• Annual Contract Value (ACV): Increased 9% year-over-year.

• Pega Cloud ACV: Approaching $600 million, largest and fastest-growing portion of ACV.

• Free Cash Flow: $180 million in Q1, a record for any quarter.

• Pega Cloud Gross Margin: Increased to 77%, up 500 basis points from previous year.

• Pega Cloud Revenue: Grew 21% year-over-year to $131 million in Q1.

• Cost Management: Sales and marketing expenses decreased by about 15% year-over-year.

• Term License Revenue: Expected to decline as Pega Cloud becomes a larger portion of business.

• Capital Structure: $619 million in total cash and investments, net cash positive position considering convertible debt.

• Legal Update: Agreement to resolve shareholder suit for $35 million.

• Warning! GuruFocus has detected 6 Warning Signs with WHR.

Release Date: April 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Q & A Highlights

Q: Can you elaborate on how the monetization of Gen AI will accelerate client adoption of Pega? A: Alan Trefler - Pegasystems Inc. - Founder, CEO & Chairman of the Board: Gen AI is being integrated across our products to enhance their functionality, making them faster, better, and more cost-effective. This integration is expected to be a key reason for accelerated client adoption, as it significantly improves the speed and efficiency of deploying Pega solutions.

Q: How has the strong Q1 cash flow impacted your expectations for the full year? A: Kenneth R. Stillwell - Pegasystems Inc. - COO & CFO: The strong cash flow in Q1 is a positive start, reinforcing our confidence in achieving our full-year targets. However, it doesn't change our overall expectations for the year, as we anticipated Q1 and Q4 to be stronger due to the timing of collections.

Q: With the introduction of Blueprint, are there early indications that this could lead to an increase in applications being developed on the platform? A: Alan Trefler - Pegasystems Inc. - Founder, CEO & Chairman of the Board: Yes, the interest in Blueprint has been significant, and it's being included in RFP responses and bids. This tool is expected to drive a substantial increase in applications developed on the platform, particularly as it aids in legacy transformation and streamlines the design process.

Q: Are the Gen AI capabilities driving discussions about cloud migrations from self-managed products? A: Kenneth R. Stillwell - Pegasystems Inc. - COO & CFO: Yes, the introduction of Gen AI capabilities is encouraging discussions about cloud migrations. Clients see the benefits of Pega Cloud in terms of cost-effectiveness and scalability, which are enhanced by the integration of Gen AI.

Q: Can you discuss the consumption trends or patterns seen with early Blueprint adopters on the Pega platform? A: Alan Trefler - Pegasystems Inc. - Founder, CEO & Chairman of the Board: Early adopters have created thousands of blueprints, exceeding our expectations. This high level of engagement is a strong indicator of the tool's utility and potential impact on accelerating application development and digital transformation initiatives.

Q: What are the next steps in the go-to-market strategy for AI, and can we expect more partnerships? A: Alan Trefler - Pegasystems Inc. - Founder, CEO & Chairman of the Board: We are actively working with key partners and looking to broaden these relationships. The rapid adoption and enthusiasm for Blueprint suggest a more viral go-to-market approach moving forward, supported by strong partner engagement.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.