Contract assets are client-committed amounts for which revenue recognized exceeds the ~~impact 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 license~~client, 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
Contract assets (1)	$	13,263	$	17,546
Long-term contract assets (2)	10,732		16,470
	$	23,995	$	34,016

(1) Included in other current assets.

(2) Included in other long-term assets.

Deferred revenue ~~from these arrangements,~~

Deferred revenue consists of billings and payments received in advance of revenue recognition.


(in thousands)	September 30, 2023		December 31, 2022
Deferred revenue	$	297,067	$	325,212
Long-term deferred revenue (1)	2,605		3,552
	$	299,672	$	328,764

(1) Included in other long-term liabilities.

Deferred revenue decreased in the nine months ended September 30, 2023, primarily due to $292.3 million of revenue recognized during the period included in deferred revenue atas of December 31, ~~2015, will not be recognized~~2022 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 modifications~~recognition.

NOTE 4. DEFERRED COMMISSIONS


(in thousands)	September 30, 2023		December 31, 2022
Deferred commissions (1)	$	107,399	$	130,195

(1) Included in other long-term assets.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Amortization of deferred commissions (1)	$	14,947	$	11,597	$	43,974	$	39,752

(1) Included in selling and marketing.

NOTE 5. GOODWILL AND OTHER INTANGIBLES

Goodwill


	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

Intangibles

Intangible assets are ~~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		Net Book Value (1)
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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~3. MARKETABLE SECURITIES~~

~~The Company’s marketable securities are as follows:~~

(in thousands)    Amortized
Cost    Unrealized
Gains    Unrealized
Losses    Fair
Value
September 30, 2017

Municipal bonds
   $ 32,764    $ 12 �� $ (17 )    $ 32,759
Corporate bonds
   31,079    12    (38 )    31,053








   $ 63,843    $ 24    $ (55 )    $ 63,812








December 31, 2016

Municipal bonds
   $ 36,746    $ —      $ (139 )    $ 36,607
Corporate bonds
   26,610    1    (51 )    26,560








   $ 63,356    $ 1    $ (190 )    $ 63,167


		December 31, 2022
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
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

(1) Included in other long-term assets.

Future estimated intangibles assets amortization:


(in thousands)	September 30, 2023
Remainder of 2023	$	964
2024	3,169
2025	2,615
2026	874
2027	327

	$	7,949

Amortization of ~~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 INSTRUMENTS~~

~~In 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
Asset Derivatives

Foreign currency forward contracts
   Other current assets    $ 628
Liability Derivatives

Foreign currency forward contracts
   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)
Euro
   € 21,810
British pound
   £ 5,919
Australian dollar
   A$     19,515
United States dollar
   $ 59,450

intangible assets:


	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

NOTE 6. OTHER ASSETS AND LIABILITIES

Other current assets


(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

Other long-term assets


(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

Other current liabilities


(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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other long-term liabilities


(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

NOTE 7. LEASES

Expense


	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

Right of use assets and lease liabilities


(in thousands)	September 30, 2023		December 31, 2022
Right of use assets (1)	$	65,871	$	76,114
Operating lease liabilities (2)	$	15,532	$	14,976
Long-term operating lease liabilities	$	68,874	$	79,152

(1) Included in other long-term assets.

(2) Included in other current liabilities.

Weighted-average remaining lease term and discount rate for the Company’s leases were:


	September 30, 2023		December 31, 2022
Weighted-average remaining lease term	7.0 years		7.5 years
Weighted-average discount rate (1)	4.0	%	4.1	%

(1) The ~~income statement impact~~rates implicit in most of the Company’s leases are not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over the lease term in a similar economic environment.

Maturities of lease liabilities:


(in thousands)	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
Less: imputed interest (1)	(13,175)
	$	84,406

(1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated due to a lease reassessment event.

Cash flow information


	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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8. DEBT

Convertible senior notes and capped calls

Convertible senior notes

In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal of $600 million, due March 1, 2025, in a private placement. No principal payments are due before maturity. The Notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1, beginning September 1, 2020.

In the nine months ended September 30, 2023, the Company recognized a gain of $7.9 million in other income (loss), net from repurchases of Notes representing $97.7 million in aggregate principal amount.

Conversion rights

The conversion rate is 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of $135.05 per share of common stock. The conversion rate will be adjusted upon certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions. The Company will settle conversions by paying or delivering cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate.

Beginning on September 1, 2024, noteholders may convert their Notes at any time at their election.

Before September 1, 2024, noteholders may convert their Notes in the following circumstances:

•During any calendar quarter beginning after June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter.

•During the five consecutive business days immediately after any five consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.

•Upon certain corporate events or distributions or if the Company calls any Notes for redemption, noteholders may convert before the close of business on the business day immediately before the related redemption date (or, if the Company fails to pay the redemption price in full on the redemption date until the Company pays the redemption price).

As of September 30, 2023, the Notes were not eligible for conversion.

Repurchase rights

On or after March 1, 2023 and on or before the 40th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the Notes at a repurchase price equal to 100% of the principal amount, plus accrued and unpaid interest, if the last reported sale price of the Company’s common stock exceeded 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice.

If certain corporate events that constitute a “Fundamental Change” occur, each noteholder will have the right to require the Company to repurchase for cash all of such noteholder’s Notes, or any portion of the principal thereof that is equal to $1,000 or a multiple of $1,000, at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. A Fundamental Change relates to mergers, changes in control of the Company, liquidation/dissolution of the Company, or the delisting of the Company’s common stock.

Carrying value of the Notes:


(in thousands)	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

Interest expense related to the Notes:


	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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The average interest rate on the Notes in the nine months ended September 30, 2023 and 2022 was 1.2%.

Future payments:


	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

Capped call transactions

In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions covered approximately 4.4 million shares (representing the number of shares for which the Notes were initially convertible) of the Company’s common stock.

In the nine months ended September 30, 2023, Capped Call Transactions covering approximately 0.7 million shares were settled for proceeds of $0.3 million. As of September 30, 2023, Capped Call Transactions covering approximately 3.7 million shares were outstanding.

The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The cap price of the Capped Call Transactions is subject to adjustment upon specified extraordinary events affecting the Company, including mergers and tender offers.

The Capped Call Transactions are accounted for as derivative instruments and do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value calculated following the governing documents may not represent a fair value measurement. The Capped Call Transactions are classified as other long-term assets and remeasured to fair value each reporting period, resulting in a non-operating gain or loss.

Change in capped call transactions:


	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

Credit facility

In November 2019, and as since amended, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. The Company may use borrowings for general corporate purposes and to finance working capital needs. Subject to specific conditions and the agreement of the financial institutions lending the additional amount, the aggregate commitment may be increased to $200 million. The commitments expire on November 4, 2024, and any outstanding ~~forward contracts~~loans 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 was~~affiliate transactions.

The Company is required to comply with financial covenants, including:

•Through December 31, 2023, the parent company must maintain at least $200 million in cash, investments, and availability under the Credit Facility and the Company must maintain:


	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

•Beginning with the fiscal quarter ended March 31, 2024, a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0.

As of September 30, 2023 and December 31, 2022, the Company 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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9. RESTRUCTURING

The Company has undertaken the following restructuring activities as ~~follows:~~

   Three Months Ended
September 30,    Nine Months Ended
September 30,
(in thousands)    2017    2016    2017    2016
Gain (loss) from the change in the fair value of forward contracts included in other income (expense), net
   $ —      $ (1,237 )    $ 286    $ (4,955 )
Foreign currency transaction (loss) gain from the remeasurement of foreign currency assets and liabilities
   (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

Accrued employee severance and related benefits:

Change for all restructuring actions:


	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

Note: Accrued employee severance and related benefits is included in accrued compensation and related expenses.

NOTE 10. FAIR VALUE MEASUREMENTS

Assets and ~~Liabilities Measured~~liabilities measured at ~~Fair Value~~fair value on a ~~Recurring Basis~~

recurring basis

The Company records its ~~money market funds,~~cash equivalents, marketable securities, Capped Call Transactions, and ~~forward contracts~~venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.

As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows: ~~(Level 1)~~

•Level 1 - observable inputs, such as quoted prices in active markets for identical assets or liabilities; ~~(Level 2)~~

•Level 2 - significant other inputs that are observable either directly or indirectly; and ~~(Level 3)~~

•Level 3 - significant unobservable inputs ~~on which there is~~with little or no market data, which require the Company to develop its own assumptions.

This hierarchy requires the Company to use observable market data when available and to minimize ~~the use of~~ unobservable inputs when determining fair value.

The ~~Company’s money market funds are classified within Level 1~~fair 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 ~~the~~each reporting period ~~in which~~is determined using a Black-Scholes option-pricing model. The valuation model uses various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield. The Company applies judgment when determining expected volatility. The Company considers the ~~actual event or change in circumstance occurs. There were no transfers between Level 1~~underlying 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)~~

implied volatility levels. The Company’s ~~assets~~venture investments are recorded at fair value based on multiple valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.

Assets and liabilities measured at fair value on a recurring ~~basis consisted of the following:~~

   Fair Value Measurements at Reporting Date Using          Total
(in thousands)    Level 1    Level 2
September 30, 2017

Fair Value Assets:

Money market funds
   $     655    $ —            $ 655
Marketable securities:

Municipal bonds
   $ —      $ 32,759          32,759
Corporate bonds
   —      31,053          31,053






   $ —      $ 63,812          $ 63,812
December 31, 2016

Fair Value Assets:

Money market funds
   $ 458    $ —            $ 458
Marketable securities:

Municipal bonds
   $ —      $ 36,607          $ 36,607
Corporate bonds
   —      26,560          26,560






   $ —      $ 63,167          $ 63,167
Foreign currency forward contracts
   —      628          628
Fair Value Liabilities:

Foreign currency forward contracts
   $ —      $ 883          $ 883

~~For certain~~basis:
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
Capped Call Transactions (1)
$ — $ 1,792 $ — $ 1,792 $ — $ 2,582 $ — $ 2,582
Venture investments (1) (2)
$ — $ — $ 19,348 $ 19,348 $ — $ — $ 13,069 $ 13,069

(1) Included in other ~~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 Basis~~

Assets 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
Trade accounts receivable
   $ 164,530    $ 234,473
Unbilled trade accounts receivable
   32,820    34,681




Total trade accounts receivable
   197,350    269,154
Allowance for sales credit memos
   (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 delivered~~long-term assets.

(2) Investments in ~~excess of scheduled invoicing.~~

~~7. GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~The changes in the carrying amount of goodwill for the nine months ended September 30, 2017 as follows:~~

(in thousands)
Balance as of January 1,
   $ 73,164
Purchase price adjustments to goodwill
   (354 )
Currency translation adjustments
   131


Balance as of September 30,
   $ 72,941

privately-held companies.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~Intangible assets are recorded at cost~~

Changes in venture investments:


	Nine 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

The carrying value of certain financial instruments, including receivables and ~~are amortized using~~accounts payable, approximates fair value due to their short maturities.

Fair value of the ~~straight-line method over their estimated useful lives as follows:~~

(in thousands)    Range of
Remaining
Useful Lives    Cost    Accumulated
Amortization    Net Book
Value
September 30, 2017

Customer related intangibles
   4-10 years    $ 63,158    $ (43,205 )    $ 19,953
Technology
   7-10 years    58,942    (44,140 )    14,802
Other intangibles
   —      5,361    (5,361 )    —






      $ 127,461    $ (92,706 )    $ 34,755






December 31, 2016

Customer related intangibles
   4-10 years    $ 63,091    $ (37,573 )    $ 25,518
Technology
   3-10 years    58,942    (40,269 )    18,673
Other intangibles
   —      5,361    (5,361 )    —






      $ 127,394    $ (83,203 )    $ 44,191

~~Amortization expense~~Notes

The fair value of ~~intangibles 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
Cost of revenue
   $ 1,232    $ 1,642    $ 3,871    $ 4,626
Selling and marketing
   1,873    1,867    5,608    5,274
General and administrative
   —      90    —      268








   $ 3,105    $ 3,599    $ 9,479    $ 10,168

~~Future estimated amortization expense related to intangible assets~~Notes outstanding (including the embedded conversion feature) was $460.3 million as of September 30, ~~2017 is~~2023 and $521.1 million as ~~follows:~~

(in thousands)
Remainder of 2017
   $ 2,846
2018
   11,347
2019
   5,555
2020
   2,659
2021
   2,637
2022 and thereafter
   9,711


   $ 34,755

~~8. ACCRUED EXPENSES~~

(in thousands)    September 30,
2017    December 31,
2016
Outside professional services
   $ 13,447    $ 10,204
Income and other taxes
   5,947    10,422
Marketing and sales program expenses
   4,679    3,707
Dividends payable
   2,336    2,298
Employee related expenses
   4,715    3,806
Other
   8,557    6,314




   $ 39,681    $ 36,751

of December 31, 2022. In the nine months ended September 30, 2023 the Company repurchased Notes representing $97.7 million in aggregate principal amount.

The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy.

NOTE 11. REVENUE

Geographic revenue


	Three Months Ended 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	%

Revenue streams


	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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~9. DEFERRED REVENUE~~

(in thousands)    September 30,
2017    December 31,
2016
Term license
   $ 5,636    $ 15,843
Perpetual license
   20,844    23,189
Maintenance
   105,588    112,397
Cloud
   18,805    13,604
Professional Services
   10,058    10,614




Current deferred revenue
   160,931    175,647
Perpetual license
   4,085    7,909
Maintenance
   828    1,802
Cloud
   1,217    1,278




Long-term deferred revenue
   6,130    10,989




   $ 167,061    $ 186,636

~~10. STOCK-BASED COMPENSATION~~

~~Stock-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
Cost of revenues
   $ 3,613    $ 3,117    $ 10,913    $ 8,711
Selling and marketing
   3,976    3,468    11,482    9,395
Research and development
   3,420    2,260    10,306    7,480
General and administrative
   2,480    1,983    7,228    4,706
Acquisition-related
   —      (10 )    —      342








Total stock-based compensation before tax
   $ 13,489    $ 10,818    $ 39,929    $ 30,634








Income tax benefit
   $ (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

Remaining performance obligations ("Backlog") ~~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 a~~one-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.~~

Expected future revenue from existing non-cancellable contracts:

As of September 30, ~~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	%

As of September 30, 2022:


(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	%

NOTE 12. STOCK-BASED COMPENSATION

Expense


	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)

As of September 30, 2023, the Company had ~~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 that~~which is expected to be recognized over a weighted-average period of ~~2.1~~1.8 years.

~~11. EARNINGS~~

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Grants


	Nine 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
Performance stock options (1)	906	$	18,265
Common stock	13	$	600

(1) Performance stock options allow the holder to purchase a specified number of common stock shares at an exercise price equal to or greater than the shares' fair market value at the grant date. The options usually vest over two years and expire ten years from the grant date, subject to specific performance conditions.

NOTE 13. INCOME TAXES

Effective income tax rate


	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)		%

The Company’s effective income tax rate in the nine months ended September 30, 2023 was primarily driven by the valuation allowance on the Company’s deferred tax assets in the U.S. and U.K. and projected taxable income in the U.S., partially offset by available tax credits and losses in the U.S.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. A deferred tax valuation allowance requires significant judgment and uncertainties, including assumptions about future taxable income. Quarterly, the Company reassesses the need for a valuation allowance on its net deferred tax assets by weighting all available and objectively verifiable negative and positive evidence, including projected future reversals of existing taxable temporary differences, committed contractual backlog (“Backlog”), projected future taxable income, including the impact of enacted legislation, tax-planning strategies, and recent operating results.

The Company intends to maintain a valuation allowance on the Company’s U.S. and U.K. net deferred tax assets until sufficient evidence exists to support the realization of these deferred tax assets.

NOTE 14. (LOSS) PER SHARE

Basic ~~earnings~~(loss) per share is ~~computed~~calculated using the weighted-average number of common shares outstanding during the ~~applicable~~ period. Diluted ~~earnings~~(loss) per share is ~~computed~~calculated 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.

Calculation of (loss) per share:


	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)







Weighted-average common shares outstanding, assuming dilution (1) (2) (3)	83,336		81,996		82,996		81,842
(Loss) per share, diluted	$	(0.09)	$	(1.14)	$	(0.90)	$	(4.65)

Outstanding anti-dilutive stock options and RSUs (4)	2,255		3,019		1,652		3,589

(1) All dilutive securities are excluded in periods of loss as their inclusion would be anti-dilutive.

(2) The shares underlying the conversion options in the Company’s Notes are included using the ~~treasury stock method. Certain~~if-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 some~~as of September 30, 2023.

(3) The Company’s Capped Call Transactions represent the equivalent of approximately 3.7 million shares of the Company’s ~~outstanding~~common 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 were~~interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The Capped Call Transactions are excluded from ~~the computation of diluted earnings per share because they were anti-dilutive~~weighted-average common shares outstanding, assuming dilution, in ~~the~~all periods ~~presented, but could~~as their effect would be ~~dilutive in the future.~~

anti-dilutive.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~The calculation~~

(4) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted (loss) per share. These awards may be dilutive in the future.

NOTE 15. COMMITMENTS AND CONTINGENCIES

Commitments

See "Note 7. Leases" for additional information.

Legal proceedings

In addition to the matters below, the Company is or may become involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s ~~basic~~business, 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
Basic

Net (loss)/income
   $ (1,812 )    $ 3,301    $ 36,615    $ 18,237








Weighted-average common shares outstanding
   77,691    76,278    77,258    76,323








(Loss)/earnings per share, basic
   $ (0.03 )    $ 0.04    $ 0.47    $ 0.24








Diluted

Net (loss)/income
   $ (1,812 )    $ 3,301    $ 36,615    $ 18,237








Weighted-average effect of dilutive securities:

Stock options
   —      1,933    3,519    1,851
RSUs
   —      1,337    1,940    1,227








Effect of assumed exercise of stock options and RSUs
   —      3,270    5,459    3,078








Weighted-average common shares outstanding, assuming dilution
   77,691    79,548    82,717    79,401








(Loss)/earnings per share, diluted
   $ (0.03 )    $ 0.04    $ 0.44    $ 0.23








Outstanding stock options and RSUs excluded as impact would be anti-dilutive
   7,232    296    219    368

securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.

In ~~periods of loss, all equity awards are excluded,~~addition, as the ~~inclusion~~Company is a party to ongoing litigation, it is at least reasonably possible that the Company’s estimates will change in the near term, and the effect may be material.

The Company had no accrued losses for litigation as of September 30, 2023 and December 31, 2022.

Appian Corp. v. Pegasystems Inc. & Youyong Zou

As previously reported, the Company is a defendant in litigation brought by Appian in the Circuit Court of Fairfax County, Virginia (the “Court”) titled Appian Corp. v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). On May 9, 2022, the jury rendered its verdict finding that the Company had misappropriated one or more of Appian’s trade secrets, that the Company had violated the Virginia Computer Crimes Act, and that the trade secret misappropriation was willful and malicious. The jury awarded damages of $2,036,860,045 for trade secret misappropriation and $1.00 for violating the Virginia Computer Crimes Act. On September 15, 2022, the circuit court of Fairfax County entered judgment of $2,060,479,287, consisting of the damages previously awarded by the jury plus attorneys’ fees and costs, and stating that the judgment is subject to post-judgment interest at a rate of 6.0% per annum, from the date of the jury verdict (May 9, 2022) as to the amount of the jury verdict and from September 15, 2022 as to the amount of the award of attorneys’ fees and costs. On September 15, 2022, the Company filed a notice of appeal from the judgment. On September 29, 2022, the circuit court of Fairfax County approved a $25,000,000 letter of credit obtained by the Company to secure the judgment and entered an order suspending the judgment during the pendency of the Company’s appeal. Appellate briefing in the Court of Appeals of Virginia is completed. The Court of Appeals of Virginia has set November 15, 2023 as the date for oral arguments in the appeal. Although it is not possible to predict timing, this appeals process could potentially take years to complete. The Company continues to believe that it did not misappropriate any alleged trade secrets and that its sales of the Company’s products at issue were not caused by, or the result of, any ~~equity awards would be anti-dilutive.~~

~~12. GEOGRAPHIC INFORMATION AND MAJOR CLIENTS~~

~~Geographic Information~~

~~Operating segments are defined as components~~alleged 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.

trade secrets. The Company ~~develops and licenses software applications for customer engagement and its Pega~~^® ~~Platform, and provides consulting services, maintenance, and training related~~is unable to ~~its offerings. The Company derives substantially all~~reasonably estimate possible damages because of, ~~its revenue~~among other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resulting from the ~~sale~~appellate proceedings.

City of Fort Lauderdale Police and ~~support~~Firefighters’ Retirement System, Individually and on Behalf of ~~one group of similar products~~All 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 in~~Kenneth Stillwell

On May 19, 2022, a lawsuit was filed against the ~~enterprise applications market. To assess performance,~~Company, the Company’s ~~CODM, who is the~~ chief executive officer ~~reviews~~and the Company’s chief operating and financial ~~information~~officer in the United States District Court for the Eastern District of Virginia Alexandria Division, captioned City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v. Pegasystems Inc., Alan Trefler, and Kenneth Stillwell (Case 1:22-cv-00578-LMB-IDD). The complaint generally alleges, among other things, that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder and that the individual defendants violated Section 20(a) of the Exchange Act, in each case by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The complaint seeks unspecified damages on behalf of a class of purchasers of the Company’s securities between May 29, 2020 and May 9, 2022. The litigation has since been transferred to the United States District Court for the District of Massachusetts (Case 1:22-cv-11220-WGY), and lead plaintiff class representatives—Central Pennsylvania Teamsters Pension Fund - Defined Benefit Plan, Central Pennsylvania Teamsters Pension Fund - Retirement Income Plan 1987, and Construction Industry Laborers Pension Fund—have been appointed. On October 18, 2022, a consolidated ~~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
U.S.
   $ 95,087    53 % $ 111,274    61 % $ 351,330    59 % $ 308,049    56 %
Other Americas
   8,722    5 % 7,952    4 % 30,243    5 % 49,494    9 %
U.K.
   18,485    10 % 21,490    12 % 68,003    11 % 77,181    14 %
Other EMEA⁽¹⁾
   28,100    16 % 23,656    13 % 76,958    13 % 67,314    12 %
Asia Pacific
   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.~~

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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~Major Clients~~

~~Clients accounting for 10% or more~~

In re Pegasystems Inc., Derivative Litigation

On November 21, 2022, a lawsuit was filed against the members of the Company’s ~~total revenue~~board of directors, the Company’s chief operating and financial officer and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc. v. Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, Larry Weber, and Kenneth Stillwell, defendants, and Pegasystems Inc., nominal defendant (Case 1:22-cv-11985). The complaint generally alleges the defendants sold shares of the Company while in possession of material nonpublic information relating to (i) the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and (ii) alleged misconduct by Company employees alleged in that litigation. On 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
Total revenue
   $ 179,815 $ 182,802    $ 601,042    $ 550,656
Client A
   10.6 % *    *    *

*	~~Client accounted for less than 10% of total revenue.~~

~~Clients~~consolidated 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.

SEC Inquiry

Beginning in March 2023, the U.S. Securities and Exchange Commission (“SEC”) has requested certain information relating to, among other things, the accounting ~~for 10% or more~~treatment of the Company’s ~~total trade accounts receivable were as follows:~~

(in thousands)    September 30,
2017 December 31,
2016
Total trade accounts receivable
   197,350 269,154
Client A
   12.4 % *

*	~~Client accounted for less than 10% of total trade account receivable~~

above-described litigation with Appian Corporation. The Company is fully cooperating with the SEC’s requests.

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Forward-Looking Statements~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. ~~These~~

Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements, ~~include,~~which speak only as of the date the statement was made and are based on current expectations and assumptions.

Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but ~~are~~ not limited ~~to, statements about~~ to:

•our future financial performance and business ~~plans,~~ plans;

•the adequacy of our liquidity and capital ~~resources,~~ resources;

•the continued payment of our quarterly ~~dividends by the Company, and~~ dividends;

•the timing of revenue ~~recognition under license and cloud arrangements and are described more completely in Part I~~recognition;

•management of our ~~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;

•variation in demand for our products and services, including among clients in the public sector;

•reliance on key personnel;

•global economic and political conditions and uncertainty, including impacts from public health emergencies and the ~~difficulty~~war in ~~predicting the completion of product acceptance and other factors affecting the timing of license revenue recognition;~~ Ukraine;

•reliance on ~~third party relationships;~~ third-party service providers, including hosting providers;

•compliance with our debt obligations and covenants;

•the potential ~~loss~~impact of ~~vendor specific objective evidence for~~ our ~~consulting services; the inherent risks associated with international operations~~convertible 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;

•foreign currency exchange rates; ~~the financial impact of any future acquisitions;~~

•the potential legal and financial liabilities and damage to our reputation ~~damage~~ due to ~~cyber-attacks~~cyber-attacks;

•security breaches and security ~~breaches;~~flaws;

•our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims, and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us;

•our ongoing litigation with Appian Corp.;

•our client retention rate; and

•management of ~~the Company’s~~our growth.

These risks and ~~other factors~~others that ~~could~~may cause actual results to differ materially from those expressed in such forward-looking statements are described ~~more completely~~further in Part I of ~~the Company’s~~our Annual Report on Form10-K for the year ended December 31, ~~2016 as well as~~2022, Part II of this Quarterly Report on Form 10-Q, and other filings we make with the U.S. Securities and Exchange Commission

~~We have~~ (“SEC”).

Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results included in such statements will be achieved. Although subsequent events may cause our view to change, except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise ~~any~~these forward-looking statements whether as athe result of new information, future events, or ~~risks. New information, future events or risks may cause the~~otherwise.

The forward-looking ~~events we discuss~~statements in this ~~report~~Quarterly Report represent our views as of October 25, 2023.

NON-GAAP MEASURES

Our non-GAAP financial measures should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe that these measures help investors understand our core operating results and prospects, consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. They are not ~~to occur or to materially change.~~

~~Business overview~~

a substitute for financial measures prepared under U.S. GAAP. A reconciliation of GAAP and non-GAAP measures is located with each non-GAAP measure.

BUSINESS OVERVIEW

We develop, market, license, host, and support enterprise software ~~applications~~that 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 license~~our 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.

Our target clients 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 include~~are Global ~~3000 companies~~2000 organizations and government agencies that ~~seek~~require solutions to ~~manage complex enterprise systems~~distinguish themselves in the markets they serve. Our solutions achieve and ~~customer service issues~~facilitate 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 is~~our partners, we deliver solutions tailored to ~~sell a client a series of licenses, each focused on a~~the specific ~~purpose or area of operations in support of longer term enterprise-wide digital transformation initiatives.~~

~~Our license revenue is primarily derived from sales~~industry needs of our ~~applications~~clients.

Performance metrics

We use performance metrics to analyze and assess our ~~Pega Platform. Our cloud revenue is derived from~~overall performance, make operating decisions, and forecast and plan for future periods, including:

Annual contract value (“ACV”)

ACV represents the ~~licensing~~annualized value of our ~~hosted Pega Platform and software application environments. Our consulting services revenue is primarily related to new license implementations.~~

~~Financial and Performance Metrics~~

Management 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~~

(Dollars in thousands,
except per share amounts)
   Three Months Ended
September 30, Nine Months Ended
September 30,
   2017 2016 Change 2017 2016 Change
Total revenue
   $ 179,815 $ 182,802 (2,987 ) (2 )% $ 601,042 $ 550,656 $ 50,386    9 %
Operating margin
   (8 )% 3 % 3 % 5 %
Diluted (loss)/earnings per share
   $ (0.03 ) $ 0.04 $ (0.07 ) (175 )% $ 0.44 $ 0.23 $ 0.21    91 %
Cash flow provided by operating activities
   113,926 20,556 93,370    454 %

~~Select Performance Metrics~~

~~Annual Contract Value (“ACV”)~~

~~The change in ACV measures the growth and predictability of future cash flows from committed term license, cloud, and maintenance arrangements~~active contracts as of the ~~end~~measurement date. The contract's total value is divided by its duration in years to calculate ACV. ACV is a performance measure that we believe provides useful information to our management and investors.

In 2023, the Company revised its ACV methodology for maintenance and all contracts less than 12 months as its overall client renewal rate exceeds 90%. The impact of the ~~particular reporting period.~~

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 ~~sum of the following two components:~~

~~Term and Cloud~~total contract value divided by the ~~number of committed contract years~~

~~Quarterly Maintenance~~duration in years. Previously, ACV for maintenance was calculated as the maintenance revenue ~~reported~~ for the ~~current three months~~quarter then ended, ~~period~~ multiplied by 4.

   September 30,
(in thousands)    2017    2016    Change
Term License and Cloud ACV
   $ 200,180    $ 163,408    $ 36,772    23 %
Maintenance ACV
   248,816    220,152    $ 28,664    13 %





Term License, Cloud and Maintenance ACV
   $ 448,996    $ 383,560    $ 65,436    17 %

~~Recurring Revenue~~

~~A measure~~four, 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.

Reconciliation of ACV and Constant Currency ACV


(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	%

Note: Constant currency ACV is calculated by applying the ~~predictability~~Q3 2022 foreign exchange rates to all periods shown.

Cash flow (1)

Note: Starting in the third quarter of 2023, the Company has calculated free cash flow as cash provided by (used in) operating activities less investments in property and ~~repeatability~~equipment. To ensure comparability, previously disclosed amounts have been updated.


(Dollars in thousands)	Nine Months Ended September 30,
	2023				2022
			Margin (2)				Margin (2)
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)	%



Additional information (3)
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

(1) Our non-GAAP free cash flow is defined as cash provided by (used in) operating activities less investment in property and equipment. Investment in property and equipment fluctuates in amount and frequency and are significantly affected by the timing and size of investments in our facilities. We provide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings. This information is not a substitute for financial measures prepared under U.S. GAAP.

(2) Operating and Free Cash Flow Margin are calculated by comparing the respective cash flow to Total Revenue.

(3) The additional information discloses items that affect our cash flows and are considered by management not to be representative of our ~~revenue.~~

   Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands)    2017 2016 Change 2017 2016 Change
Recurring revenue

Term license
   $ 21,678 $ 28,919 $ (7,241 ) (25 )% $ 106,170 $ 102,115 $ 4,055    4 %
Maintenance
   62,204 55,038 $ 7,166 13 % 180,759 163,174 $ 17,585    11 %
Cloud
   13,354 10,873 $ 2,481 23 % 36,914 30,640 $ 6,274    20 %



Total recurring revenue
   $ 97,236 $ 94,830 $ 2,406 3 % $ 323,843 $ 295,929 $ 27,914    9 %



Recurring revenue as a percent of total revenue
   54 % 52 % 54 % 54 %

~~License~~core business operations and ~~Cloud Backlog~~

~~A measure~~ongoing operational performance.

•Legal fees: Includes legal and related fees arising from proceedings outside the ordinary course of business.

•Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the ~~continued growth~~timing and size of our ~~business as~~restructuring activities.

•Interest on convertible senior notes: In February 2020, we issued convertible senior notes, due March 1, 2025, in a ~~result~~private placement. The Notes accrue interest at an annual rate of ~~future contractual commitments by our clients.~~

~~License~~0.75%, payable semi-annually in arrears on March 1 and ~~Cloud~~September 1, beginning September 1, 2020.

•Other: Includes fees related to capital advisory services, canceled in-person sales and marketing events, and incremental costs incurred integrating acquisitions.

Remaining performance obligations (“Backlog”)

Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP)


(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	%

Note: Constant currency Backlog is calculated by applying the ~~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 Form~~10-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
Deferred license and cloud revenue on the balance sheet

Term license and cloud
   $ 25,658    51 % $ 19,627    42 % 31 %
Perpetual license
   24,929    49 % 27,653    58 % (10 )%





Total deferred license and cloud revenue
   50,587    100 % 47,280    100 % 7 %





License and cloud contractual commitments not on the balance sheet

Term license and cloud
   450,535    91 % 352,804    94 % 28 %
Perpetual license
   46,459    9 % 23,483    6 % 98 %





Total license and cloud commitments
   496,994    100 % 376,287    100 % 32 %





Total license (term and perpetual) and cloud backlog
   $ 547,581    $ 423,567    29 %





Total term license and cloud backlog
   476,193    87 % 372,431    88 % 28 %

~~Critical accounting policies~~

all periods shown.

CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared ~~in accordance with~~following accounting principles generally accepted in the United States of America (“U.S.”) and the rules and regulations of the SEC for interim financial reporting. ~~The preparation of~~Preparing 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.

For more information about our critical accounting policies, we encourage you to read the discussion in the following locations in our Annual Report on Form 10-K for the year ended December 31, 2022:

•“Critical Accounting Estimates and Significant Judgments” in Item 7; and

•“Note 2. Significant Accounting Policies” in Item 8.

There have been no other significant changes into our critical accounting policies as disclosed in our Annual Report on Form10-K for the year ended December 31, ~~2016. For more information regarding~~2022.

RESULTS OF OPERATIONS

Revenue


(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	%

•The increases in Pega Cloud revenue for the three and nine months ended September 30, 2023 were primarily due to the growth of the hosted client base as our ~~critical accounting policies, we encourage you~~clients continued to ~~read the discussion contained~~expand their use of Pega Cloud.

•The increases in ~~Item 7 under the heading “Critical Accounting Estimates and Significant Judgments” and Note 2 “Significant Accounting Policies” included~~maintenance revenue in the ~~notes~~three and nine months ended September 30, 2023 were primarily due to ~~the Consolidated Financial Statements contained~~continued demand for our subscription license offerings which are generally bundled with maintenance.

•The increase in ~~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
Total revenue
   $ 179,815 $ 182,802 $ (2,987 ) (2 )% $ 601,042 $ 550,656 $ 50,386 9 %
Gross profit
   $ 110,084 $ 122,365 $ (12,281 ) (10 )% $ 395,346 $ 373,609 $ 21,737 6 %
Total operating expenses
   $ 124,373 $ 116,867 $ 7,506 6 % $ 376,647 $ 347,626 $ 29,021 8 %
(Loss)/income from operations
   $ (14,289 ) $ 5,498 $ (19,787 ) (360 )% $ 18,699 $ 25,983 $ (7,284 ) (28 )%
Operating margin
   (8 )% 3 % 3 % 5 %
(Loss)/income before (benefit)/provision for income taxes
   $ (14,697 ) $ 5,515 $ (20,212 ) (366 )% $ 18,663 $ 24,506 $ (5,843 ) (24 )%

~~Revenue~~

~~Software license revenue~~

(Dollars in thousands)    Three Months Ended
September 30, Nine Months Ended
September 30,
   2017 2016 Change 2017 2016 Change
Perpetual license
   $ 20,115    48 % $ 39,914    58 % $ (19,799 ) (50 )% $ 89,050    46 % $ 105,734    51 % ($ 16,684 ) (16 )%
Term license
   21,678    52 % 28,919    42 % (7,241 ) (25 )% 106,170    54 % 102,115    49 % 4,055 4 %










Total license revenue
   $ 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 perpetual~~subscription license revenue in the three months ended September 30, ~~2017~~2023 was primarily due to ~~a decrease~~increased 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 ~~perpetual~~subscription license revenue in the nine months ended September 30, ~~2017~~2023 was primarily due to ~~a lower percentage of perpetual arrangements executed and~~several 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, ~~2017~~2022.

•The decrease in consulting revenue in the nine months ended September 30, 2023 was primarily due to ~~broad based growth amongst new and existing customers offset by a large term license arrangement which was prepaid and recognized in revenue~~lower consultant realization rates in the ~~three months ended March 31, 2016. If this term license arrangement was not prepaid and recognized~~Americas.

•The decreases in ~~revenue in the three months ended March 31, 2016 term~~perpetual 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
Maintenance
   $ 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
Consulting services
   $ 61,535    81 % $ 46,829    80 % $ 14,706 31 % $ 183,447    82 % $ 144,263    80 % $ 39,184 27 %
Cloud
   13,354    18 % 10,873    18 % 2,481 23 % 36,914    16 % 30,640    17 % 6,274 20 %
Training
   929    1 % 1,229    2 % (300 ) (24 )% 4,702    2 % 4,730    3 % (28 ) (1 )%










Total services
   $ 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 half~~2023 reflects our strategy of ~~2016.~~

~~Cloud revenue represents revenue from our Pega Cloud offerings.~~ promoting subscription-based arrangements.

Gross profit


(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	%

* not meaningful

•The increases in ~~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
Software license
   $ 40,517 $ 67,520 $ (27,003 ) (40 )% $ 191,394 $ 204,203 $ (12,809 ) (6 )%
Maintenance
   55,488 48,379 7,109 15 % 159,814 144,285 15,529 11 %
Services
   14,079 6,466 7,613 118 % 44,138 25,121 19,017 76 %


Total gross profit
   $ 110,084 $ 122,365 $ (12,281 ) (10 )% $ 395,346 $ 373,609 $ 21,737 6 %
Software license gross profit %
   97 % 98 % 98 % 98 %
Maintenance gross profit %
   89 % 88 % 88 % 88 %
Services gross profit %
   19 % 11 % 20 % 14 %


Total gross profit %
   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 service~~Pega Cloud gross profit percent in the three and nine months ended September 30, ~~2017 was driven by a large project which began~~2023 were primarily due to increased cost efficiency, particularly for hosting services, as Pega Cloud continues to grow and scale.

•The decrease in maintenance gross profit percent in the ~~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 expenses~~

~~Selling and marketing~~

   Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands)    2017 2016 Change 2017 2016 Change
Selling and marketing
   $ 70,209 $ 67,032 $ 3,177    5 % $ 217,384 $ 202,126 $ 15,258    8 %
As a percent of total revenue
   39 % 37 %    36 % 37 %
Selling and marketing headcount, end of period
      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 three~~nine months ended September 30, ~~2017~~2023 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 decrease~~headcount.

•The increase in ~~sales commissions associated with the lower value of new license arrangements executed during~~consulting gross profit percent in the three months ended September 30, ~~2017.~~

2023 was primarily due to higher consultant utilization in the Americas. The ~~increase~~decrease in consulting profit percent in the nine months ended September 30, ~~2017~~2023, was primarily due to ~~an increase~~lower consultant realization rates in the Americas.

Operating expenses


(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		%	—		%

•The decreases in selling and marketing during the three and nine months ended September 30, 2023 were primarily due to decreases in compensation and benefits of ~~$12.7~~$18.6 million ~~respectively, driven by increased~~and $45.0 million, respectively. The decreases were due to reduced headcount ~~and equity compensation, and an increase~~as 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 expenses~~Part I, Item 1 of ~~$2.2 million.~~

this Quarterly Report.

•The increase in 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
Research and development
   $ 41,031 $ 38,036 $ 2,995    8 % $ 121,089 $ 108,530 $ 12,559    12 %
As a percent of total revenue
   23 % 21 %    20 % 20 %
Research and Development headcount, end of period
      1,474 1,437 37    3 %

~~Research~~research and development ~~expenses include compensation, benefits, contracted services, and other headcount-related expenses associated with~~for the ~~creation and development of~~nine months ended September 30, 2023 was primarily due to additional investments in our products ~~as well as enhancements~~ and ~~design~~services.

•The changes ~~to existing products~~in general and ~~integration of acquired technologies.~~

~~The increases~~administrative in the three and nine months ended September 30, ~~2017~~2023 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.

•The increases in ~~compensation~~restructuring expenses during the three and ~~benefits~~nine 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 million~~this Quarterly Report.

Other income and ~~$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
General and administrative
   $ 13,133 $ 11,725 $ 1,408    12 % $ 38,174 $ 34,067 $ 4,107    12 %
As a percent of total revenue
   7 % 6 %    6 % 6 %
General and administrative headcount, end of period
      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 *

* not meaningful

•The ~~general and administrative headcount includes employees~~changes in ~~human resources, information technology, and corporate services departments, whose costs are partially allocated to other operating expense areas.~~

~~The increases~~foreign 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
Cost of revenues
   $ 3,613 $ 3,117 $ 496 16 % $ 10,913 $ 8,711 $ 2,202 25 %
Selling and marketing
   3,976 3,468 508 15 % 11,482 9,395 2,087 22 %
Research and development
   3,420 2,260 1,160 51 % 10,306 7,480 2,826 38 %
General and administrative
   2,480 1,983 497 25 % 7,228 4,706 2,522 54 %
Acquisition-related
   —   (10 ) 10 (100 )% —   342 (342 ) (100 )%


Total stock-based compensation before tax
   $ 13,489 $ 10,818 $ 2,671 25 % $ 39,929 $ 30,634 $ 9,295 30 %


Income tax benefit
   $ (4,129 ) $ (3,227 ) $ (902 ) 28 % $ (12,231 ) $ (8,917 ) $ (3,314 ) 37 %

~~The increases~~2023 were primarily due to the ~~increased value~~impact of fluctuations in foreign currency exchange rates associated with foreign currency-denominated cash and receivables held by our ~~annual periodic equity awards granted~~subsidiary 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
Cost of revenue
   $ 1,232    $ 1,642    $ (410 ) (25 )% $ 3,871    $ 4,626    $ (755 ) (16 )%
Selling and marketing
   1,873    1,867    6 —   % 5,608    5,274    334 6 %
General and administrative
   —      90    (90 ) (100 )% —      268    (268 ) (100 )%









   $ 3,105    $ 3,599    $ (494 ) (14 )% $ 9,479    $ 10,168    $ (689 ) (7 )%

the United Kingdom.

•The ~~decreases~~increases in ~~amortization of intangibles~~interest income in the three and nine months ended September 30, ~~2017~~2023 were primarily due to ~~the amortization~~increases 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
Foreign currency transaction (loss)/gain
   $ (552 ) $ 1,082 $ (1,634 ) n/m $ (793 ) $ 2,764 $ (3,557 ) n/m
Interest income, net
   144 172 $ (28 ) (16 )% 470 650 (180 ) (28 )%
Other (expense)/income, net
   —   (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 meaningful~~

~~In 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 fluctuations~~market interest rates.

•The decreases in 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 change~~interest 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 loss~~2023 were due to our repurchases of ~~$1.2 million. The total change~~Convertible 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, ~~2017~~2023. For additional information, see "Note 8. Debt" in Part I, Item 1 of this Quarterly Report.

•The changes in (loss) on capped call transactions in the three and ~~2016 was a gain of $0.3 million and a loss of $5 million, respectively.~~

~~(Benefit)/provision~~nine 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
(Benefit)/provision for income taxes
   $ (12,885 ) $ 2,214 $ (15,099 ) n/m    $ (17,952 ) $ 6,269 $ (24,221 ) n/m
Effective income tax rate
   88 % 40 %    (96 )% 26 %

~~n/m - not meaningful~~

~~The (benefit)/provision for income taxes represents current and future amounts for federal, state, and foreign taxes.~~

our capped call transactions.

•The increase in ~~the effective~~other income ~~tax rate~~(loss), net in the three months ended September 30, ~~2017 is primarily~~2023 was due to a $6.4 million increase in the ~~significant~~value 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 ~~$3.5~~our convertible senior notes and a $10.9 million increase in ~~excess tax benefits generated by~~the value of equity securities held in our ~~stock compensation plans on significantly lower income before (benefit)/provision~~venture investments portfolio. For additional information, see “Note 8. Debt” and "Note 10. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.

Provision for income taxes ~~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) %

The ~~decrease in the~~ effective income tax rate in the nine months ended September 30, ~~2017 is~~2023 was primarily ~~due to~~driven by the ~~significant increase of $19.1 million in excess~~valuation 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 volatility~~assets in the ~~effective~~U.S. and U.K. and projected taxable income in the U.S., partially offset by available tax ~~rates of future periods as~~credits 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
Cash provided by (used in):

Operating activities
   $ 113,926    $ 20,556
Investing activities
   (11,966 )    (2,859 )
Financing activities
   (44,040 )    (43,031 )
Effect of exchange rate on cash
   2,054    (1,309 )




Net increase/(decrease) in cash and cash equivalents
   $ 59,974    $ (26,643 )




(in thousands)    September 30,
2017    December 31,
2016
Total cash, cash equivalents, and marketable securities
   $ 194,380    $ 133,761

U.S.

LIQUIDITY AND CAPITAL RESOURCES


	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

We believe that our current cash, cash ~~equivalents, marketable securities,~~flow provided by operations, borrowing capacity, and ~~cash flow from operations~~ability to engage in capital market transactions will be sufficient to fund our operations, ~~our dividend payments,~~stock repurchases, and ~~our share repurchase program~~quarterly cash dividends for at least the next 12 ~~months.~~

~~As of September 30, 2017, approximately $61.1 million of~~months and to meet our known long-term cash requirements. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and ~~cash equivalents was held in~~the investments needed to support our ~~foreign subsidiaries.~~ operations. We may utilize available funds or seek external financing if we require additional capital resources.

If it becomes necessary or desirable to repatriate ~~these~~foreign funds, we may ~~be required~~have to pay ~~U.S. tax, net of any applicable~~federal, state, and local income taxes as well as foreign ~~tax credits,~~withholding taxes upon repatriation. ~~We consider~~However, 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 required~~would have to pay ~~upon repatriation~~is impracticable due to the complexity of ~~the foreign~~income tax ~~credit calculations. There can be no assurance that changes~~laws and regulations.

Operating activities

The change in ~~our plans or other events affecting our operations will not result in materially accelerated or unexpected expenditures.~~

~~Cash~~cash provided by (used in) operating activities

~~The 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, largely~~2023 was primarily due to ~~increased~~growth 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.

Investing activities

The change in cash ~~collections and the timing of billings.~~

~~The primary driver during~~(used in) provided by investing activities in the nine months ended September 30, ~~2016~~2023 was ~~net income~~primarily due to our investments in financial instruments and reduced investment in property and equipment as we optimize our office space.

Financing activities

Debt financing

In February 2020, we issued $600 million in aggregate principal amount of ~~$18.2 million.~~

~~Future Cash Receipts from Committed License and Cloud Arrangements~~

~~As 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
Remainder of 2017
   $ 37,723    $ 13,274    $ 50,997
2018
   150,629    21,213    171,842
2019
   125,165    10,033    135,198
2020
   85,939    1,572    87,511
2021
   38,203    367    38,570
2022 and thereafter
   12,876    —      12,876






Total
   $ 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 activities~~

~~During~~March 1, 2025. In the nine months ended September 30, ~~2017,~~2023, we ~~purchased $25.7~~paid $89 million ~~of marketable debt securities and made investments of $9.1~~to repurchase $97.7 million in ~~property~~aggregate 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.

In November 2019, and ~~equipment, partially offset by proceeds received~~as 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.

Stock repurchase program

Changes in the remaining stock repurchase authority:


(in thousands)	Nine Months Ended September 30, 2023
December 31, 2022	$	58,075
Authorizations (1)	1,925

September 30, 2023	$	60,000

(1) On April 25, 2023, our Board of Directors extended the expiration date of our current share repurchase program from ~~maturities~~June 30, 2023 to June 30, 2024, and the amount of ~~marketable debt securities (including called marketable debt securities) of $23.1~~stock we are authorized to repurchase was increased to $60 million.

~~During~~

Common stock repurchases


	Nine 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

In the nine months ended September 30, ~~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 activities~~

~~We 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
Balance as of January 1,
      $ 39,385    $ 40,534
Authorizations
   —      —   —   —      —   25,879
Repurchase for net settlement of tax under stock-based compensation
   682    (34,791 ) —   414    (10,791 ) —
Repurchases paid under authorized share repurchase program
   68    (2,986 ) (2,986 ) 1,028    (25,530 ) (25,530 )
Repurchases unsettled
   —      —   —   6    (177 ) (177 )






Activity in Period
   750    $ (37,777 ) $ (2,986 ) 1,448    $ (36,498 ) $ 172




Balance as of September 30,
      $ 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.

These amounts are not included in the table above.

Dividends

   Nine Months Ended
September 30,
(per share)    2017    2016
Dividends Declared
   $ 0.09    $ 0.09
Dividends Paid
   $ 0.09    $ 0.09

~~It is our current intention~~

We intend to pay a quarterly cash dividend of $0.03 per ~~share, however,~~share. However, the Board of Directors may terminate or modify ~~this~~the dividend program without prior notice.


	Nine Months Ended September 30,
(in thousands)	2023		2022
Dividend payments to stockholders	$	7,458	$	7,368

Contractual obligations

As of September 30, 2023, our contractual obligations were:


	Payments due by period
(in thousands)	Remainder of 2023		2024		2025		2026		2027		2028 and after		Other		Total
Convertible senior notes (1)	$	—	$	3,767	$	504,154	$	—	$	—	$	—	$	—	$	507,921
Purchase obligations (2)	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
Venture investment commitments (3)	500		500		—		—		—		—		—		1,000
Liability for uncertain tax positions (4)	—		—		—		—		—		—		2,017		2,017
	$	48,766	$	156,365	$	645,089	$	131,598	$	143,868	$	39,476	$	2,017	$	1,167,179

(1) Includes principal and interest.

(2) Represents the fixed amount owed for purchase obligations of software licenses, hosting services, and sales and marketing programs.

(3) Represents the maximum funding under existing venture investment agreements. Our venture investment agreements generally allow us to withhold unpaid funds at ~~any time without notice.~~

~~ITEM 3.~~ ~~QUANTITATIVE AND QUALITATIVE DISCLOSURE~~

our discretion.

(4) We cannot reasonably estimate the timing of this cash outflow due to uncertainties in the timing of the effective settlement of tax positions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk ~~represents~~is the risk of loss ~~that may affect us due to~~from adverse changes in financial market prices and rates.

Foreign currency exposure

Translation risk

Our ~~market risk exposure is~~international operations’ operating expenses are primarily ~~related to fluctuations~~denominated in foreign ~~exchange rates.~~

Ascurrencies. However, our international sales are also primarily denominated in foreign currencies, partially offsetting our foreign currency exposure.

A hypothetical 10% strengthening in the U.S. dollar against other currencies would have resulted in the following:


	Nine Months Ended September 30,
	2023		2022
(Decrease) in revenue	(4)	%	(4)	%
(Decrease) increase in net income	(5)	%	2	%

Remeasurement risk

We incur transaction gains and losses from the remeasurement of ~~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.~~

~~Other~~monetary assets and liabilities denominated in currencies other than the ~~item discussed above, there were no significant~~functional currency of the entities in which they are recorded.

We are primarily exposed to changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated cash, cash equivalents, receivables, and intercompany balances held by our U.K. subsidiary, a British pound functional entity.

A hypothetical 10% strengthening in the British pound exchange rate in comparison to ~~our quantitative~~the Australian dollar, Euro, and ~~qualitative disclosures about market risk during~~U.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 PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of ~~Disclosure Controls~~disclosure controls and ~~Procedures~~

procedures

Our management, with the participation of our Chief Executive Officer ~~or 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.~~

2023.

(b) Changes in ~~Internal Control~~internal control over ~~Financial Reporting~~

financial reporting

There have been no changes in our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) under the ~~Securities~~ Exchange Act) during the quarter ended September 30, ~~2017~~2023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART ~~II—~~II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in “Note 15. Commitments and Contingencies”, in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.

~~ITEM 1A.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

We encourage you to carefully consider the risk factors identified in ~~Part 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 ~~could~~may 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 PROCEEDS~~

~~The following table sets forth information regarding our repurchases~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer purchases of ~~our common~~equity securities (1)

Common stock ~~during~~repurchased in the three months ended September 30, ~~2017:~~

Period
   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)
July 1, 2017 - July 31, 2017
   12    $ 58.54    —      $ 36,399
August 1, 2017 - August 31, 2017
   55    56.16    —      36,399
September 1, 2017 - September 30, 2017
   108    56.56    —      36,399



Total
   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)
Total Number
of Shares
Purchased (2)
Average Price
Paid per
Share (2)
Total Number
of Shares Purchased as Part of
Publicly Announced Share
Repurchase Program
Approximate Dollar
Value of Shares That
May Yet Be Purchased at Period
End Under Publicly Announced
Share Repurchased Programs
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 —
(1) For additional information, see "Liquidity and Capital Resources" in Part I, Item 2 of this Quarterly Report.
(2) Includes shares withheld to cover the option exercise price and tax withholding obligations for stock compensation awards subject to net settlement provisions.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 and non-rule 10b5-1 trading arrangements
During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS
Exhibit No. Description Incorporation by Reference Filed Herewith
Form Exhibit Filing Date
3.1
Restated Articles of Organization of the Registrant and Amendments thereto
10-Q 3.1 November 4, 2014
3.2
Amended and Restated Bylaws of Pegasystems Inc.
8-K 3.2 June 15, 2020
31.1
Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.
X
31.2
Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.
X
32
Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer.
+
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
+ Indicates that the exhibit is being furnished with this report and is not filed as ~~market conditions warrant, subject to regulatory and other considerations. We have established~~ a~~pre-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.~~

~~EXHIBITS~~

~~The following exhibits are filed or furnished, as the case may be, as~~ part of ~~this report.~~

~~EXHIBIT INDEX~~


~~Exhibit No.~~		~~Description~~

~~31.1~~		~~Certification pursuant to Exchange Act Rules13a-14~~ ~~and15d-14~~ ~~of the Chief Executive Officer.~~

~~31.2~~		~~Certification pursuant to Exchange Act Rules13a-14~~ ~~and15d-14~~ ~~of the Chief Financial Officer.~~

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

~~101.INS~~		~~XBRL Instance document.~~

~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document.~~

~~101.CAL~~		~~XBRL Taxonomy Calculation Linkbase Document.~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document.~~

~~101.LAB~~		~~XBRL Taxonomy Label Linkbase Document.~~

~~101.PRE~~		~~XBRL Taxonomy Presentation Linkbase Document.~~

⁺⁺	~~Management contracts and compensatory plan or arrangements~~

it.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Pegasystems Inc.

~~Date:~~Dated:

October 25, 2023

~~November 8, 2017~~By:

~~By:~~

/s/ KENNETH STILLWELL

Kenneth Stillwell

Chief ~~Financial~~Operating Officer and Chief ~~Administrative~~Financial Officer

(Principal Financial Officer)

☒
☒			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			For the quarterly period ended September 30, 2023


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


		Page
PART I—I - FINANCIAL INFORMATION

Item 1. ~~Unaudited Condensed Consolidated~~ Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2023 and December 31, ~~2016~~ 2022			2	3
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2023 and ~~2016~~ 2022			3	4
Unaudited Condensed Consolidated Statements of Comprehensive ~~Income~~(Loss) for the three and nine months ended September 30, ~~2017~~2023 and ~~2016~~ 2022			4	5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2023 and 2022	6
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2023 and ~~2016~~ 2022			5	8
Notes to Unaudited Condensed Consolidated Financial Statements			6	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			25	28
Item 4. Controls and Procedures			25

~~PART II—OTHER INFORMATION~~		29

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	30
Item 1A. Risk Factors			25	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			25	30
Item 5. Other Information	30
Item 6. Exhibits			26	30

Signature			27	31


	September 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	130,568		$	70,594
Marketable securities		63,812			63,167

Total cash, cash equivalents, and marketable securities		194,380			133,761
Trade accounts receivable, net of allowance of $6,189 and $4,126		191,161			265,028
Income taxes receivable		34,864			14,155
Other current assets		17,679			12,188

Total current assets		438,084			425,132
Property and equipment, net		39,849			38,281
Deferred income taxes		73,459			69,898
Long-term other assets		5,982			3,990
Intangible assets, net		34,755			44,191
Goodwill		72,941			73,164

Total assets	$	665,070		$	654,656

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,535		$	14,414
Accrued expenses		39,681			36,751
Accrued compensation and related expenses		53,869			60,660
Deferred revenue		160,931			175,647

Total current liabilities		267,016			287,472
Income taxes payable		4,774			4,263
Long-term deferred revenue		6,130			10,989
Other long-term liabilities		15,449			16,043

Total liabilities		293,369			318,767

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		778			766
Additionalpaid-in capital		146,728			143,903
Retained earnings		227,953			198,315
Accumulated other comprehensive loss		(3,758	)		(7,095	)

Total stockholders’ equity		371,701			335,889

Total liabilities and stockholders’ equity	$	665,070		$	654,656

☐
☐			Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
	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	—		—
Common stock, 200,000 shares authorized; 83,523 and 82,436 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue:
Software license	$	41,793		$	68,833		$	195,220		$	207,849
Maintenance		62,204			55,038			180,759			163,174
Services		75,818			58,931			225,063			179,633

Total revenue		179,815			182,802			601,042			550,656

Cost of revenue:
Software license		1,276			1,313			3,826			3,646
Maintenance		6,716			6,659			20,945			18,889
Services		61,739			52,465			180,925			154,512

Total cost of revenue		69,731			60,437			205,696			177,047

Gross profit		110,084			122,365			395,346			373,609

Operating expenses:
Selling and marketing		70,209			67,032			217,384			202,126
Research and development		41,031			38,036			121,089			108,530
General and administrative		13,133			11,725			38,174			34,067
Acquisition-related		—			74			—			2,903

Total operating expenses		124,373			116,867			376,647			347,626

(Loss)/income from operations		(14,289	)		5,498			18,699			25,983
Foreign currency transaction (loss)/gain		(552	)		1,082			(793	)		2,764
Interest income, net		144			172			470			650
Other income/(expense), net		—			(1,237	)		287			(4,891	)

(Loss)/income before (benefit)/provision for income taxes		(14,697	)		5,515			18,663			24,506
(Benefit)/provision for income taxes		(12,885	)		2,214			(17,952	)		6,269

Net (loss)/income	$	(1,812	)	$	3,301		$	36,615		$	18,237

(Loss)/earnings per share:
Basic		(0.03	)		0.04			0.47			0.24
Diluted		(0.03	)		0.04			0.44			0.23
Weighted-average number of common shares outstanding:
Basic		77,691			76,278			77,258			76,323
Diluted		77,691			79,548			82,717			79,401
Cash dividends declared per share	$	0.03		$	0.03		$	0.09		$	0.09


PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except per share amounts)
	Common Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive (Loss)		Total Stockholders’ Equity
	Number of Shares	Amount
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


(in thousands)	Amortized Cost		Unrealized Gains			Unrealized Losses			Fair Value
September 30, 2017
Municipal bonds	$	32,764	$	12	��	$	(17	)	$	32,759
Corporate bonds		31,079		12			(38	)		31,053

	$	63,843	$	24		$	(55	)	$	63,812

December 31, 2016
Municipal bonds	$	36,746	$	—		$	(139	)	$	36,607
Corporate bonds		26,610		1			(51	)		26,560

	$	63,356	$	1		$	(190	)	$	63,167


	December 31, 2016
(in thousands)	Recorded In:		Fair Value
Asset Derivatives
Foreign currency forward contracts		Other current assets	$	628
Liability Derivatives
Foreign currency forward contracts		Accrued expenses	$	883


(in thousands)
Euro	€	21,810
British pound	£	5,919
Australian dollar	A$	19,515
United States dollar	$	59,450


(in thousands)
Balance as of January 1,	$	73,164
Purchase price adjustments to goodwill		(354	)
Currency translation adjustments		131

Balance as of September 30,	$	72,941


(in thousands)	Range of Remaining Useful Lives		Cost		Accumulated Amortization			Net Book Value
September 30, 2017
Customer related intangibles		4-10 years	$	63,158	$	(43,205	)	$	19,953
Technology		7-10 years		58,942		(44,140	)		14,802
Other intangibles		—		5,361		(5,361	)		—

			$	127,461	$	(92,706	)	$	34,755

December 31, 2016
Customer related intangibles		4-10 years	$	63,091	$	(37,573	)	$	25,518
Technology		3-10 years		58,942		(40,269	)		18,673
Other intangibles		—		5,361		(5,361	)		—

			$	127,394	$	(83,203	)	$	44,191


(in thousands)
Remainder of 2017	$	2,846
2018		11,347
2019		5,555
2020		2,659
2021		2,637
2022 and thereafter		9,711

	$	34,755


	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands, except per share amounts)	2017			2016		2017		2016
Basic
Net (loss)/income	$	(1,812	)	$	3,301	$	36,615	$	18,237

Weighted-average common shares outstanding		77,691			76,278		77,258		76,323

(Loss)/earnings per share, basic	$	(0.03	)	$	0.04	$	0.47	$	0.24

Diluted
Net (loss)/income	$	(1,812	)	$	3,301	$	36,615	$	18,237

Weighted-average effect of dilutive securities:
Stock options		—			1,933		3,519		1,851
RSUs		—			1,337		1,940		1,227

Effect of assumed exercise of stock options and RSUs		—			3,270		5,459		3,078

Weighted-average common shares outstanding, assuming dilution		77,691			79,548		82,717		79,401

(Loss)/earnings per share, diluted	$	(0.03	)	$	0.04	$	0.44	$	0.23

Outstanding stock options and RSUs excluded as impact would be anti-dilutive		7,232			296		219		368


	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in thousands)	2017				2016				2017				2016
U.S.	$	95,087	53	%	$	111,274	61	%	$	351,330	59	%	$	308,049	56	%
Other Americas		8,722	5	%		7,952	4	%		30,243	5	%		49,494	9	%
U.K.		18,485	10	%		21,490	12	%		68,003	11	%		77,181	14	%
Other EMEA⁽¹⁾		28,100	16	%		23,656	13	%		76,958	13	%		67,314	12	%
Asia Pacific		29,421	16	%		18,430	10	%		74,508	12	%		48,618	9	%

	$	179,815	100	%	$	182,802	100	%	$	601,042	100	%	$	550,656	100	%


	Three Months Ended September 30,													Nine Months Ended September 30,
(Dollars in thousands)	2017				2016				Change					2017				2016				Change
Consulting services	$	61,535	81	%	$	46,829	80	%	$	14,706		31	%	$	183,447	82	%	$	144,263	80	%	$	39,184		27	%
Cloud		13,354	18	%		10,873	18	%		2,481		23	%		36,914	16	%		30,640	17	%		6,274		20	%
Training		929	1	%		1,229	2	%		(300	)	(24	)%		4,702	2	%		4,730	3	%		(28	)	(1	)%

Total services	$	75,818	100	%	$	58,931	100	%	$	16,887		29	%	$	225,063	100	%	$	179,633	100	%	$	45,430		25	%


	September 30, 2017
(in thousands)	Term and cloud contracts		Perpetual contracts ⁽¹⁾		Total
Remainder of 2017	$	37,723	$	13,274	$	50,997
2018		150,629		21,213		171,842
2019		125,165		10,033		135,198
2020		85,939		1,572		87,511
2021		38,203		367		38,570
2022 and thereafter		12,876		—		12,876

Total	$	450,535	$	46,459	$	496,994


	Nine Months Ended September 30,
(per share)	2017		2016
Dividends Declared	$	0.09	$	0.09
Dividends Paid	$	0.09	$	0.09


Period	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)
July 1, 2017 - July 31, 2017		12	$	58.54		—	$	36,399
August 1, 2017 - August 31, 2017		55		56.16		—		36,399
September 1, 2017 - September 30, 2017		108		56.56		—		36,399

Total		175	$	56.57

Massachusetts

04-2787865

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

~~One Rogers Street, Cambridge, MA~~

~~02142-1209~~

~~(Address of principal executive offices)~~

~~(Zip Code)~~