Pegasystems Reports Second Quarter Revenue of $29.6 Million

CAMBRIDGE, Mass., Aug. 7 — Pegasystems Inc. (Nasdaq: PEGA) today announced its second-quarter 2006 results, reporting revenue of $29.6 million, an increase of 25% from the second quarter of 2005. Compared to the second quarter of 2005, professional services revenue was up $6.2 million to $16.8 million, primarily due to new license implementations, maintenance revenue grew $0.7 million to $5.9 million, and license revenue decreased $1.1 million to $6.9 million. During the second quarter, the Company also signed agreements with $8.8 million in term license fees expected to be recognized as revenue in future periods as payments become due.

The Company had pre-tax income of $0.2 million in the second quarter of 2006. Cash flow from operations in the second quarter of 2006 increased significantly to $11.8 million, compared to $4.0 million in the second quarter of 2005. The Company ended the second quarter with $126.1 million in total cash and investments. Total expenses increased primarily due to continued investments to support growth in sales and professional services.

                  Second Quarter 2006 Financial Performance

    (In millions, except per share
      data and percentages)            Q2 2006        Q1 2006     Q2 2005
     Total Revenue                      $ 29.6         $ 27.1       $23.8
    License Revenue                       $6.9          $ 6.9        $8.0
        % of Total Revenue                 23%            25%         34%
    Services Revenue                    $ 22.7          $20.2      $ 15.8
        % of Total Revenue                 77%            75%         66%
    Pre-tax Income (Loss)                 $0.2         $(1.6)       $ 0.5
    Provision (benefit) for
     Income Taxes                       $(0.2)         $(0.2)       $ 0.1
    Net Income (loss)                     $0.4         $(1.3)       $ 0.4
    Earnings Per Share, Diluted         $ 0.01       $ (0.04)       $0.01

Alan Trefler, Chairman and CEO commented, "During the second quarter Pegasystems continued to experience success selling our BPM solutions. We were selected by thought-leading organizations to optimize critical business processes ranging from new account openings, to global call center operations to infrastructure support. These organizations understand that Pegasystems SmartBPM is the only unified rules-based Business Process Management (BPM) software that automates the complete suite of internal and external interaction among people, systems, policies and data.

"The number of our license signings in the first half of the year was double the number in the first half of last year. Our technology, methodology and growing ecosystem of certified partners are helping Pegasystems win business with the organizations that matter most — those who are defining the future of BPM. Our strategy going forward is to continue to expand these strategic relationships and to invest in growing our capacity to support their businesses."

Shawn Hoyt, General Counsel and interim CFO, commented, "We continue to see strength in customer license signings, with 21 signings in the second quarter versus 14 in the same quarter a year ago and 17 in the first quarter this year. The revenue from some of these license signings will be recognized ratably over the license term. The increasing value of term license signings being recognized ratably over the license term reflects both our success in selling our new software products to existing customers at the time of renewal, and demand from new customers for term licenses."

The Company is updating its guidance for 2006. The Company now expects revenue for the full year to be between $110 and $120 million. The increase is driven primarily by our results to date and the expectation for increased license revenue combined with continued strength in services revenue. The company's expectation for profit (loss) before tax remains between $(3) million and $3 million, as the company continues to invest to support growth in sales and professional services. The expected results for 2006 reflect an anticipated cost of approximately $1 million associated with the expensing of stock option grants to employees under FAS123R. The Company now expects cash flow from operations in 2006 to be in the range of $14 to $22 million.

Messrs. Trefler and Hoyt will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on August 8, 2006. Dial-in information is as follows: 800-250-4434 (domestic) or 706-634-0667 (international), passcode 3906090.

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.

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 2006 revenue, profit before tax, stock option expense and cash flow from operations, and our expectations regarding the amount of term license revenue which will be recognized ratably over the life of the contract. The words "anticipate", "continue," "expect," and "will," and similar expressions, among others, 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 acceptance and consequently the timing of our license revenue recognition, the level of term software license renewals, our ability to develop new products and evolve existing ones, the impact on our business of the ongoing consolidation in the financial services and healthcare markets, historically our core markets, 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 with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company's views as of August 7, 2006. 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 August 7, 2006.

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