Pegasystems Reports Third Consecutive Quarter of Increased Earnings and Revenue

CAMBRIDGE, Mass., Oct. 23, 2001 — Pegasystems Inc. (NASDAQ:PEGA) today reported its unaudited financial results for the third quarter of 2001.

Third Quarter Financial Performance (Unaudited)
(In millions, except per share data and
  percentages)                                Q3 2001      Q3 2000

Total Revenue                                $   23.1     $   22.7
License Revenue                              $   10.6     $   12.9
         % of Total Revenue                       46%          57%
Services Revenue                             $   12.5     $    9.7
         % of Total Revenue                       54%          43%
Net Income (Loss)                            $    3.9     $   (0.2)
Diluted Net Income (Loss) Per Share          $    0.12    $  (0.01)

"Pegasystems achieved a third consecutive quarter of profits and growth, delivering positive results in a difficult economic environment," said Rick Jones, president and COO, Pegasystems. "We continue to see a solid stream of revenue from our customer base, which consists of blue-chip, industry-leading companies. Our pipeline has remained strong despite the economic uncertainty. Our ability to deliver cost reductions and productivity improvement, through our powerful process automation software, is in tune with the needs of today's market."

"Our customers and prospects embrace the reality that rules engines are not only an integral component to their CRM strategy, but are at the heart of delivering a demonstrative ROI," said Alan Trefler, founder and CEO, Pegasystems. "We signed our fourth BlueCross BlueShield customer. We expanded our partnership with Sun Microsystems. These, and other recent accomplishments, point to Pegasystems gaining recognition and market traction as companies begin to understand the many facets of a CRM solution and the critical role of process automation in making CRM work."

Pegasystems reported sequential and year-to-date growth in revenues, posting a year-to-date increase in revenues of 11% over the first nine months of 2000. The Company posted operating and net profits for the quarter of $2.2 million and $3.9 million, respectively. The Company generated $9 million in cash flow from operations year-to-date. Total cash and cash equivalents increased to $26 million at September 30, 2001.

"We are pleased to deliver another quarter of profitability," said Chris Sullivan, chief financial officer and treasurer, Pegasystems. "The company's continuing attention to performance management and accountability have been key drivers of our success this quarter. We remain focused on expense management and positive cash flow while delivering revenue growth."

Quarterly Highlights and Business Outlook

Focus and growth in strategic markets

In August, Pegasystems went to market with PegaCRM Healthcare, its specialized healthcare CRM solution that automates many types of member inquiries, helps to increase operational efficiencies and aims to reduce operational costs for healthcare organizations. As previously announced, several large healthcare organizations are currently in production and seeing results from this CRM solution.

Additionally, the Company signed its fourth BlueCross BlueShield customer, HealthNOW New York. HealthNOW purchased an enterprise license for claims exception processing, a component of PegaCRM Healthcare. HealthNOW is a leading New York health insurer, which serves over 750,000 members.

Expansion through partnerships

In September, Pegasystems announced an expanded alliance with Sun Microsystems, Inc., that combines its powerful rules-driven process automation solution with Sun's leading Solaris platform. The alliance is designed to help Pegasystems increase its presence in both the healthcare and banking markets — two key vertical markets for the Company. As announced, joint solutions have already been implemented with several customers, including BlueCross BlueShield of Massachusetts and Westdeutsche Landesbank Girozentrale (WestLB).

Strengthening the management team

Pegasystems continues to pursue its goal of establishing PegaRULES as a premier development and management tool among systems integrators and software developers for building rules-based solutions and work management systems. In support of this objective, the Company appointed Paul McNulty as the vice president of PegaRULES to lead the organization in the successful commercialization of this technology.

Looking ahead

"Looking ahead to 2002, we are confident that our differentiated solutions, loyal customer base and strong management team position us for long-term success,'' said Sullivan. "While the current economic uncertainty has caused some customers and prospects to delay or defer IT investments, we continue to plan for growth. At the same time, we will continue prudent expense management to deliver profitability. We are committed to generate positive results for our shareholders, customers, and employees."

Third-Quarter Conference Call

In conjunction with this news release, Pegasystems Inc. plans to Webcast its quarterly conference call live at 9:00 a.m. EST today, October 24, 2001. 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. Statements made by Rick Jones, Alan Trefler and Chris Sullivan and other statements contained herein that are not statements of historical fact may be deemed forward-looking statements. 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 the impact of pending regulatory proceedings, 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 Form 10-Q for the quarter ended September 30, 2001, filed on October 23, 2001 with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on such forward-looking statements and 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.
                 Condensed Consolidated Balance Sheets
             (in thousands, except share-related amounts)

                                                 Sept. 30,   Dec. 31,
                                                   2001        2000
Current assets:
   Cash and cash equivalents                    $  26,251   $  17,339
   Trade and installment accounts
    receivable, net of allowance for
    doubtful accounts of $1,035 in
    2001 and $1,037 in 2000                        45,246      42,129
   Prepaid expenses and other current assets        1,933       1,584

       Total current assets                        73,430      61,052

   Long-term license installments, net             40,771      37,401
   Equipment and improvements, net                  3,717       6,568
   Purchased software and other assets, net         3,376       5,472

         Total assets                           $ 121,294   $ 110,493

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable and accrued expenses        $  13,783   $  11,917
   Deferred revenue                                 6,446       5,065
   Current portion of capital lease
    obligations                                       156         312

       Total current liabilities                   20,385      17,294

Commitments and contingencies
Deferred income taxes                               1,000       1,000
Capital lease obligations, net of
 current portion                                     --            84
Other long-term liabilities                            26          52

          Total liabilities                        21,411      18,430

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; 32,694,388 shares
     and 32,570,094 shares issued and
     outstanding in 2001 and 2000, respectively       327         326
   Additional paid-in capital                     101,178     100,886
   Stock warrant                                    2,897       2,897
   Retained deficit                                (4,147)    (11,777)
   Accumulated other comprehensive loss              (372)       (269)

       Total stockholders' equity                  99,883      92,063

         Total liabilities and
          stockholders' equity                  $ 121,294   $ 110,493

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

                               Three Months Ended    Nine Months Ended
                                  September 30,        September 30,
                                 2001      2000      2001       2000

   Software license             $10,629   $12,946   $30,163   $28,210
   Services                      12,478     9,718    38,617    33,740

     Total revenue               23,107    22,664    68,780    61,950

Cost of revenue:
   Cost of software license         585       585     2,464     1,756
   Cost of services               8,513    11,127    27,210    28,064

     Total cost of revenue        9,098    11,712    29,674    29,820

Gross Profit                     14,009    10,952    39,106    32,130

Operating expenses:
   Research and development       5,386     3,557    15,372    11,425
   Selling and marketing          3,960     5,853    13,100    17,449
   General and administrative     2,419     3,039     7,515     8,244
    Litigation settlement          --        --        --      14,088

     Total operating expenses    11,765    12,449    35,987    51,206

Income (loss) from operations     2,244    (1,497)    3,119   (19,076)

Installment receivable
 interest income                  1,450       900     4,350     2,743
Other interest income, net          211       451       658     1,339
Other income (expense), net         229        --       228      (179)

Income (loss) before provision
 for income taxes                 4,134      (146)    8,355   (15,173)
Provision for income taxes          250       100       725       150

Net income (loss)                $3,884     ($246)   $7,630  ($15,323)

Earnings (loss) per share:
  Basic                           $0.12    ($0.01)    $0.23    ($0.53)
  Diluted                         $0.12    ($0.01)    $0.23    ($0.53)

Weighted average number of
 common and common equivalent
 shares outstanding:
  Basic                          32,695    29,454    32,649    29,173
  Diluted                        33,420    29,454    33,398    29,173

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