Pegasystems Inc. · NASDAQ:PEGA

Pegasystems — Investor Day (June 2023)

29 slides from Pegasystems's investor day presentation, Jun 12, 2023

  1. Slide 1: Investor Session 2023

    © 2023 Pegasystems Inc. Investor Session 2023 June 12, 2023

  2. Slide 2: Safe Harbor Statement

    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, targets, strateg

  3. Slide 3: Financial Update

    © 2023 Pegasystems Inc. Financial Update Ken Stillwell | COO & CFO June 12, 2023

  4. Slide 4: Financial Outlook

    Financial Outlook 4 Margin Expansion Opportunities Massive Market Opportunity High Growth, Recurring Model Transition to Subscription Wrapping up in 2023 © Pegasystems Inc.

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

    Pursuing a Massive Market Opportunity in Platform & CRM 5 FY 23 $78 B+ FY 26 $119 B+ Data Source: IDC Worldwide ICT Spending Guide (Feb. 2023) © Pegasystems Inc.

  6. Slide 6: Subscription Transition Timeline

    © Pegasystems Inc. 6 SUBSCRIPTION TRANSITION TIMELINE 2017 2023 To…From… Recurring More Predictable Rule of 40 Driven Perpetual Less Predictable Lagging Growth & Margins Transition to Subscription Wrapping up in Mid 2023

  7. Slide 7: Subscription Increased from 56% to 81%

    Subscription Increased from 56% to 81% 7 2022 $614M $1,318M $388M $500M 2018 $297M 2017 $525M $367M $772M 2019 $246M $1,212M 2020 $254M Subscription Revenue $958M 2021 $250M $1,068M Other Revenue1 $892M$888M $911M $1,018M 44% 56% © Pegasystems Inc. 19% 81% 1. Other includes consulting and perpetual

  8. Slide 8: Transition to Subscription: Key Growth Metrics as we Finish the Transition

    8 1. Annual Contract Value (ACV)1 Growth 2. Free Cash Flow2 © Pegasystems Inc. 1. Annual Contract Value (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 meas

  9. Slide 9: High Growth, Subscription Model

    High Growth, Subscription Model ACV growth is the best indicator of growth during the subscription transition © Pegasystems Inc. 9 $1,026 $1,040 $1,126 $1,174 $23 $48 $24 $21 $1,037M Q2 22Q1 22 Q3 22 Q4 22 Q1 23 $1,049M $1,088M $1,150M $1,195M Q1 2023 vs Q1 2022 Growth • ACV Reported: 13% • ACV Cons

  10. Slide 10: ACV Growth Drivers

    ACV Growth Drivers GenAI Process mining Process AI Pega Launchpad Voice AI 10© Pegasystems Inc.INNOVATE EXECUTE Consumption-based contracts Target org model Cloud Choice

  11. Slide 11: Transition to Subscription: Key Growth Metrics as we Finish the Transition

    Transition to Subscription: Key Growth Metrics as we Finish the Transition © Pegasystems Inc. 11 1. Annual Contract Value (ACV)1 Growth 2. Free Cash Flow2 1. Annual Contract Value (ACV) represents the annualized value of our active contracts as of the measurement date. The contract's total value is

  12. Slide 12: Free Cash Flow Trajectory During Subscription Transition

    Free Cash Flow Trajectory During Subscription Transition © Pegasystems Inc. 12 SUBSCRIPTION TRANSITION TIMELINE 20232017 $146M $92M -$53M -$19M $27M $40M $150M Initial 2023 Guidance 20182017 2019 2020 20222021

  13. Slide 13: Free Cash Flow Trajectory During Subscription Transition

    Free Cash Flow Trajectory During Subscription Transition Raising 2023 Free Cash Flow guidance to $180M; Free Cash Flow typically strongest in Q1s & Q4s © Pegasystems Inc. 13 SUBSCRIPTION TRANSITION TIMELINE 20232017 $146M $92M -$53M -$19M $27M $40M $30M $150M 20222017 20212018 2019 2020 Updated 2023

  14. Slide 14: Long-Term Financial Model Driving to $500M+ in Free Cash Flow

    Long-Term Financial Model Driving to $500M+ in Free Cash Flow $ in millions 2022 Actual 3-5 Year Target ACV Growth 16% 13% – 14% Free Cash Flow $40M $500M+ 14© Pegasystems Inc.

  15. Slide 15: Long-Term Financial Model Driving to $500M+ in Free Cash Flow

    Long-Term Financial Model Driving to $500M+ in Free Cash Flow © Pegasystems Inc. 15 LONG-TERM MODEL TIMELINE 2022 In 3 to 5 years 30%Sales & Marketing43% % of revenue1 Gross Margin 80%74% From… To 17%20% Research & Development 1. Financial metrics (other than revenue) are presented as non-GAAP. See

  16. Slide 16: Gross Margin Expansion: Scale Pega Cloud

    Gross Margin Expansion: Scale Pega Cloud © Pegasystems Inc. 16 80%74% • Scale Pega Cloud • Increase Automation • Implement Kubernetes / multi-tenancy Gross Margin (non-GAAP) 2022 3-5 years

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

    Gross Margin Expansion: Scale Pega Cloud On a trailing 12-month basis, Pega Cloud revenue increased from $51M to $402M © Pegasystems Inc. 17 $51M $56M $64M $73M $83M $95M $106M $119M $134M $149M $167M $186M $208M $233M $257M $281M $301M $323M $344M $363M $384M $402M Q4 17 Q1 18 Q4 19Q4 18Q2 18 Q3 18

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

    Gross Margin Expansion: Scale Pega Cloud Pega Cloud gross margins are the key driver of gross margin improvement © Pegasystems Inc. 18 2019 2020 2021 2022 50% 70% 55% 60% 65% 75% 68% 52% 72% 64% 74% 68% 74% 70% 80%74% Total Gross Margin Pega Cloud Gross Margin Gross Margin (non-GAAP) 2022 3-5 years

  19. Slide 19: Total opportunity with our existing clients

    Total opportunity with our existing clients Current ACV Potential growth over 3 years 90%+ of our ACV growth expected to come from existing clients in a market with huge opportunity +New clients A C V t ie rs Main focus is to move existing clients up the “ACV pyramid” – win rates higher with existin

  20. Slide 20: R&D Efficiency Improvement

    R&D Efficiency Improvement © Pegasystems Inc. 20 Accelerate Pega Cloud Adoption 17%20% Leveraging Generative AI to Drive R&D Efficiency R&D (% of revenue) (non-GAAP) 2022 3-5 years

  21. Slide 21: What Does this All Mean?

    What Does this All Mean? Build a growing, subscription business to drive increased value 21 • Continuing our technology leadership • Improving sales productivity • Executing our target organization go-to-market strategy • Driving ACV growth • Leveraging Cloud Choice differentiation • Balancing growt

  22. Slide 22: Capital Allocation: Strategic Rationale on Debt

    Excess cash available Bonds trading at a discount Capital Allocation: Strategic Rationale on Debt Retired ~$100M year-to-date of Pega’s convertible debt due in 2025 22 Strong Cash Flow Positive Return on Investment Strengthens Financial Position Increases flexibility © Pegasystems Inc.

  23. Slide 23: Q&A

    © 2023 Pegasystems Inc. Q&A Ken Stillwell | COO & CFO

  24. Slide 24: To Ask a Question…

    To Ask a Question… 24 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.

  25. Slide 25: Innovation Hub Hours and Map

    25 Hours Open Monday, June 12: 11:00 AM – 6:00 PM Tuesday, June 13: 11:00 AM – 6:30 PM Innovation Hub Map © Pegasystems Inc.

  26. Slide 26: Appendix

    Appendix 26© Pegasystems Inc.

  27. Slide 27: Free Cash Flow Reconciliation

    Free Cash Flow Reconciliation 27 TTM* 2023 Guidance 3-5 Year (in millions) 2017 2018 2019 2020 2021 2022 Q1 2023 Initial Updated Target Cash flows provided by (used in) operating activities $ 158 $ 104 $ (42) $ (1) $ 39 $ 22 $ 75 $ 139 $ 169 $ 520+ Investment in property and equipment (14) (12) (11)

  28. Slide 28: GAAP to Non-GAAP Margin Reconciliation

    GAAP to Non-GAAP Margin Reconciliation 28 2019 2020 2021 2022 3-5 Year Target Gross Margin - GAAP 66% 69% 72% 72% 78% Stock-Based Compensation 2% 2% 2% 2% 2% Amortization of Intangible Assets <1% 1% <1% <1% <1% Facilities 0% 0% <1% 0% 0% Gross Margin - Non-GAAP 68% 72% 74% 74% 80% Pega Cloud Gross M

  29. Slide 29: GAAP to Non-GAAP Operating Expense Reconciliation

    GAAP to Non-GAAP Operating Expense Reconciliation 29 2022 3-5 Year Target Sales & Marketing % of Revenue - GAAP 47% 34% Stock-Based Compensation (4%) (4%) Amortization of Intangible Assets (<1%) (<1%) Other (<1%) (0%) Sales & Marketing % of Revenue - Non-GAAP 43% 30% R&D % of Revenue - GAAP 22% 19%

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