What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2025-04-22 compared with 2024-10-23 · 273 added, 272 removed, 472 unchanged (54% of the section changed)

3 unchanged sentences

(in thousands)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Current assets:

22 unchanged sentences

Total current liabilities 609,136 1,086,058

Long-term convertible senior notes, net

Long-term operating lease liabilities

7 unchanged sentences

85,562 and 86,112 shares issued and outstanding at

September 30, 2024 and December 31, 2023, respectively

March 31, 2025 and December 31, 2024, respectively

Additional paid-in capital 461,354 526,963

(Accumulated deficit) ( 28,606 ) ( 8,705 )

Retained earnings 170,756 87,901

Accumulated other comprehensive (loss) ( 21,697 ) ( 30,245 )

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Subscription services $ 227,491 $ 211,903

17 unchanged sentences

Total operating expenses 246,194 255,901

(Loss) from operations ( 11,661 ) ( 10,816 ) ( 19,107 ) ( 74,312 )

Foreign currency transaction (loss) gain ( 4,405 ) 1,994 ( 7,230 ) ( 3,971 )

Income (loss) from operations 126,989 ( 20,412 )

Foreign currency transaction (loss) ( 5,325 ) ( 3,262 )

Interest income 5,335 5,281

Interest expense ( 1,027 ) ( 1,752 )

(Loss) on capped call transactions ( 689 ) ( 2,294 ) ( 667 ) ( 449 )

(Loss) income on capped call transactions ( 223 ) 3,299

Other income, net 561 1,684

(Loss) before provision for income taxes ( 11,625 ) ( 3,734 ) ( 11,532 ) ( 59,462 )

Provision for income taxes 2,765 3,545 8,369 15,395

Net (loss) $ ( 14,390 ) $ ( 7,279 ) $ ( 19,901 ) $ ( 74,857 )

(Loss) per share

Income (loss) before provision for (benefit from) income taxes 126,310 ( 15,162 )

Provision for (benefit from) income taxes 40,888 ( 3,038 )

Net income (loss) $ 85,422 $ ( 12,124 )

Earnings (loss) per share

Basic $ 0.99 $ ( 0.14 )

5 unchanged sentences

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Net (loss) $ ( 14,390 ) $ ( 7,279 ) $ ( 19,901 ) $ ( 74,857 )

Net income (loss) $ 85,422 $ ( 12,124 )

Other comprehensive income (loss), net of tax

Unrealized gain (loss) on available-for-sale securities 660 ( 40 ) ( 158 ) ( 281 )

Unrealized (loss) on available-for-sale securities ( 262 ) ( 746 )

Foreign currency translation adjustments 8,810 ( 3,427 )

Total other comprehensive income (loss), net of tax 8,548 ( 4,173 )

Comprehensive (loss) $ ( 3,526 ) $ ( 11,006 ) $ ( 15,424 ) $ ( 76,875 )

Comprehensive income (loss) $ 93,970 $ ( 16,297 )

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except per share amounts)

Common Stock Additional paid-in capital (Accumulated deficit) Accumulated other comprehensive (loss) Total stockholders’ equity

December 31, 2022 82,436 $ 824 $ 229,602 $ ( 76,513 ) $ ( 23,070 ) $ 130,843

Issuance of common stock for stock compensation plans 452 4 668 — — 672

Issuance of common stock under the employee stock purchase plan 52 1 2,142 — — 2,143

Stock-based compensation — — 42,557 — — 42,557

Cash dividends declared ($ 0.03 per share)

— — ( 2,488 ) — — ( 2,488 )

Other comprehensive income — — — — 1,543 1,543

Net (loss) — — — ( 20,774 ) — ( 20,774 )

March 31, 2023 82,940 $ 829 $ 272,481 $ ( 97,287 ) $ ( 21,527 ) $ 154,496

Issuance of common stock for stock compensation plans 225 2 1,824 — — 1,826

Issuance of common stock under the employee stock purchase plan 47 1 1,980 — — 1,981

Stock-based compensation — — 36,227 — — 36,227

Cash dividends declared ($ 0.03 per share)

— — ( 2,496 ) — — ( 2,496 )

Other comprehensive income — — — — 166 166

Net (loss) — — — ( 46,804 ) — ( 46,804 )

June 30, 2023 83,212 $ 832 $ 310,016 $ ( 144,091 ) $ ( 21,361 ) $ 145,396

Issuance of common stock for stock compensation plans 257 3 2,447 — — 2,450

Issuance of common stock under the employee stock purchase plan 54 — 2,003 — — 2,003

Stock-based compensation — — 31,299 — — 31,299

Cash dividends declared ($ 0.03 per share)

— — ( 2,506 ) — — ( 2,506 )

Other comprehensive (loss) — — — — ( 3,727 ) ( 3,727 )

Net (loss) — — — ( 7,279 ) — ( 7,279 )

September 30, 2023 83,523 $ 835 $ 343,259 $ ( 151,370 ) $ ( 25,088 ) $ 167,636

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

Common Stock Additional paid-in capital (Accumulated deficit) Accumulated other comprehensive (loss) Total stockholders’ equity

Common Stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) Total stockholders’ equity

December 31, 2023 83,840 $ 838 $ 379,584 $ ( 8,705 ) $ ( 17,879 ) $ 353,838

7 unchanged sentences

March 31, 2024 85,011 $ 850 $ 432,217 $ ( 20,829 ) $ ( 22,052 ) $ 390,186

Issuance of common stock for stock compensation plans 326 4 5,481 — — 5,485

Issuance of common stock under the employee stock purchase plan 32 — 1,669 — — 1,669

Stock-based compensation — — 36,224 — — 36,224

Cash dividends declared ($ 0.03 per share)

— — ( 2,561 ) — — ( 2,561 )

Other comprehensive (loss) — — — — ( 2,214 ) ( 2,214 )

Net income — — — 6,613 — 6,613

June 30, 2024 85,369 $ 854 $ 473,030 $ ( 14,216 ) $ ( 24,266 ) $ 435,402

December 31, 2024 86,112 $ 861 $ 526,963 $ 87,901 $ ( 30,245 ) $ 585,480

Repurchase of common stock ( 1,460 ) ( 15 ) ( 118,689 ) — — ( 118,704 )

5 unchanged sentences

Other comprehensive income — — — — 8,548 8,548

Net (loss) — — — ( 14,390 ) — ( 14,390 )

September 30, 2024 85,808 $ 858 $ 514,173 $ ( 28,606 ) $ ( 13,402 ) $ 473,023

Net income — — — 85,422 — 85,422

March 31, 2025 85,562 $ 856 $ 461,354 $ 170,756 $ ( 21,697 ) $ 611,269

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

Net (loss) $ ( 19,901 ) $ ( 74,857 )

Adjustments to reconcile net (loss) to cash provided by operating activities

Net income (loss) $ 85,422 $ ( 12,124 )

Adjustments to reconcile net income (loss) to cash provided by operating activities

Stock-based compensation 41,425 34,781

1 unchanged sentence

Amortization of intangible assets and depreciation 3,137 4,254

Lease expense 13,748 12,018

Amortization of right-of-use lease assets 2,826 3,472

Foreign currency transaction loss 5,325 3,262

Loss on capped call transactions 667 449

Loss (gain) on capped call transactions 223 ( 3,299 )

Deferred income taxes 179 ( 646 )

(Accretion) of investments ( 1,526 ) ( 2,612 )

(Gain) on investments ( 751 ) ( 1,628 )

(Gain) on repurchases of convertible senior notes — ( 7,855 )

Other non-cash 1,067 726

6 unchanged sentences

Investment in property and equipment ( 1,880 ) ( 604 )

Cash (used in) investing activities ( 215,999 ) ( 24,176 )

Cash provided by (used in) investing activities 261,895 ( 132,399 )

Financing activities

4 unchanged sentences

Common stock repurchases under stock repurchase program ( 117,204 ) —

Cash provided by (used in) financing activities 26,949 ( 85,031 )

Cash (used in) provided by financing activities ( 575,986 ) 17,899

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 3,570 ( 2,803 )

Net increase in cash, cash equivalents, and restricted cash 66,238 27,092

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 106,293 ) 62,843

Cash, cash equivalents, and restricted cash, beginning of period 341,529 232,827

14 unchanged sentences

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 2024.

The operating results for the interim periods presented do not necessarily indicate the expected results for fiscal year 2025.

NEW ACCOUNTING PRONOUNCEMENTS

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”).

ASU 2023-09 includes expanded income tax rate reconciliation disclosures, a disaggregation of income taxes paid, and other expanded disclosures.

ASU 2023-09 will be effective for the Company for the year ending December 31, 2025.

The Company expects the adoption to result in disclosure changes only.

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.

MARKETABLE SECURITIES

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

(in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value

2 unchanged sentences

$ 140,501 $ 148 $ ( 42 ) $ 140,607 $ 402,948 $ 64 $ ( 142 ) $ 402,870

As of September 30, 2024, marketable securities’ maturities ranged from October 2024 to January 2026, with a weighted-average remaining maturity of 0.3 years.

As of March 31, 2025, marketable securities’ maturities ranged from April 2025 to March 2028, with a weighted-average remaining maturity of 1.4 years.

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

(in thousands)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Accounts receivable, net $ 202,869 $ 305,468

8 unchanged sentences

(Dollars in thousands)

September 30, 2024

March 31, 2025

1 year or less $ 179,093 65 %

2 unchanged sentences

$ 277,344 100 %

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unbilled receivables by contract effective date:

(Dollars in thousands)

September 30, 2024

March 31, 2025

2025 $ 87,964 32 %

4 unchanged sentences

$ 277,344 100 %

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Major clients

Clients that represented 10% or more of the Company’s total accounts receivable and unbilled receivables:

March 31, 2025 December 31, 2024

Accounts receivable * 20 %

Unbilled receivables * — %

Total receivables * 11 %

Accounts receivable — % *

Unbilled receivables 18 % *

Total receivables 11 % *

*Client accounted for less than 10% of total accounts receivable and unbilled receivables.

Contract assets

1 unchanged sentence

(in thousands)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Contract assets (1)

3 unchanged sentences

$ 37,629 $ 31,819

(1) Included in other current assets.

(2) Included in other long-term assets.

Deferred revenue

1 unchanged sentence

(in thousands)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Deferred revenue $ 469,298 $ 423,910

1 unchanged sentence

$ 473,394 $ 426,031

Deferred revenue decreased in the nine months ended September 30, 2024, primarily due to $ 340.4 million of revenue recognized during the period included in deferred revenue as of December 31, 2023 exceeding new billings in advance of revenue recognition.

(1) Included in other long-term liabilities.

The change in deferred revenue during the three months ended March 31, 2025 was primarily due to new billings in advance of revenue recognition and $ 190.2 million of revenue recognized during the period included in deferred revenue as of December 31, 2024 .

DEFERRED COMMISSIONS

(in thousands)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Deferred commissions (1)

$ 106,674 $ 105,405

(1) Included in other long-term assets.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2025 2024

1 unchanged sentence

$ 18,504 $ 17,282

(1) Included in selling and marketing.

(1) Included in selling and marketing expenses.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

GOODWILL AND OTHER INTANGIBLES

Nine Months Ended

September 30,

Three Months Ended

(in thousands)

1 unchanged sentence

Currency translation adjustments 73 ( 144 )

September 30, $ 81,568 $ 81,437

March 31, $ 81,186 $ 81,467

Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.

September 30, 2024

March 31, 2025

(in thousands) Useful Lives Cost Accumulated Amortization Net Book Value (1)

4 unchanged sentences

$ 136,606 $ ( 133,474 ) $ 3,132

(1) Included in other long-term assets.

December 31, 2024

7 unchanged sentences

$ 136,583 $ ( 132,751 ) $ 3,832

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(1) Included in other long-term assets.

Future estimated amortization of intangible assets:

(in thousands)

September 30, 2024

March 31, 2025

Remainder of 2025 $ 1,930

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2025 2024

Cost of revenue

$ 357 $ 622 $ 1,425 $ 1,949

Selling and marketing

343 343 1,028 1,028

$ 700 $ 965 $ 2,453 $ 2,977

OTHER ASSETS AND LIABILITIES

Other current assets

(in thousands) September 30, 2024 December 31, 2023

(in thousands) March 31, 2025 December 31, 2024

Prepaid expenses $ 47,388 $ 38,155

Income tax receivables 26,435 58,359

Contract assets 14,620 13,498

Insurance receivable — 1,954

Indirect tax receivable 1,919 2,488

3 unchanged sentences

$ 92,794 $ 115,178

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other long-term assets

(in thousands) September 30, 2024 December 31, 2023

(in thousands) March 31, 2025 December 31, 2024

Deferred commissions $ 106,674 $ 105,405

3 unchanged sentences

Contract assets 23,009 18,321

Income taxes receivable 14,663 13,299

Intangible assets 3,132 3,832

Capped call transactions — 893

Deferred income taxes 4,236 4,268

2 unchanged sentences

$ 296,021 $ 292,049

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accrued expenses

(in thousands) September 30, 2024 December 31, 2023

(in thousands) March 31, 2025 December 31, 2024

Cloud hosting $ 14,008 $ 1,802

3 unchanged sentences

Employee related 4,618 4,833

Repurchases of common stock unsettled 3,000 1,500

Other 4,772 5,565

1 unchanged sentence

Other current liabilities

(in thousands) September 30, 2024 December 31, 2023

(in thousands) March 31, 2025 December 31, 2024

Operating lease liabilities $ 14,149 $ 14,551

3 unchanged sentences

Other long-term liabilities

(in thousands) September 30, 2024 December 31, 2023

(in thousands) March 31, 2025 December 31, 2024

Deferred revenue $ 4,096 $ 2,121

2 unchanged sentences

$ 36,428 $ 29,088

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, 2024.

The CODM uses consolidated net income (loss) to set financial performance targets, assess performance, and make expense allocation decisions.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2025 2024

Total revenue $ 475,633 $ 330,147

Total cost of revenue 102,450 94,658

119,118 110,089

18,951 17,606

Research and development 74,286 72,113

General and administrative 33,828 23,527

Other segment items, net (1)

Provision for (benefit from) income taxes 40,888 ( 3,038 )

Net income (loss) $ 85,422 $ ( 12,124 )

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

March 31, 2025 December 31, 2024

$ 36,854 90 % $ 37,405 89 %

International 3,930 10 % 4,401 11 %

$ 40,784 100 % $ 41,806 100 %

On January 1, 2025, the Company relocated its corporate headquarters to 225 Wyman Street, Waltham, Massachusetts.

A copy of the lease is filed as Exhibit 10.30 to our Annual Report on Form 10-K for the year ended December 31, 2024.

Three Months Ended

(in thousands) 2025 2024

Fixed lease costs $ 3,776 $ 4,262

3 unchanged sentences

Right of use assets and lease liabilities

(in thousands) September 30, 2024 December 31, 2023

(in thousands) March 31, 2025 December 31, 2024

Right of use assets (1)

3 unchanged sentences

Long-term operating lease liabilities $ 65,117 $ 67,647

(1) Included in other long-term assets.

(2) Included in other current liabilities.

Weighted-average remaining lease term and discount rate for the Company’s leases were:

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Weighted-average remaining lease term 6.1 years 6.2 years

6 unchanged sentences

Maturities of lease liabilities:

(in thousands) September 30, 2024

(in thousands) March 31, 2025

Remainder of 2025 $ 13,689

4 unchanged sentences

Cash flow information

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2025 2024

4 unchanged sentences

In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal of $ 600 million, due March 1, 2025, in a private placement.

No principal payments are due before maturity.

The Notes accrue interest at an annual rate of 0.75 %, payable semi-annually in arrears on March 1 and September 1, beginning September 1, 2020.

In the nine months ended September 30, 2023, the Company recognized a gain of $ 7.9 million, in other income, net from repurchases of Notes representing $ 97.7 million in aggregate principal amount.

No principal payments were due before maturity.

The Notes accrued interest at an annual rate of 0.75 %, paid semi-annually in arrears on March 1 and September 1, beginning September 1, 2020.

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.

Conversion rights

The conversion rate is 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of $ 135.05 per share of common stock.

The conversion rate will be adjusted upon certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions.

The Company will settle conversions by paying or delivering cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate.

Beginning on September 1, 2024, noteholders may convert their Notes at any time at their election.

Before September 1, 2024, noteholders could convert their Notes in the following circumstances:

• During any calendar quarter beginning after June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter.

• During the five consecutive business days immediately after any five consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.

• Upon certain corporate events or distributions or if the Company calls any Notes for redemption, noteholders may convert before the close of business on the business day immediately before the related redemption date (or, if the Company fails to pay the redemption price in full on the redemption date until the Company pays the redemption price).

Repurchase rights

On or after March 1, 2023 and on or before the 40 th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the Notes at a repurchase price equal to 100 % of the principal amount, plus accrued and unpaid interest, if the last reported sale price of the Company’s common stock exceeded 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

If certain corporate events that constitute a “Fundamental Change” occur, each noteholder will have the right to require the Company to repurchase for cash all of such noteholder’s Notes, or any portion of the principal thereof that is equal to $1,000 or a multiple of $1,000, at a repurchase price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest.

A Fundamental Change relates to mergers, changes in control of the Company, liquidation/dissolution of the Company, or the delisting of the Company’s common stock.

The conversion rate was 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of $ 135.05 per share of common stock.

Carrying value of the Notes:

(in thousands) September 30, 2024 December 31, 2023

(in thousands) March 31, 2025 December 31, 2024

Principal $ — $ 467,864

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2025 2024

Contractual interest expense ( 0.75 % coupon)

$ 941 $ 827 $ 2,825 $ 2,949

Amortization of issuance costs

$ 989 $ 1,559

$ 1,562 $ 1,440 $ 4,682 $ 4,937

The average interest rate on the Notes in the nine months ended September 30, 2024 and 2023 was 1.2 %.

Future payments:

September 30, 2024

(in thousands) Principal Interest Total

2025 $ 502,270 $ 1,884 $ 504,154

$ 502,270 $ 1,884 $ 504,154

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The average interest rate on the Notes in the three months ended March 31, 2025 and 2024 was 1.2 %.

Capped call transactions

1 unchanged sentence

The Capped Call Transactions initially covered approximately 4.4 million shares (representing the number of shares for which the Notes were initially convertible) of the Company’s common stock.

In the nine months ended September 30, 2023, Capped Call Transactions covering approximately 0.7 million shares were settled for proceeds of $ 0.3 million.

As of September 30, 2024, Capped Call Transactions covering approximately 3.7 million shares were outstanding.

The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $ 196.44 .

The cap price of the Capped Call Transactions is subject to adjustment upon specified extraordinary events affecting the Company, including mergers and tender offers.

The Capped Call Transactions are accounted for as derivative instruments and do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value calculated following the governing documents may not represent a fair value measurement.

The Capped Call Transactions are remeasured to fair value each reporting period, resulting in a non-operating gain or loss.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of December 31, 2024, Capped Call Transactions covering approximately 3.5 million shares were outstanding, and expired upon maturity of the Notes during the three months ended March 31, 2025.

The Capped Call Transactions were expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $ 196.44 .

The cap price of the Capped Call Transactions was subject to adjustment upon specified extraordinary events affecting the Company, including mergers and tender offers.

The Capped Call Transactions were accounted for as derivative instruments and did not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value calculated following the governing documents may not represent a fair value measurement.

The Capped Call Transactions were remeasured to fair value each reporting period, resulting in a non-operating gain or loss.

Change in capped call transactions:

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2025 2024

January 1, $ 223 $ 893

Settlements — ( 341 )

Fair value adjustment ( 223 ) 3,299

September 30, $ 226 $ 1,792

March 31, $ — $ 4,192

Credit facility

2 unchanged sentences

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 commitments were originally scheduled to expire on November 4, 2024, and any outstanding loans would have been payable on such date.

However on April 23, 2024, the Credit Facility was amended to extend the expiration date to February 4, 2025.

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 September 30, 2024 and December 31, 2023, the Company had $ 27.3 million in outstanding letters of credit under the Credit Facility, reducing available borrowing capacity, but no outstanding cash borrowings.

Effective as of February 4, 2025, the Credit Facility was amended to extend the expiration date to February 4, 2027.

As of March 31, 2025 and December 31, 2024, the Company had $ 27.3 million in outstanding letters of credit under the Credit Facility, reducing available borrowing capacity, but no outstanding cash borrowings.

RESTRUCTURING

The Company has undertaken the following restructuring activities as it optimizes its go-to-market strategy and reassesses its office space needs:

(in thousands) Three months ended Expense

Office space reduction March 31, 2023 $ 1,241

Employee severance and related benefits June 30, 2023 $ 1,581

Employee severance and related benefits and office space reduction

September 30, 2023 $ 17,236

Office space reduction December 31, 2023 $ 1,497

Office space reduction June 30, 2024 $ 1,257

Office space reduction

September 30, 2024 $ 2,882

Three Months Ended

(in thousands) 2025 2024

Employee severance and related benefits $ ( 3 ) $ 384

Office space reductions (1)

Restructuring expense $ 11 $ 163

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

Restructuring activity:

Accrued employee severance and related benefits:

Change for all restructuring actions:

Nine Months Ended

September 30,

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Three Months Ended

(in thousands) 2025 2024

January 1, $ 2,000 $ 8,095

Costs incurred ( 634 ) 19,921

(Benefit) costs incurred ( 3 ) 384

Cash disbursements ( 1,184 ) ( 3,347 )

Currency translation adjustments 53 ( 131 )

September 30, $ 3,154 $ 16,715

Accrued employee severance and related benefits is included in accrued compensation and related expenses.

March 31, (1)

$ 866 $ 5,001

(1) Included in accrued compensation and related expenses.

FAIR VALUE MEASUREMENTS

4 unchanged sentences

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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

3 unchanged sentences

The valuation model uses various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield.

The Company applies judgment when determining expected volatility.

The Company considers the underlying equity security’s historical and implied volatility levels.

The Company applied judgment when determining expected volatility.

The Company considered the underlying equity security’s historical and implied volatility levels.

The Capped Call Transactions expired upon maturity of the Notes during the three months ended March 31, 2025.

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.

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

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

(in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

4 unchanged sentences

Venture investments $ — $ — $ 21,715 $ 21,715 $ — $ — $ 21,234 $ 21,234

$ — $ — $ 21,172 $ 21,172 $ — $ — $ 19,450 $ 19,450

(1) Investments in privately-held companies

Changes in venture investments:

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2025 2024

1 unchanged sentence

New investments 200 250

Sales of investments — ( 2,773 )

Changes in foreign exchange rates 65 ( 20 )

1 unchanged sentence

included in other income, net

included in other comprehensive (loss)

included in other comprehensive income (loss)

( 535 ) ( 362 )

September 30, $ 21,172 $ 19,348

March 31, $ 21,715 $ 20,946

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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair value of the Convertible Senior Notes

The fair value of the Notes outstanding (including the embedded conversion feature) was $ 492.5 million as of September 30, 2024, and $ 466.5 million as of December 31, 2023.

The fair value of the Notes outstanding (including the embedded conversion feature) was $ 463.9 million as of December 31, 2024.

The Notes were repaid in full at maturity during the three months ended March 31, 2025.

The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy.

Geographic revenue

Revenues by geography are determined based on client location:

Three Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in thousands)

$ 269,192 56 % $ 180,983 54 %

$ 156,135 48 % $ 154,741 47 % $ 526,332 53 % $ 489,645 51 %

Other Americas 33,741 7 % 21,786 7 %

3 unchanged sentences

$ 475,633 100 % $ 330,147 100 %

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenue streams

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands)

2024 2023 2024 2023

Subscription license $ 45,420 $ 74,342 $ 193,405 $ 200,066

Perpetual license 456 2,747 1,351 4,729

Revenue recognized at a point in time 45,876 77,089 194,756 204,795

Maintenance 80,702 83,538 242,047 245,210

Pega Cloud $ 151,123 $ 130,902

Maintenance 76,368 81,001

Consulting 60,421 54,047

Revenue recognized over time 287,912 265,950

Subscription license 186,555 63,338

Perpetual license 1,166 859

Revenue recognized at a point in time 187,721 64,197

Total revenue $ 475,633 $ 330,147

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2025 2024

6 unchanged sentences

Perpetual license 1,166 859

$ 325,050 $ 334,643 $ 1,006,350 $ 958,383

Total revenue $ 475,633 $ 330,147

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Remaining performance obligations ("Backlog")

Expected future revenue from existing non-cancellable contracts:

As of September 30, 2024:

As of March 31, 2025:

(Dollars in thousands) Subscription services Subscription license Perpetual license Consulting Total

7 unchanged sentences

$ 1,251,111 $ 384,398 $ 44,866 $ 317 $ 47,807 $ 1,728,499 100 %

As of September 30, 2023:

As of March 31, 2024:

(Dollars in thousands) Subscription services Subscription license Perpetual license Consulting Total

7 unchanged sentences

$ 991,113 $ 345,160 $ 46,994 $ 2,727 $ 38,748 $ 1,424,742 100 %

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Major Clients

Clients accounting for 10% or more of the Company’s revenue:

Three Months Ended

(Dollars in thousands)

Total revenue

$ 475,633 $ 330,147

*Client accounted for less than 10% of total revenues.

STOCKHOLDERS' EQUITY

Stock-based compensation

Stock-based Compensation Expense

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2025 2024

4 unchanged sentences

Research and development

7,308 7,375 22,779 24,286

General and administrative

$ 41,425 $ 34,781

$ 37,213 $ 31,299 $ 108,218 $ 110,083

Income tax benefit

$ ( 587 ) $ ( 311 )

As of September 30, 2024, the Company had $ 119.6 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.6 years.

Nine Months Ended

September 30, 2024

As of March 31, 2025, the Company had $ 161.9 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.

Three Months Ended

March 31, 2025

(in thousands) Quantity

1 unchanged sentence

Restricted stock units (1)

1,306 $ 80,642

Non-qualified stock options

1,507 $ 47,157

Performance stock options (2)

(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.

(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.

For the performance stock options granted in the nine months ended September 30, 2024, 25 % can vest on the first anniversary of the grant date, and 75 % can vest on the second anniversary of the grant date, based on the achievement of specific performance conditions.

The options expire ten years from the grant date.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock repurchase program

On April 23, 2024, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2024 to June 30, 2025.

On October 22, 2024, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2025 to December 31, 2025 and increased the authorized repurchase by $ 250 million to $ 310 million as of that date.

During the nine months ended September 30, 2024, the Company repurchased 0.2 million of its common stock for $ 11.7 million at an average price per share of $ 68.84 .

During the three months ended March 31, 2025, the Company repurchased 1.5 million of its common stock for $ 118.7 million at an average price per share of $ 81.28 .

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

As of September 30, 2024, the Company was authorized to purchase an additional $ 48.3 million of its common stock under the share repurchase program.

On April 22, 2025, the Company’s Board of Directors further extended the expiration date of the share repurchase program from December 31, 2025 to June 30, 2026 and increased the authorized repurchase by $ 500 million.

Proposed Stock Split

On February 12, 2025, the Company’s Board of Directors approved a two-for-one forward stock split of the Company’s common stock, to be effected as a stock dividend.

Effectiveness of the stock split is subject to approval by the Company’s stockholders at the June 17, 2025 annual meeting of stockholders of a proportionate increase in the Company’s authorized shares of common stock.

The Company’s financial results in this Quarterly Report do not include any impact of the stock split.

Effective income tax rate

Nine Months Ended

September 30,

Three Months Ended

(Dollars in thousands) 2025 2024

Provision for income taxes $ 8,369 $ 15,395

Provision for (benefit from) income taxes $ 40,888 $ ( 3,038 )

Effective income tax rate 32 % 20 %

The Company’s effective income tax rate for the nine months ended September 30, 2024, is impacted by the jurisdictional mix and timing of the actual compared to projected earnings (losses).

It is also impacted by the valuation allowance on its deferred tax assets in the U.S.

and a near break-even year-to-date pretax loss resulting in a not meaningful effective income tax rate.

The Company’s effective income tax rate for the three months ended March 31, 2025, is impacted by the valuation allowance on its deferred tax assets in the U.S.

as well as the jurisdictional mix and timing of the actual compared to projected earnings.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized.

A deferred tax valuation allowance requires significant judgment and uncertainties, including assumptions about future taxable income.

Quarterly, the Company reassesses the need for a valuation allowance on its net deferred tax assets by weighting all available and objectively verifiable negative and positive evidence, including projected future reversals of existing taxable temporary differences, committed contractual backlog (“Backlog”), projected future taxable income, including the impact of enacted legislation, tax-planning strategies, and recent operating results.

Future realization of deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods.

The Company’s deferred tax valuation allowance requires significant judgment and has uncertainties, including assumptions about future taxable income based on historical and projected information.

In assessing the Company’s ability to realize its net deferred tax assets, the Company considered various factors including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial results to determine whether it is more likely than not that some portion or all of its net deferred tax assets will not be realized.

The Company intends to maintain a valuation allowance on its U.S.

net deferred tax assets until positive sufficient evidence exists to support their realization.

Given the Company’s recent earnings, the Company believes that there is a reasonable possibility that in a future period sufficient positive evidence may become available to allow the Company to reach a conclusion that a substantial portion of the valuation allowance will no longer be needed.

However, the exact timing and amount of the valuation allowance release are subject to significant judgement.

Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company intends to maintain a valuation allowance on its U.S.

net deferred tax assets until sufficient evidence exists to support their realization.

(LOSS) PER SHARE

Basic (loss) per share is calculated using the weighted-average number of common shares outstanding during the period.

Diluted (loss) 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.

Calculation of (loss) per share:

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is calculated using the weighted-average number of common shares outstanding during the period.

Diluted earnings (loss) 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 Notes.

Calculation of earnings (loss) per share:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except per share amounts) 2025 2024

Net (loss) $ ( 14,390 ) $ ( 7,279 ) $ ( 19,901 ) $ ( 74,857 )

Net income (loss) $ 85,422 $ ( 12,124 )

Weighted-average common shares outstanding 85,902 84,266

(Loss) per share, basic $ ( 0.17 ) $ ( 0.09 ) $ ( 0.23 ) $ ( 0.90 )

Net (loss) $ ( 14,390 ) $ ( 7,279 ) $ ( 19,901 ) $ ( 74,857 )

Earnings (loss) per share, basic $ 0.99 $ ( 0.14 )

Net income (loss) $ 85,422 $ ( 12,124 )

Notes - interest expense, net of tax

Numerator for diluted EPS $ 86,164 $ ( 12,124 )

Weighted-average effect of dilutive securities:

Stock options 4,305 —

Effect of dilutive securities 8,511 —

Weighted-average common shares outstanding, assuming dilution (1) (2) (3)

94,413 84,266

(Loss) per share, diluted $ ( 0.17 ) $ ( 0.09 ) $ ( 0.23 ) $ ( 0.90 )

Earnings (loss) per share, diluted $ 0.91 $ ( 0.14 )

Outstanding anti-dilutive stock options and RSUs (4)

4,528 2,255 3,682 1,652

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

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

If the outstanding conversion options were fully exercised, the Company would issue approximately 3.7 million shares as of September 30, 2024.

(3) The Company’s Capped Call Transactions represent the equivalent of approximately 3.7 million shares of the Company’s common stock (representing the number of shares for which the Notes are convertible) as of September 30, 2024.

(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) 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 (loss) per share.

(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 (loss) per share.

These awards may be dilutive in the future.

5 unchanged sentences

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.

The Company had no accrued losses for litigation for the below matters as of September 30, 2024 and December 31, 2023.

The Company had no accrued losses for litigation for the below matters as of March 31, 2025 and December 31, 2024.

PEGASYSTEMS INC.

14 unchanged sentences

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.

The Supreme Court of Virginia heard oral argument on February 11, 2025, and, on March 7, 2025, the Supreme Court of Virginia granted Appian’s petition for appeal and Pega’s assignments of cross-error.

In the coming months, the parties will be filing briefs with the Supreme Court.

There is no date for oral argument.

Although it is not possible to predict timing, the entirety of the appeals process could potentially take years to complete.

1 unchanged sentence

The Company is unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resulting from the appellate proceedings.

City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v.

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.

Pegasystems Inc., Alan Trefler, and Kenneth Stillwell

On May 19, 2022, a lawsuit was filed 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 Eastern District of Virginia Alexandria Division, 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 complaint generally alleges, 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 complaint seeks unspecified damages on behalf of a class of purchasers of the Company’s securities between May 29, 2020 and May 9, 2022.

The litigation has since been transferred to the United States District Court for the District of Massachusetts (Case 1:22-cv-11220-WGY), and lead plaintiff class representatives - Central Pennsylvania Teamsters Pension Fund - Defined Benefit Plan, Central Pennsylvania Teamsters Pension Fund - Retirement Income Plan 1987, and Construction Industry Laborers Pension Fund - have been appointed.

On October 18, 2022, a consolidated amended complaint was filed that does not add any new parties or legal claims, is based upon the same general factual allegations as the original complaint, and now seeks unspecified damages on behalf of a class of purchasers of the Company’s securities between June 16, 2020 and May 9, 2022.

The Company moved to dismiss the consolidated amended complaint on December 19, 2022.

The hearing on the Company’s motion to dismiss took place on May 17, 2023.

After hearing argument from both sides, the Court denied the Company’s motion from the bench and stated that a written opinion would follow.

On June 30, 2023, the Company filed its Answer to the complaint.

On July 24, 2023, the Court issued its written opinion denying the motion to dismiss as to the Company and Defendant Trefler but granting the motion without prejudice as to Mr.

On March 4, 2024, the parties agreed in principle to a proposed settlement of the litigation for an aggregate sum of $ 35 million.

On April 23, 2024, the parties executed a stipulation of settlement.

On April 23, 2024, the plaintiffs filed a motion seeking preliminary approval of the settlement.

On May 15, 2024, the Court granted plaintiffs’ motion for preliminary approval of the settlement.

On September 6, 2024, the Company received notice that certain shareholders, representing approximately 3% of the settlement class, would be excluded from the settlement.

On September 19, 2024, the Court approved the settlement, including an award of attorneys’ fees and the plan of allocation, and thereafter, on September 25, 2024, entered Final Judgment.

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.

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.

The plaintiffs filed a brief in opposition to the motion to dismiss on April 10, 2025.

The defendants’ reply brief in support of the motion to dismiss is due on April 24, 2025.

The Court has scheduled a hearing on the motion to dismiss for April 28, 2025.

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.

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 is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits and there being no specified quantum of damages sought in the complaints.

PEGASYSTEMS INC.

5 unchanged sentences

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 and a joint motion to stay the consolidated case is pending before the Court.

On May 17, 2023, the Larkin and Sagfors cases were consolidated and a joint motion to stay the consolidated case is pending before the Court (“Consolidated Action”).

The Company also has received confidential demand letters raising substantially the same allegations set forth in the foregoing derivative complaints.

1 unchanged sentence

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) are 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.

On December 4, 2024, the defendants moved to dismiss the complaint in the Consolidated Action.

On December 17, 2024, the plaintiffs moved to voluntarily dismiss the Consolidated Action, and the Court granted the motion on December 18, 2024.

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.

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, 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’ motion to dismiss is due on April 28, 2025.

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, Pegasystems Inc., Nominal Defendant (Case 2484CV01734).

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 recent class action settlement, and litigation costs from various proceedings.

On October 18, 2024 the defendants served a motion to dismiss the complaint.

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 October 18, 2024, the defendants served a motion to dismiss the complaint, which the defendants then withdrew on November 26, 2024 pending resolution of whether this complaint and the other derivative actions would be consolidated in Superior Court in Suffolk County, Massachusetts.

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, Leon Trefler, 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 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.

The parties agreed on November 26, 2024 to suspend indefinitely the deadlines for any response to the complaint pending resolution of whether this complaint and the other derivative actions would be consolidated in the Superior Court in Suffolk County, Massachusetts.

On February 4, 2025, the parties to the Dwyer and Birch Actions filed a stipulation and proposed order in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts consolidating the two actions and setting a schedule for the filing of a consolidated complaint and any motion to dismiss.

On February 12, 2025, 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.

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’ motion to dismiss is due on May 15, 2025.

The court scheduled a hearing on the motion to dismiss for September 4, 2025.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Beginning in March 2023, the U.S.

Securities and Exchange Commission (“SEC”) has requested certain information relating to, among other things, the accounting treatment of the Company’s above-described litigation with Appian Corporation.

By letter dated September 9, 2024, the Staff of the Division of Enforcement of the SEC (“Staff”) notified the Company that the Staff had concluded its investigation of the Company commenced March 2023 and that, based on the information that it had as of September 9, 2024, the Staff did not intend to recommend any enforcement action against the Company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements