Pegasystems (NASDAQ:PEGA) executives highlighted what they described as a strong finish to 2025 and outlined expectations for continued growth in 2026, with a particular focus on accelerating cloud adoption and the expanding role of its AI-powered Blueprint product in sales, delivery, and legacy modernization initiatives.
2025 results: ACV growth and cash flow outperformance
Chief Operating Officer and CFO Ken Stillwell said total annual contract value (ACV) rose 17% year-over-year as reported and 14% in constant currency, exceeding the company’s guidance. Pega Cloud ACV was a primary driver, increasing 33% as reported and 28% in constant currency, which Stillwell called a “pretty significant acceleration” compared with the prior year’s growth rates.
On profitability and cash generation, Stillwell said free cash flow increased 45% year-over-year to $491 million, exceeding guidance by $51 million. He said the improvement was driven by ACV growth and reflected the strength of Pegasystems’ subscription model following its subscription transition.
Backlog milestone and capital allocation actions
Stillwell reported contractually committed backlog grew 28% year-over-year as reported and 23% in constant currency, surpassing $2 billion as reported for the first time. Pega Cloud backlog grew 36% as reported and represented 74% of total backlog.
He also detailed 2025 capital allocation actions, saying the company ended the year with $426 million in cash and investments and, during 2025, repaid $468 million of debt, repurchased $498 million of shares, and distributed $15 million in dividends. Stillwell said the board authorized an additional $1 billion in buyback capacity, citing confidence in the durability of cash flows and a continued focus on disciplined capital allocation.
Stillwell also noted a legal development, saying the Supreme Court of Virginia unanimously affirmed a prior appellate decision that the trade secret trial and verdict were “fundamentally flawed,” and that the “$2 billion verdict is gone.” He referred investors to a January 8 employee email filed as an 8-K for additional details.
2026 outlook: $2 billion revenue target and ACV growth expectations
For 2026, Stillwell said the company guides to total ACV growth of 15%, total revenue of $2 billion (about 15% growth), and free cash flow of $575 million, which would be 17% higher than 2025. In response to an analyst question, Stillwell clarified the 15% ACV growth guide is on a constant-currency basis, noting ACV is a balance sheet measure and the company was not assuming significant currency movement from year-end rates.
Stillwell provided several planning assumptions for modeling 2026 performance:
- Revenue and ACV alignment: With the subscription transition complete, revenue growth and ACV growth are expected to be more closely aligned, and the company expects this to continue.
- Seasonality: The company expects a more “historically seasonal pattern,” with a significant portion of net new ACV in the second half of 2026 due to renewals concentrated in Q3 and Q4. Stillwell said subscription license revenue is expected to be back-end loaded as well.
- Services mix: Pegasystems reduced professional services billable headcount and increased reliance on partners for delivery; as a result, professional services revenue is expected to be roughly 10% of the $2 billion revenue guide.
- Cloud growth: Stillwell said Pega Cloud ACV has accelerated for four consecutive quarters and expects Pega Cloud revenue to continue to accelerate above 30% in 2026, pointing to backlog growth as an indicator.
Blueprint and “predictable AI” positioning
Founder and CEO Alan Trefler emphasized Pegasystems’ approach to AI, arguing that repeatedly calling generative AI models “at runtime” can lead to unpredictable results, which he said can be problematic in regulated environments. He contrasted that with Pegasystems’ focus on workflows that are “reliable, repeatable, and predictable,” describing a philosophy built around agentic workflows rather than large numbers of prompt-defined agents.
Trefler said Blueprint has “completely changed our go-to-market,” enabling customers to interact with an application concept quickly rather than relying on presentations. He also said Pegasystems has added capabilities that allow partners to incorporate their proprietary intellectual property into Blueprint, which he described as a way to help partners sell projects using their own IP.
As an example, Trefler said Proximus, a telecom provider in Belgium, used Blueprint to redesign a critical application in one day and move it into full production on Pega Cloud in four months.
Q&A: pipeline, retention, modernization, and cloud migration
During the question-and-answer session, management said Blueprint is reducing friction in early sales engagement and supporting faster pipeline build. Stillwell said the company is seeing “faster pipe build, faster progression, and faster close times,” and that it expects to be more precise with data once it has about a year of Blueprint-related metrics, pointing toward discussion closer to investor day.
In another metric update, Stillwell said net retention rate (NRR) improved by roughly 150 basis points in 2025 compared with 2024 and that the company expects that level to remain consistent into 2026. He said confidence in the 2026 ACV outlook is supported by both expanding retention and increased targeting of new logos, with Blueprint helping to “build the bridge” to win new customers.
On modernization, Trefler said client interest in legacy application modernization is high and that the company has interfaces with partners such as Accenture and AWS to feed modernization inputs into Blueprint. He said he expects “several success stories” to be presented at PegaWorld in June.
Addressing cloud migration, Stillwell said most Pega Cloud growth is coming from “new activity” such as expansion of existing applications or new applications, while migrations from term license environments remain consistent year-over-year. He added that term license can still see slight growth during migration periods because customers often retain some concurrent rights as they move applications over time.
Pegasystems reiterated that its annual investor session will be held June 8 in Las Vegas in conjunction with PegaWorld.
About Pegasystems (NASDAQ:PEGA)
Pegasystems Inc is a software company specializing in customer engagement and digital process automation solutions. Headquartered in Cambridge, Massachusetts, Pegasystems develops enterprise applications designed to help organizations streamline operations, manage customer interactions and automate complex workflows. Its platform supports a wide range of use cases, from sales and marketing optimization to case management and robotic process automation.
The core of Pegasystems’ offering is the Pega Platform, a low-code development environment that enables businesses to build and deploy applications with minimal hand-coding.
