Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pegasystems Inc (PEGA, Financial) reported a 14% year-over-year growth in annual contract value (ACV) in constant currency, with Pega Cloud growing 26% year-over-year.
- The Pega GenAI Blueprint is significantly impacting client engagement and expanding the addressable market by helping clients modernize legacy systems.
- The company achieved record free cash flow and cash flow from operations for the first nine months of 2024, nearly doubling from the previous year.
- Pegasystems Inc (PEGA) has successfully shifted its go-to-market strategy, improving sales efficiency and effectiveness by focusing on target organizations.
- The company has seen strong engagement from partners, with over 70 Blueprints created by partners to enhance client offerings.
Negative Points
- Despite the positive momentum, Pegasystems Inc (PEGA) faces a tough comparison for Q4 due to a strong performance in the same quarter last year.
- There is still nervousness in the market due to geopolitical tensions and economic uncertainties, which may impact client decision-making.
- Maintenance and subscription revenue are expected to decline as the company transitions more clients to Pega Cloud, which could affect short-term revenue visibility.
- The competitive environment remains challenging, with major players like Salesforce also focusing on AI and automation solutions.
- The company acknowledges that the market is still noisy and clients are confused about AI, which could slow down adoption and decision-making processes.
Q & A Highlights
Q: Can you discuss the impact of Blueprint on ACV growth and the pipeline for Q4 and into 2025?
A: Alan Trefler, CEO, explained that Blueprint has significantly enhanced client engagement, leading to increased ACV growth. It has changed how clients perceive Pega, making them more likely to continue growing with the company. Blueprint's pervasive influence makes it difficult to isolate its specific impact, but it has generally lifted all aspects of the business.
Q: What is driving the ACV acceleration, and does it change your view on the 11% annual ACV growth guide?
A: Kenneth Stillwell, CFO, noted that ACV growth is accelerating across all regions and is driven by new logos, new workloads, and existing client expansions. The growth is not limited to a specific vertical or geography. While the company is confident about finishing the year strong, they are not in the habit of revising guidance mid-year.
Q: How is GenAI Blueprint expanding your total addressable market (TAM), and are there plans to increase go-to-market capacity?
A: Alan Trefler highlighted that Blueprint allows Pega to target legacy systems that clients want to replace, especially those that cannot move to the cloud. While there is potential for increased investment, the company is cautious about expanding too quickly, preferring to focus on strategic growth.
Q: Can you elaborate on Pega's approach to agentic AI and how it differentiates from competitors like Salesforce?
A: Alan Trefler emphasized that Pega's approach involves defining business processes and using AI to enhance them, rather than relying solely on language models. This managed approach ensures reliability and governance, setting Pega apart from competitors who may focus more on language models.
Q: What is the outlook for Q4, and is there potential for a budget flush?
A: Kenneth Stillwell mentioned that while there are articles suggesting a potential budget flush, Pega does not rely on such occurrences for its business strategy. The company focuses on maintaining a healthy pipeline and strong client engagement, regardless of external budgetary factors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
