PART I - FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Pegasystems Inc., including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounts, and recent financial activities for the periods ended September 30, 2024 and December 31, 2023 [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific reporting dates **Unaudited Condensed Consolidated Balance Sheets (in thousands)** | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | **Assets** | | | | Total current assets | $1,119,080 | $1,029,027 | | Total assets | $1,579,232 | $1,510,736 | | **Liabilities & Stockholders' Equity** | | | | Total current liabilities | $1,024,543 | $577,059 | | Total liabilities | $1,106,209 | $1,156,898 | | Total stockholders' equity | $473,023 | $353,838 | - Total current liabilities significantly increased from **$577,059 thousand** at December 31, 2023, to **$1,024,543 thousand** at September 30, 2024, primarily due to the reclassification of convertible senior notes from long-term to current liabilities[5](index=5&type=chunk) [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net loss over specific interim periods **Unaudited Condensed Consolidated Statements of Operations (in thousands)** | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $325,050 | $334,643 | $1,006,350 | $958,383 | | Gross profit | $228,344 | $240,880 | $718,040 | $670,546 | | (Loss) from operations | $(11,661) | $(10,816) | $(19,107) | $(74,312) | | Net (loss) | $(14,390) | $(7,279) | $(19,901) | $(74,857) | | Basic (Loss) per share | $(0.17) | $(0.09) | $(0.23) | $(0.90) | | Diluted (Loss) per share | $(0.17) | $(0.09) | $(0.23) | $(0.90) | - The company reported an increased net loss for the three months ended September 30, 2024, to **$(14,390) thousand** from $(7,279) thousand in the prior year, despite a decrease in total operating expenses for the nine-month period[7](index=7&type=chunk) [Unaudited Condensed Consolidated Statements of Comprehensive (Loss)](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)) Reports the net loss and other comprehensive income or loss components for the interim periods **Unaudited Condensed Consolidated Statements of Comprehensive (Loss) (in thousands)** | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net (loss) | $(14,390) | $(7,279) | $(19,901) | $(74,857) | | Total other comprehensive income (loss), net of tax | $10,864 | $(3,727) | $4,477 | $(2,018) | | Comprehensive (loss) | $(3,526) | $(11,006) | $(15,424) | $(76,875) | - Total other comprehensive income significantly improved to **$10,864 thousand** for the three months ended September 30, 2024, compared to a loss of $(3,727) thousand in the prior year, primarily driven by foreign currency translation adjustments[9](index=9&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Outlines changes in the company's equity accounts, including common stock and accumulated deficit **Unaudited Condensed Consolidated Statements of Stockholders' Equity (in thousands)** | Metric | Dec 31, 2023 | Sep 30, 2024 | | :------------------------------------ | :----------- | :----------- | | Total stockholders' equity | $353,838 | $473,023 | | Additional paid-in capital | $379,584 | $514,173 | | Accumulated deficit | $(8,705) | $(28,606) | | Common stock shares outstanding | 83,840 | 85,808 | - Total stockholders' equity increased by **$119,185 thousand** from December 31, 2023, to September 30, 2024, primarily due to increases in additional paid-in capital from stock compensation plans and stock-based compensation, despite an increase in accumulated deficit[13](index=13&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes the cash inflows and outflows from operating, investing, and financing activities **Unaudited Condensed Consolidated Statements of Cash Flows (in thousands)** | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Cash provided by operating activities | $250,697 | $137,920 | | Cash (used in) investing activities | $(215,999) | $(24,176) | | Cash provided by (used in) financing activities | $26,949 | $(85,031) | | Net increase in cash, cash equivalents, and restricted cash | $66,238 | $27,092 | | Cash, cash equivalents, and restricted cash, end of period | $299,065 | $172,146 | - Cash provided by operating activities significantly increased by **81.7% to $250,697 thousand** for the nine months ended September 30, 2024, compared to $137,920 thousand in the prior year[15](index=15&type=chunk) - Cash used in investing activities increased substantially to **$(215,999) thousand** for the nine months ended September 30, 2024, from $(24,176) thousand in the prior year, primarily due to increased purchases of investments[15](index=15&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [NOTE 1. BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) Explains the accounting principles and conventions used in preparing the interim financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules for interim financial reporting and U.S. GAAP, including only normal recurring adjustments, and should be read in conjunction with the Company's 2023 Annual Report on Form 10-K[17](index=17&type=chunk) [NOTE 2. MARKETABLE SECURITIES](index=9&type=section&id=NOTE%202.%20MARKETABLE%20SECURITIES) Details the company's investments in marketable securities, including their fair values and maturities **Marketable Securities (in thousands)** | Type | Sep 30, 2024 Fair Value | Dec 31, 2023 Fair Value | | :---------------- | :---------------------- | :---------------------- | | Government debt | $11,666 | $11,503 | | Corporate debt | $403,675 | $181,933 | | Total | $415,341 | $193,436 | - As of September 30, 2024, marketable securities had a weighted-average remaining maturity of **0.3 years**, with maturities ranging from October 2024 to January 2026[18](index=18&type=chunk) [NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE](index=9&type=section&id=NOTE%203.%20RECEIVABLES%2C%20CONTRACT%20ASSETS%2C%20AND%20DEFERRED%20REVENUE) Presents information on accounts receivable, contract assets, and deferred revenue balances **Receivables (in thousands)** | Type | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Accounts receivable, net | $173,623 | $300,173 | | Unbilled receivables, net | $157,281 | $237,379 | | Long-term unbilled receivables, net | $77,576 | $85,402 | | Total | $408,480 | $622,954 | **Deferred Revenue (in thousands)** | Type | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Deferred revenue | $345,574 | $377,845 | | Long-term deferred revenue | $2,183 | $2,478 | | Total | $347,757 | $380,323 | - Deferred revenue decreased in the nine months ended September 30, 2024, primarily because **$340.4 million** of revenue recognized during the period from deferred revenue exceeded new billings[24](index=24&type=chunk) [NOTE 4. DEFERRED COMMISSIONS](index=10&type=section&id=NOTE%204.%20DEFERRED%20COMMISSIONS) Reports the balances and amortization of deferred commission expenses **Deferred Commissions (in thousands)** | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Deferred commissions | $98,415 | $114,119 | | Amortization of deferred commissions (9 months) | $47,143 | $43,974 | [NOTE 5. GOODWILL AND OTHER INTANGIBLES](index=10&type=section&id=NOTE%205.%20GOODWILL%20AND%20OTHER%20INTANGIBLES) Provides details on the company's goodwill and other intangible assets, including their net book values **Goodwill and Intangible Assets (in thousands)** | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Goodwill | $81,568 | $81,611 | | Net Book Value of Intangible Assets | $4,533 | $7,002 | - Goodwill remained relatively stable, while the net book value of intangible assets decreased from **$7,002 thousand** to **$4,533 thousand**, reflecting ongoing amortization[25](index=25&type=chunk)[26](index=26&type=chunk) [NOTE 6. OTHER ASSETS AND LIABILITIES](index=11&type=section&id=NOTE%206.%20OTHER%20ASSETS%20AND%20LIABILITIES) Lists various other current and long-term assets and liabilities, including income tax receivables and accrued expenses **Other Current Assets (in thousands)** | Type | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Income tax receivables | $29,264 | $4,804 | | Contract assets | $15,719 | $16,238 | | Total other current assets | $85,186 | $68,137 | **Other Long-Term Assets (in thousands)** | Type | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Deferred commissions | $98,415 | $114,119 | | Right of use assets | $63,124 | $64,198 | | Property and equipment | $42,871 | $47,279 | | Total other long-term assets | $301,008 | $314,696 | **Accrued Expenses (in thousands)** | Type | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Cloud hosting | $12,840 | $1,358 | | Outside professional services | $12,684 | $10,419 | | Income and other taxes | $3,384 | $15,428 | | Total accrued expenses | $41,236 | $39,941 | [NOTE 7. LEASES](index=12&type=section&id=NOTE%207.%20LEASES) Discloses information about the company's lease arrangements, including lease costs and key lease metrics **Lease Expenses (in thousands)** | Type | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Fixed lease costs | $6,848 | $4,718 | $16,381 | $14,979 | | Total lease costs | $9,092 | $7,632 | $22,950 | $23,530 | **Lease Metrics** | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Weighted-average remaining lease term | 6.3 years | 6.8 years | | Weighted-average discount rate | 4.6% | 4.0% | - Cash paid for operating leases decreased to **$13,249 thousand** for the nine months ended September 30, 2024, from $14,378 thousand in the prior year[37](index=37&type=chunk) [NOTE 8. DEBT](index=13&type=section&id=NOTE%208.%20DEBT) Details the company's debt obligations, including convertible senior notes and revolving credit facilities - The Company issued **$600 million** in Convertible Senior Notes in February 2020, due March 1, 2025, with an annual interest rate of **0.75%**; noteholders can convert their Notes at any time beginning September 1, 2024[38](index=38&type=chunk)[39](index=39&type=chunk) **Carrying Value of Convertible Senior Notes (in thousands)** | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Principal | $502,270 | $502,270 | | Convertible senior notes, net | $501,225 | $499,368 | - The Company's **$100 million** senior secured revolving credit agreement was amended on April 23, 2024, extending its expiration date to February 4, 2025, with no outstanding cash borrowings but **$27.3 million** in outstanding letters of credit as of September 30, 2024[48](index=48&type=chunk) [NOTE 9. RESTRUCTURING](index=15&type=section&id=NOTE%209.%20RESTRUCTURING) Reports expenses and activities related to the company's restructuring initiatives **Restructuring Expenses (in thousands)** | Type | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :-------------------------- | :------------------------------ | :------------------------------ | | Office space reduction | $2,882 | $17,236 | | Employee severance and related benefits | — | $17,236 | | Total restructuring expense | $2,882 | $17,236 | - Restructuring activities in the three months ended September 30, 2024, primarily involved office space reduction, totaling **$2,882 thousand**, a significant decrease from $17,236 thousand in the prior year[49](index=49&type=chunk) [NOTE 10. FAIR VALUE MEASUREMENTS](index=15&type=section&id=NOTE%2010.%20FAIR%20VALUE%20MEASUREMENTS) Provides fair value measurements for various assets and liabilities, categorized by valuation hierarchy levels **Assets Measured at Fair Value (in thousands)** | Type | Sep 30, 2024 Total Fair Value | Dec 31, 2023 Total Fair Value | | :------------------------------------ | :---------------------------- | :---------------------------- | | Cash equivalents | $16,760 | $54,357 | | Marketable securities | $415,341 | $193,436 | | Capped Call Transactions | $226 | $893 | | Venture investments | $21,172 | $19,450 | - The fair value of Convertible Senior Notes increased to **$492.5 million** as of September 30, 2024, from $466.5 million as of December 31, 2023, and is classified within Level 2 of the fair value hierarchy[54](index=54&type=chunk) [NOTE 11. REVENUE](index=16&type=section&id=NOTE%2011.%20REVENUE) Presents a detailed breakdown of revenue by geographic region and service type **Geographic Revenue (in thousands)** | Region | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | U.S. | $526,332 (53%) | $489,645 (51%) | | Other Americas | $71,936 (7%) | $58,013 (6%) | | United Kingdom | $108,338 (11%) | $112,751 (12%) | | Europe (excluding U.K.), Middle East, and Africa | $175,255 (17%) | $173,551 (18%) | | Asia-Pacific | $124,489 (12%) | $124,423 (13%) | | Total revenue | $1,006,350 (100%) | $958,383 (100%) | **Revenue Streams (in thousands)** | Type | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Pega Cloud | $144,108 | $118,040 | $409,096 | $340,982 | | Maintenance | $80,702 | $83,538 | $242,047 | $245,210 | | Subscription services | $224,810 | $201,578 | $651,143 | $586,192 | | Subscription license | $45,420 | $74,342 | $193,405 | $200,066 | | Consulting | $54,364 | $55,976 | $160,451 | $167,396 | | Perpetual license | $456 | $2,747 | $1,351 | $4,729 | | Total revenue | $325,050 | $334,643 | $1,006,350 | $958,383 | - Remaining performance obligations (backlog) increased to **$1,475,283 thousand** as of September 30, 2024, from $1,265,367 thousand as of September 30, 2023, with **53%** expected to be recognized within one year[58](index=58&type=chunk)[59](index=59&type=chunk) [NOTE 12. STOCKHOLDERS' EQUITY](index=18&type=section&id=NOTE%2012.%20STOCKHOLDERS'%20EQUITY) Details stock-based compensation expenses and the company's share repurchase program **Stock-Based Compensation Expense (in thousands)** | Type | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenue | $6,894 | $6,410 | $20,558 | $22,497 | | Selling and marketing | $14,169 | $10,401 | $41,621 | $43,410 | | Research and development | $7,308 | $7,375 | $22,779 | $24,286 | | General and administrative | $8,842 | $7,113 | $23,260 | $19,890 | | Total expense | $37,213 | $31,299 | $108,218 | $110,083 | - As of September 30, 2024, the Company had **$119.6 million** of unrecognized stock-based compensation expense, expected to be recognized over a weighted-average period of **1.6 years**[61](index=61&type=chunk) - The Board of Directors extended the share repurchase program to December 31, 2025, and increased the authorized repurchase by **$250 million** to **$310 million** as of October 22, 2024[61](index=61&type=chunk) [NOTE 13. INCOME TAXES](index=18&type=section&id=NOTE%2013.%20INCOME%20TAXES) Discusses the company's income tax provision and effective income tax rate **Effective Income Tax Rate** | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Provision for income taxes | $8,369 | $15,395 | | Effective income tax rate | (73)% | (26)% | - The effective income tax rate for the nine months ended September 30, 2024, was **(73)%**, impacted by the jurisdictional mix of earnings/losses, valuation allowance on deferred tax assets in the U.S. and U.K., and a near break-even year-to-date pretax loss[63](index=63&type=chunk) [NOTE 14. (LOSS) PER SHARE](index=19&type=section&id=NOTE%2014.%20(LOSS)%20PER%20SHARE) Provides calculations for basic and diluted loss per share **(Loss) Per Share (in thousands, except per share amounts)** | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net (loss) | $(14,390) | $(7,279) | $(19,901) | $(74,857) | | Weighted-average common shares outstanding | 85,625 | 83,336 | 85,018 | 82,996 | | (Loss) per share, basic | $(0.17) | $(0.09) | $(0.23) | $(0.90) | | (Loss) per share, diluted | $(0.17) | $(0.09) | $(0.23) | $(0.90) | - All dilutive securities, including stock options, RSUs, and convertible senior notes, were excluded from diluted EPS calculation as their inclusion would be anti-dilutive due to the net loss[64](index=64&type=chunk) [NOTE 15. COMMITMENTS AND CONTINGENCIES](index=19&type=section&id=NOTE%2015.%20COMMITMENTS%20AND%20CONTINGENCIES) Discloses information on ongoing legal proceedings and other contingent liabilities - The Company is a defendant in ongoing litigation with Appian Corp., where a jury awarded **$2.06 billion** in damages for trade secret misappropriation, with the Court of Appeals of Virginia reversing the judgment and ordering a new trial, which Appian has appealed to the Supreme Court of Virginia[68](index=68&type=chunk) - A class action lawsuit alleging securities law violations against the Company and its CEO was preliminarily settled for **$35 million**, with final approval granted by the Court on September 19, 2024[68](index=68&type=chunk) - The SEC concluded its investigation into the Company's accounting treatment of the Appian litigation and, as of September 9, 2024, does not intend to recommend any enforcement action against the Company[71](index=71&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=22&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the Company's financial condition and results of operations, including forward-looking statements, non-GAAP measures, business overview, performance metrics, critical accounting policies, and a detailed analysis of revenue, gross profit, operating expenses, other income/expenses, income taxes, and liquidity and capital resources [FORWARD-LOOKING STATEMENTS](index=22&type=section&id=FORWARD-LOOKING%20STATEMENTS) Cautions readers about statements regarding future events that involve risks and uncertainties - The report contains forward-looking statements regarding future financial performance, liquidity, capital resources, revenue recognition, client demand, reliance on key personnel and third-party providers, debt obligations, foreign currency, cyber-attacks, intellectual property rights, ongoing litigation, client retention, and growth management[73](index=73&type=chunk) [NON-GAAP MEASURES](index=22&type=section&id=NON-GAAP%20MEASURES) Explains the use and limitations of non-GAAP financial measures in assessing performance - Non-GAAP financial measures are used by management to understand core operating results and prospects, assess performance, and establish goals, but are not a substitute for GAAP measures[74](index=74&type=chunk) [BUSINESS OVERVIEW](index=22&type=section&id=BUSINESS%20OVERVIEW) Describes the company's core business, products, and target market - Pegasystems Inc. develops, markets, licenses, hosts, and supports enterprise software, offering a low-code platform for workflow automation and AI-powered decisioning to Global 2000 organizations and government agencies[75](index=75&type=chunk)[76](index=76&type=chunk) [Performance metrics](index=23&type=section&id=Performance%20metrics) Presents key operational and financial metrics used to evaluate the company's business performance [Annual contract value ("ACV")](index=23&type=section&id=Annual%20contract%20value%20(%22ACV%22)) Details the annual contract value for various service types, indicating recurring revenue streams **Annual Contract Value (ACV) (in millions)** | Metric | Sep 30, 2024 | Sep 30, 2023 | 1-Year Change | | :------------------------------------ | :----------- | :----------- | :------------ | | Pega Cloud | $640.6 | $494.6 | 30% | | Maintenance | $306.8 | $319.3 | (4)% | | Subscription services | $947.3 | $813.8 | 16% | | Subscription license | $412.7 | $355.1 | 16% | | Total ACV | $1,360.0 | $1,168.9 | 16% | | Constant currency ACV | $1,332.0 | $1,169.0 | 14% | - Total ACV increased by **16% to $1,360.0 million** as of September 30, 2024, driven by a **30% growth** in Pega Cloud ACV[78](index=78&type=chunk) [Cash flow](index=24&type=section&id=Cash%20flow) Summarizes the company's cash generation from operating activities and its free cash flow **Cash Flow (in thousands)** | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :----- | | Cash provided by operating activities | $250,697 | $137,920 | 82% | | Investment in property and equipment | $(4,921) | $(14,271) | | | Free cash flow | $245,776 | $123,649 | 99% | - Free cash flow increased by **99% to $245,776 thousand** for the nine months ended September 30, 2024, primarily due to an **82% increase** in cash provided by operating activities and reduced investment in property and equipment[82](index=82&type=chunk) [Remaining performance obligations ("Backlog")](index=26&type=section&id=Remaining%20performance%20obligations%20(%22Backlog%22)) Reports the total value of future revenue from existing customer contracts **Backlog (in millions)** | Metric | Sep 30, 2024 | Sep 30, 2023 | 1-Year Growth Rate | | :------------------------------------ | :----------- | :----------- | :----------------- | | Backlog - GAAP | $1,475 | $1,265 | 17% | | Constant currency backlog | $1,432 | $1,265 | 13% | - GAAP backlog grew by **17% to $1,475 million** as of September 30, 2024, indicating strong future revenue from existing non-cancellable contracts[84](index=84&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=26&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) Confirms no significant changes to the company's key accounting policies - No significant changes were made to the Company's critical accounting policies as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023[86](index=86&type=chunk) [RESULTS OF OPERATIONS](index=27&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes the company's financial performance across revenue, gross profit, and operating expenses [Revenue](index=27&type=section&id=Revenue) Provides a detailed analysis of revenue trends by type and their underlying drivers **Revenue by Type (in thousands)** | Type | Three Months Ended Sep 30, 2024 | Change (YoY) | Nine Months Ended Sep 30, 2024 | Change (YoY) | | :-------------------------- | :------------------------------ | :----------- | :----------------------------- | :----------- | | Pega Cloud | $144,108 | 22% | $409,096 | 20% | | Maintenance | $80,702 | (3)% | $242,047 | (1)% | | Subscription license | $45,420 | (39)% | $193,405 | (3)% | | Consulting | $54,364 | (3)% | $160,451 | (4)% | | Perpetual license | $456 | (83)% | $1,351 | (71)% | | Total revenue | $325,050 | (3)% | $1,006,350 | 5% | - Pega Cloud revenue increased by **22% and 20%** for the three and nine months ended September 30, 2024, respectively, due to increased client investments and expansion of Pega Cloud usage[88](index=88&type=chunk) - Subscription license revenue decreased by **39%** for the three months and **3%** for the nine months ended September 30, 2024, primarily due to several large multi-year contracts recognized in the prior year[88](index=88&type=chunk) [Gross profit](index=27&type=section&id=Gross%20profit) Examines gross profit and gross profit percentages across different revenue streams **Gross Profit by Type (in thousands)** | Type | Three Months Ended Sep 30, 2024 | Gross Profit % | Nine Months Ended Sep 30, 2024 | Gross Profit % | | :-------------------------- | :------------------------------ | :------------- | :----------------------------- | :------------- | | Pega Cloud | $113,625 | 79% | $319,261 | 78% | | Maintenance | $74,317 | 92% | $222,952 | 92% | | Subscription license | $45,036 | 99% | $191,901 | 99% | | Consulting | $(5,087) | (9)% | $(17,413) | (11)% | | Total gross profit | $228,344 | 70% | $718,040 | 71% | - Pega Cloud gross profit percentage increased due to improved cost efficiency in hosting services and employee compensation, as Pega Cloud scales[89](index=89&type=chunk) - Consulting gross profit percentage decreased significantly due to lower consultant utilization rates[89](index=89&type=chunk) [Operating expenses](index=27&type=section&id=Operating%20expenses) Analyzes trends and drivers for selling, marketing, research, development, and administrative expenses **Operating Expenses (in thousands)** | Type | Three Months Ended Sep 30, 2024 | Change (YoY) | Nine Months Ended Sep 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------ | :----------- | :----------------------------- | :----------- | | Selling and marketing | $127,669 | (3)% | $395,125 | (7)% | | Research and development | $74,157 | (1)% | $221,695 | (1)% | | General and administrative | $35,694 | 31% | $84,641 | 15% | | Litigation settlement, net of recoveries | $0 | * | $32,403 | * | | Restructuring | $2,485 | (86)% | $3,283 | (85)% | - Selling and marketing expenses decreased due to reduced headcount from optimizing the go-to-market strategy[91](index=91&type=chunk) - General and administrative expenses increased due to higher incentive-based compensation[91](index=91&type=chunk) - Litigation settlement, net of recoveries, increased significantly for the nine-month period due to the cost to settle litigation outside the ordinary course of business[91](index=91&type=chunk) [Other income and expenses](index=28&type=section&id=Other%20income%20and%20expenses) Details non-operating income and expenses, including interest income and foreign currency impacts **Other Income and Expenses (in thousands)** | Type | Three Months Ended Sep 30, 2024 | Change (YoY) | Nine Months Ended Sep 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------ | :----------- | :----------------------------- | :----------- | | Foreign currency transaction (loss) gain | $(4,405) | * | $(7,230) | (82)% | | Interest income | $6,769 | 167% | $18,835 | 223% | | (Loss) on capped call transactions | $(689) | 70% | $(667) | (49)% | | Other income, net | $0 | (100)% | $1,684 | (91)% | | Total | $36 | (99)% | $7,575 | (49)% | - Interest income significantly increased due to higher investment balances and interest rate yields[92](index=92&type=chunk) - Other income, net, decreased substantially due to a gain on venture investments in the prior year and a gain from repurchases of convertible senior notes in the prior year[92](index=92&type=chunk) [Provision for income taxes](index=28&type=section&id=Provision%20for%20income%20taxes) Discusses the company's income tax provision and the factors influencing its effective tax rate **Provision for Income Taxes (in thousands)** | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Provision for income taxes | $8,369 | $15,395 | | Effective income tax rate | (73)% | (26)% | - The effective income tax rate for the nine months ended September 30, 2024, was **(73)%**, influenced by jurisdictional mix, valuation allowances on deferred tax assets, and a near break-even pretax loss[93](index=93&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the Company's cash position, sources of liquidity, and capital allocation strategies, including operating, investing, and financing activities, debt management, stock repurchases, and dividend payments **Cash, Cash Equivalents, and Marketable Securities (in thousands)** | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Held in U.S. entities | $464,232 | $263,453 | | Held in foreign entities | $238,758 | $159,885 | | Total cash, cash equivalents, and marketable securities | $702,990 | $423,338 | | Total cash, cash equivalents, marketable securities, and restricted cash | $714,406 | $426,263 | - The Company believes its current cash, marketable securities, operating cash flow, borrowing capacity, and access to capital markets are sufficient to fund operations, convertible senior notes settlement, stock repurchases, and dividends for at least the next 12 months[95](index=95&type=chunk) [Operating activities](index=29&type=section&id=Operating%20activities) Explains the cash generated from the company's primary business operations - Cash provided by operating activities increased for the nine months ended September 30, 2024, primarily due to growth in client collections and the impact of cost-efficiency initiatives[96](index=96&type=chunk) [Investing activities](index=29&type=section&id=Investing%20activities) Details cash flows related to the purchase and sale of investments and property and equipment - Cash used in investing activities increased for the nine months ended September 30, 2024, mainly due to investments in financial instruments and reduced investment in property and equipment[97](index=97&type=chunk) [Financing activities](index=29&type=section&id=Financing%20activities) Reports cash flows from debt, equity transactions, and dividend payments [Debt financing](index=29&type=section&id=Debt%20financing) Provides an update on the company's outstanding debt obligations and credit facilities - As of September 30, 2024, **$502.3 million** in aggregate principal amount of convertible senior notes remained outstanding, maturing on March 1, 2025[98](index=98&type=chunk) - The Credit Facility's expiration date was extended to February 4, 2025, with **$27.3 million** in outstanding letters of credit and no cash borrowings as of September 30, 2024[98](index=98&type=chunk) [Stock repurchase program](index=30&type=section&id=Stock%20repurchase%20program) Details the company's share repurchase activities and authorized repurchase limits **Stock Repurchase Authority (in thousands)** | Metric | Nine Months Ended Sep 30, 2024 | | :------------------------------------ | :----------------------------- | | December 31, 2023 | $60,000 | | Repurchases | $(11,749) | | September 30, 2024 | $48,251 | - The Board of Directors extended the share repurchase program to December 31, 2025, and increased the authorized repurchase by **$250 million** to **$310 million** as of October 22, 2024[100](index=100&type=chunk) [Dividends](index=30&type=section&id=Dividends) Reports dividend payments to stockholders and the company's dividend policy **Dividend Payments (in thousands)** | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Dividend payments to stockholders | $7,626 | $7,458 | - The Company intends to pay a quarterly cash dividend of **$0.03 per share**, subject to Board discretion[101](index=101&type=chunk) [Contractual obligations](index=30&type=section&id=Contractual%20obligations) Outlines the company's future payment commitments under various contractual agreements **Contractual Obligations as of September 30, 2024 (in thousands)** | Type | Remainder of 2024 | 2025 | 2026 | 2027 | 2028 | 2029 and after | Total | | :------------------------------------ | :---------------- | :----- | :----- | :----- | :----- | :------------- | :-------- | | Convertible senior notes | $0 | $504,154 | $0 | $0 | $0 | $0 | $504,154 | | Purchase obligations | $51,146 | $142,370 | $127,548 | $135,488 | $990 | $0 | $457,542 | | Operating lease obligations | $4,094 | $18,276 | $13,754 | $13,503 | $12,939 | $31,932 | $94,498 | | Venture investment commitments | $0 | $500 | $500 | $0 | $0 | $0 | $1,000 | | Liability for uncertain tax positions | $0 | $0 | $0 | $0 | $0 | $0 | $867 | | Total | $55,240 | $665,300 | $141,802 | $148,991 | $13,929 | $31,932 | $1,058,061 | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=30&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the Company's exposure to market risk, particularly foreign currency fluctuations, and its potential impact on revenue and net income [Foreign currency exposure](index=30&type=section&id=Foreign%20currency%20exposure) Discusses the company's sensitivity to fluctuations in foreign currency exchange rates [Translation risk](index=30&type=section&id=Translation%20risk) Explains the impact of foreign currency exchange rate changes on the translation of foreign subsidiary financial statements **Impact of 10% USD Strengthening** | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | (Decrease) in revenue | (4)% | (4)% | | (Decrease) increase in net income | (23)% | (5)% | - A hypothetical **10% strengthening** of the U.S. dollar against other currencies would result in a **4% decrease in revenue** for both the nine months ended September 30, 2024 and 2023[106](index=106&type=chunk) [Remeasurement risk](index=31&type=section&id=Remeasurement%20risk) Addresses the risk associated with remeasuring foreign currency-denominated balances into the functional currency **Impact of 10% GBP Strengthening (in thousands)** | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Foreign currency (loss) | $(12,771) | $(11,351) | - The Company is exposed to remeasurement risk primarily from changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated balances held by its U.K. subsidiary[107](index=107&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=31&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section outlines the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of disclosure controls and procedures](index=31&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) Assesses the effectiveness of controls designed to ensure timely and accurate financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2024, providing reasonable assurance of achieving their objectives[108](index=108&type=chunk) [Changes in internal control over financial reporting](index=31&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) Reports any material changes in the company's internal controls over financial reporting - There have been no material changes in the Company's internal control over financial reporting during the quarter ended September 30, 2024[109](index=109&type=chunk) PART II - OTHER INFORMATION Contains additional disclosures not included in the financial statements, such as legal proceedings and risk factors [ITEM 1. LEGAL PROCEEDINGS](index=32&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section incorporates by reference the detailed information on legal proceedings from Note 15, Commitments and Contingencies, in Part I, Item 1 of this Quarterly Report - Information regarding legal proceedings is incorporated by reference from Note 15. Commitments and Contingencies[111](index=111&type=chunk) [ITEM 1A. RISK FACTORS](index=32&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section refers readers to the comprehensive risk factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect its business and financial results - Readers are encouraged to review the risk factors in the Annual Report on Form 10-K for the year ended December 31, 2023, as they could materially affect the Company's business, financial condition, and future results[112](index=112&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=32&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section provides details on issuer purchases of equity securities, specifically common stock repurchases, during the three months ended September 30, 2024 **Common Stock Repurchased (in thousands, except per share amounts)** | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Value of Shares That May Yet Be Repurchased Under Publicly Announced Programs | | :------------------------------------ | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------------------ | | July 1, 2024 - July 31, 2024 | 1 | $65.27 | $60,000 | | August 1, 2024 - August 31, 2024 | 34 | $68.95 | $58,250 | | September 1, 2024 - September 30, 2024 | 152 | $68.82 | $48,251 | | Total (3 months ended Sep 30, 2024) | 187 | $68.82 | | [ITEM 5. OTHER INFORMATION](index=32&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section discloses trading arrangements by officers and updates on the Company's share repurchase program [Rule 10b5-1 and non-rule 10b5-1 trading arrangements](index=32&type=section&id=Rule%2010b5-1%20and%20non-rule%2010b5-1%20trading%20arrangements) Discloses trading plans established by officers for the sale of company stock - On August 29, 2024, Kenneth Stillwell, CFO and COO, entered into a trading plan for the sale of **18,000 shares** of common stock, set to terminate on August 31, 2025[114](index=114&type=chunk) [Share Repurchase Program](index=32&type=section&id=Share%20Repurchase%20Program) Provides an update on the company's share repurchase program, including extensions and increased authorization - On October 22, 2024, the Board of Directors extended the share repurchase program to December 31, 2025, and increased the authorized repurchase by **$250 million** to **$310 million**[115](index=115&type=chunk) [ITEM 6. EXHIBITS](index=33&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL data files - The exhibits include certifications from the CEO and CFO (31.1, 31.2, 32) and various XBRL taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[117](index=117&type=chunk) [Signature](index=34&type=section&id=Signature) The report is signed by Kenneth Stillwell, Chief Operating Officer and Chief Financial Officer, on behalf of Pegasystems Inc., dated October 23, 2024 - The report was signed by Kenneth Stillwell, Chief Operating Officer and Chief Financial Officer, on October 23, 2024[119](index=119&type=chunk)

Core Viewpoint - Pegasystems (PEGA) is currently rated as a 2 (Buy) stock with a Momentum Style Score of B, indicating strong potential for short-term price appreciation [2][6]. Group 1: Stock Performance - Pegasystems shares have increased by 7.99% over the past quarter and 24.99% over the last year, outperforming the S&P 500, which has moved 7.18% and 20.85% respectively [4]. - Over the past week, PEGA shares are up 12.08%, while the Zacks Computer - Software industry has remained flat during the same period [10]. - The monthly price change for PEGA is 11.24%, significantly higher than the industry's performance of 0.97% [10]. Group 2: Earnings Outlook - In the last two months, one earnings estimate for Pegasystems has moved higher, resulting in a consensus estimate increase from $2.79 to $2.81 for the full year [5]. - For the next fiscal year, one estimate has also moved upwards, with no downward revisions noted in the same timeframe [5]. Group 3: Trading Volume - Pegasystems has an average 20-day trading volume of 503,747 shares, which is a useful indicator for assessing price movements [11].

PEGA reported solid earnings results two days ago, in which the business grew revenue by 18%, beating consensus by a big margin of 900 bps. The consolidated top-line growth masked the even better growth performance within the recurring revenue stream, where revenue grew 25.5% y/y, driven by subscription license growth of 105.5% and Pega Cloud growth of 16.5%. Profit performance was solid as well. Adj EBIT margin sustained at ~14.4% level (similar to 14.5% in 1Q24), a big improvement from 2Q23's -0.6%. I bel ...

分组1 - Pegasystems reported quarterly earnings of $0.52 per share, exceeding the Zacks Consensus Estimate of $0.23 per share, and showing a significant increase from $0.01 per share a year ago, resulting in an earnings surprise of 126.09% [1] - The company achieved revenues of $351.15 million for the quarter ended June 2024, surpassing the Zacks Consensus Estimate by 9.34%, and up from $298.27 million in the same quarter last year [2] - Pegasystems has outperformed the S&P 500, with shares increasing approximately 28.6% since the beginning of the year compared to the S&P 500's gain of 16.5% [3] 分组2 - The current consensus EPS estimate for the upcoming quarter is $0.47 on revenues of $351.74 million, and for the current fiscal year, it is $2.79 on revenues of $1.5 billion [5] - The estimate revisions trend for Pegasystems is mixed, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market in the near future [9] - The Computer - Software industry, to which Pegasystems belongs, is currently ranked in the bottom 33% of over 250 Zacks industries, suggesting potential challenges for stock performance [10]

EXHIBIT 99.1 Pega GenAI Excitement Accelerates Growth in Q2 2024 CAMBRIDGE, Mass. — July 24, 2024 — Pegasystems Inc. (NASDAQ: PEGA), the leading enterprise AI decisioning and workflow automation platform provider, released its financial results for the second quarter of 2024. "Our approach to statistical AI and generative AI continues to be a significant differentiator," said Alan Trefler, founder and CEO. "The offerings we've introduced, especially Pega GenAI Blueprint™, have captured the imagination of cl ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Pegasystems Inc., including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, accounting policies, and specific financial line items [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This table presents the Company's financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2024, and December 31, 2023 | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $1,536,532 | $1,510,736 | | Total liabilities | $1,101,130 | $1,156,898 | | Total stockholders' equity | $435,402 | $353,838 | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This table presents the Company's financial performance, including revenue, gross profit, operating income, and net income for the three and six months ended June 30, 2024 and 2023 | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total revenue | $351,153 | $298,268 | $681,300 | $623,740 | | Gross profit | $254,207 | $202,128 | $489,696 | $429,666 | | Income (loss) from operations | $12,966 | $(41,290) | $(7,446) | $(63,496) | | Net income (loss) | $6,613 | $(46,804) | $(5,511) | $(67,578) | | Basic EPS | $0.08 | $(0.56) | $(0.07) | $(0.82) | | Diluted EPS | $0.07 | $(0.56) | $(0.07) | $(0.82) | [Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This table presents the Company's net income (loss) and other comprehensive income (loss) for the three and six months ended June 30, 2024 and 2023 | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income (loss) | $6,613 | $(46,804) | $(5,511) | $(67,578) | | Total other comprehensive (loss) income, net of tax | $(2,214) | $166 | $(6,387) | $1,709 | | Comprehensive income (loss) | $4,399 | $(46,638) | $(11,898) | $(65,869) | [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This table details changes in stockholders' equity, including net income (loss), stock-based compensation, and cash dividends, for the periods presented | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Total stockholders' equity | $435,402 | $353,838 | | Net income (loss) (6 months ended) | $6,613 | $(12,124) | | Stock-based compensation (6 months ended) | $36,224 | $36,227 | | Cash dividends declared (6 months ended) | $(2,561) | $(2,496) | [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table summarizes cash flows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023 | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Cash provided by operating activities | $220,243 | $113,752 | | Cash (used in) provided by investing activities | $(209,700) | $15,979 | | Cash provided by (used in) financing activities | $22,503 | $(86,988) | | Net increase in cash, cash equivalents, and restricted cash | $30,204 | $43,753 | | Cash, cash equivalents, and restricted cash, end of period | $263,031 | $188,807 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements, covering accounting policies and specific financial line items [Note 1. Basis of Presentation](index=8&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) This note clarifies that the financial statements are unaudited, prepared in accordance with SEC interim reporting rules, and should be read in conjunction with the Company's annual 10-K. It also states that all intercompany transactions are eliminated and interim results do not necessarily indicate full-year performance [Note 2. Marketable Securities](index=8&type=section&id=NOTE%202.%20MARKETABLE%20SECURITIES) This note provides a breakdown of marketable securities, primarily government and corporate debt, held by the Company, detailing their amortized cost, unrealized gains/losses, and fair value as of June 30, 2024, and December 31, 2023. Maturities range from July 2024 to January 2026 | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------- | :----------------------------- | :----------------------------- | | Government debt (Fair Value) | $12,925 | $11,503 | | Corporate debt (Fair Value) | $393,894 | $181,933 | | Total Marketable Securities (Fair Value) | $406,819 | $193,436 | | Weighted-average remaining maturity | 0.4 years | N/A | [Note 3. Receivables, Contract Assets, and Deferred Revenue](index=8&type=section&id=NOTE%203.%20RECEIVABLES%2C%20CONTRACT%20ASSETS%2C%20AND%20DEFERRED%20REVENUE) This note details the Company's accounts receivable, unbilled receivables, contract assets, and deferred revenue. It provides a breakdown of unbilled receivables by expected collection date and contract effective date, and explains the decrease in deferred revenue due to recognition | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Accounts receivable, net | $165,723 | $300,173 | | Unbilled receivables, net | $164,533 | $237,379 | | Long-term unbilled receivables, net | $81,218 | $85,402 | | Total Receivables | $411,474 | $622,954 | | Contract assets | $15,374 | $16,238 | | Long-term contract assets | $19,997 | $20,635 | | Deferred revenue | $352,618 | $377,845 | | Long-term deferred revenue | $2,443 | $2,478 | - The decrease in deferred revenue in the six months ended June 30, 2024, was primarily due to **$272.7 million of revenue recognized** that was in deferred revenue as of December 31, 2023[30](index=30&type=chunk) [Note 4. Deferred Commissions](index=9&type=section&id=NOTE%204.%20DEFERRED%20COMMISSIONS) This note outlines the balance of deferred commissions and their amortization, which is included in selling and marketing expenses. Amortization increased for both the three and six months ended June 30, 2024 | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------- | :----------------------------- | :----------------------------- | | Deferred commissions | $100,490 | $114,119 | | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Amortization of deferred commissions | $14,994 | $14,750 | $32,276 | $29,027 | [Note 5. Goodwill and Other Intangibles](index=9&type=section&id=NOTE%205.%20GOODWILL%20AND%20OTHER%20INTANGIBLES) This note provides the carrying value of goodwill and other intangible assets, including client-related and technology assets, along with their accumulated amortization and estimated future amortization schedule | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------- | :----------------------------- | :----------------------------- | | Goodwill | $81,410 | $81,611 | | Intangible assets (Net Book Value) | $5,205 | $7,002 | | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Amortization of intangible assets | $1,753 | $2,012 | | Future Estimated Amortization (in thousands) | | :------------------- | | Remainder of 2024: $1,399 | | 2025: $2,605 | | 2026: $874 | | 2027: $327 | | Total: $5,205 | [Note 6. Other Assets and Liabilities](index=10&type=section&id=NOTE%206.%20OTHER%20ASSETS%20AND%20LIABILITIES) This note details various other current and long-term assets and liabilities, including income tax receivables, contract assets, restricted cash, accrued expenses (such as cloud hosting and marketing), and other current/long-term liabilities | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total other current assets | $76,323 | $68,137 | | Total other long-term assets | $302,249 | $314,696 | | Total accrued expenses | $44,875 | $39,941 | | Total other current liabilities | $20,677 | $21,343 | | Total other long-term liabilities | $14,362 | $13,570 | [Note 7. Leases](index=11&type=section&id=NOTE%207.%20LEASES) This note provides information on lease expenses, right-of-use assets, and operating lease liabilities. It also details the weighted-average remaining lease term, discount rate, and the maturity schedule for lease liabilities | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total lease costs | $7,444 | $7,377 | $13,858 | $15,898 | | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Right of use assets | $68,293 | $64,198 | | Operating lease liabilities (current) | $15,254 | $15,000 | | Long-term operating lease liabilities | $70,202 | $66,901 | | Weighted-average remaining lease term | 6.4 years | 6.8 years | | Weighted-average discount rate | 4.6 % | 4.0 % | | Maturities of Lease Liabilities (in thousands) | | :------------------- | | Remainder of 2024: $7,954 | | 2025: $18,784 | | 2026: $14,384 | | 2027: $13,387 | | 2028: $12,813 | | 2029: $10,099 | | Thereafter: $21,650 | | Total lease payments: $99,071 | [Note 8. Debt](index=12&type=section&id=NOTE%208.%20DEBT) This note details the Company's debt instruments, including Convertible Senior Notes due March 2025, their conversion and repurchase rights, carrying value, and interest expense. It also covers Capped Call Transactions designed to reduce stock dilution and the $100 million revolving Credit Facility, which was extended to February 2025 | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Convertible senior notes, net | $500,604 | $499,368 | | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Contractual interest expense (Notes) | $942 | $997 | $1,884 | $2,122 | | Amortization of issuance costs (Notes) | $619 | $647 | $1,236 | $1,375 | | Total Interest expense related to Notes | $1,561 | $1,644 | $3,120 | $3,497 | | Capped Call Transactions (in thousands) | | :------------------- | | June 30, 2024: $915 | | December 31, 2023: $893 | - The Credit Facility was amended on April 23, 2024, to extend its expiration date to **February 4, 2025**[57](index=57&type=chunk) - As of June 30, 2024, there were **$27.3 million in outstanding letters of credit**, but no outstanding cash borrowings[58](index=58&type=chunk) [Note 9. Restructuring](index=14&type=section&id=NOTE%209.%20RESTRUCTURING) This note details the Company's restructuring activities, primarily focused on optimizing its go-to-market strategy and reassessing office space needs. It provides a breakdown of restructuring expenses and changes in accrued employee severance and related benefits | Restructuring Expense Type | Three Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :--------------------------------------- | | Office space reduction | $1,257 | | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Accrued employee severance and related benefits (January 1) | $8,095 | $18,573 | | Costs incurred | $(238) | $2,387 | | Cash disbursements | $(3,852) | $(17,521) | | Accrued employee severance and related benefits (June 30) | $3,836 | $3,624 | [Note 10. Fair Value Measurements](index=14&type=section&id=NOTE%2010.%20FAIR%20VALUE%20MEASUREMENTS) This note explains the Company's fair value hierarchy (Level 1, 2, and 3) and provides fair value measurements for cash equivalents, marketable securities, Capped Call Transactions, and venture investments. It also details changes in venture investments and the fair value of Convertible Senior Notes | Asset/Liability | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Cash equivalents (Level 1) | $18,345 | $54,357 | | Marketable securities (Level 2) | $406,819 | $193,436 | | Capped Call Transactions (Level 2) | $915 | $893 | | Venture investments (Level 3) | $21,047 | $19,450 | | Convertible Senior Notes (Fair Value, Level 2) | $485,300 | $466,500 | [Note 11. Revenue](index=15&type=section&id=NOTE%2011.%20REVENUE) This note provides a detailed breakdown of revenue by geographic region and revenue stream (Subscription license, Perpetual license, Maintenance, Pega Cloud, Consulting). It also presents the Company's remaining performance obligations (backlog) by expected recognition period | Geographic Region | 3 Months Ended June 30, 2024 (%) | 3 Months Ended June 30, 2023 (%) | 6 Months Ended June 30, 2024 (%) | 6 Months Ended June 30, 2023 (%) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | U.S. | 54 % | 50 % | 55 % | 54 % | | Other Americas | 6 % | 7 % | 6 % | 6 % | | U.K. | 11 % | 10 % | 10 % | 11 % | | Europe (excl. U.K.), Middle East, Africa | 15 % | 18 % | 17 % | 17 % | | Asia-Pacific | 14 % | 15 % | 12 % | 12 % | | Revenue Stream | 3 Months Ended June 30, 2024 (in thousands) | 3 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Subscription services | $214,430 | $197,105 | $426,333 | $384,614 | | Subscription license | $84,647 | $41,197 | $147,985 | $125,724 | | Consulting | $52,040 | $58,387 | $106,087 | $111,420 | | Perpetual license | $36 | $1,579 | $895 | $1,982 | | Total revenue | $351,153 | $298,268 | $681,300 | $623,740 | | Remaining Performance Obligations (Backlog) (in thousands) | | :------------------- | | As of June 30, 2024: $1,406,249 | | As of June 30, 2023: $1,266,096 | [Note 12. Stock-Based Compensation](index=17&type=section&id=NOTE%2012.%20STOCK-BASED%20COMPENSATION) This note details the stock-based compensation expense recognized across various functional areas and provides information on grants of restricted stock units (RSUs) and stock options, including their fair value and vesting conditions | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total stock-based compensation expense | $36,224 | $36,227 | $71,005 | $78,784 | | Income tax benefit | $(554) | $(581) | $(865) | $(1,253) | | Grants (Six Months Ended June 30, 2024) | | :------------------- | | Restricted stock units: 1,266 thousand units, Total Fair Value $78,071 thousand | | Non-qualified stock options: 1,738 thousand units, Total Fair Value $44,874 thousand | | Performance stock options: 566 thousand units, Total Fair Value $13,921 thousand | - As of June 30, 2024, the Company had **$149.7 million of unrecognized stock-based compensation expense**, expected to be recognized over a weighted-average period of **1.7 years**[72](index=72&type=chunk) [Note 13. Income Taxes](index=17&type=section&id=NOTE%2013.%20INCOME%20TAXES) This note discusses the Company's provision for income taxes and effective income tax rate, which was not meaningful for the six months ended June 30, 2024, due to the jurisdictional mix, timing of earnings/losses, and valuation allowances on deferred tax assets. The Company is also monitoring the impact of OECD Pillar Two global minimum tax regulations | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | Provision for income taxes | $5,604 | $11,850 | | Effective income tax rate | *not meaningful* | (21)% | - The effective income tax rate is impacted by the jurisdictional mix and timing of actual vs. projected earnings (losses), and valuation allowances on deferred tax assets in the U.S. and U.K.[75](index=75&type=chunk) - The Company anticipates meeting transitional safe harbors for OECD Pillar Two regulations in most jurisdictions for 2024, with any remaining top-up tax being immaterial[77](index=77&type=chunk)[128](index=128&type=chunk) [Note 14. Earnings (Loss) Per Share](index=18&type=section&id=NOTE%2014.%20EARNINGS%20%28LOSS%29%20PER%20SHARE) This note provides the calculation of basic and diluted earnings (loss) per share, including the weighted-average number of common shares outstanding and the dilutive effect of stock options, RSUs, and convertible senior notes | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) (in thousands) | $6,613 | $(46,804) | $(5,511) | $(67,578) | | Basic EPS | $0.08 | $(0.56) | $(0.07) | $(0.82) | | Diluted EPS | $0.07 | $(0.56) | $(0.07) | $(0.82) | | Weighted-average common shares outstanding (Basic, in thousands) | 85,157 | 83,039 | 84,712 | 82,823 | | Weighted-average common shares outstanding (Diluted, in thousands) | 88,500 | 83,039 | 84,712 | 82,823 | - The shares underlying the conversion options in the Company's Notes (approximately **3.7 million shares**) are included using the if-converted method if dilutive[80](index=80&type=chunk) - Capped Call Transactions (approximately **3.7 million shares equivalent**) are excluded from diluted EPS as their effect would be anti-dilutive[81](index=81&type=chunk) [Note 15. Commitments and Contingencies](index=18&type=section&id=NOTE%2015.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the Company's significant legal proceedings, including the Appian Corp. v. Pegasystems Inc. trade secret misappropriation lawsuit (with a $2 billion judgment under appeal), a securities class action lawsuit with a proposed $35 million settlement, and derivative litigation. It also mentions an ongoing SEC inquiry related to the Appian litigation's accounting treatment - In Appian Corp. v. Pegasystems Inc., a jury awarded **$2.037 billion** for trade secret misappropriation. The Company filed an appeal, and the judgment is suspended during the appeal process[87](index=87&type=chunk) - A securities class action lawsuit has a proposed settlement of **$35 million**, with **$32.4 million paid by the Company** and **$2.6 million by insurance carriers**, pending final court approval[89](index=89&type=chunk) - The Company is involved in derivative litigation alleging breach of fiduciary duties related to the Appian lawsuit and an SEC inquiry regarding the accounting treatment of the Appian litigation[91](index=91&type=chunk)[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations for the three and six months ended June 30, 2024. It includes forward-looking statements, a business overview, key performance metrics, critical accounting policies, and a detailed analysis of revenue, gross profit, operating expenses, and liquidity [Forward-Looking Statements](index=21&type=section&id=FORWARD-LOOKING%20STATEMENTS) This subsection serves as a cautionary note regarding statements about future events, emphasizing that they are subject to risks and uncertainties and that the Company does not undertake to publicly update or revise them - Forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties, including future financial performance, liquidity, revenue recognition, and ongoing litigation[95](index=95&type=chunk)[96](index=96&type=chunk) [Non-GAAP Measures](index=21&type=section&id=NON-GAAP%20MEASURES) This subsection explains the Company's use of non-GAAP financial measures to provide investors with a clearer understanding of core operating results and prospects, noting that these measures are not a substitute for GAAP - Non-GAAP financial measures are used to help investors understand core operating results and prospects, consistent with management's assessment and forecasting of performance, excluding one-time charges and items outside normal operations[99](index=99&type=chunk) [Business Overview](index=21&type=section&id=BUSINESS%20OVERVIEW) This subsection describes Pegasystems' core business, which involves developing, marketing, licensing, hosting, and supporting enterprise software. The Company's low-code platform, powered by AI, helps Global 2000 organizations and government agencies achieve business agility, enhance customer experiences, and automate critical processes - Pegasystems develops enterprise software with a powerful, low-code platform for workflow automation and AI-powered decisioning, enabling hyper-personalization, streamlined customer service, and automated business processes[100](index=100&type=chunk) - Target clients are Global 2000 organizations and government agencies seeking solutions to increase business agility, drive growth, improve productivity, and reduce risk[101](index=101&type=chunk) [Performance Metrics](index=22&type=section&id=Performance%20metrics) This subsection details the key performance metrics used by management to analyze and assess overall performance, including Annual Contract Value (ACV), Free Cash Flow, and Remaining Performance Obligations (Backlog), providing their definitions and reconciliations [Annual Contract Value (ACV)](index=22&type=section&id=Annual%20contract%20value%20%28%22ACV%22%29) ACV, representing the annualized value of active contracts, increased by 12% year-over-year to $1,305 million as of June 30, 2024, or 13% on a constant currency basis | Metric | June 30, 2023 (in millions) | June 30, 2024 (in millions) | 1-Year Change | | :---------------------- | :-------------------------- | :-------------------------- | :------------ | | ACV | $1,164 | $1,305 | 12 % | | Constant currency ACV | $1,164 | $1,310 | 13 % | [Cash Flow (Free Cash Flow)](index=23&type=section&id=Cash%20flow) Free cash flow, defined as cash from operating activities less investment in property and equipment, significantly increased by 119% to $218.4 million for the six months ended June 30, 2024. This was driven by higher operating cash flow and reduced capital expenditures | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Change | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :----- | | Cash provided by operating activities | $220,243 | $113,752 | 94 % | | Investment in property and equipment | $(1,857) | $(13,933) | | | Free cash flow | $218,386 | $99,819 | 119 % | - Supplemental information highlights a **$32.4 million litigation settlement** (net of recoveries) and a decrease in restructuring cash disbursements from **$17.5 million in H1 2023 to $3.85 million in H1 2024**[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) [Remaining Performance Obligations (Backlog)](index=25&type=section&id=Remaining%20performance%20obligations%20%28%22Backlog%22%29) The GAAP backlog, representing expected future revenue from existing non-cancellable contracts, grew by 11% year-over-year to $1,406 million as of June 30, 2024, or 12% on a constant currency basis | Metric | June 30, 2023 (in millions) | June 30, 2024 (in millions) | 1-Year Growth Rate | | :---------------------- | :-------------------------- | :-------------------------- | :----------------- | | Backlog - GAAP | $1,266 | $1,406 | 11 % | | Constant currency backlog | $1,266 | $1,413 | 12 % | [Critical Accounting Policies](index=25&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This subsection states that no significant changes have been made to the critical accounting policies previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 - No significant changes have been made to the critical accounting policies disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[113](index=113&type=chunk) [Results of Operations](index=26&type=section&id=RESULTS%20OF%20OPERATIONS) This subsection provides a detailed analysis of the Company's revenue, gross profit, and operating expenses for the three and six months ended June 30, 2024, highlighting key drivers of changes and their impact on financial performance [Revenue](index=26&type=section&id=Revenue) Total revenue increased by 18% for the three months and 9% for the six months ended June 30, 2024, primarily driven by a 105% surge in subscription license revenue for the quarter and 19% growth in Pega Cloud revenue. Consulting and perpetual license revenues experienced declines | Revenue Stream | 3 Months Ended June 30, 2024 (in thousands) | 3 Months Ended June 30, 2023 (in thousands) | Change (%) | 6 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | Change (%) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :--------- | :--------------------------------------- | :--------------------------------------- | :--------- | | Pega Cloud | $134,086 | $115,063 | 17 % | $264,988 | $222,942 | 19 % | | Maintenance | $80,344 | $82,042 | (2)% | $161,345 | $161,672 | 0 % | | Subscription services | $214,430 | $197,105 | 9 % | $426,333 | $384,614 | 11 % | | Subscription license | $84,647 | $41,197 | 105 % | $147,985 | $125,724 | 18 % | | Total Subscription | $299,077 | $238,302 | 26 % | $574,318 | $510,338 | 13 % | | Consulting | $52,040 | $58,387 | (11)% | $106,087 | $111,420 | (5)% | | Perpetual license | $36 | $1,579 | (98)% | $895 | $1,982 | (55)% | | **Total Revenue** | **$351,153** | **$298,268** | **18 %** | **$681,300** | **$623,740** | **9 %** | - Pega Cloud revenue increased due to additional investments by existing clients, while subscription license revenue grew significantly due to several large multi-year contracts[114](index=114&type=chunk)[115](index=115&type=chunk) - Maintenance revenue decreased due to a shift to Pega Cloud-based offerings, and consulting revenue declined due to decreases in consultant billable hours[115](index=115&type=chunk)[116](index=116&type=chunk) [Gross Profit](index=26&type=section&id=Gross%20profit) Gross profit increased by 26% for the three months and 14% for the six months ended June 30, 2024. Pega Cloud gross profit percentage improved due to increased cost efficiency, while consulting gross profit percentage decreased significantly due to lower consultant utilization rates | Gross Profit Stream | 3 Months Ended June 30, 2024 (in thousands) | 3 Months Ended June 30, 2023 (in thousands) | Change (%) | 6 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | Change (%) | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :--------- | :--------------------------------------- | :--------------------------------------- | :--------- | | Pega Cloud | $104,331 | $84,761 | 23 % | $205,636 | $162,390 | 27 % | | Maintenance | $73,861 | $75,561 | (2)% | $148,635 | $148,577 | 0 % | | Subscription services | $178,192 | $160,322 | 11 % | $354,271 | $310,967 | 14 % | | Subscription license | $84,170 | $40,574 | 107 % | $146,865 | $124,382 | 18 % | | Total Subscription | $262,362 | $200,896 | 31 % | $501,136 | $435,349 | 15 % | | Consulting | $(8,191) | $(323) | (2436)% | $(12,326) | $(7,638) | (61)% | | Perpetual license | $36 | $1,555 | (98)% | $886 | $1,955 | (55)% | | **Total Gross Profit** | **$254,207** | **$202,128** | **26 %** | **$489,696** | **$429,666** | **14 %** | - Pega Cloud gross profit percentage increased due to **improved cost efficiency** in hosting services and employee compensation[117](index=117&type=chunk) - Consulting gross profit percentage decreased primarily due to **lower consultant utilization rates**[118](index=118&type=chunk) [Operating Expenses](index=27&type=section&id=Operating%20expenses) Operating expenses saw a decrease in selling and marketing due to reduced headcount from go-to-market optimization, while general and administrative expenses increased due to higher incentive-based compensation. Litigation settlement costs significantly impacted the six-month operating expenses | Operating Expense | 3 Months Ended June 30, 2024 (in thousands) | 3 Months Ended June 30, 2023 (in thousands) | Change (%) | 6 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------- | :--------------------------------------- | :--------------------------------------- | :--------- | | Selling and marketing | $139,761 | $143,858 | (3)% | $267,456 | $293,655 | (9)% | | Research and development | $75,425 | $73,931 | 2 % | $147,538 | $149,307 | (1)% | | General and administrative | $25,420 | $23,462 | 8 % | $48,947 | $46,572 | 5 % | | Litigation settlement, net of recoveries | $0 | $0 | * | $32,403 | $0 | * | | Restructuring | $635 | $2,167 | (71)% | $798 | $3,628 | (78)% | | **Total Operating Expenses** | **$241,241** | **$243,418** | **(1)%** | **$497,142** | **$493,162** | **1 %** | - Selling and marketing expenses decreased due to **reduced headcount** as part of go-to-market strategy optimization[120](index=120&type=chunk) - General and administrative expenses increased due to **higher incentive-based compensation**[122](index=122&type=chunk) - A **$32.4 million litigation settlement**, net of recoveries, significantly increased operating expenses for the six months ended June 30, 2024[125](index=125&type=chunk) [Other Income and Expenses](index=27&type=section&id=Other%20income%20and%20expenses) Interest income saw a substantial increase due to higher investment balances and market interest rates. Foreign currency transaction gains/losses fluctuated, and other income, net, decreased significantly due to prior year gains from convertible senior note repurchases and venture investments | Item | 3 Months Ended June 30, 2024 (in thousands) | 3 Months Ended June 30, 2023 (in thousands) | Change (%) | 6 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------- | :--------------------------------------- | :--------------------------------------- | :--------- | | Foreign currency transaction gain (loss) | $437 | $(3,290) | * | $(2,825) | $(5,965) | 53 % | | Interest income | $6,785 | $1,814 | 274 % | $12,066 | $3,299 | 266 % | | Interest expense | $(1,656) | $(1,778) | 7 % | $(3,408) | $(3,696) | 8 % | | (Loss) income on capped call transactions | $(3,277) | $(1,361) | (141)% | $22 | $1,845 | (99)% | | Other income, net | $0 | $5,702 | (100)% | $1,684 | $12,285 | (86)% | - Interest income increased significantly due to **higher investment balances and market interest rates**[126](index=126&type=chunk) - Other income, net, decreased primarily due to prior year gains from repurchases of convertible senior notes and venture investments[126](index=126&type=chunk) [Provision for Income Taxes](index=28&type=section&id=Provision%20for%20income%20taxes) The effective income tax rate for the six months ended June 30, 2024, was not meaningful due to the jurisdictional mix, timing of earnings/losses, and valuation allowances on deferred tax assets in the U.S. and U.K. The Company is also evaluating the potential impact of OECD Pillar Two global minimum tax regulations | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | Provision for income taxes | $5,604 | $11,850 | | Effective income tax rate | *not meaningful* | (21)% | - The effective income tax rate is not meaningful due to the jurisdictional mix, timing of actual vs. projected earnings (losses), and valuation allowances on deferred tax assets in the U.S. and U.K.[127](index=127&type=chunk) - The Company anticipates meeting transitional safe harbors for OECD Pillar Two regulations in most jurisdictions for 2024, with any remaining top-up tax being immaterial[128](index=128&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This subsection discusses the Company's liquidity position, asserting that current cash, marketable securities, operating cash flow, borrowing capacity, and capital market access are sufficient to fund operations, settle convertible senior notes, execute stock repurchases, and pay dividends for at least the next 12 months - The Company believes its current liquidity sources are sufficient to fund operations, settle convertible senior notes, stock repurchases, and quarterly cash dividends for at least the next 12 months[129](index=129&type=chunk) [Cash Flow Summary](index=28&type=section&id=Cash%20Flow%20Summary) Cash provided by operating activities significantly increased to $220.2 million for the six months ended June 30, 2024, while investing activities shifted to a net use of cash due to increased investments in financial instruments and reduced property/equipment spending | Cash Flow Activity | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Operating activities | $220,243 | $113,752 | | Investing activities | $(209,700) | $15,979 | | Financing activities | $22,503 | $(86,988) | | Net increase in cash, cash equivalents, and restricted cash | $30,204 | $43,753 | - The change in cash provided by operating activities was primarily due to **growth in client collections and cost-efficiency initiatives**[131](index=131&type=chunk) - The change in cash (used in) provided by investing activities was primarily due to **investments in financial instruments** and reduced investment in property and equipment[132](index=132&type=chunk) [Debt Financing](index=29&type=section&id=Debt%20financing) The Company has $502.3 million in outstanding Convertible Senior Notes due March 2025 and a $100 million senior secured revolving Credit Facility, which was amended to extend its expiration date to February 4, 2025. As of June 30, 2024, there were no outstanding cash borrowings under the Credit Facility - As of June 30, 2024, **$502.3 million in aggregate principal amount of Convertible Senior Notes** were outstanding, maturing on **March 1, 2025**[133](index=133&type=chunk) - The **$100 million Credit Facility's expiration date was extended to February 4, 2025**. As of June 30, 2024, **$27.3 million in outstanding letters of credit** reduced available borrowing capacity, with no outstanding cash borrowings[134](index=134&type=chunk) [Stock Repurchase Program](index=29&type=section&id=Stock%20repurchase%20program) The Board of Directors extended the Company's current share repurchase program to June 30, 2025, maintaining a remaining repurchase authority of $60 million | Metric | June 30, 2024 (in thousands) | | :--------------------------------------- | :----------------------------- | | Remaining stock repurchase authority | $60,000 | - The Board of Directors extended the expiration date of the current share repurchase program from June 30, 2024, to **June 30, 2025**[135](index=135&type=chunk) [Common Stock Repurchases](index=29&type=section&id=Common%20stock%20repurchases) Common stock repurchases for the three months ended June 30, 2024, totaled 7,000 shares at an average price of $57.86 per share, primarily for tax withholdings related to net settlement of equity awards | Item | Total Number of Shares Purchased (in thousands) | Average Price Paid per Share | | :--------------------------------------- | :--------------------------------------- | :--------------------------- | | April 1, 2024 - April 30, 2024 | 1 | $58.28 | | June 1, 2024 - June 30, 2024 | 6 | $57.81 | | **Total (3 months ended June 30, 2024)** | **7** | **$57.86** | - Repurchases include shares withheld to cover the option exercise price and tax withholding obligations for stock compensation awards subject to net settlement provisions[151](index=151&type=chunk) [Dividends](index=29&type=section&id=Dividends) The Company intends to continue paying a quarterly cash dividend of $0.03 per share, with total dividend payments to stockholders amounting to $5.065 million for the six months ended June 30, 2024 - The Company intends to pay a quarterly cash dividend of **$0.03 per share**, though the program may be terminated or modified[137](index=137&type=chunk) | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Dividend payments to stockholders | $5,065 | $4,962 | [Contractual Obligations](index=29&type=section&id=Contractual%20obligations) As of June 30, 2024, the Company's total contractual obligations amounted to approximately $1.095 billion, primarily consisting of convertible senior notes, purchase obligations for software licenses and hosting services, and operating lease obligations | Obligation Type | Total (in thousands) | | :-------------------------- | :------------------- | | Convertible senior notes | $506,037 | | Purchase obligations | $487,762 | | Operating lease obligations | $99,071 | | Venture investment commitments | $1,000 | | Liability for uncertain tax positions | $858 | | **Total Contractual Obligations** | **$1,094,728** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section addresses the Company's exposure to market risk, specifically focusing on foreign currency fluctuations. It details both translation risk, where international operations' expenses and sales are denominated in foreign currencies, and remeasurement risk, particularly for the U.K. subsidiary's monetary assets and liabilities [Foreign Currency Exposure](index=30&type=section&id=Foreign%20currency%20exposure) The Company is exposed to foreign currency fluctuations, with a hypothetical 10% strengthening of the U.S. dollar potentially decreasing revenue by 4% and net income by 56% for the six months ended June 30, 2024. Remeasurement risk, primarily from the U.K. subsidiary, could result in significant foreign currency losses - A hypothetical **10% strengthening in the U.S. dollar** against other currencies would result in a **4% decrease in revenue** and a **56% decrease in net income** for the six months ended June 30, 2024[142](index=142&type=chunk) - A hypothetical **10% strengthening in the British pound** against the Australian dollar, Euro, and U.S. dollar would result in a foreign currency loss of **$12.86 million** for the six months ended June 30, 2024[144](index=144&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that the Company's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2024, concluding they were effective. No material changes to internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were **effective** as of June 30, 2024[145](index=145&type=chunk) - There have been **no changes in internal control over financial reporting** during the quarter ended June 30, 2024, that have materially affected or are reasonably likely to materially affect it[146](index=146&type=chunk) [PART II - OTHER INFORMATION](index=31&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional disclosures on legal proceedings, risk factors, equity security sales, other information, and a list of exhibits [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the detailed information on legal proceedings provided in Note 15 of the financial statements, which includes updates on the Appian lawsuit, securities class action, and derivative litigation - Information on legal proceedings is incorporated by reference from Note 15. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report[148](index=148&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) This section advises readers to carefully consider the risk factors outlined in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, as these factors could materially impact the business, financial condition, and future results - Readers are encouraged to review risk factors identified in Item 1A. 'Risk Factors' of the Annual Report on Form 10-K for the year ended December 31, 2023, as they could materially affect the business[149](index=149&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's common stock repurchases for the three months ended June 30, 2024, which primarily involved shares withheld to cover tax withholding obligations for stock compensation awards | Period | Total Number of Shares Purchased (in thousands) | Average Price Paid per Share | | :--------------------------- | :--------------------------------------- | :--------------------------- | | April 1, 2024 - April 30, 2024 | 1 | $58.28 | | May 1, 2024 - May 31, 2024 | 0 | $0.00 | | June 1, 2024 - June 30, 2024 | 6 | $57.81 | | **Total (3 months ended June 30, 2024)** | **7** | **$57.86** | - Repurchases include shares withheld to cover the option exercise price and tax withholding obligations for stock compensation awards subject to net settlement provisions[151](index=151&type=chunk) [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) This section discloses that Richard H. Jones, a director, entered into a Rule 10b5-1 trading plan on April 30, 2024, to sell an aggregate of 50,000 shares of common stock, with the plan set to terminate on April 30, 2025 - Director Richard H. Jones entered into a Rule 10b5-1 trading plan on **April 30, 2024**, to sell an aggregate of **50,000 shares of common stock**, with the plan terminating on **April 30, 2025**[152](index=152&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications from the CEO and CFO, and various Inline XBRL documents [Signature](index=32&type=section&id=Signature) This section provides the official signature and date of filing for the quarterly report - The report was signed on **July 24, 2024**, by Kenneth Stillwell, Chief Operating Officer and Chief Financial Officer[157](index=157&type=chunk)

Core Insights - The article highlights the future potential of uranium mining and exploration, focusing on Pegasus Resources Inc. and its strategic initiatives in the sector [1][2]. Company Developments - Pegasus Resources Inc. is entering the third quarter of 2024 with significant developments, including the acquisition of the Jupiter Project and ongoing activities at the Energy Sands project, aimed at enhancing shareholder value [2][8]. - The acquisition of the Jupiter Project, located 3 km north of Energy Sands, is seen as a pivotal expansion, with over 100 historical drill holes available for resource estimation [3][7]. - The company is synchronizing exploration strategies at both Jupiter and Energy Sands to leverage operational efficiencies and resource sharing [4][8]. - A successful ground sampling program at Energy Sands in January 2024 indicated a favorable environment for uranium mineralization, leading to further geological understanding [6][17]. Industry Outlook - The World Nuclear Association projects a 28% increase in uranium demand from 2023 to 2030, driven by an 18% increase in reactor capacity, with a potential 51% increase in demand from 2031 to 2040 [5]. - The International Energy Agency anticipates a 50% increase in electricity demand by 2040, suggesting significant growth opportunities for nuclear capacity amid global carbon emission concerns [5]. Exploration Strategy - Pegasus Resources is implementing a comprehensive exploration approach at the Jupiter Project, focusing on twinning historical drill holes and identifying new targets to expand the resource base [7][8]. - The company is also targeting potential mineral-hosting paleochannels at Energy Sands, with plans for a summer drilling program to delineate and expand mineralized zones [17][18]. Market Context - The uranium sector is experiencing heightened interest from investors, with global uranium prices nearly doubling in 2023 and continuing to rise [13].

CAMBRIDGE, Mass.--(BUSINESS WIRE)--Pegasystems Inc. (NASDAQ: PEGA), the leading enterprise AI decisioning and workflow automation platform provider, today announced that Alan Trefler, Founder and CEO, and Ken Stillwell, COO and CFO, Pega, will be presenting at the following upcoming investor conference:52nd Annual J.P. Morgan Global Technology, Media and Communications Conference (https://jpmorgan.metameetings.net/events/tmc24/sessions/51306-pegasystems-inc/webcast). The in-person Pega presentation is sched ...

CAMBRIDGE, Mass.--(BUSINESS WIRE)--Pegasystems Inc. (NASDAQ: PEGA), the leading enterprise AI decisioning and workflow automation platform provider, today announced that Alan Trefler, Founder and CEO, and Ken Stillwell, COO and CFO, Pega, will be presenting at the following upcoming investor conference: 52nd Annual J.P. Morgan Global Technology, Media and Communications Conference (https://jpmorgan.metameetings.net/events/tmc24/sessions/51306-pegasystems-inc/webcast). The in- person Pega presentation is sch ...

Pegasystems (PEGA) reported $330.15 million in revenue for the quarter ended March 2024, representing a year-over-year increase of 1.4%. EPS of $0.48 for the same period compares to $0.23 a year ago.The reported revenue compares to the Zacks Consensus Estimate of $339.7 million, representing a surprise of -2.81%. The company delivered an EPS surprise of -2.04%, with the consensus EPS estimate being $0.49.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and ...