Pegasystems Reports Revenue Rebound as Contract Growth Slows
Second-quarter revenue rose 9% to $420.7 million after declining in the prior quarter.
Pegasystems Inc. (PEGA), the enterprise software maker, reported that annual contract value growth slowed to 7% in the second quarter from 12% in the first quarter and 17% in the fourth quarter of 2024.
Rapid changes in the artificial-intelligence market caused customers to delay purchasing decisions, significantly slowing first-half ACV growth. Pegasystems warned that ACV and cash-flow growth may remain under pressure for the rest of 2025, a shift from its earlier target of 15% ACV growth for the year.
Revenue returned to year-over-year growth following a 10% decline in the first quarter, though it fell 2% sequentially. GAAP earnings dropped 53% to $0.08 a share, while adjusted earnings rose 25% to $0.35 a share.
Pega Cloud remained the main growth engine. Cloud revenue increased 28% to $213.9 million and accounted for 51% of total revenue, up from 48% in the first quarter. Cloud ACV growth slowed to 22% from 29% in the previous quarter.
Subscription-license revenue stabilized with a 2% year-over-year increase after falling 49% in the first quarter. Maintenance revenue declined 6%, and consulting revenue fell 13% as the company’s total subscription mix increased to 88% from 85%.
Gross margin expanded to about 74.3% from 71.5% a year earlier, reflecting higher cloud scale and a 1% decline in the cost of revenue. Operating margin slipped to about 4.0% as operating expenses grew 15%, with legal-fee adjustments rising to $18.0 million from $6.4 million.
Backlog rose 10% to $2.019 billion, led by an 18% increase in Pega Cloud backlog, whose share of the total reached 77%. First-half free cash flow increased 1% to $288.3 million, leaving the pace of new cloud commitments central to Pegasystems’ outlook for cash generation through year-end.