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    PEGA
    Earnings call· Mar 2026(Q1 FY26)

    PEGASYSTEMS Q1 FY26 earnings call PEGA

    Apr 22, 2026 Source

    Executive summary

    Pegasystems Q1 FY26 — Blueprint Drives Pipeline and Cloud ACV Growth

    Pegasystems emphasized its strategic AI approach, focusing on governed, design-time AI to ensure predictability and cost-effectiveness, contrasting with expensive run-time LLM reasoning. The Blueprint platform is significantly enhancing new logo acquisition and accelerating time-to-value, driving strong Pega Cloud ACV growth. Despite Q1 being a challenging comparison and facing macroeconomic headwinds, the company anticipates a back-end loaded year, with momentum building in the second half.

    Highlights

    5

    • Pega Cloud revenue increased year-over-year from $151 million to $205 million.

    • Pega Cloud ACV grew 29% year-over-year (27% in constant currency) to just over $900 million.

    • Free cash flow reached $207 million in Q1 FY26, marking a strong start to the year.

    • Returned more than 80% of free cash flow to shareholders, repurchasing 3.5 million shares for $167 million.

    • Blueprint is driving meaningful new logo pipeline creation and accelerating time to value, with examples of new applications going live in 70 and 92 days.

    Concerns

    5

    • Q1 FY26 had a lower growth rate due to a challenging comparison, as Q1 FY25 saw an outlier $60 million of net ACV add.

    • The federal government shutdown caused a few deals and renewals to slip out of Q1 FY26.

    • Wars in Europe and the Middle East are putting pressure on the overall environment, particularly impacting Europe (30% of business).

    • Term license revenue is expected to be more heavily weighted towards the second half of 2026.

    • The strategic focus on Pega Cloud ACV growth puts pressure on both term and maintenance ACV and revenue.

    Guidance & targets

    2
    CategoryTargetConfidence
    Pega Cloud ACV as % of total ACV
    75% or more
    high materiality
    High
    Term license revenue weighting
    more heavily weighted towards the second half of 2026
    medium materiality
    High

    Operational metrics

    9
    Pega Cloud revenue
    $205Mup from $151M YoY
    Q1 FY26

    Pega Cloud revenue increased year-over-year.

    Pega Cloud revenue growth
    30%YoY
    TTM

    Pega Cloud revenue growth on a trailing 12-month basis.

    Pega Cloud ACV as % of total ACV
    56%
    Q1 FY26

    Pega Cloud ACV now represents about 56% of total ACV.

    Capital returned to shareholders
    >80%
    Q1 FY26

    Returned more than 80% of free cash flow to shareholders in Q1.

    Shares repurchased
    3.5M shares for $167M
    Q1 FY26

    Repurchased 3.5 million shares for $167 million under the repurchase program.

    Dividends paid
    $5M
    Q1 FY26

    Paid $5 million in quarterly dividends.

    Shares outstanding decrease
    1.6M sharesvs end of 2025
    Q1 FY26

    Shares outstanding decreased from the end of 2025 by 1.6 million shares.

    Application build time with Blueprint
    92 days
    Q1 FY26

    An existing client used Blueprint to design and build new applications.

    Application build time with Blueprint
    70 days
    Q1 FY26

    An existing client used Blueprint to design and build new applications.

    Industry KPIs

    7
    MetricValueDetails
    Revenue growth$205MUSD
    Arr net new arr$900MUSD
    Bookings billings$20MUSD
    Pricing model mixoutcome-basedmodel
    Customer account countunusually highlevel of growth
    Large deal new logo metricsnew financial services logocustomer
    Ai product adoption monetizationcasesmeasure of work

    Orderbook & backlog

    2
    Pega Cloud ACV$900MQ1 FY26

    29% YoY reported, 27% YoY constant currency

    Represents Annual Contract Value for Pega Cloud, rapidly approaching $1 billion.

    Net ACV add$20MQ1 FY26

    Net ACV add in constant currency for the quarter. Q1 FY25 had an outlier $60M net ACV add.

    Product announcements

    2
    ProductTypeDetails
    Blueprint AI assistantupdate
    Blueprint AI development and support suiteroadmap

    Deals & partnerships

    3
    Financial services logoLegacy transformation and cloud migration

    Signed in Q4 FY25, leveraging Blueprint's new legacy transformation capabilities.

    ProximusModernization of B2B installation application

    Belgium's largest telecommunications operator, moved from a fragile legacy tool to a cloud-ready solution using Pega.

    National Health Service (NHS) ScotlandDigital and telephone-based out-of-hours service

    Received the public sector award for work leveraging Pega software for its 24-hour service to 5.5 million citizens.

    Risks & headwinds

    5
    Challenging Q1 comparisonQ1 FY26

    Q1 FY26 had a lower growth rate compared to Q1 FY25, which had an outlier $60M of net ACV add.

    Mitigation: Anticipate back-end loaded year with momentum building in H2 FY26 due to renewal cycles and new logo focus.

    Federal government shutdownQ1 FY26, potentially Q2 FY26

    A few deals and renewals slipped out of Q1 FY26.

    Mitigation: Expect delays to clean up through the rest of the year, though Q2 might still see some confusion in procurement processes.

    Geopolitical conflicts (wars in Europe and Middle East)Ongoing

    Puts pressure on the entire environment, especially Europe (30% of business), with potential for derisking due to higher oil prices, temporary inflation, and disrupted supply chains.

    Mitigation: Monitoring the situation; company has cloud choice to work with different hyperscalers and regions to manage tensions between U.S. providers and other parts of the world.

    Pressure on term and maintenance ACV/revenueOngoing

    As Pega Cloud ACV grows as a percentage of overall ACV, it impacts near-term and in-quarter revenue for term and maintenance.

    Mitigation: This is an intended dynamic as the company marches toward its cloud mix goal of 75% or more Pega Cloud ACV.

    Increasing AI usage costsOngoing

    Frontier model providers are tightening monetization; AI usage is increasingly treated as an operating expense, requiring justification for every API call.

    Mitigation: Pega's outcome-based pricing model (based on cases) aligns with the shift to ROI, providing a more efficient path for clients to generate and measure return on AI investments, contrasting with token/API call-based pricing.

    What to watch in Q2 FY26

    5

    ACV Growth Acceleration

    H2 FY26
    CurrentQ1 FY26 net ACV add ~$20M (CC)
    TargetAccelerated growth, particularly in H2 FY26

    Why it matters

    ACV growth is a key indicator of the company's subscription business health and future revenue potential, with H2 expected to show significant acceleration.

    I remember you talking about client compelling events and renewal cycles driving potential uplift in the back half of '26.

    Q&A highlights

    7

    Can you provide more color on the expected acceleration of ACV growth through the year, particularly in the back half of FY26?

    Management explained that the renewal cycle is back-end loaded for FY26, which is a more typical distribution. Additionally, a renewed focus on new logo acquisition, enabled by Blueprint, is building pipeline that is expected to convert into ACV in the second half of the year, contributing to the anticipated momentum.

    “So there's 2 different factors that really tip our business momentum towards the back end of the year, which is very different than last year where we had a very, very unusually tipped towards the front end of 2025.”

    asked by Alexei Gogolev · answered by Kenneth Stillwell

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic AI Approach and Platform Value

    Pegasystems is positioning its platform as an enterprise AI harness, emphasizing governed, explainable AI within workflows. Management highlighted the importance of platforms architected for predictability, governance, interoperability, and continuous change, rather than relying on ungoverned AI-generated code or dynamic run-time reasoning. This approach ensures reliability, auditability, and cost-effectiveness, as design-time AI consumption is amortized over many runs, making run-time LLM reasoning less attractive due to increasing costs and non-deterministic outcomes.

    02

    Blueprint's Impact on Pipeline and Time-to-Value

    The Blueprint platform is a key enabler for accelerating new logo pipeline build and improving time-to-value. It simplifies the design and reimagining of legacy mission-critical workflows, making it easier for sellers to showcase the platform's power. Blueprint has already demonstrated its ability to accelerate application development, with an existing client designing and building two new applications that went live in 92 and 70 days, respectively. This tool is also driving go-to-market efficiency and R&D benefits.

    03

    Pega Cloud Momentum and Strategic Shift

    Pega Cloud revenue increased significantly year-over-year, reaching $205 million in Q1 FY26, and grew 30% on a trailing 12-month basis. Pega Cloud ACV grew 29% year-over-year (27% in constant currency) to just over $900 million, rapidly approaching the $1 billion mark. Pega Cloud ACV now represents approximately 56% of total ACV. This strategic shift towards Pega Cloud is intentionally putting pressure on term and maintenance ACV and revenue, a dynamic expected to persist as the company aims for Pega Cloud ACV to reach 75% or more of total ACV over time⏳.

    04

    Capital Allocation and Financial Strength

    The company maintains a balanced capital allocation approach, prioritizing investments in long-term ACV growth while returning capital to shareholders. In Q1 FY26, Pegasystems returned over 80% of its free cash flow to shareholders, repurchasing 3.5 million shares for $167 million and paying $5 million in quarterly dividends. Shares outstanding decreased by 1.6 million from the end of 2025, reflecting confidence in the durability of cash flow and the accretive nature of buybacks.

    05

    Macroeconomic Headwinds and Business Outlook

    Q1 FY26 faced a challenging comparison and macroeconomic headwinds🌐, including the federal government shutdown, which caused some deals and renewals to slip. Geopolitical conflicts in Europe and the Middle East are also putting pressure on the spending environment, particularly in Europe, which accounts for about 30% of the company's business. Despite these factors, management expects the year to be back-end loaded⚖️, with business momentum and pipeline conversion accelerating in the second half due to renewal cycles and new logo focus.

    06

    Evolving AI Economics and Pricing Model

    The economics of AI are changing, with frontier model providers tightening monetization and AI usage increasingly treated as an operating expense. This transition from AI experimentation to an ROI-driven stage plays to Pega's strengths, as its outcome-based pricing model (based on 'cases' or work executed) aligns directly with delivering measurable business value. This contrasts with usage-based pricing (tokens, API calls) of many model providers, offering clients a more efficient path to justify AI investments.

    AI-generated summary of the company’s earnings call. Not investment advice.