Pegasystems Inc. Q3 FY2025 earnings call

• Alan Trefler emphasized Pega's unique AI approach: using LLMs for design and Pega's workflow engine for reliable run-time operations, differentiating from competitors who rely on LLMs at run-time. - Blueprint is a game-changer, accelerating sales cycles, reducing time from design to production, and enabling quick go-lives (e.g., global food and beverage, large bank, consumer goods, telecommunications, automotive clients). - Powered by Blueprint program allows partners to embed their best practices, driving ecosystem momentum. - Pega Infinity '25 is the industry's first agentic enterprise transformation platform, with enhancements providing improved capabilities. - Industry recognitions from Forrester and Gartner highlight Pega's leadership in digital process automation, case management, etc. - Kenneth Stillwell noted record results in Q3 2025 with Pega Cloud ACV, revenue, and free cash flow reaching new highs, and strong cash flow generation.

Pega Cloud ACV grew 27% year-over-year and was the fastest-growing component of Pega's total ACV. Annual contract value grew 14% year-over-year. Through the first 9 months of 2025, net new ACV in constant currency exceeded the total net new ACV added in 2024, with Pega Cloud driving much of the growth.

Pegasystems provided annual guidance at the start of the fiscal year and does not typically update it. However, Kenneth Stillwell noted the impact of Pega Cloud on term license ACV, with more growth expected from Pega Cloud as clients migrate, and the trend of term license revenue potentially declining over time due to increased Pega Cloud adoption.

• Potential market competition from rivals who may replicate Pega's unique approach. - Regulatory challenges in regulated industries (banking, healthcare, insurance) where minor inconsistencies can have major consequences, affecting adoption of less reliable AI approaches. - Uncertainty around government shutdowns in the federal space impacting project progress and rollout of federal-related initiatives.

Q: What drove the much better ACV and acceleration versus expectations, and how to think about ACV for Q4 and FY '25?

A: Kenneth Stillwell said Pega Blueprint began impacting the business positively, and the performance is connected to Blueprint's impact, with continued impact expected.

Q: Thoughts on the federal side of the business and deal environment?

A: Kenneth Stillwell mentioned the federal space has been affected by government shutdowns, but projects are long-term and strategic, with clients likely to move forward when operations resume.

Q: Early feedback on new predictable AI agents and difference from competitors?

A: Alan Trefler stated competitors rely on prompts at run-time, which is unpredictable, while Pega uses LLMs for design and Pega's workflow engine for reliable run-time, ensuring predictability.

Q: Doors Blueprint is opening for new logos and push progress?

A: Kenneth Stillwell said Blueprint provides a user-friendly, nontechnical experience and speeds up business development solutioning time; Alan Trefler added it allows showing customers what Pega does quickly and guides to get it right, making implementation better and more reliable.

Q: Impact of cloud on term and license, and Q4 expectations?

A: Kenneth Stillwell said term license revenue will decline over time as 85% of ACV growth is from Pega Cloud, and this trend should continue in Q4.

Q: Application modernization journey and legacy transformation?

A: Alan Trefler mentioned Blueprint allows uploading assets from legacy apps, analyzing videos, and modernizing them, with many 100-day implementations falling into this category; Kenneth Stillwell tied acceleration in growth to Blueprint and legacy transformation opportunities.

Q: Pricing evolution and new players?

A: Alan Trefler said Pega is ahead in work-based pricing, and challenges with chatbot agents include being locked into channels, while Pega's center-out concept is better for omnichannel agentic systems.

Q: Legacy transformation integration and tracking?

A: Alan Trefler said Blueprint is used in recent implementations and is stored in Pega Cloud regions; Kenneth Stillwell tied any acceleration in growth to Blueprint and legacy transformation opportunities.

Q: Federal verticals, claims volume, and go-to-market?

A: Alan Trefler said federal projects are slowed by government shutdowns but are long-term; Pega Cloud for government is strong; Kenneth Stillwell noted IT modernization is a bipartisan priority in government.

Q: Partner-branded Blueprints and new use cases?

A: Alan Trefler said Powered by Blueprint allows partners to use their IP, enabling partners to bring their expertise to prospects and customers, opening new opportunities.

Q: Growth drivers for ACV, especially new logos?

A: Alan Trefler said successful partner strategy could make new logos a more meaningful driver, as Powered by Blueprint opens the aperture to new customers; Kenneth Stillwell added leveraging partners' ecosystems can accelerate new logo growth.