Pega Cloud ACV Grows 20% in Q3 2026

Cloud growth continued, while quarterly GAAP net income fell 68% and nine-month operating cash flow declined.

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• 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.--(BUSINESS WIRE)-- Pegasystems Inc. (NASDAQ: PEGA), the enterprise AI software company for mission-critical work, released its financial results for the third quarter of 2026.

Total ACV Growth chart for Pega's Q3 2026 earnings report.

"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.”

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.

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	)%

	Three Months Ended September 30,																Nine Months Ended September 30,
(Dollars in thousands)		2026					2025					Change						2026					2025					Change
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.

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.

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.

All trademarks are the property of their respective owners.

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

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

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.
• 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.

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	%

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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20261020404232/en/

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

Source: Pegasystems Inc.

Key Terms

constant currency financial

Constant currency is a way of measuring financial results that removes the effects of changes in currency exchange rates. It allows for a clearer comparison of a company's performance over time by showing what the numbers would look like if exchange rates had stayed the same. This helps investors understand whether growth comes from actual business improvements or just currency fluctuations.

non-gaap financial

Non-GAAP refers to financial measures that companies use to show their earnings or performance without including certain expenses or income that are often added back to give a different picture. It matters because it can make a company's results look better or more favorable, but it may also hide important costs, so investors need to look at both GAAP (official rules) and non-GAAP numbers to get a full understanding.

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convertible senior notes financial

Convertible senior notes are a type of loan that a company issues to investors, which can be turned into company shares later on. They are called "senior" because they are paid back before other debts if the company runs into trouble. This allows investors to earn interest like a loan but also have the chance to own part of the company if its value rises.

capped call transactions financial

Capped call transactions are agreements where investors buy options that give them the chance to benefit if a stock's price goes up, but with a limit on how much they can gain. This helps protect them from paying too much if the stock's price rises a lot, similar to having a maximum limit on a reward. They matter because they help investors manage risk while still allowing some upside potential.