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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
_____________________________________
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2024
OR
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-11859 
____________________________
PEGASYSTEMS INC.
(Exact name of Registrant as specified in its charter) 
____________________________
Massachusetts04-2787865
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
One Main Street, Cambridge, MA 02142
(Address of principal executive offices, including zip code)
(617) 374-9600
(Registrant’s telephone number, including area code)
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value per sharePEGANASDAQ Global Select Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No ¨            
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
Non-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
There were 85,031,165 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on April 17, 2024.



PEGASYSTEMS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) for the three months ended March 31, 2024 and 2023
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
Signature

2

PART I - FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, 2024December 31, 2023
Assets
Current assets:
Cash and cash equivalents$291,905 $229,902 
Marketable securities327,044 193,436 
Total cash, cash equivalents, and marketable securities618,949 423,338 
Accounts receivable, net
191,987 300,173 
Unbilled receivables, net
170,458 237,379 
Other current assets78,193 68,137 
Total current assets1,059,587 1,029,027 
Long-term unbilled receivables, net
72,814 85,402 
Goodwill81,467 81,611 
Other long-term assets297,860 314,696 
Total assets$1,511,728 $1,510,736 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$6,353 $11,290 
Accrued expenses80,642 39,941 
Accrued compensation and related expenses55,438 126,640 
Deferred revenue382,765 377,845 
Convertible senior notes, net499,985  
Other current liabilities19,096 21,343 
Total current liabilities1,044,279 577,059 
Long-term convertible senior notes, net
 499,368 
Long-term operating lease liabilities
63,645 66,901 
Other long-term liabilities13,618 13,570 
Total liabilities1,121,542 1,156,898 
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued
  
Common stock, 200,000 shares authorized; 85,011 and 83,840 shares issued and outstanding at
March 31, 2024 and December 31, 2023, respectively
850 838 
Additional paid-in capital432,217 379,584 
(Accumulated deficit)(20,829)(8,705)
Accumulated other comprehensive (loss)(22,052)(17,879)
Total stockholders’ equity390,186 353,838 
Total liabilities and stockholders’ equity$1,511,728 $1,510,736 

See notes to unaudited condensed consolidated financial statements.
3


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
March 31,
20242023
Revenue
Subscription services$211,903 $187,509 
Subscription license63,338 84,527 
Consulting54,047 53,033 
Perpetual license859 403 
Total revenue330,147 325,472 
Cost of revenue
Subscription services35,824 36,864 
Subscription license643 719 
Consulting58,182 60,348 
Perpetual license9 3 
Total cost of revenue94,658 97,934 
Gross profit235,489 227,538 
Operating expenses
Selling and marketing127,695 149,797 
Research and development72,113 75,376 
General and administrative23,527 23,110 
Litigation settlement, net of recoveries
32,403  
Restructuring163 1,461 
Total operating expenses255,901 249,744 
(Loss) from operations(20,412)(22,206)
Foreign currency transaction (loss)(3,262)(2,675)
Interest income5,281 1,485 
Interest expense(1,752)(1,918)
Gain on capped call transactions3,299 3,206 
Other income, net1,684 6,583 
(Loss) before (benefit from) provision for income taxes(15,162)(15,525)
(Benefit from) provision for income taxes(3,038)5,249 
Net (loss)$(12,124)$(20,774)
(Loss) per share
Basic$(0.14)$(0.25)
Diluted$(0.14)$(0.25)
Weighted-average number of common shares outstanding
Basic84,266 82,604 
Diluted84,266 82,604 

See notes to unaudited condensed consolidated financial statements.
4


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(in thousands)
Three Months Ended
March 31,
20242023
Net (loss)$(12,124)$(20,774)
Other comprehensive (loss) income, net of tax
Unrealized (loss) on available-for-sale securities(746)(46)
Foreign currency translation adjustments(3,427)1,589 
Total other comprehensive (loss) income, net of tax(4,173)1,543 
Comprehensive (loss)$(16,297)$(19,231)

See notes to unaudited condensed consolidated financial statements.
5


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
Common Stock
Additional paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive (loss)
Total
stockholders’ equity
Number
of shares
Amount
December 31, 202282,436 $824 $229,602 $(76,513)$(23,070)$130,843 
Issuance of common stock for stock compensation plans452 4 668 — — 672 
Issuance of common stock under the employee stock purchase plan52 1 2,142 — — 2,143 
Stock-based compensation— — 42,557 — — 42,557 
Cash dividends declared ($0.03 per share)
— — (2,488)— — (2,488)
Other comprehensive income— — — — 1,543 1,543 
Net (loss)— — — (20,774)— (20,774)
March 31, 202382,940 $829 $272,481 $(97,287)$(21,527)$154,496 
December 31, 202383,840 $838 $379,584 $(8,705)$(17,879)$353,838 
Issuance of common stock for stock compensation plans1,139 12 18,644 — — 18,656 
Issuance of common stock under the employee stock purchase plan32 — 1,758 — — 1,758 
Stock-based compensation— — 34,781 — — 34,781 
Cash dividends declared ($0.03 per share)
— — (2,550)— — (2,550)
Other comprehensive (loss)— — — — (4,173)(4,173)
Net (loss)— — — (12,124)— (12,124)
March 31, 202485,011 $850 $432,217 $(20,829)$(22,052)$390,186 

See notes to unaudited condensed consolidated financial statements.
6


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
20242023
Operating activities
Net (loss)$(12,124)$(20,774)
Adjustments to reconcile net (loss) to cash provided by operating activities
Stock-based compensation34,781 42,557 
Amortization of deferred commissions17,282 14,277 
Amortization of intangible assets and depreciation4,254 4,724 
Lease expense3,472 4,594 
Foreign currency transaction (loss)3,262 2,675 
(Gain) on capped call transactions(3,299)(3,206)
Deferred income taxes(646)(126)
(Gain) on investments(1,628)(3,802)
(Gain) on repurchases of convertible senior notes (2,781)
Other non-cash(1,886)854 
Change in operating assets and liabilities, net136,678 29,115 
Cash provided by operating activities180,146 68,107 
Investing activities
Purchases of investments(161,438)(39,401)
Proceeds from maturities and called investments29,643 36,475 
Investment in property and equipment(604)(11,487)
Cash (used in) investing activities(132,399)(14,413)
Financing activities
Repurchases of convertible senior notes (29,901)
Dividend payments to stockholders(2,515)(2,474)
Proceeds from employee stock plans22,419 3,922 
Common stock repurchases for tax withholdings for net settlement of equity awards(2,005)(1,107)
Other 188 
Cash provided by (used in) financing activities17,899 (29,372)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(2,803)782 
Net increase in cash, cash equivalents, and restricted cash62,843 25,104 
Cash, cash equivalents, and restricted cash, beginning of period232,827 145,054 
Cash, cash equivalents, and restricted cash, end of period$295,670 $170,158 
Cash and cash equivalents$291,905 $168,318 
Restricted cash included in other current assets775  
Restricted cash included in other long-term assets2,990 1,840 
Total cash, cash equivalents, and restricted cash$295,670 $170,158 

See notes to unaudited condensed consolidated financial statements.
7

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION
Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2023.
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.
All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented do not necessarily indicate the expected results for 2024.
NOTE 2. MARKETABLE SECURITIES
March 31, 2024December 31, 2023
(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value
Government debt$15,857 $10 $(15)$15,852 $11,471 $33 $(1)$11,503 
Corporate debt311,733 17 (558)311,192 181,960 200 (227)181,933 
$327,590 $27 $(573)$327,044 $193,431 $233 $(228)$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.
NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables
(in thousands)
March 31, 2024December 31, 2023
Accounts receivable, net$191,987 $300,173 
Unbilled receivables, net170,458 237,379 
Long-term unbilled receivables, net
72,814 85,402 
$435,259 $622,954 
Unbilled receivables
Unbilled receivables are client-committed amounts for which revenue recognition precedes billing. Billing is solely subject to the passage of time.
Unbilled receivables by expected collection date:
(Dollars in thousands)
March 31, 2024
1 year or less$170,458 70 %
1-2 years54,111 22 %
2-5 years18,703 8 %
$243,272 100 %
Unbilled receivables by contract effective date:
(Dollars in thousands)
March 31, 2024
2024$19,018 8 %
2023144,525 59 %
202238,025 16 %
202135,988 15 %
2020 and prior5,716 2 %
$243,272 100 %
8

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Major clients
Clients that represented 10% or more of the Company’s total accounts receivable and unbilled receivables:
March 31, 2024December 31, 2023
Client A
Accounts receivable10 %*
Unbilled receivables12 %*
Total receivables11 %*
* Client accounted for less than 10% of receivables.
Contract assets
Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.
(in thousands)
March 31, 2024December 31, 2023
Contract assets (1)
$10,853 $16,238 
Long-term contract assets (2)
20,909 20,635 
$31,762 $36,873 
(1) Included in other current assets.
(2) Included in other long-term assets.
Deferred revenue
Deferred revenue consists of billings and payments received in advance of revenue recognition.
(in thousands)
March 31, 2024December 31, 2023
Deferred revenue$382,765 $377,845 
Long-term deferred revenue (1)
1,784 2,478 
$384,549 $380,323 
(1) Included in other long-term liabilities.
The increase in deferred revenue in the three months ended March 31, 2024, was primarily due to new billings in advance of revenue recognized. In the three months ended March 31, 2024, $168.3 million in revenue was recognized from deferred revenue as of December 31, 2023.
NOTE 4. DEFERRED COMMISSIONS
(in thousands)
March 31, 2024December 31, 2023
Deferred commissions (1)
$102,855 $114,119 
(1) Included in other long-term assets.
Three Months Ended
March 31,
(in thousands)20242023
Amortization of deferred commissions (1)
$17,282 $14,277 
(1) Included in selling and marketing.
9

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 5. GOODWILL AND OTHER INTANGIBLES
Goodwill
Three Months Ended
March 31,
(in thousands)
20242023
January 1,$81,611 $81,399 
Currency translation adjustments(144)35 
March 31,$81,467 $81,434 
Intangibles
Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.
March 31, 2024
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
Client-related
4-10 years
$63,111 $(60,371)$2,740 
Technology
2-10 years
68,105 (64,820)3,285 
Other
1-5 years
5,361 (5,361) 
$136,577 $(130,552)$6,025 
(1) Included in other long-term assets.
December 31, 2023
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
Client-related
4-10 years
$63,117 $(60,035)$3,082 
Technology
2-10 years
68,138 (64,218)3,920 
Other
1-5 years
5,361 (5,361) 
$136,616 $(129,614)$7,002 
(1) Included in other long-term assets.
Future estimated amortization of intangible assets:
(in thousands)
March 31, 2024
Remainder of 2024$2,208 
20252,616 
2026874 
2027327 
$6,025 
Amortization of intangible assets:
Three Months Ended
March 31,
(in thousands)20242023
Cost of revenue
$621 $706 
Selling and marketing
343 343 
$964 $1,049 

NOTE 6. OTHER ASSETS AND LIABILITIES
Other current assets
(in thousands)March 31, 2024December 31, 2023
Income tax receivables$9,058 $4,804 
Contract assets10,853 16,238 
Insurance receivable8,305 1,954 
Capped call transactions4,192  
Restricted cash775  
Other45,010 45,141 
$78,193 $68,137 
10

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Other long-term assets
(in thousands)March 31, 2024December 31, 2023
Deferred commissions$102,855 $114,119 
Right of use assets61,512 64,198 
Property and equipment44,856 47,279 
Venture investments20,946 19,450 
Contract assets20,909 20,635 
Intangible assets6,025 7,002 
Capped call transactions 893 
Deferred income taxes3,666 3,678 
Restricted cash2,990 2,925 
Other34,101 34,517 
$297,860 $314,696 
Accrued expenses
(in thousands)March 31, 2024December 31, 2023
Litigation settlements$35,000 $ 
Cloud hosting12,736 1,358 
Outside professional services13,352 10,419 
Marketing and sales program3,888 2,557 
Income and other taxes6,676 15,428 
Employee related4,466 4,486 
Other4,524 5,693 
$80,642 $39,941 
Other current liabilities
(in thousands)March 31, 2024December 31, 2023
Operating lease liabilities$14,184 $15,000 
Dividends payable2,550 2,515 
Other2,362 3,828 
$19,096 $21,343 
Other long-term liabilities
(in thousands)March 31, 2024December 31, 2023
Deferred revenue$1,784 $2,478 
Income taxes payable2,175 859 
Other9,659 10,233 
$13,618 $13,570 
NOTE 7. LEASES
Expense
Three Months Ended
March 31,
(in thousands)20242023
Fixed lease costs$4,262 $5,766 
Short-term lease costs543 781 
Variable lease costs1,609 1,975 
$6,414 $8,522 
11

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Right of use assets and lease liabilities
(in thousands)March 31, 2024December 31, 2023
Right of use assets (1)
$61,512 $64,198 
Operating lease liabilities (2)
$14,184 $15,000 
Long-term operating lease liabilities$63,645 $66,901 

(1) Included in other long-term assets.
(2) Included in other current liabilities.
Weighted-average remaining lease term and discount rate for the Company’s leases were:
March 31, 2024December 31, 2023
Weighted-average remaining lease term6.7 years6.8 years
Weighted-average discount rate (1)
4.0 %4.0 %
(1) The rates implicit in most of the Company’s leases are not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over the lease term in a similar economic environment.
Maturities of lease liabilities:
(in thousands)March 31, 2024
Remainder of 2024$12,700 
202516,024 
202611,246 
202710,066 
20289,334 
20298,500 
Thereafter21,647 
Total lease payments89,517 
Less: imputed interest (1)
(11,688)
$77,829 
(1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated due to a lease reassessment event.
Cash flow information
Three Months Ended
March 31,
(in thousands)20242023
Cash paid for operating leases, net of tenant improvement allowances$5,069 $5,038 
Right of use assets recognized for new leases and amendments (non-cash)$1,095 $721 
NOTE 8. DEBT
Convertible senior notes and capped calls
Convertible senior notes
In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal of $600 million, due March 1, 2025, in a private placement. No principal payments are due before maturity. The Notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1, beginning September 1, 2020.
In the three months ended March 31, 2023, the Company recorded a gain of $2.8 million in other income, net from the repurchase of Notes representing $33 million in aggregate principal amount.
Conversion rights
The conversion rate is 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of $135.05 per share of common stock. The conversion rate will be adjusted upon certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions. The Company will settle conversions by paying or delivering cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate.
Beginning on September 1, 2024, noteholders may convert their Notes at any time at their election.
Before September 1, 2024, noteholders may convert their Notes in the following circumstances:
12

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



During any calendar quarter beginning after June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter.
During the five consecutive business days immediately after any five consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.
Upon certain corporate events or distributions or if the Company calls any Notes for redemption, noteholders may convert before the close of business on the business day immediately before the related redemption date (or, if the Company fails to pay the redemption price in full on the redemption date until the Company pays the redemption price).
As of March 31, 2024, the Notes were not eligible for conversion.
Repurchase rights
On or after March 1, 2023 and on or before the 40th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the Notes at a repurchase price equal to 100% of the principal amount, plus accrued and unpaid interest, if the last reported sale price of the Company’s common stock exceeded 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice.
If certain corporate events that constitute a “Fundamental Change” occur, each noteholder will have the right to require the Company to repurchase for cash all of such noteholder’s Notes, or any portion of the principal thereof that is equal to $1,000 or a multiple of $1,000, at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. A Fundamental Change relates to mergers, changes in control of the Company, liquidation/dissolution of the Company, or the delisting of the Company’s common stock.
Carrying value of the Notes:
(in thousands)March 31, 2024December 31, 2023
Principal$502,270 $502,270 
Unamortized issuance costs(2,285)(2,902)
Convertible senior notes, net$499,985 $499,368 

Interest expense related to the Notes:
Three Months Ended
March 31,
(in thousands)20242023
Contractual interest expense (0.75% coupon)
$942 $1,125 
Amortization of issuance costs
617 728 
$1,559 $1,853 
The average interest rate on the Notes in the three months ended March 31, 2024 and 2023 was 1.2%.
Future payments:
March 31, 2024
(in thousands)PrincipalInterestTotal
Remainder of 2024$ $1,883 $1,883 
2025502,270 1,884 504,154 
$502,270 $3,767 $506,037 
Capped call transactions
In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions initially covered approximately 4.4 million shares (representing the number of shares for which the Notes were initially convertible) of the Company’s common stock. In 2023, Capped Call Transactions covering approximately 0.7 million shares were settled for proceeds of $0.3 million. As of March 31, 2024, Capped Call Transactions covering approximately 3.7 million shares were outstanding.
The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The cap price of the Capped Call Transactions is subject to adjustment upon specified extraordinary events affecting the Company, including mergers and tender offers.
13

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



The Capped Call Transactions are accounted for as derivative instruments and do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value calculated following the governing documents may not represent a fair value measurement. The Capped Call Transactions are remeasured to fair value each reporting period, resulting in a non-operating gain or loss.
Change in capped call transactions:
Three Months Ended
March 31,
(in thousands)20242023
January 1,$893 $2,582 
Settlements (188)
Fair value adjustment3,299 3,206 
March 31,$4,192 $5,600 
Credit facility
In November 2019, and as since amended, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. The Company may use borrowings for general corporate purposes and to finance working capital needs. Subject to specific conditions and the agreement of the financial institutions lending the additional amount, the aggregate commitment may be increased to $200 million. The commitments expire on November 4, 2024, and any outstanding loans will be payable on such date. On April 23, 2024, the Credit Facility was amended to extend the expiration date to February 4, 2025.The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. Beginning with the fiscal quarter ended March 31, 2024, the Company must maintain a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.
As of March 31, 2024 and December 31, 2023, the Company had $27.3 million in outstanding letters of credit, reducing available borrowing capacity under the Credit Facility, but no outstanding cash borrowings.
NOTE 9. RESTRUCTURING
The Company has undertaken the following restructuring activities as it optimizes its go-to-market strategy and reassesses its office space needs:
(in thousands)Three months endedExpense
Office space reduction March 31, 2023$1,241 
Employee severance and related benefitsJune 30, 2023$1,581 
Employee severance and related benefits and office space reduction
September 30, 2023$17,236 
Office space reductionDecember 31, 2023$1,497 
Accrued employee severance and related benefits:
Change for all restructuring actions:
Three Months Ended
March 31,
(in thousands)20242023
January 1,$8,095 $18,573 
Costs incurred384 220 
Cash disbursements(3,347)(14,458)
Currency translation adjustments(131)181 
March 31,$5,001 $4,516 
Note: Accrued employee severance and related benefits is included in accrued compensation and related expenses.
NOTE 10. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis
The Company records its cash equivalents, marketable securities, Capped Call Transactions, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.
14

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:
Level 1 - observable inputs, such as quoted prices in active markets for identical assets or liabilities;
Level 2 - significant other inputs that are observable either directly or indirectly; and
Level 3 - significant unobservable inputs with little or no market data, which require the Company to develop its own assumptions.
This hierarchy requires the Company to use observable market data when available and minimize unobservable inputs when determining fair value.
The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation model uses various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield. The Company applies judgment when determining expected volatility. The Company considers the underlying equity security’s historical and implied volatility levels. The Company’s venture investments are recorded at fair value based on multiple valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.
Assets and liabilities measured at fair value on a recurring basis:
March 31, 2024December 31, 2023
(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents$93,135 $ $ $93,135 $54,357 $ $ $54,357 
Marketable securities $ $327,044 $ $327,044 $ $193,436 $ $193,436 
Capped Call Transactions (1)
$ $4,192 $ $4,192 $ $893 $ $893 
Venture investments (1) (2)
$ $ $20,946 $20,946 $ $ $19,450 $19,450 
(1) Included in other long-term assets.
(2) Investments in privately-held companies.
Changes in venture investments:
Three Months Ended
March 31,
(in thousands)20242023
January 1,$19,450 $13,069 
New investments250 400 
Changes in foreign exchange rates(20)58 
Changes in fair value:
included in other income, net
1,628 3,802 
included in other comprehensive (loss)
(362)(1,064)
March 31,$20,946 $16,265 
The carrying value of certain financial instruments, including receivables and accounts payable, approximates fair value due to their short maturities.
Fair value of the Convertible Senior Notes
The fair value of the Notes outstanding (including the embedded conversion feature) was $481.7 million as of March 31, 2024, and $466.5 million as of December 31, 2023.
The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy.
NOTE 11. REVENUE
Geographic revenue
Three Months Ended
March 31,
(Dollars in thousands)
20242023
U.S.$180,983 54 %$184,519 56 %
Other Americas21,786 7 %15,011 5 %
United Kingdom (“U.K.”)32,117 10 %42,237 13 %
Europe (excluding U.K.), Middle East, and Africa 61,847 19 %51,318 16 %
Asia-Pacific33,414 10 %32,387 10 %
$330,147 100 %$325,472 100 %
15

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Revenue streams
Three Months Ended
March 31,
(in thousands)
20242023
Subscription license$63,338 $84,527 
Perpetual license859 403 
Revenue recognized at a point in time64,197 84,930 
Maintenance81,001 79,630 
Pega Cloud130,902 107,879 
Consulting54,047 53,033 
Revenue recognized over time265,950 240,542 
Total revenue$330,147 $325,472 
Three Months Ended
March 31,
(in thousands)20242023
Pega Cloud$130,902 $107,879 
Maintenance81,001 79,630 
Subscription services211,903 187,509 
Subscription license63,338 84,527 
Subscription275,241 272,036 
Consulting54,047 53,033 
Perpetual license859 403 
$330,147 $325,472 
Remaining performance obligations ("Backlog")
Expected future revenue from existing non-cancellable contracts:
As of March 31, 2024:
(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal
Pega CloudMaintenance
1 year or less
$461,928 $225,598 $33,985 $2,727 $34,716 $758,954 53 %
1-2 years
292,787 65,605 10,008  1,604 370,004 26 %
2-3 years
149,797 32,307 2,903  2,428 187,435 13 %
Greater than 3 years
86,601 21,650 98   108,349 8 %
$991,113 $345,160 $46,994 $2,727 $38,748 $1,424,742 100 %
As of March 31, 2023:
(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal
Pega CloudMaintenance
1 year or less
$389,632 $235,315 $35,346 $5,262 $41,203 $706,758 54 %
1-2 years
239,228 66,272 3,215 2,252 6,653 317,620 24 %
2-3 years
131,085 29,295 6,777  2,292 169,449 13 %
Greater than 3 years
106,778 7,479    114,257 9 %
$866,723 $338,361 $45,338 $7,514 $50,148 $1,308,084 100 %
16

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 12. STOCK-BASED COMPENSATION
Expense
Three Months Ended
March 31,
(in thousands)20242023
Cost of revenue
$6,572 $8,912 
Selling and marketing
13,888 17,661 
Research and development
7,646 9,060 
General and administrative
6,675 6,924 
$34,781 $42,557 
Income tax benefit
$(311)$(672)
As of March 31, 2024, the Company had $184.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.8 years.
Grants
Three Months Ended
March 31, 2024
(in thousands)
Quantity
Total Fair Value
Restricted stock units (1)
1,239 $76,466 
Non-qualified stock options
1,718 $44,377 
Performance stock options (2)
566 $13,921 
(1) Includes units issued when employees elect to receive 50% of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash.
(2) Performance stock options allow the holder to purchase a specified number of common stock shares at an exercise price equal to or greater than the shares' fair market value at the grant date. For the performance stock options granted in three months ended March 31, 2024, 25% can vest on the first anniversary of the grant date, and 75% can vest on the second anniversary of the grant date, based on the achievement of specific performance conditions. The options expire ten years from the grant date.
NOTE 13. INCOME TAXES
Effective income tax rate
Three Months Ended
March 31,
(Dollars in thousands)20242023
(Benefit from) provision for income taxes$(3,038)$5,249 
Effective income tax rate20 %(34)%
The Company’s effective income tax rate in the three months ended March 31, 2024, was primarily driven by the valuation allowance on the Company’s deferred tax assets in the U.S. and U.K., and forecasted taxable income, offset by an income tax benefit for discrete items in the three months ended March 31, 2024.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. A deferred tax valuation allowance requires significant judgment and uncertainties, including assumptions about future taxable income. Quarterly, the Company reassesses the need for a valuation allowance on its net deferred tax assets by weighting all available and objectively verifiable negative and positive evidence, including projected future reversals of existing taxable temporary differences, committed contractual backlog (“Backlog”), projected future taxable income, including the impact of enacted legislation, tax-planning strategies, and recent operating results.
The Company intends to maintain a valuation allowance on its U.S. and U.K. net deferred tax assets until sufficient evidence exists to support their realization.
NOTE 14. (LOSS) PER SHARE
Basic (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted (loss) per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and convertible senior notes.
17

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Calculation of (loss) per share:
Three Months Ended
March 31,
(in thousands, except per share amounts)20242023
Net (loss)$(12,124)$(20,774)
Weighted-average common shares outstanding84,266 82,604 
(Loss) per share, basic$(0.14)$(0.25)
Net (loss)$(12,124)$(20,774)
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)
84,266 82,604 
(Loss) per share, diluted$(0.14)$(0.25)
Outstanding anti-dilutive stock options and RSUs (4)
3,171 1,348 
(1) All dilutive securities are excluded in periods of loss as their inclusion would be anti-dilutive.
(2) The shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period. If the outstanding conversion options were fully exercised, the Company would issue approximately 3.7 million shares as of March 31, 2024.
(3) The Company’s Capped Call Transactions represent the equivalent of approximately 3.7 million shares of the Company’s common stock (representing the number of shares for which the Notes are convertible) as of March 31, 2024. The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The Capped Call Transactions are excluded from weighted-average common shares outstanding, assuming dilution, in all periods as their effect would be anti-dilutive.
(4) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted (loss) per share. These awards may be dilutive in the future.
NOTE 15. COMMITMENTS AND CONTINGENCIES
Commitments
See "Note 7. Leases" for additional information.
Legal proceedings
In addition to the matters below, the Company is or may become involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s business, including actions concerning contracts, intellectual property, employment, benefits, and securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.
In addition, as the Company is a party to ongoing litigation, it is at least reasonably possible that the Company’s estimates will change in the near term, and the effect may be material.
In the three months ended March 31, 2024 the Company recorded a $32.4 million litigation settlement net of insurance recoveries, which is comprised of an agreed in principle $35 million litigation settlement reduced by $2.6 million of expected insurance coverage recovery. The Company had no accrued loss for litigation as of December 31, 2023.
Appian Corp. v. Pegasystems Inc. & Youyong Zou
The Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia (the “Court”) titled Appian Corp. v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). On May 9, 2022, the jury rendered its verdict finding that the Company had misappropriated one or more of Appian’s trade secrets, that the Company had violated the Virginia Computer Crimes Act, and that the trade secret misappropriation was willful and malicious. The jury awarded damages of $2,036,860,045 for trade secret misappropriation and $1.00 for violating the Virginia Computer Crimes Act. On September 15, 2022, the circuit court of Fairfax County entered judgment of $2,060,479,287, consisting of the damages previously awarded by the jury plus attorneys’ fees and costs, and stating that the judgment is subject to post-judgment interest at a rate of 6.0% per annum, from the date of the jury verdict (May 9, 2022) as to the amount of the jury verdict and from September 15, 2022 as to the amount of the award of attorneys’ fees and costs. On September 15, 2022, the Company filed a notice of appeal from the judgment. On September 29, 2022, the circuit court of Fairfax County approved a $25,000,000 letter of credit obtained by the Company to secure the judgment and entered an order suspending the judgment during the pendency of the Company’s appeal. A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and will issue a written opinion in the future. Although it is not possible to predict timing, the entirety of the appeals process could potentially take years to complete. The Company continues to believe that it did not misappropriate any alleged trade secrets and that its sales of the Company’s products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets. The Company is unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resulting from the appellate proceedings.
18

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell
On May 19, 2022, a lawsuit was filed against the Company, the Company’s chief executive officer and the Company’s chief operating and financial officer in the United States District Court for the Eastern District of Virginia Alexandria Division, captioned City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:22-cv-00578-LMB-IDD). The complaint generally alleges, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder and that the individual defendants violated Section 20(a) of the Exchange Act, in each case by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The complaint seeks unspecified damages on behalf of a class of purchasers of the Company’s securities between May 29, 2020 and May 9, 2022. The litigation has since been transferred to the United States District Court for the District of Massachusetts (Case 1:22-cv-11220-WGY), and lead plaintiff class representatives—Central Pennsylvania Teamsters Pension Fund - Defined Benefit Plan, Central Pennsylvania Teamsters Pension Fund - Retirement Income Plan 1987, and Construction Industry Laborers Pension Fund—have been appointed. On October 18, 2022, a consolidated amended complaint was filed that does not add any new parties or legal claims, is based upon the same general factual allegations as the original complaint, and now seeks unspecified damages on behalf of a class of purchasers of the Company’s securities between June 16, 2020 and May 9, 2022. The Company moved to dismiss the consolidated amended complaint on December 19, 2022. The hearing on the Company’s motion to dismiss took place on May 17, 2023. After hearing argument from both sides, the Court denied the Company’s motion from the bench and stated that a written opinion would follow. On June 30, 2023, the Company filed its Answer to the complaint. On July 24, 2023, the Court issued its written opinion denying the motion to dismiss as to the Company and Defendant Trefler but granting the motion without prejudice as to Mr. Stillwell.
On March 4, 2024, the parties agreed in principle to a proposed settlement of the litigation for an aggregate sum of $35 million. On April 23, 2024, the parties executed a stipulation of settlement. On April 23, 2024, the plaintiffs filed a motion seeking preliminary approval of the settlement. The parties are awaiting a ruling by the court on that motion and thereafter final approval of the settlement, which will not be heard until after a notice period to the proposed class of shareholders during which they have the opportunity to object to the proposed settlement. Although the outcome of the litigation is not certain until final disposition, the Company has recorded a $35 million accrued loss as of March 31, 2024, for the proposed settlement, the substantial majority of which the Company anticipates will be paid for directly by the Company and not reimbursed by insurance. However, it is possible that actual future losses related to the litigation could exceed the accrual amount if and to the extent that the court does not approve the proposed settlement.
In re Pegasystems Inc., Derivative Litigation
On November 21, 2022, a lawsuit was filed against the members of the Company’s board of directors, the Company’s chief operating and financial officer and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc. v. Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, Larry Weber, and Kenneth Stillwell, defendants, and Pegasystems Inc., nominal defendant (Case 1:22-cv-11985). The complaint generally alleges the defendants sold shares of the Company while in possession of material nonpublic information relating to (i) the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and (ii) alleged misconduct by Company employees alleged in that litigation. On April 28, 2023, a lawsuit was filed in the United States District Court for the District of Massachusetts by Dag Sagfors, derivatively on behalf of nominal defendant Pegasystems Inc., asserting breach of fiduciary duty and related claims relating to the Virginia Appian litigation against the same defendants as the Larkin lawsuit. On May 17, 2023, the Larkin and Sagfors cases were consolidated and a joint motion to stay the consolidated case is pending before the Court. The Company also has received confidential demand letters raising substantially the same allegations set forth in the foregoing derivative complaints. On April 12, 2023, the Company’s board of directors (other than Mr. Trefler, who recused himself), formed a committee consisting solely of independent directors, to review, analyze, and investigate the matters raised in the demands and to determine in good faith what actions (if any) are reasonably believed to be appropriate under similar circumstances and reasonably believed to be in the best interests of the Company in response to the demand letters. The Company is unable to reasonably estimate possible damages or a range of possible damages in this matter given the stage of the lawsuit and there being no specified quantum of damages sought in the complaint.
SEC Inquiry
Beginning in March 2023, the U.S. Securities and Exchange Commission (“SEC”) has requested certain information relating to, among other things, the accounting treatment of the Company’s above-described litigation with Appian Corporation. The Company is fully cooperating with the SEC’s requests.
19


ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements. These statements represent our views only as of the date the statement was made and are based on current expectations and assumptions.
Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but not limited to:
our future financial performance and business plans;
the adequacy of our liquidity and capital resources;
the continued payment of our quarterly dividends;
the timing of revenue recognition;
variation in demand for our products and services, including among clients in the public sector;
reliance on key personnel;
reliance on third-party service providers, including hosting providers;
compliance with our debt obligations and covenants;
the potential impact of our convertible senior notes and Capped Call Transactions;
foreign currency exchange rates;
the potential legal and financial liabilities and damage to our reputation due to cyber-attacks;
security breaches and security flaws;
our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims, and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us;
our ongoing litigation with Appian Corp.;
our client retention rate; and
management of our growth.
These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2023, Part II of this Quarterly Report on Form 10-Q, and other filings we make with the U.S. Securities and Exchange Commission (“SEC”).
Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results included in such statements will be achieved. Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements, whether as the result of new information, future events, or otherwise.
The forward-looking statements in this Quarterly Report represent our views as of April 24, 2024.
NON-GAAP MEASURES
Our non-GAAP financial measures should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. They are not a substitute for financial measures prepared under U.S. GAAP. A reconciliation of GAAP and non-GAAP measures is located with each non-GAAP measure.
BUSINESS OVERVIEW
We develop, market, license, host, and support enterprise software that helps organizations build agility into their business so they can adapt to change. Our powerful, low-code platform for workflow automation and artificial intelligence-powered decisioning enables the world’s leading brands and government agencies to hyper-personalize customer experiences, streamline customer service, and automate mission-critical business processes and workflows. With Pega, our clients can leverage our artificial intelligence (“AI”) technology and scalable architecture to accelerate their digital transformation. In addition, our client success teams, world-class partners, and clients leverage our Pega Express™ methodology to design and deploy mission-critical applications quickly and collaboratively.
Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored to our clients’ specific industry.
20


Performance metrics
We use performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including:
Annual contract value (“ACV”)
ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV. ACV is a performance measure that we believe provides useful information to our management and investors. 1230
Reconciliation of ACV and constant currency ACV
(in millions, except percentages)March 31, 2023March 31, 2024
1-Year Change
ACV$1,174 $1,273 9 %
Impact of changes in foreign exchange rates— 
Constant currency ACV
$1,174 $1,277 %
Note: Constant currency ACV is calculated by applying the March 31, 2023 foreign exchange rates to all periods shown.
21


Cash flow (1)
1819
(Dollars in thousands)
Three Months Ended
March 31,
20242023
Cash provided by operating activities$180,146 $68,107 
Investment in property and equipment(604)(11,487)
Free cash flow (1)
$179,542 $56,620 
Supplemental information (2)
Restructuring$3,347 $14,458 
Legal fees2,739 1,515 
Interest on convertible senior notes1,884 2,250 
Income taxes
8,163 2,825 
$16,133 $21,048 
(1) Our non-GAAP free cash flow is defined as cash provided by operating activities less investment in property and equipment. Investment in property and equipment fluctuates in amount and frequency and is significantly affected by the timing and size of investments in our facilities. We provide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings. This information is not a substitute for financial measures prepared under U.S. GAAP.
(2) The supplemental information discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance.
Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities.
Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business.
Interest on convertible senior notes: In February 2020, we issued convertible senior notes, due March 1, 2025, in a private placement. The Notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1.
Income taxes: Direct income taxes paid net of refunds received.
22


Remaining performance obligations (“Backlog”)
50
Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP)
(in millions, except percentages)March 31, 2023March 31, 2024
1-Year Growth Rate
Backlog - GAAP$1,308 $1,425 9 %
Impact of changes in foreign exchange rates— 
Constant currency backlog$1,308