Sign in

    PEGASYSTEMS (PEGA)

    PEGA Q3 2024: Blueprint Drives Accelerated ACV Growth Across Regions

    Reported on Oct 24, 2024 (After Market Close)
    Pre-Earnings Price$39.98Last close (Oct 24, 2024)
    Post-Earnings Price$39.75Open (Oct 25, 2024)
    Price Change
    $-0.23(-0.58%)

    What went well

    • Blueprint Technology Driving Customer Engagement: Q&A participants highlighted that Blueprint is fundamentally transforming Pega’s selling process by enabling client-specific demos in the first meeting, which accelerates deal execution and increases overall sales momentum.
    • Accelerated and Diversified ACV Growth: Management emphasized that ACV growth is accelerating across all regions and customer segments—from new logos to legacy system migrations—demonstrating robust and diversified revenue drivers regardless of macro challenges.
    • Strengthening Partner and Ecosystem Support: The call noted strong partner enthusiasm, with over 70 Blueprints already developed by partners and deeper strategic discussions with hyperscalers, reinforcing Pega’s market positioning and future expansion potential.

    What went wrong

    • Macro uncertainty impacting client spending: Ongoing geopolitical conflicts, elections, and inflation concerns may lead clients to delay or reduce IT budgets, resulting in a muted Q4 budget flush and slower quarterly revenue growth.
    • Lagging cloud migration: While legacy transformation is a key part of the strategy, current migrations to Pega Cloud remain minimal, posing a risk if the pace of conversion does not increase as expected.
    • Overreliance on Blueprint adoption: The company’s reliance on the success of its AI-driven Blueprint to transform client engagements is critical; if client adoption or its impact on deal acceleration falls short, growth could be adversely affected.

    Q&A Summary

    1. Blueprint Impact
      Q: How is Blueprint boosting ACV and pipeline?
      A: Management explained that Blueprint is transforming early client engagements by enabling client-specific demos in initial meetings, which is accelerating ACV growth and strengthening the pipeline across regions.

    2. ACV Drivers
      Q: What’s driving global ACV acceleration?
      A: Leaders attributed accelerated ACV to balanced growth across geographies with strong new-logo wins, expanded workflows, and some early Pega Cloud migrations reinforcing overall momentum.

    3. TAM Expansion
      Q: How does GenAI Blueprint broaden market reach?
      A: Management noted that GenAI Blueprint drives legacy system replacement and cloud migration, effectively expanding the total addressable market without relying on additional product SKUs.

    4. Market Pulse
      Q: How strong is client excitement for Blueprints?
      A: Executives reported high client enthusiasm, with live, client-specific Blueprint demos becoming routine and shortening engagement cycles, thereby enhancing the near-term pipeline.

    5. Budget Flush
      Q: Will a Q4 budget flush boost results?
      A: While some in the market predict end-of-year budget spend, management remains cautious and is not counting on a significant flush due to prevailing cost-saving mandates.

    6. Maintenance Migration
      Q: How will cloud migration affect maintenance revenue?
      A: Management acknowledged that declining maintenance ACV is expected to accelerate as more customers migrate to Pega Cloud, with a steeper decline anticipated in 2025 and beyond.

    7. Competitive Edge
      Q: How do you gain an edge over Salesforce?
      A: Leaders emphasized that Pega’s unique center-out, workflow-driven architecture integrated with AI provides a comprehensive solution, offering a clear advantage over competitors that focus solely on front-end solutions.

    8. Partner Strategy
      Q: How are hyperscaler partners supporting Pega Cloud?
      A: Executives highlighted growing partner enthusiasm with stronger engagements from AWS and Google Cloud, which are jointly pursuing opportunities as Pega Cloud adoption increases.

    9. $2B Verdict
      Q: Did the verdict reversal improve sales cycles?
      A: Management welcomed the reversal of the $2 billion verdict, noting it alleviated client concerns and normalized the sales process for larger accounts.

    10. Agentic AI
      Q: What sets your agentic AI approach apart?
      A: The team stressed a managed, workflow-based strategy where AI augments clearly defined processes, ensuring reliability and compliance rather than relying on full autonomy.

    11. Product Roadmap
      Q: What’s next for Blueprint enhancements?
      A: Future plans include enhancing Blueprint’s integration with open architecture databases and leveraging process mining capabilities to further modernize legacy systems.

    12. GTM vs Demand
      Q: Is growth from GTM changes or market demand?
      A: Management attributed current momentum mainly to a focused selling transformation rather than an overall change in market fundamentals, reinforcing disciplined execution.

    13. Federal Business
      Q: How did FedRAMP impact U.S. federal business?
      A: Although achieving FedRAMP High is positive, federal deals in Q3 remained steady without a marked spike, reflecting a consistent rather than a flush-driven performance.

    14. Verticals’ Performance
      Q: Were any verticals outperforming noticeably this quarter?
      A: Leaders noted a balanced performance across all segments with no specific vertical significantly outperforming the others during Q3.

    Analyst Coverage

    Research analysts covering PEGASYSTEMS.