PEGA 10-K & 10-Q changes, risk factors and insider trading

We currently intend to grow our business by pursuing strategic initiatives consistent with becoming a Rule of 40 company,principles, meaning a company with combined Annual Contract Value (“ACV”) growth rate and free cash flow margin of at least 40%. Key elements of our strategy include increasing our market share by developing and delivering robust solutions that can work together seamlessly with maximum differentiation and minimal customization, offering versatility in the Pega Platform and application deployment and licensing options to meet the specific needs of our clients, growing our network of partner alliances, and developing the talent and organizational structure capable of supporting our revenue and earnings growth targets. We may not achieve one or more of our key initiatives. Our success depends on our ability to manage our expenses as we appropriately grow our organization, successfully execute our marketing and sales strategies, successfully incorporate acquired technologies into our unified Pega Platform, and develop new products or product enhancements. If we are not able to execute these actions, our business may not grow as we anticipate, and our operating results and financial condition could be materially adversely affected.

We are investing significantly in AI, including through our development and deployment of our Pega Customer Decision HubTM, Pega Customer ServiceTM, PegaPlatfomTM, and Pega GenAI BlueprintTM.AI. This investment is occurring as the legal and regulatory landscape applicable to AI is uncertain and evolving rapidly, and at the same time as our competitors are also investing in AI. There are significant risks in deploying AI, and there can be no assurance that using AI in our solutions will enhance or be beneficial to our business, including our profitability. The rapid evolution of AI will require the application of resources to develop, test, and maintain our products and services to help ensure that we implement AI in a manner that minimizes any unintended, harmful impact and that maximizes our ability to provide products and services to our customers. Other companies may develop AI enabled products that are similar to ours or adopt and implement AI more successfully or at a quicker pace than we do. If we fail to develop products in a manner that satisfies customer preferences in a timely and cost-effective manner, we may fail to retain our existing customers or increase demand for our solutions. In addition, complying with multiple regulations from different jurisdictions related to AI could increase our cost of doing business, may influence the way that we operate in certain jurisdictions, or may impede our ability to offer certain products and services in certain jurisdictions if we are unable to comply with applicable regulations.

We depend on key personnel, including our Chief Executive Officer,Officer (“CEO”), and must attract and retain qualified personnel in the future.

Our business is dependent on key, highly skilled technical, managerial, consulting, sales, and marketing personnel, including our Chief Executive Officer,CEO, who is also our founder and largest stockholder.

The timing of our license and Pega Cloud revenue and bookings is difficult to predict, which may cause our operating results to vary considerably.

A change in the size or volume of license and Pega Cloud arrangements, or a change in the mix between perpetual licenses, subscription licenses, and Pega Cloud arrangements, can cause our revenuesrevenues, bookings, and cash flows to fluctuate materially between periods. Revenue from subscription service arrangements, which includes Pega Cloud and maintenance, is typically recognized over the contract term, while revenue from license sales is recognized when the license rights become effective, typically upfront. Subscription licenses and services are typically billed and collected over the contract term, while perpetual licenses are generally billed and collected upfront when the license rights become effective.

Factors that may influence the predictability of our license and Pega Cloud revenue and bookings include:

We budget for our selling and marketing, product development, and other expenses based upon anticipated future bookings and revenue. If the timing or amount of bookings and revenue fails to meet our expectations, our financial performance is likely to be materially adversely affected because only a small portion of our expenses vary with revenue. Other factors that may cause our operating results to vary include changes in foreign currency exchange rates, income tax effects, and the impact of new accounting pronouncements.

As a result, period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon to predict future performance. If our revenuesrevenues, bookings and operating results do not meet the expectations of our investors or securities analysts or fall below guidance we may provide to the market, or due to other factors discussed elsewhere in this section, the price of our common stock may decline.

Many of our competitors, such as International Business Machines Corporation (“IBM”), Microsoft Corporation, Oracle Corporation, Salesforce.com,Salesforce, SAP SE, and ServiceNow, have far greater resources than we do and may be able to respond more quickly and efficiently to new or emerging technologies, programming languages or standards, or changes in client requirements or preferences. Competitors may also be able to devote greater managerial and financial resources to develop, promote, and distribute products and to provide related consulting and training services.

If we are unsuccessful in theour appealtrade of the trial court judgment in oursecret litigation with Appian Corp.,Corp. our operating results and financial condition wouldcould be adversely impacted.

We are currently party to litigation with Appian Corp. — see Part I, Item 3 “Legal Proceedings” and "Note 20. Commitments And Contingencies" in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report. On September 15, 2022, the circuit court of Fairfax County entered judgment for Appian in the amount of $2,060,479,287 with post-judgment interest. The Company filed a notice of appeal from the judgment the same day with the Court of Appeals of Virginia. On SeptemberJuly 29,30, 2022, the circuit court approved the $25,000,000 letter of credit obtained by the Company to secure the judgment and suspended the judgment during the pendency of the Company’s appeal. A panel of2024, the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and issued a written opinion on July 30, 2024. The Court of Appealsthat reversed the judgment on Appian’s Virginia Uniform Trade Secrets Act claim and ordered a new trial on that claim. AppianOn filedJanuary a8, petition for appeal with2026, the Supreme Court of Virginia issued a written opinion unanimously affirming the ruling of the Court of Appeals of Virginia and on AugustJanuary 29, 2024,2026 andremanded weAppian’s filedtrade asecret responsecase to the petitionCourt onof OctoberAppeals 21,with 2024.direction Underto remand to the Court’s rules, Appian is entitled to a 10-minute oral argument in support of its petition. The SupremeCircuit Court of VirginiaFairfax scheduled that argumentCounty for Februaryfurther 11,proceedings 2025.in accordance with its written opinion. Although it is not possible to predict timing, the entirety of the appealslitigation processprocess, including retrial and possible future appeals, could potentially take years to complete. We continue to believe we did not misappropriate any alleged trade secrets and that sales of our products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets. We are unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resultingor from thesubsequent appellate proceedings.

We believe we have strong grounds to prevail in the appeal and a potential retrial. But if we are ultimately unsuccessful in prevailing in the matter in its entirety or in substantially reducing any judgment,matter, we may be required to incur additional debt or otherwise engage in capital markets transactions, which may include a public offering or private placement of our equity securities or a sale or license of assets. While we believe we have the financial strength to pay theany future judgment and accrued interest thereon if it ever became necessary, it is possible that we may not be able to engage in financing activities on desirable terms, which could have a material adverse effect on our business, financial condition, and operating results. Further discussion of these risks is contained below under the heading “Risks Related to Our Financial Obligations and Indebtedness.”

High-profile security breaches at other companies have increased in recent years. Security industry experts and government officials have warned about the risks of hackers and cyber-attackers targeting information technology products and businesses. Threats to IT security can take a variety of forms.forms and continue to evolve and become more sophisticated and more difficult to detect and defend against, including by the increased use of AI to enhance attacks. Individual hackers, groups of hackers, and sophisticated organizations, including state-sponsored organizations, or nation-states themselves, may take steps that threaten our clients, suppliers, third-party technology providers, and us.

Our security measures, those of our suppliers, third-party technology providers, and our clients may be breached because of third-party actions or those of employees, consultants, clients, or others, including intentional misconduct by computer hackers, system errors, human errors, errors introduced by our use of AI internally and in our products, technical flaws in our products, or otherwise. Because we do not control the configuration of Pega applications by our clients, the transmissions between our clients and our third-party technology providers, the processing of data on the servers at third-party technology providers, or the internal controls maintained by our clients and third-party technology providers that could prevent unauthorized access or provide appropriate data encryption, we cannot fully ensure the complete integrity or security of such transmissions processing or controls. In addition, privacy, security, and data transmission concerns in some parts of the world may inhibit demand for our Pega Cloud offering or lead to requirements to provide our products or services in configurations that may increase the cost of serving such markets. The techniques used to obtain unauthorized access or sabotage systems change frequently and are generally only recognized once launched against a target. While we have invested in protecting our data and systems and clients' data to reduce these risks and actively monitor for risks of data breaches, regulatory non-compliance incidents and cyber security incidents, there can be no assurance that our efforts will prevent breaches. Moreover, like most software companies, we incorporate open-source code into our software products and services, which also creates a potential risk. We deal with security issues regularly and have experienced security incidents from time to time. We have a standing Compliance and Risk Governing Committee composed of senior representatives across the Company that reports to and assists the Audit Committee and the Board as a whole in the oversight of compliance and risk management programs, including cybersecurity measures. In addition, we have a standing Security Steering Group, whose members include our Chief Information Security Officer, Chief Product Officer, and Vice President of Cloud Technology, and which is charged with providing strategic direction for the implementation and ongoing operation of our cyber security program. Even with the efforts the Company has undertaken, there is a risk that a security breach will be successful, and such an event will be material. We carry data breach insurance coverage to mitigate the financial impact of a security breach, though this may prove insufficient in the event of a breach.

To defend against security threats, we need to continuously engineer products and services with enhanced security and reliability features, improve the deployment of software updates to address security vulnerabilities, apply technologies that mitigate the risk of attacks, and maintain a digital security infrastructure that protects the integrity of our network, products, and services. The cost of these steps could negatively impact our operating results. While we actively work to improve vulnerability scanning, patching, threat intelligence, security event detection, and security event alerting and forensics, it is possible that security breaches, whether due to unpatched vulnerabilities or otherwise, occur and may be undetected when they occur. Any such security breach could result in a loss of confidence in the security of our services, damage our reputation, disrupt our business, require us to incur significant costs of investigation, remediation and/or payment of a ransom, lead to legal liability, negatively impact our future sales, and result in a substantial financial loss.

Despite quality testing each release, our software frequently contains errors or security flaws, especially when first introduced or when new versions are released. Errors in our software could affect its ability to work with hardware or other software or delay the development or release of new products or new versions of our software. Additionally, detecting and correcting any security flaws, including those that may be introduced by our use of open-source,open-source code or AI, can be time-consuming and costly. Errors or security flaws in our software could result in the inadvertent disclosure of confidential information or personal data relating to our clients, employees, or third parties. Software errors and security flaws in our products or services could expose us to privacy, product liability, or warranty claims and harm our reputation, which could impact our future sales of products and services. Typically, we enter into license agreements that contain provisions intended to limit the nature and extent of our risk of product liability and warranty claims. A court might interpret these terms in a limited way or hold part or all of them unenforceable. Also, there is a risk that these contract terms might not bind a party other than the direct client. Furthermore, some of our licenses with our clients are governed by non-U.S. law, and there is a risk that foreign law might give us less or different protection. Although we have not experienced any material product liability claims to date, a product liability suit or action claiming a breach of warranty, whether meritorious, could result in substantial costs and a diversion of management’s attention and our resources.

We rely primarily on a combination of patent, copyright, trademark, and trade secrets laws, as well as intellectualconfidentiality propertyprocedures, technical safeguards, and confidentialitycontractual agreementsprovisions, to protect our proprietaryintellectual rights.property rights and our brand. We also try to control access to and distribution of our technologies and other proprietary information. We have obtained patents in strategically important global markets relating to the architecture of our systems. We cannot be certain that such patents will not be challenged, invalidated, or circumvented, or that rights granted thereunder, or the claims contained therein will provide us with competitive advantages. Moreover, despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our software or to obtain the use of information that we regard as proprietary. Although we generally enter into intellectual property and confidentiality agreements with our employees and strategic partners, despite our efforts our former employees may seek employment with our business partners, clients, vendors, or competitors, and there can be no assurance that the confidential nature of our proprietary information will be maintained. In addition, the laws of some foreign countries do not protect our proprietary rights as effectively as they do in the U.S. There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology.

Companies in the software and technology industries, including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. In addition, many of these companies can dedicate greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. The litigation may involve patent holding companies or other adverse patent owners that have no relevant product revenues and against which our patents may, therefore, provide little or no deterrence. Third parties have claimed and may claim in the future that we have misappropriated, misused, or infringed other parties' intellectual property rights, and customers have sought and may seek future indemnification for intellectual property claims to which they are subject. ToWe are currently party to litigation with Appian Corp. — see Part I, Item 3 “Legal Proceedings”, "Note 20. Commitments And Contingencies" in the extent“Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report and the preceding risk factor captioned “If we gainare greaterunsuccessful marketin visibility,our wetrade facesecret alitigation higherwith riskAppian ofCorp. beingour theoperating subjectresults ofand intellectualfinancial propertycondition claims.could be adversely impacted.”

Within recent years, there has been an increase in the scope and enforcement of data privacy laws in the jurisdictions in which we do business.business Theincluding EUCalifornia, other states in the US, and UK GeneralEurope. Data Protectionprivacy Regulationslaws extendthroughout the scopeworld of their protection to any entity that does business in those jurisdictions and controls or processes personal data of EU or UK residents in connection with the offer of goods or services or the monitoring of behavior in those jurisdictions and imposesimpose many compliance obligations concerning the handling of personal data.data, The California Consumer Privacy Act (as amended by the California Privacy Rights Acts, the “CCPA”) and other similar laws in a number of US states require,including, among other things, coveredrequiring companies to provide disclosure to consumers and other individuals about such companies’ data collection, use and sharing practices,practices; requiring companies to provide suchconsumers consumersand other individuals ways to make requests about their personal information, including requests to delete their personal information, to know what information a company has about the consumer,individual, and to opt-out of certain sales, transfers, or sharing of personal information.information; Someand US state data privacy laws, including the CCPA, also provideproviding consumers and other individuals with additional causes of action. In 2023,addition, Europe has finalized the first-evera comprehensive legal framework for governance of the development and use of AI, the European Union Artificial Intelligence Act, with rolling effective dates beginning in 2025, and isother movingjurisdictions, forward with finalizing applicable regulations. Manyincluding jurisdictions in the USUS, are considering or have passed laws governing the development or use of AI. Similarly, Europe has enacted laws governing cyber resilience, and we expect more laws will be considered and passed on this issue. Compliance with these varying regimes has caused and will cause us to incur additional costs, and may challenge our business and the expansion of that business, including as may result from any non-compliance or asserted non-compliance.

WeAlthough we have developed and implemented a compliance program based on what we believe are reasonable practices, including the background checking of our current partners and prospective clients and partners. Wewe cannot guarantee, however,guarantee that we, our employees, our consultants, our partners, our vendors, or our contractors are or will be compliant with all federal, state, and foreign regulations. If our representatives or we fail to comply with any of these laws or regulations, a range of fines, penalties, and/or other sanctions could be imposed on us, which could have a material adverse effect on our business, financial condition, and results of operations. Even if we are determined not to have violated these laws, government inquiries into these issues typically require the expenditure of significant resources and generate negative publicity, which could also harm our business. In addition, regulation of data privacy and security laws is increasing worldwide, including various restrictions on cross-border access or transfer of data, including personal data of our employees, our clients, and customers of our clients. Compliance with such regulations may increase our costs, and there is a risk of enforcement of such laws resulting in damage to our brand, as well as financial penalties and the potential loss of business, which could be significant.

As of December 31, 2024,2025, $185.6$168 million of our cash and cash equivalents were held in our foreign subsidiaries. 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. WeBecause we consider some of the earnings of our foreign subsidiaries to be permanently reinvested.reinvested, Asour afinancial result,statements may not reflect the domestic and foreign taxes on such earnings have not been provided in our financial statements.earnings. It is not practical to estimate the amount of tax we would have to pay upon repatriation of our unremitted earnings deemed to be permanently reinvested due to the complexity of the tax laws and other factors. We have provided a deferred tax liability associated with the tax cost of repatriating unremitted earnings which we do not consider indefinitely reinvested.

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.workflows, Withand Pega,transform ourlegacy clientssystems. 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 tocan leverage Pega GenAI BlueprintTM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively.

OurWe targetfocus clientson areenterprise-scale Global 2000 organizationsbusinesses 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,growth and modernization, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored by industry.

Annual Contract Value (“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.

Note: Constant currency ACV is calculated by applying the December 31, 20232024 foreign exchange rates to allcurrent periodsperiod shown.

(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.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.

◦Interest paid on convertible senior notes: In February 2020, we issued convertiblethe senior notes,Notes, due March 1, 2025, in a private placement. The convertibleNotes senior notes accrueaccrued interest at an annual rate of 0.75%, payablepaid semi-annually in arrears on March 1 and September 1.1.The outstanding Notes were repaid in their entirety at maturity.

◦Income taxestaxes, net of refunds: Direct income taxes paid net of refunds received.

Note: Constant currency Backlog is calculated by applying the December 31, 20232024 foreign exchange rates to allcurrent periodsperiod shown.

•The decreaseincrease in subscription license revenue in 20242025 was primarily due to our clients’ shift to Pega Cloud-based offerings, and several large multi-year subscription license contracts recognized in revenue in 2023.2025.

•The decreaseincrease in consulting revenue in 20242025 was primarily due to decreasesan increase in consultant billable hours.hours in our International regions.

•The increase in Pega Cloud gross profit percent in 20242025 was primarily due to increased hosting cost efficiency, primarily for hosting services and employee compensation and benefits,efficiencies as Pega Cloud continues to grow and scale.scale and a reallocation of certain headcount from Pega Cloud to Maintenance to align with the change in the nature of their responsibilities.

•The decreaseincrease in consulting gross profit percent in 20242025 was primarily due to aan decreaseincrease in consultant utilization rates.rates offset by an increase in contracted services of $6.1 million.

•The decreaseincrease in selling and marketing in 20242025 was primarily due to aan decreaseincrease in compensation and benefits of $27.8$31.3 million dueattributable to reducedincreases in headcount fromand theincentive optimization of our go-to-market strategy. For additional information, see "Note 12. Restructuring" in Item 8 of this Annual Report.compensation.

•The increase in general and administrative in 20242025 was primarily due to an increase of $10.7 million in compensation and benefits including $4.8 million of stock based compensation expense associated with performance stock options granted in 2023 (see "Note 16. Stock-Based Compensation") and an increase of $4.8$20.4 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. For additional information, see "Note 20. Commitments And Contingencies" in Item 8 of this Annual Report. In 2025 we experienced an increase of $11.8 million in compensation and benefits attributable to equity compensation and a reallocation of certain headcount from research and development to general and administrative to align with the change in the nature of their responsibilities.

•The restructuringdecrease in 2024litigation andsettlement, 2023net of recoveries in 2025 was primarily due to ourthe effortsestimated cost to optimizesettle ourongoing go-to-marketlitigation organizationarising andfrom officeproceedings space.outside the ordinary course of business. For additional information, see "Note 12.20. RestructuringCommitments And Contingencies" in Item 8 of this Annual Report.

•The change in foreign currency transaction (loss) gain in 20242025 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with foreign currency-denominated cash and receivables held by our subsidiary in the United Kingdom.

•The increasedecrease in interest income in 20242025 was primarily due to higherlower investment balances andas highera interestresult rateof yields.the repayment of the Notes at maturity during the three months ended March 31, 2025.

•The change in (loss) on capped call transactions in 20242025 was due to fairthe valueexpiration adjustmentsof for ourthe capped call transactions.transactions in the three months ended March 31, 2025.

•The decreaseincrease in other income, net in 2024,2025 was primarily due to a reduction of $7.4 million in the gain from repurchasesthe partial sale of our convertible senior notes and a reduction of $10 million in the gain in the value of equity securities held in our venture investments portfolio.investment. For additional information, see "Note 11. Debt" and "Note 13. Fair Value Measurements" in Item 8 of this Annual Report.

Provision(Benefit from) provision for income taxes

The effective income tax rate and tax benefit recorded in 20242025 was primarily driven by the release of the valuation allowance on our net deferred tax assets and tax expense in the U.S. and U.K., partially offset by available tax attributes.U.K.

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, settlement of our convertible senior notes due on March 1, 2025, 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. For additional information, see risk factor "If it becomes necessary or desirable to repatriate our foreign cash balances to the United States, we may be subject to increased taxes, other restrictions, and limitations" in Item 1A of this Annual Report.

The change in cash provided by (used in) investing activities in 20242025 was primarily due to scheduled maturities of our increased investments in financial instruments and reduced investment in propertyanticipation of the repayment of the maturing Notes and equipmentthe asconsideration wereceived optimizedfrom ourthe officesale space.of a venture investment.

In February 2020, we issued $600 million in aggregate principal amount of convertible senior notes,Notes, which maturematured on March 1, 2025. InThe 2024,remaining weoutstanding paidprincipal $33.9balance on the Notes and accrued interest totaling $469.6 million towas repurchase $34.4 millionrepaid in aggregateits principalentirety amountat ofmaturity convertibleduring seniorthe notes.three Asmonths of December 31, 2024, we had $468 million in aggregate principal amount of convertible senior notes outstanding due onended March 1,31, 2025. For additional information, see "Note 11. Debt" in Item 8 of this Annual Report.

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. AsEffective as of DecemberFebruary 31,4, 2024 and December 31, 2023, we had $27.3 million in outstanding letters of credit under2025, the Credit Facility,Facility reducingwas availableamended borrowingto capacity,extend butthe noexpiration outstandingdate cashto borrowings.February For4, additional information, see "Note 11. Debt" in Item 8 of this Annual Report.2027.

(12) On April 23,22, 2024,2025, the Company’sour Board of Directors extended the expiration date of the share repurchase program from JuneDecember 30,31, 20242025 to June 30, 2025.2026 and increased the authorized repurchase amount by $500 million. On OctoberFebruary 22,10, 2024,2026, the Company’sour Board of Directors further extended the expiration date of the share repurchase program from June 30, 20252026 to DecemberJune 31,30, 20252027 and increased the authorized repurchasesrepurchase amount by $250$1 million to $310 million as of that date.billion.

WeFollowing the Stock Split and commencing with the third quarter of 2025, we paid and intend to continue to pay a quarterly cash dividend of $0.03 per share.share, or the equivalent of $0.06 per share prior to the Stock Split. However, the Board of Directors may terminate or modify the dividend program without prior notice.

For additional information see "Note 2. Significant Accounting Policies", "Note 4. Receivables, Contract Assets, And Deferred Revenue", and "Note 15. Revenue" in Item 8 of this Annual ReportReport.

We recognize deferred tax assets to the extent that we believe they are more likely than not to be realized. In making such a determination, we consider all available objective and verifiable negative and positive evidence, including future reversals of existing taxable temporary differences, projected future taxable income (including the impact of enacted legislation), tax-planning strategies and results of recent operations. TheAs Companyof determinedDecember 31, 2025, we concluded that thesubstantially objectivelyall and verifiable negative evidence outweighed the positive evidence, as such maintained a valuation allowance onof our U.S. and U.K. deferred tax assets.assets are more likely than not to be realized.

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

Note: Constant currency ACV is calculated by applying the MarchJune 31,30, 2025 foreign exchange rates to current period shown.

Note: Constant currency Backlog is calculated by applying the MarchJune 31,30, 2025 foreign exchange rates to current period shown.

•The increaseincreases in Pega Cloud revenue in the three and six months ended MarchJune 31,30, 2026 waswere primarily due to expanded adoption of Pega Cloud by our clients.

•The decreasedecreases in maintenance revenue in the three and six months ended MarchJune 31,30, 2026 waswere primarily due to our clients’ shift to Pega Cloud-based offerings, which do not result in maintenance revenue.

•The decreaseincrease in subscription license revenue in the three months ended MarchJune 31,30, 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 threesix months ended MarchJune 31,30, 2025.

•The decreasedecreases in consulting revenue in the three and six months ended MarchJune 31,30, 2026 waswere primarily due to a decrease in consultant billable hours in our Americas region.

•The decreasedecreases in Pega Cloud gross profit percent in the three and six months ended MarchJune 31,30, 2026 waswere primarily due to an increaseincreases in personnel-related costs associated with investments made to support the expansion of our cloud operations.

•The increaseincreases in consulting gross profit percent in the three and six months ended MarchJune 31,30, 2026 waswere primarily due to a decreasedecreases in compensation and benefits of $6.4$12.1 million and $18.5 million, respectively, which waswere 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.

•The increaseincreases in selling and marketing in the three and six months ended MarchJune 31,30, 2026 waswere primarily due to increaseincreases in compensation and benefits of $10.7$12.6 million and $23.2 million, respectively, attributable to increases inhigher headcount as we continue to expand our prospective and equitycurrent compensation.client engagement.

•The increase in research and development in the three months ended MarchJune 31,30, 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 $5.6$4.7 million attributable to increases in headcount and equity compensation.compensation and an increase in cloud hosting expenses of $2.8 million.

•The increaseincreases in general and administrative in the three and six months ended MarchJune 31,30, 2026 waswere primarily due to an increaseincreases of $13.4$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 17.16. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.

•The changes in foreign currency transaction gain (loss) gain in the three and six months ended MarchJune 31,30, 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 decreasedecreases in interest income in the three and six months ended MarchJune 31,30, 2026 were primarily due to lower investment balances as a result of the repayment of the Notes at maturity on March 3, 2025.balances.

•The decrease in interest expense in the threesix months ended MarchJune 31,30, 2026 werewas primarily due to the repayment of the Notes at maturity on March 3, 2025.

•The decrease in other income (loss) income,, net in the three and six months ended MarchJune 31,30, 2026 was primarily due to valuationthe lossesgain from ourthe partial sale of a venture investmentsinvestment portfolio.in 2025. For additional information, see "Note 12.11. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.

Provision for (benefit from) income taxes

Our effective income tax rate decreased in the threesix months ended MarchJune 31,30, 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 change in cash provided by operating activities in the threesix months ended MarchJune 31,30, 2026 was primarily due to increase in client collections.

The change in cash provided by investing activities in the threesix months ended MarchJune 31,30, 2026 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes in the three months ended March 31, 2025.

As of MarchJune 31,30, 2026 and December 31, 2025, we had letters of credit of $1.7 million and $26.7 millionmillion, respectively, under the Credit Facility; however we had no cash borrowings. For additional information, see "Note 10.9. Debt" in Part I, Item 1 of this Quarterly Report.

During the threesix months ended MarchJune 31,30, 2026 and 2025, instead of receiving cash from the equity holders, we withheld shares with a value of $1.9$2.3 million and $1.5$7.3 million, respectively, for the exercise price of options. These amounts are not included in the table above.