Pegasystems Announces Financial Results for Fourth Quarter and Year Ended December 31, 2010

CAMBRIDGE, Mass. – March 16, 2011 – Pegasystems Inc. (NASDAQ: PEGA) today announced financial results for the fourth quarter and year ended December 31, 2010. GAAP revenue for 2010 increased 27% to $336.6 million compared to 2009. Non-GAAP revenue for 2010 increased 32% to $348.2 million compared to 2009. GAAP net loss for 2010 was ($5.9) million or ($0.16) per share, compared to GAAP net income of $32.2 million, or $0.85 per share (diluted), for 2009. Non-GAAP net income for 2010 was $22.5 million or $0.57 per share (diluted), compared to Non-GAAP net income of $35.5 million, or $0.93 per share (diluted), for 2009.

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Business Perspective

“Overall, 2010 was a tremendous year for Pegasystems,” said Alan Trefler, Founder and CEO of Pegasystems. “We successfully integrated the Chordiant acquisition, expanding our solution portfolio, client base and market reach. We invested significantly to build capability in sales, R&D and client support. We meaningfully increased our ecosystem of top-tier partners, who themselves have been building significant new capacity to support our expanding client base. We signed more than double the number of new clients in 2010 compared to 2009, and opened important new verticals and geographies. We have had numerous client projects recognized in the media, showing how our Build for Change® technology accelerates transformation initiatives while driving pragmatic benefit.”

“Our core product offerings and packaged industry solutions saw accelerated innovation and new releases that scale to the needs of the world’s most sophisticated companies, even as we simplify how our implementations are delivered. These offerings significantly improve time to value for our clients and address the most critical business issues they are facing. We have extended our enterprise cloud offering with improved integration, enhanced security, and rapid deployment, so our clients can confidently use PegaCLOUD® for development, testing and production. These advances led Pega to be recognized for leadership in multiple market categories by top industry analyst firms, including our recent recognition as a leader in case management, which is a core need of the industries we target,” concluded Mr. Trefler.

Craig Dynes, Pegasystems’ CFO, added, “We ended 2010 with an unprecedented level of activity. In fact, we set quarterly and annual records for new license signings, including a large license agreement of approximately $20 million with opportunities for significant follow-on business. We collected payment from the customer and paid sales commissions on this order, but did not recognize it as revenue in 2010. We expect to recognize this arrangement ratably at approximately $1.5 million of license and maintenance revenue per quarter beginning in Q1. Had this revenue not been deferred, we would have easily surpassed our annual revenue guidance. This arrangement is the primary reason that the total of short and long-term deferred revenue increased by $24.1 million from $50.6 million at September 30, 2010 to $74.7 million at December 31, 2010.”

“We ended the year with record backlog and we begin 2011 with record pipeline, leading us to estimate 2011 revenue to be $431 million on a GAAP basis, or $435 million on a Non-GAAP basis. We expect 2011, like 2010, to be a back-end loaded year. Accordingly, we estimate that revenue for the first half of 2011 to be approximately 45% of our annual guidance on both a GAAP and Non-GAAP basis.”

“Our investment in sales headcount in early 2010 was one of the reasons for our record license signings in Q4. This has been a major driver of our growth and we will continue to invest in both sales and research and development. Given this growth investment, we estimate that net income for 2011 will be $27 million, or $0.69 per share, on a GAAP basis, or $45 million, or $1.16 per share on a Non-GAAP basis. Like 2010, we will invest early in the year. This, along with the expenses for our annual Sales Kickoff in Q1 and our annual PegaWORLD user conference in Q2, should result in earnings per share for the first half of 2011 to be approximately $0.06 on a GAAP basis, or $0.30 on a Non-GAAP basis,” concluded Mr. Dynes.

Messrs. Trefler and Dynes will be hosting a conference call and live Webcast associated with this announcement at 6:00 p.m. EDT on March 16, 2011. Dial-in information is as follows: 1 (866) 393-1604 (domestic) or 1 (678) 809-1046 (international). To listen to the Webcast log onto at least 5 minutes prior to the event's broadcast and click on the Webcast icon in the Investor Relations section. A replay of the call will also be available on in the Investor Relations section Audio Archives link.

Discussion of Non-GAAP Measures

To supplement financial results presented on a GAAP basis, the Company provides Non-GAAP measures included in this release, including the tables contained herein. Pegasystems’ management utilizes a number of different financial measures, both GAAP and Non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. The Company’s annual financial plan is prepared both on a GAAP and Non-GAAP basis, and the Non-GAAP annual financial plan is approved by our board of directors. In addition and as a consequence of the importance of these measures in managing the business, the Company uses Non-GAAP measures and results in the evaluation process to establish management’s compensation.

These measures exclude certain business combination accounting entries and expenses related to our acquisition of Chordiant, as well as other significant expenses including stock-based compensation.  The Company believes that these Non-GAAP measures are helpful in understanding our past financial performance and our anticipated future results. These Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. A reconciliation of the Company’s GAAP measures to Non-GAAP measures is included in the financial schedules at the end of the release.

Forward-Looking Statements

Certain statements contained in this press release may be construed as "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including those relating to our revenue, net income and earnings per share. 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, the Company’s ability to successfully integrate the operations of Chordiant Software, Inc., 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 weak global economy and 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 press release 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 press release represent the Company's views as of March 16, 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 March 16, 2011.

About Pegasystems

Pegasystems (NASDAQ: PEGA) develops strategic applications for marketing, sales, service, and operations. Pega’s applications streamline critical business operations, connect enterprises to their customers seamlessly in real-time across channels, and adapt to meet rapidly changing requirements. Pega’s Global 3000 customers include many of the world’s most sophisticated and successful enterprises. Pega’s applications, available in the cloud or on-premises, are built on its unified Pega 7 platform, which uses visual tools to easily extend and change applications to meet clients’ strategic business needs. Pega’s clients report that Pega gives them the fastest time to value, extremely rapid deployment, efficient re-use, and global scale. For more information, please visit us at

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The information contained in this press release is not a commitment, promise, or legal obligation to deliver any material, code or functionality. The development, release and timing of any features or functionality described remains at the sole discretion of Pegasystems, Pegasystems specifically disclaims any liability with respect to this information.


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