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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 September 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 82,190,957 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on October 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 September 30, 2022 and December 31, 2021
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) for the three and nine months ended September 30, 2022 and 2021
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2022 and 2021
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 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 6. Exhibits
Signature

2

PART I - FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$107,626 $159,965 
Marketable securities168,085 202,814 
Total cash, cash equivalents, and marketable securities275,711 362,779 
Accounts receivable139,670 182,717 
Unbilled receivables182,403 226,714 
Other current assets62,457 68,008 
Total current assets660,241 840,218 
Unbilled receivables
108,285 129,789 
Goodwill81,201 81,923 
Other long-term assets316,731 541,601 
Total assets$1,166,458 $1,593,531 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$13,562 $15,281 
Accrued expenses61,012 63,890 
Accrued compensation and related expenses85,999 120,946 
Deferred revenue245,146 275,844 
Other current liabilities8,253 9,443 
Total current liabilities413,972 485,404 
Convertible senior notes, net592,884 590,722 
Operating lease liabilities82,705 87,818 
Other long-term liabilities11,936 13,499 
Total liabilities1,101,497 1,177,443 
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued
  
Common stock, 200,000 shares authorized; 82,164 and 81,712 shares issued and outstanding at
September 30, 2022 and December 31, 2021, respectively
822 817 
Additional paid-in capital204,189 145,810 
(Accumulated deficit) retained earnings
(111,126)276,449 
Accumulated other comprehensive (loss)(28,924)(6,988)
Total stockholders’ equity64,961 416,088 
Total liabilities and stockholders’ equity$1,166,458 $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
September 30,
Nine Months Ended
September 30,
2022202120222021
Revenue
Subscription services$174,885 $161,557 $516,750 $457,051 
Subscription license31,112 35,421 210,245 251,226 
Perpetual license9,223 2,874 18,929 20,922 
Consulting55,511 56,416 175,451 166,270 
Total revenue270,731 256,268 921,375 895,469 
Cost of revenue
Subscription services34,541 30,817 103,104 88,206 
Subscription license628 606 1,923 1,811 
Perpetual license103 50 173 151 
Consulting57,778 52,749 171,162 161,032 
Total cost of revenue93,050 84,222 276,362 251,200 
Gross profit177,681 172,046 645,013 644,269 
Operating expenses
Selling and marketing153,517 152,479 472,951 457,641 
Research and development75,342 64,728 221,173 191,565 
General and administrative26,043 20,176 94,530 57,607 
Total operating expenses254,902 237,383 788,654 706,813 
(Loss) from operations(77,221)(65,337)(143,641)(62,544)
Foreign currency transaction gain (loss)3,826 518 8,415 (4,983)
Interest income520 166 1,036 555 
Interest expense(1,992)(1,908)(5,882)(5,747)
(Loss) on capped call transactions(6,876)(14,735)(56,381)(7,543)
Other (loss) income, net(29)2 6,497 108 
(Loss) before provision for (benefit from) income taxes(81,772)(81,294)(189,956)(80,154)
Provision for (benefit from) income taxes11,748 (24,826)190,239 (54,360)
Net (loss)$(93,520)$(56,468)$(380,195)$(25,794)
(Loss) per share
Basic$(1.14)$(0.69)$(4.65)$(0.32)
Diluted$(1.14)$(0.69)$(4.65)$(0.32)
Weighted-average number of common shares outstanding
Basic81,996 81,526 81,842 81,284 
Diluted81,996 81,526 81,842 81,284 

See notes to unaudited condensed consolidated financial statements.
4


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Net (loss)$(93,520)$(56,468)$(380,195)$(25,794)
Other comprehensive (loss), net of tax
Unrealized (loss) gain on available-for-sale securities(73)53 (1,000)1,184 
Foreign currency translation adjustments(6,700)(4,400)(20,936)(3,669)
Total other comprehensive (loss), net of tax$(6,773)$(4,347)$(21,936)$(2,485)
Comprehensive (loss)$(100,293)$(60,815)$(402,131)$(28,279)

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 
Repurchase of common stock(96)(1)(12,795)— — (12,796)
Issuance of common stock for stock compensation plans286 3 (18,117)— — (18,114)
Issuance of common stock under the employee stock purchase plan24 — 2,639 — — 2,639 
Stock-based compensation— — 28,701 — — 28,701 
Cash dividends declared ($0.03 per share)
— — — (2,451)— (2,451)
Other comprehensive (loss)— — — — (4,347)(4,347)
Net (loss)— — — (56,468)— (56,468)
September 30, 202181,670 $817 $148,098 $316,150 $(5,433)$459,632 
6


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, 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 
Issuance of common stock for stock compensation plans138 2 (2,198)— — (2,196)
Issuance of common stock under the employee stock purchase plan86 1 2,362 — — 2,363 
Stock-based compensation— — 33,774 — — 33,774 
Cash dividends declared ($0.03 per share)
— — — (2,466)— (2,466)
Other comprehensive (loss)— — — — (6,773)(6,773)
Net (loss)— — — (93,520)— (93,520)
September 30, 202282,164 $822 $204,189 $(111,126)$(28,924)$64,961 

See notes to unaudited condensed consolidated financial statements.
7


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
20222021
Operating activities
Net (loss)$(380,195)$(25,794)
Adjustments to reconcile net (loss) to cash (used in) operating activities
Stock-based compensation93,301 89,483 
Deferred income taxes169,489 (53,638)
Loss on capped call transactions56,381 7,543 
Amortization of deferred commissions39,752 31,388 
Lease expense11,500 9,274 
Amortization of intangible assets and depreciation12,381 24,030 
Foreign currency transaction (gain) loss(8,415)4,983 
Other non-cash(1,705)5,246 
Change in operating assets and liabilities, net(5,935)(97,836)
Cash (used in) operating activities(13,446)(5,321)
Investing activities
Purchases of investments(39,056)(67,170)
Proceeds from maturities and called investments53,952 96,859 
Sales of investments18,415 25,123 
Payments for acquisitions, net of cash acquired(922)(4,993)
Investment in property and equipment(22,285)(7,089)
Cash provided by investing activities10,104 42,730 
Financing activities
Proceeds from employee stock purchase plan7,166 7,786 
Dividend payments to stockholders(7,368)(7,310)
Common stock repurchases(43,282)(91,907)
Cash (used in) financing activities(43,484)(91,431)
Effect of exchange rate changes on cash and cash equivalents(5,513)(1,466)
Net (decrease) in cash and cash equivalents(52,339)(55,488)
Cash and cash equivalents, beginning of period159,965 171,899 
Cash and cash equivalents, end of period$107,626 $116,411 

See notes to unaudited condensed consolidated financial statements.
8

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
September 30, 2022December 31, 2021
(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value
Government debt$2,992 $ $(67)$2,925 $2,000 $ $(10)$1,990 
Corporate debt168,894  (3,734)165,160 201,659 2 (837)200,824 
$171,886 $ $(3,801)$168,085 $203,659 $2 $(847)$202,814 
As of September 30, 2022, marketable securities’ maturities ranged from November 2022 to November 2024, with a weighted-average remaining maturity of 0.7 years.
NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables
(in thousands)
September 30, 2022December 31, 2021
Accounts receivable$139,670 $182,717 
Unbilled receivables182,403 226,714 
Long-term unbilled receivables108,285 129,789 
$430,358 $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)
September 30, 2022
1 year or less$182,403 63 %
1-2 years78,893 27 %
2-5 years29,392 10 %
$290,688 100 %
Unbilled receivables by contract effective date:
(Dollars in thousands)
September 30, 2022
2022$87,874 30 %
2021130,196 45 %
202045,589 16 %
201915,747 5 %
2018 and prior11,282 4 %
$290,688 100 %
9

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



Major clients
Clients accounting for 10% or more of the Company’s total receivables:
September 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)
September 30, 2022December 31, 2021
Contract assets (1)
$12,429 $12,530 
Long-term contract assets (2)
10,541 10,643 
$22,970 $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)
September 30, 2022December 31, 2021
Deferred revenue$245,146 $275,844 
Long-term deferred revenue (1)
3,949 5,655 
$249,095 $281,499 
(1) Included in other long-term liabilities.
The change in deferred revenue in the nine months ended September 30, 2022 was primarily due to new billings in advance of revenue recognition offset by $252.8 million of revenue recognized during the period that was included in deferred revenue as of December 31, 2021.
NOTE 4. DEFERRED COMMISSIONS
(in thousands)
September 30, 2022December 31, 2021
Deferred commissions (1)
$122,673 $135,911 
(1) Included in other long-term assets.
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2022202120222021
Amortization of deferred commissions (1)
$11,597 $10,186 $39,752 $31,388 
(1) Included in selling and marketing expense.
10

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



NOTE 5. GOODWILL AND OTHER INTANGIBLES
Goodwill
Change in goodwill:
Nine Months Ended
September 30,
(in thousands)
20222021
January 1,$81,923 $79,231 
Acquisition 2,701 
Currency translation adjustments(722)22 
September 30,$81,201 $81,954 
Intangibles
Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.
September 30, 2022
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
Client-related
4-10 years
$63,007 $(58,211)$4,796 
Technology
2-10 years
68,038 (60,913)7,125 
Other
1-5 years
5,361 (5,361) 
$136,406 $(124,485)$11,921 
(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
September 30,
Nine Months Ended
September 30,
(in thousands)2022202120222021
Cost of revenue
$705 $629 $2,017 $1,887 
Selling and marketing
343 373 1,028 1,119 
$1,048 $1,002 $3,045 $3,006 
Future estimated intangibles assets amortization:
(in thousands)
September 30, 2022
Remainder of 2022$1,048 
20233,917 
20243,147 
20252,608 
2026874 
2027327 
$11,921 
NOTE 6. OTHER ASSETS AND LIABILITIES
Other current assets
(in thousands)September 30, 2022December 31, 2021
Income tax receivables$11,948 $25,691 
Contract assets12,429 12,530 
Other38,080 29,787 
$62,457 $68,008 
11

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



Other long-term assets
(in thousands)September 30, 2022December 31, 2021
Deferred income taxes$6,041 $180,656 
Deferred commissions122,673 135,911 
Right of use assets80,163 87,521 
Capped call transactions3,583 59,964 
Property and equipment45,350 26,837 
Venture investments11,910 7,648 
Intangible assets11,921 14,063 
Contract assets10,541 </