Low-code automation software company Pegasystems (NASDAQ:PEGA) announced better-than-expected revenue in Q4 CY2025, with sales up 2.7% year on year to $504.3 million. The company’s full-year revenue guidance of $2 billion at the midpoint came in 7.9% above analysts’ estimates. Its non-GAAP profit of $0.76 per share was 3.5% above analysts’ consensus estimates.
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Pegasystems (PEGA) Q4 CY2025 Highlights:
- Revenue: $504.3 million vs analyst estimates of $491.5 million (2.7% year-on-year growth, 2.6% beat)
- Adjusted EPS: $0.76 vs analyst estimates of $0.73 (3.5% beat)
- Adjusted Operating Income: $160.4 million vs analyst estimates of $165.5 million (31.8% margin, 3.1% miss)
- Adjusted EPS guidance for the upcoming financial year 2026 is $2.75 at the midpoint, beating analyst estimates by 23.6%
- Operating Margin: 20.7%, down from 29.1% in the same quarter last year
- Market Capitalization: $7.30 billion
StockStory’s Take
Pegasystems’ fourth quarter saw revenue and profit metrics exceed Wall Street expectations, but the market responded negatively as operating margin contracted significantly year over year. Management attributed the growth in sales to accelerated adoption of its cloud-first strategy and the increased use of Blueprint, the company’s AI-powered design agent. However, COO and CFO Ken Stillwell noted that while total annual contract value (ACV) rose and cloud-related backlog expanded, near-term profit margins were affected by ongoing investments in innovation and a shift in the business mix toward subscription revenues. CEO Alan Trefler acknowledged that, despite notable top-line performance, the company remains focused on balancing growth and operational efficiency.
Looking ahead, Pegasystems’ guidance is driven by expectations of continued cloud ACV acceleration, expanded adoption of its AI-powered automation platform, and increased partner-led sales. Management highlighted that Blueprint is fundamentally changing client engagement and shortening sales cycles, and expects these trends to support both revenue predictability and margin improvement over time. Stillwell emphasized that “AI-powered automation initiatives are top of mind for CIOs and executives prioritizing productivity and efficiency gains,” while Trefler pointed to further scaling in both enterprise and mid-market segments as a key opportunity. The company remains watchful of macroeconomic factors and partner execution as it pursues its growth targets.
Key Insights from Management’s Remarks
Management emphasized that the quarter’s performance was driven by growing enterprise cloud adoption, accelerated AI integration, and a shift in go-to-market strategy leveraging Blueprint and strategic partners.
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Cloud-first momentum: Pegasystems’ cloud ACV growth accelerated, driven by adoption of Pega Cloud and increased client migration from legacy systems. Management credited Blueprint’s role in making migrations and deployments more efficient, and highlighted that cloud backlog now comprises a majority of total contracted business.
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Blueprint transforming sales: The Blueprint AI agent is now central to Pegasystems’ sales process, enabling faster pipeline progression and reducing time to deployment. Management noted that Blueprint’s ability to rapidly convert client needs into workable solutions has improved win rates and shortened sales cycles, particularly with new enterprise and mid-market customers.
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Partner-driven expansion: The company is increasingly relying on system integrator partners such as Cognizant, Accenture, and Wipro to deliver and extend Blueprint’s capabilities. Pegasystems has enabled these partners to embed their proprietary intellectual property into Blueprint, facilitating larger and more complex client engagements and broadening the go-to-market reach.
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Legacy modernization demand: Management cited rising client urgency to modernize and automate legacy workflows as a key demand driver. Blueprint’s ability to interface with legacy code and documentation, and to accelerate transformation projects, is resulting in faster adoption and deeper client relationships.
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Operational discipline and capital returns: Pegasystems increased free cash flow substantially, enabling continued investment in R&D, expansion of sales capacity, and significant shareholder capital returns. Management also announced an additional $1 billion in share buyback authorization, underscoring the company’s focus on long-term shareholder value.
Drivers of Future Performance
Guidance for the coming year is shaped by persistent demand for AI-driven automation, continued migration to cloud offerings, and expanded partner-led sales.
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Cloud ACV acceleration: Management expects continued double-digit growth in cloud ACV, with the majority of new business coming from cloud migrations and expansions. The company believes this will drive greater revenue predictability and improved subscription margins over the long term.
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AI-powered automation adoption: Pegasystems is prioritizing the integration of predictive and generative AI within its Infinity platform and Blueprint offering. Management anticipates that enterprises looking to streamline operations and modernize legacy systems will increase adoption of these solutions, positioning the company for sustained revenue growth.
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Partner ecosystem execution: The company is shifting more professional services delivery to partners, aiming to scale client transformation projects efficiently. While this increases reach, it introduces execution risk, as successful outcomes will depend on partner performance and coordination.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be tracking (1) the pace of cloud ACV growth and client migrations, (2) measurable improvements in sales cycle duration and partner-led deal velocity using Blueprint, and (3) the ability of Pegasystems’ AI-powered solutions to deliver tangible operational efficiencies for enterprise and mid-market clients. Execution on these fronts will serve as key indicators of progress toward the company’s growth and margin improvement goals.
Pegasystems currently trades at $38.82, down from $42.57 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).
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