PEGA(PEGA) - 2025 Q1 - Quarterly Results

Executive Summary 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 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][34] - Annual Contract Value (ACV) growth exceeded 13% year over year, reaching $1,445 million[7][6] - Pega Cloud ACV grew 23% year over year, and total backlog grew 21% year over year[7][37][43] CEO and CFO Commentary 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] - The company accelerated ACV growth and delivered record free cash flow in Q1 2025, reflecting the benefits of the subscription model[2] - Operating as a 'Rule of 40' company allows a focus on accelerating profitable growth while thoughtfully returning capital to shareholders[2] Financial Performance Overview 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 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 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) 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] 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) 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 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 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 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 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 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 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 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] - 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][32] - 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] Additional Information 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 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] - Participants can join by dialing 1 (800) 715-9871 (domestic) or 1 (646) 307-1963 (international) using Conference ID 5846616[12] - 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 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][15] - 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][16][18] - 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][19] About Pegasystems 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] - Many influential businesses rely on Pega's platform to solve challenges from personalizing engagement to automating service and streamlining operations[20] - Since 1983, Pega has built a scalable and flexible architecture to help enterprises meet current customer demands while continuously transforming for tomorrow[20] 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] - Investor contact: Peter Welburn, VP, Corporate Development & Investor Relations, PegaInvestorRelations@pega.com, 617-498-8968[21]