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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
_____________________________________

☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2025

OR

☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-11859
____________________________
PEGASYSTEMS INC.
(Exact name of Registrant as specified in its charter)
____________________________

Massachusetts | 04-2787865
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.)

225 Wyman Street, Waltham, MA 02451
(Address of principal executive offices, including zip code)
(617) 374-9600
(Registrant’s telephone number, including area code)
____________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading symbol(s) | Name of each exchange on which registered
Common Stock, $.01 par value per share | PEGA | NASDAQ Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | x | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 85,118,570 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on April 14, 2025.

Table of Contents
PEGASYSTEMS INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

| Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements |
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024 | 3
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2025 and 2024 | 4
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2025 and 2024 | 5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2025 and 2024 | 6
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024 | 7
Notes to Unaudited Condensed Consolidated Financial Statements | 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 30
Item 4. Controls and Procedures | 31
PART II - OTHER INFORMATION
Item 1. Legal Proceedings | 32
Item 1A. Risk Factors | 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 32
Item 5. Other Information | 32
Item 6. Exhibits | 32
Signatures | 33

2

Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
| March 31, 2025 |  | December 31, 2024
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 231,129 |  |  | $ | 337,103 |
Marketable securities | 140,607 |  |  | 402,870 |
Total cash, cash equivalents, and marketable securities | 371,736 |  |  | 739,973 |
Accounts receivable, net | 202,869 |  |  | 305,468 |
Unbilled receivables, net | 179,093 |  |  | 173,085 |
Other current assets | 92,794 |  |  | 115,178 |
Total current assets | 846,492 |  |  | 1,333,704 |
Long-term unbilled receivables, net | 98,251 |  |  | 61,407 |
Goodwill | 81,186 |  |  | 81,113 |
Other long-term assets | 296,021 |  |  | 292,049 |
Total assets | $ | 1,321,950 |  |  | $ | 1,768,273 |
Liabilities and stockholders’ equity |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 16,649 |  |  | $ | 6,226 |
Accrued expenses | 49,875 |  |  | 31,544 |
Accrued compensation and related expenses | 55,919 |  |  | 138,042 |
Deferred revenue | 469,298 |  |  | 423,910 |
Convertible senior notes, net | — |  |  | 467,470 |
Other current liabilities | 17,395 |  |  | 18,866 |
Total current liabilities | 609,136 |  |  | 1,086,058 |
Long-term operating lease liabilities | 65,117 |  |  | 67,647 |
Other long-term liabilities | 36,428 |  |  | 29,088 |
Total liabilities | 710,681 |  |  | 1,182,793 |
Commitments and contingencies (Note 17) |  |  |
Stockholders’ equity: |  |  |
Preferred stock, 1,000 shares authorized; none issued | — |  |  | — |
Common stock, 200,000 shares authorized; 85,562 and 86,112 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively | 856 |  |  | 861 |
Additional paid-in capital | 461,354 |  |  | 526,963 |
Retained earnings | 170,756 |  |  | 87,901 |
Accumulated other comprehensive (loss) | (21,697) |  |  | (30,245) |
Total stockholders’ equity | 611,269 |  |  | 585,480 |
Total liabilities and stockholders’ equity | $ | 1,321,950 |  |  | $ | 1,768,273 |

See notes to unaudited condensed consolidated financial statements.
3

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
| Three Months Ended March 31, |  |
| 2025 |  | 2024 |  |  |  |
Revenue |  |  |  |  |  |  |
Subscription services | $ | 227,491 |  |  | $ | 211,903 |  |  |  |  |
Subscription license | 186,555 |  |  | 63,338 |  |  |  |  |
Consulting | 60,421 |  |  | 54,047 |  |  |  |  |
Perpetual license | 1,166 |  |  | 859 |  |  |  |  |
Total revenue | 475,633 |  |  | 330,147 |  |  |  |  |
Cost of revenue |  |  |  |  |  |  |
Subscription services | 38,128 |  |  | 35,824 |  |  |  |  |
Subscription license | 386 |  |  | 643 |  |  |  |  |
Consulting | 63,934 |  |  | 58,182 |  |  |  |  |
Perpetual license | 2 |  |  | 9 |  |  |  |  |
Total cost of revenue | 102,450 |  |  | 94,658 |  |  |  |  |
Gross profit | 373,183 |  |  | 235,489 |  |  |  |  |
Operating expenses |  |  |  |  |  |  |
Selling and marketing | 138,069 |  |  | 127,695 |  |  |  |  |
Research and development | 74,286 |  |  | 72,113 |  |  |  |  |
General and administrative | 33,828 |  |  | 23,527 |  |  |  |  |
Litigation settlement, net of recoveries | — |  |  | 32,403 |  |  |  |  |
Restructuring | 11 |  |  | 163 |  |  |  |  |
Total operating expenses | 246,194 |  |  | 255,901 |  |  |  |  |
Income (loss) from operations | 126,989 |  |  | (20,412) |  |  |  |  |
Foreign currency transaction (loss) | (5,325) |  |  | (3,262) |  |  |  |  |
Interest income | 5,335 |  |  | 5,281 |  |  |  |  |
Interest expense | (1,027) |  |  | (1,752) |  |  |  |  |
(Loss) income on capped call transactions | (223) |  |  | 3,299 |  |  |  |  |
Other income, net | 561 |  |  | 1,684 |  |  |  |  |
Income (loss) before provision for (benefit from) income taxes | 126,310 |  |  | (15,162) |  |  |  |  |
Provision for (benefit from) income taxes | 40,888 |  |  | (3,038) |  |  |  |  |
Net income (loss) | $ | 85,422 |  |  | $ | (12,124) |  |  |  |  |
Earnings (loss) per share |  |  |  |  |  |  |
Basic | $ | 0.99 |  |  | $ | (0.14) |  |  |  |  |
Diluted | $ | 0.91 |  |  | $ | (0.14) |  |  |  |  |
Weighted-average number of common shares outstanding |  |  |  |  |  |  |
Basic | 85,902 |  |  | 84,266 |  |  |  |  |
Diluted | 94,413 |  |  | 84,266 |  |  |  |  |

See notes to unaudited condensed consolidated financial statements.
4

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands)
| Three Months Ended March 31, |  |
| 2025 |  | 2024 |  |  |  |
Net income (loss) | $ | 85,422 |  |  | $ | (12,124) |  |  |  |  |
Other comprehensive income (loss), net of tax |  |  |  |  |  |  |
Unrealized (loss) on available-for-sale securities | (262) |  |  | (746) |  |  |  |  |
Foreign currency translation adjustments | 8,810 |  |  | (3,427) |  |  |  |  |
Total other comprehensive income (loss), net of tax | 8,548 |  |  | (4,173) |  |  |  |  |
Comprehensive income (loss) | $ | 93,970 |  |  | $ | (16,297) |  |  |  |  |

See notes to unaudited condensed consolidated financial statements.
5

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except per share amounts)
| Common Stock |  | Additional paid-in capital |  | Retained earnings |  | Accumulated other comprehensive (loss) |  | Total stockholders’ equity
| Number of shares |  | Amount |  |  |  |
December 31, 2023 | 83,840 |  |  | $ | 838 |  |  | $ | 379,584 |  |  | $ | (8,705) |  |  | $ | (17,879) |  |  | $ | 353,838 |
Issuance of common stock for stock compensation plans | 1,139 |  |  | 12 |  |  | 18,644 |  |  | — |  |  | — |  |  | 18,656 |
Issuance of common stock under the employee stock purchase plan | 32 |  |  | — |  |  | 1,758 |  |  | — |  |  | — |  |  | 1,758 |
Stock-based compensation | — |  |  | — |  |  | 34,781 |  |  | — |  |  | — |  |  | 34,781 |
Cash dividends declared ($0.03 per share) | — |  |  | — |  |  | (2,550) |  |  | — |  |  | — |  |  | (2,550) |
Other comprehensive (loss) | — |  |  | — |  |  | — |  |  | — |  |  | (4,173) |  |  | (4,173) |
Net (loss) | — |  |  | — |  |  | — |  |  | (12,124) |  |  | — |  |  | (12,124) |
March 31, 2024 | 85,011 |  |  | $ | 850 |  |  | $ | 432,217 |  |  | $ | (20,829) |  |  | $ | (22,052) |  |  | $ | 390,186 |
December 31, 2024 | 86,112 |  |  | $ | 861 |  |  | $ | 526,963 |  |  | $ | 87,901 |  |  | $ | (30,245) |  |  | $ | 585,480 |
Repurchase of common stock | (1,460) |  |  | (15) |  |  | (118,689) |  |  | — |  |  | — |  |  | (118,704) |
Issuance of common stock for stock compensation plans | 878 |  |  | 9 |  |  | 9,745 |  |  | — |  |  | — |  |  | 9,754 |
Issuance of common stock under the employee stock purchase plan | 32 |  |  | 1 |  |  | 1,910 |  |  | — |  |  | — |  |  | 1,911 |
Stock-based compensation | — |  |  | — |  |  | 41,425 |  |  | — |  |  | — |  |  | 41,425 |
Cash dividends declared ($0.03 per share) | — |  |  | — |  |  | — |  |  | (2,567) |  |  | — |  |  | (2,567) |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | 8,548 |  |  | 8,548 |
Net income | — |  |  | — |  |  | — |  |  | 85,422 |  |  | — |  |  | 85,422 |
March 31, 2025 | 85,562 |  |  | $ | 856 |  |  | $ | 461,354 |  |  | $ | 170,756 |  |  | $ | (21,697) |  |  | $ | 611,269 |

See notes to unaudited condensed consolidated financial statements.
6

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
| Three Months Ended March 31,
| 2025 |  | 2024
Operating activities |  |  |
Net income (loss) | $ | 85,422 |  |  | $ | (12,124) |
Adjustments to reconcile net income (loss) to cash provided by operating activities |  |  |
Stock-based compensation | 41,425 |  |  | 34,781 |
Amortization of deferred commissions | 18,504 |  |  | 17,282 |
Amortization of intangible assets and depreciation | 3,137 |  |  | 4,254 |
Amortization of right-of-use lease assets | 2,826 |  |  | 3,472 |
Foreign currency transaction loss | 5,325 |  |  | 3,262 |
Loss (gain) on capped call transactions | 223 |  |  | (3,299) |
Deferred income taxes | 179 |  |  | (646) |
(Accretion) of investments | (1,526) |  |  | (2,612) |
(Gain) on investments | (751) |  |  | (1,628) |
Other non-cash | 1,067 |  |  | 726 |
Change in operating assets and liabilities, net | 48,397 |  |  | 136,678 |
Cash provided by operating activities | 204,228 |  |  | 180,146 |
Investing activities |  |  |
Purchases of investments | (69,318) |  |  | (161,438) |
Proceeds from maturities and called investments | 324,596 |  |  | 29,643 |
Sales of investments | 8,497 |  |  | — |
Investment in property and equipment | (1,880) |  |  | (604) |
Cash provided by (used in) investing activities | 261,895 |  |  | (132,399) |
Financing activities |  |  |
Repurchases of convertible senior notes | (467,864) |  |  | — |
Dividend payments to stockholders | (2,583) |  |  | (2,515) |
Proceeds from employee stock plans | 13,969 |  |  | 22,419 |
Common stock repurchases for tax withholdings for net settlement of equity awards | (2,304) |  |  | (2,005) |
Common stock repurchases under stock repurchase program | (117,204) |  |  | — |
Cash (used in) provided by financing activities | (575,986) |  |  | 17,899 |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 3,570 |  |  | (2,803) |
Net (decrease) increase in cash, cash equivalents, and restricted cash | (106,293) |  |  | 62,843 |
Cash, cash equivalents, and restricted cash, beginning of period | 341,529 |  |  | 232,827 |
Cash, cash equivalents, and restricted cash, end of period | $ | 235,236 |  |  | $ | 295,670 |
Cash and cash equivalents | $ | 231,129 |  |  | $ | 291,905 |
Restricted cash included in other current assets | 49 |  |  | 775 |
Restricted cash included in other long-term assets | 4,058 |  |  | 2,990 |
Total cash, cash equivalents, and restricted cash | $ | 235,236 |  |  | $ | 295,670 |

See notes to unaudited condensed consolidated financial statements.
7

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2024.
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.
All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented do not necessarily indicate the expected results for fiscal year 2025.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 includes expanded income tax rate reconciliation disclosures, a disaggregation of income taxes paid, and other expanded disclosures. ASU 2023-09 will be effective for the Company for the year ending December 31, 2025. The Company expects the adoption to result in disclosure changes only.
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU “2024-03”). Among other items, the requirements include expanded disclosures around employee compensation and selling expenses. ASU 2024-03 will be effective for the Company for the year ending December 31, 2027. The Company is still evaluating the impact of this new guidance on its consolidated financial statements but expects the adoption to result in disclosure changes only.
NOTE 3. MARKETABLE SECURITIES

| March 31, 2025 |  | December 31, 2024
(in thousands) | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value |  | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
Government debt | $ | 12,317 |  |  | $ | 2 |  |  | $ | (10) |  |  | $ | 12,309 |  |  | $ | 11,851 |  |  | $ | 1 |  |  | $ | (19) |  |  | $ | 11,833 |
Corporate debt | 128,184 |  |  | 146 |  |  | (32) |  |  | 128,298 |  |  | 391,097 |  |  | 63 |  |  | (123) |  |  | 391,037 |
| $ | 140,501 |  |  | $ | 148 |  |  | $ | (42) |  |  | $ | 140,607 |  |  | $ | 402,948 |  |  | $ | 64 |  |  | $ | (142) |  |  | $ | 402,870 |

As of March 31, 2025, marketable securities’ maturities ranged from April 2025 to March 2028, with a weighted-average remaining maturity of 1.4 years.
NOTE 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables

(in thousands) | March 31, 2025 |  | December 31, 2024
Accounts receivable, net | $ | 202,869 |  |  | $ | 305,468 |
Unbilled receivables, net | 179,093 |  |  | 173,085 |
Long-term unbilled receivables, net | 98,251 |  |  | 61,407 |
| $ | 480,213 |  |  | $ | 539,960 |

Unbilled receivables
Unbilled receivables are client-committed amounts for which revenue recognition precedes billing. Billing is solely subject to the passage of time.
Unbilled receivables by expected collection date:

(Dollars in thousands) | March 31, 2025
1 year or less | $ | 179,093 |  | 65 | %
1-2 years | 59,265 |  | 21 | %
2-5 years | 38,986 |  | 14 | %
| $ | 277,344 |  | 100 | %

8

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Unbilled receivables by contract effective date:

(Dollars in thousands) | March 31, 2025
2025 | $ | 87,964 |  | 32 | %
2024 | 109,309 |  | 39 | %
2023 | 64,889 |  | 23 | %
2022 | 8,227 |  | 3 | %
2021 and prior | 6,955 |  | 3 | %
| $ | 277,344 |  | 100 | %

Major clients
Clients that represented 10% or more of the Company’s total accounts receivable and unbilled receivables:

| March 31, 2025 |  | December 31, 2024
Client A |  |  |
Accounts receivable | * |  | 20 | %
Unbilled receivables | * |  | — | %
Total receivables | * |  | 11 | %
Client B |  |  |
Accounts receivable | — | % |  | *
Unbilled receivables | 18 | % |  | *
Total receivables | 11 | % |  | *

*Client accounted for less than 10% of total accounts receivable and unbilled receivables.
Contract assets
Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.

(in thousands) | March 31, 2025 |  | December 31, 2024
Contract assets (1) | $ | 14,620 |  |  | $ | 13,498 |
Long-term contract assets (2) | 23,009 |  |  | 18,321 |
| $ | 37,629 |  |  | $ | 31,819 |

(1) Included in other current assets.
(2) Included in other long-term assets.
Deferred revenue
Deferred revenue consists of billings made and payments received in advance of revenue recognition.

(in thousands) | March 31, 2025 |  | December 31, 2024
Deferred revenue | $ | 469,298 |  |  | $ | 423,910 |
Long-term deferred revenue (1) | 4,096 |  |  | 2,121 |
| $ | 473,394 |  |  | $ | 426,031 |

(1) Included in other long-term liabilities.
The change in deferred revenue during the three months ended March 31, 2025 was primarily due to new billings in advance of revenue recognition and $190.2 million of revenue recognized during the period included in deferred revenue as of December 31, 2024.
NOTE 5. DEFERRED COMMISSIONS

(in thousands) | March 31, 2025 |  | December 31, 2024
Deferred commissions (1) | $ | 106,674 |  |  | $ | 105,405 |

(1) Included in other long-term assets.

|  |  | Three Months Ended March 31,
(in thousands) |  |  |  |  | 2025 |  | 2024
Amortization of deferred commissions (1) |  |  |  |  | $ | 18,504 |  |  | $ | 17,282 |

(1) Included in selling and marketing expenses.
9

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6. GOODWILL AND OTHER INTANGIBLES
Goodwill

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
January 1, | $ | 81,113 |  |  | $ | 81,611 |
Currency translation adjustments | 73 |  |  | (144) |
March 31, | $ | 81,186 |  |  | $ | 81,467 |

Intangibles
Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.

|  |  | March 31, 2025
(in thousands) | Useful Lives |  | Cost |  | Accumulated Amortization |  | Net Book Value (1)
Client-related | 4-10 years |  | $ | 63,130 |  |  | $ | (61,760) |  |  | $ | 1,370 |
Technology | 2-10 years |  | 68,115 |  |  | (66,353) |  |  | 1,762 |
Other | 1-5 years |  | 5,361 |  |  | (5,361) |  |  | — |
|  |  | $ | 136,606 |  |  | $ | (133,474) |  |  | $ | 3,132 |

(1) Included in other long-term assets.

|  |  | December 31, 2024
(in thousands) | Useful Lives |  | Cost |  | Accumulated Amortization |  | Net Book Value (1)
Client-related | 4-10 years |  | $ | 63,107 |  |  | $ | (61,395) |  |  | $ | 1,712 |
Technology | 2-10 years |  | 68,115 |  |  | (65,995) |  |  | 2,120 |
Other | 1-5 years |  | 5,361 |  |  | (5,361) |  |  | — |
|  |  | $ | 136,583 |  |  | $ | (132,751) |  |  | $ | 3,832 |

(1) Included in other long-term assets.
Future estimated amortization of intangible assets:

(in thousands) | March 31, 2025
Remainder of 2025 | $ | 1,930 |
2026 | 874 |
2027 | 328 |
| $ | 3,132 |

Amortization of intangible assets:

|  |  | Three Months Ended March 31,
(in thousands) |  |  |  |  | 2025 |  | 2024
Cost of revenue |  |  |  |  | $ | 358 |  |  | $ | 621 |
Selling and marketing |  |  |  |  | 343 |  |  | 343 |
|  |  |  |  | $ | 701 |  |  | $ | 964 |

NOTE 7. OTHER ASSETS AND LIABILITIES
Other current assets

(in thousands) | March 31, 2025 |  | December 31, 2024
Prepaid expenses | $ | 47,388 |  |  | $ | 38,155 |
Income tax receivables | 26,435 |  |  | 58,359 |
Contract assets | 14,620 |  |  | 13,498 |
Indirect tax receivable | 1,919 |  |  | 2,488 |
Capped call transactions | — |  |  | 223 |
Restricted cash | 49 |  |  | 98 |
Other | 2,383 |  |  | 2,357 |
| $ | 92,794 |  |  | $ | 115,178 |

10

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other long-term assets

(in thousands) | March 31, 2025 |  | December 31, 2024
Deferred commissions | $ | 106,674 |  |  | $ | 105,405 |
Right of use assets | 60,014 |  |  | 62,429 |
Property and equipment | 40,784 |  |  | 41,806 |
Venture investments | 21,715 |  |  | 21,234 |
Contract assets | 23,009 |  |  | 18,321 |
Income taxes receivable | 14,663 |  |  | 13,299 |
Intangible assets | 3,132 |  |  | 3,832 |
Deferred income taxes | 4,236 |  |  | 4,268 |
Restricted cash | 4,058 |  |  | 4,328 |
Other | 17,736 |  |  | 17,127 |
| $ | 296,021 |  |  | $ | 292,049 |

Accrued expenses

(in thousands) | March 31, 2025 |  | December 31, 2024
Cloud hosting | $ | 14,008 |  |  | $ | 1,802 |
Outside professional services | 14,446 |  |  | 10,639 |
Marketing and sales program | 3,551 |  |  | 2,150 |
Income and other taxes | 5,480 |  |  | 5,055 |
Employee related | 4,618 |  |  | 4,833 |
Repurchases of common stock unsettled | 3,000 |  |  | 1,500 |
Other | 4,772 |  |  | 5,565 |
| $ | 49,875 |  |  | $ | 31,544 |

Other current liabilities

(in thousands) | March 31, 2025 |  | December 31, 2024
Operating lease liabilities | $ | 14,149 |  |  | $ | 14,551 |
Dividends payable | 2,567 |  |  | 2,583 |
Other | 679 |  |  | 1,732 |
| $ | 17,395 |  |  | $ | 18,866 |

Other long-term liabilities

(in thousands) | March 31, 2025 |  | December 31, 2024
Deferred revenue | $ | 4,096 |  |  | $ | 2,121 |
Income taxes payable | 20,785 |  |  | 15,956 |
Other | 11,547 |  |  | 11,011 |
| $ | 36,428 |  |  | $ | 29,088 |

NOTE 8. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and assess performance.
The Company derives substantially all of its revenue from the sale and support of one group of similar products and services – software that provides case management, business process management, and real-time decisioning solutions to improve customer engagement and operational excellence in the enterprise applications market. To assess performance, the Company’s CODM, the Chief Executive Officer, reviews financial information on a consolidated basis. Therefore, the Company determined it has one operating segment and one reportable segment. The accounting policies of the Company’s operating segment are the same as those described in "Note 2. Significant Accounting Policies" included in the Annual Report on Form 10-K for the year ended December 31, 2024. The CODM uses consolidated net income (loss) to set financial performance targets, assess performance, and make expense allocation decisions.
11

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
Total revenue | $ | 475,633 |  |  | $ | 330,147 |
Total cost of revenue | 102,450 |  |  | 94,658 |
Selling | 119,118 |  |  | 110,089 |
Marketing | 18,951 |  |  | 17,606 |
Research and development | 74,286 |  |  | 72,113 |
General and administrative | 33,828 |  |  | 23,527 |
Other segment items, net (1) | 690 |  |  | 27,316 |
Provision for (benefit from) income taxes | 40,888 |  |  | (3,038) |
Net income (loss) | $ | 85,422 |  |  | $ | (12,124) |

(1) Includes Litigation settlement, net of recoveries, Restructuring, Foreign currency transaction (loss) gain, Interest income, Interest expense, (Loss) income on capped call transactions, and Other income, net.
Long-lived assets related to the Company’s U.S. and international operations consist of property and equipment, which are included in Other long-term assets in the Company’s consolidated balance sheet:

(in thousands) | March 31, 2025 |  | December 31, 2024
U.S. | $ | 36,854 |  |  | 90 | % |  | $ | 37,405 |  |  | 89 | %
International | 3,930 |  |  | 10 | % |  | 4,401 |  |  | 11 | %
| $ | 40,784 |  |  | 100 | % |  | $ | 41,806 |  |  | 100 | %

NOTE 9. LEASES
On January 1, 2025, the Company relocated its corporate headquarters to 225 Wyman Street, Waltham, Massachusetts. A copy of the lease is filed as Exhibit 10.30 to our Annual Report on Form 10-K for the year ended December 31, 2024.
Expense

| Three Months Ended March 31, |  |
(in thousands) | 2025 |  | 2024 |  |  |  |
Fixed lease costs | $ | 3,776 |  |  | $ | 4,262 |  |  |  |  |
Short-term lease costs | 487 |  |  | 543 |  |  |  |  |
Variable lease costs | 1,750 |  |  | 1,609 |  |  |  |  |
| $ | 6,013 |  |  | $ | 6,414 |  |  |  |  |

Right of use assets and lease liabilities

(in thousands) | March 31, 2025 |  | December 31, 2024
Right of use assets (1) | $ | 60,014 |  |  | $ | 62,429 |
Operating lease liabilities (2) | $ | 14,149 |  |  | $ | 14,551 |
Long-term operating lease liabilities | $ | 65,117 |  |  | $ | 67,647 |

(1) Included in other long-term assets.
(2) Included in other current liabilities.
Weighted-average remaining lease term and discount rate for the Company’s leases were:

| March 31, 2025 |  | December 31, 2024
Weighted-average remaining lease term | 6.1 years |  | 6.2 years
Weighted-average discount rate (1) | 4.8 | % |  | 4.8 | %

(1) The rates implicit in the Company’s leases are not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over the lease term in a similar economic environment.
12

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Maturities of lease liabilities:

(in thousands) | March 31, 2025
Remainder of 2025 | $ | 13,689 |
2026 | 15,589 |
2027 | 14,104 |
2028 | 13,479 |
2029 | 10,813 |
2030 | 9,216 |
Thereafter | 14,450 |
Total lease payments | 91,340 |
Less: imputed interest (1) | (12,074) |
| $ | 79,266 |

(1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated due to a lease reassessment event.
Cash flow information

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
Cash paid for operating leases, net of tenant improvement allowances | $ | 4,581 |  |  | $ | 5,069 |
Right of use assets recognized for new leases and amendments (non-cash) | $ | — |  |  | $ | 1,095 |

NOTE 10. DEBT
Convertible senior notes and capped calls
Convertible senior notes
In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal of $600 million, due March 1, 2025, in a private placement. No principal payments were due before maturity. The Notes accrued interest at an annual rate of 0.75%, paid semi-annually in arrears on March 1 and September 1, beginning September 1, 2020. The remaining outstanding principal balance on the Notes and accrued interest totaling $469.6 million was repaid in its entirety at maturity during the three months ended March 31, 2025.
Conversion rights
The conversion rate was 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of $135.05 per share of common stock.
Carrying value of the Notes:

(in thousands) | March 31, 2025 |  | December 31, 2024
Principal | $ | — |  |  | $ | 467,864 |
Unamortized issuance costs | — |  |  | (394) |
Convertible senior notes, net | $ | — |  |  | $ | 467,470 |

Interest expense related to the Notes:

| Three Months Ended March 31, |  |
(in thousands) | 2025 |  | 2024 |  |  |  |
Contractual interest expense (0.75% coupon) | $ | 595 |  |  | $ | 942 |  |  |  |  |
Amortization of issuance costs | 394 |  |  | 617 |  |  |  |  |
| $ | 989 |  |  | $ | 1,559 |  |  |  |  |

13

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The average interest rate on the Notes in the three months ended March 31, 2025 and 2024 was 1.2%.
Capped call transactions
In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions initially covered approximately 4.4 million shares (representing the number of shares for which the Notes were initially convertible) of the Company’s common stock. As of December 31, 2024, Capped Call Transactions covering approximately 3.5 million shares were outstanding, and expired upon maturity of the Notes during the three months ended March 31, 2025.
The Capped Call Transactions were expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The cap price of the Capped Call Transactions was subject to adjustment upon specified extraordinary events affecting the Company, including mergers and tender offers.
The Capped Call Transactions were accounted for as derivative instruments and did not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value calculated following the governing documents may not represent a fair value measurement. The Capped Call Transactions were remeasured to fair value each reporting period, resulting in a non-operating gain or loss.
Change in capped call transactions:

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
January 1, | $ | 223 |  |  | $ | 893 |
Fair value adjustment | (223) |  |  | 3,299 |
March 31, | $ | — |  |  | $ | 4,192 |

Credit facility
In November 2019, and as since amended, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. The Company may use borrowings for general corporate purposes and to finance working capital needs. Subject to specific conditions and the agreement of the financial institutions lending the additional amount, the aggregate commitment may be increased to $200 million. The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. Beginning with the fiscal quarter ended March 31, 2024, the Company must maintain a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0. Effective as of February 4, 2025, the Credit Facility was amended to extend the expiration date to February 4, 2027.
As of March 31, 2025 and December 31, 2024, the Company had $27.3 million in outstanding letters of credit under the Credit Facility, reducing available borrowing capacity, but no outstanding cash borrowings.
NOTE 11. RESTRUCTURING
The Company has undertaken the following restructuring activities as it optimizes its go-to-market strategy and reassesses its office space needs:

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
Employee severance and related benefits | $ | (3) |  |  | $ | 384 |
Office space reductions (1) | 14 |  |  | (221) |
Restructuring expense | $ | 11 |  |  | $ | 163 |

(1) These primarily relate to non-cash operating lease adjustments.
Restructuring activity:
Accrued employee severance and related benefits:
14

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
January 1, | $ | 2,000 |  |  | $ | 8,095 |
(Benefit) costs incurred | (3) |  |  | 384 |
Cash disbursements | (1,184) |  |  | (3,347) |
Currency translation adjustments | 53 |  |  | (131) |
March 31, (1) | $ | 866 |  |  | $ | 5,001 |

(1) Included in accrued compensation and related expenses.
NOTE 12. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis
The Company records its cash equivalents, marketable securities, capped call transactions, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.
As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:
•Level 1 - observable inputs, such as quoted prices in active markets for identical assets or liabilities;
•Level 2 - significant other inputs that are observable either directly or indirectly; and
•Level 3 - significant unobservable inputs with little or no market data, which require the Company to develop its own assumptions.
This hierarchy requires the Company to use observable market data when available and minimize unobservable inputs when determining fair value.
The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation model uses various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield. The Company applied judgment when determining expected volatility. The Company considered the underlying equity security’s historical and implied volatility levels. The Capped Call Transactions expired upon maturity of the Notes during the three months ended March 31, 2025. The Company’s venture investments are recorded at fair value based on multiple valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.
Assets and liabilities measured at fair value on a recurring basis:

| March 31, 2025 |  | December 31, 2024
(in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Cash equivalents | $ | 6,606 |  |  | $ | 7,482 |  |  | $ | — |  |  | $ | 14,088 |  |  | $ | 5,318 |  |  | $ | 148,926 |  |  | $ | — |  |  | $ | 154,244 |
Marketable securities | $ | — |  |  | $ | 140,607 |  |  | $ | — |  |  | $ | 140,607 |  |  | $ | — |  |  | $ | 402,870 |  |  | $ | — |  |  | $ | 402,870 |
Capped Call Transactions | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 223 |  |  | $ | — |  |  | $ | 223 |
Venture investments | $ | — |  |  | $ | — |  |  | $ | 21,715 |  |  | $ | 21,715 |  |  | $ | — |  |  | $ | — |  |  | $ | 21,234 |  |  | $ | 21,234 |

Changes in venture investments:

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
January 1, | $ | 21,234 |  |  | $ | 19,450 |
New investments | 200 |  |  | 250 |
Changes in foreign exchange rates | 65 |  |  | (20) |
Changes in fair value: |  |  |
included in other income, net | 751 |  |  | 1,628 |
included in other comprehensive income (loss) | (535) |  |  | (362) |
March 31, | $ | 21,715 |  |  | $ | 20,946 |

The carrying value of certain financial instruments, including receivables and accounts payable, approximates fair value due to their short maturities.
15

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fair value of the Convertible Senior Notes
The fair value of the Notes outstanding (including the embedded conversion feature) was $463.9 million as of December 31, 2024. The Notes were repaid in full at maturity during the three months ended March 31, 2025.
The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy.
NOTE 13. REVENUE
Geographic revenue
Revenues by geography are determined based on client location:

| Three Months Ended March 31, |  |
(Dollars in thousands) | 2025 |  | 2024 |  |  |  |
U.S. | $ | 269,192 |  | 56 | % |  | $ | 180,983 |  | 54 | % |  |  |  |  |  |
Other Americas | 33,741 |  | 7 | % |  | 21,786 |  | 7 | % |  |  |  |  |  |
United Kingdom (“U.K.”) | 40,742 |  | 9 | % |  | 32,117 |  | 10 | % |  |  |  |  |  |
Europe (excluding U.K.), Middle East, and Africa | 74,056 |  | 16 | % |  | 61,847 |  | 19 | % |  |  |  |  |  |
Asia-Pacific | 57,902 |  | 12 | % |  | 33,414 |  | 10 | % |  |  |  |  |  |
| $ | 475,633 |  | 100 | % |  | $ | 330,147 |  | 100 | % |  |  |  |  |  |

Revenue streams

| Three Months Ended March 31, |  |
(in thousands) | 2025 |  | 2024 |  |  |  |
Pega Cloud | $ | 151,123 |  |  | $ | 130,902 |  |  |  |  |
Maintenance | 76,368 |  |  | 81,001 |  |  |  |  |
Consulting | 60,421 |  |  | 54,047 |  |  |  |  |
Revenue recognized over time | 287,912 |  |  | 265,950 |  |  |  |  |
Subscription license | 186,555 |  |  | 63,338 |  |  |  |  |
Perpetual license | 1,166 |  |  | 859 |  |  |  |  |
Revenue recognized at a point in time | 187,721 |  |  | 64,197 |  |  |  |  |
Total revenue | $ | 475,633 |  |  | $ | 330,147 |  |  |  |  |

| Three Months Ended March 31, |  |
(in thousands) | 2025 |  | 2024 |  |  |  |
Pega Cloud | $ | 151,123 |  |  | $ | 130,902 |  |  |  |  |
Maintenance | 76,368 |  |  | 81,001 |  |  |  |  |
Subscription services | 227,491 |  |  | 211,903 |  |  |  |  |
Subscription license | 186,555 |  |  | 63,338 |  |  |  |  |
Subscription | 414,046 |  |  | 275,241 |  |  |  |  |
Consulting | 60,421 |  |  | 54,047 |  |  |  |  |
Perpetual license | 1,166 |  |  | 859 |  |  |  |  |
Total revenue | $ | 475,633 |  |  | $ | 330,147 |  |  |  |  |

16

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Remaining performance obligations ("Backlog")
Expected future revenue from existing non-cancellable contracts:
As of March 31, 2025:

(Dollars in thousands) | Subscription services |  | Subscription license |  | Perpetual license |  | Consulting |  | Total
Pega Cloud |  | Maintenance |  |  |  |
1 year or less | $ | 572,341 |  |  | $ | 229,180 |  |  | $ | 33,202 |  |  | $ | 317 |  |  | $ | 45,320 |  |  | $ | 880,360 |  | 50 | %
1-2 years | 331,572 |  |  | 73,500 |  |  | 3,718 |  |  | — |  |  | 2,291 |  |  | 411,081 |  | 24 | %
2-3 years | 161,259 |  |  | 37,779 |  |  | 731 |  |  | — |  |  | 144 |  |  | 199,913 |  | 12 | %
Greater than 3 years | 185,939 |  |  | 43,939 |  |  | 7,215 |  |  | — |  |  | 52 |  |  | 237,145 |  | 14 | %
| $ | 1,251,111 |  |  | $ | 384,398 |  |  | $ | 44,866 |  |  | $ | 317 |  |  | $ | 47,807 |  |  | $ | 1,728,499 |  | 100 | %

As of March 31, 2024:

(Dollars in thousands) | Subscription services |  | Subscription license |  | Perpetual license |  | Consulting |  | Total
Pega Cloud |  | Maintenance |  |  |  |
1 year or less | $ | 461,928 |  |  | $ | 225,598 |  |  | $ | 33,985 |  |  | $ | 2,727 |  |  | $ | 34,716 |  |  | $ | 758,954 |  | 53 | %
1-2 years | 292,787 |  |  | 65,605 |  |  | 10,008 |  |  | — |  |  | 1,604 |  |  | 370,004 |  | 26 | %
2-3 years | 149,797 |  |  | 32,307 |  |  | 2,903 |  |  | — |  |  | 2,428 |  |  | 187,435 |  | 13 | %
Greater than 3 years | 86,601 |  |  | 21,650 |  |  | 98 |  |  | — |  |  | — |  |  | 108,349 |  | 8 | %
| $ | 991,113 |  |  | $ | 345,160 |  |  | $ | 46,994 |  |  | $ | 2,727 |  |  | $ | 38,748 |  |  | $ | 1,424,742 |  | 100 | %

Major Clients
Clients accounting for 10% or more of the Company’s revenue:

| Three Months Ended March 31, |  |
(Dollars in thousands) | 2025 |  | 2024 |  |  |  |
Total revenue | $ | 475,633 |  |  | $ | 330,147 |  |  |  |  |
Client B | 15 | % |  | * |  |  |  |

*Client accounted for less than 10% of total revenues.
NOTE 14. STOCKHOLDERS' EQUITY
Stock-based Compensation Expense

| Three Months Ended March 31, |  |
(in thousands) | 2025 |  | 2024 |  |  |  |
Cost of revenue | $ | 7,823 |  |  | $ | 6,572 |  |  |  |  |
Selling and marketing | 15,781 |  |  | 13,888 |  |  |  |  |
Research and development | 8,385 |  |  | 7,646 |  |  |  |  |
General and administrative | 9,436 |  |  | 6,675 |  |  |  |  |
| $ | 41,425 |  |  | $ | 34,781 |  |  |  |  |
Income tax benefit | $ | (587) |  |  | $ | (311) |  |  |  |  |

As of March 31, 2025, the Company had $161.9 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.8 years.
Grants

| Three Months Ended March 31, 2025
(in thousands) | Quantity |  | Total Fair Value
Restricted stock units (1) | 938 |  |  | $ | 73,191 |
Non-qualified stock options | 1,507 |  |  | $ | 47,157 |
Common stock | 1 |  |  | $ | 52 |

(1) Includes units issued when employees elect to receive 50% of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash.
17

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock repurchase program
On October 22, 2024, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2025 to December 31, 2025 and increased the authorized repurchase by $250 million to $310 million as of that date.
During the three months ended March 31, 2025, the Company repurchased 1.5 million of its common stock for $118.7 million at an average price per share of $81.28. All purchases under this program have been made on the open market.
On April 22, 2025, the Company’s Board of Directors further extended the expiration date of the share repurchase program from December 31, 2025 to June 30, 2026 and increased the authorized repurchase by $500 million.
Proposed Stock Split
On February 12, 2025, the Company’s Board of Directors approved a two-for-one forward stock split of the Company’s common stock, to be effected as a stock dividend. Effectiveness of the stock split is subject to approval by the Company’s stockholders at the June 17, 2025 annual meeting of stockholders of a proportionate increase in the Company’s authorized shares of common stock. The Company’s financial results in this Quarterly Report do not include any impact of the stock split.
NOTE 15. INCOME TAXES
Effective income tax rate

|  |  | Three Months Ended March 31,
(Dollars in thousands) |  |  |  |  | 2025 |  | 2024
Provision for (benefit from) income taxes |  |  |  |  | $ | 40,888 |  |  | $ | (3,038) |
Effective income tax rate |  |  |  |  | 32 | % |  | 20 | %

The Company’s effective income tax rate for the three months ended March 31, 2025, is impacted by the valuation allowance on its deferred tax assets in the U.S. and U.K. as well as the jurisdictional mix and timing of the actual compared to projected earnings.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. Future realization of deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods. The Company’s deferred tax valuation allowance requires significant judgment and has uncertainties, including assumptions about future taxable income based on historical and projected information. In assessing the Company’s ability to realize its net deferred tax assets, the Company considered various factors including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial results to determine whether it is more likely than not that some portion or all of its net deferred tax assets will not be realized.
The Company intends to maintain a valuation allowance on its U.S. and U.K. net deferred tax assets until positive sufficient evidence exists to support their realization.
Given the Company’s recent earnings, the Company believes that there is a reasonable possibility that in a future period sufficient positive evidence may become available to allow the Company to reach a conclusion that a substantial portion of the valuation allowance will no longer be needed. However, the exact timing and amount of the valuation allowance release are subject to significant judgement. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.
18

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and Notes.
Calculation of earnings (loss) per share:

| Three Months Ended March 31, |  |
(in thousands, except per share amounts) | 2025 |  | 2024 |  |  |  |
Net income (loss) | $ | 85,422 |  |  | $ | (12,124) |  |  |  |  |
Weighted-average common shares outstanding | 85,902 |  |  | 84,266 |  |  |  |  |
Earnings (loss) per share, basic | $ | 0.99 |  |  | $ | (0.14) |  |  |  |  |
Net income (loss) | $ | 85,422 |  |  | $ | (12,124) |  |  |  |  |
Notes - interest expense, net of tax | 742 |  |  | — |  |  |  |  |
Numerator for diluted EPS | $ | 86,164 |  |  | $ | (12,124) |  |  |  |  |
Weighted-average effect of dilutive securities: |  |  |  |  |  |  |
Notes | 2,425 |  |  | — |  |  |  |  |
Stock options | 4,305 |  |  | — |  |  |  |  |
RSUs | 1,781 |  |  | — |  |  |  |  |
Effect of dilutive securities | 8,511 |  |  | — |  |  |  |  |
Weighted-average common shares outstanding, assuming dilution (1) (2) (3) | 94,413 |  |  | 84,266 |  |  |  |  |
Earnings (loss) per share, diluted | $ | 0.91 |  |  | $ | (0.14) |  |  |  |  |
Outstanding anti-dilutive stock options and RSUs (4) | 122 |  |  | 3,171 |  |  |  |  |

(1) All dilutive securities are excluded when their inclusion would be anti-dilutive.
(2) The weighted-average shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period.
(3) The Company’s Capped Call Transactions represented the equivalent number of shares of the Company’s common stock (representing the number of shares for which the Notes are convertible). The Capped Call Transactions are excluded from weighted-average common shares outstanding, assuming dilution, in all periods as their effect would be anti-dilutive.
(4) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted earnings (loss) per share. These awards may be dilutive in the future.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Commitments
See "Note 9. Leases" for additional information.
Legal proceedings
In addition to the matters below, the Company is or may become involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s business, including actions concerning contracts, intellectual property, employment, benefits, and securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.
In addition, as the Company is a party to ongoing litigation, it is at least reasonably possible that the Company’s estimates will change in the near term, and the effect may be material. The Company had no accrued losses for litigation for the below matters as of March 31, 2025 and December 31, 2024.
19

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Appian Corp. v. Pegasystems Inc. & Youyong Zou
The Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia (the “Court”) titled Appian Corp. v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). On May 9, 2022, the jury rendered its verdict finding that the Company had misappropriated one or more of Appian’s trade secrets, that the Company had violated the Virginia Computer Crimes Act, and that the trade secret misappropriation was willful and malicious. The jury awarded damages of $2,036,860,045 for trade secret misappropriation and $1.00 for violating the Virginia Computer Crimes Act. On September 15, 2022, the circuit court of Fairfax County entered judgment of $2,060,479,287, consisting of the damages previously awarded by the jury plus attorneys’ fees and costs, and stating that the judgment is subject to post-judgment interest at a rate of 6.0% per annum, from the date of the jury verdict (May 9, 2022) as to the amount of the jury verdict and from September 15, 2022 as to the amount of the award of attorneys’ fees and costs. On September 15, 2022, the Company filed a notice of appeal from the judgment. On September 29, 2022, the circuit court of Fairfax County approved a $25,000,000 letter of credit obtained by the Company to secure the judgment and entered an order suspending the judgment during the pendency of the Company’s appeal. A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and issued a written opinion on July 30, 2024. The Court of Appeals reversed the judgment on Appian’s Virginia Uniform Trade Secrets Act claim and ordered a new trial on that claim. Appian filed a petition for appeal with the Supreme Court of Virginia on August 29, 2024, and the Company filed a response to the petition on October 21, 2024. The Supreme Court of Virginia heard oral argument on February 11, 2025, and, on March 7, 2025, the Supreme Court of Virginia granted Appian’s petition for appeal and Pega’s assignments of cross-error. In the coming months, the parties will be filing briefs with the Supreme Court. There is no date for oral argument. Although it is not possible to predict timing, the entirety of the appeals process could potentially take years to complete. The Company continues to believe that it did not misappropriate any alleged trade secrets and that its sales of the Company’s products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets. The Company is unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resulting from the appellate proceedings.
PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell and Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell
On December 4, 2024, the shareholders representing approximately 3% of the settlement class that opted out of the court approved settlement in the class action matter captioned City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:22-cv-00578-LMB-IDD) (the “Class Action”) filed two lawsuits against the Company, the Company’s chief executive officer, and the Company’s chief operating and financial officer in the United States District Court for the District of Massachusetts. The first is captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-12999-WGY); the second is captioned PS Lit Recovery, LLC v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:24-cv-11220-WGY). The complaints, which are substantially similar, generally allege, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and that the individual defendants violated Section 20(a) of the Exchange Act, in each case by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The complaints also assert claims for common law fraud and negligent misrepresentation, and seek unspecified damages. The defendants moved to dismiss the complaints on March 13, 2025. The plaintiffs filed a brief in opposition to the motion to dismiss on April 10, 2025. The defendants’ reply brief in support of the motion to dismiss is due on April 24, 2025. The Court has scheduled a hearing on the motion to dismiss for April 28, 2025.
On February 26, 2025, the same shareholders filed two lawsuits against the Company, the Company’s chief executive officer, and the Company’s chief operating and financial officer in Massachusetts Superior Court. The first is captioned Eminence Fund Long Master, Ltd., Eminence Fund Master, Ltd., Eminence Fund II Master, LP, Eminence Partners Long II, LP, Eminence Fund Leveraged Master, Ltd., Eminence Partners, L.P., and Eminence Partners II, L.P. v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case No. 2584CV00541-BLS1); the second is captioned PS Lit Recovery, LLC v. Pegasystems, Inc., Alan Trefler, and Kenneth Stillwell (Case No. 2584CV00539-BLS1). The complaints, which are substantially similar, allege the same state law claims raised in the two federal lawsuits brought by the same plaintiffs in the United States District Court for the District of Massachusetts. On April 14, 2025, the court granted the parties’ joint stipulations to stay both cases pending the resolution of the parallel federal actions and ordered the plaintiffs to file periodic status reports regarding the federal cases showing cause why the state cases should remain open.
The Company is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits and there being no specified quantum of damages sought in the complaints.
20

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
In re Pegasystems Inc., Derivative Litigation
On November 21, 2022, a lawsuit was filed against the members of the Company’s board of directors, the Company’s chief operating and financial officer and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc. v. Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, Larry Weber, and Kenneth Stillwell, defendants, and Pegasystems Inc., nominal defendant (Case 1:22-cv-11985). The complaint generally alleges the defendants sold shares of the Company while in possession of material nonpublic information relating to (i) the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and (ii) alleged misconduct by Company employees alleged in that litigation. On April 28, 2023, a lawsuit was filed in the United States District Court for the District of Massachusetts by Dag Sagfors, derivatively on behalf of nominal defendant Pegasystems Inc., asserting breach of fiduciary duty and related claims relating to the Virginia Appian litigation against the same defendants as the Larkin lawsuit. On May 17, 2023, the Larkin and Sagfors cases were consolidated and a joint motion to stay the consolidated case is pending before the Court (“Consolidated Action”). The Company also has received confidential demand letters raising substantially the same allegations set forth in the foregoing derivative complaints. On April 12, 2023, the Company’s board of directors (other than Mr. Trefler, who recused himself), formed a committee consisting solely of independent directors, to review, analyze, and investigate the matters raised in the demands and to determine in good faith what actions (if any) are reasonably believed to be appropriate under similar circumstances and reasonably believed to be in the best interests of the Company in response to the demand letters. On December 4, 2024, the defendants moved to dismiss the complaint in the Consolidated Action. On December 17, 2024, the plaintiffs moved to voluntarily dismiss the Consolidated Action, and the Court granted the motion on December 18, 2024.
On February 7, 2025, the plaintiffs in the Consolidated Action filed a new complaint against the members of the Company’s board of directors, certain employees of the Company, and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin and Dag Sagfors, derivatively on behalf of nominal defendant Pegasystems Inc. v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Leon Trefler, Larry Weber, Kenneth Stillwell, Don Schuerman, Kerim Akgonul, and Benjamin Baril, defendants, and Pegasystems Inc., nominal defendant (Case 1:25-cv-10303). The complaint asserts against Defendants claims for breach of fiduciary duty, unjust enrichment, and violations of the Exchange Act relating to (i) the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above; (ii) alleged misconduct by Company employees alleged in that litigation; and the Class Action, described above. The defendants’ motion to dismiss is due on April 28, 2025.
On June 28, 2024, a lawsuit was filed against members of the Company’s board of directors, certain employees of the Company and the Company in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts, captioned John Dwyer and Ray Gerber, Plaintiffs, v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Leon Trefler, Don Schuerman, Kerim Akgonul, and Benjamin Baril, Defendants, and Pegasystems Inc., Nominal Defendant (Case 2484CV01734) (“Dwyer Action”). The complaint generally alleges the defendants breached their fiduciary duties in connection with alleged misconduct by Company employees alleged in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and alleges damages from the approximately $2 billion verdict in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, the settlement of the Class Action, and litigation costs from various proceedings. On October 18, 2024, the defendants served a motion to dismiss the complaint, which the defendants then withdrew on November 26, 2024 pending resolution of whether this complaint and the other derivative actions would be consolidated in Superior Court in Suffolk County, Massachusetts.
On November 22, 2024, a lawsuit was filed against members of the Company’s board of directors, certain employees of the Company and the Company in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts, captioned Jayne Birch and Robert Garfield, Plaintiffs, v. Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Leon Trefler, Kerim Akgonul, Don Schuerman, Leon Trefler, Douglas Kim, John Petronio, Benjamin Baril, and Kenneth Stillwell, Defendants, and Pegasystems Inc., Nominal Defendant (Case 2484CV03076-BLS-1) (“Birch Action”). The complaint generally alleges the defendants breached their fiduciary duties in connection with alleged misconduct by Company employees alleged in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and alleges damages from the approximately $2 billion verdict in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, the settlement of the Class Action, and litigation costs from various proceedings. The parties agreed on November 26, 2024 to suspend indefinitely the deadlines for any response to the complaint pending resolution of whether this complaint and the other derivative actions would be consolidated in the Superior Court in Suffolk County, Massachusetts.
On February 4, 2025, the parties to the Dwyer and Birch Actions filed a stipulation and proposed order in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts consolidating the two actions and setting a schedule for the filing of a consolidated complaint and any motion to dismiss. On February 12, 2025, an order was entered consolidating the Dwyer and Birch Actions and approving the schedule for the filing of a consolidated complaint and a motion to dismiss. On March 14, 2025, the plaintiffs filed a consolidated complaint in Case No. 2484CV01734. The consolidated complaint generally alleges the defendants breached their fiduciary duties in connection with alleged misconduct by Company employees alleged in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and in connection with the investigation conducted and the report issued by the Demand Review Committee of the Company’s board regarding the same. The defendants’ motion to dismiss is due on May 15, 2025. The court scheduled a hearing on the motion to dismiss for September 4, 2025.
21

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits and there being no specified quantum of damages sought in the complaints.
22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, 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 continued payment of our quarterly dividends;
•the timing of revenue recognition;
•variation in demand for our products and services, including among clients in the public sector;
•reliance on key personnel;
•reliance on third-party service providers, including hosting providers;
•compliance with our debt obligations and covenants;
•foreign currency exchange rates;
•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.;
•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, 2024, Part II of this Quarterly Report on Form 10-Q, and other filings we make with the U.S. Securities and Exchange Commission (“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 April 22, 2025.
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. With Pega, our 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 GenAI Blueprint TM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively.
23

Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, 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:
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) | March 31, 2024 |  | March 31, 2025 | Change |  | Constant Currency Change
Pega Cloud | $ | 570,356 |  |  | $ | 701,311 |  | $ | 130,955 |  | 23 | % |  | 23 | %
Maintenance | 313,550 |  |  | 298,422 |  | (15,128) |  | (5) | % |  | (5) | %
Subscription services | 883,906 |  |  | 999,733 |  | 115,827 |  | 13 | % |  | 13 | %
Subscription license | 389,431 |  |  | 445,677 |  | 56,246 |  | 14 | % |  | 14 | %
| $ | 1,273,337 |  |  | $ | 1,445,410 |  | $ | 172,073 |  | 13 | % |  | 13 | %

Reconciliation of ACV and constant currency ACV

(in millions, except percentages) | March 31, 2024 |  | March 31, 2025 |  | 1-Year Change
ACV | $ | 1,273 |  | $ | 1,445 |  | 13 | %
Impact of changes in foreign exchange rates | — |  |  | (0.7) |  |  |
Constant currency ACV | $ | 1,273 |  | $ | 1,445 |  | 13 | %

Note: Constant currency ACV is calculated by applying the March 31, 2024 foreign exchange rates to current period shown.
24

Cash Flow (1)

(Dollars in thousands) | Three Months Ended March 31, |  | Change
2024 |  | 2025 |
Cash provided by operating activities | $ | 180,146 |  |  | $ | 204,228 |  |  | 13 | %
Investment in property and equipment | (604) |  |  | (1,880) |  |  |
Free cash flow (1) | $ | 179,542 |  |  | $ | 202,348 |  |  | 13 | %
Supplemental information (2) |  |  |  |  |
Legal fees | $ | 2,739 |  |  | $ | 2,413 |  |  |
Restructuring | 3,347 |  |  | 1,184 |  |  |
Interest on convertible senior notes | 1,884 |  |  | 1,754 |  |  |
Income taxes | 8,163 |  |  | 4,102 |  |  |
| $ | 16,133 |  |  | $ | 9,453 |  |  |

(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. 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 discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance.
◦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.
◦Income taxes: Direct income taxes paid net of refunds received.
25

ff
Remaining performance obligations (“Backlog”)
Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP)

(in millions, except percentages) | March 31, 2024 |  | March 31, 2025 |  | 1-Year Growth Rate
Backlog - GAAP | $ | 1,425 |  |  | $ | 1,728 |  |  | 21 | %
Impact of changes in foreign exchange rates | — |  |  | (5) |  |  |
Constant currency backlog | $ | 1,425 |  |  | $ | 1,723 |  |  | 21 | %

Note: Constant currency Backlog is calculated by applying the March 31, 2024 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 United States of America (“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, 2024:
•“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, 2024.
26

RESULTS OF OPERATIONS
Revenue

(Dollars in thousands) | Three Months Ended March 31, |  | Change |  |  |  |
2025 |  | 2024 |  |  |  |  |  |
Pega Cloud | $ | 151,123 |  | 32 | % |  | $ | 130,902 |  | 40 | % |  | $ | 20,221 |  | 15 | % |  |  |  |  |  |  |  |  |
Maintenance | 76,368 |  | 16 | % |  | 81,001 |  | 24 | % |  | (4,633) |  | (6) | % |  |  |  |  |  |  |  |  |
Subscription services | 227,491 |  | 48 | % |  | 211,903 |  | 64 | % |  | 15,588 |  | 7 | % |  |  |  |  |  |  |  |  |
Subscription license | 186,555 |  | 39 | % |  | 63,338 |  | 19 | % |  | 123,217 |  | 195 | % |  |  |  |  |  |  |  |  |
Subscription | 414,046 |  | 87 | % |  | 275,241 |  | 83 | % |  | 138,805 |  | 50 | % |  |  |  |  |  |  |  |  |
Consulting | 60,421 |  | 13 | % |  | 54,047 |  | 17 | % |  | 6,374 |  | 12 | % |  |  |  |  |  |  |  |  |
Perpetual license | 1,166 |  | — | % |  | 859 |  | — | % |  | 307 |  | 36 | % |  |  |  |  |  |  |  |  |
| $ | 475,633 |  | 100 | % |  | $ | 330,147 |  | 100 | % |  | $ | 145,486 |  | 44 | % |  |  |  |  |  |  |  |  |

•The increase in Pega Cloud revenue in the three months ended March 31, 2025 was primarily due to expanded adoption of Pega Cloud by our existing clients.
•The decrease in maintenance revenue in the three months ended March 31, 2025 was primarily due to our clients’ shift to Pega Cloud-based offerings, which do not generally result in maintenance revenue.
•The increase in subscription license revenue in the three months ended March 31, 2025 was primarily due to several large multi-year contracts recognized in revenue in the three months ended March 31, 2025.
•The increase in consulting revenue in the three months ended March 31, 2025 was primarily due to increases in consultant billable hours.
Gross profit

(Dollars in thousands) | Three Months Ended March 31, |  | Change |  |  |  |
2025 |  | 2024 |  |  |  |  |  |
Pega Cloud | $ | 118,654 |  | 79 | % |  | $ | 101,305 |  | 77 | % |  | $ | 17,349 |  | 17 | % |  |  |  |  |  |  |  |  |
Maintenance | 70,709 |  | 93 | % |  | 74,774 |  | 92 | % |  | (4,065) |  | (5) | % |  |  |  |  |  |  |  |  |
Subscription services | 189,363 |  | 83 | % |  | 176,079 |  | 83 | % |  | 13,284 |  | 8 | % |  |  |  |  |  |  |  |  |
Subscription license | 186,169 |  | 100 | % |  | 62,695 |  | 99 | % |  | 123,474 |  | 197 | % |  |  |  |  |  |  |  |  |
Subscription | 375,532 |  | 91 | % |  | 238,774 |  | 87 | % |  | 136,758 |  | 57 | % |  |  |  |  |  |  |  |  |
Consulting | (3,513) |  | (6) | % |  | (4,135) |  | (8) | % |  | 622 |  | 15 | % |  |  |  |  |  |  |  |  |
Perpetual license | 1,164 |  | 100 | % |  | 850 |  | 99 | % |  | 314 |  | 37 | % |  |  |  |  |  |  |  |  |
| $ | 373,183 |  | 78 | % |  | $ | 235,489 |  | 71 | % |  | $ | 137,694 |  | 58 | % |  |  |  |  |  |  |  |  |

•The increase in Pega Cloud gross profit percent in the three months ended March 31, 2025 was primarily due to increased cost efficiency, primarily for hosting services and employee compensation and benefits, as Pega Cloud continues to grow and scale.
•The increase in consulting gross profit percent in the three months ended March 31, 2025 was primarily due to increases in consultant utilization rates.
Operating expenses

(Dollars in thousands) | Three Months Ended March 31, |  | Change |  |  |  |
2025 |  | 2024 |  |  |  |  |  |
Selling and marketing | $ | 138,069 |  |  | $ | 127,695 |  |  | $ | 10,374 |  | 8 | % |  |  |  |  |  |  |
% of Revenue | 29 | % |  | 39 | % |  |  |  |  |  |  |  |  |  |
Research and development | $ | 74,286 |  |  | $ | 72,113 |  |  | $ | 2,173 |  | 3 | % |  |  |  |  |  |  |
% of Revenue | 16 | % |  | 22 | % |  |  |  |  |  |  |  |  |  |
General and administrative | $ | 33,828 |  |  | $ | 23,527 |  |  | $ | 10,301 |  | 44 | % |  |  |  |  |  |  |
% of Revenue | 7 | % |  | 7 | % |  |  |  |  |  |  |  |  |  |
Litigation settlement, net of recoveries | $ | — |  |  | $ | 32,403 |  |  | $ | (32,403) |  | * |  |  |  |  |  |  |
% of Revenue | — | % |  | 10 | % |  |  |  |  |  |  |  |  |  |
Restructuring | $ | 11 |  |  | $ | 163 |  |  | $ | (152) |  | (93) | % |  |  |  |  |  |  |
% of Revenue | — | % |  | — | % |  |  |  |  |  |  |  |  |  |

* Not meaningful
•The increase in selling and marketing in the three months ended March 31, 2025 was primarily due to an increase in compensation and benefits of $6.7 million attributable to increases in commissions and equity compensation.
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•The increase in research and development in the three months ended March 31, 2025 was primarily due to an increase in computer hardware and software costs of $1 million and an increase in compensation and benefits of $0.5 million.
•The increase in general and administrative in the three months ended March 31, 2025 was primarily due to an increase in compensation and benefits of $4.2 million attributable to an increase in equity compensation and an increase of $4.6 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 17. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.
•The decrease in litigation settlement, net of recoveries in the three months ended March 31, 2025 was primarily due to the cost to settle litigation arising from proceedings outside the ordinary course of business in the three months ended March 31, 2024. See “Note 20. Commitments and Contingencies” in Item 8 of our Annual Report filed on Form-10K for the year ended December 31, 2024 and prior filings for further information.
Other income and expenses

(Dollars in thousands) | Three Months Ended March 31, |  | Change |  |  |  |
2025 |  | 2024 |  |  |  |  |  |
Foreign currency transaction (loss) | $ | (5,325) |  |  | $ | (3,262) |  |  | $ | (2,063) |  | (63) | % |  |  |  |  |  |  |
Interest income | 5,335 |  |  | 5,281 |  |  | 54 |  | 1 | % |  |  |  |  |  |  |
Interest expense | (1,027) |  |  | (1,752) |  |  | 725 |  | 41 | % |  |  |  |  |  |  |
(Loss) income on capped call transactions | (223) |  |  | 3,299 |  |  | (3,522) |  | * |  |  |  |  |  |  |
Other income, net | 561 |  |  | 1,684 |  |  | (1,123) |  | (67) | % |  |  |  |  |  |  |
| $ | (679) |  |  | $ | 5,250 |  |  | $ | (5,929) |  | * |  |  |  |  |  |  |

* Not meaningful
•The increase in foreign currency transaction (loss) in the three months ended March 31, 2025 was primarily due to fluctuations in foreign currency exchange rates associated with foreign currency-denominated cash, receivables, and intercompany balances held by our subsidiary in the United Kingdom.
•The decrease in interest expense in the three months ended March 31, 2025 was primarily due to the repayment of the Notes at maturity on March 3, 2025.
•The change in (loss) income on capped call transactions was due to the termination of the capped call transactions in the three months ended March 31, 2025.
•The decrease in other income, net was primarily due to lower recorded valuation gains from our venture investments portfolio. For additional information, see "Note 12. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.
Provision for (benefit from) income taxes

|  |  | Three Months Ended March 31,
(Dollars in thousands) |  |  |  |  | 2025 |  | 2024
Provision for (benefit from) income taxes |  |  |  |  | $ | 40,888 |  |  | $ | (3,038) |
Effective income tax rate |  |  |  |  | 32 | % |  | 20 | %

Our effective income tax rate for the three months ended March 31, 2025, is impacted by the valuation allowance on our deferred tax assets in the U.S. and U.K. as well as the jurisdictional mix and timing of the actual compared to projected earnings.
The Organization for Economic Cooperation and Development (“OECD”) has introduced new global minimum tax regulations, known as Pillar Two, that was supported by over 130 countries worldwide. Parts of the minimum tax rules were applicable in 2024, with the remaining provisions becoming fully effective for 2025. We do not expect this legislation to have a material impact on our consolidated financial statements. We will continue to monitor and evaluate new legislation and guidance, which could change our current assessment.
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LIQUIDITY AND CAPITAL RESOURCES

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
Cash provided by (used in): |  |  |
Operating activities | $ | 204,228 |  |  | $ | 180,146 |
Investing activities | 261,895 |  |  | (132,399) |
Financing activities | (575,986) |  |  | 17,899 |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 3,570 |  |  | (2,803) |
Net (decrease) increase in cash, cash equivalents, and restricted cash | $ | (106,293) |  |  | $ | 62,843 |

(in thousands) | March 31, 2025 |  | December 31, 2024
Held in U.S. entities | $ | 118,576 |  |  | $ | 474,509 |
Held in foreign entities | 253,160 |  |  | 265,464 |
Total cash, cash equivalents, and marketable securities | 371,736 |  |  | 739,973 |
Restricted cash included in other current assets | 49 |  |  | 98 |
Restricted cash included in other long-term assets | 4,058 |  |  | 4,328 |
Total cash, cash equivalents, marketable securities, and restricted cash | $ | 375,843 |  |  | $ | 744,399 |

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 is impracticable due to the complexity of income tax laws and regulations.
Operating activities
The change in cash provided by operating activities in the three months ended March 31, 2025 was primarily due to increase in client collections.
Investing activities
The change in cash provided by (used in) investing activities in the three months ended March 31, 2025 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes.
Financing activities
Debt financing
In February 2020, we issued $600 million in aggregate principal amount of Notes, which matured on March 1, 2025. As of December 31, 2024, we had $468 million in aggregate principal amount of Notes outstanding, which were repaid in their entirety at maturity. For additional information, see "Note 10. Debt" in Part I, Item 1 of this Quarterly 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. Effective as of February 4, 2025, the Credit Facility was amended to extend the expiration date to February 4, 2027. As of March 31, 2025 and December 31, 2024, we had $27.3 million in outstanding letters of credit under the Credit Facility, reducing available borrowing capacity, but we had no outstanding cash borrowings. For additional information, see "Note 10. Debt" in Part I, Item 1 of this Quarterly Report.
Stock repurchase program
Changes in the remaining stock repurchase authority:

(in thousands) | Three Months Ended March 31, 2025
December 31, 2024 | $ | 240,443 |
Repurchases (1) | (118,704) |
March 31, 2025 (2) | $ | 121,739 |

(1) All purchases under this program have been made on the open market.
29

(2) On April 22, 2025, the Company’s Board of Directors further extended the expiration date of the share repurchase program from December 31, 2025 to June 30, 2026 and increased the authorized repurchase by $500 million.
Common stock repurchases

| Three Months Ended March 31,
| 2025 |  | 2024
(in thousands) | Shares |  | Amount |  | Shares |  | Amount
Repurchases paid | 1,416 |  |  | $ | 115,704 |  |  | — |  |  | — |
Repurchases unpaid at period end | 44 |  |  | 3,000 |  |  | — |  |  | — |
Stock repurchase program | 1,460 |  |  | 118,704 |  |  | — |  |  | — |
Tax withholdings for net settlement of equity awards | 29 |  |  | 2,304 |  |  | 32 |  |  | 2,005 |
| 1,489 |  |  | $ | 121,008 |  |  | 32 |  |  | $ | 2,005 |

During the three months ended March 31, 2025 and 2024, instead of receiving cash from the equity holders, we withheld shares with a value of $1.5 million and $2.8 million, respectively, for the exercise price of options. These amounts are not included in the table above.
Dividends
We intend 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.

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
Dividend payments to stockholders | $ | 2,583 |  |  | $ | 2,515 |

Contractual obligations
As of March 31, 2025, our contractual obligations were:

| Payments due by period |  |
(in thousands) | Remainder of 2025 |  | 2026 |  | 2027 |  | 2028 |  | 2029 |  | 2030 and after |  | Other |  | Total
Purchase obligations (1) | $ | 96,642 |  |  | $ | 154,275 |  |  | $ | 171,132 |  |  | $ | 34,242 |  |  | $ | 493 |  |  | $ | 510 |  |  | $ | — |  |  | $ | 457,294 |
Operating lease obligations | 13,689 |  |  | 15,589 |  |  | 14,104 |  |  | 13,479 |  |  | 10,813 |  |  | 23,666 |  |  | — |  |  | 91,340 |
Venture investment commitments (2) | 500 |  |  | 500 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,000 |
Liability for uncertain tax positions (3) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 20,785 |  |  | 20,785 |
| $ | 110,831 |  |  | $ | 170,364 |  |  | $ | 185,236 |  |  | $ | 47,721 |  |  | $ | 11,306 |  |  | $ | 24,176 |  |  | $ | 20,785 |  |  | $ | 570,419 |

(1) Represents the fixed amount owed for purchase obligations including software licenses, hosting services, and sales and marketing programs.
(2) Represents the maximum funding under existing venture investment agreements. Our venture investment agreements generally allow us to withhold unpaid funds at our discretion.
(3) We cannot reasonably estimate the timing of this cash outflow due to uncertainties in the timing of the effective settlement of tax positions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in financial market prices and rates.
Foreign currency exposure
Translation risk
Our international operations’ operating expenses are primarily denominated in foreign currencies. However, our international sales are also primarily denominated in foreign currencies, partially offsetting our foreign currency exposure.
A hypothetical 10% strengthening in the U.S. dollar against other currencies would have resulted in the following:

| Three Months Ended March 31,
| 2025 |  | 2024
(Decrease) in revenue | (4) | % |  | (4) | %
(Decrease) in net income | (3) | % |  | (4) | %

Remeasurement risk
We incur transaction gains and losses from the remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of the entities in which they are recorded.
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We are primarily exposed to changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated cash, cash equivalents, marketable securities, receivables, and intercompany balances held by our U.K. subsidiary, a British pound functional entity.
A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would have resulted in the following impact:

| Three Months Ended March 31,
(in thousands) | 2025 |  | 2024
Foreign currency (loss) | $ | (25,453) |  |  | $ | (14,618) |

ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of March 31, 2025. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2025.
(b) Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2025 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in “Note 17. Commitments and Contingencies”, in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.
ITEM 1A. RISK FACTORS
We encourage you to carefully consider the risk factors identified in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the U.S. Securities and Exchange Commission. These risk factors could materially affect our business, financial condition, and future results and may cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer purchases of equity securities (1)
Common stock repurchased in the three months ended March 31, 2025:

(in thousands, except per share amounts) | Total Number of Shares Purchased (2) |  | Average Price Paid per Share (2) |  | Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program |  | Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchased Programs (3)
January 1, 2025 - January 31, 2025 | 261 |  |  | $ | 99.44 |  |  | 261 |  |  | $ | 214,478 |
February 1, 2025 - February 28, 2025 | 374 |  |  | 87.50 |  |  | 345 |  |  | $ | 184,179 |
March 1, 2025 - March 31, 2025 | 872 |  |  | 73.22 |  |  | 854 |  |  | $ | 121,739 |
| 1,507 |  |  | $ | 81.30 |  |  | 1,460 |  |  |

(1) For additional information, see "Liquidity and Capital Resources" in Part I, Item 2 of this Quarterly Report.
(2) Includes shares withheld to cover the option exercise price and tax withholding obligations for stock compensation awards subject to net settlement provisions.
(3) On April 22, 2025, the Company’s Board of Directors further extended the expiration date of the share repurchase program from December 31, 2025 to June 30, 2026 and increased the authorized repurchase by $500.0 million. The number disclosed above does not include the effect of this increased authorization, as it occurred subsequent to March 31, 2025.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 and non-rule 10b5-1 trading arrangements
On March 14, 2025, Leon Trefler, our Chief of Clients and Markets, terminated his “Rule 10b5-1 trading arrangement.”
Other than as disclosed above, during the three months ended March 31, 2025, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS

Exhibit No. |  | Description |  | Incorporation by Reference |  | Filed Herewith
|  | Form |  | Location |  | Filing Date |
3.1 |  | Restated Articles of Organization of the Registrant and Amendments thereto |  | 10-Q |  | 3.1 |  | November 4, 2014 |  |
3.2 |  | Amended and Restated Bylaws of Pegasystems Inc. |  | 8-K |  | 3.2 |  | June 15, 2020 |  |
31.1 |  | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer. |  |  |  |  |  |  |  | X
31.2 |  | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer. |  |  |  |  |  |  |  | X
32 |  | Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer. |  |  |  |  |  |  |  | +
101.INS |  | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |  |  |  |  |  |  |  | X
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document. |  |  |  |  |  |  |  | X
101.CAL |  | Inline XBRL Taxonomy Calculation Linkbase Document. |  |  |  |  |  |  |  | X
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document. |  |  |  |  |  |  |  | X
101.LAB |  | Inline XBRL Taxonomy Label Linkbase Document. |  |  |  |  |  |  |  | X
101.PRE |  | Inline XBRL Taxonomy Presentation Linkbase Document. |  |  |  |  |  |  |  | X
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |  |  |  |  |  |  |  | X

+ Indicates that the exhibit is being furnished with this report and is not filed as a part of it.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | Pegasystems Inc.
Dated: | April 22, 2025 | By: | /s/ KENNETH STILLWELL
|  |  | Kenneth Stillwell
|  |  | Chief Operating Officer and Chief Financial Officer
|  |  | (Principal Financial Officer)