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PEGASYSTEMS INC (PEGA)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $490.8M (+3% y/y), GAAP diluted EPS $1.25 (-22% y/y), with operating income of $143.0M; full-year operating cash flow reached $345.9M and free cash flow $338.2M, both record highs .
  • ACV grew 9% y/y (+11% ccy) to $1.372B; Pega Cloud ACV rose 18% y/y (+21% ccy), underscoring continued shift to cloud .
  • 2025 guidance: ACV +12%, revenue ~$1.6B (GAAP/non-GAAP), GAAP EPS $1.60, non-GAAP EPS $3.10, operating cash flow $455M, free cash flow $440M .
  • Catalysts: launch of Pega Agent Experience (agentic orchestration) and Board approval of a 2-for-1 stock split (subject to shareholder vote), plus UK Armed Forces win increase strategic visibility; FX headwinds cited as a 2025 cloud revenue drag .

What Went Well and What Went Wrong

What Went Well

  • ACV and Cloud momentum: “ACV growth…increased 11% y/y in constant currency,” driven by Pega Cloud ACV +21% ccy; free cash flow +68% y/y to $338M and cash/investments at $740M to fund the March convertible payoff .
  • Product innovation and sales motion: CEO highlighted Blueprint transforming client engagement; “we now do the demo…specific to the client in the first meeting,” accelerating cycles and efficiency .
  • Agentic AI positioning: launch of Pega Agent Experience to orchestrate reliable, auditable AI agents through trusted workflows—differentiated center‑out architecture .

What Went Wrong

  • EPS compression and FX headwinds: Q4 GAAP EPS fell to $1.25 (-22% y/y), non‑GAAP EPS $1.61 (-9% y/y); CFO flagged a ~$25M FX headwind impacting Q4 Pega Cloud backlog growth and 2025 cloud revenue translation .
  • Maintenance decline and term license pressure: maintenance ACV fell as migrations proceed; term may grow more “subdued” or decline y/y as cloud mix rises .
  • Q4 ACV optics: analyst noted “lightest 4Q since 2018,” with management attributing optics primarily to a “pretty massive” currency impact (~$40M) even as underlying activity was balanced through the year .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total revenue ($USD thousands)$351,153 $325,050 $490,830
Net income (GAAP, $USD thousands)$6,613 $(14,390) $119,090
Diluted EPS (GAAP, $USD)$0.07 $(0.17) $1.25
Diluted EPS (Non-GAAP, $USD)$0.52 $0.39 $1.61
Gross profit ($USD thousands)$254,207 $228,344 $388,475
Income from operations ($USD thousands)$12,966 $(11,661) $142,989
Segment Revenue Mix ($USD thousands)Q2 2024Q3 2024Q4 2024
Pega Cloud$134,086 $144,108 $149,638
Maintenance$80,344 $80,702 $81,257
Subscription services$214,430 $224,810 $230,895
Subscription license$84,647 $45,420 $204,697
Consulting$52,040 $54,364 $52,822
Perpetual license$36 $456 $2,416
Subscription total$299,077 $270,230 $435,592
Total revenue$351,153 $325,050 $490,830
KPIsQ2 2024 (as of Jun 30)Q3 2024 (as of Sep 30)Q4 2024 (as of Dec 31)
Total ACV ($USD thousands)$1,305,309 $1,360,005 $1,371,518
Pega Cloud ACV ($USD thousands)$593,752 $640,574 $652,443
Maintenance ACV ($USD thousands)$310,608 $306,753 $291,807
Subscription services ACV ($USD thousands)$904,360 $947,327 $944,250
Subscription license ACV ($USD thousands)$400,949 $412,678 $427,268
Backlog (Remaining Performance Obligations, $USD thousands)$1,406,249 $1,475,283 $1,623,492

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
ACV growth (%)FY 2025N/A12% Introduced
Revenue ($USD)FY 2025N/A~$1.6B (GAAP & Non‑GAAP) Introduced
GAAP diluted EPS ($)FY 2025N/A$1.60 Introduced
Non-GAAP diluted EPS ($)FY 2025N/A$3.10 Introduced
Cash from operations ($USD millions)FY 2025N/A$455 Introduced
Free cash flow ($USD millions)FY 2025N/A$440 Introduced
Quarterly cash dividend ($/share)Q1 2025$0.03$0.03 (maintained) Maintained
Stock split2025N/ABoard approved 2-for-1, subject to shareholder vote Announced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
AI/technology initiativesBlueprint driving tens of thousands of designs; suite-wide GenAI features; FedRAMP High in-process Blueprint central to engagement; BOAT trend; strong client excitement Launch of Pega Agent Experience; Blueprint accelerates legacy transformation; agentic orchestration differentiation Strengthening
Go-to-market efficiencyTarget org model, reduced S&M, positive cash flow; cloud-first selling Balanced ACV across regions/verticals; less dependency on “whales” Blueprint-first demos in first meeting; expanding selective coverage for net new logos Improving
Pega Cloud margins78% non-GAAP gross margin, targeting higher with scale Continued expansion; backlog >$1B Expect margins “largely flat” in 2025 due to migration investments Near-term plateau
Legacy transformationImport BPMN; accelerate “rethink & replace” workflows Legacy replacement opportunity highlighted; hyperscaler interest Blueprint importing APIs/data models; broadened opportunity and industry use cases Expanding
Currency/macroSeasonality commentary; cash flow modeling Mixed macro backdrop; clients committed to DX ~$25M FX headwind to cloud backlog growth translating to 2025 revenue Headwind
Public sectorFedRAMP High in-process; US federal interest Healthy but not outsized in Q3; broader public sector opportunities UK Armed Forces recruiting platform (tri-service) win Positive momentum

Management Commentary

  • CEO on Blueprint’s impact: “We now do the demo…specific to the client in the first meeting…It has completely changed our go‑to‑market motion” .
  • CEO on agentic AI: “Our new agent experience capabilities makes any workflow agentic…guide AI agents step by step…predictable and auditable” .
  • CFO on Rule of 40 and cash: “We’re a Rule of 40 company…Cash flow from operations grew 59% y/y to $346M, and free cash flow grew 68% y/y to $338M” .
  • CFO on 2025 guide: “ACV growing by 12%…free cash flow guide of $440 million, a 30% increase y/y…Pega Cloud margins to remain largely flat in 2025” .

Q&A Highlights

  • Sales coverage and net new logos: Blueprint is the “front door” enabling targeted org coverage and smaller selling teams; moving away from broad territory “fishing” to curated pursuits .
  • ACV linearity and FX: Q4 optics impacted by a “pretty massive” currency hit (~$40M) despite stronger activity vs earlier quarters; expect more traditional cadence with stronger Q1/Q4 in 2025 .
  • Cloud migration and mix: Maintenance ACV expected to decline as migrations progress; term license growth subdued and could decline; majority of growth coming from Pega Cloud .
  • Pricing uplift on migrations: Cloud migration uplift varies widely (~25–35% low end to >100% high end), client-specific depending on bundle and new purchases .
  • Monetization of Agent Experience: Baked into Infinity; monetize via work‑based consumption model vs seat licensing, aligning price with workload and usage .

Estimates Context

  • S&P Global consensus (revenue, EPS, EBITDA) for Q4 2024 and FY 2025 was unavailable due to data access limits at time of analysis; therefore, explicit beat/miss vs consensus cannot be determined. If you need this comparison, we can re‑query S&P Global and append estimate tables once access is restored.
  • Management’s 2025 guide implies continued ACV growth and higher free cash flow; FX is expected to be a headwind to reported Pega Cloud revenue translation .

Key Takeaways for Investors

  • The narrative is shifting from features to transformation: Blueprint and AgentX position Pega to orchestrate reliable agentic automation and accelerate legacy replacement—likely supporting ACV and cloud migration velocity .
  • Cloud mix and consumption model drive durable cash generation: Record free cash flow ($338M) and strong cash/investments ($740M) underpin balance sheet flexibility (convert payoff, buybacks) .
  • Watch FX translation and 2025 cloud margin plateau: Currency headwinds and migration investment keep near-term cloud margins flat, but underlying operating leverage aims to outpace ACV growth .
  • Pipeline health and targeted new logos: Management is increasing selective net-new coverage with partner alignment; Blueprint-first demos compress cycles and lower selling costs .
  • Public sector momentum: UK Armed Forces tri-service recruiting win plus FedRAMP momentum broaden government exposure and reinforce Pega’s credibility in regulated environments .
  • Corporate actions: Proposed 2-for-1 split (pending shareholder approval) could increase liquidity and broaden retail participation; dividend maintained at $0.03/share for Q1 2025 .
  • Near-term trading implications: Expect focus on FX headwind magnitude, migration pace (and any margin impact), AI commercialization proofs (AgentX adoption), and cadence of ACV adds (Q1/Q4 bias) per CFO modeling .
Notes:
- All figures are GAAP unless stated; non-GAAP reconciliations and adjustments (stock-based comp, legal fees, litigation settlement, FX, capped calls, etc.) are detailed in the Q4 press release/8‑K **[1013857_015acae4cd1f438e84812fcd42350c70_6]** **[1013857_0001013857-25-000022_q42024_ex-991.htm:4]** **[1013857_0001013857-25-000022_q42024_ex-991.htm:5]** **[1013857_0001013857-25-000022_q42024_ex-991.htm:6]**.