Pegasystems (PEGA) Down 10.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Pegasystems (PEGA). Shares have lost about 10.7% in that time frame, underperforming the S&P 500.Will the recent negative trend continue leading up to its next earnings release, or is Pegasystems due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important drivers.PEGA Q2 Earnings Surpass Estimates, Revenues Increase Y/YPegasystems reported second-quarter 2025 non-GAAP earnings of 28 cents per share, which beat the Zacks Consensus Estimate by 16.67% and increased 7.7% year over year. Revenues of $384.5 million beat the Zacks Consensus Estimate by 4.27% and increased 9.5% year over year.Pegasystems’ strong second-quarter 2025 performance is driven by its unique AI strategy, led by the Pega Blueprint platform. Growth was fueled by AI-integrated workflows, rising cloud subscriptions and disciplined execution, resulting in higher ACV, backlog and margin gains. By following the Rule of 40 and targeting a growing market, the company is well-positioned for long-term growth in AI and cloud solutions.PEGA’s Quarterly PerformanceSubscription services revenues, comprising Pega Cloud and Maintenance, generated $246 million (contributing 64% to total revenues), up 14.7% on a year-over-year basis.Subscription license revenues (20.8% of the total revenues) were $80 million, a decline of 5.5% year over year.Total Subscription revenues, consisting of both subscription services and subscription licenses, rose 9% year over year to $326 million (contributing 84.8% to total revenues).Consulting revenues (15% of the total revenues) were $57.8 million. The reported figure is up 11.1% year over year.Perpetual license revenues (0.2% of the total revenues) were $0.7 million, surging 1,875% year over year. This segment remains a negligible contributor compared to others.Pega Cloud's Annual Contract Value (ACV) increased 28% year over year to 761 million.Maintenance and Subscription license, collectively referred to as Client Cloud ACV, rose 6% year over year to 753 million.The company reported that Total ACV increased 16% year over year on a reported and constant-currency basis, reaching $1.514 billion.The company's backlog grew by 31% year over year on a reported basis and 27% on a constant currency basis, underscoring the sustained demand for its services and products and future revenue visibility.Pegasystems’ Q2 Operating ResultsIn the second quarter of 2025, the gross margin contracted 90 basis points (bps) year over year to 71.5%.Total operating expenses increased 6.8% year over year to $257.7 million. As a percentage of revenues, operating expenses decreased to 1.7%.The company reported an operating income of $17.3 million, up 33.3% year over year. The operating margin expanded 80 bps from the year-ago quarter to 4.5%.PEGA’s Balance Sheet & Cash FlowAs of June 30, 2025, cash and cash equivalents and marketable securities were $411.6 million compared with $371.7 million as of March 31, 2025.Year to date, operating cash flow rose over 32% year over year to $290 million, while free cash flow grew 31% to approximately $286 million.How Have Estimates Been Moving Since Then?Since the earnings release, investors have witnessed a downward trend in fresh estimates.The consensus estimate has shifted -36.84% due to these changes.VGM ScoresAt this time, Pegasystems has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for value investors.Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Pegasystems has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.Free Report: 3 Software Stocks Poised to SkyrocketSoftware stocks are poised to catapult higher in the coming months (and years) thanks to several factors, especially the explosive growth of AI. Zacks' urgent report reveals 3 top software stocks to own right now.Access the report free today >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Pegasystems Inc. (PEGA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks