Pega Q3: Cloud ACV Up 20% but GAAP Net Income Falls 68% on Legal Costs
PEGA sits 37% above its 52-week low of $25.1 on elevated volume (3.5× avg).
Summary
Pegasystems' Q3 revenue rose 3% to $393.4M but GAAP net income fell 68% to $14.1M on legal costs, while total ACV growth slowed to 6% — management blamed go-to-market execution and reaffirmed a $700M+ 2028 free cash flow target.
Key Events · Earnings and Guidance · PEGA
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Q3 Revenue Grows 3%, GAAP Profit Drops 68%
Total revenue of $393.4M versus $381.4M a year ago. GAAP net income fell to $14.1M ($0.08 diluted EPS) from $43.4M ($0.24), while non-GAAP net income rose 8% to $59.8M ($0.35 EPS).
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ACV Growth Slows to 6%
Total ACV reached $1,653M, up 6% (7% constant currency), with management citing go-to-market execution challenges. Pega Cloud ACV grew 20% to $976M and is now 59% of total ACV.
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$16M Litigation Settlement Hits Results
A $16.0M litigation settlement charge and $13.3M of quarterly legal fees weighed on GAAP profitability; nine-month legal fees totaled $51.2M versus $23.0M a year ago.
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Cash Flow Declines, 2028 Target Reaffirmed
Nine-month operating cash flow was $304.3M (down 12%) and free cash flow $289.8M (down 14%). Management reiterated its target of $700M or more of free cash flow in 2028.
Analysis · PEGA · Technology
Revenue grew only 3% to $393.4M and GAAP net income dropped 68% to $14.1M, dragged by a $16.0M litigation settlement and higher legal fees, while non-GAAP EPS of $0.35 beat last year's $0.30. The real story is the growth engine: total ACV rose just 6% to $1,653M, and management explicitly blamed go-to-market execution challenges for the slowdown — even as Pega Cloud ACV grew 20% and reached 59% of the total. Backlog of $2,009M (up 15%) and nine-month free cash flow of $289.8M (down 14%) show the business still generates cash, but the decelerating ACV trend is what will drive the stock reaction, and management is pinning credibility on a $700M+ free cash flow target for 2028.
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In the 30 days to Oct 20, 2026, 29.2% of the 1466 measured filings Wiseek scored 7 moved their stock by 5% or more by the next session's close. The median move was -0.57%. These are measured outcomes after filings of this importance, not a forecast for this one.
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At the time of this filing, PEGA was trading at $34.50 on NASDAQ in the Technology sector, with a market capitalization of approximately $6B. The 52-week trading range was $25.10 to $68.10. This filing was assessed with negative market sentiment and an importance score of 7 out of 10.