Operator:

Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome you to the Pegasystems Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. [Operator Instructions] Thank you. I would now like to turn the conference over to Peter Welburn, Vice President, Corporate Development and Investor Relations of Pegasystems. Peter, please go ahead. Peter Welburn: Thanks so much, Christa. Good morning, everyone, and welcome to Pegasystems Q4 2025 earnings call. Before we begin, I would like to read our safe harbor statement. Certain statements contained in this presentation may be construed as forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The words expects, anticipates, intends, plans, believes, will, could, should, estimates, may, forecasts and guidance or variation of such words and other similar expressions identify forward-looking statements, which speak only as of the date the statement was made and are based on current expectations and assumptions. Because such statements deal with future events, they are subject to various risks and uncertainties. Actual results for fiscal year 2026 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 Q4 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 ended December 31, 2025, 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 view 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 December 31, 2025, 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 Q4 2025 results. And with that, I turn the call over to Ken Stillwell, Chief Operating Officer and CFO of Pegasystems. Kenneth Stillwell: Thank you, Peter. I'm thrilled to share the financial highlights of what's been an outstanding year for Pega. Execution by our global sales team powered by our Blueprint experiential sales approach drove top line outperformance in 2025. And our company-wide commitment to Rule of 40, supported by robust internal adoption of AI built natively in our platform delivered bottom line outperformance as well. Let's start with the top line. Total ACV grew 17% year-over-year as reported and 14% in constant currency, beating our guidance. Pega Cloud ACV once again, drove that growth, increasing 33% year-over-year as reported and 28% in constant currency. That was a pretty significant acceleration from last year's 18% growth rate as reported and 21% in constant currency. And Pega Cloud ACV growth accelerated sequentially in all 4 quarters in 2025 in constant currency, demonstrating the power of both our cloud-first strategy and Blueprint, our AI design agent. Three factors drove our ACV growth acceleration in 2025. First, the Blueprint revolution has been key to our growth. Blueprint moved from a promising experiment in 2024 to a fundamental change in how we sold in 2025, enabling a completely new experiential sales process. Our Blueprint agent is now core to how we operate, shaping everything from how we sell to how we deliver and drive client success. Second, we have the strongest global sales execution that we've ever had. We drove a highly effective, disciplined and scalable sales cadence worldwide with an unwavering focus on customer outcomes. Our account executives executed exceptionally well against our target account model, reinforcing the importance of focus and discipline. And third, we've been increasing demand from our clients and partners for Pega's differentiated predictable AI agents, integrated into proven enterprise workflows. As a result of these factors, our net new ACV increased by 37% year-over-year in constant currency. Looking ahead, we're confident in the durability of our ACV growth because of the strength of our moat. Pega is deeply embedded in our clients' core operations through vertical specific workflows, and it's integrated at enterprise scale, supporting hundreds of millions of users globally. Pega's become a trusted compliance backbone for our clients and for regulators worldwide. And you may have noticed that we just achieved ISO 42001, a certification across Pega Cloud Services, our GenAI solutions and our predictive and adaptive analytics capabilities. Pega's financial performance achieved several key milestones in 2025. Among them, free cash flow increased 45% year-over-year to $491 million exceeding our guidance by $51 million. This outstanding improvement in free cash flow was driven by our ACV growth and reflects the full strength of Pega's subscription model and the benefits of our subscription transition. Our strong free cash flow generation provides us with the flexibility to invest for growth, while also returning significant capital to shareholders. In 2025, our capital allocation strategy stayed firmly focused on driving long-term shareholder value. Our top priority continues to be investing in organic growth, including product innovation and go-to-market capacity, where we generated consistent strong returns on invested capital. We also maintained a strong balance sheet. We ended 2025 with $426 million in cash and investments. During 2025, we repaid $468 million of debt, repurchased $498 million of shares and distributed $15 million in dividends. This reflects the strength and durability of our business model. Looking ahead, we are confident in our ability to sustain this balanced and disciplined approach to capital allocation. Our contractually committed backlog grew 28% as reported year-over-year and 23% in constant currency. And now exceeds $2 billion as reported for the first time in Pega's history. The biggest driver of our backlog increase was the increase in Pega Cloud backlog, which grew 36% as reported year-over-year. Pega Cloud backlog now represents 74% of total backlog, which is amazing. We're also really pleased that the Supreme Court of Virginia unanimously affirmed with the Virginia appellate court also unanimously recognized that the trade secret trial and resulting verdict were fundamentally flawed. What this means is that the $2 billion verdict is gone. For more details, please see the e-mail I sent to our employees on January 8, which we filed as an 8-K. Moving to 2026 guidance. As a reminder, we provide only annual guidance, not quarterly guidance, and we typically do not update guidance during the year unless we have a material acquisition. Here are our key guidance metrics for 2026. Total ACV growth of 15%. Total revenue of $2 billion, an increase of approximately 15% and a very significant milestone for the firm and free cash flow of $575 million, a 17% increase over 2025. With our rapidly increasing free cash flows, our Board also authorized an additional $1 billion in buyback capacity. This authorization reflects our confidence in the durability of our cash flows and our commitment to disciplined capital allocation. Since we don't provide quarterly guidance, I've received feedback that is helpful when I provide a few thoughts on modeling our business for 2026. First, with our subscription transition complete, you'll notice in our 2025 results and in our 2026 guidance that revenue growth and ACV growth are more closely aligned. Going forward, we expect this trend to continue. A dynamic, some of your models may not have fully reflected yet. Now that Pega Cloud ACV is greater than 50% of total ACV, our annual revenue becomes more predictable. Second, in 2026, we expect the progression of our net new ACV to follow a more historically seasonal pattern with a significant amount of our net new ACV occurring in the second half of 2026. This timing reflects the nature of our contract renewals, which are more concentrated into Q3 and Q4 of 2026. As a result, we expect subscription license revenue to be back-end loaded as well. Third, as AI reshapes how Pega and its partners deliver solutions with Blueprint, we intentionally reduced our professional services billable headcount and increased our reliance on partners for delivery. So we expect full year professional services revenue to represent roughly 10% of our $2 billion revenue guide in 2026. Finally, but also the most impactful factor is our rate of Pega Cloud ACV growth. Pega Cloud ACV has accelerated for 4 consecutive quarters, fueled by the strength of Blueprint and strong execution. We expect this growth acceleration will continue to be driven by AI-powered automation initiatives by CIOs and executives prioritizing productivity and efficiency gains. Given these dynamics, we expect Pega Cloud revenue to continue to accelerate above 30% in 2026. And you can see that acceleration signaled in our current Pega Cloud backlog growth. In conclusion, we've made tremendous progress in transforming our business model over the last several years. Looking back, 2025 was a year where we positioned Pega exceptionally well for continued growth acceleration. Thanks to all of our employees for running the business with a Rule of 40 mindset. We look forward to seeing investors in the next few weeks at upcoming investment banking conferences. And also, please mark your calendars. Our annual investor session will be held on Monday, June 8, at the MGM Grand in Las Vegas, Nevada in conjunction with PegaWorld, our annual client conference. We'd love to have you join us there in-person. And with that, I'd like to hand it over to Alan Trefler, our Founder and CEO. Alan Trefler: Thank you, Ken. And it's a pleasure hearing you kick off those numbers. It's really was a terrific 2025, and though it actually feels like a long time ago, we should take a brief moment and enjoy it. Now that, that moment has passed, let me tell you about what's going to be happening in 2026. I'm really proud of our team coming into this year because what we have is the basis for some things that can be really, really exciting. In '25, we launched the Infinity platform as the first real agentic enterprise transformation platform. And we really extended our leadership position in the industry reports that matter the most to our customers and prospects. I love, if you go to our website, to have people see how Gartner and Forrester reflect on what we do and what we are doing. And being in this position where as a Rule of 40-plus company, we have the resources, we have the balance, I think we have the maturity to go after this opportunity as we look to break the $2 billion a year threshold. Once again, it's really an exciting time. But it all comes down to what clients need. And I recently returned from Davos, where I had dozens of conversations with senior leaders and global organizations. And they really mirror a lot of the discussions that we have all the time. Now there's lots of presentations and lots of noise and even the occasional Super Bowl ad about AGI, artificial general intelligence and how that's going to change the world in speculative and perhaps dramatic ways. But in more normal settings, leaders are focused on the urgent practical questions. How do we leverage AI to reimagine our business, simplify and modernize operations and improve the customer experience. And the issue here isn't the AI models. We made some great decisions about being able to be pretty fungible in how we chose one model versus another for different settings. And boy, that has turned out to be the absolutely right way to go about it. But the real question is not just the model, it's how and when do you use it. And I spoke about this at our last call, but it's so important. I think it's worth taking a few minutes and really going through it again. Our competition broadly is taking generative AI models and using them at run time. Let me explain what that means. It means that when a customer or a staff member engages with whatever system is involved here, that model is reasoning there in the moment from scratch, trying to figure out what to do. And there are times when that's just fine to tell you the truth. I mean, when we use our Blueprint technology to rethink and reengineer and reenvision a set of complex business processes, we do exactly that. We're using our real-time capabilities to engage with the designers. But if we're actually looking to do the work, we think it's a mistake, a serious mistake to at run time, routinely go and call the model as if it's discovering what you're trying to do for the first time. Structurally, our competition, whether it's Microsoft or Salesforce or ServiceNow, our competition rethinks the problem from scratch over and over again. And the slightly frightening thing is the models don't always come up with the same answers. Even in situations and regulated industries, we're coming up with the same answer is not just important, it is imperative. And people who have fallen or are falling into these traps, some of them, I think, are starting to realize there's a problem here, a problem that Pega does not have, but a problem that is structural and endemic to the alternatives. And so you can hear the noise and you can hear the wild claims. You can hear that LLMs can "Do it all." But the reality is the LLM will work best when used the right way. Now we've seen of late, I think it's referred to as the SaaS apocalypse where software companies have been really brutalized. And obviously, that struck us as well as other firms. I think there's a lot of guilt by association here in this space. Let me share my views on that. First of all, there are definitely some software companies that are going to die. The reality is every time there's a big technical shift; you see that sort of thing happen. I think software companies that are basically glorified spreadsheets with limited functionality, yes, you can do all sorts of magical things in cloud or even Copilot that enable you to go after those types of applications. But the applications we do for our clients, the very, very large ones that we've historically worked with and the more mid-market ones, we've never gone down market, but the more mid-market ones that we've talked about wanting to open up as we look to scale up this business, those companies really have processes that run them, and they want those processes to be respected. They want architectures that will be able to do reliable, repeatable and our favorite word, predictable things. And authoring prompts is not a way to achieve that, whereas building workflows that are intrinsically agentic. So what we've done is made it so that every workflow is able to run as an agent, is able to call other agents from other companies and is able to be part of a fabric that orchestrates processes across the enterprise and less people interact conversationally, less people interact in ways that leverage their whole collection of workflows in ways that are at once innovative and predictable. And when we can explain this difference to organizations, we see lights go on, and it's very, very, very exciting. The thing about these set of differentiators is this is a structural advantage. This is not one of those things where one LLM is 6 weeks ahead of another. This is a difference in philosophy that goes to the very core and powerfully allows us to leverage our long, long history as a workflow model system to be able to do what you need to do for customers, to be able to build a workflow that can run at scale, that can be used through the power of AI and can incorporate and orchestrate AI in a way that is turning it over to a model is, frankly, a little bit freaky and unpredictable in my view here as well. Now having been able to do this for such a long time, I think the conjunction of this brand-new Spiffy technology, putting a real powerful chain on Pega's traditional business is the sort of thing that I think a lot of customers are realizing can give them what they need and give them in a way that they can predict and that they can understand. Now I do have people ask, well, in this world in which you can generate vast amounts of code, where you can go to a Claude Code or a Codex and you can like write programs and who knows, maybe that will be used to take out applications. Why is it still relevant? I'm going to tell you exactly why it's relevant, more relevant than ever. And it goes back to something that we've been saying literally for 30 years. The problem is not generating the first limit of code, easy to do, the machines do it well. And for some problems, maybe that's all you need. But for the problems we solve for our clients, it's not just about day 1. It's also about being able to go back in day 30, knowing you have, be able to navigate it and figure out how I'm going to change it, how I'm going to evolve it to use our trademark term, how are we going to build for change. We have the build for change system, period. We have the trademark, which is nice. But we have the system, which I think is actually more important. And what people generating code have are instant legacies. Yes, you can create some really interesting things. And by the way, we use it too, when we're writing our systems. You want to use the cogeneration because the world has changed in that way. But you want a structure. This is why I say a structural advantage. And that structure are libraries of workflows that enable the business to scale, able the business to operate agentically with reliability and predictability, able -- make the software able to orchestrate between different agents, systems and environments. And these are, we believe, the fundamentals of what makes Pega special and quite, quite different. Now I couldn't be fair without going back to something I've talked about a lot, which is, I think, the starting point for all of this, which is Blueprint. Blueprint is the AI design engine for the enterprise. It takes and it continues to get better, by the way, every 2 weeks, there's something there. So if you haven't been on blueprint.com and tried it, it's worth doing. It gets more and more exciting and amazing every 2 weeks. Blueprint, the design agent unleashes innovation. It really lets you describe what you want your business to be. It can go out to your website and see what you say about your market. It can go out to all of the interfaces that you can upload into it so you can actually see how to hook this in to the actual systems that you have in your back office. And it allows you to have these instant and productive conversations with team members to be able to collaborate and to build out what you want the system to work with. And as I mentioned before, this has completely changed our go-to-market. We're having similar productive conversations with clients about how they want to see an application and know with certainty that they're going to be able to get something that doesn't rely on PowerPoints. It allows on an experience that they can literally touch, they can literally converse with, they can engage gently with it and they can do it in the first 10 minutes that we sit down with them. We're so excited about what this does. But I will tell you that my excitement has increased because this year, we've added features to enable not just our intellectual property to be put into something called a vector database and incorporated in Blueprint, but to enable 10 of our best partners to be able to put their intellectual property, their proprietary intellectual property available only to them into Blueprint. So when those partners are with one of their clients, they can use Blueprint as a vehicle to sell their projects with their IP. And this is very new. But I think this is going to be a tremendous opportunity for us to change the way we go-to-market by really leveraging the partners. And I'll tell you that still early stages, but these partners are enormously excited. You can see an interview with me and Ravi Kumar, the CEO of Cognizant, in which he directs his teams, not just the Pega teams, but the company in general to go and understand and use this technology. And I think Blueprint offers this chance that I have not seen before in my history at Pega. And we've seen it turn into real results. For example, Proximus, which is the leading telecom provider in Belgium, recently used Blueprint to redesign a critical application in 1 day and actually get it into full production on Pega Cloud in 4 months. And this is so much more than they would have ever been able to do before. So excited here as well. So look, we love the term vibe coding. I don't know if it's going to stick or not, but we're adding vibe features to Blueprint to make it work. But all of this is much more than just vibe coding sort of a personal app to do something for you. This is about building enterprise systems to enterprise standards with enterprise interfaces and reliability and the capabilities that you need to be able to run your business on it and, of course, run your business reliably and predictably. Now in addition to the apps that customers want to have, we think that this is also a great chance to get rid of apps that customers wish they didn't have. And this is where we made a recent acquisition, and this is where we built technology, and we have key partnerships with companies like Accenture and Wipro to be able to analyze existing legacy systems, rethink them with AI, put them into Blueprint, allow collaboration and then put them on this fast track to legacy modernization. The thing I will tell you is it's not just faster, it's better. So I think being able to do this in conjunction with our partners is going to allow us to accelerate our transformation and going to allow us to achieve a whole new level of scale. And I'm really excited with the senior executives who I met in Davos who love this stuff actually. And they love it because if you go on to Blueprint and you are signed on as one of these partners, we actually put their logo. We give them full credit for their IP contributing to this picture, and it's something that they can use in their selling motion as well. So I think that the opportunity here out of Blueprint and where Blueprint is and will be going just continues to open new doors for us. So look, 2025 proved that disciplined innovation can win. And the market forces that are there, there's a lot of confusion. But the truth and truth, enterprises really want to transform. They really want to save money. They want to do a better job for their customers and workflows are at the heart of how enterprises work. Our Center-out Infinity platform was built for this moment, and predictable AI gives customers the advantages of the AI, but also really gives them the predictability and reliability so that we don't have to worry about a lot of things that I see other people agonizing about. In '26, our focus remains clear, helping customers move from experimentation to execution and move to outcomes from talk. And I am super excited by what I see. Pega is built for this era. We are built for change, and we are excited for what's next. Peter Welburn: Christa, you could open up the line for questions. Operator: [Operator Instructions] And your first question comes from Steve Enders with Citigroup. Steven Enders: I guess I just want to start on just the deal environment and what you're seeing out there in terms of the macro. I understand that there's a -- it seems like things are resonating on Blueprint and AI messaging. But just, I guess, what are you seeing in terms of deals getting across the finish line? And just how would you kind of characterize the current environment and how you're thinking about that into '26? Alan Trefler: So I think the interesting thing about the Blueprint approach and the whole way we've gone about using it and pitching it, is it so reduces friction around engaging the client. Because it's a very low-cost, low-risk transaction for the customer to take a meeting and see what one of his systems could have been. Just need a little information about what the systems are and what they do. And they go to touch it and feel it in the first hour. I think that's not the same as getting the check, but it does put the whole mindset at ease. So I would describe the early stages of the pipeline as really excitingly advanced. We've also used Blueprint internally to create the workflows in our sales automation technology that enable us to evaluate a customer, see what we know about them, see what's available on the web, see what other systems -- these people who still have Lotus Notes and TIMCO and other sorts of things, see what other systems they have and actually be in a position to propose how they could do legacy transformation. And this is all very fresh. It's a great use of AI. And it matches our what we call customer product matrix with an actual customer and the information we have about that actual customer. And I think that also lets us open up a whole new set of conversations, which from my point of view is pretty exciting. Kenneth Stillwell: I think, Steve, I'll add just maybe a more tactical point on this. I don't know that in my 10 years at Pega that I've seen more discussion with our clients around getting off of old legacy environments, like the pace at which that conversation is happening and how much people are engaging with Blueprint and how many people or how many clients are coming to visit us that we're doing -- like we're actually doing workshops on trying to identify which systems is like the pace of that is, I've not seen that speed. So that's really exciting for us just in terms of really the pace of digital transformation. Steven Enders: Okay. That's great to hear. And I guess the follow-up, just in terms of I guess, the confidence on the ACV guide, I guess, what is it that you're seeing out there that gives you that feel that you're going to be able to hit that 15%? And I guess the question we're getting from investors is I think the 4Q ACV number, I think people were maybe hoping for a little bit of a better number there and see a bit of a continued acceleration. And so I think did anything like maybe slip into '26? Or just what is it that you're seeing that maybe provides that perspective that you're getting to 15% for '26? Kenneth Stillwell: Well, I think our growth rate pretty much -- our constant currency growth rate stayed pretty consistent across the year. It was kind of right around that 14% number all through the year. So I don't -- and it was well above our guide. So I think it was a fantastic year and a strong finish. In terms of the future, I think it really comes down to our net retention rate is expanding at the same time that we're actually targeting new logos. And Blueprint is much more prominent, which really builds the bridge for us to grab new logos at a pace that we haven't been able to. So that's really what -- it's a combination of NRR increasing and us going -- having the opportunity to go after new logos and really starting to see some early success of that. Operator: Your next question comes from the line of Rishi Jaluria with RBC Capital Markets. Rishi Jaluria: Wonderful. Maybe I want to start by thinking about the role that you can play now as enterprises actually start to live deploy agents. Obviously, technology has a lot of promise. We've seen a lot of great demonstration. But just given how nascent protocols like MCPU and A2A have been, maybe it's been -- maybe these multi-agentic systems have maybe been a little bit more limited. So the question I want to ask is, as enterprises start to get a little bit more serious about deploying hundreds or thousands of agents. Can you maybe help us understand how can that serve as a tailwind for Pega, both in terms of being able to bring together, Alan, as you talked about in your prepared remarks, agents from disparate systems and get them to work together, but also thinking about having -- helping agents trigger workflows across systems from different technological spans because I can imagine they're not embedded to build to work with mainframe systems or on-premise data stores. Maybe just help us understand how introducing this complexity can be a tailwind for Pega, what role you can play there? And then I've got a quick follow-up. Alan Trefler: Yes. I think this is where we have some of our, I think, structural advantages. With Pega, I don't expect that customers will having to install tens of thousands of agents. I think the people who want to install tens of thousands of agents are delusional. And we went through a parallel environment years ago around interfaces. People talked about micro services. And the question was how many of these micro services should connect your enterprise. The reality is the people who put too many of them found that they went out of control. I think having an agent control tower to control your agents tells you something about the architecture, which is not a good thing. In Pega, if you have an application that has, say, 40 or 60 workflows in it, and we have applications that have even much more than that. The Pega super-agent is able to run all 40 and if any of those agents at any of those steps need to learn something from another agent that's not a Pega agent or need to go to a third party, it can fire off an MCP/A2A request that's already built into the system to be able to incorporate or orchestrate what that agent does with the work of another agent here. But the idea that the competitors have where you go and you use a prompt studio to create literally thousands of agents that are defined in English and that are going to do the right thing reliably, that is so much weaker than saying, "Hey, I've got workflows that I know can run my business. I can do it at scale. I can do it at high volume and do it predictably." And the Pega agent is able to run any of them. Does that make sense to you? Rishi Jaluria: Yes. No, absolutely. That's very helpful color. And then maybe I wanted to follow up and think about Blueprint. Obviously, great to see this turn from kind of idea into reality show up in numbers, which is great to see, especially with the accelerating ACV. What I want to maybe understand is one of the theories when you first launched Blueprint is that this could help meaningfully shorten sales cycles and get customers from ideation to live deployment and value sooner. And you've directionally talked about that, but in kind of the time since you've launched Blueprint, is there any way to quantify how that has impacted, whether it's on sales cycles, whether it's on just elapse time from first conversation to live deployment. Ken, you did talk about NRR improving. Maybe any metrics you can share to kind of quantify the impact that Blueprint has had on that would be helpful. Kenneth Stillwell: So -- yes, so I -- we will -- we're going to -- we'll be basically about 1-year into the Blueprint data when we get closer to our Investor Day, Rishi. But I will give you some of the early signs that we're seeing. We are seeing faster pipe build, faster progression and faster close times across the board with Blueprint. And so the key with that is to get into those new workflows, even with existing clients or with new logos. So we are seeing those early signs. We'll be a little bit more precise with how some of that data because we'll kind of have about a year of that data when we get closer to Investor Day. But we are seeing the signs of impacting all the important factors, pipe build, pipe progression, win rates. So we are seeing the early signs of that. That's what gives us a key part of giving us confidence of accelerating our growth. Rishi Jaluria: Very helpful. Alan Trefler: I think that we've seen a massive acceleration or improvement in the training time for new staff. I would say we used to hire somebody we often take 5 or 6 months before we will lose on a client. Everybody is in the field in a month plus and a lot of that is that Blueprint just makes it so easy for them to get it and for them to explain it to their clients. Rishi Jaluria: Very helpful. Kenneth Stillwell: Thanks, Rishi. Operator: Your next question is from the line of Raimo Lenschow with Barclays. Raimo Lenschow: Perfect. On Blueprint, guys, where are we on that app modernization journey? That was always a dream. In theory, you would think Blueprint and AI can really help there. But how close are we for that dream to kind of come through? Because that would obviously unlock a lot of opportunities with so much legacy coastal out there. Alan Trefler: So the capabilities are very rich. We have out-of-the-box interfaces with Accenture and other partners, AWS that will enable their tooling, which like read COBOL code and does other sorts of things to feed into Blueprint to complement what -- I actually prefer using things like user manuals and outcome-oriented documents. And it's -- I see an enormous amount of interest from clients in terms of doing that app modernization. I think this will be a good year for that. We've also made it so that Blueprint can modernize -- we have a couple of pretty old Pega systems that are out there with some of our clients. And we've added facilities so that Blueprint can also modernize an old Pega system. And I think that's also positive. So the feedback we're getting from clients is quite a bit of interest, and I expect that we will have several success stories, customers standing up success stories at PegaWorld in June. Raimo Lenschow: Yes. Okay. Perfect. And then one for you, Ken. The -- if you look the Pega Cloud ACV really strong, can you talk a little bit about where are we on that client cloud, getting clientele people to migrate over versus new opportunities? And how that -- how do you think that's going to play out in 2026? Congrats from me as well. Kenneth Stillwell: Thank you. Yes. So we -- I touched on a couple of things. I'll maybe be a little bit more explicit. Professional services ballpark around 10% of our revenue. Pega Cloud ACV is going to continue to accelerate. Pega Cloud ACV is going to be 30% plus in 2026. That's translating into the revenue. Our term license will still have slight growth because clients, when they migrate, tend to keep some level of concurrent rights as they go through that migration. Those migrations don't typically happen in like a weekend. They typically happen application by application as they're migrating. So even though clients are moving to Pega Cloud, you do still have like a little bit of a slower growth deceleration on the term license. So you'll see Pega Cloud growing 30% plus. You'll see kind of maintenance flat to slightly declining. You'll see client cloud kind of being a slower grower just because of those concurrent rights as people migrate. The majority of our Pega Cloud growth is coming from new activity, new volume, whether that be expansion of existing apps or new apps. But the pace of a migration has been pretty consistent in '25 and '24, and we think '26 will be kind of same level of migrations. It's kind of happening consistently across our client base. Operator: Your next question comes from the line of Devin Au with KeyBanc Capital Markets. Devin Au: I got a couple of just quick follow-ups to start. The 15% ACV growth guide, is that a constant currency basis or a reported basis? And then just quickly following on the NRR expansion comment. Historically, you guys have kind of talked about at the 110% level. Is that correct? And how much of an expansion have you guys been seeing from that? Kenneth Stillwell: So on the -- it is constant currency because our ACV is a balance sheet measure. So we are just -- we're only a month away from 12/31. So we're not assuming much movement on the currency. That is a constant currency number. On the NRR, we're somewhere in the ballpark of 150 basis points higher on our NRR for 2025 over 2024. And that number will probably -- that level of NRR will probably stay consistent into 2026. We'll see a little bit more growth from new logos and expansion through our autonomous partner selling motion. But -- so we are up about 150 basis points or so on NRR. Devin Au: Got it. Super helpful context. And then maybe just switching gears a little bit. I know you guys had a pretty meaningful presence at AWS re:Invent in December. Just would love to hear some of the feedback from customers on some of the product releases and pipeline build coming out of that event. And would love to get an update on kind of your partnership with AWS and how that partnership is evolving in the near term? Kenneth Stillwell: Maybe I'll start and then let Alan jump in. So I think the most critical alignment between AWS and Pega is that both of us are aligned with looking at legacy workflows and using our tools, i.e., Blueprint to transform -- using the AWS transform tool to actually ingest into the Blueprint to essentially redesign and reimplement those -- that work that's actually living in those legacy systems. And that gets on to Pega Cloud, which is aligned with AWS because that gets on to the AWS cloud. So that's just a tremendous alignment there with basically inspecting and digesting the actual activity that's happening, leveraging blueprint to build out those workflows and then those running on AWS. So very good alignment between our selling teams, the AWS selling team and the Pega selling team to execute on that. So that's kind of what's happening around that relationship. Alan Trefler: And I'd just add, I think it's really going in a good direction. And I think you'll see a lot of AWS and PegaWorld. Operator: Your next question comes from the line of Patrick Walravens with Citizens. Patrick Walravens: Congratulations to you guys. Alan, can you help us figure something out here? So 20 years ago, you were there when on-premise died and SaaS took over. And now it feels like we're in a similar transition. What are the characteristics that we should look for in software companies to figure out who's going to make it through that transition? And then you can overlay how Pega fits into that. But if you could start with just a general framework for us, I think that would be incredibly helpful to everyone. Alan Trefler: Well, sure. I obviously have some views in the space. But I would say that I think the death of SaaS may be somewhat exaggerated, but there are aspects that put certain companies under more pressure or less pressure. I think the things that we find give us a lot of encouragement in this current environment is, first and foremost, businesses have lots of stuff to orchestrate. The whole Gartner Quadrant, which came out last year called BOAT, Business Orchestration and Automation Technologies, where, by the way, if you look at the picture, Pega is the clear #1 in BOAT, I think is a very, very strong area sector, and that's going to be strong in an agentic world, especially because being able to do the orchestration and being able to do the automation is going to be absolutely key. And that is what we do. Now I think the SaaS companies that -- or the non-SaaS companies that are going to struggle are ones that are kind of little small things where candidly, you could just get some code and then take care of it. You can run it in a spreadsheet with Copilot. There's lots of places where the barriers to entry of somebody writing some computer programming have just massively been reduced. But building a major system that does orchestration across the business and that has to worry about things, and I'll just drop in a couple of the words art that we use, worry about things like 2-phase commit, how do you make sure that when you commit records to the database that they're there and they're reliable because you're doing something that is important, having things that have a lot of industry IP also, I think, can create a bit of a moat for companies. So some of that can be under attack because the AI can actually use that IP too, it can incorporate it. But the thing that I would say is most important is, is the system built for change? Because the problem with these code-based systems that are attacking the SaaS world is they don't have a particularly visible architecture. They're just kind of written. And going after somebody else's 3,000 modules of code is incredibly daunting and very, very difficult to do correctly. In our world, because you can see in a Blueprint, we have so much scaffolding and infrastructure. We have the idea of a case. We have the idea of stages. We have the idea of steps. We have the idea of service levels and personas. Our systems are built around the business entities of an organization. And because they're built that way, it's possible to navigate and as a result, possible to change it. Businesses that require change, I think, are going to be the ones that are going to be most interested in a technology like ours. And the businesses where you can just write something that's going to sit on the shelf for 2, 3 years or months. Those are the ones that I think are going to be most vulnerable. Does that make sense? Patrick Walravens: Yes. Yes, great. That's great. Operator: Your next question comes from the line of Blair Abernethy with Rosenblatt Securities. Blair Abernethy: Nice quarter, guys. Just 2 quick ones for me. First, on duration -- on contract duration. I wonder if you could just sort of talk us through how that was trending in Q4, particularly Pega Cloud versus your on-premise renewals? And then secondly, just looking forward to 2026 and the mid-market, what sort of changes or how -- what sort of learnings have you pulled in the last year or so? And what do you -- what's your -- I guess, how much emphasis are you really putting into in the mid-market next year? Kenneth Stillwell: So duration, Blair, has been pretty consistent. No big changes there. I mean there's always like quarter-to-quarter a little anomalies just because of the way things go into backlog, but there's no fundamental change in the duration that clients are looking for. We're not seeing any big shift there. I think Alan's point on the going after, I'll just generalize and say new logos as opposed to any particular segment. I think Alan's point about Blueprint and how important Blueprint is to the ability for an account executive to ramp quickly, the ability for us to target and the ability for us to get into a really engaged pipeline building activity in a very short period of time is what gives us a lot of confidence around scaling the engagement aspect, whether that be through the autonomous partner selling through our partners or through our direct target org model. We've never really had that confidence in the past because there was a long lead time to monetization of those account executives. So we're much safer in terms of trying to push for acceleration of growth. Blueprint changes that completely. So that's the big focus area for us in '26 is like really running that -- those -- that play out to make that really help us to scale our growth. Operator: We have time for one more question, and that question comes from the line of Mark Schappel with Loop Capital Markets. Mark Schappel: Ken, I was wondering if you could just talk about the firm's investment priorities for the coming year. Kenneth Stillwell: Investment in terms of areas of growth of spend, is that what you meant, Mark? Mark Schappel: Yes. That's right. Yes. Kenneth Stillwell: Well, I think -- so we're going to get optimization across a lot of our P&L lines. Our gross margin is pretty respectable now, but it will -- it's not likely to go backwards. We'll get leverage out of our R&D group as we use more kind of by coding and AI in our actual processes, including our operational processes. So we will see some gross margin kind of optimization around aspects of our business. Our sales and marketing teams, I think a lot of that is really around kind of the digital engagement and what we're doing like in our ability to engage with our clients and really leveraging kind of agentic processes and how we engage. In the target org model, there will still be an investment in relationship selling because there are still people on the other side of those enterprise relationships there. That is not -- that -- we're not talking to bots, right, when we're doing enterprise selling. So I think there's probably an area around some of our selling capacity, some of our investment in our partnership. Our innovation, I think, will, quite frankly, get some operating leverage as well as our operations. And we're going to see our free cash flow continue to expand as we grow because we really are starting to get to that -- we're hitting the efficiency stages that are -- you're seeing that come through in our acceleration of margin. I think one of the things that I think is really probably one of the biggest disconnects that we're seeing is there is such a disconnect between the narrative that people are talking about around what's happening in enterprise and what we are seeing with our clients. Our clients have massive amounts of transformation that they need to do. They need the agents to be guided, to be structured, to follow the rules, to execute at scale. And the concept of a digital twin type agent disrupting and changing that momentum, I think, is really the disconnect that we're quite puzzled by in terms of what we're seeing with our clients and what some of the narrative is. So we're going to continue to invest in engaging with our clients and helping them on that journey. And there's not one client that's not focused on trying to optimize their legacy systems. And this is like the perfect moment for us. Mark Schappel: And then as a follow-up here, regarding the recent headcount reduction and restructuring, there's a couple of articles out there mentioning that the company was transitioning to an AI-first delivery model. I was wondering if you could just kind of elaborate on what that means in practical terms. Alan Trefler: Well, I think that Blueprint is an example of an AI-first delivery model. I mean Blueprint has completely changed. Blueprint let you go from ideation and things that used to happen on whiteboards and hosts over weeks to something where you're right on the system collaborating it and it can load into an honest to God Runable Infinity system. So the ability to operate at not just better speed, but I think better quality is very much built into what we are working on with Blueprint, and we've already achieved a chunk of that, more to come this year. Operator: That concludes our question-and-answer session. I will now turn it back over to Alan Trefler, Founder and CEO, Pegasystems. Please go ahead. Alan Trefler: Thank you to all who joined. We appreciate it. I just want to mention PegaWorld. Again, June 8 is Investor Day. So investors are free to attend from the 7th to 9th. I think you would find it to be insightful because in this world of insane noise and the noise out there is crazy. There are real substantive differences, and you can see and touch and understand them in conjunction with our customers and partners. So please come join us there. That will be terrific. And I will just tell you that I feel that we, as a company, were built for times like this. So may we leave it interesting times collectively. Thank you very much, everyone. Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.