Pegasystems Inc. Q2 FY2025 earnings call

• Alan Trefler discussed Pega's unique AI strategy, highlighting the model-based architecture of Pega Infinity for faster AI application development. - Introduced Blueprint, a solution using generative AI agents to transform business descriptions into production-ready apps, reducing upfront work. - Emphasized Pega's AI approach combining creativity in design with structured workflows for production consistency. - Mentioned partnerships like the 5-year strategic collaboration with AWS and interest from systems integrators in branded blueprints. - Highlighted Blueprint's evolution for legacy transformation, demonstrated with examples like Oakley Cobalt application modernization.

Annual contract value (ACV) grew 16% year-over-year (reported) and 14% in constant currency. Net new ACV add increased by 60% year-over-year in constant currency in the first half of 2025. Total ACV exceeded $1.5 billion for the first time, with Pega Cloud ACV growth of 28% reported and 25% in constant currency. Free cash flow reached $286 million in the first half. Backlog increased by 31% reported and 27% in constant currency year-over-year, with Pega Cloud current backlog up 28% reported and 25% in constant currency.

• Third quarter historically is softest in net new ACV add and free cash flow due to contract renewal timing. - Term license revenue is typically lowest in Q3, cautioning against overprojecting in lighter quarters. - Company spent $251 million repurchasing about 6 million shares in first half of 2025, plans disciplined approach to buybacks going forward.

Forward-looking statements subject to risks and uncertainties in company's press releases and SEC filings. General market uncertainties like tariffs and global economic conditions noted as potential concerns, but no specific material impacts reported.

Q: On Pega Cloud ACV growth, is it driven by Blueprint?

A: Blueprint is engaged in sales campaigns, and majority of business is from expansion with clients, with Blueprint central to that.

Q: Impact of macro factors on customers?

A: Some anxiety but no specific headwinds noted, with legacy transformation discussion accelerated by GenAI.

Q: Public sector impact?

A: Some project reshuffles, but directionally a tailwind, with strong work in U.S. and global governments.

Q: Booking momentum after PegaWorld?

A: Pipeline increased with customer engagement and interest in new features like agentic process fabric.

Q: Competition for Blueprint?

A: Competitors like Salesforce and ServiceNow, but Pega's unique architecture and approach differentiate it.

Q: AWS partnership and future partnerships?

A: Open to similar partnerships with other hyperscalers.

Q: Partner-branded Blueprint and channel mix?

A: No traditional channel business yet, but emerging opportunity with partners.

Q: GenAI technology take up?

A: Customers liking features like GenAI Coach and Knowledge Buddy, with Blueprint being a key area for generative AI.