8-K
Pegasystems Inc (PEGA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 8-K
_________________________________
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 10, 2026
____________________
PEGASYSTEMS INC.
(Exact name of Registrant as specified in its charter)
_________________________________
| Massachusetts | 1-11859 | 04-2787865 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
225 Wyman Street, Waltham, MA 02451
(Address of principal executive offices, including zip code)
(617) 374-9600
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☒ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $.01 par value per share | PEGA | NASDAQ Global Select Market |
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On February 10, 2026, Pegasystems Inc. issued a press release announcing its financial results for the fourth quarter and full-year 2025. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.
The information in this Item 2.02 and the Exhibits attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.
ITEM 8.01 OTHER EVENTS
On February 10, 2026, Pegasystems Inc. announced an expansion of its current share repurchase program. Under this expansion, the expiration date of the current repurchase program has been extended from June 30, 2026 to June 30, 2027, and the amount of its common stock that Pegasystems is authorized to repurchase has been increased by $1 billion.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
| Exhibit No. | Description |
|---|---|
| 99.1 | Press release issued by Pegasystems Inc. |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL) |
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: | February 10, 2026 | By: | /s/ KENNETH STILLWELL |
| Kenneth Stillwell | |||
| Chief Operating Officer and Chief Financial Officer | |||
| (Principal Financial Officer) |
Document
EXHIBIT 99.1
Innovation Accelerates Pega’s Q4 2025 Growth
•Annual Contract Value (ACV) grows 17% year over year (14% in constant currency)
•Pega Cloud ACV increases 33% year over year (28% in constant currency)
•Cash flow from operations and free cash flow grow 45% year over year
•2026 guidance of 15% ACV growth, $595M in cash flow from operations, and $575M in free cash flow
•Increases share repurchase authorization by $1B
WALTHAM, Mass. — February 10, 2026 — Pegasystems Inc. (NASDAQ: PEGA), the Enterprise Transformation Company™, released its financial results for the fourth quarter and full-year 2025.
“2025 was an extraordinary year of progress and execution,” said Alan Trefler, founder and CEO, Pega. “We’re entering a transformative era with bold ideas and compelling innovation. Our approach positions us to lead the industry, deliver extraordinary value to clients, and enable clients to overcome legacy system limitations.”
“Our 2025 results reflect strong financial discipline, with top and bottom-line beats of our guidance and exceeding the Rule of 40,” Pega COO & CFO, Ken Stillwell, said. “Our recurring business model and our technology leadership position us to continue to accelerate ACV growth, expand margins, and increase free cash flow.”
Financial and performance metrics (1)
(1) Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures.
EXHIBIT 99.1
(continued)
Reconciliation of ACV and Constant Currency ACV
| (in millions, except percentages) | December 31, 2024 | December 31, 2025 | 1-Year Change | |||
|---|---|---|---|---|---|---|
| ACV | $ | 1,372 | $ | 1,608 | 17 | % |
| Impact of changes in foreign exchange rates | — | (46) | ||||
| Constant currency ACV | $ | 1,372 | $ | 1,562 | 14 | % |
Note: Constant currency ACV is calculated by applying the December 31, 2024 foreign exchange rates to current period shown.
Cash Flow Growth
| (Dollars in thousands,<br><br>except per share amounts) (1) | Three Months Ended<br>December 31, | Year Ended<br>December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||
| Total revenue | $ | 504,317 | $ | 490,830 | 3 | % | $ | 1,745,812 | $ | 1,497,180 | 17 | % | ||||||
| Net income - GAAP | $ | 234,574 | $ | 119,090 | 97 | % | $ | 393,437 | $ | 99,189 | 297 | % | ||||||
| Net income - non-GAAP | $ | 139,554 | $ | 147,953 | (6) | % | $ | 385,411 | $ | 270,542 | 42 | % | ||||||
| Diluted earnings per share - GAAP | $ | 1.27 | $ | 0.63 | 102 | % | $ | 2.13 | $ | 0.55 | 287 | % | ||||||
| Diluted earnings per share - non-GAAP | $ | 0.76 | $ | 0.80 | (5) | % | $ | 2.10 | $ | 1.51 | 39 | % |
(1) Per share amounts have been recast for all prior periods to reflect the effect of the Company’s two-for-one forward common stock split effected in the form of a stock dividend distributed on June 20, 2025.
| (Dollars in thousands) (2) | Three Months Ended<br>December 31, | Change | Year Ended<br>December 31, | Change | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||
| Pega Cloud | $ | 193,487 | 38 | % | $ | 149,638 | 30 | % | $ | 43,849 | 29 | % | $ | 695,902 | 40 | % | $ | 558,734 | 37 | % | $ | 137,168 | 25 | % | ||||
| Maintenance | 79,305 | 16 | % | 81,257 | 17 | % | (1,952) | (2) | % | 314,593 | 18 | % | 323,304 | 22 | % | (8,711) | (3) | % | ||||||||||
| Subscription services | 272,792 | 54 | % | 230,895 | 47 | % | 41,897 | 18 | % | 1,010,495 | 58 | % | 882,038 | 59 | % | 128,457 | 15 | % | ||||||||||
| Subscription license | 178,215 | 35 | % | 207,113 | 42 | % | (28,898) | (14) | % | 507,368 | 29 | % | 401,869 | 27 | % | 105,499 | 26 | % | ||||||||||
| Subscription | 451,007 | 89 | % | 438,008 | 89 | % | 12,999 | 3 | % | 1,517,863 | 87 | % | 1,283,907 | 86 | % | 233,956 | 18 | % | ||||||||||
| Consulting | 53,310 | 11 | % | 52,822 | 11 | % | 488 | 1 | % | 227,949 | 13 | % | 213,273 | 14 | % | 14,676 | 7 | % | ||||||||||
| Total revenue | $ | 504,317 | 100 | % | $ | 490,830 | 100 | % | $ | 13,487 | 3 | % | $ | 1,745,812 | 100 | % | $ | 1,497,180 | 100 | % | $ | 248,632 | 17 | % |
(2) Perpetual license revenue has been combined within Subscription license revenue for all periods presented.
2026 Guidance (1)
As of February 10, 2026, we are providing the following guidance:
| 2026 | |||||
|---|---|---|---|---|---|
| Annual contract value growth | 15% | 2026 | |||
| --- | --- | --- | |||
| GAAP | Non-GAAP (1) | ||||
| Revenue | $2.0 Billion | $2.0 Billion | |||
| Diluted earnings per share | $1.87 | $2.75 | 2026 | ||
| --- | --- | ||||
| Cash provided by operating activities | $595 million | ||||
| Free cash flow | $575 million |
(1) A reconciliation of our GAAP and Non-GAAP guidance is contained in the financial schedules at the end of this release.
Quarterly conference call
A conference call and audio-only webcast will be conducted at 8:00 a.m. EST on Wednesday, February 11, 2026.
Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1 (800) 715-9871 (domestic) or 1 (646) 307-1963 (international) and using Conference ID 6226958, or via https://events.q4inc.com/attendee/958808765 by logging onto www.pega.com at least five minutes prior to the event's broadcast and clicking on the webcast icon in the Investors section.
Discussion of non-GAAP financial 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. Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures.
Forward-looking statements
Certain statements in this press release may be "forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, including our 2026 Guidance and the anticipated growth and development of our business.
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;
•the timing of revenue recognition;
•variation in demand for our products and services;
•reliance on key personnel;
•potential legal and financial liabilities, as well as damage to our reputation, due to cyber-attacks;
•security breaches and security flaws;
•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;
•our client retention rate; 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, 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.
Any forward-looking statements in this press release represent our views as of February 10, 2026.
About Pegasystems
Pega provides the leading AI-powered platform for enterprise transformation. The world’s most influential organizations trust our technology to reimagine how work gets done by automating workflows, personalizing customer experiences, and modernizing legacy systems. Since 1983, our scalable, flexible architecture has fueled continuous innovation, helping clients accelerate their path to the autonomous enterprise. Ready to Build for Change®? Visit www.pega.com.
Press contact:
Lisa Pintchman
VP, Corporate Communications
lisapintchman.rogers@pega.com
617-866-6022
Investor contact:
Peter Welburn
VP, Corporate Development & Investor Relations
PegaInvestorRelations@pega.com
617-498-8968
All trademarks are the property of their respective owners.
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) (2)
(in thousands, except per share amounts)
| Three Months Ended<br>December 31, | Year Ended<br>December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | 2025 | 2024 | |||||
| Revenue | ||||||||
| Subscription services | $ | 272,792 | $ | 230,895 | $ | 1,010,495 | $ | 882,038 |
| Subscription license | 178,215 | 207,113 | 507,368 | 401,869 | ||||
| Consulting | 53,310 | 52,822 | 227,949 | 213,273 | ||||
| Total revenue | 504,317 | 490,830 | 1,745,812 | 1,497,180 | ||||
| Cost of revenue | ||||||||
| Subscription services | 46,631 | 40,988 | 169,247 | 149,918 | ||||
| Subscription license | 316 | 389 | 1,382 | 1,905 | ||||
| Consulting | 56,518 | 60,978 | 250,753 | 238,842 | ||||
| Total cost of revenue | 103,465 | 102,355 | 421,382 | 390,665 | ||||
| Gross profit | 400,852 | 388,475 | 1,324,430 | 1,106,515 | ||||
| Operating expenses | ||||||||
| Selling and marketing | 153,308 | 139,655 | 578,637 | 534,780 | ||||
| Research and development | 80,855 | 76,379 | 312,681 | 298,074 | ||||
| General and administrative | 40,998 | 28,207 | 148,722 | 112,848 | ||||
| Litigation settlement, net of recoveries | 9,750 | — | 9,750 | 32,403 | ||||
| Restructuring | 11,578 | 1,245 | 11,540 | 4,528 | ||||
| Total operating expenses | 296,489 | 245,486 | 1,061,330 | 982,633 | ||||
| Income from operations | 104,363 | 142,989 | 263,100 | 123,882 | ||||
| Foreign currency transaction (loss) gain | (2,711) | 6,318 | (14,890) | (912) | ||||
| Interest income | 2,398 | 6,944 | 13,641 | 25,779 | ||||
| Interest expense | (113) | (1,788) | (1,285) | (6,835) | ||||
| (Loss) income on capped call transactions | — | 4 | (223) | (663) | ||||
| Other income (loss), net | 1,037 | (299) | 20,284 | 1,385 | ||||
| Income before (benefit from) provision for income taxes | 104,974 | 154,168 | 280,627 | 142,636 | ||||
| (Benefit from) provision for income taxes | (129,600) | 35,078 | (112,810) | 43,447 | ||||
| Net income | $ | 234,574 | $ | 119,090 | $ | 393,437 | $ | 99,189 |
| Earnings per share | ||||||||
| Basic | $ | 1.38 | $ | 0.69 | $ | 2.30 | $ | 0.58 |
| Diluted | $ | 1.27 | $ | 0.63 | $ | 2.13 | $ | 0.55 |
| Weighted-average number of common shares outstanding | ||||||||
| Basic | 170,001 | 172,000 | 170,782 | 170,530 | ||||
| Diluted | 184,165 | 191,272 | 184,790 | 179,268 |
(1) The number of common shares and per share amounts have been recast for all prior periods to reflect the effect of the Company’s two-for-one forward common stock split effected in the form of a stock dividend distributed on June 20, 2025.
(2) Perpetual license revenue and related cost of revenue have been combined within Subscription license revenue and cost of revenue for all periods presented.
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| December 31, 2025 | December 31, 2024 | |||
|---|---|---|---|---|
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 212,447 | $ | 337,103 |
| Marketable securities | 213,352 | 402,870 | ||
| Total cash, cash equivalents, and marketable securities | 425,799 | 739,973 | ||
| Accounts receivable, net | 264,713 | 305,468 | ||
| Unbilled receivables, net | 166,478 | 173,085 | ||
| Other current assets | 121,305 | 115,178 | ||
| Total current assets | 978,295 | 1,333,704 | ||
| Long-term unbilled receivables, net | 102,544 | 61,407 | ||
| Goodwill | 81,506 | 81,113 | ||
| Other long-term assets | 469,499 | 292,049 | ||
| Total assets | $ | 1,631,844 | $ | 1,768,273 |
| Liabilities and stockholders’ equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 12,924 | $ | 6,226 |
| Accrued expenses | 44,847 | 31,544 | ||
| Accrued compensation and related expenses | 148,797 | 138,042 | ||
| Deferred revenue | 509,275 | 423,910 | ||
| Convertible senior notes, net | — | 467,470 | ||
| Other current liabilities | 21,935 | 18,866 | ||
| Total current liabilities | 737,778 | 1,086,058 | ||
| Long-term operating lease liabilities | 60,825 | 67,647 | ||
| Other long-term liabilities | 45,860 | 29,088 | ||
| Total liabilities | 844,463 | 1,182,793 | ||
| Total stockholders’ equity | 787,381 | 585,480 | ||
| Total liabilities and stockholders’ equity | $ | 1,631,844 | $ | 1,768,273 |
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Year Ended<br>December 31, | ||||
|---|---|---|---|---|
| 2025 | 2024 | |||
| Net income | $ | 393,437 | $ | 99,189 |
| Adjustments to reconcile net income to cash provided by operating activities | ||||
| Non-cash items | 72,362 | 227,582 | ||
| Change in operating assets and liabilities, net | 39,428 | 19,155 | ||
| Cash provided by operating activities | 505,227 | 345,926 | ||
| Cash provided by (used in) investing activities | 197,246 | (202,576) | ||
| Cash (used in) financing activities | (834,630) | (30,214) | ||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 6,988 | (4,434) | ||
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (125,169) | 108,702 | ||
| Cash, cash equivalents, and restricted cash, beginning of period | 341,529 | 232,827 | ||
| Cash, cash equivalents, and restricted cash, end of period | $ | 216,360 | $ | 341,529 |
PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES (1)
(in thousands, except percentages and per share amounts)
| Three Months Ended<br>December 31, | Year Ended<br>December 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | Change | 2025 | 2024 | Change | |||||||||||||
| Net income - GAAP | $ | 234,574 | $ | 119,090 | 97 | % | $ | 393,437 | $ | 99,189 | 297 | % | ||||||
| Stock-based compensation (2) | 34,043 | 34,500 | 155,239 | 142,718 | ||||||||||||||
| Restructuring | 11,578 | 1,245 | 11,540 | 4,528 | ||||||||||||||
| Legal fees | 16,174 | 4,499 | 39,151 | 18,713 | ||||||||||||||
| Litigation settlement, net of recoveries | 9,750 | — | 9,750 | 32,403 | ||||||||||||||
| Amortization of intangible assets | 627 | 700 | 2,630 | 3,153 | ||||||||||||||
| Interest on convertible senior notes | — | 594 | 394 | 2,451 | ||||||||||||||
| Capped call transactions | — | (4) | 223 | 663 | ||||||||||||||
| Repurchases of convertible senior notes | — | (459) | — | (459) | ||||||||||||||
| Foreign currency transaction loss (gain) | 2,711 | (6,318) | 14,890 | 912 | ||||||||||||||
| Other | (941) | 759 | (20,327) | (869) | ||||||||||||||
| Income taxes (3) | (168,962) | (6,653) | (221,516) | (32,860) | ||||||||||||||
| Net income - non-GAAP | $ | 139,554 | $ | 147,953 | (6) | % | $ | 385,411 | $ | 270,542 | 42 | % | ||||||
| Diluted earnings per share - GAAP | $ | 1.27 | $ | 0.63 | 102 | % | $ | 2.13 | $ | 0.55 | 287 | % | ||||||
| non-GAAP adjustments | (0.51) | 0.17 | (0.03) | 0.96 | ||||||||||||||
| Diluted earnings per share - non-GAAP | $ | 0.76 | $ | 0.80 | (5) | % | $ | 2.10 | $ | 1.51 | 39 | % | ||||||
| Diluted weighted-average number of common shares outstanding - GAAP | 184,165 | 191,272 | (4) | % | 184,790 | 179,268 | 3 | % | ||||||||||
| Capped call transactions | — | (7,106) | (1,196) | (428) | ||||||||||||||
| Diluted weighted-average number of common shares outstanding - non-GAAP | 184,165 | 184,166 | — | % | 183,594 | 178,840 | 3 | % |
Our non-GAAP financial measures reflect the following adjustments:
•Stock-based compensation: We have excluded stock-based compensation from our non-GAAP operating expenses and profitability measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to our revenues recognized during the periods presented and is expected to contribute to our future revenues, we continue to evaluate our business performance, excluding stock-based compensation.
•Restructuring: We have excluded restructuring from our non-GAAP financial measures. Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as these amounts are not representative of our core business operations and ongoing operational performance.
•Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance.
•Litigation settlement, net of recoveries: Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See "Note 20. Commitments And Contingencies" in Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 2025 and prior filings for further information. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance.
•Amortization of intangible assets: We have excluded the amortization of intangible assets from our non-GAAP operating expenses and profitability measures. Amortization of intangible assets fluctuates in amount and frequency and is significantly affected by the timing and size of acquisitions. Investors should note that intangible assets contributed to our revenues recognized during the periods presented and are expected to contribute to future revenues. Amortization of intangible assets is likely to recur in future periods. We believe excluding these amounts provides a useful comparison of our operational performance in different periods.
•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. We believe that excluding the amortization of issuance costs provides a useful comparison of our operational performance in different periods.
•Capped call transactions: We have excluded gains and losses related to our capped call transactions held at fair value under U.S. GAAP. The capped call transactions were expected to reduce common stock dilution and/or offset any potential cash payments we must make, other than for principal and interest, upon conversion of the Notes. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance.
• Repurchases of convertible senior notes: We have excluded gains from the repurchases of the Notes. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance.
•Foreign currency transaction loss (gain): We have excluded foreign currency transaction gains and losses from our non-GAAP profitability measures. Foreign currency transaction gains and losses fluctuate in amount and frequency and are significantly affected by foreign exchange market rates. Foreign currency transaction gains and losses are likely to recur in future periods. We believe excluding these amounts provides a useful comparison of our operational performance in different periods.
•Other: We have excluded gains and losses from our venture investments. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance.
•Diluted weighted-average number of common shares outstanding:
•Capped call transactions: In periods of GAAP net income, the shares calculated by applying the if-converted method related to the Company’s Notes are included in the diluted weighted-average shares outstanding if they are dilutive. The capped call transactions were expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes. We believe that including the expected impact of the capped call transactions in our non-GAAP financial measures provides a useful comparison of our operational performance in different periods.
(1) Per share amounts have been recast for all prior periods to reflect the effect of the Company’s two-for-one forward common stock split effected in the form of a stock dividend distributed on June 20, 2025.
(2) Stock-based compensation:
| Three Months Ended<br>December 31, | Year Ended<br>December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2025 | 2024 | 2025 | 2024 | ||||
| Cost of revenue | $ | 4,909 | $ | 6,795 | $ | 26,646 | $ | 27,353 |
| Selling and marketing | 15,553 | 13,463 | 60,721 | 55,084 | ||||
| Research and development | 7,895 | 7,059 | 31,684 | 29,838 | ||||
| General and administrative | 5,686 | 7,183 | 36,188 | 30,443 | ||||
| $ | 34,043 | $ | 34,500 | $ | 155,239 | $ | 142,718 | |
| Income tax benefit | $ | (6,417) | $ | (422) | $ | (31,043) | $ | (1,799) |
(3) Effective income tax rates:
| Year Ended<br>December 31, | ||||
|---|---|---|---|---|
| 2025 | 2024 | |||
| GAAP | (40) | % | 30 | % |
| non-GAAP | 22 | % | 22 | % |
Our GAAP effective income tax rate is subject to significant fluctuations due to several factors, including our stock-based compensation plans, research and development tax credits, and the valuation allowance on our deferred tax assets in the U.S. and U.K. We determine our non-GAAP income tax rate using applicable rates in taxing jurisdictions and assessing certain factors, including historical and forecasted earnings by jurisdiction, discrete items, and ability to realize tax assets. Under GAAP we recorded a release of our valuation allowance on our net deferred tax assets in the U.S. federal and state and U.K during the fourth quarter of 2025, resulting in a $175 million non‑cash tax benefit. See "Note 18. Income Taxes" in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2025 for additional information. We believe it is beneficial for our management to review our non-GAAP results consistent with our annual plan’s effective income tax rate as established at the beginning of each year, given tax rate volatility.
PEGASYSTEMS INC.
RECONCILIATION OF FREE CASH FLOW (1) AND OTHER METRICS
(in thousands, except percentages)
| Year Ended<br>December 31, | Change | |||||||
|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | |||||||
| Cash provided by operating activities | $ | 505,227 | 345,926 | 46 | % | |||
| Investment in property and equipment | (14,504) | (7,712) | ||||||
| Free cash flow (1) | $ | 490,723 | $ | 338,214 | 45 | % | ||
| Supplemental information (2) | ||||||||
| Litigation settlement, net of recoveries | $ | — | $ | 32,403 | ||||
| Legal fees | 35,484 | 16,197 | ||||||
| Restructuring | 2,056 | 5,252 | ||||||
| Interest paid on convertible senior notes | 1,754 | 3,810 | ||||||
| Income taxes, net of refunds | 21,630 | 82,317 | ||||||
| $ | 60,924 | $ | 139,979 |
(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 discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance.
•Litigation settlement, net of recoveries: Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See "Note 20. Commitments And Contingencies" in Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 2025 and prior filings 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 paid on convertible senior notes: In February 2020, we issued 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.
•Income taxes, net of refunds: Direct income taxes paid net of refunds received.
PEGASYSTEMS INC.
ANNUAL CONTRACT VALUE
(in thousands, except percentages)
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.
| December 31, 2025 | December 31, 2024 | Change | Constant Currency Change | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Pega Cloud | $ | 866,612 | $ | 652,443 | $ | 214,169 | 33 | % | 28 | % |
| Maintenance | 288,873 | 291,807 | (2,934) | (1) | % | (4) | % | |||
| Subscription services | 1,155,485 | 944,250 | 211,235 | 22 | % | 18 | % | |||
| Subscription license | 452,902 | 427,268 | 25,634 | 6 | % | 4 | % | |||
| $ | 1,608,387 | $ | 1,371,518 | $ | 236,869 | 17 | % | 14 | % |
PEGASYSTEMS INC.
BACKLOG
(in thousands, except percentages)
Remaining performance obligations (“Backlog”) - Expected future revenue from existing non-cancellable contracts:
As of December 31, 2025:
| Subscription services | Subscription license | Consulting | Total | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pega Cloud | Maintenance | ||||||||||||||||||
| 1 year or less | $ | 709,190 | $ | 235,152 | $ | 77,528 | $ | 53,353 | $ | 1,075,223 | 52 | % | |||||||
| 1-2 years | 400,926 | 73,895 | 2,636 | 854 | 478,311 | 23 | % | ||||||||||||
| 2-3 years | 213,259 | 51,327 | 2,101 | 28 | 266,715 | 13 | % | ||||||||||||
| Greater than 3 years | 214,189 | 32,325 | 7,331 | 88 | 253,933 | 12 | % | ||||||||||||
| $ | 1,537,564 | $ | 392,699 | $ | 89,596 | $ | 54,323 | $ | 2,074,182 | 100 | % | ||||||||
| % of Total | 74 | % | 19 | % | 4 | % | 3 | % | 100 | % | |||||||||
| Change since December 31, 2024 | |||||||||||||||||||
| $ | 410,405 | $ | 51,839 | $ | (11,886) | $ | 332 | $ | 450,690 | ||||||||||
| 36 | % | 15 | % | (12) | % | 1 | % | 28 | % |
As of December 31, 2024:
| Subscription services | Subscription license | Consulting | Total | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pega Cloud | Maintenance | ||||||||||||||||||
| 1 year or less | $ | 525,133 | $ | 230,866 | $ | 89,197 | $ | 50,519 | $ | 895,715 | 56 | % | |||||||
| 1-2 years | 328,234 | 65,461 | 10,874 | 3,297 | 407,866 | 25 | % | ||||||||||||
| 2-3 years | 159,536 | 24,598 | 733 | 125 | 184,992 | 11 | % | ||||||||||||
| Greater than 3 years | 114,256 | 19,935 | 678 | 50 | 134,919 | 8 | % | ||||||||||||
| $ | 1,127,159 | $ | 340,860 | $ | 101,482 | $ | 53,991 | $ | 1,623,492 | 100 | % | ||||||||
| % of Total | 70 | % | 21 | % | 6 | % | 3 | % | 100 | % |
PEGASYSTEMS INC.
RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG
(in millions, except percentages)
| December 31, 2024 | December 31, 2025 | 1 Year Growth Rate | ||||
|---|---|---|---|---|---|---|
| Backlog - GAAP | $ | 1,623 | $ | 2,074 | 28 | % |
| Impact of changes in foreign exchange rates | — | (80) | ||||
| Constant currency backlog | $ | 1,623 | $ | 1,994 | 23 | % |
Note: Constant currency backlog is calculated by applying the December 31, 2024 foreign exchange rates to current period shown.
PEGASYSTEMS INC.
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
(in millions, except percentages and per share amounts)
| 2026 | |||
|---|---|---|---|
| Annual contract value growth | 15 | % | |
| Revenue (GAAP and Non-GAAP) | $ | 2,000 | |
| Net Income - GAAP | $ | 344 | |
| Stock-based compensation | 158 | ||
| Legal fees | 30 | ||
| Incomes taxes | (26) | ||
| Net Income - Non-GAAP | $ | 506 | |
| Diluted earnings per share - GAAP | $ | 1.87 | |
| Non-GAAP adjustments | 0.88 | ||
| Diluted earnings per share - non-GAAP | $ | 2.75 | |
| Diluted weighted-average number of common shares outstanding - GAAP | 184 | ||
| 2026 | |||
| --- | --- | --- | |
| Cash provided by operating activities | $ | 595 | |
| Investment in property and equipment | (20) | ||
| Free cash flow | $ | 575 | |
| Supplemental information | |||
| Legal fees | $ | 30 | |
| Restructuring | 12 | ||
| Litigation settlement, net of recoveries | 10 | ||
| Income taxes (1) | 63 | ||
| $ | 115 |
(1) Evolving U.S. tax legislation may impact the amount of tax payments.
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