Pegasystems (PEGA) Q4 2025 earnings call transcript

Thanks so much, Krista. Good morning, everyone, and welcome to Pega Systems Q4 2025 earnings call. Before we begin, I would like to read our safe harbor statement. Certain statements contained this presentation may be construed as forward-looking statements. As defined in the Private Security's Litigation Reform Act of 1995. The words expect, it anticipates, intends, plans, believes, will, could, should estimates, may, forecast, and guidance or various, and so 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 are subject to various risks and uncertainties. Actual results for fiscal year 2026 and beyond could differ materially from the company's current expectations. Factors that could cause the company's results differ materially from those expressed and forward-looking statements are contained in the company's press release. Announcing as Q4 2025 results, and in the company's filings with the Securities and Exchange Commission, including its annual report on Form 10K for the year ended December 31, 2025, and in other recent filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on shifts forward-looking statements, and there are no assurances that the matters contained in such statements will be achieved.

Although subsequent events may cause our view to change, except as required by law, we do not undertake and specifically disclaim any obligation to public the update or revise these forward-looking statements, whether as 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 as substitute for financial measures prepared under U. S. GAP. Constant currency measures are calculated by applying the December 31, 2025 foreign exchange rates to all periods shown.

Reconciliation of GAP and non-GAP measures can be found in the company's press release announcing its Q4 2025 results. And with that, I turn the call over to Ken Stilwell, Chief Operating Officer and CFO of PEGA Systems.

Thank you, Peter. I'm thrilled to share the financial highlights of what's been an outstanding year for PEGA. Execution by our Global Sales Team, powered by our Blueprint Experiential Sales Approach, drove top-line outperformance in 2025. And our company-wide commitment to Rule of 40, supported by Robost Internal Adoption of AI, built natively in our platform, delivered bottom-line outperformance as well.

Let's start with the top line. Total ACB grew 17% year over year as reported, and 14% in constant currency, beating our guidance. PEGA Cloud ACB, once again, drove that growth, increasing 33% year over year as reported, and 28% in constant currency. That was a pretty significant acceleration from last year's 18% growth rate as reported, and 21% in constant currency.

And PEGA Cloud ACB growth accelerated sequentially in all four quarters in 2025 and constant currency, demonstrating the power of both our cloud-first strategy and Blueprint, our AI design agent. Three factors drove our ACB growth acceleration in 2025.

First, the Blueprint Revolution has been key to our growth. Blueprint moved from a promising experiment in 2024 to a fundamental change in how we sold in 2025, enabling a completely new experiential sales process. Our Blueprint agent is now core to how we operate, shaping everything from how we sell to how we deliver and drive client success.

Second, we have the strongest global sales execution that we've ever had. We drove a highly effective discipline and scalable sales cadence worldwide with an unwavering focus on customer outcomes. Our account executives executed exceptionally well against our target account model, reinforcing the importance of focus and discipline. And third, we've been increasing demand from our clients and partners for PEGA's differentiated, predictable AI agents integrated into proven enterprise workflows.

As a result of these factors, our net new ACB increased by 37% year over year in constant currency. Looking ahead, we're confident in the durability of our ACB growth because of the strength of our moat. PEGA is deeply embedded in our client's core operations through vertical-specific workflows, and it's integrated at enterprise scale, supporting hundreds of millions of users globally.

PEGA has become a trusted compliance backbone for our clients and for regulators worldwide. And you may have noticed that we just achieved ISO for 42,001, a certification across PEGA cloud services, our GNAI solutions, and our predictive and adaptive analytics capabilities.

PEGA's financial performance achieved several key milestones in 2025. Among them, free cash flow increased 45% year over year to $491 million. Exceeding our guidance by $51 million. This outstanding improvement in free cash flow was driven by our ACB growth and reflects the full strength of PEGA's subscription model and the benefits of our subscription transition. Our strong free cash flow generation provides us with the flexibility to invest for growth, while also returning significant capital to shareholders. In 2025, our capital allocation strategy stayed firmly focused on driving long-term shareholder value. Our top priority continued to be investing in organic growth, including product innovation, go-to-market capacity, where we generated consistent strong returns on invested capital.

We also maintained a strong balance sheet. We ended 2025 with 426 million in cash and investments. During 2025, we repaid $468 million of debt, repurchased $498 million of shares, and distributed $15 million in dividends. This reflects the strength and durability of our business model.

Looking ahead, we are confident our ability to sustain this balance and discipline approach to capital allocation. Our contractually committed backlog grew 28% as reported year over year, and 23% in constant currency, and now exceeds $2 billion as reported for the first time in PEGA's history. The biggest driver of our backlog increase was the increase in PEGA cloud backlog, which grew 36% as reported year over year.

PEGA cloud backlog now represents 74% of total backlog, which is amazing. We are also really pleased that the Supreme Court of Virginia unanimously affirmed what Virginia appellate court also unanimously recognized that the trade secret trial and resulting verdict were fundamentally flawed. What this means is that the $2 billion verdict is gone. For more details, please see the email I sent to our employees on January 8th, which we filed at the 8K.

Moving to 2,026 guidance. As a reminder, we provide only annual guidance, not quarterly guidance, and we typically do not update guidance during the year unless we have a material acquisition. Here are our key guidance metrics for 2,026. Total ACB growth at 15%. Total revenue of $2 billion, an increase of approximately 15%, and a very significant milestone for the firm. And free cash flow of $575 million, a 17% increase over 2,025.

With our rapidly increasing free cash flows, our board also authorized an additional $1 billion in buyback capacity. This authorization reflects our confidence in the durability of our cash flows and our commitment to discipline capital allocation. Since we don't provide quarterly guidance, I've received feedback that's helpful when I provide a few thoughts on modeling our business for 2,026.

First, with our subscription transition complete, you'll notice in our 2,025 results and in our 2,026 guidance that revenue growth and ACB growth are more closely aligned. Going forward, we expect this trend to continue. A dynamic sum of your models may hot and fully reflected yet. Now that Pega Cloud ACB is greater than 50% of total ACB, our annual revenue becomes more predictable.

Second, in 2,026, we expect the progression of our net new ACB to follow a more historically seasonal pattern with the significant amount of our net new ACB occurring in the second half of 2,026. This timing reflects the nature of our contract renewals which are more concentrated into Q3 and Q4 of 2,026. As a result, we expect subscription license revenue to be back and loaded as well.

Third, an AI reshapes how Pega and its partners deliver solutions with Blueprint. We intentionally reduce our professional services billable headcount and increased our reliance on partners for delivery. So, we expect full-year professional services revenue to represent roughly 10% of our $2 billion revenue guide in 2,026.

Finally, but also the most impactful factor is our rate of Pega Cloud ACB growth. Pega Cloud ACB is accelerated for four consecutive quarters fueled by the strength of Blueprint and strong execution. We expect this growth acceleration will continue to be driven by AI-powered automation initiatives by CIOs and executives prioritizing productivity and efficiency gains. Given these dynamics, we expect Pega Cloud revenue to continue to accelerate above 30% in 2,026.

And you can see that acceleration signal in our current Pega Cloud backlog growth. In conclusion, we've made tremendous progress in transforming our business model over the last several years, looking back 2025 as a year where we positioned Pega exceptionally well for continued growth acceleration. Thanks to all of our employees for running the business with a rule of 40 mindset.

We look forward to seeing investors in the next few weeks at upcoming investor banking conferences. And also, please mark your calendars. Our annual investor session will be held on Monday, June 8th at the MGM Grand in Las Vegas, Nevada, in conjunction with Pega World, our annual client conference. We'd love to have you join us there in person. And with that, I'd like to hand it over to Alan Trepler, our founder, and CEO.

Thank you, Ken. And it's a pleasure to get into tick off those numbers. It's really was a terrific 2025, and though it actually feels like a long time ago, we should take a brief moment and enjoy it.

Now that that that moment has passed, let me tell you about what's going to be happening in 2026. I'm really proud of our team coming into this year, because what we have is the basis of some things that can be really, really exciting. In 2025, we launched the infinity platform as the first real, energetic enterprise transformation platform. And we really extended our leadership position in the industry reports that matter the most to our customers and prospects. I love if you go to our website that have people see how Gartner and Forester reflect on what we do and what we are doing. And being in this position where as a rule of 40 plus company, where you have the resources, we have the balance, I think we have the maturity to go after this opportunity as we look to break the $2 billion a year threshold.

Once again, it's really an exciting time. But it all comes down to what clients need. And I recently returned from Davos where I have thousands of conversations with senior leaders and global organizations. And we really mirror a lot of the discussions that we have all the time. Now, there's lots of presentations and lots of noise and educational Super Bowl ad about the AGI, artificial general intelligence and how that's going to change the world in speculative and perhaps dramatic ways.

But in more normal settings, leaders are focused on the urgent practical questions. How do we leverage AI to reimagine our business as simplified and modernize operations and improve the customer experience? And you know, the issue here isn't the AI models. We made some great decisions about being able to be pretty fungible in how we chose one model versus another for different settings, and boy, that has turned out to be the absolutely right way to go about it. But the real question is not just the model.

It's how and when do you use it? And I spoke about this at our last call, but it's so important. I think it's worth taking a few minutes and really going through it again.

Our competition broadly is taking generative AI models and using them at runtime. Let me explain what that means. It means that when a customer or a staff member engages with whatever system is involved here, that model is reasoning there in the moment from scratch, trying to figure out what to do.

And you know, there are times when that's just fine to tell you the truth. We do exactly that. We're using our real time capabilities to engage with the designers. But if we're looking to do the work, we think it's a mistake, a serious mistake to a runtime routinely go and call the model as if it's discovering what you're trying to do for the first time.

Structurally, our competition, whether it's Microsoft or Salesforce or ServiceNow, our competition re-thinks the problem from scratch over and over again. And the slightly frightening thing is the models don't always come up with the same answers, even in situations and regulated industries. We're coming up with the same answer. It's not just important, it's imperative. And people who have fallen or are falling into these traps.

Some of them, I think, are starting to realize there's a problem here. A problem the package does not have, but a problem that is structural and endemic to the alternatives.

And so you can hear the noise and hear the wild claims. You can hear that LLMs can quote, you know, do it all. But the reality is the LLM will work best when used the right way.

Now, we've seen of light, I think it's referred to as the cesspocalypse, where software companies have been really brutalized. And obviously that's struck off as well as other firms. I think there's a lot of guilt by association here in this space. Let me share my views on that. First of all, there are definitely some software companies that are going to die.

The reality is every time there's a big technical shift, you see that sort of things happen. I think software companies that are basically glorified spreadsheets with limited functionality, yeah, you can do all sorts of magical things in the cloud or even co-pilot that enable you to go after those types of applications. But the applications we do for our clients, the very, very large ones that we historically worked with them, the more mid-market ones, we've never gone down market. But the more mid-market ones that we've talked about wanting to open up as we've scaled up this business, those companies really have processes that run them. And they want those processes to be respected. They want architectures that will be able to do reliable, repeatable, and our favorite word, predictable, that authoring firms is not a way to achieve that, whereas building workflows that are intrinsically objective.

So what we've done is made it so that every workflow is able to run as an agent, is able to call other agents from other companies, and is able to be part of a fabric that orchestrates processes across the enterprise, and much people interact conversationally, less people interact in ways that leverage their whole collection of workflows, in ways that are at once innovative and predictable. And when we can explain this difference to organizations, we see lights go on, and it's very, very, very exciting.

The thing about these set of different generators is this is a structural advantage. This is not one of those things where one LLM is six weeks ahead of another. This is a difference in philosophy that goes to the very core, and powerfully. It allows us to leverage our long, long history as a workflow model system to be able to do what you need to do for customers, to be able to build a workflow that can run at scale, that can be used through the power of AI, and can incorporate an orchestrate AI in a way that is turning it over to a model, is, frankly, a little bit freaky and unpredictable in my view here as well.

Now, having been able to do this for such a long time, I think the conjunction of this brand-new, spiffy technology, putting a real powerful machine on Pega's traditional business is the sort of thing that I think a lot of customers are realizing, that they can give them what they need and give them a way that they can predict and that they can understand. Now, I do have people ask, well, in this world in which you can generate vast amounts of code, or you can go to a cloud code or a code X, or you can write programs, and who knows, maybe that will be used to take out applications.

Why is this still relevant? I'm going to tell you exactly why it's relevant, more relevant than ever. And it goes back to something that we've been saying literally for 30 years. The problem is not generating the first limit of code. It's easy to do the machine, do it well, and for some problems, maybe that's all you need.

But for the problems we solve for our clients, it's not just about day one. It's also about being able to go back in day 30. Knowing you have, be able to navigate it and figure out how I'm going to change it, how I'm going to evolve it. To use our trademark's term, how are we going to build for change?

We have the build for change system. Period. We have some of the trademark which is best. But we have the system which I think is actually more important. And what people generally code have are instant legacies. Yes, you can create some really interesting things. And by the way, we use it too when we're writing our systems. You want to use the code generation because the world has changed in that way.

But you want a structure, this is why I say a structural advantage. And that structure are libraries of war plus that enable the business to scale, able the business to operate objectively with reliability and predictability, able to make the software able to orchestrate between different agents, systems and environments. And these are, we believe, the fundamentals of what makes Pega special and quite different.

Now, I couldn't be fair without going back to something I've talked about a lot, which is, I think, the starting point for all of this, which is Blueprint. Blueprint is the AI design engine for the enterprise. It takes, it continues to get better by the way, every two weeks is something there. So if you haven't been on Blueprint. com and tried it, it's worth doing. It gets more and more exciting and amazing every two weeks. Blueprint, the design engine, unleashes innovation. It really lets you describe what you want your business to be. It can go out to your website and see what you say about your market.

It can go out to all of the interfaces that you can upload into it, so you can actually see how to hook this in to the actual systems that you have in your back office. And it allows you to have these instant and productive conversations with team members to be able to collaborate and to build out what you want the systems to work with. And as I've mentioned before, this has completely changed our market. We're having similar productive conversations with clients about how they want to see an application and know with certainty that they're going to be able to get something that doesn't rely on power ports. It allows on the experience that they can literally touch, they can literally converse with, they can engage and gently with it, and can do it in the first ten minutes that we sit down with them.

We're so excited about what this does, but I will tell you that my excitement is increased because this year we've added features to enable not just our intellectual property to be put into something called a vector database and incorporated in Blueprint, but to enable ten of our best partners to be able to put their intellectual property, their proprietary intellectual property, available only to them into Blueprint. So when those partners are with one of their clients, they can use Blueprint as a vehicle to sell their projects with their IDP.

And this is very new, but I think this is going to be a tremendous opportunity for us to change the way we go to market by really leveraging the partners. And I'll tell you that still early stages, but these partners are enormously excited. You can see at the interview with me and Ravi Kumar, the CEO of Cognizor, in which he directs his teams, not just the pegates, but the company in general, to go and understand and use this technology.

And I think Blueprint offers this chance that I have not seen before in my history as a pecker. And we've seen it turn into real results. For example, Proximates, which is the leading telecom provider in Belgium, recently used Blueprint to redesign a critical application in one deck and actually get it into full production on peg the cloud in four months.

And this is so much more than they would have ever been able to do before, so excited here as well. So look, we love the term Vibe Coating. I don't know if it's going to stick or not, but we're adding Vibe features to Blueprint to make it work, but all of this is much more than just Vibe Coating, sort of a personal app to do something for you. This is about building enterprise systems, to enterprise standards, with enterprise interfaces and reliability and the capabilities that you need to be able to run your business on it. And of course, run your business reliably and predictably.

Now, in addition to the apps the customers want to have, we think that this is also a great chance to get rid of apps the customers, which they didn't have. And this is where we have made a recent acquisition, and this is where we built technology, and we have key partners with companies like Accenture and Wipro, to be able to analyze existing legacy systems, rethink them with AI, put them into Blueprint, allow collaboration, and then put them on this fast track, the legacy modernization.

The thing I will tell you is it's not just faster, it's better. So I think being able to do this in conjunction with our partners is going to allow us to accelerate our transformation, and going to allow us to achieve a whole new level of scale. And I'm really excited with the senior executives who I met at Davos, who love this stuff, actually. And they love it because if you go on to Blueprint and you are signed on as one of these partners, we actually put their logo, we give them full credit for their IP to put it into this picture, and it's something that they can use in their selling motion as well. So I think that the opportunity here out of Blueprint, and where Blueprint is and will be going, just continues to open new doors for us.

So, 2025 proved that disciplined innovation can win. And the market forces that are there, there's a lot of confusion. But the truth is the truth. Enterprises really want to transform. They really want to save money. They want to do a better job for their customers. And work was. It was the heart of how enterprises work. Our set-around and fitting platform was built for this moment.

And predictable AI gives customers the advantages of the AI, but also really gives them the predictability of reliability so that we don't have to worry about a lot of things that I see other people are going to think about. You know, in 26 our focus remains clear. Helping customers move from experimentation to execution, and move to outcomes from talk.

And I am super excited by what I see. That is built for this era. We are built for change. And we are excited for what's next. Krista, you can open up the line for questions.

So, you know, I think the interesting thing about the blue print approach and the whole way we've gone about using it, pushing it, if so, reduces friction around engaging the client.

Because it's a very low cost, low risk transaction for the customer to take a meeting and see what one of the systems could have been. Just need a little information about what the systems are and what they do. And the fact is, think of the touch and feel it in the first hour. I think that's not the same as, you know, getting the check, but it does put the whole mindset at ease.

So, I would describe the early stages of the pipeline as really excitingly advanced. We've also used blue print internally to create the workflows, you know, sales automation technology that enable us to evaluate a customer, see what we know about them, see what's available on the web, see what other systems, you know, these people who still have lotus notes and hip co and other sorts of things, see what other systems they have.

And actually be in a position to propose how they could do legacy transformation. And this is all very fresh. It's a great use of AI. And matches are what we call customer product matrix with an actual customer and the information we have about that actual customer. And I think that also lets us open up a whole new set of conversations, which from my point of view is pretty exciting.

I think, Steve, I'll add just a more tactical point on this. I don't know that in my, you know, 10 years of peg up, that I've seen more discussion with our clients around getting off of old legacy environments, like the pace at which that conversation is happening, and how much people are engaging with blueprints, and how many people or how many clients are coming to visit us, that we're actually doing workshops trying to identify which systems is like the pace of that is I've not seen that speed. So that's really exciting for us, you know, just in terms of really the pace of digital transformation.

Well, I think our growth rate pretty much, our constant currency growth rate state pretty consistent across the year. It was kind of right around that 14% number all through the year. So I don't, you know, it was, you know, well above our guide. So I think it was a fantastic year and a strong finish. In terms of the future, I think it really comes down to, you know, our net retention rate is expanding at the same time that we're actually targeting new logos.

And blueprint is much more prominent, which really builds the bridge for us to grab new logos in a case that we haven't been able to. So that's really what, it's a combination of NRR increasing and us going, you know, having the opportunity to go after new logos and really starting to see some early success of that.

You got it.

I think this is where we have some of our cyber structural advantages with peg up. I don't expect the customers will have to install tens of thousands of agents. I think the people who want to install tens of thousands of agents are delusional. And you know, we went through a parallel environment years ago around interfaces. People talked about microservices.

And the question was, how many of these microservices should connect your enterprise? You know, the reality is the people who put too many of them found that they went out of control. I think having an agent control tower to control your agents tells you something about the architecture, which is not a good thing. In peg up, if you have an application that has, say, 40 or 60 workflows in it and we have applications that have even much more than that.

But peg up super agent is able to run all 40. And if any of those agents and any of those steps need to learn something from another agent that's not a peg agent, or need to, you know, go to a third party, it can find her off an MCP-A2-A request that's already built into the system to be able to incorporate or orchestrate what that agent does with the work of another agent here. But the idea that the competitors have will you go and you can use a prompt studio to create literally thousands of agents that are defined in English and that are going to do the right thing reliably, that is so much weaker than saying, hey, I've got workflows that I know can run my business.

I can do it at scale. I can do it at high volume and do it particularly. And the peg agent is able to run any of them.

Does that make sense to you?

Ken, we did talk about NRR improving. Maybe any message has been shared to kind of quantify the impact that Blueprint has had on that. So, yeah, so we will, we're going to, we'll be basically about one year into the Blueprint data when we get closer to our investor day regime. But I will give you some of the early signs that we're seeing. We are seeing faster pipe build, faster progression, and faster close times across the board with Blueprint.

And so the key with that is to get into those new workflows, even with existing clients or with new logos. So we are seeing those early signs. We'll be a little bit more precise with how some of that data, because we'll kind of have about a year of that data when we get closer to the investor day. But we are seeing the signs of it impacting all the important factors. Pipe build, pipe progression, win rates, you know, so we are seeing the early signs of that. That's what gives us, you know, a key part of giving us confidence of accelerating our growth.

We've seen a massive acceleration or improvement in the training time for new staff. I would say, you know, we used to hire somebody, we'd often take five or six months before we look loose on a client.

Everybody's in the field in a month. A lot of that is that Blueprint just makes it so easy for them to get it and for them to explain it to their clients.

Thanks, Rishi.

So, the capabilities are very rich. We have out-of-the-box interfaces with Accenture and other partners that AWS that will enable their tooling, which, like, reads Cobalt code and those other sorts of things, to feed into Blueprint, to complement them. I actually prefer using things like user manuals and outcome-oriented documents. And it's enormous amount of interest in terms of doing that app modernization. I think this will be a good year for that. We've also made it so that Blueprint can modernize, you know, we have a couple of pretty old Sega systems that are out there with some of our clients.

And we've added facilities so that Blueprint can also modernize an old Sega system. And I think that's also positive. So, the feedback we're getting at clients is an interest. And I expect that we won't have several success stories in customer-standing offices here. Success stories at Pegga World with June.

Yeah, so we touched on a couple of things. I'll maybe be a little bit more explicit. Professional services, ballpark around 10% of our revenue. Pegga Cloud ACB is going to continue to accelerate. Pegga Cloud ACB is going to be 30% plus in 2026. That's translating into the revenue. Our term license will still have slight growth because clients, when they migrate, tend to keep some level of concurrent rights as they go through that migration. Those migrations don't typically happen in a weekend. They typically happen application by application as they're migrating.

So even though clients are moving to Pegga Cloud, you do still have a little bit of a slower growth acceleration on the term license. So you'll see Pegga Cloud growing 30% plus. You'll see kind of maintenance, you know, flat to slightly declining. You'll see client cloud kind of being a slower grower just because of those concurrent rights as people migrate. The majority of our Pegga Cloud growth is coming from new activity, new volume, whether that be expansion of existing apps or new apps. But the pace of migration has been pretty consistent in 25 and 24. We think 26 will be kind of same level of migration. It's kind of happening, you know, consistently across our client base.

Yep.

It is constant currency because our ACB is a balance sheet measure. So we are just, you know, we're only a month away from 1231. So we're not assuming much movement on the currency. That is a constant currency number. On the NRR, we're somewhere in the ballpark of 150 basis points higher on our NRR for 2025 over 2024.

And that number will probably, that level of NRR will probably stay consistent into 2000 and 26. We'll see a little bit more growth from new logos and expansion through our autonomous partner selling motion. But so we're off about 150 basis points or so on NRR.

Maybe I'll start and then let Alan jump in. So I think the most critical alignment between AWS and TEGA is that both of us are aligned with looking at legacy workflows. And using our tools, i. e. Blueprint, to transform, you know, using the AWS transform tool to actually adjust into Blueprint, to essentially redesign and re-implement that work that's actually living in those legacy systems. And that gets on to PEGA Cloud, which is aligned with AWS because it gets on to the AWS Cloud. So that's just a tremendous alignment there with basically inspecting and digesting the actual activity that's happening, leveraging Blueprint to build out those workflows and then those running on AWS. So very good alignment between our selling teams, the AWS selling team and the PEGA selling team to execute on that.

So that's kind of what's happening around that relationship.

Thank you. I think it's really going in a good direction. And I think you'll see a lot of AWS and PEGA World.

Well, sure, I obviously have some views on the same space. I would say that I think the death of SAS may be somewhat exaggerated, but there are aspects that put certain companies under more pressure or less pressure. I think the things that we find give us a lot of encouragement in this covered environment is, you know, first and foremost, businesses have lots of stuff to orchestrate. You know, the whole partner quadrant, which came out last year, called Boat, business orchestration and automation technologies, where, by the way, if you look at the picture, PEGA is declared number one in boat. I think it's a very, very strong area sector, and that's going to be strong in an energetic world.

Especially because being able to do the orchestration and being able to do the automation is going to be absolutely key. And that is what we do. Now, I think the SAS companies that are going to struggle are ones that are kind of little small things where, you know, candidly, you could just get some code, and then take care of it. You could run it in a spreadsheet, you know, with co-pilot. There's lots of places where the barriers and entry of somebody writing your programming have just massively been reduced.

But building a major system that does orchestration across a business and then has to worry about things and I'll just drop in a couple of the words of art that we use. Worry about things like, you know, two-phase commit, how do you make sure that when you commit records to the database, that they're there when they're reliable, but just doing something that is important. Having things that have a lot of industry IP also, I think, can create a bit of a moat for companies.

Some of that can be under attack because the AI can actually be that IP too. But the thing that I would say is most important is, is the system built for change? Because the problem with these code-based systems that are attacking the SAS world is they don't have a particularly visible architecture. They're just kind of written. And, you know, going after somebody else's 3000 modules of code is incredibly daunting and very, very difficult to do correctly.

In our world, because, you know, you can see a blueprint, we have so much scaffolding and infrastructure. We have the idea of a case, we have the idea of stages, we have the idea of steps, we have the idea of service levels of personas. Our systems are built around the business entities of an organization. And because they're built that way, it's possible to navigate, and as a result, possible to change it. Businesses that require change, I think, are going to be the ones that are going to be most interested in a technology like ours. And the business is where you can just write something that's going to sit on the shelf for two, three years or months.

Those are the ones that I think that makes sense.

So, duration, Blair, has been pretty consistent. No big changes there. I mean, there's always, like, a quarter to a little anomaly just because of the way things go in the backlog, but there's no fundamental change in the duration that clients are looking for. We're not seeing, you know, any big shift there. I think Alan's point on the going after, I'll just generalize it, say, new logos, as opposed to any particular segment. I think Alan's point about blueprint and how important blueprint is to the ability for a town executive to ramp quickly, the ability for us to target, and the ability for us to get into a really engaged pipeline building activity in a very short period of time, is what gives us a lot of confidence around scaling the engagement aspect, whether that be through the autonomous partner selling through our partners or through our direct target org model.

We've never really had that confidence in the past because there was a long lead time to monetization of those account executives, so we're much safer in terms of trying to push for acceleration to grow. Like, really, really running that play out to make that really help us to scale our growth.

You got it.

In terms of areas of growth of spend, is that what you meant, Mark?

So we're going to get optimization across a lot of our P&L lines. Our growth margin is pretty respectable now, but it's not likely to go backwards. We'll get leverage out of our R&D group as we use more, kind of by coding and AI in our actual processes. Including our operational processes. So we will see some growth margin kind of optimization around aspects of our business, our sales and marketing teams.

I think what a lot of that is really around the digital engagement and what we're doing in our ability to engage with our clients and really leveraging kind of a genetic process is how we engage. In the target org model, there will still be an investment in relationships selling because there are still people on the other side of those enterprise relationships there. That is not, you know, we're not talking to bots when we're doing the enterprise selling. So I think there's probably an area around some of our selling capacity, some of our investment in our partnership in our innovation, I think, will quite frankly get some operating leverage as well as our operations.

We're going to see our free cash flow continue to expand as we grow because we really are starting to get to that. We're hitting the efficiency stages that you're seeing that come through in our acceleration of market. I think one of the things that I think is really probably one of the biggest disconnects that we're seeing is there is such a disconnect between the narrative that people are talking about around what's happening in enterprise and what we're seeing with our clients. Our clients have massive amounts of transformation that they need to do. They need the agents to be guided, to be structured, to follow the rules, to execute at scale. And then the concept of a digital twin type agent disrupting and changing that momentum I make is really the disconnect that we're quite puzzled by in terms of what we're seeing with our clients and what some of the narrative is.

So we're going to continue to invest in engaging with our clients and helping them on that journey. And there's not one client that's not focused on trying to optimize their legacy systems. And it's just like the perfect moment for us.

Well, I think that Blueprint is an example of an AI-first delivery model. I mean, Blueprint is completely changed. Blueprint lets you go from ideation and things that used to happen on whiteboards and post-cents over weeks to something where you're right on the system, collaborating it, and it can load into an honest-to-god, run-able-infinity system. So the ability to operate at not just better speed, but I think better quality is very much built into what we are working on with Blueprint, and we've already achieved the chunk of that more encompassed here.

Thanks, Mark.

Thank you to all who joined. We appreciate it. I just want to mention Pega World. Again, June 8th is Investor Day, so investors are free to attend through the 7th tonight. I think you would find it to be insightful because in this world of insane noise, and the noise out there is crazy. There are real substantive differences, and you can see and touch and understand the conjunction with our customers and partners. So please, come join us there. That will be terrific, and I will just tell you that I feel that we as a company were built for times like this. So, may we leave it interesting times collectively.

Thank you very much, everyone.