Pegasystems Inc. · NASDAQ:PEGA

Pegasystems — Investor Day (June 2024)

27 slides from Pegasystems's investor day presentation, Jun 10, 2024

  1. Slide 1: Investor Session 2024

    © Pegasystems Inc. NASDAQ: PEGA pegainvestorrelations@pega.com Investor Session 2024 June 10, 2024

  2. Slide 2: Safe Harbor Statement

    © Pegasystems Inc. Safe Harbor Statement Certain statements in this presentation may be “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, targets, strateg

  3. Slide 3: Finance – Ken Stillwell, COO & CFO

    © Pegasystems Inc. 3 Finance Ken Stillwell COO & CFO © Pegasystems Inc.

  4. Slide 4: Financial Outlook

    © Pegasystems Inc. Financial Outlook 4 Massive Market Opportunity Recurring Model “Rule of 40” Driven Subscription Journey © Pegasystems Inc.

  5. Slide 5: Pursuing a Massive Market Opportunity in Platform & CRM

    © Pegasystems Inc. Pursuing a Massive Market Opportunity in Platform & CRM FY 24 $90B+ FY 27 $130B+ Source: IDC Worldwide ICT Spending Guide (Feb. 2024) 5

  6. Slide 6: Subscription Transition Timeline

    © Pegasystems Inc. SUBSCRIPTION TRANSITION TIMELINE 2017 2023 To…From… Recurring More Predictable Rule of 40 Driven Perpetual Less Predictable Lagging Growth & Margins Pega is a Recurring Cash Flow Business 6

  7. Slide 7: Subscription Revenue Increased from 56% to 84%

    $500M $525M $614M $772M $958M $1,068M $1,201M $388M $367M $297M $246M $254M $250M $232M $888M $892M $911M $1,018M $1,212M $1,318M $1,433M 2017 2018 2019 2020 2021 2022 2023 Subscription Revenue Increased from 56% to 84% 7© Pegasystems Inc. Subscription Revenue Note: Other includes consulting and per

  8. Slide 8: ACV Growth and Free Cash Flow: Rule of 40 Driven

    © Pegasystems Inc. ACV Growth ACV growth rate Free Cash Flow Free cash flow margin “Rule of 40” Driven 8

  9. Slide 9: Key Success Metrics: Free Cash Flow and ACV Growth

    9 Note: ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV. ACV is a performance measure that we believe provides useful information to our management and investors. Key Success Metri

  10. Slide 10: ACV Growth Drivers

    © Pegasystems Inc. ACV Growth Drivers Existing Clients A CV T ie rs $50M+ ACV <$1M ACV $1M-$5M ACV $5M-$10M ACV $10M-$25M ACV $25M-$50M ACV Move clients up the ACV pyramid ◦ Subscription transition ◦ Grow existing clients Targeted new logos ◦ Win new clients through target account model New Clients

  11. Slide 11: More Than Doubled ACV From 2018-2023

    © Pegasystems Inc. More Than Doubled ACV From 2018-2023 Driven by 5x Increase in Pega Cloud Pega CloudSubscription LicenseMaintenance KEY DRIVERS Subscription transition Target org model, including new logos 2018 $110M $190M $270M 48% 33% 19% $570M $553M $378M $324M 2023 26% 30% 44% $1,255M +$685M 1

  12. Slide 12: ACV Growth Drivers: 2018-2023

    © Pegasystems Inc. ACV Growth Drivers: 2018-2023 Existing Clients A CV T ie rs $50M+ ACV <$1M ACV $1M-$5M ACV $5M-$10M ACV $10M-$25M ACV $25M-$50M ACV New Clients 12 Added $685M of net new ACV between 2018-2023 +$685M Achieved $685M of net ACV add by: • Completing our subscription transition • Incre

  13. Slide 13: Our Goal is to Reach $2B in ACV in 3-to-5 years

    © Pegasystems Inc. Our Goal is to Reach $2B in ACV in 3-to-5 years Achievement by 2026 (3 Years) Achievement by 2027 (4 Years) Achievement by 2028 (5 Years) Time to achieve depends on how quickly we can leverage GenAI to accelerate growth Base ScenarioUpside Scenario Conservative Scenario 13

  14. Slide 14: Reach $2B in ACV Driven by Base, Cloud Migrations, New Logos

    © Pegasystems Inc. Our Goal is to Reach $2B in ACV in 3-to-5 years Driven by growing the base, cloud migrations & capturing new logos Pega CloudSubscription LicenseMaintenance $1,500M $300M $200M 2023 $553M $378M $324M 26% 30% 44% $1,255M 3-to-5 Years 10% 15% 75% $2,000M 14 KEY DRIVERS Growing the b

  15. Slide 15: ACV Growth Drivers: 3-to-5 Years

    © Pegasystems Inc. ACV Growth Drivers: 3-to-5 Years Existing Clients A CV T ie rs $50M+ ACV <$1M ACV $1M-$5M ACV $5M-$10M ACV $10M-$25M ACV $25M-$50M ACV New Clients 15 Add $745M of net new ACV in the next 3-to-5 years +$745M To achieve $745M of net new ACV add in the next 3-to-5 years: • Leverage P

  16. Slide 16: Key Success Metrics: Free Cash Flow and ACV Growth

    16 Key Success Metrics: 01 02 Free Cash Flow Annual Contract Value (ACV) Growth © Pegasystems Inc. Free cash flow is defined as cash provided by operating activities less investment in property and equipment. Investment in property and equipment fluctuates in amount and frequency and is significantl

  17. Slide 17: Gross Margin Expansion: Scale Pega Cloud

    © Pegasystems Inc. Gross Margin Expansion: Scale Pega Cloud Leverage Kubernetes / Microservices Scale Pega Cloud Increase Automation 17

  18. Slide 18: Gross Margin Expansion: Scale Pega Cloud

    © Pegasystems Inc. $51M $56M $64M $73M $83M $95M $106M $119M $134M $149M $167M $186M $208M $233M $257M $281M $301M $323M $344M $363M $384M $402M $423M $444M $461M $484M Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4

  19. Slide 19: Long-Term Financial Model Driving to $500M in Free Cash Flow

    Long-Term Financial Model Driving to $500M in Free Cash Flow © Pegasystems Inc. 19 LONG-TERM MODEL TIMELINE 2022 2027 Target Sales & Marketing43% % of revenue Gross Margin74% From… To 20% Research & Development 2023 76% 35% 18% Note: Financial metrics (other than revenue) presented are non-GAAP. For

  20. Slide 20: Free Cash Flow Trajectory

    Free Cash Flow Trajectory © Pegasystems Inc. 20 SUBSCRIPTION TRANSITION TIMELINE 20232017 2017 2018 2019 2020 2021 2022 2023 2027 Target $500M Driving to $500M in Free Cash Flow

  21. Slide 21: What Does This All Mean?

    What Does This All Mean? Build a growing, subscription business to drive increased value To drive shareholder value Accelerate growth While expanding margins And increasing cash flow With a view towards Continuing our technology leadership with Pega Cloud Executing our target organization go-to-mark

  22. Slide 22: Q&A

    22 Q&A Ken Stillwell COO & CFO © Pegasystems Inc.

  23. Slide 23: To Ask a Question…

    To Ask a Question… 23 IN THE ROOM ON THE PHONE • Raise your hand • Wait for the microphone • Please state your name and the firm you are with • Email pegainvestorrelations@pega.com or peter.welburn@pega.com © Pegasystems Inc.

  24. Slide 24: Innovation Hub Map

    © Pegasystems Inc. Hours Open Monday, June 10: 11:00 AM – 6:00 PM Tuesday, June 11: 11:00 AM – 6:30 PM Innovation Hub Map 24© Pegasy tems Inc.

  25. Slide 25: Trademarks

    Pegasystems, Pega, and other Pega products and services mentioned herein are trademarks of Pegasystems Inc. All other company, product, or service names are trademarks or service marks of their respective owners. © Pegasystems Inc. 25

  26. Slide 26: GAAP to Non-GAAP Margin Reconciliation

    GAAP to Non-GAAP Margin Reconciliation 26 2022 2023 Q1 2024 2027 Target Gross Margin % - GAAP 72 % 74 % 71 % 77 % Stock-Based Compensation 2 % 2 % 3 % 3 % Gross Margin & - Non-GAAP 74 % 76 % 74 % 80 % Sales and Marketing - GAAP 47 % 39 % 39 % 34 % Stock-Based Compensation (4) % (4) % (5) % (4) % Sal

  27. Slide 27: Free Cash Flow Reconciliation

    Free Cash Flow Reconciliation 27 (in millions) 2017 2018 2019 2020 2021 2022 2023 Q1 2024 2027 Target Cash flows provided by (used in) operating activities $ 158 $ 104 $ (42) $ (1) $ 39 $ 22 $ 218 $ 180 $ 520 Investment in property and equipment (14) (12) (11) (25) (10) (35) (17) — (20) Free Cash Fl

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