Q3 2025 Pegasystems Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Pegasystems Inc. Third Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Peter Welburn, Vice President, Investor Relations and Corporate Development. Peter, please go ahead.

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator. Today, at this time, I would like to welcome you to the Pegasystems Inc. Third Quarter 2025 Earnings Conference Call.

Peter Welburn: Thanks, Krista. Good morning, everyone, and welcome to Pegasystems Q3 2025 Earnings Call. Before we begin, I would like to read our safe harbor statement. Certain statements contained in this presentation may be construed as forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words expects, anticipates, intends, plans, believes, will, could, should, estimates, may, forecast, and guidance, or variations of such words and other similar expressions identify forward-looking statements which speak only as of the date the statement was made and are based on current expectations and assumptions. Because such statements deal with future events, they're subject to various risks and uncertainties. Actual results for fiscal year 2025 and beyond could differ materially from the company's current expectations.

Alliance has been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star followed by the number 1 on your telephone keypad. And if you'd like to withdraw your question, again, press star 1. Thank you. I would now like to turn the conference over to Peter Welburn, Vice President of Investor Relations and Corporate Development. Peter, please go ahead.

Peter Welburn: Factors that could cause the company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q3 2025 results and the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2024, and other recent filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause our views to change, except as required by law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise.

Variations of such words and other similar Expressions identify 4 looking statements which speak only as of the date. The statement was made and are based on current expectations and assumptions. Because such statements deal with future events, they're subject to various risks and uncertainties actual results for fiscal year, 2025 and Beyond. Could differ materially from the company's current expectations factors that could cause the company's results to differ materially from those expressed in. Forward-looking statements are contained in the company's press release announcing its Q3 2025 results and the companies filing with the Securities and Exchange Commission, including its annual report on form. 10, K for the year ended December 31st 2024 and another recent filings with the Securities and Exchange Commission. Investors are cautioned not to place undue Reliance on such forward-looking statements and there are no assurances. That the matters contained in such segments in such statements will be achieved. Although subsequent events May cause our views to change except as required by law. We do not undertake in specifically disclaim any obligation to publicly update or revise, revise, these forward-looking

Peter Welburn: Our non-GAAP financial measures discussed in this call should only be considered in conjunction with our consolidated financial statements prepared in accordance with GAAP. They are not a substitute for financial measures prepared under U.S. GAAP. Constant currency measures are calculated by applying the September 30, 2024 foreign exchange rates to all periods shown. Reconciliations of GAAP and non-GAAP measures can be found in the company's press release announcing its Q3 2025 results. With that, I turn the call over to Alan Trefler, Founder and CEO of Pegasystems.

Statements, whether as a result of new information, future events, or otherwise, our non-GAAP financial measures discussed in this call should only be considered in conjunction with our consolidated financial statements prepared in accordance with GAAP. They are not a substitute for financial measures prepared under U.S. GAAP.

Alan Trefler: Thank you, Peter, and to all who are joining today's call. I'm really excited to see the continued strong results for Q3. As we've seen for the last number of quarters, our team is really focused, executing well, and our differentiated AI strategy continues to resonate with clients, prospects, and partners. We've been saying for some time that we believe we have a competitive advantage in today's AI world, one that's built on a unique architecture and a special approach to AI and agents. I believe that the results we've seen over the past few quarters reflect those advantages and will continue to serve us, our clients, and partners well for the foreseeable future. Dan will walk you through the financial highlights in a few minutes, but I want to talk a bit about what I'm seeing in the market.

Constant currency measures are calculated by applying the September 30, 2024, foreign exchange rates to all periods. Shown reconciliations of GAAP and non-GAAP measures can be found in the company's press release announcing its Q3 2025 results. And with that, I turn the call over to Alan Trefler, founder and CEO of Pegasystems.

Uh, thank you, Peter, and to all who are joining today's call. I'm really excited to see the continued strong results for Q3. As we've seen for the last number of quarters, our team is really focused on executing well, and our differentiated AI strategy continues to resonate with clients, prospects, and partners.

Alan Trefler: AI continues to dominate the tech conversation, and candidly, not always for the right reasons. The buzz is dizzying. There are new tools, new terms, lots of hype. We've all seen headlines with 95% of enterprise pilots failing and predictions that Gen AI will actually, in some ways, eliminate the software industry. I think all of that misses the point. First, most of the failures aren't about bad tech. They're about misapplication. This is an industry problem stemming from our competitors' approach to use large language models to orchestrate and control workflows while an application is running live in production. In other words, at runtime, using a large language model to orchestrate and control workflows at runtime runs the risk of mixing the appropriate context and guardrails and results in what we consider to be an inadequate level of accuracy and reliability.

We've been saying for some time that we believe we have a competitive advantage in today's AI world that's built on a unique architecture and a special approach to AI and agents. I believe that the results we've seen over the past few quarters reflect those advantages and will continue to serve our clients and partners well for the foreseeable future. Ken will walk you through the financial highlights in a few minutes, but I want to talk a bit about what I'm seeing in the market.

AI continues to dominate the tech conversation, and candidly, not always for the right reasons. The buzz is dizzying. You know, the new tools, new terms, lots of hype. And we’ve all seen headlines about 95% of enterprise pilots failing, and predictions that generative AI will actually, in some ways, be eliminating jobs.

Take this operator Street.

I think all of that misses the point. First, most of the failures aren't about bad tech; they were about misapplication.

And this is an industry problem stemming from our competitors' approach to use LLMs to orchestrate and control workflows while an application is running in live production.

in other words, at runtime,

Alan Trefler: The unpredictability of this approach is a non-starter for regulated industries like banking, healthcare, and insurance, where even minor inconsistencies can trigger major consequences. That's exactly why our competitors' approaches are falling short. Pega's revolutionary idea is to really harness the power of the large language model to design the application and then use the power of Pega's patented world-class workflow engine to create appropriate context and guardrails prior to putting the application into production. We think this unique combination is our advantage, and it's a structural advantage. It's about the structure of how we operate. I don't think our competitors can readily replicate this because they don't have this world-class workflow engine that's the core of driving consistency. They don't have anything like Pega GenAI Blueprint to ideate and design client workflows. As a result, they've taken this prompt-driven approach.

Using an MLM to orchestrate control workloads at runtime runs the risk of mixing the appropriate context of guardrails and results in what we consider to be an inadequate level of accuracy and reliability.

The unpredictability of this approach is a non-starter for regulated industries, like banking, healthcare, and insurance, where even minor inconsistencies can trigger major consequences. And that's exactly why our competitors' approaches are falling short. Sure,

Pegasus' revolutionary idea is to really harness the power of the MLM to design the application and then use the power of Pegasus' patented world-class workflow engine to create appropriate context and guardrails prior to putting the application into production. We think this unique combination is our advantage.

And it's a structural advantage; it's about the structure of how we operate, and I don't think our competitors can readily replicate this.

Because they don't have this.

You know a world-class workflow engine. That's the core of driving consistency, and they don't have anything like the Pega blueprint. The idea is to design clients' workflows.

Alan Trefler: There are fundamental challenges with depending on prompts alone for critical work and decisions. Small changes in wording or in the data can produce wildly different results. Large language models evolve constantly, so the same prompt can yield different answers over time. The suggestion of using prompt-driven AI to make decisions in real time is akin to hiring somebody and saying, "Hey, go process claims how you think is best." What organization would do that? A much better approach is to give them defined processes to follow so that every claim is handled the same way. Similarly, we wouldn't let a customer service rep freestyle responses to sensitive questions. You train them, guide them, ensure they escalate when needed. We think the same logic applies to AI and is why you need to design this thoroughly and get the right sort of approvals before you begin.

As a result, they've taken this prompt-driven approach.

But as I said, there are fundamental challenges with depending upon solar for critical work and decisions.

The suggestion of using prompt-driven AI to make decisions in real time is akin to hiring somebody and saying, "Hey,

Don't process claims how you think is best.

What organization would do that?

A much better approach is to give them defined processes to follow so that every claim is handled the same way.

Similarly, we would let a customer service rep freestyle responses to sensitive questions. You train them and guide them, ensuring they escalate when needed.

Alan Trefler: Prompts can be great for brainstorming and creativity, but not for making critical decisions in the moment based on variables that can be unpredictable, especially in those critical regulated industries. Enterprises should use Gen AI to innovate and to get the workflows right. Once they're agreed upon, the agents must follow them so it operates the right way every time. Our approach with Pega GenAI Blueprint is to leverage the power of large language models at design time with the power of a robust workflow engine at runtime, delivering the best of AI plus the best of reliability. It's an optimal approach for building a sustainable, scalable agentic framework, even in complex enterprise environments. Last quarter, I continued to spend significant time with senior leaders around the world, and these conversations reinforce how some of them are really seeing the strength in the approach I described.

We think the same logic applies to AI, and that is why you need to design this thoroughly and get the right sort of approvals before you begin.

Prompts can be great for brainstorming and creativity, but not for making critical decisions in the moment based on variables that can be unpredictable, especially in those critical regulated industries.

Enterprises should use GenAI to innovate and to get the workflows right, but what they're agreed upon is that the agents must follow them. So it operates the right way every time.

So, once again, our approach with Blueprint is to leverage the power of LLMs at design time with the power of a robust workflow engine at runtime, delivering the best of AI plus the best of reliability.

It's an optimal approach for building a scalable objective framework, even in complex enterprise environments.

Now, last quarter, I continued to spend significant time with senior leaders around the world.

Alan Trefler: Our architecture and AI strategy are built for real-world impact, helping customers move faster with greater confidence and control. Our goal is to be the workflow automation and AI orchestration platform of choice for the enterprise. I believe we have the right architecture, solutions, and approach to make that happen. We're seeing strong momentum as clients shift from experimentation to execution, embracing Pega GenAI Blueprint to drive meaningful transformation across their enterprises and critical systems. Blueprint is more than a tacked-on feature. It's an entirely new way to drive enterprise transformation, built on the concepts and architecture we have developed over decades of automating enterprise processes. It breaks down silos between business and IT. It helps organizations reimagine how to get work done. It helps clients and partners move from ideas to execution faster than ever.

And, um, these conversations reinforce how some of them are really seeing the strength of the approach I described.

I'm architecture and AI strategy of Built For Real World, impacting helping customers move faster with greater confidence and control.

Our goal is to be the workflow automation and AI orchestration platform of choice for the enterprise. I believe we have the right architecture, solutions, and approach to make that happen, and we're seeing strong momentum as clients shift from experimentation to execution, embracing the Pega blueprint to drive meaningful transformation across their enterprise and critical systems.

Blueprint is more than just an attacked feature. It's an entirely new way to drive enterprise transformation, built on the concepts and architecture we have developed over decades of automating enterprise processes.

Alan Trefler: Blueprint has changed how we engage with our clients, replacing weeks of discovery and demo building with near real-time examples of what's possible with Pega. It's been a game changer. It enables us to target a broader group of organizations because it makes things easier and faster to understand and more reliably applicable to implement Pega. We're seeing Blueprint shorten sales cycles, especially the early stage parts of this conversation. We're also starting to see the time from design to production truly accelerated as we build additional functionality into Blueprint and key parts of the development cycle are jump-started. This allows companies to get to production faster, and we see more projects going live faster than has been the historical norm. Though it's early days, we're really excited to see this happening. For example, a global food and beverage company launched a marketing spend management application, a large U.S.

It breaks down silos between businesses, and it helps organizations reimagine how to get work done. It helped clients and partners move from ideas to execution faster than ever.

Blueprint has changed how we engage with our clients, replacing weeks of discovery and demo building with near real-time examples of what's possible with Beggars. It's been a game changer.

And it enables us to target a broader group of organizations because it makes things easier, faster to understand, and more reliably applicable to implement Pegasystems. So, we're seeing blueprints shorten sales cycles, especially the early stage parts of this conversation.

And we're also starting to see the time from design to production truly accelerated as we build additional functionality at the blueprint, and key parts of the development cycle are jumpstarted. This allows companies to get to production faster, and we see more projects going live.

Alan Trefler: bank deployed a consolidated tax return solution, a consumer goods company went live with a pricing approval automation solution, a telecommunications provider launched a network issue resolution workflow application, and one of our large automotive clients, which presented at their Pega event a few weeks ago, described how they leveraged Blueprint to transform an old Lotus Notes-based collection of finance applications into a modern cloud-based Pega system. All of these went live in under 100 days. It's much more than speed because Blueprint enhances the way that business and IT collaborate, and it uses AI to reimagine outdated ways of working. It means our clients get better apps that deliver more value. When clients can get that much value that quickly, we think they're much more likely to invest in Pega. As a reminder, you can try out Blueprint for yourself at pega.com/blueprint.

Faster than has been the historical norm. So, though it's early days, we are excited to see this happening. For example, a global food and beverage company launched a marketing spend management application, a large U.S. bank deployed a consolidated tax return solution, a consumer goods company went live with a pricing approval automation solution, and a telecommunications provider launched the...

The network issue resolution workflow application and one of our large automotive clients, which presented a peg a few weeks ago, described how they leveraged Blueprint to transform an old Lotus Notes collection of finance applications into a modern cloud-based Pega system.

And all of these would lie in under 100 days.

But it's much more than speed.

Because business, because blueprinted answers, the way that business and IT collaborate and use AI to reimagine outdated ways of working, it means our clients get better.

Apps that deliver more value.

And when clients can get that much value that quickly, we think they're much more likely to invest in tech.

Alan Trefler: What I like when I'm talking to the senior execs is it's not just clients that are excited about our approach. Partners are also leaning in. In June, we introduced Powered by Blueprint, which allows select partners to make Blueprint their own by embedding their best practices into the tool and branding it with their name and logo when they use it. It's sparking new momentum and becoming a rallying cry for our ecosystem. It's going to help partners differentiate, deliver faster, and scale smarter. It's a signal that the clients are getting a modern AI-native approach to transformation now, not just from Pega, but from the whole ecosystem. It's a big deal because real enterprises aren't one-size-fits-all. They're complex, messy, and diverse. Pega and Blueprint are built for that.

I got blueprint for yourself at pega.com blueprint.

But what I’d like, when I’m talking to the senior execs, is it’s not just clients that are excited about our approach.

Partners are also leaning in.

In June, we introduced powered by Blueprint, which allows select partners to make Blueprint their own by embedding their best practices into the tool and branding it with their name and logo when they use it.

It's sparking new momentum and becoming a rallying cry for our ecosystem and it's going to help Partners differentiate deliver faster and scale smarter, it's a, it's a signal that the clients are getting a modern AI native approach to transformation. Now, I'm not just from Peg up, but from the whole ecosystem and it's a big deal because we'll Enterprises aren't 1 size. Fits all they're complex messy and and diverse.

Alan Trefler: Last month, I sat down with Ravi Kumar, the CEO of Cognizant, for a fireside chat about the role of AI in enterprises and the power of Blueprint. Ravi said he was, quote, "blown away," unquote, by Blueprint and excited to take it to his clients. You can find the interview on YouTube. Just search Trefler Kumar, and I hope you watch it because you'll get to see the kinds of conversations and reactions we're seeing from our global partners. We continue to innovate across the Pega Infinity Suite, most recently with the availability of Pega Infinity 25, which we believe is the industry's first agentic enterprise transformation platform. Enhancements across the suite, including Blueprint, provide improved capabilities for enterprise transformation, and they deliver trustworthy, predictable AI agents that operate as an orchestration fabric across the enterprise, including the ability to leverage Pega as well as non-Pega agents.

Pega and blueprints are built for that.

Last month, I sat down with Robin Kumar, the CEO of Cognizant, for a fireside chat about the role of AI in enterprise IT and the power of blueprint.

Robbie said he was "blown away" by Blueprints and excited to take it to his clients. You can find the interview on YouTube; just search "Treler Kumar." I hope you watch it because you'll get to see the kinds of conversations and reactions we're seeing from our global partners.

Now we continue to innovate across the Pega Infinity Suite, most recently with the availability of Pega Infinity 25, which we believe is the industry's first agentic enterprise transformation platform.

Alan Trefler: This makes it easier for organizations to capture and reimagine legacy systems, automate work, and boost productivity. As I noticed a few minutes ago, our goal is to be the workflow automation and AI orchestration platform of choice. Work in this world is done by a combination of people, automation technologies, and AI. In addition to our belief that we have what's needed to claim a top spot here, we're also receiving outside validation from top industry analyst firms like Forrester and Gartner as leading in the key categories in which we play. These include decisioning management, AI decisioning platforms, real-time interaction management, CRM software, process mining platforms, and enterprise low-code application platforms. Recently, in August, we were named a leader in the digital process automation platforms by Forrester, receiving the highest scores among 14 evaluated vendors in both current offering and strategy categories.

Enhancements across the suite, including the blueprint, provide improved capabilities for enterprise transformation. They deliver trustworthy, predictable AI agents that operate operators and orchestration, fabler hamburgers in the enterprise, including the ability to leverage Peg up as well as non-pegging agents.

This makes it easier for organizations to capture and reimagine legacy systems, automate work, and boost productivity.

As I noticed a few minutes ago, our goal is to be the workflow automation and AI orchestration platform of choice.

Now work in this world is gone by a combination of people, automation technologies, and AI.

In addition to our belief that we have what's needed to claim a top spot here, we're also receiving outside validation from top industry analyst firms like Forrester and Gartner as leaders in the key categories in which we play. These include decision and management AI, decisioning platforms, real-time interaction management, CRM software, process mining platforms, and enterprise glue code application platforms.

Alan Trefler: The report stated that Pegasystems, quote, "best suits enterprises with a sophisticated transformation goals, particularly if they want to focus on customer-facing AI agents," unquote. Just last week, out of 20 vendors, we placed as a strong leader in Gartner's inaugural Magic Quadrant for business orchestration and automation technologies, or what they call BOAT. I think this is going to be a big area in the future. I think business orchestration and automation is a place where we are beautifully suited, and it's nice to get that sort of recognition. We also earned number one scores in the adjacent critical capabilities evaluation for case management and enterprise task and process automation. These industry recognitions are, we think, important, and they give us some insight.

Recently, in August, we were named a leader in the digital process automation platforms by Forrester, receiving the highest scores among 14 evaluated vendors in both the current offering and strategy categories.

The reports stated that Pegasus quoted Best Suits Enterprises with sophisticated transformation goals, particularly if they want to focus on customer-facing AI agents.

And just last week, our 20 vendors placed us as a strong leader in Gartner's inaugural Magic Quadrant for Business Orchestration and Automation Technologies, or what they call BOAT. I think this is going to be a big area in the future. I believe business orchestration and automation is a place where we are beautifully suited, and it's nice to...

To get that sort of recognition. And we also earned number one scores in the adjacent, critical capabilities evaluation for case management and enterprise task and process automation.

Alan Trefler: What we really love is how we're starting to have different, and I think the right conversations about Blueprint, about AI agents, about the agentic process fabric concept. Those, coupled with a strong partner strategy and our vertical understandings, I think puts Pega in a really good position. We're thrilled by the new clients. We're thrilled by the whole way that the analysts, I think, are responding to what we're doing. We're really pleased that the ability to work with partners is being massively increased by some of the new technology and some of the new positioning and approach we're taking. I'm pretty optimistic about our future. I think Pega is built for this moment. The distinctive architecture, the unrivaled Blueprint solution, it makes us uniquely capable to handle volatility and complexity of modern enterprise environments.

Now, these industry recognitions, are we think important and they give us some insight? But what we really love is how we're starting to have different. And I think the right conversations about blueprint about AI, agents about the agentic process, fabric content and uh those coupled with a strong partner strategy, and our our vertical understandings, I think puts Pega in a really good position. So, with with thrilled by the, the new clients with thrilled by the, uh, the

Okay, so I'm pretty optimistic about our future.

I think Peggy's built for this moment.

Alan Trefler: I'm confident that our approach to AI will continue to resonate with prospects, clients, and partners. I think if you take a few minutes to think about it, this idea of really doing the creativity at design time and doing reliability at runtime just makes a lot of sense. Now, to provide more color on our financial results, Dan, your turn.

The distinctive architecture, the unrivaled blueprint solution. It, it makes us uniquely hand capable to handle volatility and complexity of modern Enterprise environments. And I'm confident that our approach to AI will continue to resonate with prospects clients and partners. And I, I think, if you take a few minutes to think about it, this idea of really doing the creativity at design time, and doing reliability at runtime, just makes a lot of sense.

Um, now to provide more color on our financial results.

Kenneth Stillwell: Thanks, Alan. We delivered record results in Q3 2025 with Pega Cloud ACV, revenue, and free cash flow, all reaching new highs and showing continued acceleration. These results reflect the demand for Pega and our ability to both execute on and monetize our differentiated AI strategy. At the same time, we've demonstrated our strong commitment to return capital to shareholders by completing our largest share repurchase quarter ever. Annual contract value grew 14% year over year. Through the first nine months of 2025, we added over $147 million in net new ACV in constant currency. That exceeded the total net new ACV we added in the entire year of 2024. Once again, the standout performer was Pega Cloud, which grew 27% year over year and represented the fastest growing component of Pega's total ACV.

Okay, your turn. Thanks Alan.

We delivered record results in Q3 2025 with Pega Cloud. ACV, revenue, and free cash flow all reached new highs and showed continued acceleration.

These results reflect the demand for Pega and our ability to both execute on and monetize our differentiated AI strategy. At the same time, we've demonstrated our strong commitment to return capital to shareholders by completing our largest share repurchase quarter ever.

Annual contract value grew 14% year-over-year through the first 9 months of 2025. We added over $147 million in net new ACV in constant currency, and that exceeded the total net new ACV we added in the entire year of 2024.

Kenneth Stillwell: This accelerating growth trajectory highlights not only the scalability of our platform, but also the increasing client focus on cloud-native architectures and solutions for the adoption of AI. Several factors drove our ACV growth. First, our global sales organization continued to execute well across all major GOs. Several years ago, we made a strategic decision to reorganize and refocus our go-to-market model, aligning teams more closely to our clients. That transformation is clearly paying off through deeper client engagement and a far more efficient sales motion. Second, Pega Cloud remains a major growth driver. As more clients migrate to Pega Cloud, we're experiencing accelerated growth and momentum. The economics of our cloud migration strategy are compelling as well. Pega Cloud margins continue to expand, approaching 80% in Q3.

Once again, the standout performer was Pega Cloud, which grew 27% year-over-year and represented the fastest growing component of Pegasus total ACV. This accelerating growth trajectory highlights not only the scalability of our platform, but also the increasing client focus on cloud data, architectures and solutions for the adoption of AI. Several factors drove our ACV growth. First, our Global sales organizations organization continue to execute well across all major GEOS several years ago. We made a strategic decision to reorganize and refocus our go to market model, aligning teams more closely to our clients that transformation has clearly paying off through deeper client engagement and a far more efficient sales, motion second pick a cloud. Remains a major growth driver as more clients. Migrate to Pega Cloud. We're experiencing accelerated growth and momentum and the economics of our Cloud migration strategy our compelling as well. Pega cloud.

Kenneth Stillwell: With the vast majority of our net new ACV coming from Pega Cloud, we continue to realize the benefits of a more scalable business model that drives significant customer value. Third, our unique approach of utilizing AI in the design phase, as Alan mentioned, while leveraging predictable workflows at runtime, is fundamentally unique and continues to differentiate us in the market. Clients are using Pega GenAI Blueprint to design sophisticated workflows that streamline operations and improve customer service. This new innovation is generating enormous enthusiasm. We're seeing examples of deals closing faster as clients recognize and take advantage of the numerous tangible benefits of our AI-powered architecture. For example, we sourced and closed a new logo via a non-Pega partner within Q3, a powerful example of speed, precision, and alignment across teams. Keep in mind, this is someone who never knew Pega but found Blueprint and saw its power.

Margins continue to expand, approaching 80% in Q3, with the vast majority of our net new ACB coming from Pega Cloud. We continue to realize the benefits of a more scalable business model that drives significant customer value. Third, our unique approach of utilizing AI in the design phase, as Alan mentioned, while leveraging predictable workflows at runtime, is fundamentally unique and continues to differentiate us in the market. Clients are using Pega GenAI Blueprint to design sophisticated workflows that streamline operations and improve customer service. This new innovation.

Generating enormous enthusiasm, and we're seeing examples of deals closing faster as clients recognize and take advantage of the numerous tangible benefits of our AI-powered architecture.

Kenneth Stillwell: This rapid win highlights how Pega's cutting-edge technology and delivery methodologies are transforming the way clients envision and implement intelligent automation. By leveraging Pega GenAI Blueprint, the client was able to instantly visualize their use case, dramatically accelerating stakeholder alignment and simplifying the decision-making process, which can typically take months, was reduced to days. About a month after the first Blueprint was created with the Pega sales team, the deal was signed, demonstrating the power of AI-driven co-creation and agile execution. Implementation will be Powered by Blueprint Delivered, Pega's new AI-powered delivery methodology. This approach ensures rapid time to value, reduced delivery risk, and a smoother path to deployment, helping clients realize benefits sooner and with greater confidence. In addition, the deal also features Pega's usage-based model. This creates a scalable foundation for future growth.

For example, we sourced and closed a new logo via a non-Pega partner within Q3. This serves as a powerful example of speed, precision, and alignment across teams. Keep in mind, this is someone who never knew Pega but found Blueprint and saw its power.

This rapid win highlights how Pegasus cutting-edge technology and delivering methodologies are transforming the way clients envision and implement intelligent automation.

By leveraging Pega GenAI, the client was able to instantly visualize their use case. This dramatically accelerated stakeholder alignment and simplified the decision-making process, which can typically take months, reducing it to days about a month after the first blueprint was created with the Pegasus team. This demonstrated the power of AI-driven co-creation and agile execution.

Implementation will be powered by the blueprint delivered by Pegasus' new AI-powered delivery methodology. This approach ensures rapid time to value, reduced delivery risk, and a smoother path to deployment, helping clients realize benefits sooner and with greater confidence.

In addition, the deal also features Pegasus’ usage-based model.

Kenneth Stillwell: As the client leverages the platform to get more work done, Pega's subscription revenue scales alongside it. It's a true partnership. When the solution goes live, Pega will be compensated based on the real work processed, reinforcing the partnership and outcomes as well. This win showcases the impact Blueprint can have with new Pega partners and clients. Moving on to cash flow, we generated $347 million of operating cash flow and $338 million of free cash flow through the first nine months of 2025, representing an increase of 38% growth year over year for both metrics. This robust cash flow reflects our strong ACV growth, disciplined management, and the continued benefits of our recurring financial model. Our healthy cash generation and our solid balance sheet also enabled us to invest in innovation and also return capital to shareholders.

This creates a scalable foundation for future growth. As the client leverages the platform to get more work done, Pegasus subscription revenue scales alongside it. It's a true partnership.

This win showcases the impact Blueprint can have with new Pega partners and clients.

Kenneth Stillwell: As a result, we have purchased $393 million of Pega stock, or approximately 8.7 million shares, demonstrating our confidence in the long-term value of our business and our commitment to returning value to our shareholders. As of September 30, we have $350 million in cash and marketable securities on our balance sheet. As a reminder, since repaying our convertible senior notes in March 2025, we remain debt-free. I've received some feedback over the years that it's helpful when I share comments on modeling our business, so I'm going to continue to offer some perspectives on the fourth quarter of 2025. As more and more client workloads migrate to Pega Cloud, this trend reinforces the long-term strength of our subscription model, even while putting some near-term pressure on maintenance and term license ACV.

Moving on to cash flow, we generated $347 million of operating cash flow and $338 million of free cash flow through the first 9 months of 2025, representing an increase of 38% growth year-over-year for both metrics. This robust cash flow reflects our strong ACB growth, disciplined management, and the continued benefits of our recurring financial model. Our healthy cash generation and our solid balance sheet also enabled us to invest in innovation and return capital to shareholders. As a result, we have purchased $393 million of Pega stock, or approximately 8.7 million shares, demonstrating our confidence in the long-term value of our business and our commitment to returning value to our shareholders.

As of September 30th, we have $350 million in cash and marketable securities on our balance sheet. As a reminder, since repaying our convertible senior notes in March 2025, we remain debt-free.

I've received some feedback over the years that it's helpful when I share comments on modeling our business. So, I'm going to continue to offer some perspectives on the fourth quarter of 2025.

Kenneth Stillwell: Over 85% of our ACV growth this year has been generated by Pega Cloud, a clear indicator of how rapidly clients are embracing and adopting our modern, scalable cloud platform. This momentum highlights the growing reliance on Pega Cloud as the foundation of our clients' most mission-critical workloads, even as it will naturally reduce term license and maintenance activity over time. As you model Pega Cloud revenue, it's important to keep in mind that based on contract effective dates and typical client go-live schedules, there's often a delay of a few quarters before reported Pega Cloud ACV becomes Pega Cloud revenue. As a reminder, we provide annual guidance at the start of each fiscal year and do not typically update it. In conclusion, we're confident in our business, our strategy, and the opportunity ahead.

As more and more client workloads migrate to Pega Cloud, this trend reinforces the long-term strength of our subscription model, even while putting some near-term pressure on maintenance and term license ACV.

Over 85% of our ACV growth. This year has been generated by Pega Cloud, a clear indicator of how rapidly clients are embracing and adopting our Mo modern scalable Cloud platform. This momentum highlights the growing Reliance of Pega Cloud as the foundation of our clients, most most Mission critical workloads even as it will naturally reduce term license and maintenance activity over time as you model, Pega Cloud Revenue. It's important to keep in mind that based on contract effective dates and typical clients go live schedules, there's often a delay of a few quarters before reporting Pega Cloud. ACV before reported Pega Cloud ACV.

Kenneth Stillwell: We're focused, obviously, on closing the year out strong and continuing the momentum that we've seen through 2025. We look forward to seeing many of you in person at numerous upcoming investment banking conferences across the United States. At this point, operator, please open the line for questions.

Becomes Pega cloud revenue. As a reminder, we provide annual guidance at the start of each fiscal year and do not typically update it. In conclusion, we're confident in our business, our strategy, and the opportunities ahead. We're focused, obviously, on closing the year out strong and continuing the momentum that we've seen through 2025.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw that question, again, press star one. We also ask that you limit yourself to one question and one follow-up. Any additional questions, please re-queue. Your first question comes from Steve Enders with Citi. Please go ahead.

We look forward to seeing many of you in person at numerous upcoming investment banking conferences across the United States. At this point, operator, please open the line for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star 1, we also ask that you limit yourself to 1. Question in 1 follow up, any additional questions, please? Reach you.

Your first question comes from Steve Enders with City. Please go ahead.

[Analyst]: Hi, this is Paula, also Steve Enders from Citi. Thank you so much for taking our questions. My first question is, you touched on this a bit, what drove the much better ACV and acceleration versus your expectation of it slowing down on a much tougher comp? How should we think about ACV for Q4 and the FY25 as a whole?

Hi, this is Palox or Steve Anders from City. Uh, thank you so much for taking our questions. So, my first question is, uh, you touched on this a bit: what drove the much better ACV and acceleration versus your expectation of its slowing down on a much tougher comp? And how should we think about ACV for Q4 and the FY25 as a whole?

Kenneth Stillwell: Thank you for your question. I think when we guided at the beginning of the year, we were pretty clear that we said we were not going to factor, you know, a direct impact from Pega GenAI Blueprint into our results. I think what you're seeing is through the first three quarters, Pega GenAI Blueprint has begun to impact our business in a positive way. It's the exclusive way that we go to market with our clients, and our partners are now adopting it at an accelerated pace. I think the performance is certainly connected to the impact of Blueprint on our business. We see that continuing.

Um so thank you for your question. So um I think when we when we guided at the beginning of the year we were pretty clear on that. We said we we were not going to factor um you know, a direct impact from Pega blueprint into our results. And I think what you're seeing is through the first 3 quarters Peg of blueprint has begun to impact our business in a positive way. It's the it's the it's the

The exclusive way that we go to market with our clients and our partners are now adopting, it and accelerated pace. So I think the I think the performance um is certainly connected to uh to the impact of blueprint on our business and and we would uh, you know, we see that continuing

[Analyst]: Thank you. I have a follow-up on what you are seeing on the federal side of the business and what the deal environment looks like.

So, thank you. And, uh,

I'll follow up on what you are seeing on the federal side of the business, and put the deal environment looks like.

Kenneth Stillwell: The federal space, I think, obviously has been through a lot of change in 2025. With the current situation of the government not being open right now, certainly there is impact to our clients. That said, our projects with our clients are long-term and very strategic and tend to go across not just weeks and months, but tend to go across years in terms of the change we're helping them drive. We've been through shutdowns before, and our clients have certainly continued to move forward with their initiatives. We don't expect that to be different now.

Uh, the, I mean the Federal.

The government not being open right now, certainly there is uh, there's impact to our clients. Uh, that said, our projects with our clients are are long-term and very strategic and tend to go across. Not just weeks and months but tend to go across years in terms of the change, we're helping them drive. And so, uh, we've been through shutdowns before and our clients have certainly continue to move forward with their initiative so we don't expect that to be different now.

[Analyst]: Perfect. Thank you so much.

Perfect, thank you so much.

Operator: Your next question comes from the line of Jake Robers with William Blair. Please go ahead.

Your next question comes from the line of Jake Roberts with William Blair. Please go ahead.

[Analyst]: Yeah, thanks for taking questions, and great to hear that Blueprint continues to resonate with customers. In some of the newer predictable AI agents you recently launched, can you talk about the early feedback you're getting for those solutions and just what's different about those agents versus what some of your competitors are doing?

Yeah, thanks for taking the questions, and great to hear that Blueprint continues to resonate with customers. Um, just in some of the newer Predictable AI agents recently launched, can you talk about the early feedback you're getting for those solutions and just what's different about those agents versus what some of your competitors are doing?

Alan Trefler: Yeah, I think it's actually great seeing that the understanding of the difference is starting to resonate with customers because there's so much noise and hype in this space. It's just, you know, can't believe it. It's pretty crazy. The way all of our competitors build agents is they give you a prompt studio. You go into a studio, and you begin writing prompts. Now they're trying to put additional controls in because they realize those prompts haven't necessarily always resulted in the right outcomes. They introduced Salesforce's agent script to be able to sort of jury-rig controls. The problem with that approach is relying on the LLM at runtime is inherently unpredictable to a degree.

yeah, I think, uh,

See, it's actually great seeing that the understanding of the difference is starting to resonate with.

Customers, because there's so much noise and hype in the space, it's just, you know, canceling. You know, it's pretty crazy.

The way all of our competitors build agents is they give you a prompt studio.

Alan Trefler: When you're in a business where you really, really want predictability, you want to treat two customers the same way based on law, based on policy, it's really important to have codified that in advance. By using the LLM to foster the creativity, to foster the discipline at design time, then being able to take this library of workflows and be able to execute it at runtime, it's really quite remarkably predictable, and it's structural. The other thing that I'll tell you, and this is interesting as well, a lot of people talk about how LLMs are, you know, driving waste in the electric grid. Candidly, when we run at design time, the LLMs we're using are exactly the same. A workflow is thousands of times less consumptive of natural resources than an LLM. They run on an ordinary CPU.

You go into a studio and You Begin writing prompts. And now, they're trying to put additional controls in because they realize those prompts haven't necessarily always resulted in the right outcomes. So they, you know, introduced, you know, salesforce's agent script to be able to, to sort of jury with controls it. The the problem with that approach is relying on the MLM at runtime is in inherently, um, unpredictable to a degree. And when you're in a business where you really really want predictability, you want it to be 2 customers the same way based on law based on policy. It it's really important to have codified that in advance. So by using the llm to Foster the creativity, to Foster the, the discipline at design time, then being able to take this library of of workflows and be able to execute it at runtime, it's really quite

Remarkably poor predictability, and it's structural. You know, the other thing that I'll tell you is interesting as well: a lot of people talk about how LLMs are driving waste in the electric grid. And, you know, candidly, when we run a design time.

Alan Trefler: They don't need the fancy GPU to be able to run. Being able to do this has an interesting additional environmental impact. As far as I'm concerned, the predictability is the most absolutely compelling part of it.

The other ones we're using are exactly the same, but a workflow is thousands of times less consumptive of natural resources than an LLM they run on an ordinary CPU. They don't need the fancy GPU to be able to run. Being able to do this has an interesting additional environmental impact, though, as far as I'm concerned, the predictability is the most absolutely compelling part of it.

[Analyst]: Very helpful. It's pretty clear the acceleration that Pega GenAI Blueprint is driving within the existing base. Now that you've started to invest more in new logos over the past few quarters, can you talk about the doors that Pega GenAI Blueprint is opening on that front and just how that overall push has gone thus far?

Kenneth Stillwell: I think, Jake, I'll start just real quick and then let Alan chime in. I think there's two things that there's two aspects of a new logo acquisition. The first is how you initially engage with them and what the experience is. I think that Blueprint is a completely different kind of non-technical, very user-friendly experience where you don't need to know Pega or actually have someone that is an expert in Pega to start that engagement. The second thing is it speeds up the business development kind of solutioning time in the campaign. I view those as two really great accelerators. We're seeing the ability to actually be more targeted with more new logos to be able to accelerate that, which previously was hard to do because of the time that it took to actually get through kind of getting something into the pipe, so to speak.

Very helpful. And then, it's pretty clear the acceleration that that blueprint is driving within the existing base. But now that you've started to invest more in new logos over the past few quarters, can you talk about the doors that blueprint is opening on that front and just how that overall push has gone thus far.

Well, I think I think, Jake.

Kenneth Stillwell: Any thoughts, Alan?

Alan Trefler: Yeah, I think that the ability to show a customer what we do has gone from something that took months and lots of meetings to something that when people see Blueprint and spend an hour, and if you haven't done it already, Peter, I'm sure we'd be glad to walk you through a Blueprint demo. Any of you would be happy to do that. When you see it, you go, "Oh, I get it." The thing that I'm really excited about is it's not just speed. We've been able to take a lot of our design principles and a lot of the ways that we've learned about and have thought about workflows and process automation for all these decades. We've been able to build those into Blueprint as a critical part of the intellectual property. What that does is it's not just faster.

I'll start just real quick and then let Allan chime in. I think there's 2 things that there's 2 aspects of a of new logo acquisition. The first is how you initially engage with them and what the experience is. And I think that blueprint is a completely different, kind of non-technical very user-friendly experience where you don't need to know Pega or actually have someone that is an expert in Pega to start that engagement. The second thing is it speeds up the business development kind of solutioning time in in the in the campaign. So I view those as 2 really great accelerators and we're seeing the ability to actually be more targeted with more new logos, to be able to accelerate that which in previously was hard to do because of the time that it took to actually get through kind of getting something into the pipe. So to speak, any thoughts? Yeah, I think that uh, the ability to show a customer what

What we do?

Has gone from something that took months and lots of meetings.

You threw a blueprint demo, or any of you would be happy to do that.

Alan Trefler: I think even more important than speed is it's way better. I think it's also much more reliable from an implementation point of view because it guides you to get it right. It's a fundamental change, particularly with new logos and others who don't know Pega because they just get it. I'll tell you the truth. It's actually made our own internal training of all of our staff easier and better, too, because people really, really understand Pega at a different level after having just even done one.

Um, when you see it, you go. Oh I get it. And the thing that I'm really excited about is, it's not just speed. We've been able to take a lot of our design principles and a lot of the the ways that we've learned about, and have thought, about workflows, and process automation for all these decades and we've been able to build those into blueprint as a critical part of the intellectual property. And what what that does is is, it's not just faster. I think even more important than speed is its way better. And I think it's also much more reliable from an implementation point of view, because it guides you to get it, right? So it's a fundamental change.

Uh, particularly with new logos and others who don't know Pega, because they just get it. I'll tell you the truth: it's actually made our own internal training of all of our staff easier and better too. Because...

People really, really understand Peggy at a different level after having just even done 1.

[Analyst]: Very helpful. Congrats again on the great results.

Very helpful. Congrats again on the great results.

Kenneth Stillwell: Thanks, Jake.

Operator: Your next question comes from the line of Raymond Lenzchao with Barclays. Please go ahead.

Thanks, Jake.

[Analyst]: Perfect. Congrats for me as well. Ken, one for you. I was trying to understand your comments a little bit better when you talked about the impact of more cloud that it does have on term and license. You said you kind of wanted to help us a little bit with Q4. Should we think about that deceleration or the deceleration that we saw on that client cloud line of the business should continue, probably maybe a little bit more in Q4 as you gain momentum? Just trying to translate your words into numbers. Thank you.

You are. Next question, comes from the line of Ramo, lenschow with Barkley's, please go ahead.

Perfect. Congrats from me as well. Um, Ken 1 for you, like um, I was trying to understand your comments a little bit better when you talked about, like, uh, the the impact of more clouds that it does have on term and and license. And and you said, you kind of wanted to help us a little bit with Q4. So should we kind of think about that um, that that deceleration or like, you know, the the that we saw on the on that kind of uh the client Cloud uh line of the business should continue, probably maybe a little bit more on Q4 as you the momentum there. Just kind of trying to translate your work into your number. Thank you.

Kenneth Stillwell: Yeah, I think so, that's a great question. I was really trying to make sure to highlight that in some historical quarters, the term revenue has been higher because the mix of the deals were more into the term bucket than Pega Cloud. When you have 85% of growth happening in ACV from Pega Cloud, you get less of an impact from that. You are going to see that term license revenue decline over time. I know that I've said that in the past, and it hasn't declined at the pace that maybe I think maybe I even thought just because of some of the anomalies around like duration. That's really what I was touching on is when you have 85% Pega Cloud, you would obviously expect less impact from term license revenue.

Yeah, I think so. That's a great question. Uh uh I was I was um I was I was really trying to make sure to highlight that in some historical quarters that term revenue is has been higher because the mix of the deals were more into the term bucket than Pega cloud. And when you have 85% of growth happening in ACV from Pega Cloud, you get less of an impact from that. So you're going to see that term licensed Revenue decline over time. I know that I've said that in the past and it hasn't declined at the pace that maybe I think, maybe I even thought

Kenneth Stillwell: It's not going to, I'm not talking about, you know, a $100 million difference or anything of that scale, but you should expect that to decline. That's what I was trying to highlight.

Alan Trefler: Yeah, let's face it. A lot of this confusion that can come in is because of what I would consider an accounting anomaly where, you know, if you have a piece of business that's a $20,000 a month piece of business and it's term, you know, if it goes on for extra years, you end up having to present value.

Lot, just because of the the some of the anomalies around like duration, but that's really what I was touching on is when you have 85% pay a cloud, you would obviously expect less impact from term license Revenue. It's not going to, I'm not talking about, you know of like, you know, a hundred million dollar difference or anything of that scale, but you should expect that to decline. That's what I was say. Uh, trying to highlight. Yeah, let's face it. A lot of this confusion that can come in is because of what I would consider an accounting anomaly. Where, you know, if you have a a piece of business, that's a $20,000 a month piece of business and its term, you know, if it goes on for extra years, you end up having to present value.

Um,

Kenneth Stillwell: Yeah.

Alan Trefler: Look, we would much rather not do that, but it's just the way that the accounting rules work. I think you're seeing the powerful move of our business towards Pega Cloud, which is real validation of the quality of cloud. I see with my customers that are switching that they tell us that they get better reliability running on Pega Cloud than they do when they were running it themselves. We're able, I think, to do a better job from a performance point of view with them because we've got so much automation and we've really, really hooked in just a whole support system for them that we can do when it's running on the cloud. You're seeing our business sort of inexorably shift to be, I don't know, an 85% cloud business over time.

Yeah, getting into the country and looking, we would much rather not do that, but it's just the way that the accounting rules work. I think you're seeing the powerful move of our business towards better cloud, which is real validation of ...

Of the quality of cloud. I I, you know, I I see with my customers that are switching that they tell us that they get better reliability running on Pega Cloud than they do when they were running it themselves. We're able, I think to do a better job from a performance point of view with them because we've got so much Automation. And we've we've really really hooked in uh, just a whole support system for them that we can do when it's running on the cloud. And so, you know, you'll see

Our business, you know, sort of inexorably shifts.

Alan Trefler: There's always going to be some customers who, for one reason or another, really want to run it on-prem. We like being able to offer that choice to our customers, but it's becoming really a cloud business. At that point, once you realize that, yeah, we really are a bona fide cloud business, you then, I think, really want to look at ACV. ACV is what tells you about the momentum of the business. It tells you about the durability of the business. It doesn't flop around the way that it, particularly the term license line. I think what Ken's saying is the term license line is going to, you know, it flops around a bit just because of things that don't actually relate to the strength or weakness of the business.

To be uh I don't know an 85% Cloud business over over time. There's always going to be some customers who for 1 reason or another really want to write it on run on Prem and we, you know, we like being able to offer that choice.

To our customers, it's becoming really a cloud business. And at that point, once you realize that, yeah, we really are a bona fide.

Swap around.

Alan Trefler: I just also direct from a quality point of view, you to think about Pega clearly has made the transition to cloud compared to where we were years ago. When we started this, we were a very small percentage. Look at it now. We have strong ACV growth. That's pretty exciting.

The way that it particularly the term licensed line. And I think what Ken says, the term licensed line is going to, you know, it, it swaps around a bit just because of things that don't actually relate to the strength of weakness in the business. So, um, you know, I, I just also direct from a quality point of view you to think about Pega, clearly has made the transition to Cloud compared to where we were years ago. You know, when we started this, we were very small percentage and, you know, look at, look at it now and um, we have strong ACD growth.

[Analyst]: Yeah, it makes total sense. It's really, really good to see. Hopefully that translates into guidance and into guidance as well, the guidance approach as well. The other question I had, Alan, is the other big area around AI that should be really interesting for you is application modernization because there's so much that can be done there. Can you speak a little bit about where we are on that journey?

Alan Trefler: Yeah, we are seeing a lot of energy around that, particularly around the new features that we've introduced in the last 60, 90 days. If you go to Pega GenAI Blueprint and you go to the place where you can upload assets, we've made it so that if you have an old mainframe system without any documentation, you can actually hook up and take a video of somebody using it. They can go through and explain what they're doing. What the system will generate off of a 20-minute video in terms of creating not just a cloud-native replacement for some old legacy thing, but actually modernizing it and innovating, is impressive. If you have two or three systems you want to group together when they're modernized, you just grab the assets from all of them and upload it. Pega GenAI Blueprint will work to help you reconcile them.

That's pretty exciting. Yeah. Yeah. No make total sense. Yeah, it's really really good to see and then hopefully that translates into guidance and into guidance as well. The the guidance approach as well. The the other question I had Alan is that the other big area um around AI that should be really interesting for you is application modernization, um, because there's so much that can be done there. Can you speak a little bit about where we are on that Journey?

Yeah, so we are, we are seeing a lot of energy around that and in particularly around the new features that we've introduced in the last 609 days, which you can see if you go to Blueprints and you go to the place where you can upload assets, we've made it.

So, the, you know, if you have a, if you have a bold bankrupt system without any documentation, you can actually hook up and take a video of somebody using it.

And uh, they can go through and they can explain what they're doing.

And what the system will generate off of a 20 minute video in terms of creating not just a a a a cloud native replacement for some, you know, Legacy thing but actually modernizing it and innovating. And if you have 2 or 3 systems you want to group together when they're modernized, you just grab the assets from all of them and upload them.

Alan Trefler: We think this is just enormously, enormously exciting. You're going to see us continue to put a lot of work into making this better and better because it's a pretty terrific area. A number of those 100-day implementations that we talked about fall into that legacy application modernization category.

And Blueprint will work to help you reconcile them. So, we think this is just enormously, enormously exciting, and you're going to see us continue to put a lot of work into making this better and better because it's a pretty terrific area— a number of those 100-day implementations that we talked about.

[Analyst]: Okay, perfect. Thank you. Congrats.

Fall into that legacy modernization count category.

Okay, perfect. Thank you. Congrats

Operator: Your next question comes from the line of Patrick Walravens with Citi. Please go ahead.

Your next question comes from the line of Patrick Walravens with Citizens. Please go ahead.

[Analyst]: Oh, great. Thank you so much. Congratulations, you guys. Ken, could we talk about how pricing is evolving, maybe in this industry? In the script, there was, and I know you touched on it, but if we can go deeper, that'd be great. In the script, there was one comment about priced on real, real work process. You know, you've got Brett Taylor, CEO of Sierra, talking a lot about outcome-based pricing and how that really shifts the playing field. Any thoughts you have on how pricing might be evolving would be super interesting.

Oh great, thank you so much and congratulations. You guys. Can we talk about how pricing is evolving. Um, maybe in this industry in the script there was, I know you touched on it but if we can go deeper, that'd be great script. There was 1 comment about Christ on real um, real work processed. Um and then you know you've got

Alan Trefler: Yeah, my thought is we're about a decade ahead of all these other guys.

Brett, Taylor, CEO of Sierra talking, a lot about outcome based pricing and how that, um, it really shifts the playing field. So, any thoughts you have on on how pricing might be involving would be a super interesting.

[Analyst]: I think you're in the right place, yeah.

Alan Trefler: Yeah, we realized, you know, eight or nine years ago that we would go into a customer, sell them a bunch of seats, make them 30% more efficient, and then you come to renewal time, and the customer says, "Well, I don't need all these seats." It really didn't seem right when, you know, particularly on our cloud, we're burning through all these, you know, the number of transactions has gone up, not down. We said, "Look, we're just thinking about this the wrong way if we're thinking about bots on seats." We really began a move to move our client broadly to work-based pricing. We price based on the amount of work the system does.

Yeah, my thought is we're about a decade ahead of all these other guys, so we realize they're in the right place. Yeah.

Yeah, we've realized.

You know.

8 or 9 years ago that we would go into a customer, sell them a bunch of seats, make them 30% more efficient and then you come to Renewal time and the customer says, well, I don't need all these things and it it really didn't seem right. Um when you know particularly on our Cloud we're burning through all these you know the number of transactions is going up, not down. So we said look we're just thinking about this the wrong way, if we're thinking about bugs and seeds. And so we really began to move to move.

Our client broadly.

Alan Trefler: You know, we tend to be a process automation workflow case management system, so the system makes it pretty easy to count and charge for the number of workflows, the amount of work, the amount of output that the system is involved in. I think all of these people who have some form or another of seat or human counting-based pricing have a structural problem. They have a structural problem both because that's, I think, a lousy way to do business with the customer. It doesn't align the incentives of the vendor and the customer. We, as a vendor and the customer, should both want to make that business as efficient as possible. Seat-based pricing businesses don't work that way. They get penalized by making it more efficient, whereas we really have every incentive to want to do that.

To work based pricing, we price based on the amount of work, the system does. And you know, we tend to be a process automation workflow case management system. So the system makes it pretty easy to count and charge for the number of workflows there. The amount of work, the amount of output that the system is involved in. I think all of these people who have, um, some form or another seat or human counting base pricing, have a structural problem, and they have structural problem both because that's I think it allows you to do business with the customer. It doesn't align the incentives of the vendor and the customer. We as a vendor. And the customer should both want to make that business as efficient as possible. See based pricing businesses. That don't don't, don't work that way they get penalized.

Alan Trefler: I think that the pricing in this industry is going to have to change pretty radically. We feel like we're way ahead.

By making more efficient, whereas we are really have every incentive to want to do that. So I think that uh the the pricing in this industry is going to have to change.

And we feel like we're way ahead.

[Analyst]: That's right. As a follow-up, Alan, are you seeing any new players in this space? Are you seeing Sierra or Decagon or anyone else like that?

Alan Trefler: We see them on the periphery. I mean, they talk to a lot of the same customers that we talk to. We get asked about them. The challenge with these chatbot agent-type systems is one of the big things you've heard me talk about, Pat, is this concept of center-out, this idea that you need an agentic system that's going to be able to work in every channel, that the rules and the processes that run need to be able to operate if somebody's having a dialogue with the system, or if somebody sends an email to the system, or if somebody's in a back office and wants to go to the system. In all of those situations, you really want to be in a true omnichannel way, what we call center-out, which we've been talking about also for about eight years.

That's right, there's a follow-up on. Are you seeing a new players in the space? Are you seeing Sierra or decagon or anyone else like that?

Alan Trefler: I think a lot of these companies that are out there are building things that get locked into a particular channel. When you're locked into a channel, it's hard to envision how you're going to do something that really can serve clients and serve the staff in all the places they're going to want to use it. I also think structurally, this center-out concept is perfect for agents because it lets you work agentically, but it also lets you work when you have to have a person involved. These folks who come in, and people have come in for a long time. It was one, years ago, it was IVRs, then it was robots. I think that running your enterprise at the periphery, having the business logic at the periphery, it just doesn't make as much sense as to have a fabric that is a center-out type fabric.

We see them on the periphery. I mean, they talked to a lot of the same customers that we talked to. We get we get asked about them, you know, the the challenge with these, you know, chatbot agents type systems is 1 of the big things. You you've heard me talk about Pat is this concept of Center out this idea that you need an agentic system that's going to be able to work in every channel that the rules and the processes that run need to be able to operate. If somebody's having a dialogue with the system or if, if somebody sends an email to the system or if somebody's in a back office and wants to go to the system and all of those situations, you you really want to be in a true Omni Channel way, what we call center out, which we've been talking about. Also, for about 8 years and

I, I think a lot of these companies that are out there are building things that get locked into a particular Channel.

And when you're locked into a channel, uh, it's, it's, it's hard to Envision. How you're going to do something that really can serve clients and serve the staff in all the places they're going to want to use it? So I also think, you know, structurally, this this Center out concept is perfect for agents.

Because it lets you work a gently.

But it also lets you work when you have to have a person involved.

and so,

These folks who come in and people who come in for a long time with, you know, years ago, it was IBRS. You know, that it was a robot. I think that running your enterprise at the periphery, having the business logic at the periphery, just doesn't make as much sense as to have a fabric that is the center of the timeframe.

[Analyst]: Okay, thank you very much.

Okay, thank you very much.

Operator: Your next question comes from the line of Mark Schappel with Loop Capital Markets. Please go ahead.

Your next question comes from the line of Mark Chappelle with loop capital markets. Please go ahead.

[Analyst]: Hi, thank you for taking my question. Nice job on the core guys. A couple of questions around the legacy transformation opportunity. Alan, starting with you, the newest Pega GenAI Blueprint release introduces AI agents that essentially analyze legacy apps and automatically design workflows. Regarding that transformation opportunity, are you seeing customers actually integrate this capability into production today, or are they just still in the planning stages for that matter?

Hi. Thank you for taking my question. A nice job on the core, guys. Um, a couple of questions around the Legacy transformation opportunity, uh, Alan starting with you, you know, the newest blueprint release introduces uh, AI agents that uh, kind of essentially analyze like Legacy apps and automatically. Um,

Alan Trefler: Our Blueprint is responsible for every new implementation that we've done in the last six months, and many, many, many of those are in production. Remember, what runs in production is our workflow engine. The nice thing about this is we're able to enhance Blueprint literally every week or two because it runs as a SaaS app on pega.com connected to a Pega system. We've recently added localization facilities so that the Blueprints actually will get stored in our, if a customer is a Pega Cloud customer, the information that is uploaded about Blueprint actually gets stored in their Pega Cloud region. It's stored on a distributed basis, which includes if they're in another country and they worry about data residency and things of that type, that's now all been incorporated so that it will save the information in a place consistent with their sort of sovereign rules.

Design workflows regarding that uh, transformation opportunity. Are you seeing customers actually integrate this capability into production today? Or are they just still in the planning stages for that matter?

Alan Trefler: At runtime, what's running is the Pega system as we built it, existed for such a long time, obviously with enhancements, but it's not like Blueprint itself. This is where I think people got a little confused when we talk about Blueprint. Blueprint is a different way of doing Pega that permeates the entire design environment. It's not this sort of separate SKU that they would then run. Every customer that I can think of has started with a Blueprint for months here. It was funny. We had somebody appear at one of our sessions of one of our customers got up and had a sign that said, "This is our motto: No sprint without a Blueprint," which said basically that every time they went to look to build something, they always start that way. There's a lot of enthusiasm for it.

Well, uh, blueprint is responsible for every new implementation that we've done in the last 6 months, and many, many, many of those are are in in, in production. Remember what runs in production is our workflow engine. You know, the nice thing about this is, we're able to enhance blueprint literally every, you know, week or 2 because it runs as a SAS app on pega.com, connected to a pegasus, we've uh, recently added localization facilities. So that the the blueprints actually will get stored in our. If if a customer is a peg account customer, the information that is uploaded about blueprint actually gets stored in their pain and Cloud region. So it's, it's stored in the distributed basis which up includes if they're in another country and they worry about data residency and things of that type, that's now all been Incorporated so that it will save the information in a place to assist with this Sovereign pool.

and,

Then runtime was running is the Pega system as we built it existed for such a long time, um, obviously with enhancements but it's it's not like blueprint itself. This is where I think people got a little confused. When we talk about blueprints blueprint is a different way of doing.

Peg up that permeates the entire design environment. It's not this sort of skeptic separate skew that they would then run. So, every customer that I can think of has started with a blueprint.

For months here. And, uh, it was funny. We had somebody appear at one of our sessions with one of our customers who got up and had a sign that said, "This is our motto: No Sprint without a blueprint," which said basically that every time they went to look to build something, they always start that way, and there’s a lot of enthusiasm for it.

[Analyst]: Okay. As a follow-up, Ken, if I recall correctly, the legacy transformation opportunity was supposed to add about a point of growth to ACV this year. Is it still tracking to that, or do you see the legacy opportunity kind of outperforming that expectation?

Kenneth Stillwell: I would say that any acceleration over what we guided, I would completely tie to, or I would largely tie to Pega GenAI Blueprint and legacy transformation opportunities. I think that if we accelerate growth, it's going to be on the backs of Pega GenAI Blueprint. Most of what we do is tied to some type of digital legacy transformation, legacy application modernization, whatever buzzword the industry is using.

Um, opportunity kind of output outperforming that expectation.

Tied to, or I would largely die to, blueprint and legacy transformation opportunities. I think that if we accelerate growth, it's going to be on the backs of blueprints, and most of what we do is tied to some type of digital legacy transformation, application modernization—whatever buzzword the industry is using.

[Analyst]: Great. That's helpful. Thank you. That's all for me.

Kenneth Stillwell: Thanks, Mark.

Great. That's that's helpful. Thank you. That's all for me. Thanks Mark.

Operator: Your next question comes from the line of Blair Abernathy with Rosenblatt Securities. Please go ahead.

Your next question comes from the line of Blair Abernathy with Rosenblatt Securities. Please go ahead.

[Analyst]: Thanks very much. A nice quarter, guys. I just wanted to delve into verticals just a little bit. You touched on federal. Maybe just to dig into that a bit more. What sort of are you seeing there from a claims volume perspective? I'm not sure what % of the government base is on cloud versus on-prem, so if it makes that much of a difference. Are you changing your go-to-market activity there right now? Maybe a little more color around what you guys see happening in federal.

Thanks very much, a nice quarter guys. Um I just wanted to to uh delve into verticals just a little bit. Um, you you touched on federal maybe just uh uh to dig into that a bit more. What what sort of are you seeing there from a? Um,

you know, claims volume uh perspective. I'm not sure what percentage of the government base is on cloud versus on Prem. So if it makes that much of a difference and are you changing your go to market activity there right now and just just to maybe a little more color around. What's what you guys see happening? Uh, in Federal

Alan Trefler: Yeah, so a couple of things. One, we feel a little fortunate that some of the agencies that really were targeted happened not to be the ones that we do a lot of work with. Having said that, when the offices are closed, progress on projects is slowed down. The services projects, they don't necessarily come to a halt, but they massively, massively reduce. If this goes on, this will obviously affect how those projects roll out. As Ken said, these tend to be very long-term agreements, and they're not going anywhere. We'll pick them up when things come back. We have accelerated the move to the cloud in the federal government. We've actually had quite a few successes with our Pega Cloud for Government offering, which is designed specifically for the FedRAMP federal environment.

Yeah, I so a couple of things 1, we, we, we feel a little fortunate that some of the agencies that really were, were targeted. What happened? Not to be the ones that we do a lot of work with. But having said that, um, you know, when, when when the officers are closed, progress on projects is slowed down, uh, you know, the the services projects,

They don't actually come to a halt but they massively, massively reduced. And so uh if if this goes on, you know this will obviously affect

Um, how this projects are allowed. But as Kent said, these tend to be very long-term agreements and that are that are going anywhere. So, you know, we'll pick them up when things come, come back, um, we we have accelerated the move to the cloud.

In the federal government, we've actually had quite a few successes with our pegged Cloud for Government offering, which is designed specifically for the FedRAMP.

Alan Trefler: We actually have other customers in other governments, like some state governments, etc., that are interested in Pega Cloud for Government. That's, I think, a good offering. Cloud, I think, is strong. Projects are, as you would expect, in some turmoil with WorkStop, which is when the workers don't commit. We're hopeful that sooner than later, this will get unblocked.

Federal environment. We actually have other customers in other governments, like some state governments, Etc that are interested in pegging Cloud for government. You know, and so that's I think a good offering. So Cloud I think is strong uh, projects are as you would expect in in some turmoil with with Workshop which is when the workers don't come in and um you know we're we're hopeful that.

Kenneth Stillwell: One comment I'll make on the government vertical, so to speak, is I've spent, and Alan has as well, over the last few months, a series of meetings with different agencies, different committee members and their staffs to really understand kind of how Congress is prioritizing spending initiatives going forward. IT modernization is what they're actually calling it in the government, and it is a bipartisan focus area. I think what you're seeing is a lot of momentum around fixing the legacy debt that these agencies have around IT and actually even trying to repurpose dollars wherever possible to make sure that they're supporting that. I think that is one interesting kind of observation I've had, that it is, no matter who you talk to, IT modernization is a priority in the government.

Sooner than later, this will get unblocked 1, 1 comment, I'll make on the, on the, on the government on the government vertical. So to speak is, um, I've spent, um, I've spent and Alan has as well over the last few months, uh, uh, you know, a series of meetings with, you know, different agencies, uh, you know, different. Um, um, you know, uh, committee members and their staffs to really understand kind of how how Congress is prioritizing, um, you know, spending initiatives going forward and, and it modernization is what they're actually calling it in the government is a bipartisan Focus area. So, I think you what you're seeing is you're seeing a lot of momentum around, fixing the Legacy debt that these agencies have around it, uh, and actually, even trying to repurpose dollars wherever possible, to make sure that they're supporting that. So I think that that is the 1, interesting kind of observation I've had, is that it is, it is no matter who you.

Alan Trefler: There are lots of workflows in government, and they really need to be done predictably. I think it just plays perfectly into what we're doing.

Talk to it modernization is a priority and then the government and there are lots of workflows in government. And they really need to be done predictably. So I I think it's just Place perfectly in what we're doing.

[Analyst]: Okay, great. Thanks for the color, guys.

Okay, great. Thanks for the caller, guys.

Operator: Your next question comes from the line of Devin O with KeyBank Capital Markets. Please go ahead.

You're our next question. Comes from the line of Devin. Oh, with keep Bank Capital markets. Please go ahead.

[Analyst]: Good morning. Thanks for taking my questions here. Could you maybe talk a little bit more, since you've already talked about it in the remarks, but more so on the partner-branded Blueprints? I know you said it previously, but have you seen that kind of unlock a whole host of use cases that Pega and maybe broader partner system has not seen before? Maybe give us some flavors on what the new use cases that you've seen stemming from them and how has that influenced sales pipeline and velocity thus far from the launch of that?

Good. Good morning. Um, thanks for taking my questions here. Um, could you maybe talk a little bit more? Um, I guess a little bit more since you've already talked about it on the prepared remarks but more so on the partner branded blueprints. I know

Alan Trefler: Yeah. It's going to, I think, be quite important. It's very new. Remember, we announced it in June. We have partners, we have five partners who have set up their, what we call, knowledge buddies, which are private knowledge stores that are private to them that we run on Pega Cloud. What happens is when Blueprint runs for one of these partners, if a staff member, like I mentioned, Cognizant, somebody signs on to the system, what they will see is Blueprint with that company's, the partner's name right at the top. If, and only if, they're signed in from that ID, they will be able to access this IP or will get pulled in automatically into the analysis that Blueprint does and what happens. I think it does a couple of pretty important things for us.

Very new. So remember we announced it in June. Uh we have Partners uh uh we have 5 Partners who have set up their what we call Knowledge buddies, which are private knowledge stores that are private to them that we run on bigger cloud. And what what happens is when blueprint runs for 1 of these,

Alan Trefler: One, it allows us to enable the partners to leverage their experience along with ours as part of, and it's a great use of AI, to tell you the truth, to do that. What I'm excited about is, you know, historically, with most of these partners and all of these partners, they've had Pega practices. The Pega practices are the parts of the partner that would, you know, work on implementing the Pega system. For the very large partners, these Pega practices were just a couple % of the total population.

Partners. If a staff member, like I mentioned, cognizant forgot somebody signs onto the system, but but they will see is blueprint with, uh, that companies the partner's name right at the top. And if, if and only they if they've signed in from that ID will be able to access this IP and we'll get pulled in automatically into the analysis of the blueprint does and and what happens. So I I think it does a couple of pretty important things for US 1. It allows us to to enable the partners to leverage, their experience along with ours, as part of its, a great use of AI to tell you the truth to to to

To do that. But what I'm excited about is, you know, historically with most of these partners, in all of these partners, they've had peer practices.

And the Pega practices are the parts of the partner that would you know, work on implementing the Pega system. But for the very large Partners, these these Pega practices were just a couple percent.

Alan Trefler: What we're trying to do with Powered by Blueprint is position this away as a way where, outside of the Pega practice, the partner staff or the partner sellers will be able to use this as a way to talk to their prospects, their customers, not to sell Pega, but to sell their IP and what they have to offer as, you know, the partners themselves are in very competitive environments now. As we unlock this going into next year, I think it could be very, very exciting.

Of the total population, what we're trying to do with power blueprints is position this away as a way we're outside of the Pega practice.

The partner staff are the partners. Sellers

Will we be able to use this as a way to talk to their prospects, their customers, not to sell Agra.

But to sell their IP and what they have to offer. As you know, the partners themselves are in a very competitive environment now, and as we unlock this, going into next year, I think it could be very, very exciting.

[Analyst]: Great. That's helpful context. For my follow-up for Ken, again, a really strong cloud ACV growth in the quarter. I also noticed that license ACV declined sequentially quarter over quarter. I'm assuming that's a function of the strength you've seen from the strong migration activity. Could you maybe in any way kind of help put some numbers around how much has kind of migration from licenses contributed to cloud ACV growth this quarter or maybe thus far this year? Thank you.

Great, that's that's helpful contacts. And then for my follow-up for Ken. Um, again they're really strong Cloud, ACV growth in the quarter and also notice that licensing. CV declines the clients really quarter over quarter. I'm assuming that's a function of the strength you've seen from the strong migration activity. Could you maybe in any way kind of help put some numbers around? How much has kind of migration from licenses contributed to Cloud, ACV growth, this quarter or maybe thus far this year, thank you.

Kenneth Stillwell: Sure, Devin. Migrations are an important element of our strategy to get clients onto Pega Cloud. Migrations in and of themselves have not been, you know, if you look at total ACV and the acceleration in total ACV, that is not driven materially by migrations. That is driven by clients continuing to expand their use of Pega. However, migrations are going to drive the term ACV and associated term revenue down over time. You haven't seen that. This year you're going to see term license revenue be up year over year because of the large revenue that we had. Sorry, term revenue. Sorry if I said ACV. Term revenue will be up year over year because of the large amount of revenue we had in Q1. If you actually look at Q3 and in Q4, we see that term revenue kind of coming down when you compare year over year.

Uh, sure Devin. Um, so migrations are an important element, um, of our strategy and to get clients on the Pega Cloud, but migrations in and of themselves have not have not been. You know, the if you look at total ACV in the acceleration and total ACV, that is not driven uh, materially by, by migration that is driven by clients continuing to expand their use of Pega. Um however migrations are going to drive the term ACV and Associated term Revenue down over time. And and uh, we have a you haven't seen that, you know, this year, you're going to see term licensed Revenue, be up year-over-year because of the the large um Revenue that we had uh sorry to re uh sorry term Revenue. Sorry if I said ACV, term Revenue will be up year-over-year because of the large amount of Revenue. We add in q1, but if you actually look at Q Q3, and in Q4 we, we see that term Revenue kind of come

Kenneth Stillwell: You are going to see that. That is a reflection of the movement to Pega Cloud. Overall, our growth is being driven by more spend with our clients.

Coming down when you compare year-over-year. So you are going to see that. And that is a that is a that is a reflection of the movement to pay a cloud. But overall, our growth is being driven by more spend with our clients.

[Analyst]: Got it. Thank you.

Kenneth Stillwell: Thanks, Devin.

Got it. Thank you.

Operator: If you would like to ask a question, please press star one on your telephone keypad. Your next question comes from Rishi Gillaria with RBC Capital Markets. Please go ahead.

Thanks Devin.

If you would like to ask a question, please press *1 on your telephone keypad. Your next question comes from Rishi Jaluria with RBC Capital Markets. Please go ahead.

[Analyst]: Oh, wonderful. Thanks so much for taking my question. Nice to see continued strength in the business. I wanted to start by maybe thinking a little bit conceptually about Pega's role in this new AI ecosystem, broadly speaking. You know, Alan, I know we've talked about this concept before, right? As every kind of vendor and stack is building agents, one thing that we really haven't seen anyone truly crack the code on is the ability for someone to be kind of a neutral middleman and handle the agent orchestration layer, right, and allow a lot of these agents to work with one another. Especially at a time where MCP is still in its, you know, nascent.

[Analyst]: See in A to A, probably even more so. Can you talk about maybe what potential role Pega can play in that, you know, in kind of assisting all these agents across so many different stacks? I've got a quick follow-up.

Operator: Sure. If you talk about orchestration or you think about it, maybe I'll take a moment and explain how we think about it. There are a couple of aspects to it. One aspect is the technical connectivity orchestration, like how does one agent call another? Things like MCP and A to A actually are pretty good already at being able to make it so that if somebody else has an agent, I can call it and I can have it make sense. We're doing that all the time now as part of how we execute. The other part of orchestration is not just the kind of connectivity, it's the logic. I mean, orchestration is about getting things done, as I think about it. It's not just about connecting things.

And you know Nancy and and a to a probably even more. So can you talk about maybe what potential role Pega can play in that you know in in kind of assisting all these agents across so many different stacks and then I've got a quick follow-up. Sure. So, you know, if you talk about orchestration or you think about it, maybe I'll take a moment to explain how we think about it. Um, there are a couple of aspects to it. 1 aspect is the the technical connectivity orchestration like how does 1 agent call another and things like mCP and a to a actually or are are pretty good already at being able to make it so that if somebody else has an agent um I can call it and I can have it make sense and we we we're doing that all the time now, uh as as part of how we execute, but the other part of orchestration is not just the kind of connectivity, it's the logic. I mean orchestration is about getting things done. As I think about it it's not just about

Operator: The important part of getting things done is getting them done in the right order, in the right way, and connected to the right things. That's where, to us, workflows come in. When we look at our, you know, when we look at others, look at Microsoft, look at Salesforce, look at ServiceNow, they're allowing an agent to orchestrate, or they're allowing their fabrics, as everybody uses that term too now, to orchestrate using an LLM for control. As I said, the problem with that is particularly if you have agents calling agents or a fabric calling agents, the debt you get back is sometimes subtly different. The LLM can go down different paths. What we say is, hey, figure out what you want the orchestration to be for the different types of work that you do everywhere you can. Hesitate to call the LLM for reasoning at runtime.

Connecting things and the important part of getting things done is getting them done in the right order in the right way and connecting to the right things and that's where to us workflows come in. So when we look at our, you know, when we look at others, look at Microsoft, you know, look at Salesforce and service now,

They're allowing an agent.

To orchestrate, or as they're allowing, their fabrics, as everybody uses that term too. Now to orchestrate using an LLM for control.

And as I said, the problem with that is particularly if you have agents calling agents or a fabric calling agent, the Debbie good back is sometimes slightly different and the llm can go down different paths.

Operator: Make it so there's a reliable workflow that does the orchestration. There are different use cases where this will matter more and matter less. For the use cases where predictability is important, I think this is a huge, huge distinction and something that we have as a structural difference as opposed to just something that we could say, we're a little ahead or a little behind. It's not. We've taken a path that I think if you think about it, is going to make a lot more sense for orchestration and for reliable, predictable execution. We've got to get that message out there. We're seeing the customers who hear it, not a lot. I would say that everything in this whole era is new.

When we say, "Hey, figure out what you want," the orchestration should be for the different types of work that you do everywhere. You can and hesitate to call the LLM for reasoning at runtime.

[Analyst]: Got it. Thanks. That's helpful. If we just think conceptually about growth drivers for ACV from here, clearly, a lot of it's been, you've had Pega GenAI Blueprint as a potential driver of upside. A lot of it has been within your existing customer base. If we think now about Pega GenAI Blueprint and the lower barriers to entry, it feels like there really is an opportunity for net new logos to be a key driver of growth over the next several years. Just conceptually, how should we be thinking about what that mix over time could start to look like? Could we see new logos be a more meaningful driver of future ACV growth? Thanks.

Make it so there's a reliable workflow that does the orchestration. And look, if you could use cases where this will matter more and matter less, but for the use cases where predictability is important, um, I think this is a huge, huge distinction. It's something that we have as a structural difference, as opposed to just something that we could say, well, we're a little ahead or behind. It's not that we’ve just taken a path that I think, if you think about it, is going to make a lot more sense for orchestration.

And for Reliable predictable, execution. So we've got to get that message out there.

And uh we're seeing the customers who hear it.

Not a lot know, let's face it. Everything in this whole area is new.

Yep, got it. Thanks that, that, that that's helpful. And then if we just think conceptually about growth drivers for ACV from here. Um, you know, clearly uh a lot of it's been, you know, you've had blueprint as a as a potential, you know, driver of upside. Um, but but a lot of it has been, you know, within your existing customer base if we think now about blueprint, uh, and and, you know, the lower barriers to entry. It feels like they're there really is an opportunity for net. New logos to be a a, a driver of, you know, key driver of growth over the next several years. Just conceptually, just, how should we be thinking about what that mix over time could start to look like and could we see new logos?

Operator: Yeah, I think you're going to see new logos be a more meaningful driver if our partner strategy is successful. By recruiting partners to be able to have their own Powered by Blueprint that let them bring their IP to their customers their way, it opens the aperture on who we would be talking to a lot. It does it without us having to do all the heavy lifting of doing it ourselves. I think that, you know, we're on the cusp of a huge set of changes here. I think these changes, as you think about next year and you think about where this is going, we're really pretty jazzed that we've got a lot of the stuff in the right groove.

Those can be a more meaningful driver of future ACV growth. Thanks.

Yeah, I think you're going to see new logos be a more meaningful driver if our partner strategy is successful.

Because by recruiting Partners to be able to have their own powered blueprints, that let them bring their IP to their customers, their way it opens the aperture on, who we would be talking to a lot. And if it doesn't without us having to do all the heavy lifting,

[Analyst]: I think, Rishi, one way to think about it is if we tried to scale new logos through a direct account executive-covered model, we are limited with the logistics of scaling that organization, right? You have to hire people, you have to assign orgs, you have to do it. That could and will accelerate our ability to get new logos. What Alan's talking about is an order of magnitude growth change, to leverage the 100,000 plus sellers that are already talking to those same organizations in our partner ecosystem. Those are two, both, they're not one or the other. It's just that one has the ability to push growth much faster. The other one is limited by the logistics of us scaling it.

Of doing it ourselves. So, I think that, you know, where the cost of a used set of changes here, but I think these changes, as you think about next year and you think about where this is going, uh, we’re really pretty jazzed. But we’ve got a lot of the stuff in the right group. I think, I think, uh, Rishi, um,

Operator: We have to do a great job for our partners to let them capture their IP and let them bring their story to a prospect here. If we can be successful in that, it's, you know, I think extremely exciting. Hopefully, that makes sense.

The, you know, 100,000 plus Cellars that are already talking to those same organizations in our partner, ecosystem, to, that's kind of where those are 2 both. They're, they're not, they're not 1 or the other, it's just that 1 has the ability to push growth, much faster. The other 1 is limited by the logistics of us. Scaling it? And and that's why we have to do a great job for our partners. To let them capture their IP and let them bring their story.

To a prospect.

Here. And if we can be successful on that is it's, you know, I think extremely exciting.

[Analyst]: Really helpful. Yep, very helpful. Thank you so much, guys.

[Analyst]: Thanks, Rishi.

Hope that makes sense really helpful. Yep, very helpful. Thank you so much, guys.

Operator: I think we are at time. With this, I'm going to thank everybody for attending. I want folks to know we're working real hard for you, and I look forward to talking to you after we wrap the year. Thanks.

Thanks Rishi. And I, I think we are at time. So with this, I'm going to thank everybody for attending. Um, I want folks to know we're working real hard for you, and I look forward to talking to you after we wrap the year.

Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Thanks.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect