What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-21 compared with 2025-07-22 · 67 added, 57 removed, 235 unchanged (35% of the section changed)

25 unchanged sentences

Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise.

The forward-looking statements in this Quarterly Report represent our views as of July 22, 2025.

The forward-looking statements in this Quarterly Report represent our views as of October 21, 2025.

NON-GAAP MEASURES

19 unchanged sentences

(Dollars in thousands)

June 30, 2024 June 30, 2025 Change Constant Currency Change

September 30, 2024 September 30, 2025 Change Constant Currency Change

Pega Cloud $ 640,574 $ 815,370 $ 174,796 27 % 27 %

6 unchanged sentences

Reconciliation of ACV and constant currency ACV

(in millions, except percentages) June 30, 2024 June 30, 2025 1-Year Change

(in millions, except percentages) September 30, 2024 September 30, 2025 1-Year Change

ACV $ 1,360 $ 1,557 14 %

2 unchanged sentences

$ 1,360 $ 1,552 14 %

Constant currency ACV is calculated by applying the June 30, 2024 foreign exchange rates to current period shown.

Cash Flow (1)

Constant currency ACV is calculated by applying the September 30, 2024 foreign exchange rates to current period shown.

(Dollars in thousands)

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

Cash provided by operating activities $ 250,697 $ 346,796 38 %

29 unchanged sentences

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

(in millions, except percentages) June 30, 2024 June 30, 2025 1-Year Growth Rate

(in millions, except percentages) September 30, 2024 September 30, 2025 1-Year Growth Rate

Backlog - GAAP $ 1,475 $ 1,755 19 %

1 unchanged sentence

Constant currency backlog $ 1,475 $ 1,745 18 %

Constant currency Backlog is calculated by applying the June 30, 2024 foreign exchange rates to current period shown.

Constant currency Backlog is calculated by applying the September 30, 2024 foreign exchange rates to current period shown.

CRITICAL ACCOUNTING POLICIES

9 unchanged sentences

(Dollars in thousands) Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2025 2024 2025 2024

7 unchanged sentences

$ 381,350 100 % $ 325,050 100 % $ 56,300 17 % $ 1,241,495 100 % $ 1,006,350 100 % $ 235,145 23 %

• The increases in Pega Cloud revenue in the three and six months ended June 30, 2025 were primarily due to expanded adoption of Pega Cloud by our clients.

• The decreases in maintenance revenue in the three and six months ended June 30, 2025 were 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 June 30, 2025 was primarily due to several large multi-year contracts recognized in revenue in the three months ended June 30, 2024.

The increase in subscription revenue in the six months ended June 30, 2025 was primarily due to several large multi-year contracts recognized in revenue in the six months ended June 30, 2025.

• The increases in consulting revenue in the three and six months ended June 30, 2025 were primarily due to increases in consultant billable hours.

• The increases in Pega Cloud revenue in the three and nine months ended September 30, 2025 were primarily due to expanded adoption of Pega Cloud by our clients.

• The decreases in maintenance revenue in the three and nine months ended September 30, 2025 were primarily due to our clients’ shift to Pega Cloud-based offerings, which do not result in maintenance revenue.

• The increases in subscription license revenue in the three and nine months ended September 30, 2025 were primarily due to several large multi-year contracts recognized in revenue in the three and nine months ended September 30, 2025.

• The increases in consulting revenue in the three and nine months ended September 30, 2025 were primarily due to increases in consultant billable hours in our International regions.

(Dollars in thousands) Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2025 2024 2025 2024

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$ 275,457 72 % $ 228,344 70 % $ 47,113 21 % $ 923,578 74 % $ 718,040 71 % $ 205,538 29 %

• The increases in Pega Cloud gross profit percent in the three and six months ended June 30, 2025 were 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 decrease in consulting gross profit percent in the three months ended June 30, 2025 was primarily due to an increase in compensation and benefits of $4.6 million, attributable to incentive compensation, and contracted services of $2.3 million.

The increase in consulting gross profit percent in six months ended June 30, 2025 was primarily due to an increase in consultant utilization rates.

• The increases in Pega Cloud gross profit percent in the three and nine months ended September 30, 2025 were 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 decrease in consulting gross profit percent in the three months ended September 30, 2025 was primarily due to an increase in compensation and benefits of $2 million, and contracted services of $1.3 million.

Consulting gross profit percent remained flat in the nine months ended September 30, 2025 as an increase in consultant utilization rates were offset by an increase in compensation and benefits of $9.4 million, and contracted services of $5.5 million.

Operating expenses

(Dollars in thousands) Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2025 2024 2025 2024

6 unchanged sentences

Litigation settlement, net of recoveries

$ — $ — $ — * $ — $ 32,403 $ (32,403) *

% of Revenue — % — % — % 3 %

2 unchanged sentences

* Not meaningful

• The increases in selling and marketing in the three and six months ended June 30, 2025 were primarily due to increases in compensation and benefits of $4.9 million and $11.6 million, respectively, attributable to increases in headcount and incentive compensation.

• The increases in research and development in the three and six months ended June 30, 2025 were primarily due to increases in compensation and benefits of $3.5 million and $3.9 million, respectively, attributable to incentive compensation.

• The increases in general and administrative in the three and six months ended June 30, 2025 were primarily due to increases in compensation and benefits of $1.5 million and $5.8 million, respectively, attributable to a reallocation of certain headcount from research and development to general and administrative to align with the change in the nature of their responsibilities, and increases of $4.0 million and $8.6 million, respectively, in legal fees and related expenses arising from legal proceedings outside the ordinary course of business.

• The increases in selling and marketing in the three and nine months ended September 30, 2025 were primarily due to increases in compensation and benefits of $10.4 million and $22 million, respectively, attributable to increases in headcount and incentive compensation.

• The increases in research and development in the three and nine months ended September 30, 2025 were primarily due to increases in compensation and benefits of $3.7 million and $7.6 million, respectively, attributable to increases in headcount and incentive compensation.

• The increases in general and administrative in the three and nine months ended September 30, 2025 were primarily due to increases in compensation and benefits of $6.5 million and $12.4 million, respectively, 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.

In the nine months ended September 30, 2025, we experienced an increase of $8.8 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.

1 unchanged sentence

Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.

• The decrease in litigation settlement, net of recoveries in the six months ended June 30, 2025 was primarily due to the cost to settle litigation arising from proceedings outside the ordinary course of business in the six months ended June 30, 2024.

• The decrease in litigation settlement, net of recoveries in the nine months ended September 30, 2025 was primarily due to the cost to settle litigation arising from proceedings outside the ordinary course of business in the nine months ended September 30, 2024.

See “Note 20.

2 unchanged sentences

(Dollars in thousands) Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2025 2024 2025 2024

Foreign currency transaction (loss) gain $ (14,008) $ 437 $ (14,445) * $ (19,333) $ (2,825) $ (16,508) (584) %

Foreign currency transaction gain (loss) $ 7,154 $ (4,405) $ 11,559 * $ (12,179) $ (7,230) $ (4,949) (68) %

Interest income 2,660 6,769 (4,109) (61) % 11,243 18,835 (7,592) (40) %

Interest expense (144) (1,639) 1,495 91 % (1,172) (5,047) 3,875 77 %

Gain (loss) on capped call transactions — (3,277) 3,277 100 % (223) 22 (245) *

Other income, net 18,729 — 18,729 * 19,290 1,684 17,606 1045 %

(Loss) on capped call transactions — (689) 689 100 % (223) (667) 444 67 %

Other (loss) income, net (43) — (43) * 19,247 1,684 17,563 1043 %

$ 9,627 $ 36 $ 9,591 26642 % $ 16,916 $ 7,575 $ 9,341 123 %

* Not meaningful

• The changes in foreign currency transaction (loss) gain in the three and six months ended June 30, 2025 were primarily due to fluctuations in foreign currency exchange rates associated with foreign currency-denominated receivables and intercompany balances held by our subsidiary in the United Kingdom.

• The decreases in interest income in the three and six months ended June 30, 2025 were primarily due to lower investment balances as a result of the repayment of the Notes at maturity on March 3, 2025.

• The decreases in interest expense in the three and six months ended June 30, 2025 were primarily due to the repayment of the Notes at maturity on March 3, 2025.

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

• The increases in other income, net in the three and six months ended June 30, 2025 were primarily due to the gain from the partial sale of a venture investment.

• The changes in foreign currency transaction gain (loss) in the three and nine months ended September 30, 2025 were primarily due to fluctuations in foreign currency exchange rates associated with foreign currency-denominated receivables and intercompany balances held by our subsidiary in the United Kingdom.

• The decreases in interest income in the three and nine months ended September 30, 2025 were primarily due to lower investment balances as a result of the repayment of the Notes at maturity on March 3, 2025.

• The decreases in interest expense in the three and nine months ended September 30, 2025 were primarily due to the repayment of the Notes at maturity on March 3, 2025.

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

• The increase in other (loss) income, net in the nine months ended September 30, 2025 was primarily due to the gain from the partial sale of a venture investment.

For additional information, see "Note 12.

1 unchanged sentence

(Benefit from) provision for income taxes

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands) 2025 2024

1 unchanged sentence

Effective income tax rate 10 % (73) %

* Not meaningful

Our effective income tax rate for the six months ended June 30, 2025, is mainly attributable to the jurisdictional mix of earnings and is also impacted by excess tax benefits from stock-based compensation and the valuation allowance on its deferred tax assets in the U.S.

On July 4, 2025, the OBBBA was enacted into law.

The OBBBA provides for significant U.S.

tax law changes.

ASC 740, Accounting for Income Taxes , provides that changes in tax rates and laws are recognized in the period of enactment.

As a result, the Company is assessing the impact of this new legislation and will record any impacts in the period of enactment.

Our effective income tax rate for the nine months ended September 30, 2025, was impacted by excess tax benefits from stock-based compensation, and by the enactment of the One Big Beautiful Bill Act (“OBBBA”) on July 4, 2025.

The OBBBA introduced several U.S.

tax law changes, including the ability to immediately expense domestic research and experimental (“R&E”) expenditures starting in 2025, and an election to accelerate any unamortized domestic R&E expenditures over a one or two year period beginning with the 2025 tax year.

In accordance with ASC 740, Accounting for Income Taxes , the impacts of the OBBBA are reflected in our results for the quarter ended September 30, 2025.

The enactment of the OBBBA reduced our forecasted U.S.

income tax expense for 2025.

However, the changes did not affect our U.S.

deferred tax assets or liabilities, as we continue to maintain a full valuation allowance against those balances.

The Organization for Economic Cooperation and Development (“OECD”) has introduced new global minimum tax regulations, known as Pillar Two, that was supported by over 130 countries worldwide.

5 unchanged sentences

LIQUIDITY AND CAPITAL RESOURCES

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2025 2024

6 unchanged sentences

(in thousands)

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

entities $ 72,252 $ 474,509

11 unchanged sentences

Operating activities

The change in cash provided by operating activities in the six months ended June 30, 2025 was primarily due to increase in client collections.

The change in cash provided by operating activities in the nine months ended September 30, 2025 was primarily due to increase in client collections.

Investing activities

The change in cash provided by (used in) investing activities in the six months ended June 30, 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.

The change in cash provided by (used in) investing activities in the nine months ended September 30, 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.

Financing activities

6 unchanged sentences

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

As of June 30, 2025 and December 31, 2024, we had letters of credit of $26.7 million and $27.3 million, respectively, under the Credit Facility, however had no cash borrowings.

As of September 30, 2025 and December 31, 2024, we had letters of credit of $26.7 million and $27.3 million, respectively, under the Credit Facility, however had no cash borrowings.

For additional information, see "Note 10.

2 unchanged sentences

Changes in the remaining stock repurchase authority:

(in thousands) Six Months Ended

June 30, 2025

(in thousands) (1)

Nine Months Ended

September 30, 2025

December 31, 2024 $ 240,443

1 unchanged sentence

Repurchases (3)

June 30, 2025 $ 489,254

September 30, 2025 $ 347,254

(1) Amounts presented are exclusive of the U.S.

excise tax on share repurchases.

(2) On April 22, 2025, the Company’s 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.

1 unchanged sentence

Common stock repurchases

Six Months Ended

Nine Months Ended

September 30,

(in thousands) Shares Amount Shares Amount

6 unchanged sentences

8,993 $ 405,833 438 $ 14,736

(1) Amounts presented are exclusive of the U.S.

excise tax on share repurchases.

On June 20, 2025, the Company effected the Stock Split of the Company’s Common Stock described above in “Note 1.

1 unchanged sentence

All share and per share amounts in the Company’s unaudited condensed consolidated financial statements and in the accompanying notes for all prior periods presented have been recast to reflect the effect of the Stock Split.

During the six months ended June 30, 2025 and 2024, instead of receiving cash from the equity holders, we withheld shares with a value of $7.3 million and $2.8 million, respectively, for the exercise price of options.

During the nine months ended September 30, 2025 and 2024, instead of receiving cash from the equity holders, we withheld shares with a value of $16.2 million and $3.3 million, respectively, for the exercise price of options.

These amounts are not included in the table above.

1 unchanged sentence

However, the Board of Directors may terminate or modify the dividend program without prior notice.

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2025 2024

1 unchanged sentence

Contractual obligations

As of June 30, 2025, our contractual obligations were:

As of September 30, 2025, our contractual obligations were:

Payments due by period

14 unchanged sentences

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 2. Management’s Discussion and Analysis