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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 the generally accepted accounting principles (“GAAP”) 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, 2025.

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 2026.

NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS

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.

Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”). ASU 2025-06 introduces a more principles-based framework to the capitalization of software intended for internal use focused on management’s authorization and commitment to fund a development project and the probability of whether the project will be completed and used for its intended function. ASU 2025-06 will be effective for the Company beginning January 1, 2028. The Company is currently evaluating the impact ASU 2025-06 will have on its consolidated financial statements.

NOTE 3. MARKETABLE SECURITIES

			June 30, 2026																								December 31, 2025
(in thousands)			Amortized Cost						Unrealized Gains						Unrealized Losses						Fair Value						Amortized Cost						Unrealized Gains						Unrealized Losses						Fair Value
Government debt			$	1,003					$	—					$	(1)					$	1,002					$	5,755					$	3					$	(4)					$	5,754
Corporate debt			176,300						59						(564)						175,795						207,278						428						(108)						207,598
			$	177,303					$	59					$	(565)					$	176,797					$	213,033					$	431					$	(112)					$	213,352

As of June 30, 2026, marketable securities’ maturities ranged from July 2026 to June 2029, with a weighted-average remaining maturity of 2.0 years.

NOTE 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Receivables

(in thousands)			June 30, 2026						December 31, 2025
Accounts receivable, net			$	143,213					$	264,713
Unbilled receivables, net			154,029						166,478
Long-term unbilled receivables, net			77,947						102,544
			$	375,189					$	533,735

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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)			June 30, 2026
1 year or less			$	154,029		66		%
1-2 years			63,258			28		%
2-5 years			14,689			6		%
			$	231,976		100		%

Unbilled receivables by contract effective date:

(Dollars in thousands)			June 30, 2026
2026			$	56,216		24		%
2025			111,580			48		%
2024			36,610			16		%
2023			25,326			11		%
2022 and prior			2,244			1		%
			$	231,976		100		%

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)			June 30, 2026						December 31, 2025
Contract assets (1)			$	15,718					$	17,678
Long-term contract assets (2)			27,569						17,421
			$	43,287					$	35,099

(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)			June 30, 2026						December 31, 2025
Deferred revenue			$	462,532					$	509,275
Long-term deferred revenue (1)			5,905						9,568
			$	468,437					$	518,843

(1) Included in other long-term liabilities.

The change in deferred revenue during the six months ended June 30, 2026 was primarily due to new billings in advance of revenue recognition and $365.4 million of revenue recognized during the period included in deferred revenue as of December 31, 2025.

NOTE 5. DEFERRED COMMISSIONS

(in thousands)			June 30, 2026						December 31, 2025
Deferred commissions (1)			$	90,133					$	104,574

(1) Included in other long-term assets.

			Three Months Ended June 30,												Six Months Ended June 30,
(in thousands)			2026						2025						2026						2025
Amortization of deferred commissions (1)			$	15,846					$	15,074					$	31,947					$	33,578

(1) Included in selling and marketing expenses.

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NOTE 6. GOODWILL

			Six Months Ended June 30,
(in thousands)			2026						2025
January 1,			$	81,506					$	81,113
Currency translation adjustments			(241)						425
June 30,			$	81,265					$	81,538

NOTE 7. OTHER ASSETS AND LIABILITIES

Other current assets

(in thousands)			June 30, 2026						December 31, 2025
Prepaid expenses			$	48,002					$	65,293
Income tax receivables			31,353						31,535
Contract assets			15,718						17,678
Restricted cash			2,448						1,577
Indirect tax receivable			2,135						2,172
Other			2,903						3,050
			$	102,559					$	121,305

Other long-term assets

(in thousands)			June 30, 2026						December 31, 2025
Deferred commissions			$	90,133					104,574
Right of use assets			56,161						60,574
Property and equipment			53,309						45,240
Contract assets			27,569						17,421
Venture investments			19,663						22,021
Income taxes receivable			15,734						15,459
Restricted cash			1,530						2,336
Intangible assets			1,410						1,202
Other			20,711						25,200
			$	286,220					$	294,027

Accrued expenses

(in thousands)			June 30, 2026						December 31, 2025
Outside professional services			$	35,182					$	15,233
Cloud hosting			20,013						1,064
Litigation settlements			9,750						9,750
Marketing and sales program			7,612						1,519
Income and other taxes			7,381						7,273
Employee related			5,890						5,464
Other			6,467						4,544
			$	92,295					$	44,847

Other current liabilities

(in thousands)			June 30, 2026						December 31, 2025
Operating lease liabilities			$	15,020					$	15,142
Dividends payable			4,931						5,110
Other			3,935						1,683
			$	23,886					$	21,935

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Other long-term liabilities

(in thousands)			June 30, 2026						December 31, 2025
Income taxes payable			$	24,828					$	23,331
Deferred revenue			5,905						9,568
Other			16,670						12,961
			$	47,403					$	45,860

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, 2025. The CODM uses consolidated net income to set financial performance targets, assess performance, and make expense allocation decisions.

			Three Months Ended June 30,												Six Months Ended June 30,
(in thousands)			2026						2025						2026						2025
Total revenue			$	420,716					$	384,512					$	850,689					$	860,145
Total cost of revenue			108,029						109,574						214,783						212,024
Selling			132,154						116,050						265,298						235,168
Marketing			33,254						31,081						55,713						50,032
Research and development			84,168						78,784						166,215						153,070
General and administrative			43,740						31,788						92,313						65,616
Other segment items, net (1)			858						(8,012)						(1,851)						(7,322)
Provision for (benefit from) income taxes			5,179						(4,830)						12,120						36,058
Net income			$	13,334					$	30,077					$	46,098					$	115,499

(1) Includes Restructuring, Foreign currency transaction (loss) gain, Interest income, Interest expense, (Loss) on capped call transactions, and Other income (loss), 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)			June 30, 2026												December 31, 2025
U.S.			$	41,965					79		%				$	40,060					89		%
International			11,344						21		%				5,180						11		%
			$	53,309					100		%				$	45,240					100		%

NOTE 9. DEBT

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. Effective as of February 4, 2025, the Credit Facility was amended to extend the expiration date to February 4, 2027. 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. As of June 30, 2026, the Company is compliant with all Credit Facility covenants.

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NOTE 10. RESTRUCTURING

The Company has undertaken the following restructuring activities intended to better align roles and capacity to an AI-first delivery model:

			Three Months Ended June 30,												Six Months Ended June 30,
(in thousands)			2026						2025						2026						2025
Employee severance and related costs			$	2,735					$	(54)					$	2,582					$	(57)
Office space reductions (1)			—						10						—						24
Restructuring			$	2,735					$	(44)					$	2,582					$	(33)

(1) These primarily relate to non-cash operating lease adjustments.

Restructuring activity:

Accrued employee severance and related costs:

			Six Months Ended June 30,
(in thousands)			2026						2025
January 1,			$	12,858					$	2,000
Costs incurred			2,582						(57)
Cash disbursements			(11,449)						(1,354)
Currency translation adjustments			(15)						117
June 30, (1)			$	3,976					$	706

(1) Included in accrued compensation and related expenses.

NOTE 11. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

The Company records its cash equivalents, marketable securities, 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 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.

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Assets and liabilities measured at fair value on a recurring basis:

			June 30, 2026																								December 31, 2025
(in thousands)			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
Cash equivalents			$	7,060					$	1,494					$	—					$	8,554					$	33,043					$	8,463					$	—					$	41,506
Marketable securities			$	—					$	176,797					$	—					$	176,797					$	—					$	213,352					$	—					$	213,352
Venture investments			$	—					$	—					$	19,663					$	19,663					$	—					$	—					$	22,021					$	22,021

Changes in venture investments:

			Six Months Ended June 30,
(in thousands)			2026						2025
January 1,			$	22,021					$	21,234
New investments			—						11,529
Sales of investments			—						(33,223)
Changes in foreign exchange rates			(34)						166
Changes in fair value:
included in other income (loss), net			(2,059)						19,480
included in other comprehensive income			(265)						(535)
June 30,			$	19,663					$	18,651

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

NOTE 12. REVENUE

Geographic revenue

Revenues by geography are determined based on client location:

			Three Months Ended June 30,																		Six Months Ended June 30,
(Dollars in thousands)			2026									2025									2026									2025
U.S.			$	196,292		47		%				$	208,116		54		%				$	415,547		49		%				$	477,308		56		%
Other Americas			27,148			6		%				19,632			5		%				66,407			8		%				53,373			6		%
United Kingdom (“U.K.”)			65,400			16		%				40,634			11		%				116,910			14		%				81,376			9		%
Europe (excluding U.K.), Middle East, and Africa			73,292			17		%				64,420			17		%				147,131			17		%				138,476			16		%
Asia-Pacific			58,584			14		%				51,710			13		%				104,694			12		%				109,612			13		%
			$	420,716		100		%				$	384,512		100		%				$	850,689		100		%				$	860,145		100		%

Revenue streams

			Three Months Ended June 30,												Six Months Ended June 30,
(in thousands)			2026						2025						2026						2025
Pega Cloud			$	213,934					$	166,743					$	418,965					$	317,866
Maintenance			74,528						79,271						149,845						155,639
Consulting			50,226						57,824						104,999						118,245
Revenue recognized over time			338,688						303,838						673,809						591,750
Subscription license			82,028						80,674						176,880						268,395
Revenue recognized at a point in time			82,028						80,674						176,880						268,395
Total revenue			$	420,716					$	384,512					$	850,689					$	860,145

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			Three Months Ended June 30,												Six Months Ended June 30,
(in thousands)			2026						2025						2026						2025
Pega Cloud			$	213,934					$	166,743					$	418,965					$	317,866
Maintenance			74,528						79,271						149,845						155,639
Subscription services			288,462						246,014						568,810						473,505
Subscription license			82,028						80,674						176,880						268,395
Subscription			370,490						326,688						745,690						741,900
Consulting			50,226						57,824						104,999						118,245
Total revenue			$	420,716					$	384,512					$	850,689					$	860,145

Remaining performance obligations ("Backlog")

Expected future revenue from existing non-cancellable contracts:

As of June 30, 2026:

(Dollars in thousands)			Subscription services												Subscription license						Consulting						Total
			Pega Cloud						Maintenance
1 year or less			$	704,447					$	198,492					$	42,537					$	47,220					$	992,696		49		%
1-2 years			393,855						82,004						1,546						3,747						481,152			24		%
2-3 years			222,052						50,070						7,583						899						280,604			14		%
Greater than 3 years			241,679						20,480						958						1,062						264,179			13		%
			$	1,562,033					$	351,046					$	52,624					$	52,928					$	2,018,631		100		%

As of June 30, 2025:

(Dollars in thousands)			Subscription services												Subscription license						Consulting						Total
			Pega Cloud						Maintenance
1 year or less			$	603,683					$	220,954					$	62,222					$	39,798					$	926,657		51		%
1-2 years			334,586						79,345						4,262						2,846						421,039			23		%
2-3 years			172,513						49,587						746						252						223,098			12		%
Greater than 3 years			210,416						46,843						7,220						56						264,535			14		%
			$	1,321,198					$	396,729					$	74,450					$	42,952					$	1,835,329		100		%

NOTE 13. STOCKHOLDERS' EQUITY

Stock-based Compensation Expense

			Three Months Ended June 30,												Six Months Ended June 30,
(in thousands)			2026						2025						2026						2025
Cost of revenue			$	6,752					$	7,288					$	14,628					$	15,111
Selling and marketing			14,555						14,378						33,009						30,159
Research and development			7,943						7,490						17,962						15,875
General and administrative			6,976						7,574						16,442						17,010
			$	36,226					$	36,730					$	82,041					$	78,155
Income tax benefit			$	(7,091)					$	(566)					$	(16,255)					$	(1,153)

As of June 30, 2026, the Company had $166.8 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

			Six Months Ended June 30, 2026
(in thousands)			Quantity						Total Fair Value
Restricted stock units (1)			2,080						$	92,716
Non-qualified stock options			3,159						$	55,302
Performance stock options (2)			1,497						$	25,804

(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.

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(2) Performance stock options allow the holder to purchase a specified number of Common Stock shares at an exercise price equal to or greater than the shares' fair market value at the grant date. Performance stock options granted in the six months ended June 30, 2026 vest on the second anniversary of the grant date, up to 200%, subject to the achievement of specified performance metrics over fiscal years 2026 and 2027. The options expire ten years from the grant date.

Stock repurchase program

On February 10, 2026, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2026 to June 30, 2027 and increased the authorized repurchase amount by $1 billion, of which $0.9 billion remains available as of June 30, 2026.

NOTE 14. INCOME TAXES

Effective income tax rate

									Six Months Ended June 30,
(Dollars in thousands)															2026						2025
Provision for (benefit from) income taxes															$	12,120					$	36,058
Effective income tax rate															21		%				24		%

The Company’s effective income tax rate decreased in the six months ended June 30, 2026 as compared to the prior period, primarily due to excess tax benefits from stock-based compensation recognized in the current period and the absence of a valuation allowance on substantially all of the Company’s U.S. and U.K. deferred tax assets.

NOTE 15. EARNINGS PER SHARE

Basic earnings per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted earnings 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 Convertible Senior Notes (the “Notes”), which were repaid in its entirety at maturity during the three months ended March 31, 2025.

Calculation of earnings per share:

			Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except per share amounts)			2026						2025						2026						2025
Net income			$	13,334					$	30,077					$	46,098					$	115,499
Weighted-average common shares outstanding			165,613						170,776						167,206						171,287
Earnings per share, basic			$	0.08					$	0.18					$	0.28					$	0.67
Net income			$	13,334					$	30,077					$	46,098					$	115,499
Notes - interest expense, net of tax			—						—						—						742
Numerator for diluted EPS			$	13,334					$	30,077					$	46,098					$	116,241
Weighted-average effect of dilutive securities:
Notes			—						—						—						2,412
Stock options			4,118						8,190						5,581						8,400
RSUs			2,034						3,194						2,507						3,378
Effect of dilutive securities			6,152						11,384						8,088						14,190
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)			171,765						182,160						175,294						185,477
Earnings per share, diluted			$	0.08					$	0.17					$	0.26					$	0.63
Outstanding anti-dilutive stock options and RSUs (4)			200						502						284						373

(1) All 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) In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions expired upon maturity of the Notes during the three months ended March 31, 2025. 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 per share. These awards may be dilutive in the future.

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NOTE 16. COMMITMENTS AND CONTINGENCIES

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. As of June 30, 2026 and December 31, 2025, the Company recorded an estimated $9.75 million accrued loss related to the agreed in principle settlement of the In re Pegasystems Inc. Derivative Litigation matter, see additional discussion below.

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 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 Virginia Uniform Trade Secrets Act 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 and ordered a new trade secrets claim trial. 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. On March 7, 2025, the Supreme Court of Virginia granted Appian’s petition for appeal and Pega’s assignments of cross-error. The Supreme Court of Virginia heard appellate oral argument on October 28, 2025.

On January 8, 2026, the Supreme Court of Virginia issued a written opinion unanimously affirming the ruling of the Court of Appeals of Virginia. On January 13, 2026, the Circuit Court of Fairfax County, Virginia notified the parties that this case has been reassigned to Judge David A. Oblon for further proceedings. On January 29, 2026, the Supreme Court of Virginia remanded Appian’s trade secret case to the Court of Appeals with direction to remand to the Circuit Court of Fairfax County for further proceedings in accordance with its written opinion. On May 7, 2026 Judge Oblon held a first status conference for the remanded trial proceedings and set the retrial to commence on January 11, 2027.

On February 27, 2026, the Court of Appeals of Virginia issued a mandate stating that the judgment is affirmed in part, reversed in part, and remanded to the Circuit Court of Fairfax County for further proceedings consistent with the views expressed in the written opinion of the Court of Appeals of Virginia. On May 7, 2026, the Court released the Company from its obligation to maintain the $25,000,000 letter of credit securing the judgment and the letter of credit was released on June 29, 2026.

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 a new trial resulting from the appellate proceedings.

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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

Federal court cases

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 and on May 21, 2025, the Court held a hearing on the motion to dismiss. At the conclusion of the hearing, the Court (i) granted the motion to dismiss as to the plaintiffs’ scheme liability claims; (ii) granted the motion to dismiss as to certain claims against Ken Stillwell; and (iii) took the motion to dismiss under advisement as to all other claims. On January 8, 2026, the Court issued a written order granting the motion to dismiss as to the Section 10(b) and common law fraud claims against Ken Stillwell and denying the motion to dismiss as to the remaining claims. The Court also entered a scheduling order setting trial for February 2027.

State court cases

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 believes it has strong defenses to the claims brought against the defendants and intends to defend against these claims vigorously. The Company is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits.

In re Pegasystems Inc. Derivative Litigation

Federal court cases

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). 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 (the “Consolidated Action”) and, after defendants moved to dismiss the complaint in the Consolidated Action on December 4, 2024, the plaintiffs moved to voluntarily dismiss the Consolidated Action, and the Court granted the motion to dismiss on December 18, 2024.

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The Company separately received confidential demand letters raising substantially the same allegations set forth in the Consolidated Action. 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) were 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 (the “Demand Review Committee”). The Demand Review Committee, with the assistance of independent legal counsel, conducted an extensive investigation of the allegations raised in the demand letters and on October 7, 2024 issued a report concluding that there are no valid claims against the Company’s directors and officers with respect to the matters raised in the demands and that it would not be in the Company’s best interests to pursue litigation against them.

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, (the “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 filed motions to dismiss the complaint on April 28, 2025. On June 6, 2025, the plaintiffs in the consolidated derivative matter currently pending in Massachusetts Superior Court, Case No. 2484CV01734 (discussed below), moved to intervene in this matter and to stay it pending the resolution of the state derivative matter. The Court held a hearing on defendants’ motions to dismiss and state court plaintiffs’ motion to intervene on July 21, 2025. Following argument, the Court took the motions under advisement.

On October 14, 2025, the parties jointly notified the Court that on October 2, 2025 the Massachusetts Superior Court granted defendants’ motion to dismiss the related state court derivative action (see below) and proposed that the Court refrain from issuing a decision on the motions to dismiss pending a joint submission by the parties of their respective positions on the impact of the state court dismissal on the federal court case within thirty (30) days. On December 17, 2025, the court entered an order administratively closing this action in light of the developments in the State court cases, described below.

On January 7, 2026, the Collective Plaintiffs agreed in principle to a proposed settlement of the litigation, and a final order approving the proposed settlement was entered by the Massachusetts Superior Court on June 30, 2026. See discussion below within the “State court cases” subsection. On July 2, 2026, in light of the settlement, the parties to the federal court Consolidated Action filed a stipulation and proposed order of dismissal with prejudice as to all claims. On July 16, 2026, the Court signed the order dismissing the Consolidated Action with prejudice.

State court cases

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 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, 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 asserts the same claims asserted in the Dwyer Action.

On February 12, 2025, after submission by the parties of a stipulation and proposed order, 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 moved to dismiss the complaint and after briefing by the parties, the Court held a hearing on defendants’ motion on September 4, 2025. On October 2, 2025, the Court granted Defendants’ motion to dismiss. On January 13, 2026, the court entered final judgment in defendants’ favor.

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On January 7, 2026, the parties to the federal and state court cases agreed in principle to a proposed settlement of the litigation. Under the terms of the proposed settlement, the plaintiffs in the federal and state court cases (“Collective Plaintiffs”) agreed to the dismissal of all claims upon the Company adopting certain governance reforms and payment of an estimated aggregate sum of $9.75 million, inclusive of a $7 million special dividend to shareholders (excluding defendants) and Collective Plaintiffs’ attorney fees.

On January 23, 2026, the parties jointly moved the court for relief from the final judgment in this action for the sole purpose of permitting the parties to seek Court approval of the proposed settlement. On February 10, 2026, the plaintiffs submitted the proposed settlement to the Court for preliminary approval. On March 18, 2026, the Court held a preliminary approval hearing and granted the parties relief from the final judgment. On April 16, 2026, the Court preliminarily approved the proposed settlement and it held a final settlement approval hearing on June 25, 2026. On June 30, 2026, the Court entered an order for final approval of the settlement, including a $7 million special dividend to shareholders (excluding defendants) and payment by the Company of $2.75 million in Collective Plaintiffs’ attorney fees. Also on July 2, 2026, the Court entered a final judgment and order of dismissal dismissing the consolidated complaint with prejudice.

Pegasystems v. Appian Defamation Litigation

On August 2, 2023, the Company filed a complaint against Appian in the U.S. District Court for the District of Massachusetts, captioned Pegasystems Inc. v. Appian Corporation, 1:23-cv-11776-LTS (D. Mass.). The complaint asserts claims for defamation, trade libel, and violations of the Lanham Act, 15 U.S.C. § 1125(a) based on statements Appian made following the verdict in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above. In response to a motion to dismiss filed by Appian on August 18, 2023, the Company amended the complaint to add additional factual allegations in support of the same claims. On September 22, 2023, Appian moved to dismiss the amended complaint, which the Court denied on January 5, 2024. On February 20, 2024, Appian answered the complaint, asserted counterclaims against the Company for defamation, trade libel, violations of the Lanham Act, 15 U.S.C. § 1125(a), and violations of Mass. Gen. Laws ch. 93A §§ 2 and 11, and sought a declaratory judgment that the Company was not entitled to the recovery sought in the amended complaint. On April 11, 2024, the Company moved for a more definite statement and to partially strike the counterclaims, which the Court denied on August 1, 2024. On August 15, 2024, the Company moved to dismiss the counterclaims, which the Court allowed in part and denied in part on October 8, 2024; specifically, the Court allowed the Company’s motion to dismiss the trade libel counterclaim with respect to Appian’s allegations regarding the Company’s Code of Conduct. On November 26, 2024, Appian moved for judgment on the pleadings. On March 11, 2025, the Court allowed the motion for judgment on the pleadings in part and entered judgment for Appian on the basis of a statement made by Appian’s chief executive officer, but otherwise denied the motion.

The parties exchanged opening expert reports in March 2026. The Company claims $41.9 million in damages from Appian’s conduct. Appian seeks $31.8 million in lost profits damages and further requests that the Company be required to disgorge $109.5 million in profits as unjust enrichment arising from business contracts Appian contends it competed with Pegasystems on from 2022-2025. Apart from Company revenues in which Appian contends it competed with Pegasystems for business, Appian further seeks that the Company be forced to disgorge the entirety of its profits ($2.33 billion) from 2022-2025. The Company vehemently disagrees with Appian’s entitlement to any recovery, and believes the disgorgement claim is consistent with Appian’s efforts to denigrate the Company that are the subject of the Company’s claims asserted in this litigation. The Company remains confident in the merits of its claims against Appian and the damages claimed, and disputes Appian’s counterclaims, including the amount of and legal basis for the damages sought, believes it has strong defenses to the counterclaims, and intends to vigorously defend against the counterclaims. Summary judgment briefing was completed on July 16, 2026 and oral argument on summary judgment motions is scheduled for July 24, 2026. Briefing on Daubert motions pertinent to summary judgment is expected to be completed on July 23, 2026, with any remaining Daubert motions due on September 18, 2026. A jury trial is currently scheduled for November 2026. The Company is unable to reasonably estimate likelihood of success for either party or a range of possible gain or loss given the uncertainty as to the likelihood, amount, and timing of any potential gain or loss related to its claims or Appian’s counterclaims.

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On June 15, 2026, the Dianne Ledingham Family Legacy Trust U/A DTD 3/12/2025 entered into a Rule 10b5-1 trading arrangement that provides for the sale of 24,000 shares of our common stock. The arrangement will terminate on August 2, 2027, subject to early termination for certain specified events set forth in the arrangement. Dianne Ledingham, a member of our Board of Directors, is the grantor of the Dianne Ledingham Family Legacy Trust, and members of her immediate family are beneficiaries.

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