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.
“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.
AI Strategy Centers on Governed Workflows
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.
“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.
Company Announces Organizational Changes
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.
Outlook and Cash Flow Targets
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.
About Pegasystems (NASDAQ:PEGA)
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.
