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 ...

Pegasystems (PEGA) came out with quarterly earnings of $0.48 per share, missing the Zacks Consensus Estimate of $0.49 per share. This compares to earnings of $0.23 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -2.04%. A quarter ago, it was expected that this business software company would post earnings of $1.07 per share when it actually produced earnings of $1.77, delivering a surprise of 65.42%.Over the last four quarters ...

[Q1 2024 Earnings Release](index=1&type=section&id=Q1%202024%20Earnings%20Release) [Financial Highlights](index=1&type=section&id=financial_highlights) Pega reported a 1% increase in total revenue to $330.1 million for Q1 2024, significantly improving profitability with a GAAP net loss narrowing to $(12.1) million from $(20.8) million year-over-year, and non-GAAP net income more than doubling to $42.2 million, alongside exceptionally strong cash flow from operations at $180.1 million and Pega Cloud gross margin expansion to 77% Q1 2024 Key Financial Results vs. Q1 2023 (in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $330.1 | $325.5 | +1% | | GAAP Net Loss | $(12.1) | $(20.8) | +42% | | Non-GAAP Net Income | $42.2 | $19.2 | +119% | | GAAP Diluted Loss Per Share | $(0.14) | $(0.25) | +44% | | Non-GAAP Diluted EPS | $0.48 | $0.23 | +109% | Q1 2024 Revenue Breakdown (in thousands) | Revenue Source | Q1 2024 (in thousands) | % of Total | Change vs Q1 2023 | | :--- | :--- | :--- | :--- | | Pega Cloud | $130,902 | 40% | +21% | | Subscription Services | $211,903 | 64% | +13% | | Subscription License | $63,338 | 19% | -25% | | **Total Subscription** | **$275,241** | **83%** | **+1%** | | Consulting | $54,047 | 17% | +2% | | **Total Revenue** | **$330,147** | **100%** | **+1%** | - Cash flow from operations and free cash flow both reached **$180 million** in Q1 2024[4](index=4&type=chunk) - Pega Cloud gross margin expanded to **77%**[4](index=4&type=chunk) [Management Commentary](index=1&type=section&id=management_commentary) Management highlighted the successful launch of Pega GenAI Blueprint™, a new technology designed to accelerate digital transformation for clients, emphasizing strong financial position and robust cash generation for accelerated profitable growth - CEO Alan Trefler announced the release of Pega GenAI Blueprint™, a technology changing client engagement to re-imagine and evolve their business, with thousands of Blueprints already generated by clients and partners[2](index=2&type=chunk) - COO and CFO Ken Stillwell stated that the strong cash generation in Q1 demonstrates the power of a SaaS business, positioning Pega to accelerate profitable growth[2](index=2&type=chunk) [Key Performance Metrics](index=2&type=section&id=key_performance_metrics) The company showed solid growth in its key operational metrics, with Annual Contract Value (ACV) growing 9% year-over-year to $1.27 billion, total backlog increasing by 9% to $1.42 billion, and free cash flow substantially rising to $179.5 million [Annual Contract Value (ACV)](index=11&type=section&id=annual_contract_value_acv) Annual Contract Value (ACV) as of March 31 (in thousands) | ACV Component | 2024 (in thousands) | 2023 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Pega Cloud | $570,356 | $490,568 | +16% | | Maintenance | $313,550 | $323,760 | -3% | | **Subscription Services** | **$883,906** | **$814,328** | **+9%** | | Subscription License | $389,431 | $359,323 | +8% | | **Total ACV** | **$1,273,337** | **$1,173,651** | **+9%** | - Total ACV grew **9%** year-over-year to **$1.273 billion** On a constant currency basis, ACV also grew **9%** to **$1.277 billion**[5](index=5&type=chunk) [Backlog (Remaining Performance Obligations)](index=12&type=section&id=backlog_remaining_performance_obligations) - Total backlog (Remaining Performance Obligations) grew **9%** year-over-year to **$1.425 billion** as of March 31, 2024[36](index=36&type=chunk)[37](index=37&type=chunk) Backlog by Revenue Recognition Timing (as of March 31, 2024) (in thousands) | Timing | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | 1 year or less | $758,954 | 53% | | 1-2 years | $370,004 | 26% | | 2-3 years | $187,435 | 13% | | Greater than 3 years | $108,349 | 8% | | **Total** | **$1,424,742** | **100%** | - Pega Cloud backlog increased by **14%** YoY to **$991.1 million**, representing **70%** of the total backlog[36](index=36&type=chunk) [Free Cash Flow](index=11&type=section&id=free_cash_flow) Free Cash Flow Reconciliation (Three Months Ended March 31) (in thousands) | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Cash provided by operating activities | $180,146 | $68,107 | | Investment in property and equipment | $(604) | $(11,487) | | **Free cash flow** | **$179,542** | **$56,620** | [Consolidated Financial Statements (GAAP)](index=7&type=section&id=consolidated_financial_statements_gaap) The unaudited GAAP financial statements detail the company's performance for the first quarter ended March 31, 2024, showing total revenue of $330.1 million, a net loss of $(12.1) million, total assets of $1.51 billion, total liabilities of $1.12 billion, and a significant increase in cash provided by operating activities to $180.1 million [Statements of Operations](index=7&type=section&id=statements_of_operations) Unaudited Condensed Consolidated Statements of Operations (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total revenue | $330,147 | $325,472 | | Gross profit | $235,489 | $227,538 | | (Loss) from operations | $(20,412) | $(22,206) | | Net (loss) | $(12,124) | $(20,774) | | Diluted (loss) per share | $(0.14) | $(0.25) | [Balance Sheets](index=8&type=section&id=balance_sheets) Unaudited Condensed Consolidated Balance Sheets (in thousands) | Line Item | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total cash, cash equivalents, and marketable securities | $618,949 | $423,338 | | Total current assets | $1,059,587 | $1,029,027 | | Total assets | $1,511,728 | $1,510,736 | | Total current liabilities | $1,044,279 | $577,059 | | Total liabilities | $1,121,542 | $1,156,898 | | Total stockholders' equity | $390,186 | $353,838 | [Statements of Cash Flows](index=8&type=section&id=statements_of_cash_flows) Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net (loss) | $(12,124) | $(20,774) | | Cash provided by operating activities | $180,146 | $68,107 | | Cash (used in) investing activities | $(132,399) | $(14,413) | | Cash provided by (used in) financing activities | $17,899 | $(29,372) | | Net increase in cash, cash equivalents, and restricted cash | $62,843 | $25,104 | [Reconciliation of GAAP to Non-GAAP Measures](index=9&type=section&id=reconciliation_of_gaap_to_non-gaap_measures) Pega provides non-GAAP financial measures to help investors understand core operating results by excluding certain items, with key adjustments for Q1 2024 including stock-based compensation and a litigation settlement, reconciling a GAAP Net Loss of $(12.1) million to a Non-GAAP Net Income of $42.2 million, resulting in a Non-GAAP Diluted EPS of $0.48 Reconciliation of GAAP Net Loss to Non-GAAP Net Income (Q1 2024, in thousands) | Description | Amount | | :--- | :--- | | **Net (loss) - GAAP** | **$(12,124)** | | Stock-based compensation | $34,781 | | Litigation settlement, net of recoveries | $32,403 | | Foreign currency transaction loss | $3,262 | | Other adjustments (net) | $(2,238) | | Income taxes adjustment | $(14,927) | | **Net income - non-GAAP** | **$42,154** | - Non-GAAP measures exclude items such as stock-based compensation, restructuring, certain legal fees, litigation settlements, and amortization of intangible assets to provide a view of core business operations[10](index=10&type=chunk)[27](index=27&type=chunk) - The non-GAAP effective tax rate for Q1 2024 was **22%**, which management believes is more consistent for reviewing results compared to the volatile GAAP rate[28](index=28&type=chunk) [Forward-Looking Statements and Risk Factors](index=5&type=section&id=forward-looking_statements_and_risk_factors) The report contains forward-looking statements based on current expectations, subject to various risks and uncertainties, including the ability to protect intellectual property, ongoing litigation with Appian Corp., reliance on key personnel and third-party service providers, and potential impacts from cyber-attacks - The press release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, which represent the company's views only as of April 24, 2024[11](index=11&type=chunk)[15](index=15&type=chunk) - The company identifies several risks that could cause actual results to differ materially, including: * Ongoing litigation with Appian Corp * Ability to protect intellectual property rights * Reliance on key personnel and third-party service providers * Potential legal and financial liabilities from cyber-attacks and security breaches[13](index=13&type=chunk)[15](index=15&type=chunk)

[PART I - FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Pegasystems Inc.'s unaudited condensed consolidated financial statements and related notes for Q1 2024 [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at March 31, 2024, and December 31, 2023 Balance Sheet Highlights (in thousands): | Metric | March 31, 2024 | December 31, 2023 | Change | | :------------------------------------ | :------------- | :---------------- | :----- | | Total assets | $1,511,728 | $1,510,736 | +$992 | | Total current assets | $1,059,587 | $1,029,027 | +$30,560 | | Cash and cash equivalents | $291,905 | $229,902 | +$62,003 | | Marketable securities | $327,044 | $193,436 | +$133,608 | | Accounts receivable, net | $191,987 | $300,173 | -$108,186 | | Unbilled receivables, net | $170,458 | $237,379 | -$66,921 | | Total liabilities | $1,121,542 | $1,156,898 | -$35,356 | | Total current liabilities | $1,044,279 | $577,059 | +$467,220 | | Convertible senior notes, net (current) | $499,985 | — | +$499,985 | | Long-term convertible senior notes, net | — | $499,368 | -$499,368 | | Total stockholders' equity | $390,186 | $353,838 | +$36,348 | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including revenue, expenses, and net loss, for Q1 2024 and Q1 2023 Statements of Operations Highlights (in thousands, except per share): | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | % Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :------- | | Total revenue | $330,147 | $325,472 | +$4,675 | +1% | | Subscription services revenue | $211,903 | $187,509 | +$24,394 | +13% | | Subscription license revenue | $63,338 | $84,527 | -$21,189 | -25% | | Consulting revenue | $54,047 | $53,033 | +$1,014 | +2% | | Gross profit | $235,489 | $227,538 | +$7,951 | +3% | | Total operating expenses | $255,901 | $249,744 | +$6,157 | +2% | | Litigation settlement, net of recoveries | $32,403 | — | +$32,403 | N/A | | (Loss) from operations | $(20,412) | $(22,206) | +$1,794 | +8% | | Net (loss) | $(12,124) | $(20,774) | +$8,650 | +42% | | Basic (Loss) per share | $(0.14) | $(0.25) | +$0.11 | +44% | [Unaudited Condensed Consolidated Statements of Comprehensive (Loss)](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)) This section presents the company's net loss and other comprehensive income/loss for the three months ended March 31, 2024 and 2023 Comprehensive (Loss) Highlights (in thousands): | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net (loss) | $(12,124) | $(20,774) | +$8,650 | | Total other comprehensive (loss) income, net of tax | $(4,173) | $1,543 | -$5,716 | | Comprehensive (loss) | $(16,297) | $(19,231) | +$2,934 | [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in the company's equity accounts, including accumulated deficit and comprehensive loss, for Q1 2024 Stockholders' Equity Highlights (in thousands): | Metric | March 31, 2024 | December 31, 2023 | Change | | :------------------------------------ | :------------- | :---------------- | :----- | | Total stockholders' equity | $390,186 | $353,838 | +$36,348 | | Additional paid-in capital | $432,217 | $379,584 | +$52,633 | | (Accumulated deficit) | $(20,829) | $(8,705) | -$12,124 | | Accumulated other comprehensive (loss) | $(22,052) | $(17,879) | -$4,173 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities for Q1 2024 and Q1 2023 Cash Flow Highlights (in thousands): | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Cash provided by operating activities | $180,146 | $68,107 | +$112,039 | | Cash (used in) investing activities | $(132,399) | $(14,413) | -$117,986 | | Cash provided by (used in) financing activities | $17,899 | $(29,372) | +$47,271 | | Net increase in cash, cash equivalents, and restricted cash | $62,843 | $25,104 | +$37,739 | | Cash, cash equivalents, and restricted cash, end of period | $295,670 | $170,158 | +$125,512 | [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 - The financial statements are prepared in accordance with SEC rules for interim reporting and U.S. GAAP, and should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2023[20](index=20&type=chunk) - All intercompany transactions and balances were eliminated in consolidation, and interim results do not necessarily indicate expected full-year 2024 results[22](index=22&type=chunk) [NOTE 1. BASIS OF PRESENTATION](index=8&type=section&id=NOTE%201.%20BASIS%20OF%20PRESENTATION) This note describes the accounting principles and presentation methods used for the interim financial statements - The unaudited condensed consolidated financial statements are prepared pursuant to SEC rules and U.S. GAAP, including only normal recurring adjustments[20](index=20&type=chunk)[21](index=21&type=chunk) - Operating results for the interim periods presented do not necessarily indicate the expected results for 2024[22](index=22&type=chunk) [NOTE 2. MARKETABLE SECURITIES](index=8&type=section&id=NOTE%202.%20MARKETABLE%20SECURITIES) This note details the composition and fair value of the company's marketable securities portfolio Marketable Securities (in thousands): | Category | March 31, 2024 Fair Value | December 31, 2023 Fair Value | | :--------------- | :------------------------ | :------------------------- | | Government debt | $15,852 | $11,503 | | Corporate debt | $311,192 | $181,933 | | Total | $327,044 | $193,436 | - As of March 31, 2024, marketable securities' maturities ranged from April 2024 to January 2026, with a weighted-average remaining maturity of **0.5 years**[23](index=23&type=chunk) [NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE](index=8&type=section&id=NOTE%203.%20RECEIVABLES,%20CONTRACT%20ASSETS,%20AND%20DEFERRED%20REVENUE) This note provides information on the company's accounts receivable, unbilled receivables, and deferred revenue balances Receivables (in thousands): | Category | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Accounts receivable, net | $191,987 | $300,173 | | Unbilled receivables, net | $170,458 | $237,379 | | Long-term unbilled receivables, net | $72,814 | $85,402 | | Total receivables | $435,259 | $622,954 | - Deferred revenue increased to **$382,765 thousand** at March 31, 2024, from **$377,845 thousand** at December 31, 2023, primarily due to new billings in advance of revenue recognized[31](index=31&type=chunk)[32](index=32&type=chunk) - **$168.3 million** in revenue was recognized from deferred revenue as of December 31, 2023, during the three months ended March 31, 2024[32](index=32&type=chunk) [NOTE 4. DEFERRED COMMISSIONS](index=9&type=section&id=NOTE%204.%20DEFERRED%20COMMISSIONS) This note outlines the balances and amortization of deferred commission expenses Deferred Commissions (in thousands): | Metric | March 31, 2024 | December 31, 2023 | | :----------------------- | :------------- | :---------------- | | Deferred commissions | $102,855 | $114,119 | - Amortization of deferred commissions increased by **21%** to **$17,282 thousand** for the three months ended March 31, 2024, compared to **$14,277 thousand** for the same period in 2023[33](index=33&type=chunk) [NOTE 5. GOODWILL AND OTHER INTANGIBLES](index=10&type=section&id=NOTE%205.%20GOODWILL%20AND%20OTHER%20INTANGIBLES) This note details the carrying amounts and changes in goodwill and other intangible assets - Goodwill decreased slightly to **$81,467 thousand** at March 31, 2024, from **$81,611 thousand** at January 1, 2024, due to currency translation adjustments[34](index=34&type=chunk) - Net book value of intangible assets was **$6,025 thousand** at March 31, 2024, down from **$7,002 thousand** at December 31, 2023[36](index=36&type=chunk)[37](index=37&type=chunk) - Estimated future amortization of intangible assets for the remainder of 2024 is **$2,208 thousand**[38](index=38&type=chunk) [NOTE 6. OTHER ASSETS AND LIABILITIES](index=10&type=section&id=NOTE%206.%20OTHER%20ASSETS%20AND%20LIABILITIES) This note provides a breakdown of various other current assets and accrued liabilities Other Current Assets (in thousands): | Category | March 31, 2024 | December 31, 2023 | | :----------------------- | :------------- | :---------------- | | Income tax receivables | $9,058 | $4,804 | | Insurance receivable | $8,305 | $1,954 | | Capped call transactions | $4,192 | — | | Total other current assets | $78,193 | $68,137 | Accrued Expenses (in thousands): | Category | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Litigation settlements | $35,000 | — | | Cloud hosting | $12,736 | $1,358 | | Outside professional services | $13,352 | $10,419 | | Total accrued expenses | $80,642 | $39,941 | - Accrued expenses increased by **over 100%** primarily due to a **$35 million** litigation settlement[42](index=42&type=chunk) [NOTE 7. LEASES](index=11&type=section&id=NOTE%207.%20LEASES) This note details the company's lease costs, remaining lease terms, and discount rates Lease Costs (in thousands): | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Fixed lease costs | $4,262 | $5,766 | | Short-term lease costs | $543 | $781 | | Variable lease costs | $1,609 | $1,975 | | Total lease costs | $6,414 | $8,522 | - Weighted-average remaining lease term was **6.7 years** and weighted-average discount rate was **4.0%** as of March 31, 2024[47](index=47&type=chunk) [NOTE 8. DEBT](index=12&type=section&id=NOTE%208.%20DEBT) This note describes the company's outstanding convertible senior notes and revolving credit facility - **$502.3 million** in aggregate principal amount of Convertible Senior Notes are outstanding, due March 1, 2025[58](index=58&type=chunk)[60](index=60&type=chunk) - Interest expense on Convertible Senior Notes was **$1,559 thousand** for Q1 2024, with an average interest rate of **1.2%**[59](index=59&type=chunk) - The **$100 million** senior secured revolving Credit Facility's expiration date was extended to February 4, 2025, with **$27.3 million** in outstanding letters of credit but no outstanding cash borrowings as of March 31, 2024[65](index=65&type=chunk)[66](index=66&type=chunk) [NOTE 9. RESTRUCTURING](index=14&type=section&id=NOTE%209.%20RESTRUCTURING) This note outlines the accrued employee severance and restructuring expenses - Accrued employee severance and related benefits decreased to **$5,001 thousand** at March 31, 2024, from **$8,095 thousand** at January 1, 2024, due to cash disbursements[68](index=68&type=chunk) - Restructuring expense for the three months ended March 31, 2024, was **$163 thousand**, an **89% decrease** from **$1,461 thousand** in the prior year period[13](index=13&type=chunk)[125](index=125&type=chunk) [NOTE 10. FAIR VALUE MEASUREMENTS](index=14&type=section&id=NOTE%2010.%20FAIR%20VALUE%20MEASUREMENTS) This note details the fair value of financial instruments, including capped call transactions and venture investments - Capped Call Transactions, accounted for as derivative instruments, increased to **$4,192 thousand** at March 31, 2024, from **$893 thousand** at January 1, 2024, due to a **$3,299 thousand** fair value adjustment[64](index=64&type=chunk)[73](index=73&type=chunk) - Venture investments increased to **$20,946 thousand** at March 31, 2024, from **$19,450 thousand** at January 1, 2024, including a **$1,628 thousand** gain recognized in other income[73](index=73&type=chunk)[74](index=74&type=chunk) - The fair value of the Convertible Senior Notes was **$481.7 million** as of March 31, 2024, classified within Level 2 of the fair value hierarchy[75](index=75&type=chunk) [NOTE 11. REVENUE](index=15&type=section&id=NOTE%2011.%20REVENUE) This note provides a breakdown of revenue by stream and details remaining performance obligations Revenue Streams (in thousands): | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | % Change | | :----------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Pega Cloud | $130,902 | $107,879 | +$23,023 | +21% | | Maintenance | $81,001 | $79,630 | +$1,371 | +2% | | Subscription services | $211,903 | $187,509 | +$24,394 | +13% | | Subscription license | $63,338 | $84,527 | -$21,189 | -25% | | Total revenue | $330,147 | $325,472 | +$4,675 | +1% | - Remaining performance obligations (Backlog) increased by **9%** to **$1,424,742 thousand** as of March 31, 2024, from **$1,308,084 thousand** as of March 31, 2023[78](index=78&type=chunk)[79](index=79&type=chunk) - The decrease in subscription license revenue was primarily due to a large multi-year contract recognized in the three months ended March 31, 2023[122](index=122&type=chunk) [NOTE 12. STOCK-BASED COMPENSATION](index=17&type=section&id=NOTE%2012.%20STOCK-BASED%20COMPENSATION) This note details the stock-based compensation expense and unrecognized compensation - Stock-based compensation expense decreased by **18.2%** to **$34,781 thousand** for the three months ended March 31, 2024, compared to **$42,557 thousand** for the same period in 2023[81](index=81&type=chunk) - Unrecognized stock-based compensation expense was **$184.1 million** as of March 31, 2024, with a weighted-average recognition period of **1.8 years**[81](index=81&type=chunk) [NOTE 13. INCOME TAXES](index=17&type=section&id=NOTE%2013.%20INCOME%20TAXES) This note explains the income tax benefit, effective tax rate, and impact of Pillar Two regulations - The company recorded an income tax benefit of **$3,038 thousand** for Q1 2024, compared to a provision of **$5,249 thousand** in Q1 2023, resulting in an effective income tax rate of **20%**[84](index=84&type=chunk) - The effective income tax rate for Q1 2024 was primarily influenced by a valuation allowance on deferred tax assets in the U.S. and U.K., and an income tax benefit for discrete items[84](index=84&type=chunk) - The company anticipates meeting transitional safe harbors for Pillar Two global minimum tax regulations in most jurisdictions for 2024, with any remaining top-up tax being immaterial[130](index=130&type=chunk) [NOTE 14. (LOSS) PER SHARE](index=17&type=section&id=NOTE%2014.%20(LOSS)%20PER%20SHARE) This note presents the basic and diluted loss per share calculations and anti-dilutive exclusions - Basic and diluted loss per share improved to **$(0.14)** for Q1 2024, compared to **$(0.25)** for Q1 2023[88](index=88&type=chunk) - All dilutive securities, including stock options, RSUs, and convertible senior notes, were excluded from the diluted loss per share calculation because their inclusion would be anti-dilutive in periods of loss[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) [NOTE 15. COMMITMENTS AND CONTINGENCIES](index=18&type=section&id=NOTE%2015.%20COMMITMENTS%20AND%20CONTINGENCIES) This note details significant legal proceedings, including litigation settlements and ongoing appeals - The company recorded a **$32.4 million** litigation settlement, net of insurance recoveries, in Q1 2024, related to a proposed settlement of a securities class action lawsuit[95](index=95&type=chunk)[98](index=98&type=chunk) - The Appian Corp. v. Pegasystems Inc. trade secret misappropriation case, with a **$2.06 billion** judgment, is currently under appeal, and the company is unable to reasonably estimate possible damages[96](index=96&type=chunk) - The U.S. SEC has requested information regarding the accounting treatment of the Appian litigation, and the company is cooperating[100](index=100&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, results of operations, and key performance metrics for Q1 2024 - The company develops, markets, licenses, hosts, and supports enterprise software that helps organizations build agility into their business[107](index=107&type=chunk) - Its powerful, low-code platform for workflow automation and AI-powered decisioning enables hyper-personalization, streamlined customer service, and automated mission-critical business processes[107](index=107&type=chunk) - Target clients are Global 2000 organizations and government agencies[108](index=108&type=chunk) [FORWARD-LOOKING STATEMENTS](index=20&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section cautions investors about inherent risks and uncertainties in forward-looking information - The report contains forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties that could cause actual results to differ materially[102](index=102&type=chunk)[103](index=103&type=chunk) - Investors are cautioned not to place undue reliance on such statements, and the company disclaims any obligation to publicly update or revise them[104](index=104&type=chunk) [NON-GAAP MEASURES](index=20&type=section&id=NON-GAAP%20MEASURES) This section explains the use and limitations of non-GAAP financial measures for performance evaluation - Non-GAAP financial measures are used to help investors understand core operating results and prospects, consistent with how management measures and forecasts performance[106](index=106&type=chunk) - These non-GAAP measures are not a substitute for financial measures prepared under U.S. GAAP[106](index=106&type=chunk) [BUSINESS OVERVIEW](index=20&type=section&id=BUSINESS%20OVERVIEW) This section describes Pegasystems Inc.'s enterprise software solutions, low-code platform, and target markets - Pegasystems Inc. develops, markets, licenses, hosts, and supports enterprise software with a low-code platform for workflow automation and AI-powered decisioning[107](index=107&type=chunk) - Its solutions enable clients to hyper-personalize customer experiences, streamline customer service, and automate mission-critical business processes[107](index=107&type=chunk) - The company targets Global 2000 organizations and government agencies[108](index=108&type=chunk) [Performance metrics](index=22&type=section&id=Performance%20metrics) This section presents key performance indicators, including Annual Contract Value (ACV) - Annual Contract Value (ACV) is a key performance measure representing the annualized value of active contracts[109](index=109&type=chunk) ACV (in millions): | Metric | March 31, 2024 | March 31, 2023 | 1-Year Change | | :----------------------- | :------------- | :------------- | :------------ | | ACV | $1,273 | $1,174 | +9% | | Constant currency ACV | $1,277 | $1,174 | +9% | [Cash flow](index=23&type=section&id=Cash%20flow) This section analyzes the company's free cash flow and supplemental cash flow information Free Cash Flow (in thousands): | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Cash provided by operating activities | $180,146 | $68,107 | | Investment in property and equipment | $(604) | $(11,487) | | Free cash flow | $179,542 | $56,620 | - Free cash flow is defined as cash provided by operating activities less investment in property and equipment[113](index=113&type=chunk) - Supplemental cash flow information for Q1 2024 includes restructuring (**$3,347 thousand**), legal fees (**$2,739 thousand**), interest on convertible senior notes (**$1,884 thousand**), and income taxes (**$8,163 thousand**)[113](index=113&type=chunk) [Remaining performance obligations ("Backlog")](index=25&type=section&id=Remaining%20performance%20obligations%20(%22Backlog%22)) This section details the company's backlog, representing future revenue from existing contracts Backlog (in millions): | Metric | March 31, 2024 | March 31, 2023 | 1-Year Growth Rate | | :----------------------- | :------------- | :------------- | :----------------- | | Backlog - GAAP | $1,425 | $1,308 | +9% | | Constant currency backlog | $1,429 | $1,308 | +9% | - Backlog represents expected future revenue from existing non-cancellable contracts[78](index=78&type=chunk)[117](index=117&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=25&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section outlines the significant accounting policies and estimates used in financial statement preparation - Financial statements are prepared following U.S. GAAP and SEC rules, requiring estimates and judgments based on historical experience, current conditions, and future expectations[119](index=119&type=chunk) - No significant changes to critical accounting policies were reported since the Annual Report on Form 10-K for the year ended December 31, 2023[120](index=120&type=chunk) [RESULTS OF OPERATIONS](index=26&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's revenue, gross profit, and operating expenses [Revenue](index=26&type=section&id=Revenue) This subsection analyzes revenue performance across different service categories Revenue Performance (in thousands): | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | % Change | | :----------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Pega Cloud | $130,902 | $107,879 | +$23,023 | +21% | | Maintenance | $81,001 | $79,630 | +$1,371 | +2% | | Subscription license | $63,338 | $84,527 | -$21,189 | -25% | | Consulting | $54,047 | $53,033 | +$1,014 | +2% | | Total revenue | $330,147 | $325,472 | +$4,675 | +1% | - The increase in Pega Cloud revenue was primarily due to the growth of the hosted client base[121](index=121&type=chunk) - The decrease in subscription license revenue was primarily due to a large multi-year contract recognized in the three months ended March 31, 2023[122](index=122&type=chunk) [Gross profit](index=26&type=section&id=Gross%20profit) This subsection examines gross profit and gross profit percentages by revenue stream Gross Profit Performance (in thousands): | Category | 2024 Gross Profit | 2024 Gross Profit % | 2023 Gross Profit | 2023 Gross Profit % | Change | % Change | | :----------------------- | :---------------- | :------------------ | :---------------- | :------------------ | :----- | :------- | | Pega Cloud | $101,305 | 77% | $77,629 | 72% | +$23,676 | +30% | | Consulting | $(4,135) | (8)% | $(7,315) | (14)% | +$3,180 | +43% | | Total gross profit | $235,489 | 71% | $227,538 | 70% | +$7,951 | +3% | - The increase in Pega Cloud gross profit percentage was primarily due to increased cost efficiency for hosting services and employee compensation[124](index=124&type=chunk) - The increase in consulting gross profit percentage was primarily due to an increase in consultant realization rates in the Americas[124](index=124&type=chunk) [Operating expenses](index=27&type=section&id=Operating%20expenses) This subsection details changes in selling and marketing, R&D, and litigation settlement expenses Operating Expenses (in thousands): | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | % Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :------- | | Selling and marketing | $127,695 | $149,797 | -$22,102 | -15% | | Research and development | $72,113 | $75,376 | -$3,263 | -4% | | Litigation settlement, net of recoveries | $32,403 | — | +$32,403 | 100% | | Restructuring | $163 | $1,461 | -$1,298 | -89% | - The decrease in selling and marketing was primarily due to a **$17.5 million** decrease in compensation and benefits from reduced headcount as the company optimized its go-to-market strategy[125](index=125&type=chunk) - The increase in litigation settlement, net of recoveries, was due to the estimated cost to settle ongoing litigation arising from proceedings outside the ordinary course of business[125](index=125&type=chunk) [Other income and expenses](index=27&type=section&id=Other%20income%20and%20expenses) This subsection reviews foreign currency impacts, interest income, and other net income/expenses Other Income and Expenses (in thousands): | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | % Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :------- | | Foreign currency transaction (loss) | $(3,262) | $(2,675) | $(587) | -22% | | Interest income | $5,281 | $1,485 | +$3,796 | +256% | | Other income, net | $1,684 | $6,583 | $(4,899) | -74% | | Total | $5,250 | $6,681 | $(1,431) | -21% | - The increase in interest income was primarily due to higher investment balances and market interest rates[129](index=129&type=chunk) - The decrease in other income, net, was due to a **$3.8 million** gain on venture investments and a **$2.8 million** gain from repurchases of convertible senior notes in Q1 2023[129](index=129&type=chunk) [(Benefit from) provision for income taxes](index=27&type=section&id=(Benefit%20from)%20provision%20for%20income%20taxes) This subsection discusses the income tax benefit and effective tax rate for the period - The company recorded an income tax benefit of **$3,038 thousand** for Q1 2024, compared to a provision of **$5,249 thousand** in Q1 2023, with an effective income tax rate of **20%**[128](index=128&type=chunk) - The effective income tax rate was primarily driven by the valuation allowance on deferred tax assets in the U.S. and U.K., and forecasted taxable income, offset by an income tax benefit for discrete items[128](index=128&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=28&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section analyzes the company's cash flows, financial position, and ability to meet obligations Cash, Cash Equivalents, and Marketable Securities (in thousands): | Category | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Held in U.S. entities | $491,808 | $263,453 | | Held in foreign entities | $127,141 | $159,885 | | Total cash, cash equivalents, and marketable securities | $618,949 | $423,338 | - The company believes its current cash, marketable securities, cash flow from operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund operations and obligations for at least the next 12 months[131](index=131&type=chunk) [Operating activities](index=28&type=section&id=Operating%20activities) This subsection details cash generated from the company's primary business operations - Cash provided by operating activities increased to **$180,146 thousand** in Q1 2024, up from **$68,107 thousand** in Q1 2023[131](index=131&type=chunk) - The change was primarily due to growth in client collections and the impact of cost-efficiency initiatives[133](index=133&type=chunk) [Investing activities](index=28&type=section&id=Investing%20activities) This subsection outlines cash flows related to the purchase and sale of investments and assets - Cash used in investing activities increased to **$132,399 thousand** in Q1 2024, from **$14,413 thousand** in Q1 2023[131](index=131&type=chunk) - This change was primarily due to increased purchases of financial instruments and reduced investment in property and equipment[134](index=134&type=chunk) [Financing activities](index=28&type=section&id=Financing%20activities) This subsection describes cash flows from debt, equity, and other financing transactions - Cash provided by financing activities was **$17,899 thousand** in Q1 2024, compared to cash used of **$29,372 thousand** in Q1 2023[131](index=131&type=chunk) - The company has **$502.3 million** in aggregate principal amount of convertible senior notes outstanding, due March 1, 2025[135](index=135&type=chunk) - The **$100 million** senior secured revolving credit agreement's expiration date was extended to February 4, 2025[136](index=136&type=chunk) [Stock repurchase program](index=29&type=section&id=Stock%20repurchase%20program) This subsection details the company's share repurchase activities and remaining authorization - The Board of Directors extended the expiration date of the current share repurchase program from June 30, 2024, to June 30, 2025[137](index=137&type=chunk)[157](index=157&type=chunk) - As of March 31, 2024, **$60 million** remained in the stock repurchase authority[137](index=137&type=chunk) [Dividends](index=29&type=section&id=Dividends) This subsection outlines the company's dividend policy and payments made - The company intends to pay a quarterly cash dividend of **$0.03 per share**[138](index=138&type=chunk) - Dividend payments to stockholders totaled **$2,515 thousand** for the three months ended March 31, 2024[139](index=139&type=chunk) [Contractual obligations](index=29&type=section&id=Contractual%20obligations) This subsection summarizes the company's future payment commitments under various contracts Contractual Obligations as of March 31, 2024 (in thousands): | Category | Total | | :------------------------------------ | :---- | | Convertible senior notes | $506,037 | | Purchase obligations | $529,220 | | Operating lease obligations | $89,517 | | Venture investment commitments | $1,000 | | Liability for uncertain tax positions | $2,175 | | Total | $1,127,949 | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risk, primarily focusing on foreign currency fluctuations, which impact both revenue (translation risk) and monetary assets/liabilities (remeasurement risk) - The company is exposed to market risk from adverse changes in financial market prices and rates[142](index=142&type=chunk) [Foreign currency exposure](index=29&type=section&id=Foreign%20currency%20exposure) This section analyzes the company's exposure to foreign currency fluctuations and their potential impact [Translation risk](index=29&type=section&id=Translation%20risk) This subsection assesses the impact of currency fluctuations on the translation of foreign subsidiary financial statements - A hypothetical **10% strengthening** in the U.S. dollar against other currencies would have resulted in a **4% decrease** in revenue and a **4% decrease** in net income for the three months ended March 31, 2024[145](index=145&type=chunk) [Remeasurement risk](index=30&type=section&id=Remeasurement%20risk) This subsection evaluates the impact of currency fluctuations on monetary assets and liabilities denominated in foreign currencies - The company is primarily exposed to changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated cash, cash equivalents, receivables, and intercompany balances held by its U.K. subsidiary[146](index=146&type=chunk) - A hypothetical **10% strengthening** in the British pound exchange rate would have resulted in a foreign currency loss of **$14,618 thousand** for the three months ended March 31, 2024[147](index=147&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024. There were no material changes in internal control over financial reporting during the quarter - The CEO and CFO evaluated and concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[148](index=148&type=chunk) - There have been no changes in internal control over financial reporting during the quarter ended March 31, 2024, that have materially affected or are reasonably likely to materially affect internal control over financial reporting[149](index=149&type=chunk) [PART II - OTHER INFORMATION](index=31&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information on legal proceedings, risk factors, equity sales, and other disclosures [ITEM 1. LEGAL PROCEEDINGS](index=31&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the detailed legal proceedings information from Note 15, including the Appian Corp. litigation, the securities class action lawsuit (settled in principle for $35 million), and derivative litigation - Information regarding legal proceedings is incorporated by reference from "Note 15. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report[151](index=151&type=chunk) [ITEM 1A. RISK FACTORS](index=31&type=section&id=Item%201A.%20Risk%20Factors) The company encourages readers to review the risk factors identified in its Annual Report on Form 10-K for the year ended December 31, 2023, as these could materially affect its business, financial condition, and future results - Readers are encouraged to carefully consider the risk factors identified in Item 1A. "Risk Factors" of the Annual Report on Form 10-K for the year ended December 31, 2023[152](index=152&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) The company repurchased 78 thousand shares of common stock for $61.06 per share in Q1 2024, primarily for tax withholdings related to equity awards. No shares were purchased under the publicly announced share repurchase program during this period - **78 thousand shares** of common stock were repurchased at an average price of **$61.06 per share** in Q1 2024, primarily for tax withholdings for net settlement of equity awards[137](index=137&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - No shares were purchased as part of the publicly announced share repurchase program during the three months ended March 31, 2024[153](index=153&type=chunk) [ITEM 5. OTHER INFORMATION](index=31&type=section&id=Item%205.%20Other%20Information) No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers in Q1 2024. The Credit Facility expiration date was extended to February 4, 2025, and the share repurchase program was extended to June 30, 2025 - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended March 31, 2024[155](index=155&type=chunk) - The expiration date of the **$100 million** senior secured revolving credit agreement (Credit Facility) was extended to February 4, 2025[156](index=156&type=chunk) - The Board of Directors extended the expiration date of the current share repurchase program from June 30, 2024, to June 30, 2025[157](index=157&type=chunk) [ITEM 6. EXHIBITS](index=32&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL-related documents - The exhibits include organizational documents, the Seventh Amendment to Loan Documents, CEO and CFO certifications, and various Inline XBRL documents[159](index=159&type=chunk) [SIGNATURE](index=33&type=section&id=Signature) The report was signed by Kenneth Stillwell, Chief Operating Officer and Chief Financial Officer, on April 24, 2024 - The report was signed by Kenneth Stillwell, Chief Operating Officer and Chief Financial Officer, on April 24, 2024[163](index=163&type=chunk)