Pegasystems Inc 10-Q for FY2026 Q3
Pegasystems Inc (PEGA)
10-Q
2026-10-20
For: 2026-09-30
View Original
Added on
October 21, 2026
About this 10-Q
Pegasystems Inc filed this 10-Q on October 20, 2026, covering the quarter ended September 30, 2026 (FY2026 Q3).
Pegasystems reported 3% revenue growth for the three months ended September 30, 2026, 6% one-year ACV growth to 1,653, and a 14% nine-month free-cash-flow decline. It increased its PNC Bank credit facility to $200 million through October 16, 2031. AI summary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
_____________________________________
| Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended | |||||
OR
| Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
Commission File Number: 1-11859
____________________________
(Exact name of Registrant as specified in its charter)
____________________________
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||||
(Address of principal executive offices, including zip code)
(617 ) 374-9600
(Registrant’s telephone number, including area code)
____________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
x | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 163,663,545 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on October 12, 2026.
PEGASYSTEMS INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page | |||||
| PART I - FINANCIAL INFORMATION | |||||
| Item 1. Financial Statements | |||||
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025 | |||||
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2026 and 2025 | |||||
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2026 and 2025 | |||||
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2026 and 2025 | |||||
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2026 and 2025 | |||||
| Notes to Unaudited Condensed Consolidated Financial Statements | |||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |||||
| Item 4. Controls and Procedures | |||||
| PART II - OTHER INFORMATION | |||||
| Item 1. Legal Proceedings | |||||
| Item 1A. Risk Factors | |||||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |||||
| Item 5. Other Information | |||||
| Item 6. Exhibits | |||||
Signatures | |||||
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) | |||||||||||
| September 30, 2026 | December 31, 2025 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
| Total cash, cash equivalents, and marketable securities | |||||||||||
Accounts receivable, net | |||||||||||
Unbilled receivables, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
Long-term unbilled receivables, net | |||||||||||
| Goodwill | |||||||||||
Long-term deferred income taxes | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Accrued compensation and related expenses | |||||||||||
| Deferred revenue | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
Long-term operating lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 16) | |||||||||||
Stockholders’ equity: | |||||||||||
Preferred stock, | |||||||||||
Common stock, September 30, 2026 and December 31, 2025, respectively | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive (loss) | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See notes to unaudited condensed consolidated financial statements.
3
PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription services | $ | $ | $ | $ | |||||||||||||||||||
| Subscription license | |||||||||||||||||||||||
| Consulting | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription services | |||||||||||||||||||||||
| Subscription license | |||||||||||||||||||||||
| Consulting | |||||||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Selling and marketing | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Litigation settlement | |||||||||||||||||||||||
| Restructuring | ( | ( | |||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Foreign currency transaction gain (loss) | ( | ||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| (Loss) on capped call transactions | ( | ||||||||||||||||||||||
| Other income (loss), net | ( | ( | |||||||||||||||||||||
| Income before provision for (benefit from) income taxes | |||||||||||||||||||||||
| Provision for (benefit from) income taxes | ( | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average number of common shares outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
4
PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive (loss) income, net of tax | |||||||||||||||||||||||
| Unrealized (loss) gain on available-for-sale securities | ( | ( | |||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Total other comprehensive (loss) income, net of tax | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
5
| PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss) | Total stockholders’ equity | |||||||||||||||||||||||||||||||
| Number of shares | Amount | ||||||||||||||||||||||||||||||||||
| December 31, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for stock compensation plans | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common stock under the employee stock purchase plan | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| March 31, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for stock compensation plans | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common stock under the employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| June 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for stock compensation plans | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common stock under the employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| September 30, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
6
| PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss) | Total stockholders’ equity | |||||||||||||||||||||||||||||||
| Number of shares | Amount | ||||||||||||||||||||||||||||||||||
| December 31, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for stock compensation plans | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common stock under the employee stock purchase plan | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| March 31, 2026 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for stock compensation plans | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common stock under the employee stock purchase plan | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| June 30, 2026 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of common stock for stock compensation plans | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common stock under the employee stock purchase plan | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| September 30, 2026 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
7
PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) | |||||||||||
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to cash provided by operating activities | |||||||||||
| Stock-based compensation | |||||||||||
| Amortization of deferred commissions | |||||||||||
| Amortization of intangible assets and depreciation | |||||||||||
| Amortization of right-of-use lease assets | |||||||||||
| Foreign currency transaction (gain) loss | ( | ||||||||||
| Deferred income taxes | |||||||||||
| (Accretion) of investments | ( | ( | |||||||||
| Loss (gain) on investments | ( | ||||||||||
| Other non-cash | |||||||||||
| Change in operating assets and liabilities, net | |||||||||||
| Cash provided by operating activities | |||||||||||
| Investing activities | |||||||||||
| Purchases of investments | ( | ( | |||||||||
| Proceeds from maturities and called investments | |||||||||||
| Sales of investments | |||||||||||
| Investment in property and equipment | ( | ( | |||||||||
| Cash provided by investing activities | |||||||||||
| Financing activities | |||||||||||
| Repurchases of convertible senior notes | ( | ||||||||||
| Dividend payments to stockholders | ( | ( | |||||||||
| Proceeds from employee stock plans | |||||||||||
| Common stock repurchases for tax withholdings for net settlement of equity awards | ( | ( | |||||||||
| Common stock repurchases under stock repurchase program | ( | ( | |||||||||
| Cash (used in) financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | ( | ||||||||||
| Net (decrease) in cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other current assets | |||||||||||
| Restricted cash included in other long-term assets | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
| Supplemental disclosures | |||||||||||
| Non-cash investing and financing activity: | |||||||||||
| Investment in property and equipment included in accounts payable and accrued liabilities | $ | $ | |||||||||
| Dividends payable | $ | $ | |||||||||
| Right of use assets obtained in exchange for operating lease obligations | $ | $ | |||||||||
| U.S. excise tax payable on net stock repurchase | $ | $ | |||||||||
See notes to unaudited condensed consolidated financial statements.
8
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by the generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2025.
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.
All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented do not necessarily indicate the expected results for fiscal year 2026.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU “2024-03”). Among other items, the requirements include expanded disclosures around employee compensation and selling expenses. ASU 2024-03 will be effective for the Company for the year ending December 31, 2027. The Company is still evaluating the impact of this new guidance on its consolidated financial statements but expects the adoption to result in disclosure changes only.
Targeted Improvements to the Accounting for Internal-Use Software
In September 2025, the FASB issued ASU 2025-06, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”). ASU 2025-06 introduces a more principles-based framework to the capitalization of software intended for internal use focused on management’s authorization and commitment to fund a development project and the probability of whether the project will be completed and used for its intended function. ASU 2025-06 will be effective for the Company beginning January 1, 2028. The Company is currently evaluating the impact ASU 2025-06 will have on its consolidated financial statements.
NOTE 3. MARKETABLE SECURITIES
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||||||||||||
| Government debt | $ | $ | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Corporate debt | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
As of September 30, 2026, marketable securities’ maturities ranged from October 2026 to September 2029, with a weighted-average remaining maturity of 2.0 years.
NOTE 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables
(in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
| Unbilled receivables, net | |||||||||||
Long-term unbilled receivables, net | |||||||||||
| $ | $ | ||||||||||
9
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Unbilled receivables
Unbilled receivables are client-committed amounts for which revenue recognition precedes billing. Billing is solely subject to the passage of time.
Unbilled receivables by expected collection date:
(Dollars in thousands) | September 30, 2026 | |||||||
| 1 year or less | $ | % | ||||||
| 1-2 years | % | |||||||
| 2-5 years | % | |||||||
| $ | % | |||||||
Unbilled receivables by contract effective date:
(Dollars in thousands) | September 30, 2026 | |||||||
| 2026 | $ | % | ||||||
| 2025 | % | |||||||
| 2024 | % | |||||||
| 2023 | % | |||||||
| 2022 and prior | % | |||||||
| $ | % | |||||||
Contract assets
Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.
(in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
Contract assets (1) | $ | $ | |||||||||
Long-term contract assets (2) | |||||||||||
| $ | $ | ||||||||||
(1) Included in other current assets.
(2) Included in other long-term assets.
Deferred revenue
Deferred revenue consists of billings made and payments received in advance of revenue recognition.
(in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Deferred revenue | $ | $ | |||||||||
Long-term deferred revenue (1) | |||||||||||
| $ | $ | ||||||||||
(1) Included in other long-term liabilities.
The change in deferred revenue during the nine months ended September 30, 2026 was primarily due to new billings in advance of revenue recognition and $457.4 million of revenue recognized during the period included in deferred revenue as of December 31, 2025.
NOTE 5. DEFERRED COMMISSIONS
(in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
Deferred commissions (1) | $ | $ | |||||||||
(1) Included in other long-term assets.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
Amortization of deferred commissions (1) | $ | $ | $ | $ | |||||||||||||||||||
(1) Included in selling and marketing expenses.
10
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6. GOODWILL
| Nine Months Ended September 30, | |||||||||||
(in thousands) | 2026 | 2025 | |||||||||
| January 1, | $ | $ | |||||||||
| Currency translation adjustments | ( | ||||||||||
| September 30, | $ | $ | |||||||||
NOTE 7. OTHER ASSETS AND LIABILITIES
Other current assets
| (in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Income tax receivables | $ | $ | |||||||||
| Prepaid expenses | |||||||||||
| Contract assets | |||||||||||
| Indirect tax receivable | |||||||||||
| Restricted cash | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
Other long-term assets
| (in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Deferred commissions | $ | $ | |||||||||
| Right of use assets | |||||||||||
| Property and equipment | |||||||||||
| Contract assets | |||||||||||
| Venture investments | |||||||||||
| Income taxes receivable | |||||||||||
| Restricted cash | |||||||||||
| Intangible assets | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
Accrued expenses
| (in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Outside professional services | $ | $ | |||||||||
| Cloud hosting | |||||||||||
| Litigation settlements | |||||||||||
| Income and other taxes | |||||||||||
| Employee related | |||||||||||
| Marketing and sales program | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| (in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Operating lease liabilities | $ | $ | |||||||||
| Dividends payable | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
11
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other long-term liabilities
| (in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Income taxes payable | $ | $ | |||||||||
| Deferred revenue | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
NOTE 8. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and assess performance.
The Company derives substantially all of its revenue from the sale and support of one group of similar products and services – software that provides case management, business process management, and real-time decisioning solutions to improve customer engagement and operational excellence in the enterprise applications market. To assess performance, the Company’s CODM, the Chief Executive Officer, reviews financial information on a consolidated basis. Therefore, the Company determined it has one operating segment and one reportable segment. The accounting policies of the Company’s operating segment are the same as those described in "Note 2. Significant Accounting Policies" included in the Annual Report on Form 10-K for the year ended December 31, 2025. The CODM uses consolidated net income to set financial performance targets, assess performance, and make expense allocation decisions.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||
Selling | |||||||||||||||||||||||
Marketing | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
Other segment items, net (1) | ( | ( | |||||||||||||||||||||
| Provision for (benefit from) income taxes | ( | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
(1) Includes Restructuring, Foreign currency transaction gain (loss), Interest income, Interest expense, (Loss) on capped call transactions, and Other income (loss), net.
Long-lived assets related to the Company’s U.S. and international operations consist of property and equipment, which are included in Other long-term assets in the Company’s consolidated balance sheet:
(in thousands) | September 30, 2026 | December 31, 2025 | |||||||||||||||||||||
| U.S. | $ | % | $ | % | |||||||||||||||||||
| International | % | % | |||||||||||||||||||||
| $ | % | $ | % | ||||||||||||||||||||
NOTE 9. DEBT
Credit facility
In November 2019, and as since amended, the Company entered into a $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. On October 16, 2026, the Credit Facility was amended to, among other changes, increase the borrowing capacity to $200 million and extend the expiration date to October 16, 2031. The Company may use borrowings for general corporate purposes and to finance working capital needs. Subject to specific conditions and the agreement of the financial institutions lending the additional amount, the aggregate commitment may be increased to $300 million.
The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. The Credit Facility is secured by substantially all assets of the Company. Beginning with the fiscal quarter ended March 31, 2024, the Company must maintain a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0. As of September 30, 2026, the Company is compliant with all Credit Facility covenants.
12
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10. RESTRUCTURING
The Company has undertaken the following restructuring activities intended to better align roles and capacity to an AI-first delivery model:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
Employee severance and related costs | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Office space reductions (1) | |||||||||||||||||||||||
Restructuring | $ | $ | ( | $ | $ | ( | |||||||||||||||||
(1) These primarily relate to non-cash operating lease adjustments.
Restructuring activity:
Accrued employee severance and related costs:
| Nine Months Ended September 30, | |||||||||||
| (in thousands) | 2026 | 2025 | |||||||||
| January 1, | $ | $ | |||||||||
| Costs incurred | ( | ||||||||||
| Cash disbursements | ( | ( | |||||||||
| Currency translation adjustments | ( | ||||||||||
September 30, (1) | $ | $ | |||||||||
(1) Included in accrued compensation and related expenses.
NOTE 11. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis
The Company records its cash equivalents, marketable securities, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.
As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:
•Level 1 - observable inputs, such as quoted prices in active markets for identical assets or liabilities;
•Level 2 - significant other inputs that are observable either directly or indirectly; and
•Level 3 - significant unobservable inputs with little or no market data, which require the Company to develop its own assumptions.
This hierarchy requires the Company to use observable market data when available and minimize unobservable inputs when determining fair value.
The Company’s venture investments are recorded at fair value based on multiple valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.
13
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets and liabilities measured at fair value on a recurring basis:
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Marketable securities | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Venture investments | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Changes in venture investments:
| Nine Months Ended September 30, | |||||||||||
| (in thousands) | 2026 | 2025 | |||||||||
| January 1, | $ | $ | |||||||||
| New investments | |||||||||||
| Sales of investments | ( | ||||||||||
| Changes in foreign exchange rates | ( | ||||||||||
| Changes in fair value: | |||||||||||
included in other income (loss), net | ( | ||||||||||
included in other comprehensive income | ( | ( | |||||||||
| September 30, | $ | $ | |||||||||
The carrying value of certain financial instruments, including receivables and accounts payable, approximates fair value due to their short maturities.
NOTE 12. REVENUE
Geographic revenue
Revenues by geography are determined based on client location:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||||
| U.S. | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||
| Other Americas | % | % | % | % | |||||||||||||||||||||||||||||||
| United Kingdom (“U.K.”) | % | % | % | % | |||||||||||||||||||||||||||||||
| Europe (excluding U.K.), Middle East, and Africa | % | % | % | % | |||||||||||||||||||||||||||||||
| Asia-Pacific | % | % | % | % | |||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||
Revenue streams
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Pega Cloud | $ | $ | $ | $ | |||||||||||||||||||
| Maintenance | |||||||||||||||||||||||
| Consulting | |||||||||||||||||||||||
| Revenue recognized over time | |||||||||||||||||||||||
| Subscription license | |||||||||||||||||||||||
| Revenue recognized at a point in time | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
14
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Pega Cloud | $ | $ | $ | $ | |||||||||||||||||||
| Maintenance | |||||||||||||||||||||||
| Subscription services | |||||||||||||||||||||||
| Subscription license | |||||||||||||||||||||||
| Subscription | |||||||||||||||||||||||
| Consulting | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
Remaining performance obligations ("Backlog")
Expected future revenue from existing non-cancellable contracts:
As of September 30, 2026:
| (Dollars in thousands) | Subscription services | Subscription license | Consulting | Total | ||||||||||||||||||||||||||||
| Pega Cloud | Maintenance | |||||||||||||||||||||||||||||||
1 year or less | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||
1-2 years | % | |||||||||||||||||||||||||||||||
2-3 years | % | |||||||||||||||||||||||||||||||
Greater than 3 years | % | |||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | % | |||||||||||||||||||||||||||
As of September 30, 2025:
| (Dollars in thousands) | Subscription services | Subscription license | Consulting | Total | ||||||||||||||||||||||||||||
| Pega Cloud | Maintenance | |||||||||||||||||||||||||||||||
1 year or less | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||
1-2 years | % | |||||||||||||||||||||||||||||||
2-3 years | % | |||||||||||||||||||||||||||||||
Greater than 3 years | % | |||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | % | |||||||||||||||||||||||||||
NOTE 13. STOCKHOLDERS' EQUITY
Stock-based Compensation Expense
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
Selling and marketing | |||||||||||||||||||||||
Research and development | |||||||||||||||||||||||
General and administrative | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Income tax benefit | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
As of September 30, 2026, the Company had $116.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.7 years.
15
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Grants
| Nine Months Ended September 30, 2026 | |||||||||||
| (in thousands) | Quantity | Total Fair Value | |||||||||
Restricted stock units (1) | $ | ||||||||||
Non-qualified stock options | $ | ||||||||||
Performance stock options (2) | $ | ||||||||||
| Common stock | $ | ||||||||||
(1) Includes units issued when employees elect to receive 50 % of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash.
(2) Performance stock options allow the holder to purchase a specified number of Common Stock shares at an exercise price equal to or greater than the shares' fair market value at the grant date. Performance stock options granted in the nine months ended September 30, 2026 vest on the second anniversary of the grant date, up to 200 %, subject to the achievement of specified performance metrics over fiscal years 2026 and 2027. The options expire ten years from the grant date.
Stock repurchase program
On February 10, 2026, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2026 to June 30, 2027 and increased the authorized repurchase amount by $1 billion, of which $810.1 million remains available as of September 30, 2026.
NOTE 14. INCOME TAXES
Effective income tax rate
| Nine Months Ended September 30, | |||||||||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | |||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | $ | |||||||||||||||||||||
| Effective income tax rate | % | % | |||||||||||||||||||||
The Company’s effective income tax rate increased in the nine months ended September 30, 2026 as compared to the prior period, primarily due to a decrease in excess tax benefits from stock-based compensation recognized in the current period and the absence of a benefit related to the valuation allowance associated with substantially all of the Company’s U.S. and U.K. deferred tax assets in the prior period.
16
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 15. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and Convertible Senior Notes (the “Notes”), which were repaid in its entirety at maturity during the three months ended March 31, 2025.
Calculation of earnings per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands, except per share amounts) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||||||||
| Earnings per share, basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
Notes - interest expense, net of tax | |||||||||||||||||||||||
| Numerator for diluted EPS | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average effect of dilutive securities: | |||||||||||||||||||||||
Notes | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| RSUs | |||||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
Weighted-average common shares outstanding, assuming dilution (1) (2) (3) | |||||||||||||||||||||||
| Earnings per share, diluted | $ | $ | $ | $ | |||||||||||||||||||
Outstanding anti-dilutive stock options and RSUs (4) | |||||||||||||||||||||||
(1) All securities are excluded when their inclusion would be anti-dilutive.
(2) The weighted-average shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period.
(3) In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions expired upon maturity of the Notes during the three months ended March 31, 2025. The Company’s Capped Call Transactions represented the equivalent number of shares of the Company’s common stock (representing the number of shares for which the Notes are convertible). The Capped Call Transactions are excluded from weighted-average common shares outstanding, assuming dilution, in all periods as their effect would be anti-dilutive.
(4) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted earnings per share. These awards may be dilutive in the future.
NOTE 16. COMMITMENTS AND CONTINGENCIES
Legal proceedings
In addition to the matters below, the Company is or may become involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s business, including actions concerning contracts, intellectual property, employment, benefits, and securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.
In addition, as the Company is a party to ongoing litigation, it is at least reasonably possible that the Company’s estimates will change in the near term, and the effect may be material. As of September 30, 2026, the Company recorded an estimated $16 9.75 million accrued loss related to the settlement of the In re Pegasystems Inc. Derivative Litigation matter, see additional discussion below.
Appian Corp. v. Pegasystems Inc. & Youyong Zou
The Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia titled Appian Corp. v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). On May 9, 2022, the jury rendered its verdict finding that the Company had misappropriated one or more of Appian’s trade secrets, that the Company had violated the Virginia Computer Crimes Act, and that the trade secret misappropriation was willful and malicious. The jury awarded damages of $2,036,860,045 for trade secret misappropriation and $1.00 for violating the Virginia Computer Crimes Act. On September 15, 2022, the circuit court of Fairfax County entered judgment of $2,060,479,287 , consisting of the damages previously awarded by the jury plus attorneys’ fees and costs, and stating that the judgment is subject to post-judgment interest at a rate of 6.0 % per annum, from the date of the jury verdict (May 9, 2022) as to the amount of the jury verdict and from September 15, 2022 as to the amount of the award of attorneys’ fees and costs.
17
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
On September 15, 2022, the Company appealed the Virginia Uniform Trade Secrets Act judgment. A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and issued a unanimous written opinion on July 30, 2024. The Court of Appeals reversed the judgment and ordered a new trade secrets claim trial. Appian filed a petition for appeal with the Supreme Court of Virginia on August 29, 2024, which was granted on March 7, 2025 for appeal and the Company’s assignments of cross-error.
On January 8, 2026, the Supreme Court of Virginia issued a unanimous written opinion affirming the ruling of the Court of Appeals of Virginia. On January 13, 2026, the Circuit Court of Fairfax County, Virginia notified the parties that this case has been reassigned to Judge David A. Oblon for further proceedings. On January 29, 2026, the Supreme Court of Virginia remanded Appian’s trade secret case to the Court of Appeals with direction to remand to the Circuit Court of Fairfax County for further proceedings in accordance with its written opinion. On February 27, 2026, the Court of Appeals of Virginia issued a mandate stating that the judgment is affirmed in part, reversed in part, and remanded to the Circuit Court of Fairfax County for further proceedings consistent with the views expressed in the written opinion of the Court of Appeals of Virginia. On May 7, 2026, Judge Oblon held a first status conference for the remanded trial proceedings and set the retrial to commence on January 11, 2027.
On September 24, 2026, Judge Oblon entered a Scheduling Order which he amended on October 1, 2026. In those orders, Appian was granted the opportunity to have pretrial motions heard on October 16 and November 13, 2026; the Company was granted the opportunity to have pretrial motions heard on November 6 and December 18, 2026. On October 16, 2026, the Court granted Appian’s motion to present a reasonable royalty damages theory it was barred from presenting at the original trial. In that reasonable royalty claim, Appian seeks $284.6 million in damages for accused marketing and sales activities and $1.36 billion in damages for accused Pega Platform revisions. If the jury finds there was trade secret misappropriation, it could award either unjust enrichment or reasonable royalty damages.
The Company continues to believe that it did not misappropriate any alleged trade secrets and that its sales of the Company’s products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets. The Company is unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of a new trial resulting from the appellate proceedings.
PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell and Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell
Federal court cases
On December 4, 2024, the shareholders representing approximately 3 % of the settlement class that opted out of the court approved settlement in the class action matter captioned City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:22-cv-00578-LMB-IDD) (the “Class Action”) filed two lawsuits against the Company, the Company’s chief executive officer, and the Company’s chief operating and financial officer in the United States District Court for the District of Massachusetts. The first was captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-12999-WGY); the second was captioned PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-11220-WGY).
The complaints, which are substantially similar, generally allege, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and that the individual defendants violated Section 20(a) of the Exchange Act, in each case by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The complaints also assert claims for common law fraud and negligent misrepresentation and seek unspecified damages.
The defendants moved to dismiss the complaints on March 13, 2025 and on May 21, 2025, the Court held a hearing on the motion to dismiss. The Court (i) granted the motion to dismiss as to the plaintiffs’ scheme liability claims; (ii) granted the motion to dismiss as to certain claims against Ken Stillwell; and (iii) took the motion to dismiss under advisement as to all other claims. On January 8, 2026, the Court issued a written order granting the motion to dismiss as to the Section 10(b) and common law fraud claims against Ken Stillwell and denying the motion to dismiss as to the remaining claims.
On September 18, 2026, the parties to the federal and state court opt out securities cases agreed to a final settlement of these suits. Under the terms of the final settlement, the plaintiffs in the federal and state court opt out securities cases agreed to the dismissal of all claims with prejudice. On October 5, 2026, stipulations of dismissal with prejudice were filed with the Court.
18
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
State court cases
On February 26, 2025, the same shareholders filed two lawsuits against the Company, the Company’s chief executive officer, and the Company’s chief operating and financial officer in Massachusetts Superior Court. The first is captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case No. 2584CV00541-BLS1); the second is captioned PS Lit Recovery, LLC v. Pegasystems, Inc., Alan Trefler, and Kenneth Stillwell (Case No. 2584CV00539-BLS1). The complaints, which are substantially similar, allege the same state law claims raised in the two federal lawsuits brought by the same plaintiffs in the United States District Court for the District of Massachusetts. On April 14, 2025, the court granted the parties’ joint stipulations to stay both cases pending the resolution of the parallel federal actions and ordered the plaintiffs to file periodic status reports regarding the federal cases showing cause why the state cases should remain open.
On September 18, 2026, the parties to the federal and state court cases agreed to a final settlement of the litigation and on October 6, 2026, a notice of voluntary dismissal was prejudice was filed with the Court. See discussion above within the “Federal court cases” subsection.
In re Pegasystems Inc. Derivative Litigation
As previously disclosed, the Company entered into a settlement of derivative lawsuits captioned Mary Larkin and Dag Sagfors, Derivatively on Behalf of Nominal Defendant Pegasystems Inc. v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Leon Trefler, Larry Weber, Kenneth Stillwell, Don Schuerman, Kerim Akgonul, and Benjamin Baril, and Pegasystems Inc., nominal defendant (Case 1:25-cv-10303), filed in the United States District Court for the District of Massachusetts, and John Dwyer and Ray Gerber, Plaintiffs, v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Leon Trefler, Don Schuerman, Kerim Akgonul, and Benjamin Baril, and Pegasystems Inc., Nominal Defendant (Case 2484CV01734), and Jayne Birch and Robert Garfield, Plaintiffs, v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Kerim Akgonul, Don Schuerman, Leon Trefler, Douglas Kim, John Petronio, Benjamin Baril, and Kenneth Stillwell, and Pegasystems Inc., Nominal Defendant (Case 2484CV03076-BLS-1), filed in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts. On June 30, 2026, the Massachusetts Superior Court entered an order for final approval of the settlement, including a $7 million special dividend to shareholders (excluding defendants) and payment by the Company of $2.75 million in plaintiffs’ attorney fees. On July 2, 2026, in light of the settlement, the parties to the federal court action filed a stipulation and proposed order of dismissal with prejudice as to all claims. On July 16, 2026, the Court signed the order dismissing the federal court action with prejudice. Also on July 2, 2026, the state court entered a final judgment and order of dismissal dismissing the consolidated state cases with prejudice. On September 16, 2026, the special dividend was paid, concluding the matter.
Pegasystems v. Appian Defamation Litigation
On August 2, 2023, the Company filed a complaint against Appian in the U.S. District Court for the District of Massachusetts, captioned Pegasystems Inc. v. Appian Corporation, 1:23-cv-11776-LTS (D. Mass.). The complaint asserts claims for defamation, trade libel, and violations of the Lanham Act, 15 U.S.C. § 1125(a) based on statements Appian made following the verdict in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above. In response to a motion to dismiss filed by Appian on August 18, 2023, the Company amended the complaint to add additional factual allegations in support of the same claims. On September 22, 2023, Appian moved to dismiss the amended complaint, which the Court denied on January 5, 2024. On February 20, 2024, Appian answered the complaint, asserted counterclaims against the Company for defamation, trade libel, violations of the Lanham Act, 15 U.S.C. § 1125(a), and violations of Mass. Gen. Laws ch. 93A §§ 2 and 11, and sought a declaratory judgment that the Company was not entitled to the recovery sought in the amended complaint. On August 15, 2024, the Company moved to dismiss the counterclaims, which the Court allowed in part and denied in part on October 8, 2024; specifically, the Court allowed the Company’s motion to dismiss the trade libel counterclaim with respect to Appian’s allegations regarding the Company’s Code of Conduct. On November 26, 2024, Appian moved for judgment on the pleadings. On March 11, 2025, the Court allowed the motion for judgment on the pleadings in part and entered judgment for Appian on the basis of a statement made by Appian’s chief executive officer, but otherwise denied the motion.
The parties exchanged opening expert reports in March 2026. The Company claims $41.9 million in damages from Appian’s conduct. Appian seeks $31.8 million in lost profits damages and further requests that the Company be required to disgorge $109.5 million in profits as unjust enrichment arising from business contracts Appian contends it competed with Pegasystems on from 2022-2025. Apart from Company revenues in which Appian contends it competed with Pegasystems for business, Appian further sought that the Company be forced to disgorge the entirety of its profits ($2.33 billion) from 2022-2025. Oral argument on summary judgment motions was held on July 24, 2026. On August 21, 2026, the Court issued an opinion granting in part and denying in part the parties’ cross-motions for summary judgment. Among other things, the Court dismissed Appian’s $2.33 billion disgorgement claim. The Court allowed the Company’s defamation, trade libel, and Lanham Act claims to proceed to trial on certain challenged statements, and it allowed Appian’s Lanham Act and Chapter 93A counterclaims to proceed to trial on certain challenged statements. The parties’ Daubert motions challenging expert witnesses were fully briefed as of October 9, 2026 and are pending with the Court. On October 8, 2026, Appian filed a motion for “realignment” of the parties to put Appian in the position of plaintiff and the Company in the position of defendant for the trial in this matter.
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PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
A jury trial is currently scheduled to begin on November 30, 2026. The Company vehemently disagrees with Appian’s entitlement to any recovery, and remains confident in the merits of its claims against Appian and the damages claimed. The Company is unable to reasonably estimate likelihood of success for either party or a range of possible gain or loss given the uncertainty as to the likelihood, amount, and timing of any potential gain or loss related to its claims or Appian’s counterclaims.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the sufficiency of our capital, our position and estimates relating to tax, and legal proceedings.
Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, positions, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements. These statements represent our views only as of the date the statement was made and are based on current expectations and assumptions.
Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but not limited to:
•our future financial performance and business plans;
•the adequacy of our liquidity and capital resources;
•the successful execution of investments in artificial intelligence;
•our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims, and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us;
•our ongoing litigation with Appian Corp. and associated legal proceedings; and
•management of our growth.
These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2025, Part II of this Quarterly Report on Form 10-Q, and other filings we make with the SEC.
Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results included in such statements will be achieved. Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise.
The forward-looking statements in this Quarterly Report represent our views as of October 20, 2026.
NON-GAAP MEASURES
Our non-GAAP financial measures should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. Management uses these measures to assess the performance of the company's operations and establish operational goals and incentives. They are not a substitute for financial measures prepared under U.S. GAAP. A reconciliation of GAAP and non-GAAP measures is located with each non-GAAP measure.
BUSINESS OVERVIEW
We develop, market, license, host, and support enterprise software that helps organizations optimize decisions and processes in real-time so they can deliver outcomes that transform their business. Our powerful platform for enterprise AI decisioning and workflow automation enables the world’s leading brands and government agencies to hyper-personalize customer experiences, automate customer service, and streamline operations, mission-critical business processes, and workflows, and transform legacy systems. Clients can leverage our AI technology and scalable architecture to accelerate their digital transformation. In addition, our sales and client success teams, world-class partners, and clients are able to leverage Pega BlueprintTM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively.
We focus on enterprise-scale businesses and government agencies that require advanced solutions to distinguish themselves in the competitive markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth and modernization, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored by industry.
Performance metrics
We use performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including:
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Annual contract value (“ACV”)
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.
(Dollars in thousands) | September 30, 2025 | September 30, 2026 | Change | Constant Currency Change | |||||||||||||||||||
| Pega Cloud | $ | 815,370 | $ | 975,991 | $ | 160,621 | 20 | % | 20 | % | |||||||||||||
Maintenance | 296,955 | 261,321 | (35,634) | (12) | % | (12) | % | ||||||||||||||||
Subscription services | 1,112,325 | 1,237,312 | 124,987 | 11 | % | 12 | % | ||||||||||||||||
Subscription license | 444,601 | 415,997 | (28,604) | (6) | % | (6) | % | ||||||||||||||||
| $ | 1,556,926 | $ | 1,653,309 | $ | 96,383 | 6 | % | 7 | % | ||||||||||||||
Purchasing behaviors continue to evolve as clients subject large technology investments to greater scrutiny as AI disrupts the industry. As a result, our ACV growth rate significantly slowed during the nine months ended September 30, 2026, as compared to the same period last year. These factors may continue to adversely affect the ACV growth rate for the rest of the year.
Reconciliation of ACV and constant currency ACV
| (in millions, except percentages) | September 30, 2025 | September 30, 2026 | 1-Year Change | ||||||||||||||
| ACV | $ | 1,557 | $ | 1,653 | 6 | % | |||||||||||
| Impact of changes in foreign exchange rates | — | 5 | |||||||||||||||
Constant currency ACV | $ | 1,557 | $ | 1,658 | 7 | % | |||||||||||
Note: Constant currency ACV is calculated by applying the September 30, 2025 foreign exchange rates to current period shown.
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Cash Flow
(Dollars in thousands) | Nine Months Ended September 30, | Change | |||||||||||||||
| 2025 | 2026 | ||||||||||||||||
| Cash provided by operating activities | $ | 346,796 | $ | 304,299 | (12) | % | |||||||||||
| Investment in property and equipment | (8,485) | (14,474) | |||||||||||||||
Free cash flow (1) | $ | 338,311 | $ | 289,825 | (14) | % | |||||||||||
Supplemental information (2) | |||||||||||||||||
| Litigation settlement | $ | — | $ | 9,750 | |||||||||||||
Legal fees | 15,022 | 32,864 | |||||||||||||||
| Restructuring | 1,681 | 15,442 | |||||||||||||||
| Interest paid on convertible senior notes | 1,754 | — | |||||||||||||||
| Other | — | (689) | |||||||||||||||
| Income taxes, net of refunds | 7,993 | 22,609 | |||||||||||||||
| $ | 26,450 | $ | 79,976 | ||||||||||||||
As a result of the factors discussed under ACV above, our cash flow generation may continue to be adversely affected for the rest of the year.
(1) Our non-GAAP 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 significantly affected by the timing and size of investments in our facilities and equipment. We provide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings. This information is not a substitute for financial measures prepared under U.S. GAAP.
(2) The supplemental information below identifies certain items included in operating cash flow that may affect comparability between periods.
•Litigation settlement: Cost to settle litigation arising from proceedings outside the ordinary course of business. See "Note 16. Commitments and Contingencies" in Item 1 of this Quarterly Report for further information.
•Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business.
•Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities.
•Interest on convertible senior notes: In February 2020, we issued convertible senior notes (the “Notes”), due March 1, 2025, in a private placement. The Notes accrued interest at an annual rate of 0.75%, paid semi-annually in arrears on March 1 and September 1. The outstanding Notes were repaid in their entirety at maturity.
•Other: One-time cash flow items not part of our ongoing operations.
•Income taxes, net of refunds: Direct income taxes paid net of refunds received.
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Remaining performance obligations (“Backlog”)
Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP)
| (in millions, except percentages) | September 30, 2025 | September 30, 2026 | 1-Year Growth Rate | ||||||||||||||
| Backlog - GAAP | $ | 1,755 | $ | 2,009 | 15 | % | |||||||||||
| Impact of changes in foreign exchange rates | — | 10 | |||||||||||||||
| Constant currency backlog | $ | 1,755 | $ | 2,019 | 15 | % | |||||||||||
CRITICAL ACCOUNTING POLICIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared following accounting principles generally accepted in the U.S. and the rules and regulations of the SEC for interim financial reporting. Preparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and expectations of what could occur in the future based on the available information.
For more information about our critical accounting policies, we encourage you to read the discussion in the following locations in our Annual Report on Form 10-K for the year ended December 31, 2025:
•“Critical Accounting Estimates and Significant Judgments” in Item 7; and
•“Note 2. Significant Accounting Policies” in Item 8.
No significant changes have been made to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.
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RESULTS OF OPERATIONS
Revenue
| (Dollars in thousands) | Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pega Cloud | $ | 218,925 | 56 | % | $ | 184,549 | 48 | % | $ | 34,376 | 19 | % | $ | 637,890 | 51 | % | $ | 502,415 | 40 | % | $ | 135,475 | 27 | % | |||||||||||||||||||||||||||||
| Maintenance | 72,653 | 18 | % | 79,649 | 21 | % | (6,996) | (9) | % | 222,498 | 18 | % | 235,288 | 19 | % | (12,790) | (5) | % | |||||||||||||||||||||||||||||||||||
| Subscription services | 291,578 | 74 | % | 264,198 | 69 | % | 27,380 | 10 | % | 860,388 | 69 | % | 737,703 | 59 | % | 122,685 | 17 | % | |||||||||||||||||||||||||||||||||||
| Subscription license | 55,578 | 14 | % | 60,758 | 16 | % | (5,180) | (9) | % | 232,458 | 19 | % | 329,153 | 27 | % | (96,695) | (29) | % | |||||||||||||||||||||||||||||||||||
| Subscription | 347,156 | 88 | % | 324,956 | 85 | % | 22,200 | 7 | % | 1,092,846 | 88 | % | 1,066,856 | 86 | % | 25,990 | 2 | % | |||||||||||||||||||||||||||||||||||
| Consulting | 46,203 | 12 | % | 56,394 | 15 | % | (10,191) | (18) | % | 151,202 | 12 | % | 174,639 | 14 | % | (23,437) | (13) | % | |||||||||||||||||||||||||||||||||||
| $ | 393,359 | 100 | % | $ | 381,350 | 100 | % | $ | 12,009 | 3 | % | $ | 1,244,048 | 100 | % | $ | 1,241,495 | 100 | % | $ | 2,553 | — | % | ||||||||||||||||||||||||||||||
•The increases in Pega Cloud revenue in the three and nine months ended September 30, 2026 were primarily due to expanded adoption of Pega Cloud by our clients.
•The decreases in maintenance revenue in the three and nine months ended September 30, 2026 were primarily due to our clients’ shift to Pega Cloud-based offerings, which do not result in maintenance revenue.
•The decrease in subscription license revenue in the three months ended September 30, 2026 was primarily due to the timing of client contract renewals. The decrease in subscription license revenue in the nine months ended September 30, 2026 was primarily due to several large multi-year contracts recognized in revenue in the nine months ended September 30, 2025.
•The decreases in consulting revenue in the three and nine months ended September 30, 2026 were primarily due to a decrease in consultant billable hours in our Americas region.
Gross profit
| (Dollars in thousands) | Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pega Cloud | $ | 170,061 | 78 | % | $ | 146,811 | 80 | % | $ | 23,250 | 16 | % | $ | 497,192 | 78 | % | $ | 396,450 | 79 | % | $ | 100,742 | 25 | % | |||||||||||||||||||||||||||||
| Maintenance | 67,027 | 92 | % | 74,409 | 93 | % | (7,382) | (10) | % | 205,316 | 92 | % | 218,637 | 93 | % | (13,321) | (6) | % | |||||||||||||||||||||||||||||||||||
| Subscription services | 237,088 | 81 | % | 221,220 | 84 | % | 15,868 | 7 | % | 702,508 | 82 | % | 615,087 | 83 | % | 87,421 | 14 | % | |||||||||||||||||||||||||||||||||||
| Subscription license | 55,310 | 100 | % | 60,444 | 99 | % | (5,134) | (8) | % | 231,452 | 100 | % | 328,087 | 100 | % | (96,635) | (29) | % | |||||||||||||||||||||||||||||||||||
| Subscription | 292,398 | 84 | % | 281,664 | 87 | % | 10,734 | 4 | % | 933,960 | 85 | % | 943,174 | 88 | % | (9,214) | (1) | % | |||||||||||||||||||||||||||||||||||
| Consulting | (2,885) | (6) | % | (6,207) | (11) | % | 3,322 | 54 | % | (8,541) | (6) | % | (19,596) | (11) | % | 11,055 | 56 | % | |||||||||||||||||||||||||||||||||||
| $ | 289,513 | 74 | % | $ | 275,457 | 72 | % | $ | 14,056 | 5 | % | $ | 925,419 | 74 | % | $ | 923,578 | 74 | % | $ | 1,841 | — | % | ||||||||||||||||||||||||||||||
•The decreases in Pega Cloud gross profit percent in the three and nine months ended September 30, 2026 were primarily due to increases in personnel-related costs associated with investments made to support the expansion of our cloud operations.
•The decreases in maintenance gross profit percent in the three and nine months ended September 30, 2026 were primarily due to higher compensation and benefits from increased headcount.
•The increases in consulting gross profit percent in the three and nine months ended September 30, 2026 were primarily due to decreases in compensation and benefits of $11.1 million and $29.6 million, respectively, which were attributable to our restructuring initiatives in 2025. As our technology strategy continues to evolve, we may periodically evaluate our organizational structure to align resources with business priorities.
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Operating expenses
| (Dollars in thousands) | Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||
| Selling and marketing | $ | 143,754 | $ | 140,129 | $ | 3,625 | 3 | % | $ | 464,765 | $ | 425,329 | $ | 39,436 | 9 | % | |||||||||||||||||||||||||
| % of Revenue | 37 | % | 37 | % | 37 | % | 34 | % | |||||||||||||||||||||||||||||||||
| Research and development | $ | 74,311 | $ | 78,756 | $ | (4,445) | (6) | % | $ | 240,526 | $ | 231,826 | $ | 8,700 | 4 | % | |||||||||||||||||||||||||
| % of Revenue | 19 | % | 21 | % | 19 | % | 19 | % | |||||||||||||||||||||||||||||||||
| General and administrative | $ | 38,612 | $ | 42,108 | $ | (3,496) | (8) | % | $ | 130,925 | $ | 107,724 | $ | 23,201 | 22 | % | |||||||||||||||||||||||||
| % of Revenue | 10 | % | 11 | % | 11 | % | 9 | % | |||||||||||||||||||||||||||||||||
| Litigation settlement | $ | 16,000 | $ | — | $ | 16,000 | * | $ | 16,000 | $ | — | $ | 16,000 | * | |||||||||||||||||||||||||||
| % of Revenue | 4 | % | — | % | 1 | % | — | % | |||||||||||||||||||||||||||||||||
| Restructuring | $ | 1,975 | $ | (5) | $ | 1,980 | * | $ | 4,557 | $ | (38) | $ | 4,595 | * | |||||||||||||||||||||||||||
| % of Revenue | 1 | % | — | % | — | % | — | % | |||||||||||||||||||||||||||||||||
* Not meaningful
•The increase in selling and marketing in the three months ended September 30, 2026 was primarily due to marketing program spend of $2.9 million to support future growth. The increase in selling and marketing in the nine months ended September 30, 2026 was primarily due to an increase in compensation and benefits of $20.4 million attributable to higher headcount as we continue to expand our prospective and current client engagement.
•The decrease in research and development in the three months ended September 30, 2026 was primarily due to a decrease in compensation and benefits of $7.1 million attributable to incentive compensation. The increase in research and development in the nine months ended September 30, 2026 was primarily due to an increase in cloud hosting expenses of $3.7 million and outside professional services of $2.1 million.
•The decrease in general and administrative in the three months ended September 30, 2026 was primarily due to a decrease in compensation and benefits of $7.9 million attributable to equity compensation. The increase in general and administrative in the nine months ended September 30, 2026 was primarily due to $28 million in legal fees and related expenses arising from legal proceedings outside the ordinary course of business. We expect to continue to incur additional costs for these proceedings. For additional information, see "Note 16. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.
•The increases in litigation settlement in the three and nine months ended September 30, 2026 were primarily due to the estimated cost to settle ongoing litigation arising from proceedings outside the ordinary course of business. For additional information, see "Note 16. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.
•The increases in restructuring in the three and nine months ended September 30, 2026 were primarily due to cash severance and related costs incurred in connection with workforce reductions intended to better align roles to an AI-first delivery model. For additional information, see "Note 10. Restructuring" in Part I, Item 1 of this Quarterly Report.
Other income and expenses
| (Dollars in thousands) | Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||
| Foreign currency transaction gain (loss) | $ | 589 | $ | 7,154 | $ | (6,565) | (92) | % | $ | 1,075 | $ | (12,179) | $ | 13,254 | * | ||||||||||||||||||||||||||
| Interest income | 1,814 | 2,660 | (846) | (32) | % | 7,268 | 11,243 | (3,975) | (35) | % | |||||||||||||||||||||||||||||||
| Interest expense | (64) | (144) | 80 | * | (153) | (1,172) | 1,019 | 87 | % | ||||||||||||||||||||||||||||||||
| (Loss) on capped call transactions | — | — | — | * | — | (223) | 223 | 100 | % | ||||||||||||||||||||||||||||||||
| Other income (loss), net | 578 | (43) | 621 | * | (840) | 19,247 | (20,087) | * | |||||||||||||||||||||||||||||||||
| $ | 2,917 | $ | 9,627 | $ | (6,710) | (70) | % | $ | 7,350 | $ | 16,916 | $ | (9,566) | (57) | % | ||||||||||||||||||||||||||
* Not meaningful
•The changes in foreign currency transaction gain (loss) in the three and nine months ended September 30, 2026 were primarily due to fluctuations in foreign currency exchange rates associated with foreign currency-denominated receivables and intercompany balances held by our subsidiary in the United Kingdom.
•The decreases in interest income in the three and nine months ended September 30, 2026 were primarily due to lower investment balances.
•The decrease in interest expense in the nine months ended September 30, 2026 was primarily due to the repayment of the Notes at maturity on March 3, 2025.
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•The changes in (loss) on capped call transactions were due to the expiration of the capped call transactions in the three months ended March 31, 2025.
•The decrease in other income (loss), net in the nine months ended September 30, 2026 was primarily due to the gain from the partial sale of a venture investment in 2025. For additional information, see "Note 11. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.
Provision for (benefit from) income taxes
| Nine Months Ended September 30, | |||||||||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | |||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | 15,806 | $ | 16,790 | |||||||||||||||||||
| Effective income tax rate | 21 | % | 10 | % | |||||||||||||||||||
Our effective income tax rate increased in the nine months ended September 30, 2026 as compared to the prior period, primarily due to a decrease in excess tax benefits from stock-based compensation recognized in the current period and the absence of a benefit related to the valuation allowance associated with substantially all of our U.S. and U.K. deferred tax assets in the prior period.
The Organization for Economic Cooperation and Development (“OECD”) has introduced Pillar Two, a global minimum tax framework supported by more than 130 countries, with certain provisions effective for tax years beginning on or after January 1, 2024.
On January 5, 2026, the OECD issued administrative guidance introducing a side‑by‑side system that would exempt U.S.‑parented multinational groups from certain Pillar Two rules beginning in fiscal years starting on or after January 1, 2026. We will continue to monitor developments in countries’ domestic laws as they relate to the OECD model rules and the Pillar Two global minimum tax. Based on information currently available, we do not expect Pillar Two to have a material impact on our consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
| Nine Months Ended September 30, | |||||||||||
| (in thousands) | 2026 | 2025 | |||||||||
| Cash provided by (used in): | |||||||||||
| Operating activities | $ | 304,299 | $ | 346,796 | |||||||
| Investing activities | 89,038 | 214,897 | |||||||||
| Financing activities | (402,070) | (756,391) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (2,590) | 6,971 | |||||||||
| Net (decrease) in cash, cash equivalents, and restricted cash | $ | (11,323) | $ | (187,727) | |||||||
(in thousands) | September 30, 2026 | December 31, 2025 | |||||||||
| Held in U.S. entities | $ | 101,700 | $ | 157,449 | |||||||
| Held in foreign entities | 208,011 | 268,350 | |||||||||
| Total cash, cash equivalents, and marketable securities | 309,711 | 425,799 | |||||||||
| Restricted cash included in other current assets | 957 | 1,577 | |||||||||
| Restricted cash included in other long-term assets | 1,890 | 2,336 | |||||||||
Total cash, cash equivalents, marketable securities, and restricted cash | $ | 312,558 | $ | 429,712 | |||||||
We believe that our current cash, marketable securities, cash flow provided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. We may utilize available funds or seek external financing if we require additional capital resources.
If it becomes necessary or desirable to repatriate foreign funds, we may have to pay federal, state, and local income taxes as well as foreign withholding taxes upon repatriation. However, estimating the taxes we would have to pay on the amounts we consider indefinitely reinvested is impracticable due to the complexity of income tax laws and regulations. We have provided a deferred tax liability associated with the tax cost of repatriating unremitted earnings which we do not consider indefinitely reinvested.
Operating activities
The change in cash provided by operating activities in the nine months ended September 30, 2026 was primarily due to the timing of cash disbursements related to legal fees and related expenses arising from proceedings that originated outside of the ordinary course of business, restructuring activities, and a litigation settlement. For additional information, see “Note 16. Commitments and Contingencies” and “Note 10. Restructuring” in Part I, Item 1 of this Quarterly Report.
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Investing activities
The change in cash provided by investing activities in the nine months ended September 30, 2026 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes in 2025.
Financing activities
Debt financing
In November 2019, and as since amended, we entered into a $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. On October 16, 2026, the Credit Facility was amended to, among other changes, increase the borrowing capacity to $200 million and extend the expiration date to October 16, 2031.
As of September 30, 2026 and December 31, 2025, we had letters of credit of $1.7 million and $26.7 million, respectively, under the Credit Facility; however we had no cash borrowings. For additional information, see "Note 9. Debt" in Part I, Item 1 of this Quarterly Report.
Stock repurchase program
Changes in the remaining stock repurchase authority:
(in thousands) (1) | Nine Months Ended September 30, 2026 | ||||
| December 31, 2025 | $ | 242,254 | |||
Authorizations (2) | 1,000,000 | ||||
Repurchases (3) | (432,199) | ||||
| September 30, 2026 | $ | 810,055 | |||
(1) Amounts presented are exclusive of the U.S. excise tax on share repurchases.
(2) On February 10, 2026, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2026 to June 30, 2027 and increased the authorized repurchase amount by $1 billion.
(3) All purchases under this program have been made on the open market.
Common stock repurchases
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| (in thousands) | Shares | Amount | Shares | Amount | |||||||||||||||||||
Repurchases paid | 10,878 | $ | 432,199 | 8,743 | $ | 393,189 | |||||||||||||||||
Stock repurchase program (1) | 10,878 | 432,199 | 8,743 | 393,189 | |||||||||||||||||||
| Tax withholdings for net settlement of equity awards | 92 | 3,726 | 250 | 12,644 | |||||||||||||||||||
| 10,970 | $ | 435,925 | 8,993 | $ | 405,833 | ||||||||||||||||||
(1) Amounts presented are exclusive of the U.S. excise tax on share repurchases.
During the nine months ended September 30, 2026 and 2025, instead of receiving cash from the equity holders, we withheld shares with a value of $2.8 million and $16.2 million, respectively, for the exercise price of options. These amounts are not included in the table above.
Dividends
We paid and intend to continue to pay a quarterly cash dividend of $0.03 per share; however, the Board of Directors may terminate or modify the dividend program without prior notice.
| Nine Months Ended September 30, | |||||||||||
| (in thousands) | 2026 | 2025 | |||||||||
| Dividend payments to stockholders | $ | 15,104 | $ | 10,306 | |||||||
Contractual obligations
There have been no material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in financial market prices and rates.
Foreign currency exposure
Translation risk
Our international operations’ operating expenses are primarily denominated in foreign currencies. However, our international sales are also primarily denominated in foreign currencies, partially offsetting our foreign currency exposure.
28
A hypothetical 10% strengthening in the U.S. dollar against other currencies would have resulted in the following:
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| (Decrease) in revenue | (5) | % | (4) | % | |||||||
| (Decrease) in net income | (17) | % | (4) | % | |||||||
Remeasurement risk
We incur transaction gains and losses from the remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of the entities in which they are recorded.
We are primarily exposed to changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated cash, cash equivalents, marketable securities, receivables, and intercompany balances held by our U.K. subsidiary, a British pound functional entity.
A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would have resulted in the following impact:
| Nine Months Ended September 30, | |||||||||||
| (in thousands) | 2026 | 2025 | |||||||||
| Foreign currency (loss) | $ | (21,369) | $ | (30,790) | |||||||
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of September 30, 2026. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2026.
(b) Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2026 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
29
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in “Note 16. Commitments and Contingencies”, in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.
ITEM 1A. RISK FACTORS
We encourage you to carefully consider the risk factors identified in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the U.S. Securities and Exchange Commission. These risk factors could materially affect our business, financial condition, and future results and may cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer purchases of equity securities (1)
Common stock repurchased in the three months ended September 30, 2026:
| (in thousands, except per share amounts) | Total Number of Shares Purchased (2) | Average Price Paid per Share (2) | Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program | Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchase Programs (3)(4) | |||||||||||||||||||
| July 1, 2026 - July 31, 2026 | 870 | $ | 28.74 | 870 | $ | 850,054 | |||||||||||||||||
| August 1, 2026 - August 31, 2026 | 628 | $ | 32.89 | 608 | $ | 830,054 | |||||||||||||||||
| September 1, 2026 - September 30, 2026 | 560 | $ | 36.92 | 542 | $ | 810,055 | |||||||||||||||||
| 2,058 | $ | 32.23 | 2,020 | ||||||||||||||||||||
(1) For additional information, see "Liquidity and Capital Resources" in Part I, Item 2 of this Quarterly Report.
(2) Includes shares withheld to cover the option exercise price and tax withholding obligations for stock compensation awards subject to net settlement provisions.
(3) On February 10, 2026, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2026 to June 30, 2027 and increased the authorized repurchase amount by $1 billion.
(4) Amounts presented are exclusive of the U.S. excise tax on share repurchases.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 and non-rule 10b5-1 trading arrangements
On September 9, 2026 , Leon Trefler , our Chief of Clients and Markets , modified the Rule 10b5-1 trading arrangement that he previously entered into on March 16, 2026. As modified, the Rule 10b5-1 trading arrangement provides for the sale of 26,000 shares of our common stock and will terminate on December 31, 2027 , subject to early termination for certain specified events set forth in the arrangement.
Other than as disclosed above, during the three months ended September 30, 2026, no director or officer of the Company adopted or terminated
Credit Facility
On October 16, 2026, we entered into an amendment to our $100 million senior secured revolving credit agreement with PNC Bank, National Association to, among other changes, increase the borrowing capacity to $200 million and extend the expiration date to October 16, 2031. For additional information, see "Note 9. Debt" in Part I, Item 1 of this Quarterly Report. The description contained herein is qualified in its entirety by reference to the amendment, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.
30
ITEM 6. EXHIBITS
| Exhibit No. | Description | Incorporation by Reference | Filed Herewith | |||||||||||||||||||||||||||||
| Form | Location | Filing Date | ||||||||||||||||||||||||||||||
| 3.1 | 8-K | 3.1 | 6/18/25 | |||||||||||||||||||||||||||||
| 3.2 | 8-K | 3.2 | 6/15/20 | |||||||||||||||||||||||||||||
| 10.1 | X | |||||||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||
| 32 | + | |||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | X | ||||||||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||||||||||||||||||||||||||
+ Indicates that the exhibit is being furnished with this report and is not filed as a part of it.
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Pegasystems Inc. | |||||||||||
| Dated: | October 20, 2026 | By: | /s/ KENNETH STILLWELL | ||||||||
| Kenneth Stillwell | |||||||||||
| Chief Operating Officer and Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
EXHIBIT 10.1
Ninth Amendment to Loan Documents
THIS NINTH AMENDMENT TO LOAN DOCUMENTS (this “Amendment”) is entered into on October 16, 2026 (the “Effective Date”), by and among PEGASYSTEMS INC. (the “Borrower”), the Guarantors (as such term is defined in the Credit Agreement referred to in Exhibit A attached hereto and made a part hereof (the “Loan Agreement”)) party hereto (the “Guarantors” and each, individually, a “Guarantor”; the Borrower and the Guarantors are collectively referred to herein as the “Loan Parties” and each, individually, a “Loan Party”), the Lenders (as such term is defined in the Loan Agreement) party hereto (the “Lenders”) and PNC BANK, NATIONAL ASSOCIATION (the “Agent”), in its capacity as “Agent” (as such term is defined in the Loan Agreement) for the Lenders.
BACKGROUND
A. The Loan Parties have executed and delivered to the Agent and/or the Lenders one or more promissory notes, letter agreements, loan agreements, security agreements, pledge agreements, collateral assignments, and other agreements, instruments, certificates and documents, some or all of which are more fully described on Exhibit A attached hereto, which is made a part of this Amendment (collectively, as amended from time to time, the “Loan Documents”) which evidence or secure some or all of the Borrower’s Obligations.
B. The Loan Parties, the Lenders and the Agent desire to amend the Loan Documents as provided for in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain of the Loan Documents are amended as set forth in Exhibit A attached hereto and made a part hereof. Any and all references to any Loan Document which is amended hereby in any other Loan Document shall be deemed to refer to such Loan Document as amended by this Amendment. This Amendment is deemed incorporated into each of the Loan Documents being amended hereby. Any initially capitalized terms used in this Amendment without definition shall have the meanings assigned to those terms in the Loan Agreement. To the extent that any term or provision of this Amendment is or may be inconsistent with any term or provision in any Loan Document, the terms and provisions of this Amendment shall control.
2. The Borrower hereby certifies that (a) all of its representations and warranties in the Loan Documents, as amended by this Amendment, are, except as may otherwise be stated in this Amendment, (i) true and correct in all material respects (except for any representation or warranty which expressly relates to an earlier date, in which case such representation and warranty was true and correct as of such earlier date) as of the date of this Amendment, (ii) except as previously disclosed by Borrower to Agent in connection with this Amendment, ratified and confirmed without condition as if made anew (except for any representation or warranty which expressly relates to an earlier date, in which case such representation and warranty shall be ratified and confirmed as of such earlier date), and (iii) incorporated into this Amendment by reference; (b) no Event of Default or event which, with the passage of time or the giving of notice or both, would constitute an Event of Default, exists under any Loan Document which will not be cured or waived by the execution and effectiveness of this Amendment; (c) no consent, approval, order or authorization of, or registration or filing with, any third party is required in connection with the execution, delivery and carrying out of this Amendment or, if required, has been obtained; and (d) this Amendment has been duly authorized, executed and delivered so that it constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. The Borrower confirms that the Obligations remain outstanding without defense, set off, counterclaim, discount or charge of any kind as of the date of this Amendment.
EXHIBIT 10.1
(continued)
3. The Borrower hereby confirms that any collateral for the Obligations, including liens, security interests, mortgages, and pledges granted by the Borrower or third parties (if applicable), shall continue unimpaired and in full force and effect, and shall cover and secure all of the Borrower’s existing and future Obligations to the Lenders, as modified by this Amendment.
4. As a condition precedent to the effectiveness of this Amendment, the Borrower shall comply with the terms and conditions specified in Exhibit A attached hereto and made a part hereof.
5. To induce the Agent and the Lenders to enter into this Amendment, each Loan Party reaffirms all of its indemnification obligations contained in the Loan Documents, including, without limitation, pursuant to Section 11.3.2 of the Loan Agreement.
6. This Amendment may be signed in any number of counterpart copies and by the parties to this Amendment on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by electronic or facsimile transmission shall be effective as delivery of a manually executed counterpart. Any party so executing this Amendment by electronic or facsimile transmission shall promptly deliver a manually executed counterpart, provided that any failure to do so shall not affect the validity of the counterpart executed by electronic or facsimile transmission, as applicable.
7. Notwithstanding any other provision herein or in the other Loan Documents, each Loan Party agrees that this Amendment, the Note, the other Loan Documents, any other amendments thereto and any other information, notice, signature card, agreement or authorization related thereto (each, a “Communication”) may, at the Agent’s option, be in the form of an electronic record. Any Communication may, at the Agent’s option, be signed or executed using electronic signatures. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Agent of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format) for transmission, delivery and/or retention. Each Loan Party, each Lender and the Agent acknowledge and agree that the methods for delivering Communications, including notices, under the Loan Documents include electronic transmittal to any electronic address provided by either party to the other party from time to time.
8. This Amendment will be binding upon and inure to the benefit of each Loan Party, the Agent, and the Lenders and their respective heirs, executors, administrators, successors and assigns.
9. This Amendment has been delivered to and accepted by the Agent and the Lenders and will be deemed to be made in the State of New York. This Amendment will be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of New York, excluding its conflict of laws rules, including without limitation the Electronic Signatures and Records Act (or equivalent) in such State (or, to the extent controlling, the laws of the United States of America, including without limitation the Electronic Signatures in Global and National Commerce Act).
10. Agent and the Lenders hereby waive enforcement of their respective rights against Borrower arising from any deemed failure of the Borrower or any Guarantor to give the Agent prompt written notice of any new intellectual property since November 5, 2019 as required by the applicable security agreement pertaining thereto, as well in relation to a clerical error that caused certain intellectual property to inadvertently not be scheduled on the initial security agreement (“Known Existing Defaults”). This waiver shall be effective only for the specific defaults comprising the Known Existing Defaults, and in no event shall this waiver be deemed to be a waiver of enforcement of any of Agent’s or any Lender’s rights with respect to any other defaults or Events of Default now existing or hereafter arising.
11.Except as amended or waived hereby, the terms and provisions of the Loan Documents remain unchanged, are and shall remain in full force and effect unless and until modified or amended in writing in accordance with their terms, and are hereby ratified, reaffirmed and confirmed. Except as expressly provided
2
EXHIBIT 10.1
(continued)
herein, this Amendment shall not constitute an amendment, waiver, consent or release with respect to any provision of any Loan Document, a waiver of any default or Event of Default under any Loan Document, or a waiver or release of any of the Agent’s or Lenders’ rights and remedies (all of which are hereby reserved). Each Loan Party, the Agent and the Lenders mutually expressly ratify and confirm the waiver of jury trial or arbitration provisions contained in the Loan Documents, all of which are incorporated herein by reference.
[signatures appear on following page]
3
WITNESS the due execution of this Amendment as of the date first written above, with the intent to be legally bound hereby.
| BORROWER: | ||||||||
PEGASYSTEMS INC. | ||||||||
| By: | /s/ Kenneth Stillwell | |||||||
| Name: | Kenneth Stillwell | |||||||
| Title: | Chief Operating Officer and Chief Financial Officer | |||||||
| GUARANTORS: | ||||||||
| PEGASYSTEMS WORLDWIDE INC. | ||||||||
| By: | /s/ Efstathios Kouninis | |||||||
| Name: | Efstathios Kouninis | |||||||
| Title: | Director | |||||||
ANTENNA SOFTWARE, LLC | ||||||||
| By: | PEGASYSTEMS INC., its sole member | |||||||
| By: | /s/ Kenneth Stillwell | |||||||
| Name: | Kenneth Stillwell | |||||||
| Title: | Chief Operating Officer and Chief Financial Officer | |||||||
| PEGA GOVERNMENT LLC | ||||||||
| By: | /s/ Efstathios Kouninis | |||||||
| Name: | Efstathios Kouninis | |||||||
| Title: | Manager | |||||||
Signature Page – Loan Parties – Ninth Amendment to Loan Documents
PNC BANK, NATIONAL ASSOCIATION,
Individually and as Agent
| By: | /s/ Terence J. O'Malley | |||||||
| Name: | Terence J. O'Malley | |||||||
| Title: | Senior Vice President | |||||||
Signature Page – PNC Bank – Ninth Amendment to Loan Documents
EXHIBIT 10.1
(continued)
EXHIBIT A
TO NINTH AMENDMENT TO LOAN DOCUMENTS
DATED AS OF OCTOBER 16, 2026
A. The “Loan Documents” that are the subject of this Amendment include the following (as any of the foregoing have previously been amended, modified or otherwise supplemented):
1.Credit Agreement dated as of November 5, 2019 made by and among Pegasystems Inc., (the “Borrower”), each of the Guarantors, and the Agent.
2.Amendment to Loan Documents dated as of February 18, 2020 made by and among the Borrower, each of the Guarantors, and the Agent.
3.Second Amendment to Loan Documents dated as of July 22, 2020 made by and among the Borrower, each of the Guarantors, and the Agent.
4.Third Amendment to Loan Documents dated as of September 20, 2020 made by and among the Borrower, each of the Guarantors, and the Agent.
5.Fourth Amendment to Loan Documents dated as of March 31, 2022 made by and among the Borrower, each of the Guarantors, and the Agent.
6.Fifth Amendment to Loan Documents dated as of July 25, 2022 made by and among the Borrower, each of the Guarantors, and the Agent.
7.Sixth Amendment to Loan Documents dated as of March 31, 2023 made by and among the Borrower, each of the Guarantors, and the Agent.
8.Seventh Amendment to Loan Documents dated as of April 23, 2024 made by and among the Borrower, each of the Guarantors, and the Agent.
9.Eighth Amendment to Loan Documents dated as of February 4, 2025 made by and among the Borrower, each of the Guarantors, and the Agent.
10.Consent Letter dated as of June 1, 2026 made by the Agent and acknowledged by the Borrower and each of the Guarantors.
11.Guarantor Joinder and Assumption Agreement made as of August 24, 2020, by Pega Government LLC in favor of the Agent and the Lenders.
12.Revolving Credit Note in the principal amount of $100,000,000.00 dated as of November 5, 2019 executed by the Borrower in favor of the Agent, as a Lender (the “Prior Note”), as amended and restated by that certain Amended and Restated Revolving Credit Note in the principal amount of $200,000,000.00 dated as of the Effective Date executed by the Borrower in favor of the Agent, as a Lender (the “Amended Note”).
13.Security Agreement dated as of November 5, 2019, by and between the Borrower and the Agent.
14.Security Agreement dated as of November 5, 2019, by and among Pegasystems Worldwide, Inc., Antenna Software, LLC and the Agent.
Exhibit A - 1
EXHIBIT 10.1
(continued)
15.Continuing Agreement of Guaranty and Suretyship dated as of November 5, 2019, by and among Pegasystems Worldwide, Inc., Antenna Software, LLC and the Agent.
16.Pledge Agreement dated as of November 5, 2019, by and between the Borrower and the Agent (as amended or modified, the “Equity Pledge Agreement”).
17.First Amendment to Pledge Agreement dated as of August 24, 2020, by and between the Borrower and the Agent.
18.Pledge Agreement (Bank Deposits) dated as of November 5, 2019, by and among the Borrower and the Agent.
19.Deposit Account Control Agreement dated as of December 23, 2019, by and among the Borrower, the Agent and Bank of America, N.A..
20.Patent, Trademark and Copyright Security Agreement dated as of November 5, 2019, by and between the Borrower and the Agent.
21.Patent, Trademark and Copyright Security Agreement dated as of November 5, 2019, by and between Antenna Software, LLC and the Agent.
22.Fee Letter dated as of March 31, 2023 made by and among the Borrower and the Agent.
23.Patent and Trademark Security Agreement dated as of the Effective Date, by and between the Borrower and the Agent (as amended or modified, the “2026 Patent and Trademark Security Agreement”).
24.All other documents, instruments, agreements, and certificates executed and delivered in connection with the Loan Documents listed in this Exhibit A, including without limitation the fee letter dated as of the Effective Date (the “2026 Fee Letter”).
B. Amendments to Loan Documents. Effective as of the Effective Date, the Loan Documents are hereby amended and modified as follows:
1.Amendments to Loan Documents.
1.01Note References. Any and all references in the Loan Documents to the Note shall from this date forth be deemed to refer to the Amended Note, as the same may be amended or modified from time to time, such that any references to the Note shall mean the Prior Note as amended and restated by the Amended Note.
1.02Obligations. The Obligations shall include, without limitation, obligations under the Amended Note.
1.03Collateral. The Collateral shall at all times continue to secure the Obligations, including without limitation obligations under the Amended Note, the Credit Agreement and other Loan Documents.
1.04References. Any references in the Loan Documents to the maximum aggregate principal amount of the revolving credit facility evidenced by the Loan Agreement shall refer to $200,000,000.00 (and for the avoidance of any doubt, the reference to the maximum aggregate principal amount of the Incremental Loan Commitments shall remain at $100,000,000).
Exhibit A - 2
EXHIBIT 10.1
(continued)
1.05Equity Pledge Agreement. Until such time as may be otherwise requested by the Agent, equity interests (the “Mauritius Equity”) of the Borrower in Pegasystems Mauritius (the “Mauritius Subsidiary”) are released from the security interest grants contained in the Pledge Agreement and other Loan Documents and shall not constitute the Pledged Collateral, provided that the covenants applicable to the Borrower (other than granting of lien or security interests in the Mauritius Equity, including any negative covenants, as to such Mauritius Subsidiary and Mauritius Equity shall continue in full force and effect. At the reasonable request of the Agent following the Effective Date, such Mauritius Equity that was previously pledged in accordance with the Pledge Agreement shall, subject to the terms and conditions of the Pledge Agreement, once again be deemed Pledged Collateral and the Borrower shall execute such amendments and acknowledgements as may be reasonable requested by the Agent in connection therewith.
2.Amendments to Loan Agreement.
2.01Certain Definitions. The definitions of “Adjusted Daily Simple SOFR” and “Adjusted Term SOFR Rate” in Section 1.1 of the Loan Agreement are hereby deleted.
2.02Applicable Margin. The definition of “Applicable Margin” in Section 1.1 of the Loan Agreement is hereby amended and restated as follows:
“Applicable Margin” shall mean the corresponding percentages per annum as specified under and in accordance with the terms set forth below based on the Net Leverage Ratio:
Level | Net Leverage Ratio | Commitment Fee | Letter of Credit Fee | Revolving Credit Base Rate Spread | Revolving Credit Term SOFR Rate Spread | ||||||||||||
I | Less than 1.00 to 1.00 | 0.150% | 1.00% | 0.50% | 1.00% | ||||||||||||
II | Greater than or equal to 1.00 to 1.00 but less than 2.00 to 1.00 | 0.200% | 1.25% | 0.75% | 1.25% | ||||||||||||
III | Greater than or equal to 2.00 to 1.00 but less than 3.00 to 1.00 | 0.225% | 1.50% | 1.00% | 1.50% | ||||||||||||
IV | Greater than or equal to 3.00 to 1.00 | 0.250% | 1.75% | 1.25% | 1.75% | ||||||||||||
Exhibit A - 3
EXHIBIT 10.1
(continued)
For purposes of determining the Applicable Margin, the Applicable Commitment Fee Rate and the Applicable Letter of Credit Fee Rate:
(a) The Applicable Margin, the Applicable Commitment Fee Rate and the Applicable Letter of Credit Fee Rate were initially determined on the Closing Date based on the Net Leverage Ratio computed on such date pursuant to a Compliance Certificate to be delivered on the Closing Date, and will be determined as of the effective date of that certain Ninth Amendment to Loan Documents which amended this Agreement (the “Ninth Amendment Effective Date”) based on the Net Leverage Ratio computed on such date pursuant to a Compliance Certificate to be delivered in connection with such amendment.
(b) The Applicable Margin, the Applicable Commitment Fee Rate and the Applicable Letter of Credit Fee Rate shall be recomputed as of the end of each fiscal quarter ending after the Ninth Amendment Effective Date based on the Net Leverage Ratio as of such quarter end. Any increase or decrease in the Applicable Margin, the Applicable Commitment Fee Rate or the Applicable Letter of Credit Fee Rate computed as of a quarter end shall be effective on the date on which the Compliance Certificate evidencing such computation is due to be delivered under Section 8.3.3 [Certificate of Borrower]. If a Compliance Certificate is not delivered when due in accordance with such Section 8.3.3, then the rates in Level IV shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered.
(c) If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason, the Borrower or the Lenders determine that (i) the Net Leverage Ratio as calculated by the Borrower as of any applicable date was inaccurate and (ii) a proper calculation of the Net Leverage Ratio would have resulted in higher pricing for such period, the Borrower shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent, any Lender or the Issuing Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This paragraph shall not limit the rights of the Administrative Agent, any Lender or the Issuing Lender, as the case may be, under Section 2.9 [Letter of Credit Subfacility] or Section 4.3 [Interest After Default] or Section 9 [Default]. The Borrower’s obligations under this paragraph shall survive the termination of the Commitments and the repayment of all other Obligations hereunder.
2.03Base Rate. The definition of “Base Rate” in Section 1.1 of the Loan Agreement is hereby amended and restated as follows:
Base Rate shall mean, for any day, a fluctuating per annum rate of interest equal to the highest of (i) the Overnight Bank Funding Rate, plus 0.5%, (ii) the Prime Rate, and (iii) Daily Simple SOFR, plus 1.00%, so long as Daily Simple SOFR is offered, ascertainable and not unlawful; provided, however, if the Base Rate as determined above would be less than zero, then such rate shall be deemed to be zero. Any change in the Base Rate (or any component thereof) shall take effect at the opening of business on the day such change occurs.
Exhibit A - 4
EXHIBIT 10.1
(continued)
2.04Expiration Date. The definition of “Expiration Date” in Section 1.1 of the Loan Agreement is hereby amended and restated as follows:
Expiration Date shall mean, with respect to the Revolving Credit Commitments, October 16, 2031.
2.05Net Leverage Ratio. The definition of “Net Leverage Ratio” in Section 1.1 of the Loan Agreement is hereby amended and restated as follows:
Net Leverage Ratio shall mean, as of any date of determination, the ratio of (a) Consolidated Funded Indebtedness on such date minus the lesser of (i) unrestricted domestic cash and Permitted Investments of the Loan Parties as of the date of calculation and (ii) $100,000,000 to (b) Consolidated EBITDA for the four fiscal quarters most recently ended.
2.06Notes. The definitions of “Notes” and “Note” in Section 1.1 of the Loan Agreement is hereby amended and restated as follows:
Notes shall mean collectively, and Note shall mean separately, that certain Amended and Restated Revolving Credit Note in the principal amount of $200,000,000.00 dated as of October 16, 2026 executed by the Borrower in favor of the Agent, as a Lender, and any other promissory notes substantially in the form of Exhibit 1.1(N) (1) evidencing the Revolving Credit Loans.
2.07Term SOFR Rate Loan. The definition of “Term SOFR Rate Loan” in Section 1.1 of the Loan Agreement is hereby amended and restated as follows:
“Term SOFR Rate Loan” shall mean a Revolving Credit Loan that bears interest based on Term SOFR Rate.
2.08Section 4.1.1. Section 4.1.1 of the Loan Agreement is hereby amended and restated as follows:
4.1.1 Revolving Credit Interest Rate Options. The Borrower shall have the right to select from the following Interest Rate Options applicable to the Revolving Credit Loans:
(i)Revolving Credit Base Rate Option: A fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate plus the Applicable Margin, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or
(ii)Revolving Credit Term SOFR Rate Option: A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the Term SOFR Rate as determined for each applicable Interest Period plus the Applicable Margin.
2.09Schedules.
Schedule 1.1(B) is amended and restated with the Schedule 1.1(B) to this Amendment.
Schedule 1.1(P) is amended and restated with the Schedule 1.1(P) to this Amendment.
Exhibit A - 5
EXHIBIT 10.1
(continued)
Schedule 6.1.1 is amended and restated with the Schedule 6.1.1 to this Amendment.
Schedule 6.1.2 is amended and restated with the Schedule 6.1.2 to this Amendment.
Schedule 8.2.1 is amended and restated with the Schedule 8.2.1 to this Amendment.
C. Conditions to Effectiveness of Amendment. The Agent’s willingness to agree to the amendments set forth in this Amendment is subject to the prior satisfaction of the following conditions:
1.Execution by all applicable parties and delivery to the Agent of this Amendment (including the attached Consent), the 2026 Fee Letter, the 2026 Patent and Trademark Security Agreement and the corresponding Patent Assignment and Trademark Assignment.
2.Reimbursement by the Borrower to the Agent of the fees and expenses of the Agent and the Agent's outside counsel in connection with this Amendment, including without limitation the amendment fee as set forth in the 2026 Fee Letter, which the Borrower acknowledges is fully earned and non-refundable as of the date hereof.
3.Evidence that at least an additional $25,000,000 has been deposited by the Borrower and Guarantors with the Agent.
4.Evidence that adequate insurance required to be maintained under the Loan Agreement is in full force and effect, with additional insured and lender loss payable special endorsements attached thereto in form and substance satisfactory to the Agent and its counsel naming the Agent as additional insured and lender loss payee
5.A customary legal opinion of each Loan Party, in form and substance reasonably satisfactory to the Agent.
6.A Lien search in scope and with results acceptable to the Agent.
7.All representations and warranties contained in the Loan Documents are true and correct in all material respects on the date hereof (except for any representation or warranty which expressly relates to an earlier date, in which case such representation and warranty was true and correct as of such earlier date).
8.Immediately after giving effect to this Amendment, no default or Event of Default shall have occurred and be continuing under the Loan Agreement or any of the other Loan Documents.
Exhibit A - 6
EXHIBIT 10.1
(continued)
CONSENT OF GUARANTOR
Each of the undersigned guarantors (jointly and severally if more than one, the “Guarantors”) consent to the provisions of the foregoing Amendment, any and all documents executed in connection therewith, and all prior amendments (if any) and confirms and agrees that (a) the Guarantors’ obligations under the Guaranty shall be unimpaired by the Amendment; (b) as of the date hereof, the Guarantors have no defenses, set offs, counterclaims, discounts or charges of any kind against the Agent and/or the Lenders, their respective officers, directors, employees, agents or attorneys with respect to the Guaranty; (c) except as expressly modified by the foregoing Amendment, all of the terms, conditions and covenants in the Guaranty remain unaltered and in full force and effect and are hereby ratified and confirmed and apply to the Obligations, as modified by the Amendment; and (d) the Guarantors are bound by the terms and provisions of paragraph 5 of the Amendment. The Guarantors certify that all representations and warranties made in the Guaranty are true and correct in all material respects (except for any representation or warranty which expressly relates to an earlier date, in which case such representation and warranty was true and correct as of such earlier date).
By signing below, the Guarantors agree that this Consent, the Guaranty, the other Loan Documents, any amendments thereto and any other information, notice, signature card, agreement or authorization related thereto (each, a “Communication”) may, at the Agent’s option, be in the form of an electronic record. Any Communication may, at the Agent’s option, be signed or executed using electronic signatures. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Agent of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format) for transmission, delivery and/or retention. The Guarantor acknowledges and agrees that the methods for delivering Communications, including notices, under the Guaranty and the other Loan Documents include electronic transmittal to any electronic address provided by any party to the other party from time to time.
The Guarantors hereby confirm that any collateral for the Obligations, including liens, security interests, mortgages, and pledges granted by the Guarantors, shall continue unimpaired and in full force and effect, shall cover and secure all of the Guarantors’ existing and future Obligations to the Lenders, as modified by this Amendment.
The Guarantor ratifies and confirms the indemnification (if any) and waiver of jury trial provisions contained in the Guaranty.
[signatures appear on following page]
EXHIBIT 10.1
(continued)
WITNESS the due execution of this Consent as of the date of the Amendment, intending to be legally bound hereby.
| GUARANTORS: | ||||||||
| PEGASYSTEMS WORLDWIDE INC. | ||||||||
| By: | /s/ Efstathios Kouninis | |||||||
| Name: | Efstathios Kouninis | |||||||
| Title: | Director | |||||||
ANTENNA SOFTWARE, LLC | ||||||||
| By: | PEGASYSTEMS INC., its sole member | |||||||
| By: | /s/ Kenneth Stillwell | |||||||
| Name: | Kenneth Stillwell | |||||||
| Title: | Chief Operating Officer and Chief Financial Officer | |||||||
| PEGA GOVERNMENT LLC | ||||||||
| By: | /s/ Efstathios Kouninis | |||||||
| Name: | Efstathios Kouninis | |||||||
| Title: | Manager | |||||||
Signature Page – Guarantors – Ninth Amendment to Loan Documents
EXHIBIT 31.1
CERTIFICATION
I, Alan Trefler, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Pegasystems Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: October 20, 2026
| /s/ ALAN TREFLER | ||
| Alan Trefler | ||
| Chairman and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
1
EXHIBIT 31.2
CERTIFICATION
I, Kenneth Stillwell, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Pegasystems Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: October 20, 2026
| /s/ KENNETH STILLWELL | ||
| Kenneth Stillwell | ||
| Chief Operating Officer and Chief Financial Officer | ||
| (Principal Financial Officer) | ||
1
EXHIBIT 32
CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pegasystems Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2026 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Alan Trefler, Chairman and Chief Executive Officer of Pegasystems Inc., and Kenneth Stillwell, Chief Operating Officer and Chief Financial Officer of Pegasystems Inc., each certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: October 20, 2026
| /s/ ALAN TREFLER | ||
| Alan Trefler | ||
| Chairman and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| /s/ KENNETH STILLWELL | ||
| Kenneth Stillwell | ||
| Chief Operating Officer and Chief Financial Officer | ||
| (Principal Financial Officer) | ||
1