Pegasystems COO and CFO Ken Stillwell detailed the company's evolution into a "Rule of 40" subscription business, emphasizing its "deterministic workflow" technology as a critical moat for regulated industries requiring zero error tolerance. The central discussion focused on "Blueprint," an AI-driven design tool now featuring "vibe coding" that accelerates digital transformation and significantly reduces sales friction for both direct teams and partners. Stillwell highlighted a transition to a traditional back-end loaded fiscal year for 2026, a long-term target of 35-40% free cash flow margins, and an aggressive capital allocation strategy utilizing a new $1 billion share repurchase authorization.

Key Takeaways

• Blueprint Evolution: Pega is announcing "full vibe coding capabilities" for its Blueprint tool, enabling users to build applications via natural language and moving configuration away from complex back-end studios.
• Sales Efficiency: Blueprint has eliminated the need for "six months of lack of productivity" for new sales hires, allowing them to engage clients immediately.
• Partner Strategy: For 2026, partners like Accenture and Capgemini will utilize "partner branded Blueprint" versions to sell Pega directly, opening a new autonomous sales channel.
• Growth Outlook: Management is guiding to a modest acceleration in top-line growth from "14% to 15%," primarily driven by new logo acquisition unlocked by Blueprint.
• Margin Targets: The company is currently generating free cash flow margins "north of 30%" and aims to reach a range of "35% to 40%."
• 2026 Seasonality: Unlike the prior year where Q1 was the strongest quarter, 2026 will follow a traditional enterprise cadence (back-end loaded), leading to expected ACV growth deceleration in Q1 due to tough comparisons.
• Capital Allocation: The Board approved an additional $1 billion share repurchase, which management intends to execute "between now and the middle of next year."
• Pricing Model: Pega utilizes an activity-based pricing model (charging per "case" or unit of work) rather than user seats, ensuring revenue growth aligns with automation trends.

Q&A

Analyst (Morgan Stanley): Can you explain the core products and specifically why you use the term "deterministic workflow"?

• Ken Stillwell: Pega provides workflow for regulated industries (e.g., banking, government) where there is "zero tolerance for errors." Unlike generic coding, these workflows must follow specific regulatory steps (like HIPAA or PCI) decided on the front end, which creates a competitive moat.

Analyst (Morgan Stanley): Why is Blueprint critical for enterprises right now, and how is it evolving?

• Ken Stillwell: Blueprint solves the high cost and time of upfront design. Pega is launching "vibe coding" where users can talk to Blueprint to design systems, with the goal that eventually "every Pega application will be built" through this front-end, extending from design to build, test, and operate.

Analyst (Morgan Stanley): How has Blueprint changed your go-to-market motion and sales productivity?

• Ken Stillwell: Previously, new hires required significant training before facing clients. Now, "there is no training required" to start using Blueprint, allowing salespeople to "be talking to a client the first meeting," which gives management confidence to hire more sellers and target new logos.

Analyst (Morgan Stanley): How does the new partner strategy with Blueprint impact your ability to scale?