Pegasystems Q3 GAAP profit falls 68% as Pega Cloud ACV grows 20%

Pegasystems Inc. (PEGA) said in a filing Tuesday that third-quarter 2026 total revenue rose 3% to $393.4 million, while GAAP net income fell 68% to $14.1 million.

Annual contract value, or ACV, which the company defines as the annualized value of active contracts, rose 6% to $1.65 billion.

Here's how the company did:

• Revenue: $393.4 million vs $381.4 million a year earlier
• Net income, GAAP: $14.1 million vs $43.4 million a year earlier
• Net income, non-GAAP: $59.75 million vs $55.16 million a year earlier
• Diluted earnings per share, GAAP: 8 cents vs 24 cents a year earlier
• Diluted earnings per share, non-GAAP: 35 cents vs 30 cents a year earlier

Non-GAAP figures exclude a $16 million litigation settlement and $13.3 million in legal fees, both recorded in the quarter.

Stock-based compensation of $28.7 million was also excluded, down from $43.0 million a year earlier.

For the first nine months, revenue was $1,244.0 million, roughly flat from $1,241.5 million a year earlier.

GAAP net income for the nine months was $60.2 million, down 62% from $158.9 million.

Non-GAAP net income for the period fell 18% to $202.4 million from $245.9 million, and non-GAAP diluted earnings per share were $1.17, down 13% from $1.34.

Revenue and ACV

Pega Cloud revenue rose 19% to $218.9 million from $184.5 million a year earlier, and made up 56% of quarterly revenue.

Pega Cloud ACV rose 20% to $976.0 million from $815.4 million, and Pega Cloud reached 59% of total ACV.

Maintenance revenue fell 9% to $72.7 million, and subscription license revenue fell 9% to $55.6 million.

Consulting revenue fell 18% to $46.2 million from $56.4 million.

“While our ACV growth through the first three quarters of 2026 did not reflect the opportunity we see in the market, largely due to go-to-market execution challenges, our Q3 ACV add was the strongest of the year and reinforces our confidence in the demand for our solutions,” said COO and CFO Ken Stillwell.

“We are taking decisive actions to improve execution, accelerate growth, and keep us on track to deliver $700M or more of free cash flow in 2028,” Stillwell said.

The filing does not detail the actions.

Founder and CEO Alan Trefler said the AI market “is still sorting itself out,” but he is confident in the company’s “long-term winning strategy.”

“Our edge is decades of expertise in workflow automation and decisioning, enabling enterprises to scale AI with confidence, control, and economic efficiency,” Trefler said.

Cash flow and backlog

Cash provided by operating activities was $304.3 million for the nine months, down 12% from $346.8 million a year earlier.

Free cash flow, or cash from operations less investment in property and equipment, was $289.8 million, down 14% from $338.3 million.

The filing said cash flow may continue to be adversely affected for the rest of the year.

Cash, cash equivalents and marketable securities totaled $309.7 million at Sept. 30, down from $425.8 million at Dec. 31, 2025.

Backlog, or expected future revenue from existing non-cancellable contracts, rose 15% to $2.01 billion from $1.75 billion a year earlier.

Charges and costs

Income from operations was $14.9 million, up from $14.5 million a year earlier.

Selling and marketing expense was $143.8 million, up from $140.1 million, while research and development fell to $74.3 million from $78.8 million.

General and administrative expense was $38.6 million, down from $42.1 million.

Restructuring charges were $2.0 million, compared with a benefit of $5,000 a year earlier.

Diluted weighted-average shares outstanding fell 8% to 168.6 million from 184.1 million.

The company will hold a conference call at 8:00 a.m. EDT on Oct. 21.