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.--(BUSINESS WIRE)--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.”

Financial and performance metrics ⁽¹⁾

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 Growth

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,
	2026		2025		Change		2026		2025		Change
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,								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	)%
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 [phone] (domestic) or 1 [phone] (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.

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.

About Pegasystems

Pega delivers the platform to reimagine, run, and evolve the processes and decisions an enterprise can't afford to get wrong. We combine AI with proven architecture to keep mission-critical operations governed, scalable, and continuously adaptable. Since 1983, the world's largest organizations have trusted Pega to turn transformation ambition into durable results. Learn more at www.pega.com.

All trademarks are the property of their respective owners.

⁽¹⁾ Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures.

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

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
Total stockholders’ equity		560,384		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,
		2026			2025
Net income	$	46,098		$	115,499
Adjustments to reconcile net income to cash provided by operating activities
Non-cash items		125,635			123,170
Change in operating assets and liabilities, net		126,492			51,827
Cash provided by operating activities		298,225			290,496
Cash provided by investing activities		25,832			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 period		216,360			341,529
Cash, cash equivalents, and restricted cash, end of period	$	189,088		$	206,111

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,
		2026			2025		Change			2026			2025		Change
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 fees		17,950			6,409					37,914			12,953
Amortization of intangible assets		237			675					1,020			1,376
Restructuring		2,735			(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 adjustments		0.27			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 - GAAP		171,765			182,160		(6	)%		175,294			185,477		(5	)%
Capped call transactions		—			—					—			(2,412	)
Diluted weighted-average number of common shares outstanding - non-GAAP		171,765			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.
• 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)		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	)

(2) Effective income tax rates:

	Six Months Ended June 30,
	2026		2025
GAAP	21	%	24	%
non-GAAP	22	%	22	%

Our GAAP effective income tax rate is subject to significant fluctuations due to several factors, including our stock-based compensation plans, research and development tax credits, and the valuation allowance on our deferred tax assets in the U.S. and U.K. We determine our non-GAAP income tax rate using applicable rates in taxing jurisdictions and assessing certain factors, including historical and forecasted earnings by jurisdiction, discrete items, and ability to realize tax assets. We believe it is beneficial for our management to review our non-GAAP results consistent with our annual plan’s effective income tax rate as established at the beginning of each year, given tax rate volatility.

PEGASYSTEMS INC.
RECONCILIATION OF FREE CASH FLOW ^(1) AND OTHER METRICS
(in thousands, except percentages)
	Six Months Ended June 30,						Change
		2026			2025
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
Restructuring		11,449			1,354
Interest paid on convertible senior notes		—			1,754
Other		(689	)		—
Income taxes, net of refunds		10,842			(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, 2026		June 30, 2025		Change					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	%

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 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	%
% of Total		77	%		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 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	%
% of Total		72	%		22	%		4	%		2	%		100	%

PEGASYSTEMS INC.
RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG
(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.