PEGA filing — read by section

Item 8. Financial Statements and Supplementary Data

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
 
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Page 
 Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 
 35 
 
 Consolidated Balance Sheets as of December 31, 2025 and 2024 
 37 
 
 Consolidated Statements of Operations for the years ended December 31, 2025, 2024, and 2023 
 38 
 
 Consolidated Statements of Comprehensive Income for the years ended December 31, 2025, 2024, and 2023 
 39 
 
 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2025, 2024, and 2023 
 40 
 
 Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024, and 2023 
 41 
 
 Notes to Consolidated Financial Statements 43 
 

 
 
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 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
 To the stockholders and the Board of Directors of Pegasystems Inc. 
 
 
 Opinions on the Financial Statements and Internal Control over Financial Reporting 
 We have audited the accompanying consolidated balance sheets of Pegasystems Inc. 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). 
 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. 
 Basis for Opinions 
 The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on and changes in internal control over financial reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 
 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. 
 Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 
 Definition and Limitations of Internal Control over Financial Reporting 
 A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
 Critical Audit Matter 
 The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 
 Revenue Recognition - Software License Arrangements — Refer to Note 2 to the financial statements 
 Critical Audit Matter Description 
 The Company generates revenue from multiple sources, including software license revenue primarily derived from license sales of the Company’s Pega Platform and other software applications, maintenance revenue from client support, and services revenue primarily derived from cloud sales of the Company’s hosted Pega Platform and other software applications and consulting services. 
 The Company’s license and cloud contracts with clients (“arrangements”) often contain multiple performance obligations. These performance obligations may be included in the same contract or negotiated separately. Additionally, the Company enters into amendments to previously executed contracts which constitute contract modifications. 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 judgments include: 
 • Identification of the complete client arrangement 
 • Accounting treatment of contract modifications 
 • Valuation and allocation of identified material rights 
 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. 
 How the Critical Audit Matter Was Addressed in the Audit 
 Our audit procedures related to license and cloud revenue arrangements included the following, among others: 
 • We tested the effectiveness of controls over revenue recognition, including those over the identification of performance obligations included in the transaction, accounting treatment of contract modifications, valuation and allocation of identified material rights, and allocation of arrangement consideration. 
 • We selected a sample of client arrangements, and performed the following: 
 ◦ Evaluated whether the Company properly identified the terms of the arrangements and considered all arrangement terms that may have an impact on revenue recognition. 
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 ◦ Evaluated whether the Company appropriately identified all performance obligations in the arrangement and whether the methodology to allocate the transaction price to the individual performance obligations was appropriately applied. 
 ◦ Tested the accuracy of management’s calculation of revenue for each performance obligation by developing an expectation for the revenue to be recorded in the current period and comparing it to the Company’s recorded balances. 
 ◦ Evaluated management’s assessment of any ongoing negotiations with clients and bundling with statements of work. 
 ◦ 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, 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. 
 /s/ Deloitte & Touche LLP 
 Boston, Massachusetts 
 February 10, 2026 
 We have served as the Company's auditor since 2000. 
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 PEGASYSTEMS INC. 
 CONSOLIDATED BALANCE SHEETS 
 (in thousands, except per share amounts) 
 
 December 31, 2025 December 31, 2024 
 Assets 
 Current assets: 
 Cash and cash equivalents $ 212,447 $ 337,103 
 Marketable securities 213,352 402,870 
 Total cash, cash equivalents, and marketable securities 425,799 739,973 
 Accounts receivable, net 264,713 305,468 
 Unbilled receivables, net 166,478 173,085 
 Other current assets 121,305 115,178 
 Total current assets 978,295 1,333,704 
 Long-term unbilled receivables, net 102,544 61,407 
 Goodwill 81,506 81,113 
 Other long-term assets 469,499 292,049 
 Total assets $ 1,631,844 $ 1,768,273 
 Liabilities and stockholders’ equity 
 Current liabilities: 
 Accounts payable $ 12,924 $ 6,226 
 Accrued expenses 44,847 31,544 
 Accrued compensation and related expenses 148,797 138,042 
 Deferred revenue 509,275 423,910 
 Convertible senior notes, net — 467,470 
 Other current liabilities 21,935 18,866 
 Total current liabilities 737,778 1,086,058 
 
 Long-term operating lease liabilities 60,825 67,647 
 Other long-term liabilities 45,860 29,088 
 Total liabilities 844,463 1,182,793 
 Commitments and contingencies (Note 20) 
 Stockholders’ equity: 
 Preferred stock, $ 0.01 par value, 1,000 shares authorized; none issued 
 — — 
 Common stock, $ 0.01 par value, 400,000 shares authorized; 170,347 and 172,224 shares issued and outstanding as of December 31, 2025 and 2024, respectively 
 1,703 1,722 
 Additional paid-in capital 330,926 526,102 
 Retained earnings 463,389 87,901 
 Accumulated other comprehensive (loss) 
 Net unrealized gain on available-for-sale securities, net of tax 127 230 
 Foreign currency translation adjustments ( 8,764 ) ( 30,475 ) 
 Total stockholders’ equity 787,381 585,480 
 Total liabilities and stockholders’ equity $ 1,631,844 $ 1,768,273 

 
 
 See notes to consolidated financial statements. 
 
 
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 PEGASYSTEMS INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS 
 (in thousands, except per share amounts) 
 
 Year Ended December 31, 
 2025 2024 2023 
 Revenue 
 Subscription services $ 1,010,495 $ 882,038 $ 793,184 
 Subscription license 507,368 401,869 417,726 
 Consulting 227,949 213,273 221,706 
 Total revenue 1,745,812 1,497,180 1,432,616 
 Cost of revenue 
 Subscription services 169,247 149,918 144,250 
 Subscription license 1,382 1,905 2,673 
 Consulting 250,753 238,842 231,560 
 Total cost of revenue 421,382 390,665 378,483 
 Gross profit 1,324,430 1,106,515 1,054,133 
 Operating expenses 
 Selling and marketing 578,637 534,780 559,177 
 Research and development 312,681 298,074 295,512 
 General and administrative 148,722 112,848 96,743 
 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 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 
 Interest expense ( 1,285 ) ( 6,835 ) ( 6,876 ) 
 (Loss) on capped call transactions ( 223 ) ( 663 ) ( 1,348 ) 
 Other income, net 20,284 1,385 18,693 
 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 
 Diluted $ 2.13 $ 0.55 $ 0.37 
 Weighted-average number of common shares outstanding 
 Basic 170,782 170,530 166,324 
 Diluted 184,790 179,268 169,828 

 
 
 See notes to consolidated financial statements. 
 
 
 
 
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 PEGASYSTEMS INC. 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
 (in thousands) 
 
 Year Ended December 31, 
 2025 2024 2023 
 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 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. 
 
 
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 PEGASYSTEMS INC. 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
 (in thousands, except per share amounts) 
 
 Common Stock Additional paid-in capital 
 Retained earnings (accumulated deficit) 
 Accumulated other comprehensive (loss) Total 
 stockholders’ equity 
 
 Number 
 of shares 
 Amount 
 January 1, 2023 164,872 $ 1,648 $ 228,778 $ ( 76,513 ) $ ( 23,070 ) $ 130,843 
 
 
 Issuance of common stock for stock compensation plans 2,424 24 8,881 — — 8,905 
 Issuance of common stock under the employee stock purchase plan 384 4 7,740 — — 7,744 
 Stock-based compensation — — 143,352 — — 143,352 
 Cash dividends declared ($ 0.06 per share) 
 — — ( 10,005 ) — — ( 10,005 ) 
 Other comprehensive (loss) — — — — 5,191 5,191 
 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 
 Issuance of common stock under the employee stock purchase plan 224 2 6,707 — — 6,709 
 Stock-based compensation — — 142,718 — — 142,718 
 Cash dividends declared ($ 0.06 per share) 
 — — ( 7,684 ) ( 2,583 ) — ( 10,267 ) 
 Other comprehensive (loss) — — — — ( 12,366 ) ( 12,366 ) 
 Net income — — — 99,189 — 99,189 
 December 31, 2024 172,224 $ 1,722 $ 526,102 $ 87,901 $ ( 30,245 ) $ 585,480 
 Repurchase of common stock ( 10,659 ) ( 107 ) ( 498,672 ) — — ( 498,779 ) 
 Issuance of common stock for stock compensation plans 8,604 86 140,794 — — 140,880 
 Issuance of common stock under the employee stock purchase plan 178 2 7,463 — — 7,465 
 Stock-based compensation — — 155,239 — — 155,239 
 Cash dividends declared ($ 0.105 per share) 
 — — — ( 17,949 ) — ( 17,949 ) 
 Other comprehensive income — — — — 21,608 21,608 
 Net income — — — 393,437 — 393,437 
 December 31, 2025 170,347 $ 1,703 $ 330,926 $ 463,389 $ ( 8,637 ) $ 787,381 

 
 
 See notes to consolidated financial statements. 
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 PEGASYSTEMS INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS 
 (in thousands) 
 Year Ended December 31, 
 2025 2024 2023 
 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 
 Amortization of deferred commissions 68,573 62,269 59,461 
 Amortization of intangible assets and depreciation 13,699 17,585 18,746 
 Amortization of right-of-use lease assets 12,213 17,842 15,912 
 Foreign currency transaction loss 
 14,890 912 5,242 
 Loss on capped call transactions 223 663 1,348 
 Deferred income taxes ( 170,813 ) ( 1,544 ) 363 
 (Accretion) of investments ( 2,888 ) ( 15,263 ) ( 3,302 ) 
 (Gain) on investments ( 20,473 ) ( 869 ) ( 10,841 ) 
 (Gain) on repurchases of convertible senior notes — ( 459 ) ( 7,855 ) 
 Other non-cash 1,699 3,728 5,557 
 Change in operating assets and liabilities: 
 Accounts receivable, unbilled receivables, and contract assets 19,191 79,034 ( 57,602 ) 
 Other current assets ( 1,253 ) ( 50,005 ) 11,360 
 Other current liabilities 24,635 ( 7,115 ) ( 8,777 ) 
 Deferred revenue 76,707 48,360 45,123 
 Deferred commissions ( 64,803 ) ( 57,628 ) ( 44,529 ) 
 Other long-term assets and liabilities ( 15,049 ) 6,509 ( 23,581 ) 
 Cash provided by operating activities 505,227 345,926 217,785 
 Investing activities 
 Purchases of investments ( 348,642 ) ( 559,365 ) ( 287,287 ) 
 Proceeds from maturities and called investments 378,951 364,501 242,593 
 Sales of investments 181,441 — 10,725 
 
 Investment in property and equipment ( 14,504 ) ( 7,712 ) ( 16,781 ) 
 Cash provided by (used in) investing activities 197,246 ( 202,576 ) ( 50,750 ) 
 Financing activities 
 Repurchases of convertible senior notes ( 467,864 ) ( 33,890 ) ( 88,989 ) 
 Dividend payments to stockholders ( 15,422 ) ( 10,199 ) ( 9,964 ) 
 Proceeds from employee stock purchase plan 7,465 6,709 7,744 
 Proceeds from stock option exercises 158,421 80,651 10,821 
 Common stock repurchases for tax withholdings for net settlement of equity awards ( 17,541 ) ( 5,435 ) ( 1,916 ) 
 Common stock repurchases under stock repurchase program ( 499,689 ) ( 68,057 ) — 
 Other — 7 341 
 Cash (used in) financing activities ( 834,630 ) ( 30,214 ) ( 81,963 ) 
 Effect of exchange rate changes on cash, cash equivalents, and restricted cash 6,988 ( 4,434 ) 2,701 
 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 
 Cash, cash equivalents, and restricted cash, end of period $ 216,360 $ 341,529 $ 232,827 
 
 Cash and cash equivalents $ 212,447 $ 337,103 $ 229,902 
 Restricted cash included in other current assets 1,577 98 — 
 Restricted cash included in other long-term assets 2,336 4,328 2,925 
 Total cash, cash equivalents and restricted cash $ 216,360 $ 341,529 $ 232,827 
 

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 Supplemental disclosures 
 Interest paid on convertible notes $ 1,754 $ 3,810 $ 4,134 
 Income taxes paid, net $ 21,630 $ 82,317 $ 11,664 
 Non-cash investing and financing activity: 
 Investment in property and equipment included in accounts payable and accrued liabilities $ 1,657 $ 1,723 $ 66 
 Dividends payable $ 5,110 $ 2,583 $ 2,515 

 
 
 See notes to consolidated financial statements. 
 42 

 
 PEGASYSTEMS INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

 
 
 
 1. BASIS OF PRESENTATION 
 Business 
 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 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. 
 Management estimates and reporting 
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. Accounts with reported amounts based on significant estimates and judgments include, but are not limited to, revenue, unbilled receivables, deferred revenue, deferred income taxes, deferred commissions, income taxes payable, convertible senior notes, and goodwill. 
 Principles of consolidation 
 The Company’s consolidated financial statements reflect Pegasystems Inc. and subsidiaries in which the Company holds a controlling financial interest. All intercompany accounts and transactions were eliminated in consolidation. 
 Reclassifications 
 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. 
 Stock Split 
 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. 
 
 2. SIGNIFICANT ACCOUNTING POLICIES 
 Revenue 
 The Company’s revenue is derived from: 
 • Subscription services, composed of revenue from Pega Cloud and maintenance. Pega Cloud is the Company’s hosted Pega Platform and software applications. Maintenance revenue is earned from providing client support, software upgrades, and bug fixes or patches. 
 • Subscription license, composed of revenue from term license arrangements for the Company’s Pega Platform and software applications. Term licenses represent functional intellectual property and are delivered separately from maintenance and services. 
 • Perpetual license, composed of revenue from perpetual license arrangements for the Company’s Pega Platform and software applications. Perpetual licenses represent functional intellectual property and are delivered separately from maintenance and services. 
 • Consulting, primarily related to new software license implementations, training, and reimbursable costs. 
 Performance obligations 
 The Company’s software license and Pega Cloud arrangements often contain multiple performance obligations. If a contract contains multiple performance obligations, the Company accounts for each distinct performance obligation separately. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. Any discounts or expected potential future price concessions are considered when determining the total transaction price. The Company’s policy is to exclude sales and similar taxes collected from clients from the determination of transaction price. 
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 The Company’s typical performance obligations are: 
 Performance obligation 
 How stand-alone selling price is typically determined 
 When performance obligation is typically satisfied 
 When payment is typically due 
 Income statement line item 
 
 Pega Cloud Residual approach Ratably over the term of the service (over time) Annually, or more frequently, over the term of the service Subscription services 
 
 Term 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) 
 Annually, or more frequently, over the term of the license Subscription license 
 
 Maintenance Consistent pricing relationship as a percentage of the related license and observable in stand-alone renewal transactions (1) 
 Ratably over the term of the maintenance (over time) Annually, or more frequently, over the term of the maintenance Subscription services 
 
 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 Subscription license 
 
 Consulting
- time and materials Observable hourly rate for time and materials-based services in similar geographies 
 Based on hours incurred to date (over time) 
 Monthly Consulting 
 
 Consulting 
- fixed price Observable hourly rate for time and materials-based services in similar geographies multiplied by estimated hours for the project 
 Based on hours incurred as a percentage of total estimated hours (over time) 
 As contract milestones are achieved Consulting 
 

 (1) Technical support and software updates are considered distinct services but accounted for as a single performance obligation, as they have the same pattern of transfer to the client. 
 The Company utilizes the residual approach for software license and Pega Cloud performance obligations since the selling price is highly variable and the stand-alone selling price is not discernible from past transactions or other observable evidence. Periodically, the Company reevaluates whether the residual approach remains appropriate. As required, the Company evaluates its residual approach estimate compared to all available observable data before concluding the estimate represents its stand-alone selling price. 
 If the contract grants the client the option to acquire additional products or services, the Company assesses whether the option represents a material right to the client that the client would not receive without entering into that contract. Discounts on options to purchase additional products and services greater than discounts available to similar clients are accounted for as an additional performance obligation. 
 During most of each client contract term, the amount invoiced is generally less than the amount of revenue recognized to date, primarily because we transfer control of the performance obligation related to the software license at the inception of the contract term. A significant portion of the total contract consideration is typically allocated to the license performance obligation. Therefore, the Company’s contracts often result in the recording of unbilled receivables and contract assets throughout most of the contract term. The Company records an unbilled receivable or contract asset when revenue recognized on a contract exceeds the billings. The Company recognizes an impairment on receivables and contract assets if, after contract inception, it becomes probable that payment is not collectible. The Company reviews receivables and contract assets on an individual basis for impairment. 
 Variable consideration 
 The Company’s arrangements can include variable fees, such as the option to purchase additional usage of a previously delivered software license. The Company may also provide pricing concessions to clients, a business practice that gives rise to variable fees. For variable fees arising from the client’s acquisition of additional usage of a previously delivered software license, the Company applies the sales and usage-based royalties guidance related to a license of intellectual property and recognizes the revenue in the period the underlying sale or usage occurs. The Company includes variable fees in the determination of total transaction price if it is not probable that a significant future reversal of revenue will occur. The Company uses the expected value or most likely value amount, whichever is more appropriate for specific circumstances, to estimate variable consideration, and the estimates are based on the level of historical price concessions offered to clients. The variable consideration related to pricing concessions and other forms of variable consideration, including usage-based fees, have not been material to the Company’s consolidated financial statements. 
 Significant financing components 
 The Company generally does not intend to provide financing to its clients, as financing arrangements are not contemplated as part of the negotiated terms of contracts between the Company and its clients. Although there may be an intervening period between the delivery of the license and the payment, typically in term license arrangements, the purpose of that timing difference is to align the client’s payment with the timing of the use of the software license or service. 
 In certain circumstances, however, there are instances where revenue recognition timing differs from the timing of payment due to extended payment terms or fees that are non-proportional to the associated usage of software licenses. In these instances, the Company evaluates whether a significant financing component exists. This evaluation includes determining the difference between the consideration the client would have paid when the performance obligation was satisfied and the amount of consideration paid. Contracts that include a significant financing component are adjusted for the time value of money at the rate inherent in the contract, the client’s borrowing rate, or the Company’s incremental borrowing rate, depending upon the recipient of the financing. 
 During 2025, 2024, and 2023, significant financing components were not material. 
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 Contract modifications 
 The Company assesses contract modifications to determine: 
 • if the additional products and services are distinct from the products and services in the original arrangement; and 
 • if the amount of consideration expected for the added products and services reflects the stand-alone selling price of those products and services. 
 A contract modification meeting both criteria is accounted for as a separate contract. If a contract modification does not meet both criteria, it is accounted for either: 
 • on a prospective basis as a termination of the existing contract and the creation of a new contract; or 
 • on a cumulative catch-up basis. 
 Deferred commissions 
 The Company recognizes an asset for the incremental costs of obtaining a client contract, primarily related to sales commissions. The Company expects to benefit from those costs for more than one year. Commissions earned upon the execution of initial contracts are allocated to each performance obligation within the contract and amortized according to the transfer of underlying goods and services within those contracts and expected renewals. The expected benefit period is determined based on the length of the client contracts, client attrition rates, the underlying technology lifecycle, and the competitive marketplace’s influence on the products and services sold. Deferred costs allocated to maintenance and deferred costs for Pega Cloud arrangements are amortized over an average expected benefit period of 4.5 years. Deferred costs allocated to software licenses, and any expected renewals of term software licenses within the 4.5 years expected benefit period, are amortized at the point in time control of the software license is transferred. Deferred costs allocated to consulting are amortized over a period consistent with the pattern of transfer of control for the related services. Commissions earned on contract amendments and renewals are allocated to each performance obligation within the contract and amortized over the contractual term. 
 Financial instruments 
 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. Interest is recorded when earned. The Company’s investments are classified as available-for-sale and are carried at fair value. 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. 
 For additional information see "Note 4. Receivables, Contract Assets, And Deferred Revenue", "Note 11. Debt", and "Note 13. Fair Value Measurements". 
 Property and equipment 
 Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful life of each asset, which are three years for computer equipment and five years for furniture and fixtures. Leasehold improvements are amortized over the lesser of the lease’s term or the useful life of the asset. Repairs and maintenance costs are expensed as incurred. 
 Leases 
 All of the Company’s leases are operating leases, primarily composed of office space leases. The Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines the initial classification and measurement of its operating right of use assets and lease liabilities at the lease commencement date and thereafter if modified. Fixed lease costs are recognized on a straight-line basis over the lease term. Variable lease costs include payments required under leases for common area maintenance, real estate taxes, utilities, service charges, and other variable costs that are not reflected in the measurement of right of use assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The Company combines lease and non-lease components when determining lease costs for its office space leases. 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. 
 Loss contingencies and legal costs 
 The Company accrues loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. 
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 Significant judgments are required to determine the probability and the range of the outcomes, and the estimates are based only on the information available to the Company 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 the Company’s 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 the Company’s results of operations and financial position. As additional information becomes available, the Company reassesses the potential liability from pending claims and litigation and may revise its estimates. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources and other factors. Legal costs are expensed as incurred. 
 Internal-use software 
 The Company capitalizes and amortizes certain direct costs associated with computer software developed or purchased for internal use incurred during the application development stage. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. The Company amortizes capitalized internal-use software on a straight-line basis over its estimated useful life, which is generally over three to five years , commencing on the date the software is placed into service. 
 Goodwill 
 Goodwill represents the residual purchase price paid in a business combination after the fair value of all identified assets and liabilities have been recorded. Goodwill is not amortized. The Company has a single reporting unit. The Company performed qualitative assessments as of November 30, 2025, 2024, and 2023, respectively, and concluded that there was no impairment since it was not more-likely-than-not that the fair value of its reporting unit was less than its carrying value. 
 Intangible and long-lived assets 
 The Company’s intangible assets are amortized using the straight-line method over their estimated useful life. The Company evaluates its long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that such assets’ carrying amount may not be recoverable. Impairment is assessed by comparing the undiscounted cash flows expected to be generated by the long-lived tangible or intangible assets to their carrying value. If impairment exists, the Company calculates the impairment by comparing the carrying value to its fair value as determined by discounted expected cash flows. 
 Cash equivalents 
 Cash equivalents include money market funds and other investments with original maturities of three months or less. 
 Restricted cash 
 The Company records restricted cash amounts as a current asset on the consolidated balance sheets if the restriction expires in less than 12 months, or as a non-current asset if the restriction is greater than 12 months. If there is no minimum time frame during which the cash must remain restricted, the nature of the transactions related to the restriction determine the classification. Restricted cash primarily relates to amounts deposited to secure customer guarantees and various letters of credit. 
 Business combinations 
 The Company uses its estimates and assumptions to assign a fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. The Company reevaluates these estimates and assumptions quarterly as new information arises and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations. 
 Research and development and software development costs 
 Research and development costs are expensed as incurred. Capitalization of computer software developed for resale begins upon the establishment of technological feasibility, generally demonstrated by a working model or an operative version of the computer software product. Such costs have not been material to date, as technological feasibility is established within a short time frame from the software’s general availability. As a result, no costs were capitalized in 2025, 2024, or 2023. 
 46 

 
 

 Stock-based compensation 
 The Company recognizes stock-based compensation expense associated with equity awards based on the award’s fair value at the grant date. Stock-based compensation expense is adjusted each period for anticipated forfeitures. For service-based awards, stock-based compensation is recognized over the requisite service period, which is generally the vesting period. For performance-based awards, stock-based compensation expense is recognized over the longer of (a) the implicit service period for performance-metric achievement or (b) the requisite service period. During each reporting period, stock-based compensation expense is recorded based on expected achievement of performance targets. Changes in estimates of the expected achievement of performance targets that result in a change in the number of shares that are expected to vest are recognized on a cumulative catch-up basis during the reporting period in which the estimate changed. See "Note 16. Stock-Based Compensation" for a discussion of the Company’s key assumptions when determining the fair value of its equity awards at the grant date. 
 Foreign currency translation and remeasurement 
 The translation of assets and liabilities for the Company’s subsidiaries with functional currencies other than the U.S. dollar are made at period-end exchange rates. Revenue and expense accounts are translated at the average exchange rates during the period transactions occur. The resulting translation adjustments are reflected in accumulated other comprehensive (loss). Realized and unrealized exchange gains or losses from transactions and remeasurement adjustments are reflected in foreign currency transaction gain (loss) in the accompanying consolidated statements of operations. 
 Accounting for income taxes 
 The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company regularly assesses the need for a valuation allowance against its deferred tax assets. Future realization of the Company’s deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods. Taxable income sources include taxable income in prior carryback years, future reversals of existing taxable temporary differences, tax planning strategies, and projected future taxable income. The Company records a valuation allowance to reduce its deferred tax assets to an amount it believes is more-likely-than-not to be realized. Changes in the valuation allowance impact income tax expense in the period of adjustment. The Company recognizes excess tax benefits when realized, as a reduction of the provision for income taxes. 
 The Company assesses its income tax positions and records tax benefits based on management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements. The Company classifies liabilities for uncertain tax positions as non-current liabilities unless the uncertainty is expected to be resolved within one year. The Company classifies interest and penalties on uncertain tax positions as income tax expense. 
 As a global company, significant judgment must be used to calculate and provide for income taxes in each of the tax jurisdictions in which it operates. In the ordinary course of the Company’s business, there are transactions and calculations undertaken whose ultimate tax outcome cannot be certain. Some of these uncertainties arise because of transfer pricing for transactions with the Company’s subsidiaries and nexus and tax credit estimates. In addition, the calculation of acquired tax attributes and the associated limitations are complex. 
 For additional information, see "Note 18. Income Taxes". 
 Advertising expense 
 Advertising costs are expensed as incurred. Advertising expenses were $ 6.1 million, $ 4.7 million, and $ 3.5 million during 2025, 2024, and 2023, respectively. 
 Newly adopted accounting pronouncements 
 Improvements to Income Tax Disclosures 
 In December 2023, the FASB issued ASU 2023-09 , Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 includes expanded income tax rate reconciliation disclosures, a disaggregation of income taxes paid, and other expanded disclosures. 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 
 47 

 
 

 In November 2024, the FASB issued ASU 2024-03 , Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). Among other items, the requirements include expanded disclosures around employee compensation and selling expenses. ASU 2024-03 will be effective for the Company for the year ending December 31, 2027. The Company is still evaluating the impact of this new guidance on its consolidated financial statements but 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. 
 
 3. MARKETABLE SECURITIES 
 December 31, 2025 December 31, 2024 
 (in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value 
 Government debt $ 5,755 $ 3 $ ( 4 ) $ 5,754 $ 11,851 $ 1 $ ( 19 ) $ 11,833 
 Corporate debt 207,278 428 ( 108 ) 207,598 391,097 63 ( 123 ) 391,037 
 $ 213,033 $ 431 $ ( 112 ) $ 213,352 $ 402,948 $ 64 $ ( 142 ) $ 402,870 

 
 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. 
 
 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE 
 Receivables 
 (in thousands) 
 December 31, 2025 December 31, 2024 
 Accounts receivable, net $ 264,713 $ 305,468 
 Unbilled receivables, net 166,478 173,085 
 Long-term unbilled receivables, net 102,544 61,407 
 $ 533,735 $ 539,960 

 Unbilled receivables 
 Unbilled receivables are client-committed amounts for which revenue recognition precedes billing. Billing is solely subject to the passage of time. 
 Unbilled receivables by expected collection date: 
 (Dollars in thousands) 
 December 31, 2025 
 1 year or less $ 166,478 62 % 
 1-2 years 69,482 26 % 
 2-5 years 33,062 12 % 
 $ 269,022 100 % 

 Unbilled receivables by contract effective date: 
 (Dollars in thousands) 
 December 31, 2025 
 2025 $ 179,995 67 % 
 2024 58,658 22 % 
 2023 27,754 10 % 
 2022 2,304 1 % 
 2021 and prior 311 — % 
 $ 269,022 100 % 

 48 

 
 

 Major clients 
 Clients that represented 10% or more of the Company’s total accounts receivable and unbilled receivables: 
 
 December 31, 2025 December 31, 2024 
 Client A 
 Accounts receivable * 20 % 
 Unbilled receivables * — % 
 Total receivables * 11 % 

 * Client accounted for less than 10% of receivables. 
 Contract assets 
 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) 
 December 31, 2025 December 31, 2024 
 Contract assets (1) 
 $ 17,678 $ 13,498 
 Long-term contract assets (2) 
 17,421 18,321 
 $ 35,099 $ 31,819 

 (1) Included in other current assets. 
 (2) Included in other long-term assets. 
 Deferred revenue 
 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) 
 December 31, 2025 December 31, 2024 
 Deferred revenue $ 509,275 $ 423,910 
 Long-term deferred revenue (1) 
 9,568 2,121 
 $ 518,843 $ 426,031 

 (1) Included in other long-term liabilities. 
 The change in deferred revenue in 2025 was primarily due to new billings in advance of revenue recognition and $ 420.1 million of revenue recognized during the period included in deferred revenue as of December 31, 2024. 
 
 5. DEFERRED COMMISSIONS 
 December 31, 
 (in thousands) 
 2025 2024 
 Deferred commissions (1) 
 $ 104,574 $ 105,405 

 
 (1) Included in other long-term assets. 
 
 (in thousands) 2025 2024 2023 
 Amortization of deferred commissions (1) 
 $ 68,573 $ 62,269 $ 59,461 

 (1) Included in selling and marketing expenses. 
 
 6. PROPERTY AND EQUIPMENT (1) 
 (in thousands) December 31, 
 2025 2024 
 Leasehold improvements 
 $ 58,311 $ 51,932 
 Computer equipment 
 29,686 29,817 
 Furniture and fixtures 
 4,993 4,603 
 Computer software purchased 
 9,439 9,918 
 Computer software developed for internal use 
 19,872 19,776 
 Fixed assets in progress 
 10,510 5,038 
 132,811 121,084 
 Less: accumulated depreciation 
 ( 87,571 ) ( 79,278 ) 
 $ 45,240 $ 41,806 

 
 (1) Included in other long-term assets. 
 49 

 
 

 
 (in thousands) 2025 2024 2023 
 Depreciation expense $ 11,069 $ 14,432 $ 14,806 

 
 7. GOODWILL AND OTHER INTANGIBLE ASSETS 
 Goodwill 
 (in thousands) 
 2025 2024 
 January 1, $ 81,113 $ 81,611 
 
 Currency translation adjustments 393 ( 498 ) 
 December 31, $ 81,506 $ 81,113 

 
 Intangibles 
 Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives: 
 December 31, 2025 
 (in thousands) Useful Lives Cost Accumulated Amortization Net Book Value (1) 
 
 Client-related 
 4 - 10 years 
 $ 63,164 $ ( 62,822 ) $ 342 
 Technology 
 2 - 10 years 
 68,115 ( 67,255 ) 860 
 Other 
 1 - 5 years 
 5,361 ( 5,361 ) — 
 $ 136,640 $ ( 135,438 ) $ 1,202 

 (1) Included in other long-term assets. 
 
 December 31, 2024 
 (in thousands) Useful Lives Cost Accumulated Amortization Net Book Value (1) 
 
 Client-related 4 - 10 years 
 $ 63,107 $ ( 61,395 ) $ 1,712 
 Technology 2 - 10 years 
 68,115 ( 65,995 ) 2,120 
 Other 1 - 5 years 
 5,361 ( 5,361 ) — 
 $ 136,583 $ ( 132,751 ) $ 3,832 

 (1) Included in other long-term assets. 
 Future estimated intangible assets amortization: 
 (in thousands) 
 December 31, 2025 
 2026 $ 874 
 2027 328 
 
 
 
 $ 1,202 

 Amortization of intangible assets: 
 (in thousands) 
 2025 2024 2023 
 Cost of revenue $ 1,260 $ 1,783 $ 2,570 
 Selling and marketing 1,370 1,370 1,370 
 
 
 $ 2,630 $ 3,153 $ 3,940 

 
 8. OTHER ASSETS AND LIABILITIES 
 Other current assets 
 
 (in thousands) December 31, 2025 December 31, 2024 
 Prepaid expenses 
 $ 65,293 $ 38,155 
 Income tax receivables 31,535 58,359 
 Contract assets 17,678 13,498 
 
 Indirect tax receivable 2,172 2,488 
 Restricted cash 
 1,577 98 
 
 Other 3,050 2,580 
 $ 121,305 $ 115,178 

 50 

 
 

 Other long-term assets 
 
 (in thousands) December 31, 2025 December 31, 2024 
 Deferred income taxes $ 175,472 $ 4,268 
 Deferred commissions 104,574 105,405 
 Right of use assets 60,574 62,429 
 Property and equipment 45,240 41,806 
 Venture investments 22,021 21,234 
 Contract assets 17,421 18,321 
 Income tax receivables 
 15,459 13,299 
 Intangible assets 1,202 3,832 
 
 Restricted cash 2,336 4,328 
 Other 25,200 17,127 
 $ 469,499 $ 292,049 

 Accrued expenses 
 (in thousands) December 31, 2025 December 31, 2024 
 Outside professional services 
 $ 15,233 $ 10,639 
 Litigation settlements 9,750 — 
 Income and other taxes 7,273 5,055 
 Employee related 
 5,464 4,833 
 Marketing and sales program 
 1,519 2,150 
 Cloud hosting 
 1,064 1,802 
 Repurchases of common stock unsettled — 1,500 
 Other 4,544 5,565 
 $ 44,847 $ 31,544 

 Other current liabilities 
 
 (in thousands) December 31, 2025 December 31, 2024 
 Operating lease liabilities $ 15,142 $ 14,551 
 Dividends payable 5,110 2,583 
 Other 1,683 1,732 
 $ 21,935 $ 18,866 

 Other long-term liabilities 
 
 (in thousands) December 31, 2025 December 31, 2024 
 Income taxes payable $ 23,331 $ 15,956 
 Deferred revenue 9,568 2,121 
 Other 12,961 11,011 
 $ 45,860 $ 29,088 

 
 9. SEGMENT INFORMATION 
 Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and assess performance. 
 The Company derives substantially all of its revenue from the sale and support of one group of similar products and services – software that provides case management, business process management, and real-time decisioning solutions to improve customer engagement and operational excellence in the enterprise applications market. To assess performance, the Company’s CODM, the CEO, reviews financial information on a consolidated basis. Therefore, the Company determined it has one operating segment and one reportable segment. The accounting policies of the Company’s operating segment are the same as those described in "Note 2. Significant Accounting Policies". The CODM uses consolidated net income to set financial performance targets, assess performance, and make expense allocation decisions. 
 51 

 
 

 
 (in thousands) 2025 2024 2023 
 Total revenue $ 1,745,812 $ 1,497,180 $ 1,432,616 
 Total cost of revenue 421,382 390,665 378,483 
 Selling 
 484,736 450,527 474,405 
 Marketing 
 93,901 84,253 84,772 
 Research and development 312,681 298,074 295,512 
 General and administrative 148,722 112,848 96,743 
 Other segment items, net (1) 
 3,763 18,177 7,261 
 (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. and international operations consist of property and equipment, which are included in Other long-term assets in the Company’s consolidated balance sheet: 
 (in thousands) 
 December 31, 2025 December 31, 2024 
 U.S. $ 40,060 89 % $ 37,405 89 % 
 International 5,180 11 % 4,401 11 % 
 $ 45,240 100 % $ 41,806 100 % 

 
 10. LEASES 
 On January 1, 2025, the Company relocated its corporate headquarters to 225 Wyman Street, Waltham, Massachusetts. 
 Expense 
 (in thousands) 2025 2024 2023 
 Fixed lease costs 
 $ 14,700 $ 21,422 $ 19,718 
 Short-term lease costs 1,715 1,746 2,884 
 Variable lease costs 
 7,465 6,901 8,148 
 $ 23,880 $ 30,069 $ 30,750 

 
 Right of use assets and lease liabilities 
 (in thousands) December 31, 2025 December 31, 2024 
 Right of use assets (1) 
 $ 60,574 $ 62,429 
 Operating lease liabilities (2) 
 $ 15,142 $ 14,551 
 Long-term operating lease liabilities $ 60,825 $ 67,647 

 
 (1) Included in other long-term assets. 
 (2) Included in other current liabilities. 
 The weighted-average remaining lease term and discount rate for the Company’s leases were: 
 December 31, 2025 December 31, 2024 
 Weighted-average remaining lease term 5.4 years 6.2 years 
 Weighted-average discount rate (1) 
 5.2 % 4.8 % 

 (1) The rates implicit in the Company’s leases are not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over the lease term in a similar economic environment. 
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 Maturities of lease liabilities: 
 (in thousands) December 31, 2025 
 2026 $ 18,275 
 2027 16,635 
 2028 14,879 
 2029 12,046 
 2030 10,356 
 Thereafter 14,907 
 Total lease payments 87,098 
 Less: imputed interest (1) 
 ( 11,131 ) 
 $ 75,967 

 (1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated due to a lease reassessment event. 
 Cash flow information 
 (in thousands) 2025 2024 
 Cash paid for operating leases, net of tenant improvement allowances $ 19,302 $ 18,444 
 Right of use assets obtained in exchange for operating lease obligations $ 9,146 $ 16,682 

 
 
 11. DEBT 
 Convertible senior notes and capped calls 
 Convertible senior notes 
 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 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: 
 (in thousands) December 31, 2025 December 31, 2024 
 Principal $ — $ 467,864 
 Unamortized issuance costs — ( 394 ) 
 Convertible senior notes, net $ — $ 467,470 

 
 
 Interest expense related to the Notes: 
 (in thousands) 2025 2024 
 Contractual interest expense ( 0.75 % coupon) 
 $ 595 $ 3,725 
 Amortization of issuance costs 
 394 2,451 
 $ 989 $ 6,176 

 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 expired upon maturity of the Notes during the three months ended March 31, 2025. 
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 Change in capped call transactions: 
 (in thousands) 2025 2024 
 January 1, $ 223 $ 893 
 Settlements — ( 7 ) 
 Fair value adjustment ( 223 ) ( 663 ) 
 December 31, $ — $ 223 

 Credit facility 
 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. Subject to specific conditions and the agreement of the financial institutions lending the additional amount, the aggregate commitment may be increased to $ 200 million. The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. Beginning with the fiscal quarter ended March 31, 2024, the Company must maintain a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0. As of 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. 
 
 12. RESTRUCTURING 
 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 
 Employee severance and related benefits $ 12,778 $ ( 614 ) $ 18,721 
 Office space reductions (1) 
 ( 1,238 ) 5,142 3,026 
 $ 11,540 $ 4,528 $ 21,747 

 (1) These primarily relate to non-cash operating lease adjustments. 
 Restructuring activity 
 Accrued employee severance and related benefits: 
 
 (in thousands) 2025 
 January 1, $ 2,000 
 Costs incurred 12,778 
 
 Cash disbursements ( 2,056 ) 
 Currency translation adjustments 136 
 December 31, (1) 
 $ 12,858 

 (1) Included in accrued compensation and related expenses. 
 
 13. FAIR VALUE MEASUREMENTS 
 Assets and liabilities measured at fair value on a recurring basis 
 The Company records its cash equivalents, marketable securities, capped call transactions, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability. 
 As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows: 
 • Level 1 - observable inputs, such as quoted prices in active markets for identical assets or liabilities; 
 • Level 2 - significant other inputs that are observable either directly or indirectly; and 
 • Level 3 - significant unobservable inputs with little or no market data, which require the Company to develop its own assumptions. 
 This hierarchy requires the Company to use observable market data when available and minimize unobservable inputs when determining fair value. 
 54 

 
 

 The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. 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 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. 
 Assets and liabilities measured at fair value on a recurring basis: 
 December 31, 2025 December 31, 2024 
 (in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 
 Cash equivalents $ 33,043 $ 8,463 $ — $ 41,506 $ 5,318 $ 148,926 $ — $ 154,244 
 Marketable securities $ — $ 213,352 $ — $ 213,352 $ — $ 402,870 $ — $ 402,870 
 Capped Call Transactions 
 $ — $ — $ — $ — $ — $ 223 $ — $ 223 
 Venture investments 
 $ — $ — $ 22,021 $ 22,021 $ — $ — $ 21,234 $ 21,234 

 Changes in venture investments: 
 (in thousands) 2025 2024 
 January 1, $ 21,234 $ 19,450 
 New investments 15,929 550 
 Sales of investments ( 35,164 ) — 
 Changes in foreign exchange rates 136 ( 32 ) 
 Changes in fair value: 
 included in other income, net 
 20,421 1,628 
 included in other comprehensive income 
 ( 535 ) ( 362 ) 
 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. 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. 
 Credit risk 
 In addition to receivables, the Company is potentially subject to concentrations of credit risk from the Company’s cash, cash equivalents, and marketable securities. The Company’s cash and cash equivalents are generally held with large, diverse financial institutions worldwide to reduce the Company’s credit risk exposure. Investment policies have been implemented that limit purchases of marketable debt securities to investment-grade securities. 
 
 14. STOCKHOLDERS’ EQUITY 
 Preferred stock 
 The Company has 1 million authorized shares of preferred stock, $ 0.01 par value per share, of which none were issued and outstanding as of December 31, 2025. 
 The Board of Directors has the authority to issue the shares of preferred stock in one or more series, to establish the number of shares to be included in each series, and to determine the designation, powers, preferences, and rights of the shares of each series and the qualifications, limitations, or restrictions thereof, without any further vote or action by the stockholders. The issuance of preferred stock could decrease the earnings and assets available for distribution to holders of common stock and may have the effect of delaying, deferring, or defeating a change in control of the Company. 
 Common stock 
 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. 
 55 

 
 

 Stock split 
 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 
 2025 2024 2023 
 Dividends declared (per share) $ 0.105 $ 0.06 $ 0.06 
 Dividend payments to stockholders (in thousands) $ 15,422 $ 10,199 $ 9,964 

 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 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: 
 (in thousands) 2025 2024 2023 
 Shares Amount Shares Amount Shares Amount 
 January 1, $ 240,443 $ 60,000 $ 58,075 
 Authorizations (1) 
 500,000 250,000 1,925 
 Repurchases paid (2) (3) 
 ( 10,659 ) ( 498,189 ) ( 1,618 ) ( 68,057 ) — — 
 Repurchases unpaid at period end (2) (3) 
 — — ( 32 ) ( 1,500 ) — — 
 December 31, $ 242,254 $ 240,443 $ 60,000 

 (1) This represents increases in the repurchase authority made by th e Board of Directors. 
 (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. 
 
 15. REVENUE 
 Geographic revenue 
 Revenues by geography are determined based on client location: 
 
 (Dollars in thousands) 
 2025 2024 2023 
 U.S. $ 956,296 54 % $ 828,332 55 % $ 785,029 55 % 
 Other Americas 115,266 7 % 95,698 6 % 85,149 6 % 
 United Kingdom (“U.K.”) 189,993 11 % 157,830 11 % 158,014 11 % 
 Europe (excluding U.K.), Middle East, and Africa 270,627 16 % 249,325 17 % 242,303 17 % 
 Asia-Pacific 213,630 12 % 165,995 11 % 162,121 11 % 
 $ 1,745,812 100 % $ 1,497,180 100 % $ 1,432,616 100 % 

 Revenue streams 
 
 (in thousands) 
 2025 2024 2023 
 Pega Cloud $ 695,902 $ 558,734 $ 461,328 
 Maintenance 314,593 323,304 331,856 
 Consulting 227,949 213,273 221,706 
 Revenue recognized over time 1,238,444 1,095,311 1,014,890 
 Subscription license 507,368 401,869 417,726 
 Revenue recognized at a point in time 507,368 401,869 417,726 
 $ 1,745,812 $ 1,497,180 $ 1,432,616 

 56 

 
 

 
 (in thousands) 2025 2024 2023 
 Pega Cloud $ 695,902 $ 558,734 $ 461,328 
 Maintenance 314,593 323,304 331,856 
 Subscription services 1,010,495 882,038 793,184 
 Subscription license 507,368 401,869 417,726 
 Subscription 1,517,863 1,283,907 1,210,910 
 Consulting 227,949 213,273 221,706 
 $ 1,745,812 $ 1,497,180 $ 1,432,616 

 Remaining performance obligations ("Backlog") 
 Expected future revenue from existing non-cancellable contracts: 
 As of December 31, 2025: 
 (Dollars in thousands) Subscription services Subscription license Consulting Total 
 Pega Cloud Maintenance 
 1 year or less 
 $ 709,190 $ 235,152 $ 77,528 $ 53,353 $ 1,075,223 52 % 
 1-2 years 
 400,926 73,895 2,636 854 478,311 23 % 
 2-3 years 
 213,259 51,327 2,101 28 266,715 13 % 
 Greater than 3 years 
 214,189 32,325 7,331 88 253,933 12 % 
 $ 1,537,564 $ 392,699 $ 89,596 $ 54,323 $ 2,074,182 100 % 

 As of December 31, 2024: 
 
 (Dollars in thousands) Subscription services Subscription license Consulting Total 
 Pega Cloud Maintenance 
 1 year or less 
 $ 525,133 $ 230,866 $ 89,197 $ 50,519 $ 895,715 56 % 
 1-2 years 
 328,234 65,461 10,874 3,297 407,866 25 % 
 2-3 years 
 159,536 24,598 733 125 184,992 11 % 
 Greater than 3 years 
 114,256 19,935 678 50 134,919 8 % 
 $ 1,127,159 $ 340,860 $ 101,482 $ 53,991 $ 1,623,492 100 % 

 
 
 
 16. STOCK-BASED COMPENSATION 
 
 (in thousands) 2025 2024 2023 
 Cost of revenue $ 26,646 $ 27,353 $ 28,994 
 Selling and marketing 60,721 55,084 57,675 
 Research and development 31,684 29,838 31,039 
 General and administrative 36,188 30,443 25,644 
 $ 155,239 $ 142,718 $ 143,352 
 Income tax benefit $ ( 31,043 ) $ ( 1,799 ) $ ( 2,187 ) 

 The Company periodically grants employees stock options and restricted stock units (“RSUs”) and non-employee Directors common stock and stock options. 
 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 . 
 The Company recognizes stock-based compensation using the accelerated attribution method, treating each vesting tranche as an individual grant. The stock-based compensation expense recognized during a period is based on the value of the awards that are expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the Company recognizes the actual expense over the vesting period only for the shares that vest. 
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 Employees may elect to receive 50 % of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash. 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. If elected, the award vests 100 % on the following year’s CICP payout date. Vesting is conditioned upon the performance conditions of the CICP and on continued employment; if threshold funding does not occur, the RSUs will not vest. 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. 
 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). 
 Stock-based compensation plans 
 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”) 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. 
 As of December 31, 2025, 30 million shares were subject to outstanding options and stock-based awards under the 2004 Plan. 
 2006 Employee Stock Purchase Plan 
 In 2006, the Company adopted the 2006 Employee Stock Purchase Plan (the “2006 ESPP”) under which employees may purchase common stock, at a price equal to at least 85 % of the fair market value of the Company’s common stock on the lesser of the commencement date or completion date for offerings under the plan, or such higher price as the Company’s Board of Directors may establish from time to time. In October 2012, the Company’s Board of Directors amended the 2006 ESPP to continue until no shares remain. In 2023, the number of shares authorized for purchase under the 2006 ESPP was increased to 4 million. For 2025, 2024, and 2023, the Company’s Board of Directors set the purchase price at 85 % of the fair market value on the completion date of the offering period. 
 
 (in thousands) 2025 2024 2023 
 Compensation expense from 2006 ESPP $ 1,317 $ 1,184 $ 1,367 

 As of December 31, 2025, 2.4 million shares had been issued under the plan. 
 Shares issued and available for issuance 
 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, 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 
 Stock options 
 The Company estimates the fair value of stock options using a Black-Scholes option-pricing model. Key inputs used to estimate the fair value of stock options include the exercise price of the award, expected term of the option, expected volatility of the Company’s common stock over the option’s expected term, risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The exercise price for stock options is equal to the shares’ fair market value at the grant date. 
 The following table summarizes the Company’s fair value assumptions for stock options: 
 2025 2024 2023 
 Weighted-average grant-date fair value $ 19.07 $ 12.91 $ 10.28 
 Assumptions used in the Black-Scholes option-pricing model: 
 Expected annual volatility (1) 
 50 % 49 % 48 % 
 Expected term in years (2) 
 3.9 3.9 3.5 
 Risk-free interest rate (3) 
 3.9 % 4.2 % 4.2 % 
 Expected annual dividend yield (4) 
 0.3 % 0.2 % 0.1 % 

 (1) The expected annual volatility for each grant is determined based on the average of historic daily price changes of the Company’s common stock over a period, which approximates the expected option term. 
 (2) The expected option term for each grant is determined based on the historical exercise behavior of employees and post-vesting employment termination behavior. 
 (3) The risk-free interest rate is based on the yield of U.S. Treasury securities with a commensurate maturity with the expected option term at the time of grant. 
 (4) The expected annual dividend yield is based on the weighted-average dividend yield assumptions used for options granted during the applicable period. 
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 The following table summarizes the time-based vesting stock option activity under the Company’s stock option plans for 2025: 
 Shares 
(in thousands) Weighted-average Exercise Price Weighted-average Remaining Contractual Term (in years) Aggregate Intrinsic Value 
 (in thousands) (1) 
 
 Options outstanding as of January 1, 2025 25,948 $ 30.81 
 Granted 3,377 40.43 
 Exercised ( 6,235 ) 26.40 
 Forfeited ( 829 ) 29.64 
 Expired ( 178 ) 61.31 
 Options outstanding as of December 31, 2025 22,083 $ 33.33 
 Vested and expected to vest as of December 31, 2025 19,920 $ 33.49 6.3 $ 531,166 
 Exercisable as of December 31, 2025 13,765 $ 33.71 5.4 $ 366,320 

 (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 stock options exercised (i.e., the difference between the market price at exercise and the price paid by the employee at exercise) in 2025, 2024, and 2023 was $ 168.2 million, $ 58.7 million, and $ 6.2 million, respectively. As of December 31, 2025, the Company had unrecognized stock-based compensation expense related to the unvested portion of stock options of $ 33.7 million that is expected to be recognized as expense over a weighted-average period of 1.7 years. 
 Performance stock options 
 In 2023, the Company began awarding performance stock options. 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. 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: 
 
 Shares 
(in thousands) Weighted-average Exercise Price Weighted-average Remaining Contractual Term (in years) Aggregate Intrinsic Value 
 (in thousands) (1) 
 
 Performance options outstanding as of January 1, 2025 
 2,780 $ 26.60 
 Granted 
 1,362 39.40 
 Exercised 
 ( 657 ) 24.67 
 Forfeited 
 ( 81 ) 35.80 
 
 Performance options outstanding as of December 31, 2025 
 3,404 $ 31.87 
 Vested and expected to vest as of December 31, 2025 3,301 $ 31.01 8 $ 94,779 
 Exercisable as of December 31, 2025 1,289 $ 24.71 7.2 $ 45,133 

 (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 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 
 RSUs provide the recipient a right to receive a specified number of shares of the Company’s common stock upon vesting. The Company values its RSUs at the fair value of its common stock on the grant date, which is the closing price of its common stock on the grant date less the present value of expected dividends during the vesting period, as the recipient is not entitled to dividends during the requisite service period. RSU grants include units issued when employees elect to receive 50 % of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash. 
 
 
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 The weighted-average grant-date fair value for RSUs granted in 2025, 2024, and 2023 was $ 40.62 , $ 31.29 , and $ 23.29 , respectively. 
 The following table summarizes the combined RSU activity for all grants, including the CICP, under the 2004 Plan for 2025: 
 Shares 
(in thousands) Weighted- Average Grant-Date 
Fair Value Aggregate Intrinsic Value 
(in thousands) 
 Nonvested as of January 1, 2025 5,226 $ 32.10 
 Granted 2,136 40.62 
 Vested ( 2,429 ) 46.97 
 Forfeited ( 389 ) 33.88 
 Nonvested as of December 31, 2025 4,544 $ 35.34 $ 271,366 
 Expected to vest as of December 31, 2025 3,422 $ 35.56 $ 204,382 

 The fair value of RSUs vested in 2025, 2024, and 2023 was $ 114.1 million, $ 78.2 million, and $ 42.8 million, respectively. The aggregate intrinsic value of RSUs outstanding and expected to vest as of December 31, 2025 is based on the closing price of the Company’s stock of $ 59.72 as of December 31, 2025. 
 As of December 31, 2025, the Company had $ 46.9 million of unrecognized stock-based compensation expense related to all unvested RSUs that is expected to be recognized as expense over a weighted-average period of 1.6 years. 
 Common stock 
 In 2025, the Company granted 0.02 million shares of common stock to Directors with a weighted-average grant-date fair value of $ 52.58 per share. 
 
 17. EMPLOYEE BENEFIT PLANS 
 The Company sponsors defined contribution plans for qualifying employees, including a 401(k) plan in the United States to which the Company makes discretionary matching contributions. 
 Employee benefit plan expenses: 
 (in thousands) 2025 2024 2023 
 U.S. 401(k) Plan $ 8,230 $ 7,937 $ 8,169 
 International plans 21,825 20,303 21,256 
 $ 30,055 $ 28,240 $ 29,425 

 
 18. INCOME TAXES 
 The components of income before (benefit from) provision for income taxes are: 
 (in thousands) 2025 2024 2023 
 Domestic $ 160,307 $ 51,966 $ 14,016 
 Foreign 120,320 90,670 81,424 
 $ 280,627 $ 142,636 $ 95,440 

 The components of (benefit from) provision for income taxes are: 
 (in thousands) 2025 2024 2023 
 Current: 
 Federal $ 27,011 $ 22,941 $ 7,827 
 State 7,236 7,503 4,480 
 Foreign 23,756 14,547 14,962 
 Total current provision 58,003 44,991 27,269 
 Deferred: 
 Federal ( 90,414 ) — — 
 State ( 24,461 ) — — 
 Foreign ( 55,938 ) ( 1,544 ) 363 
 Total deferred (benefit) provision ( 170,813 ) ( 1,544 ) 363 
 $ ( 112,810 ) $ 43,447 $ 27,632 

 
 
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 Below is a reconciliation of the U.S federal statutory tax rate and the Company’s effective tax rate for 2025: 
 
 2025 
 (in thousands, except percentages) Amount Percent 
 U.S. 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 ) % 
 Tax credits: 
 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 65 — % 
 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. and U.K. 
 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 
 U.S. federal income taxes at statutory rates $ 29,954 $ 20,042 
 Valuation allowance ( 1,504 ) ( 19,272 ) 
 State income taxes, net of federal benefit and tax credits 1,297 4,117 
 Permanent differences 786 435 
 Federal research and experimentation credits ( 4,888 ) ( 3,709 ) 
 Tax effects of foreign activities ( 7,817 ) 658 
 GILTI, FDII, and BEAT 13,945 14,022 
 Provision to return adjustments 121 ( 3,728 ) 
 Non-deductible compensation 10,933 6,818 
 Tax Reserves 5,917 1,850 
 Excess tax (benefits)/ detriments related to share-based compensation ( 5,645 ) 4,666 
 Impact of change in tax law — 1,726 
 Other 348 7 
 
 $ 43,447 $ 27,632 

 
 
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 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 ) 
 Other 3,429 
 $ 21,630 

 Deferred income taxes 
 Significant components of net deferred tax assets and liabilities are: 
 December 31, 
 (in thousands) 2025 2024 
 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 
 Lease liabilities 11,890 13,434 
 Tax credit carryforwards 10,742 10,441 
 
 
 Total deferred tax assets 244,744 240,292 
 Valuation allowances ( 23,436 ) ( 195,252 ) 
 Total net deferred tax assets 221,308 45,040 
 Deferred tax liabilities: 
 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 ) 
 $ 175,472 $ 4,298 

 The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. Future realization of deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods. The Company’s deferred tax valuation allowance requires significant judgment and has uncertainties, including assumptions about future taxable income based on historical and projected information . In assessing the Company’s ability to realize its net deferred tax assets, the Company considered various factors including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial results to determine whether it is more likely than not that some portion or all of its net deferred tax assets will not be realized. 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. The U.S. state losses expire at various times through 2045. Additionally, as of December 31, 2025, the Company had $ 10.7 million of state tax credit carryforwards. 
 The Company’s federal net operating loss carryforwards were approximately $ 7.5 million and $ 14.2 million at December 31, 2025 and 2024, respectively. These federal carryforward losses and state credits expire between 2026 and 2040, except for $ 1 million of federal net operating losses and $ 1 million of state credits, which have an unlimited carryforward period. 
 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. 
 62 

 
 

 Uncertain tax benefits 
 A rollforward of the Company’s gross unrecognized tax benefits is: 
 (in thousands) 
 2025 2024 2023 
 Balance as of January 1, 
 $ 37,886 $ 30,655 $ 19,746 
 Additions for tax positions related to the current year 7,091 7,316 4,859 
 Additions for tax positions of prior years 1,671 2,941 7,921 
 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, 
 $ 43,664 $ 37,886 $ 30,655 

 The total amount of accrued liabilities related to uncertain tax positions that would affect the Company's effective tax rate, if recognized, is $ 18.1 million as of December 31, 2025. 
 Tax examinations 
 The Company files federal and state income tax returns in the U.S. and various foreign jurisdictions. In the ordinary course of business, the Company and its subsidiaries are examined by various tax authorities, including the Internal Revenue Service in the U.S. As of December 31, 2025, the Company’s U.S. federal tax returns for the years 2015 through 2019 were under examination by the Internal Revenue Service. In addition, certain foreign jurisdictions are auditing the Company’s income tax returns for periods ranging from 2018 through 2024. The Company does not expect the results of these audits to have a material effect on the Company’s financial condition, results of operations, or cash flows. With few exceptions, the statute of limitations remains open in all jurisdictions for all tax years since 2019. 
 
 19. 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) 
 2025 2024 2023 
 Net income $ 393,437 $ 99,189 $ 67,808 
 Weighted-average common shares outstanding 170,782 170,530 166,324 
 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: 
 Notes 1,196 428 470 
 Stock options 9,362 5,420 1,588 
 RSUs 3,450 2,890 1,446 
 Effect of dilutive securities 14,008 8,738 3,504 
 Weighted-average common shares outstanding, assuming dilution (2) (3) (4) 
 184,790 179,268 169,828 
 Earnings per share, diluted $ 2.13 $ 0.55 $ 0.37 
 
 Outstanding anti-dilutive stock options and RSUs (5) 
 212 296 500 

 (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. 
 (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. 
 (5) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted earnings per share. These awards may be dilutive in the future. 
 
 20. COMMITMENTS AND CONTINGENCIES 
 Commitments 
 For additional information, see "Note 10. Leases". 
 63 

 
 
 

 Legal proceedings 
 In addition to the matters below, the Company is or may become involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s business, including actions concerning contracts, intellectual property, employment, benefits, and securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors. 
 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. 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. 
 Appian Corp. v. Pegasystems Inc. & Youyong Zou 
 The Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia titled Appian Corp. v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). On May 9, 2022, the jury rendered its verdict finding that the Company had misappropriated one or more of Appian’s trade secrets, that the Company had violated the Virginia Computer Crimes Act, and that the trade secret misappropriation was willful and malicious. The jury awarded damages of $ 2,036,860,045 for trade secret misappropriation and $ 1.00 for violating the Virginia Computer Crimes Act. 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 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 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. 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 a new trial resulting from the appellate proceedings. 
 PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell and Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., Eminence Partners II, L.P. v. 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. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:22-cv-00578-LMB-IDD) (the “Class Action”) filed two lawsuits against the Company, the Company’s chief executive officer, and the Company’s chief operating and financial officer in the United States District Court for the District of Massachusetts. The first is captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-12999-WGY); the second is captioned PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-11220-WGY). 
 The complaints, which are substantially similar, generally allege, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and that the individual defendants violated Section 20(a) of the Exchange Act, in each case by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The complaints also assert claims for common law fraud and negligent misrepresentation, and seek unspecified damages. The defendants moved to dismiss the complaints on March 13, 2025 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. 
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 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. v. 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. v. 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). 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 (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) 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. v. 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; (ii) alleged misconduct by Company employees alleged in that litigation; 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 
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 On June 28, 2024, a lawsuit was filed against members of the Company’s board of directors, certain employees of the Company and the Company in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts, captioned John Dwyer and Ray Gerber, Plaintiffs, v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Leon Trefler, Don Schuerman, Kerim Akgonul, and Benjamin Baril, (“Defendants”), and Pegasystems Inc., Nominal Defendant (Case 2484CV01734) (“Dwyer Action”). The complaint generally alleges the Defendants breached their fiduciary duties in connection with alleged misconduct by Company employees alleged in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and alleges damages from the approximately $ 2 billion verdict in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, the settlement of the Class Action, and litigation costs from various proceedings. 
 On 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, 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. 2484CV01734. 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. 
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 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
 None.
PEGASYSTEMS INC 10-K

Item 8. Financial Statements and Supplementary Data
