Summary
Pegasystems closed fiscal 2025 with fourth-quarter revenue of $504.3 million, up 2.7% from the prior-year quarter. Full-year revenue reached $1.75 billion, up 16.6%. Gross profit was $400.9 million in the quarter, up 3.2%. The quarterly gross margin of 79.5% was up 0.3 percentage points, and the full-year gross margin of 75.9% was up 2.0 percentage points. The revenue mix keeps tilting toward the cloud. Pega Cloud revenue for the year was $695.9 million, up 25%, while maintenance revenue of $314.6 million was down 3%, reflecting clients moving to cloud offerings that do not generally carry maintenance revenue.
Profitability split sharply between the quarter and the year. Fourth-quarter operating income fell 27.0% to $104.4 million, and the operating margin of 20.7% was down 8.4 percentage points from the prior-year quarter. Operating expenses absorbed the difference, including a restructuring plan announced in the fourth quarter and costs tied to legal proceedings outside the ordinary course of business. Full-year operating income of $263.1 million was up 112.4%, and the full-year operating margin of 15.1% was up 6.8 percentage points. Net income swung harder. Fourth-quarter net income of $234.6 million was up 97.0%, and full-year net income of $393.4 million was up 296.7%. Full-year diluted earnings per share of $2.13 was up 287.3%. A $175 million non-cash tax benefit from the release of the valuation allowance on U.S. and U.K. deferred tax assets lifted much of that bottom line, so the earnings jump is not purely an operating story.
Cash generation was the cleanest part of the release. Fourth-quarter operating cash flow was $158.4 million, up 66.4% from the prior-year quarter. Full-year operating cash flow was $505.2 million, up 46.1%, with capital expenditures of $14.5 million, up 88.1%. Free cash flow, which the company defines as operating cash flow less investment in property and equipment, was $490.7 million for the year, up 45%. Backlog and contract value point the same way. Deferred revenue of $518.8 million was up 21.8%, and remaining performance obligations of $2.07 billion were up 27.8%. Annual contract value was $1.61 billion, up 17%, or 14% in constant currency. Pega Cloud ACV rose 33%, or 28% in constant currency. Foreign exchange rates cut $46 million from ACV and $80 million from backlog, so reported growth understates the underlying trend.
Guidance for the full fiscal year 2026 targets annual contract value growth of 15%, non-GAAP diluted earnings per share of $2.75, cash provided by operating activities of $595 million and free cash flow of $575 million. The board increased the share repurchase authorization by $1 billion in February 2026. Friction is real. Non-GAAP net income was $139.6 million for the quarter, down 6%, and non-GAAP diluted earnings per share slipped to $0.76, down 5%. The consulting restructuring plan, aimed at an AI-first delivery model, carried roughly $13 million of expense in 2025, and the company expects to keep incurring legal costs, including those tied to the ongoing Appian Corp. litigation. Cash also declined. Total cash, cash equivalents and marketable securities were $425.8 million at December 31, 2025, against $740.0 million a year earlier, after the company repaid $469.6 million of convertible notes at maturity.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2025 | Q3 FY2025 | QoQ | Q4 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $504.3M | $381.4M | +32.2% | $490.8M | +2.7% |
| Gross profit | $400.9M | $275.5M | +45.5% | $388.5M | +3.2% |
| Gross margin | 79.5% | 72.2% | +7.3 pp | 79.2% | +0.3 pp |
| Research & development | $80.9M | $78.8M | +2.7% | $76.4M | +5.9% |
| Sales & marketing | $153.3M | $140.1M | +9.4% | $139.7M | +9.8% |
| General & administrative | $41.0M | $42.1M | -2.6% | $28.2M | +45.3% |
| Total operating expenses | $296.5M | $261.0M | +13.6% | $245.5M | +20.8% |
| Operating income (loss) | $104.4M | $14.5M | +621.3% | $143.0M | -27.0% |
| Operating margin | 20.7% | 3.8% | +16.9 pp | 29.1% | -8.4 pp |
| Net income (loss) | $234.6M | $43.4M | +440.9% | $119.1M | +97.0% |
| Net margin | 46.5% | 11.4% | +35.1 pp | 24.3% | +22.2 pp |
| Diluted EPS | $2.13 | $0.24 | +$1.89 | $1.11 | +$1.02 |
Risks
Pega remains party to the Appian Corp. trade secret litigation; on January 8, 2026 the Supreme Court of Virginia affirmed the Court of Appeals reversal and remanded the case for further proceedings, including a possible retrial and further appeals that could take years. If ultimately unsuccessful, Pega could face a judgment material enough to require additional debt or capital markets transactions.
Pega is investing significantly in AI, including generative AI, while competitors invest in parallel and a rapidly evolving, uncertain AI legal and regulatory landscape applies. The company states it may fail to retain customers or grow demand if it does not develop AI-enabled products in a timely and cost-effective manner, and compliance with multiple AI regimes could raise its cost of doing business.
As of December 31, 2025, the CEO beneficially owned approximately 45 percent of outstanding common stock, giving him significant influence over all stockholder matters and, under Massachusetts law's two-thirds approval requirement, potentially delaying or preventing a change in control.
The timing and amount of license and Pega Cloud revenue and bookings are difficult to predict and can fluctuate materially with client budgets, deal timing, and mix between perpetual, subscription license, and cloud arrangements. Because only a small portion of expenses vary with revenue, a shortfall versus anticipated bookings would materially affect financial performance.
General and administrative expense increased 32 percent in 2025 to $148.7 million, driven by a $20.4 million increase in legal fees from proceedings outside the ordinary course, and management said it expects to continue incurring additional costs for these proceedings. Restructuring expense rose 155 percent to $11.5 million in 2025.
Pega depends on key personnel including its founder-CEO and states it has experienced and expects to continue experiencing difficulty hiring and retaining highly skilled employees in an environment of hybrid work. It carries no significant key-person life insurance on officers.
Global economic uncertainty, including interest rate volatility, inflation, tariffs, and regional conflicts, could delay or reduce customer technology purchases, lengthen sales cycles, raise operating costs, and impair customers' ability to pay amounts due. Pega also reported a foreign currency transaction loss of $14.9 million in 2025 versus $0.9 million in 2024.
Pega relies on third-party hosting providers and cloud service providers for its Pega Cloud offering, whose outages, availability limits, or security inadequacies could trigger service level agreement credits or disrupt service. Renewal of these agreements on commercially reasonable terms is not assured, and transferring to new providers could cause downtime and additional expense.
SaaS KPIs
All quarters →Annual Contract Value (ACV)
Pega Cloud ACV
Constant Currency Backlog
Constant Currency ACV
Subscription Services ACV
Subscription License ACV
Free Cash Flow
Backlog - GAAP
Cash Provided by Operating Activities
Summary, forecast, risks and KPIs are extracted from PEGASYSTEMS INC's SEC filings for Q4 FY2025 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.