PEGA

Pegasystems came into this Q3 2026 print with the stock up sharply over the past three months, yet the first trading day after earnings saw the share price slip about 3% to around US$35. That move underplays what actually showed up in the numbers. The firm posted US$393.4m in revenue and kept net income in positive territory at US$14.1m, while annual contract value, the key software demand gauge, reached US$1.66b. The real story is a margin and profit squeeze that now tests the bullish thesis built on steadily rising earnings power. Like the recurring software demand story at Pegasystems but uneasy about the squeeze on profitability showing up in this quarter's margins? Scan the list of solid balance sheet and fundamentals stocks (25 results). - Revenue (Q3 2026 vs. Q3 2025): US$393.4m vs. US$381.4m (up about 3%) - Net Income (Q3 2026 vs. Q3 2025): US$14.1m vs. US$43.4m (down about 67%) - Basic EPS (Q3 2026 vs. Q3 2025): US$0.09 vs. US$0.25 (fell about 66%) - Annual Contract Value (ACV, Q3 2026 vs. Q3 2025): US$1.66b vs. the prior year period ACV (up 7% year on year in constant currency) Earnings tell you what Pegasystems reported this quarter, but cash flows show what the business actually throws off after the noise of accrual accounting and one off items. Investors who care about valuation tend to start with that cash generation. If you line up Pegasystems' recent cash flows against its current share price and run a discounted cash flow view, the stock could be a dramatic 43% undervalued. Supporters argue Pegasystems can turn AI workflow interest into a stronger, higher quality contract base. "The main thing that has to go right is that enterprises continue to adopt Pegasystems as a governed workflow and AI orchestration layer. This would turn tools like Infinity 26, Blueprint, and public sector offerings into larger, higher quality pipelines and signed ACV." Q3 offers partial progress. Annual contract value reached US$1.66b with 7% constant currency growth, and Pega Cloud ACV rose to 59% of the total. Net new ACV of US$32m was the best of 2026, which supports the adoption story. However, overall revenue of US$393.4m and sharply lower net income indicate that converting that AI pipeline into near term profitable growth remains inconsistent. One Narrative has put a figure on that disagreement. → See the Narrative with its higher Fair Value, assumptions and all. Bears argue Pegasystems will struggle to keep pace with faster growing workflow rivals as sales execution drags and AI confusion slows decisions. "Although Pegasystems is aligning its platform with governed AI usage and token cost control, persistent AI driven buyer paralysis and delayed decisions around large workflow modernisation projects could keep total ACV and Cloud ACV growth below what current models embed." This quarter partly matches that worry. ACV grew 7% in constant currency and Pega Cloud ACV reached 59% of the total. However, revenue of US$393.4m and net income of US$14.1m fell well short of the Q2 revenue base and prior profit level. Management now expects 2026 ACV growth below 10%, indicating a reset rather than a clean reacceleration. The 2.9% share price decline after results suggests investors had already priced in some of this, but not all of the margin squeeze. Pegasystems just showed how a solid contract story can still collide with margin pressure. The real opportunity sits in finding stocks that could be undervalued before the market adjusts. - Company 1 - 33% below our estimate - uses a large digital client base and super app to deepen engagement while shifting toward secured and higher yielding credit exposure. - Company 2 - 24% below our estimate - expands coconut based beverages from niche shelves into mainstream aisles as retailers add branded products and private label contracts across channels. - Company 3 - 20% below our estimate - supplies circuit boards, RF components and mission systems into AI data centers, networking gear and defense programs that support hardware demand. Those are three of them. See all 33 potentially undervalued companies → This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include PEGA. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

This article first appeared on GuruFocus. - Annual Contract Value (ACV): Grew 7% year-over-year in constant currency to $1.66 billion. - Net New ACV: Added $32 million in Q3 in constant currency, strongest quarterly performance of the year; $52 million added through first three quarters of 2026. - Pega Cloud ACV: Grew 20% year-over-year, representing 59% of total ACV. - Pega Cloud Backlog: Increased 25% year-over-year in constant currency. - Total Backlog: Over $2 billion, with current backlog at approximately $1 billion. - Free Cash Flow: $290 million generated in the first three quarters of 2026; long-term target of $700 million or more in 2028. - Share Repurchases: Just under 11 million shares repurchased for approximately $430 million in the first nine months of 2026; total common shares reduced by 6.8 million shares. - Cash and Marketable Securities: Approximately $300 million at the end of Q3; company remains debt-free. - Headcount: Expected to be approximately 5,000 employees in Q1 2027, down a few hundred from current levels. - Warning! GuruFocus has detected 2 Warning Sign with QS. - Is PEGA fairly valued? Test your thesis with our free DCF calculator. Release Date: October 21, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. - Pegasystems Inc (NASDAQ:PEGA) was named a leader in both the Forrester Wave for AI platforms and Gartner's Magic Quadrant for Business Orchestration and Automation Technologies, highlighting its differentiated technology. - Pega Cloud ACV grew 20% year-over-year and now represents 59% of total ACV, with cloud backlog up 25% year-over-year, demonstrating strong cloud momentum. - Net new ACV in Q3 was $32 million, the strongest quarterly performance of the year, indicating improving execution. - The company is taking decisive actions to improve go-to-market execution, including regionalizing sales, unifying marketing, and creating a dedicated adoption team, which should drive better results in 2027. - Pegasystems Inc (NASDAQ:PEGA) maintains a strong balance sheet with no debt and approximately $300 million in cash, and continues to return capital to shareholders through buybacks and dividends. - ACV growth of 7% year-over-year in Q3 is below the company's potential, and management does not expect to achieve the full second-half plan, with full-year ACV growth likely between current levels and 10%. - Sales cycles remain elongated as enterprise clients, especially in financial services, apply greater scrutiny to large technology investments, involving more stakeholders and approval steps. - Customer deployment challenges persist, with some clients slow to adopt the latest AI capabilities, necessitating a new forward-deployed engineering team to accelerate adoption. - Free cash flow for the first three quarters was impacted by unusual cash expenditures, including legal settlements, and slower ACV growth, with full-year free cash flow expected to be lower than originally planned. - The federal public sector buying cycle has become less predictable due to procurement changes, which could impact Q4 results, although the company does not expect a significant impact. Q: Can you clarify the ACV outlook for 2026 and the expected timeline for the go-to-market changes to drive improvement? A: CFO Kenneth Stillwell stated that the go-to-market changes are moving fast, with major changes already executed and improvements expected in the early to mid-part of 2027. Regarding ACV, he noted that while growth is expected to accelerate in Q4, the company does not see a path for full-year 2026 ACV growth to exceed 10%, expecting it to land between the current level and that mark. Q: What is the path to the 2028 free cash flow target of $700 million given the current ACV growth and unusual expenditures? A: CFO Kenneth Stillwell explained that 2026 free cash flow is impacted by non-recurring legal settlements and restructuring charges. He outlined a path where adjusted free cash flow is expected to exceed $600 million next year, leading to the $700 million target in 2028, driven by structural cost changes and higher ACV. Q: How is the pipeline maturity and new logo activity shaping up for Q4 and 2027? A: CFO Kenneth Stillwell noted that while new logo activity is strong, close rates are harder to predict due to limited history. However, CEO Alan Trefler added that the pipeline entering Q4 is meaningfully more mature than at the same time last year, and the company is focused on maturing opportunities faster. Q: What is preventing customers from moving AI projects into production, and how is the new Lighthouse team addressing this? A: CFO Kenneth Stillwell stated that deploying AI requires a different mindset, and clients often need help driving value. The new forward-deployed engineering team (Lighthouse) is designed to work directly with clients to accelerate deployments. CEO Alan Trefler added that historically, customers were slow to adopt the latest releases, but the company is shifting culturally to get technology into customers' hands faster. Q: How should we think about the lag from Cloud ACV and backlog to revenue recognition? A: CFO Kenneth Stillwell clarified that Pega Cloud backlog typically converts to revenue over the next two to three quarters. He emphasized that the strength in Cloud ACV (59% of total) and backlog demonstrates long-term client commitment and is separate from the deployment challenges mentioned earlier. Q: Are you seeing the same level of AI scrutiny and purchasing behavior changes in the public sector as in commercial? A: CFO Kenneth Stillwell noted that while the public sector values AI, they have not diverted budgets to the same extent as commercial sectors like financial services, which have spent heavily on AI experimentation. He added that federal buying cycles are less predictable due to procurement changes but do not expect a significant impact on Q4 results. Q: What are your thoughts on the recent M&A activity in the software sector, such as Salesforce acquiring Braze? A: CEO Alan Trefler stated that the acquisition is not meaningful to Pega competitively, viewing it as an expensive way to generate attention in a confused market. CFO Kenneth Stillwell added that the uptick in M&A highlights the significant value of software knowledge bases and data, countering the "SaaSpocalypse" narrative. Q: Can you provide an update on the pricing environment and contract term lengths? A: CFO Kenneth Stillwell noted that term lengths remain stable. However, IT budgets are under pressure due to AI spending, leading to scrutiny around price escalations. He believes this pressure will settle as clients gain better control over their AI spend, and Pega's message of predictable costs resonates well. Q: What feedback are you receiving on Infinity Studio with Blueprint capabilities? A: CEO Alan Trefler reported enthusiastic customer response, noting that Blueprint helps existing customers engage with AI. CFO Kenneth Stillwell added that adoption of Infinity '26 is more than double the pace of Infinity '25 at the same point in time. Q: Did some of the deals that slipped from Q2 close in Q3, and what is the outlook for Q4? A: CFO Kenneth Stillwell confirmed that some previously delayed deals closed in Q3, while others slipped into Q4. He noted that the company is entering Q4 with its strongest pipeline ever, though the market remains less predictable, requiring strong execution. Q: How do new decisioning models like Jev impact Pega's competitive position? A: CEO Alan Trefler stated that Pega could potentially use such models in its product line. He emphasized that Pega's core value is making business processes and decisions transparent, contrasting it with opaque approaches like writing massive amounts of code or relying on complex prompts. Q: When will the organizational streamlining and go-to-market changes be implemented? A: CFO Kenneth Stillwell stated that the changes are underway, with some already made and others coming in the near term, aiming to start 2027 with improvements in place. CEO Alan Trefler added that the biggest changes have already happened. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. - Management acknowledged that internal execution has not kept pace with the AI market opportunity, leading to a series of structural changes to improve accountability and speed. - The current AI market is characterized by management as 'chaotic and confused,' with enterprise leaders shifting focus from chasing new models to seeking governed, operational value. - Pega is positioning its 'Blueprint' and 'Infinity' platforms as a 'recipe' for AI, emphasizing structured workflows over raw model reasoning to ensure predictable outcomes and costs. - Management argues that 95% of enterprise work is repeatable, making Pega's deterministic workflow approach more cost-effective and safer than continuous AI reasoning sessions. - Performance attribution for the quarter highlights a larger, more diversified pipeline, though growth was tempered by increased scrutiny on large technology investments and AI strategy validation. - The company is pivoting to a regional go-to-market model to move commercial authority closer to clients, addressing the trend of buying decisions moving higher within organizations. - A new 'Lighthouse' team of forward-deployed engineers has been created to directly address customer deployment challenges and accelerate the realization of business value. - Management expects ACV growth to accelerate in Q4 2026, though they candidly noted it will likely fall short of the original second-half plan, with full-year growth projected below 10%. - The company reaffirmed its long-term target of $700 million or more in free cash flow by 2028, contingent on improved ACV growth and continued cost discipline. - Headcount is expected to be streamlined to approximately 5,000 employees by Q1 2027 as part of the broader effort to improve operating leverage and execution discipline. - Management anticipates that the transition to the new regional operating model will begin showing measurable improvements in execution by early to mid-2027. - Capital allocation will remain opportunistic, with a focus on organic growth and share repurchases, having already reduced common shares by 6.8 million in the first nine months of 2026. - Free cash flow results included unusual expenditures related to the settlement of legal matters, which management does not expect to recur at the same levels in normal operations. - Sales cycles have extended as enterprise clients, particularly in financial services, add more stakeholders and approval steps to business case validations. - Management flagged that organizational changes and workforce reductions within client accounts have further contributed to timeline extensions for new contracts. - The company is centralizing go-to-market and consulting operations under the finance organization to drive greater consistency and scalability in resource allocation. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. - Management confirmed the most significant leadership changes have already occurred, with the full transition expected to conclude in Q1 2027. - The goal is to enter the new fiscal year with a model that places commercial authority closer to the market to compress sales cycles. - Ken Stillwell clarified that while growth is trending upward, he does not see a path for ACV growth to exceed 10% for the full year 2026. - The company enters Q4 with its strongest pipeline ever, but remains cautious due to unpredictable market dynamics and scrutiny on AI spending. - Alan Trefler argued that new AI models like Jev lack the transparency and governance required for enterprise scale, which Pega provides through visual logic. - He noted that Pega intends to harness frontier models as 'ingredients' rather than competing directly with them, maintaining a focus on the 'recipe' of workflow orchestration. - Management identified a cultural shift where customers must move away from 'N minus one' release strategies to stay competitive in the fast-moving AI era. - The new Lighthouse engineering team is specifically designed to bridge the gap between software purchase and active production use.

Pegasystems (NASDAQ:PEGA), the customer service software stock, slipped 3.6% through 1:30 p.m. ET Wednesday after missing badly on earnings last night. Analysts had forecast Pegasystems would earn $0.49 per share on $421.8 million in sales in Q3, but the company actually earned only $0.35 per share, and its sales came in below $393.4 million. Missed AI's "Act 1"? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue » Image source: Getty Images. Pegasystems grew its sales 3% year over year in Q3, but its GAAP profits plunged 68% and earnings per share 67%. Not only did Pegasystems miss on earnings -- its "$0.35" profit was only a non-GAAP number; actual earnings calculated under generally accepted accounting principles (GAAP) were only $0.08 per share. Despite the disappointing results, CEO Alan Trefler insists he's "confident in our long-term winning strategy to harness models like Claude, OpenAI GPT, and Gemini." CFO Ken Stillwell added that "our Q3 ACV" (that's annual contract value) "add was the strongest of the year and reinforces our confidence" that Pega is on the right track. ACV rose 6% in Q3, twice as fast as revenue. Neither revenue nor "ACV" are most important for Pegasystems investors, however. Free cash flow is. Last year, Pega generated $490 million in such real cash profits, but the company's closer to $438 million, annualized, right now. That values Pega stock at only 13x free cash flow after today's drop. Stillwell, however, predicts that by 2028, the company will grow its FCF number to "$700 million or more." If he's right about that, that's a near-term FCF growth rate north of 25%. And if he's right about that, then Pega stock is very, very cheap at a price-to-free cash flow ratio of only 13x. Investors might want to consider that before selling today. Before you buy stock in Pegasystems, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Pegasystems wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $370,440!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,330,110!* Now, it's worth noting Stock Advisor's total average return is 924% — a market-crushing outperformance compared to 212% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of October 21, 2026. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Why Pegasystems Stock Dropped After Earnings was originally published by The Motley Fool

Image source: The Motley Fool. Wednesday, Oct. 21, 2026 - Vice President of Corporate Development and Investor Relations - Peter Welburn - Founder and Chief Executive Officer - Alan Trefler - Chief Operating Officer and Chief Financial Officer - Ken Stillwell Operator: I will now hand the conference over to Peter Welburn, Vice President of Corporate Development and Investor Relations. Please go ahead. Peter Welburn: Thank you, Ellen. Good morning, everyone, and welcome to Pegasystems' Q3 2026 earnings call. Before we begin, I'd like to read our safe harbor statement. Certain statements made during this call and in the accompanying materials may be construed as forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, forecasts, and similar expressions are intended to identify forward-looking statements. These statements speak only as of the date this statement was made and are based on current expectations and assumptions. Because these statements relate to future events, they are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations for fiscal year 2026 and beyond. Important factors that could cause actual results to differ materially are described in the company's press release announcing our Q3 2026 results and in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31st, 2025, as well as other recent SEC filings. Investors are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. In addition, non-GAAP financial measures discussed on this call should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Constant currency measures are calculated by applying the September 30th, 2025, foreign exchange rates to all periods presented. Reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. With that, I'll turn the call over to Alan Trefler, Founder and CEO of Pegasystems. Alan Trefler: Thank you, Peter, and thank you to everyone joining us today. Before Ken covers our results, I want to just touch on the AI market context and why it is a major long-term opportunity for Pega. Our technology is differentiated and very relevant to the times we are in. However, candidly, our execution this year has not kept up. We are making real changes to better capture the opportunity, and Ken will be providing more detail in a moment. I would say the market status is confusion and a search for value. Enterprise leaders are facing tsunamis of AI hype. This is the most chaotic and confused technology market I have seen in my career. It makes the internet bubble of 2000 look like it unfolded in slow motion. There is real promise in AI, and occasionally real delusion. This quarter, Salesforce announced Claudeforce, essentially tying its future to Anthropic, a company that has said publicly it is going after all of Salesforce's TAM, their targeted addressable market. Then in September, Anthropic called for a pause in AI development, and leaders at OpenAI and other frontier labs chimed in to support the idea. But in the months since, Anthropic has released three major Claude model changes. OpenAI has also released three major GPT models. Google has released a new Gemini model. That is not counting the new models from Mistral, Qwen, DeepSeek, or model labs that are using things internally they haven't released yet. I guess this is what a pause looks like these days. No wonder everyone is confused. The leaders I spoke to at businesses have actually stopped chasing the latest model. They want AI connected to business operations in ways that deliver measurable value while maintaining governance and controlling costs. The market is full of ingredients, and enterprises need a recipe. That is what Pega delivers. The changes that Ken will talk about are focused on getting that recipe directly to the customers and senior leaders who need it. Much of the AI industry is selling models and tokens. Pega is offering something different, a structure for AI that delivers predictable outcomes and predictable costs built on how enterprises really operate. Our architecture harnesses the power of LLMs and our own statistical AI to transform how enterprises design, build, and run the workflows and decisions that power their businesses. Models are an important ingredient, but the recipe for AI demands structure you can put around the model to provide operational context that tells it what to do. Our workflows wrap AI in a control and governance structure that feeds exactly the knowledge and context it needs at the right time. As Forrester put it in its very recent report on enterprise AI platforms, workflows, not insights, are the value driver for agentic AI. We apply that structure at every stage of AI transformation. At design, we help clients reimagine their workflows and decisions for an AI world. We build to help create and maintain the applications in a way that is understandable and accessible. We run them to create agentic workflows that behave predictably at scale. Leaders I speak to know they shouldn't just bolt AI onto legacy systems and outdated processes. They want to redesign the way they work. Blueprint harnesses AI to solve a problem that no one else has, giving business and IT teams a way to reimagine their operating model together. AI speed. It takes the raw power of generative AI and gives it a structure built on decades of Pega's workflow expertise and industry best practices. Blueprint combines the raw power of models like Claude, GPT, and Gemini with the decades of our knowledge from the work we have done with leaders in various industries. It helps establish the rules, workflows, policies, and operating model upfront before an application goes into production. The result is a repeatable recipe for how businesses should run, translated directly into working systems. Here is what much of the AI play misses, that 95%+ of work a business does each day repeats. Processes themselves will be transformed by AI, but once you figure out how to process a dispute or best onboard a new customer, you want to do it the same way at scale. Letting AI reasoning run roughshod over that repeatable work is risky and expensive. Blueprint uses AI to capture those repeatable processes. We design them to be far more efficient, and then run them consistently at massive scale, without a massive token bill. Not only is this far more cost effective, it is exactly the right approach for AI governance. By creating the workflows you plug directly into the Claude or GPT or AI tool of your choice with MCP connectors, you are building workflows that tell agents exactly what they are allowed to do, what data they can access, and what rules they must follow. We believe the right way to govern AI is to design it into the processes from the start. This is exactly what Blueprint does and the Pega technology does. While others are selling control towers or kill switches to manage problems after they happen, we consider that madness. It is addressing the problem too late and in the wrong place. Our clients can not afford to rely on a kill switch. With our approach, they never need one. The key here is structure. By helping clients finish design their recipes in days and load Blueprint into Infinity to build the application, they are able to run with agents like Copilot, Claude, and Codex. We also let clients bring their own model. If for some reason they have something, either an activity or they have a preference. We have added into our development environment more than 50 agent skills. The developer's environment and the Pega environment operate in a collaborative and comprehensive fashion. Developers can get the speed of agentic development, but we provide the structure that makes it understandable, reusable, and scalable. We understand that one of the pitches AI companies are making is code it yourself. The reality, we have competed against code it yourself for decades. Of course, AI coding tools are powerful. We use them ourselves, and we have built them into the AI assistants in Infinity Studio. This does not change the underlying question. AI agents generate lots and lots of code. Millions of lines. More code than we have ever seen before. Much of that code becomes very hard to understand and even harder to change six or 12 months later. That is at the heart of the Pega difference. In Pega, the logic stays visual and transparent, not buried in code so dense that only agents can read it. Business and IT users can look at the workflows, the rules, and the configuration in Pega and see exactly what their application does. This is what it means to build for change. At runtime, Pega applications run agentic workflows that orchestrate agents with control and governance. In Infinity, any agent, a customer service chatbot, an employee assistant, even one outside of Pega, can discover and run Pega workflows and decisions. They don't need to re-reason through every step. Blueprint has already done that for them at design time. We've put the human in the loop, blessing the design, as opposed to sticking them in every time a transaction runs. Pega Agentic workflows call for agents to perform specific tasks, like reading a document or researching a case or client history. The workflow sets the task constraints. So each agent is controlled in what it can do and what it can see. This small, focused agent approach obviates hallucination risk and uses far fewer tokens. That's how we can offer a fixed case price with no token charge. I'm getting a lot of enthusiasm from clients as to this approach. At PegaWorld, I compared this approach to a chef using a test kitchen to perfect the recipes before opening a restaurant. Rather than reinventing every dish for every customer. Blueprint is that test kitchen. At design time, clients create a collection of business recipes. The workflows, decisions, rules, data, and organize them so that they can be approved, understood, and most importantly, changed. At runtime, the system executes those recipes as predictable workflows, calling agents only at the steps where they add value. Deterministic work stays deterministic. By the way, this is also hundreds, maybe thousands of times more efficient than running a continuous reasoning session on graphical processing units. Clients reimagine the process and then run a successful recipe thousands or millions of times. Design once, reuse many. AI gets the workflow right at design time and is invoked discreetly at runtime with structure and governance built in. I think the industry is recognizing our differentiated approach. Just in the last several weeks, Pega was named the leader of the Forrester Wave for AI platforms, sitting next to companies like Amazon and Google. As I mentioned, in that report, they wrote that workflows, not insights, are the value driver in agentic AI, and we strongly agree. Last month, Gartner again named Pega a Leader in the Magic Quadrant for Business Orchestration and Automation Technologies, or what they call BOAT. I think you're going to hear that term a lot going forward because it really reflects the power that AI needs to bring to organizations. Gartner built this category on the idea that the combination of process orchestration, workflow orchestration, and agentic AI create the foundation for predictable enterprise AI outcomes. In terms of these two recognitions, Pega was the only company named as a leader in both. You can find both reports on pega.com. But the most important recognition is what we get from helping clients to maximize the value of their current AI investments and their goals. Together with our partners, we're delivering predictable outcomes that candidly just weren't possible before, all with predictable costs. At a large government agency, Pega workflow turns unstructured information into structured work, automatically processing documents and surfacing only the exceptions that require human judgment, helping people work more effectively while maintaining enterprise-grade governance and control. At a major U.S. bank, Pega's governed workflows and specialized AI agents has cut complaint resolution times from 10 days to 10 minutes. In a customer-critical and highly regulated process, Pega Agentic workflows orchestrate our agents and third-party agents to intake documents, classify requests, summarize histories, perform research, and determine next best action recommendation. Employees have embraced this new workflow right away. They report higher productivity and enthusiasm for capabilities that give them more time for judgment and customer outcomes rather than administrative. These results confirm to us that enterprises want AI, and that having AI that delivers predictable outcomes at predictable costs with governance built in is absolutely the right way to go. It's interesting because the market is chaotic, and there's more hype, more tokens, more models being discussed and feared by organizations. But with Pega Blueprint, with Pega Infinity, we can deliver outcomes, and we think that's incredibly important. I've also learned something from the dozens of successful clients I've spoken to in the last quarter. We have the right technology, but in a market this noisy and fast, we need to do a better job at directly helping our clients find clarity and keep up. Success happens when we have deep executive and technical engagement, a clear message that cuts through the market noise, and technical experts on the ground. While the quarter showed improvement from the first half, we don't think the growth of the quarter anywhere comes close to reflecting the opportunity in front of us, and we take responsibility for that. Buying decisions have become more complex, and we can be more consistent in helping clients move from interest to commitment and from commitment to adoption. We are acting on what we learned. We've moved accountability closer to clients with a regional go-to-market model. We've made steps to unify our message, and we are creating a dedicated team to accelerate adoption of the latest AI capabilities, bringing operations teams together to simplify and improve how we plan and operate. These are execution changes, not a change in strategy. We remain focused on helping enterprises apply AI to workflows and decisions, and helping them with governance, predictability, and economics that are required to scale. I'll hand it over to Ken to walk through the quarter's results and details of these operational changes. Ken Stillwell: Thanks, Alan. While our annual contract value growth through the first three quarters of 2026 did not reflect the opportunity we see in the market, we are encouraged by the engagement we are seeing with our clients and prospects. Clients are increasingly looking to transform how work gets done through AI, automation, and intelligent workflows. Companies, especially in regulated industries, have a big challenge in trying to keep up with the ever-changing regulations. We continue to see growing interest in Blueprint, agentic workflows, and automation initiatives that help organizations achieve predictable outcomes at predictable costs. While buying patterns have not fully normalized, we saw improved visibility and more consistent progression of opportunities through the third quarter. Our ACV add was the strongest of the year, representing a step forward. More importantly, the underlying market opportunity remains significant. Our focus is on improving how we execute against that opportunity. The go-to-market changes I will discuss shortly are designed to strengthen accountability, increase speed, and help us build on the progress we saw in the quarter. Looking back, our assessment is that the primary constraints have been execution, longer sales cycles, and customer deployment challenges rather than broad-based deterioration in market demand. Nothing we have seen in Q3 changes that view, that the underlying opportunity remains significant. As we look ahead, we are applying the lessons we have learned so far this year to better capitalize on the demand we are seeing in the market. We have already begun implementing a series of changes designed to increase accountability, improve speed of execution, and accelerate growth. First, in today's market environment, clients are best served when commercial leadership and day-to-day execution authority sit closer to the market within consistent company-wide pricing, contracting, and financial controls. Additionally, although the global demand has held up in spite of some of the European and Middle East conflicts, clients increasingly demand data sovereignty and governance. They want their systems, their data, their processes to be closer to their operations. They increasingly demand local control and support for their solutions. This fits perfectly into our Pega Cloud solution, but also with the option for cloud choice. As a result of all this, we are evolving our go-to-market leadership and coverage model. This change will bring leaders, resources, and expertise closer to in-region clients, enabling faster decisions, stronger engagement, and greater ownership of outcomes. It also returns us to an operating model where the senior leaders have more commercial-driven authority and more direct connection to our clients. As buying decisions increasingly move higher within client organizations, having our senior leaders in-region will help us engage more effectively and accelerate execution. We have seen this trend in the past, and we have successfully executed under this operating model. Second, we are creating a more unified marketing organization. To tell one clear and differentiated Pega story, we are bringing all marketing-related teams together under a single leader. In a market crowded with competing AI narratives, this structure will sharpen our positioning, strengthen execution across channels, and help us reach executive decision-makers more consistently. Enterprises are looking for clarity, confidence, and a trusted path forward. A unified marketing organization will improve our visibility and communicate more effectively how Pega helps clients succeed in the AI era. Third, we are rallying a new organization focused on accelerating adoption of Pega's AI capabilities while transforming our products to make it more dramatically easier for clients to access our latest innovation and stay current with Pega. The pace of innovation in AI is unprecedented, and the ability to successfully adopt and scale these capabilities is becoming the key differentiator between clients that experiment with AI and those who realize measurable business value from it. This new organization will bring together engineering, early adopter programs, and delivery excellence to quickly identify adoption barriers and turn those insights into improvements. It will also include a team of forward-deployed engineers, known as our Lighthouse team, who will work directly with clients to accelerate successful deployments and help them realize value faster. By bringing product teams closer to our clients, we can capture real-world best practices, identify what drives successful outcomes, and continuously accelerate deployment of agentic workflows so that clients can realize value fast. Over time, these learnings will become industrialized, making it easier for every client to benefit from agentic workflows. Additionally, we will create a tighter feedback loop between innovation and adoption. By connecting our product teams directly with our early adopters, we can shorten learning cycles, accelerate product development, and turn client insights into repeatable success. Fourth, we are centralizing go-to-market and consulting operations under the finance organization, having a single leader to simplify planning, resource allocation, and performance management across the company. Commercial and delivery leaders will remain accountable for strategy and client outcomes, while the unified operations team drives greater consistency, scalability, and execution discipline. Over time, we expect these and other changes to contribute to margin improvement and increased operating leverage. Taken together, these four actions are designed to improve execution in the near term while positioning Pega to deliver long-term durable ACV and cash flow growth to our shareholders. During the first quarter of 2027, we expect our headcount will be approximately 5,000 employees, down a few hundred from where we sit today, as we streamline the organization and improve execution. Moving to our financial results. Annual contract value, or ACV, grew 7% year-over-year in constant currency to $1.66 billion. In Q3, we added $32 million in net new ACV in constant currency, our strongest quarterly performance of the year, and a step forward in rebuilding growth momentum. Pega Cloud continued to drive that performance. Pega Cloud ACV grew 20% year-over-year and represented 59% of our total ACV. Pega Cloud backlog increased 25% in constant currency year-over-year, demonstrating the continued strength of our cloud business. Total backlog now stands at over $2 billion, with current backlog at just around $1 billion. Backlog reflects existing non-cancelable contracts expected to be recognized as revenue in future periods. Two factors shaped the quarter. First, we entered Q3 with a larger and more diversified pipeline, with strength across both new logos and workflow expansion within our existing install base. Second, purchasing behavior continues to evolve. We did see some movement to more normal buying patterns in the third quarter. However, enterprise clients, especially in the financial services sector, are applying greater scrutiny to large technology investments, particularly around business case validation, AI strategy, and implementation timing. Decision processes now involve more stakeholders and additional approval steps than we have seen in recent years. Decisions continue to go to senior leaders in the organization, and that is the importance of our go-to-market change, is to connect our teams with the decision-makers. Separately, organizational changes and workforce reductions within several client accounts can extend timelines further. Let me be clear about what we're not seeing. Win rates are remaining generally consistent with prior periods, and we're not seeing a meaningful shift in competitive dynamics. The constraint is how long it takes for clients to reach a decision, not whether we win when they do reach that decision. We are addressing that directly by driving prospecting activity, leveraging Blueprint, and increasing executive-level engagement to compress sales cycles, and also to build incremental pipeline. Below the headline numbers, several leading indicators improved. Pipeline volume strengthened during the quarter, Blueprint engagement continues to expand, and more opportunities are progressing toward the decision process, in the decision process. Turning to free cash flow, we generated $290 million of free cash flow in the first three quarters of 2026. There's two factors that impacted that result. First, free cash flow included an unusual level of cash expenditures that we do not expect to recur at the same level in normal operations. We've included those expenditures in our free cash flow, and we're providing supplemental detail to investors so they can evaluate the nature and the timing of those. Second, ACV growth was lower than our original plan. Slower net new ACV translates into lower billings, lower collections, and lower free cash flow than we had modeled. As a reminder, our billings are seasonally weighted toward the fourth quarter, consistent with the renewal concentration that we discussed earlier in the year. As a result, free cash flow follows a similar seasonal pattern, with the two largest net free cash flow production being in the first quarter and the fourth quarter of the year. Turning to capital allocation, our capital allocation strategy features several key elements. First, invest in organic growth. Our highest return use of capital remains product innovation and go-to-market capacity. That spending is largely built into our operating model. Second, repurchase shares opportunistically. We've leaned higher into buybacks in 2026, more than in a prior year, and we did so deliberately. In the first nine months of 2026, we repurchased just under 11 million shares for around $430 million in the open market under prior board authorizations. Total common shares were reduced by 6.8 million shares in the first nine months of 2026. At current levels, repurchasing our shares can be an attractive use of excess capital after funding our organic growth priorities. Buybacks are accretive to earnings, offset dilution from stock-based compensation, and compound value when executed at attractive valuations. We will continue to compare repurchases with other uses of capital and act selectively and strategically around our buyback program. The third element of our capital allocation strategy is to pay a consistent and increasing dividend. We view the dividend as a long-term commitment, and we intend to grow it over time. Fourth, we maintain balance sheet strength and flexibility. We remain debt-free, and we will evaluate any future use of debt against our strategic priorities, expected returns, and commitment to financial flexibility. We ended the third quarter with approximately $300 million in cash and marketable securities. Looking ahead, we will continue to return capital to shareholders opportunistically while preserving strategic flexibility. We're disciplined buyers, not automatic ones. Following our July earnings call, many of you asked for some additional perspective on how we're thinking about the remainder of the year. As a reminder, we provide annual guidance at the beginning of the year and do not typically update our outlook intra-year, nor do we guide quarterly. Given the many calls for more color, we've decided to share a few more thoughts on ACV and free cash flow as it's late in the 2026 cycle. On ACV, we added $52 million of net new ACV in constant currency through the first three quarters of the year. We expect we will deliver an acceleration of growth in Q4, but we don't believe that we'll achieve our full plan for the second half. On free cash flow, given the unusual level of cash expenditures incurred this year, we also believe it's useful to consider supplemental cash information to determine the cash-generating capability of our business. Please see our earnings release for more detail on these supplemental items. We're not changing our long-term ambition. We continue to target $700 million or more of free cash flow in 2028. Although ACV growth has slowed this year, the underlying economics of our business remain intact. Net new ACV creates future billings growth. Those billings ultimately convert into increased cash flow. Achieving our 2028 target will require stronger ACV growth and continued cost discipline, and we are aligning our cost structure with our growth trajectory and take the appropriate actions to improve our operations, positioning the business to ensure achieving that objective that we have for $700 million or more in 2028. Stepping back, organizations worldwide are rethinking how work gets done in an AI-driven economy. That shift plays directly to capabilities we have spent years building. Workflows and decisioning that apply AI to mission-critical business operations with governance, predictability, and scale enterprises require. While execution remains our top priority for the balance of Q4 and beyond, our long-term conviction has only strengthened. We remain confident in our market opportunity, confident in our ability to deliver substantial and growing free cash flow, and confident in our disciplined approach to balancing growth and profitability to sustain a strong Rule of 40 performance and create significant long-term value for shareholders. With that, operator, please open the line for questions. Operator: Thank you. We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand, and to withdraw your question, press star one again. We ask that you pick up your handset when asking a question for optimum sound quality, and if muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Raimo Lenschow with Barclays. Your line is open. Please go ahead. Raimo Lenschow: Perfect. Thank you. Ken, it was really interesting to hear your remarks on streamlining the organization or just changing the go-to-market. Is that something you're doing to do? Sorry, I'm down under the weather a little bit. Is this something that you do mid-year now, or is this the plan for the new financial year? Can you speak to that, please? Ken Stillwell: Yeah. We're in the process. Some of those changes we've already made, Raimo, and some of them are coming in the future weeks. We want to prepare ourselves so that we start 2027 with as many of the improvements as we can get done. Some of them will go into the first quarter of 2027. This is something we're doing in the very near term. Alan Trefler: The biggest changes have already happened. Raimo Lenschow: Okay, perfect. You've talked before that Q4 has a much better renewal pool. That should probably help you as well. What's the situation if you think about next year as well, if you think about do better results potentially coming out next year? I don't know if you can comment or probably not quantitatively but qualitatively. What's the true progression from here then? Thank you. Ken Stillwell: Yeah. I will make one comment about 2027, but naturally, we are in our planning process and things that happen in Q4 of 2026 will obviously impact 2027. So there is still a lot of things that are still in the works. But I would say we would expect to grow from where we are now in Q3 and Q4 and into 2027. And just based on the distribution of ACV growth in 2026, based on my visibility, I would not anticipate it being as back-end loaded at this early stage as what 2026 looks like it is going to play out to be. Raimo Lenschow: Okay, perfect. That is very helpful. Thank you. Ken Stillwell: Thank you. Operator: Your next question comes from the line of Steve Enders with Citi. Your line is open. Please go ahead. Steve Enders: Okay, great. Thanks for taking the questions this morning. Maybe just to start, I guess it would be good to get your perspective on how long you think that the changes you are making will take to play out and drive the better execution and I guess ultimately what that means for sales and new ACV moving forward. I guess also would like to clarify the comment you made about ACV and not achieving the second half plan that you were expecting. Can we just maybe get a little bit more clarity on, I guess, what exactly that means? Ken Stillwell: Sure, Steve. We are moving fast on the changes, and many of these changes are already in the works. Some of them, as Alan mentioned a second ago, have already been executed. I do not believe this is going to be a long drawn-out change. Now, the second part of that question is, when do you think you will see some of the improvements from that? I would expect this change to not take a significant amount of quarters, I would say. There is always a quarter or two of change management that we need to manage going in when we are starting a new year. I would not expect this change to drag out over a long period of time. I would expect that we would hope to see improvements from this model in the early to mid part of 2027. The second question that you asked about ACV, and really what I am saying is I believe our ACV growth is going to be up from here. But I do not see a path where our ACV growth would be above 10% for the 2026 year. I would say we are seeing our ACV growth be somewhere between where we are now and 10%. Steve Enders: Okay. All right. Very clear. That is helpful there. Then maybe just on the technology side, and we keep hearing about things of decisioning models and things like Jev that out there on the market, and we keep getting the question from investors about maybe what that means for Pega and I guess your decisioning capabilities, and if you viewed that as a I guess it would be good to get your perspective on how you are seeing that maybe competitively or what that means from tech adoption moving forward with some of these decisioning models starting to come out. Alan Trefler: Sure. We, as you would expect, pay close attention to all of this. We actually think things like Jev may be things we find opportunities to use in our product line. At its core, the big deal about Pega is that we make the way that business runs processes and makes decisions transparent. At the end of the day, the folks who are trying to go down the alternate paths, one which is, hey, let's write it all in code. Well, candidly, massive amounts of code are not very transparent. Or, hey, let's just try to program prompts that the AI will figure out how to do things. That's candidly the exact opposite of transparent. I was talking with a customer who complained to me that he had 1,000 lines of prompt that they were trying to edit to figure out how to get small behavior changes. That's exactly the sort of thing that happens. These new models, the interesting thing is the AI models that are out there and evolving, which by the way, we can harness. Part of what we do is we want to use the frontier and other models. They don't fix the core lack of transparency and lack of governance that you have by doing this stuff at runtime instead of design time. Steve Enders: Okay, perfect. All right. Well, appreciate your thoughts and thanks for taking the questions. Operator: Your next question comes from the line of Devin Au with KeyBanc Capital Markets. Your line is open. Please go ahead. Devin Au: Great. Good morning. Thanks for taking my question. Maybe just want to look at, I wonder if you can talk a little bit about the pipeline maturity as we look at fourth quarter year. How much of that pipe is in late stage, and how much of the expected growth is supported by new logos, which is an area we've seen strong traction come into the second half, and just more color there. Ken Stillwell: I'm sorry, you were a little bit rough together. Really just the question is pipeline and new logos? Devin Au: Yeah. Ken Stillwell: Sorry, Devin. I couldn't quite hear you there. There's a pro and a con around when you sell to new logos, right? The good thing is we're seeing a lot of great activity, a lot of good pipeline build. It's very exciting to see clients, our prospects that don't really know much about Pega, being very intrigued by our value proposition in such a short period of time, and the teams are working really hard to engage. That's the positive. Maybe the more cautious part of this is, it's hard to predict close rates and progression rates with new logos because we don't really have a history of it. We're kind of in a game where we've been closing some new logos, but learning from offers, pricing, value positioning, targeting, all those things. I would say we're definitely getting growth from new logos. We're still in that maybe learning a little bit about what works and maybe what we need to double down on or change. Alan Trefler: But in terms of the maturity- Devin Au: Got it. Alan Trefler: I would tell you that the stage of our opportunities as we enter Q4 and think about next year, is meaningfully more mature than it was at any other time this year. So the pipeline, I would say, is looking very promising, and we're really putting a lot of focus, particularly with some of these new changes, on maturing opportunities and getting them to offer faster. Devin Au: Understood. Thanks for the details there. Then just a quick follow-up. Maybe just give an update on how your public sector business has kind of performed in third quarter, just given that's usually a pretty big quarter for that end market. I don't know if you've seen any sort of delays in that sector with the upcoming election here in the U.S. Thank you. Ken Stillwell: What I would say is the federal buying cycle has been, I would say, less predictable than what we've seen in past years because of a lot of the changes in how they procure, the system integrator changes that moved everything, moved a lot of buying onto GSA schedules. We don't expect that to get more clear in the fourth quarter. Also, buying activity is happening, and it's not like the government is not moving forward. It's just that it is less predictable. The Q4 quarter is not a particularly massive quarter. Our U.S. government business is pretty steady across the quarters, so it's not that there's anything unique in terms of size in Q4 around the public sector. But it definitely is a less predictable space right now just because of a lot of the changes that they've made to process. But I don't suspect that to be a big impact for our Q4 results. Devin Au: Got it. Thank you. Thanks for taking my questions. Operator: Your next question comes from the line of Patrick Walravens with Citizens. Your line is open. Please go ahead. Patrick Walravens: Oh, great. Thank you. Alan, given the news yesterday of Salesforce acquiring Braze and, paying a multiple pretty much twice where you guys are trading, I'd just love to hear your thoughts on what this means for the industry and what it means for you. Alan Trefler: Well, I can't actually think of a time when we've ever competed against Braze. I don't think, from a product acquisition point of view, it's very meaningful to us. I think when I look at this industry, I look at an industry that's really confused. I think companies are doing whatever they can to try to generate revenue and attention and stand out. It feels to me like buying Braze was an expensive way to do it, but I don't think it affects our competitive dynamic. Ken Stillwell: One thing I would say, Patrick, that's not really a Braze comment, but something we've seen. I do think you've seen M&A activity around technology companies start to spin up a little bit in the last few months, and I do think that highlights what I believe to be is the significant value that maybe was questioned maybe six to nine months ago around software. I definitely think you're seeing the Schneider Electric purchase of PTC, for example. I think there's a lot of value attributed to the knowledge base that software has, the engagement we have with users, and also the data that we actually have within our system. I definitely think that there is a little bit of that angle to that, and Braze might be in that bucket. That's just something that we've been watching. Not particularly because we're a buyer or seller, more just to learn what's happening in the software space. Alan Trefler: Yeah, I think your point, this does sort of put the question to the dying SaaSpocalypse commentary, which we're seeing customers recognize that there is software in their future, and obviously Salesforce does too. Patrick Walravens: Yeah, and investors too. If you look at my universe as a whole, four months ago, the median stock was down 33%, the median, Alan. Now the median is up five year to date. The follow-up question would just be, would you guys be open to being acquired? And the flip side of that, what would you want to acquire, if anything? Alan Trefler: Well, I think, answering either of those questions would make this one hell of an earnings call, wouldn't it? Patrick Walravens: It really would, yeah. Alan Trefler: We are going to have to respectfully decline. Patrick Walravens: You can do the what would you like to acquire. Alan Trefler: Look, we feel pretty strong. Patrick Walravens: You can do what is on your radar list, right? Or how you think about it. Alan Trefler: Look, we look at companies routinely. We have typically technology purchases that really sort of tuck in to the overall model. We are feeling pretty darn good about the shape of our technical products right now. We really think that we are onto something. We just have to convince more of the market that we are onto it, and that is what our mission is going to be. We do not have an active, specific shopping list. Peter here is constantly talking to firms, as you know. Patrick Walravens: Thank you very much. Operator: Your next question comes from the line of Blair Abernethy with Rosenblatt. Your line is open. Please go ahead. Blair Abernethy: Thank you. Just a couple of things for me. I wonder, any early signs of feedback from Infinity Studio with Blueprint's capabilities added in? Are you seeing anything there? Alan Trefler: Yeah, we're seeing customers respond with enthusiasm to it. It's still young, is the reality of it. But customers like that this actually does a much better job of taking existing customers and giving them a path to engage with our AI. With hindsight, I wish we had done it sooner. Ken Stillwell: One thing we have seen, Blair, is that we've seen at this point in time when we released 2025, we have more than twice as many clients have moved to Infinity '26 as at this point in time when we released Infinity '25. We are seeing a much more aggressive, clients want it. That's something we are seeing. Blair Abernethy: Okay, great. Ken, just on the environment, are you seeing any changes in the pricing environment this year, anything in terms of what you're seeing with the contract renewals or term lengths, just given the changes in the pipeline execution? Ken Stillwell: No. Term lengths, no. I think that always bounces around, but I haven't seen anything like clients trying to do longer or shorter terms. I think that does move around. It's kind of client specific. In terms of pricing, the one thing I would say is that with all the spend on AI, I definitely think IT budgets are under pressure this year. That does make for scrutiny that happens around price escalation, CPI, things of that nature. We definitely see some of that, and I think that's just tied to clients that spend a lot of money on AI, dabbling and trying to find some value. I do, based on what we've seen with our clients. I think that will settle, and I think clients have a better view now of where they may be controlling their AI spend better than they had earlier in the year when I think it was a little bit more out of control. But I think some of that does play into just enterprise buying pressures. There's just some of that out there. Alan Trefler: Yeah, and what you said about out of control. Look, let's face it, a whole lot of companies got caught overspending their budgets in the second and third quarters. I think that's normalizing, and candidly, our message about predictable cost is a great way for clients to get their use of AI back in control. Blair Abernethy: Great. Thanks, guys. Operator: Your next question comes from the line of Patrick McIlwee with William Blair. Your line is open. Please go ahead. Patrick McIlwee: Hi, team. Thanks for the questions. First one on free cash flow. Despite the weaker ACV growth and cash generation this quarter, you are maintaining the fiscal 2028 free cash flow target. I know there were some unusual expenditures within that this quarter, but as we think about some of the strategic tweaks you are making, like ramping FDEs and then some rockier trends in growth, Ken, can you just talk about some of the expectations underlying that target at this point, and maybe how much the path to that has changed over the last few months? Ken Stillwell: The main, what I was considered to be non-recurring or non-operational spend that we have had in our cash flow this year, and some of it will be into next year, is related to the settling of a number of our legal matters. I would say that is a big component of it. We will also have some restructuring charges that will probably get firmed up between now and the beginning of the first quarter of 2027. I would consider those to be the non-recurring type items that we would add back to show you what more operating cash flow would be. I would see a path of where that adjusted free cash flow would be above $600 million next year and then on to a $700 million path in 2028. That is kind of what we see. This year, the number will be lower, naturally, because we have not made some of those structural changes to our cost structure, and we have got some of these kind of unusual one-time things related to some of the legal matters, some of them being settled. This year will be lower cash flow with some higher amount of add-backs. Next year, we will have a smaller amount of add-backs and increased cash flow from higher ACV and some of the cost changes. Then we will be on track to go to that $700 million number in 2028. Hopefully, that is helpful. Patrick McIlwee: Okay. Yeah, helpful. Thanks, Ken. Following up, regarding the customer deployment challenges and the constraints on growth and the FDE team, you are now ramping to address that. My question is, what specifically do you feel is preventing customers from moving some of these projects into production today? Are those mostly implementation and/or integration challenges, or do you feel at all that there are some aspects of the core product that could need to become easier to deploy and ultimately maintain? Ken Stillwell: I don't think Pega's alone in this challenge. Deploying things in an AI world is a different mindset of actually how you instrument and deploy and get value. I think that just like many of the clients that are deploying AI have spent a tremendous amount of money trying to bring in consultants and system integrators to try to help them figure out where AI can add value. Some of that is adopting AI in a new paradigm around how you develop workflow and automation solutions on Pega as well. I think some of that is just us getting our engineering teams and our professional service teams and our solution consultants to really be with the client and actually helping them drive that value. That's the big change, as opposed to letting clients do it more on their own, which is traditionally how software has been deployed. Alan Trefler: Look, I think historically, and this goes back years. Our customers and we were pretty slow at times to deploy the latest tidbits. The reality is, we actually have had customers who have told us they never want to be on the most recent release. They want to be on N minus one, or in one case, I have a customer who used to want to be on N minus two. Getting things into the hands of customers quick is not something that had been part of the way we operated historically. Now we're much better positioned to do it with the combination of Pega Cloud and some of the changes we're making. It is a shift. I recently told a customer that having an N minus one strategy is just setting yourself up to lose. I don't think that works anymore in the current technology realm. We need to reposition ourselves and get more assertive about getting the technology out, even though we're faster than we've ever been before. We can be a lot faster than we are, and that's a big area where I'm trying to drive the company culturally. Patrick McIlwee: Mm-hmm. Okay. Very helpful. Thank you both. Ken Stillwell: Thank you. Operator: We ask that you please limit yourselves to one question so that we may accommodate all participants. Your next question comes from the line of Lucky Schreiner with D.A. Davidson. Your line is open. Please go ahead. Lucky Schreiner: Great. Thanks for taking my question. You guys called out the stronger net new ACV, and you had originally called out the year would be back half weighted. Last quarter, I know you guys had some push deals that were still in the pipeline. Just curious if you can maybe level set for us some of the puts and takes around. Did some of those push deals close, and how did that contribute to the net new ACV this quarter? Thanks. Ken Stillwell: Sure. We did have some deals close that were expected to close earlier. We also had some deals slip into Q4 that we thought were going to close in Q3. What I would say is our Q4, naturally, we have a lot of work to do because it is only October 20th. We have a lot of work to do in Q4. The quarter just started. We are entering it with the strongest pipeline that we have ever had, I think maybe in a Q4 ever. That said, the market is not as predictable as it has been, and so we have to balance that in terms of our expectations. We have plenty of pipe, plenty of opportunities, and we just need to focus on our execution and helping our clients, quite frankly, get out of their own way at times, to actually move forward on some of these advancements. Operator: Your next question comes from the line of Mark Schappel with Loop Capital Markets. Your line is open. Please go ahead. Mark Schappel: Hi, thanks for taking my question. Ken, just building on an earlier question on your public sector business, are you seeing some of the same purchasing behaviors and AI scrutiny in your public sector business as you are seeing in your commercial business? Ken Stillwell: That is a really good question, Mark. Maybe I will give you our perspective, or my perspective. On the commercial side, in certain verticals, specifically financial services being a big one, they have spent a lot of money in AI to kind of test things out, to try things out, to evaluate. I would say in the public sector, not as much. So I would say AI is still important to the public sector, but I do not think they have distracted budgets to the same extent. Mark Schappel: That's helpful. Thank you. Operator: Your next question comes from the line of Alexei Gogolev with JPMorgan. Your line is open. Please go ahead. Alexei Gogolev: Hello, everyone. Ken, I wanted to ask about Cloud ACV and the backlog strength. Now that the Cloud ACV is 59% of total, and cloud backlog is up strongly, how should we think about the lag from Cloud ACV and backlog to cloud revenue recognition over the next few quarters, especially given the deployment challenges that you talked about? Ken Stillwell: I'm glad you actually said that. I wouldn't connect what we talked about with helping clients get adoption with things that are already in Pega Cloud or Pega Cloud backlog. That's more around things that are in the pipeline. Hopefully that's a helpful clarification on that. That's more about our future growth. The things that are in Pega Cloud backlog typically come into revenue over the next two to three quarters, typically. The first part of your question was how should we think about Pega Cloud going to 59% and the strength in backlog? I think what that really highlights is that our clients are very committed to Pega and committed over a long-term. I think that's a great sign. Pega Cloud, the current RPO tends to come in a couple of quarters after it enters, just depending on effective dates, when things start, the specific contracts, and how they roll into revenue. But just assume a couple of quarters, Alexei. Alexei Gogolev: Thank you. Ken Stillwell: You're welcome. Operator: We have reached the end of today's Q&A. I will now turn the call back to Alan Trefler for closing remarks. Alan Trefler: Thank you to everybody who joined this call. I will share with you that we are actually incredibly excited about this opportunity and the important strategic direction that we took a couple of years ago when we decided to go after things with this design and runtime distinction, this highly differentiated approach that we are more convinced than ever is exactly right. Candidly, when we see organizations struggle with rogue agents, boy, it makes us smile a little bit that we chose an approach that mitigates that. Getting this to be turned into business revenue, solid results, is exactly what our mission is, and I will tell you that we are very energized about it. Thank you very much, and look forward to talking with you all again soon. Operator: This does conclude today's call. Thank you for attending. You may now disconnect. 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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Pega (PEGA) Q3 2026 Earnings Call Transcript was originally published by The Motley Fool

- Interested in Pegasystems Inc.? Here are five stocks we like better. - ACV growth improved but remained below expectations: Third-quarter ACV rose 7% year over year to $1.66 billion, with $32 million in net new ACV. Pega Cloud ACV grew 20%, while full-year growth is expected to remain below 10%. - Pega is emphasizing governed AI workflows: The company is positioning Blueprint and Infinity to help enterprises deploy AI agents within controlled business processes, with management citing faster customer-service resolution and government workflow applications. - Organizational changes aim to improve execution: Pegasystems is adopting a regional go-to-market structure, consolidating marketing and consulting operations, and expanding customer deployment support. Headcount is expected to fall to about 5,000 in early 2027, while the company targets adjusted free cash flow above $600 million in 2027 and $700 million or more in 2028. - Amid the "SaaS Apocalypse," These 3 Names Are Boosting Buybacks Pegasystems (NASDAQ:PEGA) said third-quarter annual contract value growth improved from earlier in the year but remained below the company's view of its market opportunity, prompting changes to its go-to-market structure, marketing organization and customer deployment efforts. Annual contract value, or ACV, rose 7% year over year in constant currency to $1.66 billion. The company added $32 million in net new ACV during the third quarter, its strongest quarterly result of 2026, according to Chief Operating Officer and Chief Financial Officer Ken Stillwell. Through the first nine months of the year, Pegasystems added $52 million in net new ACV. → The AI Sell-Off Continues—These 3 Stocks Keep Raising Guidance Anyway - 3 AI and Cloud Stocks With Analyst Conviction and Long Runways "While our annual contract value growth through the first three quarters of 2026 did not reflect the opportunity we see in the market, we are encouraged by the engagement we are seeing with our clients and prospects," Stillwell said. Pega Cloud ACV increased 20% year over year and accounted for 59% of total ACV. Cloud backlog rose 25% in constant currency from a year earlier, while total backlog exceeded $2 billion, including approximately $1 billion of current backlog. Stillwell said Pega Cloud backlog generally converts into revenue over the following two to three quarters. → Tesla's Roadster Reveal Hints at 2 Much Bigger Moves - Time to Take Notice: PEGA's GenAI Blueprint Delivers Huge Q3 Beat Founder and CEO Alan Trefler said enterprise customers are seeking practical AI applications with governance, predictable costs and measurable operating value rather than simply pursuing the newest available models. He described the current AI market as highly confusing and said customers increasingly want AI connected to business processes. Trefler emphasized Pega's Blueprint and Infinity offerings, which the company positions as tools for designing, deploying and managing workflows and decisions supported by AI. Pega's approach uses workflows to define what AI agents can access and do, rather than allowing agents to independently reason through each step of a repeatable process. → Luxury's Middle Market Is Cracking—These 3 Stocks Could Win "The market is full of ingredients, and enterprises need a recipe," Trefler said. "That is what Pega delivers." The company said Blueprint combines models such as Claude, GPT and Gemini with Pega's workflow and industry expertise to help customers establish processes, rules and policies before applications enter production. Trefler said Pega can offer fixed case pricing without token charges because its approach invokes AI agents for discrete tasks rather than relying on continuous reasoning sessions. Trefler cited customer examples including a major U.S. bank that reduced complaint resolution times from 10 days to 10 minutes using governed workflows and specialized AI agents. He also said a government agency is using Pega workflow technology to turn unstructured information into structured work and route exceptions requiring human judgment. Management said slower growth reflected execution issues, longer sales cycles and customer deployment challenges rather than broad-based deterioration in demand. Enterprise customers, particularly in financial services, are applying greater scrutiny to large technology investments, with more stakeholders involved in validating business cases, AI strategies and implementation timing. Stillwell said win rates have remained generally consistent and competitive dynamics have not changed materially. The issue, he said, is the length of time required for customers to reach decisions. Pegasystems is implementing four principal operational changes: - Shifting to a regional go-to-market model that gives in-region leaders more commercial authority and closer relationships with customers. - Combining marketing-related teams under a single leader to present a more unified market message. - Creating an organization focused on AI adoption, including forward-deployed "Lighthouse" engineers who will work directly with customers on deployments. - Centralizing go-to-market and consulting operations under the finance organization to simplify planning, resource allocation and performance management. Stillwell said some changes have already been completed, with others expected over the coming weeks and into the first quarter of 2027. He said management hopes the actions will begin producing improvements in the early to middle part of 2027. The company expects headcount to be about 5,000 employees during the first quarter of 2027, down by a few hundred from current levels, as it streamlines the organization. Management also said it is trying to accelerate customer adoption of newer technology releases. Trefler said some customers historically preferred to operate on versions that were one or two releases behind, but said that approach is no longer appropriate in the current AI environment. Stillwell said more than twice as many customers had moved to Infinity '26 at this point in its release cycle than had moved to Infinity '25 at the comparable point. Pegasystems does not typically update annual guidance during the year, but Stillwell offered additional color on expectations for the remainder of 2026. He said the company expects ACV growth to accelerate in the fourth quarter but does not expect to meet its full second-half plan. For the full year, he said ACV growth is expected to be above the current level but below 10%. The company entered the fourth quarter with what Stillwell described as its strongest fourth-quarter pipeline, though he cautioned that the market remains less predictable than in prior periods. Management said its pipeline has become more mature entering the quarter, while new-logo activity has expanded despite a shorter history of close rates and sales progression with those prospects. Free cash flow totaled $290 million in the first nine months of 2026. Stillwell said cash flow was affected by lower-than-planned ACV growth and unusual cash expenditures, including legal settlements and expected restructuring costs. He said the company expects adjusted free cash flow to exceed $600 million in 2027 and maintained its target of $700 million or more in free cash flow in 2028. During the first nine months of 2026, Pegasystems repurchased nearly 11 million shares for roughly $430 million under prior board authorizations. Total common shares declined by 6.8 million during the period. The company ended the third quarter with approximately $300 million in cash and marketable securities and no debt. Trefler said the company remains confident in its technology strategy but acknowledged that commercial execution must improve. "We have the right technology, but in a market this noisy and fast, we need to do a better job at directly helping our clients find clarity and keep up," he said. Pegasystems Inc is a software company that develops enterprise applications for customer engagement, workflow automation and business process management. Its technology helps organizations manage customer interactions, automate repetitive work, coordinate complex processes and make data-driven decisions across departments and channels. The company's portfolio includes Pega Platform, a low-code application development and workflow platform, along with solutions for customer service, sales automation, marketing, decisioning and artificial intelligence. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Pegasystems Q3 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for October 2026.

Investing.com -- Pegasystems Inc (NASDAQ:PEGA) reported third-quarter results that fell short of analyst expectations, with both earnings and revenue missing consensus estimates. The company posted adjusted earnings per share of $0.35, compared to the analyst estimate of $0.49, while revenue of $393.4 million came in below the $421.8 million consensus. Still guessing which stocks will beat the market? Our AI portfolio updates monthly and is outperforming the S&P 500 by 118%. See this month's list » Shares fell 3.4% in after-hours trading Tuesday. Revenue increased 3% YoY from $381.4 million in the third quarter of 2025. The company cited go-to-market execution challenges that impacted growth through the first nine months of 2026, though it noted that third-quarter ACV additions were the strongest of the year. Total ACV grew 6% as reported and 7% in constant currency YoY, reaching $1.65 billion. Unsure what to buy ahead of earnings? Our AI's recent pre-earnings calls delivered gains of +77% to +118% after results dropped. See this month's earnings picks » "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 Ken Stillwell, COO and CFO. Pega Cloud revenue grew 19% YoY to $218.9 million, representing 59% of total ACV in the third quarter. Subscription services revenue increased 10% to $291.6 million, while subscription license revenue declined 9% to $55.6 million. Consulting revenue fell 18% to $46.2 million. The company acknowledged that purchasing behaviors continue to evolve as clients subject large technology investments to greater scrutiny amid AI industry disruption. These factors significantly slowed ACV growth during the nine months ended September 30, 2026, and may continue to adversely affect growth rates for the remainder of the year. Pegasystems reported GAAP net income of $14.1 million, or $0.08 per diluted share, compared to $43.4 million, or $0.24 per diluted share, in the year-ago quarter. The company generated $304.3 million in operating cash flow for the nine months ended September 30, 2026. Original Article Pegasystems falls as third quarter misses estimates Netflix shares fall over 5% after hours on soft current quarter revenue guidance Nicolet Bankshares edges past estimates but shares slip

For the quarter ended September 2026, Pegasystems (PEGA) reported revenue of $393.36 million, up 3.2% over the same period last year. EPS came in at $0.35, compared to $0.30 in the year-ago quarter. The reported revenue represents a surprise of -8.31% over the Zacks Consensus Estimate of $429.02 million. With the consensus EPS estimate being $0.45, the EPS surprise was -22.22%. While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectations to determine their next move, some key metrics always offer a more accurate picture of a company's financial health. Since these metrics play a crucial role in driving the top- and bottom-line numbers, comparing them with the year-ago numbers and what analysts estimated about them helps investors better project a stock's price performance. Here is how Pegasystems performed in the just reported quarter in terms of the metrics most widely monitored and projected by Wall Street analysts: - Annual contract value (ACV) - Pega Cloud: $975.99 million compared to the $998.15 million average estimate based on two analysts. - Annual contract value (ACV): $1.65 billion compared to the $1.7 billion average estimate based on two analysts. - Annual contract value (ACV) - Subscription license: $416 million versus $427.4 million estimated by two analysts on average. - Annual contract value (ACV) - Maintenance: $261.32 million versus the two-analyst average estimate of $278.15 million. - Revenue- Subscription services: $291.58 million versus $303.92 million estimated by three analysts on average. Compared to the year-ago quarter, this number represents a +10.4% change. - Revenue- Subscription license: $55.58 million compared to the $68.7 million average estimate based on three analysts. The reported number represents a change of -8.3% year over year. - Revenue- Consulting: $46.2 million compared to the $53.3 million average estimate based on three analysts. The reported number represents a change of -18.1% year over year. - Revenue- Pega Cloud: $218.93 million compared to the $232.96 million average estimate based on three analysts. The reported number represents a change of +18.6% year over year. - Revenue- Maintenance: $72.65 million versus the three-analyst average estimate of $70.96 million. The reported number represents a year-over-year change of -8.8%. - Revenue- Subscription: $347.16 million versus $372.62 million estimated by three analysts on average. Compared to the year-ago quarter, this number represents a +6.9% change. - Gross Profit- Consulting: $-2.89 million versus $-2.53 million estimated by two analysts on average. - Gross Profit- Subscription: $292.4 million compared to the $317.95 million average estimate based on two analysts. View all Key Company Metrics for Pegasystems here>>> Shares of Pegasystems have returned +0.2% over the past month versus the Zacks S&P 500 composite's +0.7% change. The stock currently has a Zacks Rank #3 (Hold), indicating that it could perform in line with the broader market in the near term. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Pegasystems Inc. (PEGA) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Pegasystems (PEGA) came out with quarterly earnings of $0.35 per share, missing the Zacks Consensus Estimate of $0.45 per share. This compares to earnings of $0.3 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of -22.22%. A quarter ago, it was expected that this business software company would post earnings of $0.43 per share when it actually produced earnings of $0.35, delivering a surprise of -18.6%. Over the last four quarters, the company has surpassed consensus EPS estimates just once. Pegasystems, which belongs to the Zacks Computer - Software industry, posted revenues of $393.36 million for the quarter ended September 2026, missing the Zacks Consensus Estimate by 8.31%. This compares to year-ago revenues of $381.35 million. The company has topped consensus revenue estimates just once over the last four quarters. The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Pegasystems shares have lost about 41.3% since the beginning of the year versus the S&P 500's gain of 12.4%. While Pegasystems has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately. Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions. Ahead of this earnings release, the estimate revisions trend for Pegasystems was mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. It will be interesting to see how estimates for the coming quarters and the current fiscal year change in the days ahead. The current consensus EPS estimate is $1.11 on $618.68 million in revenues for the coming quarter and $2.35 on $1.9 billion in revenues for the current fiscal year. Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Computer - Software is currently in the top 27% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Smith Micro Software, Inc. (SMSI), another stock in the same industry, has yet to report results for the quarter ended September 2026. This company is expected to post quarterly loss of $0.11 per share in its upcoming report, which represents a year-over-year change of +81.7%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days. Smith Micro Software, Inc.'s revenues are expected to be $5 million, up 14.9% from the year-ago quarter. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Pegasystems Inc. (PEGA) : Free Stock Analysis Report Smith Micro Software, Inc. (SMSI) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research