Original source text
WALTHAM, Mass.--(BUSINESS WIRE)--Pegasystems Inc. (NASDAQ: PEGA), the Enterprise Transformation Company™, released its financial results for the second quarter of 2026.
"Pega Infinity™ 26 uniquely deploys the power of AI with predictable outcomes and predicable costs by applying agents at design time to optimize run-time token use,” said Alan Trefler, founder and CEO, Pega. "Letting language models do everything is risky and expensive, and using AI to write mountains of code creates significant barriers to the ongoing change that enterprise clients require. Pega structures business applications in a way that makes sense to business and IT to Build for Change®.”
"Pega generated record first-half cash flow and returned substantial capital to shareholders,” said Ken Stillwell, COO and CFO, Pega. “As the market shifts from AI experimentation to tokenomics and reliable business outcomes, that evolution plays directly to Pega’s strengths, and we remain confident in our strategy to capitalize on the opportunity ahead.”
Financial and performance metrics (1)
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)
June 30, 2025
June 30, 2026
1-Year Change
ACV
$
1,514
$
1,620
7
%
Impact of changes in foreign exchange rates
—
10
Constant currency ACV
$
1,514
$
1,630
8
%
Note: Constant currency ACV is calculated by applying the June 30, 2025 foreign exchange rates to current period shown.
Cash Flow Growth
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.
(Dollars in thousands,
except per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2026
2025
Change
2026
2025
Change
Total revenue
$
420,716
$
384,512
9
%
$
850,689
$
860,145
(1
)%
Net income - GAAP
$
13,334
$
30,077
(56
)%
$
46,098
$
115,499
(60
)%
Net income - non-GAAP
$
59,533
$
50,151
19
%
$
142,601
$
190,693
(25
)%
Diluted earnings per share - GAAP
$
0.08
$
0.17
(53
)%
$
0.26
$
0.63
(59
)%
Diluted earnings per share - non-GAAP
$
0.35
$
0.28
25
%
$
0.81
$
1.04
(22
)%
(Dollars in thousands)
Three Months Ended
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
%
Maintenance
74,528
18
%
79,271
21
%
(4,743
)
(6
)%
149,845
18
%
155,639
18
%
(5,794
)
(4
)%
Subscription services
288,462
69
%
246,014
64
%
42,448
17
%
568,810
67
%
473,505
55
%
95,305
20
%
Subscription license
82,028
19
%
80,674
21
%
1,354
2
%
176,880
21
%
268,395
31
%
(91,515
)
(34
)%
Subscription
370,490
88
%
326,688
85
%
43,802
13
%
745,690
88
%
741,900
86
%
3,790
1
%
Consulting
50,226
12
%
57,824
15
%
(7,598
)
(13
)%
104,999
12
%
118,245
14
%
(13,246
)
(11
)%
Total revenue
$
420,716
100
%
$
384,512
100
%
$
36,204
9
%
$
850,689
100
%
$
860,145
100
%
$
(9,456
)
(1
)%
Quarterly conference call
A conference call and audio-only webcast will be conducted at 8:00 a.m. EDT on Wednesday, July 22, 2026.
Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1 (833) 461-5787 (domestic) or 1 (626) 884-3620 (international) and using Conference ID 421269211, or via https://events.q4inc.com/attendee/421269211 by logging onto www.pega.com at least five minutes prior to the event's broadcast and clicking on the webcast icon in the Investors section.
Discussion of non-GAAP financial measures
Our non-GAAP financial measures should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. Management uses these measures to assess the performance of the company's operations and establish operational goals and incentives. They are not a substitute for financial measures prepared under U.S. GAAP. Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures.
Forward-looking statements
Certain statements in this press release may be "forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, including statements about the growth and development of our business and market.
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.
Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but not limited to:
our future financial performance and business plans; the adequacy of our liquidity and capital resources; the successful execution of investments in artificial intelligence; the timing of revenue recognition; variation in demand for our products and services; reliance on key personnel; 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; our ongoing litigation with Appian Corp. and associated legal proceedings; our client retention rate; and management of our growth. These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2025, and other filings we make with the SEC.
Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results included in such statements will be achieved. 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.
Any forward-looking statements in this press release represent our views as of July 21, 2026.
About Pegasystems
Pega delivers the platform to reimagine, run, and evolve the processes and decisions an enterprise can't afford to get wrong. We combine AI with proven architecture to keep mission-critical operations governed, scalable, and continuously adaptable. Since 1983, the world's largest organizations have trusted Pega to turn transformation ambition into durable results. Learn more at www.pega.com.
All trademarks are the property of their respective owners.
(1) Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures.
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2026
2025
2026
2025
Revenue
Subscription services
$
288,462
$
246,014
$
568,810
$
473,505
Subscription license
82,028
80,674
176,880
268,395
Consulting
50,226
57,824
104,999
118,245
Total revenue
420,716
384,512
850,689
860,145
Cost of revenue
Subscription services
53,941
41,510
103,390
79,638
Subscription license
267
364
738
752
Consulting
53,821
67,700
110,655
131,634
Total cost of revenue
108,029
109,574
214,783
212,024
Gross profit
312,687
274,938
635,906
648,121
Operating expenses
Selling and marketing
165,408
147,131
321,011
285,200
Research and development
84,168
78,784
166,215
153,070
General and administrative
43,740
31,788
92,313
65,616
Restructuring
2,735
(44
)
2,582
(33
)
Total operating expenses
296,051
257,659
582,121
503,853
Income from operations
16,636
17,279
53,785
144,268
Foreign currency transaction (loss) gain
(1,364
)
(14,008
)
486
(19,333
)
Interest income
2,500
3,248
5,454
8,583
Interest expense
(45
)
(1
)
(89
)
(1,028
)
(Loss) on capped call transactions
—
—
—
(223
)
Other income (loss), net
786
18,729
(1,418
)
19,290
Income before provision for (benefit from) income taxes
18,513
25,247
58,218
151,557
Provision for (benefit from) income taxes
5,179
(4,830
)
12,120
36,058
Net income
$
13,334
$
30,077
$
46,098
$
115,499
Earnings per share
Basic
$
0.08
$
0.18
$
0.28
$
0.67
Diluted
$
0.08
$
0.17
$
0.26
$
0.63
Weighted-average number of common shares outstanding
Basic
165,613
170,776
167,206
171,287
Diluted
171,765
182,160
175,294
185,477
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2026
December 31, 2025
Assets
Current assets:
Cash and cash equivalents
$
185,110
$
212,447
Marketable securities
176,797
213,352
Total cash, cash equivalents, and marketable securities
361,907
425,799
Accounts receivable, net
143,213
264,713
Unbilled receivables, net
154,029
166,478
Other current assets
102,559
121,305
Total current assets
761,708
978,295
Long-term unbilled receivables, net
77,947
102,544
Goodwill
81,265
81,506
Long-term deferred income taxes
176,903
175,472
Other long-term assets
286,220
294,027
Total assets
$
1,384,043
$
1,631,844
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
52,964
$
12,924
Accrued expenses
92,295
44,847
Accrued compensation and related expenses
87,583
148,797
Deferred revenue
462,532
509,275
Other current liabilities
23,886
21,935
Total current liabilities
719,260
737,778
Long-term operating lease liabilities
56,996
60,825
Other long-term liabilities
47,403
45,860
Total liabilities
823,659
844,463
Total stockholders’ equity
560,384
787,381
Total liabilities and stockholders’ equity
$
1,384,043
$
1,631,844
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
2026
2025
Net income
$
46,098
$
115,499
Adjustments to reconcile net income to cash provided by operating activities
Non-cash items
125,635
123,170
Change in operating assets and liabilities, net
126,492
51,827
Cash provided by operating activities
298,225
290,496
Cash provided by investing activities
25,832
212,995
Cash (used in) financing activities
(349,030
)
(646,316
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(2,299
)
7,407
Net (decrease) in cash, cash equivalents, and restricted cash
(27,272
)
(135,418
)
Cash, cash equivalents, and restricted cash, beginning of period
216,360
341,529
Cash, cash equivalents, and restricted cash, end of period
$
189,088
$
206,111
PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES
(in thousands, except percentages and per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2026
2025
Change
2026
2025
Change
Net income - GAAP
$
13,334
$
30,077
(56
)%
$
46,098
$
115,499
(60
)%
Stock-based compensation (1)
36,226
36,730
82,041
78,155
Legal fees
17,950
6,409
37,914
12,953
Amortization of intangible assets
237
675
1,020
1,376
Restructuring
2,735
(44
)
2,582
(33
)
Foreign currency transaction loss (gain)
1,364
14,008
(486
)
19,333
Interest on convertible senior notes
—
—
—
394
Capped call transactions
—
—
—
223
Other
(700
)
(18,729
)
1,533
(19,480
)
Income taxes (2)
(11,613
)
(18,975
)
(28,101
)
(17,727
)
Net income - non-GAAP
$
59,533
$
50,151
19
%
$
142,601
$
190,693
(25
)%
Diluted earnings per share - GAAP
$
0.08
$
0.17
(53
)%
$
0.26
$
0.63
(59
)%
non-GAAP adjustments
0.27
0.11
0.55
0.41
Diluted earnings per share - non-GAAP
$
0.35
$
0.28
25
%
$
0.81
$
1.04
(22
)%
Diluted weighted-average number of common shares outstanding - GAAP
171,765
182,160
(6
)%
175,294
185,477
(5
)%
Capped call transactions
—
—
—
(2,412
)
Diluted weighted-average number of common shares outstanding - non-GAAP
171,765
182,160
(6
)%
175,294
183,065
(4
)%
Our non-GAAP financial measures reflect the following adjustments:
Stock-based compensation: We have excluded stock-based compensation from our non-GAAP operating expenses and profitability measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to our revenues recognized during the periods presented and is expected to contribute to our future revenues, we continue to evaluate our business performance, excluding stock-based compensation. Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance. Amortization of intangible assets: We have excluded the amortization of intangible assets from our non-GAAP operating expenses and profitability measures. Amortization of intangible assets fluctuates in amount and frequency and is significantly affected by the timing and size of acquisitions. Investors should note that intangible assets contributed to our revenues recognized during the periods presented and are expected to contribute to future revenues. Amortization of intangible assets is likely to recur in future periods. We believe excluding these amounts provides a useful comparison of our operational performance in different periods. Restructuring: We have excluded restructuring from our non-GAAP financial measures. Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as these amounts are not representative of our core business operations and ongoing operational performance. Foreign currency transaction loss (gain): We have excluded foreign currency transaction gains and losses from our non-GAAP profitability measures. Foreign currency transaction gains and losses fluctuate in amount and frequency and are significantly affected by foreign exchange market rates. Foreign currency transaction gains and losses are likely to recur in future periods. We believe excluding these amounts provides a useful comparison of our operational performance in different periods. Interest on convertible senior notes: In February 2020, we issued convertible senior notes (the “Notes”), due March 1, 2025, in a private placement. The Notes accrued interest at an annual rate of 0.75%, paid semi-annually in arrears on March 1 and September 1. The outstanding Notes were repaid in their entirety at maturity. We believe that excluding the amortization of issuance costs provides a useful comparison of our operational performance in different periods. Capped call transactions: We have excluded gains and losses related to our capped call transactions held at fair value under U.S. GAAP. The capped call transactions were expected to reduce common stock dilution and/or offset any potential cash payments we must make, other than for principal and interest, upon conversion of the Notes. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance. Other: We have excluded gains and losses from our venture investments and other one-time, non-operating items. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operational performance. Diluted weighted-average number of common shares outstanding: Capped call transactions: In periods of GAAP net income, the shares calculated by applying the if-converted method related to our Notes are included in the diluted weighted-average shares outstanding if they are dilutive. The capped call transactions were expected to reduce common stock dilution and/or offset any potential cash payments we must make, other than for principal and interest, upon conversion of the Notes. We believe that including the expected impact of the capped call transactions in our non-GAAP financial measures provides a useful comparison of our operational performance in different periods. (1) Stock-based compensation:
Three Months Ended
June 30,
Six Months Ended
June 30,
(Dollars in thousands)
2026
2025
2026
2025
Cost of revenue
$
6,752
$
7,288
$
14,628
$
15,111
Selling and marketing
14,555
14,378
33,009
30,159
Research and development
7,943
7,490
17,962
15,875
General and administrative
6,976
7,574
16,442
17,010
$
36,226
$
36,730
$
82,041
$
78,155
Income tax benefit
$
(7,091
)
$
(566
)
$
(16,255
)
$
(1,153
)
(2) Effective income tax rates:
Six Months Ended
June 30,
2026
2025
GAAP
21
%
24
%
non-GAAP
22
%
22
%
Our GAAP effective income tax rate is subject to significant fluctuations due to several factors, including our stock-based compensation plans, research and development tax credits, and the valuation allowance on our deferred tax assets in the U.S. and U.K. We determine our non-GAAP income tax rate using applicable rates in taxing jurisdictions and assessing certain factors, including historical and forecasted earnings by jurisdiction, discrete items, and ability to realize tax assets. We believe it is beneficial for our management to review our non-GAAP results consistent with our annual plan’s effective income tax rate as established at the beginning of each year, given tax rate volatility.
PEGASYSTEMS INC.
RECONCILIATION OF FREE CASH FLOW (1) AND OTHER METRICS
(in thousands, except percentages)
Six Months Ended
June 30,
Change
2026
2025
Cash provided by operating activities
$
298,225
290,496
3
%
Investment in property and equipment
(9,967
)
(4,015
)
Free cash flow (1)
$
288,258
$
286,481
1
%
Supplemental information (2)
Legal fees
$
9,188
$
10,020
Restructuring
11,449
1,354
Interest paid on convertible senior notes
—
1,754
Other
(689
)
—
Income taxes, net of refunds
10,842
(702
)
$
30,790
$
12,426
PEGASYSTEMS INC.
ANNUAL CONTRACT VALUE
(in thousands, except percentages)
Annual contract value (“ACV”) - ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV. ACV is a performance measure that we believe provides useful information to our management and investors.
June 30, 2026
June 30, 2025
Change
Constant Currency Change
Pega Cloud
$
926,290
$
761,051
$
165,239
22
%
22
%
Maintenance
271,328
301,375
(30,047
)
(10
)%
(9
)%
Subscription services
1,197,618
1,062,426
135,192
13
%
13
%
Subscription license
422,316
451,591
(29,275
)
(6
)%
(6
)%
$
1,619,934
$
1,514,017
$
105,917
7
%
8
%
PEGASYSTEMS INC.
BACKLOG
(in thousands, except percentages)
Remaining performance obligations (“Backlog”) - Expected future revenue from existing non-cancellable contracts:
As of June 30, 2026:
Subscription services
Subscription license
Consulting
Total
Pega Cloud
Maintenance
1 year or less
$
704,447
$
198,492
$
42,537
$
47,220
$
992,696
49
%
1-2 years
393,855
82,004
1,546
3,747
481,152
24
%
2-3 years
222,052
50,070
7,583
899
280,604
14
%
Greater than 3 years
241,679
20,480
958
1,062
264,179
13
%
$
1,562,033
$
351,046
$
52,624
$
52,928
$
2,018,631
100
%
% of Total
77
%
17
%
3
%
3
%
100
%
Change since June 30, 2025
$
240,835
$
(45,683
)
$
(21,826
)
$
9,976
$
183,302
18
%
(12
)%
(29
)%
23
%
10
%
As of June 30, 2025:
Subscription services
Subscription license
Consulting
Total
Pega Cloud
Maintenance
1 year or less
$
603,683
$
220,954
$
62,222
$
39,798
$
926,657
51
%
1-2 years
334,586
79,345
4,262
2,846
421,039
23
%
2-3 years
172,513
49,587
746
252
223,098
12
%
Greater than 3 years
210,416
46,843
7,220
56
264,535
14
%
$
1,321,198
$
396,729
$
74,450
$
42,952
$
1,835,329
100
%
% of Total
72
%
22
%
4
%
2
%
100
%
PEGASYSTEMS INC.
RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG
(in millions, except percentages)
June 30, 2025
June 30, 2026
1 Year Growth Rate
Backlog - GAAP
$
1,835
$
2,019
10
%
Impact of changes in foreign exchange rates
—
20
Constant currency backlog
$
1,835
$
2,039
11
%
Note: Constant currency backlog is calculated by applying the June 30, 2025 foreign exchange rates to current period shown.
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