SEC Form 10-Q filed by Pegasystems Inc.

7/21/26 4:09:30 PM ET

$PEGA

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pega-20260630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

_____________________________________


☒			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2026


☐			Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-11859

____________________________

PEGASYSTEMS INC.

(Exact name of Registrant as specified in its charter)

____________________________


Massachusetts			04-2787865
(State or other jurisdiction of incorporation or organization)			(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)

____________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	PEGA	NASDAQ Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 164,404,945 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on July 13, 2026.

Table of Contents

PEGASYSTEMS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


			Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025			3
Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2026 and 2025			4
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2026 and 2025			5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2026 and 2025			6
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025			7
Notes to Unaudited Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			28

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			29
Item 1A. Risk Factors			29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			29
Item 5. Other Information			29
Item 6. Exhibits			29

Signatures			30

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
	June 30, 2026		December 31, 2025
Assets
Current assets:
Cash and cash equivalents	$	185,110	$	212,447
Marketable securities	176,797		213,352
Total cash, cash equivalents, and marketable securities	361,907		425,799
Accounts receivable, net	143,213		264,713
Unbilled receivables, net	154,029		166,478
Other current assets	102,559		121,305
Total current assets	761,708		978,295
Long-term unbilled receivables, net	77,947		102,544
Goodwill	81,265		81,506
Long-term deferred income taxes	176,903		175,472
Other long-term assets	286,220		294,027
Total assets	$	1,384,043	$	1,631,844
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	52,964	$	12,924
Accrued expenses	92,295		44,847
Accrued compensation and related expenses	87,583		148,797
Deferred revenue	462,532		509,275

Other current liabilities	23,886		21,935
Total current liabilities	719,260		737,778

Long-term operating lease liabilities	56,996		60,825
Other long-term liabilities	47,403		45,860
Total liabilities	823,659		844,463
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued	—		—
Common stock, 400,000 shares authorized; 164,358 and 170,347 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively	1,644		1,703
Additional paid-in capital	72,300		330,926
Retained earnings	499,493		463,389
Accumulated other comprehensive (loss)	(13,053)		(8,637)
Total stockholders’ equity	560,384		787,381
Total liabilities and stockholders’ equity	$	1,384,043	$	1,631,844

See notes to unaudited condensed consolidated financial statements.


PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
	Three Months Ended June 30,				Six Months Ended June 30,
	2026		2025		2026		2025
Revenue
Subscription services	$	288,462	$	246,014	$	568,810	$	473,505
Subscription license	82,028		80,674		176,880		268,395
Consulting	50,226		57,824		104,999		118,245
Total revenue	420,716		384,512		850,689		860,145
Cost of revenue
Subscription services	53,941		41,510		103,390		79,638
Subscription license	267		364		738		752
Consulting	53,821		67,700		110,655		131,634
Total cost of revenue	108,029		109,574		214,783		212,024
Gross profit	312,687		274,938		635,906		648,121
Operating expenses
Selling and marketing	165,408		147,131		321,011		285,200
Research and development	84,168		78,784		166,215		153,070
General and administrative	43,740		31,788		92,313		65,616

Restructuring	2,735		(44)		2,582		(33)
Total operating expenses	296,051		257,659		582,121		503,853
Income from operations	16,636		17,279		53,785		144,268
Foreign currency transaction (loss) gain	(1,364)		(14,008)		486		(19,333)
Interest income	2,500		3,248		5,454		8,583
Interest expense	(45)		(1)		(89)		(1,028)
(Loss) on capped call transactions	—		—		—		(223)
Other income (loss), net	786		18,729		(1,418)		19,290
Income before provision for (benefit from) income taxes	18,513		25,247		58,218		151,557
Provision for (benefit from) income taxes	5,179		(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
Basic	165,613		170,776		167,206		171,287
Diluted	171,765		182,160		175,294		185,477

See notes to unaudited condensed consolidated financial statements.


PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
	Three Months Ended June 30,				Six Months Ended June 30,
	2026		2025		2026		2025
Net income	$	13,334	$	30,077	$	46,098	$	115,499
Other comprehensive income (loss), net of tax
Unrealized (loss) gain on available-for-sale securities	(79)		184		(818)		(78)
Foreign currency translation adjustments	894		17,201		(3,598)		26,011
Total other comprehensive income (loss), net of tax	815		17,385		(4,416)		25,933
Comprehensive income	$	14,149	$	47,462	$	41,682	$	141,432

See notes to unaudited condensed consolidated financial statements.


PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except per share amounts)

	Common Stock			Additional paid-in capital		Retained earnings		Accumulated other comprehensive (loss)		Total stockholders’ equity
	Number of shares	Amount
December 31, 2024	172,224	$	1,722	$	526,102	$	87,901	$	(30,245)	$	585,480
Repurchase of common stock	(2,920)	(30)		(118,674)		—		—		(118,704)
Issuance of common stock for stock compensation plans	1,756	18		9,736		—		—		9,754
Issuance of common stock under the employee stock purchase plan	64	2		1,909		—		—		1,911
Stock-based compensation	—	—		41,425		—		—		41,425
Cash dividends declared ($0.015 per share)	—	—		—		(2,567)		—		(2,567)
Other comprehensive income	—	—		—		—		8,548		8,548
Net income	—	—		—		85,422		—		85,422
March 31, 2025	171,124	$	1,712	$	460,498	$	170,756	$	(21,697)	$	611,269
Repurchase of common stock	(3,147)	(31)		(132,454)		—		—		(132,485)
Issuance of common stock for stock compensation plans	3,086	30		64,876		—		—		64,906
Issuance of common stock under the employee stock purchase plan	39	—		1,816		—		—		1,816
Stock-based compensation	—	—		36,730		—		—		36,730
Cash dividends declared ($0.03 per share)	—	—		—		(5,156)		—		(5,156)
Other comprehensive income	—	—		—		—		17,385		17,385
Net income	—	—		—		30,077		—		30,077
June 30, 2025	171,102	$	1,711	$	431,466	$	195,677	$	(4,312)	$	624,542









December 31, 2025	170,347	$	1,703	$	330,926	$	463,389	$	(8,637)	$	787,381
Repurchase of common stock	(3,523)	(35)		(167,917)		—		—		(167,952)
Issuance of common stock for stock compensation plans	1,887	19		16,114		—		—		16,133
Issuance of common stock under the employee stock purchase plan	57	1		2,067		—		—		2,068
Stock-based compensation	—	—		45,815		—		—		45,815
Cash dividends declared ($0.03 per share)	—	—		—		(5,063)		—		(5,063)
Other comprehensive (loss)	—	—		—		—		(5,231)		(5,231)
Net income	—	—		—		32,764		—		32,764
March 31, 2026	168,768	$	1,688	$	227,005	$	491,090	$	(13,868)	$	705,915
Repurchase of common stock	(5,335)	(53)		(201,565)		—		—		(201,618)
Issuance of common stock for stock compensation plans	855	8		8,856		—		—		8,864
Issuance of common stock under the employee stock purchase plan	70	1		1,778		—		—		1,779
Stock-based compensation	—	—		36,226		—		—		36,226
Cash dividends declared ($0.03 per share)	—	—		—		(4,931)		—		(4,931)
Other comprehensive income	—	—		—		—		815		815
Net income	—	—		—		13,334		—		13,334
June 30, 2026	164,358	$	1,644	$	72,300	$	499,493	$	(13,053)	$	560,384

See notes to unaudited condensed consolidated financial statements.


PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
	Six Months Ended June 30,
	2026		2025
Operating activities
Net income	$	46,098	$	115,499
Adjustments to reconcile net income to cash provided by operating activities
Stock-based compensation	82,041		78,155
Amortization of deferred commissions	31,947		33,578
Amortization of intangible assets and depreciation	5,799		6,319
Amortization of right-of-use lease assets	6,889		5,803
Foreign currency transaction (gain) loss	(486)		19,333
Loss on capped call transactions	—		223
Deferred income taxes	(2,267)		282
(Accretion) of investments	(524)		(2,110)
Loss (gain) on investments	2,168		(19,480)

Other non-cash	68		1,067
Change in operating assets and liabilities, net	126,492		51,827
Cash provided by operating activities	298,225		290,496
Investing activities
Purchases of investments	(33,295)		(158,703)
Proceeds from maturities and called investments	52,415		345,166
Sales of investments	16,679		30,547

Investment in property and equipment	(9,967)		(4,015)
Cash provided by investing activities	25,832		212,995
Financing activities
Repurchases of convertible senior notes	—		(467,864)
Dividend payments to stockholders	(10,173)		(5,150)


Proceeds from employee stock plans	31,746		84,987
Common stock repurchases for tax withholdings for net settlement of equity awards	(2,902)		(6,600)
Common stock repurchases under stock repurchase program	(367,701)		(251,689)


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 period	216,360		341,529
Cash, cash equivalents, and restricted cash, end of period	$	189,088	$	206,111

Cash and cash equivalents	$	185,110	$	201,565
Restricted cash included in other current assets	2,448		—
Restricted cash included in other long-term assets	1,530		4,546
Total cash, cash equivalents, and restricted cash	$	189,088	$	206,111

Supplemental disclosures
Non-cash investing and financing activity:
Investment in property and equipment included in accounts payable and accrued liabilities	$	3,707	$	1,661
Dividends payable	$	4,931	$	5,156
Right of use assets obtained in exchange for operating lease obligations	$	2,664	$	3,077
U.S. excise tax payable on net stock repurchase	$	2,462	$	—

See notes to unaudited condensed consolidated financial statements.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by the generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2025.

In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.

All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented do not necessarily indicate the expected results for fiscal year 2026.

NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU “2024-03”). Among other items, the requirements include expanded disclosures around employee compensation and selling expenses. ASU 2024-03 will be effective for the Company for the year ending December 31, 2027. The Company is still evaluating the impact of this new guidance on its consolidated financial statements but expects the adoption to result in disclosure changes only.

Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”). ASU 2025-06 introduces a more principles-based framework to the capitalization of software intended for internal use focused on management’s authorization and commitment to fund a development project and the probability of whether the project will be completed and used for its intended function. ASU 2025-06 will be effective for the Company beginning January 1, 2028. The Company is currently evaluating the impact ASU 2025-06 will have on its consolidated financial statements.

NOTE 3. MARKETABLE SECURITIES


	June 30, 2026								December 31, 2025
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Government debt	$	1,003	$	—	$	(1)	$	1,002	$	5,755	$	3	$	(4)	$	5,754
Corporate debt	176,300		59		(564)		175,795		207,278		428		(108)		207,598
	$	177,303	$	59	$	(565)	$	176,797	$	213,033	$	431	$	(112)	$	213,352

As of June 30, 2026, marketable securities’ maturities ranged from July 2026 to June 2029, with a weighted-average remaining maturity of 2.0 years.

NOTE 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Receivables


(in thousands)	June 30, 2026		December 31, 2025
Accounts receivable, net	$	143,213	$	264,713
Unbilled receivables, net	154,029		166,478
Long-term unbilled receivables, net	77,947		102,544
	$	375,189	$	533,735

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unbilled receivables

Unbilled receivables are client-committed amounts for which revenue recognition precedes billing. Billing is solely subject to the passage of time.

Unbilled receivables by expected collection date:


(Dollars in thousands)	June 30, 2026
1 year or less	$	154,029	66	%
1-2 years	63,258		28	%
2-5 years	14,689		6	%
	$	231,976	100	%

Unbilled receivables by contract effective date:


(Dollars in thousands)	June 30, 2026
2026	$	56,216	24	%
2025	111,580		48	%
2024	36,610		16	%
2023	25,326		11	%
2022 and prior	2,244		1	%
	$	231,976	100	%

Contract assets

Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.


(in thousands)	June 30, 2026		December 31, 2025
Contract assets (1)	$	15,718	$	17,678
Long-term contract assets (2)	27,569		17,421
	$	43,287	$	35,099

(1) Included in other current assets.

(2) Included in other long-term assets.

Deferred revenue

Deferred revenue consists of billings made and payments received in advance of revenue recognition.


(in thousands)	June 30, 2026		December 31, 2025
Deferred revenue	$	462,532	$	509,275
Long-term deferred revenue (1)	5,905		9,568
	$	468,437	$	518,843

(1) Included in other long-term liabilities.

The change in deferred revenue during the six months ended June 30, 2026 was primarily due to new billings in advance of revenue recognition and $365.4 million of revenue recognized during the period included in deferred revenue as of December 31, 2025.

NOTE 5. DEFERRED COMMISSIONS


(in thousands)	June 30, 2026		December 31, 2025
Deferred commissions (1)	$	90,133	$	104,574

(1) Included in other long-term assets.


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2026		2025		2026		2025
Amortization of deferred commissions (1)	$	15,846	$	15,074	$	31,947	$	33,578

(1) Included in selling and marketing expenses.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6. GOODWILL


	Six Months Ended June 30,
(in thousands)	2026		2025
January 1,	$	81,506	$	81,113

Currency translation adjustments	(241)		425
June 30,	$	81,265	$	81,538

NOTE 7. OTHER ASSETS AND LIABILITIES

Other current assets


(in thousands)	June 30, 2026		December 31, 2025
Prepaid expenses	$	48,002	$	65,293
Income tax receivables	31,353		31,535
Contract assets	15,718		17,678
Restricted cash	2,448		1,577
Indirect tax receivable	2,135		2,172
Other	2,903		3,050
	$	102,559	$	121,305

Other long-term assets


(in thousands)	June 30, 2026		December 31, 2025

Deferred commissions	$	90,133	104,574
Right of use assets	56,161		60,574
Property and equipment	53,309		45,240
Contract assets	27,569		17,421
Venture investments	19,663		22,021
Income taxes receivable	15,734		15,459
Restricted cash	1,530		2,336
Intangible assets	1,410		1,202

Other	20,711		25,200
	$	286,220	$	294,027

Accrued expenses


(in thousands)	June 30, 2026		December 31, 2025
Outside professional services	$	35,182	$	15,233
Cloud hosting	20,013		1,064
Litigation settlements	9,750		9,750
Marketing and sales program	7,612		1,519
Income and other taxes	7,381		7,273
Employee related	5,890		5,464

Other	6,467		4,544
	$	92,295	$	44,847

Other current liabilities


(in thousands)	June 30, 2026		December 31, 2025
Operating lease liabilities	$	15,020	$	15,142
Dividends payable	4,931		5,110
Other	3,935		1,683
	$	23,886	$	21,935

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other long-term liabilities


(in thousands)	June 30, 2026		December 31, 2025
Income taxes payable	$	24,828	$	23,331
Deferred revenue	5,905		9,568
Other	16,670		12,961
	$	47,403	$	45,860

NOTE 8. SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and assess performance.

The Company derives substantially all of its revenue from the sale and support of one group of similar products and services – software that provides case management, business process management, and real-time decisioning solutions to improve customer engagement and operational excellence in the enterprise applications market. To assess performance, the Company’s CODM, the Chief Executive Officer, reviews financial information on a consolidated basis. Therefore, the Company determined it has one operating segment and one reportable segment. The accounting policies of the Company’s operating segment are the same as those described in "Note 2. Significant Accounting Policies" included in the Annual Report on Form 10-K for the year ended December 31, 2025. The CODM uses consolidated net income to set financial performance targets, assess performance, and make expense allocation decisions.


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2026		2025		2026		2025
Total revenue	$	420,716	$	384,512	$	850,689	$	860,145
Total cost of revenue	108,029		109,574		214,783		212,024
Selling	132,154		116,050		265,298		235,168
Marketing	33,254		31,081		55,713		50,032
Research and development	84,168		78,784		166,215		153,070
General and administrative	43,740		31,788		92,313		65,616
Other segment items, net (1)	858		(8,012)		(1,851)		(7,322)
Provision for (benefit from) income taxes	5,179		(4,830)		12,120		36,058
Net income	$	13,334	$	30,077	$	46,098	$	115,499

(1) Includes Restructuring, Foreign currency transaction (loss) gain, Interest income, Interest expense, (Loss) on capped call transactions, and Other income (loss), net.

Long-lived assets related to the Company’s U.S. and international operations consist of property and equipment, which are included in Other long-term assets in the Company’s consolidated balance sheet:


(in thousands)	June 30, 2026				December 31, 2025
U.S.	$	41,965	79	%	$	40,060	89	%
International	11,344		21	%	5,180		11	%
	$	53,309	100	%	$	45,240	100	%

NOTE 9. DEBT

Credit facility

In November 2019, and as since amended, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. Effective as of February 4, 2025, the Credit Facility was amended to extend the expiration date to February 4, 2027. The Company may use borrowings for general corporate purposes and to finance working capital needs. Subject to specific conditions and the agreement of the financial institutions lending the additional amount, the aggregate commitment may be increased to $200 million. The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. Beginning with the fiscal quarter ended March 31, 2024, the Company must maintain a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0. As of June 30, 2026, the Company is compliant with all Credit Facility covenants.

As of June 30, 2026 and December 31, 2025, the Company had letters of credit of $1.7 million and $26.7 million, respectively, under the Credit Facility, however we had no cash borrowings.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10. RESTRUCTURING

The Company has undertaken the following restructuring activities intended to better align roles and capacity to an AI-first delivery model:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2026		2025		2026		2025
Employee severance and related costs	$	2,735	$	(54)	$	2,582	$	(57)
Office space reductions (1)	—		10		—		24
Restructuring	$	2,735	$	(44)	$	2,582	$	(33)

(1) These primarily relate to non-cash operating lease adjustments.

Restructuring activity:

Accrued employee severance and related costs:


	Six Months Ended June 30,
(in thousands)	2026		2025
January 1,	$	12,858	$	2,000
Costs incurred	2,582		(57)
Cash disbursements	(11,449)		(1,354)
Currency translation adjustments	(15)		117
June 30, (1)	$	3,976	$	706

(1) Included in accrued compensation and related expenses.

NOTE 11. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

The Company records its cash equivalents, marketable securities, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.

As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:

•Level 1 - observable inputs, such as quoted prices in active markets for identical assets or liabilities;

•Level 2 - significant other inputs that are observable either directly or indirectly; and

•Level 3 - significant unobservable inputs with little or no market data, which require the Company to develop its own assumptions.

This hierarchy requires the Company to use observable market data when available and minimize unobservable inputs when determining fair value.

The Company’s venture investments are recorded at fair value based on multiple valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets and liabilities measured at fair value on a recurring basis:


	June 30, 2026								December 31, 2025
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents	$	7,060	$	1,494	$	—	$	8,554	$	33,043	$	8,463	$	—	$	41,506
Marketable securities	$	—	$	176,797	$	—	$	176,797	$	—	$	213,352	$	—	$	213,352

Venture investments	$	—	$	—	$	19,663	$	19,663	$	—	$	—	$	22,021	$	22,021

Changes in venture investments:


	Six Months Ended June 30,
(in thousands)	2026		2025
January 1,	$	22,021	$	21,234
New investments	—		11,529
Sales of investments	—		(33,223)
Changes in foreign exchange rates	(34)		166
Changes in fair value:
included in other income (loss), net	(2,059)		19,480
included in other comprehensive income	(265)		(535)
June 30,	$	19,663	$	18,651

The carrying value of certain financial instruments, including receivables and accounts payable, approximates fair value due to their short maturities.

NOTE 12. REVENUE

Geographic revenue

Revenues by geography are determined based on client location:


	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2026				2025				2026				2025
U.S.	$	196,292	47	%	$	208,116	54	%	$	415,547	49	%	$	477,308	56	%
Other Americas	27,148		6	%	19,632		5	%	66,407		8	%	53,373		6	%
United Kingdom (“U.K.”)	65,400		16	%	40,634		11	%	116,910		14	%	81,376		9	%
Europe (excluding U.K.), Middle East, and Africa	73,292		17	%	64,420		17	%	147,131		17	%	138,476		16	%
Asia-Pacific	58,584		14	%	51,710		13	%	104,694		12	%	109,612		13	%
	$	420,716	100	%	$	384,512	100	%	$	850,689	100	%	$	860,145	100	%

Revenue streams


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2026		2025		2026		2025
Pega Cloud	$	213,934	$	166,743	$	418,965	$	317,866
Maintenance	74,528		79,271		149,845		155,639
Consulting	50,226		57,824		104,999		118,245
Revenue recognized over time	338,688		303,838		673,809		591,750
Subscription license	82,028		80,674		176,880		268,395
Revenue recognized at a point in time	82,028		80,674		176,880		268,395
Total revenue	$	420,716	$	384,512	$	850,689	$	860,145

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2026		2025		2026		2025
Pega Cloud	$	213,934	$	166,743	$	418,965	$	317,866
Maintenance	74,528		79,271		149,845		155,639
Subscription services	288,462		246,014		568,810		473,505
Subscription license	82,028		80,674		176,880		268,395
Subscription	370,490		326,688		745,690		741,900
Consulting	50,226		57,824		104,999		118,245
Total revenue	$	420,716	$	384,512	$	850,689	$	860,145

Remaining performance obligations ("Backlog")

Expected future revenue from existing non-cancellable contracts:

As of June 30, 2026:


(Dollars in thousands)	Subscription services				Subscription license		Consulting		Total
	Pega Cloud		Maintenance
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	%

As of June 30, 2025:


(Dollars in thousands)	Subscription services				Subscription license		Consulting		Total
	Pega Cloud		Maintenance
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	%

NOTE 13. STOCKHOLDERS' EQUITY

Stock-based Compensation Expense


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2026		2025		2026		2025
Cost of revenue	$	6,752	$	7,288	$	14,628	$	15,111
Selling and marketing	14,555		14,378		33,009		30,159
Research and development	7,943		7,490		17,962		15,875
General and administrative	6,976		7,574		16,442		17,010
	$	36,226	$	36,730	$	82,041	$	78,155
Income tax benefit	$	(7,091)	$	(566)	$	(16,255)	$	(1,153)

As of June 30, 2026, the Company had $166.8 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.8 years.

Grants


	Six Months Ended June 30, 2026
(in thousands)	Quantity	Total Fair Value
Restricted stock units (1)	2,080	$	92,716
Non-qualified stock options	3,159	$	55,302
Performance stock options (2)	1,497	$	25,804

(1) Includes units issued when employees elect to receive 50% of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(2) Performance stock options allow the holder to purchase a specified number of Common Stock shares at an exercise price equal to or greater than the shares' fair market value at the grant date. Performance stock options granted in the six months ended June 30, 2026 vest on the second anniversary of the grant date, up to 200%, subject to the achievement of specified performance metrics over fiscal years 2026 and 2027. The options expire ten years from the grant date.

Stock repurchase program

On February 10, 2026, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2026 to June 30, 2027 and increased the authorized repurchase amount by $1 billion, of which $0.9 billion remains available as of June 30, 2026.

During the six months ended June 30, 2026, the Company repurchased 8.9 million shares of its common stock for $367.2 million at an average price per share of $41.46. The share repurchase and authorization amounts disclosed within this Form 10-Q exclude the U.S. excise tax on share repurchases. All purchases under this program have been made on the open market.

NOTE 14. INCOME TAXES

Effective income tax rate


	Six Months Ended June 30,
(Dollars in thousands)		2026			2025
Provision for (benefit from) income taxes		$	12,120		$	36,058
Effective income tax rate		21		%	24		%

The Company’s effective income tax rate decreased in the six months ended June 30, 2026 as compared to the prior period, primarily due to excess tax benefits from stock-based compensation recognized in the current period and the absence of a valuation allowance on substantially all of the Company’s U.S. and U.K. deferred tax assets.

NOTE 15. EARNINGS PER SHARE

Basic earnings per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and Convertible Senior Notes (the “Notes”), which were repaid in its entirety at maturity during the three months ended March 31, 2025.

Calculation of earnings per share:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2026		2025		2026		2025
Net income	$	13,334	$	30,077	$	46,098	$	115,499
Weighted-average common shares outstanding	165,613		170,776		167,206		171,287
Earnings per share, basic	$	0.08	$	0.18	$	0.28	$	0.67

Net income	$	13,334	$	30,077	$	46,098	$	115,499
Notes - interest expense, net of tax	—		—		—		742
Numerator for diluted EPS	$	13,334	$	30,077	$	46,098	$	116,241
Weighted-average effect of dilutive securities:
Notes	—		—		—		2,412
Stock options	4,118		8,190		5,581		8,400
RSUs	2,034		3,194		2,507		3,378
Effect of dilutive securities	6,152		11,384		8,088		14,190
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)	171,765		182,160		175,294		185,477
Earnings per share, diluted	$	0.08	$	0.17	$	0.26	$	0.63

Outstanding anti-dilutive stock options and RSUs (4)	200		502		284		373

(1) All securities are excluded when their inclusion would be anti-dilutive.

(2) The weighted-average shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period.

(3) In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions expired upon maturity of the Notes during the three months ended March 31, 2025. The Company’s Capped Call Transactions represented the equivalent number of shares of the Company’s common stock (representing the number of shares for which the Notes are convertible). The Capped Call Transactions are excluded from weighted-average common shares outstanding, assuming dilution, in all periods as their effect would be anti-dilutive.

(4) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted earnings per share. These awards may be dilutive in the future.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 16. COMMITMENTS AND CONTINGENCIES

Legal proceedings

In addition to the matters below, the Company is or may become involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s business, including actions concerning contracts, intellectual property, employment, benefits, and securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.

In addition, as the Company is a party to ongoing litigation, it is at least reasonably possible that the Company’s estimates will change in the near term, and the effect may be material. As of June 30, 2026 and December 31, 2025, the Company recorded an estimated $9.75 million accrued loss related to the agreed in principle settlement of the In re Pegasystems Inc. Derivative Litigation matter, see additional discussion below.

Appian Corp. v. Pegasystems Inc. & Youyong Zou

The Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia titled Appian Corp. v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). On May 9, 2022, the jury rendered its verdict finding that the Company had misappropriated one or more of Appian’s trade secrets, that the Company had violated the Virginia Computer Crimes Act, and that the trade secret misappropriation was willful and malicious. The jury awarded damages of $2,036,860,045 for trade secret misappropriation and $1.00 for violating the Virginia Computer Crimes Act. On September 15, 2022, the circuit court of Fairfax County entered judgment of $2,060,479,287, consisting of the damages previously awarded by the jury plus attorneys’ fees and costs, and stating that the judgment is subject to post-judgment interest at a rate of 6.0% per annum, from the date of the jury verdict (May 9, 2022) as to the amount of the jury verdict and from September 15, 2022 as to the amount of the award of attorneys’ fees and costs.

On September 15, 2022, the Company filed a notice of appeal from the Virginia Uniform Trade Secrets Act judgment. On September 29, 2022, the circuit court of Fairfax County approved a $25,000,000 letter of credit obtained by the Company to secure the judgment and entered an order suspending the judgment during the pendency of the Company’s appeal. A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and issued a written opinion on July 30, 2024. The Court of Appeals reversed the judgment and ordered a new trade secrets claim trial. Appian filed a petition for appeal with the Supreme Court of Virginia on August 29, 2024, and the Company filed a response to the petition on October 21, 2024. On March 7, 2025, the Supreme Court of Virginia granted Appian’s petition for appeal and Pega’s assignments of cross-error. The Supreme Court of Virginia heard appellate oral argument on October 28, 2025.

On January 8, 2026, the Supreme Court of Virginia issued a written opinion unanimously affirming the ruling of the Court of Appeals of Virginia. On January 13, 2026, the Circuit Court of Fairfax County, Virginia notified the parties that this case has been reassigned to Judge David A. Oblon for further proceedings. On January 29, 2026, the Supreme Court of Virginia remanded Appian’s trade secret case to the Court of Appeals with direction to remand to the Circuit Court of Fairfax County for further proceedings in accordance with its written opinion. On May 7, 2026 Judge Oblon held a first status conference for the remanded trial proceedings and set the retrial to commence on January 11, 2027.

On February 27, 2026, the Court of Appeals of Virginia issued a mandate stating that the judgment is affirmed in part, reversed in part, and remanded to the Circuit Court of Fairfax County for further proceedings consistent with the views expressed in the written opinion of the Court of Appeals of Virginia. On May 7, 2026, the Court released the Company from its obligation to maintain the $25,000,000 letter of credit securing the judgment and the letter of credit was released on June 29, 2026.

The Company continues to believe that it did not misappropriate any alleged trade secrets and that its sales of the Company’s products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets. The Company is unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of a new trial resulting from the appellate proceedings.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell and Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell

Federal court cases

On December 4, 2024, the shareholders representing approximately 3% of the settlement class that opted out of the court approved settlement in the class action matter captioned City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:22-cv-00578-LMB-IDD) (the “Class Action”) filed two lawsuits against the Company, the Company’s chief executive officer, and the Company’s chief operating and financial officer in the United States District Court for the District of Massachusetts. The first is captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-12999-WGY); the second is captioned PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-11220-WGY). The complaints, which are substantially similar, generally allege, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and that the individual defendants violated Section 20(a) of the Exchange Act, in each case by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The complaints also assert claims for common law fraud and negligent misrepresentation, and seek unspecified damages. The defendants moved to dismiss the complaints on March 13, 2025 and on May 21, 2025, the Court held a hearing on the motion to dismiss. At the conclusion of the hearing, the Court (i) granted the motion to dismiss as to the plaintiffs’ scheme liability claims; (ii) granted the motion to dismiss as to certain claims against Ken Stillwell; and (iii) took the motion to dismiss under advisement as to all other claims. On January 8, 2026, the Court issued a written order granting the motion to dismiss as to the Section 10(b) and common law fraud claims against Ken Stillwell and denying the motion to dismiss as to the remaining claims. The Court also entered a scheduling order setting trial for February 2027.

State court cases

On February 26, 2025, the same shareholders filed two lawsuits against the Company, the Company’s chief executive officer, and the Company’s chief operating and financial officer in Massachusetts Superior Court. The first is captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case No. 2584CV00541-BLS1); the second is captioned PS Lit Recovery, LLC v. Pegasystems, Inc., Alan Trefler, and Kenneth Stillwell (Case No. 2584CV00539-BLS1). The complaints, which are substantially similar, allege the same state law claims raised in the two federal lawsuits brought by the same plaintiffs in the United States District Court for the District of Massachusetts. On April 14, 2025, the court granted the parties’ joint stipulations to stay both cases pending the resolution of the parallel federal actions and ordered the plaintiffs to file periodic status reports regarding the federal cases showing cause why the state cases should remain open.

The Company believes it has strong defenses to the claims brought against the defendants and intends to defend against these claims vigorously. The Company is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits.

In re Pegasystems Inc. Derivative Litigation

Federal court cases

On November 21, 2022, a lawsuit was filed against the members of the Company’s board of directors, the Company’s chief operating and financial officer and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc. v. Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, Larry Weber, and Kenneth Stillwell, defendants, and Pegasystems Inc., nominal defendant (Case 1:22-cv-11985). On April 28, 2023, a lawsuit was filed in the United States District Court for the District of Massachusetts by Dag Sagfors, derivatively on behalf of nominal defendant Pegasystems Inc., asserting breach of fiduciary duty and related claims relating to the Virginia Appian litigation against the same defendants as the Larkin lawsuit. On May 17, 2023, the Larkin and Sagfors cases were consolidated (the “Consolidated Action”) and, after defendants moved to dismiss the complaint in the Consolidated Action on December 4, 2024, the plaintiffs moved to voluntarily dismiss the Consolidated Action, and the Court granted the motion to dismiss on December 18, 2024.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company separately received confidential demand letters raising substantially the same allegations set forth in the Consolidated Action. On April 12, 2023, the Company’s board of directors (other than Mr. Trefler, who recused himself), formed a committee consisting solely of independent directors, to review, analyze, and investigate the matters raised in the demands and to determine in good faith what actions (if any) were reasonably believed to be appropriate under similar circumstances and reasonably believed to be in the best interests of the Company in response to the demand letters (the “Demand Review Committee”). The Demand Review Committee, with the assistance of independent legal counsel, conducted an extensive investigation of the allegations raised in the demand letters and on October 7, 2024 issued a report concluding that there are no valid claims against the Company’s directors and officers with respect to the matters raised in the demands and that it would not be in the Company’s best interests to pursue litigation against them.

On February 7, 2025, the plaintiffs in the Consolidated Action filed a new complaint against the members of the Company’s board of directors, certain employees of the Company, and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin and Dag Sagfors, derivatively on behalf of nominal defendant Pegasystems Inc. v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Leon Trefler, Larry Weber, Kenneth Stillwell, Don Schuerman, Kerim Akgonul, and Benjamin Baril, (the “Defendants”), and Pegasystems Inc., nominal defendant (Case 1:25-cv-10303). The complaint asserts against Defendants claims for breach of fiduciary duty, unjust enrichment, and violations of the Exchange Act relating to (i) the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above; (ii) alleged misconduct by Company employees alleged in that litigation; and the Class Action, described above. The Defendants filed motions to dismiss the complaint on April 28, 2025. On June 6, 2025, the plaintiffs in the consolidated derivative matter currently pending in Massachusetts Superior Court, Case No. 2484CV01734 (discussed below), moved to intervene in this matter and to stay it pending the resolution of the state derivative matter. The Court held a hearing on defendants’ motions to dismiss and state court plaintiffs’ motion to intervene on July 21, 2025. Following argument, the Court took the motions under advisement.

On October 14, 2025, the parties jointly notified the Court that on October 2, 2025 the Massachusetts Superior Court granted defendants’ motion to dismiss the related state court derivative action (see below) and proposed that the Court refrain from issuing a decision on the motions to dismiss pending a joint submission by the parties of their respective positions on the impact of the state court dismissal on the federal court case within thirty (30) days. On December 17, 2025, the court entered an order administratively closing this action in light of the developments in the State court cases, described below.

On January 7, 2026, the Collective Plaintiffs agreed in principle to a proposed settlement of the litigation, and a final order approving the proposed settlement was entered by the Massachusetts Superior Court on June 30, 2026. See discussion below within the “State court cases” subsection. On July 2, 2026, in light of the settlement, the parties to the federal court Consolidated Action filed a stipulation and proposed order of dismissal with prejudice as to all claims. On July 16, 2026, the Court signed the order dismissing the Consolidated Action with prejudice.

State court cases

On June 28, 2024, a lawsuit was filed against members of the Company’s board of directors, certain employees of the Company and the Company in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts, captioned John Dwyer and Ray Gerber, Plaintiffs, v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Leon Trefler, Don Schuerman, Kerim Akgonul, and Benjamin Baril, (“Defendants”), and Pegasystems Inc., Nominal Defendant (Case 2484CV01734) (“Dwyer Action”). The complaint generally alleges the Defendants breached their fiduciary duties in connection with alleged misconduct by Company employees alleged in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and alleges damages from the approximately $2 billion verdict in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, the settlement of the Class Action, and litigation costs from various proceedings.

On November 22, 2024, a lawsuit was filed against members of the Company’s board of directors, certain employees of the Company and the Company in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts, captioned Jayne Birch and Robert Garfield, Plaintiffs, v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Kerim Akgonul, Don Schuerman, Leon Trefler, Douglas Kim, John Petronio, Benjamin Baril, and Kenneth Stillwell, (“Defendants”), and Pegasystems Inc., Nominal Defendant (Case 2484CV03076-BLS-1) (“Birch Action”). The complaint generally asserts the same claims asserted in the Dwyer Action.

On February 12, 2025, after submission by the parties of a stipulation and proposed order, an order was entered consolidating the Dwyer and Birch Actions and approving the schedule for the filing of a consolidated complaint and a motion to dismiss. On March 14, 2025, the plaintiffs filed a consolidated complaint in Case No. 2484CV01734. The consolidated complaint generally alleges the Defendants breached their fiduciary duties in connection with alleged misconduct by Company employees alleged in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and in connection with the investigation conducted and the report issued by the Demand Review Committee of the Company’s board regarding the same. The Defendants moved to dismiss the complaint and after briefing by the parties, the Court held a hearing on defendants’ motion on September 4, 2025. On October 2, 2025, the Court granted Defendants’ motion to dismiss. On January 13, 2026, the court entered final judgment in defendants’ favor.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

On January 7, 2026, the parties to the federal and state court cases agreed in principle to a proposed settlement of the litigation. Under the terms of the proposed settlement, the plaintiffs in the federal and state court cases (“Collective Plaintiffs”) agreed to the dismissal of all claims upon the Company adopting certain governance reforms and payment of an estimated aggregate sum of $9.75 million, inclusive of a $7 million special dividend to shareholders (excluding defendants) and Collective Plaintiffs’ attorney fees.

On January 23, 2026, the parties jointly moved the court for relief from the final judgment in this action for the sole purpose of permitting the parties to seek Court approval of the proposed settlement. On February 10, 2026, the plaintiffs submitted the proposed settlement to the Court for preliminary approval. On March 18, 2026, the Court held a preliminary approval hearing and granted the parties relief from the final judgment. On April 16, 2026, the Court preliminarily approved the proposed settlement and it held a final settlement approval hearing on June 25, 2026. On June 30, 2026, the Court entered an order for final approval of the settlement, including a $7 million special dividend to shareholders (excluding defendants) and payment by the Company of $2.75 million in Collective Plaintiffs’ attorney fees. Also on July 2, 2026, the Court entered a final judgment and order of dismissal dismissing the consolidated complaint with prejudice.

Pegasystems v. Appian Defamation Litigation

On August 2, 2023, the Company filed a complaint against Appian in the U.S. District Court for the District of Massachusetts, captioned Pegasystems Inc. v. Appian Corporation, 1:23-cv-11776-LTS (D. Mass.). The complaint asserts claims for defamation, trade libel, and violations of the Lanham Act, 15 U.S.C. § 1125(a) based on statements Appian made following the verdict in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above. In response to a motion to dismiss filed by Appian on August 18, 2023, the Company amended the complaint to add additional factual allegations in support of the same claims. On September 22, 2023, Appian moved to dismiss the amended complaint, which the Court denied on January 5, 2024. On February 20, 2024, Appian answered the complaint, asserted counterclaims against the Company for defamation, trade libel, violations of the Lanham Act, 15 U.S.C. § 1125(a), and violations of Mass. Gen. Laws ch. 93A §§ 2 and 11, and sought a declaratory judgment that the Company was not entitled to the recovery sought in the amended complaint. On April 11, 2024, the Company moved for a more definite statement and to partially strike the counterclaims, which the Court denied on August 1, 2024. On August 15, 2024, the Company moved to dismiss the counterclaims, which the Court allowed in part and denied in part on October 8, 2024; specifically, the Court allowed the Company’s motion to dismiss the trade libel counterclaim with respect to Appian’s allegations regarding the Company’s Code of Conduct. On November 26, 2024, Appian moved for judgment on the pleadings. On March 11, 2025, the Court allowed the motion for judgment on the pleadings in part and entered judgment for Appian on the basis of a statement made by Appian’s chief executive officer, but otherwise denied the motion.

The parties exchanged opening expert reports in March 2026. The Company claims $41.9 million in damages from Appian’s conduct. Appian seeks $31.8 million in lost profits damages and further requests that the Company be required to disgorge $109.5 million in profits as unjust enrichment arising from business contracts Appian contends it competed with Pegasystems on from 2022-2025. Apart from Company revenues in which Appian contends it competed with Pegasystems for business, Appian further seeks that the Company be forced to disgorge the entirety of its profits ($2.33 billion) from 2022-2025. The Company vehemently disagrees with Appian’s entitlement to any recovery, and believes the disgorgement claim is consistent with Appian’s efforts to denigrate the Company that are the subject of the Company’s claims asserted in this litigation. The Company remains confident in the merits of its claims against Appian and the damages claimed, and disputes Appian’s counterclaims, including the amount of and legal basis for the damages sought, believes it has strong defenses to the counterclaims, and intends to vigorously defend against the counterclaims. Summary judgment briefing was completed on July 16, 2026 and oral argument on summary judgment motions is scheduled for July 24, 2026. Briefing on Daubert motions pertinent to summary judgment is expected to be completed on July 23, 2026, with any remaining Daubert motions due on September 18, 2026. A jury trial is currently scheduled for November 2026. The Company is unable to reasonably estimate likelihood of success for either party or a range of possible gain or loss given the uncertainty as to the likelihood, amount, and timing of any potential gain or loss related to its claims or Appian’s counterclaims.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the sufficiency of our capital, our position and estimates relating to tax, and legal proceedings.

Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, positions, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements. These statements represent our views only as of the date the statement was made and are based on current expectations and assumptions.

Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but not limited to:

•our future financial performance and business plans;

•the adequacy of our liquidity and capital resources;

•the successful execution of investments in artificial intelligence;

•our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims, and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us;

•our ongoing litigation with Appian Corp. and associated legal proceedings; and

•management of our growth.

These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2025, Part II of this Quarterly Report on Form 10-Q, and other filings we make with the SEC.

Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results included in such statements will be achieved. Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise.

The forward-looking statements in this Quarterly Report represent our views as of July 21, 2026.

NON-GAAP MEASURES

Our non-GAAP financial measures should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. Management uses these measures to assess the performance of the company's operations and establish operational goals and incentives. They are not a substitute for financial measures prepared under U.S. GAAP. A reconciliation of GAAP and non-GAAP measures is located with each non-GAAP measure.

BUSINESS OVERVIEW

We develop, market, license, host, and support enterprise software that helps organizations optimize decisions and processes in real-time so they can deliver outcomes that transform their business. Our powerful platform for enterprise AI decisioning and workflow automation enables the world’s leading brands and government agencies to hyper-personalize customer experiences, automate customer service, and streamline operations, mission-critical business processes, and workflows, and transform legacy systems. Clients can leverage our AI technology and scalable architecture to accelerate their digital transformation. In addition, our sales and client success teams, world-class partners, and clients are able to leverage Pega BlueprintTM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively.

We focus on enterprise-scale businesses and government agencies that require advanced solutions to distinguish themselves in the competitive markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth and modernization, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored by industry.

Performance metrics

We use performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including:

Annual contract value (“ACV”)

ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV. ACV is a performance measure that we believe provides useful information to our management and investors.


(Dollars in thousands)	June 30, 2025		June 30, 2026		Change				Constant Currency Change
Pega Cloud	$	761,051	$	926,290	$	165,239	22	%	22	%
Maintenance	301,375		271,328		(30,047)		(10)	%	(9)	%
Subscription services	1,062,426		1,197,618		135,192		13	%	13	%
Subscription license	451,591		422,316		(29,275)		(6)	%	(6)	%
	$	1,514,017	$	1,619,934	$	105,917	7	%	8	%

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, 2025		June 30, 2026		1-Year Change
ACV	$	1,514	$	1,620	7	%
Impact of changes in foreign exchange rates	—		10
Constant currency ACV	$	1,514	$	1,630	8	%

Note: Constant currency ACV is calculated by applying the June 30, 2025 foreign exchange rates to current period shown.

Cash Flow


(Dollars in thousands)	Six Months Ended June 30,				Change
	2025		2026
Cash provided by operating activities	$	290,496	$	298,225	3	%
Investment in property and equipment	(4,015)		(9,967)
Free cash flow (1)	$	286,481	$	288,258	1	%

Supplemental information (2)

Legal fees	$	10,020	$	9,188
Restructuring	1,354		11,449
Interest paid on convertible senior notes	1,754		—
Other	—		(689)
Income taxes, net of refunds	(702)		10,842
	$	12,426	$	30,790

As a result of the factors discussed under ACV above, our cash flow generation may continue to be adversely affected for the rest of the year.

(1) Our non-GAAP free cash flow is defined as cash provided by operating activities less investment in property and equipment. Investment in property and equipment fluctuates in amount and frequency and is significantly affected by the timing and size of investments in our facilities and equipment. We provide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings. This information is not a substitute for financial measures prepared under U.S. GAAP.

(2) The supplemental information below identifies certain items included in operating cash flow that may affect comparability between periods.

•Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business.

•Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities.

•Interest on convertible senior notes: In February 2020, we issued convertible senior notes (the “Notes”), due March 1, 2025, in a private placement. The Notes accrued interest at an annual rate of 0.75%, paid semi-annually in arrears on March 1 and September 1. The outstanding Notes were repaid in their entirety at maturity.

•Other: One-time cash flow items not part of our ongoing operations.

•Income taxes, net of refunds: Direct income taxes paid net of refunds received.

Remaining performance obligations (“Backlog”)

Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP)


(in millions, except percentages)	June 30, 2025		June 30, 2026		1-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.

CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared following accounting principles generally accepted in the U.S. and the rules and regulations of the SEC for interim financial reporting. Preparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and expectations of what could occur in the future based on the available information.

For more information about our critical accounting policies, we encourage you to read the discussion in the following locations in our Annual Report on Form 10-K for the year ended December 31, 2025:

•“Critical Accounting Estimates and Significant Judgments” in Item 7; and

•“Note 2. Significant Accounting Policies” in Item 8.

No significant changes have been made to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

RESULTS OF OPERATIONS

Revenue


(Dollars in thousands)	Three Months Ended June 30,								Change				Six Months Ended June 30,								Change
	2026				2025								2026				2025
Pega Cloud	$	213,934	51	%	$	166,743	43	%	$	47,191	28	%	$	418,965	49	%	$	317,866	37	%	$	101,099	32	%
Maintenance	74,528		18	%	79,271		21	%	(4,743)		(6)	%	149,845		18	%	155,639		18	%	(5,794)		(4)	%
Subscription services	288,462		69	%	246,014		64	%	42,448		17	%	568,810		67	%	473,505		55	%	95,305		20	%
Subscription license	82,028		19	%	80,674		21	%	1,354		2	%	176,880		21	%	268,395		31	%	(91,515)		(34)	%
Subscription	370,490		88	%	326,688		85	%	43,802		13	%	745,690		88	%	741,900		86	%	3,790		1	%
Consulting	50,226		12	%	57,824		15	%	(7,598)		(13)	%	104,999		12	%	118,245		14	%	(13,246)		(11)	%
	$	420,716	100	%	$	384,512	100	%	$	36,204	9	%	$	850,689	100	%	$	860,145	100	%	$	(9,456)	(1)	%

•The increases in Pega Cloud revenue in the three and six months ended June 30, 2026 were primarily due to expanded adoption of Pega Cloud by our clients.

•The decreases in maintenance revenue in the three and six months ended June 30, 2026 were primarily due to our clients’ shift to Pega Cloud-based offerings, which do not result in maintenance revenue.

•The increase in subscription license revenue in the three months ended June 30, 2026 was primarily due to the timing of client contract renewals. The decrease in subscription license revenue in the six months ended June 30, 2026 was primarily due to several large multi-year contracts recognized in revenue in the six months ended June 30, 2025.

•The decreases in consulting revenue in the three and six months ended June 30, 2026 were primarily due to a decrease in consultant billable hours in our Americas region.

Gross profit


(Dollars in thousands)	Three Months Ended June 30,								Change				Six Months Ended June 30,								Change
	2026				2025								2026				2025
Pega Cloud	$	166,641	78	%	$	130,985	79	%	$	35,656	27	%	$	327,131	78	%	$	249,639	79	%	$	77,492	31	%
Maintenance	67,880		91	%	73,519		93	%	(5,639)		(8)	%	138,289		92	%	144,228		93	%	(5,939)		(4)	%
Subscription services	234,521		81	%	204,504		83	%	30,017		15	%	465,420		82	%	393,867		83	%	71,553		18	%
Subscription license	81,761		100	%	80,310		100	%	1,451		2	%	176,142		100	%	267,643		100	%	(91,501)		(34)	%
Subscription	316,282		85	%	284,814		87	%	31,468		11	%	641,562		86	%	661,510		89	%	(19,948)		(3)	%
Consulting	(3,595)		(7)	%	(9,876)		(17)	%	6,281		64	%	(5,656)		(5)	%	(13,389)		(11)	%	7,733		58	%
	$	312,687	74	%	$	274,938	72	%	$	37,749	14	%	$	635,906	75	%	$	648,121	75	%	$	(12,215)	(2)	%

•The decreases in Pega Cloud gross profit percent in the three and six months ended June 30, 2026 were primarily due to increases in personnel-related costs associated with investments made to support the expansion of our cloud operations.

•The decreases in maintenance gross profit percent in the three and six months ended June 30, 2026 were primarily due to higher compensation and benefits from increased headcount.

•The increases in consulting gross profit percent in the three and six months ended June 30, 2026 were primarily due to decreases in compensation and benefits of $12.1 million and $18.5 million, respectively, which were attributable to our restructuring initiatives in 2025. As our technology strategy continues to evolve, we may periodically evaluate our organizational structure to align resources with business priorities.

Operating expenses


(Dollars in thousands)	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2026			2025							2026			2025
Selling and marketing	$	165,408		$	147,131		$	18,277	12	%	$	321,011		$	285,200		$	35,811	13	%
% of Revenue	39		%	38		%					38		%	33		%
Research and development	$	84,168		$	78,784		$	5,384	7	%	$	166,215		$	153,070		$	13,145	9	%
% of Revenue	20		%	20		%					20		%	18		%
General and administrative	$	43,740		$	31,788		$	11,952	38	%	$	92,313		$	65,616		$	26,697	41	%
% of Revenue	10		%	8		%					11		%	8		%


Restructuring	$	2,735		$	(44)		$	2,779	*		$	2,582		$	(33)		$	2,615	*
% of Revenue	1		%	—		%					—		%	—		%

* Not meaningful

•The increases in selling and marketing in the three and six months ended June 30, 2026 were primarily due to increases in compensation and benefits of $12.6 million and $23.2 million, respectively, attributable to higher headcount as we continue to expand our prospective and current client engagement.

•The increase in research and development in the three months ended June 30, 2026 was primarily due to an increase in outside professional services of $2.1 million and an increase in cloud hosting expenses of $1.5 million. The increase in research and development in the six months ended June 30, 2026 was primarily due to an increase in compensation and benefits of $4.7 million attributable to increases in headcount and equity compensation and an increase in cloud hosting expenses of $2.8 million.

•The increases in general and administrative in the three and six months ended June 30, 2026 were primarily due to increases of $11.5 million and $25 million, respectively, in legal fees and related expenses arising from legal proceedings outside the ordinary course of business. We expect to continue to incur additional costs for these proceedings. For additional information, see "Note 16. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.

•The increases in restructuring in the three and six months ended June 30, 2026 were primarily due to cash severance and related costs incurred in connection with workforce reductions intended to better align roles to an AI-first delivery model. For additional information, see "Note 10. Restructuring" in Part I, Item 1 of this Quarterly Report.

Other income and expenses


(Dollars in thousands)	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
	2026		2025						2026		2025
Foreign currency transaction (loss) gain	$	(1,364)	$	(14,008)	$	12,644	90	%	$	486	$	(19,333)	$	19,819	*
Interest income	2,500		3,248		(748)		(23)	%	5,454		8,583		(3,129)		(36)	%
Interest expense	(45)		(1)		(44)		*		(89)		(1,028)		939		91	%
(Loss) on capped call transactions	—		—		—		*		—		(223)		223		100	%
Other income (loss), net	786		18,729		(17,943)		(96)	%	(1,418)		19,290		(20,708)		*
	$	1,877	$	7,968	$	(6,091)	(76)	%	$	4,433	$	7,289	$	(2,856)	(39)	%

* Not meaningful

•The changes in foreign currency transaction (loss) gain in the three and six months ended June 30, 2026 were primarily due to fluctuations in foreign currency exchange rates associated with foreign currency-denominated receivables and intercompany balances held by our subsidiary in the United Kingdom.

•The decreases in interest income in the three and six months ended June 30, 2026 were primarily due to lower investment balances.

•The decrease in interest expense in the six months ended June 30, 2026 was primarily due to the repayment of the Notes at maturity on March 3, 2025.

•The changes in (loss) on capped call transactions were due to the expiration of the capped call transactions in the three months ended March 31, 2025.

•The decrease in other income (loss), net in the three and six months ended June 30, 2026 was primarily due to the gain from the partial sale of a venture investment in 2025. For additional information, see "Note 11. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.

Provision for (benefit from) income taxes


	Six Months Ended June 30,
(Dollars in thousands)		2026			2025
Provision for (benefit from) income taxes		$	12,120		$	36,058
Effective income tax rate		21		%	24		%

Our effective income tax rate decreased in the six months ended June 30, 2026 as compared to the prior period, primarily due to excess tax benefits from stock-based compensation recognized in the current period and the absence of a valuation allowance on substantially all of our U.S. and U.K. deferred tax assets.

The Organization for Economic Cooperation and Development (“OECD”) has introduced Pillar Two, a global minimum tax framework supported by more than 130 countries, with certain provisions effective for tax years beginning on or after January 1, 2024.

On January 5, 2026, the OECD issued administrative guidance introducing a side‑by‑side system that would exempt U.S.‑parented multinational groups from certain Pillar Two rules beginning in fiscal years starting on or after January 1, 2026. We will continue to monitor developments in countries’ domestic laws as they relate to the OECD model rules and the Pillar Two global minimum tax. Based on information currently available, we do not expect Pillar Two to have a material impact on our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES


	Six Months Ended June 30,
(in thousands)	2026		2025
Cash provided by (used in):
Operating activities	$	298,225	$	290,496
Investing activities	25,832		212,995
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)


(in thousands)	June 30, 2026		December 31, 2025
Held in U.S. entities	$	213,027	$	157,449
Held in foreign entities	148,880		268,350
Total cash, cash equivalents, and marketable securities	361,907		425,799
Restricted cash included in other current assets	2,448		1,577
Restricted cash included in other long-term assets	1,530		2,336
Total cash, cash equivalents, marketable securities, and restricted cash	$	365,885	$	429,712

We believe that our current cash, marketable securities, cash flow provided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. We may utilize available funds or seek external financing if we require additional capital resources.

If it becomes necessary or desirable to repatriate foreign funds, we may have to pay federal, state, and local income taxes as well as foreign withholding taxes upon repatriation. However, estimating the taxes we would have to pay on the amounts we consider indefinitely reinvested is impracticable due to the complexity of income tax laws and regulations. We have provided a deferred tax liability associated with the tax cost of repatriating unremitted earnings which we do not consider indefinitely reinvested.

Operating activities

The change in cash provided by operating activities in the six months ended June 30, 2026 was primarily due to increase in client collections.

Investing activities

The change in cash provided by investing activities in the six months ended June 30, 2026 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes in 2025.

Financing activities

Debt financing

In November 2019, and as since amended, we entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. Effective as of February 4, 2025, the Credit Facility was amended to extend the expiration date to February 4, 2027.

As of June 30, 2026 and December 31, 2025, we had letters of credit of $1.7 million and $26.7 million, respectively, under the Credit Facility; however we had no cash borrowings. For additional information, see "Note 9. Debt" in Part I, Item 1 of this Quarterly Report.

Stock repurchase program

Changes in the remaining stock repurchase authority:


(in thousands) (1)	Six Months Ended June 30, 2026
December 31, 2025	$	242,254
Authorizations (2)	1,000,000
Repurchases (3)	(367,200)
June 30, 2026	$	875,054

(1) Amounts presented are exclusive of the U.S. excise tax on share repurchases.

(2) On February 10, 2026, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2026 to June 30, 2027 and increased the authorized repurchase amount by $1 billion.

(3) All purchases under this program have been made on the open market.

Common stock repurchases


	Six Months Ended June 30,
	2026			2025
(in thousands)	Shares	Amount		Shares	Amount
Repurchases paid	8,858	$	367,200	6,049	$	250,189
Repurchases unpaid at period end	—	—		18	1,000
Stock repurchase program (1)	8,858	367,200		6,067	251,189
Tax withholdings for net settlement of equity awards	70	2,902		146	6,600
	8,928	$	370,102	6,213	$	257,789

(1) Amounts presented are exclusive of the U.S. excise tax on share repurchases.

During the six months ended June 30, 2026 and 2025, instead of receiving cash from the equity holders, we withheld shares with a value of $2.3 million and $7.3 million, respectively, for the exercise price of options. These amounts are not included in the table above.

Dividends

We paid and intend to continue to pay a quarterly cash dividend of $0.03 per share; however, the Board of Directors may terminate or modify the dividend program without prior notice.


	Six Months Ended June 30,
(in thousands)	2026		2025
Dividend payments to stockholders	$	10,173	$	5,150

Contractual obligations

There have been no material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in financial market prices and rates.

Foreign currency exposure

Translation risk

Our international operations’ operating expenses are primarily denominated in foreign currencies. However, our international sales are also primarily denominated in foreign currencies, partially offsetting our foreign currency exposure.

A hypothetical 10% strengthening in the U.S. dollar against other currencies would have resulted in the following:


	Six Months Ended June 30,
	2026		2025
(Decrease) in revenue	(4)	%	(4)	%
(Decrease) in net income	(14)	%	(3)	%

Remeasurement risk

We incur transaction gains and losses from the remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of the entities in which they are recorded.

We are primarily exposed to changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated cash, cash equivalents, marketable securities, receivables, and intercompany balances held by our U.K. subsidiary, a British pound functional entity.

A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would have resulted in the following impact:


	Six Months Ended June 30,
(in thousands)	2026		2025
Foreign currency (loss)	$	(18,818)	$	(26,453)

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of June 30, 2026. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2026.

(b) Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2026 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in “Note 16. Commitments and Contingencies”, in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.

ITEM 1A. RISK FACTORS

We encourage you to carefully consider the risk factors identified in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the U.S. Securities and Exchange Commission. These risk factors could materially affect our business, financial condition, and future results and may cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer purchases of equity securities (1)

Common stock repurchased in the three months ended June 30, 2026:


(in thousands, except per share amounts)	Total Number of Shares Purchased (2)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program	Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchased Programs (3)(4)
April 1, 2026 - April 30, 2026	3,157	$	39.59	3,157	$	950,000
May 1, 2026 - May 31, 2026	1,194	$	34.03	1,177	$	910,000
June 1, 2026 - June 30, 2026	1,017	$	34.94	1,001	$	875,054
	5,368	$	37.47	5,335

(1) For additional information, see "Liquidity and Capital Resources" in Part I, Item 2 of this Quarterly Report.

(2) Includes shares withheld to cover the option exercise price and tax withholding obligations for stock compensation awards subject to net settlement provisions.

(3) On February 10, 2026, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2026 to June 30, 2027 and increased the authorized repurchase amount by $1 billion.

(4) Amounts presented are exclusive of the U.S. excise tax on share repurchases.

ITEM 5. OTHER INFORMATION

Rule 10b5-1 and non-rule 10b5-1 trading arrangements

On June 15, 2026, the Dianne Ledingham Family Legacy Trust U/A DTD 3/12/2025 entered into a Rule 10b5-1 trading arrangement that provides for the sale of 24,000 shares of our common stock. The arrangement will terminate on August 2, 2027, subject to early termination for certain specified events set forth in the arrangement. Dianne Ledingham, a member of our Board of Directors, is the grantor of the Dianne Ledingham Family Legacy Trust, and members of her immediate family are beneficiaries.

Other than as disclosed above, during the three months ended June 30, 2026, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

ITEM 6. EXHIBITS

Exhibit No.

Description

Incorporation by Reference

Filed Herewith

Form

Location

Filing Date

3.1

Restated Articles of Organization of the Company and Amendments thereto

8-K

3.1

6/18/25

3.2

Amended and Restated Bylaws of Pegasystems Inc.

8-K

3.2

6/15/20

31.1

Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.

31.2

Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.

Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer.

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ Indicates that the exhibit is being furnished with this report and is not filed as a part of it.

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, 2026	By:	/s/ KENNETH STILLWELL
			Kenneth Stillwell
			Chief Operating Officer and Chief Financial Officer
			(Principal Financial Officer)

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