Pegasystems Inc. (PEGA) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call and Q&A reveal strong financial performance, significant growth in Pega Cloud ACV, and a robust AI strategy, all contributing positively. The Blueprint approach is reducing sales cycle times and increasing client engagement. Despite some unclear responses, the overall sentiment is positive, especially with the emphasis on expanding partnerships, AI-driven growth, and a substantial shareholder return plan. These factors suggest a positive stock price movement, likely between 2% to 8%.
Key Financial Performance
Total ACV Grew 17% year-over-year as reported and 14% in constant currency. This growth was driven by Pega Cloud ACV, which increased 33% year-over-year as reported and 28% in constant currency. The acceleration was attributed to the Blueprint experiential sales approach, strong global sales execution, and increased demand for Pega's AI agents.
Net New ACV Increased by 37% year-over-year in constant currency. This was driven by the Blueprint revolution, disciplined global sales execution, and rising demand for Pega's AI agents integrated into enterprise workflows.
Free Cash Flow Increased 45% year-over-year to $491 million, exceeding guidance by $51 million. This improvement was attributed to ACV growth and the benefits of Pega's subscription model.
Contractually Committed Backlog Grew 28% year-over-year as reported and 23% in constant currency, exceeding $2 billion for the first time. The growth was primarily driven by a 36% year-over-year increase in Pega Cloud backlog, which now represents 74% of the total backlog.
Cash and Investments Ended 2025 with $426 million. During the year, $468 million of debt was repaid, $498 million of shares were repurchased, and $15 million in dividends were distributed. This reflects the strength and durability of the business model.
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Operating Highlights
Blueprint revolution: Blueprint moved from an experiment in 2024 to a fundamental change in sales processes in 2025, enabling a new experiential sales process. It is now core to operations, shaping sales, delivery, and client success.
Infinity platform: Launched in 2025 as the first agentic enterprise transformation platform, extending leadership in industry reports.
Predictable AI agents: Integrated into enterprise workflows, increasing demand from clients and partners.
Global sales execution: Strongest global sales execution to date, with disciplined and scalable sales cadence worldwide.
Expansion into mid-market: Targeting mid-market companies to scale up business.
Free cash flow: Increased 45% year-over-year to $491 million, exceeding guidance by $51 million.
Debt repayment and share repurchase: Repaid $468 million of debt, repurchased $498 million of shares, and distributed $15 million in dividends in 2025.
Pega Cloud ACV growth: Accelerated growth of 33% year-over-year, driven by cloud-first strategy and AI-powered automation.
Capital allocation strategy: Focused on long-term shareholder value through organic growth, product innovation, and maintaining a strong balance sheet.
Partnerships with key firms: Collaborating with firms like Accenture and Wipro for legacy system modernization and scaling transformation.
Blueprint partner integration: Enabled partners to integrate proprietary intellectual property into Blueprint, enhancing go-to-market strategies.
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Risk or Challenges
Regulatory and Compliance Risks: The company operates in regulated industries and emphasizes the importance of compliance and predictability in its AI solutions. Any failure to meet regulatory requirements or provide consistent results could harm its reputation and client trust.
Competitive Pressures: The company faces competition from major players like Microsoft, Salesforce, and ServiceNow. These competitors use generative AI models differently, which could pose a challenge to Pega's market positioning.
Economic Uncertainty: The mention of a 'SaaS apocalypse' and the potential for some software companies to fail highlights the economic pressures and uncertainties in the software industry, which could impact Pega's operations.
Supply Chain and Partner Risks: The company relies on partners for delivery and has reduced its professional services headcount. Any issues with partner performance or alignment could disrupt service delivery and client satisfaction.
Strategic Execution Risks: The company is heavily investing in its Blueprint technology and partner ecosystem. Any failure in execution or adoption of these initiatives could hinder growth and market expansion.
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Guidance & Outlook
Total ACV growth: Expected to grow by 15% in 2026.
Total revenue: Projected to reach $2 billion in 2026, marking a 15% increase.
Free cash flow: Anticipated to increase by 17% to $575 million in 2026.
Pega Cloud ACV growth: Expected to continue accelerating above 30% in 2026, driven by AI-powered automation initiatives.
Subscription license revenue: Expected to be back-end loaded in 2026 due to the timing of contract renewals concentrated in Q3 and Q4.
Professional services revenue: Projected to represent roughly 10% of the $2 billion revenue guide in 2026.
Capital allocation: Board authorized an additional $1 billion in buyback capacity, reflecting confidence in cash flow durability.
Blueprint AI design engine: Continued enhancements expected to drive enterprise transformation and partner collaboration.
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Shareholder Return Plan
Dividends distributed in 2025: $15 million in dividends were distributed during the year.
Share repurchase in 2025: $498 million worth of shares were repurchased during the year.
Additional buyback authorization for 2026: The Board authorized an additional $1 billion in buyback capacity for 2026.
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Key Q&A
Q:What is the current deal environment and how is the Blueprint approach impacting it?
A:The Blueprint approach reduces friction in client engagement by offering a low-cost, low-risk transaction. It allows clients to quickly see potential system transformations, which has advanced the early stages of the pipeline. Internally, Blueprint is used to evaluate customers and propose legacy transformations, creating new conversations and opportunities. The pace of discussions around digital transformation and legacy system upgrades has significantly increased.
Q:What gives confidence in achieving the 15% ACV growth guide for 2026?
A:The constant currency growth rate remained consistent at around 14% throughout the year, exceeding the guide. Confidence stems from an expanding net retention rate (NRR), targeting new logos, and the prominence of Blueprint, which facilitates faster pipeline building and progression.
Q:How can Pega benefit as enterprises deploy multi-agent systems?
A:Pega's structural advantage lies in its super-agent capability, which can manage multiple workflows and integrate with other agents or systems. Unlike competitors relying on numerous agents, Pega's approach ensures scalability, reliability, and predictability. This architecture supports orchestrating workflows across diverse systems.
Q:What impact has Blueprint had on sales cycles and deployment times?
A:Blueprint has led to faster pipeline building, progression, and close times. It has also significantly reduced training time for new staff, enabling them to engage with clients within a month. While precise metrics will be available closer to Investor Day, early signs indicate positive impacts on key factors like win rates and pipeline progression.
Q:What is the progress on app modernization with Blueprint?
A:Blueprint has rich capabilities, including interfaces with partners like Accenture and AWS, to support app modernization. It can also modernize older Pega systems. There is significant client interest, and success stories are expected to be showcased at PegaWorld in June.
Q:What is the status of Pega Cloud ACV growth and client migration?
A:Pega Cloud ACV is expected to grow by over 30% in 2026, driven by new activities and expansions. Client migrations to Pega Cloud are consistent, occurring application by application. Term licenses will see slight growth as clients retain concurrent rights during migration.
Q:What is the 15% ACV growth guide based on, and how has NRR expanded?
A:The 15% ACV growth guide is based on constant currency. NRR has increased by approximately 150 basis points from 2024 to 2025 and is expected to remain consistent into 2026.
Q:What feedback was received from AWS re:Invent, and how is the AWS partnership evolving?
A:The alignment between AWS and Pega focuses on transforming legacy workflows using Blueprint and AWS tools, which then run on Pega Cloud hosted on AWS. This partnership has strong alignment in selling teams and is progressing positively.
Q:What characteristics should software companies have to succeed in the current transition, and how does Pega fit in?
A:Successful companies will focus on business orchestration, automation, and systems built for change. Pega's architecture, which emphasizes visibility, scalability, and adaptability, positions it well. Its Blueprint approach enables businesses to navigate and change systems effectively.
Q:How is contract duration trending, and what is the focus for mid-market growth in 2026?
A:Contract duration remains consistent. For mid-market growth, Blueprint enables faster ramp-up for account executives and efficient pipeline building, providing confidence in scaling growth through direct and partner selling models.
Q:What are the firm's investment priorities for the coming year?
A:Investments will focus on optimizing gross margins, leveraging AI in R&D and operations, and enhancing digital engagement in sales and marketing. The company aims to expand free cash flow and support client legacy system optimization.
Q:What does transitioning to an AI-first delivery model mean for Pega?
A:The AI-first delivery model, exemplified by Blueprint, accelerates processes from ideation to deployment, improving speed and quality. It enables faster and more efficient client engagement and system implementation.
Q:Review of Unclear Management Responses
A:Management avoided providing precise metrics on the impact of Blueprint on sales cycles and deployment times, stating that more data would be available closer to Investor Day. Additionally, while discussing the AWS partnership, the response lacked specific examples of customer feedback or detailed outcomes from the collaboration.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ACV currency
ACV strength
AI model
Blueprint partner
Cloud backlog
Davos
Founder CEO
Infinity platform
LLM
Relations Pegasystems
Rule
Virginia
capital allocation
chance
competition
conjunction
design agent
durability
executive
factor ACV
history
increase
line outperformance
measure
member system
milestone cash
mistake
moment
property
scale
scratch
setting
software company
sort thing
trademark
truth
verdict
way model
website
PEGA Transcript
Pegasystems Inc. (PEGA) Q4 2025 Earnings Call Transcript
Positive2-11
The earnings call and Q&A reveal strong financial performance, significant growth in Pega Cloud ACV, and a robust AI strategy, all contributing positively. The Blueprint approach is reducing sales cycle times and increasing client engagement. Despite some unclear responses, the overall sentiment is positive, especially with the emphasis on expanding partnerships, AI-driven growth, and a substantial shareholder return plan. These factors suggest a positive stock price movement, likely between 2% to 8%.
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