Key Takeaways PEGA shares are 16% below July's high, underperforming sector peers since Q2 results.Strong ACV growth and subscription shift boost demand for AI-powered cloud solutions.Stiff competition and high valuation create near-term risk despite long-term growth drivers.Pegasystems (PEGA) shares closed at $50.96 on Aug. 12, roughly 16% lower compared with its 52-week high of $60.96 reached on July 30. Since the second-quarter 2025 results were reported on July 22, PEGA shares have inched up 0.1%, under ...

Summary of Pegasystems (PEGA) FY Conference Call - August 13, 2025 Company Overview - **Company**: Pegasystems (PEGA) - **Industry**: Workflow and work automation technology - **Key Focus**: Helping large organizations modernize their workflow applications and transition to cloud-based solutions [3][4][5] Core Insights and Arguments - **Market Position**: Pegasystems targets large companies, typically those with revenues above $1 billion, which often manage thousands of applications [3][4] - **Transition to Cloud**: The company has shifted from a perpetual license model to a recurring subscription model, with over 50% of clients now on Pega Cloud, up from less than 5% seven years ago [5][6] - **ACV Growth**: Annual Contract Value (ACV) grew by 14% year-over-year in constant currency, with Pega Cloud's ACV growing 25% year-over-year [8][15] - **Total Addressable Market**: The total addressable market is estimated to be around $100 billion annually, with significant opportunities for growth as many clients still rely on legacy systems [11][12][14] - **Legacy System Challenges**: Many clients face issues with outdated applications that are costly to maintain and unable to leverage modern technologies like GenAI [12][13][18][60] Financial Performance - **Free Cash Flow**: The company generated $286 million in free cash flow in the first half of 2025, ahead of expectations, with a guidance of $440 million for the year [24][26] - **Tax Benefits**: Recent legislative changes allow for immediate expensing of R&D, potentially increasing free cash flow by $25 to $30 million in 2025 and 2026 [28][29] Sales and Marketing Strategy - **Sales Organization Changes**: Significant restructuring of the sales organization occurred in late 2022 and early 2023 to improve efficiency and target the right organizations [35][36] - **Customer Acquisition Cost (CAC)**: The company aims to achieve a CAC ratio of 2 to 2.5, indicating a focus on efficient sales growth [38][39] Generative AI Integration - **Pega GenAI Blueprint**: A new solution designed to accelerate application design and development using GenAI, which is provided free to clients to encourage adoption [41][42][48] - **Market Impact**: Early indications show that GenAI Blueprint is positively impacting client engagement and sales momentum [50] Legacy Transformation Opportunity - **Market Potential**: The majority of clients are still in the early stages of cloud migration, with estimates suggesting they are only 10-25% through their journey [58][59] - **Long-Term Strategy**: Pegasystems aims to assist clients in overcoming legacy debt and modernizing their applications efficiently [60] Conclusion - **Future Outlook**: Pegasystems is well-positioned to capitalize on the significant market opportunities presented by the need for modernization and cloud migration among large enterprises, with a strong focus on leveraging GenAI to enhance their offerings and client engagement [11][12][14][50][60]

Core Insights - Pegasystems has exceeded Wall Street expectations for the second consecutive quarter, with shares rising 14% following strong Q2 results [1][3] - The company's GenAI Blueprint product is gaining traction and is positioned to capitalize on the evolving AI landscape [1][6] Financial Performance - In Q2, Pegasystems reported sales of nearly $385 million, reflecting a growth rate of 9.5%, surpassing estimates by approximately $40 million [3] - Adjusted earnings per share (EPS) were $0.28, indicating a growth rate of 7.7%, contrary to analysts' predictions of a decline [3] - The annual contract value (ACV) growth rate stands at 14%, providing a more accurate assessment of future revenue potential compared to revenue growth alone [4] Product and Market Dynamics - The ACV growth rate for Pegasystems' Pega Cloud offering is notably higher at 25%, as the company transitions customers to its managed cloud services [5] - The net new ACV additions reached $99 million in the first half of 2025, marking a 60% increase compared to the same period in 2024 [6] GenAI Blueprint Impact - The GenAI Blueprint tool allows users to quickly generate application blueprints to address business problems, significantly reducing development time [6][8] - This tool is integral to Pegasystems' sales strategy, enhancing customer engagement and facilitating deal closures [8][9] - The successful implementation of GenAI in application design provides Pegasystems with a competitive edge in the market [9] Future Outlook - Analysts have raised their price targets for Pegasystems following the Q2 results, with an average target of $65.60, suggesting a potential upside of around 13% [10] - The company is in the early stages of the Blueprint rollout, indicating significant long-term growth potential as it targets legacy systems [11][12] - The GenAI Blueprint is proving to be a key growth driver, resonating well with customers and creating investment opportunities [13]

Core Insights - Pegasystems Inc. (PEGA) exceeded expectations in its fiscal second-quarter 2025 results, showcasing strong momentum driven by its cloud strategy [1][3] - The company reported total revenue of $384.5 million, a 9% year-over-year increase, surpassing analyst estimates [3][4] - Cloud revenue surged by 24% year-over-year, reaching $166.7 million, which constitutes 43% of total revenue [4][5] Financial Performance - Annual Contract Value (ACV) rose 16% year-over-year to $1.514 billion, exceeding the estimated $1.476 billion [4][6] - Pega Cloud ACV increased by 28% year-over-year, reaching $761.1 million, indicating a shift from on-premise to cloud-based deployments [5][6] - Recurring maintenance revenue was $79.3 million, slightly above the projection of $76.5 million, while term license revenue was $74.6 million, down 6% year-over-year but beating estimates [6] Guidance and Future Outlook - The company reaffirmed its fiscal 2025 guidance, projecting 12% ACV growth, total revenue of $1.7 billion (up 7% year-over-year), and $440 million in free cash flow [7][8] - Analysts expect Pegasystems to generate $452.2 million in free cash flow for fiscal 2025, translating to a 27% free cash flow margin [8] - The company is well-positioned for long-term growth, with strong momentum in its cloud business and reduced legal risks [9]

Key Takeaways Pegasystems' Q2 earnings rose 7.7% Y/Y to 28 cents per share, topping consensus estimates by 16.7%. Pegasystems' revenues climbed 9.5% Y/Y to $384.5M, with subscriptions driving 84.8% of total sales. Total ACV grew 16% Y/Y to $1.51B, while backlog jumped 31%, signaling strong demand momentum.Pegasystems (PEGA) reported second-quarter 2025 non-GAAP earnings of 28 cents per share, which beat the Zacks Consensus Estimate by 16.67% and increased 7.7% year over year. Revenues of $384.5 million be ...

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) 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 Insights - Pegasystems (PEGA) shares have increased by 6.9% year to date (YTD), underperforming the broader Zacks Computer & Technology sector, which has appreciated by 7.4%, and key competitors like Microsoft (MSFT), Oracle (ORCL), and IBM, which have seen increases of 19.4%, 38.4%, and 29% respectively [1][2][8] Performance Analysis - The underperformance of PEGA shares is attributed to a challenging macroeconomic environment and intense competition from Microsoft and Oracle in the business process management sector [2] - Despite the challenges, Pegasystems is experiencing strong demand for its AI-powered and cloud-based solutions, with the market expected to exceed $130 billion by 2027 [6][11] - PEGA's Annual Contract Value (ACV) rose by 23% year over year to $701 million, driven by the adoption of Pega GenAI Blueprint and a shift towards term-based licensing [8][11] Revenue and Growth Projections - Pegasystems forecasts revenues of $1.7 billion for 2025, an increase from previous guidance of $1.6 billion, supported by growing ACV and market momentum [15] - The company anticipates free cash flow to grow at a compound annual growth rate (CAGR) of 15-20%, reaching over $700 million by 2028 [15] Market Position and Valuation - Pegasystems is currently trading above its 50-day and 200-day moving averages, indicating a bullish trend [6] - However, PEGA shares are considered overvalued, with a trailing 12-month Price/EBITDA (P/EBITDA) ratio of 23.79X, compared to the Zacks Computer Software market's 20.32X and IBM's 15.35X [18] Investment Outlook - Pegasystems is recognized for its strong portfolio, expanding ACV, and robust free cash flow generation capabilities, currently holding a Zacks Rank 1 (Strong Buy) and a Growth Score of A, indicating a favorable investment opportunity [21]

Core Insights - Pegasystems (PEGA) is experiencing accelerated growth in its cloud segment, with Pega Cloud's Annual Contract Value (ACV) increasing by 23% year-over-year to $701 million in Q1 2025, driven by demand for AI-powered, cloud-native solutions [1][3] - The company's cloud revenues rose 15% year-over-year to $151.1 million, highlighting the strength of its recurring revenue model [1][9] - Pegasystems aims to grow Cloud ACV by 20% or more, supported by successful cross-selling, upselling, and new client acquisitions [3][9] Cloud Momentum - There is a clear shift among enterprises towards scalable and intelligent automation, with PEGA's AI-infused platforms simplifying digital transformation and enhancing client retention [2] - The increase in ACV indicates deeper customer engagement and more durable multi-year contracts as workloads transition from legacy systems to the cloud [2] Competitive Landscape - Salesforce (CRM) is a strong competitor in cloud-native CRM and low-code workflows, leveraging its extensive integrations and partnerships to enhance its market position [5] - Oracle (ORCL) competes with PEGA in process automation, excelling in infrastructure and large-scale deployments, while PEGA stands out in BPM usability and AI-driven decision-making [6] Stock Performance and Valuation - Pegasystems shares have gained 16% year-to-date, outperforming the broader Zacks Computer and Technology sector, which returned 8.2%, and the Computer-Software industry, which rose 17% [7][9] - The Zacks Consensus Estimate for PEGA's earnings is $1.88 per share for 2025, reflecting a year-over-year growth of 24.5% [11]

Summary of Pegasystems (PEGA) Investor Session - June 02, 2025 Company Overview - **Company**: Pegasystems (PEGA) - **Event**: Investor Session - **Date**: June 02, 2025 Key Points and Arguments Company Strategy and Differentiation - **AI Integration**: The company emphasizes the importance of using AI to design specific workflows rather than relying solely on textual prompts for automation. This approach aims to enhance reliability and predictability in business processes [9][11][12]. - **Workflow Engine**: Pegasystems has a state-of-the-art workflow engine that integrates AI to facilitate conversational interactions while maintaining workflow integrity [12][16]. - **Center Out Architecture**: The architecture allows for a unified approach to business processes, ensuring consistent outcomes across different customer channels [18][19]. Market Opportunity - **Market Size**: The addressable market for Pegasystems is estimated to be around $90 billion, potentially growing to $150 billion in the coming years, indicating a double-digit growth rate [70][74]. - **Cloud Adoption**: There is a significant trend towards cloud migration, with expectations that 80% of enterprise applications will be cloud-based within the next five to seven years [75][76]. - **Legacy Transformation**: Many companies are still on legacy systems, and Pegasystems positions itself as a leader in addressing the challenges of legacy transformation [77][78]. Product Innovations - **Blueprint Technology**: The introduction of Blueprint technology is highlighted as a game changer for legacy transformation, allowing for rapid ideation and workflow creation [30][80]. - **Partner Collaboration**: Pegasystems is collaborating with major partners like Accenture to create branded blueprints that leverage their unique intellectual property [82][84]. - **Pricing Model**: A new pricing model allows customers to access up to 80,000 pieces of work for as little as $60,000 a year, making it more accessible for a broader range of clients [29]. Financial Update and Capital Allocation - **Capital Allocation Strategy**: The CFO will provide insights into the company's capital allocation strategy, which is expected to be discussed in detail for the first time during this session [6]. AI and Automation - **Generative AI**: The company is leveraging generative AI to enhance its offerings, particularly in automating workflows and improving customer interactions [30][89]. - **Agentic AI**: There is a focus on combining the creativity of agentic AI with the predictability of established workflows to ensure consistent enterprise operations [89][90]. Additional Important Insights - **Sales Strategy**: Pegasystems is cautious about not disrupting its existing sales channels while exploring new market opportunities with partners [35][36]. - **Productivity Improvements**: The company has seen significant productivity improvements, allowing sales teams to conduct demonstrations independently, which enhances efficiency [44]. - **Data Management**: The company is addressing data rationalization challenges associated with legacy systems, ensuring that data can be effectively integrated into new workflows [56][57]. This summary encapsulates the core discussions and insights from the Pegasystems investor session, highlighting the company's strategic direction, market opportunities, product innovations, and financial outlook.