Pegasystems Announces Twelfth Consecutive Quarter of Record Revenue

CAMBRIDGE, Mass. – August 9, 2010 – Pegasystems Inc. (NASDAQ: PEGA) today announced financial results for the second quarter and six months ended June 30, 2010. These results include the operations of Chordiant Software, Inc. from the April 21, 2010 acquisition date. GAAP revenue for the second quarter of 2010 increased 29% to $82.2 million compared to the second quarter of 2009, while non-GAAP revenue increased 34% to $85.8 million. GAAP net loss for the second quarter of 2010 was $8.2 million or ($0.22) per share, primarily attributable to restructuring and acquisition charges of $9.5 million for Chordiant as well as a foreign exchange loss of $2.5 million, compared to GAAP net income of $11.2 million, or $0.30 per share (diluted), for the second quarter of 2009. Non-GAAP net income was $3.8 million, or $0.10 per share (diluted), for the second quarter of 2010. Total GAAP revenue for the first six months of 2010 increased 25% to $157.3 million while non-GAAP revenue of $160.9 million increased 27%, compared to the same period last year.

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Business Perspective

"During the second quarter of 2010, we had a record number of global client go-lives across industries including insurance, financial services, healthcare, government, and travel services," said Alan Trefler, Founder and CEO of Pegasystems. "We were thrilled to see many clients at our April PegaWORLD conference sharing how our Build for Change® technology is transforming the way they work and helping them succeed. In addition, a leading industry analyst firm recognized us as a market leader in CRM Customer Service Contact Centers during the quarter."

"In the first half of 2010, we executed on our plan to invest in expanding our account and geographic coverage to facilitate growth as we end 2010 and move into 2011. Another key growth strategy is adding new vertical frameworks where we anticipate our solutions can deliver rapid returns to our clients and in the second quarter we announced new offerings in life sciences and communications. Our investment in Global Alliances is showing great promise, with Accenture, Amazon, Capgemini, and IBM, participating as key sponsors at PegaWORLD 2010," concluded Mr. Trefler.

Craig Dynes, Pegasystems' CFO added "So far, 2010 has been a year of large investments, of which the acquisition of Chordiant was a primary focus. We are very much on track with the integration of operations, systems, and staff, setting the stage for product and sales strategy to drive revenue synergy in 2011."

"Additionally, we made significant investments in our sales organization, adding 89 sales reps and related sales support in the first half of 2010. We anticipate this investment, along with our investments in expanding our vertical market offerings and partner ecosystems will position us for strong growth in 2011. You should note that our guidance in February assumed a stable U.S. dollar, but currencies have been far from stable. The weakness in the Euro and the British pound resulted in a foreign exchange loss of $2.5 million, or ($0.05) per share in this quarter, and $5.6 million, or ($0.13) per share for the first half of the year. These foreign exchange losses do not impact our progress towards our strategic objectives," continued Mr. Dynes.

"Given the foreign exchange losses, and with our purchase accounting charges calculated, we are able to provide guidance for the full year ending December 31, 2010 on a GAAP and non-GAAP basis. We estimate that our total GAAP revenues will be approximately $348 million. Non-GAAP revenues are estimated to be approximately $360 million, including $12 million of revenue impacted by purchase accounting. We estimate that our GAAP diluted earnings per share will be approximately $0.30 per share. Non-GAAP diluted earnings per share is estimated to be approximately $1.02 per share, including approximately $12 million of revenue impacted by purchase accounting, pretax expense of $12.7 million for restructuring and acquisition related expenses, as well as $7.7 million of amortization expenses related to the acquisition of Chordiant, and $5.9 million of equity based compensation charges. The effective tax rate for 2010 is estimated at 33%," concluded Mr. Dynes.

Messrs. Trefler and Dynes will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. EDT on August 10, 2010. Dial-in information is as follows: 1 (877) 638-9568 (domestic) or 1 (914) 495-8529 (international). To listen to the Webcast log onto www.pega.com 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 www.pega.com 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 information 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 growth, revenue, net income and net income per share, and financial guidance. The words "anticipate," "project," "expect," "plan," "intend," "believe," "estimate," "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, 2009 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 August 9, 2010. 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 August 9, 2010.

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 www.pega.com.

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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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