surprise of +16.67% [1] - The company achieved revenues of $384.51 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 4.27% and up from $351.15 million year-over-year [2] - Pegasystems has consistently outperformed consensus EPS estimates over the last four quarters, achieving this four times [2] Financial Performance - The earnings surprise of +230.43% in the previous quarter, where actual earnings were $0.76 compared to an expected $0.23, indicates strong performance [1] - The current consensus EPS estimate for the upcoming quarter is $0.20, with expected revenues of $358.58 million, and for the current fiscal year, the EPS estimate is $1.88 on revenues of $1.67 billion [7] Market Position - Pegasystems shares have increased by approximately 10.2% since the beginning of the year, outperforming the S&P 500's gain of 7.2% [3] - The company holds a Zacks Rank 1 (Strong Buy), indicating expectations for the stock to outperform the market in the near future [6] Industry Outlook - The Computer - Software industry, to which Pegasystems belongs, is currently ranked in the top 20% of over 250 Zacks industries, suggesting a favorable environment for performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________ FORM 10-Q _____________________________________ ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2025 (Registrant's telephone number, including area code) ____________________________ OR ☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 1-11859 ____________________ ...

EXHIBIT 99.1 Pega's AI Strategy Powers Continued Acceleration in Q2 2025 WALTHAM, Mass. — July 22, 2025 — Pegasystems Inc. (NASDAQ: PEGA), the Enterprise Transformation Company™, released its financial results for the second quarter of 2025. "Our unique approach to AI was a key driver of our strong first half results," said Alan Trefler, Pega founder and CEO. "Pega harnesses AI's creative potential where it can best drive transformation—during workflow design with Pega Blueprint. This drives consistent exec ...

Core Insights - Pegasystems (PEGA) is expected to report second-quarter 2025 results on July 22, with revenue growth projected at 5.02% year-over-year to $368.77 million and earnings estimated at 24 cents per share, reflecting a decline of 7.69% from the previous year [1][10] Financial Performance - PEGA has consistently beaten the Zacks Consensus Estimate in the last four quarters, with an average surprise of 94.01% [2] - The company generated $202 million in free cash flow in the first quarter of 2025, surpassing the total for the entire year of 2023, indicating strong cash flow performance [6] Cloud Business Growth - Pegasystems is experiencing significant growth in its cloud business, with Cloud Annual Contract Value (ACV) increasing by 23% year-over-year to $701 million in the first quarter of 2025 [3] - The company aims for 20% or more annual Cloud ACV growth, with strategic efforts to transition legacy workloads to Pega Cloud gaining traction [4] Challenges and Risks - The second-quarter performance may be negatively impacted by unfavorable foreign exchange rates and cautious spending behavior in Europe, which has led to deferred client spending and reduced IT budgets [7][8] - Intense competition from Salesforce and Microsoft in the AI-driven space is expected to challenge Pegasystems' market share and margin stability [8] Long-term Prospects - The adoption of Pegasystems' GenAI strategy, particularly through its AI-powered low-code tool, Pega Blueprint, is expected to drive long-term growth [11] - A collaboration with Amazon Web Services is anticipated to enhance Pegasystems' growth by modernizing cloud-based legacy systems and improving AI capabilities [12] Stock Performance - PEGA shares have returned 9.3% year-to-date, slightly trailing the Zacks Computer and Technology sector's gain of 9.6% [13] - The stock is currently trading at a Price/Book ratio of 14.26X, indicating a premium valuation compared to the sector's 10.45X [16]

Core Viewpoint - Pegasystems (PEGA) is anticipated to report a year-over-year decline in earnings despite an increase in revenues for the quarter ended June 2025, with actual results being a significant factor influencing its near-term stock price [1][2]. Earnings Expectations - The upcoming earnings report is expected to be released on July 22, and if the key numbers exceed expectations, the stock may rise; conversely, a miss could lead to a decline [2]. - The consensus estimate for quarterly earnings is $0.24 per share, reflecting a year-over-year decrease of 7.7%, while revenues are projected to be $368.77 million, representing a 5% increase from the previous year [3]. Estimate Revisions - Over the last 30 days, the consensus EPS estimate has been revised down by 5%, indicating a collective reassessment by analysts [4]. - The Most Accurate Estimate for Pegasystems is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -12.03%, suggesting a bearish outlook from analysts [12]. Earnings Surprise Prediction - The Zacks Earnings ESP model indicates that a positive or negative reading can predict the deviation of actual earnings from consensus estimates, with positive readings being more reliable [9][10]. - Pegasystems currently holds a Zacks Rank of 1, but the negative Earnings ESP complicates the prediction of an earnings beat [12]. Historical Performance - In the last reported quarter, Pegasystems was expected to post earnings of $0.23 per share but delivered $0.76, resulting in a surprise of +230.43% [13]. - The company has successfully beaten consensus EPS estimates in the last four quarters [14]. Conclusion - While Pegasystems does not appear to be a strong candidate for an earnings beat, investors should consider other factors when making decisions regarding the stock ahead of the earnings release [17].