Pegasystems Q1 Earnings Miss Estimates, Revenues Decline Y/Y

Pegasystems PEGA reported first-quarter fiscal 2026 non-GAAP earnings of 46 cents per share, missing the Zacks Consensus Estimate by 39.5%. Earnings also declined 39.5% year over year.

Revenues were $430 million, down 9.6% year over year, and missed the consensus mark by 11.7%. Even with the top-line shortfall, Pega Cloud momentum remained a bright spot, with Pega Cloud annual contract value rising sharply year over year.

PEGA Sees Cloud-Led Mix Shift in Q1 Results

The reported quarter’s revenue mix reflected a continued tilt toward subscription services. Pega Cloud revenue rose 36% year over year to $205 million, while total subscription services revenue increased 23% year over year to $280.3 million, supported by higher Pega Cloud contributions. The strength was offset by ongoing pressure in subscription license revenue, which fell 49% year over year to $94.9 million. 

Maintenance revenue was essentially flat, edging down 1% year over year to $75.3 million. Consulting revenue also decreased 9% year over year to $54.8 million, consistent with the broader revenue contraction.

Pegasystems Inc. Price, Consensus and EPS Surprise

Pegasystems Inc. price-consensus-eps-surprise-chart | Pegasystems Inc. Quote

Pegasystems Expands ACV and Backlog on Cloud Demand

Total annual contract value increased 12% year over year to $1.622 billion, or 11% in constant currency. The mix shift within ACV was notable, as Pega Cloud ACV climbed 29% year over year to $906.7 million, while maintenance ACV declined 7% year over year to $276.8 million.

Backlog also grew year over year, supporting longer-term revenue visibility. The company reported a total backlog of $2.011 billion as of March 31, 2026, up from $1.728 billion a year earlier. Pega Cloud backlog increased 21% year over year and represented 75% of total backlog, underscoring the role of cloud-driven demand in shaping the forward book.

PEGA’s Profitability Trends Reflect Higher Expense Base

In the first quarter of 2026, the gross margin contracted 330 basis points (bps) year over year to 75.2%.

Operating expenses rose to $286.1 million, up 16.2% year over year, with higher selling and marketing, research and development, and general and administrative costs. The result was a sizable decline in operating leverage for the quarter, though the business continued to emphasize AI-led workflow automation and cloud delivery as central to its strategy.

Operating income was $37.1 million, down sharply from $127 million in the year-ago quarter, reflecting both lower revenue and a higher expense base.

PEGA’s Balance Sheet & Cash Flow

As of March 31, 2026, cash and cash equivalents and marketable securities totaled $474 million, up from $425.8 million as of Dec. 31, 2025.

Cash provided by operating activities increased 4% year over year to $212.3 million. Free cash flow, defined as operating cash flow less investment in property and equipment, rose 2% year over year to $206.5 million.

During the quarter, Pegasystems repurchased roughly 3.5 million shares for $167.3 million at an average price of $47.47 per share, reflecting continued capital return alongside investment in the business.

PEGA’s Zacks Rank and Other Stocks to Consider

Currently, PEGA carries a Zacks Rank #2 (Buy).

Here are some stocks worth considering, as our model shows that these have the right combination of elements to beat on earnings this reporting cycle.

Garmin GRMN has an Earnings ESP of +0.54% and sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Garmin is set to report first-quarter 2026 results on April 29. The Zacks Consensus Estimate for Garmin’s first-quarter 2026 earnings is pegged at $1.84 per share, up by a penny over the past seven days. This indicates a rise of 14.3% from the year-ago quarter’s reported figure.

nVent Electric NVT has an Earnings ESP of +3.07% and a Zacks Rank #2 at present.

nVent Electric is slated to report first-quarter 2026 results on May 1. The Zacks Consensus Estimate for nVent Electric’s first-quarter 2026 earnings is pegged at 94 cents per share, up by a penny over the past 30 days. This indicates a rise of 40.3% from the year-ago quarter’s reported figure.

Monolithic Power Systems MPWR has an Earnings ESP of +0.78% and carries a Zacks Rank #2 at present.

The company is set to report first-quarter 2026 results on April 30. The Zacks Consensus Estimate for Monolithic Power Systems’ first-quarter earnings is pegged at $4.89 per share, which has remained unchanged over the past 60 days. This indicates a rise of 21% from the year-ago quarter’s reported figure.

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

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