Pegasystems (NASDAQ:PEGA) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.
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Access the full call at https://events.q4inc.com/attendee/156449953
Summary
Pegasystems Inc reported a 30% year-over-year increase in Pega Cloud revenue, with ACV nearing $1 billion, highlighting strong cloud adoption.
The company emphasized its strategic focus on AI, specifically through Pega Blueprint, which is driving pipeline growth and accelerating time to value for clients.
Management commented on geopolitical challenges impacting Q1 performance, but remained optimistic about demand durability and ACV growth acceleration in the second half of 2026 due to renewal cycles and AI-driven initiatives.
Pegasystems Inc’s free cash flow reached $207 million, with over 80% returned to shareholders through share buybacks and dividends.
The company plans to leverage AI strategically, focusing on its role as a harness for enterprise operations rather than relying on AI for all processes, which aligns with its outcome-based pricing model.
Full Transcript
OPERATOR
Thank you for holding. My name is Carli and I will be your conference operator today. At this time I would like to welcome everyone to Pegasystems Inc Q1 2026 earnings call and Webcast. 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. If you would like to withdraw your question, press STAR one again. Thank you. I would now like to turn the call over to Peter Welburn, Vice President of Corporate Development and Investor Relations. Please go ahead. Thank you.
Peter Welburn (Vice President of Corporate Development and Investor Relations)
Good morning everyone and welcome to Pegasystems Q1 2026 earnings call. Before we begin, I’d 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. Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, forecast and similar expressions are intended to identify these forward looking statements. These statements speak only as of the date the statement was made and are based on current expectations and assumptions. Because these statements relate to future events, they’re subject to certain risks and uncertainties that could cause actual results to differ materially from our current expectations for fiscal year 2026 and beyond. Factors that could cause such differences are described in the Company’s press Release announcing our Q1 2026 results and our filings with the securities and Exchange Commission, including our annual report on Form 10K for the year ended December 31, 2025, as well as other recent SEC filings. Investors are cautioned not to place undue reliance on these forward looking statements as there can be no assurances that the results contemplated will be realized except as required by law. We undertake no obligation to update or revise any forward looking statements to reflect subsequent events or circumstances. In addition, non GAAP financial measures discussed on this call should be considered in conjunction with and not a substitute for our consolidated financial statements prepared in accordance with GAAP. Constant currency measures are calculated by applying the March 31, 2025 foreign exchange rates to all periods presented. Reconciliations of GAAP to non GAAP measures can be found in our earnings press release. And with that, I’ll turn the call over to Alan Treffler, Founder and CEO of Pegasystems.
Alan Treffler (Founder and CEO)
Thank you very much, Peter. I’ve just gotten back from a few weeks on the road across MEA and The US and including an AI conference last week. And it’s interesting because I think we’re pretty practiced at separating hype from what’s real. But there is a lot of confusion out there nonetheless. I’m hearing consistent themes from leaders and clients and prospects and partners. In a world of constant disruption, clients want and need innovation without sacrificing reliability. They want solutions to reimagine how their businesses work while still running them predictably and delivering measurable results. This means platforms architected for scale, interoperability and continuous change, where AI is governed, explainable and harnessed in workflows rather than bolted on. That’s what PEGA provides a harness for enterprise AI blueprint to help reimagine how work should run and have people rethink their businesses. And then the PEGA platform to operationalize it with confidence and evolve it as regulatory demand evolve. There’s a lot of noise about the future of the software industry itself and it’s creating some real confusion and some real moments of doubt and bias. Some investors I’ve met unsure what the future looks like and are even questioning the long term viability of enterprise software vendors. Well, we think AI will be good for some and bad for others. And for pega it will be good. The reality is that enterprises don’t succeed based on the alternative of coding past using AI. They succeed based on whether they can design the right outcomes, execute them predictably and evolve safely over time. The assumption that AI generated code can replace architecture is backwards. In mission critical enterprises, AI increases the value of platforms that are architected for predictability, governance, interoperability and continuous change. And that’s us. When outcomes matter with customers, regulators and systems that must evolve from decades, AI generated code still needs structure certainly for the types of things we do. Yeah, very small things, you can just five code them together. But AI doesn’t replace the need to have a business system. Alternatively, if people are using AI to just dynamically reason each process over and over, what we’re seeing, that’s now running of costs and giving non deterministic outcomes at the moment you weaken your enterprise platform, you make your whole business weak. Putting AI in the middle in an ungoverned way, well that’s I think just a recipe for disaster. So whether you use AI to generate code that you want to be able to orchestrate and pull together, whether you use AI to be able to run or handle certain parts of your business where you want the creativity of agent to agent interactions, or whether you want pega, whether you want to use AI to be able to pull together and orchestrate multiple business functions with a harness like PEGA driving that. In all of those cases, Pega adds tremendous value. So let’s talk about how mission critical enterprise software really gets built. Enterprise applications has always been around a continuous life cycle regardless of technology. There’s not a single build moment you need to design and rely on on what the software must do and how it must perform. And that design really can involve collaboration for many parties and having a collaborative environment like Blueprint that brings the power of the Internet, the power of AGA best practices and the power of a customer and or partner’s thinking all together in a way that they can understand, experience and improve is absolutely central. To get it to a great outcome, you got to build it. And there are lots of ways to build it. But the great news about something you’ve done in Blueprint is it’s basically built. You need to be able to execute or operate it, to run it at scale secure, make sure that it’s performant that’s being watched and managed and with tenacloud, which you’ll see is really, really continuing to grow beautifully. We give our customers a place to execute that is without parallel. And then you need to be able to evolve it and respond to change if the cycle starts again. And this cycle is high stakes. And it’s absolutely critical to get businesses not just what they want to get done in two weeks or four weeks or six weeks, but to get them to operate over the years of the business. The PEGA model, which is at the heart of a Pegasystems, is the key to most of these key factors. It’s the thing that lets you design, it lets you collaborate, it makes the build trivial, it actually executes it and orchestrates the AI. And best of all, it lets you go back to it and have a structure that you can look at, you can understand and you can direct change from. And that ultimately to us is how this life cycle operates in this new AI orchestration age. While LLMs dramatically accelerate the build, they replace these other key factors, nor are they going to be able to. That’s why clients need, you know, some people are going, well I only just it’s software and certainly AI can generate code quickly, but prompt to code alone falls short. It doesn’t tell the enterprise what should change. And you know, the gap we have isn’t coding speed, it’s understanding what’s there and making sure you don’t accidentally change something with unintended consequences when you’re operating at the speed of the prompt. It’s actually easier to do that, not harder, particularly if you haven’t put out a nice solid architecture that makes what’s going on visible. Now we do run into some people who say that they believe in AI only execution. Why do I need a workflow engine at all? Why do I need a harness at all? Why don’t you just simply turn everything over to general purpose AI agents and manage it and just have say, a control power that watches what’s going on and reports out and keeps things in line? But I’ll tell you, this creates systems that are difficult to test, expensive to run, and nearly impossible to evolve safely. LLMs are incredibly sensible, sensitive to even the tiniest bits of additional data and a new version of the LLM and let’s look at how quickly they’re coming out can often behave differently from the one you used just the day before. I think it’s safe to say that for many types of work, improvision improvisation is not a reasonable business strategy. People want predictability and reliability. But the other thing which really broke last week is that this approach to AI reasoning is becoming cost prohibitive. I hear growing discussion about the cost of gen AI and how teams are bouncing and between token matching in which they try to tell the team to use as many tokens as possible, to rationing tokens, to usage caps to supply the bills. The concerns are real, but they reflect a misapplication of AI using the wrong AI at the wrong time. When you ask Jedi to reason at runtime over and over again for processes you’ve already validated, every interaction becomes a new experiment and consumes tokens. You end up paying repeatedly for the same thinking, which is expensive, unpredictable and hard to scale. Instead, do what blueprint AI does. Do the super heavy reasoning at design time where gen AI can brilliantly explore options, map work for flows, let you collaborate and pressure test decisions, then use the right AI for the execution, focusing on consistency and speed. Costs become predictable and value scales with confidence. Gen AI is inexpensive, but misapplication is and the smart organizations will stop paying the LLM to relearn their business every five minutes. Success in the enterprise doesn’t come from AI reasoning everything on the fly. It comes from executing redesigned work, reimagined work within clear governed structures. Our architecture uniquely allows enterprises to design intelligence into how work gets done, not bolted on afterwards. Now since we last spoke, we introduced new fiber coding tooling into PEGA Blueprint and this combines the speed of AI, augmented design with security and predictability that blueprint gives. You can try it out on pega.com blueprint remember that blueprint facilitates the reimagination of critical work, not just the development of applications, and that imagination goes beyond process alone. It includes redefining roles, decision rights, skills and experiences. AI can be applied intentionally to these rather than accelerating what already exists. Users interact with blueprint designs in natural language now describing changes by typing or speaking, and the result are enterprise ready governed workflows. We receive continued validation of pega’s leadership across the industry from clients, partners and analysts who see and work with blueprint AI. Recently Forrester named PEGA as a leader in customer service solutions, recognizing PEGA Customer Service, PEGA Blueprint and PEGA Process Mining for automation and agenta capabilities. So we’re also winning awards for our software. We’ve already this year received four awards for innovation related to how we’re leveraging AI, including a Product of the Year award. Now we love receiving awards for our work, but personally it’s even better seeing our clients win awards for the work that they do with our software. Just last month the National Health Service, which provides 24 hour digital and telephone based health service to Scotland’s 5.5 million citizens received the Public Sector Award for work leveraging pegasoftware. These sorts of recognitions reinforce our strength and the need to be able to orchestrate complex service journeys and apply AI predictably. Now this is not theoretical at all. If you take a look at how this is playing out. We recently had one of our customers, Proximus, Belgium’s largest telecommunications operator, use PEGA to modernize a mission critical B2B installations application. Moving from a fragile legacy tool orchestrated cloud ready solution. They built their first prototype and blueprint in 15 minutes and went live in weeks and numerous other great names Ngen, Vodafone, National Australia bank have really been able to drive change, include a redesign and include extensive automation all AI powered. I I love the customers are excited about this and that they’re going to be coming to pegaworld in quantity to talk in detail about what they’re doing and these same stories that you just heard and others will be shared to Begaworld in June in Las Vegas because the the way that I think we all learn is by seeing what other clients are doing and it is such an honor and it’s wonderful that customers are willing to come and do that. It’s from June 7th to 9th and I would say it’s a must see event, a chance to interact with thousands of Transformation leaders from around the world and see incredible new developments at over 200 different AI powered demos. We have these exciting keynotes lined up with nearly 100 more customers from 60 organizations presenting detailed breakout sessions. MetLife will show how a highly regulated insurer moved from AI experimentation to AI at scale. Will discuss large scale legacy modernization leveraging Pega, Blueprint and AWS transform to re architect decades of legacy core system. And I would say that what is also exciting is the breadth of industries. Wells Fargo will talk about how they highlight AI driven decisioning across billions of customer interactions. So we’re going to have great customer stories, but I’m also going to tell you that this year we’re going to have a tremendous product agenda that we’re going to be releasing because this is going to be a very substantial year for the product. You’ve already seen what Blueprint has done and Blueprint AI has fundamentally changed the upfront design and the reimagining of how people should work with systems. What we’re doing this year and what you’ll see us be able to show at PEGA is how Blueprint AI is moving into the entire development and support suite so that that interface, that AI driven guidance and that power will operate from the moment of visualization and inception that you get from Blueprint all the way through to how you complete a system and how you support production system. I think this is the most consequential change to the underlying technology that I have seen and it’s there to support the agentic process fabric technology we have that then allows all of your Pegasystems and even non Pegasystems to be able to operate as a connected orchestrated network for the next generation of technology. I think only PEGA has the efficient runtime intelligence, the deep design time skills, the experience with these key workflow harnesses and is going to be able to put in your hands the way for you to make our harness your harness. We look forward to continuing the conversation and we can continue the investor conversation on Monday, June 8, when at noon in Las Vegas, we’re also hosting an investor session. So thank you all, we’re working hard and for the numbers. Let me turn it over to Ken.
Ken (Chief Financial Officer)
Thanks, Alan. As discussed last quarter, the rhythm of our business was expected to return to a more typical seasonal pattern in the Q1 of 2026. We entered the year knowing the first quarter would also be a challenging comparison given the $60 million of net ACV ad in the first quarter of 2025, which was very much an outlier and roughly 20% higher than any other quarter last year, it’s no doubt. And it’s an interesting start to 2026 with all of the AI experimentation that Alan mentioned. The federal government shutdown, two wars both in Europe and in the Middle east clearly puts pressure on the entire environment. So it’s not surprising as well that Q1 did have a lower growth rate. We continue to believe in the durability of demand for our platform, especially for our cloud offering. Pega cloud in the first quarter of 2000 Pega Cloud revenue in the first quarter of 2026 increased year over year from 151 million to 205 million and also grew 30%. If you looked at that Pega Cloud revenue growth On a trailing 12 month basis, Pega Cloud ACV grew 29% year over year as reported, and 27% in constant currency to just over $900 million over an over $200 million jump. It’s very exciting to see Pega Cloud ACV now rapidly approach the $1 billion mark. As we’ve said, ACV growth and mix is reflective of the evolution of our business. Pega Cloud ACV now represents about 56% of total ACV. Our focus on growing Pega Cloud puts pressure on both term and maintenance ACV as well as revenue. Naturally, as Pega Cloud ACV continues to grow as a percentage of overall acv, it will impact near term and in quarter revenue for term and maintenance. Moving to Free Cash Flow Free cash flow reached $207 million in Q1 of 2026, marking a strong start to the year. As a reminder, our free cash flow is primarily driven by our operating efficiency and our ACV growth, which serves as a proxy for subscription billing growth. We remain confident in our strategy to drive free cash flow and ACV growth for several reasons. First, expansion within our existing client base remains a core go to market motion with our sales team continuing to successfully cross sell and upsell into our installed base. Second, we’re accelerating new Logo Pipeline build with PEGA Blueprint as a key enabler. Blueprint makes it easier for sellers to showcase the power of the PEGA platform while enabling buyers to reimagine their legacy mission critical workflows. As a result, Blueprint is already driving meaningful pipeline creation across both new Logo and existing clients. We expect this new pipeline will begin converting into ACV in the second half of the year as deals progress through the sales cycle with a faster motion. Thanks to Blueprint, this is also an unusually high level of new Logo Pipeline growth which is just awesome to see. Third, we’re already seeing early proof of Blueprint’s ability to accelerate time to value. Last month I met with a large healthcare organization. This existing client of ours used Blueprint to Design and build two new applications, one going live in 92 days and a second in 70 days. A strong example of what our platform can do powered by Blueprint. Fourth, we’re seeing renewed interest in legacy transformation as more enterprises look to leverage AI and the cloud to modernize their operations. Blueprint is unlocking these legacy transformation opportunities by simplifying how clients reimagine and redesign their workflows to drive growth, reduce costs and improve customer experience. Together, Blueprint and Pega Infinity create a powerful combination Blueprint to design and and reimagine the work and Infinity to run it, reinforcing Pega’s position as the platform of choice for large scale mission critical workflow transformation. Unlocking legacy transformation is just one way Blueprint is transforming our business. Early signals show Blueprint is accelerating pipeline growth and helping us capture new clients. For example, in Q4 we signed a new financial services logo leveraging Blueprint’s new legacy transformation capabilities with plans to migrate more than 30 applications from a legacy application platform to PEGA Cloud. Blueprint is also driving meaningful go to market efficiency where deals once required a full bench of supporting roles. Today, our client executives can now cover far more ground with our clients when leveraging Blueprint. Finally, we’re seeing R and D benefits as well. Our new agentic engineering approach will enable us to execute our product roadmap more efficiently, allowing us to increase our pace of innovation. Since Blueprint runs on PEGA cloud, we can deliver new features and capabilities rapidly to clients and prospects. We’re excited to share more about this new approach with you at our upcoming investor session in June. Moving to Capital Allocation we continue to maintain a balanced approach, prioritizing investments in long term ACV growth while returning capital to shareholders as appropriate. In Q1, we returned more than 80% of our free cash flow to shareholders, repurchasing 3.5 million shares for $167 million under our repurchase program and paying $5 million in quarterly dividends. As of March 31, 2026, our shares outstanding decreased from the end of 2025 by 1.6 million shares. Looking ahead, we will continue to opportunistically return capital while maintaining strategic flexibility. Our buyback reflects our unwavering confidence in the durability of our cash flow. As you know, these buybacks are accretive to earnings and Combat and also Combat stock based compensation dilution. They are made possible by this strong and durable cash flow. Next, a few thoughts on modeling. We provide full year guidance at the start of the year and we typically do not issue quarterly guidance or update our outlook during the year. As I mentioned earlier, our renewal portfolio is back end loaded this year, which means we expect to have higher level of business activity in the second half of the year. The shape of our pipeline also influenced the timing of term license revenue which is largely recognized up front in the quarter a client contract is renewed. As a result, we expect term license revenue to be more heavily weighted towards the second half of 2026. At the same time, our focus on driving PEGA Cloud ACV growth also puts pressure on term and maintenance acv. The success of our PEGA Cloud sales efforts is already reflecting this shift and we expect it to continue as PEGA Cloud ACV scales to 75% or more of our total ACV over time. Put simply, a portion of our PEGA Cloud ACV growth is displacing term and maintenance ACV as intended and we expect this dynamic will persist as we march toward our cloud mix goal. In addition, we’re beginning to see a meaningful change in how enterprise clients are thinking about AI. The economics of AI are changing. Frontier models providers are tightening monetization and in the era of low cost, subsidized all you can use experimentation seems to be coming to an end. As a result, AI usage is increasingly treated as what it is a true operating expense. Every API call must be justified with clear business value. Given this change, buyers are moving out of the experimental phase of AI into the ROI stage. This transition to profitable AI plays directly to our strengths. PEGA has always been focused on delivering measurable business value. AI is not just about efficiency, it’s about generating tangible returns. And that’s exactly what PEGA is built to do. Importantly, our pricing model is aligned with the shift toward outcomes PEGA prices based on cases, which is a measure of the amount of work that the PEGA platform executes, tying our economics directly to the business value delivered rather than on users or seats. This stands in contrast to many model providers where pricing is driven by usage metrics like tokens or API calls. As AI costs come under greater scrutiny, we believe our outcome based pricing model provides a clearer and more efficient path for clients to generate and measure return on their AI investments. As Alan mentioned earlier, we’re holding our annual investor session at Pegaworld on Monday, June 8 at the MGM grand in Las Vegas during the investor session, we look forward to providing you with additional color on several of the topics that I discussed today. We also plan to provide more insight into how we envision clients driving legacy transformation with PEGA and how we’re progressing against the long term targets we laid out last year. We also plan to give you insight into several key blueprint metrics, including the impact of pipeline build and deal progression and what is most interesting of some of the metrics around new logo momentum. In closing, we look forward to seeing you on the road at conferences and non deal road shows over the next few months and at our investor session at pegaworld in June, which we encourage all of you to join us. Please also note that we plan to participate in the NASDAQ Opening Bell ceremony on Monday, July 13th at NASDAQ Market Site in New York to celebrate the 30th anniversary of Pega’s initial public offering with that operator. Please open the line for questions
OPERATOR
at this time I would like to remind everyone in order to ask a question, press Star, then the number one on your telephone keypad. We’ll pause for just a moment to compile the Q and A roster. Your first question comes from Alexi Gogolev with JP Morgan.
Alexi Gogolev (Equity Analyst)
Hello everyone. Ken, would you mind providing a bit more color on acceleration of ACV growth through the year?
Ken (Chief Financial Officer)
I remember you talking about client compelling events and renewal cycles driving potential uplift in the back half of 2026. Yes, good morning, Alexi. So there’s two different, there’s two different factors to that. One is our renewal cycle is tipped toward the back end of 202026, which, which is more, that’s more the usual distribution than unusual. But in 2025 that was, that was reversed. There was not as there was not as many compelling events in the back half of the year. So that’s one factor when there are renewal cycles. That is typically an event where clients, if they’re going to expand their relationship, tend to do it around that renewal cycle. So that’s one factor. Second factor is we’ve put a renewed interest in new logo focus with blueprint and as we build pipeline that will naturally grow and the conversion of that pipeline will grow, the opportunity tends to sit toward the back end of the year as well. So there’s two 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 very, very unusually tipped towards the front end of 2025.
Alexi Gogolev (Equity Analyst)
Thank you Ken and Alan, in the past you spoke about AI adoption disconnect can you talk a bit more about what you’re seeing in terms of the narrative in the industry and update us on the trends from Q1 in terms of agentic adoption?
Alan Treffler (Founder and CEO)
Yeah, I think that there’s some things that looked at properly, you have to really laugh or cry as the case may be. I talk to people, you know, look, I spend my whole time out in the field talking to people about what they’re doing. So much going on where people talk about LLMs, people talk about the word agentic, people talk. We talk a lot about LLM technology because we make very heavy use of vector databases, which is a way to use LLM technology but to do it in a very cost effective fashion. And what I encounter is there are some people, there was actually an article about this where they think that they will be at their most successful when they use the LLMs for as much as possible. And I’ll be honest, that’s just crazy. The LLMs do magical things, but what you want to do is use them for the right things, not for the parts of this problem that are statistical and not for the parts of the problem that should be planned out in advance, maybe planned out within LL that the blueprint does, but should not be just planned and replanned and pay this incredible tax or rethinking what you already know. But some people are just so enamored with the LLMs that they’re in love with it. And I think some of the enterprises out there have told their teams, hey, we just want you to use this stuff. And I can appreciate that they’re trying to get people to understand it, but that’s not going to be remotely what ends up sticking. Not just cost, but also lack of reliability. And it’s like most ungreen thing you could do, you know, in terms of the electricity use and all of that. So I think understanding Proper use of LLMs is absolutely key. And I, to be honest, I think we’ve nailed it. And what I see with the others, structurally different path than just about all tests. Thank you. Thank you. Ellen.
OPERATOR
Your next question comes from Ramo Lynchau with Barclays.
Ramo Lynchau (Equity Analyst)
Hey, thank you. I just wanted to stay on that new logo focus. We have like, you know, if I look at you guys, you know, over the years you have been a really, you know, the high end provider, very good for complex scenarios, etc. But on the new logo side, that was always like a bit of a question. You had a really big installed base. Talk a little bit more about that new focus on new logos I can see how blueprint is really going to help you here, but I just want you to understand that a little bit better on that one and then Ken, one for you. Also on the maintenance side, I hear you that the push towards Pega Cloud will impact maintenance. The numbers we saw this quarter, are they indicative of what we see for the year or is that other factors in Q1 that we should be aware of? Thank you.
Ken (Chief Financial Officer)
I’ll touch on the maintenance one. I think you will see as we continue to move towards Pega Cloud, you will see maintenance go down over time and you will see term license be flat to down as well. Even though some clients will still continue to run on client cloud. I think you will start to see that shift. Certainly not 100% at any point in the foreseeable future, but it will move in that direction. I’ll touch on the first question that you asked because so the way we think about it, and this is just a framework, if you look at a company like Gartner, they have something like 15,000 clients. I think Forrester has slightly less than that, but still many Thousands, probably approaching 10,000 clients. The types of companies that would go and seek advice from a Gartner or Forrester clearly have enterprise spend of some level of size. We believe all of those organizations are an opportunity for Pega. There are others that don’t actually subscribe to Gartner as well. But we think the universe is very large. We’re not talking about going down to tiny organizations to get that opportunity. There’s just a lot of companies that we’ve not historically sold to. It is a newer motion for us, but not a brand new motion. We have always added a few new logos. It’s just that blueprint completely changes the dynamic of how fast we can engage with a new logo and the speed at which we can validate if there’s interest. And that was the reason why we never really pushed hard on that. Excuse me in the past because we didn’t. In some cases it might be a two year sales cycle to see if there was momentum. And that was the reason why we were very thoughtful about new logos with blueprint. That really changes the game.
Alan Treffler (Founder and CEO)
Yeah. And blueprint is a great starter. But the thing that for that. But a couple other things we’ve done that also changed that game. First, blueprint lets you design things that you would have had to be a lead system architect, had had years and decades integrated experience to really do. And now it just happens we’ve got a lot of that expertise built in and every month we build in more. So we’ve radically changed the training required curve, we’ve radically changed the expertise required curve and candidly all of these also adjust the cost curves as well. At the same time that the improved speed of delivery, you know, we’ve added this Socratic education which is a way that we can now make it easier to teach people about their gaps as opposed to having them to go through big formal courses. So there’s been a huge simplification and when we think and we talk about how we want to go from the like 850ish companies that we would really sell to and have as customers in the global and we’re going to continue to really try to do great work for them there to say 10,000 as a much more easily acceptable population of multibillion firms that we can go after, we now have a tool that’s well equipped for that. And between the fact now that it runs on PEGA cloud and the PEGA cloud is, is tied in to our predictive diagnostic cloud which does a lot of self maintenance, a tremendous amount of making sure performance runs handle scaling beautifully on kubernetes, we’re just in a position where we can really go after this. So it’s not just the choice to go after, it’s also years of product evolution and business evolution that has made this possible. Yep, makes sense. Yeah, it’s exciting. Thank you.
OPERATOR
Your next question comes from Steve Enders with Citi.
Steve Enders (Equity Analyst)
Okay, great. Thanks for taking the questions this morning and good to see everybody. Last week at our, at our conference, I guess I wanted to start on kind of the AI discussion and you know, the focus on becoming the harness for enterprises. I guess you want to understand a little bit better about maybe what this means tangibly for your customers in terms of, you know, use cases that you see, you know, as you kind of try to become that harness layer, kind of how you’re thinking about that adoption curve within some of these bigger customers that you have.
Alan Treffler (Founder and CEO)
Yeah, what I see is that customers and you know, think of Proxima as we just mentioned, think of some of the others look to the use of our AI, you know, powered by blueprint, but still able at critical points in the workflow to call, you know, even a non pega agent. The idea is that we can actually use our agents, customers, agents, but it all is in the context of a business objective that they were able to think out and design. That I believe gives the customers a level of reliability and auditability that they can’t come close to with any of the other alternatives there. So I, I see customers who take the moment to understand that they don’t want to re reason everything all the time. You know, you guys probably all use Claude and Gemini and OpenAI. You know, we’ve used in Claude this morning, you know, putting some questions in and it starts explaining to me that it’s, you know, it’s reasoning, uses terms like frolicking, you know, canoodling. Well, when it’s doing that, it’s feeding itself tokens. It’s, I mean we’re, we’re paying for these, these journeys of, you know, intellectual research that it’s doing. I am thrilled to do that. When it’s not the exact same stuff that was done, you know, that morning. And you know, people who think that they’re going to handle credit card disputes by turning them over to a, you know, LLM to figure out the detail and nuance for each individual. Customers are missing the chance to bring stability and efficiency into those operations. And when we explain the harness concept, I think customers really get that.
Ken (Chief Financial Officer)
And I’ll just add one additional thought there. If you think about the value that Alan mentioned of the, you know, the concept of PEGA functioning as a harness, you got the efficiency, you’ve got the risk management that Alan mentioned. You also have the resiliency aspect because we’re using multiple models and being able to actually use the right, you know, the models are, you know, they have variability in their performance and their speed and their, and the context. So I think we’re able to really create this best of all of the models in terms of leveraging it when providing that value at design time and selectively at runtime. Okay, that’s helpful context there. Maybe just on the ACV dynamics here, I think it would be helpful to kind of know kind of what the net new ACV was. If we look at kind of 4025 constant currency like what that was for the quarter and then I guess on the levels that came in this quarter, I guess did this kind of come in as you were, as you were expecting? Like was that the level you were assuming when you guided for the year? Does this maybe change how you think about what the ACV growth for the year will look like? Yeah, so I’ll talk about Q1 and I’ll also actually mention kind of the first half that we had talked about at the beginning you last quarter. First half last year we had a significant amount of net of everything I’m saying is in constant currency. Steve. We had a significant amount of constant currency growth last year in the first half of the year. That was unusual and will not, you know, I mentioned will not repeat this year. We were going to be more back end loaded. So the constant currency growth in Q1 was somewhere around $20 million. I would say it was in a few million dollars of where I thought it would be. It was probably a couple billion dollars lower than what I thought it would be, but pretty close. It was, I would say, more of a rounding error than something that was significant in terms of the growth. And I would say Q2. Once again, Q2 is not a big renewal quarter either. It’s really Q3 and Q4. So that’s, I think the year is not that different than the way that I envisioned it playing out in terms of just the numbers. And we knew the cash flow was going to be stronger in Q1 because Q1 is typically a strong cash flow quarter. So I would say kind of across the board. It wasn’t, it wasn’t dramatically different than our plan.
Steve Enders (Equity Analyst)
Okay. All right, that’s helpful. Appreciate you taking the questions.
Ken (Chief Financial Officer)
You got it.
OPERATOR
Your next question comes from Rishi Jaluria with rbc.
Rishi Jaluria (Equity Analyst)
Oh, wonderful. Thanks for taking my questions. Maybe two for me. Ken, let me start with you. In your prepared remarks, you talked a little bit about some of the macro or at least a macro backdrop that we’ve been seeing. And obviously with everything with government and geopolitical tension and obviously the prevailing AI side, there’s a lot going on there. Maybe can you be a little bit more or extend a little bit more in terms of what have you seen so far this year as a result of kind of all of these. And let’s put AI aside for a second because obviously spent a lot of time on that, but very specifically around some of the geopolitical stuff, government, etc. How has that impacted your business so far? And as you think about things going forward, you know, I know you’re not updating guidance and that’s in line with kind of your historical practices. But just how should you be thinking about that potential impact on your business for the rest of the year? And then I’ve got to follow up.
Ken (Chief Financial Officer)
Okay, so, so once again I’ll follow your lead and leave a off to the side, I think on government and the government sh down and some of the changes the government has made. There were a few deals and a renewal or two that actually did slip out of Q1. We don’t believe that those are like lost deals. It’s just more that the process by which we go through, like, procurement changes in the government definitely has caused a little bit of confusion in Q1, specifically, more in March. So. So I don’t suspect that will extend for a very prolonged period of time, but probably Q2 might still be a little bit of confusion as, like, GSA starts to take deals more directly, et cetera. So there’s no doubt that there’s some backlog of work that needs to process through the government. That happened in Q1. On the war, I think that, you know, look, the war is two wars, by the way, not one. Right. Are both of those wars are very impactful for Europe. Right. And 30% or so of our business comes from Europe. So I think that it would be accurate to say that there are people. There’s a potential for a de risking that would happen just because the impact of higher oil prices, temporary inflation, goods flow being disrupted, et cetera, into not just the Asia Pacific area, but also parts of Europe that are dependent on those same regions. So I think government, yes, some delays, I think that will probably clean up through the rest of the year. The war and how long that stays outstanding will, you know, has a risk of, you know, hurting the spending environment across, you know, it and all and everything else. I mean, just because of the, you know, because of the disruption of the supply chain. So. And we started to hear some conversations that. I wouldn’t say that, you know, I could point to deals at Q1 necessarily, but I think it is definitely something we’re watching. I think in terms of Europe, there’s been more of a push to go for some of these, quote, sovereign clouds, unquote, which, you know, aws, for example, is working on one. But just having that as an extra complication just has the ability to drag things out. Yeah. Now, thankfully, we have cloud choice, so we have the ability to work with, with different hyperscalers in regions. But there’s, you know, there’s definitely, you know, the. There’s definitely some tension between us providers and other parts of the world. And, you know, and we just have to, we have to do our best to manage through that as this, as this war, you know, continues on. These wars, I should say, continue on.
Rishi Jaluria (Equity Analyst)
Okay. Okay, thanks. No, that’s, that’s, that’s very helpful. And then maybe, Ken, I wanted to expand and this is, this is for both of you. You know, Ken, you talked about this idea of maybe the kind of era of subsidized, you know, unlimited tokens, you know, might, might be dwindling. And I think you know, everyone’s experiences with, with, with, with, with Claude and the likes has kind of shown that as they’ve been a little bit more, they’ve at least been throttling some of the usage a lot. And I think that makes sense. But just to maybe expand on that, can you talk a little bit about, you know, as, as that kind of trend plays out? Number one, you know, what does that do to your own cost structure with, you know, blueprint and where you are using the LLM for the design and ideation side, not necessarily in runtime as you’ve been speaking about. And then number two, does that maybe change the nature of some of the conversations where, you know, maybe in the past customers have said, hey, we’re going to try AI for everything, whether it makes sense to do it or not. Not or use LL for everything, whether it makes sense to it or not. And maybe that can change the nature of conversations. And has that been showing up yet? Thanks.
Alan Treffler (Founder and CEO)
Yeah, I was really seeing those last week actually after Anthropic announced its price changes. It’s going to be fabulous for us because blueprint. Yeah, blueprint is as consumptive as anything else. But when you design something once and run it 200,000 times, you know, the design cost is not really relevant. So that’s really nailing it. I do think it’s great that the tokens have started to approach closer to reality. They’re still very, very heavily subsidized and I think that subsidy will persist because people are trying to push the numbers up to one of you guys, take them public. Very helpful, thank you.
OPERATOR
Your next question comes from Devin Al with KeyBank Capital Markets.
Devin Al (Equity Analyst)
Hey Ken. Hey Alan. Thanks for taking my questions here. Maybe just for Ken on the first one, I know you’ve mentioned some geopolitical disruptions in EMEA that’s ongoing, but when I look at your revenue performance in the US and APAC in the quarter, it seems like both regions were down quite notably. I know revenue isn’t the best metric
Ken (Chief Financial Officer)
to assess the business quarter over quarter, but we’d love to just get some more color on kind of what drove the downtick specifically for those regions in the quarter. That’s solely just the timing of term license revenue, Devin, and how that compares year over year and quarter over quarter from Q4 and from Q1. In terms of the business activity, I don’t believe we’ve seen any impact kind of bookings or new business in either of those regions. My comment was more it would be reasonable to think they would be under pressure, but we have it. The revenue is just related to term license revenue. It’s not structural, it’s just the timing of accounting.
Alan Treffler (Founder and CEO)
And we hate that revenue behaves the way it does. Nothing would make us happier than just be able to report everything on a recurring basis.
Devin Al (Equity Analyst)
Understood. Yeah, appreciate the contact. And then just a quick follow up. I know you kind of talked about a little bit on the remarks on the new Vibe coding capability that got released to Blueprint. We’d love to just speak to, for you to speak to how kind of usage engagement have kind of trended since that release came out for Blueprint. I mean has that, have you seen any sort of early sign or signals on greater expansion activity from user using that side coding tool?
Ken (Chief Financial Officer)
Yeah, we’re getting great, we’re getting great comments on it. It’s right on the face of Blueprint. There’s a little panel on the left of Blueprint that says AI Assistant. And any, on any of the pages if you say, hey, you know, add an insurance policy to this travel request, you know, it will design the data structures and the field and everything right into the blueprint. And so you don’t have to get it right up front. Peter would be thrilled to demo all that to you, but anybody could just go on and do it. It’s, it’s absolutely central to what we’re doing and great feedback. That’s great to hear. Thank you.
OPERATOR
Your next question comes from Patrick Wall Ravens with Citizens.
Patrick Wall Ravens
Oh, great. Thank you, Alan. Two for you. So you talked in your script about the long term viability of enterprise software
Alan Treffler (Founder and CEO)
vendors and you said, well, we think AI will be good for some and bad for others. Who’s it going to be bad for? That’s my first question. Well, we’ve seen it been really bad for. There are some, there are some products that generative AI has just made a feature. You know, for example, we, we used, there was a company we used to license the document processing software and if a customer wanted, for example, peel fields, you know, off of a physical document, they’re really good. Now you can just do that by having the customer call the mlm. And so there are what I would describe as point features that massively changed or gone away. I think that there are also a lot of the low end workflow companies. You know, guys like Asana and, and Monday, you know, have really, I think suffered in the market. They were called work management companies, which it was a moniker sometimes applied to us. But I will tell you we never really competed with them because the Types of things we do are so fundamentally different. I think the types of things they do, you know, which, which often tend to be kind of a small little system for a 10 person work group are going to be the types of things that somebody might be able to just code ramping that up to do work across even a 500 person company level in a 5000 person company, you know, which is our bread and butter. I think AI just adds a tremendous amount of value to that and doesn’t really open us up to risk, as I said. And then the second question is this is a little out of left field, but I’m sure you have a point of view on it and I have a feeling it fits into your remarks somewhere. So SpaceX buying cursor, or maybe buying Cursor with a, with a, you know, for 60 billion, with a $10 billion breakup fee, what does that tell us about what is going on in the AI world? I think I would have to relying on guys like you to tell me. Look, I, I think there are so many, you know, last week I was driving up 101 and there was billboard after billboard of AI company after AI company that I had not heard of. Many of them, you know, we’ve got this enormous, enormous collection of code writers, some of whom have become instant unicorns. And what that tells me is AI is in, you know, parts of it are in the bubble phase and I will all shake out. Whether SpaceX makes cursor one of the few survivors, there’ll be a couple of survivors. Whether Claude goes kills them all, I don’t know. I’m not, I’m not fighting in that ring. So I have no interest to get thrown into it.
Ken (Chief Financial Officer)
I’ll just give one little point that we heard last week at the AI conference we were at pat, which is cursor is sort of a harness, right? And so I do think it maybe is that for programmer, but for programmers. But I do think, but I do think it kind of like suggests that like, you know, the AI models really need to be governed right, in different ways for different use cases.
Alan Treffler (Founder and CEO)
So when I use the word harness, which is a word somebody else used, but I kind of like it. It’s, it’s really thinking about being a harness at runtime. You know, it is a blueprint, is a harness, a design time, it guides you to design, make sure you think about the design the right way, those two things in the right, in the right structure and order, etc. But I think you need a, a design time harness and, and A runtime harness. And I would agree cursor is a good.
Ken (Chief Financial Officer)
It’s guardrails. It’s guardrails for the AI models. Right. So I think that’s the one thing I could read into that. All right, that’s super helpful. Thank you both. Thanks, Pat.
OPERATOR
Your next question is from Mark Schattel with Loop Capital Markets.
Ken (Chief Financial Officer)
Hey, thanks for, thanks for sneaking me in here. Ken, question for you. Could you just talk about what portion of your pipeline is now, say, AI driven versus more traditional platform acv? So I think I’m going to reframe your question because I think what you’re suggesting is how much of our pipeline is led by blueprint? And I would say almost all of our new pipeline growth is connected to a use of blueprint in some way, which I would put in the AI camp. In terms of our AI accelerators that we have, like we talked about, like Knowledge, Buddy, Coach, et cetera, some of the specific runtime AI accelerators that we have, we typically think about those as a premium markup, so to speak, on the value of activity that happens through the platform. But if you want to think about all of our new pipeline that’s been added, certainly any new logos and any new workflows, those are, those are led by Blueprint and led by Peg AI. Okay, thank you.
Alan Treffler (Founder and CEO)
And then, Ellen, I was wondering if you just comment on how the, or how demand for the legacy scale modernization programs you’re seeing is evolving, especially in the government and regulated industries. So we’re engaging. It’s slow, but, you know, we, we actually have a number of these legacy transformation projects going on now, and I’m pretty excited about it. It’s such a big, big, big market. So we’re building up our expertise, we’re getting some good examples. And when you come to Pegawar, you’ll be able to see some pretty amazing things in support of that. Okay, thank you.
OPERATOR
This concludes the Q and A portion of our call. I’ll now turn the call back over to Alan for any closing remarks.
Alan Treffler (Founder and CEO)
Thank you very much, everybody. We’re working hard, we appreciate our investors, and I really, really hope to see all of you at Pegaworld. You should fire up your AI agents and have them book your reservations from June 7 to 9 in Las Vegas. And as we mentioned, on the 8th, we’re going to have a very, very good and very important investor session. And we have a lot of new things to show, so it should be awesome. See you there. Thanks.
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