What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-10-20 compared with 2026-07-21 · 71 added, 53 removed, 206 unchanged (38% 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 July 21, 2026.

The forward-looking statements in this Quarterly Report represent our views as of October 20, 2026.

NON-GAAP MEASURES

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(Dollars in thousands)

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

September 30, 2025 September 30, 2026 Change Constant Currency Change

Pega Cloud $ 815,370 $ 975,991 $ 160,621 20 % 20 %

5 unchanged sentences

$ 1,556,926 $ 1,653,309 $ 96,383 6 % 7 %

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.

Purchasing behaviors continue to evolve as clients subject large technology investments to greater scrutiny as AI disrupts the industry.

As a result, our ACV growth rate significantly slowed during the nine months ended September 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) June 30, 2025 June 30, 2026 1-Year Change

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

ACV $ 1,557 $ 1,653 6 %

2 unchanged sentences

$ 1,557 $ 1,658 7 %

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

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

(Dollars in thousands)

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

Cash provided by operating activities $ 346,796 $ 304,299 (12) %

3 unchanged sentences

Supplemental information (2)

Litigation settlement $ — $ 9,750

15,022 32,864

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

• Litigation settlement:

Cost to settle litigation arising from proceedings outside the ordinary course of business.

See "Note 16.

Commitments and Contingencies" in Item 1 of this Quarterly Report for further information.

• Legal fees :

11 unchanged sentences

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

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

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

Backlog - GAAP $ 1,755 $ 2,009 15 %

1 unchanged sentence

Constant currency backlog $ 1,755 $ 2,019 15 %

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

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

CRITICAL ACCOUNTING POLICIES

9 unchanged sentences

(Dollars in thousands) Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2026 2025 2026 2025

6 unchanged sentences

$ 393,359 100 % $ 381,350 100 % $ 12,009 3 % $ 1,244,048 100 % $ 1,241,495 100 % $ 2,553 — %

• 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.

• The increases in Pega Cloud revenue in the three and nine months ended September 30, 2026 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, 2026 were 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 September 30, 2026 was primarily due to the timing of client contract renewals.

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

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

(Dollars in thousands) Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2026 2025 2026 2025

6 unchanged sentences

$ 289,513 74 % $ 275,457 72 % $ 14,056 5 % $ 925,419 74 % $ 923,578 74 % $ 1,841 — %

• 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.

• The decreases in Pega Cloud gross profit percent in the three and nine months ended September 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 nine months ended September 30, 2026 were primarily due to higher compensation and benefits from increased headcount.

• The increases in consulting gross profit percent in the three and nine months ended September 30, 2026 were primarily due to decreases in compensation and benefits of $11.1 million and $29.6 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

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2026 2025 2026 2025

5 unchanged sentences

% of Revenue 10 % 11 % 11 % 9 %

Litigation settlement $ 16,000 $ — $ 16,000 * $ 16,000 $ — $ 16,000 *

% of Revenue 4 % — % 1 % — %

Restructuring $ 1,975 $ (5) $ 1,980 * $ 4,557 $ (38) $ 4,595 *

1 unchanged sentence

* Not meaningful

• 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.

• The increase in selling and marketing in the three months ended September 30, 2026 was primarily due to marketing program spend of $2.9 million to support future growth.

The increase in selling and marketing in the nine months ended September 30, 2026 was primarily due to an increase in compensation and benefits of $20.4 million attributable to higher headcount as we continue to expand our prospective and current client engagement.

• The decrease in research and development in the three months ended September 30, 2026 was primarily due to a decrease in compensation and benefits of $7.1 million attributable to incentive compensation.

The increase in research and development in the nine months ended September 30, 2026 was primarily due to an increase in cloud hosting expenses of $3.7 million and outside professional services of $2.1 million.

• The decrease in general and administrative in the three months ended September 30, 2026 was primarily due to a decrease in compensation and benefits of $7.9 million attributable to equity compensation.

The increase in general and administrative in the nine months ended September 30, 2026 was primarily due to $28 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.

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.

• The increases in litigation settlement in the three and nine months ended September 30, 2026 were primarily due to the estimated cost to settle ongoing litigation arising from proceedings outside the ordinary course of business.

For additional information, see "Note 16.

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

• The increases in restructuring in the three and nine months ended September 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.

1 unchanged sentence

(Dollars in thousands) Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2026 2025 2026 2025

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

Foreign currency transaction gain (loss) $ 589 $ 7,154 $ (6,565) (92) % $ 1,075 $ (12,179) $ 13,254 *

Interest income 1,814 2,660 (846) (32) % 7,268 11,243 (3,975) (35) %

4 unchanged sentences

* Not meaningful

• 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 foreign currency transaction gain (loss) in the three and nine months ended September 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 nine months ended September 30, 2026 were primarily due to lower investment balances.

• The decrease in interest expense in the nine months ended September 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 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.

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

For additional information, see "Note 11.

1 unchanged sentence

Provision for (benefit from) income taxes

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands) 2026 2025

1 unchanged sentence

Effective income tax rate 21 % 10 %

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.

Our 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 our U.S.

deferred tax assets in the prior period.

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.

3 unchanged sentences

LIQUIDITY AND CAPITAL RESOURCES

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2026 2025

6 unchanged sentences

(in thousands)

June 30, 2026 December 31, 2025

September 30, 2026 December 31, 2025

entities $ 101,700 $ 157,449

12 unchanged sentences

Operating activities

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

The change in cash provided by operating activities in the nine months ended September 30, 2026 was primarily due to the timing of cash disbursements related to legal fees and related expenses arising from proceedings that originated outside of the ordinary course of business, restructuring activities, and a litigation settlement.

For additional information, see “Note 16.

Commitments and Contingencies” and “Note 10.

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

Investing activities

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.

The change in cash provided by investing activities in the nine months ended September 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

Debt financing

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 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;

In November 2019, and as since amended, we 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.

As of September 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)

Six Months Ended

June 30, 2026

Nine Months Ended

September 30, 2026

December 31, 2025 $ 242,254

1 unchanged sentence

Repurchases (3)

June 30, 2026 $ 875,054

September 30, 2026 $ 810,055

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

3 unchanged sentences

Common stock repurchases

Six Months Ended

Nine Months Ended

September 30,

(in thousands) Shares Amount Shares Amount

1 unchanged sentence

10,878 $ 432,199 8,743 $ 393,189

Repurchases unpaid at period end

Stock repurchase program (1)

4 unchanged sentences

excise tax on share repurchases.

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.

During the nine months ended September 30, 2026 and 2025, instead of receiving cash from the equity holders, we withheld shares with a value of $2.8 million and $16.2 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.

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2026 2025

3 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