Pegasystems Inc. (NASDAQ: PEGA) reported its second-quarter 2026 results, posting record first-half cash flow even as clients paused purchasing decisions amid shifting AI market dynamics. Total revenue climbed to $420.7 million for the quarter, while Pega Cloud ACV surged 22% year over year, underscoring continued momentum for the company's cloud and AI offerings.
Financial Highlights
Total Annual Contract Value (ACV) grew to $1,619.9 million, up 7% year over year (8% in constant currency), while Pega Cloud ACV reached $926.3 million, a 22% increase from $761.1 million a year earlier. Second-quarter total revenue rose 9% to $420.7 million, though six-month revenue was down slightly at $850.7 million versus $860.1 million in the prior-year period.
GAAP net income for the quarter was $13.3 million, or $0.08 per diluted share, down from $30.1 million a year earlier. Non-GAAP net income, however, rose 19% to $59.5 million, or $0.35 per diluted share. The company noted that unprecedented shifts in the AI market caused clients to delay purchasing decisions, slowing the ACV growth rate compared with the same period last year.
Cash Flow and Capital Returns
Cash flow from operations and free cash flow both topped $285 million in the first half of 2026, with operating cash flow reaching $298.2 million and free cash flow at $288.3 million, both improvements over the prior-year period. The company's backlog, representing expected future revenue from existing non-cancellable contracts, grew 10% year over year to $2.02 billion as of June 30, 2026.
Pega also continued returning capital to shareholders, contributing to a $349.0 million use of cash in financing activities during the first half of the year, while total cash, cash equivalents, and marketable securities stood at $361.9 million as of quarter-end.
"Letting language models do everything is risky and expensive, and using AI to write mountains of code creates significant barriers to the ongoing change that enterprise clients require"— Alan Trefler, Founder and CEO, Pega
AI Strategy: Predictable Costs Over Per-Token Pricing
A central theme of the quarter was client enthusiasm for Pega's "no per-token cost" approach to enterprise AI. With the general availability of Pega Infinity™ 26, the company applies agents at design time to optimize run-time token use, aiming to deliver predictable AI outcomes alongside predictable costs — a contrast to consumption-based AI pricing models gaining traction elsewhere in the market.
Executives framed this as a structural advantage as the broader market matures from early AI experimentation toward what CFO Ken Stillwell called "tokenomics and reliable business outcomes."
"Pega generated record first-half cash flow and returned substantial capital to shareholders. As the market shifts from AI experimentation to tokenomics and reliable business outcomes, that evolution plays directly to Pega's strengths"— Ken Stillwell, COO and CFO, Pega