Pegasystems (PEGA) 8-K Financial statements and exhibits

Exhibit 99.1

PEGASYSTEMS INC.	101 Main Street,
	Cambridge, MA. 02142-1590. USA.

[PEGASYSTEMS LOGO APPEARS HERE]

FOR IMMEDIATE RELEASE

For information, contact: Chris Sullivan Chief Financial Officer Pegasystems Inc. (617) 374-9600, ext. 6020 chris.sullivan@pega.com Beth Lewis Director, Investor Relations Pegasystems Inc. (617) 374-9600, ext. 6077 beth.lewis@pega.com

Pegasystems Reports Second Quarter Revenue of $24 Million,

Continued Success with PegaRULES Process Commander

New clients include chip manufacturer and medical equipment provider

CAMBRIDGE, Mass., July 28, 2004– Pegasystems today announced its 2004 second quarter results, reporting revenue of $24 million, pre-tax profits of $3.3 million, earnings per diluted share of $0.06 and positive cash flow from operations of $2.4 million.

Second Quarter Financial Performance

	Quarter
(In millions, except per share data and percentages)	Q2 2004			Q1 2004			Q2 2003
Total Revenue	$	24.0		$	24.7		$	25.5
License Revenue	$	11.7		$	9.7		$	15.9
% of Total Revenue		49	%		39	%		63	%
Services Revenue	$	12.4		$	15.0		$	9.6
% of Total Revenue		51	%		61	%		37	%
Pre-tax Income	$	3.3		$	2.7		$	5.9
Provision for income taxes	$	1.2		$	0.9		$	2.0
Net Income	$	2.1		$	1.7		$	3.9
Basic Earnings Per Share	$	0.06		$	0.05		$	0.11
Diluted Earnings Per Share	$	0.06		$	0.05		$	0.11

Henry Ancona, President and Chief Operating Officer commented, “While the second quarter 2004 total revenue is down 6 percent year-over-year, excluding the $3.5 million anticipated reduction in revenue associated with the restructured First Data Resource agreement, total revenue increased versus the same quarter last year.Service revenue grew 29% year-over-year

based on growth in both consulting and maintenance revenues. We continue to see acceptance of our comprehensive business process management (BPM) software, PegaRULES Process Commander, with penetration into new markets during the second quarter including sales to a major chip manufacturer and a medical equipment provider. Perpetual and subscription license revenue grew $1.5 million, or 33%, from the prior year. As anticipated, fewer scheduled term license renewals in the second quarter of 2004, in conjunction with a larger than usual extension in the second quarter of 2003, resulted in a year-over-year decrease in term license revenue from $11.3 million to $5.6 million.

“During the quarter, the majority of our license signings were for PegaRULES Process Commander. License signings included three new names and two existing customers who expanded their Pegasystems relationships to encompass new uses of our technology. New customers include a semiconductor manufacturer who will use PegaRULES Process Commander in support of a fully automated factory systems environment. PegaRULES Process Commander was also purchased by a medical equipment provider in support of product and service delivery to 400,000 patients. As noted previously, the time from license sale to revenue recognition for our PegaRULES Process Commander platform is proving to be shorter than the cycle that has been typical for our other applications.

Ancona continued, “During the quarter, the majority of the sales were partner-assisted, including deals with IBM, Accenture, Cognizant and Satyam. Importantly, as our partners continue to build their BPM practices, we have expanded our alliance initiatives and as of June 30, 2004 we have trained more PRPC designers and implementers than all of last year.”

Chris Sullivan, CFO, commented, “This was a quarter of solid performance as we continue to see acceptance of our market-leading technology. The software industry as a whole has seen lengthening negotiations and delays in customer signings and we are not immune to these trends. As a result, we now expect 2004 revenue to be in the range of $95 to $106 million, with pre-tax income from $12 to $18 million, and cash flow from operations in the range of $10 to $16 million.”

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Founder and CEO Alan Trefler commented, “Through the first half of the year we have now sold our sophisticated business process management system to users ranging from one of the largest defense contractors to a mid-sized medical equipment and services provider. Customers are buying our product for uses ranging from compliance to marketing to global tax analysis. Buyers increasingly understand the importance of managing complex, changing business processes through the power of rules and are increasingly looking at Pegasystems for our PegaRULES-based BPM capabilities.”

The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Thursday, July 29, 2004. Dial-in information is as follows: 800-250-4434 (domestic) or 706-634-0667 (international). A replay of the teleconference will be available through August 5 at 800-642-1687 (domestic) or 706-645-9291 (international), passcode 8765629.

If interested in listening to the Webcast, log ontowww.pega.com at least 5 minutes prior to the event’s broadcast, and click on the Webcast icon in the Investor Relations section.

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About Pegasystems

Pegasystems Inc. (Nasdaq: PEGA) provides rules-based, smart business process management (BPM) software to large organizations, helping to deliver significant ROI and providing them with the flexibility and agility to respond to changing business needs. The company offers applications for the financial services, healthcare, insurance and government markets, as well as a cross-industry BPM application. Pegasystems is headquartered in Cambridge, Mass., and has regional offices in North America, Europe and the Pacific Rim. For more information, visitwww.pega.com.

Forward-Looking Statements

Certain statements contained in this press release may be construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 including without limitation our financial guidance with respect to 2004 revenue, pre-tax income and cash flow from operations. The words “believe,” “expect,” “hope,” “anticipate,” “plan” and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause the Company’s actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include volatility of our quarterly operating results, difficulty in predicting the completion of product implementations and consequently the timing of our license revenue recognition, our ability to develop new products and evolve existing ones, the impact on our business of the ongoing consolidation in the financial services and healthcare markets, historically our core markets, our ability to attract and retain key employees, reliance on certain key third-party relationships, and other risks and uncertainties. Further information regarding these and other factors which could cause the Company’s actual results to differ materially from any forward-looking statements contained in this press release is contained in the Company’s most recent report on form 10-Q or 10-K and other recent filings on file with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company’s views as of July 28, 2004. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause the Company’s view to change, the Company does not undertake and specifically disclaims any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise. The statements should therefore not be relied upon as representing the Company’s view as of any date subsequent to July 28, 2004.

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PEGASYSTEMS INC.

Condensed Consolidated Balance Sheets

(in thousands, except share-related amounts)

	June 30, 2004			December 31, 2003
Assets
Current assets:
Cash and equivalents	$	49,957		$	67,989
Short-term investments		45,263			19,946
Total cash and short-term investments		95,220			87,935
Trade accounts receivable, net of allowance for doubtful accounts of $365 in 2004 and 2003		9,937			9,602
Short-term license installments		33,128			28,565
Prepaid expenses and other current assets		1,221			727
Total current assets		139,506			126,829
Long-term license installments, net of unearned interest income		44,733			53,666
Equipment, furniture and improvements, net of accumulated depreciation and amortization		1,208			992
Acquired technology, net of accumulated amortization		554			729
Other assets		144			166
Goodwill		2,346			2,346
Total assets	$	188,491		$	184,728
Liabilities and Stockholders’ Equity
Current liabilities:
Accrued payroll related expenses	$	5,285		$	8,886
Accounts payable and accrued expenses		8,087			7,784
Deferred revenue		13,224			14,180
Total current liabilities		26,596			30,850
Deferred income taxes		1,875			625
Other long-term liabilities		81			81
Total liabilities		28,552			31,556
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.01 par value, 70,000,000 shares authorized; 35,759,283 shares and 35,212,505 shares issued and outstanding in 2004 and 2003, respectively		358			352
Additional paid-in capital		120,791			117,391
Stock warrants		211			374
Retained earnings		37,599			33,735
Accumulated other comprehensive income (loss):
Net unrealized loss on short-term investments		(183	)		(9	)
Foreign currency translation adjustments		1,163			1,329
Total stockholders’ equity		159,939			153,172
Total liabilities and stockholders’ equity	$	188,491		$	184,728

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PEGASYSTEMS INC.

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004			2003
Revenue:
Software license	$	11,677		$	15,937	$	21,340		$	32,134
Services		12,363			9,550		27,357			18,977
Total revenue		24,040			25,487		48,697			51,111
Cost of revenue:
Cost of software license		87			88		175			175
Cost of services		6,028			6,525		12,680			12,921
Total cost of revenue		6,115			6,613		12,855			13,096
Gross profit		17,925			18,874		35,842			38,015
Operating expenses:
Research and development		4,826			5,438		10,311			10,198
Selling and marketing		7,838			6,379		15,656			11,912
General and administrative		2,754			2,879		5,689			5,389
Total operating expenses		15,418			14,696		31,656			27,499
Income from operations		2,507			4,178		4,186			10,516
Installment receivable interest income		680			1,350		1,387			2,550
Other interest income, net		466			130		769			335
Other (expense) income, net		(371	)		260		(378	)		221
Income before provision for income taxes		3,282			5,918		5,964			13,622
Provision for income taxes		1,160			2,000		2,100			2,900
Net income	$	2,122		$	3,918	$	3,864		$	10,722
Earnings per share:
Basic	$	0.06		$	0.11	$	0.11		$	0.31
Diluted	$	0.06		$	0.11	$	0.10		$	0.30
Weighted average number of common and common equivalent shares outstanding:
Basic		35,648			34,337		35,521			34,345
Diluted		37,055			35,516		37,095			35,261

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PEGASYSTEMS INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

	Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net income	$	3,864		$	10,722
Adjustments to reconcile net income to net cash provided by operating activities:
Stock option income tax benefits		634			252
Deferred income taxes		1,250			1,100
Depreciation and amortization		687			860
Reduction in provision for doubtful accounts receivable		—			(90	)
Changes in operating assets and liabilities:
Trade accounts receivable and license installments		3,915			(9,222	)
Prepaid expenses and other current assets		(396	)		258
Accounts payable and accrued expenses		(3,258	)		1,537
Deferred revenue		(956	)		5,222
Net cash provided by operating activities		5,740			10,639
Cash flows from investing activities:
Purchase of investments		(36,698	)		(3,620	)
Maturing and called investments		9,350			4,799
Sale of investments		1,749			—
Purchase of equipment, furniture and improvements		(617	)		(84	)
Other long-term assets and liabilities		17			(20	)
Net cash (used in) provided by investing activities		(26,199	)		1,075
Cash flows from financing activities:
Proceeds from sale of stock under Employee Stock Purchase Plan		329			253
Exercise of stock options		2,280			419
Net cash provided by financing activities		2,609			672
Effect of exchange rate on cash and equivalents		(182	)		346
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS		(18,032	)		12,732
CASH AND EQUIVALENTS, BEGINNING OF PERIOD		67,989			57,393
CASH AND EQUIVALENTS, END OF PERIOD	$	49,957		$	70,125

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