FORM10-Q
(Mark One)
☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
For the quarterly period ended September 30, 2023 |
For the quarterly period ended September 30, 2017
☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period fromto
Massachusetts | 04-2787865 | |||||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Common Stock, $.01 par value per share | PEGA | NASDAQ Global Select Market |
Large accelerated filer | x | Accelerated filer | ☐ | ||||||||||||||||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||||||||||||||||
Emerging growth company | ☐ |
17, 2023.
PART Item 1. Unaudited Condensed Consolidated Balance Sheets as of September 30, Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2023 and 2022 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 PART II - OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 5. Other Information Assets Current assets: Cash and cash equivalents Marketable securities Total cash, cash equivalents, and marketable securities Trade accounts receivable, net of allowance of $6,189 and $4,126 Income taxes receivable Other current assets Total current assets Property and equipment, net Deferred income taxes Long-term other assets Intangible assets, net Goodwill Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Accrued expenses Accrued compensation and related expenses Deferred revenue Total current liabilities Income taxes payable Long-term deferred revenue Other long-term liabilities Total liabilities Stockholders’ equity: Preferred stock, 1,000 shares authorized; no shares issued and outstanding Common stock, 200,000 shares authorized; 77,839 shares and 76,591 shares issued and outstanding Additionalpaid-in capital Retained earnings Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity Revenue: Software license Maintenance Services Total revenue Cost of revenue: Software license Maintenance Services Total cost of revenue Gross profit Operating expenses: Selling and marketing Research and development General and administrative Acquisition-related Total operating expenses (Loss)/income from operations Foreign currency transaction (loss)/gain Interest income, net Other income/(expense), net (Loss)/income before (benefit)/provision for income taxes (Benefit)/provision for income taxes Net (loss)/income (Loss)/earnings per share: Basic Diluted Weighted-average number of common shares outstanding: Basic Diluted Cash dividends declared per share Net (loss)/income Other comprehensive income/(loss), net of tax Unrealized gain/(loss) onavailable-for-sale marketable securities, net of tax Foreign currency translation adjustments Total other comprehensive income/(loss), net of tax Comprehensive (loss)/income Operating activities: Net income Adjustments to reconcile net income to cash provided by operating activities: Deferred income taxes Depreciation and amortization Stock-based compensation expense Foreign currency transaction loss/(gain) Othernon-cash Change in operating assets and liabilities: Trade accounts receivable Income taxes receivable and other current assets Accounts payable and accrued expenses Deferred revenue Other long-term assets and liabilities Cash provided by operating activities Investing activities: Purchases of marketable securities Proceeds from maturities and called marketable securities Sales of marketable securities Payments for acquisitions, net of cash acquired Investment in property and equipment Cash used in investing activities Financing activities: Dividend payments to shareholders Common stock repurchases for tax withholdings for net settlement of equity awards Common stock repurchases under share repurchase programs Cash used in financing activities Effect of exchange rates on cash and cash equivalents Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period 2022. date: September 30, 2017 Municipal bonds Corporate bonds December 31, 2016 Municipal bonds Corporate bonds Asset Derivatives Foreign currency forward contracts Liability Derivatives Foreign currency forward contracts Euro British pound Australian dollar United States dollar intangible assets: Gain (loss) from the change in the fair value of forward contracts included in other income (expense), net Foreign currency transaction (loss) gain from the remeasurement of foreign currency assets and liabilities recurring basis implied volatility levels. The Company’s September 30, 2017 Fair Value Assets: Money market funds Marketable securities: Municipal bonds Corporate bonds December 31, 2016 Fair Value Assets: Money market funds Marketable securities: Municipal bonds Corporate bonds Foreign currency forward contracts Fair Value Liabilities: Foreign currency forward contracts Trade accounts receivable Unbilled trade accounts receivable Total trade accounts receivable Allowance for sales credit memos Balance as of January 1, Purchase price adjustments to goodwill Currency translation adjustments Balance as of September 30, privately-held companies. September 30, 2017 Customer related intangibles Technology Other intangibles December 31, 2016 Customer related intangibles Technology Other intangibles Cost of revenue Selling and marketing General and administrative Remainder of 2017 2018 2019 2020 2021 2022 and thereafter Outside professional services Income and other taxes Marketing and sales program expenses Dividends payable Employee related expenses Other of December 31, 2022. In the nine months ended September 30, 2023 the Company repurchased Notes representing $97.7 million in aggregate principal amount. Term license Perpetual license Maintenance Cloud Professional Services Current deferred revenue Perpetual license Maintenance Cloud Long-term deferred revenue Cost of revenues Selling and marketing Research and development General and administrative Acquisition-related Total stock-based compensation before tax Income tax benefit anti-dilutive. Basic Net (loss)/income Weighted-average common shares outstanding (Loss)/earnings per share, basic Diluted Net (loss)/income Weighted-average effect of dilutive securities: Stock options RSUs Effect of assumed exercise of stock options and RSUs Weighted-average common shares outstanding, assuming dilution (Loss)/earnings per share, diluted Outstanding stock options and RSUs excluded as impact would be anti-dilutive 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. trade secrets. The Company U.S. Other Americas U.K. Other EMEA(1) Asia Pacific 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 it has strong defenses to the claims asserted, its intent to defend against these claims, and there being no specified quantum of damages sought in the complaint. Total revenue Client A Total trade accounts receivable Client A above-described litigation with Appian Corporation. The Company is fully cooperating with the SEC’s requests. 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. (Dollars in thousands, except per share amounts) Total revenue Operating margin Diluted (loss)/earnings per share Cash flow provided by operating activities change was $3 million and 0.3% of Total ACV or less for all quarters in 2022. Previously disclosed ACV amounts have been updated to allow for comparability. This simplification, made possible by improvements to the Company’s financial systems, ensures that ACV for all contract types and lengths is consistently calculated as the Term License and Cloud ACV Maintenance ACV Term License, Cloud and Maintenance ACV Recurring revenue Term license Maintenance Cloud Total recurring revenue Recurring revenue as a percent of total revenue Deferred license and cloud revenue on the balance sheet Term license and cloud Perpetual license Total deferred license and cloud revenue License and cloud contractual commitments not on the balance sheet Term license and cloud Perpetual license Total license and cloud commitments Total license (term and perpetual) and cloud backlog Total term license and cloud backlog all periods shown. Total revenue Gross profit Total operating expenses (Loss)/income from operations Operating margin (Loss)/income before (benefit)/provision for income taxes Perpetual license Term license Total license revenue Maintenance Consulting services Cloud Training Total services Software license Maintenance Services Total gross profit Software license gross profit % Maintenance gross profit % Services gross profit % Total gross profit % Selling and marketing As a percent of total revenue Selling and marketing headcount, end of period 2023 was primarily due to higher consultant utilization in the Americas. The this Quarterly Report. Research and development As a percent of total revenue Research and Development headcount, end of period General and administrative As a percent of total revenue General and administrative headcount, end of period Cost of revenues Selling and marketing Research and development General and administrative Acquisition-related Total stock-based compensation before tax Income tax benefit Cost of revenue Selling and marketing General and administrative the United Kingdom. Foreign currency transaction (loss)/gain Interest income, net Other (expense)/income, net (Benefit)/provision for income taxes Effective income tax rate our capped call transactions. Cash provided by (used in): Operating activities Investing activities Financing activities Effect of exchange rate on cash Net increase/(decrease) in cash and cash equivalents Total cash, cash equivalents, and marketable securities U.S. Remainder of 2017 2018 2019 2020 2021 2022 and thereafter Total Balance as of January 1, Authorizations Repurchase for net settlement of tax under stock-based compensation Repurchases paid under authorized share repurchase program Repurchases unsettled Activity in Period Balance as of September 30, These amounts are not included in the table above. Dividends Declared Dividends Paid our discretion. procedures 2023. financial reporting Period July 1, 2017 - July 31, 2017 August 1, 2017 - August 31, 2017 September 1, 2017 - September 30, 2017 Total Index to FormPage I—I - FINANCIAL INFORMATIONUnaudited Condensed Consolidated Financial Statements20172023 and December 31, 201622022 32022 4Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20172023 and 2016202256152525PART II—OTHER INFORMATIONItem 1. Legal Proceedings Item 1A. Risk Factors 2525Item 6. Exhibits 2627I—I - FINANCIAL INFORMATIONITEM 1.UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSPEGASYSTEMS INC.UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands) September 30,
2017 December 31,
2016 $ 130,568 $ 70,594 63,812 63,167 194,380 133,761 191,161 265,028 34,864 14,155 17,679 12,188 438,084 425,132 39,849 38,281 73,459 69,898 5,982 3,990 34,755 44,191 72,941 73,164 $ 665,070 $ 654,656 $ 12,535 $ 14,414 39,681 36,751 53,869 60,660 160,931 175,647 267,016 287,472 4,774 4,263 6,130 10,989 15,449 16,043 293,369 318,767 — — 778 766 146,728 143,903 227,953 198,315 (3,758 ) (7,095 ) 371,701 335,889 $ 665,070 $ 654,656 September 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 169,023 $ 145,054 Marketable securities 167,286 152,167 Total cash, cash equivalents, and marketable securities 336,309 297,221 Accounts receivable, net 168,795 255,150 Unbilled receivables, net 199,948 213,719 Other current assets 71,438 80,388 Total current assets 776,490 846,478 Unbilled receivables, net 73,795 95,806 Goodwill 81,437 81,399 Other long-term assets 290,807 333,989 Total assets $ 1,222,529 $ 1,357,672 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 20,541 $ 18,195 Accrued expenses 43,624 50,355 Accrued compensation and related expenses 93,511 127,728 Deferred revenue 297,067 325,212 Other current liabilities 18,038 17,450 Total current liabilities 472,781 538,940 Convertible senior notes, net 498,753 593,609 Operating lease liabilities 68,874 79,152 Other long-term liabilities 14,485 15,128 Total liabilities 1,054,893 1,226,829 Commitments and contingencies (Note 15) Stockholders’ equity: Preferred stock, 1,000 shares authorized; none issued — — 835 824 Additional paid-in capital 343,259 229,602 Accumulated deficit (151,370) (76,513) Accumulated other comprehensive (loss) (25,088) (23,070) Total stockholders’ equity 167,636 130,843 Total liabilities and stockholders’ equity $ 1,222,529 $ 1,357,672 PEGASYSTEMS INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts) Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 $ 41,793 $ 68,833 $ 195,220 $ 207,849 62,204 55,038 180,759 163,174 75,818 58,931 225,063 179,633 179,815 182,802 601,042 550,656 1,276 1,313 3,826 3,646 6,716 6,659 20,945 18,889 61,739 52,465 180,925 154,512 69,731 60,437 205,696 177,047 110,084 122,365 395,346 373,609 70,209 67,032 217,384 202,126 41,031 38,036 121,089 108,530 13,133 11,725 38,174 34,067 — 74 — 2,903 124,373 116,867 376,647 347,626 (14,289 ) 5,498 18,699 25,983 (552 ) 1,082 (793 ) 2,764 144 172 470 650 — (1,237 ) 287 (4,891 ) (14,697 ) 5,515 18,663 24,506 (12,885 ) 2,214 (17,952 ) 6,269 $ (1,812 ) $ 3,301 $ 36,615 $ 18,237 (0.03 ) 0.04 0.47 0.24 (0.03 ) 0.04 0.44 0.23 77,691 76,278 77,258 76,323 77,691 79,548 82,717 79,401 $ 0.03 $ 0.03 $ 0.09 $ 0.09 Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Revenue Subscription services $ 201,578 $ 174,885 $ 586,192 $ 516,750 Subscription license 74,342 31,112 200,066 210,245 Consulting 55,976 55,511 167,396 175,451 Perpetual license 2,747 9,223 4,729 18,929 Total revenue 334,643 270,731 958,383 921,375 Cost of revenue Subscription services 35,906 34,541 109,553 103,104 Subscription license 629 628 1,971 1,923 Consulting 57,204 57,778 176,262 171,162 Perpetual license 24 103 51 173 Total cost of revenue 93,763 93,050 287,837 276,362 Gross profit 240,880 177,681 670,546 645,013 Operating expenses Selling and marketing 131,598 153,517 425,253 472,951 Research and development 74,955 75,342 224,262 221,173 General and administrative 27,321 26,043 73,893 94,530 Restructuring 17,822 — 21,450 — Total operating expenses 251,696 254,902 744,858 788,654 (Loss) from operations (10,816) (77,221) (74,312) (143,641) Foreign currency transaction gain (loss) 1,994 3,826 (3,971) 8,415 Interest income 2,532 520 5,831 1,036 Interest expense (1,533) (1,992) (5,229) (5,882) (Loss) on capped call transactions (2,294) (6,876) (449) (56,381) Other income (loss), net 6,383 (29) 18,668 6,497 (Loss) before provision for income taxes (3,734) (81,772) (59,462) (189,956) Provision for income taxes 3,545 11,748 15,395 190,239 Net (loss) $ (7,279) $ (93,520) $ (74,857) $ (380,195) (Loss) per share Basic $ (0.09) $ (1.14) $ (0.90) $ (4.65) Diluted $ (0.09) $ (1.14) $ (0.90) $ (4.65) Weighted-average number of common shares outstanding Basic 83,336 81,996 82,996 81,842 Diluted 83,336 81,996 82,996 81,842 PEGASYSTEMS INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 $ (1,812 ) $ 3,301 $ 36,615 $ 18,237 22 (174 ) 148 168 549 (169 ) 3,189 (1,400 ) 571 (343 ) 3,337 (1,232 ) $ (1,241 ) $ 2,958 $ 39,952 $ 17,005 Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Net (loss) $ (7,279) $ (93,520) $ (74,857) $ (380,195) Other comprehensive (loss), net of tax Unrealized (loss) on available-for-sale securities (40) (73) (281) (1,000) Foreign currency translation adjustments (3,687) (6,700) (1,737) (20,936) Total other comprehensive (loss), net of tax (3,727) (6,773) (2,018) (21,936) Comprehensive (loss) $ (11,006) $ (100,293) $ (76,875) $ (402,131) PEGASYSTEMS INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Nine Months Ended
September 30, 2017 2016 $ 36,615 $ 18,237 (2,607 ) (2,841 ) 18,703 17,896 39,929 30,634 793 (2,764 ) (89 ) 153 80,580 3,940 (25,943 ) (11,904 ) (8,546 ) (16,678 ) (25,639 ) (17,698 ) 130 1,581 113,926 20,556 (25,687 ) (22,614 ) 23,124 21,838 — 62,283 (297 ) (49,113 ) (9,106 ) (15,253 ) (11,966 ) (2,859 ) (6,941 ) (6,883 ) (34,113 ) (10,398 ) (2,986 ) (25,750 ) (44,040 ) (43,031 ) 2,054 (1,309 ) 59,974 (26,643 ) 70,594 93,026 $ 130,568 $ 66,383 PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)Common Stock Additional
Paid-In CapitalRetained Earnings (Accumulated Deficit) Total
Stockholders’ EquityNumber
of SharesAmount December 31, 2021 81,712 $ 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 plans 297 3 (12,131) — — (12,128) Issuance of common stock under the employee stock purchase plan 35 — 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, 2022 81,802 $ 818 $ 141,771 $ 273,615 $ (9,536) $ 406,668 Repurchase of common stock (38) — (1,925) — — (1,925) Issuance of common stock for stock compensation plans 117 1 (3,252) — — (3,251) Issuance of common stock under the employee stock purchase plan 59 — 2,357 — — 2,357 Stock-based compensation — — 31,300 — — 31,300 Cash dividends declared ($0.03 per share) — — — (2,459) — (2,459) Other comprehensive (loss) — — — — (12,615) (12,615) Net (loss) — — — (286,296) — (286,296) June 30, 2022 81,940 $ 819 $ 170,251 $ (15,140) $ (22,151) $ 133,779 Issuance of common stock for stock compensation plans 138 2 (2,198) — — (2,196) Issuance of common stock under the employee stock purchase plan 86 1 2,362 — — 2,363 Stock-based compensation — — 33,774 — — 33,774 Cash dividends declared ($0.03 per share) — — — (2,466) — (2,466) Other comprehensive (loss) — — — — (6,773) (6,773) Net (loss) — — — (93,520) — (93,520) September 30, 2022 82,164 $ 822 $ 204,189 $ (111,126) $ (28,924) $ 64,961 PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)Common Stock Additional
Paid-In CapitalRetained Earnings (Accumulated Deficit) Total
Stockholders’ EquityNumber
of SharesAmount December 31, 2022 82,436 $ 824 $ 229,602 $ (76,513) $ (23,070) $ 130,843 Issuance of common stock for stock compensation plans 452 4 668 — — 672 Issuance of common stock under the employee stock purchase plan 52 1 2,142 — — 2,143 Stock-based compensation — — 42,557 — — 42,557 Cash dividends declared ($0.03 per share) — — (2,488) — — (2,488) Other comprehensive income — — — — 1,543 1,543 Net (loss) — — — (20,774) — (20,774) March 31, 2023 82,940 $ 829 $ 272,481 $ (97,287) $ (21,527) $ 154,496 Issuance of common stock for stock compensation plans 225 2 1,824 — — 1,826 Issuance of common stock under the employee stock purchase plan 47 1 1,980 — — 1,981 Stock-based compensation — — 36,227 — — 36,227 Cash dividends declared ($0.03 per share) — — (2,496) — — (2,496) Other comprehensive income — — — — 166 166 Net (loss) — — — (46,804) — (46,804) June 30, 2023 83,212 $ 832 $ 310,016 $ (144,091) $ (21,361) $ 145,396 Issuance of common stock for stock compensation plans 257 3 2,447 — — 2,450 Issuance of common stock under the employee stock purchase plan 54 — 2,003 — — 2,003 Stock-based compensation — — 31,299 — — 31,299 Cash dividends declared ($0.03 per share) — — (2,506) — — (2,506) Other comprehensive (loss) — — — — (3,727) (3,727) Net (loss) — — — (7,279) — (7,279) September 30, 2023 83,523 $ 835 $ 343,259 $ (151,370) $ (25,088) $ 167,636 Nine Months Ended
September 30,2023 2022 Operating activities Net (loss) $ (74,857) $ (380,195) Adjustments to reconcile net (loss) to cash provided by (used in) operating activities Stock-based compensation 110,083 93,301 Deferred income taxes (188) 169,489 Loss on capped call transactions 449 56,381 Amortization of deferred commissions 43,974 39,752 Lease expense 12,018 11,500 Amortization of intangible assets and depreciation 14,181 12,381 Foreign currency transaction loss (gain) 3,971 (8,415) Other non-cash (16,487) (1,705) Change in operating assets and liabilities, net 44,776 (5,935) Cash provided by (used in) operating activities 137,920 (13,446) Investing activities Purchases of investments (190,466) (39,056) Proceeds from maturities and called investments 169,836 53,952 Sales of investments 10,725 18,415 Payments for acquisitions, net of cash acquired — (922) Investment in property and equipment (14,271) (22,285) Cash (used in) provided by investing activities (24,176) 10,104 Financing activities Repurchases of convertible senior notes (88,989) — Dividend payments to stockholders (7,458) (7,368) Proceeds from employee stock purchase plan 6,127 7,166 Proceeds from stock option exercises 6,602 — Common stock repurchases (1,654) (43,282) Other 341 — Cash (used in) financing activities (85,031) (43,484) Effect of exchange rate changes on cash, cash equivalents, and restricted cash (1,621) (5,513) Net increase (decrease) in cash, cash equivalents, and restricted cash 27,092 (52,339) Cash, cash equivalents, and restricted cash, beginning of period 145,054 159,965 Cash, cash equivalents, and restricted cash, end of period $ 172,146 $ 107,626 Cash and cash equivalents $ 169,023 $ 107,626 Restricted cash included in other long-term assets 3,123 — Total cash, cash equivalents, and restricted cash $ 172,146 $ 107,626 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 Form10-K for the year ended December 31, 2016.aredo not necessarily indicativeindicate the expected results for 2023.September 30, 2023 December 31, 2022 (in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value Government debt $ 17,931 $ — $ (18) $ 17,913 $ 2,960 $ — $ (52) $ 2,908 Corporate debt 149,927 — (554) 149,373 151,906 — (2,647) 149,259 $ 167,858 $ — $ (572) $ 167,286 $ 154,866 $ — $ (2,699) $ 152,167 the results expectedSeptember 30, 2023, marketable securities’ maturities ranged from October 2023 to January 2026, with a weighted average remaining maturity of 0.5 years.(in thousands) September 30, 2023 December 31, 2022 Accounts receivable, net $ 168,795 $ 255,150 Unbilled receivables, net 199,948 213,719 Long-term unbilled receivables, net 73,795 95,806 $ 442,538 $ 564,675 the full year 2017.2. NEW ACCOUNTING PRONOUNCEMENTSStock-Based CompensationIn May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2017-09 “Stock Compensation (Topic 718), Scope of Modification Accounting” to clarify when to account for a changewhich revenue recognition precedes billing. Billing is solely subject to the terms or conditionspassage of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. Thetime.(Dollars in thousands) September 30, 2023 1 year or less $ 199,948 73 % 1-2 years 58,604 21 % 2-5 years 15,191 6 % $ 273,743 100 % date for the Company will be January 1, 2018. The Company does not expect the adoption of this standard to have a material effect on its financial position or results of operations.Financial InstrumentsIn June 2016, the FASB issued ASUNo. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including trade accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model for credit losses. Credit losses relating toavailable-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of “other-than-temporary” impairments. The effective date for the Company will be January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and related disclosures.LeasesIn February 2016, the FASB issued ASUNo. 2016-02, “Leases (Topic 842),” which requires lessees to record most leases on their balance sheets, recognizing a lease liability for the obligation to make lease payments and aright-of-use asset for the right to use the underlying asset for the lease term. The effective date for the Company will be January 1, 2019, with early adoption permitted. The Company expects that most of its operating lease commitments will be subject to this ASU and recognized as operating lease liabilities andright-of-use assets upon adoption with no material impact to its results of operations and cash flows.RevenueIn May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU amends the guidance for revenue recognition, creating the new Accounting Standards Codification Topic 606 (“ASC 606”). ASC 606 requires entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for the good or service. In addition, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.The Company has elected the full retrospective adoption model, effective January 1, 2018. The Company’s quarterly results beginning with the quarter ending March 31, 2018 and comparative prior periods will be compliant with ASC 606. The Company’s Annual Report on Form10-K for the year ended December 31, 2018 will be the Company’s first Annual Report that will be issued in compliance with ASC 606.(Dollars in thousands) September 30, 2023 2023 $ 90,227 33 % 2022 92,065 34 % 2021 62,729 23 % 2020 19,820 7 % 2019 and prior 8,902 3 % $ 273,743 100 % The Company has made significant progress on quantifyingimpact of its adoption and identifying necessary changes to our policies, processes, systems, and controls.The Company expects the following impacts:Currently, the Company recognizes revenue from term licenses and perpetual licenses with extended payment terms over the term of the agreement as payments become due or earlier if prepaid, provided all other criteria for revenue recognition have been met, and any corresponding maintenance over the term of the agreement. The adoption of ASC 606 will result in revenue for performance obligations being recognized as they are satisfied. Therefore, revenue from the term and perpetual license performance obligations with extended payment terms is recognized when control is transferredamount billed to the customer. Any unrecognized licenseclient, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.(in thousands) September 30, 2023 December 31, 2022 $ 13,263 $ 17,546 10,732 16,470 $ 23,995 $ 34,016 from these arrangements,(in thousands) September 30, 2023 December 31, 2022 Deferred revenue $ 297,067 $ 325,212 2,605 3,552 $ 299,672 $ 328,764 atas of December 31, 2015, will not be recognized2022 exceeded new billings in revenue in future periods but as a cumulative adjustment to retained earnings. Further, term license revenue from new arrangements executed in 2016 and 2017 will be recognized in full in the year that control of the license is transferred to the customer instead of over the term of the agreement. Revenue from the maintenance performance obligations is expected to be recognized on a straight-line basis over the contractual term. Due to the revenue from term and perpetual licenses with extended payment terms being recognized prior to amounts being billed to the customer, the Company expects to recognize a net contract asset on the balance sheet.Currently, the Company allocates revenue to licenses under the residual method when it has Vendor Specific Objective Evidence (“VSOE”) for the remaining undelivered elements, which allocates any future credits or significant discounts entirely to the license. The adoption of ASC 606 will result in future credits, significant discounts, and material rights under ASC 606, to be allocated to all performance obligations based upon their relative selling price. Under ASC 606, additional license revenue from the reallocation of such arrangement considerations will be recognized when control is transferred to the customer, which is generally upon delivery of the license.Currently, the Company does not have VSOE for fixed price services, time and materials services in certain geographical areas, and unspecified future products, which results in revenue being deferred in such instances until such time as VSOE exists for all undelivered elements or recognized ratably over the longest performance period. The adoption of ASC 606 eliminates the requirement for VSOE and replaces it with the concept of a stand-alone selling price. Once the transaction price is allocated to each of the performance obligations, the Company can recognize revenue as the performance obligations are delivered, either at a point in time or over time. Under ASC 606, license revenue will be recognized when control is transferred to the customer, professional services revenue will be recognized over time based on input or output measures that reflect the Company’s performance on the contract. This will result in the acceleration of professional services revenue when compared to the current practice of ratable recognition for professional services when there is a lack of VSOE.Sales commissions and other third party acquisition costs resulting directly from securing contracts with customers are currently expensed when incurred. ASC 606 will require these costs to be recognized as an asset when incurred and to be expensed over the associated contract term. As a practical expedient, if the term of the contract is one year or less, the Company will expense these costs as incurred. The Company expects this change to impact its multi-year cloud offerings and term and perpetual licenses with additional rights of use that extend beyond one year.ASC 606 provides additional accounting guidance for contract modifications whereby changes must be accounted for either as a retrospective change (creating either a catch up or deferral of past revenues), prospectively with a reallocation of revenues amongst identified performance obligations, or prospectively as separate contracts which will not require any reallocation. This may result in a difference in the timing of the recognitionadvance of revenue as compared to how contract modificationsrecognition.(in thousands) September 30, 2023 December 31, 2022 $ 107,399 $ 130,195 Three Months Ended
September 30,Nine Months Ended
September 30,(in thousands) 2023 2022 2023 2022 $ 14,947 $ 11,597 $ 43,974 $ 39,752 Nine Months Ended
September 30,(in thousands) 2023 2022 January 1, $ 81,399 $ 81,923 Currency translation adjustments 38 (722) September 30, $ 81,437 $ 81,201 recognized currently.recorded at cost and amortized using the straight-line method over their estimated useful lives.September 30, 2023 (in thousands) Useful Lives Cost Accumulated Amortization Client-related 4-10 years $ 63,086 $ (59,661) $ 3,425 Technology 2-10 years 68,103 (63,579) 4,524 Other 1-5 years 5,361 (5,361) — $ 136,550 $ (128,601) $ 7,949 There will be a corresponding effect on tax liabilities(1) Included in relation to all of the above impacts.other long-term assets.3. MARKETABLE SECURITIESThe Company’s marketable securities are as follows:(in thousands) Amortized
Cost Unrealized
Gains Unrealized
Losses Fair
Value $ 32,764 $ 12 �� $ (17 ) $ 32,759 31,079 12 (38 ) 31,053 $ 63,843 $ 24 $ (55 ) $ 63,812 $ 36,746 $ — $ (139 ) $ 36,607 26,610 1 (51 ) 26,560 $ 63,356 $ 1 $ (190 ) $ 63,167 AsDecember 31, 2022 (in thousands) Useful Lives Cost Accumulated Amortization Client-related 4-10 years $ 63,076 $ (58,623) $ 4,453 Technology 2-10 years 68,056 (61,621) 6,435 Other 1-5 years 5,361 (5,361) — $ 136,493 $ (125,605) $ 10,888
Amortization of (in thousands) September 30, 2023 Remainder of 2023 $ 964 2024 3,169 2025 2,615 2026 874 2027 327 $ 7,949 September 30, 2017, the Company did not hold any investments with unrealized losses that are considered to be other-than-temporary.As of September 30, 2017, remaining maturities of marketable debt securities ranged from October 2017 to September 2020, with a weighted-average remaining maturity of approximately 14 months.4. DERIVATIVE INSTRUMENTSIn May 2017, the Company discontinued its forward contracts program; however, it will continue to evaluate periodically its foreign exchange exposures and mayre-initiate this program if it is deemed necessary.The Company has historically used foreign currency forward contracts (“forward contracts”) to hedge its exposure to fluctuations in foreign currency exchange rates associated with its foreign currency denominated cash, accounts receivable, and intercompany receivables and payables held primarily by the U.S. parent company and its United Kingdom (“U.K.”) subsidiary.At December 31, 2016, the total notional value of the Company’s outstanding forward contracts was $128.4 million.The fair value of the Company’s outstanding forward contracts was as follows: December 31, 2016 (in thousands) Recorded In: Fair Value Other current assets $ 628 Accrued expenses $ 883 As of September 30, 2017, the Company did not have any forward contracts outstanding.The Company had forward contracts outstanding with total notional values as of September 30, 2016 as follows:(in thousands) € 21,810 £ 5,919 A$ 19,515 $ 59,450 Three Months Ended
September 30,Nine Months Ended
September 30,(in thousands) 2023 2022 2023 2022 Cost of revenue $ 622 $ 705 $ 1,949 $ 2,017 Selling and marketing 343 343 1,028 1,028 $ 965 $ 1,048 $ 2,977 $ 3,045 (in thousands) September 30, 2023 December 31, 2022 Income tax receivables $ 19,663 $ 25,354 Contract assets 13,263 17,546 Other 38,512 37,488 $ 71,438 $ 80,388 (in thousands) September 30, 2023 December 31, 2022 Deferred commissions $ 107,399 $ 130,195 Right of use assets 65,871 76,114 Property and equipment 49,481 55,056 Venture investments 19,348 13,069 Contract assets 10,732 16,470 Intangible assets 7,949 10,888 Capped call transactions 1,792 2,582 Deferred income taxes 5,046 4,795 Restricted cash 3,123 — Other 20,066 24,820 $ 290,807 $ 333,989 (in thousands) September 30, 2023 December 31, 2022 Operating lease liabilities $ 15,532 $ 14,976 Dividends payable 2,506 2,474 $ 18,038 $ 17,450 (in thousands) September 30, 2023 December 31, 2022 Deferred revenue $ 2,605 $ 3,552 Income taxes payable 2,017 3,207 Other 9,863 8,369 $ 14,485 $ 15,128 Three Months Ended
September 30,Nine Months Ended
September 30,(in thousands) 2023 2022 2023 2022 Fixed lease costs $ 4,718 $ 4,688 $ 14,979 $ 14,747 Short-term lease costs 660 916 2,137 2,510 Variable lease costs 2,254 905 6,414 2,395 $ 7,632 $ 6,509 $ 23,530 $ 19,652 (in thousands) September 30, 2023 December 31, 2022 $ 65,871 $ 76,114 $ 15,532 $ 14,976 Long-term operating lease liabilities $ 68,874 $ 79,152 September 30, 2023 December 31, 2022 Weighted-average remaining lease term 7.0 years 7.5 years 4.0 % 4.1 % income statement impactrates 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.(in thousands) September 30, 2023 Remainder of 2023 $ 4,775 2024 17,976 2025 14,870 2026 10,853 2027 9,808 2028 9,245 Thereafter 30,054 Total lease payments 97,581 (13,175) $ 84,406 Nine Months Ended
September 30,(in thousands) 2023 2022 Cash paid for operating leases, net of tenant improvement allowances $ 14,378 $ 11,628 Right of use assets recognized for new leases and amendments (non-cash) $ 1,782 $ 6,618 (in thousands) September 30, 2023 December 31, 2022 Principal $ 502,270 $ 600,000 Unamortized issuance costs (3,517) (6,391) Convertible senior notes, net $ 498,753 $ 593,609 Three Months Ended
September 30,Nine Months Ended
September 30,(in thousands) 2023 2022 2023 2022 Contractual interest expense (0.75% coupon) $ 827 $ 1,125 $ 2,949 $ 3,375 Amortization of issuance costs 613 724 1,988 2,163 $ 1,440 $ 1,849 $ 4,937 $ 5,538 September 30, 2023 (in thousands) Principal Interest Total 2024 $ — $ 3,767 $ 3,767 2025 502,270 1,884 504,154 $ 502,270 $ 5,651 $ 507,921 Nine Months Ended
September 30,(in thousands) 2023 2022 January 1, $ 2,582 $ 59,964 Settlements (341) — Fair value adjustment (449) (56,381) September 30, $ 1,792 $ 3,583 forward contractsloans will be payable on such date. The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and foreign currency transactions wasaffiliate transactions.Year to Date (in thousands) March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 Minimum Consolidated EBITDA (as defined in the Credit Facility) $ 38,862 $ 59,894 $ 95,597 $ 214,590 follows: Three Months Ended
September 30, Nine Months Ended
September 30, (in thousands) 2017 2016 2017 2016 $ — $ (1,237 ) $ 286 $ (4,955 ) (552 ) 1,082 (793 ) 2,764 $ (552 ) $ (155 ) $ (507 ) $ (2,191 ) 5.it optimizes its go-to-market strategy and reassesses its office space needs:Three months ended Expense Employee severance and related benefits and closure of a US office December 31, 2022 $ 21,743 Office space reduction March 31, 2023 $ 1,241 Employee severance and related benefits June 30, 2023 $ 1,581 Employee severance and related benefits and closure of a foreign office September 30, 2023 $ 17,236 Nine Months Ended
September 30,(in thousands) 2023 January 1, $ 18,573 Costs incurred 19,921 Cash disbursements (21,576) Currency translation adjustments (203) September 30, $ 16,715 Liabilities Measuredliabilities measured at Fair Valuefair value on a Recurring Basismoney market funds,cash equivalents, marketable securities, Capped Call Transactions, and forward contractsventure 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. (Level 1) (Level 2) (Level 3)on which there iswith little or no market data, which require the Company to develop its own assumptions.to minimize the use of unobservable inputs when determining fair value.Company’s money market funds are classified within Level 1fair value of the fair value hierarchy. The Company’s marketable securities classified within Level 2 of the fair value hierarchy are valued based on a market approach using quoted prices, when available, or matrix pricing compiled by third party pricing vendors, using observable market inputs such as interest rates, yield curves, and credit risk. The Company’s foreign currency forward contracts, which were all classified within Level 2 of the fair value hierarchy, are valued based on the notional amounts and rates under the contracts and observable market inputs such as currency exchange rates and credit risk. If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchyCapped Call Transactions at the end of theeach reporting period in whichis 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 actual event or change in circumstance occurs. There were no transfers between Level 1underlying equity security’s historical and Level 2 during the nine months ended September 30, 2017.PEGASYSTEMS INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)assetsventure 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.basis consisted of the following: Fair Value Measurements at Reporting Date Using Total (in thousands) Level 1 Level 2 $ 655 $ — $ 655 $ — $ 32,759 32,759 — 31,053 31,053 $ — $ 63,812 $ 63,812 $ 458 $ — $ 458 $ — $ 36,607 $ 36,607 — 26,560 26,560 $ — $ 63,167 $ 63,167 — 628 628 $ — $ 883 $ 883 For certainbasis:September 30, 2023 December 31, 2022 (in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Cash equivalents $ 22,686 $ — $ — $ 22,686 $ 2,526 $ — $ — $ 2,526 Marketable securities $ — $ 167,286 $ — $ 167,286 $ — $ 152,167 $ — $ 152,167 $ — $ 1,792 $ — $ 1,792 $ — $ 2,582 $ — $ 2,582 $ — $ — $ 19,348 $ 19,348 $ — $ — $ 13,069 $ 13,069 financial instruments, including accounts receivable and accounts payable, the carrying value approximates their fair value due to the relatively short maturity of these items.Assets Measured at Fair Value on a Nonrecurring BasisAssets recorded at fair value on a nonrecurring basis, such as property and equipment and intangible assets, are recognized at fair value when they are impaired. During the nine months ended September 30, 2017 and 2016, the Company did not recognize any impairments of its assets recorded at fair value on a nonrecurring basis.6. TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE(in thousands) September 30,
2017 December 31,
2016 $ 164,530 $ 234,473 32,820 34,681 197,350 269,154 (6,189 ) (4,126 ) $ 191,161 $ 265,028 Unbilled trade accounts receivable primarily relate to services earned under time and materials arrangements and to license, maintenance, and cloud arrangements that have commenced or been deliveredlong-term assets.excess of scheduled invoicing.7. GOODWILL AND OTHER INTANGIBLE ASSETSThe changes in the carrying amount of goodwill for the nine months ended September 30, 2017 as follows:(in thousands) $ 73,164 (354 ) 131 $ 72,941 Intangible assets are recorded at costNine Months Ended
September 30,(in thousands) 2023 2022 January 1, $ 13,069 $ 7,648 New investments 400 400 Sales of investments (2,773) (3,954) Changes in foreign exchange rates 27 (675) Changes in fair value: included in other income (loss), net 10,886 5,989 included in other comprehensive (loss) (2,261) 2,502 September 30, $ 19,348 $ 11,910 are amortized usingaccounts payable, approximates fair value due to their short maturities.straight-line method over their estimated useful lives as follows:(in thousands) Range of
Remaining
Useful Lives Cost Accumulated
Amortization Net Book
Value 4-10 years $ 63,158 $ (43,205 ) $ 19,953 7-10 years 58,942 (44,140 ) 14,802 — 5,361 (5,361 ) — $ 127,461 $ (92,706 ) $ 34,755 4-10 years $ 63,091 $ (37,573 ) $ 25,518 3-10 years 58,942 (40,269 ) 18,673 — 5,361 (5,361 ) — $ 127,394 $ (83,203 ) $ 44,191 Amortization expenseNotesintangibles assets is reflected in the Company’s unaudited condensed consolidated statements of operations as follows: Three Months Ended
September 30, Nine Months Ended
September 30, (in thousands) 2017 2016 2017 2016 $ 1,232 $ 1,642 $ 3,871 $ 4,626 1,873 1,867 5,608 5,274 — 90 — 268 $ 3,105 $ 3,599 $ 9,479 $ 10,168 Future estimated amortization expense related to intangible assetsNotes outstanding (including the embedded conversion feature) was $460.3 million as of September 30, 2017 is2023 and $521.1 million as follows:(in thousands) $ 2,846 11,347 5,555 2,659 2,637 9,711 $ 34,755 8. ACCRUED EXPENSES(in thousands) September 30,
2017 December 31,
2016 $ 13,447 $ 10,204 5,947 10,422 4,679 3,707 2,336 2,298 4,715 3,806 8,557 6,314 $ 39,681 $ 36,751 Three Months Ended
September 30,Nine Months Ended
September 30,(Dollars in thousands) 2023 2022 2023 2022 U.S. $ 154,741 47 % $ 148,200 55 % $ 489,645 51 % $ 513,197 56 % Other Americas 23,497 7 % 18,546 7 % 58,013 6 % 80,558 9 % United Kingdom (“U.K.”) 41,622 12 % 24,074 9 % 112,751 12 % 83,837 9 % Europe (excluding U.K.), Middle East, and Africa 67,880 20 % 46,212 17 % 173,551 18 % 140,586 15 % Asia-Pacific 46,903 14 % 33,699 12 % 124,423 13 % 103,197 11 % $ 334,643 100 % $ 270,731 100 % $ 958,383 100 % $ 921,375 100 % Three Months Ended
September 30,Nine Months Ended
September 30,(in thousands) 2023 2022 2023 2022 Perpetual license $ 2,747 $ 9,223 $ 4,729 $ 18,929 Subscription license 74,342 31,112 200,066 210,245 Revenue recognized at a point in time 77,089 40,335 204,795 229,174 Maintenance 83,538 77,526 245,210 235,568 Pega Cloud 118,040 97,359 340,982 281,182 Consulting 55,976 55,511 167,396 175,451 Revenue recognized over time 257,554 230,396 753,588 692,201 Total revenue $ 334,643 $ 270,731 $ 958,383 $ 921,375 9. DEFERRED REVENUE(in thousands) September 30,
2017 December 31,
2016 $ 5,636 $ 15,843 20,844 23,189 105,588 112,397 18,805 13,604 10,058 10,614 160,931 175,647 4,085 7,909 828 1,802 1,217 1,278 6,130 10,989 $ 167,061 $ 186,636 10. STOCK-BASED COMPENSATIONStock-based compensation expense is reflected in the Company’s unaudited condensed consolidated statements of operations as follows: Three Months Ended
September 30, Nine Months Ended
September 30, (in thousands) 2017 2016 2017 2016 $ 3,613 $ 3,117 $ 10,913 $ 8,711 3,976 3,468 11,482 9,395 3,420 2,260 10,306 7,480 2,480 1,983 7,228 4,706 — (10 ) — 342 $ 13,489 $ 10,818 $ 39,929 $ 30,634 $ (4,129 ) $ (3,227 ) $ (12,231 ) $ (8,917 ) During the nine months ended September 30, 2017, the Company issued approximately 1,299,000 shares of common stock to its employees and 18,000 shares of common stock to itsnon-employee directors under the Company’s stock-based compensation plans.During the nine months ended September 30, 2017, the Company granted approximately 1,052,000 restricted stock units (“RSUs”Three Months Ended
September 30,Nine Months Ended
September 30,(in thousands) 2023 2022 2023 2022 Pega Cloud $ 118,040 $ 97,359 $ 340,982 $ 281,182 Maintenance 83,538 77,526 245,210 235,568 Subscription services 201,578 174,885 586,192 516,750 Subscription license 74,342 31,112 200,066 210,245 Subscription 275,920 205,997 786,258 726,995 Consulting 55,976 55,511 167,396 175,451 Perpetual license 2,747 9,223 4,729 18,929 $ 334,643 $ 270,731 $ 958,383 $ 921,375 and 1,520,000non-qualified stock options to its employees with total fair values of approximately $47.5 million and $20.6 million, respectively. This includes approximately 175,000 RSUs which were granted in connection with the election by employees to receive 50% of their 2017 target incentive compensation under the Company’s Corporate Incentive Compensation Plan in the form of RSUs instead of cash. Stock-based compensation of approximately $7.7 million associated with this RSU grant will be recognized over aone-year period beginning on the grant date.The Company recognizes stock based compensation on the accelerated recognition method, treating each vesting tranche as if it were an individual grant. 2017,2023:(Dollars in thousands) Subscription services Subscription license Perpetual license Consulting Total Maintenance Pega Cloud 1 year or less $ 202,610 $ 391,324 $ 48,427 $ 4,567 $ 39,335 $ 686,263 54 % 1-2 years 58,610 239,787 4,356 2,696 3,662 309,111 24 % 2-3 years 28,585 121,778 8,518 — 1,100 159,981 13 % Greater than 3 years 17,478 89,870 2,664 — — 110,012 9 % $ 307,283 $ 842,759 $ 63,965 $ 7,263 $ 44,097 $ 1,265,367 100 % (Dollars in thousands) Subscription services Subscription license Perpetual license Consulting Total Maintenance Pega Cloud 1 year or less $ 191,045 $ 328,111 $ 69,753 $ 814 $ 27,968 $ 617,691 53 % 1-2 years 55,141 213,304 4,113 4,505 6,699 283,762 25 % 2-3 years 24,496 115,416 1,420 2,252 1,648 145,232 13 % Greater than 3 years 16,198 82,807 1,734 — 508 101,247 9 % $ 286,880 $ 739,638 $ 77,020 $ 7,571 $ 36,823 $ 1,147,932 100 % Three Months Ended
September 30,Nine Months Ended
September 30,(in thousands) 2023 2022 2023 2022 Cost of revenue $ 6,410 $ 6,797 $ 22,497 $ 19,754 Selling and marketing 10,401 12,933 43,410 36,524 Research and development 7,375 7,724 24,286 22,425 General and administrative 7,113 6,320 19,890 14,598 $ 31,299 $ 33,774 $ 110,083 $ 93,301 Income tax benefit $ (316) $ (600) $ (1,569) $ (1,505) approximately $56.8$137.5 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to all unvested RSUs and unvested stock options thatwhich is expected to be recognized over a weighted-average period of 2.11.8 years.11. EARNINGSNine Months Ended
September 30, 2023(in thousands) Shares Total Fair Value Restricted stock units 1,514 $ 70,962 Non-qualified stock options 911 $ 19,142 906 $ 18,265 Common stock 13 $ 600 Three Months Ended
September 30,Nine Months Ended
September 30,(Dollars in thousands) 2023 2022 2023 2022 Provision for income taxes $ 3,545 $ 11,748 $ 15,395 $ 190,239 Effective income tax rate (26) % (100) % earnings(loss) per share is computedcalculated using the weighted-average number of common shares outstanding during the applicable period. Diluted earnings(loss) per share is computedcalculated using the weighted-average number of common shares outstanding during the applicable period, plus the dilutive effect of outstanding stock options, RSUs, and RSUs,convertible senior notes.Three Months Ended
September 30,Nine Months Ended
September 30,(in thousands, except per share amounts) 2023 2022 2023 2022 Net (loss) $ (7,279) $ (93,520) $ (74,857) $ (380,195) Weighted-average common shares outstanding 83,336 81,996 82,996 81,842 (Loss) per share, basic $ (0.09) $ (1.14) $ (0.90) $ (4.65) Net (loss) $ (7,279) $ (93,520) $ (74,857) $ (380,195) 83,336 81,996 82,996 81,842 (Loss) per share, diluted $ (0.09) $ (1.14) $ (0.90) $ (4.65) 2,255 3,019 1,652 3,589 treasury stock method. Certainif-converted method, if dilutive in the period. If the outstanding conversion options were fully exercised, the Company would issue approximately 3.7 million shares related to someas of September 30, 2023.outstandingcommon stock options(representing the number of shares for which the Notes are convertible) as of September 30, 2023. 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 RSUs wereinterest, 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 the computation of diluted earnings per share because they were anti-dilutiveweighted-average common shares outstanding, assuming dilution, in theall periods presented, but couldas their effect would be dilutive in the future.The calculationbasicbusiness, including actions concerning contracts, intellectual property, employment, benefits, and diluted earnings per share is as follows: Three Months Ended
September 30, Nine Months Ended
September 30, (in thousands, except per share amounts) 2017 2016 2017 2016 $ (1,812 ) $ 3,301 $ 36,615 $ 18,237 77,691 76,278 77,258 76,323 $ (0.03 ) $ 0.04 $ 0.47 $ 0.24 $ (1,812 ) $ 3,301 $ 36,615 $ 18,237 — 1,933 3,519 1,851 — 1,337 1,940 1,227 — 3,270 5,459 3,078 77,691 79,548 82,717 79,401 $ (0.03 ) $ 0.04 $ 0.44 $ 0.23 7,232 296 219 368 periods of loss, all equity awards are excluded,addition, as the inclusionCompany 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.equity awards would be anti-dilutive.12. GEOGRAPHIC INFORMATION AND MAJOR CLIENTSGeographic InformationOperating segments are defined as componentsalleged misappropriation of an enterprise, about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.develops and licenses software applications for customer engagement and its Pega® Platform, and provides consulting services, maintenance, and training relatedis unable to its offerings. The Company derives substantially allreasonably estimate possible damages because of, its revenueamong other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resulting from the saleappellate proceedings.supportFirefighters’ Retirement System, Individually and on Behalf of one group of similar productsAll Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and services—software that provides case management, business process management, and real-time decisioning solutions to improve customer engagement and operational excellence inKenneth Stillwellenterprise applications market. To assess performance,Company, the Company’s CODM, who is the chief executive officer reviewsand the Company’s chief operating and financial informationofficer 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 basis. Therefore, the Company determined it has one reportable segment—Customer Engagement Solutions and one reporting unit.The Company’s international revenue,amended complaint was filed that does not add any new parties or legal claims, is based upon the clients’ location,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 took place on May 17, 2023. After 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 filed its Answer to the complaint. On July 24, 2023, the Court issued its written opinion denying the motion to dismiss as to the Company and Defendant Trefler but granting the motion without prejudice as to Mr. Stillwell. The Company believes it has strong defenses to the claims brought against the defendants and intends to defend against these claims vigorously. The Company is as follows: Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 2017 2016 $ 95,087 53 % $ 111,274 61 % $ 351,330 59 % $ 308,049 56 % 8,722 5 % 7,952 4 % 30,243 5 % 49,494 9 % 18,485 10 % 21,490 12 % 68,003 11 % 77,181 14 % 28,100 16 % 23,656 13 % 76,958 13 % 67,314 12 % 29,421 16 % 18,430 10 % 74,508 12 % 48,618 9 % $ 179,815 100 % $ 182,802 100 % $ 601,042 100 % $ 550,656 100 % (1)Includes Europe, the Middle East and Africa, but excludes the United Kingdom.Major ClientsClients accounting for 10% or moretotal revenueboard 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 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 Larkin and Sagfors cases were as follows: Three Months Ended
September 30, Nine Months Ended
September 30, (in thousands) 2017 2016 2017 2016 $ 179,815 $ 182,802 $ 601,042 $ 550,656 10.6 % * * * *Client accounted for less than 10% of total revenue.Clientsconsolidated and a joint motion to stay 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 foregoing derivative complaints. On April 12, 2023, the Company’s board of directors (other than Mr. Trefler, who recused himself), formed a committee consisting solely of independent directors, to review, analyze, and investigate the matters 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 in response to the 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 and there being no specified quantum of damages sought in the complaint.for 10% or moretreatment of the Company’s total trade accounts receivable were as follows:(in thousands) September 30,
2017 December 31,
2016 197,350 269,154 12.4 % * *Client accounted for less than 10% of total trade account receivableITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSForward-Looking Statements Theseinclude,which speak only as of the date the statement was made and are based on current expectations and assumptions. are not limited to, statements about to:plans, plans;resources, resources;dividends by the Company, and dividends;recognition under license and cloud arrangements and are described more completely in Part Irecognition;Annual Report on Form10-K for the year ended December 31, 2016.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,” “strategy,” “is intendedtransition to” “project,” “guidance,” “likely,” “usually,” 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. Important factors that could cause actual future activities and results to differ materially from those expressed in such forward-looking statements include, among others, a more subscription-based business model;difficultywar in predicting the completion of product acceptance and other factors affecting the timing of license revenue recognition; Ukraine;third party relationships; third-party service providers, including hosting providers;lossimpact of vendor specific objective evidence for our consulting services; the inherent risks associated with international operationsconvertible senior notes and the continued uncertainties in international economies; the Company’s continued effort to market and sell both domestically and internationally; Capped Call Transactions; the financial impact of any future acquisitions; damage due to cyber-attackscyber-attacks;breaches;flaws;the Company’sour growth.other factorsothers that couldmay cause actual results to differ materially from those expressed in such forward-looking statements are described more completelyfurther in Part I of the Company’sour Annual Report on Form10-K for the year ended December 31, 2016 as well as2022, Part II of this Quarterly Report on Form 10-Q, and other filings we make with the U.S. Securities and Exchange CommissionWe have (“SEC”).anythese forward-looking statements whether as athe result of new information, future events, or risks. New information, future events or risks may cause theotherwise.events we discussstatements in this reportQuarterly Report represent our views as of October 25, 2023.to occur or to materially change.Business overviewapplicationsthat helps organizations build agility into their business so they can adapt to change. Our powerful low-code platform for marketing, sales,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 operations.automate mission-critical business processes and workflows. With Pega, our clients can leverage our intelligent technology and scalable architecture to accelerate their digital transformation. In addition, we licenseour client success teams, world-class partners, and clients leverage our Pega® Platform for Express™ methodology to design and deploy mission-critical applications quickly and collaboratively.that wish to build and extend their own applications. The Pega Platform assists our clients in building, deploying, and evolving enterprise applications, creating an environment in which business and IT can collaborate to manage back office operations, front office sales, marketing, and/or customer service needs. We also provide consulting services, maintenance, and training for our software. Our software applications and Pega Platform can be deployed on Pega, partner, or customer-managed cloud architectures.Our clients includeare Global 3000 companies2000 organizations and government agencies that seekrequire solutions to manage complex enterprise systemsdistinguish themselves in the markets they serve. Our solutions achieve and customer service issuesfacilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. Along with greater agility and cost-effectiveness. Our strategy isour partners, we deliver solutions tailored to sell a client a series of licenses, each focused on athe specific purpose or area of operations in support of longer term enterprise-wide digital transformation initiatives.Our license revenue is primarily derived from salesindustry needs of our applicationsclients.Pega Platform. Our cloud revenue is derived fromoverall performance, make operating decisions, and forecast and plan for future periods, including:licensingannualized value of our hosted Pega Platform and software application environments. Our consulting services revenue is primarily related to new license implementations.Financial and Performance MetricsManagement evaluates our financial performance, based a number of select financial and performance metrics. The performance metrics are periodically reviewed and revised to reflect any changes in our business. Historically, Recurring Revenue and License and Cloud Backlog have been our primary performance metrics. However, due to the change in the revenue recognition patterns of term license arrangements as a result of the expected implementation of the new revenue accounting standard (See Note 2) in the first quarter of 2018, we have started tracking Annual Contract Value (“ACV”), a new performance measure.Select Financial Metrics Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 Change 2017 2016 Change $ 179,815 $ 182,802 (2,987 ) (2 )% $ 601,042 $ 550,656 $ 50,386 9 % (8 )% 3 % 3 % 5 % $ (0.03 ) $ 0.04 $ (0.07 ) (175 )% $ 0.44 $ 0.23 $ 0.21 91 % 113,926 20,556 93,370 454 % Select Performance MetricsAnnual Contract Value (“ACV”)The change in ACV measures the growth and predictability of future cash flows from committed term license, cloud, and maintenance arrangementsactive contracts as of the endmeasurement 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.particular reporting period.sum of the following two components:Term and Cloudtotal contract value divided by the number of committed contract yearsQuarterly Maintenanceduration in years. Previously, ACV for maintenance was calculated as the maintenance revenue reported for the current three monthsquarter then ended, period multiplied by 4. September 30, (in thousands) 2017 2016 Change $ 200,180 $ 163,408 $ 36,772 23 % 248,816 220,152 $ 28,664 13 % $ 448,996 $ 383,560 $ 65,436 17 % Recurring RevenueA measurefour, and ACV for contracts less than 12 months was equal to the contract’s total value. The Company believes the simplified methodology better represents the current value of its contracts and better aligns its definition with comparable companies.(in millions, except percentages) Q3 22 Q3 23 1-Year Change ACV $ 1,040 $ 1,169 12 % Impact of changes in foreign exchange rates — (22) Constant Currency ACV $ 1,040 $ 1,147 10 % predictabilityQ3 2022 foreign exchange rates to all periods shown.repeatabilityequipment. To ensure comparability, previously disclosed amounts have been updated.(Dollars in thousands) Nine Months Ended
September 30,2023 2022 Cash provided by (used in) operating activities $ 137,920 14 % $ (13,446) (1) % Investment in property and equipment (14,271) (22,285) Free cash flow $ 123,649 13 % $ (35,731) (4) % Legal fees $ 5,867 $ 37,944 Restructuring 21,576 — Interest on convertible senior notes 4,134 4,500 Other — 3,266 $ 31,577 $ 45,710 revenue. Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ 21,678 $ 28,919 $ (7,241 ) (25 )% $ 106,170 $ 102,115 $ 4,055 4 % 62,204 55,038 $ 7,166 13 % 180,759 163,174 $ 17,585 11 % 13,354 10,873 $ 2,481 23 % 36,914 30,640 $ 6,274 20 % $ 97,236 $ 94,830 $ 2,406 3 % $ 323,843 $ 295,929 $ 27,914 9 % 54 % 52 % 54 % 54 % Licensecore business operations and Cloud BacklogA measureongoing operational performance.continued growthtiming and size of our business asrestructuring activities.resultprivate placement. The Notes accrue interest at an annual rate of future contractual commitments by our clients.License0.75%, payable semi-annually in arrears on March 1 and CloudSeptember 1, beginning September 1, 2020.
Note: Constant currency Backlog is calculated by applying the (in millions, except percentages) Q3 22 Q3 2023 1-Year Growth Rate Backlog - GAAP $ 1,148 $ 1,265 10 % Impact of changes in foreign exchange rates — (33) Constant currency backlog $ 1,148 $ 1,232 7 % sum of the following two components:Deferred license and cloud revenue as recorded on the Company’s balance sheet. (See Note 9 “Deferred Revenue”)License and cloud contractual commitments, which are not recorded on our balance sheet because we have not yet invoiced our clients, nor have we recognized the associated revenue. (See “Future Cash Receipts from Committed License and Cloud Arrangements” which can be found in “Liquidity and Capital Resources” contained elsewhere in this Quarterly Report on Form10-Q for additional information)License and cloud backlog may vary in any given period depending on the amount and timing of when the arrangements are executed, as well as the mix between perpetual, term, and cloud license arrangements, which may depend on our clients’ deployment preferences. A change in the mix may cause our revenuesQ3 2022 foreign exchange rates to vary materially from period to period. A higher proportion of term and cloud license arrangements executed will generally result in revenue being recognized over longer periods. September 30, Change (Dollars in thousands) 2017 2016 $ 25,658 51 % $ 19,627 42 % 31 % 24,929 49 % 27,653 58 % (10 )% 50,587 100 % 47,280 100 % 7 % 450,535 91 % 352,804 94 % 28 % 46,459 9 % 23,483 6 % 98 % 496,994 100 % 376,287 100 % 32 % $ 547,581 $ 423,567 29 % 476,193 87 % 372,431 88 % 28 % Critical accounting policiesin accordance withfollowing accounting principles generally accepted in the United States of America (“U.S.”) and the rules and regulations of the SEC for interim financial reporting. The preparation ofPreparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and 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.into our critical accounting policies as disclosed in our Annual Report on Form10-K for the year ended December 31, 2016. For more information regarding2022.(Dollars in thousands) Three Months Ended
September 30,Change Nine Months Ended
September 30,Change 2023 2022 2023 2022 Pega Cloud $ 118,040 35 % $ 97,359 36 % $ 20,681 21 % $ 340,982 36 % $ 281,182 31 % $ 59,800 21 % Maintenance 83,538 25 % 77,526 29 % 6,012 8 % 245,210 25 % 235,568 25 % 9,642 4 % Subscription services 201,578 60 % 174,885 65 % 26,693 15 % 586,192 61 % 516,750 56 % 69,442 13 % Subscription license 74,342 22 % 31,112 11 % 43,230 139 % 200,066 21 % 210,245 23 % (10,179) (5) % Subscription 275,920 82 % 205,997 76 % 69,923 34 % 786,258 82 % 726,995 79 % 59,263 8 % Consulting 55,976 17 % 55,511 21 % 465 1 % 167,396 18 % 175,451 19 % (8,055) (5) % Perpetual license 2,747 1 % 9,223 3 % (6,476) (70) % 4,729 — % 18,929 2 % (14,200) (75) % $ 334,643 100 % $ 270,731 100 % $ 63,912 24 % $ 958,383 100 % $ 921,375 100 % $ 37,008 4 % critical accounting policies, we encourage youclients continued to read the discussion containedexpand their use of Pega Cloud.Item 7 under the heading “Critical Accounting Estimates and Significant Judgments” and Note 2 “Significant Accounting Policies” includedmaintenance revenue in the notesthree and nine months ended September 30, 2023 were primarily due to the Consolidated Financial Statements containedcontinued demand for our subscription license offerings which are generally bundled with maintenance.our Annual Report on Form10-K for the year ended December 31, 2016.Results of Operations Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ 179,815 $ 182,802 $ (2,987 ) (2 )% $ 601,042 $ 550,656 $ 50,386 9 % $ 110,084 $ 122,365 $ (12,281 ) (10 )% $ 395,346 $ 373,609 $ 21,737 6 % $ 124,373 $ 116,867 $ 7,506 6 % $ 376,647 $ 347,626 $ 29,021 8 % $ (14,289 ) $ 5,498 $ (19,787 ) (360 )% $ 18,699 $ 25,983 $ (7,284 ) (28 )% (8 )% 3 % 3 % 5 % $ (14,697 ) $ 5,515 $ (20,212 ) (366 )% $ 18,663 $ 24,506 $ (5,843 ) (24 )% RevenueSoftware license revenue(Dollars in thousands) Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 Change 2017 2016 Change $ 20,115 48 % $ 39,914 58 % $ (19,799 ) (50 )% $ 89,050 46 % $ 105,734 51 % ($ 16,684 ) (16 )% 21,678 52 % 28,919 42 % (7,241 ) (25 )% 106,170 54 % 102,115 49 % 4,055 4 % $ 41,793 100 % $ 68,833 100 % $ (27,040 ) (39 )% $ 195,220 100 % $ 207,849 100 % ($ 12,629 ) (6 )% The mix between perpetual and term license arrangements executed in a particular period varies based on clients’ deployment preferences. A change in the mix may cause our revenues to vary materially from period to period. A higher proportion of term license arrangements executed will generally result in license revenue being recognized over longer periods. Additionally, some of our perpetual license arrangements include extended payment terms or additional rights of use, which may also result in the recognition of revenue over longer periods.The decrease in perpetualsubscription license revenue in the three months ended September 30, 20172023 was primarily due to a decreaseincreased license deliveries in the average value of perpetual arrangements executed and a lower percentage of perpetual arrangements executed and recognized in revenue in the current period.three months ended September 30, 2023. The decrease in perpetualsubscription license revenue in the nine months ended September 30, 20172023 was primarily due to a lower percentage of perpetual arrangements executed andseveral large multi-year contracts recognized in revenue.The decrease in term license revenue in the three months ended September 30, 2017 was primarily due to a large term license renewal for which the second year of the term was recognized as revenue in the three months ended September 30, 2016. If the second year of this term license arrangement was not paid in advance in the three months ended September 30, 2016, term license revenue would have decreased 2%. The increase in term license revenue in the nine months ended September 30, 20172022.broad based growth amongst new and existing customers offset by a large term license arrangement which was prepaid and recognized in revenuelower consultant realization rates in the three months ended March 31, 2016. If this term license arrangement was not prepaid and recognizedAmericas.revenue in the three months ended March 31, 2016 termperpetual license revenue would have increased 26%.The aggregate value of future revenue expected to be recognized during the remainder of the year under existing noncancellable perpetual arrangements not reflected in deferred revenue was $13.3 million as of September 30, 2017 compared to $3.9 million as of September 30, 2016.The aggregate value of future revenue expected to be recognized during the remainder of the year under existing noncancellable term and cloud arrangements not reflected in deferred revenue was $37.7 million as of September 30, 2017 compared to $26.7 million as of September 30, 2016. For additional information see “Future Cash Receipts from Committed License and Cloud Arrangements” which can be found in “Liquidity and Capital Resources.”Maintenance revenue Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ 62,204 $ 55,038 $ 7,166 13 % $ 180,759 $ 163,174 $ 17,585 11 % The increases were primarily due to the continued growth in the aggregate value of the installed base of our software and strong renewal rates significantly in excess of 90%.Services revenue Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ 61,535 81 % $ 46,829 80 % $ 14,706 31 % $ 183,447 82 % $ 144,263 80 % $ 39,184 27 % 13,354 18 % 10,873 18 % 2,481 23 % 36,914 16 % 30,640 17 % 6,274 20 % 929 1 % 1,229 2 % (300 ) (24 )% 4,702 2 % 4,730 3 % (28 ) (1 )% $ 75,818 100 % $ 58,931 100 % $ 16,887 29 % $ 225,063 100 % $ 179,633 100 % $ 45,430 25 % Consulting services revenue is primarily generated from new license implementations. Our consulting services revenue may fluctuate in future periods depending on the mix of new implementation projects we perform as compared to those performed by our enabled clients or led by our partners.The increases in consulting services revenue were primarily due to higher billable hours during the three and nine months ended September 30, 2017 driven by a large project which began in the second half2023 reflects our strategy of 2016.Cloud revenue represents revenue from our Pega Cloud offerings. promoting subscription-based arrangements.(Dollars in thousands) Three Months Ended
September 30,Change Nine Months Ended
September 30,Change 2023 2022 2023 2022 Pega Cloud $ 88,553 75 % $ 68,673 71 % $ 19,880 29 % $ 250,943 74 % $ 194,350 69 % $ 56,593 29 % Maintenance 77,119 92 % 71,671 92 % 5,448 8 % 225,696 92 % 219,296 93 % 6,400 3 % Subscription services 165,672 82 % 140,344 80 % 25,328 18 % 476,639 81 % 413,646 80 % 62,993 15 % Subscription license 73,713 99 % 30,484 98 % 43,229 142 % 198,095 99 % 208,322 99 % (10,227) (5) % Subscription 239,385 87 % 170,828 83 % 68,557 40 % 674,734 86 % 621,968 86 % 52,766 8 % Consulting (1,228) (2) % (2,267) (4) % 1,039 46 % (8,866) (5) % 4,289 2 % (13,155) * Perpetual license 2,723 99 % 9,120 99 % (6,397) (70) % 4,678 99 % 18,756 99 % (14,078) (75) % $ 240,880 72 % $ 177,681 66 % $ 63,199 36 % $ 670,546 70 % $ 645,013 70 % $ 25,533 4 % cloud revenue were primarily due to continued growth of our cloud client base.Gross profit Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ 40,517 $ 67,520 $ (27,003 ) (40 )% $ 191,394 $ 204,203 $ (12,809 ) (6 )% 55,488 48,379 7,109 15 % 159,814 144,285 15,529 11 % 14,079 6,466 7,613 118 % 44,138 25,121 19,017 76 % $ 110,084 $ 122,365 $ (12,281 ) (10 )% $ 395,346 $ 373,609 $ 21,737 6 % 97 % 98 % 98 % 98 % 89 % 88 % 88 % 88 % 19 % 11 % 20 % 14 % 61 % 67 % 66 % 68 % The decrease in total gross profit in the three months ended September 30, 2017 was primarily due to a shift in the mix of license arrangements executed from perpetual to term licenses and an increase in lower margin services revenue.The increase in total gross profit in the nine months ended September 30, 2017 was primarily due to increased total revenue.The increases in servicePega Cloud gross profit percent in the three and nine months ended September 30, 2017 was driven by a large project which began2023 were primarily due to increased cost efficiency, particularly for hosting services, as Pega Cloud continues to grow and scale.second half of 2016 and several additional large projects for which costs were recognized in 2016 but whose associated revenue was not recognized until after September 30, 2016.Operating expensesSelling and marketing Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ 70,209 $ 67,032 $ 3,177 5 % $ 217,384 $ 202,126 $ 15,258 8 % 39 % 37 % 36 % 37 % 934 875 59 7 % 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. Selling and marketing expenses also include the amortization of customer related intangibles.The increase in the threenine months ended September 30, 20172023 was primarily due to an increase in compensation and benefits as a result of $1.8 million, driven by increased headcount and equity compensation, partially offset by a decreaseheadcount.sales commissions associated with the lower value of new license arrangements executed duringconsulting gross profit percent in the three months ended September 30, 2017.increasedecrease in consulting profit percent in the nine months ended September 30, 20172023, was primarily due to an increaselower consultant realization rates in the Americas.(Dollars in thousands) Three Months Ended
September 30,Change Nine Months Ended
September 30,Change 2023 2022 2023 2022 Selling and marketing $ 131,598 $ 153,517 $ (21,919) (14) % $ 425,253 $ 472,951 $ (47,698) (10) % % of Revenue 39 % 57 % 44 % 51 % Research and development $ 74,955 $ 75,342 $ (387) (1) % $ 224,262 $ 221,173 $ 3,089 1 % % of Revenue 22 % 28 % 23 % 24 % General and administrative $ 27,321 $ 26,043 $ 1,278 5 % $ 73,893 $ 94,530 $ (20,637) (22) % % of Revenue 8 % 10 % 8 % 10 % Restructuring $ 17,822 $ — $ 17,822 100 % $ 21,450 $ — $ 21,450 100 % % of Revenue 5 % — % 2 % — % $12.7$18.6 million respectively, driven by increasedand $45.0 million, respectively. The decreases were due to reduced headcount and equity compensation, and an increaseas we optimize our go-to-market strategy. For additional information, see "Note 9. Restructuring" in employee travel and entertainment, partially offset by a decrease in brand marketing program expensesPart I, Item 1 of $2.2 million.headcount reflects our efforts to increase our sales capacity to target new accounts in existing industries, as well as to expand coverage in new industries and geographies and to increase the number of sales opportunities.Research and development Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ 41,031 $ 38,036 $ 2,995 8 % $ 121,089 $ 108,530 $ 12,559 12 % 23 % 21 % 20 % 20 % 1,474 1,437 37 3 % Researchresearch and development expenses include compensation, benefits, contracted services, and other headcount-related expenses associated withfor the creation and development ofnine months ended September 30, 2023 was primarily due to additional investments in our products as well as enhancements and designservices.to existing productsin general and integration of acquired technologies.The increasesadministrative in the three and nine months ended September 30, 20172023 were primarily due to an increase of $2.3 million in the three months ended September 30, 2023 and a decrease of $21.4 million in the nine months ended September 30, 2023 in legal fees and related expenses arising from proceedings outside 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 and “Risk Factors” in Part I, Item 1A of our Annual Report for the year ended December 31, 2022 for additional information.compensationrestructuring expenses during the three and benefitsnine months ended September 30, 2023 were primarily due to our efforts to optimize our go-to-market organization. For additional information, see "Note 9. Restructuring" in Part I, Item 1 of $2.9 millionthis Quarterly Report.$12.6 million, respectively, attributable to increased headcount and equity compensation.General and administrative Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ 13,133 $ 11,725 $ 1,408 12 % $ 38,174 $ 34,067 $ 4,107 12 % 7 % 6 % 6 % 6 % 407 371 36 10 % General and administrative expenses include compensation, benefits, and other headcount-related expenses associated with finance, legal, corporate governance, and other administrative headcount. They also include accounting, legal, and other professional consulting and administrative fees. (Dollars in thousands) Three Months Ended
September 30,Change Nine Months Ended
September 30,Change 2023 2022 2023 2022 Foreign currency transaction gain (loss) $ 1,994 $ 3,826 $ (1,832) (48) % $ (3,971) $ 8,415 $ (12,386) * Interest income 2,532 520 2,012 387 % 5,831 1,036 4,795 463 % Interest expense (1,533) (1,992) 459 23 % (5,229) (5,882) 653 11 % (Loss) on capped call transactions (2,294) (6,876) 4,582 67 % (449) (56,381) 55,932 99 % Other income (loss), net 6,383 (29) 6,412 * 18,668 6,497 12,171 187 % $ 7,082 $ (4,551) $ 11,633 * $ 14,850 $ (46,315) $ 61,165 * general and administrative headcount includes employeeschanges in human resources, information technology, and corporate services departments, whose costs are partially allocated to other operating expense areas.The increasesforeign currency transaction gain (loss) in the three and nine months ended September 30, 2017 were primarily due to increases in compensation and benefits of $0.4 million and $4 million, respectively, attributable to increased headcount and equity compensation. The increase in the nine months ended September 30, 2017 was partially offset by a decrease of $1.5 million in legal fees.Stock-based compensation Three Months Ended
September 30, Nine Months Ended
September 30, (in thousands) 2017 2016 Change 2017 2016 Change $ 3,613 $ 3,117 $ 496 16 % $ 10,913 $ 8,711 $ 2,202 25 % 3,976 3,468 508 15 % 11,482 9,395 2,087 22 % 3,420 2,260 1,160 51 % 10,306 7,480 2,826 38 % 2,480 1,983 497 25 % 7,228 4,706 2,522 54 % — (10 ) 10 (100 )% — 342 (342 ) (100 )% $ 13,489 $ 10,818 $ 2,671 25 % $ 39,929 $ 30,634 $ 9,295 30 % $ (4,129 ) $ (3,227 ) $ (902 ) 28 % $ (12,231 ) $ (8,917 ) $ (3,314 ) 37 % The increases2023 were primarily due to the increased valueimpact of fluctuations in foreign currency exchange rates associated with foreign currency-denominated cash and receivables held by our annual periodic equity awards grantedsubsidiary in March 2016 and 2017. These awards generally have a five-year vesting schedule.Amortization of intangibles Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ 1,232 $ 1,642 $ (410 ) (25 )% $ 3,871 $ 4,626 $ (755 ) (16 )% 1,873 1,867 6 — % 5,608 5,274 334 6 % — 90 (90 ) (100 )% — 268 (268 ) (100 )% $ 3,105 $ 3,599 $ (494 ) (14 )% $ 9,479 $ 10,168 $ (689 ) (7 )% decreasesincreases in amortization of intangiblesinterest income in the three and nine months ended September 30, 20172023 were primarily due to the amortizationincreases in full of certain intangibles acquired through past acquisitions.Non-operating (expense)/income, net Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ (552 ) $ 1,082 $ (1,634 ) n/m $ (793 ) $ 2,764 $ (3,557 ) n/m 144 172 $ (28 ) (16 )% 470 650 (180 ) (28 )% — (1,237 ) $ 1,237 (100 )% 287 (4,891 ) 5,178 n/m $ (408 ) $ 17 $ (425 ) n/m $ (36 ) $ (1,477 ) $ 1,441 (98 )% n/m - not meaningfulIn May 2017, we discontinued our forward contracts program; however, we will continue to evaluate periodically our foreign exchange exposures and mayre-initiate this program if it is deemed necessary.Historically, we have used foreign currency forward contracts (“forward contracts”) to hedge our exposure to fluctuationsmarket interest rates.foreign currency exchange rates associated with our foreign currency denominated cash, accounts receivable, and intercompany receivables and payables held primarily by the U.S. parent company and its United Kingdom (“U.K.”) subsidiary. See Note 4 “Derivative Instruments” of this Quarterly Report on Form 10-Q for additional information.The total changeinterest expense in the fair value of our foreign currency forward contracts recorded in other income (expense), net, during the three and nine months ended September 30, 2016 was a loss2023 were due to our repurchases of $1.2 million. The total changeConvertible Senior Notes in the fair value of our foreign currency forward contracts recorded in other (expense)/income, net, during the nine months ended September 30, 20172023. For additional information, see "Note 8. Debt" in Part I, Item 1 of this Quarterly Report.2016 was a gain of $0.3 million and a loss of $5 million, respectively.(Benefit)/provisionnine months ended September 30, 2023 were due to fair value adjustments for income taxes Three Months Ended
September 30, Nine Months Ended
September 30, (Dollars in thousands) 2017 2016 Change 2017 2016 Change $ (12,885 ) $ 2,214 $ (15,099 ) n/m $ (17,952 ) $ 6,269 $ (24,221 ) n/m 88 % 40 % (96 )% 26 % n/m - not meaningfulThe (benefit)/provision for income taxes represents current and future amounts for federal, state, and foreign taxes.the effectiveother income tax rate(loss), net in the three months ended September 30, 2017 is primarily2023 was due to a $6.4 million increase in the significantvalue of equity securities held in our venture investments portfolio. The increase in other income (loss), net in the nine months ended September 30, 2023, was due to a $7.9 million gain from repurchases of $3.5our convertible senior notes and a $10.9 million increase in excess tax benefits generated bythe value of equity securities held in our stock compensation plans on significantly lower income before (benefit)/provisionventure investments portfolio. For additional information, see “Note 8. Debt” and "Note 10. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report. which decreased by $20.2 million.Nine Months Ended
September 30,(Dollars in thousands) 2023 2022 Provision for income taxes $ 15,395 $ 190,239 Effective income tax rate (26) % (100) % decrease in the effective income tax rate in the nine months ended September 30, 2017 is2023 was primarily due todriven by the significant increase of $19.1 million in excessvaluation allowance on our deferred tax benefits generated by our stock compensation plans, on significantly lower income before (benefit)/provision for income taxes, which decreased by $5.8 million.The inclusion of excess tax benefits as a component of the provision for income taxes may increase volatilityassets in the effectiveU.S. and U.K. and projected taxable income in the U.S., partially offset by available tax rates of future periods ascredits and losses in the amount of excess tax benefits from share-based compensation awards varies depending on our future stock price in relation to the fair value of awards, the timing of RSU vesting and exercise behavior of our stock option holders, and the total value of future grants of share-based compensation awards.Liquidity and capital resources Nine Months Ended
September 30, (in thousands) 2017 2016 $ 113,926 $ 20,556 (11,966 ) (2,859 ) (44,040 ) (43,031 ) 2,054 (1,309 ) $ 59,974 $ (26,643 ) (in thousands) September 30,
2017 December 31,
2016 $ 194,380 $ 133,761 Nine Months Ended
September 30, (in thousands) 2023 2022 Cash provided by (used in): Operating activities $ 137,920 $ (13,446) Investing activities (24,176) 10,104 Financing activities (85,031) (43,484) Effect of exchange rate changes on cash, cash equivalents, and restricted cash (1,621) (5,513) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 27,092 $ (52,339) (in thousands) September 30, 2023 December 31, 2022 Held by U.S. entities $ 217,735 $ 248,389 Held by foreign entities 118,574 48,832 Total cash, cash equivalents, and marketable securities $ 336,309 $ 297,221 equivalents, marketable securities,flow provided by operations, borrowing capacity, and cash flow from operationsability to engage in capital market transactions will be sufficient to fund our operations, our dividend payments,stock repurchases, and our share repurchase programquarterly cash dividends for at least the next 12 months.As of September 30, 2017, approximately $61.1 million ofmonths 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 cash equivalents was held inthe investments needed to support our foreign subsidiaries. operations. We may utilize available funds or seek external financing if we require additional capital resources.theseforeign funds, we may be requiredhave to pay U.S. tax, net of any applicablefederal, state, and local income taxes as well as foreign tax credits,withholding taxes upon repatriation. We considerHowever, estimating the earnings of our foreign subsidiaries to be permanently reinvested and, as a result, U.S. taxes on such earnings are not provided. It is impractical to estimate the amount of U.S. tax we may be requiredwould have to pay upon repatriationis impracticable due to the complexity of the foreignincome tax credit calculations. There can be no assurance that changeslaws and regulations.our plans or other events affecting our operations will not result in materially accelerated or unexpected expenditures.Cashcash provided by (used in) operating activitiesThe primary drivers during in the nine months ended September 30, 2017 were net income of $36.6 million and $80.6 million from trade accounts receivable, largely2023 was primarily due to increasedgrowth in client collections, the impact of our cost-efficiency initiatives, and lower legal fees and related costs arising from proceedings outside the ordinary course of business. We expect to continue to incur additional costs for these proceedings. For additional information, see “Note 9. Restructuring” and "Note 15. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.collections and the timing of billings.The primary driver during(used in) provided by investing activities in the nine months ended September 30, 20162023 was net incomeprimarily due to our investments in financial instruments and reduced investment in property and equipment as we optimize our office space.$18.2 million.Future Cash Receipts from Committed License and Cloud ArrangementsAs of September 30, 2017, none of the amounts shown in the table below had been billed and no revenue had been recognized.The below amounts for 2018 and subsequent periods may not be recognized in the periods shown below as a result of the adoption of the new revenue recognition standard (ASC 606). (See Note 2. New Accounting Pronouncements contained elsewhere in this Quarterly Reportconvertible senior notes, which mature on Form10-Q for additional information) September 30,
2017 (in thousands) Term and cloud
contracts Perpetual contracts (1) Total $ 37,723 $ 13,274 $ 50,997 150,629 21,213 171,842 125,165 10,033 135,198 85,939 1,572 87,511 38,203 367 38,570 12,876 — 12,876 $ 450,535 $ 46,459 $ 496,994 (1)These amounts are for perpetual licenses with extended payment terms and/or additional rights of use.Total contractual future cash receipts due from our existing license and cloud arrangements were approximately $376.3 million as of September 30, 2016.Cash used in investing activitiesDuringMarch 1, 2025. In the nine months ended September 30, 2017,2023, we purchased $25.7paid $89 million of marketable debt securities and made investments of $9.1to repurchase $97.7 million in propertyaggregate principal amount of convertible senior notes. As of September 30, 2023, we had $502 million in aggregate principal amount of convertible senior notes outstanding due on March 1, 2025. For additional information, see "Note 8. Debt" in Part I, Item 1 of this Quarterly Report.equipment, partially offset by proceeds receivedas since amended, we entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. As of September 30, 2023 and December 31, 2022, we had $27.3 million in outstanding letters of credit, which reduced the Company’s available borrowing capacity under the Credit Facility and no outstanding cash borrowings under the Credit Facility. For additional information, see "Note 8. Debt" in Part I, Item 1 of this Quarterly Report.(in thousands) Nine Months Ended
September 30, 2023December 31, 2022 $ 58,075 1,925 September 30, 2023 $ 60,000 maturitiesJune 30, 2023 to June 30, 2024, and the amount of marketable debt securities (including called marketable debt securities) of $23.1stock we are authorized to repurchase was increased to $60 million.DuringNine Months Ended
September 30,2023 2022 (in thousands) Shares Amount Shares Amount Stock repurchase program — — 279 24,508 Tax withholdings for net settlement of equity awards 39 1,654 253 17,575 39 $ 1,654 532 $ 42,083 2016, we acquired OpenSpan for $48.8 million, net of cash acquired,2023 and invested $15.3 million primarily in internally developed software and leasehold improvements at our corporate headquarters, partially offset by proceeds received from the sales of marketable debt securities of $62.3 million.Cash used in financing activitiesWe used cash primarily for repurchases of our common stock, share repurchases for tax withholdings for the net settlement of our equity awards, and the payment of our quarterly dividend.Since 2004, our Board of Directors has approved annual stock repurchase programs that have authorized the repurchase in the aggregate of up to $195 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: Nine Months Ended
September 30, 2017 2016 (in thousands) Shares Amount Authorization Remaining
Under Publicly Announced
Share Repurchased
Programs Shares Amount Authorization Remaining
Under Publicly Announced
Share Repurchased
Programs $ 39,385 $ 40,534 — — — — — 25,879 682 (34,791 ) — 414 (10,791 ) — 68 (2,986 ) (2,986 ) 1,028 (25,530 ) (25,530 ) — — — 6 (177 ) (177 ) 750 $ (37,777 ) $ (2,986 ) 1,448 $ (36,498 ) $ 172 $ 36,399 $ 40,706 In addition to the share repurchases made under our repurchase programs, we net settled the majority of our employee stock option exercises and RSU vestings, which resulted in the withholding of shares to cover the option exercise price and the minimum statutory tax withholding obligations.During the nine months ended September 30, 2017 and 2016, option and RSU holders net settled a total of 2.4 million shares and 1.6 million shares, respectively, of which only 1.3 million shares and 0.8 million shares, respectively, were issued to the option and RSU holders. The balance of the shares were surrendered to us to pay for the exercise price with respect to options and the applicable taxes for both options and RSUs. During the nine months ended September 30, 2017 and 2016,2022, instead of receiving cash from the equity holders, we withheld shares with a value of $23.7$1.0 million and $10.1$11.5 million, respectively, for the exercise price of options. Nine Months Ended
September 30, (per share) 2017 2016 $ 0.09 $ 0.09 $ 0.09 $ 0.09 It is our current intentionshare, however,share. However, the Board of Directors may terminate or modify thisthe dividend program without prior notice.Nine Months Ended
September 30,(in thousands) 2023 2022 Dividend payments to stockholders $ 7,458 $ 7,368 Payments due by period (in thousands) Remainder of 2023 2024 2025 2026 2027 2028 and after Other Total $ — $ 3,767 $ 504,154 $ — $ — $ — $ — $ 507,921 43,491 134,122 126,065 120,745 134,060 177 — 558,660 Operating lease obligations 4,775 17,976 14,870 10,853 9,808 39,299 — 97,581 500 500 — — — — — 1,000 — — — — — — 2,017 2,017 $ 48,766 $ 156,365 $ 645,089 $ 131,598 $ 143,868 $ 39,476 $ 2,017 $ 1,167,179 any time without notice.ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURErepresentsis the risk of loss that may affect us due tofrom adverse changes in financial market prices and rates.market risk exposure isinternational operations’ operating expenses are primarily related to fluctuationsdenominated in foreign exchange rates.Ascurrencies. However, our international sales are also primarily denominated in foreign currencies, partially offsetting our foreign currency exposure.Nine Months Ended
September 30,2023 2022 (Decrease) in revenue (4) % (4) % (Decrease) increase in net income (5) % 2 % September 30, 2017, we did not have any forward contracts outstanding. See Note 4 “Derivative Instruments” of this Quarterly Report on Form10-Q for further discussion.Othermonetary assets and liabilities denominated in currencies other than the item discussed above, there were no significantfunctional currency of the entities in which they are recorded.our quantitativethe Australian dollar, Euro, and qualitative disclosures about market risk duringU.S. dollar would have resulted in the first nine months ended September 30, 2017. See Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form10-K for the year ended December 31, 2016 for a more complete discussion of our market risk exposure.following impact:Nine Months Ended
September 30,(in thousands) 2023 2022 Foreign currency (loss) $ (11,351) $ (6,335) ITEM 4.CONTROLS AND PROCEDURESDisclosure Controlsdisclosure controls and Proceduresor CEO,(“CEO”) and Chief Financial Officer or CFO,(“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act)Act of 1934, as amended (“Exchange Act”)) as of September 30, 2017.2023. 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 September 30, 2017.Internal Controlinternal control over Financial Reporting Securities Exchange Act) during the quarter ended September 30, 20172023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.II—II - OTHER INFORMATIONITEM 1A.RISK FACTORSPart I, Item 1A. “Risk Factors” inof our Annual Report onForm 10-K for the year ended December 31, 2016.2022, filed with the U.S. Securities and Exchange Commission. These risk factors could materially affect our business, financial condition, and future results and couldmay cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form10-Q or elsewhere by management from time to time. There have been no material changes during the nine months ended September 30, 2017 to the risk factors disclosed in our Annual Report on Form10-K for the year ended December 31, 2016.management.ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSThe following table sets forth information regarding our repurchasesour commonequity securities (1)duringrepurchased in the three months ended September 30, 2017: Total Number
of Shares
Purchased
(in thousands) Average Price
Paid per
Share Total Number of
Shares Purchased as Part
of Publicly Announced
Share Repurchase
Program (1)
(in thousands) Approximate Dollar
Value of Shares That
May Yet Be Purchased at
Period End Under Publicly
Announced Share
Repurchased Programs (1)
(in thousands) 12 $ 58.54 — $ 36,399 55 56.16 — 36,399 108 56.56 — 36,399 175 $ 56.57 1.Shares withheld to cover the option exercise price and statutory tax withholding obligations under the net settlement provisions of the company’s stock compensation awards have been included in the above table.2.Since 2004, our Board of Directors has approved stock repurchase programs that have authorized the repurchase, in the aggregate, of up to $195 million of our common stock. On May 30, 2017, we announced that our Board of Directors extended the expiration date of the current stock repurchase program to June 30, 2018 (the “Current Program”). Under the Current Program, purchases may be made from time to time on the open market or in privately negotiated transactions. Shares may be repurchased in such amounts2023:(in thousands, except per share amounts) July 1, 2023 - July 31, 2023 3 $ 55.81 — $ 60,000 August 1, 2023 - August 31, 2023 — — — $ 60,000 September 1, 2023 - September 30, 2023 4 48.92 — $ 60,000 7 $ 51.65 — Exhibit No. Description Incorporation by Reference Filed Herewith Form Exhibit Filing Date 3.1 10-Q 3.1 November 4, 2014 3.2 8-K 3.2 June 15, 2020 31.1 X 31.2 X 32 + 101.INS Inline 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.SCH Inline XBRL Taxonomy Extension Schema Document. X 101.CAL Inline XBRL Taxonomy Calculation Linkbase Document. X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. X 101.LAB Inline XBRL Taxonomy Label Linkbase Document. X 101.PRE Inline XBRL Taxonomy Presentation Linkbase Document. X 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X market conditions warrant, subject to regulatory and other considerations. We have established apre-arranged stock repurchase plan, intended to comply with the requirements of Rule10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule10b-18 under the Exchange Act (the“10b5-1 Plan”). All share repurchases under the Current Program during closed trading window periods will be made pursuant to the10b5-1 Plan.ITEM 6.EXHIBITSThe following exhibits are filed or furnished, as the case may be, as part of this report.EXHIBIT INDEXExhibit No.Description31.1Certification pursuant to Exchange Act Rules13a-14 and15d-14 of the Chief Executive Officer.31.2Certification pursuant to Exchange Act Rules13a-14 and15d-14 of the Chief Financial Officer.32Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer.101.INSXBRL Instance document.101.SCHXBRL Taxonomy Extension Schema Document.101.CALXBRL Taxonomy Calculation Linkbase Document.101.DEFXBRL Taxonomy Extension Definition Linkbase Document.101.LABXBRL Taxonomy Label Linkbase Document.101.PREXBRL Taxonomy Presentation Linkbase Document.++Management contracts and compensatory plan or arrangementsPegasystems Inc. Date:Dated:October 25, 2023 November 8, 2017By:By:/s/ KENNETH STILLWELL Kenneth Stillwell Chief FinancialOperating Officer and Chief AdministrativeFinancial Officer(Principal Financial Officer) 27