Pegasystems Inc. Q4 FY2025 earnings call

• Launched the Infinity platform as the first real agentic enterprise transformation platform and extended leadership in industry reports.
• Blueprint was key to growth, enabling a new experiential sales process, with strong global sales execution and increasing demand for Pega's AI agents.
• Free cash flow increased 45% year over year to $491 million, exceeding guidance. Ended 2025 with $426 million in cash and investments, repaid $468 million of debt, repurchased $498 million of shares, and distributed dividends.
• Partnerships with clients like Proximus and Cognizant, and AWS, with Blueprint enabling legacy modernization and faster transformation.

Total ACV grew 17% year over year as reported, and 14% in constant currency, beating guidance. Pega Cloud ACV increased 33% year over year (reported) and 28% in constant currency, with net new ACV up 37% year over year in constant currency. Contractually committed backlog grew 28% (reported) year over year and 23% in constant currency, exceeding $2 billion for the first time, with Pega Cloud backlog growing 36% (reported) year over year and representing 74% of total backlog.

• 2026 guidance: Total ACV growth of 15%, Total revenue of $2 billion (15% increase), free cash flow of $575 million (17% increase over 2025).
• Board authorized an additional $1 billion in buyback capacity.
• Expect revenue growth and ACV growth to be more closely aligned, net new ACV to follow a seasonal pattern with more in the second half, professional services revenue to be ~10% of $2 billion revenue guide, and Pega Cloud ACV growth to continue at 30%.

• Factors causing actual results to differ from forward-looking statements, as outlined in the company's press release and SEC filings.
• Competitive landscape issues with other companies' AI approaches that may not offer the same predictability and structure as Pega's solutions.
• Challenges in executing growth strategies, including potential difficulties in scaling mid-market efforts and managing legacy modernization effectively.

Q: Steve Enders asked about the deal environment and confidence in hitting the 15% ACV guide.

A: Alan Trefler talked about the low-cost, low-risk nature of the Blueprint approach reducing friction, and Ken Stillwell mentioned faster pipe build, progression, and close times with Blueprint, and net retention rate expansion.

Q: Rishi Jaluria asked about Blueprint's impact on sales cycles and NRR.

A: Ken Stillwell said they're seeing faster pipe build, progression, and close times with Blueprint, and Alan Trefler mentioned faster training time for new staff with Blueprint.

Q: Raimo Lenschow asked about Blueprint in app modernization.

A: Alan Trefler said there are rich capabilities with out-of-the-box interfaces with partners and facilities to modernize old Pegasystems, with interest from clients.

Q: Devin Oh asked about ACV guide basis and NRR expansion.

A: Ken Stillwell said ACV guide is constant currency, and NRR is up ~150 basis points from 2024 to 2025.

Q: Patrick Walravens asked about characteristics of software companies.

A: Alan Trefler said key characteristics include being built for change, having visible architectures, and focusing on orchestration and automation.

Q: Blair Abernethy asked about contract duration and mid-market focus.

A: Ken Stillwell said contract duration is consistent, and Blueprint changes the ability to scale engagement, with focus on mid-market growth.

Q: Mark Chappell asked about investment priorities.

A: Ken Stillwell talked about optimization across P&L lines, R&D leverage, sales and marketing investment in digital engagement, and continued investment in relationship selling and partnerships.