Pega Systems presented its Q3 financials at Citi's 2026 Global TMT Conference, revealing an 8% growth in annual contract value (ACV) in constant currency, below the company's original full-year guidance of 15%. Street expectations for full-year 2026 growth hover around 10%. The company's free cash flow (FCF) for 2026 is now expected to finish below its original guidance of $575 million, due to slower growth and higher legal costs. Medium-term targets for 2027 and 2028 remain at $700 million-plus in free cash flow. Legal costs for 2026 are expected to range between $70 million and $90 million, up from the original guidance of $30 million, stemming from shareholder and derivative suit settlements tied to the Appian verdict.
Pega's product development efforts were also highlighted, with the company demonstrating a significant reduction in application build time. An internal AB test showed that using Blueprint and Infinity Studio reduced build time from almost 2,000 hours to 45 hours, representing a ~97.75% reduction. Infinity '26 was generally available 30 days before the conference.
The company's sales strategy, known as the "hunter" motion, was introduced in January 2026, focusing on new logos, workflows, and business units. However, management noted that this approach was not fully executed during Q2, with buyers facing confusing messaging from AI-native vendors and service providers. An acceleration in the strategy occurred in late June.
Pega's AI cost and model strategy involves a three-layer value model, charging fixed costs for transactions on the front end and handling backend token routing. The company selects the right model for the task, avoiding frontier models for simpler tasks like automated call wrap-ups. The litigation context includes settlements concluded from shareholder and derivative suits originating from the Appian verdict, with the Appian retrial scheduled for the first quarter of 2027.
