Financial Performance Highlights for Pegasystems Inc.

Pegasystems Inc. (Pega) is a leading provider of enterprise software solutions that help organizations optimize their decision-making and business processes in real-time. The company’s powerful platform for artificial intelligence (AI) and workflow automation enables global brands and government agencies to deliver personalized customer experiences, automate customer service, and streamline critical operations.

In the fiscal year 2024, Pega reported strong financial results, with revenue increasing by 5% to $1.50 billion compared to the previous year. The company’s performance was driven by continued growth in its Pega Cloud business, which saw a 21% increase in annual contract value (ACV) on a constant currency basis.

Revenue and Profit Trends

Pega’s revenue is primarily generated from subscription services, which accounted for 86% of total revenue in 2024. The company’s Pega Cloud business, which provides cloud-based software-as-a-service (SaaS) offerings, saw a 21% increase in ACV on a constant currency basis, reaching $652 million. This growth was partially offset by a 10% decline in maintenance revenue and a 2% decline in subscription license revenue, as more clients shifted to the Pega Cloud platform.

Gross profit increased by 5% to $1.11 billion in 2024, with the gross profit margin remaining steady at 74%. The increase in gross profit was primarily driven by improved cost efficiency in the Pega Cloud business, partially offset by a decline in consulting gross profit due to lower utilization rates.

Operating expenses decreased by 4% in the selling and marketing category, primarily due to reduced headcount from the optimization of Pega’s go-to-market strategy. However, general and administrative expenses increased by 17%, mainly due to higher compensation and benefits, including stock-based compensation, as well as increased legal fees related to proceedings outside the ordinary course of business.

Overall, Pega’s net income increased by 29% to $75 million in 2024, with an effective tax rate of 30%. The company’s strong cash flow from operations, which grew by 59% to $346 million, enabled it to invest in its business, settle litigation, and return capital to shareholders through stock repurchases and dividends.

Strengths and Weaknesses

Pega’s key strengths include its market-leading position in enterprise AI and workflow automation solutions, strong client relationships with global brands and government agencies, and a growing Pega Cloud business that provides a recurring revenue stream. The company’s focus on innovation and its ability to help clients drive digital transformation are also significant competitive advantages.

However, Pega faces some challenges, including the ongoing shift of its client base from on-premises software licenses to cloud-based subscriptions, which has resulted in declines in maintenance and subscription license revenue. The company also continues to incur legal fees and costs related to proceedings outside the ordinary course of business, which have impacted its profitability.

Outlook and Future Prospects

Looking ahead, Pega is well-positioned to capitalize on the growing demand for enterprise AI and workflow automation solutions. The company’s strategic investments in its Pega Cloud platform, AI capabilities, and go-to-market initiatives are expected to drive continued growth in its subscription-based revenue.

Pega’s management is confident that the company’s current cash, marketable securities, and cash flow from operations will be sufficient to fund its operations, settle its convertible senior notes, and return capital to shareholders through stock repurchases and dividends for the foreseeable future. However, the company may need to seek external financing if it requires additional capital resources to support its future growth and investments.

Overall, Pega’s strong financial performance, market leadership, and strategic initiatives position the company well to navigate the evolving enterprise software landscape and deliver long-term value to its shareholders.

Key Financial Metrics

Annual Contract Value (ACV):

Metric	December 31, 2024	December 31, 2023	Change
Pega Cloud ACV	$652,443,000	$552,998,000	18%
Maintenance ACV	$291,807,000	$324,091,000	-10%
Subscription Services ACV	$944,250,000	$877,089,000	8%
Subscription License ACV	$427,268,000	$377,794,000	13%
Total ACV	$1,371,518,000	$1,254,883,000	9%

Constant Currency ACV:

Metric	December 31, 2024	December 31, 2023	Change
Constant Currency ACV	$1,395,000,000	$1,255,000,000	11%

Revenue:

Metric	2024	2023	Change
Pega Cloud	$558,734,000	$461,328,000	21%
Maintenance	$323,304,000	$331,856,000	-3%
Subscription Services	$882,038,000	$793,184,000	11%
Subscription License	$398,102,000	$407,625,000	-2%
Subscription	$1,280,140,000	$1,200,809,000	7%
Perpetual License	$3,767,000	$10,101,000	-63%
Consulting	$213,273,000	$221,706,000	-4%
Total Revenue	$1,497,180,000	$1,432,616,000	5%

Gross Profit:

Metric	2024	2023	Change
Pega Cloud Gross Profit	$434,261,000	$342,670,000	27%
Maintenance Gross Profit	$297,859,000	$306,264,000	-3%
Subscription Services Gross Profit	$732,120,000	$648,934,000	13%
Subscription License Gross Profit	$396,214,000	$405,019,000	-2%
Subscription Gross Profit	$1,128,334,000	$1,053,953,000	7%
Perpetual License Gross Profit	$3,750,000	$10,034,000	-63%
Consulting Gross Profit	$(25,569,000)	$(9,854,000)	-159%
Total Gross Profit	$1,106,515,000	$1,054,133,000	5%

Operating Expenses:

Metric	2024	2023	Change
Selling and Marketing	$534,780,000	$559,177,000	-4%
Research and Development	$298,074,000	$295,512,000	1%
General and Administrative	$112,848,000	$96,743,000	17%
Litigation Settlement, net of Recoveries	$32,403,000	$0	N/A
Restructuring	$4,528,000	$21,747,000	-79%

Cash Flow:

Metric	2024	2023	Change
Cash Provided by Operating Activities	$345,926,000	$217,785,000	59%
Free Cash Flow	$338,214,000	$201,004,000	68%

Liquidity and Capital Resources:

Metric	December 31, 2024	December 31, 2023
Total Cash, Cash Equivalents, and Marketable Securities	$739,973,000	$423,338,000
Restricted Cash	$4,426,000	$2,925,000
Total Cash, Cash Equivalents, Marketable Securities, and Restricted Cash	$744,399,000	$426,263,000
Convertible Senior Notes Outstanding	$468,000,000	$502,400,000
Available Borrowing Capacity under Credit Facility	$72,700,000	$72,700,000

Conclusion

Pegasystems Inc. delivered strong financial performance in 2024, driven by continued growth in its Pega Cloud business and improved cost efficiency. The company’s focus on innovation, market leadership, and strategic initiatives positions it well to capitalize on the growing demand for enterprise AI and workflow automation solutions. While Pega faces some challenges, such as the ongoing shift to cloud-based subscriptions and legal proceedings, the company’s robust liquidity and cash flow provide the resources to navigate these obstacles and deliver long-term value to its shareholders.