Pegasystems Reports Second-Quarter Financial Results; Announces Settlement of Shareholder Lawsuits

CAMBRIDGE, Mass., Aug. 14, 2000 — Pegasystems Inc. (NASDAQ: PEGA), a leading provider of rules-based, Internet-architected electronic Customer Relationship Management (eCRM) software and solutions, today announced its second-quarter 2000 financial results. Total revenues were $21.3 million for the second quarter ended June 30, 2000, compared with $18.0 million recorded in the first quarter of 2000 and $21.3 million recorded in the second quarter of 1999. License revenues totaled $9.2 million in the most recent quarter, compared with $6.1 million in the previous quarter and $9.1 million for the comparable period last year. Services revenues for the quarter were $12.1 million, compared with $11.9 million for the first quarter of 2000 and $12.2 million for the second quarter of 1999. The Company settled its two class action lawsuits. As a result, the Company reported a $13.7 million net loss for the second quarter of 2000, or $0.47 per diluted share. Excluding the one-time charge of $14.1 million associated with the settlement of two shareholder lawsuits, Pegasystems' net income would have been $0.4 million, or $0.01 per diluted share, for the second quarter of 2000. This compares with a net loss of $1.4 million, or $0.05 per diluted share in the first quarter of 2000 and net income of $1.0 million, or $0.03 per diluted share in the second quarter of 1999. The Company ended the quarter with $34.1 million of cash and cash equivalents.

"The second quarter was highlighted by significant strides toward building a more solid management foundation for the company and advancing our position as a leading innovator of customer relationship management technologies," stated Alan Trefler, CEO and Founder, Pegasystems.

Rick Jones, President and COO, Pegasystems, stated, "During the second quarter, Pegasystems continued to focus on building the management infrastructure and functions that will make Pegasystems a stronger company going forward. We reorganized the management of the North American and European sales and service organizations, and brought other strategic departments into alignment with our vertical sales strategy. We are working to increase our direct sales force and anticipate significant growth before year-end. Finally, we put in place a product-management function that will guide our development and sales efforts toward strategic opportunities in our target markets."

Shareholder Lawsuit Settlements

Pegasystems also announced today that it has entered into agreements in principle to resolve the two separate securities class-action lawsuits pending against the Company relating to its past restatements of revenue for certain quarters in 1997 and 1998. In each case, the agreements in principle are subject to court approval and the negotiation and execution of definitive settlement agreements.

In the Chalverus litigation, brought on behalf of purchasers of Pegasystems stock between July 29, 1997 and October 29, 1997, Pegasystems has agreed to pay $5.25 million, in cash or in shares of its common stock, at Pegasystems' option. In the Gelfer litigation, brought on behalf of purchasers of Pegasystems common stock between April 2, 1998 and November 23, 1998, Pegasystems has agreed to pay $4.5 million in cash and, in addition, $7.75 million in cash or in shares of its common stock, at Pegasystems' option. Approximately $4.3 million has been covered by Pegasystems' insurance. The settlement amounts plus associated legal expenses, net of the insurance recovery, were accrued in the second quarter.

"This resolution is an encouraging development for Pegasystems," Trefler said. "While there will be a short-term financial impact as a result of this settlement, we maintain a very strong cash position and can now focus our full attention on the growth of our business."

Company Achievements

Other Company achievements during the second quarter include:

  • Announcing the availability of the PegaSYSTEM V7.1 upgrade for existing customer implementations. This upgraded version benefits Pegasystems' customers by increasing uptime, scalability and capacity on their existing systems with minimal disruption to previously defined workflows.

  • Sale to Suncorp Metway Group. Pegasystems announced an agreement with Suncorp, Australia's seventh-largest bank and eighth-largest general insurance company, to deliver a fully integrated loan-origination solution. The agreement will help streamline the process of service and lending transactions by automating many routine tasks and allowing the staff to focus more on the customer's needs.

  • Sale and implementation of a Pegasystems' solution at Westdeutsche Landesbank Girozentrale (WestLB), a Germany-based credit institution. WestLB has implemented Pegasystems' solution to automate its payment-investigations processing and resolve payment discrepancies faster.

  • Promoting Michael Pyle to Senior Vice President of Product Development; Kenneth Olson to Senior Vice President of Advanced Technology; David Wells to Vice President and Managing Director of North American and European Service; Keith Hawker to Vice President of North American and European Sales; and Daniel Smith to Vice President of Product Management.

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. These statements 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 the resolution and impact of pending litigation and regulatory proceedings, material weaknesses in the Company's financial control environment, 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 report on Form 10-Q for the quarter ended March 31, 2000 on file with the Securities and Exchange Commission.

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

                           PEGASYSTEMS INC.
                 Condensed Consolidated Balance Sheets
             (in thousands, except share-related amounts)

                                                June 30,     Dec. 31,
                                                  2000         1999
Current assets:
   Cash and cash equivalents                  $  34,065    $  30,004
   Trade and installment accounts receivable,
    net of allowance for doubtful accounts of
    $1,054 in 2000 and $1,026 in 1999            31,449       40,716
   Prepaid expenses and other current assets      1,884        1,676
       Total current assets                      67,398       72,396

   Long-term license installments                41,768       36,744
   Equipment and improvements, net                7,080        8,335
   Purchased software and other assets, net       6,273        7,516
         Total assets                         $ 122,519    $ 124,991

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable and accrued expenses      $  12,921    $  13,643
   Accrued litigation settlement                 17,700         --
   Deferred revenue                               3,448        8,765
   Current portion of capital lease
    obligations                                     207          198
      Total current liabilities                  34,276       22,606

Commitments and contingencies
Deferred income taxes                             1,000        1,000
Capital lease obligations, net of
 current portion                                    147          253
Other long-term liabilities                          69           87
      Total liabilities                          35,492       23,946

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;
     29,252,677 shares and
     28,995,821 shares issued and
     outstanding in 2000 and 1999,
     respectively                                   293          290
   Additional paid-in capital                    90,063       88,941
   Deferred compensation                             (9)         (18)
   Stock warrant                                  2,897        2,897
   (Accumulated deficit) retained earnings       (5,997)       9,079
   Other comprehensive income                      (220)        (144)
       Total stockholders' equity                87,027      101,045
         Total liabilities and
          stockholders' equity                $ 122,519    $ 124,991

                           PEGASYSTEMS INC.
            Condensed Consolidated Statements of Operations
               (in thousands, except per share amounts)

                               Three Months Ended   Six Months Ended
                                    June 30,            June 30,
                                 2000      1999      2000      1999
   Software license           $  9,168  $  9,125  $ 15,264  $ 15,145
   Services                     12,112    12,222    24,022    21,267
     Total revenue              21,280    21,347    39,286    36,412

Cost of revenue:
   Cost of software license        586       586     1,171     1,171
   Cost of services              8,356     7,842    16,937    16,640
     Total cost of revenue       8,942     8,428    18,108    17,811

Gross profit                    12,338    12,919    21,178    18,601

Operating expenses:
   Research and development      3,933     5,026     7,868    10,230
   Selling and marketing         6,559     5,395    11,596    10,919
   General and administrative    2,608     2,696     5,205     5,264
    Litigation Settlement       14,088      --      14,088      --
     Total operating expenses   27,188    13,117    38,757    26,413

Loss from operations           (14,850)     (198)  (17,579)   (7,812)

Installment receivable
 interest income                   900       837     1,843     1,665
Other interest income, net         485       162       888       327
Other (expense) income, net       (206)      224      (178)      135
(Loss) income  before
  provision  for Income taxes  (13,671)    1,025   (15,026)   (5,685)
Provision for income taxes          28      --          50      --
Net (loss) income             ($13,699) $  1,025  ($15,076) ($ 5,685)

(Loss) earnings per share:
  Basic                       ($  0.47) $   0.04  ($  0.52) ($  0.20)
  Diluted                     ($  0.47) $   0.03  ($  0.52) ($  0.20)

Weighted average number of
 common and common equivalent
 shares outstanding:
  Basic                         29,152    28,752    29,144    28,732
  Diluted                       29,152    30,291    29,144    28,732

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