Pegasystems Q2 Earnings Miss Estimates, Revenues Increase Y/Y

Backlog grew year over year, supporting longer-term revenue visibility. Total backlog increased 10% year over year to $2.02 billion as of June 30, 2026 or 11% in constant currency. Pega Cloud backlog rose 18% to $1.56 billion and accounted for 77% of total backlog, up from 72% a year earlier.

PEGA's Cloud Growth Supports Revenue Expansion

Pega Cloud revenues climbed 28% year over year to $213.93 million and represented 51% of quarterly revenues, up from 43% a year earlier. Maintenance revenues declined 6% to $74.53 million. 

Together, subscription services revenues advanced 17% to $288.46 million. Subscription license revenues rose 2% to $82.03 million, taking total subscription revenues up 13% to $370.49 million.

PEGA's Revenue Mix Shows Subscription Strength

Consulting revenues declined 13% year over year to $50.23 million and accounted for 12% of total revenues compared with 15% in the prior-year quarter. The decline partly offset gains across the subscription business.

Subscription revenues represented 88% of quarterly revenues, up from 85% a year earlier. The higher recurring-revenue mix supported the top-line increase, but higher operating costs and delayed client decisions limited the benefit to profitability.

Pegasystems Faces Slower ACV Growth

Total annual contract value reached $1.62 billion at June 30, 2026, compared with $1.51 billion a year earlier. Pega Cloud ACV increased to $926.29 million from $761.05 million, highlighting the continued shift toward cloud contracts.

However, management said unprecedented changes in the AI market prompted clients to delay purchasing decisions. The company added that ACV growth slowed in the first half and warned that these factors may continue to pressure growth for the rest of the year.

PEGA's Operating Details

Gross profit rose 13.7% year over year to $312.69 million. The gross margin expanded about 280 basis points to 74.3%, driven by revenue growth and a slight decline in total cost of revenues.

Operating expenses increased 14.9% to $296.05 million. Selling and marketing expenses rose 12.4%, research and development expenses increased 6.8%, and general and administrative expenses jumped 37.6%.

GAAP operating income slipped 3.7% year over year to $16.64 million. The operating margin contracted roughly 50 basis points to 4% as expense growth outpaced revenues.

PEGA’s Balance Sheet & Cash Flow

As of June 30, 2026, cash and cash equivalents and marketable securities totaled $361.9 million, down from $474 million as of March 31, 2026.

For the first six months of 2026, cash provided by operating activities increased 2.7% year over year to $298.23 million. Free cash flow rose 0.6% to $288.26 million, even as the company cautioned that slower ACV growth could weigh on cash generation for the remainder of the year.

PEGA's Zacks Rank & Stocks to Consider

Currently, Pegasystems carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Computer and Technology sector include Agilysys AGYS, Bandwidth BAND and Fortinet FTNT, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Agilysys have declined 15.3% in the year-to-date period. AGYS is set to report its first-quarter fiscal 2027 results on July 27.

Shares of Bandwidth have surged 355.4% in the year-to-date period. BAND is slated to report its second-quarter 2026 results on July 29.

Fortinet shares have gained 99.1% in the year-to-date period. FTNT is set to report its second-quarter 2026 results on July 29.

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This article originally published on Zacks Investment Research (zacks.com).

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