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. Yesx No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes¨ No¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 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¨ Nox

There were ~~36,344,618~~36,678,436 shares of the Registrant’s common stock, $.01 par value per share, outstanding on ~~July 27,~~October 26, 2009.




		Three Months Ended June 30,					Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
		2009		2008			2009		2008		2009		2008		2009		2008
Revenue:
Software license	$	25,651	$	15,819		$	53,687	$	33,304	$	28,358	$	17,910	$	82,045	$	51,214
Maintenance		12,171		10,083			24,119		18,982		12,489		10,045		36,608		29,027
Professional services		26,056		25,217			48,439		47,311		23,974		24,743		72,413		72,054

Total revenue		63,878		51,119			126,245		99,597		64,821		52,698		191,066		152,295

Cost of revenue:
Cost of software license		31		34			62		34		28		30		90		64
Cost of maintenance		1,457		1,320			2,894		2,552		1,558		1,454		4,452		4,006
Cost of professional services		20,104		19,419			39,167		37,739		22,474		19,072		61,641		56,811

Total cost of revenue		21,592		20,773			42,123		40,325		24,060		20,556		66,183		60,881

Gross profit		42,286		30,346			84,122		59,272		40,761		32,142		124,883		91,414


Operating expenses:
Selling and marketing		16,659		14,657			32,095		29,338		19,568		15,698		51,663		45,036
Research and development		9,149		7,874			18,268		14,896		9,930		7,936		28,198		22,832
General and administrative		4,648		5,231			9,594		10,288		3,798		5,067		13,392		15,355


Total operating expenses		30,456		27,762			59,957		54,522		33,296		28,701		93,253		83,223

Income from operations		11,830		2,584			24,165		4,750		7,465		3,441		31,630		8,191

Installment receivable interest income		75		78			150		153		74		95		224		248
Other interest income, net		881		1,298			1,683		2,953		721		1,151		2,404		4,104
Foreign currency transaction gain (loss)		2,923		(6	)		2,111		251		266		(2,010)		2,377		(1,759)
Other income, net		7		75			17		99		—		40		17		139

Income before provision for income taxes		15,716		4,029			28,126		8,206		8,526		2,717		36,652		10,923
Provision for income taxes		4,475		1,177			8,243		2,410		2,525		366		10,768		2,776

Net income	$	11,241	$	2,852		$	19,883	$	5,796	$	6,001	$	2,351	$	25,884	$	8,147

Earnings per share, basic	$	0.31	$	0.08		$	0.56	$	0.16

Earnings per share, diluted	$	0.30	$	0.08		$	0.53	$	0.15
Earnings per share
Basic										$	0.16	$	0.06	$	0.72	$	0.23

Weighted-average number of common shares outstanding, basic		35,965		36,264			35,818		36,144
Weighted-average number of common shares outstanding, diluted		37,995		37,801			37,708		37,448
Dividends per share	$	0.03	$	0.03		$	0.06	$	0.06

Diluted										$	0.16	$	0.06	$	0.68	$	0.22



Weighted-average number of common shares outstanding
Basic											36,462		36,419		36,035		36,201


Diluted											38,441		38,212		37,955		37,668


Cash dividends declared per share										$	0.03	$	0.03	$	0.09	$	0.09


		Six Months Ended June 30,						Nine Months Ended September 30,
		2009			2008			2009		2008
Operating activities:
Net income	$	19,883		$	5,796		$	25,884	$	8,147
Adjustment to reconcile net income to cash provided by operating activities:
Excess tax benefit from stock options		(10,068	)		(1,717	)		(14,409)		(2,992)
Deferred income taxes		(783	)		(844	)		(901)		(1,054)
Depreciation, amortization and other non-cash items		1,259			896			2,021		1,407
Amortization of investments		1,918			533			2,963		1,261
Stock-based compensation expense		2,558			1,723			3,523		2,552
Change in operating assets and liabilities:
Trade accounts receivable		10,424			14,417			15,093		12,646
License installments		3,188			10,677			4,586		15,653
Income taxes receivable and other current assets		(283	)		(539	)		(801)		(1,302)
Accounts payable and accrued expenses		(2,697	)		(7,699	)		5,738		915
Deferred revenue		3,883			7,084			(4,413)		(4,352)
Other long-term assets and liabilities		150			140			(445)		(10)

Cash provided by operating activities		29,432			30,467			38,839		32,871

Investing activities:
Purchases of marketable securities		(29,535	)		(145,310	)		(49,851)		(172,626)
Matured and called marketable securities		18,535			46,980			35,925		80,706
Sale of marketable securities		—			73,224			—		83,025
Payments for acquisition		—			(798	)		—		(798)
Investment in property and equipment		(1,789	)		(977	)		(3,724)		(2,625)

Cash used in investing activities		(12,789	)		(26,881	)		(17,650)		(12,318)

Financing activities:
Issuance of common stock for share-based compensation plans		3,042			4,847			4,075		6,549
Excess tax benefit from stock options		10,068			1,717			14,409		2,992
Dividend payments to shareholders		(2,155	)		(2,174	)		(3,245)		(3,273)
Repurchase of common stock		(14,808	)		(5,423	)		(17,310)		(11,794)

Cash used in financing activities		(3,853	)		(1,033	)		(2,071)		(5,526)

Effect of exchange rate on cash and cash equivalents		919			123			1,214		(560)

Net increase in cash and cash equivalents		13,709			2,676			20,332		14,467
Cash and cash equivalents, beginning of period		36,087			26,710			36,087		26,710

Cash and cash equivalents, end of period	$	49,796		$	29,386		$	56,419	$	41,177


Supplemental disclosures:
Income taxes	$	3,604		$	3,749
Income taxes paid							$	6,011	$	4,807
Non-cash financing activity:
Dividends payable	$	1,090		$	1,099		$	1,101	$	1,095
Repurchases of common stock unsettled	$	—		$	870		$	34	$	192

The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes 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, 2008.

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. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2009.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued its final Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“(“SFAS 168”).SFAS 168 ~~establishes~~made the FASB Accounting Standards Codification as (“the Codification”) the single source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) ~~recognized~~used by ~~the FASB to be applied to~~ nongovernmental entities ~~and~~in the preparation of financial statements, except for rules and interpretive releases of the SEC asunder authority of federal securities laws, which are sources of authoritative ~~GAAP~~guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into approximately 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidance. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 1, 2009. Following SFAS 168, ~~is effective for interim and annual periods ending after September 15, 2009. The adoption of this standard~~the FASB will not ~~impact our consolidated results of operations and financial position.~~

~~In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 is intended to establish general~~issue new standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the ~~financial statements,~~form of Statements, FASB Staff Positions, or Emerging issues Task Force Abstracts; instead, it will issue Accounting Standards Updates. The FASB will not consider Accounting Standards Updates as authoritative in their own right; these updates will serve only to update the ~~circumstances under which an entity should recognize events or transactions occurring after~~Codification, provide background information about the ~~balance sheet date~~guidance, and provide the bases for conclusions on the change(s) in ~~its financial statements,~~the Codification. In the description of Accounting Standards Updates (“ASU”) that follows, references relate to Codification Topics and ~~the disclosures that an entity should make about events or transactions that occur after the balance sheet date. The Company adopted this standard effective June 30, 2009~~Subtopics, and ~~has evaluated any subsequent events through the date of this filing. The Company does not believe there are any material subsequent events requiring disclosure.~~their descriptive titles, as appropriate.

In ~~April~~September 2009, ASU 2009-13, Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”) was issued and will change the ~~FASB issued FASB staff position (“FSP”) SFAS No. 107-1~~accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25,Revenue Recognition-Multiple-Element Arrangements, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and ~~Accounting Principles Board (“APB”) No. 28-1, “Interim Disclosures about Fair Value~~requires that arrangement consideration be allocated at the inception of ~~Financial Instruments” (“FSP SFAS No. 107-1~~the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 with early adoption permitted. The impact of ASU 2009-13 on the Company’s consolidated financial statements will depend on the nature and ~~APB No. 28-1”). This FSP amends FASB Statement No. 107, “Disclosure about Fair Value~~terms of ~~Financial Instruments~~”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require disclosures in summarized financial information at interim reporting periods. FSP SFAS No. 107-1 and APB No. 28-1 was adopted by the ~~Company effective June 30, 2009.~~Company’s revenue arrangements entered into or materially modified after the adoption date.

~~As of June 30, 2009 and December 31, 2008, the Company’s marketable securities consisted of the following:~~


		As of June 30, 2009								As of September 30, 2009
(in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value	Amortized Cost			Unrealized Gains		Unrealized Losses			Fair Value
Marketable securities:

Municipal bonds	$	131,124	$	1,095	$	(28	)	$	132,191
Corporate bonds		5,801		11		(6	)		5,806
Government sponsored enterprises		2,252		17		—			2,269

Marketable securities	$	139,177	$	1,123	$	(34	)	$	140,266


		As of December 31, 2008
(in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Marketable securities:

Municipal bonds	$	119,843	$	1,056	$	(3	)	$	120,896		$	127,710	$	870	$	(3	)	$	128,577
Government sponsored enterprises		5,999		19		—			6,018			6,799		16		(3	)		6,812
Corporate bonds		4,230		18		(20	)		4,228			6,548		3		(4	)		6,547

Marketable securities	$	130,072	$	1,093	$	(23	)	$	131,142		$	141,057	$	889	$	(10	)	$	141,936



											As of December 31, 2008
(in thousands)											Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Marketable securities:
Municipal bonds											$	119,843	$	1,056	$	(3	)	$	120,896
Government sponsored enterprises												5,999		19		—			6,018
Corporate bonds												4,230		18		(20	)		4,228

Marketable securities											$	130,072	$	1,093	$	(23	)	$	131,142

~~SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), clarifies that fair~~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. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ~~SFAS 157 establishes~~ a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value, was established as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including the Company’s marketable securities.

The Company’s investments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, or broker dealer quotations and matrix pricing compiled by third party pricing vendors, respectively, which are based on third party pricing sources with reasonable levels of price transparency.

The fair value hierarchy of the Company’s cash equivalents and marketable securities at fair value ~~in connection with our adoption of SFAS 157~~ is as follows:


			Fair Value Measurements at Reporting Date Using						Fair Value Measurements at Reporting Date Using
(in thousands)	As of June 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		As of September 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents:
Municipal bonds	$	2,801	$	2,801	$	—
Money market mutual funds		55		55		—	$	1,661	$	1,661	$	—

Total cash equivalents:		2,856		2,856		—	$	1,661	$	1,661	$	—



Marketable securities:
Municipal bonds		132,191		42,305		89,886	$	128,577	$	33,742	$	94,835
Government sponsored enterprises								6,813		—		6,813
Corporate bonds		5,806		5,806		—		6,546		6,546		—
Government sponsored enterprises		2,269		—		2,269

Total marketable securities:	$	140,266	$	48,111	$	92,155	$	141,936	$	40,288	$	101,648

~~On January 1, 2009, we adopted SFAS 157 for all nonfinancial~~Nonfinancial assets, such as property and equipment, ~~intangible assets~~ and ~~goodwill. These~~intangible assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. During the ~~second~~third quarter and first ~~six~~nine months of 2009, we did not recognize any impairment on any assets that are measured at fair value on a nonrecurring basis.

Trade accounts receivable balances, which consist of billed and unbilled amounts, were ~~$32.4~~$27.7 million and $42.8 million as of ~~June~~September 30, 2009 and December 31, 2008, respectively. Trade accounts receivable includes ~~$7.3~~$6.8 million and $6.4 million for services earned under time and material arrangements that had not been invoiced as of ~~June~~September 30, 2009 and December 31, 2008, respectively. The Company’s allowance for doubtful accounts was ~~$0.2~~$0.1 million and $0.4 million as of ~~June~~September 30, 2009 and December 31, 2008, respectively. The Company’s allowance for sales credit memos was ~~$0.7~~$0.5 million and $1.1 million as of ~~June~~September 30, 2009 and December 31, 2008, respectively.


(in thousands)	As of June 30, 2009		As of December 31, 2008		As of September 30, 2009		As of December 31, 2008
Income taxes receivable	$	4,309	$	514	$	6,280	$	514
Interest receivables		2,209		2,061		2,180		2,061
Prepaid expenses		1,428		838		1,640		838
Sales tax receivable		176		511		388		511
Reimbursable expenses		175		227		241		227

	$	8,297	$	4,151	$	10,729	$	4,151


(in thousands)	As of June 30, 2009		As of December 31, 2008		As of September 30, 2009		As of December 31, 2008
Accrued other taxes	$	2,595	$	2,552	$	1,345	$	2,552
Accrued employee travel expense		1,243		1,019
Dividends payable		1,090		1,080		1,101		1,080
Accrued employee travel						1,026		1,019
Repurchases of common stock unsettled						34		379
Accrued professional services partners fees						1,042		386
Accrued other						2,057		1,954
Accrued income taxes		—		2,555		—		2,555
Accrued other		2,855		2,340
Repurchases of common stock unsettled		—		379

					$	6,605	$	9,925
	$	7,783	$	9,925


(in thousands)	As of June 30, 2009		As of December 31, 2008		As of September 30, 2009		As of December 31, 2008
Maintenance					$	17,955	$	15,688
Software license	$	9,025	$	12,740		6,430		12,740
Maintenance		22,539		15,688
Professional services and other		4,550		3,803		3,433		3,803

					$	27,818	$	32,231
	$	36,114	$	32,231

As of ~~June~~September 30, 2009, there ~~have~~had been no material changes in the Company’s purchase commitments for customer support services and operating leases since December 31, 2008.

In addition to the initial purchase consideration for the Company’s 2008 acquisition of certain assets of privately held Focus Technology Group, Inc. and a related entity (collectively, “Focus”), up to approximately $2.1 million of contingent consideration ~~may be~~could have become due to the former owners of Focus, based on the achievement of certain performance milestones and sales targets during a period of 30 months from the March 21, 2008 acquisition date. ~~A majority~~On September 22, 2009, the parties to the original Focus asset purchase agreement entered into an amendment of that agreement (“the Amended Agreement”). Pursuant to the Amended Agreement, $1.8 million of the original potential contingent consideration was forfeited and $0.3 million of the contingent consideration ~~will be accounted for as compensation expense, if earned. No amount of contingent consideration~~ was earned ~~or paid~~and is payable in ~~2008 or during~~January 2010. The Company recorded the ~~first six months of 2009.~~additional $0.3 million consideration as an increase to goodwill.

See Note 12. “Income Taxes” for discussion on the Company’s ~~FIN 48 liability.~~liability for uncertain tax positions.

Components of comprehensive income include net income and certain transactions that have generally been reported in the consolidated statement of stockholders’ equity. Other comprehensive income is comprised of currency translation adjustments and available-for-sale securities valuation adjustments. The Company’s total comprehensive income is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2009			2008			2009		2008			2009		2008		2009		2008
Comprehensive income:
Net income	$	11,241		$	2,852		$	19,883	$	5,796		$	6,001	$	2,351	$	25,884	$	8,147
Other comprehensive income:
Unrealized (loss) gain on securities, net of tax		(401	)		(391	)		20		(210	)
Unrealized loss on securities, net of tax													(206)		(307)		(186)		(517)
Foreign currency translation adjustments		1,011			86			901		169			206		(722)		1,107		(553)

												$	6,001	$	1,322	$	26,805	$	7,077
	$	11,851		$	2,547		$	20,804	$	5,755

For the ~~second~~third quarter and first ~~six~~nine months of 2009 and 2008, stock-based compensation expense ~~recorded in accordance with SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”),~~ was reflected in the Company’s unaudited condensed consolidated statements of income as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2009			2008			2009			2008			2009		2008		2009		2008
Stock-based compensation expense:
Cost of services	$	128		$	261		$	634		$	465		$	250	$	238	$	884	$	703
Operating expenses		732			859			1,924			1,258			715		591		2,639		1,849

Total stock-based compensation before tax		860			1,120			2,558		$	1,723			965		829		3,523		2,552

Income tax benefit		(155	)		(307	)		(739	)		(526	)		(527)		(303)		(1,266)		(829)


Stock-based compensation expense, net of tax benefit	$	705		$	813		$	1,819		$	1,197		$	438	$	526	$	2,257	$	1,723

During the first ~~six~~nine months of 2009, the Company issued approximately ~~1,089,000~~1,451,000 shares to its employees under the Company’s share-based compensation plans and approximately 18,000 shares to its non-employee Directors.

The fair value of stock options was estimated on the date of grant using a Black-Scholes option valuation model with the following weighted- average assumptions:


	Three Months Ended September 30,						Nine Months Ended September 30,

	2009			2008			2009			2008

Expected volatility(1)		39	%		45	%		41	%		49	%

Expected term in years(2)		5.9			5.9			5.9			5.9

Risk-free interest rate(3)		2.62	%		3.18	%		2.47	%		2.85	%

Expected annual dividend yield(4)		0.76	%		1.07	%		0.91	%		1.11	%

Weighted-average grant date fair value	$	11.87		$	5.86		$	9.13		$	4.90

During the first ~~six~~nine months of 2009, the Company granted approximately ~~149,000~~217,000 stock options with a weighted-average exercise price of ~~$19.86.~~$23.21. During the first ~~six~~nine months of 2009, option holders net settled stock options representing the right to purchase a total of approximately ~~1,622,000~~2,098,000 shares, of which ~~710,000~~1,004,000 shares were issued to the option holders and the balance of the shares were surrendered to the Company to pay for the exercise price and the applicable taxes. As of ~~June~~September 30, 2009, the Company had approximately $2.4 million of unrecognized stock-based compensation expense related to the unvested portion of stock options that is expected to be recognized over a weighted-average period of approximately 2.3 years.

During the first ~~six~~nine months of 2009, the Company granted approximately ~~52,000~~56,000 restricted stock units (“RSUs”) with a weighted-average grant date fair value of ~~$17.20.~~$18.42. As of ~~June~~September 30, 2009, the Company had approximately ~~$2.2~~$1.7 million of unrecognized stock-based compensation expense related to all unvested RSUs that is expected to be recognized over a weighted-average period of 2.0 years.

Basic earnings per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding options, RSUs, and warrants, using the treasury stock method and the average market price of our common stock during the applicable period. Certain shares related to some of our outstanding stock options ~~RSUs,~~ and ~~warrants~~RSUs were excluded from the computation of diluted earnings per share because they were anti-dilutive in the periods presented, but could be dilutive in the future.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
*(in thousands, except per share amounts)*	2009		2008		2009		2008		2009		2008		2009		2008
Basic
Net income	$	11,241	$	2,852	$	19,883	$	5,796	$	6,001	$	2,351	$	25,884	$	8,147



Weighted-average common shares outstanding		35,965		36,264		35,818		36,144		36,462		36,419		36,035		36,201



Earnings per share, basic	$	0.31	$	0.08	$	0.56	$	0.16	$	0.16	$	0.06	$	0.72	$	0.23



Diluted
Net income	$	11,241	$	2,852	$	19,883	$	5,796	$	6,001	$	2,351	$	25,884	$	8,147



Weighted-average common shares outstanding		35,965		36,264		35,818		36,144		36,462		36,419		36,035		36,201
Effect of assumed exercise of stock options, RSUs and warrants		2,030		1,537		1,890		1,304		1,979		1,793		1,920		1,467


Weighted-average common shares outstanding, assuming dilution		37,995		37,801		37,708		37,448		38,441		38,212		37,955		37,668



Earnings per share, diluted	$	0.30	$	0.08	$	0.53	$	0.15	$	0.16	$	0.06	$	0.68	$	0.22

Outstanding options, RSUs, and warrants excluded as impact would be anti-dilutive		51		1,554		617		1,648


Outstanding options and RSUs excluded as impact would be anti-dilutive										88		1,288		441		1,529

~~As of June 30, 2009, the amount of unrecognized tax benefits totaled approximately $5.9 million, of which $4.9 million, if recognized, would impact the Company’s effective tax rate.~~ During the second quarter of 2009, the Company settled its income tax audit with the United Kingdom government for the tax years 2001 through 2005, which resulted in a $0.4 million reduction in the total unrecognized tax benefits. As of September 30, 2009, the amount of unrecognized tax benefits totaled approximately $5.9 million, of which $4.5 million, if recognized, would decrease the Company’s effective tax rate. The Company expects that the changes in the unrecognized benefits within the next twelve months will be approximately $1.3 million related to tax positions for which the ultimate settlement is highly certain but for which there is uncertainty about the timing of such recognition. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

The Company files income tax returns in the U.S. ~~federal~~ and ~~state jurisdictions and~~in foreign jurisdictions. Generally, the Company is no longer subject to U.S. federal, state, or local, or foreign income tax examinations by tax authorities for the years before ~~2005.~~2006. With few exceptions, the statute of limitations remains open in all jurisdictions for the tax years ~~2005~~2006 to the present.

The Company operates in one operating segment—rules-based ~~business process management, or BPM,~~Business Process Management (“BPM”) software. The Company derives substantially all of its revenue from the sale and support of one group of similar products and services. Substantially all of the Company’s assets are located within the U.S. The Company derived its revenue from the following geographic areas (sales outside the U.S. are principally through export from the U.S.):


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in thousands)	2009				2008				2009				2008				2009				2008				2009				2008
U.S.	$	41,709	65	%	$	33,582	66	%	$	81,476	65	%	$	62,433	63	%	$	39,011	60	%	$	30,817	58	%	$	120,486	63	%	$	93,250	61	%
United Kingdom		10,944	17	%		10,292	20	%		20,807	16	%		21,156	21	%		15,939	25	%		9,121	17	%		36,746	19	%		30,276	20	%
Europe, other		8,020	13	%		4,269	8	%		18,191	14	%		10,366	10	%		3,556	5	%		9,781	19	%		21,748	12	%		20,147	13	%
Other		3,205	5	%		2,976	6	%		5,771	5	%		5,642	6	%		6,315	10	%		2,979	6	%		12,086	6	%		8,622	6	%

	$	63,878	100	%	$	51,119	100	%	$	126,245	100	%	$	99,597	100	%	$	64,821	100	%	$	52,698	100	%	$	191,066	100	%	$	152,295	100%

There were no customers accounting for 10% or more of the Company’s total revenue during the third quarter and first nine months of 2008 and 2009. The following table summarizes the Company’s concentration of credit risk associated with customers accounting for 10% or more of the Company’s ~~total revenue,~~ outstanding trade receivables and short and long-term license installments:


								As of September 30,			As of December 31,
(Dollars in thousands)		As of June 30, 2009			As of December 31, 2008			2009			2008
Trade receivables	$	32,377		$	42,801		$	27,708		$	42,801
Customer B		18.7	%		11.7	%
Customer A								11.9	%		11.7	%

Long and short-term license installments	$	7,670		$	10,858		$	6,272		$	10,858
Customer B								37.7	%		29.7	%
Customer C		42.9	%		29.7	%		20.5	%		16.1	%
Customer D		19.0	%		16.1	%		16.1	%		11.9	%
Customer E		14.7	%		11.9	%		12.7	%		10.5	%
Customer F		12.3	%		10.5	%

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains or incorporates forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management’s beliefs and assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “project,” or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict.

We encourage you to carefully review the risk factors we have identified in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2008. We believe these risk factors could cause our actual results to differ materially from the forward-looking statements we make. We do not intend to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

We develop and license rules-based BPM software and provide professional services, maintenance, and training related to our software. We focus our sales efforts on target accounts, which are companies or divisions within companies, and are typically large organizations that are among the leaders in their industry. Our strategy is to sell initial licenses to these target accounts that are focused on a specific purpose or area of operations, rather than selling large enterprise licenses. This strategy allows our customers to quickly realize business value from our software and limits their initial investment. Once a customer has realized this initial value, we work with the customer to identify opportunities for follow-on sales.

Our license revenue is primarily derived from sales of our PegaRULES Process Commander (“PRPC”) software and related solution frameworks. PRPC is a comprehensive platform for building and managing BPM applications that unifies business rules and business processes. Our solution frameworks are built on the capabilities of PRPC and are purpose- or industry -specific collections of best practice functionality to allow organizations to quickly implement new customer-facing practices and processes, bring new offerings to market, and provide customized or specialized processing. These products often require less implementation assistance than prior generations of our software products. In many cases this has resulted in a shorter sales process and implementation period. PRPC and related solution frameworks can be used by a broad range of customers within financial services, insurance and healthcare markets, as well as other markets, such as life sciences and government.

Almost all of our customers also purchase maintenance on our products, which includes rights to upgrades and new releases, incident resolution and technical assistance. Maintenance revenue is a significant portion of our total revenue and is directly attributable to the installed base of our software licenses.

Our customers typically request professional services and training to assist them in implementing our products. Professional services are provided directly by us and through our network of partners. By utilizing these partners, we have increased the supply of skilled service consultants that can assist our customers.

~~Despite the current economic crisis, we~~We achieved license revenue growth of ~~62%~~58% and ~~61%~~60% during the ~~second~~third quarter and first ~~six~~nine months of 2009 ~~respectively,~~ compared to the same periods in 2008, ~~including a 70% and 73% increase in~~respectively, despite the continued challenging economic conditions. Our perpetual license revenue ~~respectively,~~increased 37% and a 61% and ~~44% increase in~~our term license revenue increased 80% and 57% during the third quarter and first nine months of 2009 compared to the same periods in 2008, respectively.

We generated approximately ~~$29.4~~$38.8 million and ~~$30.5~~$32.9 million in cash from operations in the first ~~six~~nine months of 2009 and 2008, respectively.

The total value of new license arrangements executed induring the ~~second~~third quarter ~~of 2009~~ and first ~~six~~nine months of 2009 was ~~significantly~~ higher than in the same periods in ~~2008. During~~2008, despite a decline in demand from European customers. In addition, the ~~second quarter of 2009, we executed a higher~~ value of new license arrangements executed with new customers in the first nine months of 2009 was greater than ~~our historical levels,~~in the same period in 2008, evidencing our success with companies across a broader range of industries. ~~We also continue to successfully execute new license arrangements with existing customers.~~

We believe these results reflect our ability to quickly and successfully deliver our versatile Build for Change^® technology to Fortune^® 500 customers across industries and international borders, allowing these customers to reduce operating costs and increase revenues after a short implementation period. These operational efficiencies experienced by our customers are part of the strong value proposition our technology provides to our customers.

We believe the ongoing challenges for our business include continuing to drive revenue growth, continuing to expand our expertise in new and existing industries, and maintaining our leadership position in the BPM market.

The ~~current~~recent economic crisis has had an adverse impact on our target markets including, among other things, volatility in security prices, diminished liquidity, and limited access to funding. These conditions could impact the ability and willingness of our financial services and insurance customers, and possibly our customers in other industries, to make investments in technology and pay their trade obligations. Our financial services and insurance customers as a group represent a significant amount of our revenues, including those associated with our ~~non-cancellable term licenses~~future cash receipts from license arrangements as detailed on page 2224 and our receivables. We considered these facts and determined they did not have a material adverse impact on our allowances for doubtful accounts and sales credit memos as of ~~June~~September 30, 2009.

As of ~~June~~September 30, 2009, our cash, cash equivalents, and marketable securities totaled ~~$190.1~~$198.4 million, a ~~$22.8~~$31.2 million increase compared to December 31, 2008. We believe that our current cash, cash equivalents, marketable securities, and cash flow from operations will be sufficient to fund our operations and our share repurchase program for at least the next 12 months. We also evaluate acquisition and other strategic opportunities from time to time, which if pursued, could require use of our funds. Material risks to cash flow from operations include delayed or reduced cash payments accompanying sales of new licenses or a decline in our overall business.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.” GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information. We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

There have been no changes in our critical accounting policies or significant accounting estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008. For more information regarding our critical accounting policies, we encourage you to read the discussion contained in Item 7 under the heading “Critical Accounting Policies and Estimates” and Note 2. “Significant Accounting Policies” included in the notes to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2008.


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
(Dollars in thousands)	2009		2008		Increase				2009		2008		Increase				2009		2008					2009		2008
Total revenue	$	63,878	$	51,119	$	12,759	25	%	$	126,245	$	99,597	$	26,648	27	%	$	64,821	$	52,698	$	12,123	23%	$	191,066	$	152,295	$	38,771	25%

Gross profit		42,286		30,346		11,940	39	%		84,122		59,272		24,850	42	%		40,761		32,142		8,619	27%		124,883		91,414		33,469	37%

Total operating expenses		30,456		27,762		2,694	10	%		59,957		54,522		5,435	10	%		33,296		28,701		4,595	16%		93,253		83,223		10,030	12%

Income before provision for income taxes	$	15,716	$	4,029	$	11,687	290	%	$	28,126	$	8,206	$	19,920	243	%		$8,526		$2,717		$5,809	214%		$36,652		$10,923		$25,729	236%

Despite the ~~current~~continued challenging economic ~~crisis,~~conditions, we continue to experience an increase in demand for our software products and related services, which we believe is due to the strong value proposition, short implementation period, and flexible licensing terms we offer our customers. Our success is also due to the growth in the BPM sector and our position as leader in this market space.

The increases in gross profit during the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008 were primarily due to the ~~increases~~increase in ~~both~~ license revenue and to a lesser extent due to the increase in maintenance ~~revenue.~~revenue, partially offset by a decrease in our professional services gross profit. The increases in income before provision for income taxes during the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008 were primarily due to the higher growth rate of our license and maintenance revenue compared to the lower growth rate of our operating expenses. Due to credit market turmoil and adverse changes in the economy during 2008, we changed the mix of our investment portfolio to increase our holdings of pre-refunded municipal bonds, which resulted in $0.4 million and ~~$1.3~~$1.7 million of lower interest income during the ~~second~~third quarter and first ~~six~~nine months of 2009, respectively, compared to the same periods in 2008. Our income before provision for income taxes was positively impacted by ~~$2.9~~a $2.3 million and ~~$2.1~~$4.1 million ofincrease in foreign currency transaction gains during the ~~second~~third quarter and first ~~six~~nine months of 2009, ~~respectively.~~respectively, compared to the same periods in 2008.

A small number of high value license arrangements or the mix between perpetual and term licenses can cause our revenues to fluctuate materially from quarter to quarter. The revenue growth rate achieved in any historical period is not necessarily indicative of the results expected for future periods.


																										Three Months Ended September 30,							Increase				Nine Months Ended September 30,								Increase
	Three Months Ended June 30,								Increase					Six Months Ended June 30,
(Dollars in thousands)	2009				2008				(Decrease)					2009				2008				Increase				2009				2008							2009				2008
*License revenue*

Perpetual licenses	$	16,130	63	%	$	9,478	60	%	$	6,652		70	%	$	33,618	63	%	$	19,388	58	%	$	14,230	73	%	$	13,666	48	%	$9,958	56	%	$	3,708	37	%	$	47,284	58	%	$	29,346	57	%	$	17,938	61	%

Term licenses		8,455	33	%		5,261	33	%		3,194		61	%		17,788	33	%		12,339	37	%		5,449	44	%		12,006	42	%	6,666	37	%		5,340	80	%		29,794	36	%		19,005	37	%		10,789	57	%

Subscription		1,066	4	%		1,080	7	%		(14	)	(1	)%		2,281	4	%		1,577	5	%		704	45	%		2,686	10	%	1,286	7	%		1,400	109	%		4,967	6	%		2,863	6	%		2,104	73	%


Total License revenue	$	25,651	100	%	$	15,819	100	%	$	9,832		62	%	$	53,687	100	%	$	33,304	100	%	$	20,383	61	%	$	28,358	100	%	$17,910	100	%	$	10,448	58	%	$	82,045	100	%	$	51,214	100	%	$	30,831	60	%

The increases in perpetual license revenue during the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008 were driven by increases in the ~~average value and~~ number of perpetual licenses. The mix between perpetual and term license arrangements fluctuates based on customer circumstances and the intended use of our software. For the first ~~six~~nine months of 2009, new perpetual license arrangements comprised a higher portion of our total license arrangements as compared to the first ~~six~~nine months of 2008. ~~In addition, many~~Many of the perpetual license arrangements include extended payment terms and/or additional rights of use that delay the recognition of revenue to future periods. The aggregate value of payments due under these perpetual and certain subscription licenses was $45.8 million as of September 30, 2009 compared to $19.8 million as of September 30, 2008. See the table of future cash receipts by year from these perpetual licenses and certain subscription licenses on page ~~22.~~24.

We recognize revenue for our term license arrangements over the term of the agreement as payments become due or earlier if prepaid. The increases in term license revenue during the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008 were ~~each~~primarily due to significant prepayments of certain term licenses during the third quarter. In addition, the increase in term license revenue during the first nine months of 2009 compared to the same period in 2008 was due to the increase in the aggregate value of payments for non-cancellable term licenses signed during 2008 and 2007 for which a portion of these agreements was recognized as revenue during the ~~second quarter and~~ first ~~six~~nine months of 2009. The remainder of these agreements will be recognized as revenue in future periods. The aggregate value of payments due under these term licenses ~~increased to $78.0~~was $70.2 million as of ~~June~~September 30, 2009 compared to ~~$73.5~~$74.6 million as of ~~June~~September 30, 2008. ~~The aggregate value of future payments due under non-cancellable term licenses as of June 30, 2009 includes $11.7 million of term license payments that we expect to~~

recognize as revenue during the remainder of 2009. However, our actual term license revenue for the remainder of 2009 could be higher than $11.7 million as we complete new term license agreements in 2009 or if we receive prepayments from existing term license agreements. See the table of future cash receipts by year from these term licenses on page ~~22.~~24. The aggregate value of future payments due under non-cancellable term licenses as of September 30, 2009 includes $5.3 million of term license payments that we expect to recognize as revenue during the remainder of 2009. However, we expect our actual term license revenue for the remainder of 2009 could be higher than $5.3 million as we complete additional term license agreements during the remainder of 2009 or if we receive prepayments from existing term license agreements.

Subscription revenue primarily relates to our arrangements that include a right to unspecified future products and is recognized ratably over the economic life or term of the arrangement. The ~~increase~~increases in subscription revenue during the third quarter and first ~~six~~nine months of 2009 compared to the same ~~period~~periods in 2008 ~~was~~were primarily due to ~~the revenue recognition for one~~a new customer ~~arrangement for the entire period in 2009 as compared to recognition for only part of the period in 2008.~~arrangement.


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
(Dollars in thousands)	2009		2008		Increase				2009		2008		Increase				2009		2008					2009		2008
*Maintenance revenue*
Maintenance	$	12,171	$	10,083	$	2,088	21	%	$	24,119	$	18,982	$	5,137	27	%	$	12,489	$	10,045	$	2,444	24%	$	36,608	$	29,027	$	7,581	26	%

The increases in maintenance revenue during the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008 were due to the continued increase in the aggregate value of the installed base of our software.


	Three Months Ended June 30,								Increase					Six Months Ended June 30,								Increase					Three Months Ended September 30,								(Decrease)				Nine Months Ended September 30,								Increase (Decrease)
(Dollars in thousands)	2009				2008				(Decrease)					2009				2008				(Decrease)					2009				2008								2009				2008
*Professional services revenue*
Consulting Services	$	25,108	96	%	$	23,866	95	%	$	1,242		5	%	$	46,281	96	%	$	44,409	94	%	$	1,872		4	%	$	23,371	97	%	$	23,685	96	%	$	(314)	(1	)%	$	69,652	96	%	$	68,094	95	%	$1,558	2%
Training		948	4	%		1,351	5	%		(403	)	(30	)%		2,158	4	%		2,902	6	%		(744	)	(26	)%		603	3	%		1,058	4	%		(455)	(43	)%		2,761	4	%		3,960	5	%	(1,199)	(30)%


Total Professional services	$	26,056	100	%	$	25,217	100	%	$	839		3	%	$	48,439	100	%	$	47,311	100	%	$	1,128		2	%	$	23,974	100	%	$	24,743	100	%	$	(769)	(3	)%	$	72,413	100	%	$	72,054	100	%	$359	0%

Professional services are primarily consulting services related to new license implementations. ~~The increase in consulting~~During the third quarter and first nine months of 2009, our professional services revenue ~~during~~was negatively impacted by pricing pressures associated with a weaker global economy and the ~~second quarter~~decline in the value of the Euro relative to the U.S. dollar in 2009 compared to the same ~~period~~periods in 2008 was due to a $4.8 million increase in revenue due to a higher number of professional service hours delivered, partially offset by a $1.6 million decrease due to the decline in value of European currencies relative to the U.S. dollar and a $1.7 million decrease due to downward rate pressure caused by the current decline in economic conditions. The increase in consulting services revenue during the first six months of 2009 compared to the same period in 2008 was due to a $9.9 million increase in revenue due to a higher number of professional service hours delivered, partially offset by a $3.8 million decrease due to the decline in value of European currencies relative to the U.S. dollar and a $4.0 million decrease due to downward rate pressure caused by the current decline in economic conditions.2008. Our training revenues ~~have been~~continue to be negatively impacted by ~~the weakened~~a weak global economy.


	Three Months Ended September 30,		Increase (Decrease)			Nine Months Ended September 30,		Increase (Decrease)
(Dollars in thousands)	2009	2008				2009	2008
*Gross Profit*
Software license	$28,330	$17,880	$10,450	58	%	$81,955	$51,150	$30,805	60	%
Maintenance	10,931	8,591	2,340	27	%	32,156	25,021	7,135	29	%
Professional services	1,500	5,671	(4,171)	(74)	%	10,772	15,243	(4,471)	(29)	%

Total gross profit	$40,761	$32,142	$8,619	27	%	$124,883	$91,414	$33,469	37	%



Maintenance gross profit percent	88%	86%				88%	86%

Professional services gross profit percent	6%	23%				15%	21%

The increases in software license gross profit during the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008 were due to the increases in our license revenue, which had no significant incremental associated direct costs. The increases in maintenance gross profit during the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008 were due to higher maintenance revenue and lower incremental direct costs.

Professional services gross profit during the third quarter and first ~~six~~nine months of 2009 compared to the same ~~period~~periods in 2008 was adversely impacted by ~~pricing pressures~~lower realization rates globally due to the challenging economic conditions. In addition, the direct costs associated with the ~~current decline~~professional services bundled with a certain license arrangement recognized on a subscription basis were recorded in ~~economic conditions. In~~ the ~~second half~~third quarter of 2009, ~~we expect~~but the related revenue will be recognized over the term of the subscription period. The bundled professional services for this license arrangement were completed during the third quarter of 2009.

In addition, during the third quarter of 2009, a significant number of our professional services consultants ~~to complete~~completed our enhanced training curriculum to achieve the master level of PRPC ~~certification.~~certification, which resulted in lower billable hours and an increased use of contractors. We expect additional professional services consultants will complete this ~~investment~~training in ~~training~~the fourth quarter of 2009, which may continue to negatively impact professional services gross profit. We intend to continue our investment in the professional services organization to support our license implementations.


	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
(Dollars in thousands)	2009		2008					2009		2008

*Selling and marketing*

Selling and marketing	$	19,568	$	15,698	$	3,870	25%	$	51,663	$	45,036	$	6,627	15%

As a percent of total revenue		30%		30%					27%		30%

Selling and marketing headcount									230		184		46	25%

Selling and marketing expenses include compensation, benefits, and other headcount-related expenses associated with our selling and marketing personnel as well as advertising, promotions, trade shows, seminars, and other programs. The increase in selling and marketing expenses during the ~~second~~third quarter of 2009 compared to the same period in 2008 was primarily due to ~~$1.1~~$2.1 million higher sales commissions mainly associated with the increase in our new license arrangements ~~a $1.0~~and $1.6 million increase in compensation and benefit expenses associated with higher ~~headcount, and a $0.2 million increase in marketing campaigns, partially offset by a $0.3 million decrease in travel and entertainment expenses.~~headcount. The increase in selling and marketing expenses during the first ~~six~~nine months of 2009 compared to the same period in 2008 was primarily due to ~~$2.0~~$4.2 million higher sales commissions mainly associated with the increase in our new license arrangements, and a ~~$1.6~~$3.0 million increase in compensation and benefit expenses associated with higher headcount, partially offset by a ~~$0.6~~$0.5 million decrease in travel ~~and entertainment~~ expenses and a $0.3 million decrease in ~~external marketing and~~ recruiting agency fees.


	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
(Dollars in thousands)	2009		2008					2009		2008
*Research and development*

Research and development	$	9,930	$	7,936	$	1,994	25%	$	28,198	$	22,832	$	5,366	24%

As a percent of total revenue		15%		15%					15%		15%

Research and development headcount									219		153		66	43%

Research and development expenses include compensation, benefits, contracted services, and other headcount-related expenses associated with research and development. The increase in research and development expenses during the second quarter of 2009 compared to the same period in 2008 was primarily due to a $0.9 million increase in compensation and benefit expenses associated with higher headcount and $0.8 million of expenses associated with our research and development center in India, partially offset by a $0.2 million decrease in contractor expenses. The increase in research and development expenses during the first six months of 2009 compared to the same period in 2008 was primarily due to a $2.2 million increase in compensation and benefit expenses associated with higher headcount, $1.4 million of expenses associated with our research and development center in India, partially offset by a $0.2 million decrease in contractor expenses. During the first three quarters of 2008, the research and development center in India was not operational and therefore associated start-up expenses were classified as general and administrative expenses. Subsequent to becoming operational in October 2008, all expenses associated with our development center are classified as research and development. The change in classification of these expenses resulted in a $0.7 million and a $2.1 million increase in research and development expenses during the third quarter and first nine months of 2009, respectively, compared to the same periods in 2008.

The increase in research and development expenses during the third quarter of 2009 compared to the same period in 2008 was also due to a $0.9 million increase in compensation and benefit expenses associated with higher headcount and $0.2 million of training expenses associated with our agile deployment methodology. The increase in research and development expenses during the first nine months of 2009 compared to the same period in 2008 was also due to a $3.1 million increase in compensation and benefit expenses associated with higher headcount, partially offset by a $0.2 million decrease in recruiting expenses.

   Three Months Ended
June 30, Six Months Ended
June 30, Increase
(Dollars in thousands)    2009 2008 (Decrease) 2009 2008 (Decrease)
General and administrative

General and administrative
   $ 4,648    $ 5,231    $ (583 ) (11 )% $ 9,594    $ 10,288    $ (694 ) (7 )%
As a percent of total revenue
   7 % 10 % 8 % 10 %
General and administrative headcount
   141    129    12    9 %


	Three Months Ended September 30,				(Decrease)				Nine Months Ended September 30, (Decrease)
(Dollars in thousands)	2009		2008						2009		2008
*General and administrative*

General and administrative	$	3,798	$	5,067	$	(1,269	)	(25)%	$	13,392	$	15,355	$	(1,963	)	(13)%

As a percent of total revenue		6%		10%						7%		10%

General and administrative headcount										138		126		12		10%

General and administrative expenses include compensation, benefits, and other headcount-related expenses associated with the finance, legal, corporate governance, and other administrative headcount, as well as accounting, legal, and other administrative fees.

The ~~start-up~~change in classification of the expenses ~~associated with~~related to our research and development center in India were classified as general and administrative expenses in the second quarter of 2008 and were classified in research and development in the second quarter of 2009. The change in classification of these expenses resulted in a ~~$0.8~~$0.7 million and a ~~$1.4~~$2.1 million decrease in general and administrative expenses during the ~~second~~third quarter and first ~~six~~nine months of 2009, respectively, compared to the same periods in 2008. During the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008, general and administrative expenses also decreased by $0.6 million due to a reduction in our reserves for non-income taxes and decreased by $0.2 million and $0.6 million, respectively, due to ~~the recovery of previously recorded doubtful accounts.~~lower legal, audit and tax fees. These decreases in general and administrative expenses were partially offset by a ~~$0.5~~$0.4 million and ~~$1.0~~$1.4 million increase in compensation and benefit expenses during the ~~second~~third quarter and first ~~six~~nine months of 2009 ~~respectively,~~ compared to the same periods in ~~2008.~~2008, respectively.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), we recognize stock-based compensation expense associated with equity awards in our consolidated statements of income based on the fair value of these awards at the date of grant. The following table summarizes stock-based compensation expense included in our consolidated statements of income:

The increases in stock-based compensation during the third quarter and first nine months of 2009 compared to the same periods in 2008 were primarily due to our periodic stock option grants and new hire stock option grants. During the second quarter of 2009, we refined our forfeiture estimate, which resulted in ~~lower~~a reduction to our stock-based compensation ~~expense compared~~expense. The higher stock-based compensation related to the ~~same period in 2008. The increase in stock-based compensation~~periodic stock option grants and new hire stock option grants during the first ~~six~~nine months of 2009 compared to the same period in 2008 was due to periodic stock option grants made in March 2008 and December 2008, stock option grants to new employees, an increase in the annual stock award to our Board of Directors and the addition of two directors, and the recognition of a full six months of expense associated with restricted stock units (“RSUs”) under our Corporate Incentive Compensation Plan (“CICP”).more than offsets this reduction.

As of ~~June~~September 30, 2009, we had approximately $2.4 million of unrecognized stock-based compensation expense related to the unvested portion of all our stock options that is expected to be recognized over a weighted-average period of approximately 2.3 years. As of ~~June~~September 30, 2009, we had approximately ~~$2.2~~$1.7 million of unrecognized stock-based compensation expense related to all unvested RSUs that is expected to be recognized over a weighted-average period of 2.0 years.


	Three Months Ended September 30,		Increase (Decrease)		Nine Months Ended September 30,		Increase (Decrease)
(Dollars in thousands)	2009	2008			2009	2008
Installment receivable interest income	$74	$95	$(21)	(22)%	$224	$248	$(24)	(10)%
Other interest income, net	721	1,151	(430)	(37)%	2,404	4,104	(1,700)	(41)%
Foreign currency transaction gain (loss)	266	(2,010)	2,276	113%	2,377	(1,759)	4,136	235%
Other income, net	-	40	(40)	(100)%	17	139	(122)	(88)%

Interest income and other	$1,061	$(724)	$1,785	(247)%	$5,022	$2,732	$2,290	84%

The decreases in interest income during the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008 were primarily due to our investment in lower yielding tax-exempt municipal bonds. During 2008, due to credit market turmoil and adverse changes in the economy, we changed the mix of our investment portfolio to increase our holdings of pre-refunded municipal bonds. These bonds are collateralized by the issuer purchasing U.S. Treasury securities to fund all the cash flows of the refunded municipal bonds that will mature when the issuer’s bond matures.

Other income, net, consists primarily of foreign currency exchange gains and losses and realized gains and losses on the sale of our investments. The increases in other income, net, during the ~~second~~third quarter and first ~~six~~nine months of 2009 compared to the same periods in 2008 resulted primarily from the significant increase in the value of foreign currency denominated net assets held in the U.S., consisting primarily of cash, receivables, license installments, and accounts payable. As a result of the increase in the value of the British pound and the Euro relative to the U.S. dollar during the ~~second~~third quarter and first ~~six~~nine months of 2009, we recorded a ~~$2.9~~$0.3 million and ~~$2.1~~$2.4 million foreign currency ~~exchange transaction gain, respectively. During the second quarter and first six months of 2008, we recorded a $6,000 foreign exchange transaction loss and a $0.3 million foreign~~ exchange transaction gain, respectively. See Item 7A. “Quantitative and Qualitative Disclosure about Market Risk” for further discussion of our foreign currency exchange risk.

The provision for income taxes represents current and future amounts owed for federal, state, and foreign taxes. During the ~~second~~third quarter of 2009 and 2008, we recorded a ~~$4.5~~$2.5 million and ~~$1.2~~$0.4 million provision, respectively, which resulted in an effective tax rate of ~~28.5%~~29.6% and ~~29.2%~~13.5%, respectively. During the first ~~six~~nine months of 2009 and 2008, we recorded ~~an $8.2~~a $10.8 million and ~~$2.4~~$2.8 million provision, respectively, which resulted in an effective tax rate of ~~29.3%~~29.4% and ~~29.4%~~25.4%, respectively.

Our effective tax ~~rate~~rates during the ~~second quarters~~third quarter and first ~~six~~nine months of 2009 and 2008 were below the statutory federal income tax rate primarily due to the investment in tax-exempt municipal bonds and the benefit from the SEZ India tax holiday.

The determination of the provision for income tax expense, deferred tax assets and liabilities and related valuation allowance involves judgment. As a global company, we are required to calculate and provide for income taxes in each of the tax jurisdictions where we operate. This involves making judgments regarding the recoverability of deferred tax assets, which can affect the overall effective tax rate. ~~As of June 30, 2009, the amount of unrecognized tax benefits totaled approximately $5.9 million, of which $4.9 million, if recognized, would impact our effective tax rate.~~ During the second quarter of 2009, we settled our income tax audit with the United Kingdom government for the tax years 2001 through 2005, which resulted in a $0.4 million reduction in the total unrecognized tax benefits. As of September 30, 2009, the amount of unrecognized tax benefits totaled approximately $5.9 million, of which $4.5 million, if recognized, would decrease our effective tax rate. We expect that the changes in the unrecognized benefits within the next twelve months will be approximately $1.3 million related to tax positions for which the ultimate settlement is highly certain but for which there is uncertainty about the timing of such recognition.


	Six Months Ended June 30,						Nine Months Ended September 30,
(in thousands)	2009			2008			2009			2008
Cash provided by (used in):
Operating activities	$	29,432		$	30,467		$	38,839		$	32,871
Investing activities		(12,789	)		(26,881	)		(17,650	)		(12,318	)
Financing activities		(3,853	)		(1,033	)		(2,071	)		(5,526	)
Effect of exchange rate on cash		919			123			1,214			(560	)


Net increase in cash and cash equivalents	$	13,709		$	2,676		$	20,332		$	14,467


	As of June 30, 2009			As of December 31, 2008
							As of September 30, 2009			As of December 31, 2008
Total cash, cash equivalents, and marketable securities	$	190,062		$	167,229		$	198,355		$	167,229

We have funded our operations primarily from cash provided by operations. As of ~~June~~September 30, 2009, we had cash, cash equivalents, and marketable securities of ~~$190.1~~$198.4 million, a ~~$22.8~~$31.2 million increase from $167.2 million as of December 31, 2008. This increase was primarily due to ~~$29.4~~$38.8 million of cash provided by operations and ~~$10.1~~$14.4 million of excess tax benefit from stock options, partially offset by ~~$14.8~~$17.3 million used to repurchase shares of our common stock, ~~$1.8~~$3.7 million investment in property and equipment, and ~~$2.2~~$3.2 million used for dividend payments to our shareholders. Working capital was ~~$178.4~~$186.2 million as of ~~June~~September 30, 2009 compared to $159.1 million as of December 31, 2008.

We believe that our ~~current~~ cash, cash equivalents, marketable securities, and cash flow from operations will be sufficient to fund our operations and our share repurchase program for at least the next 12 months. We also evaluate acquisition opportunities from time to time, which if pursued, could require use of our funds. Material risks to cash flow from operations include delayed or reduced cash payments on sales of new licenses or a decline in our services business. The current economic crisis has had an adverse impact on our target markets including, among other things, volatility in security prices, diminished liquidity, and limited access to funding. These conditions could impact the ability and willingness of our financial services and insurance customers, and possibly our customers in other industries, to make investments in technology and pay their trade obligations. Our financial services and insurance customers as a group represent a significant amount of our revenues and receivables, which we considered and determined did not have a material adverse impact on our allowances for doubtful accounts and sales credit memos as of ~~June~~September 30, 2009. There can be no assurance that changes in our plans or other events affecting our operations will not result in materially accelerated or unexpected expenditures.

Cash provided by operating activities during the first ~~six~~nine months of 2009 was ~~$29.4~~$38.8 million, a ~~$1.0~~$6.0 million ~~decrease~~increase as compared to the first ~~six~~nine months of 2008.

The primary components of cash provided by operations during the first ~~six~~nine months of 2009 were ~~$19.9~~$25.9 million of net income and a ~~$10.4~~$15.1 million decrease in accounts receivable due to the timing of their collection.

The following table summarizes the cash receipts due in connection with our existing license ~~agreements:~~agreements as of September 30, 2009.


As of June 30,(in thousands)	Installment payments for licenses recorded on the balance sheet (1)			Installment payments for term licenses not recorded on the balance sheet (2)		Other license payments not recorded on the balance sheet (3)
As of September 30, (in thousands)								Installment payments for licenses recorded on the balance sheet (1)		Installment payments for term licenses not recorded on the balance sheet (2)		Other license payments not recorded on the balance sheet (3)
Remainder of 2009	$	2,061		$	11,744	$	13,410	$	589	$	5,318	$	3,924
2010		2,829			24,680		14,564		2,829		25,841		25,497
2011		2,232			20,809		82		2,232		20,532		9,166
2012		1,292			13,384		165		1,292		13,175		7,165
2013		—			5,151		—		-		4,774		-
Thereafter		—			2,184		—		-		598		-


Total		8,414		$	77,952	$	28,221		6,942	$	70,238	$	45,752



Unearned installment interest income		(744	)						(670)


Total license installments receivable, net	$	7,670						$	6,272

Cash used in investing activities during the first ~~six~~nine months of 2009 and 2008 was primarily for purchases of marketable debt securities of ~~$29.5~~$49.9 million and ~~$145.3~~$172.6 million, respectively, partially offset by the proceeds received from the sales, maturities and called marketable debt securities of ~~$18.5~~$35.9 million and ~~$120.2~~$163.7 million, respectively.

During the first ~~six~~nine months of 2009, we invested ~~$1.8~~$3.7 million in computer equipment and leasehold improvements primarily for our locations in Cambridge and India.

In March 2008, we paid approximately $0.8 million in cash to acquire certain assets of privately held Focus Technology Group, Inc. and a related entity (collectively, “Focus”), that provides anti-fraud and anti-money laundering software to the banking industry. In addition to the initial purchase consideration, maximum contingent consideration of approximately $2.1 million in cash ~~may be~~could have become due to the former owners of Focus upon the achievement of certain performance milestones and sales targets to be paid over a period of 30 months from the acquisition date. ~~No amount~~On September 22, 2009, the parties to the original Focus asset purchase agreement entered into an amendment of that agreement (“the Amended Agreement”). Pursuant to the Amended Agreement, $1.8 million of the original potential contingent consideration was forfeited and $0.3 million of the potential contingent consideration was earned ~~or paid~~and is payable in ~~2008 or during~~January 2010. We recorded the ~~first six months of 2009.~~additional $0.3 million consideration as an increase to goodwill.

Cash used in financing activities during the first ~~six~~nine months of 2009 and 2008 was primarily for repurchases of our common stock and the payment of our quarterly dividend. In each of February and December 2008, our Board of Directors approved a $15.0 million share repurchase program. The December 2008 repurchase program expires on December 31, 2009. Since 2004, our Board of Directors has approved annual stock repurchase programs that have authorized the repurchase in the aggregate up to $60.0 million of our common stock. Purchases under these programs have been made on the open market.

The following table is a summary of our repurchase activity under all of our repurchase programs during the first ~~six~~nine months of 2009 and 2008:


	2009				2008				2009			2008
(Dollars in thousands)	Shares	Amount			Shares	Amount			Shares	Amount		Shares	Amount
Prior year authorization as of January 1,		$	12,862			$	1,210			$	12,862		$	1,210
Authorizations			—				15,000				—			15,000
Repurchases paid	570,954		(8,824	)	503,080		(5,423	)	605,256		(9,859)	965,952		(11,794)
Repurchases unsettled	—		—		65,472		(870	)	975		(34)	14,998		(192)

Authorization remaining as of June 30,		$	4,038			$	9,917
Authorization remaining as of September 30,										$	2,969		$	4,224

In addition to the share repurchases made under our repurchase programs, we net settled the majority of our employee stock option exercises and restricted stock unit vesting, which resulted in the withholding of shares to cover the option exercise price and the minimum statutory tax withholding obligations. During the first ~~six~~nine months of 2009 and 2008, we withheld shares with a value of ~~$14.1~~$19.2 million and ~~$0.6~~$2.3 million, respectively, in connection with the net settlement of stock options and restricted stock units. The share repurchases and shares withheld for net settlement of our employee stock option exercises and vesting of restricted stock units ~~more than~~ offset the shares issued and proceeds received under our various share-based compensation plans during first ~~six~~nine months of 2009 and 2008. During the first ~~six~~nine months of 2009 and 2008, option holders net settled stock options and vested restricted stock units representing the right to purchase a total of approximately ~~1,704,000~~2,189,000 shares and ~~88,000~~314,000 shares, respectively, of which ~~764,000~~approximately 1,063,000 shares and ~~23,000~~96,000 shares, respectively, were issued to the option and restricted stock unit holders and the balance of the shares were surrendered to us to pay for the exercise price and the applicable taxes.

The Company declared a cash dividend of $0.03 per share for each of the quarters in 2008 and in the first, second and ~~second~~third quarters of 2009. Accordingly, the Company paid cash dividends of ~~$2.2~~$3.2 and $3.3 million ~~in each of the~~during first ~~six~~nine months of 2009 and ~~2008.~~2008, respectively. It is our current intention to pay a quarterly cash dividend of $0.03 per share to shareholders of record as of the first trading day of each quarter, however, the Board of Directors may terminate or modify this dividend program at any time without notice.

~~We adopted SFAS 157 on January 1, 2008.~~ See ~~Note 1. “Accounting Policies” and~~ Note 3. “Fair Value Measurements” in the notes to the unaudited condensed consolidated financial statements for further discussion. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. The use of fair value to measure investments, with related unrealized gains or losses on investments, is a significant component to our consolidated results of operations.

We value our investments by using quoted market prices and broker or dealer quotations which are based on third party pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include some of the government debt securities, some of the municipal debt securities, money market securities and most of the corporate debt securities. We do not adjust the quoted price for such instruments. The types of instruments valued based on other observable inputs include most of the municipal debt securities and some of the corporate debt securities. The price for each security at the measurement date is sourced from an independent pricing vendor. Periodically, management may assess the reasonableness of these sourced prices by comparing them to the prices provided by our portfolio managers to derive the fair value of these financial instruments. Management assesses the inputs of the pricing in order to categorize the financial instruments into the appropriate hierarchy levels.

See Note 1. “Accounting Policies” in the notes to the unaudited condensed consolidated financial statements for further discussion.

There were no customers accounting for 10% or more of the Company’s total revenue during the third quarters and first nine months of 2008 and 2009. The following table summarizes the Company’s concentration of credit risk associated with customers accounting for 10% or more of the Company’s ~~total revenue,~~ outstanding trade receivables and short and long-term license installments:


		As of September 30,			As of December 31,
(Dollars in thousands)		2009			2008
Trade receivables	$	27,708		$	42,801
Customer A		11.9	%		11.7	%

Long and short-term license installments	$	6,272		$	10,858
Customer B		37.7	%		29.7	%
Customer C		20.5	%		16.1	%
Customer D		16.1	%		11.9	%
Customer E		12.7	%		10.5	%

Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and rates. Our market risk exposure is primarily related to fluctuations in foreign exchange rates and interest rates. We have not entered into derivative or hedging transactions to manage risk in connection with such fluctuations.

We derived approximately ~~35%~~37% and ~~37%~~39% of our total revenue from sales to customers based outside of the United States (“U.S.”) during the first ~~six~~nine months of 2009 and 2008, respectively. Our international license and professional services have increasingly become denominated in foreign currencies. However, the operating expenses of our foreign operations are primarily denominated in foreign currencies, which partially offset our foreign currency exposure. A decrease in the value of foreign currencies, particularly the British pound and the Euro relative to the U.S. dollar, could adversely impact our revenues and operating results.

Most of our transactions with customers are invoiced from our offices in the U.S. For those transactions that are denominated in currencies other than the U.S. dollar, we have receivables and license installments that are valued in foreign currencies. In addition, our U.S. operating company holds cash and investments in foreign currencies in order to support our foreign operations. Our functional currency is primarily the U.S. dollar, therefore, when there are changes in the foreign currency exchange rates versus the U.S. dollar, we recognize a foreign currency transaction gain or (loss) in our consolidated statements of income. As of ~~June~~September 30, 2009, we had net monetary assets valued in foreign currencies, consisting primarily of cash, receivables, and license installments, partially offset by accounts payable and accrued expenses, with a carrying value of approximately ~~$38.3~~$49.8 million. During the first ~~six~~nine months of 2009, we recorded a ~~$2.1~~$2.4 million foreign currency transaction gain due to the increase in the value of foreign currencies, primarily the Euro and British pound, relative to the U.S. dollar. As of ~~June~~September 30, 2009, a ten percent change in foreign currency exchange rates would have materially changed the carrying value of our net monetary assets by approximately ~~$3.8~~$5.0 million as of that date with a corresponding currency gain (loss) recognized in our consolidated statement of income.

We invest primarily in tax-exempt municipal bonds, government sponsored enterprises, and corporate bonds that are fixed rate -marketable debt securities. A 200 basis point increase in market interest rates would have reduced the fair value of our marketable debt securities by approximately ~~$2.2~~$1.9 million as of ~~June~~September 30, 2009. Changes in market rates and the related impact on fair value of the marketable securities do not generally affect net earnings as our marketable securities are fixed rate securities and are classified as available-for-sale and as such, unrealized gains and losses, net of tax effect, are recorded in accumulated other comprehensive income in our accompanying consolidated balance sheets. However, when the marketable securities are sold, the unrealized gains and losses are recorded as realized gains and losses and included in net income in the accompanying consolidated statements of income.

We analyze our investments for impairments on an ongoing basis. As of the date of this filing, we are not aware of any downgrades, losses, or other significant deterioration in the fair value of our marketable securities.

Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or 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) as of ~~June~~September 30, 2009. 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 ~~June~~September 30, 2009.

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 Securities Exchange Act) during the quarter ended ~~June~~September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We encourage you to carefully consider the risk factors identified in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008. These risk factors could materially affect our business, financial condition and future results and could 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 from time to time. ~~There have been no~~The following risk factor represents a material ~~changes during the first six months of 2009~~change in our risk factors and should be considered in addition to ~~the risk factors~~those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

If we are unable to maintain vendor specific objective evidence (“VSOE”) of fair value of our professional services arrangements, we may be required to delay a portion of our revenue to future periods. We have established VSOE of fair value of our professional services based on the price charged when these services are sold separately. The weakened economy and significant competition within our industry have created pricing pressure on professional services provided by technology companies. If we elect to discount our professional services pricing or otherwise introduce variability in our professional services arrangements to attract or retain customers, this could lead to an insufficient number of consistent pricing examples for us to measure and maintain VSOE. If we do not have VSOE of fair value of our professional services, we may be required to recognize all revenue for these professional services arrangements, including any related license, maintenance, and other services revenue if the professional services are bundled in an arrangement, ratably over the longer of the software maintenance period or the service period.

The following table sets forth information regarding our repurchases of our common stock during the ~~second~~third quarter of 2009:


Period	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Programs (1)		Approximate Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Share Repurchase Programs (in thousands) (1)
7/1/09-7/31/09	6,716	$	26.94	6,716	$	3,857
8/1/09-8/31/09	16,322		30.78	16,322		3,355
9/1/09-9/30/09	12,239		31.50	12,239		2,969


Total	35,277	$	30.30

~~Our Annual Meeting~~In August 2009, a former stockholder of ~~Stockholders~~1mind Corporation (“1mind”) exercised a warrant to purchase 7,478 shares of our common stock, which was ~~held~~originally issued as part of the consideration for our acquisition of 1mind in 2002. In accordance with the net exercise provisions of this warrant, we withheld 214 shares of our common stock to cover the exercise price of the warrant, which shares were valued at approximately $6,356 based on ~~June 5, 2009.~~the average closing price of our common stock over the ten consecutive trading days ending on the third trading day prior to the exercise date, and issued 7,264 shares of our common stock. The ~~following matters were voted upon:~~

~~The stockholders elected~~issuance of these shares was made in reliance on an exemption from registration provided by Regulation D under the ~~following individuals to serve on our Board~~Securities Act of ~~Directors until our 2010 Annual Meeting of Stockholders and until their successors are duly elected and qualified:~~1933.

The stockholders ratified the Audit Committee’s selection of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2009, with 34,049,123 votes “FOR”, 135,935 votes “AGAINST” and 21,068 votes “WITHHELD”.

The exhibits listed in the Exhibit Index immediately preceding such exhibits are filed as part of this report and such Exhibit Index is incorporated herein by reference.

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.


101 Main Street Cambridge, MA		02142-1590
*(Address of principal executive offices)*		*(Zip Code)*


		Page
Part I—Financial Information

Item 1.	Financial Statements:

	Unaudited Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2009 and December 31, 2008	3

	Unaudited Condensed Consolidated Statements of Income for the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2009 and 2008	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2427

Item 4.	Controls and Procedures	2528

Part II—Other Information

Item 1A.	Risk Factors	2528

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

~~Item 4.~~	~~Submission of Matters to Vote of Security Holders~~	2629

Item 6.	Exhibits	2629

~~SIGNATURE~~Signature		2730


		As of June 30, 2009		As of December 31, 2008
*ASSETS*
Current assets:
Cash and cash equivalents	$	49,796	$	36,087
Marketable securities		140,266		131,142


Total cash, cash equivalents, and marketable securities		190,062		167,229
Trade accounts receivable, net of allowances of $847 and $1,490		32,377		42,801
Short-term license installments		3,061		5,445
Deferred income taxes		4,335		4,351
Income taxes receivable and other current assets		8,297		4,151

Total current assets		238,132		223,977

Long-term license installments, net		4,609		5,413
Property and equipment, net		6,318		5,723
Long-term deferred income taxes and other assets		8,504		8,117
Intangible assets, net		408		479
Goodwill		2,141		2,141

Total assets	$	260,112	$	245,850

*LIABILITIES AND STOCKHOLDERS’ EQUITY*
Current liabilities:
Accounts payable	$	1,844	$	4,726
Accrued expenses		7,783		9,925
Accrued compensation and related expenses		14,008		18,015
Deferred revenue		36,114		32,231


Total current liabilities		59,749		64,897

Income taxes payable		5,871		5,665
Other long-term liabilities		1,982		2,174

Total liabilities		67,602		72,736


Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; no shares issued and outstanding		—		—
Common stock, 70,000 shares authorized; 36,346 shares and 35,810 shares issued and outstanding		363		358
Additional paid-in capital		118,678		117,926
Retained earnings		71,653		53,935
Accumulated other comprehensive income		1,816		895

Total stockholders’ equity		192,510		173,114

Total liabilities and stockholders’ equity	$	260,112	$	245,850


		As of September 30, 2009		As of December 31, 2008
*ASSETS*
Current assets:
Cash and cash equivalents	$	56,419	$	36,087
Marketable securities		141,936		131,142

Total cash, cash equivalents, and marketable securities		198,355		167,229
Trade accounts receivable, net of allowances of $612 and $1,490		27,708		42,801
Short-term license installments		2,951		5,445
Deferred income taxes		4,338		4,351
Income taxes receivable and other current assets		10,729		4,151

Total current assets		244,081		223,977
Long-term license installments, net		3,321		5,413
Property and equipment, net		7,487		5,723
Long-term deferred income taxes and other assets		8,536		8,117
Intangible assets, net		372		479
Goodwill		2,391		2,141

Total assets	$	266,188	$	245,850


*LIABILITIES AND STOCKHOLDERS’ EQUITY*
Current liabilities:
Accounts payable	$	5,333	$	4,726
Accrued expenses		6,605		9,925
Accrued compensation and related expenses		18,123		18,015
Deferred revenue		27,818		32,231

Total current liabilities		57,879		64,897
Income taxes payable		5,274		5,665
Other long-term liabilities		1,909		2,174

Total liabilities		65,062		72,736

Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; no shares issued and outstanding		—		—
Common stock and paid-in capital, 70,000 shares authorized; 36,673 shares and 35,810 shares issued and outstanding		122,757		118,284
Retained earnings, including accumulated other comprehensive income of $1,816 and $895		78,369		54,830

Total stockholders’ equity		201,126		173,114

Total liabilities and stockholders’ equity	$	266,188	$	245,850


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Programs (1)	Approximate Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Share Repurchase Programs (in thousands) (1)
4/1/09-4/30/09	123,079	$	18.28	123,079	$	4,113
5/1/09-5/31/09	4,488		16.66	4,488		4,038
6/1/09-6/30/09	—		—	—		4,038


Total	127,567	$	18.23


	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2009		2008			2009		2008
Total Revenue	$	63,878	$	51,119		$	126,245	$	99,597
Customer A		—		12.6	%		—		—


Name	Votes For	Votes Against	Votes Withheld
Craig Conway	34,105,181	81,694	19,251
Peter Gyenes	33,884,169	302,706	19,251
Richard Jones	33,782,433	404,442	19,251
Steven Kaplan	34,079,943	106,932	19,251
James O’Halloran	33,834,522	352,353	19,251
Alan Trefler	34,087,652	116,470	2,004
William Wyman	34,073,012	113,863	19,251


	Pegasystems Inc.

Date: ~~August 4,~~November 3, 2009	By:	/s/ Craig Dynes
	~~Craig Dynes~~
	Craig Dynes Senior Vice President, Chief Financial Officer
	(principal financial officer) (duly authorized officer)


Exhibit No.		Description

31.1		Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.

31.2		Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.

32		Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer.