Pegasystems Inc 8-K, filed Oct 20, 2026
Pegasystems Inc (PEGA)
8-K
2026-10-20
For: 2026-10-20
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Added on
October 21, 2026
About this 8-K
Pegasystems Inc filed this 8-K on October 20, 2026.
Pega reported that Pega Cloud ACV grew 20% in Q3 2026, total ACV grew 6% as reported and 7% in constant currency, and nine-month free cash flow declined 14%. Management warned ACV growth and cash generation may remain adversely affected. AI summary
Items reported
- Item 2.02: Financial results
- Item 9.01: Financial statements and exhibits
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): October 20, 2026
____________________
(Exact name of Registrant as specified in its charter)
_________________________________
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||
(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 | ||||||
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 October 20, 2026, Pegasystems Inc. issued a press release announcing its financial results for the third quarter of 2026. 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 9.01 FINANCIAL STATEMENTS AND EXHIBITS
| Exhibit No. | Description | |||||||
| 99.1 | ||||||||
| 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: | October 20, 2026 | By: | /s/ KENNETH STILLWELL | ||||||||
| Kenneth Stillwell | |||||||||||
| Chief Operating Officer and Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
EXHIBIT 99.1
Pega Cloud ACV Grows 20% in Q3 2026
•Cloud adoption continues to expand as Pega Cloud reaches 59% of total ACV in Q3
•Total ACV grows 6% as reported and 7% in constant currency year over year
•Company takes actions to accelerate growth and capitalize on AI market opportunity
WALTHAM, Mass. — October 20, 2026 — Pegasystems Inc. (NASDAQ: PEGA), the enterprise AI software company for mission-critical work, released its financial results for the third quarter of 2026.
"The AI market is still sorting itself out, but we’re confident in our long-term winning strategy to harness models like Claude, OpenAI GPT, and Gemini to help enterprises achieve predictable business outcomes at predictable costs while maintaining the governance, security, and control required for mission-critical operations,” said Alan Trefler, founder and CEO, Pega. "Our edge is decades of expertise in workflow automation and decisioning, enabling enterprises to scale AI with confidence, control, and economic efficiency.”
"While our ACV growth through the first three quarters of 2026 did not reflect the opportunity we see in the market, largely due to go-to-market execution challenges, our Q3 ACV add was the strongest of the year and reinforces our confidence in the demand for our solutions,” said Ken Stillwell, COO and CFO, Pega. “We are taking decisive actions to improve execution, accelerate growth, and keep us on track to deliver $700M or more of free cash flow in 2028.”
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EXHIBIT 99.1
(continued)
Financial and performance metrics (1)
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.
(1) Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures.
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EXHIBIT 99.1
(continued)
Cash Flow
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.
| (Dollars in thousands, except per share amounts) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||
| Total revenue | $ | 393,359 | $ | 381,350 | 3 | % | $ | 1,244,048 | $ | 1,241,495 | — | % | |||||||||||||||||||||||
| Net income - GAAP | $ | 14,092 | $ | 43,364 | (68) | % | $ | 60,190 | $ | 158,863 | (62) | % | |||||||||||||||||||||||
| Net income - non-GAAP | $ | 59,750 | $ | 55,164 | 8 | % | $ | 202,351 | $ | 245,857 | (18) | % | |||||||||||||||||||||||
| Diluted earnings per share - GAAP | $ | 0.08 | $ | 0.24 | (67) | % | $ | 0.35 | $ | 0.86 | (59) | % | |||||||||||||||||||||||
| Diluted earnings per share - non-GAAP | $ | 0.35 | $ | 0.30 | 17 | % | $ | 1.17 | $ | 1.34 | (13) | % | |||||||||||||||||||||||
| (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) | % | |||||||||||||||||||||||||||||||||||
Total revenue | $ | 393,359 | 100 | % | $ | 381,350 | 100 | % | $ | 12,009 | 3 | % | $ | 1,244,048 | 100 | % | $ | 1,241,495 | 100 | % | $ | 2,553 | — | % | |||||||||||||||||||||||||||||
Quarterly conference call
A conference call and audio-only webcast will be conducted at 8:00 a.m. EDT on Wednesday, October 21, 2026.
Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1 (833) 461-5787 (domestic) or 1 (626) 884-3620 (international) and using Conference ID 591038520, or via https://events.q4inc.com/attendee/591038520 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.
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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 statements about the growth and development of our business and market.
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 October 20, 2026.
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About Pegasystems
Pega delivers the platform to reimagine, run, and evolve the processes and decisions an enterprise can't afford to get wrong. We combine AI with proven architecture to keep mission-critical operations governed, scalable, and continuously adaptable. Since 1983, the world's largest organizations have trusted Pega to turn transformation ambition into durable results. Learn more at www.pega.com.
Press contact:
Ilena Ryan
Director of PR
ilena.ryan@pega.com
617-866-6722
Investor contact:
Peter Welburn
VP, Corporate Development & Investor Relations
PegaInvestorRelations@pega.com
617-498-8968
All trademarks are the property of their respective owners.
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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 | $ | 291,578 | $ | 264,198 | $ | 860,388 | $ | 737,703 | |||||||||||||||
| Subscription license | 55,578 | 60,758 | 232,458 | 329,153 | |||||||||||||||||||
| Consulting | 46,203 | 56,394 | 151,202 | 174,639 | |||||||||||||||||||
| Total revenue | 393,359 | 381,350 | 1,244,048 | 1,241,495 | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription services | 54,490 | 42,978 | 157,880 | 122,616 | |||||||||||||||||||
| Subscription license | 268 | 314 | 1,006 | 1,066 | |||||||||||||||||||
| Consulting | 49,088 | 62,601 | 159,743 | 194,235 | |||||||||||||||||||
| Total cost of revenue | 103,846 | 105,893 | 318,629 | 317,917 | |||||||||||||||||||
| Gross profit | 289,513 | 275,457 | 925,419 | 923,578 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Selling and marketing | 143,754 | 140,129 | 464,765 | 425,329 | |||||||||||||||||||
| Research and development | 74,311 | 78,756 | 240,526 | 231,826 | |||||||||||||||||||
| General and administrative | 38,612 | 42,108 | 130,925 | 107,724 | |||||||||||||||||||
| Litigation settlement | 16,000 | — | 16,000 | — | |||||||||||||||||||
| Restructuring | 1,975 | (5) | 4,557 | (38) | |||||||||||||||||||
| Total operating expenses | 274,652 | 260,988 | 856,773 | 764,841 | |||||||||||||||||||
| Income from operations | 14,861 | 14,469 | 68,646 | 158,737 | |||||||||||||||||||
| Foreign currency transaction gain (loss) | 589 | 7,154 | 1,075 | (12,179) | |||||||||||||||||||
| Interest income | 1,814 | 2,660 | 7,268 | 11,243 | |||||||||||||||||||
| Interest expense | (64) | (144) | (153) | (1,172) | |||||||||||||||||||
| (Loss) on capped call transactions | — | — | — | (223) | |||||||||||||||||||
| Other income (loss), net | 578 | (43) | (840) | 19,247 | |||||||||||||||||||
| Income before provision for (benefit from) income taxes | 17,778 | 24,096 | 75,996 | 175,653 | |||||||||||||||||||
| Provision for (benefit from) income taxes | 3,686 | (19,268) | 15,806 | 16,790 | |||||||||||||||||||
| Net income | $ | 14,092 | $ | 43,364 | $ | 60,190 | $ | 158,863 | |||||||||||||||
| Earnings per share | |||||||||||||||||||||||
| Basic | $ | 0.09 | $ | 0.25 | $ | 0.36 | $ | 0.93 | |||||||||||||||
| Diluted | $ | 0.08 | $ | 0.24 | $ | 0.35 | $ | 0.86 | |||||||||||||||
| Weighted-average number of common shares outstanding | |||||||||||||||||||||||
| Basic | 163,757 | 170,567 | 166,043 | 171,045 | |||||||||||||||||||
| Diluted | 168,642 | 184,095 | 173,064 | 185,005 | |||||||||||||||||||
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PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| September 30, 2026 | December 31, 2025 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 202,190 | $ | 212,447 | |||||||
| Marketable securities | 107,521 | 213,352 | |||||||||
| Total cash, cash equivalents, and marketable securities | 309,711 | 425,799 | |||||||||
| Accounts receivable, net | 130,121 | 264,713 | |||||||||
| Unbilled receivables, net | 151,240 | 166,478 | |||||||||
| Other current assets | 112,807 | 121,305 | |||||||||
| Total current assets | 703,879 | 978,295 | |||||||||
| Long-term unbilled receivables, net | 79,355 | 102,544 | |||||||||
| Goodwill | 81,270 | 81,506 | |||||||||
Long-term deferred income taxes | 172,493 | 175,472 | |||||||||
| Other long-term assets | 293,296 | 294,027 | |||||||||
| Total assets | $ | 1,330,293 | $ | 1,631,844 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 57,619 | $ | 12,924 | |||||||
| Accrued expenses | 77,067 | 44,847 | |||||||||
| Accrued compensation and related expenses | 91,609 | 148,797 | |||||||||
| Deferred revenue | 429,469 | 509,275 | |||||||||
| Other current liabilities | 23,231 | 21,935 | |||||||||
| Total current liabilities | 678,995 | 737,778 | |||||||||
| Long-term operating lease liabilities | 54,643 | 60,825 | |||||||||
| Other long-term liabilities | 47,594 | 45,860 | |||||||||
| Total liabilities | 781,232 | 844,463 | |||||||||
| Total stockholders’ equity | 549,061 | 787,381 | |||||||||
| Total liabilities and stockholders’ equity | $ | 1,330,293 | $ | 1,631,844 | |||||||
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Net income | $ | 60,190 | $ | 158,863 | |||||||
| Adjustments to reconcile net income to cash provided by operating activities | |||||||||||
| Non-cash items | 179,196 | 182,243 | |||||||||
| Change in operating assets and liabilities, net | 64,913 | 5,690 | |||||||||
| Cash provided by operating activities | 304,299 | 346,796 | |||||||||
| Cash provided by investing activities | 89,038 | 214,897 | |||||||||
| Cash (used in) 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) | |||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | 216,360 | 341,529 | |||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 205,037 | $ | 153,802 | |||||||
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PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES
(in thousands, except percentages and per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||
| Net income - GAAP | $ | 14,092 | $ | 43,364 | (68) | % | $ | 60,190 | $ | 158,863 | (62) | % | |||||||||||||||||||||||
Stock-based compensation (1) | 28,679 | 43,041 | 110,720 | 121,196 | |||||||||||||||||||||||||||||||
| Legal fees | 13,272 | 10,024 | 51,186 | 22,977 | |||||||||||||||||||||||||||||||
| Litigation settlement | 16,000 | — | 16,000 | — | |||||||||||||||||||||||||||||||
| Amortization of intangible assets | 238 | 627 | 1,258 | 2,003 | |||||||||||||||||||||||||||||||
| Restructuring | 1,975 | (5) | 4,557 | (38) | |||||||||||||||||||||||||||||||
| Foreign currency transaction (gain) loss | (589) | (7,154) | (1,075) | 12,179 | |||||||||||||||||||||||||||||||
| Interest on convertible senior notes | — | — | — | 394 | |||||||||||||||||||||||||||||||
| Capped call transactions | — | — | — | 223 | |||||||||||||||||||||||||||||||
Other | (750) | 94 | 783 | (19,386) | |||||||||||||||||||||||||||||||
Income taxes (2) | (13,167) | (34,827) | (41,268) | (52,554) | |||||||||||||||||||||||||||||||
| Net income - non-GAAP | $ | 59,750 | $ | 55,164 | 8 | % | $ | 202,351 | $ | 245,857 | (18) | % | |||||||||||||||||||||||
| Diluted earnings per share - GAAP | $ | 0.08 | $ | 0.24 | (67) | % | $ | 0.35 | $ | 0.86 | (59) | % | |||||||||||||||||||||||
| non-GAAP adjustments | 0.27 | 0.06 | 0.82 | 0.48 | |||||||||||||||||||||||||||||||
| Diluted earnings per share - non-GAAP | $ | 0.35 | $ | 0.30 | 17 | % | $ | 1.17 | $ | 1.34 | (13) | % | |||||||||||||||||||||||
| Diluted weighted-average number of common shares outstanding - GAAP | 168,642 | 184,095 | (8) | % | 173,064 | 185,005 | (6) | % | |||||||||||||||||||||||||||
| Capped call transactions | — | — | — | (1,599) | |||||||||||||||||||||||||||||||
| Diluted weighted-average number of common shares outstanding - non-GAAP | 168,642 | 184,095 | (8) | % | 173,064 | 183,406 | (6) | % | |||||||||||||||||||||||||||
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.
•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: Cost to settle litigation arising from proceedings outside the ordinary course of business. See “Note 16. Commitments and Contingencies” in Item 1 of our Quarterly Report filing on Form 10-Q for the period ended September 30, 2026 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.
•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.
•Foreign currency transaction (gain) loss: 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.
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•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.
•Other: We have excluded gains and losses from our venture investments and other one-time, non-operating items. 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 our 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 we 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) Stock-based compensation:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(Dollars in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Cost of revenue | $ | 6,124 | $ | 6,626 | $ | 20,751 | $ | 21,737 | |||||||||||||||
| Selling and marketing | 9,499 | 15,009 | 42,509 | 45,168 | |||||||||||||||||||
| Research and development | 6,010 | 7,914 | 23,972 | 23,789 | |||||||||||||||||||
| General and administrative | 7,046 | 13,492 | 23,488 | 30,502 | |||||||||||||||||||
| $ | 28,679 | $ | 43,041 | $ | 110,720 | $ | 121,196 | ||||||||||||||||
| Income tax benefit | $ | (5,466) | $ | (547) | $ | (21,720) | $ | (1,700) | |||||||||||||||
(2) Effective income tax rates:
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| GAAP | 21 | % | 10 | % | |||||||
| 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. 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.
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PEGASYSTEMS INC.
RECONCILIATION OF FREE CASH FLOW (1) AND OTHER METRICS
(in thousands, except percentages)
| Nine Months Ended September 30, | Change | ||||||||||||||||
| 2026 | 2025 | ||||||||||||||||
| Cash provided by operating activities | $ | 304,299 | 346,796 | (12) | % | ||||||||||||
| Investment in property and equipment | (14,474) | (8,485) | |||||||||||||||
Free cash flow (1) | $ | 289,825 | $ | 338,311 | (14) | % | |||||||||||
Supplemental information (2) | |||||||||||||||||
| Litigation settlement | $ | 9,750 | $ | — | |||||||||||||
Legal fees | 32,864 | 15,022 | |||||||||||||||
| Restructuring | 15,442 | 1,681 | |||||||||||||||
| Interest paid on convertible senior notes | — | 1,754 | |||||||||||||||
| Other | (689) | — | |||||||||||||||
| Income taxes, net of refunds | 22,609 | 7,993 | |||||||||||||||
| $ | 79,976 | $ | 26,450 | ||||||||||||||
(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 our Quarterly Report filing on Form 10-Q for the period ended September 30, 2026 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.
•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.
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.
| September 30, 2026 | September 30, 2025 | Change | Constant Currency Change | |||||||||||||||||||||||
| Pega Cloud | $ | 975,991 | $ | 815,370 | $ | 160,621 | 20 | % | 20 | % | ||||||||||||||||
Maintenance | 261,321 | 296,955 | (35,634) | (12) | % | (12) | % | |||||||||||||||||||
Subscription services | 1,237,312 | 1,112,325 | 124,987 | 11 | % | 12 | % | |||||||||||||||||||
Subscription license | 415,997 | 444,601 | (28,604) | (6) | % | (6) | % | |||||||||||||||||||
| $ | 1,653,309 | $ | 1,556,926 | $ | 96,383 | 6 | % | 7 | % | |||||||||||||||||
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PEGASYSTEMS INC.
BACKLOG
(in thousands, except percentages)
Remaining performance obligations (“Backlog”) - Expected future revenue from existing non-cancellable contracts:
As of September 30, 2026:
| Subscription services | Subscription license | Consulting | Total | |||||||||||||||||||||||||||||
| Pega Cloud | Maintenance | |||||||||||||||||||||||||||||||
1 year or less | $ | 730,041 | $ | 180,906 | $ | 32,317 | $ | 42,205 | $ | 985,469 | 49 | % | ||||||||||||||||||||
1-2 years | 416,308 | 85,371 | 1,476 | 1,463 | 504,618 | 25 | % | |||||||||||||||||||||||||
2-3 years | 233,510 | 46,416 | 7,348 | 574 | 287,848 | 14 | % | |||||||||||||||||||||||||
Greater than 3 years | 216,977 | 12,544 | 945 | 963 | 231,429 | 12 | % | |||||||||||||||||||||||||
| $ | 1,596,836 | $ | 325,237 | $ | 42,086 | $ | 45,205 | $ | 2,009,364 | 100 | % | |||||||||||||||||||||
| % of Total | 80 | % | 16 | % | 2 | % | 2 | % | 100 | % | ||||||||||||||||||||||
| Change since September 30, 2025 | ||||||||||||||||||||||||||||||||
| $ | 308,127 | $ | (35,197) | $ | (16,670) | $ | (1,422) | $ | 254,838 | |||||||||||||||||||||||
| 24 | % | (10) | % | (28) | % | (3) | % | 15 | % | |||||||||||||||||||||||
As of September 30, 2025:
| Subscription services | Subscription license | Consulting | Total | |||||||||||||||||||||||||||||
| Pega Cloud | Maintenance | |||||||||||||||||||||||||||||||
1 year or less | $ | 609,511 | $ | 199,651 | $ | 46,386 | $ | 43,979 | $ | 899,527 | 51 | % | ||||||||||||||||||||
1-2 years | 319,940 | 71,730 | 4,404 | 2,478 | 398,552 | 23 | % | |||||||||||||||||||||||||
2-3 years | 164,125 | 48,668 | 746 | 114 | 213,653 | 12 | % | |||||||||||||||||||||||||
Greater than 3 years | 195,133 | 40,385 | 7,220 | 56 | 242,794 | 14 | % | |||||||||||||||||||||||||
| $ | 1,288,709 | $ | 360,434 | $ | 58,756 | $ | 46,627 | $ | 1,754,526 | 100 | % | |||||||||||||||||||||
| % of Total | 73 | % | 21 | % | 3 | % | 3 | % | 100 | % | ||||||||||||||||||||||
PEGASYSTEMS INC.
RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG
(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 | % | |||||||||||
Note: Constant currency backlog is calculated by applying the September 30, 2025 foreign exchange rates to current period shown.
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