All right. I think we are live. We'll let folks trickle in. Yeah, welcome everybody for joining us here at KeyBanc's Technology Summit, Emerging Technology Summit. My name is Devin Au. I'm part of the KeyBanc software research team, and we are really pleased to have Pegasystems' CFO and COO, Ken Stillwell here joining us again. Yeah, welcome. Thanks. Welcome back again, I guess. Thanks, Devin. Appreciate the invite back. Yeah. Appreciate you being here. I know Pega has gotten quite a lot of interest in the past couple of years. I think most investors are familiar-wise with the business. I think maybe a good place to start, since we have you here, Ken, would love for you to recap kind of fourth quarter results and maybe highlight a few things that you thought it was noteworthy. Sure. You know, the fourth quarter I think was a really strong finish to what was, you know, probably one of the best years that we've had at Pega. Our net add to annual contract value was noticeably up over 2024. It was like up something like 40% in constant currency. It was probably twice what we did just a few years ago in terms of net ACV add. I think from a new business, from a growth and new business standpoint, a very strong year. The majority of that was Pega Cloud, our SaaS offering, which is what we would hoped to have seen happen a few years ago. We started this movement to the cloud probably in earnest about 6 or 7, 8 years ago, something like that. But really in the last two or, we've seen this very big uptick in Pega Cloud. We've got Pega Cloud momentum leading to accelerated growth. Pega Cloud is now growing kind of in the 30% kind of range, which is up from a couple of years ago where it was high teens, 20%. We've seen not only inflection up in overall growth and inflection up pretty significantly in Pega Cloud, and at the same time, we've been able to really drive a lot of operating leverage into the business. O ur free cash flow, finished close to a little short of $500 million for 2025, and that's up from $22 million in 2022. I think we've really done a great job of driving both stability and acceleration growth, movement to the cloud, and significant operating leverage to get our free cash flow margins up into the 30s. Great finish, and we guided up for 2026. Slight acceleration, maybe I think it's about 17% free cash flow growth year-over-year. The business is executing really well right now. Thank you for that. Really strong results that you guys finished 2025 with, I'm sure we'll get into the guidance a little bit more. Maybe just staying on the quarter just because it's still kind of topical, especially with, kind of government shutdown for like half the quarter in fourth quarter. Maybe just quick kinda update on, you know, do you guys see any impact? I'm sure it's like a pretty small portion of the business, but yeah, just anything to speak there. I n 2026, it'll be about 10% of our revenue as professional services. It was a little bit more than that in 2025. Certainly, some of our professional services was put at risk if we weren't able to work. To the extent that we had services people doing work for the government, that was certainly something that we saw a small amount of headwind. On the license side, we didn't really see any impact in the quarter. Naturally, some deals that might have closed earlier in the quarter may have taken a little longer to close. The government was pretty good about when they got back to it, like trying to catch up on things that they knew. We're considered a, you know, a mission-critical provider to the government. They, we always know they'll prioritize the activity that we're doing with our government. I think that although it was painful for some of our clients, certainly it was painful for some of our professional services team, from a license standpoint, we kinda got to where we thought we were gonna be for the quarter. Okay. I guess everyone's talking about AI, so I guess we'll do that too as well. I know that Pega has kinda evolved, and I think the pricing model today is mostly consumption. I guess the whole debate of, you know, seed-based as kind of a argument there really doesn't apply to Pega. Maybe if you look at the flip side is, you know, with vibe coding and all these like AI tools, is it really easy to replicate what you guys have done for decades? Maybe kind of speak to the defensibility of Pega. Is it hard for these new encumbers to come in and disrupt your space? Sure. I'll hit on the first point and just briefly just to close that out. Pega has, you know, from at least in the last 20 years, maybe not from the earliest days of Pega, we viewed ourselves as a tool that could help automate, which would reduce the need for human beings. It would reduce the need for, you know, for people touching systems and touching processes. From that standpoint, it didn't make any sense for us to have user licenses because we would go to a client and we would say, "Let's work with you on getting your headcount scaling, or better yet, maybe taking people out of your processing center, and for that, we'll get less business from you." It just didn't make. Wasn't. It was really easy for us to go to clients and say, "We're gonna charge you based on the volume of transaction that the system does." In our terms, that's called a case. That's like a unit of measure. There's essentially volume discount curves. The more a client drives more cases, the more they get the economics as in on incremental cases. That's kind of our licensing model. That's not to say that we don't have some user licenses or even some mixed licenses where they may do both, but the majority of our business is usage or activity-based. When you flip over to the AI question, which I think is one of the ones that was probably the most. I think the market, I think investors have learned more in the last few weeks even than a month ago around this question. I think the challenge that investors had was they were struggling with trying to discern which companies might be impacted negatively, positively, or neutral to AI in general. When you hear people say like, "Well, we can vibe code. You know, AI could speed certain activities up," it adds to that, you know, that anxiety around who, you know, who's gonna be impacted. I think what happened originally was it feels like, and still to some extent, investors have just taken a swipe at everything in software and said, "I think it's all just worth something less." I think that over time that'll shake out to be winners and losers and probably people that aren't really impacted. We view ourselves as AI being really connected to our value proposition. We've had AI before. I mean, we had AI, and this is no joke, I mean, in the eighties and nineties we were using AI and machine learning, and people kind of almost used to laugh at us back then and say like, almost it was like science fiction. We actually had rules-based engines that created probabilistic outcomes. We did that forever. We actually bought a company in 2010 called Chordiant that was fundamentally an AI decisioning engine. That was, you know what? 16 years ago, right? Like, so clearly we've always been an AI-first company. What's different with generative AI is it actually does a lot of the design thinking upfront that our AI didn't do. Our AI was much more probabilistic, but now you've got the probabilistic aspect in like the English language, right? Where you can actually use things like process manuals and documentation, and you can ask it questions, and it can help form how should the application look from a design standpoint. For us, that's, we call that probabilistic. We do what Pega's fundamental value proposition is deterministic workflows, where the workflow decides, it tells you structurally at the beginning how work should be done, how a process, how a loan origination, how a dispute, how a card replacement. These are largely things that are regulated by laws, by associations, by internal controls. They're not things that like, you know, generative AI is not going to, in the moment, at runtime, gonna be decide that it's just gonna do something. We view the beauty is in design. This is what our clients. Probably the biggest disconnect that I've seen with investors and clients is that clients are talking about AI design time, AI helping build and form what it is that you're going to use, and then agents executing the work that human beings would otherwise do on workflow platforms. I think it's a really interesting dynamic to see this big disconnect with investors kind of worried about vibe coding replacing every software application, and customers segmenting them into two. One which is, there's no reason to do anything but use gen AI, and here is a deterministic workflow that I have to follow the Fair Lending or whatever the standard is. Until there's really like, you know, Congress decides to just rescind every single law and every single consumer vertical that's out there's gonna have to be structure to how the agents work. We love this design time agent, deterministic workflow that's built, and the agents actually are augmenting the workflow and executing where a human being would otherwise do that. Real quick example, Know Your Customer. For those of you that know banking, essentially new customer comes in, you've got to do a background check, make sure they're not on a sanction list, make sure they're a real person. Most banks, and probably yours included, have lots of manual processes. Oh, yeah. They're literally like pushing paper, OCR-ing things. That's where an agent can be super powerful, right? Where the workflow kicks off an agent and says, "Go do the following discovery. Document these things. Tell me whether this person has an association with a Russian oligarch or some other" That to me is like the perfect world of like structure of the workflow and the agent doing the work of the human being. That's kinda how we see this marriage of workflow and AI. I think you mentioned you guys do deal with a lot of regulated industries. Have you guys given like the mix of, I know you guys are big into financial services. I think healthcare insurance. The verticals, our five core verticals are all consumer constituent verticals. Financial services, insurance, healthcare, telecommunications, and the next one would be public sector government. If you think about all five of those, the common thing is there's a person on the end. The rules are protecting that person from discrimination, abuse, data theft. Much of what we do is those types of workflows. I'm not gonna say 100%, but I would say, you know, 80%, 90% plus of everything that we do is something that is kind of a mandated process. It could be from their own internal controls, but it's something that has to be done in a certain way. Okay. That's good to know. Then maybe transitioning to, I know you guys have been using AI and ML back in the day but you guys did release, Blueprint which has, you guys have seen tremendous success. Maybe just speak to that a little bit, for people who are, like, not familiar with what Blueprint is, and kind of give an overview of how has Blueprint kind of positively impacted your results and go-to-market motion? Maybe the way to explain it is just to talk about before AI, what would happen. If somebody wanted to transform off of a legacy application, what they would typically do is they would get a bunch of people in a room, and they would go through a whiteboarding session, and they would map out, like, what are our processes in that system? Why do we do it? How should it work? Through a series of what may be weeks and months of this ideation, they create Visio diagrams. They would document, like, here's the as is, here's the to be. Once that was done, that would be handed to a Pega engineer, an engineer that would engineer on the Pega platform, and they would then begin configuring the workflow that tied to that. It took a long time. It was labor-intensive. That meant that we, you know, clients can only do so much transformation at once. Fast forward to the world of AI. What we did was we built a tool called Pega Blueprint. What Pega Blueprint is, it is a design agent that sits on. P rimarily we use Bedrock and Claude, but, like, we can use really any model underneath it. Clients could pick their model if they wanted to use a different model. The model, what it does, it goes through an experiential discussion of what your workflow is, and it helps, and it uses all the content that only Pega has around how workflows execute, all the knowledge that we have of 45 years of being the workflow leader to build up optionality on how those workflows would execute. What's really cool about it is you could actually take a process manual, a video on your phone, you could get an AWS transform dump of the COBOL code, or you could go to Claude and get Claude to read the COBOL code, and you could take that as an input, put that into Blueprint. It will immediately represent what that system looks like in a workflow structure. Then you can go through. It's just rapidly speeding up the point at which you can make a decision on transforming a system. That's been the biggest hurdle for us growing faster and for us doing more is the amount of time and money and specialty resources it took to transform each system. Got it. Okay. Any numbers you can throw around, like concrete numbers on, like, how much does it influence the pipeline? Maybe like even win rate, conversion rate, that stuff? We've been at this for a little less than a year in terms of when Blueprint got rolled out. We have our Investor Day in June at PegaWorld, we're gonna talk a little bit about some of these metrics. We've seen improvement in the amount of pipe that's being built, the speed of pipeline transition, the win rates. We've seen improvement in all those, we kinda wanted to get, like, a year under our belt where we weren't just talking about a quarter or two. I guess we'll look forward to the analyst day in June. Maybe switching gears to, since we have you here, Ken. Yeah. Love to talk about the guidance. Okay. As you said in the beginning of the conversation, you guys are guiding to slight acceleration in the ACV growth. Would just love to get a little bit more color on, you know, what's driving, you know, the confidence that you guys are seeing in the acceleration in ACV growth? Any sort of context you can bring around, you know, where growth is coming from, like expansion versus like new logos or maybe like migration activity? We rolled out Blueprint last year, and we've seen an improvement in NRR in 2025. We're modeling out that that improvement will sustain into 2026, that improvement in NRR will continue. we've started to hire some additional salespeople at the end of 2025 to go and target some new logos. The story that I just told about why it was complicated to do a transformation with Pega was exactly the reason why we were very timid on hiring a lot of salespeople and going after new logos, because the sales cycle was long. With Blueprint, we have, you know, much, much better opportunity to assess early and to be able to target orgs because Blueprint speeds up the front end of that selling process. W e think we're gonna get, you know, the majority of our acceleration growth from 2025- 2026 from that expansion of targeting new logos. Gotcha. Okay. I think you mentioned, you know, improvement in the NRR number. Have you guys given like where that level has been in the past? I mean, 150 bips improvement is definitely great to see, but any sort of like context behind that? We were in the last few years, like kind of the 2022, 2023, even to 2024, you know, our, our NRR was somewhere in the kind of 110%-111% range. Okay. For this year, it was kind of more north of 112%. We've seen a slight acceleration in NRR. New logos has always been a relatively modest part of our bookings in a year. Because even if we had success with new logos, the reality is those first deals are not huge deals. On average, the size of the deal is probably half of an expansion deal in terms of the dollar size. The main thing for us is to get those new logos. Even though it might only be 100 basis points increase in our growth rate, that's maybe double the order of magnitude what we would typically do for new logos, which gives us lots of, you know, lots of field for us to continue to grow and nurture those relationships. They're typically, those new logos are gonna typically be in the same verticals, in the same regions, just companies that we haven't sold to. They might, instead of, you know, the fifth largest bank, it might be the seventh largest bank which is not a client of ours. We are looking at some expansion into some additional, maybe vertical is probably the wrong, but I would say there's some horizontal use cases like customer service. If you think of like utilities. A lot of what utilities do or customer service sounds a lot like telecommunication, banking. It's the same kind of customer journey. We'll, you know, we'll look at some of those as well. Okay. We're just staying on the net new topic. Yep. I think you guys mentioned leveraging this autonomous partner selling motion. Yes. Can you just elaborate a little bit more on that? What we mean by autonomous partner selling is we've never sold through partners. We've contracted through partners, but it's largely been we sold, and it was a contractor teaming arrangement, and maybe they were the prime. We did the selling. We've selected, I always mix it up, but I'm gonna say 10. It's either nine or 11. There's like 10 SI, system integrators that are gonna use Pega Blueprint in their selling process, meaning when they're selling transformation. We think there's a great opportunity to use that in a way where they would sell in partnership with AWS, 'cause it would go through the marketplace, the system integrator, and Pega selling the platform. The three of us kind of together, AWS bringing some leads to us, the system integrator maybe getting the client to buy into the transformation, us selling the platform, and in some cases, AWS augmenting with some service credits to help support some of the margin, help on the SI. That's what we mean by autonomous partner selling. It's brand new in 2026. We have not attributed any of that in any significant way to our growth. We view that as an opportunity for upside, and that we think that's prudent to not include it 'cause we've never done it before. Okay. To just model something in that we haven't actually executed, we felt uncomfortable doing that. Yeah. Same thing we did last year with Blueprint. We modeled very little impact from Blueprint. We saw an impact from Blueprint. W e beat our guide. Yeah. That's always good to see, right? Yeah. Yes G et the upside potential over time. Just quickly on migration, I think you guys have said before, it's pretty consistent in terms of the activity in the past couple years. Yeah. Is that the expectation for 2026 as well? Yeah, 2026 we're expecting about the same level of migrations as 2025. 2025 was slightly more than 2024, but it was kind of a rounding error. 2026, we think we'll keep at that same pace. We probably have another two or three years of that pace before we start to get the Pega Cloud up where it's kind of in the 75% range. Right now we're at about 55% of our overall ACV as Pega Cloud. We think, you know, a few more years of, you know, kind of clipping along with most, if not all, of our new bookings, plus some migrations, will help to drive that percentage up higher. Okay. Just quickly on free cash flow, I think you mentioned you guys are guiding to. Yeah 17% growth, which is, which is great. Really solid. Would love to hear kind of puts and takes around that, you know, high teens, mid-high teens kind of free cash flow growth that you guys are putting forth. You know, kind of where leverage is coming from and kind of what's driving the confidence. Our gross margins are pretty flat now. We're at about 80% gross margin, so we're not gonna get a lot of operating leverage from gross margin. Maybe a little bit, that's nothing like we did in the past. Sales and marketing, we get a little bit of operating leverage. However, we are investing in sales and marketing. R&D and G&A will get a little bit. We're getting a little bit of operating leverage from R&D, G&A, and sales and marketing. Gross margins, just assume they stay kind of relatively consistent. We do get a little bit of a gross margin uptick because the professional services mix will be lower. Professional services have a very low, if not close to break-even gross margin in our business. We feel like we're getting a little. The offset to that is our tax rate is higher, right? Because we had some NOLs that we've run off, our tax rate's starting to kind of normalize more. Even in spite of taxes going up, we've still actually taken our operating leverage or our free cashflow percentage up. I think running a business that's growing in the, like, teens, we should be able to continue to get operating leverage each year, probably till we get our free cash flows up, margins up above 35%. You know, 35%-40% is probably when we'll start to feel more pressure on that operating leverage. Okay. I mean, 17% growth, definitely solid. You guys just outperformed the free cash flow number in 2025. Yeah. I think you guys have kind of like a target for 2028, $700 million. How does that kind of inform that target that you guys have outside? We kind of had this model of, like, you know, we wanted to do $440, and we wanted to do, like, you know, $530, and we wanted to do, like, $625, and we wanted to do $700. That was kind of the way we thought about that. The $440 was now, like, $490. You know, the $5 and some change is now $575. You know, we're ahead of that pace. Yeah. You feel pretty confident in hitting that target? I think, yeah, we're. If we continue to execute the way we're executing, we should, you know, we should be well above you know, well above. We'll be above 700. Okay. No, that's great to hear. I know with all the free cashflow that you guys are generating, would love to just get a thought or update on kind of your capital allocation kind of framework. I know you guys just announced a pretty sizable buyback recently. Could you just speak to that a little bit more? Yeah. We had added $500 million to our buyback last year, and we've now all but exhausted that, and now are pretty close. We added another $1 billion to our buyback. It gives us, you know, we're generating a lot of cash. Gives us optionality. I'm not thinking I wanna be overly aggressive, like taking leverage to buy back shares. I think that limits our options. I think we wanna make sure that we think there might be some opportunities to look at as we go through 2026. You know, although we may never do an acquisition in 2026, we may choose to buy back shares at an increased pace. I just wanna make sure we have some optionality with our decisions. Okay. I mean, would you guys lean in more to, like, tuck-in M&A? Cause I know you guys just did one, like, earlier this year or late last year. I think the challenge we have right now with any transaction is the IRR against buying back shares. Right? At trading at a 12 or 13 free cashflow multiple. It does make it very hard to, you know, to justify that yield that you can get on just buying back your shares. Once again, that doesn't need that we need to buy back everything at once. I still think you wanna give yourself some flexibility. But that's just kind of that's my thinking today. Okay. Well, I think with that, we're at time. Quick one. Yeah. Ken, just is there anything that's changed in your strongest verticals and markets over the last year or two years? That you've seen any different kind of trends? Digital. This is something that you could look at any analyst, and they'd show you this. Digital transformation used to barely be in the top five of corporate strategies for the largest organizations, and now pretty much anywhere you read, it's in the top three. Right, security has actually dropped down, and it's cloud AI and digital transformation or legacy transformation. We feel like we've become more relevant. We're no t really a cloud provider, meaning cloud is just something that we It's an offering, so we're not, we're not hyperscale is what I mean. Like, we completely fit with AI, and we completely fit with legacy transformation. Great. Awesome I think with that, we can close it out. Ken, thank you so much. Awesome. Thanks, Devin. Appreciate it.