PEGASYSTEMS INC (PEGA)

CIK: 0001013857. SIC: 7374 Services-Computer Processing & Data Preparation. Latest 10-K as of: 2026-02-10.

SIC breadcrumb: Services > Business Services > SIC 7374 Services-Computer Processing & Data Preparation

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1013857. Latest filing source: 0001013857-26-000017.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-10. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001013857.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-04-21. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001013857.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001013857-26-000026.

Extracted between Part I Item 2 and the next Item 3/4 or Part II heading after HTML sanitization. Confidence: high. Filing date: 2026-04-21. Report date: 2026-03-31.

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 April 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:

21

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)

March 31, 2025

March 31, 2026

Change

Constant Currency Change

Pega Cloud

$

701,311 

$

906,652 

$

205,341 

29 

%

27 

%

Maintenance

298,422 

276,834 

(21,588)

(7)

%

(8)

%

Subscription services

999,733 

1,183,486 

183,753 

18 

%

16 

%

Subscription license

445,677 

438,514 

(7,163)

(2)

%

(2)

%

$

1,445,410 

$

1,622,000 

$

176,590 

12 

%

11 

%

Reconciliation of ACV and constant currency ACV

(in millions, except percentages)

March 31, 2025

March 31, 2026

1-Year Change

ACV

$

1,445

$

1,622

12 

%

Impact of changes in foreign exchange rates

— 

(24)

Constant currency ACV

$

1,445

$

1,598

11 

%

Note: Constant currency ACV is calculated by applying the March 31, 2025 foreign exchange rates to current period shown.

22

Cash Flow

(Dollars in thousands)

Three Months Ended

March 31,

Change

2025

2026

Cash provided by operating activities

$

204,228 

$

212,251 

4 

%

Investment in property and equipment

(1,880)

(5,726)

Free cash flow (1)

$

202,348 

$

206,525 

2 

%

Supplemental information (2)

Legal fees

$

2,413 

$

2,801 

Restructuring

1,184 

6,711 

Interest paid on convertible senior notes

1,754 

— 

Income taxes, net of refunds

4,102 

5,233 

$

9,453 

$

14,745 

(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 discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance.

•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.

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

23

Remaining performance obligations (“Backlog”)

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

(in millions, except percentages)

March 31, 2025

March 31, 2026

1-Year Growth Rate

Backlog - GAAP

$

1,728 

$

2,011 

16 

%

Impact of changes in foreign exchange rates

— 

(38)

Constant currency backlog

$

1,728 

$

1,973 

14 

%

Note: Constant currency Backlog is calculated by applying the March 31, 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.

24

RESULTS OF OPERATIONS

Revenue

(Dollars in thousands)

Three Months Ended

March 31,

Change

2026

2025

Pega Cloud

$

205,031 

48 

%

$

151,123 

32 

%

$

53,908 

36 

%

Maintenance

75,317 

17 

%

76,368 

16 

%

(1,051)

(1)

%

Subscription services

280,348 

65 

%

227,491 

48 

%

52,857 

23 

%

Subscription license

94,852 

22 

%

187,721 

39 

%

(92,869)

(49)

%

Subscription

375,200 

87 

%

415,212 

87 

%

(40,012)

(10)

%

Consulting

54,773 

13 

%

60,421 

13 

%

(5,648)

(9)

%

$

429,973 

100 

%

$

475,633 

100 

%

$

(45,660)

(10)

%

•The increase in Pega Cloud revenue in the three months ended March 31, 2026 was primarily due to expanded adoption of Pega Cloud by our clients.

•The decrease in maintenance revenue in the three months ended March 31, 2026 was primarily due to our clients’ shift to Pega Cloud-based offerings, which do not result in maintenance revenue.

•The decrease in subscription license revenue in the three months ended March 31, 2026 was primarily due to several large multi-year contracts recognized in revenue in the three months ended March 31, 2025.

•The decrease in consulting revenue in the three months ended March 31, 2026 was primarily due to a decrease in consultant billable hours in our Americas region.

Gross profit

(Dollars in thousands)

Three Months Ended

March 31,

Change

2026

2025

Pega Cloud

$

160,490 

78 

%

$

118,654 

79 

%

$

41,836 

35 

%

Maintenance

70,409 

93 

%

70,709 

93 

%

(300)

— 

%

Subscription services

230,899 

82 

%

189,363 

83 

%

41,536 

22 

%

Subscription license

94,381 

100 

%

187,333 

100 

%

(92,952)

(50)

%

Subscription

325,280 

87 

%

376,696 

91 

%

(51,416)

(14)

%

Consulting

(2,061)

(4)

%

(3,513)

(6)

%

1,452 

41 

%

$

323,219 

75 

%

$

373,183 

78 

%

$

(49,964)

(13)

%

•The decrease in Pega Cloud gross profit percent in the three months ended March 31, 2026 was primarily due to an increase in personnel-related costs associated with investments made to support our cloud operations.

•The increase in consulting gross profit percent in the three months ended March 31, 2026 was primarily due to a decrease in compensation and benefits of $6.4 million, which was 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

March 31,

Change

202

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-02-10. Report date: 2025-12-31.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

24

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 can leverage 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:

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)

December 31, 2024

December 31, 2025

Change

Constant Currency Change

Pega Cloud

$

652,443 

$

866,612 

$

214,169 

33 

%

28 

%

Maintenance

291,807 

288,873 

(2,934)

(1)

%

(4)

%

Subscription services

944,250 

1,155,485 

211,235 

22 

%

18 

%

Subscription license

427,268 

452,902 

25,634 

6 

%

4 

%

$

1,371,518 

$

1,608,387 

$

236,869 

17 

%

14 

%

Reconciliation of ACV and constant currency ACV

(in millions, except percentages)

December 31, 2024

December 31, 2025

1-Year Change

ACV

$

1,372 

$

1,608 

17 

%

Impact of changes in foreign exchange rates

— 

(46)

Constant currency ACV

$

1,372 

$

1,562 

14 

%

Note: Constant currency ACV is calculated by applying the December 31, 2024 foreign exchange rates to current period shown.

25

(Dollars in thousands)

2024

2025

Change

Cash provided by operating activities

$

345,926 

$

505,227 

46 

%

Investment in property and equipment

(7,712)

(14,504)

Free cash flow (1)

$

338,214 

$

490,723 

45 

%

Supplemental information (2)

Litigation settlement, net of recoveries

$

32,403 

$

— 

Legal fees

16,197 

35,484 

Restructuring

5,252 

2,056 

Interest paid on convertible senior notes

3,810 

1,754 

Income taxes, net of refunds

82,317 

21,630 

$

139,979 

$

60,924 

(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 discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance.

◦Litigation settlement, net of recoveries: Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See "Note 20. Commitments And Contingencies" in Item 8 of this Annual Report for further information.

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

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

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

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

26

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

(in millions, except percentages)

December 31, 2024

December 31, 2025

1-Year Growth Rate

Backlog - GAAP

$

1,623 

$

2,074 

28 

%

Impact of changes in foreign exchange rates

— 

(80)

Constant currency backlog

$

1,623 

$

1,994 

23 

%

Note: Constant currency Backlog is calculated by applying the December 31, 2024 foreign exchange rates to current period shown.

RESULTS OF OPERATIONS

Revenue

(Dollars in thousands)

2025

2024

Change

Pega Cloud

$

695,902 

40 

%

$

558,734 

37 

%

$

137,168 

25 

%

Maintenance

314,593 

18 

%

323,304 

22 

%

(8,711)

(3)

%

Subscription services

1,010,495 

58 

%

882,038 

59 

%

128,457 

15 

%

Subscription license

507,368 

29 

%

401,869 

27 

%

105,499 

26 

%

Subscription

1,517,863 

87 

%

1,283,907 

86 

%

233,956 

18 

%

Consulting

227,949 

13 

%

213,273 

14 

%

14,676 

7 

%

$

1,745,812 

100 

%

$

1,497,180 

100 

%

$

248,632 

17 

%

•The increase in Pega Cloud revenue in 2025 was primarily due to expanded adoption of Pega Cloud by our existing clients.

•The decrease in maintenance revenue in 2025 was primarily due to our clients’ shift to Pega Cloud-based offerings, which do not generally result in maintenance revenue.

•The increase in subscription license revenue in 2025 was primarily due to our clients’ shift to Pega Cloud-based offerings, and several large multi-year subscription license contracts recognized in revenue in 2025.

•The increase in consulting revenue in 2025 was primarily due to an increase in consultant billable hours in our International regions.

27

Gross profit

2025

2024

(Dollars in thousands)

Gross Profit %

Gross Profit %

Change

Pega Cloud

$

548,523 

79 

%

$

434,261 

78 

%

$

114,262 

26 

%

Maintenance

292,725 

93 

%

297,859 

92 

%

(5,134)

(2)

%

Subscription services

841,248 

83 

%

732,120 

83 

%

109,128 

15 

%

Subscription license

505,986 

100 

%

399,964 

100 

%

106,022 

27 

%

Subscription

1,347,234 

89 

%

1,132,084 

88 

%

215,150 

19 

%

Consulting

(22,804)

(10)

%

(25,569)

(12)

%

2,765 

11 

%

$

1,324,430 

76 

%

$

1,106,515 

74 

%

$

217,915 

20 

%

The gross profit change in 2025 was primarily due to a shift in the revenue mix. Also contributing to the change was:

•The increase in Pega Cloud gross profit percent in 2025 was primarily due to increased hosting cost efficiencies as Pega Cloud continues to grow and scale and a reallocation of certain headcount from Pega Cloud to Maintenance to align with the change in the nature of their responsibilities.

•The increase in consulting gross profit percent in 2025 was primarily due to an increase in consultant utilization rates offset by an increase in contracted services of $6.1 million.

Operating expenses

2025

2024

Change

(Dollars in thousands)

% of Revenue

% of Revenue

Selling and marketing

$

578,637 

33 

%

$

534,780 

36 

%

$

43,857 

8 

%

Research and development

$

312,681 

18 

%

$

298,074 

20 

%

$

14,607 

5 

%

General and administrative

$

148,722 

9 

%

$

112,848 

8 

%

$

35,874 

32 

%

Litigation settlement, net of recoveries

$

9,750 

1 

%

$

32,403 

2 

%

$

(22,653)

*

Restructuring

$

11,540 

1 

%

$

4,528 

— 

%

$

7,012 

155 

%

* Not meaningful

•The increase in selling and marketing in 2025 was primarily due to an increase in compensation and benefits of $31.3 million attributable to increases in headcount and incentive compensation.

•The increase in research and development in 2025 was primarily due to an increase in compensation and benefits of $11.6 million attributable to increases in headcount and incentive compensation.

•The increase in general and administrative in 2025 was primarily due to an increase of $20.4 million 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 20. Commitments And Contingencies" in Item 8 of this Annual Report. In 2025 we experienced an increase of $11.8 million in compensation and benefits attributable to equity compensation and a reallocation of certain headcount from research and development to general and administrative to align with the change in the nature of their responsibilities.

•The decrease in litigation settlement, net of recoveries in 2025 was primarily due to the estimated cost to settle ongoing litigation arising from proceedings outside the ordinary course of business. For additional information, see "Note 20. Commitments And Contingencies" in Item 8 of this Annual Report.

•During the fourth quarter of 2025, management committed to a restructuring plan, primarily within our consulting organization, intended to better align roles and capacity to an AI-first delivery model. The plan resulted in a restructuring expense of approximately $13 million in 2025, associated with severance and benefits for impacted employees. For additional information, see "Note 12. Restructuring" in Item 8 of this Annual Report.

Other income and expenses

(Dollars in thousands)

2025

2024

Change

Foreign currency transaction (loss)

$

(14,890)

$

(912)

$

(13,978)

*

Interest income

13,641 

25,779 

(12,138)

(47)

%

Interest expense

(1,285)

(6,835)

5,550 

81 

%

(Loss) on capped call transactions

(223)

(663)

440 

66 

%

Other income, net

20,284 

1,385 

18,899 

*

$

17,527 

$

18,754 

$

(1,227)

(7)

%

* Not meaningful

•The change in foreign currency transaction (loss) in 2025 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with foreign currency-denominated receivables held by our subsidiary in the United Kingdom.

28

•The decrease in interest income in 2025 was primarily due to lower investment balances as a result of the repayment of the Notes at maturity during the three months ended March 31, 2025.

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

•The increase in other income, net in 2025 was primarily due to the gain from the partial sale of a venture investment. For additional information, see "Note 13. Fair Value Measurements" in Item 8 of this Annual Report.

(Benefit from) provision for income taxes

(Dollars in thousands)

2025

2024

(Benefit from) provision for income taxes

$

(112,810)

$

43,447 

Effective income tax rate

(40)

%

30 

%

The effective income tax rate and tax benefit recorded in 2025 was primarily driven by the release of the valuation allowance on our net deferred tax assets in the U.S. and U.K.

The Organization for Economic Co-operation and Development (“OECD”) has introduced new global minimum tax regulations, known as Pillar Two, that was supported by over 130 countries worldwide. Certain aspects of Pillar Two are effective for tax years beginning on or after January 1, 2024. Although the U.S. has not enacted legislation to adopt Pillar Two, certain countries in which we operate have already adopted, or are in the process of adopting, legislation to implement Pillar Two. We do not expect this legislation to have a material impact on our consolidated financial statements. We will continue to monitor and evaluate new legislation and guidance, which could change our current assessment.

LIQUIDITY AND CAPITAL RESOURCES

(in thousands)

2025

2024

Cash (used in) provided by

Operating activities

$

505,227 

$

345,926 

Investing activities

197,246 

(202,576)

Financing activities

(834,630)

(30,214)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

6,988 

(4,434)

Net (decrease) increase in cash, cash equivalents, and restricted cash

$

(125,169)

$

108,702 

December 31,

(in thousands)

2025

2024

Held in U.S. entities

$

157,449 

$

474,509 

Held in foreign entities

268,350 

265,464 

Total cash, cash equivalents, and marketable securities

425,799 

739,973 

Restricted cash included in other current assets

1,577 

98 

Restricted cash included in other long-term assets

2,336 

4,328 

Total cash, cash equivalents, marketable securities, and restricted cash

$

429,712 

$

744,399 

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. For additional information, see risk factor "If it becomes necessary or desirable to repatriate our foreign cash balances to the United States, we may be subject to increased taxes, other restrictions, and limitations" in Item 1A of this Annual Report.

Operating activities

The change in cash provided by operating activities in 2025 was primarily due to increase in client collections.

Investing activities

The change in cash provided by (used in) investing activities in 2025 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes and the consideration received from the sale of a venture investment.

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Financing activities

Debt financing

In February 2020, we issued $600 million in aggregate principal amount of Notes, which matured on March 1, 2025. The remaining outstanding principal balance on the Notes and accrued interest totaling $469.6 million was repaid in its entirety at maturity during the three months ended March 31, 2025. For additional information, see "Note 11. Debt" in Item 8 of this Annual Report.

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 December 31, 2025 and December 31, 2024, we had letters of credit of $26.7 million and $27.3 million, respectively, under the Credit Facility, however we had no cash borrowings.

Stock repurchase program

Changes in the remaining stock repurchase authority:

(in thousands)(1)

2025

December 31, 2024

$

240,443 

Authorizations (2)

500,000 

Repurchases (3)

(498,189)

December 31, 2025

$

242,254 

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

(2) On April 22, 2025, our Board of Directors extended the expiration date of the share repurchase program from December 31, 2025 to June 30, 2026 and increased the authorized repurchase amount by $500 million. On February 10, 2026, our Board of Directors further 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

2025

2024

(in thousands)

Shares

Amount

Shares

Amount

Repurchases paid

10,659 

$

498,189 

1,618 

$

68,057 

Repurchases unpaid at period end

— 

— 

32 

1,500 

Stock repurchase program (1)

10,659 

498,189 

1,650 

69,557 

Tax withholdings for net settlement of equity awards

328 

17,541 

150 

5,435 

10,987 

$

515,730 

1,800 

$

74,992 

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

On June 20, 2025, we effected the Stock Split of our Common Stock described within "Note 1. Basis Of Presentation" in Item 8 of this Annual Report. All share and per share amounts in our consolidated financial statements and in the accompanying notes for all prior periods presented have been recast to reflect the effect of the Stock Split.

In 2025 and 2024, instead of receiving cash from the equity holders, we withheld shares with a value of $22.4 million and $6.3 million, respectively, for the exercise price of options. These amounts are not included in the table above.

Dividends

(in thousands)

2025

2024

Dividend payments to stockholders

$

15,422 

$

10,199 

Following the Stock Split and commencing with the third quarter of 2025, we paid and intend to continue to pay a quarterly cash dividend of $0.03 per share, or the equivalent of $0.06 per share prior to the Stock Split. However, the Board of Directors may terminate or modify the dividend program without prior notice.

30

Contractual obligations

As of December 31, 2025, our contractual obligations were:

Payments due by period

(in thousands)

2026

2027

2028

2029

2030 and thereafter

Other

Total

Purchase obligations (1)

$

143,478 

$

190,521 

$

46,489 

$

721 

$

775 

$

381,984 

Operating lease obligations

18,275 

16,635 

14,879 

12,046 

25,263 

— 

87,098 

Venture investment commitments (2)

1,600 

— 

— 

— 

— 

— 

1,600 

Liability for uncertain tax positions (3)

— 

— 

— 

— 

— 

23,331 

23,331 

$

163,353 

$

207,156 

$

61,368 

$

12,767 

$

26,038 

$

23,331 

$

494,013 

(1) Represents the fixed amount owed for purchase obligations including software licenses, hosting services, and sales and marketing programs.

(2) Represents the maximum funding under existing venture investment agreements. Our venture investment agreements generally allow us to withhold unpaid funds at our discretion.

(3) We cannot reasonably estimate the timing of this cash outflow due to uncertainties in the timing of the effective settlement of tax positions.

A detailed discussion and analysis of the 2024 year-over-year changes can be found in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2024.

CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGMENTS

Management’s discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared following accounting principles generally accepted in the U.S. and the rules and regulations of the U.S. Securities and Exchange Commission for annual financial reporting. Preparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and beliefs about what could occur in the future, given the available information.

We believe that of our significant accounting policies, described in “Note 2. Significant Accounting Policies” in Item 8 of this Annual Report, the following accounting policies are most important to the portrayal of our financial condition and require the most subjective judgment. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements.

Revenue recognition

Our client contracts typically contain promises by us to provide multiple products and services. Specifically, contracts associated with Pega Platform sales and other software applications, sold as licenses to use functional intellectual property or as a cloud-based solution, typically include consulting services. Determining whether such products and services within a client contract are considered distinct performance obligations that should be accounted for separately requires significant judgment. Accordingly, we review client contracts to identify all separate promises to transfer goods and services that would be considered performance obligations. Judgment is also required in determining whether an option to acquire additional products and services within a client contract represents a material right that the client would not receive without entering into that contract.

A contract modification is a legally binding change to an existing contract’s scope, price, or both. Contract modifications are reviewed to determine whether they should be accounted for as part of the original contract or as a separate contract. This determination requires significant judgment, which could impact the timing of revenue recognition. We typically account for contract modifications prospectively as a separate contract. The additional performance obligation(s) in our contract modifications are generally distinct and priced at their stand-alone selling price.

We allocate the transaction price to the distinct performance obligations, including options in contracts determined to represent a material right, based on each performance obligation's relative stand-alone selling price. Judgment is required in estimating stand-alone selling prices. We maximize the use of observable inputs by maintaining pricing analyses that consider our pricing policies, historical stand-alone sales when they exist, and historical renewal prices charged to clients. We have concluded that the stand-alone selling prices of certain performance obligations, specifically software licenses and Pega Cloud arrangements, are highly variable. In these instances, we estimate the stand-alone selling prices using the residual approach, which is determined based on the total transaction price minus the stand-alone selling price of other performance obligations promised in the contract. We update our stand-alone selling price analysis periodically, including a re-assessment of whether the residual approach used to determine the stand-alone selling prices for software licenses and Pega Cloud arrangements remains appropriate.

Changes in the assumptions or judgments used in determining the performance obligations in client contracts and stand-alone selling prices could significantly impact the timing and amount of revenue we report in a particular period.

For additional information see "Note 2. Significant Accounting Policies", "Note 4. Receivables, Contract Assets, And Deferred Revenue", and "Note 15. Revenue" in Item 8 of this Annual Report.

31

Goodwill impairment

Our goodwill arises from our previous business acquisitions.

•Goodwill is tested for impairment at least annually or as circumstances indicate its value may no longer be recoverable.

•We do not have any intangible assets with indefinite useful lives other than goodwill.

•We perform our annual goodwill impairment test as of November 30th. To assess if goodwill is impaired, we first perform a qualitative assessment to determine whether further impairment testing is necessary. If, based on the qualitative assessment, we consider it more-likely-than-not that our reporting unit's fair value is less than its carrying amount, we perform a quantitative impairment test. An excess of carrying value over fair value would indicate that goodwill may be impaired.

•We periodically reevaluate our business and have determined that we have one operating segment and one reporting unit. If our assumptions change in the future, we may be required to record impairment charges to reduce our goodwill's carrying value. Changes in the valuation of goodwill could materially impact our operating results and financial position.

As of December 31, 2025, we had $81.5 million of goodwill. Changes in the valuation of long-lived assets could materially impact our operating results and financial position. To date, there have been no impairments of goodwill.

For additional information see "Note 2. Significant Accounting Policies" and "Note 7. Goodwill And Other Intangible Assets" in Item 8 of this Annual Report.

Accounting for income taxes

Significant judgment is required to determine our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in applying accounting principles and complex tax laws. Accordingly, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact our financial statements.

We regularly assess the need for a valuation allowance against our deferred tax assets. The future realization of our deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods. Changes in our valuation allowance impact income tax expense in the period of adjustment. Our deferred tax valuation allowance requires significant judgment and uncertainties, including assumptions about future taxable income based on historical and projected information.

We recognize deferred tax assets to the extent that we believe they are more likely than not to be realized. In making such a determination, we consider all available objective and verifiable negative and positive evidence, including future reversals of existing taxable temporary differences, projected future taxable income (including the impact of enacted legislation), tax-planning strategies and results of recent operations. As of December 31, 2025, we concluded that substantially all of our deferred tax assets are more likely than not to be realized.

We assess our income tax positions and record tax benefits based on management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements.

As a global company, we use significant judgment to calculate and provide for income taxes in each of the tax jurisdictions in which we operate. In the ordinary course of our business, transactions and calculations occur whose ultimate tax outcome cannot be certain. Some of these uncertainties arise due to transfer pricing for transactions with our subsidiaries, the determination of tax nexus, and tax credit estimates. In addition, the calculation of acquired tax attributes and the associated limitations are complex. We estimate our exposure to unfavorable outcomes related to these uncertainties and the probability of such outcomes.

Although we believe our estimates are reasonable, there is no guarantee that the final tax outcome will not differ from what is reflected in our historical income tax provisions, returns, and accruals. Such differences, or changes in estimates relating to potential differences, could have a material impact on our income tax provision and operating results in the period such a determination is made.

For additional information see "Note 2. Significant Accounting Policies" and "Note 18. Income Taxes" in Item 8 of this Annual Report.

Loss Contingencies

We are subject to various claims, including claims with customers and vendors, pending and potential legal actions for damages, investigations relating to governmental laws and regulations, and other matters arising out of the normal conduct of our business. When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict, and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is common for such matters to be resolved over many years, during which time relevant developments and new information must be reevaluated at least quarterly to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. When a material loss is reasonably possible or probable, but a reasonable estimate cannot be made, disclosure of the proceeding is provided. Legal fees are recognized as incurred when the legal services are provided.

We review all contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the potential loss or range of the loss can be made.

32

See "Note 2. Significant Accounting Policies" and "Note 20. Commitments And Contingencies" in Item 8 of this Annual Report for additional information.