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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, 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 filer☐Smaller reporting company☐Emerging 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 85,753,808 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on October 16, 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 September 30, 2024 and December 31, 2023
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) for the three and nine months ended September 30, 2024 and 2023
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2024 and 2023
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 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)
September 30, 2024December 31, 2023
Assets
Current assets:
Cash and cash equivalents$287,649 $229,902 
Marketable securities415,341 193,436 
Total cash, cash equivalents, and marketable securities702,990 423,338 
Accounts receivable, net
173,623 300,173 
Unbilled receivables, net
157,281 237,379 
Other current assets85,186 68,137 
Total current assets1,119,080 1,029,027 
Long-term unbilled receivables, net
77,576 85,402 
Goodwill81,568 81,611 
Other long-term assets301,008 314,696 
Total assets$1,579,232 $1,510,736 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$20,103 $11,290 
Accrued expenses41,236 39,941 
Accrued compensation and related expenses98,033 126,640 
Deferred revenue345,574 377,845 
Convertible senior notes, net501,225 — 
Other current liabilities18,372 21,343 
Total current liabilities1,024,543 577,059 
Long-term convertible senior notes, net
— 499,368 
Long-term operating lease liabilities
66,750 66,901 
Other long-term liabilities14,916 13,570 
Total liabilities1,106,209 1,156,898 
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued
— — 
Common stock, 200,000 shares authorized; 85,808 and 83,840 shares issued and outstanding at
September 30, 2024 and December 31, 2023, respectively
858 838 
Additional paid-in capital514,173 379,584 
(Accumulated deficit)(28,606)(8,705)
Accumulated other comprehensive (loss)(13,402)(17,879)
Total stockholders’ equity473,023 353,838 
Total liabilities and stockholders’ equity$1,579,232 $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
September 30,		Nine Months Ended
September 30,
2024202320242023
Revenue
Subscription services$224,810 $201,578 $651,143 $586,192 
Subscription license45,420 74,342 193,405 200,066 
Consulting54,364 55,976 160,451 167,396 
Perpetual license456 2,747 1,351 4,729 
Total revenue325,050 334,643 1,006,350 958,383 
Cost of revenue
Subscription services36,868 35,906 108,930 109,553 
Subscription license384 629 1,504 1,971 
Consulting59,451 57,204 177,864 176,262 
Perpetual license3 24 12 51 
Total cost of revenue96,706 93,763 288,310 287,837 
Gross profit228,344 240,880 718,040 670,546 
Operating expenses
Selling and marketing127,669 131,598 395,125 425,253 
Research and development74,157 74,955 221,695 224,262 
General and administrative35,694 27,321 84,641 73,893 
Litigation settlement, net of recoveries
— — 32,403 — 
Restructuring2,485 17,822 3,283 21,450 
Total operating expenses240,005 251,696 737,147 744,858 
(Loss) from operations(11,661)(10,816)(19,107)(74,312)
Foreign currency transaction (loss) gain(4,405)1,994 (7,230)(3,971)
Interest income6,769 2,532 18,835 5,831 
Interest expense(1,639)(1,533)(5,047)(5,229)
(Loss) on capped call transactions(689)(2,294)(667)(449)
Other income, net— 6,383 1,684 18,668 
(Loss) before provision for income taxes(11,625)(3,734)(11,532)(59,462)
Provision for income taxes2,765 3,545 8,369 15,395 
Net (loss)$(14,390)$(7,279)$(19,901)$(74,857)
(Loss) per share
Basic$(0.17)$(0.09)$(0.23)$(0.90)
Diluted$(0.17)$(0.09)$(0.23)$(0.90)
Weighted-average number of common shares outstanding
Basic85,625 83,336 85,018 82,996 
Diluted85,625 83,336 85,018 82,996 

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,
2024202320242023
Net (loss)$(14,390)$(7,279)$(19,901)$(74,857)
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on available-for-sale securities660 (40)(158)(281)
Foreign currency translation adjustments10,204 (3,687)4,635 (1,737)
Total other comprehensive income (loss), net of tax10,864 (3,727)4,477 (2,018)
Comprehensive (loss)$(3,526)$(11,006)$(15,424)$(76,875)

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 StockAdditional paid-in capital(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 
Issuance of common stock for stock compensation plans225 2 1,824 — — 1,826 
Issuance of common stock under the employee stock purchase plan47 1 1,980 — — 1,981 
Stock-based compensation— — 36,227 — — 36,227 
Cash dividends declared ($0.03 per share)
— — (2,496)— — (2,496)
Other comprehensive income— — — — 166 166 
Net (loss)— — — (46,804)— (46,804)
June 30, 202383,212 $832 $310,016 $(144,091)$(21,361)$145,396 
Issuance of common stock for stock compensation plans257 3 2,447 — — 2,450 
Issuance of common stock under the employee stock purchase plan54 — 2,003 — — 2,003 
Stock-based compensation— — 31,299 — — 31,299 
Cash dividends declared ($0.03 per share)
— — (2,506)— — (2,506)
Other comprehensive (loss)— — — — (3,727)(3,727)
Net (loss)— — — (7,279)— (7,279)
September 30, 202383,523 $835 $343,259 $(151,370)$(25,088)$167,636 
6

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
Common StockAdditional paid-in capital(Accumulated deficit)Accumulated other comprehensive (loss)Total stockholders’ equity
Number
of shares
Amount
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 
Issuance of common stock for stock compensation plans326 4 5,481 — — 5,485 
Issuance of common stock under the employee stock purchase plan32 — 1,669 — — 1,669 
Stock-based compensation— — 36,224 — — 36,224 
Cash dividends declared ($0.03 per share)
— — (2,561)— — (2,561)
Other comprehensive (loss)— — — — (2,214)(2,214)
Net income— — — 6,613 — 6,613 
June 30, 202485,369 $854 $473,030 $(14,216)$(24,266)$435,402 
Repurchase of common stock(171)(2)(11,747)— — (11,749)
Issuance of common stock for stock compensation plans581 6 16,461 — — 16,467 
Issuance of common stock under the employee stock purchase plan29 — 1,789 — — 1,789 
Stock-based compensation— — 37,213 — — 37,213 
Cash dividends declared ($0.03 per share)
— — (2,573)— — (2,573)
Other comprehensive income— — — — 10,864 10,864 
Net (loss)— — — (14,390)— (14,390)
September 30, 202485,808 $858 $514,173 $(28,606)$(13,402)$473,023 

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,
20242023
Operating activities
Net (loss)$(19,901)$(74,857)
Adjustments to reconcile net (loss) to cash provided by operating activities
Stock-based compensation108,218 110,083 
Amortization of deferred commissions47,143 43,974 
Amortization of intangible assets and depreciation13,289 14,181 
Lease expense13,748 12,018 
Foreign currency transaction loss7,230 3,971 
Loss on capped call transactions667 449 
Deferred income taxes(67)(188)
(Gain) on investments(1,628)(10,841)
(Gain) on repurchases of convertible senior notes— (7,855)
Other non-cash(8,564)2,209 
Change in operating assets and liabilities, net90,562 44,776 
Cash provided by operating activities250,697 137,920 
Investing activities
Purchases of investments(417,310)(190,466)
Proceeds from maturities and called investments206,232 169,836 
Sales of investments— 10,725 
Investment in property and equipment(4,921)(14,271)
Cash (used in) investing activities(215,999)(24,176)
Financing activities
Repurchases of convertible senior notes— (88,989)
Dividend payments to stockholders(7,626)(7,458)
Proceeds from employee stock plans48,811 12,729 
Common stock repurchases for tax withholdings for net settlement of equity awards(2,987)(1,654)
Common stock repurchases under stock repurchase program(11,249)— 
Other— 341 
Cash provided by (used in) financing activities26,949 (85,031)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash4,591 (1,621)
Net increase in cash, cash equivalents, and restricted cash66,238 27,092 
Cash, cash equivalents, and restricted cash, beginning of period232,827 145,054 
Cash, cash equivalents, and restricted cash, end of period$299,065 $172,146 
Cash and cash equivalents$287,649 $169,023 
Restricted cash included in other current assets184 — 
Restricted cash included in other long-term assets11,232 3,123 
Total cash, cash equivalents, and restricted cash$299,065 $172,146 

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, 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
September 30, 2024December 31, 2023
(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value
Government debt$11,659 $8 $(1)$11,666 $11,471 $33 $(1)$11,503 
Corporate debt403,427 271 (23)403,675 181,960 200 (227)181,933 
$415,086 $279 $(24)$415,341 $193,431 $233 $(228)$193,436 
As of September 30, 2024, marketable securities’ maturities ranged from October 2024 to January 2026, with a weighted-average remaining maturity of 0.3 years.
NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables
(in thousands)
September 30, 2024December 31, 2023
Accounts receivable, net$173,623 $300,173 
Unbilled receivables, net157,281 237,379 
Long-term unbilled receivables, net
77,576 85,402 
$408,480 $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)
September 30, 2024
1 year or less$157,281 67 %
1-2 years60,501 26 %
2-5 years17,075 7 %
$234,857 100 %
Unbilled receivables by contract effective date:
(Dollars in thousands)
September 30, 2024
2024$78,970 34 %
2023118,866 50 %
202219,775 8 %
202113,546 6 %
2020 and prior3,700 2 %
$234,857 100 %
9
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



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, 2024December 31, 2023
Contract assets
$15,719 $16,238 
Long-term contract assets
25,224 20,635 
$40,943 $36,873 

Deferred revenue
Deferred revenue consists of billings made and payments received in advance of revenue recognition.
(in thousands)
September 30, 2024December 31, 2023
Deferred revenue$345,574 $377,845 
Long-term deferred revenue
2,183 2,478 
$347,757 $380,323 
Deferred revenue decreased in the nine months ended September 30, 2024, primarily due to $340.4 million of revenue recognized during the period included in deferred revenue as of December 31, 2023 exceeding new billings in advance of revenue recognition.
NOTE 4. DEFERRED COMMISSIONS
(in thousands)
September 30, 2024December 31, 2023
Deferred commissions
$98,415 $114,119 
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2024202320242023
Amortization of deferred commissions (1)
$14,867 $14,947 $47,143 $43,974 
(1) Included in selling and marketing.
NOTE 5. GOODWILL AND OTHER INTANGIBLES
Goodwill
Nine Months Ended
September 30,
(in thousands)
20242023
January 1,$81,611 $81,399 
Currency translation adjustments(43)38 
September 30,$81,568 $81,437 
Intangibles
Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.
September 30, 2024
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value
Client-related
4-10 years
$63,157 $(61,101)$2,056 
Technology
2-10 years
68,115 (65,638)2,477 
Other
1-5 years
5,361 (5,361)— 
$136,633 $(132,100)$4,533 
December 31, 2023
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value
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 
10
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Future estimated amortization of intangible assets:
(in thousands)
September 30, 2024
Remainder of 2024$823 
20252,509 
2026874 
2027327 
$4,533 
Amortization of intangible assets:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2024202320242023
Cost of revenue
$357 $622 $1,425 $1,949 
Selling and marketing
343 343 1,028 1,028 
$700 $965 $2,453 $2,977 

NOTE 6. OTHER ASSETS AND LIABILITIES
Other current assets
(in thousands)September 30, 2024December 31, 2023
Income tax receivables$29,264 $4,804 
Contract assets15,719 16,238 
Insurance receivable— 1,954 
Indirect tax receivable2,647 1,924 
Capped call transactions226 — 
Restricted cash184 — 
Other37,146 43,217 
$85,186 $68,137 
Other long-term assets
(in thousands)September 30, 2024December 31, 2023
Deferred commissions$98,415 $114,119 
Right of use assets63,124 64,198 
Property and equipment42,871 47,279 
Venture investments21,172 19,450 
Contract assets25,224 20,635 
Intangible assets4,533 7,002 
Capped call transactions— 893 
Deferred income taxes3,651 3,678 
Restricted cash11,232 2,925 
Other30,786 34,517 
$301,008 $314,696 
11
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Accrued expenses
(in thousands)September 30, 2024December 31, 2023
Cloud hosting$12,840 $1,358 
Outside professional services12,684 10,419 
Marketing and sales program2,319 2,557 
Income and other taxes3,384 15,428 
Employee related4,607 4,486 
Other5,402 5,693 
$41,236 $39,941 
Other current liabilities
(in thousands)September 30, 2024December 31, 2023
Operating lease liabilities$14,982 $15,000 
Dividends payable2,573 2,515 
Other817 3,828 
$18,372 $21,343 
Other long-term liabilities
(in thousands)September 30, 2024December 31, 2023
Deferred revenue$2,183 $2,478 
Income taxes payable867 859 
Other11,866 10,233 
$14,916 $13,570 
NOTE 7. LEASES
Expense
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2024202320242023
Fixed lease costs$6,848 $4,718 $16,381 $14,979 
Short-term lease costs381 660 1,334 2,137 
Variable lease costs1,863 2,254 5,235 6,414 
$9,092 $7,632 $22,950 $23,530 
Right of use assets and lease liabilities
(in thousands)September 30, 2024December 31, 2023
Right of use assets
$63,124 $64,198 
Operating lease liabilities
$14,982 $15,000 
Long-term operating lease liabilities$66,750 $66,901 
Weighted-average remaining lease term and discount rate for the Company’s leases were:
September 30, 2024December 31, 2023
Weighted-average remaining lease term6.3 years6.8 years
Weighted-average discount rate (1)
4.6 %4.0 %
(1) The rates implicit in 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.
12
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Maturities of lease liabilities:
(in thousands)September 30, 2024
Remainder of 2024$4,094 
202518,276 
202613,754 
202713,503 
202812,939 
202910,177 
Thereafter21,755 
Total lease payments94,498 
Less: imputed interest (1)
(12,766)
$81,732 
(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
Nine Months Ended
September 30,
(in thousands)20242023
Cash paid for operating leases, net of tenant improvement allowances$13,249 $14,378 
Right of use assets recognized for new leases and amendments (non-cash)$12,290 $1,782 
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 nine months ended September 30, 2023, the Company recognized a gain of $7.9 million, in other income, net from repurchases of Notes representing $97.7 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 could convert their Notes in the following circumstances:
•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).
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.
13
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



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)September 30, 2024December 31, 2023
Principal$502,270 $502,270 
Unamortized issuance costs(1,045)(2,902)
Convertible senior notes, net$501,225 $499,368 

Interest expense related to the Notes:
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2024202320242023
Contractual interest expense (0.75% coupon)
$941 $827 $2,825 $2,949 
Amortization of issuance costs
621 613 1,857 1,988 
$1,562 $1,440 $4,682 $4,937 
The average interest rate on the Notes in the nine months ended September 30, 2024 and 2023 was 1.2%.
Future payments:
September 30, 2024
(in thousands)PrincipalInterestTotal
2025$502,270 $1,884 $504,154 
$502,270 $1,884 $504,154 
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 the nine months ended September 30, 2023, Capped Call Transactions covering approximately 0.7 million shares were settled for proceeds of $0.3 million. As of September 30, 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.
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.
14
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Change in capped call transactions:
Nine Months Ended
September 30,
(in thousands)20242023
January 1,$893 $2,582 
Settlements— (341)
Fair value adjustment(667)(449)
September 30,$226 $1,792 
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 were originally scheduled to expire on November 4, 2024, and any outstanding loans would have been payable on such date. However 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 September 30, 2024 and December 31, 2023, the Company had $27.3 million in outstanding letters of credit under the Credit Facility, reducing available borrowing capacity, 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 
Office space reductionJune 30, 2024$1,257 
Office space reduction
September 30, 2024$2,882 
Accrued employee severance and related benefits:
Change for all restructuring actions:
Nine Months Ended
September 30,
(in thousands)20242023
January 1,$8,095 $18,573 
Costs incurred(634)19,921 
Cash disbursements(4,214)(21,576)
Currency translation adjustments(93)(203)
September 30,$3,154 $16,715 
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.
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;
15
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



•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:
September 30, 2024December 31, 2023
(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents$16,760 $— $— $16,760 $54,357 $— $— $54,357 
Marketable securities $— $415,341 $— $415,341 $— $193,436 $— $193,436 
Capped Call Transactions
$— $226 $— $226 $— $893 $— $893 
Venture investments (1)
$— $— $21,172 $21,172 $— $— $19,450 $19,450 
(1) Investments in privately-held companies
Changes in venture investments:
Nine Months Ended
September 30,
(in thousands)20242023
January 1,$19,450 $13,069 
New investments350 400 
Sales of investments— (2,773)
Changes in foreign exchange rates106 27 
Changes in fair value:
included in other income, net
1,628 10,886 
included in other comprehensive (loss)
(362)(2,261)
September 30,$21,172 $19,348 
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 $492.5 million as of September 30, 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
September 30,		Nine Months Ended
September 30,
(Dollars in thousands)
2024202320242023
U.S.$156,135 48 %$154,741 47 %$526,332 53 %$489,645 51 %
Other Americas28,836 9 %23,497 7 %71,936 7 %58,013 6 %
United Kingdom (“U.K.”)37,593 12 %41,622 12 %108,338 11 %112,751 12 %
Europe (excluding U.K.), Middle East, and Africa 60,048 18 %67,880 20 %175,255 17 %173,551 18 %
Asia-Pacific42,438 13 %46,903 14 %124,489 12 %124,423 13 %
$325,050 100 %$334,643 100 %$1,006,350 100 %$958,383 100 %
16
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Revenue streams
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)
202420232024</