Latest news with #PegaCloudACV
Yahoo
24-04-2025
- Business
- Yahoo
Pegasystems Inc (PEGA) Q1 2025 Earnings Call Highlights: Strong ACV Growth and Debt-Free Milestone
Annual Contract Value (ACV): Increased by $74 million, with a growth rate of over 13% year over year. Pega Cloud ACV: Grew by 23% to $700 million. Free Cash Flow: Generated $202 million in the first quarter. Share Repurchases: Approximately $1.5 million shares repurchased for $120 million, reducing outstanding shares by nearly 550,000. Debt Status: Fully repaid remaining convertible note balances of $468 million, achieving debt-free status. Warning! GuruFocus has detected 9 Warning Signs with VIRT. Release Date: April 23, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Pegasystems Inc (NASDAQ:PEGA) reported a strong start to 2025 with an impressive increase in annual contract value (ACV) by $74 million, marking a 13% year-over-year growth. The Pega GenAI Blueprint has significantly enhanced sales processes, allowing for faster and more effective client engagement, which has contributed to the company's strong performance. Pega Cloud ACV grew by 23% to $700 million, indicating successful cross-selling and upselling strategies and a strong focus on cloud transformation. The company achieved $202 million in free cash flow in Q1, surpassing the total free cash flow generated in the entire year of 2023, demonstrating efficient cash management. Pegasystems Inc (NASDAQ:PEGA) has become debt-free after fully repaying its convertible note balances, strengthening its balance sheet and financial position. Currency fluctuations have impacted Pega Cloud revenue, creating discrepancies between ACV growth and revenue realization. There is a noted lag in converting ACV and backlog into revenue, which may affect short-term financial performance visibility. The macroeconomic environment remains uncertain, particularly in Europe, which could influence customer buying behavior and sales cycles. Despite strong ACV growth, there is concern about the variability of term license revenue due to accounting practices, which may lead to inconsistent revenue recognition. The competitive landscape is crowded with numerous vendors offering similar AI-driven solutions, making it challenging for Pegasystems Inc (NASDAQ:PEGA) to differentiate its offerings in the market. Q: Can you explain the factors behind the strong performance in term licenses and the discrepancy between Pega Cloud ACV bookings and revenue? A: Kenneth Stillwell, CFO and COO, explained that term license revenue can fluctuate due to the nature of ASC 606 accounting, which causes variability in revenue recognition. Regarding Pega Cloud, the difference between ACV bookings and revenue is due to the time it takes for ACV and backlog to convert into revenue, typically a few quarters, along with currency impacts from the previous year. Q: How are customers responding to macroeconomic uncertainties, and have you noticed any changes in buying behavior or sales cycles? A: Alan Trefler, CEO, noted that while there is increased uncertainty, particularly in Europe, customer engagement remains high. The company tends to perform well in uncertain times, and there hasn't been a significant change in customer buying behavior or sales cycles. Q: What impact has Blueprint had on deal influence and pipeline generation? A: Alan Trefler stated that Blueprint has influenced every piece of business, breaking down barriers between business and technical teams and becoming a ubiquitous tool in client engagements. It has significantly changed the business by facilitating faster and more effective communication and solution visualization. Q: How do you view the competitive landscape with many vendors claiming to offer agentic solutions, and how does Pega differentiate itself? A: Alan Trefler highlighted that Pega's approach combines language models with workflows, providing a clear advantage over competitors who rely heavily on prompt engineering. Pega's solutions offer predictability and reliability, which are crucial for enterprise-scale applications, setting them apart from other vendors. Q: What are your thoughts on the Rule of 40 targets and the balance between ACV growth and free cash flow margins? A: Kenneth Stillwell emphasized that the company aims to accelerate growth while improving operating leverage. They are optimistic about expanding both growth rates and free cash flow margins, maintaining a focus on strategic growth without compromising profitability. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. Sign in to access your portfolio
Yahoo
14-02-2025
- Business
- Yahoo
Pegasystems Inc (PEGA) Q4 2024 Earnings Call Highlights: Strong Cloud Growth and Cash Flow ...
ACV Growth: Increased 11% year-over-year in constant currency. Pega Cloud ACV Growth: Increased 21% year-over-year in constant currency. Cash Flow from Operations: Grew 59% year-over-year to $346 million. Free Cash Flow: Grew 68% year-over-year to $338 million. Cash and Investments: $740 million as of December 31, 2024. Pega Cloud Non-GAAP Gross Margins: Increased by approximately 300 basis points year-over-year to 78%. Stock Repurchase: 884,000 shares repurchased for $73.5 million in 2024. 2025 ACV Growth Guidance: Expected to grow by 12% year-over-year. 2025 Free Cash Flow Guidance: $440 million, a 30% increase year-over-year. Warning! GuruFocus has detected 5 Warning Signs with GPN. Release Date: February 13, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Pegasystems Inc (NASDAQ:PEGA) achieved a Rule of 40 status, balancing growth and profitability, which is a testament to their strategic transition to a subscription cloud business. The company reported a significant increase in cash flow from operations, growing 59% year-over-year to $346 million, and free cash flow grew 68% year-over-year to $338 million. Pega Gen AI Blueprint is driving transformative change, with new capabilities that enhance legacy transformation and create new market opportunities. Pega Cloud ACV increased by 21% year-over-year in constant currency, indicating strong growth in their cloud offerings. The company has a strong cash and investment position of $740 million, providing financial flexibility to pay off convertible debt and repurchase shares. Currency headwinds impacted Pegasystems Inc (NASDAQ:PEGA)'s financial results, with a $40 million headwind in Q4 affecting Pega Cloud backlog and revenue growth. Maintenance revenue is expected to decline as the company transitions more clients to Pega Cloud, which could impact short-term revenue streams. Pega Cloud gross margins are expected to remain flat in 2025 due to investments in cloud migrations, limiting potential margin expansion. The company faces challenges in maintaining sales efficiency while increasing investment in sales and marketing to pursue new logos. There is uncertainty in the timing of client migrations from term licenses to cloud, which could affect revenue recognition and growth projections. Q: Can you discuss the investments in increasing sales coverage and how Blueprint is being used for net new opportunities? A: Alan Trefler, CEO, explained that Blueprint has transformed their sales approach by allowing demos specific to clients in the first meeting, reducing the need for extensive sales resources. This change enhances their ability to pursue new and existing opportunities more effectively and efficiently. Kenneth Stillwell, CFO, added that they now have a more targeted approach with better organizational coverage, reducing the need for a large sales team. Q: How should we think about the Rule of 40 mindset and potential for further optimization? A: Kenneth Stillwell, CFO, emphasized that there is no endpoint to improving the business. They aim to accelerate growth while maintaining margin discipline, potentially moving beyond the Rule of 40. Alan Trefler, CEO, added that they are focusing on opening the aperture for growth while maintaining discipline and sustainability. Q: Can you provide clarity on the linearity of ACV and the deal environment? A: Kenneth Stillwell, CFO, noted that currency impact was significant in Q4, affecting optics. The year was more balanced, with activity in the middle of the year. For 2025, they expect a strong year with Q1 and Q4 showing more activity in ACV growth. Q: What are the opportunities with legacy replacement using Blueprint? A: Alan Trefler, CEO, explained that Blueprint allows clients to rethink and replace legacy systems, not just wrap them. This capability enables clients to create cloud-native databases and integrate with existing systems, opening new opportunities for legacy transformation. Q: How is Blueprint impacting application go-lives and Pega platform consumption? A: Alan Trefler, CEO, stated that Blueprint is driving faster application go-lives and increasing platform consumption. Since its introduction, there have been over 70,000 Blueprint creations, with many being genuine systems that are starting to deploy into production. Q: How should we think about the financial impact of Blueprint on ACV growth? A: Kenneth Stillwell, CFO, highlighted two impacts: faster client engagement and sales efficiency. While client engagement is already impacting bookings, sales efficiency is still being rolled out. Blueprint is expected to drive scalability and efficiency in their go-to-market model. Q: What type of price uplift is seen with customers migrating to Pega Cloud? A: Kenneth Stillwell, CFO, noted that price uplift varies, typically ranging from 25% to over 100%, depending on the customer's previous contract and additional purchases during migration. Q: How is Pega Agent Experience being monetized? A: Alan Trefler, CEO, explained that Pega Agent Experience is integrated into the Infinity experience, with monetization based on the quantum of work done by customers, rather than user licenses. This approach aligns with the agentic universe and provides flexibility for customers. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. Sign in to access your portfolio
Yahoo
12-02-2025
- Business
- Yahoo
Pega's AI Innovation Drives Strong ACV Growth and Record Cash Flow in Q4 2024
Operating cash flow grows to $346 million and free cash flow grows to $338 million in 2024 Annual Contract Value (ACV) grows 9% year over year (11% in constant currency) Pega Cloud ACV grows 18% year over year (21% in constant currency) 2025 guidance of 12% ACV growth, $455 million in cash flow from operations, and $440 million in free cash flow WALTHAM, Mass., February 12, 2025--(BUSINESS WIRE)--Pegasystems Inc. (NASDAQ: PEGA), the Enterprise Transformation Company™, released its financial results for the fourth quarter and full-year 2024. "2024 was a transformative year for Pega, the industry, and our clients," said Alan Trefler, Pega founder and CEO. "Our team's impressive performance drove the introduction of the most innovative solutions in our history. The reaction from our clients and partners has been remarkable, leading to deeper engagement and new opportunities. "We met or exceeded our financial objectives for 2024 including becoming a Rule of 40 company," said Ken Stillwell, Pega COO and CFO. "We're committed to accelerating growth and free cash flow in 2025 and beyond." Financial and performance metrics (1) Reconciliation of ACV and Constant Currency ACV (in millions, except percentages) December 31, 2023 December 31, 2024 1-Year Change ACV $ 1,255 $ 1,372 9 % Impact of changes in foreign exchange rates — 23 Constant currency ACV $ 1,255 $ 1,395 11 % Note: Constant currency ACV is calculated by applying the December 31, 2023 foreign exchange rates to all periods shown. _____________________________ 1 Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures. (Dollars in thousands, except per share amounts) Three Months Ended December 31, Year Ended December 31, 2024 2023 Change 2024 2023 Change Total revenue $ 490,830 $ 474,233 3 % $ 1,497,180 $ 1,432,616 5 % Net income - GAAP $ 119,090 $ 142,665 (17 )% $ 99,189 $ 67,808 46 % Net income - non-GAAP $ 147,953 $ 152,141 (3 )% $ 270,542 $ 210,159 29 % Diluted earnings per share - GAAP $ 1.25 $ 1.61 (22 )% $ 1.11 $ 0.73 52 % Diluted earnings per share - non-GAAP $ 1.61 $ 1.77 (9 )% $ 3.03 $ 2.48 22 % (Dollars in thousands) Three Months Ended December 31, Change Year Ended December 31, Change 2024 2023 2024 2023 Pega Cloud $ 149,638 30 % $ 120,346 25 % $ 29,292 24 % $ 558,734 37 % $ 461,328 32 % $ 97,406 21 % Maintenance 81,257 17 % 86,646 18 % (5,389 ) (6 )% 323,304 22 % 331,856 24 % (8,552 ) (3 )% Subscription services 230,895 47 % 206,992 43 % 23,903 12 % 882,038 59 % 793,184 56 % 88,854 11 % Subscription license 204,697 42 % 207,559 44 % (2,862 ) (1 )% 398,102 27 % 407,625 28 % (9,523 ) (2 )% Subscription 435,592 89 % 414,551 87 % 21,041 5 % 1,280,140 86 % 1,200,809 84 % 79,331 7 % Consulting 52,822 11 % 54,310 12 % (1,488 ) (3 )% 213,273 14 % 221,706 15 % (8,433 ) (4 )% Perpetual license 2,416 — % 5,372 1 % (2,956 ) (55 )% 3,767 — % 10,101 1 % (6,334 ) (63 )% Total revenue $ 490,830 100 % $ 474,233 100 % $ 16,597 3 % $ 1,497,180 100 % $ 1,432,616 100 % $ 64,564 5 % 2025 Guidance (1) As of February 12, 2025, we are providing the following guidance: 2025 Annual contract value growth 12% 2025 GAAP Non-GAAP (1) Revenue $1.6 Billion $1.6 Billion Diluted earnings per share $1.60 $3.10 2025 Cash provided by operating activities $455 million Free cash flow $440 million (1) A reconciliation of our GAAP and Non-GAAP guidance is contained in the financial schedules at the end of this release. Quarterly conference call A conference call and audio-only webcast will be conducted at 8:00 a.m. EST on Thursday, February 13, 2025. Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1 (800) 715-9871 (domestic) or 1 (646) 307-1963 (international) and using Conference ID 3830305, or via by logging onto at least five minutes prior to the event's broadcast and clicking on the webcast icon in the Investors section. Discussion of non-GAAP financial measures Our non-GAAP financial measures should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. Management uses these measures to assess the performance of the company's operations and establish operational goals and incentives. They are not a substitute for financial measures prepared under U.S. GAAP. Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures. Forward-looking statements Certain statements in this press release may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements. These statements represent our views only as of the date the statement was made and are based on current expectations and assumptions. Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but not limited to: our future financial performance and business plans; the adequacy of our liquidity and capital resources; the successful execution of investments in artificial intelligence; the continued payment of our quarterly dividends; the timing of revenue recognition; variation in demand for our products and services, including among clients in the public sector; reliance on key personnel; reliance on third-party service providers, including hosting providers; compliance with our debt obligations and covenants; foreign currency exchange rates; potential legal and financial liabilities, as well as damage to our reputation, due to cyber-attacks; security breaches and security flaws; our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims, and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us; our ongoing litigation with Appian Corp.; our client retention rate; and management of our growth. These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2024, and other filings we make with the U.S. Securities and Exchange Commission ("SEC"). Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results included in such statements will be achieved. Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise. Any forward-looking statements in this press release represent our views as of February 12, 2025. About Pegasystems Pega is The Enterprise Transformation Company that helps organizations Build for Change® with enterprise AI decisioning and workflow automation. Many of the world's most influential businesses rely on our platform to solve their most pressing challenges, from personalizing engagement to automating service to streamlining operations. Since 1983, we've built our scalable and flexible architecture to help enterprises meet today's customer demands while continuously transforming for tomorrow. For more information on Pega (NASDAQ: PEGA), visit All trademarks are the property of their respective owners. PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Three Months Ended December 31, Year Ended December 31, 2024 2023 2024 2023 Revenue Subscription services $ 230,895 $ 206,992 $ 882,038 $ 793,184 Subscription license 204,697 207,559 398,102 407,625 Consulting 52,822 54,310 213,273 221,706 Perpetual license 2,416 5,372 3,767 10,101 Total revenue 490,830 474,233 1,497,180 1,432,616 Cost of revenue Subscription services 40,988 34,697 149,918 144,250 Subscription license 384 635 1,888 2,606 Consulting 60,978 55,298 238,842 231,560 Perpetual license 5 16 17 67 Total cost of revenue 102,355 90,646 390,665 378,483 Gross profit 388,475 383,587 1,106,515 1,054,133 Operating expenses Selling and marketing 139,655 133,924 534,780 559,177 Research and development 76,379 71,250 298,074 295,512 General and administrative 28,207 22,850 112,848 96,743 Litigation settlement, net of recoveries — — 32,403 — Restructuring 1,245 297 4,528 21,747 Total operating expenses 245,486 228,321 982,633 973,179 Income from operations 142,989 155,266 123,882 80,954 Foreign currency transaction gain (loss) 6,318 (1,271 ) (912 ) (5,242 ) Interest income 6,944 3,428 25,779 9,259 Interest expense (1,788 ) (1,647 ) (6,835 ) (6,876 ) Gain (loss) on capped call transactions 4 (899 ) (663 ) (1,348 ) Other (loss) income, net (299 ) 25 1,385 18,693 Income before provision for income taxes 154,168 154,902 142,636 95,440 Provision for income taxes 35,078 12,237 43,447 27,632 Net income $ 119,090 $ 142,665 $ 99,189 $ 67,808 Earnings per share Basic $ 1.38 $ 1.71 $ 1.16 $ 0.82 Diluted $ 1.25 $ 1.61 $ 1.11 $ 0.73 Weighted-average number of common shares outstanding Basic 86,000 83,654 85,265 83,162 Diluted 95,636 89,447 89,634 84,914 PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) December 31, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 337,103 $ 229,902 Marketable securities 402,870 193,436 Total cash, cash equivalents, and marketable securities 739,973 423,338 Accounts receivable, net 305,468 300,173 Unbilled receivables, net 173,085 237,379 Other current assets 115,178 68,137 Total current assets 1,333,704 1,029,027 Long-term unbilled receivables, net 61,407 85,402 Goodwill 81,113 81,611 Other long-term assets 292,049 314,696 Total assets $ 1,768,273 $ 1,510,736 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 6,226 $ 11,290 Accrued expenses 31,544 39,941 Accrued compensation and related expenses 138,042 126,640 Deferred revenue 423,910 377,845 Convertible senior notes, net 467,470 — Other current liabilities 18,866 21,343 Total current liabilities 1,086,058 577,059 Long-term convertible senior notes, net — 499,368 Long-term operating lease liabilities 67,647 66,901 Other long-term liabilities 29,088 13,570 Total liabilities 1,182,793 1,156,898 Total stockholders' equity 585,480 353,838 Total liabilities and stockholders' equity $ 1,768,273 $ 1,510,736 PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 Net income $ 99,189 $ 67,808 Adjustments to reconcile net income to cash provided by operating activities Non-cash items 227,582 227,983 Change in operating assets and liabilities, net 19,155 (78,006 ) Cash provided by operating activities 345,926 217,785 Cash (used in) investing activities (202,576 ) (50,750 ) Cash (used in) financing activities (30,214 ) (81,963 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash (4,434 ) 2,701 Net increase in cash, cash equivalents, and restricted cash 108,702 87,773 Cash, cash equivalents, and restricted cash, beginning of period 232,827 145,054 Cash, cash equivalents, and restricted cash, end of period $ 341,529 $ 232,827 PEGASYSTEMS INC. RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES (in thousands, except percentages and per share amounts) Three Months Ended December 31, Year Ended December 31, 2024 2023 Change 2024 2023 Change Net income - GAAP $ 119,090 $ 142,665 (17 )% $ 99,189 $ 67,808 46 % Stock-based compensation (1) 34,500 33,269 142,718 143,352 Restructuring 1,245 297 4,528 21,747 Legal fees 4,499 2,817 18,713 13,883 Litigation settlement, net of recoveries — — 32,403 — Amortization of intangible assets 700 963 3,153 3,940 Interest on convertible senior notes 594 615 2,451 2,603 Capped call transactions (4 ) 899 663 1,348 Repurchases of convertible senior notes (459 ) — (459 ) (7,855 ) Foreign currency transaction (gain) loss (6,318 ) 1,271 912 5,242 Other 759 19 (869 ) (10,266 ) Income taxes (2) (6,653 ) (30,674 ) (32,860 ) (31,643 ) Net income - non-GAAP $ 147,953 $ 152,141 (3 )% $ 270,542 $ 210,159 29 % Diluted earnings per share - GAAP $ 1.25 $ 1.61 (22 )% $ 1.11 $ 0.73 52 % non-GAAP adjustments 0.36 0.16 1.92 1.75 Diluted earnings per share - non-GAAP $ 1.61 $ 1.77 (9 )% $ 3.03 $ 2.48 22 % Diluted weighted-average number of common shares outstanding - GAAP 95,636 89,447 7 % 89,634 84,914 6 % Capped call transactions (3,553 ) (3,719 ) (214 ) (235 ) Diluted weighted-average number of common shares outstanding - non-GAAP 92,083 85,728 7 % 89,420 84,679 6 % Our non-GAAP financial measures reflect the following adjustments: Stock-based compensation: We have excluded stock-based compensation from our non-GAAP operating expenses and profitability measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to our revenues recognized during the periods presented and is expected to contribute to our future revenues, we continue to evaluate our business performance, excluding stock-based compensation. Restructuring: We have excluded restructuring from our non-GAAP financial measures. Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as these amounts are not representative of our core business operations and ongoing operational performance. Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance. Litigation settlement, net of recoveries: Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See "Note 20. Commitments And Contingencies" in our Annual Report on Form 10-K for the year ended December 31, 2024 for additional information. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance. Amortization of intangible assets: We have excluded the amortization of intangible assets from our non-GAAP operating expenses and profitability measures. Amortization of intangible assets fluctuates in amount and frequency and is significantly affected by the timing and size of acquisitions. Investors should note that intangible assets contributed to our revenues recognized during the periods presented and are expected to contribute to future revenues. Amortization of intangible assets is likely to recur in future periods. We believe excluding these amounts provides a useful comparison of our operational performance in different periods. Interest on convertible senior notes: In February 2020, we issued convertible senior notes, due March 1, 2025, in a private placement. We believe that excluding the amortization of issuance costs provides a useful comparison of our operational performance in different periods. Capped call transactions: We have excluded gains and losses related to our capped call transactions held at fair value under U.S. GAAP. The capped call transactions are expected to reduce common stock dilution and/or offset any potential cash payments we must make, other than for principal and interest, upon conversion of the convertible senior notes. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance. Repurchases of convertible senior notes: We have excluded gains from the repurchases of Convertible Senior Notes. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance. Foreign currency transaction (gain) loss: We have excluded foreign currency transaction gains and losses from our non-GAAP profitability measures. Foreign currency transaction gains and losses fluctuate in amount and frequency and are significantly affected by foreign exchange market rates. Foreign currency transaction gains and losses are likely to recur in future periods. We believe excluding these amounts provides a useful comparison of our operational performance in different periods. Other: We have excluded gains and losses from our venture investments and expenses incurred due to the cancellation of in-person sales and marketing events. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance. Diluted weighted-average number of common shares outstanding: Capped call transactions: In periods of GAAP income, the shares that would be issued if the Company's Convertible Senior Notes were fully converted to common shares are included in the diluted weighted-average shares outstanding. The capped call transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the convertible senior notes, with such reduction and/or offset subject to a cap of $196.44. We believe that including the expected impact of the capped call transactions in our non-GAAP financial measures provides a useful comparison of our operational performance in different periods. (1) Stock-based compensation: Three Months Ended December 31, Year Ended December 31, (Dollars in thousands) 2024 2023 2024 2023 Cost of revenue $ 6,795 $ 6,497 $ 27,353 $ 28,994 Selling and marketing 13,463 14,265 55,084 57,675 Research and development 7,059 6,753 29,838 31,039 General and administrative 7,183 5,754 30,443 25,644 $ 34,500 $ 33,269 $ 142,718 $ 143,352 Income tax benefit $ (422 ) $ (618 ) $ (1,799 ) $ (2,187 ) (2) Effective income tax rates: Year Ended December 31, 2024 2023 GAAP 30 % 29 % non-GAAP 22 % 22 % Our GAAP effective income tax rate is subject to significant fluctuations due to several factors, including our stock-based compensation plans, research and development tax credits, and the valuation allowance on our deferred tax assets in the U.S. and U.K. We determine our non-GAAP income tax rate using applicable rates in taxing jurisdictions and assessing certain factors, including historical and forecasted earnings by jurisdiction, discrete items, and ability to realize tax assets. We believe it is beneficial for our management to review our non-GAAP results consistent with our annual plan's effective income tax rate as established at the beginning of each year, given tax rate volatility. See "Note 18. Income Taxes" in our Annual Report on Form 10-K for the year ended December 31, 2024 for additional information. PEGASYSTEMS INC. RECONCILIATION OF FREE CASH FLOW (1) AND OTHER METRICS (in thousands, except percentages) Year Ended December 31, Change 2024 2023 Cash provided by operating activities $ 345,926 $ 217,785 59 % Investment in property and equipment (7,712 ) (16,781 ) Free cash flow (1) $ 338,214 $ 201,004 68 % Supplemental information (2) Litigation settlement, net of recoveries $ 32,403 $ — Legal fees 16,197 14,645 Restructuring 5,252 29,401 Interest on convertible senior notes 3,810 4,134 Other — 601 Income taxes 82,317 11,664 $ 139,979 $ 60,445 (1) Our non-GAAP free cash flow is defined as cash provided by operating activities less investment in property and equipment. Investment in property and equipment fluctuates in amount and frequency and is significantly affected by the timing and size of investments in our facilities. We provide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings. This information is not a substitute for financial measures prepared under U.S. GAAP. (2) The supplemental information discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance. Litigation settlement, net of recoveries: Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See "Note 20. Commitments And Contingencies" in our Annual Report on Form 10-K for the year ended December 31, 2024 for additional information. Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business. Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities. Interest on convertible senior notes: In February 2020, we issued convertible senior notes, due March 1, 2025, in a private placement. The convertible senior notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1. Other: Fees related to canceled in-person sales and marketing events. Income taxes: Direct income taxes paid net of refunds received. PEGASYSTEMS INC. ANNUAL CONTRACT VALUE (in thousands, except percentages) Annual contract value ("ACV") - Annual Contract Value ("ACV") represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV. ACV is a performance measure that we believe provides useful information to our management and investors. December 31, 2024 December 31, 2023 Change Constant Currency Change Pega Cloud $ 652,443 $ 552,998 $ 99,445 18 % 21 % Maintenance 291,807 324,091 (32,284 ) (10 )% (8 )% Subscription services 944,250 877,089 67,161 8 % 10 % Subscription license 427,268 377,794 49,474 13 % 14 % $ 1,371,518 $ 1,254,883 $ 116,635 9 % 11 % PEGASYSTEMS INC. BACKLOG (in thousands, except percentages) Remaining performance obligations ("Backlog") - Expected future revenue from existing non-cancellable contracts: As of December 31, 2024: Subscription services Subscription license Perpetual license Consulting Total Pega Cloud Maintenance 1 year or less $ 525,133 $ 230,866 $ 88,880 $ 317 $ 50,519 $ 895,715 56 % 1-2 years 328,234 65,461 10,874 — 3,297 407,866 25 % 2-3 years 159,536 24,598 733 — 125 184,992 11 % Greater than 3 years 114,256 19,935 678 — 50 134,919 8 % $ 1,127,159 $ 340,860 $ 101,165 $ 317 $ 53,991 $ 1,623,492 100 % % of Total 70 % 21 % 6 % — % 3 % 100 % Change since December 31, 2023 $ 166,895 $ (33,694 ) $ 20,068 $ (2,410 ) $ 9,265 $ 160,124 17 % (9 )% 25 % (88 )% 21 % 11 % As of December 31, 2023: Subscription services Subscription license Perpetual license Consulting Total Pega Cloud Maintenance 1 year or less $ 446,160 $ 245,271 $ 62,070 $ 2,284 $ 39,810 $ 795,595 54 % 1-2 years 279,474 67,720 9,138 443 2,020 358,795 25 % 2-3 years 144,453 37,142 9,789 — 2,896 194,280 13 % Greater than 3 years 90,177 24,421 100 — — 114,698 8 % $ 960,264 $ 374,554 $ 81,097 $ 2,727 $ 44,726 $ 1,463,368 100 % % of Total 66 % 25 % 6 % — % 3 % 100 % PEGASYSTEMS INC. RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG (in millions, except percentages) December 31, 2023 December 31, 2024 1 Year Growth Rate Backlog - GAAP $ 1,463 $ 1,623 11 % Impact of changes in foreign exchange rates — 39 Constant currency backlog $ 1,463 $ 1,662 14 % Note: Constant currency Backlog is calculated by applying the December 31, 2023 foreign exchange rates to all periods shown. PEGASYSTEMS INC. RECONCILIATION OF FORWARD-LOOKING GUIDANCE (in millions, except percentages and per share amounts) 2025 Annual contract value growth 12 % Revenue (GAAP and Non-GAAP) $ 1,600 Net Income - GAAP $ 149 Stock-based compensation 147 Legal fees 25 Incomes taxes (32 ) Net Income - Non-GAAP $ 289 Diluted earnings per share - GAAP $ 1.60 Non-GAAP adjustments 1.50 Diluted earnings per share - non-GAAP $ 3.10 Diluted weighted-average number of common shares outstanding (GAAP and Non-GAAP) 93.1 2025 Cash provided by operating activities $ 455 Investment in property and equipment (15 ) Free cash flow $ 440 Supplemental information Legal fees $ 25 Income taxes (1) 50 $ 75 (1) Evolving U.S. tax legislation may impact the amount of tax payments. View source version on Contacts Press contact: Lisa PintchmanVP, Corporate 617-866-6022Twitter: @pega Investor contact: Peter WelburnVP, Corporate Development & Investor RelationsPegaInvestorRelations@ 617-498-8968
