What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-21 compared with 2026-04-21 · 65 added, 60 removed, 194 unchanged (39% of the section changed)

15 unchanged sentences

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

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

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

NON-GAAP MEASURES

19 unchanged sentences

(Dollars in thousands)

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

June 30, 2025 June 30, 2026 Change Constant Currency Change

Pega Cloud $ 761,051 $ 926,290 $ 165,239 22 % 22 %

5 unchanged sentences

$ 1,514,017 $ 1,619,934 $ 105,917 7 % 8 %

Unprecedented changes in the AI market caused clients to delay their purchasing decisions.

As a result, our ACV growth rate significantly slowed during the six months ended June 30, 2026, as compared to the same period last year.

These factors may continue to adversely affect the ACV growth rate for the rest of the year.

Reconciliation of ACV and constant currency ACV

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

(in millions, except percentages) June 30, 2025 June 30, 2026 1-Year Change

ACV $ 1,514 $ 1,620 7 %

2 unchanged sentences

$ 1,514 $ 1,630 8 %

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

Constant currency ACV is calculated by applying the June 30, 2025 foreign exchange rates to current period shown.

(Dollars in thousands)

Three Months Ended

March 31, Change

Six Months Ended

June 30, Change

Cash provided by operating activities $ 290,496 $ 298,225 3 %

6 unchanged sentences

Interest paid on convertible senior notes 1,754 —

Other — (689)

Income taxes, net of refunds (702) 10,842

$ 12,426 $ 30,790

As a result of the factors discussed under ACV above, our cash flow generation may continue to be adversely affected for the rest of the year.

(1) Our non-GAAP free cash flow is defined as cash provided by operating activities less investment in property and equipment.

2 unchanged sentences

This information is not a substitute for financial measures prepared under U.S.

(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.

(2) The supplemental information below identifies certain items included in operating cash flow that may affect comparability between periods.

• Legal fees :

6 unchanged sentences

The outstanding Notes were repaid in their entirety at maturity.

One-time cash flow items not part of our ongoing operations.

• Income taxes, net of refunds :

2 unchanged sentences

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

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

(in millions, except percentages) June 30, 2025 June 30, 2026 1-Year Growth Rate

Backlog - GAAP $ 1,835 $ 2,019 10 %

1 unchanged sentence

Constant currency backlog $ 1,835 $ 2,039 11 %

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

Constant currency Backlog is calculated by applying the June 30, 2025 foreign exchange rates to current period shown.

CRITICAL ACCOUNTING POLICIES

9 unchanged sentences

(Dollars in thousands) Three Months Ended

March 31, Change

June 30, Change Six Months Ended

June 30, Change

2026 2025 2026 2025

Pega Cloud $ 213,934 51 % $ 166,743 43 % $ 47,191 28 % $ 418,965 49 % $ 317,866 37 % $ 101,099 32 %

5 unchanged sentences

$ 420,716 100 % $ 384,512 100 % $ 36,204 9 % $ 850,689 100 % $ 860,145 100 % $ (9,456) (1) %

• 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.

• The increases in Pega Cloud revenue in the three and six months ended June 30, 2026 were primarily due to expanded adoption of Pega Cloud by our clients.

• The decreases in maintenance revenue in the three and six months ended June 30, 2026 were primarily due to our clients’ shift to Pega Cloud-based offerings, which do not result in maintenance revenue.

• The increase in subscription license revenue in the three months ended June 30, 2026 was primarily due to the timing of client contract renewals.

The decrease in subscription license revenue in the six months ended June 30, 2026 was primarily due to several large multi-year contracts recognized in revenue in the six months ended June 30, 2025.

• The decreases in consulting revenue in the three and six months ended June 30, 2026 were primarily due to a decrease in consultant billable hours in our Americas region.

(Dollars in thousands) Three Months Ended

March 31, Change

June 30, Change Six Months Ended

June 30, Change

2026 2025 2026 2025

Pega Cloud $ 166,641 78 % $ 130,985 79 % $ 35,656 27 % $ 327,131 78 % $ 249,639 79 % $ 77,492 31 %

5 unchanged sentences

$ 312,687 74 % $ 274,938 72 % $ 37,749 14 % $ 635,906 75 % $ 648,121 75 % $ (12,215) (2) %

• 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.

• The decreases in Pega Cloud gross profit percent in the three and six months ended June 30, 2026 were primarily due to increases in personnel-related costs associated with investments made to support the expansion of our cloud operations.

• The decreases in maintenance gross profit percent in the three and six months ended June 30, 2026 were primarily due to higher compensation and benefits from increased headcount.

• The increases in consulting gross profit percent in the three and six months ended June 30, 2026 were primarily due to decreases in compensation and benefits of $12.1 million and $18.5 million, respectively, which were 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.

1 unchanged sentence

(Dollars in thousands) Three Months Ended

March 31, Change

June 30, Change Six Months Ended

June 30, Change

2026 2025 2026 2025

Selling and marketing $ 165,408 $ 147,131 $ 18,277 12 % $ 321,011 $ 285,200 $ 35,811 13 %

7 unchanged sentences

* Not meaningful

• 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.

• The increases in selling and marketing in the three and six months ended June 30, 2026 were primarily due to increases in compensation and benefits of $12.6 million and $23.2 million, respectively, attributable to higher headcount as we continue to expand our prospective and current client engagement.

• The increase in research and development in the three months ended June 30, 2026 was primarily due to an increase in outside professional services of $2.1 million and an increase in cloud hosting expenses of $1.5 million.

The increase in research and development in the six months ended June 30, 2026 was primarily due to an increase in compensation and benefits of $4.7 million attributable to increases in headcount and equity compensation and an increase in cloud hosting expenses of $2.8 million.

• The increases in general and administrative in the three and six months ended June 30, 2026 were primarily due to increases of $11.5 million and $25 million, respectively, in legal fees and related expenses arising from legal proceedings outside the ordinary course of business.

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

1 unchanged sentence

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

• The increases in restructuring in the three and six months ended June 30, 2026 were primarily due to cash severance and related costs incurred in connection with workforce reductions intended to better align roles to an AI-first delivery model.

For additional information, see "Note 10.

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

Other income and expenses

(Dollars in thousands) Three Months Ended

March 31, Change

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

June 30, Change Six Months Ended

June 30, Change

2026 2025 2026 2025

Foreign currency transaction (loss) gain $ (1,364) $ (14,008) $ 12,644 90 % $ 486 $ (19,333) $ 19,819 *

Interest income 2,500 3,248 (748) (23) % 5,454 8,583 (3,129) (36) %

1 unchanged sentence

(Loss) on capped call transactions — — — * — (223) 223 100 %

Other (loss) income, net (2,204) 561 (2,765) *

Other income (loss), net 786 18,729 (17,943) (96) % (1,418) 19,290 (20,708) *

$ 1,877 $ 7,968 $ (6,091) (76) % $ 4,433 $ 7,289 $ (2,856) (39) %

* Not meaningful

• 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 foreign currency transaction (loss) gain in the three and six months ended June 30, 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 decreases in interest income in the three and six months ended June 30, 2026 were primarily due to lower investment balances.

• The decrease in interest expense in the six months ended June 30, 2026 was 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 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.

• The decrease in other income (loss), net in the three and six months ended June 30, 2026 was primarily due to the gain from the partial sale of a venture investment in 2025.

For additional information, see "Note 11.

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

Provision for income taxes

Three Months Ended

Provision for (benefit from) income taxes

Six Months Ended

(Dollars in thousands) 2026 2025

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

Provision for (benefit from) income taxes $ 12,120 $ 36,058

Effective income tax rate 21 % 24 %

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.

Our effective income tax rate decreased in the six months ended June 30, 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.

4 unchanged sentences

LIQUIDITY AND CAPITAL RESOURCES

Three Months Ended

Six Months Ended

(in thousands) 2026 2025

4 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (2,299) 7,407

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

Net (decrease) in cash, cash equivalents, and restricted cash $ (27,272) $ (135,418)

(in thousands)

March 31, 2026 December 31, 2025

June 30, 2026 December 31, 2025

entities $ 213,027 $ 157,449

12 unchanged sentences

Operating activities

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

The change in cash provided by operating activities in the six months ended June 30, 2026 was primarily due to increase in client collections.

Investing activities

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.

The change in cash provided by investing activities in the six months ended June 30, 2026 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes in 2025.

Financing activities

2 unchanged sentences

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

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

As of June 30, 2026 and December 31, 2025, we had letters of credit of $1.7 million and $26.7 million, respectively, under the Credit Facility;

however we had no cash borrowings.

4 unchanged sentences

(in thousands) (1)

Three Months Ended

March 31, 2026

Six Months Ended

June 30, 2026

December 31, 2025 $ 242,254

1 unchanged sentence

Repurchases (3)

March 31, 2026 $ 1,075,000

June 30, 2026 $ 875,054

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

3 unchanged sentences

Common stock repurchases

Three Months Ended

Six Months Ended

(in thousands) Shares Amount Shares Amount

8 unchanged sentences

excise tax on share repurchases.

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.

During the six months ended June 30, 2026 and 2025, instead of receiving cash from the equity holders, we withheld shares with a value of $2.3 million and $7.3 million, respectively, for the exercise price of options.

These amounts are not included in the table above.

1 unchanged sentence

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

Three Months Ended

Six Months Ended

(in thousands) 2026 2025

1 unchanged sentence

Contractual obligations

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

Payments due by period

(in thousands) Remainder of 2026 2027 2028 2029 2030 2031 and after Other Total

Purchase obligations (1)

$ 107,132 $ 190,295 $ 46,701 $ 773 $ 775 $ — $ — $ 345,676

Operating lease obligations

13,947 16,452 14,751 11,907 10,266 14,911 — 82,234

Venture investment commitments (2)

600 1,000 — — — — — 1,600

Liability for uncertain tax positions (3)

— — — — — — 24,063 24,063

$ 121,679 $ 207,747 $ 61,452 $ 12,680 $ 11,041 $ 14,911 $ 24,063 $ 453,573

(1) Represents the fixed amount owed for purchase obligations including software licenses, hosting services, and sales and marketing programs.

(2) Represents the maximum funding under existing venture investment agreements.

Our venture investment agreements generally allow us to withhold unpaid funds at our discretion.

(3) We cannot reasonably estimate the timing of this cash outflow due to uncertainties in the timing of the effective settlement of tax positions.

There have been no material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

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