What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-04-21 compared with 2025-10-21 · 62 added, 110 removed, 192 unchanged (47% of the section changed)

1 unchanged sentence

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements.

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the sufficiency of our capital, our position and estimates relating to tax, and legal proceedings.

Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, positions, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements.

These statements represent our views only as of the date the statement was made and are based on current expectations and assumptions.

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• the successful execution of investments in artificial intelligence;

• the continued payment of our quarterly dividends;

• the timing of revenue recognition;

• variation in demand for our products and services, including among clients in the public sector;

• reliance on key personnel;

• reliance on third-party service providers, including hosting providers;

• compliance with our debt obligations and covenants;

• foreign currency exchange rates;

• potential legal and financial liabilities, as well as damage to our reputation, due to cyber-attacks;

• security breaches and security flaws;

• our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims, and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us;

1 unchanged sentence

and associated legal proceedings;

• our client retention rate;

• management of our growth.

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

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

The forward-looking statements in this Quarterly Report represent our views as of April 21, 2026.

NON-GAAP MEASURES

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We develop, market, license, host, and support enterprise software that helps organizations optimize decisions and processes in real-time so they can deliver outcomes that transform their business.

Our powerful platform for enterprise AI decisioning and workflow automation enables the world’s leading brands and government agencies to hyper-personalize customer experiences, automate customer service, and streamline operations, mission-critical business processes, and workflows.

With Pega, our clients can leverage our AI technology and scalable architecture to accelerate their digital transformation.

In addition, our sales and client success teams, world-class partners, and clients are able to leverage Pega GenAI Blueprint TM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively.

Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve.

Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk.

Clients can leverage our AI technology and scalable architecture to accelerate their digital transformation.

In addition, our sales and client success teams, world-class partners, and clients are able to leverage Pega Blueprint TM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively.

We focus on enterprise-scale businesses and government agencies that require advanced solutions to distinguish themselves in the competitive markets they serve.

Our solutions achieve and facilitate differentiation by increasing business agility, driving growth and modernization, improving productivity, attracting and retaining customers, and reducing risk.

Along with our partners, we deliver solutions tailored by industry.

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(Dollars in thousands)

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

March 31, 2025 March 31, 2026 Change Constant Currency Change

Pega Cloud $ 701,311 $ 906,652 $ 205,341 29 % 27 %

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Reconciliation of ACV and constant currency ACV

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

(in millions, except percentages) March 31, 2025 March 31, 2026 1-Year Change

ACV $ 1,445 $ 1,622 12 %

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$ 1,445 $ 1,598 11 %

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

Constant currency ACV is calculated by applying the March 31, 2025 foreign exchange rates to current period shown.

(Dollars in thousands)

Nine Months Ended

September 30, Change

Three Months Ended

March 31, Change

Cash provided by operating activities $ 204,228 $ 212,251 4 %

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Supplemental information (2)

Litigation settlement, net of recoveries $ 32,403 $ —

$ 2,413 $ 2,801

Restructuring 1,184 6,711

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(2) The supplemental information discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance.

• Litigation settlement, net of recoveries :

Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business.

See "Note 20.

Commitments And Contingencies" in Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 2024 and prior filings for further information.

• Legal fees:

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Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities.

• Interest paid on convertible senior notes :

• Interest on convertible senior notes :

In February 2020, we issued convertible senior notes (the “Notes”), due March 1, 2025, in a private placement.

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

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

(in millions, except percentages) March 31, 2025 March 31, 2026 1-Year Growth Rate

Backlog - GAAP $ 1,728 $ 2,011 16 %

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Constant currency backlog $ 1,728 $ 1,973 14 %

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

Constant currency Backlog is calculated by applying the March 31, 2025 foreign exchange rates to current period shown.

CRITICAL ACCOUNTING POLICIES

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(Dollars in thousands) Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2025 2024 2025 2024

March 31, Change

Pega Cloud $ 205,031 48 % $ 151,123 32 % $ 53,908 36 %

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Consulting 54,773 13 % 60,421 13 % (5,648) (9) %

Perpetual license 158 — % 456 — % (298) (65) % 2,035 — % 1,351 — % 684 51 %

$ 429,973 100 % $ 475,633 100 % $ (45,660) (10) %

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

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

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

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

• The increase in Pega Cloud revenue in the three months ended March 31, 2026 was primarily due to expanded adoption of Pega Cloud by our clients.

• The decrease in maintenance revenue in the three months ended March 31, 2026 was primarily due to our clients’ shift to Pega Cloud-based offerings, which do not result in maintenance revenue.

• The decrease in subscription license revenue in the three months ended March 31, 2026 was primarily due to several large multi-year contracts recognized in revenue in the three months ended March 31, 2025.

• The decrease in consulting revenue in the three months ended March 31, 2026 was primarily due to a decrease in consultant billable hours in our Americas region.

(Dollars in thousands) Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2025 2024 2025 2024

March 31, Change

Pega Cloud $ 160,490 78 % $ 118,654 79 % $ 41,836 35 %

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Consulting (2,061) (4) % (3,513) (6) % 1,452 41 %

Perpetual license 158 100 % 453 99 % (295) (65) % 2,029 100 % 1,339 99 % 690 52 %

$ 323,219 75 % $ 373,183 78 % $ (49,964) (13) %

• The increases in Pega Cloud gross profit percent in the three and nine months ended September 30, 2025 were primarily due to increased hosting cost efficiencies as Pega Cloud continues to grow and scale and a reallocation of certain headcount from Pega Cloud to Maintenance to align with the change in the nature of their responsibilities.

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

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

• The decrease in Pega Cloud gross profit percent in the three months ended March 31, 2026 was primarily due to an increase in personnel-related costs associated with investments made to support our cloud operations.

• The increase in consulting gross profit percent in the three months ended March 31, 2026 was primarily due to a decrease in compensation and benefits of $6.4 million, which was attributable to our restructuring initiatives in 2025.

As our technology strategy continues to evolve, we may periodically evaluate our organizational structure to align resources with business priorities.

Operating expenses

(Dollars in thousands) Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2025 2024 2025 2024

March 31, Change

Selling and marketing $ 155,603 $ 138,069 $ 17,534 13 %

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% of Revenue 11 % 7 %

Litigation settlement, net of recoveries

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

% of Revenue — % — % — % 3 %

Restructuring $ (153) $ 11 $ (164) *

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* Not meaningful

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

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

• The increases in general and administrative in the three and nine months ended September 30, 2025 were primarily due to increases in compensation and benefits of $6.5 million and $12.4 million, respectively, attributable to equity compensation and a reallocation of certain headcount from research and development to general and administrative to align with the change in the nature of their responsibilities.

In the nine months ended September 30, 2025, we experienced an increase of $8.8 million in legal fees and related expenses arising from legal proceedings outside the ordinary course of business.

• The increase in selling and marketing in the three months ended March 31, 2026 was primarily due to increase in compensation and benefits of $10.7 million attributable to increases in headcount and equity compensation.

• The increase in research and development in the three months ended March 31, 2026 was primarily due to increase in compensation and benefits of $5.6 million attributable to increases in headcount and equity compensation.

• The increase in general and administrative in the three months ended March 31, 2026 was primarily due to an increase of $13.4 million in legal fees and related expenses arising from legal proceedings outside the ordinary course of business.

We expect to continue to incur additional costs for these proceedings.

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

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

See “Note 20.

Commitments and Contingencies” in Item 8 of our Annual Report filed on Form-10K for the year ended December 31, 2024 and prior filings for further information.

Other income and expenses

(Dollars in thousands) Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2025 2024 2025 2024

March 31, Change

Foreign currency transaction gain (loss) $ 1,850 $ (5,325) $ 7,175 *

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* Not meaningful

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

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

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

• The changes in foreign currency transaction gain (loss) in the three months ended March 31, 2026 were primarily due to fluctuations in foreign currency exchange rates associated with foreign currency-denominated receivables and intercompany balances held by our subsidiary in the United Kingdom.

• The decrease in interest income in the three months ended March 31, 2026 were primarily due to lower investment balances as a result of the repayment of the Notes at maturity on March 3, 2025.

• The decrease in interest expense in the three months ended March 31, 2026 were primarily due to the repayment of the Notes at maturity on March 3, 2025.

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

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

• The decrease in other (loss) income, net in the three months ended March 31, 2026 was primarily due to valuation losses from our venture investments portfolio.

For additional information, see "Note 12.

Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.

(Benefit from) provision for income taxes

Nine Months Ended

September 30,

Provision for income taxes

Three Months Ended

(Dollars in thousands) 2026 2025

(Benefit from) provision for income taxes $ 16,790 $ 8,369

Provision for income taxes $ 6,941 $ 40,888

Effective income tax rate 17 % 32 %

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

The OBBBA introduced several U.S.

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

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

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

income tax expense for 2025.

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

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

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

Certain aspects of Pillar Two are effective for tax years beginning on or after January 1, 2024.

Although the U.S.

has not enacted legislation to adopt Pillar Two, certain countries in which we operate have already adopted, or are in the process of adopting, legislation to implement Pillar Two.

We do not expect this legislation to have a material impact on our consolidated financial statements.

We will continue to monitor and evaluate new legislation and guidance, which could change our current assessment.

Our effective income tax rate decreased in the three months ended March 31, 2026 as compared to the prior period, primarily due to excess tax benefits from stock-based compensation recognized in the current period and the absence of a valuation allowance on substantially all of our U.S.

deferred tax assets.

The Organization for Economic Cooperation and Development (“OECD”) has introduced Pillar Two, a global minimum tax framework supported by more than 130 countries, with certain provisions effective for tax years beginning on or after January 1, 2024.

On January 5, 2026, the OECD issued administrative guidance introducing a side‑by‑side system that would exempt U.S.‑parented multinational groups from certain Pillar Two rules beginning in fiscal years starting on or after January 1, 2026.

We will continue to monitor developments in countries’ domestic laws as they relate to the OECD model rules and the Pillar Two global minimum tax.

Based on information currently available, we do not expect Pillar Two to have a material impact on our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2026 2025

4 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (2,898) 3,570

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (187,727) $ 66,238

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 57,950 $ (106,293)

(in thousands)

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

entities $ 312,947 $ 157,449

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If it becomes necessary or desirable to repatriate foreign funds, we may have to pay federal, state, and local income taxes as well as foreign withholding taxes upon repatriation.

However, estimating the taxes we would have to pay is impracticable due to the complexity of income tax laws and regulations.

However, estimating the taxes we would have to pay on the amounts we consider indefinitely reinvested is impracticable due to the complexity of income tax laws and regulations.

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

Operating activities

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

The change in cash provided by operating activities in the three months ended March 31, 2026 was primarily due to increase in client collections.

Investing activities

The change in cash provided by (used in) investing activities in the nine months ended September 30, 2025 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes and the consideration received from the sale of a venture investment.

The change in cash provided by investing activities in the three months ended March 31, 2026 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes in the three months ended March 31, 2025.

Financing activities

Debt financing

In February 2020, we issued $600 million in aggregate principal amount of Notes, which matured on March 1, 2025.

As of December 31, 2024, we had $468 million in aggregate principal amount of Notes outstanding, which were repaid in their entirety at maturity.

For additional information, see "Note 10.

Debt" in Part I, Item 1 of this Quarterly Report.

In November 2019, and as since amended, we entered into a five-year $100 million senior secured revolving credit agreement (the “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.

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

As of March 31, 2026 and December 31, 2025, we had letters of credit of $26.7 million under the Credit Facility;

however we had no cash borrowings.

For additional information, see "Note 10.

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(in thousands) (1)

Nine Months Ended

September 30, 2025

Three Months Ended

March 31, 2026

December 31, 2025 $ 242,254

1 unchanged sentence

Repurchases (3)

September 30, 2025 $ 347,254

March 31, 2026 $ 1,075,000

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

excise tax on share repurchases.

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

(2) On February 10, 2026, the Company’s Board of Directors 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.

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

Common stock repurchases

Nine Months Ended

September 30,

Three Months Ended

(in thousands) Shares Amount Shares Amount

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excise tax on share repurchases.

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

Basis of Presentation”.

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

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

During the three months ended March 31, 2026 and 2025, instead of receiving cash from the equity holders, we withheld shares with a value of $1.9 million and $1.5 million, respectively, for the exercise price of options.

These amounts are not included in the table above.

Following the Stock Split and commencing with the third quarter of 2025, we intend to pay a quarterly cash dividend of $0.03 per share, or the equivalent of $0.06 per share prior to the Stock Split.

We paid and intend to continue to pay a quarterly cash dividend of $0.03 per share;

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

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2026 2025

1 unchanged sentence

Contractual obligations

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

As of March 31, 2026, our contractual obligations were:

Payments due by period

14 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis