Pegasystems Reports Record Revenue and EPS for 2002

CAMBRIDGE, Mass., Feb 18, 2003 — Pegasystems Inc. (Nasdaq: PEGA) today announced its fourth quarter and full-year 2002 results, reporting revenues of $97.4 million for 2002, an increase of 2.5% from 2001. The Company achieved diluted earnings per share of $0.43 for the full-year 2002, up from $0.37 in 2001.

    Fourth Quarter Financial Performance

    (In millions, except per share data and percentages)
                                     Q4 2002         Q3 2002       Q4 2001

    Total Revenue                    $ 21.0          $ 25.6        $ 24.1
    License Revenue                  $ 11.7          $ 16.9        $ 13.9
           % of Total Revenue           56%             66%           58%
    Services Revenue                   $9.3            $8.7         $10.2
           % of Total Revenue           44%             34%           42%
    Net Income                         $2.4            $4.8          $4.9

    Diluted Earnings Per Share        $0.07           $0.13         $0.15

    Full Year Financial Performance

    (In millions, except per share data and percentages)
                                        2002           2001

    Total Revenue                    $ 97.4         $ 95.1
    License Revenue                  $ 63.9         $ 44.1
           % of Total Revenue           66%            46%
    Services Revenue                 $ 33.5         $ 51.0
           % of Total Revenue           34%            54%
    Net Income                       $ 15.3         $ 12.5
    Diluted Earnings Per Share        $0.43          $0.37

Pegasystems posted net income of $2.4 million and $6.4 million in positive cash flow from operations for the quarter. Total cash and cash equivalents increased to $57.4 million at December 31, 2002, up 10% from September 30, 2002 and up 74% from December 31, 2001.

Henry Ancona, president and COO, said, "We are pleased with our performance in 2002. Revenues in the fourth quarter were down compared with recent quarters; however, given the small number of large license deals that typically comprise our revenue in a given quarter, fluctuations such as this are not unusual. We accomplished a number of our objectives this quarter: We saw an improvement in service revenue and service margins, and we signed four new customers. Importantly, two of these new customers are in the healthcare sector, a growth market we are targeting. New license signings in the second half of 2002 grew 13% over the first half, indicating improved sales traction. The dollar value of new license signings in the second half of 2002 is expected to be recorded as revenue in 2003, when the license implementations are complete. We also generated $6.4 million in cash flow from operations in the fourth quarter."

Chris Sullivan, CFO, commented, "Despite a challenging economic environment, our financial performance in 2002 was solid. Total revenue in 2002 increased 2.5% due to increased license revenue. The growth in license revenue was driven by an increase in perpetual licenses, primarily the perpetual license resulting from an overall restructuring of our relationship with FDR. This restructured relationship also allowed us to re-enter the growing credit-card market. While we have stepped up efforts to sign new customer license business in all of our target markets, the vast majority of our license revenue in 2002 was from existing customers who chose to renew, add onto, or extend their investment with us. Service revenue declined sharply in 2002 due largely to the fall-off in new-customer license signings in late 2001 and early 2002. Net income in 2002 grew 22% over 2001, mainly because license revenue comprised a higher percentage of total revenue and because of cost-containment efforts. We generated $27 million in positive cash flow from operations and ended the year with a strong balance sheet, including $63 million in cash and marketable debt securities and $81 million in combined short and long-term license installments receivable.

"Looking ahead for 2003, we expect to achieve revenue and EPS results in line with 2002, plus or minus 10%, despite the anticipated year-over-year decline in revenues from FDR. We are also expecting to generate $5 to $15 million in positive cash flow from operations in 2003."

Alan Trefler, founder and CEO of Pegasystems, noted, "Pegasystems' integrated rules and business process management solutions deliver what customers want. Both our industry-specific applications and our enterprise engine enable our customers to deploy smart systems that integrate the right data, guide decisions according to management objectives, and automatically execute sophisticated processes. We have the products, the people, and the experience to deliver on the tremendous opportunities smart systems provide — and we look forward to further progress in 2003."

Fourth-Quarter Conference Call

The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Wednesday, February 19, 2003. Dial-in information is as follows: 800-949-2486 (domestic), 703-925-2406 (international). A digital replay of the teleconference will be available at 888-266-2081 (domestic), 703-925-2533 (international), with a passcode of 6393386.

If interested in listening to the Webcast, log onto at least five 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," " intends," "anticipate," "may," "plan," and similar expressions 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 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 most recent report on Form 10-Q or 10-K on file with the SEC 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. The forward-looking statements contained in this press release represent the Company's views as of February 18, 2003. 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 other wise. The statements should therefore not be relied upon as representing the Company's view as of any date subsequent to February 18, 2003.

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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Pegasystems Inc.
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Cambridge, MA 02142
Phone +1 617-374-9600
Fax +1 617-374-9620