705573AB9

FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the sufficiency of our capital, our position and estimates relating to tax, and legal proceedings. Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, positions, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements. These statements represent our views only as of the date the statement was made and are based on current expectations and assumptions. 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; •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; 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, Part II of this Quarterly Report on Form 10-Q, 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. The forward-looking statements in this Quarterly Report represent our views as of July 21, 2026. NON-GAAP 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. A reconciliation of GAAP and non-GAAP measures is located with each non-GAAP measure. BUSINESS OVERVIEW We develop, market, license, host, and support enterprise software that helps organizations optimize decisions and processes in real-time so they can deliver outcomes that transform their business. Our powerful platform for enterprise AI decisioning and workflow automation enables the world’s leading brands and government agencies to hyper-personalize customer experiences, automate customer service, and streamline operations, mission-critical business processes, and workflows, and transform legacy systems. Clients can leverage our AI technology and scalable architecture to accelerate their digital transformation. In addition, our sales and client success teams, world-class partners, and clients are able to leverage Pega BlueprintTM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively. We focus on enterprise-scale businesses and government agencies that require advanced solutions to distinguish themselves in the competitive markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth and modernization, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored by industry. Performance metrics We use performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including: 20 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. (Dollars in thousands) June 30, 2025 June 30, 2026 Change Constant Currency Change Pega Cloud $ 761,051 $ 926,290 $ 165,239 22 % 22 % Maintenance 301,375 271,328 (30,047) (10) % (9) % Subscription services 1,062,426 1,197,618 135,192 13 % 13 % Subscription license 451,591 422,316 (29,275) (6) % (6) % $ 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) 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. 21 Cash Flow (Dollars in thousands) Six Months Ended June 30, Change 2025 2026 Cash provided by operating activities $ 290,496 $ 298,225 3 % Investment in property and equipment (4,015) (9,967) Free cash flow (1) $ 286,481 $ 288,258 1 % Supplemental information (2) Legal fees $ 10,020 $ 9,188 Restructuring 1,354 11,449 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. Investment in property and equipment fluctuates in amount and frequency and is significantly affected by the timing and size of investments in our facilities and equipment. We provide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings. This information is not a substitute for financial measures prepared under U.S. GAAP. (2) The supplemental information below identifies certain items included in operating cash flow that may affect comparability between periods. •Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business. •Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities. •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. •Other: One-time cash flow items not part of our ongoing operations. •Income taxes, net of refunds: Direct income taxes paid net of refunds received. 22 Remaining performance obligations (“Backlog”) Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP) (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. CRITICAL ACCOUNTING POLICIES Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared following accounting principles generally accepted in the U.S. and the rules and regulations of the SEC for interim financial reporting. Preparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and expectations of what could occur in the future based on the available information. For more information about our critical accounting policies, we encourage you to read the discussion in the following locations in our Annual Report on Form 10-K for the year ended December 31, 2025: •“Critical Accounting Estimates and Significant Judgments” in Item 7; and •“Note 2. Significant Accounting Policies” in Item 8. No significant changes have been made to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025. 23 RESULTS OF OPERATIONS Revenue (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) % $ 420,716 100 % $ 384,512 100 % $ 36,204 9 % $ 850,689 100 % $ 860,145 100 % $ (9,456) (1) % •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. Gross profit (Dollars in thousands) Three Months Ended 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 % Maintenance 67,880 91 % 73,519 93 % (5,639) (8) % 138,289 92 % 144,228 93 % (5,939) (4) % Subscription services 234,521 81 % 204,504 83 % 30,017 15 % 465,420 82 % 393,867 83 % 71,553 18 % Subscription license 81,761 100 % 80,310 100 % 1,451 2 % 176,142 100 % 267,643 100 % (91,501) (34) % Subscription 316,282 85 % 284,814 87 % 31,468 11 % 641,562 86 % 661,510 89 % (19,948) (3) % Consulting (3,595) (7) % (9,876) (17) % 6,281 64 % (5,656) (5) % (13,389) (11) % 7,733 58 % $ 312,687 74 % $ 274,938 72 % $ 37,749 14 % $ 635,906 75 % $ 648,121 75 % $ (12,215) (2) % •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. Operating expenses (Dollars in thousands) Three Months Ended 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 % % of Revenue 39 % 38 % 38 % 33 % Research and development $ 84,168 $ 78,784 $ 5,384 7 % $ 166,215 $ 153,070 $ 13,145 9 % % of Revenue 20 % 20 % 20 % 18 % General and administrative $ 43,740 $ 31,788 $ 11,952 38 % $ 92,313 $ 65,616 $ 26,697 41 % % of Revenue 10 % 8 % 11 % 8 % Restructuring $ 2,735 $ (44) $ 2,779 * $ 2,582 $ (33) $ 2,615 * % of Revenue 1 % — % — % — % * Not meaningful 24 •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. 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 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 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) % Interest expense (45) (1) (44) * (89) (1,028) 939 91 % (Loss) on capped call transactions — — — * — (223) 223 100 % 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 (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 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 (benefit from) income taxes Six Months Ended June 30, (Dollars in thousands) 2026 2025 Provision for (benefit from) income taxes $ 12,120 $ 36,058 Effective income tax rate 21 % 24 % 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. and U.K. deferred tax assets. The Organization for Economic Cooperation and Development (“OECD”) has introduced Pillar Two, a global minimum tax framework supported by more than 130 countries, with certain provisions effective for tax years beginning on or after January 1, 2024. On January 5, 2026, the OECD issued administrative guidance introducing a side‑by‑side system that would exempt U.S.‑parented multinational groups from certain Pillar Two rules beginning in fiscal years starting on or after January 1, 2026. We will continue to monitor developments in countries’ domestic laws as they relate to the OECD model rules and the Pillar Two global minimum tax. Based on information currently available, we do not expect Pillar Two to have a material impact on our consolidated financial statements. 25 LIQUIDITY AND CAPITAL RESOURCES Six Months Ended June 30, (in thousands) 2026 2025 Cash provided by (used in): Operating activities $ 298,225 $ 290,496 Investing activities 25,832 212,995 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) (in thousands) June 30, 2026 December 31, 2025 Held in U.S. entities $ 213,027 $ 157,449 Held in foreign entities 148,880 268,350 Total cash, cash equivalents, and marketable securities 361,907 425,799 Restricted cash included in other current assets 2,448 1,577 Restricted cash included in other long-term assets 1,530 2,336 Total cash, cash equivalents, marketable securities, and restricted cash $ 365,885 $ 429,712 We believe that our current cash, marketable securities, cash flow provided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. We may utilize available funds or seek external financing if we require additional capital resources. If it becomes necessary or desirable to repatriate foreign funds, we may have to pay federal, state, and local income taxes as well as foreign withholding taxes upon repatriation. However, estimating the taxes we would have to pay on the amounts we consider indefinitely reinvested is impracticable due to the complexity of income tax laws and regulations. We have provided a deferred tax liability associated with the tax cost of repatriating unremitted earnings which we do not consider indefinitely reinvested. Operating activities The change in cash provided by operating activities in the 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 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 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; however we had no cash borrowings. For additional information, see "Note 9. Debt" in Part I, Item 1 of this Quarterly Report. Stock repurchase program Changes in the remaining stock repurchase authority: (in thousands) (1) Six Months Ended June 30, 2026 December 31, 2025 $ 242,254 Authorizations (2) 1,000,000 Repurchases (3) (367,200) June 30, 2026 $ 875,054 (1) Amounts presented are exclusive of the U.S. excise tax on share repurchases. (2) On February 10, 2026, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2026 to June 30, 2027 and increased the authorized repurchase amount by $1 billion. (3) All purchases under this program have been made on the open market. 26 Common stock repurchases Six Months Ended June 30, 2026 2025 (in thousands) Shares Amount Shares Amount Repurchases paid 8,858 $ 367,200 6,049 $ 250,189 Repurchases unpaid at period end — — 18 1,000 Stock repurchase program (1) 8,858 367,200 6,067 251,189 Tax withholdings for net settlement of equity awards 70 2,902 146 6,600 8,928 $ 370,102 6,213 $ 257,789 (1) Amounts presented are exclusive of the U.S. 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. These amounts are not included in the table above. Dividends We paid and intend to continue to pay a quarterly cash dividend of $0.03 per share; however, the Board of Directors may terminate or modify the dividend program without prior notice. Six Months Ended June 30, (in thousands) 2026 2025 Dividend payments to stockholders $ 10,173 $ 5,150 Contractual obligations 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.