Earnings call transcript: Pegasystems Q2 2025 sees strong ACV growth

Pegasystems Inc. (PEGA) reported significant growth in its Q2 2025 earnings call, highlighting a 16% year-over-year increase in Annual Contract Value (ACV) and a notable rise in free cash flow. The company’s stock saw a 1.15% increase, closing at $54.86. According to InvestingPro data, PEGA has demonstrated strong momentum with a 59% price return over the past six months, though current trading levels suggest the stock is slightly overvalued relative to its Fair Value. Pegasystems also provided forward guidance indicating a focus on AI-driven transformation and potential share buybacks, despite anticipating typical seasonal softness in Q3.

Key Takeaways

• Pegasystems reported a 16% year-over-year increase in ACV.
• Free cash flow reached $286 million in the first half of 2025.
• The company launched Pega GenAI Blueprint and announced a strategic collaboration with AWS.
• Pegasystems anticipates seasonal softness in Q3 but remains focused on AI innovation.

Company Performance

Pegasystems demonstrated robust performance in Q2 2025, with ACV exceeding $1.5 billion for the first time. The company saw a 28% growth in Pega Cloud ACV and a 60% increase in net new ACV add year-over-year in constant currency. InvestingPro analysis reveals the company maintains an impressive 75.5% gross profit margin and has achieved a 12.5% revenue growth in the last twelve months. The company’s overall financial health score is rated as "GREAT" by InvestingPro’s comprehensive assessment system. This growth reflects Pegasystems’ strategic focus on cloud migration and AI integration, positioning it strongly against competitors like Salesforce and ServiceNow.

Financial Highlights

• Revenue: Not disclosed for Q2 but future forecasts indicate $489 million for Q4 2025.
• Annual Contract Value: Increased 16% year-over-year.
• Free Cash Flow: $286 million in the first half of 2025.
• Total Remaining Performance Obligation: Increased 31% year-over-year.

Outlook & Guidance

Pegasystems provided forward guidance with EPS forecasts for upcoming quarters, including $0.77 for Q4 2025 and $0.59 for Q1 2026. The company remains focused on AI-driven transformation and has hinted at potential share buybacks. Despite expecting seasonal softness in Q3, Pegasystems plans to continue investing in its core business and innovation.

Executive Commentary

• CEO Alan Trefler stated, "We believe we are building the future of enterprise transformation: how it will be designed, how it will be sold, how it will be delivered."
• CFO Ken emphasized, "Our value proposition is resonating with our clients and we’re expanding our footprint in key verticals."
• Trefler also highlighted, "Blueprint isn’t limited to legacy transformation, but the fact that it feeds on it... is perfectly."

Risks and Challenges

• Seasonal softness in Q3 could impact renewals and term license revenue.
• Competition from major players like Salesforce and ServiceNow.
• Potential macroeconomic pressures affecting cloud migration and AI integration.
• Dependence on strategic partnerships with hyperscalers for growth.
• Execution risks in rolling out new innovations like Pega GenAI Blueprint.

Pegasystems’ Q2 2025 earnings call underscored its strong market position and strategic focus on innovation, particularly in AI and cloud services. The company’s robust financial performance and forward-looking strategies indicate a promising outlook, despite potential seasonal and competitive challenges. InvestingPro subscribers have access to 12 additional key insights about PEGA, including detailed analysis of its valuation metrics and growth prospects. Get the complete picture with InvestingPro’s comprehensive research report, available as part of the subscription covering 1,400+ top US stocks.

Full transcript - Pegasystems Inc (PEGA) Q2 2025:

Krista, Conference Operator: Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time I would like to welcome everyone to Pegasystems second quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press STAR one again. Thank you and I would now like to turn the conference over to Peter Welburn, Vice President of Corporate Development and Investor Relations for Pegasystems. Peter, you may begin.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Thank you, Krista. Good morning everyone and welcome to Pegasystems Q2 2025 earnings call. Before we begin, I would like to read our Safe Harbor Statement. Certain statements contained in this presentation may be construed as forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the long-term opportunity for Pegasystems and trends we expect to see in our Q3 financial results and other statements that use words like expects, intends, believes, and other similar words. These forward-looking statements speak only as of the date the statement was made and are based on current expectations and assumptions. Because these statements deal with future events, they are subject to various risks and uncertainties. Actual results for fiscal year 2025 and beyond could differ materially from the company’s current expectations.

Factors that could cause the company’s results to differ materially from those expressed in forward-looking statements are contained in the company’s press release announcing its Q2 2025 results and in the company’s filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ending December 31, 2024, and in other recent filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause our views to change, except as required by law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise.

Our non-GAAP financial measures discussed in this call should only be considered in conjunction with our consolidated financial statements prepared in accordance with GAAP. They are not a substitute for financial measures prepared under U.S. GAAP. Constant currency measures are calculated by applying the June 30, 2024, foreign exchange rates to all periods shown. Reconciliations of GAAP and non-GAAP measures can be found in the company’s press release announcing its Q2 2025 results. With that, I turn the call over to Alan Trefler, Founder and CEO of Pegasystems.

Alan Trefler, Founder and CEO, Pegasystems: Thank you, Peter, and to all who are joining today’s call. It’s great to see such a terrific first half of 2025. I believe it’s driven by our team’s excellent focus, execution, and our smart and differentiated AI strategy that I see resonating with clients, prospects, and partners. Ken will walk you through the first half financials in a few minutes, but I’m going to spend a little time explaining a little more about our AI and why we think our AI transformation approach is much faster, easier, and safer than alternatives now. Since we last spoke, I’ve continued to spend a lot of time with senior executives around the world, including at PegaWorld last month, and our value proposition and competitive differentiation have resonated clearly with them and are really getting their attention.

We’re addressing one of the most challenging and voiced questions clients have: how to effectively develop and deploy AI and agents with the proper controls to create mission-critical applications with speed and accuracy at scale. We believe this requires a dramatically different approach than other companies are advocating. Our competitive advantage is based on our long-standing structural difference, which we’ve been building and improving for more than four decades. The architecture is unique to us, and our platform is inherently model-based, which means that applications are defined through models rather than alternative hand-coded approaches. We put business logic and process logic at the heart of each application, so applications are designed and built once to work in any channel and across any data source or back end.

The Pega null platform, our low-code, cloud-native decisioning and process automation platform, translates those application designs or models into production-ready, enterprise-grade applications without any coding. This architecture allows for a more intuitive and streamlined development process where business logic, workflows, user interfaces, and data structures are all configured through reusable design components. We believe that this is the right architecture for a world where change is constant and one that expects ubiquitous self-service and agentic automation. It also maximizes the potential for automation, and the AI-driven optimization allows us and our clients to more easily and quickly leverage AI. Now let’s talk a little more about Blueprint. It is a unique solution. It’s a unique architecture actually that provides the foundation for everything we do. With Pega GenAI Blueprint, our users simply describe their business in plain language within minutes.

Blueprint uses generative AI agents to transform and put that design into Pega’s best practices and industry standards. We do this by giving Blueprint access to Pega knowledge gained over our 40-year history, as well as the ability to access the vast resources of the Internet to supplement anything we don’t have. From there, users can easily refine key elements of the application design and then deploy it to run directly on the Pega platform. I want to be clear that speed alone is not close to the most important benefit of Blueprint. Blueprint brings the power of AI easily and quickly into the design process to enable collaboration, to help generate new insights and innovation, and to help businesses improve their businesses. It massively reduces the upfront work of trying to design a system.

This combination of power plus speed helps reduce time to value and accelerates meaningful enterprise transformation. This is just part of why we think our approach to generative AI is a game changer. Now, what I was talking about at PegaWorld, if you joined us there, is how we combine the power of AI and the predictability of workflows to give enterprises what we call Predictable AI. We’ve trademarked that term. We don’t believe that any other company can really offer this because it’s only possible because of our architectural differences. The same characteristics that make generative AI exciting for creative applications, for example that it will generate different responses to identical inputs, becomes a fundamental problem for enterprise operations that require predictable, consistent outcomes. However, this variability is perfect for design thinking and innovation.

It’s precisely what makes the prompt-based AI agents our competitors are offering unsuitable for processing mission-critical transactions where consistency isn’t just preferred, it’s mandatory. In contrast, Pega’s approach acknowledges this duality by strategically deploying AI’s creativity during the design phase. When you’re figuring out what you want your application to do, how you want your business to work, different perspectives and innovative solutions add tremendous value. We ensure production operations run through the structured workflows that eliminate unpredictability. Rather than fighting AI’s inherent variability or trying to engineer it away through complex prompt management or prompt studios, we embrace it where it helps at design time, and then we control where consistency matters at runtime. Application designs generated by Pega GenAI Blueprint are not just conceptual, they are fully executable.

In Pega null , this tight alignment between design and execution leads to faster development cycles, gives greater agility in responding to change, and creates a more collaborative relationship between business and IT stakeholders. The result is AI that accelerates innovation during development while delivering the reliable, auditable results enterprises need in production. Other companies are flooding the market with thousands of agents and proposing control towers to manage them. Our competitors are creating prompt studios and suggesting that clients are trying to manage these agents with free text prompts that will be interpreted differently every time they run. We think that’s a little mad. We believe that our clients and partners are recognizing the advantages of our predictable AI approach, where you get the creativity when you want it and you get reliability when it really matters to run your business hour to hour and day to day.

When we demonstrate how we bring structure and governance to AI deployment and how we uniquely combine the power of AI agents to do the design with the predictability of workforce, we get real moments of understanding that are really exciting and serve to validate our vision. The impact of Pega GenAI Blueprint is significant. It makes it incredibly fast and easy for a user to leverage all the power of Pega to participate in transformational initiatives in speeding time to value and helping organizations get rid of a lot of the legacy that is slowing them down. In fact, we have lots of stories about people with little or no technical Pega knowledge creating amazing blueprints, from frontline employees to business line leaders.

During a keynote last month at PegaWorld, Vodafone spoke about how they’re using Blueprint to start every new development project and were able to take their budget process from ideation to a delivered production app in under 40 hours. It’s not just the speed, it’s the power and creativity and thoughtfulness of the output driven by AI, powered by extremely capable workflow execution. Last month we launched partner branded blueprints. Blueprint has captured the imagination of a number of our key partners. They want to infuse their own intellectual property and knowledge repositories directly into a branded version of Blueprint that has their name on the cover so they can feel good about it and they can get the credit for their thinking and how we’ve been able to add that into our font of knowledge from our history here.

This allows them to showcase their unique IP and domain knowledge. I think it extends our reach further into our partners’ customer base and sellers. In the 40 days or so since we announced this concept, we’ve had many of the world’s largest systems integrators sign up to develop their own branded blueprints to use directly with their clients, including Accenture, Capgemini, Cognizant, EY, Infosys, TCS, and Virtusa, with more in the works. We believe this speaks volumes about their interest and commitment to leveraging Blueprint in their own practices. Blueprint gives them a powerful tool that they can use to collaborate and ideate with their clients around their IP while providing a much bigger potential customer base with visibility into the power of Pega.

You may have seen that we recently hired Dan Casen from AWS as our Head of Global Partner Ecosystem to lead the strategic evolution of Pega’s partner ecosystem. This includes strengthening alliances with global systems integrators and hyperscalers, accelerating the adoption of packaged AI and Pega Blueprint, and we think this will really expand partner-influenced revenue. Last week we announced a five-year strategic collaboration agreement with AWS. The agreement combines the power of Pega Blueprint with AWS’s transformation product, which is designed to accelerate legacy transformation projects without disrupting critical business functions. We think having Pega software available on the AWS Marketplace also makes it easier and faster for clients to access our software and benefit from the associated capabilities. A moment on how Blueprint is evolving. The interest and use of Blueprint continues to rise.

Today more than 1,000 organizations around the world are building blueprints, and this is driving increased awareness and engagement. We think it’s a long-term opportunity for Pega to get its familiarity increased and for the values of our offerings to be better understood. Now we continue to enhance its functionality to support enterprise transformation, whether you’re building a new app or reimagining a legacy application. For example, in June we announced new features that help clients address their most pressing legacy transformation initiatives with ease and speed. Business transformation is often held back by legacy technology that eats resources, budget, and time and hampers innovation. I’m sure you’ve seen the same reports I have about the costs associated with technical debt. Forrester estimates that legacy systems will account for two thirds of global tech spending in 2025 and this isn’t an easy problem to solve.

We believe Pega GenAI Blueprint creates a new approach to legacy transformation, one that is important, powerful, and an enormous opportunity. We’ve added powerful agentic AI that ingests, analyzes, and converts a wide array of legacy system assets into new modern application models. You can feed in everything from requirements documents to user manuals to screenshots to video, pretty much anything that describes an application. If you were at PegaWorld, you would have seen an incredibly powerful demo from Kurt Mackinaw, and I highly recommend you go and watch the replay at pega.com/pegaworld if you weren’t there in real time.

Kurt showed how Pega GenAI Blueprint was able to adjust a video of a user walking through an old ugly COBOL application and an AWS transform analysis of that application, teaching its review of its thousands of lines of code. In minutes, Pega GenAI Blueprint provided a recommended application design, showed how it could be modernized in Pega, and showed with the press of a button a preview of what the application would look like and how it would work on multiple channels, complete with a conversational agent that users could talk to in pretty much any language. Keep in mind this was demonstrated live on stage in just minutes after the video and document were imported.

As with any Pega GenAI Blueprint, you usually can iterate and improve the initial design to ensure it will support current and future needs, and when final, and they import it into Pega null with the actual app, they gain real productivity gains and they’re able to put more advanced AI capabilities that are throughout Pega null to work as well. We see no other company doing this and we think it’s a massive opportunity for us and we think it’s going to be an area of focus for our partners. We believe we are building the future of enterprise transformation: how it will be designed, how it will be sold, how it will be delivered, and where ideas are able to move seamlessly from minds to models to market.

You can tell I’m excited about this and what Pega GenAI Blueprint is doing for our clients, our partners, and our business. It’s interesting because Pega GenAI Blueprint puts a new release of its capabilities out about every two weeks. If you haven’t seen it in a month, you are behind. That also, I think, gives us an avenue to really increase the pace of innovation with our customers and with our partners. I would recommend that each of you try it out for yourself for 15 minutes and go to pega.com/blueprint, sign in, and imagine any type of business you’d like to build. I particularly like showing demos of the llama rental business, which is something that actually is a lot more sophisticated than you might imagine. Any business, and of course you can always do the serious stuff like customer onboarding and collections.

I think you’ll have some fun, but I guarantee you’ll see why it’s so powerful and why it plays to Pega’s unique strength. We’re working hard on it and we think it’s going to lead to good results. To provide some more color on the financial results for the first half, let me turn it over to Ken. Okay.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Thank you, Ellen. I am so excited for the businesses at the midpoint of 2025. We’re seeing the outcomes we had hoped to see as our team delivered spectacular results in the first half of 2025, demonstrating the power of our aligned strategy, innovation, and execution. Annual contract value, our key business performance metric, grew 16% year over year as reported, 14% in constant currency. To bring our business momentum into focus, our net new ACV add increased by 60% year over year in constant currency in the first half of 2025 versus the first half of 2024, a significant acceleration that reflects multiple strategic wins. This growth reflects that Pega GenAI Blueprint is transforming our go-to-market motion. Our value proposition is resonating with our clients and we’re expanding our footprint in key verticals.

It’s also a clear indicator that we’re not only winning more deals, but also higher quality long-term client commitments, which ultimately fuels durable growth. It’s awesome to see total ACV exceed $1.5 billion as reported for the first time in Pega’s history, powered by Pega Cloud ACV growth of 28% as reported and 25% in constant currency. I’m especially excited to see our team deliver such robust ACV growth in a market that continues to be uncertain. Our rule of 40 mindset is not only delivering strong ACV growth, but also strong free cash flow growth. Free cash flow growth reached $286 million in the first half of 2025. Our free cash flow performance is no accident. It’s the outcome of two powerful rule of 40 forces coming together. First, our accelerated growth in ACV.

It’s important to remember that in our financial model, ACV is a proxy for subscription billings. As a result, each incremental dollar of ACV roughly translates to an incremental dollar of subscription billings, which in turn drives cash flow. The second powerful force is margin expansion. We continue to grow cash expenses at a slower rate than ACV, expanding margins, driving free cash flow growth, and supporting increased profitability. Total remaining performance obligation, or backlog, increased by 31% as reported and 27% in constant currency year over year. As a reminder, backlog represents client commitments not yet recognized as revenue, but provides good visibility into our future performance. Pega Cloud current backlog, which is backlog that’s expected to come into revenue within 12 months, increased by 28% as reported and 25% in constant currency in the same period.

The majority of Pega Cloud bookings go into backlog, creating a more predictable future revenue stream. The benefit of our subscription transition. Last month I outlined our capital allocation strategy and emphasized that our strong free cash flow generation provides us with significant financial flexibility. That financial strength opens up a number of options for us as we evaluate how to best deploy capital to create long term shareholder value. One of the options we discussed at our annual investor session at PegaWorld last month was the potential to allocate from time to time a greater portion of our free cash flow towards share repurchases. To be clear, it’s great to have this flexibility available for us to do so under the right circumstances now that Pega’s significant cash flow generator with no debt returning cash to shareholders via buyback could make sense for several reasons.

First, periodic share repurchases, when done responsibly, can help mitigate the diluted impact of the stock-based compensation. Second, buying back shares at attractive valuations can lead to improved per share valuation over time. Third, we view share buybacks as a strategic lever that reinforces our confidence in Pega’s long term vision and our belief in the firm’s durable cash flow generation capabilities and is also significantly accretive to shareholders as we execute on our strategy. In the first half of 2025 we repurchased about 6 million of our shares for $251 million, representing over 85% of our total free cash flow generated during the period. While we’ve not made firm commitments regarding the scale or timing of the future repurchases, we plan to continue to take a disciplined and balanced approach to buybacks going forward.

Our first priority, of course, is to invest in the core business to drive sustainable growth and innovation. Beyond that, we will continue to evaluate our capital allocation options through the lens of long term value creation. Given our significant cash flow generation, repurchases of our shares is a great investment opportunity. I’ve heard from several of you that it’s valuable when I provide a few thoughts to help frame how we model our business. I want to take a moment to share two important points as we head into Q3. First, it’s important to recognize that the third quarter has historically been our softest in terms of net new ACV add and free cash flow. This is a fairly consistent seasonal pattern that reflects the timing around contract renewal dates. Contract renewals are more than just administrative milestones, they’re key drivers of business activity.

Fewer renewals in a quarter typically means fewer opportunities to engage and drive expansion and generate near-term billings. It’s also worth remembering that we typically bill our clients one year in advance tied to the contract renewal date. That’s why in quarters with fewer scheduled renewals, we typically see a corresponding slowdown in free cash flow. Second, as you refine your Q3 revenue expectations, please keep in mind that our term license revenue tends to be at the lowest point. Also in Q3, this is another predictable seasonal trend driven by the timing of term license renewals. Understanding these dynamics is important when modeling third quarter term license revenue and also free cash flow, especially to avoid over-projecting in what’s typically a lighter quarter. In conclusion, it’s great to see our continued business momentum. We’re doing what we said we were going to do.

We’re capitalizing on major market trends such as artificial intelligence, legacy modernization, and the move to cloud, and by leveraging Pega GenAI Blueprint. It’s fantastic to see such solid ACV growth and continued momentum around trailing 12 months free cash flow. We’re on an amazing trajectory, and consistent execution over the long term sets us up well to significantly accelerate growth and free cash flow per share over time. I’m looking forward to seeing many of you on the road as we meet investors in the coming weeks at a number of the investment banking conferences around the United States. With that, operator, please open the line for questions.

Krista, Conference Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you’d like to withdraw your question, simply press Star one again. We also ask that you limit yourself to one question and one follow up. Your first question comes from Ramo Lenschow with Barclays. Please go ahead.

Alan Trefler, Founder and CEO, Pegasystems: Congratulations for me on an amazing quarter. Just a quick question on Pega Cloud. If I’m looking at my math, you just basically had like a record on ACV. Is that already Blueprint or is that just kind of the normal momentum in terms of more customers coming from the client cloud over to you like overall general market? Can you speak to that number? Because it’s very strong obviously and good indicator.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: I think you will see some incremental Pega Cloud ACV when clients decide to move to Pega Cloud. I would comment that Pega GenAI Blueprint is engaged in every one of our sales campaigns now and has been a significant driver for business activity in Q2. If you just look at the total ACV growth that we have, it’s really quite an amazing quarter. The strongest Q2 we’ve ever had. I think Pega Cloud is the skew that tends to be where that business goes when it comes off a Pega GenAI Blueprint.

Alan Trefler, Founder and CEO, Pegasystems: So.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Although there always will be some migrations here and there, the majority of our business is coming from expansion with clients, and Blueprint is central to that.

Alan Trefler, Founder and CEO, Pegasystems: Okay, perfect. That’s really helpful. On term, obviously you had good renewals. Q1 looks like Q2 looks good as well. Can you.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Is that like kind of?

Alan Trefler, Founder and CEO, Pegasystems: Was that like, if you think about the shape of the year, was that like this year the core renewals were kind of more first half focused, or how do I think about the rest of the year there? Thank you. Congrats from me.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: No, I think that Q1 definitely had a higher renewal cycle in the first quarter. I think that Q2 was not anything unusual, and I don’t think that you’re going to see a lot of anomalies through Q3 and Q4. Q1 just happened to be a bigger quarter.

Alan Trefler, Founder and CEO, Pegasystems: Okay, perfect. Thank you.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Yep.

Krista, Conference Operator: Your next question comes from the line of Steve Enders with Citigroup. Please go ahead.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Okay, great. Thanks for taking the questions this morning. I just want to start asking on what you are seeing in the deal environment. I mean, the numbers kind of speak for themselves, but yeah.

Alan Trefler, Founder and CEO, Pegasystems: What do you.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: What are customers focused on? I think we keep hearing questions on like Doge impact and tariffs, and it doesn’t look like you’re seeing anything there. What impact have you seen, or how does that kind of discussion play out with the customers that you’re having right now from those factors?

Alan Trefler, Founder and CEO, Pegasystems: Look, there is a level of anxiety in some customers because let’s face it, the world has a little bit of unpredictability to it and we have all that same visibility. We don’t have anything specific around tariffs to this point that have affected us or have unreasonably affected our clients. Happily, we’re not in the parts of the government where Doge has really targeted in terms of closing down. We feel that we need to be alert to what’s going to change. Things are changing all the time, but we’re not seeing anything that I would describe as a real headwind.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: We are seeing, I think one trend we are seeing, Steve, is that with generative AI being central to every company’s strategy to figure out how you can adopt it and where the value is, it is driving the legacy modernization discussion at a very accelerated pace, more than we’ve seen in years in terms of clients really looking at not just leveraging generative AI, but how do I modernize my applications, how do I get to the cloud so I can leverage all of this new technology? That definitely is a trend that has accelerated. Okay, gotcha. That’s helpful. Just on the ACV strength here, does that change maybe how you would think about the pace of ACV through the year or maybe, you know, how you think about the numbers exiting the year?

I guess, what was the impact of FX quarter over quarter on the ACV number in the NQ? The question, the first part of your question was how do we view the ACV trend through the year given the very, very strong start in the first half of the year? I think, look, when you have a start like we have, you want to keep that momentum going. We’re not viewing the fact that we did really well in the first half as being a substitute for how we perform in the second half. We want to take this momentum and continue to drive accelerated growth and achieve what we can achieve for the year. We’re not, certainly not, viewing it as, like, oh, great, we’re further along, so we can take our foot off the pedal in the back half of the year.

In terms of currency, the dollar has weakened and we have a currency headwind, so to speak, on growth. It’s been about 2% in each of the quarters. It’s kind of been about a consistent currency tailwind for the first two quarters.

Alan Trefler, Founder and CEO, Pegasystems: Okay.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: All right, thanks for, that’s helpful. Thanks for taking the questions. Thanks, Steve.

Krista, Conference Operator: Your next question comes from the line of Jake Roberge with William Blair. Please go ahead.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Yeah, thanks for taking the questions. Really impressive growth in that new ACV. If you had to parse out the growth acceleration between Blueprint opening up new deals, I know you talked about rising interest in digital transformation, so obviously that bumps up Pega Cloud migrations or maybe just broader AI tailwinds. What would you point us to as maybe the one or two largest factors driving that acceleration?

Alan Trefler, Founder and CEO, Pegasystems: The idea of legacy transformation is really mostly not starting with Pega as the system you’re transforming. You’re typically transforming. You know, somebody’s got, it’s not uncommon for somebody to have like three or four or five onboarding systems or systems that do some business functions. First, they really don’t like any of them, and two, they’d like to fold them all together. With Blueprint, which is really cool, you can put the documentation of all of them in and the AI will propose how to do it right and how to do it better, and then give you a canvas on which to collaborate. The collaboration part of this is super important. If you try it out, I think it will become clear. I think legacy transformation is really, you know, 98% of it is things that didn’t start on Pega being transformed, but things that were there existing.

COBOL or your, God forbid, Lotus Notes or ADABAS or there’s a lot of old stuff out there that just can’t move to the cloud. Organizations now are both actors and being able to clean that up, there’s a lot of interest in that. Blueprint feathers into that perfectly. Blueprint isn’t limited to legacy transformation, but the fact that it feeds on it and that it can incorporate things like AWS Transform, which does code analysis, but it doesn’t just depend on code analysis. I think code analysis is inherently limited in terms of what it does for transformation, because all you’re doing is replicating the sense of past. What it lets you do is take that analysis and use it for data structures and other types of things, but then really augment it with, hey, how do we want to do this business function?

If I put in the best practices, how do I actually get the system to recommend and to do it in a way that will be conversational and agentic, as well as through traditional ways? I think transformation writ large is going to be a really important avenue for our growth in the next two or three years, and Blueprint is right at the heart of it.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Jake, one additional piece of information that kind of goes maybe under the covers of one of your questions, we are seeing momentum around engaging with both existing and new clients on new workflows. When I say new workflows, remember what Alan said, new to Pega, they could be something that the client has done for decades on another provider, but they are new to Pega. That is where Blueprint really helps us break in. You can see the momentum in the new activity. That’s very exciting because that’s not just increasing the volume of an existing solution that Pegasystems has or migrating to Pega Cloud. We’re seeing opportunities to put new solutions for both our existing clients and new divisions of existing clients and new logos. There’s a noticeable change in that happening through the first half of the year. Okay, that’s helpful.

Just on that new logo topic, I know you’ve been investing more in that motion over the past few quarters just given the success with Blueprint. Can you talk about how that push has gone thus far and if there have been any learnings for that motion as you’ve started to invest more in it? Let me clarify one thing and then I’ll kick to Alan on the learnings. I think we have to think about new logos, but we have to think about new work, new workflows because our clients have massive divisions and locations around the world of their business. They’re not clients of ours right now. To us that is a new logo as well. We don’t characterize them as new logos in how we talk to investors, but it is a brand new opportunity, a new engagement.

I just want to be clear that that is a really important opportunity for us as well, as well as brand new companies. Alan, kind of observations or learnings around as we try to go deeper into our existing and new logos with the.

Alan Trefler, Founder and CEO, Pegasystems: Yeah, I think the interesting development there, which is a little hard to predict exactly how it’s going to go, but I think it’s going to go quite well, is what this movement to create these partner branded Blueprints is going to do. In terms of opening up Pega to be way more visible to our partners’ customers, what we’re really seeking to do between now and the end of the year as we continue to enhance this and work with our partners on it, is to have Pega become a tool not just for a partner to sell Pega, but for a partner to basically sell what they themselves are doing. There are a lot of consulting firms who are under a lot of pressure these days and need to be able to make better pitches to customers.

If you’ve seen a pitch made on the back of Blueprint, it’s pretty amazing. The customer can see and touch and feel something that otherwise they can’t. If we can be successful at getting our partners to really understand how this can help their business outside of Pega and how we can continue to enhance it to make that possible, I think that just opens up the amazingly large stream of prospects that are customers of our partners but are not customers of ours. That, candidly, is going to be the trick from our point of view for the upcoming 6 to 12 months. Very helpful.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Congrats again on the great results. Thanks, Jake.

Krista, Conference Operator: Your next question comes from the line of Devin Oh with KeyBanc Capital Markets, please go ahead.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Hey, good morning. Thanks for taking my questions. I know you’ve kind of responded to this question. Steve’s question on macro seems like there’s nothing too material to point out, but I want to drill down on public sector. Just given how topical of a subject that is and especially after I think SAP kind of calling out deal elongation in the U.S. public sector. Have you seen any similar elongation within public sector business? Just curious how your conversation has been with your customers in that specific market.

Alan Trefler, Founder and CEO, Pegasystems: Interestingly, I’m going down to D.C. tomorrow and Friday. We are engaged. I think that some projects got reshuffled and put on hold. I think there’s some services implications. You know, services is obviously not the most critical part of our business here as well. As I said, I think it’s going to vary a lot by company here. As businesses are looking to become more efficient and as the government wants to become more efficient, that’s got to be good for us. I mean, my view is that.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Being.

Alan Trefler, Founder and CEO, Pegasystems: Able to engage with the government around streamlining workflows, being able to make things more efficient, those are all things that play to our strength and our history. There is unquestionably going to be disruptions in that space. This is something that I think directionally should be a tailwind.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: I mean the public sector certainly in the U.S. has been very vocal around get to the cloud, digitally transform and ingest AI into their infrastructure and leverage it. You may have seen our announcement of having FedRAMP High, we’re perfectly positioned. I mean that is our value proposition.

Alan Trefler, Founder and CEO, Pegasystems: Yeah, I think you should take these comments being primarily about the U.S. Just to clarify on what Ken pointed out, our work with governments globally has been strong and continues to be strong, and year to date has been incredibly strong. We announced the major win in the U.K. where we were selected to do the recruitment system for the military, the U.K. Army, and we already do the Air Force and the Navy. This is a revolutionary system for them which is going to do all of their recruitment in a set of integrated, very sophisticated workflows. We’re seeing those types of interests in other governments as well as some of these companies. Some of these governments spend more on defense. I expect we’ll see more things like that that could be opportunities.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Got it. Super helpful context. Just a quick follow up and just want to ask about the ACV strength in the quarter. Curious if any deals might have shifted one way or the other. The multiple strategic wins that you have won in the quarter, have you seen sell cycle shorten and your ability to push the deals to close to finish meaningfully early as a result of Blueprint versus your initial plan.

Alan Trefler, Founder and CEO, Pegasystems: I think Blueprint does a couple of things for us. One, when customers see it, we get the often unspoken feedback with the clear feedback. Oh, I now understand how I can apply AI in my business in a safe and predictable way. That’s something I haven’t really seen before. This way we get a lot of people saying, huh, this is new and interesting. I think that helps us as a brand. That just helps the company in terms of being more of the sort of player that they know they can rely on in this AI world. I think that the part of the sales cycle the Blueprint will help the most with is the front end part of the sales cycle even more than the back end. We are seeing evidence of that.

We are seeing it to be way easier to get in front of a customer and show them something. You know what happens now is that routinely happens in a first meeting with a customer where you can show them something customer specific. We never ever or very rarely would you do that. You sometimes have to wait to a fourth meeting or a fifth meeting to be able to put together a custom demo for a customer to get them to really kind of understand what Pegasystems does now. I think it’s really helping customers understand Pegasystems way sooner.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: There were no pull ins from future quarters. I mean, that always happens in any business, but there was nothing unusual in the first half of the year that would say, oh, that’s the reason why the quarter was strong, because we pulled some deal in from the future. Great, thanks for taking my questions.

Krista, Conference Operator: Your next question comes from the line of Patrick Walravens from Citizens Bank. Please go ahead.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Oh, great.

Alan Trefler, Founder and CEO, Pegasystems: Thank you.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Congratulations you guys on the quarter. Alan, I want to go big picture with you if that’s okay. I hosted a fireside chat last week with the former head of AI for Salesforce and he made this comment which I think probably also applies to Pegasystems, but I’d love to hear your thoughts on it. Here’s what he said. He said, I do think in general a lot of the big SaaS players do have a massive advantage. They have the data.

Alan Trefler, Founder and CEO, Pegasystems: What are your thoughts on that? Look, Salesforce wants to become the owner of all the customers’ data. I think that there’s going to be a lot of resistance to that in many organizations. I think customers think they should own their own data. I think the emergence of cloud-native databases, you look at things like the Databricks and the Snowflakes and others, they want all the data. There’s a lot of hunger for data. In reality, I think what really makes a difference is process. The data is helpful. When we do our boot practice, you may have seen, I believe you’ve done one, Patrick. We actually grind through our best practices, now a partner’s best practices. We go out to the Internet and we pull in all the data on the Internet on how to do those types of processes.

We reconcile them, we don’t trust any of them. We grind it together and we show it to say, hey, is this really what we want to do? That is a process that will operate on the transactional data that you want to do when you’re actually trying to do something. That is enormously central to the whole way that businesses run and the whole idea of legacy transformation. I think there are a lot of companies, Salesforce is one of them, that have really moved a lot into what I would describe as the analytical space. To be honest, that’s a space where we expect to partner with organizations and we expect our customers. We don’t provide the analytical framework that you might get from some of the other companies out there. We don’t want them.

We want to be the process engine and the workflow engine that revolutionizes the way these businesses operate and that goes out in real time, which is what Pega GenAI Blueprint does, and gets the data, it gets additional information, which is what the system does. I think there are a lot of people who talk a lot about data. I’m happy to say we’ve got a different bet and it’s the bet we’ve done for 40 years. I’m pretty sure it’s going to work well.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: A quick follow up. I was at PegaWorld in the audience when you did Pega Agentic Process Fabric, and you guys said, I think, that’s going to be generally available in Q3 2025.

Alan Trefler, Founder and CEO, Pegasystems: Yeah, that’s where we’re hoping to have that out around Labor Day.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Okay, perfect. Thank you.

Krista, Conference Operator: Your next question comes from the line of Alexei Gogolev with JP Morgan. Please go ahead.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Hello everyone. I appreciate you letting me ask a question. This is my first earnings call with Pegasystems. Great to speak to Alan, Ken, and Peter. Alan, could I follow up on the previous call question? Can you talk about the booking momentum and demand trends after Pega Cloud conference?

Alan Trefler, Founder and CEO, Pegasystems: Yeah. Welcome, Alexi. The PEG conference was really, really exciting. The customers were tremendously engaged and enthused. There was a huge amount of interest and there has been great follow up across the board. You know what that means is that our pipeline is nicely increasing. You would expect coming off of a conference like that, it would be good. We had a lot of stuff to show, which you can check out a video and you can see, and some of which is in market like the Blueprint changes we’ve been putting in, some of which is imminent. You can see what’s coming like the Pega Agentic Process Fabric that I just mentioned. We have a lot of interest from clients coming off of that and that doesn’t turn really into business so much necessarily this year as in future years.

It’s great to be able to see that sort of swell, I would say.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Thank you. Alan and Ken, if I could ask about your guidance, it feels that the margin expansion outlook is somewhat conservative. Are there any factors we should keep in mind that could limit margin expansion this year? That’s a great question and certainly I don’t want to lean in too much to our guidance. We don’t re-guide and welcome, Alexei, by the way. We don’t re-guide. We don’t, you know, we did adjust something in the in PegaWorld, but it’s very rare. We just, you know, we try to execute and naturally we aim to beat any of the numbers that we talk about every year. With the margin expansion, on the cost management side, I think there is zero risk. We execute. We’re executing incredibly well with a level of discipline that we’ve honestly never had in the history of the firm.

We are very dependent on growth naturally. We want to keep the growth trajectory. If we grow faster, that will yield increased cash flow. There is naturally an obvious connection there between us generating ACV growth to be able to achieve free cash flow growth. Maybe that’s an obvious statement, but there’s nothing in the execution of the kind of business other than our booking and billing that I’m worried about. Thank you, Ken. Appreciate it.

Alan Trefler, Founder and CEO, Pegasystems: Great to speak to you both.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: All the best. See you, Lexi.

Krista, Conference Operator: Your next question comes from the line of Mark Chappelle with Loop Capital Markets. Please go ahead.

Alan Trefler, Founder and CEO, Pegasystems: Hey guys, thanks for taking my question here, and nice job on the quarter.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Alan, question for you.

Alan Trefler, Founder and CEO, Pegasystems: I appreciated your commentary around Blueprint and your preparation. If you could just talk about who Blueprint is often competing with. Is it, for instance, internal development initiatives at customer sites or are you running.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Up against other software vendors?

Alan Trefler, Founder and CEO, Pegasystems: If it’s other software companies, which ones would they be? Yeah, you know, Blueprint really doesn’t have a direct competitor in the market as we see it. The competition, there’s always competition. The competition is other ways of doing things. The types of competition you’d see would be companies like Salesforce or ServiceNow that come in more with, say, hey, we’ve got this great app, we’ve got this great platform. Blueprint basically says, hey, look, we’re going to take this platform we have, but it’s going to be yours. That, to my mind, is a really different message. Of course there’s competition out there and it’s the usual. I would say Salesforce and ServiceNow would be competitors. We work with both of them as customers too. It’s not an all or nothing world out there.

I would say those would be meaningful, significant, you know, people going into Microsoft writing code and Power Apps and other types of things. Once again, the systems that we really, I think, can uniquely do aren’t something you could easily write in a Power App. Certainly not in this agentic world. I think this whole move towards agents, and if you really understand what we’re doing with the agent architecture and how that fits with our center-out architecture, the fact that if you want an agent, you don’t create some big fat prompt for two pages of text, you just create the workflow. We figure out, Blueprint figures out, we figure out how to turn that workflow into an agent that executes what that workflow does. I think that’s a pretty exciting thing for some customers. Great, thank you.

As a follow up regarding the recent strategic collaboration agreement with AWS, is it fair to assume that we could see similar partnerships in the future with some of the other hyperscalers?

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Yes, I think it’s more than fair to assume. I would say look forward to sharing those with you.

Alan Trefler, Founder and CEO, Pegasystems: Thank you.

Krista, Conference Operator: Your next question comes from the line of Maximilian Persico with RBC. Please go ahead.

Alan Trefler, Founder and CEO, Pegasystems: Great.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Good morning everybody and thanks for taking the question on the partner branded Pega GenAI Blueprint, that seems like it could be a really meaningful opportunity. The question is, do you disclose roughly the mix of the business that currently goes through the channel versus direct, and then two parts? How is that recently, and how do you expect that mix to trend over time with some of the newer channel investments that you’ve made?

Alan Trefler, Founder and CEO, Pegasystems: At this point, a partner doing a partner branded Blueprint is not reselling Pega. We’ll be on the AWS marketplace, GCP marketplace. The customer will be able to buy. We’re really just facilitating that partner. That partner gets to charge for their own IP and for their own work. That’s how they have a business interest in doing it in terms of the way we do. We don’t really have a meaningful channel business in the way that I think you’re asking. That’s pretty consistent. We’ve been really historically focused on the high end. It’s really been consistent with the way those customers want to buy. Those customers unquestionably want a direct relationship with us, so they could really engage. Who knows what might happen in future years. This is still all emerging though. It’s really, really exciting.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: We sometimes paper transactions through partners. They might be the prime, we might be the sub, we might partner. That happens. To Alan’s point, we don’t have a channel. Like, we don’t actually have a channel in the traditional sense that you’re asking, which is we hand someone product and they go sell it on their own. This is really the first entry point for us using Blueprint into that arena. Any opportunity we have here is all new, is all incremental. Okay, very helpful. Just one follow up, just to double click on the macro. Has anything changed versus 90 days ago? I know like generally seems pretty stable. It doesn’t seem like anything’s being reflected in the numbers. The second quarter is pretty solid. Have you seen any change in sentiment versus like say in April or May?

Alan Trefler, Founder and CEO, Pegasystems: I think there’s a slightly lower level of anxiety. I think people are feeling calmer and a little more sanguine about, you know, the world. Inflation is not racing, you know, the world is continuing in a way that is, I think, reassuring to some customers. Nothing negative from the sentiment point of view. There’s still uncertainty about things like tariffs. I think part of it is we’re growing accustomed to living with a level of uncertainty.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Yeah, I pay close attention to this and talk to my peers and I would say generally speaking, the environment I would say is slightly better now than it was a quarter ago just because of what Alan said with, you know, like people realize we’re not, the consumer is reasonably strong. Inflation has not been, you know, it’s not reared its ugly head. Tariffs have taken probably a path of more rationality than I think people worried back in on Liberation Day. I think in general things are much more settled than they were 90 days ago.

Alan Trefler, Founder and CEO, Pegasystems: Great, thanks guys.

Krista, Conference Operator: Your next question comes from the line of Blair Abernethy with Rosenblatt Securities. Please go ahead.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Thanks for squeezing me in guys, and congrats on a very strong first half. Alan, just a quick question around some of your GenAI technology that you fielded outside of Pega GenAI Blueprint. Can you just talk a little bit about Pega GenAI Socrates and Pega GenAI Knowledge Buddy and, you know, the customer engagement blueprint? What’s sort of a take up, what are you seeing out there, and kind of where can these GenAI capabilities go to?

Alan Trefler, Founder and CEO, Pegasystems: Yeah, we’re seeing customers really liking the way that we’ve been applying AI, things like Coach. Coach is something that will kind of step in and help you finish a piece of work or tell you the right way to do things. Knowledge Buddy is a way to be able to create a repository that you can get processes and procedures. For us, by the way, Knowledge Buddy is a tremendous asset because we’re using Knowledge Buddies to hold both our and our partners’ IP. It’s a vehicle to get IP and make it operational. We’ve got dozens of these AI features, those types of things, summarization features. The way I described the Pega world is generative AI will be used through sets of features and our customers will buy some of those from us. Some of them they’ll build themselves, some of them they’ll buy from other companies.

Blueprint and the whole idea of design is a thing where I think our generative AI approach is extremely meaningful. What I see, no one else is actually able to come close.

Peter Welburn, Vice President of Corporate Development and Investor Relations, Pegasystems: Okay, great, thanks very much.

Krista, Conference Operator: That concludes our question and answer session. I will now turn the call back over to Alan Trefler, CEO, for closing comments.

Alan Trefler, Founder and CEO, Pegasystems: Thank you, Christa. I really appreciate everyone paying attention. We’re really excited about where we are and how we’re doing and the potential, I think, for this as well. It really plays well to our long history. It really builds on what we’ve been doing for a long time. We look at the advent of AI as really almost a wondrous thing. With that, thank you and look forward to talking to you all next quarter or before.

Krista, Conference Operator: This concludes today’s conference call. Thank you for your participation, and you may now disconnect.

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