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Pegasystems (NASDAQ: PEGA) Q2 revenue up 9% as GAAP profit drops

Filing Impact
(High)
Filing Sentiment
(Neutral)
Form Type
8-K

Rhea-AI Filing Summary

Pegasystems Inc. reported second-quarter 2026 results with total revenue of $420.7M, up 9% year over year. Subscription revenue contributed 88% of total, driven by Pega Cloud revenue of $213.9M, up 28%. However, GAAP net income declined to $13.3M from $30.1M, while non-GAAP net income rose to $59.5M, up 19%, reflecting higher adjustments including legal fees and stock-based compensation.

For the first half of 2026, revenue was $850.7M, slightly below 2025, but cash flow from operations reached $298.2M and free cash flow $288.3M, both modestly higher. Management highlighted “record first-half cash flow” and significant capital returned to shareholders, consistent with $349.0M of cash used in financing activities. Pega Cloud Annual Contract Value grew 22% to $926.3M, and total ACV increased 7%, while backlog rose 10% to $2.0B. The company noted that unprecedented changes in the AI market have caused clients to delay purchasing decisions, significantly slowing ACV growth in 2026 and potentially pressuring growth for the rest of the year.

Positive

  • Pega Cloud ACV and revenue grow strongly – Pega Cloud Annual Contract Value rose 22% year over year to $926.3M, and Pega Cloud revenue increased 28% in Q2 2026, indicating continued momentum in the company’s cloud transition.
  • Record first-half cash flow and higher backlog – Cash from operations reached $298.2M and free cash flow $288.3M in the first half of 2026, while backlog increased 10% year over year to $2.02B, supporting future revenue visibility.

Negative

  • Sharp decline in GAAP profitability – Q2 2026 GAAP net income fell to $13.3M, a 56% decrease from the prior-year quarter, and first-half GAAP net income declined 60%, reflecting higher operating costs and other adjustments.
  • Management warns of ACV growth slowdown – The company states that unprecedented AI market changes have led clients to delay purchasing decisions, significantly slowing ACV growth in the first half of 2026 and potentially adversely affecting growth for the rest of the year.

Filing Explained

At June 30, cash, securities, and stockholders’ equity were below December 31 levels, alongside completed second-quarter results.

The company reports completed second-quarter results in the July 21, 2026 8-K; at June 30, 2026, cash, cash equivalents, and marketable securities were $361,907 thousand, down from $425,799 thousand at December 31, 2025, while stockholders’ equity was $560,384 thousand versus $787,381 thousand.

As an Item 2.02 results-of-operations and financial-condition report, the 8-K records the company’s completed release of those results.

The filing identifies a July 22, 2026 conference call and webcast as the next named milestone for management discussion and questions.

Item 2.02 Results of Operations and Financial Condition Financial
Disclosure of earnings results, typically an earnings press release or preliminary financials.
Item 9.01 Financial Statements and Exhibits Exhibits
Financial statements, pro forma financial information, and exhibit attachments filed with this report.
Q2 2026 Total Revenue $420,716 (dollars in thousands) Three months ended June 30, 2026, up 9% year over year
Q2 2026 GAAP Net Income $13,334 (dollars in thousands) Down 56% compared with Q2 2025
Q2 2026 non-GAAP Net Income $59,533 (dollars in thousands) Up 19% compared with Q2 2025
H1 2026 Cash from Operations $298,225 (dollars in thousands) Six months ended June 30, 2026
H1 2026 Free Cash Flow $288,258 (dollars in thousands) Defined as operating cash flow less capital expenditures; up 1% year over year
Pega Cloud ACV $926,290 (dollars in thousands) As of June 30, 2026; 22% year-over-year increase
Total Backlog (GAAP) $2,019 (millions) Remaining performance obligations as of June 30, 2026; 10% growth vs prior year
Total Assets $1,384,043 (dollars in thousands) Balance sheet total assets as of June 30, 2026
Annual contract value financial
"Annual contract value (“ACV”) - ACV represents the annualized value of our active contracts"
Annual contract value is the amount of revenue a company expects from a single customer contract over a 12‑month period, adjusted when contracts span shorter or longer terms. Investors treat it like the annual “rent” from a subscription: it makes different deals comparable, helps forecast predictable revenue, and highlights whether customer accounts are becoming more or less valuable — useful for judging growth, stability, and churn risk.
Remaining performance obligations financial
"Remaining performance obligations (“Backlog”) - Expected future revenue from existing non-cancellable contracts"
Remaining performance obligations are the work a company still needs to complete for its customers, like finishing a service or delivering a product. It’s important because it shows how much future income the company has coming in from current agreements, giving a clearer picture of its ongoing business.
Free cash flow financial
"Our non-GAAP free cash flow is defined as cash provided by operating activities less investment in property and equipment"
Free cash flow is the amount of money a company has left over after paying all its expenses and investing in its business, like buying equipment or updating facilities. It shows how much cash is available to reward shareholders, pay down debt, or save for future growth. This helps investors understand if a company is financially healthy and able to grow.
Convertible senior notes financial
"In February 2020, we issued convertible senior notes (the “Notes”), due March 1, 2025"
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
"We have excluded gains and losses related to our capped call transactions held at fair value"
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.
Q2 2026 Total Revenue $420,716 (dollars in thousands) 9% increase vs Q2 2025
Q2 2026 GAAP Net Income $13,334 (dollars in thousands) 56% decrease vs Q2 2025
Q2 2026 non-GAAP Net Income $59,533 (dollars in thousands) 19% increase vs Q2 2025
H1 2026 Free Cash Flow $288,258 (dollars in thousands) 1% increase vs H1 2025
Pega Cloud ACV $926,290 (dollars in thousands) 22% increase vs June 30, 2025

AI-generated analysis. How Rhea-AI works. Not financial advice.

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FAQ

How did Pegasystems (PEGA) perform financially in Q2 2026?
Pegasystems reported Q2 2026 revenue of $420.7M, up 9% year over year. GAAP net income declined to $13.3M from $30.1M, while non-GAAP net income increased 19% to $59.5M, reflecting higher adjustments such as stock-based compensation and legal fees.

What were Pegasystems’ (PEGA) cash flow and free cash flow in the first half of 2026?
For the six months ended June 30, 2026, Pegasystems generated cash from operations of $298.2M. After $10.0M of property and equipment investment, free cash flow was $288.3M, slightly above $286.5M in the prior-year period, which management described as record first-half cash flow.

How is Pegasystems’ (PEGA) cloud business performing in 2026?
Pega Cloud revenue reached $213.9M in Q2 2026, up 28% year over year, and first-half Pega Cloud revenue was $419.0M, up 32%. Pega Cloud Annual Contract Value increased 22% to $926.3M, contributing to total subscription services ACV of $1.20B.

What happened to Pegasystems’ (PEGA) Annual Contract Value (ACV) growth?
Total ACV increased from $1.51B to $1.62B, a 7% year-over-year rise (8% in constant currency). However, Pegasystems noted that unprecedented AI market changes caused clients to delay purchases, significantly slowing ACV growth in the first half of 2026 versus last year.

How large is Pegasystems’ (PEGA) backlog and what does it include?
Backlog, defined as remaining performance obligations from existing non‑cancellable contracts, totaled $2.02B as of June 30, 2026, up 10% year over year. Subscription services represented 77% of backlog, with most expected to convert to revenue within three years.

How did GAAP vs non-GAAP earnings differ for Pegasystems (PEGA) in Q2 2026?
In Q2 2026, GAAP diluted EPS was $0.08, down from $0.17, while non-GAAP diluted EPS rose to $0.35 from $0.28. The non-GAAP figures exclude items such as $36.2M of stock-based compensation and $18.0M of legal fees.

What capital allocation actions did Pegasystems (PEGA) take in the first half of 2026?
Pegasystems reported cash used in financing activities of $349.0M in the first half of 2026. Management stated the company "returned substantial capital to shareholders," which aligns with this sizable financing outflow compared with $646.3M used in the prior-year period.
false000101385700010138572026-07-212026-07-21

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): July 21, 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 classTrading symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value per sharePEGANASDAQ 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 July 21, 2026, Pegasystems Inc. issued a press release announcing its financial results for the second 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
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:July 21, 2026By:/s/ KENNETH STILLWELL
Kenneth Stillwell
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)


EXHIBIT 99.1
q42019pegalogo.jpg

Pega Drives Cash Flow and Releases AI Innovation in Q2 2026
•Pega Cloud Annual Contract Value (ACV) increases 22% year over year
•ACV grows 7% year over year (8% in constant currency)
•Cash flow from operations and free cash flow both exceed $285M in first half of 2026
•Clients react with enthusiasm to Pega’s ‘no per-token cost’

WALTHAM, Mass. — July 21, 2026 — Pegasystems Inc. (NASDAQ: PEGA), the Enterprise Transformation Company™, released its financial results for the second quarter of 2026.
"Pega Infinity™ 26 uniquely deploys the power of AI with predictable outcomes and predicable costs by applying agents at design time to optimize run-time token use,” said Alan Trefler, founder and CEO, Pega. "Letting language models do everything is risky and expensive, and using AI to write mountains of code creates significant barriers to the ongoing change that enterprise clients require. Pega structures business applications in a way that makes sense to business and IT to Build for Change®.”

"Pega generated record first-half cash flow and returned substantial capital to shareholders,” said Ken Stillwell, COO and CFO, Pega. “As the market shifts from AI experimentation to tokenomics and reliable business outcomes, that evolution plays directly to Pega’s strengths, and we remain confident in our strategy to capitalize on the opportunity ahead.”
1
EXHIBIT 99.1
(continued)
Financial and performance metrics (1)
chart-11c2229feab24971a25.jpg
Unprecedented changes in the AI market caused clients to delay their purchasing decisions. As a result, our ACV growth rate significantly slowed during the six months ended June 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)June 30, 2025June 30, 2026
1-Year Change
ACV$1,514$1,6207 %
Impact of changes in foreign exchange rates— 10 
Constant currency ACV
$1,514$1,6308 %
Note: Constant currency ACV is calculated by applying the June 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.
2
EXHIBIT 99.1
(continued)
Cash Flow Growth
chart-482910582f43486db4d.jpgchart-3140ad4534c94f3a822.jpg
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
June 30,		Six Months Ended
June 30,
20262025Change20262025Change
Total revenue$420,716 $384,512 9 %$850,689 $860,145 (1)%
Net income - GAAP$13,334 $30,077 (56)%$46,098 $115,499 (60)%
Net income - non-GAAP$59,533 $50,151 19 %$142,601 $190,693 (25)%
Diluted earnings per share - GAAP$0.08 $0.17 (53)%$0.26 $0.63 (59)%
Diluted earnings per share - non-GAAP$0.35 $0.28 25 %$0.81 $1.04 (22)%
(Dollars in thousands)Three Months Ended
June 30,		ChangeSix Months Ended
June 30,		Change
2026202520262025
Pega Cloud$213,934 51 %$166,743 43 %$47,191 28 %$418,965 49 %$317,866 37 %$101,099 32 %
Maintenance74,528 18 %79,271 21 %(4,743)(6)%149,845 18 %155,639 18 %(5,794)(4)%
Subscription services288,462 69 %246,014 64 %42,448 17 %568,810 67 %473,505 55 %95,305 20 %
Subscription license82,028 19 %80,674 21 %1,354 2 %176,880 21 %268,395 31 %(91,515)(34)%
Subscription370,490 88 %326,688 85 %43,802 13 %745,690 88 %741,900 86 %3,790 1 %
Consulting50,226 12 %57,824 15 %(7,598)(13)%104,999 12 %118,245 14 %(13,246)(11)%
Total revenue
$420,716 100 %$384,512 100 %$36,204 9 %$850,689 100 %$860,145 100 %$(9,456)(1)%
Quarterly conference call
A conference call and audio-only webcast will be conducted at 8:00 a.m. EDT on Wednesday, July 22, 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 421269211, or via https://events.q4inc.com/attendee/421269211 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.
3

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 July 21, 2026.
4

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.
5


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
June 30,		Six Months Ended
June 30,
2026202520262025
Revenue
Subscription services$288,462 $246,014 $568,810 $473,505 
Subscription license82,028 80,674 176,880 268,395 
Consulting50,226 57,824 104,999 118,245 
Total revenue420,716 384,512 850,689 860,145 
Cost of revenue
Subscription services53,941 41,510 103,390 79,638 
Subscription license267 364 738 752 
Consulting53,821 67,700 110,655 131,634 
Total cost of revenue108,029 109,574 214,783 212,024 
Gross profit312,687 274,938 635,906 648,121 
Operating expenses
Selling and marketing165,408 147,131 321,011 285,200 
Research and development84,168 78,784 166,215 153,070 
General and administrative43,740 31,788 92,313 65,616 
Restructuring2,735 (44)2,582 (33)
Total operating expenses296,051 257,659 582,121 503,853 
Income from operations16,636 17,279 53,785 144,268 
Foreign currency transaction (loss) gain(1,364)(14,008)486 (19,333)
Interest income2,500 3,248 5,454 8,583 
Interest expense(45)(1)(89)(1,028)
(Loss) on capped call transactions— — — (223)
Other income (loss), net786 18,729 (1,418)19,290 
Income before provision for (benefit from) income taxes18,513 25,247 58,218 151,557 
Provision for (benefit from) income taxes5,179 (4,830)12,120 36,058 
Net income$13,334 $30,077 $46,098 $115,499 
Earnings per share
Basic$0.08 $0.18 $0.28 $0.67 
Diluted$0.08 $0.17 $0.26 $0.63 
Weighted-average number of common shares outstanding
Basic165,613 170,776 167,206 171,287 
Diluted171,765 182,160 175,294 185,477 
6

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2026December 31, 2025
Assets
Current assets:
Cash and cash equivalents$185,110 $212,447 
Marketable securities176,797 213,352 
Total cash, cash equivalents, and marketable securities361,907 425,799 
Accounts receivable, net143,213 264,713 
Unbilled receivables, net154,029 166,478 
Other current assets102,559 121,305 
Total current assets761,708 978,295 
Long-term unbilled receivables, net77,947 102,544 
Goodwill81,265 81,506 
Long-term deferred income taxes
176,903 175,472 
Other long-term assets286,220 294,027 
Total assets$1,384,043 $1,631,844 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$52,964 $12,924 
Accrued expenses92,295 44,847 
Accrued compensation and related expenses87,583 148,797 
Deferred revenue462,532 509,275 
Other current liabilities23,886 21,935 
Total current liabilities719,260 737,778 
Long-term operating lease liabilities56,996 60,825 
Other long-term liabilities47,403 45,860 
Total liabilities823,659 844,463 
Total stockholders’ equity560,384 787,381 
Total liabilities and stockholders’ equity$1,384,043 $1,631,844 

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
20262025
Net income$46,098 $115,499 
Adjustments to reconcile net income to cash provided by operating activities
Non-cash items125,635 123,170 
Change in operating assets and liabilities, net126,492 51,827 
Cash provided by operating activities298,225 290,496 
Cash provided by investing activities25,832 212,995 
Cash (used in) financing activities(349,030)(646,316)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(2,299)7,407 
Net (decrease) in cash, cash equivalents, and restricted cash(27,272)(135,418)
Cash, cash equivalents, and restricted cash, beginning of period216,360 341,529 
Cash, cash equivalents, and restricted cash, end of period$189,088 $206,111 
7

PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES
(in thousands, except percentages and per share amounts)
Three Months Ended
June 30,		Six Months Ended
June 30,
20262025Change20262025Change
Net income - GAAP$13,334 $30,077 (56)%$46,098 $115,499 (60)%
Stock-based compensation (1)
36,226 36,730 82,041 78,155 
Legal fees17,950 6,409 37,914 12,953 
Amortization of intangible assets2376751,020 1,376 
Restructuring2,735 (44)2,582 (33)
Foreign currency transaction loss (gain)1,364 14,008 (486)19,333 
Interest on convertible senior notes— — — 394 
Capped call transactions— — — 223 
Other
(700)(18,729)1,533 (19,480)
Income taxes (2)
(11,613)(18,975)(28,101)(17,727)
Net income - non-GAAP$59,533 $50,151 19 %$142,601 $190,693 (25)%
Diluted earnings per share - GAAP$0.08 $0.17 (53)%$0.26 $0.63 (59)%
non-GAAP adjustments0.27 0.11 0.55 0.41 
Diluted earnings per share - non-GAAP$0.35 $0.28 25 %$0.81 $1.04 (22)%
Diluted weighted-average number of common shares outstanding - GAAP171,765 182,160 (6)%175,294 185,477 (5)%
Capped call transactions— — — (2,412)
Diluted weighted-average number of common shares outstanding - non-GAAP171,765 182,160 (6)%175,294 183,065 (4)%

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.
•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 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.
•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.
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•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
June 30,		Six Months Ended
June 30,
(Dollars in thousands)
2026202520262025
Cost of revenue$6,752 $7,288 $14,628 $15,111 
Selling and marketing14,555 14,378 33,009 30,159 
Research and development7,943 7,490 17,962 15,875 
General and administrative6,976 7,574 16,442 17,010 
$36,226 $36,730 $82,041 $78,155 
Income tax benefit$(7,091)$(566)$(16,255)$(1,153)
(2) Effective income tax rates:
Six Months Ended
June 30,
20262025
GAAP21 %24 %
non-GAAP22 %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)

Six Months Ended
June 30,
Change
20262025
Cash provided by operating activities$298,225 290,496 3 %
Investment in property and equipment(9,967)(4,015)
Free cash flow (1)
$288,258 $286,481 1 %
Supplemental information (2)
Legal fees
$9,188 $10,020 
Restructuring11,449 1,354 
Interest paid on convertible senior notes— 1,754 
Other(689)— 
Income taxes, net of refunds10,842 (702)
$30,790 $12,426 
(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.
•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.
June 30, 2026June 30, 2025Change
Constant Currency Change
Pega Cloud$926,290 $761,051 $165,239 22 %22 %
Maintenance
271,328 301,375 (30,047)(10)%(9)%
Subscription services
1,197,618 1,062,426 135,192 13 %13 %
Subscription license
422,316 451,591 (29,275)(6)%(6)%
$1,619,934 $1,514,017 $105,917 7 %8 %
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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 June 30, 2026:
Subscription servicesSubscription licenseConsultingTotal
Pega CloudMaintenance
1 year or less
$704,447 $198,492 $42,537 $47,220 $992,696 49 %
1-2 years
393,855 82,004 1,546 3,747 481,152 24 %
2-3 years
222,052 50,070 7,583 899 280,604 14 %
Greater than 3 years
241,679 20,480 958 1,062 264,179 13 %
$1,562,033 $351,046 $52,624 $52,928 $2,018,631 100 %
% of Total77 %17 %3 %3 %100 %
Change since June 30, 2025
$240,835 $(45,683)$(21,826)$9,976 $183,302 
18 %(12)%(29)%23 %10 %
As of June 30, 2025:
Subscription servicesSubscription licenseConsultingTotal
Pega CloudMaintenance
1 year or less
$603,683 $220,954 $62,222 $39,798 $926,657 51 %
1-2 years
334,586 79,345 4,262 2,846 421,039 23 %
2-3 years
172,513 49,587 746 252 223,098 12 %
Greater than 3 years
210,416 46,843 7,220 56 264,535 14 %
$1,321,198 $396,729 $74,450 $42,952 $1,835,329 100 %
% of Total72 %22 %4 %2 %100 %

PEGASYSTEMS INC.
RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG
(in millions, except percentages)
June 30, 2025June 30, 20261 Year Growth Rate
Backlog - GAAP$1,835 $2,019 10 %
Impact of changes in foreign exchange rates— 20 
Constant currency backlog
$1,835 $2,039 11 %
Note: Constant currency backlog is calculated by applying the June 30, 2025 foreign exchange rates to current period shown.

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Source: View Original Filing on SEC EDGAR

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