Pegasystems Inc.

ladies and gentlemen thank you for standing by my name is krista and i will be your conference operator today at this time i would like to welcome everyone to pegasystem second quarter 2025 earnings conference call all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you would like to ask a question during this time Simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one again. Thank you. And I would now like to turn the conference over to Peter Welburn, Vice President of Corporate Development and Investor Relations for Pega Systems. Peter, you may begin.

Thank you, Krista. Good morning, everyone, and welcome to Pega Systems Q2 2025 earnings call. Before we begin, I would like to read our safe harbor statements. Certain statements contained in this presentation may be construed as forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the long-term opportunity for Pega and trends we expect to see in our Q3 financial results and other statements that use words like expects, intends, believes, and other similar words. These forward-looking statements speak only as of the date the statement was made and are based on current expectations and assumptions. Because these statements deal with future events, they are subject to various risks and uncertainties. Actual results for fiscal year 2025 and beyond could differ materially from the company's current expectations. Factors that could cause the company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q2 2025 results and in the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ending December 31, 2024, and in other recent filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause our views to change, except as required by law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise. Our non-GAAP financial measures discussed in this call should only be considered in conjunction with our consolidated financial statements prepared in accordance with GAAP. They are not a substitute for financial measures prepared under U.S. GAAP. Constant currency measures are calculated by applying the June 30, 2024 foreign exchange rates to all periods shown. Reconciliations of GAAP and non-GAAP measures can be found in the company's press release announcing its Q2 2025 results. And with that, I turn the call over to Alan Treffler, founder and CEO of Pegasystems.

Thank you, Peter, and to all who are joining today's call. It's great to see such a terrific first half of 2025. I believe it's driven by our team's excellent focus, execution, and our smart and differentiated AI strategy that I see resonating with clients, prospects, and partners. Ken will walk you through the first half financial highlights in a few minutes, but I'm going to spend a little time explaining a little more about our AI and why we think our AI transformation approach is much faster, easier, and safer than alternatives. Now, since we last spoke, I've continued to spend a lot of time with senior executives around the world, including at PegaWorld last month, and our value proposition and competitive differentiation have resonated clearly with them and are really getting their attention. We're addressing one of the most challenging and voiced questions clients have. How to effectively develop and deploy AI and agents with the proper controls to create mission critical applications with speed and accuracy at scale. We believe this requires a dramatically different approach than other companies are advocating. Our competitive advantage is based on our long standing structural difference. which we've been building and improving for more than four decades. The architecture is unique to us, and our platform is inherently model-based, which means that applications are defined through models rather than alternative hand-coded approaches. We put business logic and process logic at the heart of each application. So applications are designed and built once to work in any channel. and across any data source or backend. The Pega Infinity platform, our low-code, cloud-native decisioning and process automation platform, translates those application designs or models into production-ready, enterprise-grade applications without any coding. This architecture allows for a more intuitive and streamlined development process where business logic, workflows, user interfaces, data structures are all configured through reusable design components. We believe that this is the right architecture for a world where change is constant and one that expects ubiquitous self-service and energetic automation. It also maximizes the potential for automation, and the AI-driven optimization allows us and our clients to more easily and quickly leverage AI. Now let's talk a little more about Blueprint. It is a unique solution. It's a unique architecture, actually, that provides the foundation for everything we do. With Pega Blueprint, our users simply describe their business in plain language. Within minutes, Blueprint uses generated AI agents to transform and put that design into Pega's best practices and industry standards. We do this by giving Blueprint access to Pega knowledge gained over our 40-year history, as well as the ability to access the vast resources of the internet to supplement anything we don't have. From there, users can easily refine key elements of the application design and then deploy it to run directly on the Pega platform. But I want to be clear that speed alone is not close to the most important benefit of Blueprint. Blueprint brings the power of AI easily and quickly into the design process to enable collaboration to help generate new insights and innovation and to help businesses improve their businesses it massively reduces the upfront work of trying to design a system this combination of power plus speed helps reduce time to value and accelerates meaningful enterprise transformations This is just part of why we think our approach to Gen AI is a game changer. Now, what I was talking about at PegaWorld, if you joined us there, is how we combine the power of AI and the predictability of workflows to give enterprises what we call predictable AI. And then we've trademarked that term. We don't believe that any other company can really offer this. because it's only possible because of our architectural differences. The same characteristics that makes generative AI exciting for creative applications, for example, that it will generate different responses to identical inputs, becomes a fundamental problem for enterprise operations that require predictable, consistent outcomes. However, this variability is perfect for design thinking and innovation. It's precisely what makes the prompt-based AI agents our competitors are offering unsuitable for processing mission-critical transactions where consistency isn't just preferred, it's mandatory. In contrast, Pega's approach acknowledges this duality by strategically deploying AI's creativity during the design phase. When you're figuring out what you want your application to do, how you want your business to work, with different perspectives and innovative solutions add tremendous value. But then we ensure production operations run through the structured workflows that eliminate unpredictability. And so rather than fighting AI's inherent variability or trying to engineer it away through complex prompt management or prompt studios, we embrace that where it helps at design time. And then we control where consistency matters at runtime. Application designs generated by Blueprint are not just conceptual. They are fully executable in PEGA Infinity. This tight alignment between design and execution leads to faster development cycles and greater agility in responding to change and creates a more collaborative relationship between business and IT stakeholders. The result is AI that accelerates innovation during development. while delivering the reliable, auditable results enterprises need in production. Now, other companies are flooding the market with thousands of agents and proposing control towers to manage them. Our competitors, they're creating prompt studios and suggesting that clients are trying to manage these agents with free text prompts that will be interpreted differently every time they run. We think that's a little mad. We believe that our clients and partners are recognizing the advantages of our predictable AI approach where you get the creativity when you want it and you get reliability when it really matters to run your business hour to hour and day to day. And when we demonstrate how we bring structure and governance to AI deployment and how we uniquely combine the power of AI agents to do the design with the predictability of workflows, we get real moments of understanding that are really exciting and that serve to validate our vision. Now, the impact of Blueprint is significant. It makes it incredibly fast and easy for a user to leverage all the power of Pega to participate in transformational initiatives, in speeding time to value, and helping organizations get rid of a lot of the legacy that is slowing them down. In fact, we have lots of stories about people with little or no technical Pega knowledge creating amazing Blueprints, from frontline employees to business line leaders. During a keynote last month at Pega World, Vodafone spoke about how they're using Blueprint to start every new development project and were able to take their budget process from ideation to a delivered production app in under 40 hours. It's hours. But it's not just the speed. It's the power and creativity and thoughtfulness of the app, driven by AI, powered by, well, extremely capable workflow execution. And last month, we launched partner-branded Blueprints. And Blueprint has captured the imagination of a number of our key partners. They want to infuse their own intellectual property and knowledge repositories directly into a branded version of Blueprint that has their name on the cover so they can feel good about it and they can get the credit for their thinking and how we've been able to add that into our font of knowledge from our history here. This allows them to showcase their unique IP and domain knowledge, and I think it extends our reach further into our partners' customer base and sellers. In the 40 days or so since we announced this concept, that many of the world's largest systems integrators sign up to develop their own branded Blueprints to use directly with their clients, including Accenture, Capgemini, Cognizant, EY, Infosys, TCS, and Virtusa, with more in the works. We believe this speaks volumes about their interest and commitment into leveraging Blueprint in their own practices. And Blueprint gives them a powerful tool that they can use to collaborate and ideate with their clients around their IP while providing a much bigger potential customer base with visibility into the power of Pega. Now, you may have seen that we recently hired Dan Kaysen from AWS as our head of global partner ecosystem to lead the strategic evolution of Pega's partner ecosystem. This includes strengthening alliances with global systems integrators and hyperscalers accelerating the adoption of PegaGen AI and PegaBlueprint. And we think this will really expand partner-influenced revenue. Just last week, we announced a five-year strategic collaboration agreement with AWS, and the agreement combines the power of PegaBlueprint with AWS's Transform product, which is designed to accelerate legacy transformation projects without disrupting critical business form. We think having Pega software available on the AWS marketplace also makes it easier and faster for clients to access our software and benefit from the associated capabilities. Now, a moment on how Blueprint is evolving. The interest and use of Blueprint continues to rise. And today, more than 1,000 organizations around the world are building Blueprints. And this is driving increased awareness, engagement, and we think it's a long-term opportunity for Pega to get its familiarity increased and for the values of our offerings to be better understood. Now, we've continued to enhance its functionality to support enterprise transformation, whether you're building a new app or reimagining a legacy application. For example, in June, we announced new features that help clients address their ease and speed. You know, because business transformation is often held back by legacy technology that eats resources, budget, and time and hampers innovation. Now, I'm sure you've seen the same reports I have about the costs associated with technical debt. Forrester estimates that legacy systems will account for two-thirds of global tech spending in 2025. And this isn't an easy problem to solve. But we believe Hager Blueprint creates a new approach to legacy transformation. one that is important, powerful, and an enormous opportunity. We've added powerful agentic AI that ingests, analyzes, and converts a wide array of legacy system assets into new modern application models. And you can feed in everything from requirements documents, to user manuals, to screenshots, to video, pretty much anything that describes an application. If you're at Pegaworld, you would have seen an incredibly powerful demo from Karim Akhanov. And I highly recommend you go and watch the replay at Pega.com, Pega World, if you're once there. In real time, Karim showed how Blueprint was able to adjust a video of a user walking through an old, ugly COBOL application and an AWS transform analysis of that application, featuring a review of its thousands of lines of code. And in minutes, Blueprint provided a recommended application design, showed how it could be modernized, show with the press of a button a preview of what the application would look like and how it would work on multiple channels, complete with a conversational agent that users could talk to in pretty much any language. Keep in mind this was demonstrated live on stage in just minutes after the video and document were imported. As with any blueprint, usually you can iterate and improve the initial design to ensure it will support current and future needs. And what's final, and they import it into Infinity with the actual app, they gain real productivity gains, and they're able to put on more advanced AI capabilities that are throughout Infinity to work as well. We see a lot of companies doing this, and we think it's a massive opportunity for us, and we think it's going to be an area of focus for our partners. So we believe we are building the future of enterprise transformation, how it will be designed, how it will be sold, how it will be delivered, and where ideas are able to move seamlessly from minds to models to market. You can tell I'm excited about this and what Blueprint is doing for our client, our partners, and our business. And, you know, it's interesting because Blueprint put a new release of its capabilities app about every two weeks. So if you haven't seen it in a month, you are behind. And that also, I think, gives us an avenue to really increase the pace of innovation with our customers and with our partners. So I would recommend that each of you try it out for yourself. Find 15 minutes and go to Pega.com Blueprint, sign in, and imagine any type of business you'd like to build. I particularly like showing demos of the Lama rental business, which is something that actually is a lot more sophisticated than you might imagine. But any business, and of course, you can always do the serious stuff like customer onboarding and collections. I think you'll have some fun, but I guarantee you'll see why it's so powerful and why it plays to Pega's unique strengths. We're working hard on it, and we think it's going to lead to good results. And to provide some more comment on the financial results for the first half, let me turn it over to Ken. Ken?