PEGASYSTEMS INC Q3 FY2024 earnings call

• Alan Trefler highlighted strong performance in the first nine months of 2024, with profitable and balanced growth across industries and geographies. Pega GenAI Blueprint is fundamentally changing client engagement, with new blueprints growing dramatically and driving momentum for Pega Cloud. It helps clients rethink legacy applications, modernize workflows, and move to cloud platforms. - Ken Stillwell noted ACV growth acceleration powered by Pega Cloud, which grew 26% year-over-year in constant currency. The go-to-market strategy shift to focus on target organization model improved sales efficiency. Pega GenAI Blueprint is impacting deal closure rates, time to value, and partner relationships. Cash flow from operations and free cash flow nearly doubled in the first three quarters of 2024.

Annual contract value (ACV) grew 14% in constant currency and 16% as reported year-over-year. Pega Cloud, the primary offering, grew 26% year-over-year in constant currency and represents the vast majority of net new ACV in the quarter and year. ACV growth was seen across regions (US, EMEA, APJ) and various verticals, though not all at the same level.

• Annual contract value growth acceleration with Pega Cloud growing faster than predicted. Q4 2023 was a strong net new ACV quarter, but Q4 2024 faces a tougher comp. Aim to be a Rule of 40 company in 2024. - Maintenance and subscription revenue expected to decline as clients migrate to Pega Cloud, though accounting for term licenses is less predictable. - Delay in Pega Cloud revenue translation from net new ACV, with typically a few quarters lag.

• Market uncertainties including geopolitical issues (war in Eastern Europe, conflict in Middle East) and inflation affecting client spending. - Legal verdict reversal had been a distraction, though it's now seen as resolved but could still impact client cycles if not fully discounted.

Q: Steve Enders asked about momentum with Blueprint and ACV acceleration, including impact on pipeline and Q4/2025.

A: Alan Trefler said Blueprint lifted all boats, changing engagement. Ken Stillwell noted ACV growth across regions and verticals, with net new logo growth, expansion, and some Pega Cloud migration.

Q: Jake Roberge asked about examples of Gen AI Blueprint expanding TAM and go-to-market capacity.

A: Alan Trefler mentioned helping replace legacy systems, targeting systems clients want to kill. Ken Stillwell added market nervousness due to geopolitical and economic factors.

Q: Rishi Jaluria asked about Pega's agenetic AI differentiation and Q4 budget flush.

A: Alan Trefler talked about managed approach with workflows, Ken Stillwell said not counting on budget flush.

Q: Pinjalim Bora asked about Blueprints going live and impact on cloud numbers.

A: Alan Trefler said some Blueprints went live, more in progress, influencing sales. Ken Stillwell discussed maintenance decline and migration impact.

Q: Austin Cole asked about legal verdict impact on sales cycles.

A: Alan Trefler said clients were happy with reversal, though some slowdowns possible. Ken Stillwell added distraction from 2022-2023.

Q: Dan Ives asked about partner and hyperscaler discussions.

A: Alan Trefler and Ken Stillwell mentioned partner enthusiasm, hyperscaler engagement, and strategic differentiation.

Q: Mark Schappel asked about federal business performance and FedRAMP High impact.

A: Ken Stillwell said federal business not an outsized growth driver.

Q: Blair Abernethy asked about Blueprint road map and process mining.

A: Alan Trefler talked about alignment with process mining and cloud compatibility.

Q: Austin Cole asked about competitive environment vs Salesforce.

A: Alan Trefler said Pega's center-out message and architecture give an advantage in AI and transformation.