Pega Cloud ACV grows 20% from a year earlier while total ACV growth slows to 6%

Pegasystems reported third-quarter 2026 total revenue of $393.36 million, up 3% from $381.35 million a year earlier, as Pega Cloud annual contract value rose 20% to $975.99 million. Total ACV grew 6% as reported to $1.65 billion, or 7% in constant currency from a year earlier. GAAP net income fell 68% from a year earlier to $14.09 million.

Cloud ACV carries a slower total

The growth is concentrated in the hosted product. Pega Cloud ACV rose to $975.99 million from $815.37 million, a 20% gain that was also 20% in constant currency, and the release says cloud now equals 59% of total ACV. The older lines moved the other way: maintenance ACV fell to $261.32 million from $296.96 million, and subscription license ACV slipped to $416 million from $444.6 million. Those two declines are why total ACV, at $1.65 billion, grew 6% from a year earlier rather than the roughly 10% the cloud line alone would have delivered.

Revenue follows the same mix. Pega Cloud revenue rose to $218.93 million from $184.55 million, while maintenance revenue fell to $72.65 million from $79.65 million and subscription license revenue fell to $55.58 million from $60.76 million. Consulting had the sharpest drop, to $46.2 million from $56.39 million. Total revenue rose 3% from a year earlier, and subscription revenue of $347.16 million was 88% of the total.

A tax swing and a settlement pull GAAP profit down

Operating income was almost unchanged at $14.86 million against $14.47 million, and the flat line is explained by two costs inside operating expenses rather than below them: a $16 million litigation settlement and $1.98 million of restructuring, both within total operating expenses of $274.65 million. Excluding those two items, operating income would have been about $32.84 million. Most of the 68% GAAP decline — $22.95 million of the $29.27 million drop in net income — came from the tax line, which moved to a $3.69 million provision from a $19.27 million benefit a year earlier; for the nine months, the GAAP effective rate was 21% against 10%. Pretax income also fell, to $17.78 million from $24.1 million, largely because the foreign-currency transaction gain shrank to $589,000 from $7.15 million.

That is why GAAP net income fell to $14.09 million and diluted GAAP earnings to $0.08 from $0.24, even as non-GAAP net income rose 8% to $59.75 million and non-GAAP diluted earnings rose 17% to $0.35 from $0.30. The quarter is the exception to a weaker nine-month trend: non-GAAP net income for the nine months was $202.35 million, down 18% from $245.86 million, even though nine-month revenue was essentially flat at $1.24 billion against $1.24 billion and nine-month GAAP operating income fell to $68.65 million from $158.74 million. In the quarter, the non-GAAP bridge adds back $28.68 million of stock-based compensation, $13.27 million of legal fees, $16 million of litigation settlement, $1.98 million of restructuring and $238,000 of amortization, while subtracting $13.17 million of income taxes, $589,000 of foreign-currency transaction gain and $750,000 of other items.

Cash generation slows; diluted shares fall 8%

Nine-month operating cash flow fell to $304.3 million from $346.8 million. After $14.47 million of property and equipment investment, free cash flow was $289.83 million against $338.31 million, a 14% decline. Cash, equivalents and marketable securities totaled $309.71 million at September 30, against $425.8 million at December 31, 2025, after $402.07 million of net financing outflows over the nine months. The release warns the trend can persist: "our cash flow generation may continue to be adversely affected for the rest of the year."

In the quarter, diluted weighted-average shares fell 8% from a year earlier to 168.64 million from 184.1 million; the release does not say what drove the decline. Backlog, the revenue Pega expects from existing non-cancellable contracts, rose 15% from a year earlier to $2.01 billion.

Management's execution admission and the 2028 cash target

Ken Stillwell, chief operating officer and chief financial officer, said "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". He added that "our Q3 ACV add was the strongest of the year" and that the company is "on track to deliver $700M or more of free cash flow in 2028."

The release is blunt about the demand backdrop: "Purchasing behaviors continue to evolve as clients subject large technology investments to greater scrutiny as AI disrupts the industry." It also warns that ACV growth "significantly slowed during the nine months ended September 30, 2026" and that the factors "may continue to adversely affect the ACV growth rate for the rest of the year." There is no quarterly revenue or earnings guidance in the document, and the bullet promising actions to capture the AI opportunity is not backed by a cost or investment figure.

Pega holds its third-quarter call at 8:00 a.m. EDT on Wednesday, October 21, 2026. The release points to the quarterly report on Form 10-Q for the period, including its litigation note, as the place where the settlement is described.