Pegasystems (PEGA) Q3 2025 earnings call transcript

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 PEGA systems 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 star followed by the number one on your telephone keypad. And if you would 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.

Thanks, Krista. Good morning, everyone, and welcome to PEGA systems 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 security 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. Factors that could cause the company's results to differ materially from those expressed and 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 10K 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 statements 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 it's the result of new information, future events, or otherwise. Our non-GAP financial measures discussed in this call should only be considered in conjunction with our consolidated financial statements prepared in accordance with GAP. They are not a substitute for financial measures prepared under U. S. GAP. Constant currency measures are calculated by applying the September 30, 2024 foreign exchange rates to all periods shown.

Reconciliations of GAP and non-GAP 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 Trepler, founder and CEO of PEGA Systems.

Thank you, Peter, and to all who are joining today's call. I'm really excited to see the continued strong results for Q3, and as we see through the last number of quarters, our team is really focused, executing well, and our differentiated AI strategy continues to resonate with clients' prospective 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 heating architecture and a special approach to AI in ages. 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.

And we'll walk into the financial highlights in a few minutes, but I want to talk a bit about what I've seen 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 and terms, lots of hype. And we've all seen headlines with 95% of enterprise pilots failing, you know, predictions that Gen AI will actually in some ways eliminate this operating industry.

I think all of that misses the point. First, most of the failures aren't about bad tech, they're 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 live production. In other words, at runtime, using an LLM to orchestrate and control workflows at runtime runs the risk of mixing the appropriate context and guardrails and result in what we consider to be an adequate level of accuracy and reliability.

The unpredictability of this approach is a non-scarf, a regulated industry like banking, healthcare, and insurance, where even minor inconsistencies contribute to major consequences. And that's exactly why our competitors' approaches are a falling shock. Headless revolutionary idea is to really harness the power of the LLM to design the application. And then use the power of Headless patented world-class workflows to create appropriate context and guardrails prior to putting the application into production. And 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 world-class workflow engine. That's the core of private consistency. And they don't have anything like Pegget Blueprint to IDA and design clients' workflows. As a result, they've taken this prompt-driven approach. But as I said, there are fundamental challenges, depending on problems of a lot of critical organizations.

Small changes in wording or in the data can produce wildly different results, and LLMs evolve constantly. So the same prompt can yield different answers over time. The suggestion of using prompt-driven AI to make decisions at real-time is akin to hiring somebody and saying, hey, don't process clients how you think is best. What organization would do that? A much better approach is to give them defined processes to follow. So then every client is handled the same way.

Similarly, we would let a customer service rep reach out 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. Prompts can be great for brainstorming and creativity. But not for making critical decisions in the moment. They've gotten variables that can be unpredictable, especially in those critical-regulated industries.

Enterprises should use AI to innovate and to get the workflows right. But once they're agreed upon, 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 ability to sustainable, scalable, objective 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 of the approach I described. Have architecture and AI strategy have built for real-world impact, helping customers move faster with greater confidence in control.

Our goal is to beat the workflow automation in AI or exploration platform of choice for the enterprise. And 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 packet Blueprint to drive meaningful transformation across their enterprises and critical systems. Blueprint is more than a tactile feature.

It's an entirely new way to drive enterprise transformation built of the concepts and architecture we have developed over decades of automating enterprise processes. It breaks down silos between businesses and ITs. It helps organizations reimagine how to get work done. And it helps 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 Vega. It's been a game changer. And 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 PEGAP. So we're seeing Blueprint shorten sales cycles, especially the early state of parts of this conversation.

And we're also starting to see the time from design to production truly accelerating as we build additional functionalities to Blueprint and key parts of the development cycle.

This allows companies to get to production faster. And we see more projects going live faster than it has been the historical norm. So, 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 US bank deployed a consolidated tax return solution, a consumer goods company with live with a pricing, a food and automation solution, a telecommunications provider launched a network issue resolution workflow application, and one of our large automotive clients, which presented at PEGAP and a few weeks ago, described how they leveraged Blueprint to transform an old Lotus node space collection of finance applications into a modern cloud-based ecosystem.

And all of these went live in under 100 days. But 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. And when clients can get that much value that quickly, we think they're much more likely to invest in PEGAP. As a reminder, you can try that Blueprint for yourself at PEGAP. com slash Blueprint.

What I like when I'm talking to the seniors is that it's not just clients that are excited about our approach. Partners are also leading it. In June, we introduced powered by Blueprint, which allows select partners to make Blueprint there out by embedding their best practices into the tool in branding it with their name and logo when they use it.

It's working 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 signal that clients are getting a modern AI native approach to transformation. Now, not just from PEGAP, but from the whole ecosystem. And it's a big deal because real enterprises aren't one size fits all. They are complex, messy, and diverse.

PEGAP and Blueprint are built for that. 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 blown away by Blueprint and excited to take it to his clients. You can find the interview on YouTube, just search Treplo 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. 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 Club. Enhancements across the city, including Blueprint, provide improved capabilities for enterprise transformation.

And they do the trustworthy, predictable AI agents that were operated in orchestration fabric across the enterprise, including the ability to leverage PEGAP as well as non-PEGA 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 done by a combination of people, automation technologies, and AI. In addition to our belief that we have what's needed to claim to stop the top spot here, we're also receiving outside validation from the top industry analyst firms like Forester and Gartner, as leading in the key categories in which we plan. 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 like Forester, receiving the highest scores among 14 evaluated vendors in both Commodore and strategy categories. The report stated that PEGAP systems, quote, best suits enterprises with the sophisticated transformation goals, particularly if they want to focus on customer-facing AI agents, unquote. And 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 vote.

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. And we also earned number one scores in the adjacent critical capabilities evaluation for case management and enterprise task and process automation. Now, these industry recognitions are, we think, important to 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 agenda process abric concept. And those coupled with a strong partner strategy and our vertical understanding, I think puts PEGAP in a really good position. So we're thrilled by the new clients, we're thrilled by the whole way to the analysts, I think, and responding to what we're doing. And 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.

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

Now, to provide more color on our financial results, Ted Richard.

Thanks, Alan. We delivered record results in Q3 2025 with PEGAP cloud ACV, revenue, and free cash flow, all reaching new highs and showing continued acceleration.

These results reflected demand for PEGAP 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 and constant currency.

And that exceeded the total net new ACV we added in the entire year of 2024. Once again, the standout performer was PEGAP cloud, which grew 27% year over year and represented the fastest growing component of PEGAP's 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 organization's organization continued to execute well across all major TOs. 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, PEGAP cloud remains a major growth driver. As more clients migrate to PEGAP cloud, we're experiencing accelerated growth and momentum. And the economics of our cloud migration strategy are compelling as well. PEGAP cloud margins continue to expand approaching 80% in Q3. With the vast majority of our net new ACV coming from PEGAP 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 offs in the market. Clients are using PEGAP blueprints to design sophisticated workflows that streamline operations and improve customer service. This new innovation is 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. For example, we sourced and closed a new logo via non-PEGAP partner within Q3, a powerful example of speed, precision, and alignment across teams. Keep in mind, this is someone who never knew PEGAP but found blueprint and saw its power. This rapid win highlights how PEGAP's cutting-edge technology and delivering methodologies are transforming the way clients envision and implement intelligent automation.

By leveraging PEGAP Blueprints, 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. A bottom-month after the first blueprint was created with the PEGA seal team that deal with 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 if 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 process, 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 ACB growth, discipline management, and the continued benefits of our recurring financial model. Our healthy cash generation and our solid balance should also enable us to invest in innovation and also 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.

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.

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 ACB. Over 85% of our ACB 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 of PEGA Cloud as the foundation of our client's 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 ACB before reported. PEGA Cloud ACB 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. 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. 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 one question in one follow-up. Any additional questions, please recue.

So, thank you for your question. So, I think when we guided at the beginning of the year, we were pretty clear that we said we were not going to factor a direct impact from Pegga Blueprint into our results. And I think what you're seeing is through the first three quarters, Pegga 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 an accelerated pay. So, I think the performance is certainly connected to the impact of Blueprint on our business. And we would see that continuing.

Perfect. Thank you. I have a follow-up on what you were seeing on the federal side of the business and what the deal environment looks like.

The federal space, I think, obviously has been through a lot of change in 2025. And 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.

And so, we've been through shutdowns before and our clients have certainly continued to move forward with their initiatives. So, we don't expect that to be different now.

Thank you so much.

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 wait. You know, 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, 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 don't introduce, you know, Salesforce's agents script to be able to sort of jury controls it. The problem with that approach is relying on the NLM at runtime is inherently unpredictable, which great. And when you're in a business where you really, really want predictability, you want to be two customers the same way based on law, based on policy, it's really important to have codified that in advance. So by using the LLM to foster the creativity, to foster the discipline at design time, then being able to take this line of workflows and be able to execute at runtime, it's really quite remarkably predictable and 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 at design time, the LLMs we're using are exactly the same. But a workflow is thousands of times less consumptive of natural resources than an LLM. And they run on an ordinary CPU.

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

Very helpful. And then it's pretty clear the acceleration that blueprint is driving within the existing base. But now that you've started doing best more new logos over the past two 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 Jake, I'll start just real quick and let Alan chime in. I think there's two aspects of a new local 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, or actually have someone that is an expert in PEGOT to start that engagement.

The second thing is it speeds up the business development kind of solution time in the campaign. So, I view those as two 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 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.

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 blueprints, but an hour and if you haven't done 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 know, 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 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 intellectual property.

And what that does is it's not just faster. I think even more important than speed is it's 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, particularly with the logos and others who don't know peg up 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 peg at a different level after having just even done one.

Very helpful. Congrats again on the great results.

Yeah, I think so that's a great question. I was I was I was really trying to make sure to highlight that in some historical quarters the term revenue is has been higher because the mix of the deals were more into the term bucket than peg a cloud. And when you have 85% of growth happening in a CV from peg a cloud, you get less of an impact from that. So you're 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 the some of the anomalies around like duration. But that's really what I was touching on is when you have 85% peg a cloud, you would obviously expect less impact from term license revenue.

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

Yeah, let's say 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 a present value.

And we would 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 the quality cloud. I see with my customers, they're switching that they tell us that they get better reliability running on your cloud than they do when they were running it themselves. We're able, I think, to do a better job performance point of view with them because we've got so much automation and we really, really look in just the whole support system for them that we can do when it's running on the cloud. And so, you know, you're seeing our business, you know, sort of inexorably shift to be, I don't know, an 85% cloud business over time.

There's always going to be some customers who, for one reason or another, really want to write it on on a program. And we, you know, we like being able to offer that choice to our customers. But it's becoming really a cloud business. And at that point, once you realize that, yeah, we really are a bona fide cloud business, then I think really want to look at ACV.

ACV is what tells you about momentum of the business. It tells you about the durability of the business. And it doesn't flop around the way that it particularly the current license line. And I think we can say the term license line is going to flops around a bit just because of things that don't actually relate to the strength or weakness of the business.

So, you know, I just also direct from a quality point of view, you just 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 a very small percentage. You know, look at it now.

And we have strong ACV growth. That's pretty exciting.

Yeah. So a lot of energy around that. And then particularly around the new features that we've introduced in the last 60, 90 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 that you know, if you have a, if you have an old make bring system without any documentation, you can actually hook up and take a video of somebody using it.

And 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 cloud native replacement for some, you know, old, like, legacy thing, but actually modernizing it and innovating. And 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.

And blueprints 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 because it's a pretty terrific area. A number of those hundred day implementations that we talked about fall into that legacy modernization category.

Yeah, my thought is we're about a decade ahead of all these other guys. So in the right place. Yeah. Yeah, we've 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, the customer says, well, I don't need all these seats. And 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. So we said, look, we're just thinking about this the wrong way if we're thinking about bucks on seats.

And so we really began to move to move our client broadly to work based pricing, be 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, 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 seat or human counting based pricing have a structural problem. And they have a structural problem both because I think it allows you 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 hit penalize by making more efficient, whereas we really have every incentive to do that. So I think that the pricing in this industry is going to have to change pretty radically and we feel like we're way ahead.

We see them on the periphery. I mean, they talk to a lot of the same customers that we talked 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 bad office and wants to go to the system and all of those situations, you really want to be in a true, omni-channel way, which we've been talking about also for about years.

And I think a lot of these companies that are out there are building things that get walked into a particular channel. And when you walk 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 that you're going to want to use it. But I also think structurally, this center out concept is perfect for agents because it lets you work identically.

But it also lets you work when you have to have a person involved. And so these folks who come in and people come in for a long time with one years ago with IDRs, that was robots. I think that money you're 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 of time.

Well, 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 got recently added localization facilities so that the Blueprints actually will get stored.

If a customer is a pega cloud customer, the information that is uploaded about Blueprint actually gets stored as their pega cloud region. So 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 this sort of sovereign world.

And then at one time, 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 what I think people got a little confused when we talk about Blueprint. Blueprint is a different way of doing peg up and permeate the entire design environment. It's not this sort of separate skew that they would then run. So every customer that I can think of has started with the Blueprint for months here.

And it was funny, we had somebody appeared at one of our sessions, one of our customers got up and had a sign that said, this is our motto, no sprint without a Blueprint. That's a different way than every time they went to look to build something, they always start that way. And there's a lot of enthusiasm for it.

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

Great. That's helpful. Thank you. That's all for me.

Thanks, Mark.

Yeah, a couple of things. One, we feel a little fortunate that some of the agencies that really were targeted what happened not to be the ones that we do a lot of work with. But having said that, when the offices are closed, progress on projects is slowed down. The services projects, they don't have to come to a halt, but they massively, massively reduced.

And so if this goes on, this will obviously affect how those projects will laugh. But as Kent said, these tend to be very long-term agreements. They're not going anywhere, so we'll pick them up when things come back. We have accelerated the move to the cloud in the Federal government. So we've actually had quite a few successes with our pegot cloud for government offering, which is designed specifically for the FedRAM Federal environment. We actually have other customers in other governments, like some state governments, et cetera, that are interested in pegot cloud for government.

So that's, I think, a good offering. So cloud, I think, is strong. Projects are, as you would expect, in some turmoil with WorkStop, which is where the workers don't commit. And we're hopeful that sooner or later, this will get out of law.

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 staff to really understand kind of how Congress is prioritizing spending an issue that's going forward. And IT modernization is what they're actually calling it in the government.

It's a bipartisan focus area. So I think what you're seeing is, you're seeing 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. So I think that is one interesting kind of observation I've had, is that it is, it is, no matter who you talk to, IT modernization is a priority in the government. And there are lots of workflows in the government, and they really need to be done in a good extra place. So I think it's a place perfectly of what we're doing.

It's very new. So remember, we announced it in June. We have partners, we have five partners who have set up there what we call knowledge bodies, which are private knowledge stores that are private to them that we run out of cloud. And 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, the partner's name, right at the top. And if and only they, if they're signed in from that ID, we'll be able to access this IP. We'll get pulled in automatically into the analysis that blueprint does and what happens. So I think it does a couple of pretty important things.

First 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. But what I'm excited about is historically with most of these partners, in all of these partners, they've had packet practices. And the packet practices are the parts of the partner that would work on implementing the packet system. But for the very large partners, these packet practices were just a couple percent of the total part of the population. What we're trying to do with power and blueprints is position this away as a way where outside of the packet practice, the partner's staff or the partner's sellers will be able to use this as a way to talk to their prospects, their customers, not to sell agar, but to sell their IP and what they have to offer as the partners themselves are very competitive requirements now.

And as we have walked this going into next year, I think it can be very, very exciting.

Sure, Devin. So migrations are an important element of our strategy to get clients on the peg of cloud. But migrations in and of themselves have not been, if you look at total ACV and the acceleration of total ACV, that is not driven. It's driven materially by migration. 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.

And you haven't seen that. This year you're going to see term license revenue be up here over here because of the large revenue that we had, sorry, term revenue, sorry if I said ACV. Term revenue will be up here over here because of the large amount of revenue we had in Q1. But if you actually look at Q2, Q3 and Q4, we see that term revenue kind of coming down when you compare year over year. So you are going to see that. And that is a reflection of the movement to peg a cloud. But overall, our growth is being driven by more spend with our clients.

Thanks, Evan.

Sure. So, you know, if you talk about orchestration, what you think about it is I'll take a moment and explain how we think about it. There are a couple of aspects to it. One aspect is that technical connectivity or frustration, like, how does one agent call another? And 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 to make sense. We're doing that all the time now as part of how we execute it. But the other part of orchestration is not just that kind of connectivity, it's the watcher. I mean, orchestration is about getting things done, as I think about.

It's not just about connecting things. And the important part of getting things done is getting them done in the right order in the right way connected to the right things. And that's where, to us, workflows come in. So when we look at others, like Microsoft, you know, look at the sales force of the service now, they're allowing an agent to orchestrate or they're allowing their fabrics, as everybody uses that term do now, to orchestrate using an LLM control.

And as I said, the problem with that is particularly if you have agents calling agents or a fabric calling agents, the daily good back is sometimes subtly different. And the LLM can go down a different path. 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, and hesitate to call the LLM for reasoning at runtime, make it so there's a reliable workflow that does the orchestration.

And look, there are different use cases where this will matter more and matter less, but 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 can say what we're a little ahead or behind. It's not, we've taken a path that I think you think about it, it's going to make a lot more sense for orchestration and for reliable future.

So we've got to get that message out there. And we're seeing the customers who hear it. Not a lot. There was faith in everything in this whole era is new.

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'll be talking to a lot. And it does it without us having to do all the heavy lifting of doing it ourselves. So I think that, you know, we're in the cost for the use set of changes here, but I think these changes, as you think about next year, you think about where this is going, we're really pretty jazzed, but we've got a lot of this stuff in the right group.

And 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 sign or you have to do it. And so that will still, that will and could accelerate our ability to get new logos. But what Alan's talking about is an order of magnitude growth change is to leverage the, you know, 100,000 plus sellers that are already talking to those same organizations in our partner ecosystem to that kind of where 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 scaling it. 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, it's, I think, extremely exciting.

Hopefully that makes sense.

Thanks Rishi. And I think we are on a time. So 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.