Core Insights - Pegasystems (PEGA) shares closed at $50.96 on August 12, approximately 16% lower than the 52-week high of $60.96 reached on July 30, with a slight increase of 0.1% since the second-quarter 2025 results were reported on July 22, underperforming the broader Zacks Computer & Technology sector and peers like Microsoft, Oracle, and SS&C Technologies [1][10]. Financial Performance - The Zacks Consensus Estimate for third-quarter 2025 earnings is 18 cents per share, reflecting a 5.3% year-over-year decline, while the revenue estimate is $355 million, indicating a 9.2% year-over-year growth [3]. - Year-to-date, PEGA shares have appreciated 9.4%, still underperforming the broader sector [4]. Competitive Landscape - The underperformance of PEGA shares is attributed to a challenging macroeconomic environment and intense competition from Microsoft and Oracle in the business process management space, as well as SS&C Technologies' Blue Prism in robotic and digital process automation [2][10]. Growth Drivers - Pegasystems is experiencing strong demand for its AI-powered and cloud-based solutions, with the market expected to exceed $150 billion by 2029 [12]. - The shift to a subscription-based business model has been a significant catalyst, with Pega Cloud Annual Contract Value (ACV) increasing 25% year-over-year to $71 million in Q2 2025, and total ACV rising 14% year-over-year [13]. - Net new ACV addition surged 60% year-over-year in the first half of 2025 compared to the first half of 2024, indicating robust growth potential [13]. Backlog and Future Outlook - At the end of Q2 2025, backlog increased 27% at constant currency, providing good visibility into future performance, with Pega Cloud's current backlog expected to convert into revenues within 12 months increasing by 25% [14]. Innovation and Product Development - Pegasystems has introduced Pega Blueprint capabilities, utilizing agentic AI to modernize legacy systems rapidly, which accelerates application development from months to weeks [15]. - The company is expanding its enterprise clientele across various sectors, including financial services, insurance, telecommunications, healthcare, manufacturing, and the public sector [16]. Valuation Concerns - Pegasystems shares are considered overvalued, with a trailing 12-month Price/EBITDA ratio of 24.06X, higher than the broader sector's 20.01X and SS&C Technologies' 8.41X, although lower than Microsoft and Oracle [17].

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 (PEGA) anticipates continued strong growth in its cloud-subscription business, driven by strategic initiatives including a collaboration with Amazon Web Services (AWS) to leverage trends in AI, legacy transformation, and cloud migration [1][10] Cloud Revenue Performance - In Q2 2025, PEGA's cloud revenues increased by 24% year over year to $166.7 million, reflecting a shift from legacy systems to cloud-native solutions [2] - The Cloud Annual Contract Value (ACV) rose by 28% year over year to $761 million, highlighting the growing significance of subscription revenues in overall performance [2] Strategic Initiatives - The Gen-AI-powered Blueprint is crucial for expanding the client base, with integration of AWS Transform expected to facilitate modernization of legacy systems, thereby increasing demand for Pega Cloud [3] - Availability of PEGA software on AWS Marketplace is set to enhance accessibility and streamline client onboarding, contributing to predictable revenue growth [4] Public Sector Growth - PEGA's position in the Public Sector has been strengthened by achieving FedRAMP High certification, aligning with government initiatives for cloud adoption and AI-driven transformation [5] - A 28% growth in current backlog is anticipated to convert to revenue, reinforcing the importance of cloud subscriptions for top-line growth [5] Competitive Landscape - PEGA faces significant competition from Salesforce and ServiceNow, both of which are enhancing their cloud offerings with generative AI capabilities [6][7] - Salesforce's recent innovations in its AI Cloud and ServiceNow's partnerships with major enterprises underscore the competitive pressures in the cloud subscription market [6][7] Stock Performance and Valuation - PEGA shares have appreciated by 29.5% year-to-date, outperforming the Zacks Computer and Technology sector's return of 11.2% [8] - The stock is currently trading at a forward Price/Sales ratio of 5.98X, which is below the industry average of 8.99X, indicating a potential undervaluation [11] Earnings Estimates - The Zacks Consensus Estimate for PEGA's 2025 earnings is $1.98 per share, reflecting a 5.3% increase over the past 30 days and suggesting a year-over-year growth of 31.13% [14]

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]

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]

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]