Pegasystems Reports Revenue Growth and Earnings for Fourth Quarter and Full Year 2001; Financial Turnaround Evident for Fourth Consecutive Quarter

CAMBRIDGE, Mass., Feb. 19, 2002 — Pegasystems Inc. (NASDAQ: PEGA) today announces its fourth-quarter and full-year 2001 earnings results, reporting record revenues of $92.3 million for 2001, an increase of 14% from 2000. The Company achieved earnings per share of $0.37 for the full year 2001, up from $(0.71) in 2000.

            Full Year Financial Performance
    (In millions, except per share data and percentages)                             2001      2000
Total Revenue                            $92.3     $80.8
License Revenue                          $44.1     $33.8
         % of Total Revenue               48%       42%
Services Revenue                         $48.2     $47.0
         % of Total Revenue               52%       58%
Net Income (Loss)                        $12.5    $(20.9)
Diluted Net Income (Loss) Per Share       $0.37    $(0.71)

Total revenues were $23.5 million for the fourth quarter ended December 31, 2001, an increase of 25% from $18.9 million recorded for the same period one year ago. License revenues totaled $13.9 million in the recent quarter, a year-over-year increase of 148%. Services revenues for the quarter were $9.6 million, down from $13.3 million in the fourth quarter of 2000. Pegasystems net income for the fourth quarter of 2001 is $4.9 million, or $0.15 per share, versus a net loss of $(5.5) million, or a loss of $(0.18) per share for the same period in 2000.

"We are proud to report strong fourth-quarter results that continue our journey towards competitive financial results," said Rick Jones, president and COO, Pegasystems. "We made customer satisfaction a priority and our management and delivery teams remained dedicated to operational efficiency and personal accountability. This translated into record results for our shareholders, customers, and employees."

Added Jones, "Throughout 2001, Pegasystems remained focused and effectively executed against its business plan. We expanded important partnerships with Accenture and Sun Microsystems. We added prominent customers, including HealthNow New York, Société Générale, Rabobank, and Fin-Force. We responded to the demand for industry-specific applications by offering new tools and products for private banking, check research and adjustments, and healthcare. Additionally, we announced our emerging technology, PegaRULES and PegaRULES Process Commander. We are pleased with the positive results we achieved this year and believe they provide the foundation for success in 2002."

Net increase in cash, primarily from operations, was $6.8 million for the quarter. Cash flow for the year ending December 31, 2001 was $15.7 million.

"This year showed an accelerating awareness of how business management is a critical component of CRM," said Alan Trefler, founder and CEO, Pegasystems. "The need for a rules engine to unify, drive, and manage business process is gaining traction. This is particularly true in the CRM arena, where many companies have struggled to achieve a return on their CRM investment. Such companies are starting to realize that a business-rules architecture can help to optimize their CRM investments and help to enable tangible improvements in cost, consistency, and responsiveness."

Added Trefler, "Our software is an attractive investment even in difficult times because of its demonstrated effectiveness in rapidly streamlining back-office operations, and its sophisticated integration capabilities that help to leverage legacy systems. In 2002, we believe we are further advancing our value proposition with the commercialization of our patented PegaRULES technology and are encouraged by the industry acceptance that our PegaRULES architecture has already started to receive."

"We are happy with the financial turnaround evident in 2001 and we remain optimistic for revenue growth in 2002," indicated Chris Sullivan, CFO and treasurer, Pegasystems. "Nonetheless, we acknowledge the effect of the recent industry-wide slow down in IT spending. Despite a growing sales pipeline, the number of new license contracts signed fell in the latter part of 2001. This resulted in a reduction in service revenues from $12.5 million in the third quarter of 2001 to $9.6 million in the fourth quarter of 2001 and may impact Pegasystems' overall revenue prospects in the first half of 2002. We have developed a plan for growth in 2002 and we are adding sales resources to drive that growth. However, we will continue to manage expenses in line with revenue growth according to the dictates of the economic climate."

Fourth-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, February 20, 2002. Dial-in information is as follows: 888-747-3510 (local), 703-871-3085 (international). A digital replay of the teleconference will be available at 888-266-2081 (local), 703-925-2533 (international), with a passcode of 5830042.

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 impact of pending regulatory proceedings, performance of the Company's products, difficulty in predicting the completion of product implementations and consequently the timing of revenue recognition, the inability to attract and retain key employees, reliance on 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 10Q for the quarter ended September 30, 2001 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.

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

                           PEGASYSTEMS INC.
               (in thousands, except share-related data)
                                                        December 31,
                                                       2001     2000
Current assets:
 Cash and cash equivalents                           $33,017  $17,339
 Trade accounts receivable,
    net of allowance for doubtful accounts
    of $1,034 in 2001 and $1,037 in 2000               9,592   12,373
 Short-term license installments, net                 31,359   29,756
 Prepaid expenses and other current assets             2,286    1,584
         Total current assets                         76,254   61,052
Long-term license installments, net                   43,155   37,401
Equipment and improvements, net                        3,053    6,568
Purchased software and other, net                      2,610    5,472
         Total assets                               $125,072 $110,493
Current liabilities:
 Accounts payable and accrued expenses               $12,840  $11,917
 Deferred revenue                                      6,176    5,065
 Current portion of capital lease obligations             81      312
         Total current liabilities                    19,097   17,294
Deferred income taxes                                  1,000    1,000
Capital lease obligations, net of current portion       --         84
Other long-term liabilities
                                                          17       52
         Total liabilities                            20,114   18,430
Commitments and contingencies
Stockholders' equity:
 Preferred stock, $.01 par value,
    1,000,000 shares authorized;
    no shares issued and
    outstanding                                         --       --
 Common stock, $.01 par value, 45,000,000
    shares authorized; 32,754,648 shares
    and 32,570,094 shares issued and
    outstanding in 2001 and 2000, respectively           328      326
 Additional paid-in capital                          101,318  100,886
 Stock warrant                                         2,897    2,897
 Retained earnings (deficit)                             757  (11,777)
 Accumulated other comprehensive loss                   (342)    (269)
         Total stockholders' equity                  104,958   92,063
         Total liabilities and stockholders' equity $125,072 $110,493
                           PEGASYSTEMS INC.
               (in thousands, except per share amounts)
                                                      Years Ended
                                                      December 31,
                                                   2001        2000
     Software license                            $44,053     $33,806
     Services                                     48,234      47,000
          Total revenue                           92,287      80,806
Cost of revenue:
     Cost of software license                      3,049       2,383
     Cost of services                             34,572      39,005
          Total cost of revenue                   37,621      41,388
Gross profit                                      54,666      39,418
Operating expenses:
     Research and development                     20,812      15,073
     Selling and marketing                        17,522      24,142
     General and administrative                    9,798      10,334
     Litigation settlement and restructuring        --        15,821
          Total operating expenses                48,132      65,370
Income (loss) from operations                      6,534     (25,952)
Installment receivable interest income             6,159       4,015
Other interest income, net                           826       1,667
Other income (expense), net                         (286)         15
Income (loss) before provision for income taxes   13,534     (20,556)
Provision for income taxes                         1,000         300
          Net income (loss)                      $12,534    $(20,856)
Earnings (loss) per share, basic                   $0.38      $(0.71)
Earnings (loss) per share, diluted                 $0.37      $(0.71)
Weighted average number of
 common shares outstanding, basic                 32,677      29,206
Weighted average number of
 common shares outstanding, diluted               33,434      29,206
                           PEGASYSTEMS INC.
                            (in thousands)
                                                  Years Ended
                                                  December 31,
                                                2001       2000
Cash flows from operating activities:
Net income (loss)                             $12,534  $(20,856)
Adjustments to reconcile net loss
 to net cash provided by (used in)
 operating activities:
  Provision  for deferred income taxes           --        --
  Depreciation and amortization                 6,228     6,631
  Reduction in provision for doubtful accounts   --        --
  Issuance of compensatory stock option            73      --
  Stock issued in settlement of litigation       --      10,361
  Loss on disposal of fixed assets                153      --
  Change in operating assets and liabilities:
    Trade accounts receivable
     and license installments                  (4,581)   (1,358)
    Prepaid expenses and other current assets    (714)     (678)
    Accounts payable and accrued expenses       1,089    (1,601)
    Deferred revenue                            1,111    (3,700)
     Net cash provided by (used in)
      operating activities                     15,893   (11,201)
 Cash flows from investing activities:
  Purchase of equipment and improvements         (561)   (2,626)
  Other long term assets and liabilities         (354)      475
     Net cash used in investing activities        (86)   (2,980)
Cash flows from financing activities:
 Payments net of proceeds under
  capital lease obligations                      (315)      (54)
 Exercise of stock options                         60       806
 Proceeds from sale of stock under
  Employee Stock Purchase Plan                    301       814
    Net cash provided by financing activities      46     1,566
Effect of exchange rate on cash
 and cash equivalents                            (175)      (50)
    Net increase (decrease) in cash
     and cash equivalents                      15,678   (12,665)
Cash and cash equivalents, beginning of year   17,339    30,004
Cash and cash equivalents, end of year        $33,017   $17,339
Supplemental disclosures of cash flow
 information: Cash paid
 during the year for:
          Interest                                $36       $88
          Income taxes                         $1,191      $834
Non-cash financing activity:
   Equipment acquired under capital lease       $--        $292
   Stock issued in settlement of litigation     $--     $10,361

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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Phone +1 617-374-9600
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