PEGA Q2 2025: Blueprint Drives 60% YoY Net New ACV Growth
- Blueprint Accelerates Sales Cycle and Deal Conversion: The Q&A highlighted that integrating Blueprint into every sales campaign is enabling Pega to deliver customer-specific demos in early meetings, shortening the sales cycle and driving accelerated net new ACV growth.
- Strong Financial Discipline Driving Free Cash Flow: Executives emphasized disciplined margin expansion and robust free cash flow generation, which not only supports strategic share repurchases but also reinforces long-term sustainable growth.
- Diverse Growth Opportunities and Strategic Partnerships: The discussion pointed to strong pipeline momentum—bolstered by significant public sector wins (e.g., the UK Army recruitment system) and strategic collaborations with partners and hyperscalers—that broadens market exposure and adds incremental revenue streams.
- Reliance on Blueprint for Sales Momentum: The call emphasized that Blueprint is central to driving deal acceleration. However, heavy reliance on one technology could pose a risk if future customer adoption or integration challenges emerge, potentially slowing ACV growth in subsequent quarters.
- Seasonal Slowdown Concerns: Management noted historical softness in Q3 due to fewer renewals and lower term license revenue. This seasonal challenge suggests that strong Q2 performance may not be sustainable throughout the year.
- Exposure to Macroeconomic and Geopolitical Uncertainties: While management downplayed immediate tariff impacts, ongoing uncertainty around tariffs and broader economic sentiment could affect client engagement and delay deal cycles, posing a potential headwind.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | 9.5% | The total revenue rose by 9.5% YoY to $384.51 million, building on previous quarters where strong subscription and cloud revenue growth—boosted by large multi-year contracts and expanded client adoption—set a positive momentum. |
U.S. Revenue | 10% | A 10% increase to $208.12 million reflects robust growth in the U.S. market, likely due to a continued expansion in cloud services and consulting engagements that further reinforced gains from prior periods. |
Europe, MEA Revenue | 20.7% | The Europe, MEA region saw a significant 20.7% YoY growth to $64.42 million, driven by aggressive regional expansion and increased adoption of digital transformation initiatives, echoing earlier trends in cloud and consulting revenue increases. |
Other Americas Revenue | -7.9% | A decline of 7.9% to $19.63 million suggests a potential market slowdown or seasonal dip in the region, which contrasts with previous upward movements and may indicate shifts in regional demand dynamics. |
U.K. Revenue | 5.2% | The modest 5.2% increase to $40.63 million suggests gradual recovery and improved client engagement in the U.K. market, following earlier periods where the region experienced significant declines. |
Asia-Pacific Revenue | 6.3% | A 6.3% rise to $51.71 million points to steady growth in the Asia-Pacific region, driven by an ongoing increase in the adoption of cloud-based and digital offerings, consistent with the incremental gains observed previously. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Margin Expansion | Q3 2025 | no prior guidance [N/A] | Emphasis on disciplined cost management to support margin expansion, dependent on growth to achieve increased cash flow | no prior guidance |
Seasonal Trends | Q3 2025 | no prior guidance [N/A] | Q3 is expected to be the softest in terms of net new ACV add and free cash flow due to the timing of contract renewals | no prior guidance |
Currency Impact | Q3 2025 | no prior guidance [N/A] | Currency headwind of approximately two percentage points noted for growth in the first two quarters, which may continue to affect future periods | no prior guidance |
Capital Allocation | Q3 2025 | no prior guidance [N/A] | Potential share repurchases discussed as part of long-term capital allocation strategy | no prior guidance |
Rule 40 Targets | FY 2025 | no prior guidance [N/A] | Committed to balancing growth and profitability, aiming to accelerate growth while expanding free cash flow margins; not adjusting guidance for the year | no prior guidance |
Revenue and Free Cash Flow Seasonality | FY 2025 | no prior guidance [N/A] | Revenue and free cash flow expected to follow seasonal patterns, with stronger performance anticipated in Q1 and Q4 of 2025 | no prior guidance |
Currency Fluctuations | FY 2025 | no prior guidance [N/A] | Currency fluctuations might create noise in revenue in upcoming quarters, particularly impacting Pega Cloud revenue | no prior guidance |
Pega Cloud ACV Growth | FY 2025 | no prior guidance [N/A] | Strategic growth target for Pega Cloud ACV is set at 20% or higher | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Blueprint | In Q3 2024, Blueprint was described as transformative for sales and client engagement (e.g., enabling client‐specific demos and accelerating pipeline ). In Q4 2024, it was noted as a central element in the go‑to‑market strategy with significant improvements in efficiency ( ). In Q1 2025, executives highlighted its ubiquity, rapid client engagement, and acceleration of ACV growth ( ). | In Q2 2025, Blueprint is extensively discussed as driving accelerated sales campaign activities and expanding key vertical footprints, while also addressing conversion risks and competitive challenges ( ). | Consistent emphasis on Blueprint’s role with an even more pronounced focus on accelerating sales and mitigating conversion risks in Q2 2025. |
Financial Discipline | Q3 2024 discussions emphasized nearly doubled cash flow numbers and record free cash flow generation ( ). In Q4 2024, strong free cash flow, the Rule of 40 achievement, and margin expansion were underlined ( ). Q1 2025 featured impressive free cash flow results and strategic share repurchases ( ). | Q2 2025 continues the narrative with a strong Rule of 40 mindset and free cash flow growth—$286 million in the first half—underscoring effective margin expansion and disciplined financial management ( ). | Steady and robust financial discipline with incremental improvements in margins and free cash flow generation in Q2 2025. |
Robust ACV Growth | Q3 2024 reported ACV growth of 14% in constant currency along with explicit mention of delayed revenue conversion ( ). In Q1 2025, strong growth (e.g., a $74 million increase) was noted alongside challenges in revenue conversion lag ( ). Q4 2024 highlighted ACV growth amid currency impacts and noted guidance for future growth ( ). | Q2 2025 shows record ACV milestones (exceeding $1.5 billion and a 60% increase in net new ACV) with robust sales execution; however, the discussion does not explicitly emphasize delayed revenue conversion challenges ( ). | Continued robust growth in ACV with a reduced focus on the challenges of revenue conversion in Q2 2025. |
Macroeconomic, Currency, Geopolitical Uncertainties | Q3 2024 had minimal discussion of external uncertainties beyond noting that the market environment remained largely unchanged ( ). Q4 2024 mentioned a significant $40 million currency headwind but without broader external concerns ( ). In Q1 2025, higher geopolitical and macroeconomic uncertainty was highlighted—particularly in European markets—with mixed currency impacts noted ( ). | In Q2 2025, the sentiment shifts to clients being calmer and more optimistic, with inflation stable and currency fluctuations providing tailwinds; geopolitical factors are not seen as causing significant headwinds ( ). | Shift from uncertainty to optimism in Q2 2025 with a more stable macro environment and positive currency effects leading to improved sentiment. |
Strategic Partnerships | Q3 2024 noted significant partner engagement with over 70 Blueprints created by partners and strategic collaborations with hyperscalers like AWS and Google Cloud ( ). Q4 2024 featured strong public sector engagements (e.g., with the U.K. Armed Forces) and curated partner strategies ( ). Q1 2025 introduced new government-focused Blueprint versions and highlighted growing partner interest in Pega Gen AI Blueprint ( ). | Q2 2025 features a major five‑year collaboration with AWS, partner‑branded Blueprints, and robust public sector wins (including FedRAMP High certification and major recruitment system projects) that further diversify revenue sources ( ). | Expanded and deepened strategic partnerships and public sector engagements, marking a diversification and scaling up of collaborative revenue strategies in Q2 2025. |
Innovative AI-driven Workflows | In Q3 2024, there was discussion of agentic automation in the context of the GenAI Blueprint, while Q4 2024 explicitly introduced Pega AgentX with a focus on auditable, orchestrated AI workflows ( vs. ). In Q1 2025, the conversation centered on “agentic” workflows (designed with AI agents that challenge users and enhance processes) as a competitive differentiator ( ). | Q2 2025 does not mention AgentX explicitly; instead, the focus remains on the broader concept of innovative AI‐driven workflows integrated with Blueprint and predictable AI, without referencing the AgentX label ( ). | Reduced explicit reference to AgentX in Q2 2025, suggesting a possible integration into the broader AI-driven Blueprint narrative or a strategic shift in emphasis. |
Legacy System Migration | Q3 2024 emphasized the use of the GenAI Blueprint for replacing legacy systems and modernizing architectures, with some discussion of migrating from on‑premise setups ( ). Q4 2024 provided more detailed discussion on legacy migration—including modernizing with cloud‑native controls—and noted a decline in maintenance revenue as a side effect ( ). Q1 2025 mentioned legacy transformation via the Gen AI Blueprint without focusing on maintenance declines ( ). | In Q2 2025, there is continued discussion on leveraging Blueprint for legacy transformation and migrating outdated systems to the cloud; however, explicit mention of declining maintenance revenue is absent ( ). | Sustained focus on legacy migration opportunities with a diminished emphasis on maintenance revenue decline in Q2 2025. |
Seasonal Slowdown Concerns | Q1 2025 acknowledged seasonal revenue and free cash flow patterns—highlighting stronger performance in Q1 and Q4—and Q4 2024 briefly noted that deal timing had been adjusted for seasonality; Q3 2024 did not specifically address seasonal factors ( ). | Q2 2025 does not mention seasonal slowdown concerns, suggesting that near‑term revenue performance is being driven by other factors without apparent seasonal impediments. | Reduced focus on seasonal slowdown, possibly indicating that seasonal patterns are less concerning or are better managed in Q2 2025. |
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ACV Growth
Q: Is record ACV driven by Blueprint?
A: Management explained that Blueprint is integral to every sales initiative, driving record ACV growth with over $1,500,000,000 in total ACV, largely through customer expansion on Pega Cloud. -
Margin Outlook
Q: Any risks to margin expansion this quarter?
A: Leaders expressed strong confidence in margin expansion, attributing it to disciplined cost management and continued growth, with no significant risks identified. -
Net New ACV
Q: What’s fueling net new ACV acceleration?
A: The team highlighted that Blueprint’s early engagement in new workflows and legacy transformation is propelling a 60% year-over-year increase in net new ACV add, signaling robust pipeline momentum. -
ACV Trend/FX
Q: How will FX impact ACV trends?
A: Management noted that while the first half was very strong, they aim to carry forward this momentum in H2, with a roughly 2% currency tailwind bolstering the numbers. -
Doge/Tariff Impact
Q: Do tariffs or Doge affect customer behavior?
A: They stated that despite some customer anxiety over global uncertainty, no significant headwinds from tariffs or Doge have materialized, keeping the outlook steady. -
Blueprint Competition
Q: Who competes with Blueprint?
A: Management clarified that Blueprint faces indirect competition from providers like Salesforce, ServiceNow, and traditional coding approaches, yet its unique, model‐based design sets it apart. -
Booking Momentum
Q: How is the post-conference booking pace?
A: Following the Pega Cloud conference, there’s been strong customer engagement with an expanding pipeline, although many deals are slated to convert in future periods. -
Public Sector
Q: Any elongation in public sector deals?
A: Although some government projects have been reshuffled or delayed, the overall public sector remains promising, as evidenced by wins like the UK Army recruitment system. -
Gen AI Process
Q: Is data the main competitive advantage in Gen AI?
A: Rather than relying solely on data, management stressed that process and best practices are the real differentiators, with plans to launch a GA version of agentic process fabric around Labor Day. -
Channel Mix
Q: How do direct and partner channels compare?
A: The firm noted that while its traditional high-end clientele is served directly, the emerging partner-branded Blueprint represents an incremental, evolving channel opportunity. -
Macro Sentiment
Q: Has overall macro sentiment improved recently?
A: Executives observed that while uncertainty remains, anxiety has eased and the outlook appears slightly more settled compared to 90 days ago. -
Gen AI Adoption
Q: What’s the uptake on Gen AI tools like Coach?
A: Management reported moderate but positive adoption of tools such as Gen AI Coach and KnowledgeBuddy, which help improve workflow and consolidate best practices. -
Term Renewals
Q: Is there any seasonal shift in renewals?
A: They explained that Q1 saw a higher cycle of term renewals, while Q2 is following a normal pattern, with expectations of balanced activity moving into later quarters.
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