Pegasystems (NASDAQ:PEGA) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.
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Access the full call at https://events.q4inc.com/attendee/156449953
Summary
Pegasystems Inc reported a 30% year-over-year increase in Pega Cloud revenue, with ACV nearing $1 billion, highlighting strong cloud adoption.
The company emphasized its strategic focus on AI, specifically through Pega Blueprint, which is driving pipeline growth and accelerating time to value for clients.
Management commented on geopolitical challenges impacting Q1 performance, but remained optimistic about demand durability and ACV growth acceleration in the second half of 2026 due to renewal cycles and AI-driven initiatives.
Pegasystems Inc’s free cash flow reached $207 million, with over 80% returned to shareholders through share buybacks and dividends.
The company plans to leverage AI strategically, focusing on its role as a harness for enterprise operations rather than relying on AI for all processes, which aligns with its outcome-based pricing model.
Full Transcript
OPERATOR
Thank you for holding. My name is Carli and I will be your conference operator today. At this time I would like to welcome everyone to Pegasystems Inc Q1 2026 earnings call and Webcast. 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 this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press STAR one again. Thank you. I would now like to turn the call over to Peter Welburn, Vice President of Corporate Development and Investor Relations. Please go ahead. Thank you.
Peter Welburn (Vice President of Corporate Development and Investor Relations)
Good morning everyone and welcome to Pegasystems Q1 2026 earnings call. Before we begin, I’d 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. Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, forecast and similar expressions are intended to identify these forward looking statements. These statements speak only as of the date the statement was made and are based on current expectations and assumptions. Because these statements relate to future events, they’re subject to certain risks and uncertainties that could cause actual results to differ materially from our current expectations for fiscal year 2026 and beyond. Factors that could cause such differences are described in the Company’s press Release announcing our Q1 2026 results and our filings with the securities and Exchange Commission, including our annual report on Form 10K for the year ended December 31, 2025, as well as other recent SEC filings. Investors are cautioned not to place undue reliance on these forward looking statements as there can be no assurances that the results contemplated will be realized except as required by law. We undertake no obligation to update or revise any forward looking statements to reflect subsequent events or circumstances. In addition, non GAAP financial measures discussed on this call should be considered in conjunction with and not a substitute for our consolidated financial statements prepared in accordance with GAAP. Constant currency measures are calculated by applying the March 31, 2025 foreign exchange rates to all periods presented. Reconciliations of GAAP to non GAAP measures can be found in our earnings press release. And with that, I’ll turn the call over to Alan Treffler, Founder and CEO of Pegasystems.
Alan Treffler (Founder and CEO)
Thank you very much, Peter. I’ve just gotten back from a few weeks on the road across MEA and The US and including an AI conference last week. And it’s interesting because I think we’re pretty practiced at separating hype from what’s real. But there is a lot of confusion out there nonetheless. I’m hearing consistent themes from leaders and clients and prospects and partners. In a world of constant disruption, clients want and need innovation without sacrificing reliability. They want solutions to reimagine how their businesses work while still running them predictably and delivering measurable results. This means platforms architected for scale, interoperability and continuous change, where AI is governed, explainable and harnessed in workflows rather than bolted on. That’s what PEGA provides a harness for enterprise AI blueprint to help reimagine how work should run and have people rethink their businesses. And then the PEGA platform to operationalize it with confidence and evolve it as regulatory demand evolve. There’s a lot of noise about the future of the software industry itself and it’s creating some real confusion and some real moments of doubt and bias. Some investors I’ve met unsure what the future looks like and are even questioning the long term viability of enterprise software vendors. Well, we think AI will be good for some and bad for others. And for pega it will be good. The reality is that enterprises don’t succeed based on the alternative of coding past using AI. They succeed based on whether they can design the right outcomes, execute them predictably and evolve safely over time. The assumption that AI generated code can replace architecture is backwards. In mission critical enterprises, AI increases the value of platforms that are architected for predictability, governance, interoperability and continuous change. And that’s us. When outcomes matter with customers, regulators and systems that must evolve from decades, AI generated code still needs structure certainly for the types of things we do. Yeah, very small things, you can just five code them together. But AI doesn’t replace the need to have a business system. Alternatively, if people are using AI to just dynamically reason each process over and over, what we’re seeing, that’s now running of costs and giving non deterministic outcomes at the moment you weaken your enterprise platform, you make your whole business weak. Putting AI in the middle in an ungoverned way, well that’s I think just a recipe for disaster. So whether you use AI to generate code that you want to be able to orchestrate and pull together, whether you use AI to be able to run or handle certain parts of your business where you want the creativity of agent to agent interactions, or whether you want pega, whether you want to use AI to be able to pull together and orchestrate multiple business functions with a harness like PEGA driving that. In all of those cases, Pega adds tremendous value. So let’s talk about how mission critical enterprise software really gets built. Enterprise applications has always been around a continuous life cycle regardless of technology. There’s not a single build moment you need to design and rely on on what the software must do and how it must perform. And that design really can involve collaboration for many parties and having a collaborative environment like Blueprint that brings the power of the Internet, the power of AGA best practices and the power of a customer and or partner’s thinking all together in a way that they can understand, experience and improve is absolutely central. To get it to a great outcome, you got to build it. And there are lots of ways to build it. But the great news about something you’ve done in Blueprint is it’s basically built. You need to be able to execute or operate it, to run it at scale secure, make sure that it’s performant that’s being watched and managed and with tenacloud, which you’ll see is really, really continuing to grow beautifully. We give our customers a place to execute that is without parallel. And then you need to be able to evolve it and respond to change if the cycle starts again. And this cycle is high stakes. And it’s absolutely critical to get businesses not just what they want to get done in two weeks or four weeks or six weeks, but to get them to operate over the years of the business. The PEGA model, which is at the heart of a Pegasystems, is the key to most of these key factors. It’s the thing that lets you design, it lets you collaborate, it makes the build trivial, it actually executes it and orchestrates the AI. And best of all, it lets you go back to it and have a structure that you can look at, you can understand and you can direct change from. And that ultimately to us is how this life cycle operates in this new AI orchestration age. While LLMs dramatically accelerate the build, they replace these other key factors, nor are they going to be able to. That’s why clients need, you know, some people are going, well I only just it’s software and certainly AI can generate code quickly, but prompt to code alone falls short. It doesn’t tell the enterprise what should change. And you know, the gap we have isn’t coding speed, it’s understanding what’s there and making sure you don’t accidentally change something with unintended consequences when you’re operating at the speed of the prompt. It’s actually easier to do that, not harder, particularly if you haven’t put out a nice solid architecture that makes what’s going on visible. Now we do run into some people who say that they believe in AI only execution. Why do I need a workflow engine at all? Why do I need a harness at all? Why don’t you just simply turn everything over to general purpose AI agents and manage it and just have say, a control power that watches what’s going on and reports out and keeps things in line? But I’ll tell you, this creates systems that are difficult to test, expensive to run, and nearly impossible to evolve safely. LLMs are incredibly sensible, sensitive to even the tiniest bits of additional data and a new version of the LLM and let’s look at how quickly they’re coming out can often behave differently from the one you used just the day before. I think it’s safe to say that for many types of work, improvision improvisation is not a reasonable business strategy. People want predictability and reliability. But the other thing which really broke last week is that this approach to AI reasoning is becoming cost prohibitive. I hear growing discussion about the cost of gen AI and how teams are bouncing and between token matching in which they try to tell the team to use as many tokens as possible, to rationing tokens, to usage caps to supply the bills. The concerns are real, but they reflect a misapplication of AI using the wrong AI at the wrong time. When you ask Jedi to reason at runtime over and over again for processes you’ve already validated, every interaction becomes a new experiment and consumes tokens. You end up paying repeatedly for the same thinking, which is expensive, unpredictable and hard to scale. Instead, do what blueprint AI does. Do the super heavy reasoning at design time where gen AI can brilliantly explore options, map work for flows, let you collaborate and pressure test decisions, then use the right AI for the execution, focusing on consistency and speed. Costs become predictable and value scales with confidence. Gen AI is inexpensive, but misapplication is and the smart organizations will stop paying the LLM to relearn their business every five minutes. Success in the enterprise doesn’t come from AI reasoning everything on the fly. It comes from executing redesigned work, reimagined work within clear governed structures. Our architecture uniquely allows enterprises to design intelligence into how work gets done, not bolted on afterwards. Now since we last spoke, we introduced new fiber coding tooling into PEGA Blueprint and this combines the speed of AI, augmented design with security and predictability that blueprint gives. You can try it out on pega.com blueprint remember that blueprint facilitates the reimagination of critical work, not just the development of applications, and that imagination goes beyond process alone. It includes redefining roles, decision rights, skills and experiences. AI can be applied intentionally to these rather than accelerating what already exists. Users interact with blueprint designs in natural language now describing changes by typing or speaking, and the result are enterprise ready governed workflows. We receive continued validation of pega’s leadership across the industry from clients, partners and analysts who see and work with blueprint AI. Recently Forrester named PEGA as a leader in customer service solutions, recognizing PEGA Customer Service, PEGA Blueprint and PEGA Process Mining for automation and agenta capabilities. So we’re also winning awards for our software. We’ve already this year received four awards for innovation related to how we’re leveraging AI, including a Product of the Year award. Now we love receiving awards for our work, but personally it’s even better seeing our clients win awards for the work that they do with our software. Just last month the National Health Service, which provides 24 hour digital and telephone based health service to Scotland’s 5.5 million citizens received the Public Sector Award for work leveraging pegasoftware. These sorts of recognitions reinforce our strength and the need to be able to orchestrate complex service journeys and apply AI predictably. Now this is not theoretical at all. If you take a look at how this is playing out. We recently had one of our customers, Proximus, Belgium’s largest telecommunications operator, use PEGA to modernize a mission critical B2B installations application. Moving from a fragile legacy tool orchestrated cloud ready solution. They built their first prototype and blueprint in 15 minutes and went live in weeks and numerous other great names Ngen, Vodafone, National Australia bank have really been able to drive change, include a redesign and include extensive automation all AI powered. I I love the customers are excited about this and that they’re going to be coming to pegaworld in quantity to talk in detail about what they’re doing and these same stories that you just heard and others will be shared to Begaworld in June in Las Vegas because the the way that I think we all learn is by seeing what other clients are doing and it is such an honor and it’s wonderful that customers are willing to come and do that. It’s from June 7th to 9th and I would say it’s a must see event, a chance to interact with thousands of Transformation leaders from around the world and see incredible new developments at over 200 different AI powered demos. We have these exciting keynotes lined up with nearly 100 more customers from 60 organizations presenting detailed breakout sessions. MetLife will show how a highly regulated insurer moved from AI experimentation to AI at scale. Will discuss large scale legacy modernization leveraging Pega, Blueprint and AWS transform to re architect decades of legacy core system. And I would say that what is also exciting is the breadth of industries. Wells Fargo will talk about how they highlight AI driven decisioning across billions of customer interactions. So we’re going to have great customer stories, but I’m also going to tell you that this year we’re going to have a tremendous product agenda that we’re going to be releasing because this is going to be a very substantial year for the product. You’ve already seen what Blueprint has done and Blueprint AI has fundamentally changed the upfront design and the reimagining of how people should work with systems. What we’re doing this year and what you’ll see us be able to show at PEGA is how Blueprint AI is moving into the entire development and support suite so that that interface, that AI driven guidance and that power will operate from the moment of visualization and inception that you get from Blueprint all the way through to how you complete a system and how you support production system. I think this is the most consequential change to the underlying technology that I have seen and it’s there to support the agentic process fabric technology we have that then allows all of your Pegasystems and even non Pegasystems to be able to operate as a connected orchestrated network for the next generation of technology. I think only PEGA has the efficient runtime intelligence, the deep design time skills, the experience with these key workflow harnesses and is going to be able to put in your hands the way for you to make our harness your harness. We look forward to continuing the conversation and we can continue the investor conversation on Monday, June 8, when at noon in Las Vegas, we’re also hosting an investor session. So thank you all, we’re working hard and for the numbers. Let me turn it over to Ken.
Ken (Chief Financial Officer)
Thanks, Alan. As discussed last quarter, the rhythm of our business was expected to return to a more typical seasonal pattern in the …
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