Russell Keziere, Senior Director of Marketing, Pegasystems

Russell: Craig, the financial markets have been swinging widely from day to day based on economic news, rumors, concerns over debt, politics, etc., does this impact Pega’s stock price?

Craig: We are not immune from macroeconomic conditions, no one is. A rumor about a bank in Europe or new evidence of political gridlock in the US on the debt crisis for example, can send the US markets moving hundreds of points a day, in either direction. When there is that much money moving into, or out of the market, Pega’s stock will move with it. It’s not just current macro-economic conditions that can move our stock; sometimes all the tech stocks move based on what is happening to the financial results of some other tech company, completely unrelated to Pega.

Russell: So Craig, speaking as a shareholder I could not help but notice that Pega’s stock price dropped by approximately 25% after the Q3 financial results were released….

Craig: I will tell you what Alan Trefler and I remind investors in virtually all of our earnings conference calls: Pega can be a lumpy business and we are not a quarterly-driven business. Pega is being managed for sustainable long term growth. In fact, Pega has posted near 30% annual growth for the last five years. Look at our revenue from 2005-2010.

Russell: But Q3 results showed a significant decrease in revenue and new license signings compared to Q2, these are important financial results.

Craig: I agree, but they are important over a time period that is more than just a one quarter snapshot. In fact, on a year to date basis, our license signings, often referred to as bookings, are up significantly for the first three quarters of 2011 compared to the prior year. If we continue to grow bookings like this, I will be a very happy CFO.

Russell: Even though bookings are up, license revenue itself isn’t up; in fact through Q3 we are almost flat year over year. Isn’t that a contradiction? Where did the money go?

Craig: True. The explanation is simple. For many reasons, more of our customers are currently choosing to purchase term, rather than perpetual licenses. We recognize term license software revenue over the 3 to 5 year term. So when we book more of these great term license arrangements, more revenue is deferred into future periods. So yes, as our license mix moves a little to term licenses, our short term revenue doesn’t grow as fast. But term licenses tend to dampen the volatility of our financial results and provide a good foundation for future revenue growth. In fact we provide a schedule in every quarterly financial filing that details how term licenses will be recognized in future periods. It’s the new license signings that are important, it means that customers are licensing our software and selecting us over competitors.

Russell: OK I can understand that. It makes sense. So why don’t the investors look at it that way? Why did the markets react so strongly to our Q3 results?

Craig: I think they do look at it that way, but at the same time Investors and the markets are nervous, they react strongly to quarterly results in spite of the long term approach we have to running the business. The markets had the same reaction to our Q2 results, but in the opposite direction. In spite of Alan and I reminding everyone on our quarterly investor conference call that individual quarters are not a great data point, the day after our Q2 release on the 10th of August our stock price increased by 15% on a day that the Dow Jones Industrial average fell 520 points!

Russell: Another question, you mentioned that our year-to-date license signings are up over last year, but the Q3 bookings themselves decreased. What does that indicate?

Craig: We discussed that on the earnings call. As Alan and I said, some deals slipped from Q3, but most are still active. Our customers buy from annual budgets, not quarterly budgets. Economic uncertainty played a role; there were delayed signings in Q3, but these deals were not cancelled or lost to competition. We pointed out a number of other things to consider:

• Our pipeline at the end of Q3 was at record levels
• Customer/sales activity was also very high
• Win rates and partner participation are both very strong.
• We have won more new name customers through Q3 than in any previous year.
• And we continue to be profitable

As a result of all of this, we provided guidance in our press release for revenue growth in 2011 and further growth in 2012. Look at the chart of revenue and guidance is in our investor presentation on www.pega.com.

Russell: So clearly, Pega is financially secure. What about our cash, any debt to worry about?

Craig: We have almost $100 million in cash, no debt and substantial backlog. We are confident about investing in growth.

Russell: So there has been some movement in Pega’s stock of late; what can you say about it over a longer period?

Craig: Just look at a graph of Pega stock prices compared to the Dow Jones Industrial Average over the last few years. You have to agree that our stock has performed very well, in fact the graph looks remarkably like the graph of our long term revenue growth.

Russell: Thanks Craig.

Forward-Looking Statements

Certain statements contained in this interview may be construed as "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including those relating to our revenue, earnings per share and the mix of term versus perpetual licenses. The words “anticipate,” “project,” “expect,” “plan,” “intend,” “believe,” “estimate,” “should”, “target,” “forecast,” “could,” “preliminary,” “guidance” and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause the Company's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include, among others, variation in demand for our products and services and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition, the mix of perpetual and term licenses and the level of term license renewals, our ability to develop new products and evolve existing ones, the ongoing consolidation in the financial services and healthcare markets, our ability to attract and retain key personnel, reliance on key third party relationships, the potential loss of vendor specific objective evidence for our professional services, and management of the Company's growth. Further information regarding these and other factors which could cause the Company's actual results to differ materially from any forward-looking statements contained in this interview is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2010 and other recent filings with the Securities and Exchange Commission. The forward-looking statements contained in this interview represent the Company's views as of November 29, 2011. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause the Company's view to change, the Company does not undertake and specifically disclaims any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise. The statements should therefore not be relied upon as representing the Company's view as of any date subsequent to November 29, 2011.