Pegasystems Reports Record Revenue and Profits

CAMBRIDGE, Mass., Feb 17, 2004 — Pegasystems Inc. (Nasdaq: PEGA), a leader in rules-based business process management (BPM) software, today announced its fourth-quarter and full-year 2003 results, reporting revenue for 2003 of $99.3 million, pre-tax profits up 27% over 2002 to $21.8 million, diluted earnings per share of $0.49, and positive cash flow from operations of $21 million.

           Fourth Quarter and Full Year 2003 Financial Performance
                                  Quarter                  Full Year
    (In millions,
      except per share
      data and percentages)

                            Q4 2003     Q4 2002        2003         2002
    Total Revenue           $ 23.1       $ 21.0       $ 99.3        $97.4
    License Revenue         $ 12.0       $ 11.7       $ 57.7        $63.9
       % of Total Revenue      52%          56%          58%          66%
    Services Revenue        $ 11.1         $9.3       $ 41.6        $33.5
       % of Total Revenue      48%          44%          42%          34%
    Pre-tax Income            $3.0         $3.6       $ 21.8        $17.2
    (Benefit) Provision
     for Income Taxes        $(0.5)        $1.1         $4.2         $1.9
    Net Income                $3.5         $2.4       $ 17.7        $15.3
    Basic Earnings
     Per Share              $ 0.10       $ 0.07       $ 0.51        $0.45
    Diluted Earnings
     Per Share              $ 0.10       $ 0.07       $ 0.49        $0.43

Henry Ancona, President and Chief Operating Officer, commented, "This year's record revenue and profits are testimony to the strides we made in 2003 toward our goal of being the leader in rules-based BPM software. We overcame an anticipated decline in license revenue from First Data Resources (FDR) to record total revenue of $99.3 million. Exclusive of that customer, we delivered 17% growth in license revenue. We reported a 24% increase in services revenue as we continue to drive new customer sales and implementations. At the same time, we significantly improved our services margins for 2003 to 35% for the year compared to last year's 13%.

"We had success penetrating our targeted verticals of Financial Services and Healthcare, winning new customers and earning extensions and renewals from existing customers. We also had success broadening our footprint in the insurance and government markets. We are working with a record number of partners including IBM and BearingPoint, we released a suite of leading-edge products designed to offer our customers maximum flexibility and functionality, and we significantly strengthened our services operations to best support our customers and partners.

"During the fourth quarter, we signed CSC Healthcare as an important new channel partner, and we extended relationships with a number of our world-class customers, including Blue Cross & Blue Shield of Rhode Island, Hospitals Contribution Fund of Australia, HSBC, and Société Générale S.A.

Ancona concluded, "For 2004, we will continue to build on the progress made in 2003. We have an exciting line-up of new products, an expanded sales team, and improved organizational discipline focused on deepening and broadening our customer base. We recently introduced a suite of rules-based BPM products ,including our next-generation PegaRULES Process Commander BPM platform that delivers extensive new functionality, including enhanced user control. We also introduced two cross-industry applications focused on process-oriented customer service and on quality and exception management. We have hired exciting new talent to complement our expert and hard-working sales force, and we are focusing our operations on increasing market share."

Founder and CEO Alan Trefler commented, "The market is taking note of Pegasystems' market-leading technology and sophisticated BPM offerings. In 2003, we were delighted to be the only company named to the Gartner Magic Quadrant for both Business Rules Engines and BPM. In addition, we were nominated as Technology Pioneer by the World Economic Forum, ranked number two for BPM by Software 500, and received an Editors' Choice Award from Intelligent Enterprise. Customers increasingly understand the importance of scalability and flexibility to get the best value-add from their technology investments. With our vision of rules-based BPM as a base, and a comprehensive set of products built on our 20 years' experience providing customer-process and exceptions-management solutions, we look forward to 2004."

Chris Sullivan, CFO, commented, "This year's record revenue and profits are testimony to the hard work and efforts of our employees, our partners, and our customers. Having established a foundation for solid financial performance, we expect to achieve 2004 revenue of $105 million, plus or minus 10%, based on our expectation of continued new business success tempered by fewer scheduled term-license customer renewals and the anticipated further decline in FDR license revenue. We are bullish about the business and are therefore investing in incremental sales and marketing spending. This is likely to result in somewhat lower pre-tax profits in the first few quarters of 2004 compared with 2003. We expect profit before tax in 2004 to be $18 million, plus or minus $6 million, depending primarily on the revenue achieved. As a reminder, our tax rate will be normalizing to between 35 and 40 percent in 2004, thus contributing to an expected EPS decline on a year-over-year basis. Finally, we expect positive cash flow from operating activities for the year of $10 to $18 million. Achievement of our 2004 plan will, to a greater extent than in the recent past, depend on developing new license business. It will also depend significantly on strong customer acceptance of our new PegaRULES technology."

The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Tuesday, February 17, 2004. Dial-in information is as follows: 800-250-4434 (domestic) or 706-634-0667 (international). A replay of the teleconference will be available at 800-642- 1687 (domestic) or 706-645-9291 (international), passcode 4945084.

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 "Investor Relations" 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 including without limitation our financial guidance with respect to 2004 revenue, profit before tax, tax rate, earnings per share and cash from operating activities. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions, among others, 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, the timing of term software license renewals, customer acceptance of our new PegaRULES Process Commander technology, 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, 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 and other recent filings on file with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company's views as of February 17, 2004. 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 February 17, 2004.

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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Phone +1 617-374-9600
Fax +1 617-374-9620