What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2026-02-10 compared with 2025-02-12 · 252 added, 197 removed, 1035 unchanged (30% of the section changed)

4 unchanged sentences

Consolidated Statements of Operations for the years ended December 31, 2025, 2024, and 2023

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2024, 2023, and 2022

Consolidated Statements of Comprehensive Income for the years ended December 31, 2025, 2024, and 2023

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2025, 2024, and 2023

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Pegasystems Inc.

and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) i ssued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

31 unchanged sentences

Certain complex arrangements require that management performs a detailed analysis of the contractual terms and the application of more complex accounting guidance.

Factors with potentially significant judgements include:

Factors with potentially significant judgments include:

• Identification of the complete client arrangement

1 unchanged sentence

• Valuation and allocation of identified material rights

• Allocation of arrangement consideration to bundled fixed price work orders

Given the accounting complexity and the management judgment necessary to properly identify, classify, and account for performance obligations, auditing such estimates involved a high degree of auditor judgment when performing audit procedures and evaluating the license and cloud revenue arrangements.

8 unchanged sentences

◦ Analyzed the proper accounting treatment for any contract modifications based on 1) whether the additional products and services are distinct from the products and services in the original arrangement, and 2) whether the amount of consideration expected for the added products and services reflects the stand-alone selling price of those products and services.

◦ Evaluated management’s determination of whether certain renewal clauses, additional product offers, or additional usage offers represent material rights included in the contract and whether they were properly valued based on the incremental discount provided and the probability of the right being exercised.

◦ For contracts with a performance obligation of bundled fixed price services, evaluated whether management reasonably estimated the number of hours that each project will require and independently recalculated the stand-alone selling price for each bundled fixed price service.

◦ Evaluated management’s determination of whether certain renewal clauses, additional product offers, additional usage offers, or conversion rights represent material rights included in the contract and whether they were properly valued based on the incremental discount provided and the probability of the right being exercised.

◦ Obtained evidence of delivery of the elements of the arrangement to the client.

28 unchanged sentences

Total current liabilities 737,778 1,086,058

Long-term convertible senior notes, net — 499,368

Long-term operating lease liabilities 60,825 67,647

7 unchanged sentences

Additional paid-in capital 330,926 526,102

Retained earnings (accumulated deficit) 87,901 ( 8,705 )

Retained earnings 463,389 87,901

Accumulated other comprehensive (loss)

12 unchanged sentences

Consulting 227,949 213,273 221,706

Perpetual license 3,767 10,101 19,293

Total revenue 1,745,812 1,497,180 1,432,616

3 unchanged sentences

Consulting 250,753 238,842 231,560

Perpetual license 17 67 175

Total cost of revenue 421,382 390,665 378,483

5 unchanged sentences

Litigation settlement, net of recoveries

9,750 32,403 —

Restructuring 11,540 4,528 21,747

Total operating expenses 1,061,330 982,633 973,179

Income (loss) from operations 123,882 80,954 ( 109,405 )

Foreign currency transaction (loss) gain ( 912 ) ( 5,242 ) 4,560

Income from operations 263,100 123,882 80,954

Foreign currency transaction (loss) ( 14,890 ) ( 912 ) ( 5,242 )

Interest income 13,641 25,779 9,259

2 unchanged sentences

Other income, net 20,284 1,385 18,693

Income (loss) before provision for income taxes 142,636 95,440 ( 161,797 )

Provision for income taxes 43,447 27,632 183,785

Net income (loss) $ 99,189 $ 67,808 $ ( 345,582 )

Earnings (loss) per share

Income before (benefit from) provision for income taxes 280,627 142,636 95,440

(Benefit from) provision for income taxes ( 112,810 ) 43,447 27,632

Net income $ 393,437 $ 99,189 $ 67,808

Earnings per share

Basic $ 2.30 $ 0.58 $ 0.41

5 unchanged sentences

PEGASYSTEMS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

1 unchanged sentence

2025 2024 2023

Net income (loss) $ 99,189 $ 67,808 $ ( 345,582 )

Other comprehensive (loss) income, net of tax

Net income $ 393,437 $ 99,189 $ 67,808

Other comprehensive income (loss), net of tax

Unrealized (loss) gain on available-for-sale securities ( 103 ) ( 439 ) 152

Foreign currency translation adjustments 21,711 ( 11,927 ) 5,039

Total other comprehensive (loss) income, net of tax ( 12,366 ) 5,191 ( 16,082 )

Comprehensive income (loss) $ 86,823 $ 72,999 $ ( 361,664 )

Total other comprehensive income (loss), net of tax 21,608 ( 12,366 ) 5,191

Comprehensive income $ 415,045 $ 86,823 $ 72,999

See notes to consolidated financial statements.

7 unchanged sentences

January 1, 2023 164,872 $ 1,648 $ 228,778 $ ( 76,513 ) $ ( 23,070 ) $ 130,843

Repurchase of common stock ( 280 ) ( 2 ) ( 24,506 ) — — ( 24,508 )

Issuance of common stock for stock compensation plans 2,424 24 8,881 — — 8,905

4 unchanged sentences

Other comprehensive (loss) — — — — 5,191 5,191

Net (loss) — — — ( 345,582 ) — ( 345,582 )

Net income — — — 67,808 — 67,808

December 31, 2023 167,680 $ 1,676 $ 378,746 $ ( 8,705 ) $ ( 17,879 ) $ 353,838

Repurchase of common stock ( 1,650 ) ( 16 ) ( 69,541 ) — — ( 69,557 )

Issuance of common stock for stock compensation plans 5,970 60 75,156 — — 75,216

3 unchanged sentences

— — ( 7,684 ) ( 2,583 ) — ( 10,267 )

Other comprehensive income — — — — 5,191 5,191

Other comprehensive (loss) — — — — ( 12,366 ) ( 12,366 )

Net income — — — 99,189 — 99,189

6 unchanged sentences

— — — ( 17,949 ) — ( 17,949 )

Other comprehensive (loss) — — — — ( 12,366 ) ( 12,366 )

Other comprehensive income — — — — 21,608 21,608

Net income — — — 393,437 — 393,437

7 unchanged sentences

Operating activities

Net income (loss) $ 99,189 $ 67,808 $ ( 345,582 )

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

Net income $ 393,437 $ 99,189 $ 67,808

Adjustments to reconcile net income to cash provided by operating activities

Stock-based compensation 155,239 142,718 143,352

2 unchanged sentences

Amortization of right-of-use lease assets 12,213 17,842 15,912

Foreign currency transaction loss (gain)

Foreign currency transaction loss

14,890 912 5,242

1 unchanged sentence

Deferred income taxes ( 170,813 ) ( 1,544 ) 363

(Accretion) amortization of investments ( 15,263 ) ( 3,302 ) 1,972

(Accretion) of investments ( 2,888 ) ( 15,263 ) ( 3,302 )

(Gain) on investments ( 20,473 ) ( 869 ) ( 10,841 )

13 unchanged sentences

Sales of investments 181,441 — 10,725

Payments for acquisitions, net of cash acquired — — ( 922 )

Investment in property and equipment ( 14,504 ) ( 7,712 ) ( 16,781 )

Cash (used in) provided by investing activities ( 202,576 ) ( 50,750 ) 13,075

Cash provided by (used in) investing activities 197,246 ( 202,576 ) ( 50,750 )

Financing activities

8 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 6,988 ( 4,434 ) 2,701

Net increase (decrease) in cash, cash equivalents and restricted cash 108,702 87,773 ( 14,911 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 125,169 ) 108,702 87,773

Cash, cash equivalents, and restricted cash, beginning of period 341,529 232,827 145,054

6 unchanged sentences

Interest paid on convertible notes $ 1,754 $ 3,810 $ 4,134

Income taxes paid $ 82,317 $ 11,664 $ 7,645

Income taxes paid, net $ 21,630 $ 82,317 $ 11,664

Non-cash investing and financing activity:

6 unchanged sentences

The Company develops, markets, licenses, hosts, and supports enterprise software that helps organizations optimize decisions and processes in real-time.

The Company’s platform for enterprise artificial intelligence (“AI”) decisioning and workflow automation enables clients to personalize customer experiences, automate customer service, and streamline operations, business processes, and workflows.

The Company’s platform for enterprise AI decisioning and workflow automation enables clients to personalize customer experiences, automate customer service, streamline operations, business processes, and workflows, and transform legacy systems.

The Company provides consulting, training, support, and hosting services to facilitate the use of its software.

8 unchanged sentences

Reclassifications

Certain prior period amounts reported in our consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation.

Such reclassifications did not affect total revenues, income (loss) from operations, or net income (loss).

In the fourth quarter of 2025, we combined revenue and cost of revenue from Perpetual license into Subscription license within our Consolidated Statements of Operations and notes.

Prior period amounts related to the components of net deferred tax assets and liabilities, revenue, and cost of revenue reported in our consolidated financial statements and notes have been reclassified to conform to the current year presentation.

Such reclassifications did not affect total revenues, income from operations, or net income.

On February 12, 2025, the Company’s Board of Directors approved a Stock Split of the Company’s Common Stock, to be effected as a stock dividend and a proportionate increase in the number of authorized shares of Common Stock from 200,000,000 to 400,000,000 .

The Authorized Share Increase was subject to shareholder approval of an amendment to the Company’s Restated Articles of Organization.

The requisite shareholder approval was obtained on June 17, 2025.

On June 20, 2025, each shareholder of record at the close of business on the Record Date received one additional share of Common Stock for each share of Common Stock held on the Record Date.

All share, per share, and equity award information in the Company’s consolidated financial statements and in the accompanying notes for all periods presented have been recast to reflect the effect of the Stock Split.

The shares of Common Stock retained a par value of $ 0.01 per share.

Accordingly, an amount equal to the par value of the increased shares resulting from the Stock Split was reclassified from additional paid-in capital to common stock.

SIGNIFICANT ACCOUNTING POLICIES

The Company’s revenue is primarily derived from:

The Company’s revenue is derived from:

• Subscription services, composed of revenue from Pega Cloud and maintenance.

24 unchanged sentences

Perpetual license Residual approach Upon transfer of control to the client, defined as when the client can use and benefit from the license (point in time)

Effective date of the license Perpetual license

Effective date of the license Subscription license

- time and materials Observable hourly rate for time and materials-based services in similar geographies

49 unchanged sentences

Financial instruments

The principal financial instruments held by the Company consist of cash equivalents, marketable securities, receivables, capped call transactions, and accounts payable.

The principal financial instruments held by the Company consist of cash equivalents, marketable securities, receivables, and accounts payable.

The Company considers debt securities readily convertible to known amounts of cash with maturities of three months or less from the purchase date to be cash equivalents.

1 unchanged sentence

The Company’s investments are classified as available-for-sale and are carried at fair value.

Unrealized gains and losses considered temporary are recorded as a component of accumulated other comprehensive (loss), net of related income taxes.

The Company reviews all investments for reductions in fair value that are other-than-temporary.

When such reductions occur, the investment cost is adjusted to fair value by recording a loss on investments in the consolidated statements of operations.

Unrealized gains and losses from changes in fair value, excluding credit-related amounts are recorded as a component of accumulated other comprehensive (loss), net of related income taxes.

The Company evaluates available‑for‑sale debt securities in an unrealized loss position to determine whether a credit loss exists.

If a credit loss is identified, the Company records an allowance for credit losses, limited to the amount that fair value is below amortized cost.

Gains and losses on investments are calculated based on the specific investment.

15 unchanged sentences

The lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain it will exercise those options.

For short-term leases, defined as leases with a term of twelve months or less, the Company does not recognize an associated lease liability and right of use asset.

The Company’s leases do not contain material residual value guarantees or restrictive covenants.

77 unchanged sentences

Newly adopted accounting pronouncements

Segment reporting

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

ASU 2023-07 did not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.

Under ASU 2023-07, public entities with a single reportable segment must apply all of the ASU’s disclosure requirements and the existing segment disclosure and reconciliation requirements in ASC 280 - Segment Reporting on an annual and interim basis.

The Company implemented this ASU in 2024 and its impact was immaterial.

Accounting pronouncements not yet effective

Improvements to Income Tax Disclosures

2 unchanged sentences

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

The ASU will be effective for the Company for the year ending December 31, 2025.

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

The Company adopted this standard on a prospective basis for the year ended December 31, 2025.

For additional information, see "Note 18.

Income Taxes".

Accounting pronouncements not yet effective

Disaggregation of Income Statement Expenses

4 unchanged sentences

The Company is still evaluating the impact of this new guidance on its consolidated financial statements but expect the adoption to result in disclosure changes only.

Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, “ Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software ” (“ASU 2025-06”).

ASU 2025-06 introduces a more principles-based framework to the capitalization of software intended for internal use focused on management’s authorization and commitment to fund a development project and the probability of whether the project will be completed and used for its intended function.

ASU 2025-06 will be effective for the Company beginning January 1, 2028.

The Company is currently evaluating the impact ASU 2025-06 will have on its consolidated financial statements.

MARKETABLE SECURITIES

4 unchanged sentences

$ 213,033 $ 431 $ ( 112 ) $ 213,352 $ 402,948 $ 64 $ ( 142 ) $ 402,870

As of December 31, 2024, marketable securities’ maturities ranged from January 2025 to December 2027, with a weighted-average remaining maturity of 0.3 years.

As of December 31, 2025, marketable securities’ maturities ranged from January 2026 to November 2028, with a weighted-average remaining maturity of 1.4 years.

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

33 unchanged sentences

Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.

Contract assets as of December 31, 2023 were $ 36.9 million.

(in thousands)

9 unchanged sentences

Deferred revenue consists of billings made and payments received in advance of revenue recognition.

Deferred revenue as of December 31, 2023 was $ 380.3 million.

(in thousands)

30 unchanged sentences

(1) Included in other long-term assets.

During 2024, $ 17.8 million of depreciated assets were disposed of, which primarily related to office closures.

(in thousands) 2025 2024 2023

40 unchanged sentences

Contract assets 17,678 13,498

Insurance receivable — 1,954

Indirect tax receivable 2,172 2,488

Capped call transactions 223 —

Restricted cash

3 unchanged sentences

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

Deferred income taxes $ 175,472 $ 4,268

Deferred commissions 104,574 105,405

6 unchanged sentences

Intangible assets 1,202 3,832

Capped call transactions — 893

Deferred income taxes 4,268 3,678

Restricted cash 2,336 4,328

3 unchanged sentences

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

Cloud hosting $ 1,802 $ 1,358

Outside professional services

Marketing and sales program 2,150 2,557

$ 15,233 $ 10,639

Litigation settlements 9,750 —

Income and other taxes 7,273 5,055

Employee related

Marketing and sales program

Cloud hosting

Repurchases of common stock unsettled — 1,500

9 unchanged sentences

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

Deferred revenue $ 2,121 $ 2,478

Income taxes payable $ 23,331 $ 15,956

Deferred revenue 9,568 2,121

Other 12,961 11,011

3 unchanged sentences

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.

To assess performance, the Company’s CODM, the CEO, reviews financial information on a consolidated basis.

Therefore, the Company determined it has one operating segment and one reportable segment.

1 unchanged sentence

Significant Accounting Policies".

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

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

(in thousands) 2025 2024 2023

7 unchanged sentences

3,763 18,177 7,261

Provision for income taxes 43,447 27,632 183,785

Net income (loss) $ 99,189 $ 67,808 $ ( 345,582 )

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

(Benefit from) provision for income taxes ( 112,810 ) 43,447 27,632

Net income $ 393,437 $ 99,189 $ 67,808

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

Long-lived assets related to the Company’s U.S.

5 unchanged sentences

$ 45,240 100 % $ 41,806 100 %

The Company leased office space beginning in March 2021 at One Main Street, Cambridge, Massachusetts to serve as its corporate headquarters (the “Cambridge office”).

The 4.5 year lease includes a base rent of $ 2 million per year.

In December 2024, the Company closed the Cambridge office and relocated its corporate headquarters to office space already leased in Waltham, Massachusetts (the “Waltham office”), effective January 1, 2025.

The Company recorded a restructuring expense of $ 3.7 million as a result of closing the Cambridge office.

The Waltham office is 131 thousand square feet of leased office space located at 225 Wyman Street, Waltham, Massachusetts.

The lease term of 11 years began on August 1, 2021, with no rent due until August 1, 2022.

The annual rent equals the base rent of approximately $ 6 million, with 3 % annual increases, plus a portion of building operating costs and real estate taxes.

In addition, the Company received an improvement allowance from the landlord of $ 11.8 million.

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

(in thousands) 2025 2024 2023

12 unchanged sentences

Long-term operating lease liabilities $ 60,825 $ 67,647

(1) Represents the Company’s right to use the leased asset during the lease term.

(1) Included in other long-term assets.

17 unchanged sentences

Cash paid for operating leases, net of tenant improvement allowances $ 19,302 $ 18,444

Right of use assets recognized for new leases and amendments (non-cash) $ 16,682 $ 1,460

Right of use assets obtained in exchange for operating lease obligations $ 9,146 $ 16,682

Convertible senior notes and capped calls

Convertible senior notes

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 2024 and 2023, the Company recognized gains of $ 0.5 million and $ 7.9 million in other income, net from repurchases of Notes representing $ 34.4 million and $ 97.7 million in aggregate principal amount, respectively.

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

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.

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 14.809 shares of common stock per $1,000 principal amount of the Notes, representing a conversion price of $ 67.53 per share of common stock.

Carrying value of the Notes:

9 unchanged sentences

$ 989 $ 6,176

The average interest rate on the Notes in 2024 and 2023 was 1.2 %.

Future payments of principal and contractual interest:

December 31, 2024

(in thousands) Principal Interest Total

2025 $ 467,864 $ 1,754 $ 469,618

$ 467,864 $ 1,754 $ 469,618

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

Capped call transactions

In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions.

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 2024, Capped Call Transactions covering approximately 0.3 million shares were settled for proceeds of $ 0.01 million.

As of December 31, 2024, Capped Call Transactions covering approximately 3.5 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.

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

Change in capped call transactions:

5 unchanged sentences

Credit facility

In November 2019, and as since amended, the Company entered into a five-year $ 100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association.

In November 2019, and as since amended, the Company entered into a five-year $ 100 million Credit Facility with PNC Bank, National Association.

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

The Company may use borrowings for general corporate purposes and to finance working capital needs.

2 unchanged sentences

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.

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

As of December 31, 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.

As of December 31, 2025, the Company is compliant with all Credit Facility covenants.

As of December 31, 2025 and December 31, 2024, the Company had letters of credit of $ 26.7 million and $ 27.3 million, respectively, under the Credit Facility, however we had no 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:

During the fourth quarter of 2025, management committed to a restructuring plan, primarily within the Company’s consulting organization, intended to better align roles and capacity to an AI-first delivery model.

The plan resulted in a restructuring expense of approximately $ 13 million in 2025, associated with severance and benefits for impacted employees.

Restructuring Expense

(in thousands) 2025 2024 2023

24 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 applied judgment when determining expected volatility.

The Company considers 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.

19 unchanged sentences

December 31, $ 22,021 $ 21,234

During the three months ended June 30, 2025, one of the Company’s investees was acquired by a privately held company.

As a result, the Company received $ 33.2 million in consideration for its equity interest in the investee, composed of $ 22.1 million cash and $ 11.1 million of an ownership interest in the privately held company, and recognized a $ 18.7 million gain in excess of cost in other income, net on the consolidated statements of operations.

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

Fair value of the Notes

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

8 unchanged sentences

The Company has 400 million authorized shares of common stock, $ 0.01 par value per share, of which 170.3 million were issued and outstanding as of December 31, 2025.

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

Basis Of Presentation".

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

Dividends declared

2 unchanged sentences

Dividend payments to stockholders (in thousands) $ 15,422 $ 10,199 $ 9,964

The Company paid a quarterly cash dividend of $ 0.03 per share in 2024, 2023, and 2022.

Following the Stock Split, and commencing with the third quarter of 2025, the Company paid a quarterly cash dividend of $ 0.03 per share.

Prior to the Stock Split, the Company paid a quarterly cash dividend of $ 0.015 per share.

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

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 further extended the expiration date of the share repurchase program from June 30, 2025 to December 31, 2025 and increased the authorized repurchases by $ 250 million to $ 310 million as of that date.

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.

On February 10, 2026, the Company’s Board of Directors further extended the expiration date of the share repurchase program from June 30, 2026 to June 30, 2027 and increased the authorized repurchase amount by $ 1 billion.

Stock repurchase authorization activity:

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(2) Purchases under this program have been made on the open market.

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

excise tax on share repurchases.

Geographic revenue

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Subscription license 507,368 401,869 417,726

Perpetual license 3,767 10,101 19,293

Revenue recognized at a point in time 507,368 401,869 417,726

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Consulting 227,949 213,273 221,706

Perpetual license 3,767 10,101 19,293

$ 1,745,812 $ 1,497,180 $ 1,432,616

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As of December 31, 2025:

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

(Dollars in thousands) Subscription services Subscription license Consulting Total

Pega Cloud Maintenance

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As of December 31, 2024:

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

(Dollars in thousands) Subscription services Subscription license Consulting Total

Pega Cloud Maintenance

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The Company periodically grants employees stock options and restricted stock units (“RSUs”) and non-employee Directors common stock and stock options.

In 2022, most of the Company’s stock based compensation arrangements vest over five years , with 20 % vesting after one year and the remaining 80 % vesting quarterly over the remaining four years .

Prior to 2023, most of the Company’s stock based compensation arrangements vest over five years , with 20 % vesting after one year and the remaining 80 % vesting quarterly over the remaining four years .

Beginning in 2023, most of the Company’s stock based compensation arrangements vest over four years , with 25 % vesting after one year and the remaining 75 % vesting quarterly over the remaining three years .

The Company also granted performance stock options which vest based on the Company’s achievement of specific performance conditions.

The Company’s stock options have a term of ten years .

In 2024, the Company also granted 0.6 million performance stock options with a total grant date fair value of $ 13.9 million, which vest over 2 years based on the Company’s achievement of certain financial performance targets.

The Company recognizes stock-based compensation using the accelerated attribution method, treating each vesting tranche as an individual grant.

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If elected by an employee, the equity amount is equal in value on the grant date to 50 % of the employee’s target incentive opportunity, based on the employee’s base salary.

The number of RSUs granted is determined by dividing 50 % of the employee’s target incentive opportunity by 85 % of the closing price of the Company’s common stock on the grant date, less the present value of expected dividends during the vesting period.

The number of RSUs granted is determined by dividing 50 % of the employee’s target incentive opportunity by 85 % of the closing price of the Company’s common stock on the grant date.

If elected, the award vests 100 % on the following year’s CICP payout date.

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The Company considers vesting probable on the grant date and recognizes the associated stock-based compensation expense over the requisite service period beginning on the grant date and ending on the vesting date.

Historically, the Company has granted awards that allow for the settlement of vested stock options and RSUs on a net share basis (“net settled awards”).

With net settled awards, the Company withholds shares to cover the exercise price (for stock options) and the minimum statutory tax withholding obligations (for stock options and RSUs) from the shares that would otherwise be issued upon exercise or settlement.

In 2023, the Company moved to cashless settlement for most of its awards.

Beginning in 2023, the Company utilized cashless settlement for most of its awards.

Under cashless settlement, shares are automatically sold in the market at exercise (for stock options) or vest (for RSUs) to cover the exercise price (for stock options) and the minimum statutory tax withholding obligations (for stock options and RSUs).

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2004 Long-Term Incentive Plan (as amended and restated)

In 2004, the Company adopted the 2004 Long-Term Incentive Plan (as amended and restated, the “2004 Plan”) to provide employees, non-employee Directors, and consultants with opportunities to purchase stock through incentive and non-qualified stock options.

In 2004, the Company adopted the 2004 Long-Term Incentive Plan (as amended and restated, the “2004 Plan”) under which the Company may grant incentive and non-qualified stock options, RSUs, stock purchase rights, performance-based awards, and other stock-based awards to employees, non-employee Directors, and consultants.

Subsequent amendments to the plan increased the number of shares authorized for issuance under the plan to 104 million, extended the term of the plan to 2035, and limited annual compensation to any non-employee Director to $ 0.5 million.

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In 2025, the Company issued 8.6 million shares to its employees and directors under the Company’s stock-based compensation plans.

As of December 31, 2024, there were 3.9 million shares available for issuance for future equity grants under the Company’s stock plans, consisting of 3.0 million shares under the 2004 Plan and 0.9 million shares under the 2006 ESPP.

As of December 31, 2025, there we re 21.7 million shares available for issuance for future equity grants under the Company’s stock plans, consisting of 20.1 million shares under th e 2004 Plan and 1.6 million shares under the 2006 ESPP.

Grant activity

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These performance stock options allow the holder to purchase a specified number of common stock shares at an exercise price equal to the shares' fair market value at the grant date.

For the performance stock options granted in 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 for 2024 and 2025, respectively, including year over year growth in Annual Contract Value and Free Cash Flow Margin.

The performance stock options granted in 2025 vest quarterly over two years , with 50 % beginning after the achievement of specific performance conditions for 2026 and 50 % beginning after the achievement of specific performance conditions for 2027, including year over year growth in Annual Contract Value and Free Cash Flow Margin.

The options expire ten years from the grant date.

The performance stock options granted in 2025 have a total grant date fair value of $ 35.3 million.

The following table summarizes the Company’s performance stock option activity for 2025:

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Performance options outstanding as of January 1, 2025

2,780 $ 26.60

( 657 ) 24.67

Performance options outstanding as of December 31, 2025

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(1) The aggregate intrinsic value of stock options as of December 31, 2025 is based on the difference between the closing price of the Company’s stock of $ 59.72 and the exercise price of the applicable stock options.

The aggregate intrinsic value of performance stock options exercised in 2024 and 2023 was $ 1.5 million and none , respectively.

As of December 31, 2024, the Company had unrecognized stock-based compensation expense related to the unvested portion of performance stock options of $ 11.0 million that is expected to be recognized as expense over a weighted-average period of 1 year.

The aggregate intrinsic value of performance stock options exercised in 2025, 2024, and 2023 was $ 15.1 million, $ 1.5 million, and none , respectively.

As of December 31, 2025, the Company had unrecognized stock-based compensation expense related to the unvested portion of performance stock options of $ 22.4 million that is expected to be recognized as expense over a weighted-average period of 2.3 years.

RSUs provide the recipient a right to receive a specified number of shares of the Company’s common stock upon vesting.

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$ 30,055 $ 28,240 $ 29,425

The components of income (loss) before provision for income taxes are:

The components of income before (benefit from) provision for income taxes are:

(in thousands) 2025 2024 2023

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$ 280,627 $ 142,636 $ 95,440

The components of provision for income taxes are:

The components of (benefit from) provision for income taxes are:

(in thousands) 2025 2024 2023

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$ ( 112,810 ) $ 43,447 $ 27,632

A reconciliation of the U.S federal statutory tax rate and the Company’s effective tax rate:

Below is a reconciliation of the U.S federal statutory tax rate and the Company’s effective tax rate for 2025:

(in thousands, except percentages) Amount Percent

federal statutory income tax $ 58,932 21 %

State and local income taxes, net of federal benefit (1)

( 13,280 ) ( 5 ) %

United States:

Effect of cross-border tax laws:

Other ( 2,216 ) ( 1 ) %

Research and development credits ( 3,935 ) ( 1 ) %

Changes in valuation allowances ( 97,682 ) ( 35 ) %

Non-taxable or non-deductible items:

Non deductible compensation 10,914 4 %

Excess tax (benefits) related to share-based compensation ( 21,611 ) ( 8 ) %

Other adjustments:

Attribute write-off 4,870 2 %

Other 1,816 1 %

Foreign tax effects:

United Kingdom:

Statutory tax rate difference 3,215 1 %

Changes in valuation allowances ( 60,624 ) ( 22 ) %

Other ( 5,380 ) ( 2 ) %

India 8,234 3 %

Other foreign jurisdictions 6,014 2 %

Changes in unrecognized tax benefits ( 2,142 ) ( 1 ) %

$ ( 112,810 ) ( 40 ) %

(1) State and local taxes in District of Columbia, Virginia, Minnesota, Maryland, California, and Florida comprise the majority of this category.

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

The One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S.

on July 4, 2025.

The OBBBA provides for the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act of 2017, including revisions to the international tax framework and the reinstatement of favorable tax treatment for certain business tax provisions.

The OBBBA allows for the ability to immediately expense domestic research and experimental (“R&E”) expenditures starting in 2025 and provides an optional election to accelerate any unamortized domestic R&D expenditures over a one or two year period beginning with the 2025 tax year.

In accordance with ASC 740, the impacts of the OBBBA are reflected in the Company’s results for 2025.

Below is a reconciliation of the U.S federal statutory tax rate and the Company’s effective tax rate for 2024 and 2023:

(in thousands) 2024 2023

federal income taxes at statutory rates $ 29,954 $ 20,042

$ 29,954 $ 20,042 $ ( 33,977 )

Valuation allowance ( 1,504 ) ( 19,272 )

( 1,504 ) ( 19,272 ) 188,258

State income taxes, net of federal benefit and tax credits 1,297 4,117

1,297 4,117 ( 2,433 )

Permanent differences 786 435

786 435 11,561

Federal research and experimentation credits ( 4,888 ) ( 3,709 )

( 4,888 ) ( 3,709 ) ( 5,012 )

Tax effects of foreign activities ( 7,817 ) 658

( 7,817 ) 658 3,770

GILTI, FDII, and BEAT 13,945 14,022

13,945 14,022 16,390

Provision to return adjustments 121 ( 3,728 )

121 ( 3,728 ) ( 6,317 )

Non-deductible compensation 10,933 6,818

10,933 6,818 4,769

5,917 1,850 5,673

Tax Reserves 5,917 1,850

Excess tax (benefits)/ detriments related to share-based compensation ( 5,645 ) 4,666

( 5,645 ) 4,666 1,563

Impact of change in tax law — 1,726

$ 43,447 $ 27,632

$ 43,447 $ 27,632 $ 183,785

The effective income tax rate in 2024 was primarily driven by the valuation allowance on our deferred tax assets and tax expense in the U.S.

and U.K., partially offset by available tax attributes.

Income Tax Payments

Below is a summary of income taxes paid, net of refunds received by jurisdiction:

(in thousands) 2025

India $ 12,240

United Kingdom 9,408

United States - State and local 5,539

Australia 2,247

United States - Federal ( 11,233 )

Deferred income taxes

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Deferred tax assets:

Research and development capitalization $ 85,465 $ 75,289

Net operating loss carryforwards 62,471 72,089

Stock based compensation 48,681 42,114

Accruals and reserves 25,495 26,925

Software revenue 454 3,186

Convertible senior notes 355 2,645

Lease liabilities 11,890 13,434

Tax credit carryforwards 10,742 10,441

Research and development capitalization 75,289 58,866

Total deferred tax assets 244,744 240,292

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Deferred tax liabilities:

Capped call transactions ( 57 ) ( 223 )

Depreciation ( 3,663 ) ( 4,428 )

Intangibles ( 9,116 ) ( 11,979 )

Prepaid expenses ( 15,469 ) ( 8,924 )

Deferred commissions ( 14,615 ) ( 16,237 )

Lease liabilities ( 8,286 ) ( 8,440 )

Other, net ( 5,842 ) ( 3,421 )

Depreciation ( 1,624 ) ( 3,663 )

Capped call transactions — ( 57 )

Total deferred tax liabilities ( 45,836 ) ( 40,742 )

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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.

Based upon these factors, the Company has determined that the uncertainty regarding the realization of these assets is sufficient to warrant the need for a full valuation allowance against its net U.S.

deferred tax assets as of December 31, 2024.

Accordingly, the Company maintained a valuation allowance of $ 195.3 million at December 31, 2024, a decrease of $ 1.6 million as a result of the operations of its entities throughout the year.

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.

Based on the positive evidence, including a sustained period of profitability and recent and expected future taxable earnings, management concluded that substantially all of its U.S.

and UK deferred tax assets were more likely than not realizable as of December 31, 2025.

As a result, the Company released substantially all of the valuation allowance previously maintained against its U.S.

federal and state and U.K.

deferred tax assets during the fourth quarter of 2025, resulting in a $ 175 million non‑cash tax benefit.

The Company had approximately $ 4 million and $ 5.4 million of post apportionment state net operating loss carryforwards, as of December 31, 2025 and 2024, respectively.

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The Company’s UK net operating loss carryforwards were approximately $ 118 million and $ 147.9 million at December 31, 2025 and 2024, respectively, which have indefinite carryforward periods.

The Company records the applicable deferred taxes associated with the future remittance of undistributed foreign earnings that are not deemed indefinitely reinvested.

For the portion of our undistributed foreign earnings for which we assert indefinite reinvestment we have not provided any taxes for these amounts, and it is not practicable to estimate the amount of deferred tax liability that would be incurred.

Uncertain tax benefits

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Reductions for tax positions of prior years ( 2,793 ) ( 3,026 ) ( 1,871 )

Reductions to tax positions as a result of a lapse of the applicable statute of limitations ( 191 ) — —

Balance as of December 31,

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With few exceptions, the statute of limitations remains open in all jurisdictions for all tax years since 2019.

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 convertible senior notes.

Calculation of earnings (loss) per share:

EARNINGS PER SHARE

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

Diluted earnings 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 per share:

(in thousands, except per share amounts) (1)

Net income (loss) $ 99,189 $ 67,808 $ ( 345,582 )

2025 2024 2023

Net income $ 393,437 $ 99,189 $ 67,808

Weighted-average common shares outstanding 170,782 170,530 166,324

Earnings (loss) per share, basic $ 1.16 $ 0.82 $ ( 4.22 )

Net income (loss) $ 99,189 $ 67,808 $ ( 345,582 )

Convertible senior notes - interest expense and settlement gains, net of tax ( 76 ) ( 5,528 ) —

Earnings per share, basic $ 2.30 $ 0.58 $ 0.41

Net income $ 393,437 $ 99,189 $ 67,808

Notes - interest expense, net of tax 742 ( 76 ) ( 5,528 )

Numerator for diluted EPS $ 394,179 $ 99,113 $ 62,280

Weighted-average effect of dilutive securities:

Convertible senior notes 214 235 —

Notes 1,196 428 470

Stock options 9,362 5,420 1,588

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Outstanding anti-dilutive stock options and RSUs (5)

148 250 3,367

(1) The number of shares and per share amounts have been recast for all prior periods presented to reflect the effect of the Company’s Stock Split effected in the form of a stock dividend distributed on June 20, 2025.

(2) 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 3.5 million shares as of December 31, 2024.

(3) The Company’s Capped Call Transactions represent the equivalent of approximately 3.5 million shares of the Company’s common stock (representing the number of shares for which the Notes are convertible) as of December 31, 2024.

(3) 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.

(4) 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 were 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.

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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 December 31, 2024 and December 31, 2023.

As of December 31, 2025, the Company recorded an estimated $ 9.75 million accrued loss related to an agreed in principle settlement of the In re Pegasystems Inc.

Derivative Litigation matter, see additional discussion below.

The Company had no accrued loss for litigation as of December 31, 2024.

Pegasystems Inc.

& Youyong Zou

The Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia (the “Court”) titled Appian Corp.

The Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia titled Appian Corp.

Pegasystems Inc.

4 unchanged sentences

On September 15, 2022, the circuit court of Fairfax County entered judgment of $ 2,060,479,287 , consisting of the damages previously awarded by the jury plus attorneys’ fees and costs, and stating that the judgment is subject to post-judgment interest at a rate of 6.0 % per annum, from the date of the jury verdict (May 9, 2022) as to the amount of the jury verdict and from September 15, 2022 as to the amount of the award of attorneys’ fees and costs.

On September 15, 2022, the Company filed a notice of appeal from the judgment.

On September 15, 2022, the Company filed a notice of appeal from the Virginia Uniform Trade Secrets Act judgment.

On September 29, 2022, the circuit court of Fairfax County approved a $ 25,000,000 letter of credit obtained by the Company to secure the judgment and entered an order suspending 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.

The Court of Appeals reversed the judgment and ordered a new trade secrets claim trial.

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.

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

The Supreme Court of Virginia has 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 March 7, 2025, the Supreme Court of Virginia granted Appian’s petition for appeal and Pega’s assignments of cross-error.

The Supreme Court of Virginia heard appellate oral argument on October 28, 2025.

On January 8, 2026, the Supreme Court of Virginia issued a written opinion unanimously affirming the ruling of the Court of Appeals of Virginia.

On January 13, 2026, the Circuit Court of Fairfax County, Virginia notified the parties that this case has been reassigned to Judge David A.

Oblon for further proceedings.

On January 29, 2026, the Supreme Court of Virginia 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.

Also on January 29, Judge Oblon scheduled a first status conference for the remanded trial proceedings for May 7, 2026.

The Company continues to believe that it did not misappropriate any alleged trade secrets and that its sales of the Company’s products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets.

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.

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

PS Lit Recovery, LLC v.

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Pegasystems Inc., Alan Trefler, and Kenneth Stillwell

Federal court cases

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.

6 unchanged sentences

The complaints also assert claims for common law fraud and negligent misrepresentation, and seek unspecified damages.

The defendants’ motion to dismiss is due ten business days following the court’s entry of the parties’ stipulation coordinating the cases, which the parties filed in the court on February 4, 2025.

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.

In re Pegasystems Inc., Derivative Litigation

The defendants moved to dismiss the complaints on March 13, 2025 and on May 21, 2025, the Court held a hearing on the motion to dismiss.

At the conclusion of the hearing, the Court (i) granted the motion to dismiss as to the plaintiffs’ scheme liability claims;

(ii) granted the motion to dismiss as to certain claims against Ken Stillwell;

and (iii) took the motion to dismiss under advisement as to all other claims.

On January 8, 2026, the Court issued a written order granting the motion to dismiss as to the Section 10(b) and common law fraud claims against Ken Stillwell and denying the motion to dismiss as to the remaining claims.

The Court also entered a scheduling order setting trial for February 2027.

State court cases

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.

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 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 believes it has strong defenses to the claims brought against the defendants and intends to defend against these claims vigorously.

The Company is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits.

In re Pegasystems Inc.

Derivative Litigation

Federal court cases

On November 21, 2022, a lawsuit was filed against the members of the Company’s board of directors, the Company’s chief operating and financial officer and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc.

Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, Larry Weber, and Kenneth Stillwell, defendants, and Pegasystems Inc., nominal defendant (Case 1:22-cv-11985).

The complaint generally alleges the defendants sold shares of the Company while in possession of material nonpublic information relating to (i) the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and (ii) alleged misconduct by Company employees alleged in that litigation.

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 (“Consolidated Action”).

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

On May 17, 2023, the Larkin and Sagfors cases were consolidated (the “Consolidated Action”) and, after defendants moved to dismiss the complaint in the Consolidated Action on December 4, 2024, the plaintiffs moved to voluntarily dismiss the Consolidated Action, and the Court granted the motion to dismiss on December 18, 2024.

The Company separately received confidential demand letters raising substantially the same allegations set forth in the Consolidated Action.

On April 12, 2023, the Company’s board of directors (other than Mr.

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.

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) were 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 (the “Demand Review Committee”).

The Demand Review Committee, with the assistance of independent legal counsel, conducted an extensive investigation of the allegations raised in the demand letters and on October 7, 2024 issued a report concluding that there are no valid claims against the Company’s directors and officers with respect to the matters raised in the demands and that it would not be in the Company’s best interests to pursue litigation against them.

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).

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, (the “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;

1 unchanged sentence

and the Class Action, described above.

The Defendants filed motions to dismiss the complaint on April 28, 2025.

On June 6, 2025, the plaintiffs in the consolidated derivative matter currently pending in Massachusetts Superior Court, Case No.

2484CV01734 (discussed below), moved to intervene in this matter and to stay it pending the resolution of the state derivative matter.

The Court held a hearing on defendants’ motions to dismiss and state court plaintiffs’ motion to intervene on July 21, 2025.

Following argument, the Court took the motions under advisement.

On October 14, 2025, the parties jointly notified the Court that on October 2, 2025 the Massachusetts Superior Court granted defendants’ motion to dismiss the related state court derivative action (see below) and proposed that the Court refrain from issuing a decision on the motions to dismiss pending a joint submission by the parties of their respective positions on the impact of the state court dismissal on the federal court case within thirty (30) days.

On December 17, 2025, the court entered an order administratively closing this action in light of the developments in the State court cases, described below.

On January 7, 2026, the Collective Plaintiffs agreed in principle to a proposed settlement of the litigation.

See discussion below within the “State court cases” subsection.

State court cases

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.

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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.

Pursuant to the stipulation, a consolidated complaint must be filed by March 18, 2025, and any motion to dismiss must be served by May 15, 2025.

The court held a hearing on February 11, 2025, at which it indicated it would issue an order consolidating the Dwyer and Birch Actions and approving the schedule for the filing of a consolidated complaint and a motion to dismiss.

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

Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, 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 asserts the same claims asserted in the Dwyer Action.

On February 12, 2025, after submission by the parties of a stipulation and proposed order, 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 moved to dismiss the complaint and after briefing by the parties, the Court held a hearing on defendants’ motion on September 4, 2025.

On October 2, 2025, the Court granted Defendants’ motion to dismiss.

On January 13, 2026, the court entered final judgment in defendants’ favor.

On January 7, 2026, the parties to the federal and state court cases agreed in principle to a proposed settlement of the litigation.

Under the terms of the proposed settlement, the plaintiffs in the federal and state court cases (“Collective Plaintiffs”) agreed to the dismissal of all claims upon the Company adopting certain governance reforms and payment of an estimated aggregate sum of $ 9.75 million inclusive of a $ 7 million special dividend to shareholders (excluding defendants) and Collective Plaintiffs’ attorney fees.

Although the outcome of the litigation is not certain until final court approval, the Company has recorded an estimated $ 9.75 million accrued loss as of December 31, 2025.

However, it is possible that actual future losses related to the litigation could exceed the accrual amount if and to the extent that the court does not approve the proposed settlement.

On January 23, 2026, the parties jointly moved the court for relief from the final judgment in this action for the sole purpose of permitting the parties to seek Court approval of the proposed settlement.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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What changed 10-K

Item 8. Financial Statements and Supplementary Data