Operating cash flow grows to $204 million and free cash flow grows to $202 million in Q1 2025
Annual Contract Value (ACV) growth exceeds 13% year over year
Pega Cloud ACV grows 23% year over year
Backlog grows 21% year over year

Pegasystems Inc. (NASDAQ:PEGA), the Enterprise Transformation Company ™, released its financial results for the first quarter of 2025.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20250422973379/en/

Total ACV Growth and Pega Cloud ACV Growth

"Pega GenAI has dramatically transformed how we engage with our clients," said Alan Trefler, Pega founder and CEO. "Pega solutions and our approach to AI enables clients to accelerate progress in reaching their digital and legacy transformation goals."

"We accelerated ACV growth and delivered record free cash flow in Q1 2025, reflecting the benefits of the subscription model," said Pega COO & CFO Ken Stillwell. "Operating as a Rule of 40 company allows us to focus on accelerating profitable growth while thoughtfully returning capital to shareholders."

Financial and performance metrics ⁽¹⁾

¹ Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures.

Reconciliation of ACV and Constant Currency ACV

(in millions, except percentages)	March 31, 2024		March 31, 2025			1-Year Change
ACV	$	1,273	$	1,445		13	%
Impact of changes in foreign exchange rates		—		(0.7	)
Constant currency ACV	$	1,273	$	1,445		13	%
Note: Constant currency ACV is calculated by applying the March 31, 2024 foreign exchange rates to current period shown.

(Dollars in thousands, except per share amounts)	Three Months Ended March 31,
(Dollars in thousands, except per share amounts)	2025		2024			Change
Total revenue	$	475,633	$	330,147		44	%
Net income (loss) - GAAP	$	85,422	$	(12,124	)		*
Net income - non-GAAP	$	140,542	$	42,154		233	%
Diluted earnings (loss) per share - GAAP	$	0.91	$	(0.14	)		*
Diluted earnings per share - non-GAAP	$	1.53	$	0.48		219	%
* Not meaningful

(Dollars in thousands)	Three Months Ended March 31,								Change
(Dollars in thousands)	2025				2024				Change
Pega Cloud	$	151,123	32	%	$	130,902	40	%	$	20,221		15	%
Maintenance		76,368	16	%		81,001	24	%		(4,633	)	(6	)%
Subscription services		227,491	48	%		211,903	64	%		15,588		7	%
Subscription license		186,555	39	%		63,338	19	%		123,217		195	%
Subscription		414,046	87	%		275,241	83	%		138,805		50	%
Consulting		60,421	13	%		54,047	17	%		6,374		12	%
Perpetual license		1,166	—	%		859	—	%		307		36	%
Total revenue	$	475,633	100	%	$	330,147	100	%	$	145,486		44	%

Quarterly conference call

A conference call and audio-only webcast will be conducted at 8:00 a.m. EDT on Wednesday, April 23, 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 5846616, or via https://events.q4inc.com/attendee/866591284 by logging onto www.pega.com 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 April 22, 2025.

About Pegasystems

Pega is The Enterprise Transformation Company^TM 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 www.pega.com.

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 March 31,
	2025			2024
Revenue
Subscription services	$	227,491		$	211,903
Subscription license		186,555			63,338
Consulting		60,421			54,047
Perpetual license		1,166			859
Total revenue		475,633			330,147
Cost of revenue
Subscription services		38,128			35,824
Subscription license		386			643
Consulting		63,934			58,182
Perpetual license		2			9
Total cost of revenue		102,450			94,658
Gross profit		373,183			235,489
Operating expenses
Selling and marketing		138,069			127,695
Research and development		74,286			72,113
General and administrative		33,828			23,527
Litigation settlement, net of recoveries		—			32,403
Restructuring		11			163
Total operating expenses		246,194			255,901
Income (loss) from operations		126,989			(20,412	)
Foreign currency transaction (loss)		(5,325	)		(3,262	)
Interest income		5,335			5,281
Interest expense		(1,027	)		(1,752	)
(Loss) income on capped call transactions		(223	)		3,299
Other income, net		561			1,684
Income (loss) before provision for (benefit from) income taxes		126,310			(15,162	)
Provision for (benefit from) income taxes		40,888			(3,038	)
Net income (loss)	$	85,422		$	(12,124	)
Earnings (loss) per share
Basic	$	0.99		$	(0.14	)
Diluted	$	0.91		$	(0.14	)
Weighted-average number of common shares outstanding
Basic		85,902			84,266
Diluted		94,413			84,266

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

	March 31, 2025		December 31, 2024
Assets
Current assets:
Cash and cash equivalents	$	231,129	$	337,103
Marketable securities		140,607		402,870
Total cash, cash equivalents, and marketable securities		371,736		739,973
Accounts receivable, net		202,869		305,468
Unbilled receivables, net		179,093		173,085
Other current assets		92,794		115,178
Total current assets		846,492		1,333,704
Long-term unbilled receivables, net		98,251		61,407
Goodwill		81,186		81,113
Other long-term assets		296,021		292,049
Total assets	$	1,321,950	$	1,768,273
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	16,649	$	6,226
Accrued expenses		49,875		31,544
Accrued compensation and related expenses		55,919		138,042
Deferred revenue		469,298		423,910
Convertible senior notes, net		—		467,470
Other current liabilities		17,395		18,866
Total current liabilities		609,136		1,086,058
Long-term operating lease liabilities		65,117		67,647
Other long-term liabilities		36,428		29,088
Total liabilities		710,681		1,182,793
Total stockholders' equity		611,269		585,480
Total liabilities and stockholders' equity	$	1,321,950	$	1,768,273

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Three Months Ended March 31,
	2025			2024
Net income (loss)	$	85,422		$	(12,124	)
Adjustments to reconcile net income (loss) to cash provided by operating activities
Non-cash items		70,409			55,592
Change in operating assets and liabilities, net		48,397			136,678
Cash provided by operating activities		204,228			180,146
Cash provided by (used in) investing activities		261,895			(132,399	)
Cash (used in) provided by financing activities		(575,986	)		17,899
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		3,570			(2,803	)
Net (decrease) increase in cash, cash equivalents, and restricted cash		(106,293	)		62,843
Cash, cash equivalents, and restricted cash, beginning of period		341,529			232,827
Cash, cash equivalents, and restricted cash, end of period	$	235,236		$	295,670

PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES
(in thousands, except percentages and per share amounts)

	Three Months Ended March 31,
	2025			2024			Change
Net income (loss) - GAAP	$	85,422		$	(12,124	)		*
Stock-based compensation ⁽¹⁾		41,425			34,781
Restructuring		11			163
Legal fees		6,544			1,942
Litigation settlement, net of recoveries		—			32,403
Amortization of intangible assets		701			964
Interest on convertible senior notes		394			617
Capped call transactions		223			(3,299	)
Foreign currency transaction loss		5,325			3,262
Other		(751	)		(1,628	)
Income taxes ⁽²⁾		1,248			(14,927	)
Net income - non-GAAP	$	140,542		$	42,154		233	%

Diluted earnings (loss) per share - GAAP	$	0.91		$	(0.14	)		*
non-GAAP adjustments		0.62			0.62
Diluted earnings per share - non-GAAP	$	1.53		$	0.48		219	%

Diluted weighted-average number of common shares outstanding - GAAP		94,413			84,266		12	%
Capped call transactions		(2,425	)		—
Stock-based compensation		—			3,094
Diluted weighted-average number of common shares outstanding - non-GAAP		91,988			87,360		5	%
* Not meaningful

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 Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 2024 and prior filings for further 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 (the "Notes"), due March 1, 2025, in a private placement. The Notes accrued interest at an annual rate of 0.75%, paid semi-annually in arrears on March 1 and September 1. The outstanding Notes were repaid in their entirety at maturity. 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 were 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 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 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. 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 calculated by applying the if-converted method related to the Company's Notes are included in the diluted weighted-average shares outstanding. The capped call transactions were 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 Notes. 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.
- Stock-based compensation: In periods of non-GAAP income, we have included the dilutive impact of stock-based compensation in our non-GAAP weighted-average shares. In periods of GAAP loss, these shares would have been excluded from our GAAP results as they would be anti-dilutive for GAAP. We believe including the dilutive effect of stock-based compensation in our non-GAAP financial measures in periods of income is helpful to investors as this provides a useful comparison of our operational performance in different periods

(1) Stock-based compensation:

	Three Months Ended March 31,
(Dollars in thousands)	2025			2024
Cost of revenue	$	7,823		$	6,572
Selling and marketing		15,781			13,888
Research and development		8,385			7,646
General and administrative		9,436			6,675
	$	41,425		$	34,781
Income tax benefit	$	(587	)	$	(311	)

(2) Effective income tax rates:

	Three Months Ended March 31,
	2025		2024
GAAP	32	%	20	%
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.

PEGASYSTEMS INC.
RECONCILIATION OF FREE CASH FLOW ⁽¹⁾ AND OTHER METRICS
(in thousands, except percentages)

	Three Months Ended March 31,						Change
	2025			2024			Change
Cash provided by operating activities	$	204,228		$	180,146		13	%
Investment in property and equipment		(1,880	)		(604	)
Free cash flow ⁽¹⁾	$	202,348		$	179,542		13	%

Supplemental information⁽²⁾
Legal fees	$	2,413		$	2,739
Restructuring		1,184			3,347
Interest on convertible senior notes		1,754			1,884
Income taxes		4,102			8,163
	$	9,453		$	16,133

(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.

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 (the "Notes"), due March 1, 2025, in a private placement. The Notes accrued interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1. The outstanding Notes were repaid in their entirety at maturity.
Income taxes: Direct income taxes paid net of refunds received.

PEGASYSTEMS INC.

ANNUAL CONTRACT VALUE

(in thousands, except percentages)

Annual contract value ("ACV") - 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.

	March 31, 2025		March 31, 2024		Change					Constant Currency Change
Pega Cloud	$	701,311	$	570,356	$	130,955		23	%	23	%
Maintenance		298,422		313,550		(15,128	)	(5	)%	(5	)%
Subscription services		999,733		883,906		115,827		13	%	13	%
Subscription license		445,677		389,431		56,246		14	%	14	%
	$	1,445,410	$	1,273,337	$	172,073		13	%	13	%

PEGASYSTEMS INC.

BACKLOG

(in thousands, except percentages)

Remaining performance obligations ("Backlog") - Expected future revenue from existing non-cancellable contracts:

As of March 31, 2025:

	Subscription services						Subscription license			Perpetual license			Consulting			Total
	Pega Cloud			Maintenance			Subscription license			Perpetual license			Consulting			Total
1 year or less	$	572,341		$	229,180		$	33,202		$	317		$	45,320		$	880,360		50	%
1-2 years		331,572			73,500			3,718			—			2,291			411,081		24	%
2-3 years		161,259			37,779			731			—			144			199,913		12	%
Greater than 3 years		185,939			43,939			7,215			—			52			237,145		14	%
	$	1,251,111		$	384,398		$	44,866		$	317		$	47,807		$	1,728,499		100	%
% of Total		72	%		22	%		3	%		—	%		3	%		100	%
Change since March 31, 2024
	$	259,998		$	39,238		$	(2,128	)	$	(2,410	)	$	9,059		$	303,757
		26	%		11	%		(5	)%		(88	)%		23	%		21	%

As of March 31, 2024:

	Subscription services						Subscription license			Perpetual license			Consulting			Total
	Pega Cloud			Maintenance			Subscription license			Perpetual license			Consulting			Total
1 year or less	$	461,928		$	225,598		$	33,985		$	2,727		$	34,716		$	758,954		53	%
1-2 years		292,787			65,605			10,008			—			1,604			370,004		26	%
2-3 years		149,797			32,307			2,903			—			2,428			187,435		13	%
Greater than 3 years		86,601			21,650			98			—			—			108,349		8	%
	$	991,113		$	345,160		$	46,994		$	2,727		$	38,748		$	1,424,742		100	%
% of Total		70	%		24	%		3	%		—	%		3	%		100	%

PEGASYSTEMS INC.

RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG

(in millions, except percentages)

	March 31, 2024		March 31, 2025			1 Year Growth Rate
Backlog - GAAP	$	1,425	$	1,728		21	%
Impact of changes in foreign exchange rates		—		(5	)
Constant currency backlog	$	1,425	$	1,723		21	%
Note: Constant currency backlog is calculated by applying the March 31, 2024 foreign exchange rates to current period shown.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250422973379/en/

Press contact:

Lisa Pintchman

VP, Corporate Communications

lisapintchman.rogers@pega.com

617-866-6022

Twitter: @pega

Investor contact:

Peter Welburn

VP, Corporate Development & Investor Relations

PegaInvestorRelations@pega.com

617-498-8968

Pega GenAI Powers Accelerated Q1 2025 Results