SOURCE: Pegasystems

Pegasystems

November 09, 2010 17:26 ET

Pegasystems Announces Thirteenth Consecutive Quarter of Record Revenue

GAAP Revenue Increases 39% to $90 Million, Non-GAAP Revenue Increases 47% to $95.4 Million; GAAP Net Income Was $3.1 Million or $0.08 per Share (Basic), Non-GAAP Net Income Was $9.9 Million or $0.27 per Share (Basic)

CAMBRIDGE, MA--(Marketwire - November 9, 2010) - Pegasystems Inc. (NASDAQ: PEGA) today announced financial results for the third quarter and nine months ended September 30, 2010. These results include the operations of Chordiant Software, Inc. from the April 21, 2010 acquisition date. GAAP revenue for the third quarter of 2010 increased 39% to $90 million compared to the third quarter of 2009, and for the first nine months of 2010 increased 29% to $247 million compared to first nine months of 2009. Non-GAAP revenue for the third quarter of 2010 increased 47% to $95.4 million compared to the third quarter of 2009, and for the first nine months of 2010 increased 34% to $256.4 million compared to first nine months of 2009. GAAP net income for the third quarter of 2010 was $3.1 million or $0.08 per share (diluted), compared to GAAP net income of $6.0 million, or $0.16 per share (diluted), for the third quarter of 2009. Non-GAAP net income for the third quarter of 2010 was $9.9 million or $0.26 per share (diluted), compared to Non-GAAP net income of $6.7 million, or $0.17 per share (diluted), for the third quarter of 2009. GAAP net loss for the first nine months of 2010 was ($1.2) million, or ($0.03) per share, compared to GAAP net income of $25.9 million, or $0.68 per share (diluted) for the first nine months of 2009. Non-GAAP net income for the first nine months of 2010 was $19.9 million, or $0.51 per share (diluted), compared to Non-GAAP net income of $28.4 million, or $0.75 per share (diluted) for the first nine months of 2009.

                   SELECTED GAAP & NON-GAAP RESULTS (1)

                         Three Months Ended September 30,     % Increase
                       -----------------------------------    (Decrease)
                         2010      2010     2009     2009   -------------
($ in '000s)             GAAP    Non-GAAP   GAAP   Non-GAAP  GAAP  Non-GAAP
                       --------  -------- -------- -------- -----   -----
Total Revenue          $ 90,016  $ 95,433 $ 64,821 $ 64,821    39 %    47 %
Operating Income       $  1,943  $ 12,282 $  7,465 $  8,463   (74)%    45 %
Net Income             $  3,139  $  9,899 $  6,001 $  6,703   (48)%    48 %
Basic Earnings per
 share                 $   0.08  $   0.27 $   0.16 $   0.18   (50)%    50 %
Diluted Earnings per
 share                 $   0.08  $   0.26 $   0.16 $   0.17   (50)%    53 %


                          Nine Months Ended September 30,     % Increase
                       -----------------------------------    (Decrease)
                         2010      2010     2009     2009   -------------
($ in '000s)             GAAP    Non-GAAP   GAAP   Non-GAAP  GAAP  Non-GAAP
                       --------  -------- -------- -------- -----   -----
Total Revenue          $247,346  $256,356 $191,066 $191,066    29 %    34 %
Operating Income       $  1,365  $ 31,920 $ 31,630 $ 35,258   (96)%    (9)%
Net (Loss) Income      $ (1,198) $ 19,854 $ 25,884 $ 28,446  (105)%   (30)%
Basic (Loss) Earnings
 per share             $  (0.03) $   0.54 $   0.72 $   0.79  (104)%   (32)%
Diluted (Loss)
 Earnings per share    $  (0.03) $   0.51 $   0.68 $   0.75  (104)%   (32)%

(1) See a reconciliation of our GAAP to Non-GAAP measures contained in the
financial schedules at the end of this release.

Business Perspective

"During the third quarter of 2010, we were recognized by the two leading industry analyst firms as a market-leader in the category of business process management," said Alan Trefler, Founder and CEO of Pegasystems. "This recognition reflects the sustained success our clients are having with our software. They have achieved rapid returns on their investments and are beginning to see transformational opportunities across their organizations. We were also pleased to be recognized by Fortune Magazine as number eight on their list of 'Fastest-Growing Companies' for 2010."

"We have continued our efforts and investments to drive further innovation across a broadening portfolio of industry leading solutions. During the third quarter, we announced the latest release of our CRM solution, which is focused on helping organizations deliver a superior customer experience to their clients. We also released solutions that expanded our capabilities in the financial services and insurance industries, which provide opportunities for growth within our existing customers and fuel engagement with new clients," concluded Mr. Trefler.

Craig Dynes, Pegasystems' CFO, added, "During the third quarter, we set a new record for quarterly revenue with GAAP revenue totaling $90 million. Our financial results for the third quarter demonstrate that so far, 2010 is very back-end loaded. In fact, Q3 non-GAAP license revenue of $36.5 million was 25% higher than Q2, and Q3 non-GAAP net income of $9.9 million was almost equal to non-GAAP net income for the first six months of 2010. Our pipeline for Q4 and 2011 is both substantial and encouraging as we believe it reflects a continuing increase in both the BPM market and our market share."

Messrs. Trefler and Dynes will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. EST on November 10, 2010. Dial-in information is as follows: 1 (877) 348-9349 (domestic) or 1 (678) 809-1046 (international). To listen to the Webcast log onto www.pega.com at least 5 minutes prior to the event's broadcast and click on the Webcast icon in the Investor Relations section. A replay of the call will also be available on www.pega.com in the Investor Relations section Audio Archives link.

Discussion of Non-GAAP Measures

To supplement financial results presented on a GAAP basis, the Company provides non-GAAP measures included in this release, including the tables contained herein. Pegasystems' management utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. The Company's annual financial plan is prepared both on a GAAP and non-GAAP basis, and the non-GAAP annual financial plan is approved by our board of directors. In addition and as a consequence of the importance of these measures in managing the business, the Company uses non-GAAP measures and results in the evaluation process to establish management's compensation.

These measures exclude certain business combination accounting entries and expenses related to our acquisition of Chordiant, as well as other significant expenses including stock-based compensation. The Company believes that these non-GAAP measures are helpful in understanding our past financial performance and our anticipated future results. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. A reconciliation of the Company's GAAP measures to non-GAAP measures is included in the financial schedules at the end of the release.

Forward-Looking Statements
Certain statements contained in this press release may be construed as "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including those relating to our revenue and pipeline. The words "anticipate," "project," "expect," "plan," "intend," "believe," "estimate," "target," "forecast," "could," "preliminary," "guidance" and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause the Company's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include, among others, the Company's ability to successfully integrate the operations of Chordiant Software, Inc., variation in demand for our products and services and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition, the mix of perpetual and term licenses and the level of term license renewals, our ability to develop new products and evolve existing ones, the weak global economy and the ongoing consolidation in the financial services and healthcare markets, our ability to attract and retain key personnel, reliance on key third party relationships, the potential loss of vendor specific objective evidence for our professional services, and management of the Company's growth. Further information regarding these and other factors which could cause the Company's actual results to differ materially from any forward-looking statements contained in this press release is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2009 and other recent filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company's views as of November 9, 2010. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause the Company's view to change, the Company does not undertake and specifically disclaims any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise. The statements should therefore not be relied upon as representing the Company's view as of any date subsequent to November 9, 2010.

About Pegasystems
Pegasystems, the leader in business process management and a leading provider of CRM solutions, helps organizations enhance customer loyalty, generate new business, and improve productivity. Our patented Build for Change® technology speeds the delivery of critical business solutions by directly capturing business objectives and eliminating manual programming. Pegasystems enables clients to quickly adapt to changing business conditions in order to outperform the competition. For more information, please visit us at www.pega.com.

All trademarks are the property of their respective owners.


Pegasystems Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)

                                          Three Months      Nine Months
                                             Ended             Ended
                                          September 30,     September 30,
                                          2010     2009     2010     2009
                                        -------- -------- -------  --------
Revenue:
  Software license                      $ 33,889 $ 28,358 $92,432  $ 82,045
  Maintenance                             23,418   12,489  58,892    36,608
  Professional services                   32,709   23,974  96,022    72,413
                                        -------- -------- -------  --------
    Total revenue                         90,016   64,821 247,346   191,066
                                        -------- -------- -------  --------
Cost of revenue:
  Cost of software license                 1,571       28   2,711        90
  Cost of maintenance                      3,187    1,558   7,839     4,452
  Cost of professional services           30,232   22,474  82,136    61,641
                                        -------- -------- -------  --------
    Total cost of revenue (1)             34,990   24,060  92,686    66,183
                                        -------- -------- -------  --------
Gross profit                              55,026   40,761 154,660   124,883
                                        -------- -------- -------  --------
Operating expenses:
  Selling and marketing                   31,199   19,568  82,988    51,663
  Research and development                14,924    9,930  40,560    28,198
  General and administrative               6,442    3,798  18,246    13,392
  Acquisition-related costs                  111        -   5,014         -
  Restructuring costs                        407        -   6,487         -
                                        -------- -------- -------  --------
    Total operating expenses (1)          53,083   33,296 153,295    93,253
                                        -------- -------- -------  --------
Income from operations                     1,943    7,465   1,365    31,630
Foreign currency transaction gain
 (loss)                                    1,513      266  (4,103)    2,377
Interest income, net                         129      721     761     2,404
Installment receivable interest income        51       74     155       224
Other income, net                            572        -     814        17
                                        -------- -------- -------  --------
Income (loss) before provision for
 income taxes                              4,208    8,526  (1,008)   36,652
Provision for income taxes                 1,069    2,525     190    10,768
                                        -------- -------- -------  --------
  Net income (loss)                     $  3,139 $  6,001 $(1,198) $ 25,884
                                        ======== ======== =======  ========
Net earnings (loss) per share:
Basic                                   $   0.08 $   0.16 $ (0.03) $   0.72
                                        ======== ======== =======  ========
Diluted                                 $   0.08 $   0.16 $ (0.03) $   0.68
                                        ======== ======== =======  ========
Weighted-average number of common
 shares outstanding:
Basic                                     36,996   36,462  37,008    36,035
Diluted                                   38,534   38,441  37,008    37,995
Dividends per share                     $   0.03 $   0.03 $  0.09  $   0.09
                                        ======== ======== =======  ========
(1) Includes stock-based compensation
 as follows:
Cost of revenue                         $    447 $    250 $ 1,328  $    884
Operating expenses                      $  1,134 $    715 $ 3,885  $  2,639




                             PEGASYSTEMS INC.
    RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
                  ($ in thousands, except per share data)

                             Three Months Ended September 30,
                ----------------------------------------------------------
                  2010                2010      2009                2009
                  GAAP      Adj.    Non-GAAP    GAAP      Adj.    Non-GAAP
                --------  --------  --------  --------  --------  --------
TOTAL REVENUE
 (2) (3) (4)    $ 90,016  $  5,417  $ 95,433  $ 64,821  $      -  $ 64,821
  Software
   license (2)    33,889     2,605    36,494    28,358         -    28,358
  Maintenance
   (3)            23,418     2,685    26,103    12,489         -    12,489
  Professional
   services (4)   32,709       127    32,836    23,974         -    23,974

TOTAL COST OF
 REVENUE (5)
 (6)            $ 34,990  $ (1,997) $ 32,993  $ 24,060  $   (278) $ 23,782
  Amortization
   of intangible
   assets (5)      1,550    (1,550)        -        28       (28)        -
  Stock-based
   compensation
   (6)               447      (447)        -       250      (250)        -

TOTAL OPERATING
 EXPENSES (5)
 (6)            $ 53,083  $ (2,925) $ 50,158  $ 33,296  $   (720) $ 32,576
  Amortization
   of intangible
   assets (5)      1,273    (1,273)        -         5        (5)        -
  Stock-based
   compensation
   (6)             1,134    (1,134)        -       715      (715)        -
  Acquisition-
   related costs     111      (111)        -         -         -         -
  Restructuring
   costs             407      (407)        -         -         -         -

INCOME FROM
 OPERATIONS     $  1,943  $ 10,339  $ 12,282  $  7,465  $    998  $  8,463

OPERATING
 MARGIN %           2.16%              12.87%    11.52%              13.06%

INCOME TAX
 EFFECTS (7)    $  1,069  $  3,579  $  4,648  $  2,525  $    296  $  2,821

NET INCOME      $  3,139  $  6,760  $  9,899  $  6,001  $    702  $  6,703

NET EARNINGS
 PER SHARE:
BASIC           $   0.08            $   0.27  $   0.16            $   0.18
DILUTED         $   0.08            $   0.26  $   0.16            $   0.17

WEIGHTED-AVERAGE
 NUMBER OF COMMON
 SHARES
 OUTSTANDING
BASIC             36,996         -    36,996    36,462         -    36,462
DILUTED           38,534         -    38,534    38,441         -    38,441


                     % Increase
                     (Decrease)
                ---------------------
                  GAAP       Non-GAAP
                --------     --------
TOTAL REVENUE
 (2) (3) (4)          39%          47%
  Software
   license (2)        20%          29%
  Maintenance
   (3)                88%         109%
  Professional
   services (4)       36%          37%

TOTAL COST OF
 REVENUE (5)
 (6)                  45%          39%
  Amortization
   of intangible
   assets (5)        n/m            0%
  Stock-based
   compensation
   (6)                79%           0%

TOTAL OPERATING
 EXPENSES (5)
 (6)                  59%          54%
  Amortization
   of intangible
   assets (5)        n/m            0%
  Stock-based
   compensation
   (6)                59%           0%
  Acquisition-
   related costs     100%           0%
  Restructuring
   costs             100%           0%

INCOME FROM
 OPERATIONS          -74%          45%

OPERATING
 MARGIN %        (0.0936) bp  (0.0019) bp

INCOME TAX
 EFFECTS (7)         -58%          65%

NET INCOME           -48%          48%

NET EARNINGS PER
 SHARE:
BASIC                -50%          50%
DILUTED              -50%          53%

WEIGHTED-AVERAGE
 NUMBER OF COMMON
 SHARES OUTSTANDING
BASIC                  1%           1%
DILUTED                0%           0%

n/m - not meaningful




                             PEGASYSTEMS INC.
    RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
                  ($ in thousands, except per share data)

                              Nine Months Ended September 30,
                ----------------------------------------------------------
                  2010                2010      2009                2009
                  GAAP      Adj.    Non-GAAP    GAAP      Adj.    Non-GAAP
                --------  --------  --------  --------  --------  --------
TOTAL REVENUE
 (2) (3) (4)    $247,346  $  9,010  $256,356  $191,066  $      -  $191,066
  Software
   license (2)    92,432     3,664    96,096    82,045         -    82,045
  Maintenance
   (3)            58,892     5,107    63,999    36,608         -    36,608
  Professional
   services (4)   96,022       239    96,261    72,413         -    72,413

TOTAL COST OF
 REVENUE (5)
 (6)            $ 92,686  $ (3,988) $ 88,698  $ 66,183  $   (974) $ 65,209
  Amortization
   of intangible
   assets (5)      2,660    (2,660)        -        90       (90)        -
  Stock-based
   compensation
   (6)             1,328    (1,328)        -       884      (884)        -

TOTAL OPERATING
 EXPENSES (5)
 (6)            $153,295  $(17,557) $135,738  $ 93,253  $ (2,654) $ 90,599
  Amortization
   of intangible
   assets (5)      2,171    (2,171)        -        15       (15)        -
  Stock-based
   compensation
   (6)             3,885    (3,885)        -     2,639    (2,639)        -
  Acquisition-
   related costs   5,014    (5,014)        -         -         -         -
  Restructuring
   costs           6,487    (6,487)        -         -         -         -

INCOME FROM
 OPERATIONS     $  1,365  $ 30,555  $ 31,920  $ 31,630  $  3,628  $ 35,258

OPERATING
 MARGIN %              1%                 12%       17%                 18%

INCOME TAX
 EFFECTS (7)    $    190  $  9,503  $  9,693  $ 10,768  $  1,066  $ 11,834

NET (LOSS)
 INCOME         $ (1,198) $ 21,052  $ 19,854  $ 25,884  $  2,562  $ 28,446

NET (LOSS)
 EARNINGS PER
 SHARE:
BASIC           $  (0.03)           $   0.54  $   0.72            $   0.79
DILUTED         $  (0.03)           $   0.51  $   0.68            $   0.75

WEIGHTED-AVERAGE
 NUMBER OF COMMON
 SHARES
 OUTSTANDING
BASIC             37,008         -    37,008    36,035         -    36,035
DILUTED (8)       37,008     1,682    38,690    37,955         -    37,955


                     % Increase
                     (Decrease)
                ---------------------
                  GAAP       Non-GAAP
                --------     --------
TOTAL REVENUE
 (2) (3) (4)          29%          34%
  Software
   license (2)        13%          17%
  Maintenance
   (3)                61%          75%
  Professional
   services (4)       33%          33%

TOTAL COST OF
 REVENUE (5)
 (6)                  40%          36%
  Amortization
   of intangible
   assets (5)        n/m            0%
  Stock-based
   compensation
   (6)                50%           0%

TOTAL OPERATING
 EXPENSES (5)
 (6)                  64%          50%
  Amortization
   of intangible
   assets (5)        n/m            0%
  Stock-based
   compensation
   (6)                47%           0%
  Acquisition-
   related costs     100%           0%
  Restructuring
   costs             100%           0%

INCOME FROM
 OPERATIONS          -96%          -9%

OPERATING
 MARGIN %        (0.1600) bp  (0.0600) bp

INCOME TAX
 EFFECTS (7)         -98%         -18%

NET (LOSS)
 INCOME             -105%         -30%

NET (LOSS)
 EARNINGS PER
 SHARE:
BASIC               -104%         -32%
DILUTED             -104%         -32%

WEIGHTED-AVERAGE
 NUMBER OF COMMON
 SHARES
 OUTSTANDING
BASIC                  3%           3%
DILUTED (8)           -2%           2%

n/m - not meaningful

PEGASYSTEMS INC. FOOTNOTES FOR RECONCILIATON OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures see disclosure under Discussion of Non-GAAP Measures included earlier in this release and below.

Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Revenue: Business combination rules require that we determine the fair value of the deferred revenue liability for contractual obligations assumed from Chordiant. The fair value represents an amount equal to the estimated costs of fulfilling the assumed contracts plus a reasonable profit margin. In post-acquisition reporting periods, we recognize revenue for the fair value of these contracts, when all the revenue recognition criteria are satisfied, instead of the revenue that would have been recognized by Chordiant as an independent company. We add back the affect of the deferred revenue fair value adjustment in non-GAAP revenue to reflect the full amount of these revenues to provide a more complete comparison of the revenue guidance to peer companies.

Amortization of intangible assets: We have excluded the effect of amortization of intangible assets acquired from Chordiant from our non-GAAP operating expenses and net earnings measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Stock-based compensation expenses: We have excluded the effect of stock-based compensation expenses from our non-GAAP operating expenses and net earnings measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expense.

Acquisition-related costs and restructuring costs: We have excluded the effect of acquisition-related costs and restructuring costs from our non-GAAP operating expenses and non-GAAP net earnings measures. We incurred direct and incremental costs associated with the Chordiant acquisition. These acquisition-related costs were primarily due diligence costs, advisory and legal transaction fees, and valuation and tax consulting fees. We have also incurred restructuring costs related to the integration of the acquisition, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Restructuring costs consist of employee severance and other exit costs. We believe it is useful for investors to understand the effects of these items on our total operating expenses.

(2) As of April 21, 2010, approximately $4.0 million, $0.6 million, $0.5 million and $0.2 million in estimated revenues related to assumed software license contracts will not be recognized for the remainder of fiscal 2010, fiscal 2011, fiscal 2012 and fiscal 2013, respectively, due to business combination accounting rules.

(3) As of April 21, 2010, approximately $7.3 million, $3.0 million and $0.5 million in estimated revenues related to assumed software support contracts will not be recognized for the remainder of fiscal 2010, fiscal 2011 and fiscal 2012, respectively, due to business combination accounting rules.

(4) As of April 21, 2010, approximately $0.3 million, $0.3 million, $0.3 million and $0.1 million in estimated revenues related to assumed software installation services contracts will not be recognized for the remainder of fiscal 2010, fiscal 2011, fiscal 2012 and fiscal 2013, respectively, due to business combination accounting rules.

(5) Estimated future annual amortization expense related to intangible assets as of September 30, 2010 is as follows:

Remainder of Fiscal 2010                             $ 2,870
Fiscal 2011                                           11,315
Fiscal 2012                                           11,137
Fiscal 2013                                           11,095
Fiscal 2014                                            9,489
Fiscal 2015                                            8,688
Fiscal 2016 and thereafter                            28,960
                                                     -------
    Total intangible assets subject to amortization  $83,554
                                                     =======

(6) Stock-based compensation is included in operating expense as follows:

                          Three Months Ended         Three Months Ended
                          September 30, 2010         September 30, 2009
                      -------------------------- --------------------------
                        GAAP     Adj.   Non-GAAP   GAAP     Adj.   Non-GAAP
                      -------- -------  -------- -------- -------  --------
Cost of revenue       $    447 $  (447) $      - $    250 $  (250) $      -
Selling and Marketing      520    (520)        -      228    (228)        -
Research and
 development               251    (251)        -      170    (170)        -
General and
 administrative            363    (363)        -      317    (317)        -
                      -------- -------  -------- -------- -------  --------
  Total stock-based
   compensation       $  1,581 $(1,581) $      - $    965 $  (965) $      -
                      -------- -------  -------- -------- -------  --------


                          Nine Months Ended          Nine Months Ended
                          September 30, 2010         September 30, 2009
                      -------------------------- --------------------------
                        GAAP     Adj.   Non-GAAP   GAAP     Adj.   Non-GAAP
                      -------- -------  -------- -------- -------  --------
Cost of revenue       $  1,328 $(1,328) $      - $    884 $  (884) $      -
Selling and Marketing    1,594  (1,594)        -      579    (579)        -
Research and
 development               764    (764)        -      559    (559)        -
General and
 administrative          1,527  (1,527)        -    1,501  (1,501)        -
                      -------- -------  -------- -------- -------  --------
  Total stock-based
   compensation       $  5,213 $(5,213) $      - $  3,523 $(3,523) $      -
                      -------- -------  -------- -------- -------  --------

(7) Income tax effects were calculated using an effective GAAP tax rate of 25.4% and 29.6% in the third quarter of 2010 and 2009, respectively, and an effective non-GAAP tax rate of 31.9% and 29.6% in the third quarter of 2010 and 2009, respectively. The difference between our GAAP and non-GAAP tax rates in the third quarter of 2010 was due to the differences in allowable acquisition-related deductions for income tax purposes.

Income tax effects were calculated using an effective GAAP tax rate of 18.8% and 29.4% in the first nine months of 2010 and 2009, respectively, and an effective non-GAAP tax rate of 32.8% and 29.4% in the first nine months of 2010 and 2009, respectively. The difference between our GAAP and non-GAAP tax rates in the first nine months of 2010 was due to the differences in allowable acquisition-related deductions for income tax purposes.

(8) The diluted weighted-average common shares used for the calculation of Non-GAAP diluted earnings per share for the first nine months of 2010 include the dilutive effect of outstanding options, restricted stock units, and warrants, and the average market price of our common stock during the first three quarters of 2010 using the treasury stock method.

                             Pegasystems Inc.
              Unaudited Condensed Consolidated Balance Sheets

                                                      As of       As of
                                                 September 30, December 31,
                                                      2010         2009
                                                  ------------ ------------
                                                       (in thousands)
Current Assets:
   Cash and cash equivalents                      $     52,777 $     63,857
   Marketable securities                                16,076      138,796
                                                  ------------ ------------
        Total cash, cash equivalents, and
         marketable securities                          68,853      202,653
   Trade accounts receivable, net                       75,952       39,396
   Short-term license installments                       2,447        2,829
   Deferred income taxes                                 6,516        2,523
   Income taxes receivable  and other current
    assets                                              17,010        8,840
                                                  ------------ ------------
        Total current assets                           170,778      256,241
Long-term license installments, net                      1,383        2,976
Property and equipment, net                             10,769        8,931
Long-term deferred income taxes                         30,521        7,515
Other assets                                             2,489        1,195
Intangible assets, net                                  83,554          336
Goodwill                                                21,613        2,391
                                                  ------------ ------------
        Total assets                              $    321,107 $    279,585
                                                  ============ ============

Current liabilities:
   Accounts payable                               $      5,445 $      4,791
   Accrued expenses                                     26,417        6,748
   Accrued compensation and related expenses            23,746       23,280
   Deferred revenue                                     48,773       32,870
                                                  ------------ ------------
        Total current liabilities                      104,381       67,689
Income taxes payable                                     6,134        4,828
Other long-term liabilities                              5,192        1,849
                                                  ------------ ------------
        Total liabilities                              115,707       74,366
Stockholders' equity:                                  205,400      205,219
                                                  ------------ ------------
        Total liabilities and stockholders'
         equity                                   $    321,107 $    279,585
                                                  ============ ============




                             Pegasystems Inc.
        Unaudited Condensed Consolidated Statements of Cash Flows

                                                        Nine Months Ended
                                                          September 30,
                                                          2010      2009
                                                        --------  --------
                                                          (in thousands)
Operating activities:
    Net (loss) income                                   $ (1,198) $ 25,884
    Adjustments to reconcile net (loss) income to cash
     (used in) provided by operating activities:
         Excess tax benefit from equity awards and
          deferred income taxes                           (7,544)  (15,310)
         Depreciation, amortization, and other non-cash
          items                                            7,013     2,021
         Foreign currency transaction loss                 3,775         -
         Amortization of investments and realized gain
          on sale of investments                             671     2,963
         Stock-based compensation expense                  5,213     3,523
         Change in operating assets and liabilities,
          and other, net                                 (17,436)   19,758
                                                        --------  --------
    Cash (used in) provided by operating activities       (9,506)   38,839
                                                        --------  --------
    Cash provided by (used in) investing activities        8,725   (17,650)
                                                        --------  --------
    Cash used in financing activities                     (6,919)   (2,071)
                                                        --------  --------
Effect of exchange rate on cash and cash equivalents      (3,380)    1,214
                                                        --------  --------
Net (decrease) increase  in cash and cash equivalents    (11,080)   20,332
Cash and cash equivalents, beginning of period            63,857    36,087
                                                        --------  --------
Cash and cash equivalents, end of period                $ 52,777  $ 56,419
                                                        ========  ========

Contact Information

  • For Information, contact:
    Craig Dynes
    Chief Financial Officer
    617-866-6020
    CDynes@pega.com