Pegasystems Reports Positive Results for First Quarter 2002; Delivers Fifth Consecutive Quarter of Profitability and Increased Revenues

CAMBRIDGE, Mass., Apr. 23, 2002 — Pegasystems Inc. (NASDAQ: PEGA) today announces its first quarter 2002 earnings results, reporting revenues of $24.2 million, an increase of 3% from the first quarter of 2001. The Company achieved earnings per share of $0.10 for the quarter, up from $0.03 in the first quarter of 2001.

             First Quarter Financial Performance
     (In millions, except per share data and percentages)
                                            Q1 2002       Q1 2001
Total Revenue                                $24.2         $23.6
License Revenue                              $16.3         $10.9
  % of Total Revenue                           67%           46%
Services Revenue                              $7.9         $12.7
  % of Total Revenue                           33%           54%
Net Income                                    $3.4          $1.1
Diluted Net Income Per Share                 $0.10         $0.03

"Despite a difficult economic environment, we are proud to deliver our fifth consecutive quarter of profitability and growth," said Rick Jones, president and COO, Pegasystems. "Our financial performance this quarter is a result of the quality of our customer relationships. We signed significant extensions with several clients during the quarter, including an important sale to First Data, which accounted for $7.0 million in incremental revenue this quarter and will positively impact quarters through 2003. Additionally, our healthcare initiative gained momentum through the acquisition of 1mind Corporation and client successes at BUPA and HealthNow."

Pegasystems reported sequential growth in revenues, posting net profits of $3.4 million and $8.5 million in positive cash flow from operations for the quarter. Total cash and cash equivalents increased to $41.3 million at March 31, 2002, up 25% sequentially and 105% year-over-year.

Added Jones, "We reorganized our Applications Business and created industry-specific business groups that focus on our target markets of financial services, healthcare and insurance. We appointed leaders of these business units who each possess a deep, functional knowledge of their respective markets and who will drive the integration of our product capabilities with our industry-specific expertise."

Concluded Jones, "As previously mentioned, we are pleased to have signed an agreement extending our relationship with the card issuing services subsidiary of First Data Corp. (NYSE: FDC). This non-exclusive agreement reaffirms our strength and position in the credit card services market. We believe the extended license is a testament to the technical and business value of our 19-year history and expertise in financial services and business rules."

Pegasystems reports that the value of the agreement with First Data is expected to provide approximately $34 million of license revenue between Q1 2002 and Q3 2003. "Our ability to successfully conclude this license agreement this quarter helped offset the general weakness in software spending we, and others in the industry, have been experiencing," commented Chris Sullivan, CFO, Pegasystems.

"We continue to invest in our rules technology to develop and market new products that will help deliver a measurable ROI for our customers and partners," said Alan Trefler, founder and CEO, Pegasystems. "Our technical strength and rules-driven approach continue to gain industry recognition and validation. We were recently listed in the "Leader" quadrant in Gartner's Business Rule Engine Market Magic Quadrant(a) report and in the "Challenger" quadrant in Gartner's CSS Magic Quadrant report — testaments to both our core Applications Business and emerging PegaRULES technology. Our technology initiatives are also driving increased interest with partners and we expect to announce new relationships in the second quarter."

Continued Trefler, "We would like to share that Rick Jones will transition from his role as President and COO, to the role of Vice-Chairman of our Board of Directors by the end of 2002. I am delighted with Rick's contribution to our operational turnaround and we remain committed to maintaining the level of accountability and business discipline that he brought to the organization.

We have engaged Russell Reynolds in our executive search, while Rick continues to serve as our President and COO. Upon his transition to Vice-Chairman, we will have the opportunity to add another experienced executive to our management team, while benefiting from Rick's continued involvement in company strategy and customer interactions."

"Family priorities in Florida have influenced my decision in this regard," commented Jones. "I will be pleased to serve as Vice-Chairman, which enables me to remain actively engaged with Pegasystems, while attending to personal obligations. I am proud to be part of this company and the excellent momentum we have built during the past few years. During the search for my successor, I will remain fully involved in my operational responsibilities and will work to ensure a smooth transition."

First-Quarter Conference Call

The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. EST on Wednesday, April 24, 2002. Dial-in information is as follows: 800-982-3472 (local), 703-871-3022 (international). A digital replay of the teleconference will be available at 888-266-2081 (local), 703-925-2533 (international), with a passcode of 5934657.

If interested in listening to the Webcast, log onto at least 5 minutes prior to the event's broadcast, and click on the Webcast icon in the "Investors" section.

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. The words "believe," "expect," "hope," "anticipate," "plan," and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. The company does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 volatility of our quarterly operating results, difficulty in predicting the completion of product implementations and consequently the timing of our license revenue recognition, our ability to develop new products and evolve existing ones, the impact on our business of the ongoing consolidation in the financial services market, historically our core market, our ability to attract and retain key employees, reliance on certain key third-party relationships, management of the Company's growth, and other risks and uncertainties. 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 and other recent filings on file with the Securities and Exchange Commission. 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.

Notes: Pegasystems is a registered trademark of Pegasystems Inc. Other product and company names may be trademarks of their respective owners.

(a) The Magic Quadrants are copyrighted February 2002, by Gartner, Inc. and is reused with permission. Gartner's permission to print or reference its Magic Quadrant should not be deemed to be an endorsement of any company or product depicted in the quadrant. The Magic Quadrant is Gartner's opinion and is an analytical representation of a marketplace at and for a specific time period. It measures vendors against Gartner-defined criteria for a marketplace. The positioning of vendors within a Magic Quadrant is based on the complex interplay of many factors. Gartner does not advise enterprises to select only those firms in the Leaders segment. In some situations, firms in the Visionary, Challenger, or Niche Player segments may be the right match for an enterprise's requirements. Well-informed vendor selection decisions should rely on more than a Magic Quadrant. Gartner research is intended to be one of many information sources and the reader should not rely solely on the Magic Quadrant for decision-making. Gartner expressly disclaims all warranties, express or implied of fitness of this research for a particular purpose.

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

All trademarks are the property of their respective owners.

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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