Pegasystems Reports Second-Quarter Results

CAMBRIDGE, Mass., July 29 — Pegasystems today announced its 2005 second quarter results, reporting revenue of $23.8 million, pre-tax profits of $0.5 million, and earnings per share of $0.01.

              Financial Performance

    (In millions, except per                        Quarter
     share data and percentages)    Q2 2005         Q1 2005       Q2 2004
     Total Revenue                    $23.8           $24.2         $24.0
    License Revenue                    $8.0           $10.9         $11.7
     % of Total Revenue                 34%             45%           49%
    Services Revenue                  $15.8           $13.3         $12.4
     % of Total Revenue                 66%             55%           51%
    Pre-tax Income                     $0.5            $0.2          $3.3
    Provision for income taxes         $0.1            $0.1          $1.2
    Net Income                         $0.4            $0.1          $2.1
    Earnings Per Share,
     Basic and Diluted                $0.01           $0.00         $0.06

Alan Trefler, Chairman and CEO, commented, "We signed nine new customers during the second quarter, a record number for Pegasystems, in industries including biotech, healthcare, and insurance. Our evolving BPM sales strategy is to target leading organizations with initial licenses that have shortened implementation cycles, providing customers a quicker route to value. The successful implementation of these initial licenses promotes follow-on sales opportunities for PegaRULES Process Commander®, as the customers experience the agility and power SmartBPM can provide. This "quick value" selling strategy results in smaller initial license value and, as such, license revenue for the first half of 2005 is lower than a year ago. We are encouraged, however, with the improvement in the number of new customer wins based on this quick value strategy. Importantly, customers representing the world's leaders in their industries are deciding to use SmartBPM to implement a wide range of business processes.

"A global biotech customer will be using Pegasystems SmartBPM to manage clinical-trials documentation; a large auto insurer for a policy-administration legacy-transformation project; one of the larger P&C insurance carriers for personal lines underwriting; a leading healthcare payer for call-center support of Medicare Part D, the new Federal prescription-drug subsidy program; a high-end charter-jet provider for scheduling and provisioning flights; a global telecommunications company for project-management tracking; an Australian insurance company for internal operations; and an online Pharmacy Benefit Manager also in support of Medicare Part D.

"We are also encouraged by the fact that we extended relationships with five of our current customers. The five include a leading Internet service provider which expanded a significant customer process management contract; a leading provider of trust and custody services which chose PegaRULES Process Commander to drive operational efficiencies; and a leading insurance company which was a new customer last year and is now expanding its initial usage into new areas.

"Customers increasingly understand the benefits of a unified rules and process engine, which provides unparalleled results. In head-on competition, Pegasystems has demonstrated the advantages of unified Smart BPM."

Chris Sullivan, CFO, commented, "Our new license signings improved somewhat from the first quarter, both in the number of new customers and in the total value of the new license signings. However, the aggregate value of new license signings in the first half of 2005 was significantly less than in the first half of 2004. Accordingly, we now expect full-year revenue to be between $94 and $105 million. The broad range of our revenue estimate is attributable to a small number of large-value license opportunities in the second half of the year. Given that services revenue in the second half of 2005 is likely to be higher than the first half of 2005, we expect the proportion of services revenue to be well above 50%. We are committed to becoming the leader in BPM software and, as previously discussed, are increasing our investment in sales and marketing in 2005. We believe this investment will better position Pegasystems to achieve accelerated growth in future years, but we also anticipate it will result in lower profit before tax in 2005 compared to 2004. As a result, we now expect full-year 2005 earnings per diluted share to be between $0.01 and $0.15. Cash flow from operations is expected to be in the range of $16 to $22 million."

The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Friday, July 29, 2005. Dial-in information is as follows: 800-250-4434 (domestic) or 706-634-0667 (international), passcode 7989260.

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. A replay of the call will also be available on in the "Investor Relations" section, "Audio Archives" link.

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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Jon Brigden
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Pegasystems Inc.
One Rogers St.
Cambridge, MA 02142
Phone +1 617-374-9600
Fax +1 617-374-9620