UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 20232024
OR
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-11859 
____________________________
PEGASYSTEMS INC.
(Exact name of Registrant as specified in its charter) 
____________________________
Massachusetts04-2787865
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
One Main Street, Cambridge, MA 02142
(Address of principal executive offices, including zip code)
(617) 374-9600
(Registrant’s telephone number, including area code)
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value per sharePEGANASDAQ Global Select Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No ¨            
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
There were 82,961,20485,031,165 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on April 19, 2023.17, 2024.


Table of Contents

PEGASYSTEMS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of March 31, 20232024 and December 31, 20222023
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 20232024 and 20222023
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) for the three months ended March 31, 20232024 and 20222023
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 20232024 and 20222023
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20232024 and 20222023
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
Signature

2

Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, 2023December 31, 2022
March 31, 2024March 31, 2024December 31, 2023
AssetsAssets
Current assets:Current assets:
Current assets:
Current assets:
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalentsCash and cash equivalents$168,318 $145,054 
Marketable securitiesMarketable securities155,564 152,167 
Total cash, cash equivalents, and marketable securitiesTotal cash, cash equivalents, and marketable securities323,882 297,221 
Accounts receivable201,585 255,150 
Unbilled receivables196,279 213,719 
Accounts receivable, net
Unbilled receivables, net
Other current assetsOther current assets73,982 80,388 
Total current assetsTotal current assets795,728 846,478 
Unbilled receivables79,704 95,806 
Long-term unbilled receivables, net
GoodwillGoodwill81,434 81,399 
Other long-term assetsOther long-term assets324,975 333,989 
Total assetsTotal assets$1,281,841 $1,357,672 
Liabilities and stockholders’ equityLiabilities and stockholders’ equity
Current liabilities:Current liabilities:
Current liabilities:
Current liabilities:
Accounts payable
Accounts payable
Accounts payableAccounts payable$12,565 $18,195 
Accrued expensesAccrued expenses45,432 50,355 
Accrued compensation and related expensesAccrued compensation and related expenses56,574 127,728 
Deferred revenueDeferred revenue342,591 325,212 
Convertible senior notes, net
Other current liabilitiesOther current liabilities17,802 17,450 
Total current liabilitiesTotal current liabilities474,964 538,940 
Convertible senior notes, net561,655 593,609 
Operating lease liabilities76,082 79,152 
Long-term convertible senior notes, net
Long-term operating lease liabilities
Other long-term liabilitiesOther long-term liabilities14,644 15,128 
Total liabilitiesTotal liabilities1,127,345 1,226,829 
Commitments and contingencies (Note 15)Commitments and contingencies (Note 15)Commitments and contingencies (Note 15)
Stockholders’ equity:Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issuedPreferred stock, 1,000 shares authorized; none issued— — 
Common stock, 200,000 shares authorized; 82,940 and 82,436 shares issued and outstanding at
March 31, 2023 and December 31, 2022, respectively
829 824 
Preferred stock, 1,000 shares authorized; none issued
Preferred stock, 1,000 shares authorized; none issued
Common stock, 200,000 shares authorized; 85,011 and 83,840 shares issued and outstanding at
March 31, 2024 and December 31, 2023, respectively
Additional paid-in capitalAdditional paid-in capital272,481 229,602 
Accumulated deficit(97,287)(76,513)
(Accumulated deficit)
Accumulated other comprehensive (loss)Accumulated other comprehensive (loss)(21,527)(23,070)
Total stockholders’ equityTotal stockholders’ equity154,496 130,843 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$1,281,841 $1,357,672 

See notes to unaudited condensed consolidated financial statements.
3


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
March 31,
20232022
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
March 31,
2024
2024
2024
Revenue
Revenue
RevenueRevenue
Subscription servicesSubscription services$187,509 $170,033 
Subscription services
Subscription services
Subscription license
Subscription license
Subscription licenseSubscription license84,527 137,533 
ConsultingConsulting53,033 61,301 
Consulting
Consulting
Perpetual license
Perpetual license
Perpetual licensePerpetual license403 7,440 
Total revenueTotal revenue325,472 376,307 
Total revenue
Total revenue
Cost of revenue
Cost of revenue
Cost of revenueCost of revenue
Subscription servicesSubscription services36,864 32,030 
Subscription services
Subscription services
Subscription license
Subscription license
Subscription licenseSubscription license719 622 
ConsultingConsulting60,348 55,511 
Consulting
Consulting
Perpetual license
Perpetual license
Perpetual licensePerpetual license34 
Total cost of revenueTotal cost of revenue97,934 88,197 
Total cost of revenue
Total cost of revenue
Gross profit
Gross profit
Gross profitGross profit227,538 288,110 
Operating expensesOperating expenses
Operating expenses
Operating expenses
Selling and marketing
Selling and marketing
Selling and marketingSelling and marketing149,797 162,236 
Research and developmentResearch and development75,376 71,490 
Research and development
Research and development
General and administrativeGeneral and administrative23,110 35,764 
General and administrative
General and administrative
Litigation settlement, net of recoveries
Litigation settlement, net of recoveries
Litigation settlement, net of recoveries
Restructuring
Restructuring
RestructuringRestructuring1,461 — 
Total operating expensesTotal operating expenses249,744 269,490 
(Loss) income from operations(22,206)18,620 
Foreign currency transaction (loss) gain(2,675)2,876 
Total operating expenses
Total operating expenses
(Loss) from operations
(Loss) from operations
(Loss) from operations
Foreign currency transaction (loss)
Foreign currency transaction (loss)
Foreign currency transaction (loss)
Interest income
Interest income
Interest incomeInterest income1,485 207 
Interest expenseInterest expense(1,918)(1,946)
Gain (loss) on capped call transactions3,206 (30,560)
Interest expense
Interest expense
Gain on capped call transactions
Gain on capped call transactions
Gain on capped call transactions
Other income, netOther income, net6,583 2,741 
(Loss) before provision for (benefit from) income taxes(15,525)(8,062)
Provision for (benefit from) income taxes5,249 (7,683)
Other income, net
Other income, net
(Loss) before (benefit from) provision for income taxes
(Loss) before (benefit from) provision for income taxes
(Loss) before (benefit from) provision for income taxes
(Benefit from) provision for income taxes
(Benefit from) provision for income taxes
(Benefit from) provision for income taxes
Net (loss)
Net (loss)
Net (loss)Net (loss)$(20,774)$(379)
(Loss) per share(Loss) per share
(Loss) per share
(Loss) per share
Basic
Basic
BasicBasic$(0.25)$— 
DilutedDiluted$(0.25)$— 
Diluted
Diluted
Weighted-average number of common shares outstanding
Weighted-average number of common shares outstanding
Weighted-average number of common shares outstandingWeighted-average number of common shares outstanding
BasicBasic82,604 81,680 
Basic
Basic
DilutedDiluted82,604 81,680 
Diluted
Diluted

See notes to unaudited condensed consolidated financial statements.
4


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(in thousands)
Three Months Ended
March 31,
20232022
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(in thousands)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(in thousands)
Three Months Ended
March 31,
2024
2024
2024
Net (loss)Net (loss)$(20,774)$(379)
Other comprehensive income (loss), net of tax
Unrealized (loss) gain on available-for-sale securities(46)222 
Net (loss)
Net (loss)
Other comprehensive (loss) income, net of tax
Other comprehensive (loss) income, net of tax
Other comprehensive (loss) income, net of tax
Unrealized (loss) on available-for-sale securities
Unrealized (loss) on available-for-sale securities
Unrealized (loss) on available-for-sale securities
Foreign currency translation adjustmentsForeign currency translation adjustments1,589 (2,770)
Total other comprehensive income (loss), net of tax1,543 (2,548)
Foreign currency translation adjustments
Foreign currency translation adjustments
Total other comprehensive (loss) income, net of tax
Total other comprehensive (loss) income, net of tax
Total other comprehensive (loss) income, net of tax
Comprehensive (loss)Comprehensive (loss)$(19,231)$(2,927)
Comprehensive (loss)
Comprehensive (loss)

See notes to unaudited condensed consolidated financial statements.
5


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
Common StockAdditional
Paid-In Capital
Retained Earnings (Accumulated Deficit)
Accumulated Other Comprehensive (Loss)
Total
Stockholders’ Equity
Number
of Shares
Amount
December 31, 202181,712 $817 $145,810 $276,449 $(6,988)$416,088 
Repurchase of common stock(242)(2)(22,581)— — (22,583)
Issuance of common stock for stock compensation plans297 (12,131)— — (12,128)
Issuance of common stock under the employee stock purchase plan35 — 2,446 — — 2,446 
Stock-based compensation— — 28,227 — — 28,227 
Cash dividends declared ($0.03 per share)— — — (2,455)— (2,455)
Other comprehensive (loss)— — — — (2,548)(2,548)
Net (loss)— — — (379)— (379)
March 31, 202281,802 $818 $141,771 $273,615 $(9,536)$406,668 
Common StockCommon StockAdditional paid-in capitalRetained earnings (accumulated deficit)Accumulated other comprehensive (loss)
Total
stockholders’ equity
Number
of shares
December 31, 2022
December 31, 2022
December 31, 2022December 31, 202282,436 $824 $229,602 $(76,513)$(23,070)$130,843 
Issuance of common stock for stock compensation plans
Issuance of common stock for stock compensation plans
Issuance of common stock for stock compensation plansIssuance of common stock for stock compensation plans452 668 — — 672 
Issuance of common stock under the employee stock purchase planIssuance of common stock under the employee stock purchase plan52 2,142 — — 2,143 
Stock-based compensationStock-based compensation— — 42,557 — — 42,557 
Cash dividends declared ($0.03 per share)Cash dividends declared ($0.03 per share)— — (2,488)— — (2,488)
Other comprehensive incomeOther comprehensive income— — — — 1,543 1,543 
Net (loss)Net (loss)— — — (20,774)— (20,774)
March 31, 2023March 31, 202382,940 $829 $272,481 $(97,287)$(21,527)$154,496 
December 31, 2023
December 31, 2023
December 31, 2023
Issuance of common stock for stock compensation plans
Issuance of common stock for stock compensation plans
Issuance of common stock for stock compensation plans
Issuance of common stock under the employee stock purchase plan
Stock-based compensation
Cash dividends declared ($0.03 per share)
Other comprehensive (loss)
Net (loss)
March 31, 2024

See notes to unaudited condensed consolidated financial statements.
6


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
20232022
Three Months Ended
March 31,
Three Months Ended
March 31,
202420242023
Operating activitiesOperating activities
Net (loss)
Net (loss)
Net (loss)Net (loss)$(20,774)$(379)
Adjustments to reconcile net (loss) to cash provided by operating activitiesAdjustments to reconcile net (loss) to cash provided by operating activities
Stock-based compensationStock-based compensation42,557 28,227 
Stock-based compensation
Stock-based compensation
Amortization of deferred commissions
Amortization of intangible assets and depreciation
Lease expense
Foreign currency transaction (loss)
(Gain) on capped call transactions
Deferred income taxesDeferred income taxes(126)(9,295)
(Gain) loss on capped call transactions(3,206)30,560 
Amortization of deferred commissions14,277 17,221 
Lease expense4,594 3,919 
Amortization of intangible assets and depreciation4,724 4,171 
Foreign currency transaction loss (gain)2,675 (2,876)
(Gain) on investments
(Gain) on repurchases of convertible senior notes
Other non-cashOther non-cash(5,729)(1,100)
Change in operating assets and liabilities, netChange in operating assets and liabilities, net29,115 (55,332)
Cash provided by operating activitiesCash provided by operating activities68,107 15,116 
Investing activitiesInvesting activities
Purchases of investmentsPurchases of investments(39,401)(33,690)
Purchases of investments
Purchases of investments
Proceeds from maturities and called investmentsProceeds from maturities and called investments36,475 20,915 
Sales of investments— 13,350 
Investment in property and equipment
Investment in property and equipment
Investment in property and equipmentInvestment in property and equipment(11,487)(6,657)
Cash (used in) investing activitiesCash (used in) investing activities(14,413)(6,082)
Financing activitiesFinancing activities
Repurchases of convertible senior notesRepurchases of convertible senior notes(29,901)— 
Proceeds from settlement of capped calls transactions188 — 
Repurchases of convertible senior notes
Repurchases of convertible senior notes
Dividend payments to stockholdersDividend payments to stockholders(2,474)(2,454)
Proceeds from employee stock purchase plan2,143 2,446 
Proceeds from stock option exercises1,779 — 
Common stock repurchases(1,107)(35,910)
Cash (used in) financing activities(29,372)(35,918)
Proceeds from employee stock plans
Proceeds from employee stock plans
Proceeds from employee stock plans
Common stock repurchases for tax withholdings for net settlement of equity awards
Other
Other
Other
Cash provided by (used in) financing activities
Effect of exchange rate changes on cash, cash equivalents, and restricted cashEffect of exchange rate changes on cash, cash equivalents, and restricted cash782 (310)
Net increase (decrease) in cash, cash equivalents, and restricted cash25,104 (27,194)
Net increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of periodCash, cash equivalents, and restricted cash, beginning of period145,054 159,965 
Cash, cash equivalents, and restricted cash, end of periodCash, cash equivalents, and restricted cash, end of period$170,158 $132,771 
Cash and cash equivalentsCash and cash equivalents$168,318 $132,771 
Cash and cash equivalents
Cash and cash equivalents
Restricted cash included in other current assets
Restricted cash included in other long-term assetsRestricted cash included in other long-term assets1,840 — 
Total cash, cash equivalents and restricted cash$170,158 $132,771 
Total cash, cash equivalents, and restricted cash

See notes to unaudited condensed consolidated financial statements.
7

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION
Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022.2023.
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.
All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented do not necessarily indicate the expected results for the full year 2023.2024.
NOTE 2. MARKETABLE SECURITIES
March 31, 2023December 31, 2022
March 31, 2024March 31, 2024December 31, 2023
(in thousands)(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value
Government debtGovernment debt$2,970 $— $(33)$2,937 $2,960 $— $(52)$2,908 
Corporate debtCorporate debt154,299 (1,680)152,627 151,906 — (2,647)149,259 
$157,269 $$(1,713)$155,564 $154,866 $— $(2,699)$152,167 
$
As of March 31, 2023,2024, marketable securities’ maturities ranged from April 20232024 to January 2026, with a weighted-average remaining maturity of 0.5 years.
NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables
(in thousands)March 31, 2023December 31, 2022
Accounts receivable$201,585 $255,150 
Unbilled receivables196,279 213,719 
Long-term unbilled receivables79,704 95,806 
$477,568 $564,675 
(in thousands)March 31, 2024December 31, 2023
Accounts receivable, net$191,987 $300,173 
Unbilled receivables, net170,458 237,379 
Long-term unbilled receivables, net72,814 85,402 
$435,259 $622,954 
Unbilled receivables
Unbilled receivables are client-committed amounts for which revenue recognition precedes billing, and billingbilling. Billing is solely subject to the passage of time.
Unbilled receivables by expected billingcollection date:
(Dollars in thousands)(Dollars in thousands)March 31, 2023(Dollars in thousands)March 31, 2024
1 year or less1 year or less$196,279 71 %1 year or less$170,458 70 70 %
1-2 years1-2 years64,812 24 %1-2 years54,111 22 22 %
2-5 years2-5 years14,892 %2-5 years18,703 %
$275,983 100 %
$$243,272 100 %
Unbilled receivables by contract effective date:
(Dollars in thousands)(Dollars in thousands)March 31, 2023(Dollars in thousands)March 31, 2024
20242024$19,018 %
20232023$51,895 19 %2023144,525 59 59 %
2022202296,349 34 %202238,025 16 16 %
2021202187,278 32 %202135,988 15 15 %
202027,755 10 %
2019 and prior12,706 %
$275,983 100 %
2020 and prior2020 and prior5,716 %
$$243,272 100 %
8

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)




Major clients

Clients that represented 10% or more of the Company’s total accounts receivable and unbilled receivables:
March 31, 2024December 31, 2023
Client A
Accounts receivable10 %*
Unbilled receivables12 %*
Total receivables11 %*
* Client accounted for less than 10% of receivables.
Contract assets
Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.
(in thousands)(in thousands)March 31, 2023December 31, 2022(in thousands)March 31, 2024December 31, 2023
Contract assets (1)
Contract assets (1)
$14,463 $17,546 
Long-term contract assets (2)
Long-term contract assets (2)
11,323 16,470 
$25,786 $34,016 
$
(1) Included in other current assets.
(2) Included in other long-term assets.
Deferred revenue
Deferred revenue consists of billings and payments received in advance of revenue recognition.
(in thousands)(in thousands)March 31, 2023December 31, 2022(in thousands)March 31, 2024December 31, 2023
Deferred revenueDeferred revenue$342,591 $325,212 
Long-term deferred revenue (1)
Long-term deferred revenue (1)
3,323 3,552 
$345,914 $328,764 
$
(1) Included in other long-term liabilities.
The increase in deferred revenue in the three months ended March 31, 20232024, was primarily due to new billings in advance of revenue recognition exceedingrecognized. In the $139.7three months ended March 31, 2024, $168.3 million ofin revenue was recognized during the period that was included infrom deferred revenue as of December 31, 2022.2023.
NOTE 4. DEFERRED COMMISSIONS
(in thousands)(in thousands)March 31, 2023December 31, 2022(in thousands)March 31, 2024December 31, 2023
Deferred commissions (1)
Deferred commissions (1)
$124,069 $130,195 
(1) Included in other long-term assets.
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)
(in thousands)
(in thousands)(in thousands)20232022
Amortization of deferred commissions (1)
Amortization of deferred commissions (1)
$14,277 $17,221 
Amortization of deferred commissions (1)
Amortization of deferred commissions (1)
(1) Included in selling and marketing expense.marketing.
9

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 5. GOODWILL AND OTHER INTANGIBLES
Goodwill
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)(in thousands)20232022(in thousands)20242023
January 1,January 1,$81,399 $81,923 
Currency translation adjustmentsCurrency translation adjustments35 108 
Currency translation adjustments
Currency translation adjustments
March 31,March 31,$81,434 $82,031 
Intangibles
Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.
March 31, 2023
March 31, 2024March 31, 2024
(in thousands)(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
Client-relatedClient-related4-10 years$63,094 $(58,983)$4,111 
TechnologyTechnology2-10 years68,085 (62,335)5,750 
OtherOther1-5 years5,361 (5,361)— 
$136,540 $(126,679)$9,861 
$
(1) Included in other long-term assets.
9

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



December 31, 2022
December 31, 2023December 31, 2023
(in thousands)(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value (1)
Client-relatedClient-related4-10 years$63,076 $(58,623)$4,453 
TechnologyTechnology2-10 years68,056 (61,621)6,435 
OtherOther1-5 years5,361 (5,361)— 
$136,493 $(125,605)$10,888 
$
(1) Included in other long-term assets.
Future estimated intangibles assets amortization:amortization of intangible assets:
(in thousands)March 31, 2023
Remainder of 2023$2,884 
20243,163 
20252,613 
2026874 
2027327 
$9,861 
(in thousands)March 31, 2024
Remainder of 2024$2,208 
20252,616 
2026874 
2027327 
$6,025 
Amortization of intangible assets:
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)
(in thousands)
(in thousands)(in thousands)20232022
Cost of revenueCost of revenue$706 $629 
Cost of revenue
Cost of revenue
Selling and marketing
Selling and marketing
Selling and marketingSelling and marketing343 343 
$
$1,049 $972 
$
$

NOTE 6. OTHER ASSETS AND LIABILITIES
Other current assets
(in thousands)March 31, 2023December 31, 2022
Income tax receivables$22,344 $25,354 
Contract assets14,463 17,546 
Other37,175 37,488 
$73,982 $80,388 
Other long-term assets
(in thousands)March 31, 2023December 31, 2022
Deferred commissions$124,069 $130,195 
Right of use assets72,549 76,114 
Property and equipment55,775 55,056 
Venture investments16,265 13,069 
Contract assets11,323 16,470 
Intangible assets9,861 10,888 
Capped call transactions5,600 2,582 
Deferred income taxes4,827 4,795 
Restricted cash1,840 — 
Other22,866 24,820 
$324,975 $333,989 
Other current liabilities
(in thousands)March 31, 2023December 31, 2022
Operating lease liabilities$15,314 $14,976 
Dividends payable2,488 2,474 
$17,802 $17,450 
(in thousands)March 31, 2024December 31, 2023
Income tax receivables$9,058 $4,804 
Contract assets10,853 16,238 
Insurance receivable8,305 1,954 
Capped call transactions4,192 — 
Restricted cash775 — 
Other45,010 45,141 
$78,193 $68,137 
10

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Other long-term assets
(in thousands)March 31, 2024December 31, 2023
Deferred commissions$102,855 $114,119 
Right of use assets61,512 64,198 
Property and equipment44,856 47,279 
Venture investments20,946 19,450 
Contract assets20,909 20,635 
Intangible assets6,025 7,002 
Capped call transactions— 893 
Deferred income taxes3,666 3,678 
Restricted cash2,990 2,925 
Other34,101 34,517 
$297,860 $314,696 
Accrued expenses
(in thousands)March 31, 2024December 31, 2023
Litigation settlements$35,000 $— 
Cloud hosting12,736 1,358 
Outside professional services13,352 10,419 
Marketing and sales program3,888 2,557 
Income and other taxes6,676 15,428 
Employee related4,466 4,486 
Other4,524 5,693 
$80,642 $39,941 
Other current liabilities
(in thousands)March 31, 2024December 31, 2023
Operating lease liabilities$14,184 $15,000 
Dividends payable2,550 2,515 
Other2,362 3,828 
$19,096 $21,343 
Other long-term liabilities
(in thousands)(in thousands)March 31, 2023December 31, 2022(in thousands)March 31, 2024December 31, 2023
Deferred revenueDeferred revenue$3,323 $3,552 
Income taxes payableIncome taxes payable3,578 3,207 
OtherOther7,743 8,369 
$14,644 $15,128 
$
NOTE 7. LEASES
Expense
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)
(in thousands)
(in thousands)(in thousands)20232022
Fixed lease costsFixed lease costs$5,766 $5,093 
Fixed lease costs
Fixed lease costs
Short-term lease costs
Short-term lease costs
Short-term lease costsShort-term lease costs781 806 
Variable lease costsVariable lease costs1,975 764 
$8,522 $6,663 
Variable lease costs
Variable lease costs
$
$
$
11

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Right of use assets and lease liabilities
(in thousands)(in thousands)March 31, 2023December 31, 2022(in thousands)March 31, 2024December 31, 2023
Right of use assets (1)
Right of use assets (1)
$72,549 $76,114 
Operating lease liabilities (2)
Operating lease liabilities (2)
$15,314 $14,976 
Long-term operating lease liabilitiesLong-term operating lease liabilities$76,082 $79,152 

(1) Included in other long-term assets.
(2) Included in other current liabilities.
Weighted-average remaining lease term and discount rate for the Company’s leases were:
March 31, 2023December 31, 2022
March 31, 2024March 31, 2024December 31, 2023
Weighted-average remaining lease termWeighted-average remaining lease term7.3 years7.5 yearsWeighted-average remaining lease term6.7 years6.8 years
Weighted-average discount rate (1)
Weighted-average discount rate (1)
4.1 %4.1 %
Weighted-average discount rate (1)
4.0 %4.0 %
(1) The rates implicit in most of the Company’s leases are not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over the lease term in a similar economic environment.
Maturities of lease liabilities:
(in thousands)(in thousands)March 31, 2023(in thousands)March 31, 2024
Remainder of 2023$14,003 
202417,642 
Remainder of 2024
2025202514,562 
2026202610,917 
202720279,863 
202820289,290 
2029
ThereafterThereafter30,090 
Total lease paymentsTotal lease payments106,367 
Less: imputed interest (1)
Less: imputed interest (1)
(14,971)
$91,396 
$
(1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated due to a lease reassessment event.
Cash flow information
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)(in thousands)20232022(in thousands)20242023
Cash paid for operating leases, net of tenant improvement allowancesCash paid for operating leases, net of tenant improvement allowances$5,038 $3,650 
Right of use assets recognized for new leases and amendments (non-cash)Right of use assets recognized for new leases and amendments (non-cash)$721 $3,854 
11

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 8. DEBT
Convertible senior notes and capped calls
Convertible senior notes
In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal of $600 million, due March 1, 2025, in a private placement. No principal payments are due before maturity. The Notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1, beginning on September 1, 2020.
In the three months ended March 31, 2023, the Company recorded a gain of $2.8 million in other income, net from the repurchase of Notes representing $33 million in aggregate principal amount.
Conversion rights
The conversion rate is 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of $135.05 per share of common stock. The conversion rate will be adjusted upon certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions. The Company will settle conversions by paying or delivering cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate. The conversion rate will be adjusted upon certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions.
Beginning on September 1, 2024, noteholders may convert their Notes at any time at their election.
Before September 1, 2024, noteholders may convert their Notes in the following circumstances:
12

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



During any calendar quarter beginning after June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter.
During the five consecutive business days immediately after any five consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.
Upon certain corporate events or distributions or if the Company calls any Notes for redemption, noteholders may convert before the close of business on the business day immediately before the related redemption date (or, if the Company fails to pay the redemption price in full on the redemption date until the Company pays the redemption price).
As of March 31, 2023,2024, the Notes were not eligible for conversion.
Repurchase rights
On or after March 1, 2023 and on or before the 40th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the Notes at a repurchase price equal to 100% of the principal amount, plus accrued and unpaid interest, if the last reported sale price of the Company’s common stock exceeded 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice.
If certain corporate events that constitute a “Fundamental Change” occur, each noteholder will have the right to require the Company to repurchase for cash all of such noteholder’s Notes, or any portion of the principal thereof that is equal to $1,000 or a multiple of $1,000, at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. A Fundamental Change relates to mergers, changes in control of the Company, liquidation/dissolution of the Company, or the delisting of the Company’s common stock.
Carrying value of the Notes:
(in thousands)(in thousands)March 31, 2023December 31, 2022(in thousands)March 31, 2024December 31, 2023
PrincipalPrincipal$567,000 $600,000 
Unamortized issuance costsUnamortized issuance costs(5,345)(6,391)
Convertible senior notes, netConvertible senior notes, net$561,655 $593,609 

Interest expense related to the Notes:
Three Months Ended
March 31,
(in thousands)20232022
Contractual interest expense (0.75% coupon)$1,125 $1,125 
Amortization of issuance costs728 719 
$1,853 $1,844 
12

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Three Months Ended
March 31,
(in thousands)20242023
Contractual interest expense (0.75% coupon)$942 $1,125 
Amortization of issuance costs617 728 
$1,559 $1,853 
The average interest rate on the Notes in the three months ended March 31, 20232024 and 20222023 was 1.2%.
Future payments of principal and contractual interest:payments:
March 31, 2023
March 31, 2024March 31, 2024
(in thousands)(in thousands)PrincipalInterestTotal(in thousands)PrincipalInterestTotal
Remainder of 2023$— $1,772 $1,772 
2024— 4,253 4,253 
Remainder of 2024
20252025567,000 2,126 569,126 
$567,000 $8,151 $575,151 
$
$
$
Capped call transactions
In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions initially covered approximately 4.4 million shares (representing the number of shares for which the Notes were initially convertible) of the Company’s common stock. In the three months ended March 31, 2023, Capped Call Transactions covering approximately 0.20.7 million shares were settled for proceeds of $0.2$0.3 million.
As of March 31, 2023,2024, Capped Call Transactions representingcovering approximately 4.23.7 million shares were outstanding.
The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The cap price of the Capped Call Transactions is subject to adjustment upon specified extraordinary events affecting the Company, including mergers and tender offers.
13

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



The Capped Call Transactions are accounted for as derivative instruments and do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value of the Capped Call Transactions, calculated following the governing documents may not represent a fair value measurement. The Capped Call Transactions are classified as other long-term assets and remeasured to fair value each reporting period, resulting in a non-operating gain or loss.
Change in capped call transactions:
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)(in thousands)20232022(in thousands)20242023
January 1,January 1,$2,582 $59,964 
SettlementsSettlements(188)— 
Fair value adjustmentFair value adjustment3,206 (30,560)
March 31,March 31,$5,600 $29,404 
Credit facility
In November 2019, and as since amended, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association.The Company may use borrowings for general corporate purposes and to finance working capital needs. Subject to specific conditions and the agreement of the financial institutions lending the additional amount, the aggregate commitment may be increased to $200 million. The commitments expire on November 4, 2024, and any outstanding loans will be payable on such date. TheOn April 23, 2024, the Credit Facility was amended to extend the expiration date to February 4, 2025.The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions.
The Company is required to comply with financial covenants, including:
Beginning with the fiscal quarter ended March 31, 2022 and ending with the fiscal quarter ended December 31, 2023, Pegasystems Inc. must maintain at least $200 million in cash, investments, and availability under the Revolving Credit Loan.
Beginning with the fiscal quarter ended March 31, 2023 and ending with the fiscal year ended December 31, 2023, maintain
Year to Date
(in thousands)March 31, 2023June 30, 2023September 30, 2023December 31, 2023
Minimum Consolidated EBITDA (as defined in the Credit Facility)$38,862 $59,894 $95,597 $214,590 
Beginning with the fiscal quarter ended March 31, 2024, the Company must maintain a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0.1.
As of March 31, 20232024 and December 31, 2022, the Company had no outstanding cash borrowings under the Credit Facility.
As of March 31, 2023, the Company had $27.3 million in outstanding letters of credit, which reduce the Company’sreducing available borrowing capacity under the Credit Facility.Facility, but no outstanding cash borrowings.
13

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 9. RESTRUCTURING
Go-to-market planThe Company has undertaken the following restructuring activities as it optimizes its go-to-market strategy and Salemreassesses its office space needs:
During the fourth quarter of 2022, management committed to a restructuring plan aligned with the Company’s target organization go-to-market strategy. The plan resulted in a restructuring expense of $21.7 million, primarily associated with severance and benefits for impacted employees and expenses incurred as a result of the closure of the Company’s Salem, New Hampshire office.
(in thousands)Three months endedExpense
Office space reductionMarch 31, 2023$1,241 
Employee severance and related benefitsJune 30, 2023$1,581 
Employee severance and related benefits and office space reductionSeptember 30, 2023$17,236 
Office space reductionDecember 31, 2023$1,497 
Accrued employee severance and related benefits:
(in thousands)2023
January 1,$18,573 
Costs incurred220 
Cash disbursements(14,458)
Currency translation adjustments181 
March 31,$4,516 
Change for all restructuring actions:
2023 office space closure
Three Months Ended
March 31,
(in thousands)20242023
January 1,$8,095 $18,573 
Costs incurred384 220 
Cash disbursements(3,347)(14,458)
Currency translation adjustments(131)181 
March 31,$5,001 $4,516 
In the three months ended March 31, 2023, the Company recognized an impairment of $1.2 million on its operating lease right of use assets primarily due to the closure of leased office spaceNote: Accrued employee severance and related benefits is included in Poland.accrued compensation and related expenses.
NOTE 10. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis
The Company records its cash equivalents, marketable securities, Capped Call Transactions, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.
14

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:
Level 1 - observable inputs, such as quoted prices in active markets for identical assets or liabilities;
Level 2 - significant other inputs that are observable either directly or indirectly; and
Level 3 - significant unobservable inputs on which there iswith little or no market data, which require the Company to develop its own assumptions.
This hierarchy requires the Company to use observable market data when available and minimize unobservable inputs when determining fair value.
The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation model uses various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield. The Company applies judgment when determining expected volatility. The Company considers the underlying equity security’s historical and implied volatility levels. The Company’s venture investments are recorded at fair value based on multiple valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.
Assets and liabilities measured at fair value on a recurring basis:
March 31, 2023December 31, 2022
March 31, 2024March 31, 2024December 31, 2023
(in thousands)(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalentsCash equivalents$41,088 $— $— $41,088 $2,526 $— $— $2,526 
Marketable securitiesMarketable securities$— $155,564 $— $155,564 $— $152,167 $— $152,167 
Capped Call Transactions (1)
Capped Call Transactions (1)
$— $5,600 $— $5,600 $— $2,582 $— $2,582 
Venture investments (1) (2)
Venture investments (1) (2)
$— $— $16,265 $16,265 $— $— $13,069 $13,069 
(1) Included in other long-term assets.
(2) Investments in privately-held companies.
14

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Changes in venture investments:
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)(in thousands)20232022(in thousands)20242023
January 1,January 1,$13,069 $7,648 
New investmentsNew investments400 — 
Changes in foreign exchange ratesChanges in foreign exchange rates58 (61)
Changes in foreign exchange rates
Changes in foreign exchange rates
Changes in fair value:Changes in fair value:
included in other income, net
included in other income, net
included in other income, netincluded in other income, net3,802 2,741 
included in other comprehensive (loss)included in other comprehensive (loss)(1,064)2,502 
March 31,March 31,$16,265 $12,830 
The carrying value of certain other financial instruments, including receivables and accounts payable, approximates fair value due to these items’their short maturities.
Fair value of the Convertible Senior Notes
The fair value of the Notes outstanding (including the embedded conversion feature) was $507.8$481.7 million as of March 31, 20232024, and $521.1$466.5 million as of December 31, 2022. In the three months ended March 31, 2023 the Company repurchased Notes representing $33 million in aggregate principal amount.2023.
The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy.
NOTE 11. REVENUE
Geographic revenue
Three Months Ended
March 31,
(Dollars in thousands)20232022
U.S.$184,519 56 %$217,272 58 %
Other Americas15,011 %45,751 12 %
United Kingdom (“U.K.”)42,237 13 %30,932 %
Europe (excluding U.K.), Middle East, and Africa51,318 16 %49,136 13 %
Asia-Pacific32,387 10 %33,216 %
$325,472 100 %$376,307 100 %
Revenue streams
Three Months Ended
March 31,
(in thousands)20232022
Perpetual license$403 $7,440 
Subscription license84,527 137,533 
Revenue recognized at a point in time84,930 144,973 
Maintenance79,630 79,716 
Pega Cloud107,879 90,317 
Consulting53,033 61,301 
Revenue recognized over time240,542 231,334 
Total revenue$325,472 $376,307 
Three Months Ended
March 31,
(Dollars in thousands)20242023
U.S.$180,983 54 %$184,519 56 %
Other Americas21,786 %15,011 %
United Kingdom (“U.K.”)32,117 10 %42,237 13 %
Europe (excluding U.K.), Middle East, and Africa61,847 19 %51,318 16 %
Asia-Pacific33,414 10 %32,387 10 %
$330,147 100 %$325,472 100 %
15

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Three Months Ended
March 31,
(in thousands)20232022
Pega Cloud$107,879 $90,317 
Maintenance79,630 79,716 
Subscription services187,509 170,033 
Subscription license84,527 137,533 
Subscription272,036 307,566 
Perpetual license403 7,440 
Consulting53,033 61,301 
$325,472 $376,307 
Revenue streams
Three Months Ended
March 31,
(in thousands)20242023
Subscription license$63,338 $84,527 
Perpetual license859 403 
Revenue recognized at a point in time64,197 84,930 
Maintenance81,001 79,630 
Pega Cloud130,902 107,879 
Consulting54,047 53,033 
Revenue recognized over time265,950 240,542 
Total revenue$330,147 $325,472 
Three Months Ended
March 31,
(in thousands)20242023
Pega Cloud$130,902 $107,879 
Maintenance81,001 79,630 
Subscription services211,903 187,509 
Subscription license63,338 84,527 
Subscription275,241 272,036 
Consulting54,047 53,033 
Perpetual license859 403 
$330,147 $325,472 
Remaining performance obligations ("Backlog")
Expected future revenue from existing non-cancellable contracts:
As of March 31, 2023:2024:
(Dollars in thousands)(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal
MaintenancePega Cloud
1 year or less1 year or less$235,315 $389,632 $35,346 $5,262 $41,203 $706,758 54 %
1 year or less
1 year or less$461,928 $225,598 $33,985 $2,727 $34,716 $758,954 53 %
1-2 years1-2 years66,272 239,228 3,215 2,252 6,653 317,620 24 %1-2 years292,787 65,605 65,605 10,008 10,008 — — 1,604 1,604 370,004 370,004 26 26 %
2-3 years2-3 years29,295 131,085 6,777 — 2,292 169,449 13 %2-3 years149,797 32,307 32,307 2,903 2,903 — — 2,428 2,428 187,435 187,435 13 13 %
Greater than 3 yearsGreater than 3 years7,479 106,778 — — — 114,257 %Greater than 3 years86,601 21,650 21,650 98 98 — — — — 108,349 108,349 %
$338,361 $866,723 $45,338 $7,514 $50,148 $1,308,084 100 %
$$991,113 $345,160 $46,994 $2,727 $38,748 $1,424,742 100 %
As of March 31, 2022:2023:
(Dollars in thousands)(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal
MaintenancePega Cloud
1 year or less1 year or less$228,984 $329,857 $47,428 $7,281 $40,661 $654,211 55 %
1 year or less
1 year or less$389,632 $235,315 $35,346 $5,262 $41,203 $706,758 54 %
1-2 years1-2 years63,870 208,875 16,111 4,505 10,955 304,316 26 %1-2 years239,228 66,272 66,272 3,215 3,215 2,252 2,252 6,653 6,653 317,620 317,620 24 24 %
2-3 years2-3 years33,617 106,156 2,422 2,252 3,876 148,323 13 %2-3 years131,085 29,295 29,295 6,777 6,777 — — 2,292 2,292 169,449 169,449 13 13 %
Greater than 3 yearsGreater than 3 years22,611 44,596 1,758 — 522 69,487 %Greater than 3 years106,778 7,479 7,479 — — — — — — 114,257 114,257 %
$349,082 $689,484 $67,719 $14,038 $56,014 $1,176,337 100 %
$$866,723 $338,361 $45,338 $7,514 $50,148 $1,308,084 100 %
16

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 12. STOCK-BASED COMPENSATION
Expense
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)
(in thousands)
(in thousands)(in thousands)20232022
Cost of revenueCost of revenue$8,912 $6,378 
Cost of revenue
Cost of revenue
Selling and marketing
Selling and marketing
Selling and marketingSelling and marketing17,661 10,958 
Research and developmentResearch and development9,060 7,346 
Research and development
Research and development
General and administrativeGeneral and administrative6,924 3,545 
$42,557 $28,227 
General and administrative
General and administrative
$
$
$
Income tax benefitIncome tax benefit$(672)$(5,311)
Income tax benefit
Income tax benefit
As of March 31, 2023,2024, the Company had $178.6$184.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 21.8 years.
Grants
Three Months Ended
March 31, 2024
Three Months Ended
March 31, 2024
(in thousands)(in thousands)QuantityTotal Fair Value
Restricted stock units (1)
Non-qualified stock options
Performance stock options (2)
Three Months Ended
March 31, 2023
(in thousands)SharesTotal Fair Value
Restricted stock units1,460 $68,352 
Non-qualified stock options43 $615 
16
(1) Includes units issued when employees elect to receive 50% of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash.

PEGASYSTEMS INC.(2) Performance stock options allow the holder to purchase a specified number of common stock shares at an exercise price equal to or greater than the shares' fair market value at the grant date. For the performance stock options granted in three months ended March 31, 2024, 25% can vest on the first anniversary of the grant date, and 75% can vest on the second anniversary of the grant date, based on the achievement of specific performance conditions. The options expire ten years from the grant date.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



NOTE 13. INCOME TAXES
Effective income tax rate
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(Dollars in thousands)(Dollars in thousands)20232022(Dollars in thousands)20242023
Provision for (benefit from) income taxes$5,249 $(7,683)
(Benefit from) provision for income taxes
Effective income tax rateEffective income tax rate(34)%95 %Effective income tax rate20 %(34)%
The Company’s effective income tax rate in the three months ended March 31, 20232024, was impactedprimarily driven by the valuation allowance on the Company’s U.S. and U.K. deferred tax assets and current taxes payable in the U.S. as a result of projectingand U.K., and forecasted taxable income, that cannot be fully offset by net operating losses and availablean income tax credits.benefit for discrete items in the three months ended March 31, 2024.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. Future realization of deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods. The Company’sA deferred tax valuation allowance requires significant judgment and uncertainties, including assumptions about future taxable income based on historical and projected information. On a quarterly basis,income. Quarterly, the Company reassesses the need for a valuation allowance on its existing net deferred tax assets by tax-paying jurisdiction, weighing positive and negative evidence to assess its recoverability. In making such a determination, the Company considersweighting all available and objectively verifiable negative and positive evidence, including projected future reversals of existing taxable temporary differences, committed contractual backlog (“Backlog”), projected future taxable income, inclusive ofincluding the impact of enacted legislation, tax-planning strategies, and results of recent operations. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified.operating results.
The Company intends to continue maintainingmaintain a full valuation allowance on the Company’s U.Sits U.S. and U.K. net deferred tax assets until there is sufficient evidence exists to support the realization of these deferred tax assets.their realization.
NOTE 14. (LOSS) PER SHARE
Basic (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted (loss) per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and convertible senior notes.
17

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Calculation of (loss) per share:
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands, except per share amounts)
(in thousands, except per share amounts)
(in thousands, except per share amounts)(in thousands, except per share amounts)20232022
Net (loss)Net (loss)$(20,774)$(379)
Net (loss)
Net (loss)
Weighted-average common shares outstanding
Weighted-average common shares outstanding
Weighted-average common shares outstandingWeighted-average common shares outstanding82,604 81,680 
(Loss) per share, basic(Loss) per share, basic$(0.25)$ 
(Loss) per share, basic
(Loss) per share, basic
Net (loss)
Net (loss)
Net (loss)Net (loss)$(20,774)$(379)
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)
82,604 81,680 
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)
(Loss) per share, diluted
(Loss) per share, diluted
(Loss) per share, diluted(Loss) per share, diluted$(0.25)$ 
Outstanding anti-dilutive stock options and RSUs (4)
Outstanding anti-dilutive stock options and RSUs (4)
1,348 4,178 
Outstanding anti-dilutive stock options and RSUs (4)
Outstanding anti-dilutive stock options and RSUs (4)
(1) In periods of loss, allAll dilutive securities are excluded in periods of loss as their inclusion would be anti-dilutive.
(2) The shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period. If the outstanding conversion options were fully exercised, the Company would issue approximately 4.23.7 million shares as of March 31, 2023.2024.
(3) The Company’s Capped Call Transactions represent the equivalent of approximately 4.23.7 million shares of the Company’s common stock (representing the number of shares for which the Notes are initially convertible) as of March 31, 2023.2024. The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The Capped Call Transactions are excluded from weighted-average common shares outstanding, assuming dilution, in all periods as their effect would be anti-dilutive.
(4) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted (loss) per share. These awards may be dilutive in the future.
NOTE 15. COMMITMENTS AND CONTINGENCIES
Commitments
See "Note 7. Leases" for additional information.
17

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Legal proceedings
In addition to the matters below, the Company is or may become involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s business, including actions concerning contracts, intellectual property, employment, benefits, and securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.
In addition, as the Company is a party to ongoing litigation, it is at least reasonably possible that the Company’s estimates will change in the near term, and the effect may be material.
In the three months ended March 31, 2024 the Company recorded a $32.4 million litigation settlement net of insurance recoveries, which is comprised of an agreed in principle $35 million litigation settlement reduced by $2.6 million of expected insurance coverage recovery. The Company had no accrued lossesloss for litigation as of March 31, 2023 and December 31, 2022.2023.
Appian Corp. v. Pegasystems Inc. & Youyong Zou
As previously reported, theThe Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia (the “Court”) titled Appian Corp. v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). On May 9, 2022, the jury rendered its verdict finding that the Company had misappropriated one or more of Appian’s trade secrets, that the Company had violated the Virginia Computer Crimes Act, and that the trade secret misappropriation was willful and malicious. The jury awarded damages of $2,036,860,045 for trade secret misappropriation and $1.00 for violating the Virginia Computer Crimes Act. On September 15, 2022, the circuit court of Fairfax County entered judgment of $2,060,479,287, consisting of the damages previously awarded by the jury plus attorneys’ fees and costs, and stating that the judgment is subject to post-judgment interest at a rate of 6.0% per annum, from the date of the jury verdict (May 9, 2022) as to the amount of the jury verdict and from September 15, 2022 as to the amount of the award of attorneys’ fees and costs. On September 15, 2022, the Company filed a notice of appeal from the judgment. On September 29, 2022, the circuit court of Fairfax County approved a $25,000,000 letter of credit obtained by the Company to secure the judgment and entered an order suspending the judgment during the pendency of the Company’s appeal. Appellate briefing is currentlyA panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and will issue a written opinion in process.the future. Although it is not possible to predict timing, thisthe entirety of the appeals process could potentially take years to complete. The Company continues to believe that it did not misappropriate any alleged trade secrets and that its sales of the Company’s products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets. The Company is unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resulting from the appellate proceedings.
18

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell
On May 19, 2022, a lawsuit was filed against the Company, the Company’s chief executive officer and the Company’s chief operating and financial officer in the United States District Court for the Eastern District of Virginia Alexandria Division, captioned City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:22-cv-00578-LMB-IDD). The complaint generally alleges, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder and that the individual defendants violated Section 20(a) of the Exchange Act, in each case by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The complaint seeks unspecified damages on behalf of a class of purchasers of the Company’s securities between May 29, 2020 and May 9, 2022. The litigation has since been transferred to the United States District Court for the District of Massachusetts (Case 1:22-cv-11220-WGY), and lead plaintiff class representatives—Central Pennsylvania Teamsters Pension Fund - Defined Benefit Plan, Central Pennsylvania Teamsters Pension Fund - Retirement Income Plan 1987, and Construction Industry Laborers Pension Fund—have been appointed. On October 18, 2022, a consolidated amended complaint was filed that does not add any new parties or legal claims, is based upon the same general factual allegations as the original complaint, and now seeks unspecified damages on behalf of a class of purchasers of the Company’s securities between June 16, 2020 and May 9, 2022. The Company moved to dismiss the consolidated amended complaint on December 19, 2022. The hearing on the Company’s motion to dismiss is scheduled fortook place on May 17, 2023. TheAfter hearing argument from both sides, the Court denied the Company’s motion from the bench and stated that a written opinion would follow. On June 30, 2023, the Company believesfiled its Answer to the claims brought againstcomplaint. On July 24, 2023, the defendants areCourt issued its written opinion denying the motion to dismiss as to the Company and Defendant Trefler but granting the motion without merit and intendsprejudice as to defend against these claims vigorously. The Company is unableMr. Stillwell.
On March 4, 2024, the parties agreed in principle to reasonably estimate possible damages or a range of possible damages in this matter given the stageproposed settlement of the lawsuit,litigation for an aggregate sum of $35 million. On April 23, 2024, the Company’s beliefparties executed a stipulation of settlement. On April 23, 2024, the plaintiffs filed a motion seeking preliminary approval of the settlement. The parties are awaiting a ruling by the court on that motion and thereafter final approval of the settlement, which will not be heard until after a notice period to the proposed class of shareholders during which they have the opportunity to object to the proposed settlement. Although the outcome of the litigation is not certain until final disposition, the Company has recorded a $35 million accrued loss as of March 31, 2024, for the proposed settlement, the substantial majority of which the Company anticipates will be paid for directly by the Company and not reimbursed by insurance. However, it is possible that actual future losses related to the litigation could exceed the accrual amount if and to the extent that the claims are without merit, and there being no specified quantum of damages sought incourt does not approve the complaint.proposed settlement.
18

PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc. v. Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, Larry Weber, and Kenneth Stillwell, defendants, andIn re Pegasystems Inc., nominal defendantDerivative Litigation
On November 21, 2022, a lawsuit was filed against the members of the Company’s board of directors, the Company’s chief operating and financial officer and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc. v. Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, Larry Weber, and Kenneth Stillwell, defendants, and Pegasystems Inc., nominal defendant (Case 1:22-cv-11985). The complaint generally alleges the defendants sold shares of the Company while in possession of material nonpublic information relating to (i) the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and (ii) alleged misconduct by Company employees alleged in that litigation. On January 10,April 28, 2023, a lawsuit was filed in the United States District Court for the District of Massachusetts by Dag Sagfors, derivatively on behalf of nominal defendant Pegasystems Inc., asserting breach of fiduciary duty and related claims relating to the Virginia Appian litigation against the same defendants as the Larkin lawsuit. On May 17, 2023, the Court entered an order staying the matter until afterLarkin and Sagfors cases were consolidated and a final judgment dismissing the City of Fort Lauderdale matter referenced above, the denial of ajoint motion to dismissstay the consolidated case is pending before the Court. The Company also has received confidential demand letters raising substantially the same allegations set forth in the Cityforegoing derivative complaints. On April 12, 2023, the Company’s board of Fort Lauderdale action, or if any related derivative complaint is fileddirectors (other than Mr. Trefler, who recused himself), formed a committee consisting solely of independent directors, to review, analyze, and not stayed forinvestigate the same or longer duration. Thematters raised in the demands and to determine in good faith what actions (if any) are reasonably believed to be appropriate under similar circumstances and reasonably believed to be in the best interests of the Company believesin response to the claims brought against the defendants are without merit and intends to defend against these claims vigorously.demand letters. The Company is unable to reasonably estimate possible damages or a range of possible damages in this matter given the stage of the lawsuit the Company’s belief that the claims are without merit, and there being no specified quantum of damages sought in the complaint.
SEC Inquiry
Beginning in March 2023, the U.S. Securities and Exchange Commission (“SEC”) has requested certain information relating to, among other things, the accounting treatment of the Company’s above-described litigation with Appian Corporation. The Company is fully cooperating with the SEC’s requests.
19


ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements. These statements whichrepresent our views only as of the date the statement was made and are based on current expectations and assumptions.
Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but not limited to:
our future financial performance and business plans;
the adequacy of our liquidity and capital resources;
the continued payment of our quarterly dividends;
the timing of revenue recognition;
management of our transition to a more subscription-based business model;
variation in demand for our products and services, including among clients in the public sector;
reliance on key personnel;
global economic and political conditions and uncertainty, including impacts from public health emergencies and the war in Ukraine;
reliance on third-party service providers, including hosting providers;
compliance with our debt obligations and covenants;
the potential impact of our convertible senior notes and Capped Call Transactions;
foreign currency exchange rates;
the potential legal and financial liabilities and damage to our reputation due to cyber-attacks;
security breaches and security flaws;
our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims, and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us;
our ongoing litigation with Appian Corp.;
our client retention rate; and
management of our growth.
These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2022,2023, Part II of this Quarterly Report on Form 10-Q, and other filings we make with the U.S. Securities and Exchange Commission (“SEC”).
ExceptInvestors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results included in such statements will be achieved. Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements, publicly, whether due toas the result of new information, future events, or otherwise.
The forward-looking statements in this Quarterly Report represent our views as of April 26, 2023.24, 2024.
NON-GAAP MEASURES
Our non-GAAP financial measures should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. They are not a substitute for financial measures prepared under U.S. GAAP. A reconciliation of GAAP and non-GAAP measures is located with each non-GAAP measure.
BUSINESS OVERVIEW
We develop, market, license, host, and support enterprise software that helps organizations build agility into their business so they can adapt to change. Our powerful, low-code platform for workflow automation and artificial intelligence-powered decisioning enables the world’s leading brands and government agencies to hyper-personalize customer experiences, streamline customer service, and automate mission-critical business processes and workflows. With Pega, our clients can leverage our intelligentartificial intelligence (“AI”) technology and scalable architecture to accelerate their digital transformation. In addition, our client success teams, world-class partners, and clients leverage our Pega Express™ methodology to design and deploy mission-critical applications quickly and collaboratively.
Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored to theour clients’ specific industry needs of our clients.
Subscription transition
We are transitioning our business to sell software primarily through subscription arrangements. Until we fully complete our subscription transition, which we expect will occur in 2023, our operating results may be impacted. Operating performance, revenue mix, and new arrangements in each period can fluctuate based on client preferences for our perpetual and subscription offerings. See the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.industry.
20


Performance metrics
We use performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including:
Annual contract value (“ACV”)
ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV. ACV is a performance measure that we believe provides useful information to our management and investors.1230
In 2023, we changed ourReconciliation of ACV calculation methodology for maintenance and all contracts less than 12 months to align with other contract types. Previously disclosedconstant currency ACV amounts have been updated to allow for comparability.
512
(in millions, except percentages)March 31, 2023March 31, 20241-Year Change
ACV$1,174 $1,273 9 %
Impact of changes in foreign exchange rates— 
Constant currency ACV$1,174 $1,277 %
Note: Constant currency ACV is calculated by applying the Q1 2022March 31, 2023 foreign exchange rates to all periods shown.
21


Remaining performance obligations (“Backlog”)
50
Reconciliation of GAAP Backlog and Constant Currency Backlog
(in millions, except percentages)Q1 20231 Year Growth Rate
Backlog$1,308 11 %
Impact of changes in foreign exchange rates28 %
Backlog - Constant Currency$1,336 14 %
Constant currency Backlog is calculated by applying the Q1 2022 foreign exchange rates to all periods shown.
We believe that non-GAAP financial measures help investors understand our core operating results and prospects, consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. The supplementary non-GAAP financial measures are not meant to be superior to or a substitute for financial measures prepared under U.S. GAAP.
22


Free cashCash flow(1)
5497558153181819
(in thousands, except percentages)Three Months Ended
March 31,
20232022Change
(Dollars in thousands)(Dollars in thousands)Three Months Ended
March 31,
20242023
Cash provided by operating activities
Cash provided by operating activities
Cash provided by operating activitiesCash provided by operating activities$68,107 $15,116 351 %
Investment in property and equipmentInvestment in property and equipment(11,487)(6,657)
Free cash flow (1)
Supplemental information (2)
Supplemental information (2)
Supplemental information (2)
Restructuring
Restructuring
Restructuring
Legal feesLegal fees1,515 6,887 
Restructuring14,458 — 
Interest on convertible senior notesInterest on convertible senior notes2,250 2,250 
Income taxes
Free cash flow$74,843 $17,596 325 %
Total revenue$325,472 $376,307 
Free cash flow margin23 %%
$
$
$
(1) We believe that non-GAAP financial measures help investors understand our core operating results and prospects, consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. The supplementary non-GAAP financial measures are not meant to be superior to or a substitute for financial measures prepared under U.S. GAAP. Our non-GAAP free cash flow measures reflect the following adjustments:
Investmentis defined as cash provided by operating activities less investment in property and equipment:equipment. Investment in property and equipment fluctuates in amount and frequency and is significantly affected by the timing and size of investments in our facilities. We believe excluding these amounts providesprovide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings. This information is not a useful comparison of our operational performance in different periods.
Legal fees: Includes legal and related fees arising from proceedings outside of the ordinary course of business. We believe excluding these amounts from our non-GAAPsubstitute for financial measures is usefulprepared under U.S. GAAP.
(2) The supplemental information discloses items that affect our cash flows and are considered by management not to investors as the disputes giving rise to them are notbe representative of our core business operations and ongoing operational performance.
Restructuring: We have excluded restructuring from our non-GAAP financial measures. Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities. We believe excluding the impact from our non-GAAP financial measures is useful to investors as these amounts are not representative of our core business operations and ongoing operational performance.
Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business.
Interest on convertible senior notes: In February 2020, we issued convertible senior notes, due March 1, 2025, in a private placement. We believe excluding theThe Notes accrue interest payments provides a useful comparisonat an annual rate of our operational performance0.75%, payable semi-annually in different periods.arrears on March 1 and September 1.
Income taxes: Direct income taxes paid net of refunds received.
2322


Remaining performance obligations (“Backlog”)
50
Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP)
(in millions, except percentages)March 31, 2023March 31, 20241-Year Growth Rate
Backlog - GAAP$1,308 $1,425 9 %
Impact of changes in foreign exchange rates— 
Constant currency backlog$1,308 $1,429 %
Note: Constant currency Backlog is calculated by applying the Q1 2023 foreign exchange rates to all periods shown.
CRITICAL ACCOUNTING POLICIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared following accounting principles generally accepted in the United States of America (“U.S.”) and the rules and regulations of the SEC for interim financial reporting. Preparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and expectations of what could occur in the future, given the available information.
For more information about our critical accounting policies, we encourage you to read the discussion in the following locations in our Annual Report on Form 10-K for the year ended December 31, 2022:2023:
“Critical Accounting Estimates and Significant Judgments” in Item 7; and
“Note 2. Significant Accounting Policies” in Item 8.
There have been no other significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
23


RESULTS OF OPERATIONS
Revenue
Subscription transition
(Dollars in thousands)Three Months Ended
March 31,
Change
20242023
Pega Cloud$130,902 40 %$107,879 33 %$23,023 21 %
Maintenance81,001 24 %79,630 25 %1,371 %
Subscription services211,903 64 %187,509 58 %24,394 13 %
Subscription license63,338 19 %84,527 26 %(21,189)(25)%
Subscription275,241 83 %272,036 84 %3,205 %
Consulting54,047 17 %53,033 16 %1,014 %
Perpetual license859 — %403 — %456 113 %
$330,147 100 %$325,472 100 %$4,675 %
We are transitioning our business to sell software primarily through subscription arrangements.
This transition has impacted revenue growth as revenue from subscription service arrangements, which includesThe increase in Pega Cloud andrevenue for the three months ended March 31, 2024 was primarily due to the growth of the hosted client base as our clients continued to expand their use of Pega Cloud.
The increase in maintenance is typically recognized over the contract term, while revenue from license sales is recognized when the license rights become effective, typically upfront.
(Dollars in thousands)Three Months Ended
March 31,
Change
20232022
Pega Cloud$107,879 33 %$90,317 24 %$17,562 19 %
Maintenance79,630 25 %79,716 21 %(86)— %
Subscription services187,509 58 %170,033 45 %17,476 10 %
Subscription license84,527 26 %137,533 37 %(53,006)(39)%
Subscription272,036 84 %307,566 82 %(35,530)(12)%
Perpetual license403 — %7,440 %(7,037)(95)%
Consulting53,033 16 %61,301 16 %(8,268)(13)%
$325,472 100 %$376,307 100 %$(50,835)(14)%
The revenue changes in the three months ended March 31, 2023 generally reflect the impact of2024 was primarily due to continued demand for our subscription transition. Other factors impacting our revenue include:license offerings, which are generally bundled with maintenance.
The decrease in subscription license revenue in the three months ended March 31, 20232024 was primarily due to severala large software license contractsmulti-year contract recognized in revenue in the three months ended March 31, 2022.2023.
The decreaseincrease in consulting revenue in the three months ended March 31, 20232024 was primarily due to a decreasean increase in billable hours andconsultant realization rates.rates in the Americas.
Gross profit
(Dollars in thousands)(Dollars in thousands)Three Months Ended
March 31,
Change
20232022
(Dollars in thousands)
2024
2024
Pega Cloud
Pega Cloud
Pega CloudPega Cloud$77,629 72 %$63,418 70 %$14,211 22 %
MaintenanceMaintenance73,016 92 %74,585 94 %(1,569)(2)%
Maintenance
Maintenance
Subscription services
Subscription services
Subscription servicesSubscription services150,645 80 %138,003 81 %12,642 %
Subscription licenseSubscription license83,808 99 %136,911 100 %(53,103)(39)%
Subscription license
Subscription license
SubscriptionSubscription234,453 86 %274,914 89 %(40,461)(15)%
Subscription
Subscription
Consulting
Consulting
Consulting
Perpetual licensePerpetual license400 99 %7,406 100 %(7,006)(95)%
Consulting(7,315)(14)%5,790 %(13,105)*
$227,538 70 %$288,110 77 %$(60,572)(21)%
Perpetual license
Perpetual license
$
$
$
* not meaningful
The gross profit percent changes in the three months ended March 31, 2023 were primarily due to a shift in the revenue mix.
24


The increase in Pega Cloud gross profit percent in the three months ended March 31, 20232024 was primarily due to cost-efficiency gainsincreased cost efficiency, particularly for hosting services and employee compensation and benefits, as Pega Cloud continues to grow and scale.
The decrease in maintenance gross profit percent in the three months ended March 31, 2023 was primarily due to an increase in compensation and benefits due to increased headcount.
The decrease in consulting gross profit percent in the three months ended March 31, 20232024 was primarily due to a decreasean increase in consultant realization rates and consultant utilization.in the Americas.
24


Operating expenses
(Dollars in thousands)(Dollars in thousands)Three Months Ended
March 31,
Change
20232022
% of Revenue% of Revenue
(Dollars in thousands)
2024
Selling and marketingSelling and marketing$149,797 46 %$162,236 43 %$(12,439)(8)%
Selling and marketing
Selling and marketing
% of Revenue
% of Revenue
% of Revenue
Research and developmentResearch and development$75,376 23 %$71,490 19 %$3,886 %
Research and development
Research and development
% of Revenue
% of Revenue
% of Revenue
General and administrativeGeneral and administrative$23,110 %$35,764 10 %$(12,654)(35)%
General and administrative
General and administrative
% of Revenue
% of Revenue
% of Revenue
Litigation settlement, net of recoveries
Litigation settlement, net of recoveries
Litigation settlement, net of recoveries
% of Revenue
% of Revenue
% of Revenue
RestructuringRestructuring$1,461 — $— — $1,461 100 %
Restructuring
Restructuring
% of Revenue
% of Revenue
% of Revenue
The decrease in selling and marketing induring the three months ended March 31, 20232024 was primarily due to a decrease in compensation and benefits of $12.2$17.5 million from reduced headcount as we optimized our go-to-market strategy. For additional information, see "Note 9. Restructuring" in Part I, Item 1 of this Quarterly Report.
The decrease in research and development for the three months ended March 31, 2024 was primarily due to a decrease in compensation and benefits of $1.5 million due to reduced headcount and a decrease in cloud hosting expenses of $1.2 million.
The increase in research and developmentlitigation settlement, net of recoveries in the three months ended March 31, 20232024 was primarily due to an increase in compensation and benefits of $2.5 million, attributablethe estimated cost to increases in headcount and incentive compensation. The increase in headcount reflects additional investments in developing our solutions.
The decrease in general and administrative in the three months ended March 31, 2023 was primarily due to a decrease in legal fees and related expensessettle ongoing litigation arising from litigation proceedings outside the ordinary course of business of $15.9 million. We expect to continue to incur additional costs for these proceedings.business. See "Note 15. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report and “Risk Factors” in Part I, Item 1A of our Annual Report for the year ended December 31, 2022.2023 for additional information.
The increasedecrease in restructuring expenses during the three months ended March 31, 2024 was primarily due to efforts to optimize our go-to-market organization in the three months ended March 31, 2023 was primarily due to an impairment2023. For additional information, see "Note 9. Restructuring" in Part I, Item 1 of $1.2 million on our operating lease right of use assets primarily due to the closure of leased office space in Poland.this Quarterly Report.
Other income and expenses
(Dollars in thousands)(Dollars in thousands)Three Months Ended
March 31,
Change
20232022
Foreign currency transaction (loss) gain$(2,675)$2,876 $(5,551)*
(Dollars in thousands)
2024
2024
Foreign currency transaction (loss)
Foreign currency transaction (loss)
Foreign currency transaction (loss)
Interest income
Interest income
Interest incomeInterest income1,485 207 1,278 617 %
Interest expenseInterest expense(1,918)(1,946)28 %
Gain (loss) on capped call transactions3,206 (30,560)33,766 *
Interest expense
Interest expense
Gain on capped call transactions
Gain on capped call transactions
Gain on capped call transactions
Other income, net
Other income, net
Other income, netOther income, net6,583 2,741 3,842 140 %


$6,681 $(26,682)$33,363 *


* not meaningful
The decreasechange in foreign currency transaction (loss) gain in the three months ended March 31, 20232024 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with foreign currency-denominated cash and receivables held by our subsidiary in the United Kingdom.
The increase in interest income in the three months ended March 31, 20232024 was primarily due to an increase inhigher investment balances and market interest rates.
The change in gain (loss) on capped call transactions in the three months ended March 31, 2023 was due to fair value adjustments for our capped call transactions.
The increasedecrease in other income, net in the three months ended March 31, 20232024 was due to a gain of $3.8 million on our venture investments and a gain of $2.8 million from the repurchaserepurchases of our convertible senior notes in the three months ended March 31, 2023. For additional information, see “Note 8. Debt” and from our venture investments portfolio."Note 10. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.
25


Provision(Benefit from) provision for (benefit from) income taxes
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(Dollars in thousands)(Dollars in thousands)20232022(Dollars in thousands)20242023
Provision for (benefit from) income taxes$5,249 $(7,683)
(Benefit from) provision for income taxes
Effective income tax rateEffective income tax rate(34)%95 %Effective income tax rate20 %(34)%
The effective income tax rate in the three months ended March 31, 20232024 was impactedprimarily driven by the valuation allowance on our U.S. and U.K. deferred tax assets and current taxes payable in the U.S. as a result of projectingand U.K., and forecasted taxable income, that cannot be fully offset by net operating lossesan income tax benefit for discrete items in the three months ended March 31, 2024.
25


The Organization for Economic Cooperation and availableDevelopment (“OECD”) has introduced new global minimum tax credits.regulations, known as Pillar Two, that began to come into effect on January 1, 2024. We are monitoring this development and evaluating its potential impact on our tax rate and eligibility to qualify for the safe harbor provisions. For 2024, we currently anticipate meeting the transitional safe harbors in most jurisdictions, with any remaining top-up tax being immaterial.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands) (in thousands)20232022 (in thousands)20242023
Cash provided by (used in):Cash provided by (used in):
Operating activities
Operating activities
Operating activitiesOperating activities$68,107 $15,116 
Investing activitiesInvesting activities(14,413)(6,082)
Financing activitiesFinancing activities(29,372)(35,918)
Effect of exchange rate changes on cash, cash equivalents, and restricted cashEffect of exchange rate changes on cash, cash equivalents, and restricted cash782 (310)
Net increase (decrease) in cash, cash equivalents, and restricted cash$25,104 $(27,194)
Net increase in cash, cash equivalents, and restricted cash
(in thousands)March 31, 2023December 31, 2022
Held by U.S. entities$229,214 $248,389 
Held by foreign entities94,668 48,832 
Total cash, cash equivalents, and marketable securities$323,882 $297,221 

(in thousands)March 31, 2024December 31, 2023
Held in U.S. entities$491,808 $263,453 
Held in foreign entities127,141 159,885 
Total cash, cash equivalents, and marketable securities618,949 423,338 
Restricted cash included in other current assets775 — 
Restricted cash included in other long-term assets2,990 2,925 
Total cash, cash equivalents, marketable securities, and restricted cash$622,714 $426,263 
We believe that our current cash, marketable securities, cash flow fromprovided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, convertible senior notes due on March 1, 2025, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. We may utilize available funds or seek external financing if we require additional capital resources.
If it becomes necessary or desirable to repatriate foreign funds, we may be requiredhave to pay federal, state, and local income andtaxes as well as foreign withholding taxes upon repatriation. However, estimating the taxes we would have to pay is impracticable due to the complexity of income tax laws and regulations, it is impracticable to estimate the amount of taxes we would have to pay.regulations.
Operating activities
We are transitioning our business to sell software primarily through subscription arrangements. This transition has impacted and is expected to continue impacting our billings and cash collections. Subscription licenses and services are typically billed and collected over the contract term, while perpetual license arrangements are generally billed and collected upfront when the license rights become effective.
The change in cash provided by operating activities in the three months ended March 31, 20232024 was primarily due to growth in client collections and the impact of our subscription transitioncost-efficiency initiatives. For additional information, see “Note 9. Restructuring” and improved client collections. In addition, in the three months ended March 31, 2023 and 2022, we paid $1.5 million and $6.9 million in legal fees and related expenses arising from proceedings that originated outside of the ordinary course of business. We expect to continue to incur additional costs for these proceedings. See "Note 15. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report for additional information.Report.
Investing activities
The change in cash (used in) investing activities in the three months ended March 31, 20232024 was primarily driven by an increasedue to our investments in financial instruments and reduced investment in property and equipment as we optimize our office space-related capital expenditures.
26


space.
Financing activities
Debt financing
In February 2020, we issued $600 million in aggregate principal amount of convertible senior notes, which mature on March 1, 2025. In the three months ended March 31, 2023, we paid $29.9 million to repurchase $33 million in aggregate principal amount of convertible senior notes. As of March 31, 2023,2024, we had $567$502.3 million in aggregate principal amount of convertible senior notes outstanding.
Seeoutstanding due on March 1, 2025. For additional information, see "Note 8. Debt" in Part I, Item 1 of this Quarterly Report for additional information.Report.
In November 2019, and as since amended, we entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. On April 23, 2024, the Credit Facility was amended to extend the expiration date to February 4, 2025. As of March 31, 2024 and December 31, 2023, we had no outstanding cash borrowings under the Credit Facility but had $27.3 million in outstanding letters of credit, which reduces ourreducing available borrowing capacity. Seecapacity under the Credit Facility, but no outstanding cash borrowings. For additional information, see "Note 8. Debt" in Part I, Item 1 of this Quarterly Report for additional information.Report.
26


Stock repurchase program
Changes in the remaining stock repurchase authority:
(in thousands)Three Months Ended
March 31, 20232024
December 31, 20222023$58,07560,000 
Authorizations (1)
— 
March 31, 20232024$58,07560,000 
(1) On April 25, 2023,23, 2024, our Board of Directors extended the expiration date of our current share repurchase program from June 30, 2024 to June 30, 2024, and the amount of stock we are authorized to repurchase has been increased to $60 million.2025.
Common stock repurchases
Three Months Ended
March 31,
Three Months Ended
March 31,
202420242023
(in thousands)(in thousands)SharesAmountSharesAmount
Three Months Ended
March 31,
20232022
(in thousands)SharesAmountSharesAmount
Repurchases paid— $— 242 $22,583 
Stock repurchase program— — 242 22,583 
Tax withholdings for net settlement of equity awards
Tax withholdings for net settlement of equity awards
Tax withholdings for net settlement of equity awardsTax withholdings for net settlement of equity awards27 1,107 141 12,128 
27 $1,107 383 $34,711 
In the three months ended March 31, 20232024 and 2022,2023, instead of receiving cash from the equity holders, we withheld shares with a value of $0.6$2.8 million and $6.1$0.6 million, respectively, for the exercise price of options. These amounts are not included in the table above.
Dividends
We intend to pay a quarterly cash dividend of $0.03 per share. However, the Board of Directors may terminate or modify the dividend program without prior notice.
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)(in thousands)20232022(in thousands)20242023
Dividend payments to stockholdersDividend payments to stockholders$2,474 $2,454 
Contractual obligations
As of March 31, 2023,2024, our contractual obligations were:
Payments due by period
Payments due by period
(in thousands)
(in thousands)
(in thousands)(in thousands)Remainder of 202320242025202620272028 and afterOtherTotalRemainder of 202420252026202720282029 and afterOtherTotal
Convertible senior notes (1)
Convertible senior notes (1)
$1,772 $4,253 $569,126 $— $— $— $— $575,151 
Purchase obligations (2)
Purchase obligations (2)
98,303 117,729 127,367 131,146 133,500 14 — 608,059 
Operating lease obligationsOperating lease obligations14,003 17,642 14,562 10,917 9,863 39,380 — 106,367 
Investment commitments1,000 — — — — — — 1,000 
Liability for uncertain tax positions (3)
— — — — — — 3,578 3,578 
$115,078 $139,624 $711,055 $142,063 $143,363 $39,394 $3,578 $1,294,155 
Venture investment commitments (3)
Liability for uncertain tax positions (4)
$
(1) Includes principal and interest.
(2) Represents the fixed or minimum amounts due underamount owed for purchase obligations for software licenses, hosting services, and sales and marketing programs.
(3) Represents the maximum funding under existing venture investment agreements. Our venture investment agreements generally allow us to withhold unpaid funds at our discretion.
(4) We cannot reasonably estimate the timing of this cash outflow due to uncertainties in the timing of the effective settlement of tax positions.
27


ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in financial market prices and rates.
Foreign currency exposure
Translation risk
Our international operations’ operating expenses are primarily denominated in foreign currencies. However, our international sales are also primarily denominated in foreign currencies, which partially offsetsoffsetting our foreign currency exposure.
27


A hypothetical 10% strengthening in the U.S. dollar against other currencies would have resulted in:in the following:
Three Months Ended
March 31,
20232022
(Decrease) increase in revenue(4)%(3)%
Increase (decrease) in net income%186 %
Three Months Ended
March 31,
20242023
(Decrease) in revenue(4)%(4)%
(Decrease) increase in net income(4)%%
Remeasurement risk
We incur transaction gains and losses from the remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of the entities in which they are recorded.
We are primarily exposed to changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated cash, cash equivalents, receivables, and intercompany balances held by our U.K. subsidiary, a British pound functional entity.
A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would have resulted in the following impact:
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
(in thousands)(in thousands)20232022(in thousands)20242023
Foreign currency gain (loss)$(9,251)$(7,937)
Foreign currency (loss)
ITEM 4.     CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of March 31, 2023.2024. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2023.2024.
(b) Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 20232024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
28


PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in “Note 15. Commitments and Contingencies”, in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.
ITEM 1A.     RISK FACTORS
We encourage you to carefully consider the risk factors identified in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022,2023, filed with the U.S. Securities and Exchange Commission. These risk factors could materially affect our business, financial condition, and future results and may cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management.
ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer purchases of equity securities (1)
Common stock repurchased in the three months ended March 31, 2023:2024:
(in thousands, except per share amounts)
Total Number
of Shares
Purchased (2)
Average Price
Paid per
Share (2)
Total Number
of Shares Purchased as Part of
Publicly Announced Share
Repurchase Program
Approximate Dollar
Value of Shares That
May Yet Be Purchased at Period
End Under Publicly Announced
Share Repurchased Programs
January 1, 2023 - January 31, 202323 $36.52 — $58,075 
February 1, 2023 - February 28, 202311 39.60 — $58,075 
March 1, 2023 - March 31, 202346.49 — $58,075 
43 $39.40 — 
(in thousands, except per share amounts)
Total Number
of Shares
Purchased (2)
Average Price
Paid per
Share (2)
Total Number
of Shares Purchased as Part of
Publicly Announced Share
Repurchase Program
Approximate Dollar
Value of Shares That
May Yet Be Purchased at Period
End Under Publicly Announced
Share Repurchased Programs
January 1, 2024 - January 31, 202414 $49.31 — $60,000 
February 1, 2024 - February 29, 202445 63.50 — $60,000 
March 1, 2024 - March 31, 202419 63.69 — $60,000 
78 $61.06 — 
(1) SeeFor additional information, see "Liquidity and Capital Resources" in Part I, Item 2 of this Quarterly Report for additional information.Report.
(2) SharesIncludes shares withheld to cover the option exercise price and tax withholding obligations under the net settlement provisions of ourfor stock compensation awards have been included in these amounts.subject to net settlement provisions.
ITEM 5.     OTHER INFORMATION
Rule 10b5-1 and non-rule 10b5-1 trading arrangements
During the three months ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Credit Facility
On April 21, 2023 and effective on March 31, 2023,23, 2024, we entered into an amendment (the “Amendment”) to our $100 million senior secured revolving credit agreement (the “Credit Agreement”) with PNC Bank, National Association (“PNC”), among other changes. The Amendment modifieswhich extends the financial covenants as reflected in “Note 8. Debt”expiration date of Part I, Item 1 of this Quarterly Report on Form 10-Q.
the Credit Facility to February 4, 2025. The description contained herein is qualified in its entirety by reference to the Amendment, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.
Share Repurchase Program
On April 25, 2023,23, 2024, our Board of Directors extended the expiration date of our current share repurchase program from June 30, 20232024 to June 30, 2024, and the amount of stock we are authorized to repurchase has been increased to $60 million.2025. Any actual repurchases under the current repurchase program will be disclosed in the Company’s annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission for the annual and applicable quarterly periods ending between June 30, 20232024 and December 31, 2024.2025.
29


ITEM 6.     EXHIBITS
Exhibit No.Exhibit No.DescriptionIncorporation by ReferenceFiled HerewithExhibit No.DescriptionIncorporation by ReferenceFiled Herewith
FormExhibitFiling Date
3.13.110-Q3.1November 4, 2014
3.1
3.1
3.2
3.2
3.23.28-K3.2June 15, 2020
10.110.1X
10.2X
10.3X
10.1
10.1X
31.131.1X31.1X
31.231.2X31.2X
3232+32+
101.INS101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X
101.SCH101.SCHInline XBRL Taxonomy Extension Schema Document.X101.SCHInline XBRL Taxonomy Extension Schema Document.X
101.CAL101.CALInline XBRL Taxonomy Calculation Linkbase Document.X101.CALInline XBRL Taxonomy Calculation Linkbase Document.X
101.DEF101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.X101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.X
101.LAB101.LABInline XBRL Taxonomy Label Linkbase Document.X101.LABInline XBRL Taxonomy Label Linkbase Document.X
101.PRE101.PREInline XBRL Taxonomy Presentation Linkbase Document.X101.PREInline XBRL Taxonomy Presentation Linkbase Document.X
104104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)X104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)X
+ Indicates that the exhibit is being furnished with this report and is not filed as a part of it.
++ Management contracts and compensatory plans or arrangements required to be filed pursuant to Item 15(b) of Form 10-K.
** Certain portions of this exhibit are considered confidential and have been omitted as allowed under SEC rules and regulations
30


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pegasystems Inc.
Dated:April 26, 202324, 2024By:/s/ KENNETH STILLWELL
Kenneth Stillwell
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)