What changed in this filing

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Item 1A. Risk Factors

2026-02-10 compared with 2025-02-12 · 80 added, 130 removed, 270 unchanged (44% of the section changed)

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We may not achieve the key elements of our strategy and grow our business as anticipated.

We currently intend to grow our business by pursuing strategic initiatives consistent with becoming a Rule of 40 company, meaning a company with combined Annual Contract Value (“ACV”) growth rate and free cash flow margin of at least 40%.

We currently intend to grow our business by pursuing strategic initiatives consistent with Rule of 40 principles, meaning a company with combined Annual Contract Value (“ACV”) growth rate and free cash flow margin of at least 40%.

Key elements of our strategy include increasing our market share by developing and delivering robust solutions that can work together seamlessly with maximum differentiation and minimal customization, offering versatility in the Pega Platform and application deployment and licensing options to meet the specific needs of our clients, growing our network of partner alliances, and developing the talent and organizational structure capable of supporting our revenue and earnings growth targets.

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If we are not successful in executing our investments in AI, including generative AI, our business, financial condition, and results of operations may be harmed.

We are investing significantly in AI, including through our development and deployment of our Pega Customer Decision Hub TM , Pega Customer Service TM , PegaPlatfom TM , and Pega GenAI Blueprint TM .

We are investing significantly in AI.

This investment is occurring as the legal and regulatory landscape applicable to AI is uncertain and evolving rapidly, and at the same time as our competitors are also investing in AI.

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In addition, complying with multiple regulations from different jurisdictions related to AI could increase our cost of doing business, may influence the way that we operate in certain jurisdictions, or may impede our ability to offer certain products and services in certain jurisdictions if we are unable to comply with applicable regulations.

We depend on key personnel, including our Chief Executive Officer, and must attract and retain qualified personnel in the future.

Our business is dependent on key, highly skilled technical, managerial, consulting, sales, and marketing personnel, including our Chief Executive Officer, who is also our founder and largest stockholder.

We depend on key personnel, including our Chief Executive Officer (“CEO”), and must attract and retain qualified personnel in the future.

Our business is dependent on key, highly skilled technical, managerial, consulting, sales, and marketing personnel, including our CEO, who is also our founder and largest stockholder.

The loss of key personnel could be disruptive to our operations and materially adversely affect our financial performance.

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If we fail to maintain and enhance our corporate culture within an environment of hybrid work, our ability to retain and recruit personnel essential to our success may be negatively affected.

The timing of our license and Pega Cloud revenue is difficult to predict, which may cause our operating results to vary considerably.

A change in the size or volume of license and Pega Cloud arrangements, or a change in the mix between perpetual licenses, subscription licenses, and Pega Cloud arrangements, can cause our revenues and cash flows to fluctuate materially between periods.

The timing of our license and Pega Cloud revenue and bookings is difficult to predict, which may cause our operating results to vary considerably.

A change in the size or volume of license and Pega Cloud arrangements, or a change in the mix between perpetual licenses, subscription licenses, and Pega Cloud arrangements, can cause our revenues, bookings, and cash flows to fluctuate materially between periods.

Revenue from subscription service arrangements, which includes Pega Cloud and maintenance, is typically recognized over the contract term, while revenue from license sales is recognized when the license rights become effective, typically upfront.

Subscription licenses and services are typically billed and collected over the contract term, while perpetual licenses are generally billed and collected upfront when the license rights become effective.

Factors that may influence the predictability of our license and Pega Cloud revenue include:

Factors that may influence the predictability of our license and Pega Cloud revenue and bookings include:

• changes in clients’ budgets and decision-making processes that could affect both the timing and size of transactions;

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We budget for our selling and marketing, product development, and other expenses based upon anticipated future bookings and revenue.

If the timing or amount of revenue fails to meet our expectations, our financial performance is likely to be materially adversely affected because only a small portion of our expenses vary with revenue.

If the timing or amount of bookings and revenue fails to meet our expectations, our financial performance is likely to be materially adversely affected because only a small portion of our expenses vary with revenue.

Other factors that may cause our operating results to vary include changes in foreign currency exchange rates, income tax effects, and the impact of new accounting pronouncements.

As a result, period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon to predict future performance.

If our revenues and operating results do not meet the expectations of our investors or securities analysts or fall below guidance we may provide to the market, or due to other factors discussed elsewhere in this section, the price of our common stock may decline.

If our revenues, bookings and operating results do not meet the expectations of our investors or securities analysts or fall below guidance we may provide to the market, or due to other factors discussed elsewhere in this section, the price of our common stock may decline.

We will need to acquire or develop new products, evolve existing ones, address defects or errors, and adapt to technology changes.

Technical developments, client requirements, programming languages, industry standards, and regulatory requirements frequently change in the markets in which we operate.

The introduction of third-party solutions embodying new technologies, including generative AI and the emergence of new industry standards, could make our existing and future software solutions obsolete and unmarketable.

As a result, our success will depend upon our ability to enhance current products, address any product defects or errors, acquire or develop and introduce new products that meet client needs, keep pace with technology and regulatory changes, respond to competitive products, and achieve market acceptance.

Product development requires substantial investments for research, refinement, and testing.

We may not have sufficient resources to make the necessary product development investments.

We may experience technical or other difficulties that will delay or prevent the successful development, introduction, or implementation of new or enhanced products.

We may also experience technical or other challenges integrating acquired technologies into our existing platform and applications.

Inability to introduce or implement new or enhanced products in a timely manner could result in loss of market share if competitors are able to provide solutions to meet client needs before we do, give rise to unanticipated expenses related to further development or modification of acquired technologies, and materially adversely affect our financial performance.

We may also fail to anticipate adequately and prepare for the development of new markets and applications for our technology and the commercialization of emerging technologies such as generative AI and thereby fail to take advantage of new market opportunities or fall behind early movers in those markets.

We frequently enter into a series of license or Pega Cloud arrangements that each focus on a specific purpose or area of operations.

If we are not successful in obtaining follow-on business from these clients, our financial performance could be materially adversely affected.

Once a client has realized the value of our software, we work with the client to identify opportunities for follow-on sales.

However, we may not be successful in demonstrating this value for several reasons, including the performance of our products, the quality of the services and support provided by our partners and us, or external factors.

Also, some of our smaller clients may have limited additional sales opportunities available.

We may not obtain follow-on sales, or the follow-on sales may be delayed, and our future revenue could be limited.

We rely on third-party relationships.

We have a number of relationships with third parties that are significant to our sales, marketing, support, and product development efforts, including hosting facilities for our Pega Cloud offering.

We rely on software and hardware vendors, large system integrators, and technology consulting firms to supply marketing and sales opportunities for our direct sales force and to strengthen our offerings using industry-standard tools and utilities.

We also have relationships with third parties that distribute our products.

There can be no assurance that these companies, many of which have far greater financial and marketing resources than us, will not develop or market offerings that compete with ours in the future or will not otherwise end or limit their relationships with us.

Further, the use of third-party hosting facilities requires us to rely on the functionality and availability of the third parties’ services, as well as their data security, which despite our due diligence, may be or become inadequate, as further discussed below under the risk factor “We rely on third-party hosting providers to deliver our offerings, and any disruption or interference with our use of these services could adversely affect our business.”

The number and value of license and Pega Cloud arrangements has been increasing, and we may not be able to sustain this growth unless our partners and we can provide sufficient high-quality consulting, training, and maintenance resources to enable our clients to realize significant business value from our software.

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Conversely, if we are unable to achieve an appropriate balance of sales and marketing personnel to meet future demand or research and development personnel to enhance our current products or develop new products, we may not be able to achieve our sales and profitability targets .

We rely on third-party relationships.

We have a number of relationships with third parties that are significant to our sales, marketing, support, and product development efforts, including hosting facilities for our Pega Cloud offering.

We also have relationships with third parties that distribute our products.

We face risks from operations and clients based outside of the United States.

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There can be no assurance that one or more of these factors will not have a material adverse effect on our international operations and, consequently, on our business, operating results, and financial condition.

Our consulting revenue is significantly dependent upon our consulting personnel implementing new license and Pega Cloud arrangements.

We derive a substantial portion of our consulting revenue from implementations of new license and Pega Cloud arrangements managed by our consulting personnel and consulting for partner and client-led implementation efforts.

Our strategy is to support and encourage partner-led and client-led implementations to increase the breadth, capability, and depth of market capacity to deliver implementation services to our clients.

Accordingly, if our consulting personnel’s involvement in future implementations decreases, this could materially adversely affect our consulting revenue.

We frequently enter into a series of license or Pega Cloud arrangements that each focus on a specific purpose or area of operations.

If we are not successful in obtaining follow-on business from these clients, our financial performance could be materially adversely affected.

Once a client has realized the value of our software, we work with the client to identify opportunities for follow-on sales.

Also, some of our smaller clients may have limited additional sales opportunities available.

We may not obtain follow-on sales, or the follow-on sales may be delayed, and our future revenue could be limited.

We will need to acquire or develop new products, evolve existing ones, address defects or errors, and adapt to technology changes.

Technical developments, client requirements, programming languages, industry standards, and regulatory requirements frequently change in the markets in which we operate.

The introduction of third-party solutions embodying new technologies, including generative AI and the emergence of new industry standards could make our existing and future software solutions obsolete and unmarketable.

Product development requires substantial investments for research, refinement, and testing.

We may not have sufficient resources to make the necessary product development investments.

We may experience technical or other difficulties that will delay or prevent the successful development, introduction, or implementation of new or enhanced products.

We may also experience technical or other challenges integrating acquired technologies into our existing platform and applications.

The market for our offerings is intensely and increasingly competitive, rapidly changing, and fragmented.

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• clients’ in-house information technology departments, which may seek to modify their existing systems or develop their own proprietary systems.

Many of our competitors, such as International Business Machines Corporation (“IBM”), Microsoft Corporation, Oracle Corporation, Salesforce.com, SAP SE, and ServiceNow, have far greater resources than we do and may be able to respond more quickly and efficiently to new or emerging technologies, programming languages or standards, or changes in client requirements or preferences.

Many of our competitors, such as International Business Machines Corporation (“IBM”), Microsoft Corporation, Oracle Corporation, Salesforce, SAP SE, and ServiceNow, have far greater resources than we do and may be able to respond more quickly and efficiently to new or emerging technologies, programming languages or standards, or changes in client requirements or preferences.

Competitors may also be able to devote greater managerial and financial resources to develop, promote, and distribute products and to provide related consulting and training services.

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Business" of this Annual Report.

Our Chief Executive Officer is our largest stockholder and can exert significant influence over matters submitted to our stockholders, which could materially adversely affect our other stockholders.

As of December 31, 2024, our Chief Executive Officer beneficially owned approximately 46 percent of our outstanding common stock.

As a result, he has the ability to exert significant influence over all matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation, or sale of our assets.

Under Massachusetts law and our governing documents, approval of a merger, share exchange or sale of all or substantially all of our assets requires approval of two-thirds of all shares entitled to vote.

As a result, this concentration of ownership may delay or prevent a change in control, impede a merger, consolidation, takeover, or other business combination involving us, discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, or result in actions that may be opposed by other stockholders.

If we are unsuccessful in the appeal of the trial court judgment in our litigation with Appian Corp., our operating results and financial condition would be adversely impacted.

Our consulting revenue is significantly dependent upon our consulting personnel implementing new license and Pega Cloud arrangements.

Accordingly, if our consulting personnel’s involvement in future implementations decreases, this could materially adversely affect our consulting revenue.

If we are unsuccessful in our trade secret litigation with Appian Corp.

our operating results and financial condition could be adversely impacted.

We are currently party to litigation with Appian Corp.

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On September 15, 2022, the circuit court of Fairfax County entered judgment for Appian in the amount of $2,060,479,287 with post-judgment interest.

The Company filed a notice of appeal from the judgment the same day with the Court of Appeals of Virginia.

On September 29, 2022, the circuit court approved the $25,000,000 letter of credit obtained by the Company to secure the judgment and suspended the judgment during the pendency of the Company’s appeal.

A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and issued a written opinion on July 30, 2024.

The Court of Appeals reversed the judgment on Appian’s Virginia Uniform Trade Secrets Act claim and ordered a new trial on that claim.

Appian filed a petition for appeal with the Supreme Court of Virginia on August 29, 2024, and we filed a response to the petition on October 21, 2024.

Under the Court’s rules, Appian is entitled to a 10-minute oral argument in support of its petition.

The Supreme Court of Virginia scheduled that argument for February 11, 2025.

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

On July 30, 2024, the Court of Appeals of Virginia issued a written opinion that reversed judgment on Appian’s Virginia Uniform Trade Secrets Act claim and ordered a new trial on that claim.

On January 8, 2026, the Supreme Court of Virginia issued a written opinion unanimously affirming the ruling of the Court of Appeals of Virginia and on January 29, 2026 remanded Appian’s trade secret case to the Court of Appeals with direction to remand to the Circuit Court of Fairfax County for further proceedings in accordance with its written opinion.

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

We continue to believe we did not misappropriate any alleged trade secrets and that sales of our products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets.

We are 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.

We believe we have strong grounds to prevail in the appeal and a potential retrial.

But if we are ultimately unsuccessful in prevailing in the matter in its entirety or in substantially reducing any judgment, we may be required to incur additional debt or otherwise engage in capital markets transactions, which may include a public offering or private placement of our equity securities or a sale or license of assets.

While we believe we have the financial strength to pay the judgment and accrued interest thereon if it ever became necessary, it is possible that we may not be able to engage in financing activities on desirable terms, which could have a material adverse effect on our business, financial condition, and operating results.

We are unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of any new trial or subsequent appellate proceedings.

We believe we have strong grounds to prevail in a potential retrial.

But if we are ultimately unsuccessful in prevailing in the matter, we may be required to incur additional debt or otherwise engage in capital markets transactions, which may include a public offering or private placement of our equity securities or a sale or license of assets.

While we believe we have the financial strength to pay any future judgment and accrued interest thereon if it ever became necessary, it is possible that we may not be able to engage in financing activities on desirable terms, which could have a material adverse effect on our business, financial condition, and operating results.

Further discussion of these risks is contained below under the heading “Risks Related to Our Financial Obligations and Indebtedness.”

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Security industry experts and government officials have warned about the risks of hackers and cyber-attackers targeting information technology products and businesses.

Threats to IT security can take a variety of forms.

Threats to IT security can take a variety of forms and continue to evolve and become more sophisticated and more difficult to detect and defend against, including by the increased use of AI to enhance attacks.

Individual hackers, groups of hackers, and sophisticated organizations, including state-sponsored organizations, or nation-states themselves, may take steps that threaten our clients, suppliers, third-party technology providers, and us.

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These services involve storing and transmitting client data and other confidential information.

Our security measures, those of our suppliers, third-party technology providers, and our clients may be breached because of third-party actions or those of employees, consultants, clients, or others, including intentional misconduct by computer hackers, system errors, human errors, technical flaws in our products, or otherwise.

Because we do not control the configuration of Pega applications by our clients, the transmissions between our clients and our third-party technology providers, the processing of data on the servers at third-party technology providers, or the internal controls maintained by our clients and third-party technology providers that could prevent unauthorized access or provide appropriate data encryption, we cannot fully ensure the complete integrity or security of such transmissions processing or controls.

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We deal with security issues regularly and have experienced security incidents from time to time.

We have a standing Compliance and Risk Governing Committee composed of senior representatives across the Company that reports to and assists the Audit Committee and the Board as a whole in the oversight of compliance and risk management programs, including cybersecurity measures.

In addition, we have a standing Security Steering Group, whose members include our Chief Information Security Officer, Chief Product Officer, and Vice President of Cloud Technology, and which is charged with providing strategic direction for the implementation and ongoing operation of our cyber security program.

Even with the efforts the Company has undertaken, there is a risk that a security breach will be successful, and such an event will be material.

We carry data breach insurance coverage to mitigate the financial impact of a security breach, though this may prove insufficient in the event of a breach.

Our Pega Cloud offering involves hosting client applications on the servers of third-party technology providers.

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The cost of these steps could negatively impact our operating results.

While we actively work to improve vulnerability scanning, patching, threat intelligence, security event detection, security event alerting and forensics, it is possible that security breaches, whether due to unpatched vulnerabilities or otherwise, occur and may be undetected when they occur.

While we actively work to improve vulnerability scanning, patching, threat intelligence, security event detection, and security event alerting and forensics, it is possible that security breaches, whether due to unpatched vulnerabilities or otherwise, occur and may be undetected when they occur.

Any such security breach could result in a loss of confidence in the security of our services, damage our reputation, disrupt our business, require us to incur significant costs of investigation, remediation and/or payment of a ransom, lead to legal liability, negatively impact our future sales, and result in a substantial financial loss.

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We use third-party service providers for key infrastructure components, particularly when developing and delivering our cloud-based products.

These service providers give us greater flexibility in efficiently delivering a more tailored, scalable customer experience and expose us to additional risks and vulnerabilities.

These service providers give us greater flexibility in efficiently delivering a more tailored, scalable customer experience and expose

us to additional risks and vulnerabilities.

Third-party service providers operate platforms we access and which are vulnerable to service interruptions.

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Errors in our software could affect its ability to work with hardware or other software or delay the development or release of new products or new versions of our software.

Additionally, detecting and correcting any security flaws, including those introduced by our use of open-source, can be time-consuming and costly.

Additionally, detecting and correcting any security flaws, including those that may be introduced by our use of open-source code or AI, can be time-consuming and costly.

Errors or security flaws in our software could result in the inadvertent disclosure of confidential information or personal data relating to our clients, employees, or third parties.

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Although we have not experienced any material product liability claims to date, a product liability suit or action claiming a breach of warranty, whether meritorious, could result in substantial costs and a diversion of management’s attention and our resources.

We may require additional capital in the future.

As of December 31, 2024, we had $467.9 million in aggregate principal indebtedness under our convertible senior notes due March 1, 2025 (the “Notes”).

We may repay the Notes at their March 1, 2025 maturity date using available cash balances.

Concurrent with maturity of the Notes, the then outstanding Capped Call Transactions we entered into with certain financial institutions in connection with the Notes’ issuance will expire by their terms.

While the Notes are currently convertible, the conversion rate is 7.4045 shares of common stock per each $1,000 principal amount of Notes, or an effective conversion price of $135.05.

Accordingly, we do not currently expect holders of Notes to elect to convert prior to the March 1, 2025 maturity date, but there can be no assurance that holders of Notes do not elect to convert all or a portion of their Notes.

If we repay the Notes at maturity with current cash balances, it will reduce our current cash balances.

We believe 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.

However, it is possible that we may require additional capital in the future to finance our operations.

If we raise funds through future issuance of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock.

Any future debt financing could involve restrictive covenants relating to our capital raising activities and other financial and operations matters, which may increase the risks related to our business and our ability to service and repay our indebtedness.

We are required to comply with certain financial and operating covenants under our revolving credit facility.

Failure to comply with these covenants could cause amounts borrowed to become immediately due and payable and/or prevent us from borrowing under the credit facility.

We must comply with specified financial and operating covenants under our credit facility and make payments, limiting our ability to operate our business as we otherwise might.

Our failure to comply with any of these covenants or to meet any debt payment obligations could result in an event of default which, if not cured or waived, would result in any amounts outstanding, including any accrued interest and/or unpaid fees, becoming immediately due and payable.

We might not have sufficient working capital or liquidity to satisfy any repayment obligations in the event of an acceleration of those obligations.

In addition, if we are not in compliance with the financial and operating covenants under the credit facility at the time we wish to borrow funds, we will be unable to borrow funds.

The financial and operating covenants under the credit facility may limit our ability to borrow funds or capital, including for strategic acquisitions, share repurchases, and other general corporate purposes.

Risks Related to Intellectual Property and Government Regulation

We face risks related to intellectual property claims or appropriation of our intellectual property rights.

We rely primarily on a combination of patent, copyright, trademark, and trade secrets laws, as well as intellectual property and confidentiality agreements to protect our proprietary rights.

We rely primarily on a combination of patent, copyright, trademark, and trade secrets laws, as well as confidentiality procedures, technical safeguards, and contractual provisions, to protect our intellectual property rights and our brand.

We also try to control access to and distribution of our technologies and other proprietary information.

We have obtained patents in strategically important global markets relating to the architecture of our systems.

We have obtained patents relating to the architecture of our systems.

We cannot be certain that such patents will not be challenged, invalidated, or circumvented, or that rights granted thereunder, or the claims contained therein will provide us with competitive advantages.

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There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology.

Other companies or individuals have obtained proprietary rights covering a variety of designs, processes, and systems.

Third parties have claimed and may in the future claim that we have infringed or otherwise violated their intellectual property.

Companies in the software and technology industries, including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights.

In addition, many of these companies can dedicate greater resources to enforce their intellectual property rights and to defend claims that may be brought against them.

The litigation may involve patent holding companies or other adverse patent owners that have no relevant product revenues and against which our patents may, therefore, provide little or no deterrence.

Third parties have claimed and may claim in the future that we have misappropriated, misused, or infringed other parties' intellectual property rights, and customers have sought and may seek future indemnification for intellectual property claims to which they are subject.

We are currently party to litigation with Appian Corp.

— see Part I, Item 3 “Legal Proceedings”, "Note 20.

Although we attempt to limit the amount and type of our contractual liability for infringement or other violation of the proprietary rights of third parties and assert ownership of work product and intellectual property rights as appropriate, there are often exceptions, and limitations may not be applicable and enforceable in all cases.

our operating results and financial condition could be adversely impacted.”

Although we attempt to limit with our clients the amount and type of our contractual liability for alleged infringement or other violation of the proprietary rights of third parties and assert ownership of work product and intellectual property rights as appropriate, there are often exceptions, and limitations may not be applicable and enforceable in all cases.

Even if limitations are found to be applicable and enforceable, our liability to our clients for these types of claims could be material given the size of certain of our transactions.

We expect that software product developers, including us, will increasingly be subject to infringement and other intellectual property violation claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps.

As evidenced by our previously mentioned litigation with Appian Corp., depending on when and how asserted, these claims, with or without merit, are often time-consuming, result in costly litigation, and subject us to significant liability for damages.

It is also possible that these claims result in treble damages if we are found to have willfully infringed patents or copyrights, cause product shipment and delivery delays, require us to enter into royalty or licensing agreements, or preclude us from making and selling the infringing software, if such proprietary rights are found to be valid.

We expect that software product developers, including us, will increasingly be subject to alleged infringement and other intellectual property violation claims as we become increasingly successful, the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps.

As evidenced by our previously mentioned litigation with Appian Corp., depending on when and how asserted, these claims, with or without merit, are often time-consuming, result in costly litigation, divert the attention of our management and key personnel from our business operations, and subject us to significant potential liability for damages.

is also possible that these claims result in treble damages if we are found to have willfully infringed patents or copyrights, cause product shipment and delivery delays, require us to enter into royalty or licensing agreements, or preclude us from making and selling the infringing software, if such proprietary rights are found to be valid.

Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all.

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As a result, we may be required to develop alternative non-infringing technology, which could require substantial time, effort, and cost.

If we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop sales of our software and may be unable to compete effectively, which could have a material effect upon our business, operating results, and financial condition.

Intellectual property rights claims by third parties are extremely costly to defend, could require us to pay significant damages, and could limit our ability to use certain technologies.

In addition, many of these companies can dedicate greater resources to enforce their intellectual property rights and to defend claims that may be brought against them.

To the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property claims.

Any litigation regarding intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations.

Significant judgments are required for the determination of probability and the range of the outcomes in any legal dispute, and the estimates are based only on the information available to us at the time.

If we cannot license or develop technology for any allegedly infringing aspect of our business, we would be forced to limit or stop sales of our software and may be unable to compete effectively, which could have a material effect upon our business, operating results, and financial condition.

Significant judgments are required for the determination of probability and the range of the outcomes in any legal dispute such as, but not limited to, our litigation with Appian Corp., and the estimates are based only on the information available to us at the time.

Due to the inherent uncertainties involved in claims, legal proceedings, and in estimating the losses that may arise, actual outcomes may differ from our estimates.

Contingencies deemed not probable or for which losses were not estimable in one period may become probable, or losses may become estimable in later periods which may have a material impact on our results of operations and financial position.

Intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from manufacturing or licensing certain of our products, cause severe disruptions to our operations or the markets in which we compete or require us to satisfy indemnification commitments to our customers.

Any of these could seriously harm our business.

We are currently party to litigation with Appian Corp.

— see Part I, Item 3 “Legal Proceedings”, "Note 20.

Commitments And Contingencies" in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report and the preceding risk factor captioned “If we are unsuccessful in the appeal of the trial court judgment in our litigation with Appian Corp., our operating results and financial condition would be adversely impacted.” While we continue to believe that we have the financial strength to pay these amounts if it ever becomes necessary, it is possible that we may not be able to engage in these activities on desirable terms, which could have a material adverse effect on our business, financial condition, and operating results.

Our success depends in part on maintaining and increasing our sales to clients in the public sector.

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Any failure to comply with these laws and regulations could subject us to, among other things, penalties and legal expenses that could harm our reputation or otherwise have a material adverse effect on our business, financial condition, and results of operations.

We are subject to extensive federal, state, and foreign laws and regulations, including but not limited to the U.S.

Foreign Corrupt Practices Act, the U.K.

Bribery Act, data privacy, information security, resiliency, and AI laws, and similar laws and regulations.

Foreign Corrupt Practices Act, the U.K.

Bribery Act, and similar foreign anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to obtain or retain business.

Similar laws and regulations exist in many other countries where we do or intend to do business.

Within recent years, there has been an increase in the scope and enforcement of data privacy laws in the jurisdictions in which we do business.

The EU and UK General Data Protection Regulations extend the scope of their protection to any entity that does business in those jurisdictions and controls or processes personal data of EU or UK residents in connection with the offer of goods or services or the monitoring of behavior in those jurisdictions and imposes many compliance obligations concerning the handling of personal data.

The California Consumer Privacy Act (as amended by the California Privacy Rights Acts, the “CCPA”) and other similar laws in a number of US states require, among other things, covered companies to provide disclosure to consumers about such companies’ data collection, use and sharing practices, provide such consumers ways to make requests about their personal information, including requests to delete their personal information, to know what information a company has about the consumer, and to opt-out of certain sales, transfers, or sharing of personal information.

Some US state data privacy laws, including the CCPA, also provide consumers with additional causes of action.

In 2023, Europe finalized the first-ever comprehensive legal framework for governance of the development and use of AI, the European Union Artificial Intelligence Act, with rolling effective dates beginning in 2025, and is moving forward with finalizing applicable regulations.

Many jurisdictions in the US are considering or have passed laws governing the development or use of AI.

We are subject to extensive federal, state, and foreign laws and regulations, including but not limited to anti-bribery laws, data privacy, information security, resiliency, and AI laws.

Within recent years, there has been an increase in the scope and enforcement of data privacy laws in the jurisdictions in which we do business including California, other states in the US, and Europe.

Data privacy laws throughout the world impose many compliance obligations concerning the handling of personal data, including, among other things, requiring companies to provide disclosure to consumers and other individuals about such companies’ data collection, use and sharing practices;

requiring companies to provide consumers and other individuals ways to make requests about their personal information, including requests to delete their personal information, to know what information a company has about the individual, and to opt-out of certain sales, transfers, or sharing of personal information;

and providing consumers and other individuals with additional causes of action.

In addition, Europe has finalized a comprehensive legal framework for governance of the development and use of AI, and other jurisdictions, including jurisdictions in the US, are considering or have passed laws governing the development or use of AI.

Similarly, Europe has enacted laws governing cyber resilience, and we expect more laws will be considered and passed on this issue.

Compliance with these varying regimes has caused and will cause us to incur additional costs, and may challenge our business and the expansion of that business, including as may result from any non-compliance or asserted non-compliance.

We have developed and implemented a compliance program based on what we believe are reasonable practices, including the background checking of our current partners and prospective clients and partners.

We cannot guarantee, however, that we, our employees, our consultants, our partners, our vendors, or our contractors are or will be compliant with all federal, state, and foreign regulations.

Although we have developed and implemented a compliance program based on what we believe are reasonable practices, we cannot guarantee that we, our employees, our consultants, our partners, our vendors, or our contractors are or will be compliant with all federal, state, and foreign regulations.

If our representatives or we fail to comply with any of these laws or regulations, a range of fines, penalties, and/or other sanctions could be imposed on us, which could have a material adverse effect on our business, financial condition, and results of operations.

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Similarly, in Europe and elsewhere globally, various tax reform efforts underway are designed to increase the taxes paid by corporate entities.

On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework that was supported by over 130 countries worldwide.

The EU effective dates were January 1, 2024, and January 1, 2025, for different aspects of the directive.

The impact of the Pillar Two Framework on the Company’s income tax provision in 2024 was not material.

The Company is continuing to evaluate the potential impact of the Pillar Two Framework on future periods, pending legislative adoption by additional individual countries.

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.

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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.

We consider the earnings of our foreign subsidiaries to be permanently reinvested.

As a result, domestic and foreign taxes on such earnings have not been provided in our financial statements.

It is not practical to estimate the amount of tax we would have to pay upon repatriation due to the complexity of the tax laws and other factors.

Because we consider some of the earnings of our foreign subsidiaries to be permanently reinvested, our financial statements may not reflect the domestic and foreign taxes on such earnings.

It is not practical to estimate the amount of tax we would have to pay upon repatriation of our unremitted earnings deemed to be permanently reinvested due to the complexity of the tax laws and other factors.

We have provided a deferred tax liability associated with the tax cost of repatriating unremitted earnings which we do not consider indefinitely reinvested.

General Risk Factors

The provision in our amended and restated bylaws, requiring exclusive forum in certain courts in The Commonwealth of Massachusetts or the federal district court for the District of Massachusetts for certain types of lawsuits, may discourage lawsuits against us and our directors, officers, and employees.

Our amended and restated bylaws provide that unless we consent in writing to the selection of an alternative forum, the Business Litigation Section of the Superior Court of Suffolk County, Massachusetts (the “BLS”) or, if the BLS lacks jurisdiction, the federal district court for the District of Massachusetts, Eastern Division, shall be the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to the Massachusetts Business Corporation Act (the “MBCA”), our articles of organization, or our bylaws (as each may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine.

The choice of forum provision may increase costs to bring a claim, discourage claims, or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us or our directors, officers, and other employees.

Alternatively, if a court were to find the choice of forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

The exclusive forum provision in our amended and restated bylaws will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws, including the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or the respective rules and regulations promulgated thereunder.

Material adverse developments in global economic conditions, or the occurrence of certain other world events, could affect demand for our products, increase our costs of operation and harm our business.

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All these factors could materially impact our operating results, financial condition, and cash flows.

Our CEO is our largest stockholder and can exert significant influence over matters submitted to our stockholders, which could materially adversely affect our other stockholders.

As of December 31, 2025, our CEO beneficially owned approximately 45 percent of our outstanding common stock.

The market price of our common stock has been and is likely to continue to be volatile .

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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-K

Item 1A. Risk Factors