Pegasystems Inc. (PEGA) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary and Q&A indicate strong ACV growth, successful cloud transition, and promising AI initiatives, with Blueprint driving new business. Despite federal sector uncertainties, long-term projects continue. Positive sentiment from analysts on AI and pricing strategies supports this. Continued share repurchases bolster shareholder confidence. Overall, the strategic focus on cloud and AI, combined with optimistic guidance, suggests a positive stock price movement.

Key Financial Performance

Annual Contract Value (ACV) Grew 14% year-over-year. Through the first 9 months of 2025, $147 million in net new ACV was added in constant currency, exceeding the total net new ACV added in the entire year of 2024. This growth was driven by the global sales organization’s execution, Pega Cloud’s growth, and the unique AI-driven design approach.

Pega Cloud ACV Grew 27% year-over-year, representing the fastest-growing component of Pega's total ACV. This growth highlights the scalability of the platform and increasing client focus on cloud-native architectures and AI adoption.

Pega Cloud Margins Expanded to approximately 80% in Q3 2025. This reflects the benefits of a scalable business model and significant customer value.

Operating Cash Flow Generated $347 million through the first 9 months of 2025, representing a 38% year-over-year growth. This reflects strong ACV growth, disciplined management, and benefits of the recurring financial model.

Free Cash Flow Generated $338 million through the first 9 months of 2025, also representing a 38% year-over-year growth. This is attributed to the same factors as operating cash flow.

Share Repurchase $393 million worth of Pega stock (approximately 8.7 million shares) was repurchased, marking the largest share repurchase quarter ever. This demonstrates confidence in the long-term value of the business and commitment to returning value to shareholders.

You have reached the limit Upgrade to access full content

Get started

Operating Highlights

Pega Blueprint: A new AI-powered tool that leverages LLMs at design time and Pega's workflow engine at runtime. It shortens sales cycles, accelerates production timelines, and enhances collaboration between business and IT. Examples include applications for marketing spend management, tax return solutions, pricing approval automation, and network issue resolution, all launched in under 100 days.

Pega Infinity '25: Introduced as the industry's first agentic enterprise transformation platform, enhancing capabilities for enterprise transformation and delivering trustworthy AI agents for orchestration across enterprises.

Pega Cloud Growth: Pega Cloud ACV grew 27% year-over-year, becoming the fastest-growing component of Pega's total ACV. This reflects increased client focus on cloud-native architectures and AI adoption.

New Client Acquisition: A new client was acquired via a non-Pega partner using Pega Blueprint, showcasing the tool's ability to accelerate deal closures and implementation timelines.

Cloud Margins: Pega Cloud margins approached 80% in Q3, highlighting the scalability and efficiency of the cloud migration strategy.

Cash Flow: Generated $347 million in operating cash flow and $338 million in free cash flow through the first 9 months of 2025, reflecting a 38% year-over-year growth.

AI Strategy: Pega's approach to using AI at design time and workflows at runtime differentiates it in the market, particularly in regulated industries like banking and healthcare.

Partner Ecosystem: Introduction of 'Powered by Blueprint' allows partners to embed their best practices into the tool, enhancing differentiation and scalability.

You have reached the limit Upgrade to access full content

Get started

Risk or Challenges

AI misapplication risks: The CEO highlighted that many enterprise AI pilots fail due to misapplication rather than bad technology. Competitors' approaches to using LLMs for orchestrating workflows at runtime lack appropriate context and guardrails, leading to inadequate accuracy and reliability. This unpredictability is particularly problematic for regulated industries like banking, healthcare, and insurance.

Regulatory compliance challenges: The unpredictability of competitors' AI approaches poses significant risks for regulated industries, where even minor inconsistencies can lead to major consequences. This highlights the importance of maintaining strict compliance standards.

Competitive pressures in AI: The CEO emphasized that competitors' reliance on prompt-driven AI for critical decisions is flawed, but it also indicates intense competition in the AI space. Pega must continue to differentiate its approach to maintain its competitive edge.

Economic uncertainties: The CFO mentioned that Pega Cloud's growth trajectory is strong, but economic uncertainties could impact client adoption rates and overall financial performance.

Cloud migration challenges: As more clients migrate to Pega Cloud, there is near-term pressure on maintenance and term license ACV, which could affect revenue streams temporarily.

Sales cycle risks: While Blueprint is shortening sales cycles, there is still a dependency on client adoption and alignment, which could pose risks if clients do not fully embrace the new methodologies.

Partner ecosystem risks: The success of the Powered by Blueprint initiative depends on partner adoption and their ability to effectively use and promote the tool. Any lack of engagement from partners could hinder its success.

You have reached the limit Upgrade to access full content

Get started

Guidance & Outlook

AI Strategy and Market Positioning: The company emphasizes its unique AI strategy, leveraging LLMs at design time and a robust workflow engine at runtime. This approach is expected to resonate with clients, particularly in regulated industries like banking, healthcare, and insurance, where reliability and accuracy are critical.

Pega Blueprint Adoption: Pega Blueprint is driving enterprise transformation by accelerating sales cycles and reducing the time from design to production. The company expects this tool to continue shortening implementation timelines and increasing client adoption.

Pega Cloud Growth: Pega Cloud ACV grew 27% year-over-year, and the company anticipates continued growth as more clients migrate to cloud-native architectures. Pega Cloud margins are approaching 80%, highlighting scalability and profitability.

Revenue Model and Client Engagement: The company is shifting towards a usage-based revenue model, which aligns subscription revenue with client outcomes. This model is expected to create scalable growth opportunities as clients expand their use of Pega solutions.

Market Recognition and Industry Validation: Pega has been recognized as a leader in various categories by Forrester and Gartner, which is expected to strengthen its market position and attract new clients.

Financial Guidance: The company expects continued strong cash flow and ACV growth, driven by its cloud migration strategy and disciplined financial management. Over 85% of ACV growth in 2025 has been generated by Pega Cloud.

You have reached the limit Upgrade to access full content

Get started

Shareholder Return Plan

Share Repurchase: We have demonstrated our strong commitment to return capital to shareholders by completing our largest share repurchase quarter ever. As a result, we have purchased $393 million of Pega stock or approximately 8.7 million shares, demonstrating our confidence in the long-term value of our business and our commitment to returning value to our shareholders.

You have reached the limit Upgrade to access full content

Get started

Key Q&A

Q:What drove the much better ACV and acceleration versus expectations of it slowing down on a tougher comp?

A:The acceleration is attributed to the positive impact of Pega Blueprint, which has become the exclusive way to go to market with clients and partners. Blueprint adoption has accelerated, positively impacting the business.

Q:What is being seen on the federal side of the business and the deal environment?

A:The federal space has experienced changes in 2025, including the government shutdown. However, projects with clients are long-term and strategic, spanning years. Shutdowns have occurred before, but clients have continued with their initiatives.

Q:What is the early feedback on the newer predictable AI agents and how are they different from competitors?

A:The predictable AI agents are resonating with customers due to their structural predictability. Unlike competitors relying on LLMs at runtime, Pega uses LLMs at design time, ensuring workflows are codified in advance. This approach is more predictable, environmentally efficient, and runs on ordinary CPUs.

Q:How is Blueprint opening doors for new logos and how has the overall push gone?

A:Blueprint provides a non-technical, user-friendly experience, speeding up business development and solutioning time. It has made targeting new logos more efficient and has improved internal training. Customers quickly understand Pega through Blueprint, which incorporates decades of design principles.

Q:What is the impact of more cloud on term and license revenue, and how should Q4 be viewed?

A:The shift to Pega Cloud, with 85% of ACV growth from cloud, is reducing term license revenue over time. Term license revenue is expected to decline, reflecting the business's transition to a cloud model. ACV is a better indicator of business momentum and durability.

Q:What is the role of AI in application modernization and where is Pega on this journey?

A:Pega has introduced features in Blueprint to modernize legacy systems, such as analyzing old systems through videos and generating cloud-native replacements. This capability is exciting and has been used in 100-day implementations for legacy modernization.

Q:How is pricing evolving in the industry and Pega's approach?

A:Pega has moved to work-based pricing, aligning vendor and customer incentives. This approach charges based on workflows and output rather than seats, making it more efficient and customer-aligned. Competitors relying on seat-based pricing face structural challenges.

Q:Are there new players in the space and how does Pega differentiate?

A:New players like Sierra and Decagon are on the periphery. Pega differentiates with its 'center out' approach, ensuring omnichannel functionality and predictable execution. Competitors often focus on specific channels, limiting their effectiveness.

Q:What is the status of legacy transformation opportunities and their impact on ACV growth?

A:Legacy transformation opportunities, driven by Blueprint, are contributing to ACV growth. Most new implementations in the last six months have used Blueprint, and it has become integral to Pega's strategy.

Q:What is happening in the federal vertical, particularly with cloud adoption and modernization?

A:The federal vertical is prioritizing IT modernization, with bipartisan support. Pega Cloud for government is gaining traction, and cloud adoption is accelerating. However, government shutdowns have temporarily slowed project progress.

Q:What is the impact of partner-branded Blueprints and new use cases?

A:Partner-branded Blueprints allow partners to leverage their IP and engage customers effectively. This initiative is new but has the potential to unlock new use cases and expand the sales pipeline.

Q:How much has migration from licenses contributed to cloud ACV growth?

A:Migrations are important for moving clients to Pega Cloud but are not the primary driver of ACV growth. The growth is mainly driven by increased client spending.

Q:What role can Pega play in the AI ecosystem, particularly in agent orchestration?

A:Pega focuses on reliable workflow-based orchestration rather than relying on LLMs at runtime. This approach ensures predictability and effective orchestration, differentiating Pega in the AI ecosystem.

Q:What is the potential for new logos to drive ACV growth in the future?

A:New logos could become a significant growth driver, especially through the partner strategy. Partner-branded Blueprints can expand Pega's reach and accelerate new logo acquisition.

Q:Review of Unclear Management Responses

A:Management avoided providing specific numerical details on the impact of migrations on cloud ACV growth and the exact contribution of legacy transformation opportunities to ACV growth. Additionally, while discussing the federal vertical, they did not provide precise data on the percentage of government clients on cloud versus on-prem.

You have reached the limit Upgrade to access full content

Get started

Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

PEGA Transcript

Pegasystems Inc. (PEGA) Presents at Barclays 23rd Annual Global Technology Conference Transcript

Neutral12-11

Pegasystems Inc. (PEGA) Presents at UBS Global Technology and AI Conference 2025 Transcript

Neutral12-2

Pegasystems Inc. (PEGA) Presents at Global Technology, Internet, Media & Telecommunications Conference 2025 Transcript

Neutral11-18

Pegasystems Inc. (PEGA) Q3 2025 Earnings Call Transcript

Positive10-22

PEGA Report

Frequently Asked Questions

Where does this earnings call transcript come from?

All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.

How soon is the transcript available after the earnings call ends?

Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.

Is the transcript edited or altered in any way?

No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.

Why do some answers appear as “Unclear” or “Inaudible”?

When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.

Who creates the AI Summary and Key Q&A highlights shown above the transcript?

They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.