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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 June 30, 2022
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 81,952,276 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on July 19, 2022.



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 June 30, 2022 and December 31, 2021
Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2022 and 2021
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2022 and 2021
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021
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)
June 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$109,275 $159,965 
Marketable securities187,613 202,814 
Total cash, cash equivalents, and marketable securities296,888 362,779 
Accounts receivable171,556 182,717 
Unbilled receivables201,130 226,714 
Other current assets70,633 68,008 
Total current assets740,207 840,218 
Unbilled receivables
115,901 129,789 
Goodwill81,717 81,923 
Other long-term assets320,557 541,601 
Total assets$1,258,382 $1,593,531 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$21,465 $15,281 
Accrued expenses63,120 63,890 
Accrued compensation and related expenses73,945 120,946 
Deferred revenue269,121 275,844 
Other current liabilities7,800 9,443 
Total current liabilities435,451 485,404 
Convertible senior notes, net592,161 590,722 
Operating lease liabilities84,170 87,818 
Other long-term liabilities12,821 13,499 
Total liabilities1,124,603 1,177,443 
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued
  
Common stock, 200,000 shares authorized; 81,940 and 81,712 shares issued and outstanding at
June 30, 2022 and December 31, 2021, respectively
819 817 
Additional paid-in capital170,251 145,810 
(Accumulated deficit) retained earnings
(15,140)276,449 
Accumulated other comprehensive (loss)(22,151)(6,988)
Total stockholders’ equity133,779 416,088 
Total liabilities and stockholders’ equity$1,258,382 $1,593,531 

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
June 30,
Six Months Ended
June 30,
2022202120222021
Revenue
Subscription services$171,832 $152,075 $341,865 $295,494 
Subscription license41,600 104,296 179,133 215,805 
Perpetual license2,266 12,596 9,706 18,048 
Consulting58,639 56,735 119,940 109,854 
Total revenue274,337 325,702 650,644 639,201 
Cost of revenue
Subscription services36,533 29,046 68,563 57,389 
Subscription license673 585 1,295 1,205 
Perpetual license36 71 70 101 
Consulting57,873 54,829 113,384 108,283 
Total cost of revenue95,115 84,531 183,312 166,978 
Gross profit179,222 241,171 467,332 472,223 
Operating expenses
Selling and marketing157,198 156,423 319,434 305,162 
Research and development74,341 64,395 145,831 126,837 
General and administrative32,723 19,161 68,487 37,431 
Total operating expenses264,262 239,979 533,752 469,430 
(Loss) income from operations(85,040)1,192 (66,420)2,793 
Foreign currency transaction gain (loss)1,713 (403)4,589 (5,501)
Interest income309 236 516 389 
Interest expense(1,944)(1,959)(3,890)(3,839)
(Loss) income on capped call transactions(18,945)26,309 (49,505)7,192 
Other income, net3,785  6,526 106 
(Loss) income before provision for (benefit from) income taxes(100,122)25,375 (108,184)1,140 
Provision for (benefit from) income taxes186,174 (11,916)178,491 (29,534)
Net (loss) income$(286,296)$37,291 $(286,675)$30,674 
(Loss) earnings per share
Basic$(3.50)$0.46 $(3.51)$0.38 
Diluted$(3.50)$0.43 $(3.51)$0.36 
Weighted-average number of common shares outstanding
Basic81,847 81,316 81,764 81,161 
Diluted81,847 90,320 81,764 86,006 

See notes to unaudited condensed consolidated financial statements.
4


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Net (loss) income$(286,296)$37,291 $(286,675)$30,674 
Other comprehensive (loss) income, net of tax
Unrealized (loss) gain on available-for-sale securities(1,149)121 (927)1,131 
Foreign currency translation adjustments(11,466)1,461 (14,236)731 
Total other comprehensive (loss) income, net of tax$(12,615)$1,582 $(15,163)$1,862 
Comprehensive (loss) income$(298,911)$38,873 $(301,838)$32,536 

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, 202080,890 $809 $204,432 $339,879 $(2,948)$542,172 
Cumulative-effect adjustment from adoption of ASU 2020-06, net
— — (61,604)9,399 — (52,205)
Repurchase of common stock(70)(1)(9,145)— — (9,146)
Issuance of common stock for stock compensation plans402 4 (25,513)— — (25,509)
Issuance of common stock under the employee stock purchase plan24 — 2,288 — — 2,288 
Stock-based compensation— — 30,100 — — 30,100 
Cash dividends declared ($0.03 per share)
— — — (2,438)— (2,438)
Other comprehensive income— — — — 280 280 
Net (loss)— — — (6,617)— (6,617)
March 31, 202181,246 $812 $140,558 $340,223 $(2,668)$478,925 
Repurchase of common stock(81)(1)(10,245)— — (10,246)
Issuance of common stock for stock compensation plans267 3 (16,199)— — (16,196)
Issuance of common stock under the employee stock purchase plan24 1 2,858 — — 2,859 
Stock-based compensation— — 30,698 — — 30,698 
Cash dividends declared ($0.03 per share)
— — — (2,445)— (2,445)
Other comprehensive income— — — — 1,582 1,582 
Net income— — — 37,291 — 37,291 
June 30, 202181,456 $815 $147,670 $375,069 $(1,086)$522,468 
December 31, 202181,712 $817 $145,810 $276,449 $(6,988)$416,088 
Repurchase of common stock(242)(2)(22,581)— — (22,583)
Issuance of common stock for stock compensation plans297 3 (12,131)— — (12,128)
Issuance of common stock under the employee stock purchase plan35 — 2,446 — — 2,446 
Stock-based compensation— — 28,227 — — 28,227 
Cash dividends declared ($0.03 per share)
— — — (2,455)— (2,455)
Other comprehensive (loss)— — — — (2,548)(2,548)
Net (loss)— — — (379)— (379)
March 31, 202281,802 $818 $141,771 $273,615 $(9,536)$406,668 
Repurchase of common stock(38) (1,925)— — (1,925)
Issuance of common stock for stock compensation plans117 1 (3,252)— — (3,251)
Issuance of common stock under the employee stock purchase plan59 — 2,357 — — 2,357 
Stock-based compensation— — 31,300 — — 31,300 
Cash dividends declared ($0.03 per share)
— — — (2,459)— (2,459)
Other comprehensive (loss)— — — — (12,615)(12,615)
Net (loss)— — — (286,296)— (286,296)
June 30, 202281,940 $819 $170,251 $(15,140)$(22,151)$133,779 

See notes to unaudited condensed consolidated financial statements.
6


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
20222021
Operating activities
Net (loss) income$(286,675)$30,674 
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities
Stock-based compensation59,527 60,788 
Deferred income taxes169,105 (28,232)
Loss (gain) on capped call transactions49,505 (7,192)
Amortization of deferred commissions28,155 21,202 
Lease expense7,832 5,792 
Amortization of intangible assets and depreciation8,175 15,504 
Foreign currency transaction (gain) loss(4,589)5,501 
Other non-cash(3,479)3,543 
Change in operating assets and liabilities, net(32,625)(88,170)
Cash (used in) provided by operating activities(5,069)19,410 
Investing activities
Purchases of investments(38,489)(51,601)
Proceeds from maturities and called investments34,912 68,798 
Sales of investments14,839 2,450 
Payments for acquisitions, net of cash acquired(922)(4,993)
Investment in property and equipment(11,863)(4,161)
Cash (used in) provided by investing activities(1,523)10,493 
Financing activities
Proceeds from employee stock purchase plan4,803 5,146 
Dividend payments to stockholders(4,908)(4,865)
Common stock repurchases(41,086)(60,998)
Cash (used in) financing activities(41,191)(60,717)
Effect of exchange rate changes on cash and cash equivalents(2,907)(1,207)
Net (decrease) in cash and cash equivalents(50,690)(32,021)
Cash and cash equivalents, beginning of period159,965 171,899 
Cash and cash equivalents, end of period$109,275 $139,878 

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, 2021.
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 the full year 2022.
Certain prior period amounts reported in our condensed consolidated financial statements and notes thereto have been reclassified to conform to the current year’s presentation. Such reclassifications did not affect total revenues, operating income, or net income.
NOTE 2. MARKETABLE SECURITIES
June 30, 2022December 31, 2021
(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value
Government debt$2,989 $ $(60)$2,929 $2,000 $ $(10)$1,990 
Corporate debt188,350  (3,666)184,684 201,659 2 (837)200,824 
$191,339 $ $(3,726)$187,613 $203,659 $2 $(847)$202,814 
As of June 30, 2022, marketable securities’ maturities ranged from July 2022 to November 2024, with a weighted-average remaining maturity of 0.9 years.
NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables
(in thousands)
June 30, 2022December 31, 2021
Accounts receivable$171,556 $182,717 
Unbilled receivables201,130 226,714 
Long-term unbilled receivables115,901 129,789 
$488,587 $539,220 
Unbilled receivables
Unbilled receivables are client-committed amounts for which revenue recognition precedes billing, and billing is solely subject to the passage of time.
Unbilled receivables by expected billing date:
(Dollars in thousands)
June 30, 2022
1 year or less$201,130 63 %
1-2 years78,813 25 %
2-5 years37,088 12 %
$317,031 100 %
Unbilled receivables by contract effective date:
(Dollars in thousands)
June 30, 2022
2022$81,887 26 %
2021142,578 45 %
202056,283 18 %
201919,928 6 %
2018 and prior16,355 5 %
$317,031 100 %
8

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



Major clients
Clients accounting for 10% or more of the Company’s total receivables:
June 30, 2022December 31, 2021
Client A
Accounts receivable*1 %
Unbilled receivables*15 %
Total receivables*10 %
* 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)
June 30, 2022December 31, 2021
Contract assets (1)
$12,149 $12,530 
Long-term contract assets (2)
12,983 10,643 
$25,132 $23,173 
(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)
June 30, 2022December 31, 2021
Deferred revenue$269,121 $275,844 
Long-term deferred revenue (1)
5,417 5,655 
$274,538 $281,499 
(1) Included in other long-term liabilities.
The change in deferred revenue in the six months ended June 30, 2022 was primarily due to new billings in advance of revenue recognition offset by $205.0 million of revenue recognized during the period that was included in deferred revenue as of December 31, 2021.
NOTE 4. DEFERRED COMMISSIONS
(in thousands)
June 30, 2022December 31, 2021
Deferred commissions (1)
$123,067 $135,911 
(1) Included in other long-term assets.
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2022202120222021
Amortization of deferred commissions (1)
$10,934 $9,706 $28,155 $21,202 
(1) Included in selling and marketing expense.
9

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



NOTE 5. GOODWILL AND OTHER INTANGIBLES
Goodwill
Change in goodwill:
Six Months Ended
June 30,
(in thousands)
20222021
January 1,$81,923 $79,231 
Acquisition 2,701 
Currency translation adjustments(206)241 
June 30,$81,717 $82,173 
Intangibles
Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.
June 30, 2022
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
Client-related
4-10 years
$63,082 $(57,944)$5,138 
Technology
2-10 years
68,064 (60,211)7,853 
Other
1-5 years
5,361 (5,361) 
$136,507 $(123,516)$12,991 
(1) Included in other long-term assets.
December 31, 2021
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
Client-related
4-10 years
$63,165 $(57,342)$5,823 
Technology
2-10 years
67,142 (58,902)8,240 
Other
1-5 years
5,361 (5,361) 
$135,668 $(121,605)$14,063 
(1) Included in other long-term assets.
Amortization of intangible assets:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2022202120222021
Cost of revenue
$683 $629 $1,312 $1,258 
Selling and marketing
342 373 685 746 
$1,025 $1,002 $1,997 $2,004 
Future estimated intangibles assets amortization:
(in thousands)
June 30, 2022
Remainder of 2022$2,098 
20233,925 
20243,156 
20252,611 
2026874 
2027327 
$12,991 
NOTE 6. OTHER ASSETS AND LIABILITIES
Other current assets
(in thousands)June 30, 2022December 31, 2021
Income tax receivables$22,982 $25,691 
Contract assets12,149 12,530 
Other35,502 29,787 
$70,633 $68,008 
10

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



Other long-term assets
(in thousands)June 30, 2022December 31, 2021
Deferred income taxes$6,092 $180,656 
Deferred commissions123,067 135,911 
Right of use assets80,646 87,521 
Capped call transactions10,459 59,964 
Property and equipment34,886 26,837 
Venture investments16,073 7,648 
Intangible assets12,991 14,063 
Contract assets12,983 10,643 
Other23,360 18,358 
$320,557 $541,601 
Other current liabilities
(in thousands)June 30, 2022December 31, 2021
Operating lease liabilities$5,341 $6,989 
Dividends payable2,459 2,454 
$7,800 $9,443 
Other long-term liabilities
(in thousands)June 30, 2022December 31, 2021
Deferred revenue$5,417 $5,655 
Other7,404 7,844 
$12,821 $13,499 
NOTE 7. LEASES
Corporate headquarters
In February 2021, the Company agreed to accelerate its exit from its previous corporate headquarters to October 1, 2021, in exchange for a one-time payment from its landlord of $18 million, which was amortized over the remaining lease term. The exit accelerated depreciation on the related leasehold improvements and reduced the Company’s future lease liabilities by $21.1 million and right of use assets by $20.3 million. On March 31, 2021 the Company leased office space at One Main Street, Cambridge, Massachusetts, to serve as its corporate headquarters. The 4.5 year lease includes a base rent of $2 million per year.
New Waltham Office
On July 6, 2021, the Company entered into an office space lease for 131 thousand square feet in Waltham, Massachusetts. The lease term of 11 years began on August 1, 2021. The annual rent equals the base rent plus a portion of building operating costs and real estate taxes. Rent first becomes payable on August 1, 2022. Base rent for the first year is approximately $6 million and will increase by 3% annually. In addition, the Company will receive an improvement allowance from the landlord of up to $11.8 million. This lease increased the Company’s lease liabilities and lease-related right of use assets by $42.1 million on August 1, 2021.
Expense
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2022202120222021
Fixed lease costs (1)
$4,965 $(3,972)$10,059 $(3,672)
Short-term lease costs787 515 1,594 974 
Variable lease costs727 1,340 1,491 2,727 
$6,479 $(2,117)$13,144 $29 
(1) The lower fixed lease costs in the six months ended June 30, 2021 was due to the modification of the corporate headquarters lease.
11

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



Right of use assets and lease liabilities
(in thousands)June 30, 2022December 31, 2021
Right of use assets (1)
$80,646 $87,521 
Operating lease liabilities (2)
$5,341 $6,989 
Long-term operating lease liabilities$84,170 $87,818 

(1) Represents the Company’s right to use the leased asset during the lease term. 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:
June 30, 2022December 31, 2021
Weighted-average remaining lease term7.5 years7.7 years
Weighted-average discount rate (1)
4.2 %4.4 %
(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)June 30, 2022
Remainder of 2022$(401)
202318,837 
202416,290 
202514,118 
202610,507