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PEGASYSTEMS INC (PEGA)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $384.5M, up 9% year over year and above S&P Global consensus ($363.1M), while non-GAAP diluted EPS of $0.28 topped consensus ($0.237); GAAP diluted EPS was $0.17 . Estimates values retrieved from S&P Global.*
  • Annual Contract Value (ACV) reached $1.514B (+16% YoY; +14% constant currency), with Pega Cloud ACV up 28% YoY; backlog rose 31% YoY (27% cc), underscoring forward revenue visibility .
  • Sequentially, revenue fell versus the unusually strong Q1 (driven by heavy term-license renewals), as subscription license declined quarter-over-quarter; management emphasized normal seasonality and cautioned Q3 tends to be the softest for net new ACV add and free cash flow .
  • Strategic momentum: AWS five-year strategic collaboration agreement (SCA), FedRAMP High for GenAI solutions, and expansion of Pega Cloud hosted by Google Cloud in Saudi Arabia, supporting public sector and international growth vectors .
  • Capital allocation: ~6M shares repurchased for $251M (~85% of H1 free cash flow), signaling confidence and offsetting SBC dilution; buybacks remain opportunistic and disciplined .

What Went Well and What Went Wrong

What Went Well

  • Pega Cloud strength and ACV acceleration: “Total ACV exceed $1.5 billion… powered by Pega Cloud ACV growth of 28%” (Ken Stillwell) .
  • Blueprint as a sales catalyst: “Blueprint is engaged in every one of our sales campaigns now and has been a significant driver for business activity in Q2” (Ken Stillwell) .
  • Free cash flow execution and buybacks: H1 free cash flow reached $286.5M (+31% YoY), with ~85% allocated to repurchases (Ken Stillwell) .

What Went Wrong

  • Sequential revenue decline from Q1 to Q2 driven by subscription license mix: subscription license fell from $186.6M in Q1 to $80.0M in Q2; overall revenue declined from $475.6M to $384.5M .
  • FX headwinds: “The dollar has weakened and we have a currency headwind… about 2 percentage points in each of the quarters” (Ken Stillwell) .
  • Maintenance revenue softness YoY in Q2 (down 1% YoY) highlights ongoing transition dynamics .

Financial Results

Revenue and EPS vs Prior Periods and Estimates

MetricQ2 2024Q1 2025Q2 2025Q2 2025 ConsensusVariance vs Consensus
Revenue ($USD Millions)$351.2 $475.6 $384.5 $363.1*+$21.4 (+5.9%)*
Diluted EPS (GAAP) ($)$0.04 $0.91 $0.17 N/AN/A
Diluted EPS (Non-GAAP) ($)$0.26 $1.53 $0.28 $0.237*+$0.043 (+18.1%)*

Notes: Values retrieved from S&P Global for consensus.* Prior periods EPS are recast for the June 20, 2025 two-for-one stock split .

Segment Revenue Breakdown (Q2 2025 vs Q2 2024)

Segment ($USD Thousands)Q2 2024Q2 2025YoY Change
Pega Cloud$134,086 $166,743 +$32,657 (+24%)
Maintenance$80,344 $79,271 -$1,073 (-1%)
Subscription Services$214,430 $246,014 +$31,584 (+15%)
Subscription License$84,647 $79,963 -$4,684 (-6%)
Consulting$52,040 $57,824 +$5,784 (+11%)
Perpetual License$36 $711 +$675 (+1875%)
Total Revenue$351,153 $384,512 +$33,359 (+9%)

KPIs and Cash Flow

KPIQ2 2024Q2 2025YoY Change
ACV ($USD Millions)$1,305 $1,514 +16%
ACV (Constant Currency) ($USD Millions)$1,305 $1,482 +14%
Pega Cloud ACV ($USD Thousands)$593,752 $761,051 +28% (25% cc)
Backlog (Remaining Performance Obligations) ($USD Millions)$1,406 $1,835 +31% (27% cc)
Cash from Operations (Six Months) ($USD Thousands)$220,243 $290,496 +32%
Free Cash Flow (Six Months) ($USD Thousands)$218,386 $286,481 +31%

Margins (S&P Global)

Margin (%)Q4 2024Q1 2025Q2 2025
Gross Profit Margin %79.15%*78.46%*71.50%*
EBIT Margin %29.39%*26.70%*4.48%*
Net Income Margin %24.26%*17.96%*7.82%*

Notes: Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious Guidance (Feb 12, 2025)Current (Q2)Change
ACV GrowthFY 202512% Management does not re-guide; executing to plan Maintained
Revenue (GAAP/Non-GAAP)FY 2025~$1.6B (GAAP & Non-GAAP) No update; focus on execution Maintained
Diluted EPS (GAAP)FY 2025$1.60 No update; aim to beat annual numbers Maintained
Diluted EPS (Non-GAAP)FY 2025$3.10 No update; aim to beat annual numbers Maintained
Cash from OperationsFY 2025$455M No update Maintained
Free Cash FlowFY 2025$440M No update Maintained
Tax Payments (Supplemental)FY 2025~$50M (tax payments) No update Maintained
Seasonality – Term LicenseQ3 2025Not explicitly guidedTerm license revenue typically lowest in Q3 (modeling caution) Reminder
Seasonality – Net New ACV & FCFQ3 2025Not explicitly guidedQ3 historically soft for net new ACV add and FCF Reminder

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
AI/Blueprint strategyRule-of-40 execution; product innovation and guidance framework “Predictable AI” design-time Blueprint differentiation; >1,000 orgs building blueprints; partner-branded blueprints with Accenture, Capgemini, Cognizant, EY, Infosys, TCS, Virtusa Accelerating adoption and ecosystem engagement
Legacy modernizationMomentum building in Q1; ACV growth supported by subscription model GenAI Blueprint + AWS Transform to ingest legacy assets; rapid modernization demos; strong client interest Intensifying demand
Public sectorFedRAMP High progressing (earlier in 2025)FedRAMP High for GenAI solutions; strong global government wins (UK Army recruitment) Strengthening public sector positioning
Macro/tariffs/FXGuidance set despite macro uncertainty FX headwind ~2 pts; macro sentiment slightly better; tariffs stable; government re-shuffle effects limited Cautiously constructive
Capital allocationFY guidance included strong FCF ~$251M buybacks (~6M shares), ~85% of H1 FCF; continued disciplined approach More assertive buybacks
Hyperscaler partnershipsStrategy evolvingFive-year SCA with AWS; marketplace transaction path; Pega Cloud hosted on Google Cloud in KSA Expanding distribution and regional reach

Management Commentary

  • Alan Trefler (CEO) on “Predictable AI”: “We combine the power of AI and the predictability of workflows… prompt-based agents are unsuitable for mission-critical transactions… we embrace AI where it helps at design time and control consistency at runtime” .
  • On Blueprint impact: “It makes it incredibly fast and easy… design to execution leads to faster development cycles… Vodafone… delivered a production app in under 40 hours” .
  • On partner-branded Blueprints: “Many of the world’s largest SIs… Accenture, Capgemini, Cognizant, EY, Infosys, TCS, Virtusa… sign up to develop their own branded blueprints” .
  • Ken Stillwell (COO & CFO) on ACV/FCF: “Net new ACV add increased by 60% YoY… free cash flow reached $286M in the first half… majority of Pega Cloud bookings go into backlog… creating a more predictable future revenue stream” .

Q&A Highlights

  • Pega Cloud ACV and Blueprint: Blueprint is now central in all sales campaigns; strongest Q2 ever; Pega Cloud typically captures expansion from Blueprint-driven wins .
  • Deal environment & macro: No material tariff impact; sentiment slightly improved; GenAI is accelerating legacy modernization discussions and cloud migration urgency .
  • FX headwinds: Approx. 2 percentage-point headwind to growth each quarter in H1 .
  • Seasonality: Q3 historically soft for net new ACV add and free cash flow; term license revenue tends to be lowest in Q3 (modeling caution) .
  • Channel and hyperscalers: No traditional channel; partner-branded Blueprints are incremental; anticipate similar hyperscaler partnerships beyond AWS .

Estimates Context

  • Q2 2025 beat: Revenue $384.5M vs $363.1M consensus (+5.9%); Non-GAAP diluted EPS $0.28 vs $0.237 (+18.1%). Prior quarter Q1 2025 also significantly beat ($475.6M revenue vs $357.0M; $1.53 non-GAAP EPS vs $0.248) — underscoring upside surprise cadence.*
  • Implications: With ACV/backlog growth and Blueprint-driven deal momentum, Street models may need to reflect stronger subscription services trajectory and sustained cloud mix shift, while incorporating Q3 seasonality and FX headwinds.*

Notes: Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Pega delivered a clean revenue and EPS beat in Q2, with subscription services and Pega Cloud driving topline expansion; strength in ACV and backlog points to durable forward visibility .
  • Blueprint is emerging as a differentiated sales and delivery motion, compressing early sales cycles and catalyzing “new-to-Pega” workflows; expect continued partner-led expansion via branded Blueprints .
  • Expect near-term volatility around Q3 seasonality (term license trough, fewer renewals), but medium-term momentum should benefit from hyperscaler partnerships (AWS SCA) and regulated-market wins (FedRAMP High) .
  • Buybacks are now a meaningful capital allocation lever (~85% H1 FCF), likely reducing SBC dilution and supporting per-share metrics; deployment remains opportunistic .
  • FX remains a modest growth headwind (~2 pts); models should incorporate this alongside constant-currency ACV/backlog growth .
  • YoY margin compression in Q2 (mix and FX) warrants monitoring; the Rule-of-40 discipline and subscription scale should underpin margin recovery beyond seasonal quarters .
  • Stock reaction catalyst: Continued evidence of Blueprint-led expansion, hyperscaler marketplace traction, and upside to FCF/buybacks could re-rate shares; near-term caution around Q3 seasonal softness may temper expectations .
Non-GAAP adjustments note: Q2 non-GAAP EPS of $0.28 reflects adjustments for SBC, legal fees, FX loss, and other items; non-GAAP adjustments added ~$0.11 in Q2 2025 **[1013857_0001013857-25-000209_q22025_ex-991.htm:5]**.