Core Viewpoint - Pegasystems has shown a positive performance with a 14.9% increase in shares since the last earnings report, outperforming the S&P 500 [1][2]. Financial Performance - In Q4 2025, Pegasystems reported non-GAAP earnings of 76 cents per share, exceeding the Zacks Consensus Estimate by 5.56%, but down 5% year over year [3]. - Revenues reached $504.32 million, surpassing the Zacks Consensus Estimate by 4.04% and increasing by 3% year over year [3]. - Subscription services revenues, which include Pega Cloud and Maintenance, totaled $272.8 million, accounting for 54.1% of total revenues and reflecting an 18.1% year-over-year increase [5]. - Total subscription revenues rose 3% year over year to $451 million, contributing 89.4% to total revenues [6]. Growth Drivers - The strong performance in Q4 was attributed to innovation and the Pega Blueprint platform, with growth driven by AI-integrated workflows and rising cloud subscriptions [4]. - The Annual Contract Value (ACV) for Pega Cloud increased by 33% year over year to $867 million, while total ACV rose 17% year over year to $1.608 billion [7]. Backlog and Demand - The company's backlog grew by 28% year over year, indicating sustained demand for its services and products [8]. Operating Results - Gross margin expanded by 30 basis points year over year to 79.5%, while total operating expenses increased by 20.8% year over year to $296.5 million [9]. - Operating income was reported at $104.4 million, down 27% year over year, with an operating margin contraction of 840 basis points to 20.7% [9]. Cash Flow and Balance Sheet - As of December 31, 2025, cash and cash equivalents were $425.8 million, up from $351.3 million as of September 30, 2025 [10]. - Operating cash flow increased by over 45% year over year to $505 million, with free cash flow also growing by 45% to approximately $491 million [10]. Market Outlook - Recent estimates for Pegasystems have shown an upward trend, with a consensus estimate shift of 61.78% [11]. - The stock currently holds a Zacks Rank 1 (Strong Buy), indicating expectations for above-average returns in the coming months [13]. Industry Comparison - Pegasystems is part of the Zacks Computer - Software industry, where PTC Inc. reported revenues of $685.83 million for the quarter ended December 2025, reflecting a year-over-year change of +21.4% [14].

Core Insights - Pegasystems (PEGA) shares have increased by 24.6% over the past year, significantly outperforming the Zacks Computer Software industry's decline of 3.3% and lagging behind the broader Zacks Computer and Technology sector's appreciation of 30.2% [2] - The company's strong performance is attributed to robust sales in Q4 2025, a 33% year-over-year growth in Pega Cloud ACV, and operating cash flows of $505 million [2] Financial Performance - In the trailing 12 months ending December 31, 2025, non-GAAP gross margin rose to 76% from 74% year-over-year [3] - Operating expenses increased by 8% year-over-year to $1.06 billion, driven by a 4.9% rise in research and development expenses, an 8.2% increase in sales and marketing, and a 31.8% growth in general and administrative expenses [3] - Non-GAAP net income saw a 42% increase compared to the previous year [2] Product Development and Innovation - The introduction of the Vibe Coding Assistant within Pega Blueprint is expected to enhance customer demand by allowing organizations to design applications using conversational AI while ensuring enterprise-grade governance and security [4] - Pega Blueprint is a unique workflow engine that differentiates the company from competitors, addressing the risks associated with relying on large language models (LLMs) for workflow regulation [5][6] - The Blueprint has streamlined client interactions, reducing demo building time and accelerating the transition from design to production [7] Market Demand and Growth - The company reported a 37% year-over-year increase in net new ACV in constant currency, with Pega Cloud being the fastest-growing component at 33% year-over-year [8][9] - For fiscal 2026, the company anticipates revenues of approximately $2 billion, a 15% growth in annual contract value, and free cash flow of $575 million [10] Earnings Guidance - The Zacks Consensus Estimate for PEGA's Q1 2026 earnings is set at 81 cents per share, reflecting a 6.6% increase from the previous year [10] - The consensus for PEGA's 2026 earnings is projected at $2.63 per share, indicating a 25.2% increase from fiscal 2025 [11]

Pegasystems Conference Call Summary Company Overview - **Company**: Pegasystems (NasdaqGS:PEGA) - **Event**: KeyBank's Technology Summit, Emerging Technology Summit - **Date**: March 03, 2026 Key Financial Highlights - **Fourth Quarter Performance**: - Strong finish to 2025, with a notable increase in annual contract value (ACV) net additions, up approximately **40%** in constant currency compared to 2024, which is double the net ACV add from a few years ago [6][8] - Pega Cloud, the company's SaaS offering, is experiencing accelerated growth, now growing at around **30%**, up from high teens to 20% in previous years [7] - Free cash flow for 2025 was nearly **$500 million**, a significant increase from **$22 million** in 2022, with free cash flow margins now in the **30%** range [8] Guidance and Future Outlook - **2026 Guidance**: - Projected **17%** year-over-year growth in free cash flow [8] - Expectation of continued improvement in net revenue retention (NRR), which has increased from **110%-111%** in previous years to over **112%** in 2025 [44][46] - Anticipation of growth primarily from targeting new logos and expansion within existing accounts [42][43] Industry Dynamics and AI Integration - **AI and Automation**: - Pega has a long history of integrating AI into its offerings, dating back to the 1980s and 1990s, and has evolved its AI capabilities to include generative AI, which enhances design thinking in workflows [18][20] - The company emphasizes the importance of deterministic workflows, which are essential in regulated industries, contrasting with the more flexible nature of generative AI [21][22] - Pega's Blueprint tool, launched recently, significantly accelerates the transformation process for clients, allowing for quicker decision-making and implementation of workflows [32][34] Market Position and Vertical Focus - **Core Verticals**: - Pega operates primarily in five core verticals: financial services, insurance, healthcare, telecommunications, and public sector government, all of which involve regulated workflows [27][28] - The company is focusing on expanding its presence in horizontal use cases, such as customer service in utilities, which share similarities with existing verticals [49] Sales Strategy and Partnering - **Sales Strategy**: - Introduction of an autonomous partner selling model, collaborating with system integrators and AWS to enhance sales processes [52][55] - The company is cautious about attributing significant growth to this new model until it has been executed effectively [55][56] Capital Allocation and Buyback Strategy - **Capital Allocation**: - Pegasystems has recently announced a **$1 billion** buyback program, following the exhaustion of a previous **$500 million** buyback [78] - The company is focused on maintaining flexibility in its capital allocation strategy, weighing the benefits of share buybacks against potential acquisition opportunities [81] Conclusion - Pegasystems is positioned for continued growth, driven by its cloud offerings, AI integration, and strategic sales initiatives. The company is optimistic about its future performance, with a strong focus on maintaining operational efficiency and capitalizing on market opportunities.

Summary of Pegasystems Conference Call Company Overview - **Company**: Pegasystems (NasdaqGS:PEGA) - **Industry**: Software and Cloud Solutions Key Points and Arguments 1. **Business Performance**: Pegasystems reported a solid and stable business performance despite external noise affecting stock valuations. Clients are actively modernizing their systems, including moving to the cloud and integrating AI into their strategies [1][56][110]. 2. **Client Initiatives**: Clients, such as Citizens Bank, are moving beyond experimentation to implement significant initiatives like "Reimagine the Bank," focusing on data management and cloud integration [1][62][70]. 3. **Challenges in Financial Institutions**: Financial institutions face challenges in synchronizing digital and branch experiences, particularly in risk and fraud management. The technology used in branches often lags behind digital channels, complicating customer experience [1][80][81]. 4. **Investment Community Dynamics**: There is a disconnect between the realities of executive decision-making and the perceptions of generalist investors. Many investors lack deep domain expertise, leading to increased noise and confusion in the market [1][113][114]. 5. **Technology Modernization**: A significant portion of existing technology in large financial institutions (estimated at 80%) is unlikely to change due to regulatory constraints. This presents opportunities for leveraging AI to enhance workflows and processes within these legacy systems [1][122][128]. 6. **AI Integration**: Pegasystems emphasizes the importance of AI in augmenting existing workflows, particularly in automating processes that currently rely heavily on human intervention [1][130][131]. 7. **Pega Cloud Transition**: The transition to Pega Cloud has accelerated, with over 80% of growth attributed to cloud solutions in recent months. Factors driving this include improved sales strategies, client experiences with Pega Cloud, and a shift in government attitudes towards cloud adoption [1][220][221]. Additional Important Content 1. **Blueprint Tool**: Pegasystems' Blueprint tool is highlighted as a unique asset that understands workflow context, differentiating it from standard AI tools. It aids in the modernization of legacy applications by interpreting existing code and facilitating the creation of new workflows [1][174][182]. 2. **Regulatory Considerations**: The discussion touches on the regulatory environment affecting technology changes in financial institutions, emphasizing the need for compliance in any modernization efforts [1][122][128]. 3. **Market Reactions**: The call references market reactions to technology announcements, such as IBM's stock drop, indicating that investor sentiment can be volatile and influenced by perceptions of technological advancements [1][195][199]. This summary encapsulates the key insights from the Pegasystems conference call, focusing on the company's performance, industry challenges, and strategic initiatives.

Core Insights - Pegasystems (PEGA) reported fourth-quarter 2025 non-GAAP earnings of 76 cents per share, exceeding the Zacks Consensus Estimate by 5.56% but down 5% year over year [1] - Revenues reached $504.32 million, surpassing the Zacks Consensus Estimate by 4.04% and increasing 3% year over year [1] Performance Highlights - The strong performance in Q4 2025 was driven by innovation and the Pega Blueprint platform, with growth fueled by AI-integrated workflows, rising cloud subscriptions, and disciplined execution [2] - Subscription services revenues, including Pega Cloud and Maintenance, generated $272.8 million, accounting for 54.1% of total revenues, and increased 18.1% year over year [2] - Subscription license revenues, which represent 35.3% of total revenues, were $178.2 million, reflecting a 14% year-over-year decline [3] - Total subscription revenues rose 3% year over year to $451 million, contributing 89.4% to total revenues [3] - Consulting revenues, making up 10.6% of total revenues, were $53.3 million, up 0.9% year over year [3] Contract Value and Backlog - Pega Cloud's Annual Contract Value (ACV) increased 33% year over year to $867 million [3] - Client Cloud ACV, which includes Maintenance and Subscription licenses, rose approximately 2.9% year over year to $741 million [4] - Total ACV increased 17% year over year, reaching $1.608 billion, with a 14% increase on a constant-currency basis [4] - The company's backlog grew 28% year over year, indicating sustained demand for its services and products [4] Operating Results - In Q4 2025, gross margin expanded by 30 basis points year over year to 79.5% [5] - Total operating expenses increased 20.8% year over year to $296.5 million, with operating income reported at $104.4 million, down 27% year over year [5] - The operating margin contracted 840 basis points from the previous year to 20.7% [5] Cash Flow and Balance Sheet - As of December 31, 2025, cash and cash equivalents and marketable securities totaled $425.8 million, up from $351.3 million as of September 30, 2025 [8] - Operating cash flow rose more than 45% year over year to $505 million, while free cash flow also grew 45% to approximately $491 million [8] Stock Performance - PEGA stock has decreased by 29.5% over the trailing 12 months, underperforming the Zacks Computer and Technology sector's growth of 23.1% [2] - Pegasystems currently holds a Zacks Rank 3 (Hold) [9]

Core Insights - Pegasystems reported a strong financial performance with free cash flow increasing 45% year-over-year to $491 million, exceeding guidance by $51 million, driven by ACV growth and the strength of its subscription model [1] - The company attributed its performance to expanded use of its Blueprint product, strong global sales execution, and rising demand for AI agents integrated into enterprise workflows, with net new ACV increasing 37% year-over-year in constant currency [2] - Total annual contract value (ACV) rose 17% year-over-year, with Pega Cloud ACV increasing 33% as reported, indicating significant acceleration compared to previous growth rates [3] Financial Performance - For 2026, Pegasystems expects approximately $2 billion in revenue (around 15% growth), 15% ACV growth in constant currency, and $575 million in free cash flow, which would be 17% higher than 2025 [5][8] - The company surpassed a contractually committed backlog milestone of over $2 billion, with backlog growing 28% year-over-year and Pega Cloud backlog growing 36% [6] - Pegasystems ended the year with $426 million in cash and investments, repaid $468 million of debt, and repurchased $498 million of shares, with an additional $1 billion authorized for buybacks [7] Strategic Focus - The company is focusing on accelerating cloud adoption and the role of its AI-powered Blueprint product in sales and modernization initiatives [4] - Pegasystems' Blueprint product is designed to enhance customer interactions and streamline application development, allowing for rapid deployment and integration of partner intellectual property [10][11] - The company is seeing increased interest in legacy application modernization and has established partnerships with firms like Accenture and AWS to support this initiative [15] Market Positioning - Pegasystems emphasizes a reliable and predictable approach to AI, contrasting with the unpredictability of generative AI models, particularly in regulated environments [10] - The company is experiencing faster pipeline build and close times due to the efficiencies introduced by Blueprint, which is expected to enhance customer retention and acquisition [13][14] - The services mix has shifted towards reduced professional services headcount, with an expectation that professional services revenue will constitute roughly 10% of the projected $2 billion revenue [19]

Financial Data and Key Metrics Changes - Total ACV grew 17% year-over-year, as reported, and 14% in constant currency, exceeding guidance [7] - Pega Cloud ACV increased 33% year-over-year as reported, and 28% in constant currency, a significant acceleration from last year's growth [7][10] - Free cash flow rose 45% year-over-year to $491 million, surpassing guidance by $51 million [10] - Contractually committed backlog grew 28% year-over-year, now exceeding $2 billion for the first time in Pega's history [11] Business Line Data and Key Metrics Changes - Pega Cloud backlog grew 36% year-over-year, now representing 74% of total backlog [11][12] - Net new ACV increased by 37% year-over-year in constant currency, driven by strong demand for Pega's AI solutions [9] Market Data and Key Metrics Changes - The company reported a strong global sales execution, with a disciplined and scalable sales cadence worldwide [8] - The demand for Pega's differentiated AI agents integrated into enterprise workflows has increased significantly [9] Company Strategy and Development Direction - The company is focused on a cloud-first strategy and the implementation of its Blueprint experiential sales approach [8] - Pega aims to sustain a balanced capital allocation strategy, prioritizing organic growth and product innovation [10] - The company is committed to leveraging AI to enhance business processes and improve customer experiences [19][37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the durability of ACV growth due to the strength of Pega's integration into clients' core operations [9] - The company anticipates total ACV growth of 15% and total revenue of $2 billion for 2026, marking a significant milestone [12][13] - Management highlighted the importance of transitioning from experimentation to execution in leveraging AI for business transformation [37] Other Important Information - The Supreme Court of Virginia affirmed the verdict related to a trade secret trial, eliminating a $2 billion liability [12] - The company has achieved ISO 42001 certification across its cloud services and AI solutions [10] Q&A Session Summary Question: Current deal environment and macro conditions - Management noted that the Blueprint approach reduces friction in client engagement, leading to an excitingly advanced pipeline [41] Question: Confidence in ACV guidance - Management indicated that the net retention rate is expanding while targeting new logos, contributing to confidence in achieving the 15% growth target [46] Question: Role of multi-agent systems in enterprises - Management emphasized Pega's structural advantages in orchestrating workflows across systems, allowing for reliable and predictable operations [55] Question: Impact of Blueprint on sales cycles - Early signs indicate faster pipeline build, progression, and close times due to the implementation of Blueprint [58] Question: App modernization journey with Blueprint - Management reported significant interest from clients in app modernization, with capabilities to modernize legacy systems [66] Question: Pega Cloud migration and growth - Management stated that Pega Cloud ACV is expected to grow over 30% in 2026, with consistent migration activity across the client base [70]

Financial Data and Key Metrics Changes - Total ACV grew 17% year-over-year, as reported, and 14% in constant currency, exceeding guidance [7] - Pega Cloud ACV increased 33% year-over-year as reported, and 28% in constant currency, a significant acceleration from last year's growth [7][10] - Free cash flow rose 45% year-over-year to $491 million, surpassing guidance by $51 million [10] - Contractually committed backlog grew 28% year-over-year, exceeding $2 billion for the first time in Pega's history [11] Business Line Data and Key Metrics Changes - Pega Cloud backlog now represents 74% of total backlog, indicating strong growth in cloud services [12] - Net new ACV increased by 37% year-over-year in constant currency, driven by strong demand for Pega's Predictable AI agents [9] Market Data and Key Metrics Changes - The company reported a strong demand for its services, particularly in the context of digital transformation and legacy system modernization [43][66] - The competitive landscape is shifting, with a focus on AI and automation, which Pega is well-positioned to leverage [19][86] Company Strategy and Development Direction - Pega's strategy emphasizes a cloud-first approach and the integration of AI into its platform, particularly through the Blueprint experiential sales approach [8][10] - The company aims to achieve $2 billion in total revenue for 2026, marking a significant milestone [12] - Pega is focused on organic growth, product innovation, and maintaining a strong balance sheet while returning capital to shareholders [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the durability of ACV growth due to Pega's deep integration into clients' core operations [9] - The company anticipates continued growth in Pega Cloud revenue, expected to accelerate above 30% in 2026 [15] - Management highlighted the importance of transforming customer engagement from experimentation to execution [37] Other Important Information - Pega achieved ISO 42001 certification across its cloud services and AI solutions, enhancing its compliance credibility [9] - The company is actively working on app modernization, leveraging partnerships with firms like Accenture and AWS [66] Q&A Session Summary Question: What is the current deal environment and macroeconomic outlook? - Management noted that the Blueprint approach reduces friction in client engagement, leading to an exciting pipeline [41] Question: What gives confidence in achieving the 15% ACV growth target? - Management highlighted an expanding net retention rate and successful targeting of new logos as key factors [46] Question: How is Blueprint impacting sales cycles and deployment times? - Early signs indicate faster pipeline build and progression, with a significant reduction in training time for new staff [58][61] Question: What is the status of app modernization efforts? - Management reported strong interest from clients in app modernization, with capabilities to modernize both legacy and old Pega systems [66] Question: How is the partnership with AWS evolving? - The partnership focuses on transforming legacy workflows using Blueprint, aligning both companies' selling strategies [78]

Financial Data and Key Metrics Changes - Total Annual Contract Value (ACV) grew 17% year-over-year, with a 14% increase in constant currency, surpassing guidance [5][10] - Pega Cloud ACV increased by 33% year-over-year as reported, and 28% in constant currency, significantly up from last year's growth of 18% as reported and 21% in constant currency [5][10] - Free cash flow rose 45% year-over-year to $491 million, exceeding guidance by $51 million [8][10] - Contractually committed backlog grew 28% year-over-year, now exceeding $2 billion for the first time in Pega's history [9][10] Business Line Data and Key Metrics Changes - Pega Cloud backlog represented 74% of total backlog, with a 36% year-over-year increase [9][10] - Net new ACV increased by 37% year-over-year in constant currency, driven by strong demand for Pega's AI agents [7][10] Market Data and Key Metrics Changes - The company noted a strong demand for its AI solutions integrated into enterprise workflows, indicating a positive market response [6][10] - The competitive landscape is shifting, with Pega positioned as a leader in enterprise transformation through its unique offerings [16][20] Company Strategy and Development Direction - The company is focused on a cloud-first strategy and the integration of AI through its Blueprint platform, which has transformed its sales approach [6][10] - Pega aims to achieve $2 billion in total revenue for 2026, marking a significant milestone for the firm [10][11] - The company is committed to disciplined capital allocation, prioritizing organic growth and product innovation [8][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the durability of ACV growth due to the strength of Pega's integration within clients' core operations [7][10] - The company anticipates continued acceleration in Pega Cloud revenue, projecting growth above 30% in 2026 [13][10] - Management highlighted the importance of transitioning from experimentation to execution in leveraging AI for business transformation [36][10] Other Important Information - The Supreme Court of Virginia affirmed a verdict that eliminated a $2 billion liability for the company, positively impacting its financial outlook [9][10] - The company has authorized an additional $1 billion in share buyback capacity, reflecting confidence in cash flow durability [11][10] Q&A Session Summary Question: What is the current deal environment and how is it affecting 2026 outlook? - Management noted that the Blueprint approach reduces friction in client engagement, leading to an advanced pipeline [40][41] Question: What gives confidence in achieving the 15% ACV growth target? - The company highlighted consistent growth rates and an expanding net retention rate, alongside successful targeting of new logos [44][45] Question: How is the app modernization journey progressing with Blueprint? - Management indicated significant interest from clients in app modernization, with expectations for success stories to emerge in the near future [66][10] Question: What is the status of the partnership with AWS? - The partnership is aligned on transforming legacy workflows, leveraging both AWS and Pega's tools for effective modernization [77][10]

Pegasystems Investor Presentation Q4 2025 NASDAQ: PEGA pegainvestorrelations@pega.com February 10, 2026 © Pegasystems Inc. Safe Harbor Statement Certain statements in this presentation may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including the size of the current and future market opportunity, growth of the business, and our 2026 guidance. Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, str ...