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    PEGA
    Earnings call· Jun 2026(Q2 FY26)

    PEGASYSTEMS INC PEGA

    Jul 22, 2026 Source

    Executive summary

    Pegasystems Q2 FY26 — AI Confusion and Sales Execution Challenges Impact ACV Growth, Strong FCF Generation

    Pegasystems navigated a challenging Q2 FY26 marked by significant market confusion around AI economics and internal go-to-market execution issues, leading to slower-than-anticipated ACV growth. Despite these headwinds, the company achieved record free cash flow and executed substantial share repurchases, demonstrating financial discipline. Management remains confident in its long-term strategy, emphasizing its differentiated AI approach for predictable outcomes and costs, and is focused on improving sales execution in the second half.

    Highlights

    4

    • Pega Cloud ACV increased by $165 billion, growing 22% as reported and in constant currency.

    • Generated $288 million of free cash flow in the first half 2026, a record.

    • Repurchased 9 million shares for over $360 million in H1 2026, reducing total common shares by 6 million.

    • Late-stage pipeline is very strong over last year, and clients are engaging in healthy conversations.

    Concerns

    4

    • Total ACV grew only 7% as reported and 8% in constant currency year-over-year, below expectations.

    • Slower-than-expected start to H1 2026, with net new ACV significantly underachieving the 1/3 target for the first half.

    • Buyer uncertainty and elongated decision cycles due to AI market disruption and token cost ambiguity.

    • Go-to-market execution was not strong enough, impacting pipeline quality, conversion, and sales productivity.

    Guidance & targets

    2
    CategoryTargetConfidence
    Free cash flow
    $700 million plus
    high materiality
    High
    Full-year net new ACV add distribution
    1/3 in H1, 2/3 in H2
    medium materiality
    Low

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Pega Cloud ACV
    Reflects continued expansion of cloud business and success of subscription transition. Fastest-growing and most important component of subscription model. Growth moderated to 27% at the end of last quarter in constant currency.
    ACV increase: $165 billionACV growth constant currency: 22%
    		—22%——
    Maintenance ACV
    Offsetting overall ACV growth. Expected to continue pressure as clients migrate to Pega Cloud.
    		—decrease——
    Subscription License ACV
    Offsetting overall ACV growth. Expected to continue pressure as clients migrate to Pega Cloud.
    		—decrease——

    Operational metrics

    4
    Pega Cloud ACV as % of total ACV
    57%
    Q2 FY26

    Expected to continue increasing over time and ultimately reach approximately 75% of the total.

    Share repurchases
    $360 millionover 100% of FCF generated
    H1 FY26

    Under the prior authorizations. Share repurchases remain very attractive use of capital.

    Common shares reduced
    6 million shares
    H1 FY26

    Total common shares were reduced by 6 million shares in first half of 2026.

    Pipeline growth
    growing nicely
    Q2 FY26

    Our late-stage pipeline is up -- is very strong over last year.

    Industry KPIs

    2
    MetricValueDetails
    Arr net new arr$165 billionUSD
    Bookings billings—

    Product announcements

    2
    ProductTypeDetails
    Pega Infinity 26launch
    Infinity Studiolaunch

    Risks & headwinds

    5
    Buyer uncertainty and elongated decision cycles due to AI market disruptionnear term

    Decision cycles have lengthened

    Mitigation: Pega's differentiated approach offering predictable outcomes and costs, Blueprint and Infinity Studio to shorten sales cycles.

    Token cost uncertainty and prohibitively expensive reasoning tokensongoing

    surprisingly and prohibitively expensive

    Mitigation: Pega's model offers AI agents with no token costs, monetizing based on business value rather than token usage.

    Go-to-market execution challengesH1 FY26

    slower than anticipated

    Mitigation: Increasing prospecting activity, expanding executive engagement, identifying new workflow opportunities, strengthening focus on new logo acquisition, using Blueprint to shorten sales cycles.

    Pressure on maintenance and subscription license ACV growthfuture periods

    decreases

    Mitigation: Expected as Pega Cloud ACV increases as a percentage of total ACV, leading to a more predictable, higher quality revenue stream over the longer term.

    Difficulty assessing magnitude or duration of IT spending reallocationsongoing

    difficult for us to assess

    Mitigation: Focus on Pega's value proposition for legacy transformation and AI strategy refinement, governing usage, and managing token costs.

    What to watch in Q3 FY26

    4

    ACV growth trajectory

    H2 FY26
    CurrentTotal ACV grew 7% (reported) / 8% (constant currency) YoY in Q2 FY26. Pega Cloud ACV grew 22% (reported/constant currency) YoY.
    TargetAcceleration from current rates

    Why it matters

    ACV growth is a key indicator of underlying execution and business momentum in a subscription model.

    Our overall ACV growth rate was offset by decreases in maintenance ACV and subscription license ACV. As a result, total ACV grew 7% as reported and 8% in constant currency year-over-year. We expect Pega Cloud ACV to continue increasing as a percentage of total ACV over time⏳ and still believe it can ultimately reach approximately 75% of the total.

    Q&A highlights

    6

    Are deals that slipped from Q2 now closing, and how does this impact the outlook for H2?

    Alan Trefler noted significant confusion in Q2, but is now seeing movement. He believes Pega's predictable AI architecture and no-token-cost model are gaining traction. While deals are starting to unlock, the pace of recovery in H2 is uncertain, especially given the typical summer slowdown.

    “So I'm seeing see things starting to move. But I'll be honest, in the summer, the third quarters are lousy time for return around, it's just in general. And we are working it, and I have a lot of confidence that what we're doing is the right thing.”

    asked by Steven Enders · answered by Alan Trefler

    2 min read6 chapters

    Detailed Narrative

    01

    AI Market Disruption and Cost Uncertainty

    The software market is undergoing a structural shift driven by AI, with providers now seeking returns on significant investments. This has led to a shift from free/unlimited usage to token-based pricing, creating cost uncertainty and ambiguity for enterprises, particularly due to opaque 'reasoning tokens.' This uncertainty has lengthened decision cycles and made clients more cautious about technology investments.

    02

    Pega's Differentiated AI Approach

    Pegasystems positions its solution, particularly Pega Blueprint and Infinity Studio, as a way to avoid 'AI chaos' by delivering predictable outcomes at predictable costs. Unlike approaches that generate massive amounts of opaque code or rely on expensive runtime token consumption, Pega emphasizes using AI extensively at design time to create structured, governable workflows, with selective AI use at runtime for specific tasks like summarization.

    03

    Launch of Infinity Studio and Pega 26

    The company recently released Pega Infinity 26, introducing Infinity Studio, which extends the power of Blueprint AI from design time to build, deployment, and continuous evolution of applications. This allows both new and existing clients to modernize and improve Pega applications, reinforcing the 'build for change' philosophy and lowering barriers to entry by making the development environment available via MCP.

    04

    Challenges in H1 FY26 Performance

    The first half of FY26 was challenging due to a back-end weighted⚖️ renewal portfolio, significant buyer uncertainty from AI market shifts, and insufficient go-to-market execution. This resulted in slower ACV growth and a shortfall against the internal target of 1/3 of full-year net new ACV in H1.

    05

    Commitment to Financial Discipline and Shareholder Value

    Despite ACV headwinds, Pegasystems generated record free cash flow of $288 million in H1 FY26 and repurchased 9 million shares for over $360 million. The company remains committed to its $700 million+ free cash flow objective for FY28 and the Rule of 40 performance, indicating a focus on balancing growth with disciplined cash generation and investment prioritization.

    06

    Demand Environment and Sales Execution

    While deals have elongated due to market confusion, management notes that opportunities are not disappearing, and the late-stage pipeline is strong. The company is increasing prospecting, expanding executive engagement, and focusing on new logo acquisition, leveraging Blueprint to shorten sales cycles. They acknowledge the need for stronger execution in H2 to recover the H1 shortfall.

    AI-generated summary of the company’s earnings call. Not investment advice.