What changed in this filing

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Item 1. Financial Statements

2026-10-20 compared with 2026-07-21 · 147 added, 136 removed, 568 unchanged (33% of the section changed)

3 unchanged sentences

(in thousands)

June 30, 2026 December 31, 2025

September 30, 2026 December 31, 2025

Current assets:

32 unchanged sentences

163,580 and 170,347 shares issued and outstanding at

June 30, 2026 and December 31, 2025, respectively

September 30, 2026 and December 31, 2025, respectively

Additional paid-in capital 52,667 330,926

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2026 2025 2026 2025

13 unchanged sentences

General and administrative 38,612 42,108 130,925 107,724

Litigation settlement 16,000 — 16,000 —

Restructuring 1,975 ( 5 ) 4,557 ( 38 )

1 unchanged sentence

Income from operations 14,861 14,469 68,646 158,737

Foreign currency transaction (loss) gain ( 1,364 ) ( 14,008 ) 486 ( 19,333 )

Foreign currency transaction gain (loss) 589 7,154 1,075 ( 12,179 )

Interest income 1,814 2,660 7,268 11,243

16 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2026 2025 2026 2025

Net income $ 14,092 $ 43,364 $ 60,190 $ 158,863

Other comprehensive income (loss), net of tax

Other comprehensive (loss) income, net of tax

Unrealized (loss) gain on available-for-sale securities ( 503 ) 89 ( 1,321 ) 11

Foreign currency translation adjustments ( 365 ) ( 4,595 ) ( 3,963 ) 21,416

Total other comprehensive income (loss), net of tax 815 17,385 ( 4,416 ) 25,933

Total other comprehensive (loss) income, net of tax ( 868 ) ( 4,506 ) ( 5,284 ) 21,427

Comprehensive income $ 13,224 $ 38,858 $ 54,906 $ 180,290

24 unchanged sentences

June 30, 2025 171,102 $ 1,711 $ 431,466 $ 195,677 $ ( 4,312 ) $ 624,542

Repurchase of common stock ( 2,675 ) ( 27 ) ( 142,549 ) — — ( 142,576 )

Issuance of common stock for stock compensation plans 2,078 21 36,082 — — 36,103

Issuance of common stock under the employee stock purchase plan 40 — 1,978 — — 1,978

Stock-based compensation — — 43,041 — — 43,041

Cash dividends declared ($ 0.03 per share)

— — — ( 5,116 ) — ( 5,116 )

Other comprehensive (loss) — — — — ( 4,506 ) ( 4,506 )

Net income — — — 43,364 — 43,364

September 30, 2025 170,545 $ 1,705 $ 370,018 $ 233,925 $ ( 8,818 ) $ 596,830

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

Common Stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) Total stockholders’ equity

of shares Amount

December 31, 2025 170,347 $ 1,703 $ 330,926 $ 463,389 $ ( 8,637 ) $ 787,381

17 unchanged sentences

June 30, 2026 164,358 $ 1,644 $ 72,300 $ 499,493 $ ( 13,053 ) $ 560,384

Repurchase of common stock ( 2,020 ) ( 20 ) ( 65,190 ) — — ( 65,210 )

Issuance of common stock for stock compensation plans 1,181 11 15,144 — — 15,155

Issuance of common stock under the employee stock purchase plan 61 1 1,734 — — 1,735

Stock-based compensation — — 28,679 — — 28,679

Cash dividends declared ($ 0.03 per share)

— — — ( 4,906 ) — ( 4,906 )

Other comprehensive (loss) — — — — ( 868 ) ( 868 )

Net income — — — 14,092 — 14,092

September 30, 2026 163,580 $ 1,636 $ 52,667 $ 508,679 $ ( 13,921 ) $ 549,061

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

6 unchanged sentences

Foreign currency transaction (gain) loss ( 1,075 ) 12,179

Loss on capped call transactions — 223

Deferred income taxes 2,286 235

56 unchanged sentences

MARKETABLE SECURITIES

June 30, 2026 December 31, 2025

September 30, 2026 December 31, 2025

(in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value

2 unchanged sentences

$ 108,699 $ 3 $ ( 1,181 ) $ 107,521 $ 213,033 $ 431 $ ( 112 ) $ 213,352

As of June 30, 2026, marketable securities’ maturities ranged from July 2026 to June 2029, with a weighted-average remaining maturity of 2.0 years.

As of September 30, 2026, marketable securities’ maturities ranged from October 2026 to September 2029, with a weighted-average remaining maturity of 2.0 years.

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

(in thousands)

June 30, 2026 December 31, 2025

September 30, 2026 December 31, 2025

Accounts receivable, net $ 130,121 $ 264,713

10 unchanged sentences

(Dollars in thousands)

June 30, 2026

September 30, 2026

1 year or less $ 151,240 66 %

4 unchanged sentences

(Dollars in thousands)

June 30, 2026

September 30, 2026

2026 $ 74,641 32 %

7 unchanged sentences

(in thousands)

June 30, 2026 December 31, 2025

September 30, 2026 December 31, 2025

Contract assets (1)

8 unchanged sentences

(in thousands)

June 30, 2026 December 31, 2025

September 30, 2026 December 31, 2025

Deferred revenue $ 429,469 $ 509,275

2 unchanged sentences

(1) Included in other long-term liabilities.

The change in deferred revenue during the six months ended June 30, 2026 was primarily due to new billings in advance of revenue recognition and $ 365.4 million of revenue recognized during the period included in deferred revenue as of December 31, 2025.

The change in deferred revenue during the nine months ended September 30, 2026 was primarily due to new billings in advance of revenue recognition and $ 457.4 million of revenue recognized during the period included in deferred revenue as of December 31, 2025.

DEFERRED COMMISSIONS

(in thousands)

June 30, 2026 December 31, 2025

September 30, 2026 December 31, 2025

Deferred commissions (1)

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2026 2025 2026 2025

4 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

1 unchanged sentence

Currency translation adjustments ( 236 ) 289

June 30, $ 81,265 $ 81,538

September 30, $ 81,270 $ 81,402

OTHER ASSETS AND LIABILITIES

Other current assets

(in thousands) June 30, 2026 December 31, 2025

Prepaid expenses $ 48,002 $ 65,293

(in thousands) September 30, 2026 December 31, 2025

Income tax receivables $ 47,124 $ 31,535

Prepaid expenses 39,934 65,293

Contract assets 20,302 17,678

Restricted cash 2,448 1,577

Indirect tax receivable 2,381 2,172

Restricted cash 957 1,577

Other 2,109 3,050

1 unchanged sentence

Other long-term assets

(in thousands) June 30, 2026 December 31, 2025

(in thousands) September 30, 2026 December 31, 2025

Deferred commissions $ 88,967 $ 104,574

9 unchanged sentences

Accrued expenses

(in thousands) June 30, 2026 December 31, 2025

(in thousands) September 30, 2026 December 31, 2025

Outside professional services $ 19,784 $ 15,233

1 unchanged sentence

Litigation settlements 16,000 9,750

Marketing and sales program 7,612 1,519

Income and other taxes 8,445 7,273

Employee related 6,017 5,464

Marketing and sales program 2,050 1,519

Other 6,396 4,544

1 unchanged sentence

Other current liabilities

(in thousands) June 30, 2026 December 31, 2025

(in thousands) September 30, 2026 December 31, 2025

Operating lease liabilities $ 14,382 $ 15,142

5 unchanged sentences

Other long-term liabilities

(in thousands) June 30, 2026 December 31, 2025

(in thousands) September 30, 2026 December 31, 2025

Income taxes payable $ 26,053 $ 23,331

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2026 2025 2026 2025

9 unchanged sentences

Net income $ 14,092 $ 43,364 $ 60,190 $ 158,863

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

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

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

1 unchanged sentence

(in thousands)

June 30, 2026 December 31, 2025

September 30, 2026 December 31, 2025

$ 41,145 78 % $ 40,060 89 %

2 unchanged sentences

Credit facility

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

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

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

On October 16, 2026, the Credit Facility was amended to, among other changes, increase the borrowing capacity to $ 200 million and extend the expiration date to October 16, 2031.

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

1 unchanged sentence

The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions.

The Credit Facility is secured by substantially all assets of the Company.

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 June 30, 2026, the Company is compliant with all Credit Facility covenants.

As of June 30, 2026 and December 31, 2025, the Company had letters of credit of $ 1.7 million and $ 26.7 million, respectively, under the Credit Facility, however we had no cash borrowings.

As of September 30, 2026, the Company is compliant with all Credit Facility covenants.

As of September 30, 2026 and December 31, 2025, the Company had letters of credit of $ 1.7 million and $ 26.7 million, respectively, under the Credit Facility, however we had no cash borrowings.

PEGASYSTEMS INC.

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2026 2025 2026 2025

7 unchanged sentences

Accrued employee severance and related costs:

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2026 2025

3 unchanged sentences

Currency translation adjustments ( 12 ) 115

September 30, (1)

$ 1,961 $ 366

13 unchanged sentences

Assets and liabilities measured at fair value on a recurring basis:

June 30, 2026 December 31, 2025

September 30, 2026 December 31, 2025

(in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

3 unchanged sentences

Changes in venture investments:

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2026 2025

8 unchanged sentences

( 265 ) ( 535 )

June 30, $ 19,663 $ 18,651

September 30, $ 21,313 $ 20,214

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

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in thousands)

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands)

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2026 2025 2026 2025

8 unchanged sentences

Expected future revenue from existing non-cancellable contracts:

As of June 30, 2026:

As of September 30, 2026:

(Dollars in thousands) Subscription services Subscription license Consulting Total

7 unchanged sentences

$ 1,596,836 $ 325,237 $ 42,086 $ 45,205 $ 2,009,364 100 %

As of June 30, 2025:

As of September 30, 2025:

(Dollars in thousands) Subscription services Subscription license Consulting Total

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2026 2025 2026 2025

10 unchanged sentences

$ ( 5,466 ) $ ( 547 ) $ ( 21,720 ) $ ( 1,700 )

As of June 30, 2026, the Company had $ 166.8 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.8 years.

Six Months Ended

June 30, 2026

As of September 30, 2026, the Company had $ 116.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.7 years.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Nine Months Ended

September 30, 2026

(in thousands) Quantity

6 unchanged sentences

1,497 $ 25,804

Common stock 27 $ 875

(1) Includes 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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(2) Performance stock options allow the holder to purchase a specified number of Common Stock shares at an exercise price equal to or greater than the shares' fair market value at the grant date.

Performance stock options granted in the six months ended June 30, 2026 vest on the second anniversary of the grant date, up to 200 %, subject to the achievement of specified performance metrics over fiscal years 2026 and 2027.

Performance stock options granted in the nine months ended September 30, 2026 vest on the second anniversary of the grant date, up to 200 %, subject to the achievement of specified performance metrics over fiscal years 2026 and 2027.

The options expire ten years from the grant date.

Stock repurchase program

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, of which $ 0.9 billion remains available as of June 30, 2026.

During the six months ended June 30, 2026, the Company repurchased 8.9 million shares of its common stock for $ 367.2 million at an average price per share of $ 41.46 .

During the nine months ended September 30, 2026, the Company repurchased 10.9 million shares of its common stock for $ 432.2 million at an average price per share of $ 39.73 .

The share repurchase and authorization amounts disclosed within this Form 10-Q exclude the U.S.

2 unchanged sentences

Effective income tax rate

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands) 2026 2025

1 unchanged sentence

Effective income tax rate 21 % 10 %

The Company’s 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 the Company’s U.S.

deferred tax assets.

The Company’s effective income tax rate increased in the nine months ended September 30, 2026 as compared to the prior period, primarily due to a decrease in excess tax benefits from stock-based compensation recognized in the current period and the absence of a benefit related to the valuation allowance associated with substantially all of the Company’s U.S.

deferred tax assets in the prior period.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

EARNINGS PER SHARE

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except per share amounts) 2026 2025 2026 2025

22 unchanged sentences

These awards may be dilutive in the future.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

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 June 30, 2026 and December 31, 2025, the Company recorded an estimated $ 9.75 million accrued loss related to the agreed in principle settlement of the In re Pegasystems Inc.

As of September 30, 2026, the Company recorded an estimated $ 16 million accrued loss related to litigation settlements.

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

Derivative Litigation matter, see additional discussion below.

8 unchanged sentences

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

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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

On September 15, 2022, the Company appealed the Virginia Uniform Trade Secrets Act judgment.

A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and issued a unanimous 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.

Appian filed a petition for appeal with the Supreme Court of Virginia on August 29, 2024, which was granted on March 7, 2025 for appeal and the Company’s assignments of cross-error.

On January 8, 2026, the Supreme Court of Virginia issued a unanimous written opinion 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.

1 unchanged sentence

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.

On May 7, 2026 Judge Oblon held a first status conference for the remanded trial proceedings and set the retrial to commence on January 11, 2027.

On February 27, 2026, the Court of Appeals of Virginia issued a mandate stating that the judgment is affirmed in part, reversed in part, and remanded to the Circuit Court of Fairfax County for further proceedings consistent with the views expressed in the written opinion of the Court of Appeals of Virginia.

On May 7, 2026, the Court released the Company from its obligation to maintain the $ 25,000,000 letter of credit securing the judgment and the letter of credit was released on June 29, 2026.

On May 7, 2026, Judge Oblon held a first status conference for the remanded trial proceedings and set the retrial to commence on January 11, 2027.

On September 24, 2026, Judge Oblon entered a Scheduling Order which he amended on October 1, 2026.

In those orders, Appian was granted the opportunity to have pretrial motions heard on October 16 and November 13, 2026;

the Company was granted the opportunity to have pretrial motions heard on November 6 and December 18, 2026.

On October 16, 2026, the Court granted Appian’s motion to present a reasonable royalty damages theory it was barred from presenting at the original trial.

In that reasonable royalty claim, Appian seeks $ 284.6 million in damages for accused marketing and sales activities and $ 1.36 billion in damages for accused Pega Platform revisions.

If the jury finds there was trade secret misappropriation, it could award either unjust enrichment or reasonable royalty damages.

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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

PS Lit Recovery, LLC v.

4 unchanged sentences

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.

The first was captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P.

Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-12999-WGY);

the second is captioned PS Lit Recovery, LLC v.

the second was captioned PS Lit Recovery, LLC v.

Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-11220-WGY).

2 unchanged sentences

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;

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;

1 unchanged sentence

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.

On September 18, 2026, the parties to the federal and state court opt out securities cases agreed to a final settlement of these suits.

Under the terms of the final settlement, the plaintiffs in the federal and state court opt out securities cases agreed to the dismissal of all claims with prejudice.

On October 5, 2026, stipulations of dismissal with prejudice were filed with the Court.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

State court cases

8 unchanged sentences

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.

On September 18, 2026, the parties to the federal and state court cases agreed to a final settlement of the litigation and on October 6, 2026, a notice of voluntary dismissal was prejudice was filed with the Court.

See discussion above within the “Federal court cases” subsection.

In re Pegasystems Inc.

Derivative Litigation

Federal court cases

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

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

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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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, and a final order approving the proposed settlement was entered by the Massachusetts Superior Court on June 30, 2026.

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

On July 2, 2026, in light of the settlement, the parties to the federal court Consolidated Action filed a stipulation and proposed order of dismissal with prejudice as to all claims.

On July 16, 2026, the Court signed the order dismissing the Consolidated Action with prejudice.

State court cases

On June 28, 2024, a lawsuit was filed against members of the Company’s board of directors, certain employees of the Company and the Company in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts, captioned John Dwyer and Ray Gerber, Plaintiffs, v.

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.

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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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.

On February 10, 2026, the plaintiffs submitted the proposed settlement to the Court for preliminary approval.

On March 18, 2026, the Court held a preliminary approval hearing and granted the parties relief from the final judgment.

On April 16, 2026, the Court preliminarily approved the proposed settlement and it held a final settlement approval hearing on June 25, 2026.

On June 30, 2026, the Court entered an order for final approval of the settlement, including a $ 7 million special dividend to shareholders (excluding defendants) and payment by the Company of $ 2.75 million in Collective Plaintiffs’ attorney fees.

Also on July 2, 2026, the Court entered a final judgment and order of dismissal dismissing the consolidated complaint with prejudice.

As previously disclosed, the Company entered into a settlement of derivative lawsuits captioned Mary Larkin and Dag Sagfors, Derivatively on Behalf of Nominal Defendant Pegasystems Inc.

Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Leon Trefler, Larry Weber, Kenneth Stillwell, Don Schuerman, Kerim Akgonul, and Benjamin Baril, and Pegasystems Inc., nominal defendant (Case 1:25-cv-10303), filed in the United States District Court for the District of Massachusetts, and 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, and Pegasystems Inc., Nominal Defendant (Case 2484CV01734), and 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, and Pegasystems Inc., Nominal Defendant (Case 2484CV03076-BLS-1), filed in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts.

On June 30, 2026, the Massachusetts Superior Court entered an order for final approval of the settlement, including a $ 7 million special dividend to shareholders (excluding defendants) and payment by the Company of $ 2.75 million in plaintiffs’ attorney fees.

On July 2, 2026, in light of the settlement, the parties to the federal court action filed a stipulation and proposed order of dismissal with prejudice as to all claims.

On July 16, 2026, the Court signed the order dismissing the federal court action with prejudice.

Also on July 2, 2026, the state court entered a final judgment and order of dismissal dismissing the consolidated state cases with prejudice.

On September 16, 2026, the special dividend was paid, concluding the matter.

Pegasystems v.

10 unchanged sentences

93A §§ 2 and 11, and sought a declaratory judgment that the Company was not entitled to the recovery sought in the amended complaint.

On April 11, 2024, the Company moved for a more definite statement and to partially strike the counterclaims, which the Court denied on August 1, 2024.

On August 15, 2024, the Company moved to dismiss the counterclaims, which the Court allowed in part and denied in part on October 8, 2024;

5 unchanged sentences

Appian seeks $ 31.8 million in lost profits damages and further requests that the Company be required to disgorge $ 109.5 million in profits as unjust enrichment arising from business contracts Appian contends it competed with Pegasystems on from 2022-2025.

Apart from Company revenues in which Appian contends it competed with Pegasystems for business, Appian further seeks that the Company be forced to disgorge the entirety of its profits ($ 2.33 billion) from 2022-2025.

The Company vehemently disagrees with Appian’s entitlement to any recovery, and believes the disgorgement claim is consistent with Appian’s efforts to denigrate the Company that are the subject of the Company’s claims asserted in this litigation.

The Company remains confident in the merits of its claims against Appian and the damages claimed, and disputes Appian’s counterclaims, including the amount of and legal basis for the damages sought, believes it has strong defenses to the counterclaims, and intends to vigorously defend against the counterclaims.

Summary judgment briefing was completed on July 16, 2026 and oral argument on summary judgment motions is scheduled for July 24, 2026.

Briefing on Daubert motions pertinent to summary judgment is expected to be completed on July 23, 2026, with any remaining Daubert motions due on September 18, 2026.

A jury trial is currently scheduled for November 2026.

Apart from Company revenues in which Appian contends it competed with Pegasystems for business, Appian further sought that the Company be forced to disgorge the entirety of its profits ($ 2.33 billion) from 2022-2025.

Oral argument on summary judgment motions was held on July 24, 2026.

On August 21, 2026, the Court issued an opinion granting in part and denying in part the parties’ cross-motions for summary judgment.

Among other things, the Court dismissed Appian’s $ 2.33 billion disgorgement claim.

The Court allowed the Company’s defamation, trade libel, and Lanham Act claims to proceed to trial on certain challenged statements, and it allowed Appian’s Lanham Act and Chapter 93A counterclaims to proceed to trial on certain challenged statements.

The parties’ Daubert motions challenging expert witnesses were fully briefed as of October 9, 2026 and are pending with the Court.

On October 8, 2026, Appian filed a motion for “realignment” of the parties to put Appian in the position of plaintiff and the Company in the position of defendant for the trial in this matter.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

A jury trial is currently scheduled to begin on November 30, 2026.

The Company vehemently disagrees with Appian’s entitlement to any recovery, and remains confident in the merits of its claims against Appian and the damages claimed.

The Company is unable to reasonably estimate likelihood of success for either party or a range of possible gain or loss given the uncertainty as to the likelihood, amount, and timing of any potential gain or loss related to its claims or Appian’s counterclaims.

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 1. Financial Statements