Pegasystems Inc. (NASDAQ:PEGA) Q1 2025 Earnings Conference Call April 23, 2025 8:00 AM ET Company Participants Peter Welburn - Vice President, Corporate Development and Investor Relations Alan Trefler - Founder and Chief Executive Officer Ken Stillwell - Chief Operating Officer and Chief Financial Officer Conference Call Participants Raimo Lenschow - Barclays Pinjalim Bora - JPMorgan Steve Enders - Citi Patrick Walravens - Citizens JMP Devin Au - KeyBanc Mark Schappel - Loop Capital Blair Abernethy - Rosenb ...

Financial Data and Key Metrics Changes - The company reported an annual contract value (ACV) increase of $74 million, representing over 13% year-over-year growth [28] - Free cash flow for Q1 was $2 million, a significant improvement compared to $1 million for the entire year of 2023 [31] - The Pega Cloud ACV growth rate was 23%, reaching $700 million, indicating strong performance in transitioning workloads to the cloud [30] Business Line Data and Key Metrics Changes - PegaGen AI Blueprint has become a central focus, enhancing client engagement and sales confidence, leading to a more efficient demonstration of Pega's capabilities [28] - The introduction of Blueprint for Government Efficiency Toolkit has expanded offerings for public sector clients [15] Market Data and Key Metrics Changes - The company noted a significant increase in the number of blueprints created, now exceeding 1,000 per week, more than double the previous months [14] - The current remaining performance obligation (RPO) growth was highlighted as a healthy indicator of long-term client commitments [85] Company Strategy and Development Direction - The company aims to leverage its unique architecture and AI capabilities to maintain a competitive advantage in the market [26] - Pega is focused on driving workloads onto Pega Cloud, with a strategic growth target of 20% or higher for Pega Cloud ACV [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for digital and legacy transformation solutions, despite macroeconomic uncertainties [55] - The company believes it is well-positioned to capitalize on the growing interest in AI-driven solutions while maintaining predictability and governance in its offerings [19][20] Other Important Information - The company achieved debt-free status by repaying $468 million in convertible notes, marking a significant milestone in its transformation journey [33] - PegaWorld is scheduled for June 1, showcasing innovations and product demonstrations [24] Q&A Session Summary Question: Factors behind term license outperformance and Pega Cloud revenue discrepancies - Management clarified that term license revenue can fluctuate significantly due to seasonality and accounting practices, and that ACV does not immediately convert to revenue [41][43] Question: Customer behavior in light of macroeconomic uncertainties - Management noted that while there is some anxiety, engagement levels with clients remain high, particularly around digital transformation initiatives [49][55] Question: Impact of Blueprint on ACV results - Management confirmed that Blueprint has influenced every piece of business, facilitating better collaboration between business and technical teams [80] Question: Changes in contract term lengths - Management indicated that the increase in term license revenue was due to timing rather than changes in contract durations [101] Question: Sales and marketing capacity for new customer opportunities - The company is planning to selectively invest in sales capacity to enhance engagement with new clients, leveraging the efficiencies gained from Blueprint [103]

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 March 31, 2025 OR ☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 1-11859 ____________________________ PEGASYSTEMS INC. (Exact name of Registrant as specified in its charter) ...

"Pega GenAI has dramatically transformed how we engage with our clients," said Alan Trefler, Pega founder and CEO. "Pega solutions and our approach to AI enables clients to accelerate progress in reaching their digital and legacy transformation goals." "We accelerated ACV growth and delivered record free cash flow in Q1 2025, reflecting the benefits of the subscription model," said Pega COO & CFO Ken Stillwell. "Operating as a Rule of 40 company allows us to focus on accelerating profitable growth while tho ...

The upcoming report from Pegasystems (PEGA) is expected to reveal quarterly earnings of $0.46 per share, indicating a decline of 4.2% compared to the year-ago period. Analysts forecast revenues of $356 million, representing an increase of 7.8% year over year.Over the past 30 days, the consensus EPS estimate for the quarter has remained unchanged. This demonstrates the covering analysts' collective reassessment of their initial projections during this period.Prior to a company's earnings announcement, it is ...

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].

EXHIBIT 99.1 Pega's AI Innovation Drives Strong ACV Growth and Record Cash Flow in Q4 2024 WALTHAM, Mass. — February 12, 2025 — Pegasystems Inc. (NASDAQ: PEGA), the Enterprise Transformation Company™, released its financial results for the fourth quarter and full-year 2024. "2024 was a transformative year for Pega, the industry, and our clients," said Alan Trefler, Pega founder and CEO. "Our team's impressive performance drove the introduction of the most innovative solutions in our history. The reaction fr ...

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]