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Pegasystems Announces Record Revenue for Fourth Quarter and Fiscal Year 2012

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CAMBRIDGE, MA -- (Marketwire) -- 02/20/13 -- Pegasystems Inc. (NASDAQ: PEGA), the leader in Business Process Management (BPM) and a leading provider of Customer Relationship Management (CRM) solutions, today announced financial results for the fourth quarter and year ended December 31, 2012. Revenue for the fourth quarter of 2012 increased 25% compared to the fourth quarter of 2011. Net income for the fourth quarter of 2012 was $20.4 million, or $0.53 per diluted share, compared to net loss of $1.9 million, or $(0.05) per diluted share, for the fourth quarter of 2011. Revenue for 2012 increased 11% to $461.7 million compared to 2011. Net income for 2012 was $21.9 million, or $0.56 per diluted share, compared to net income of $10.1 million, or $0.26 per diluted share for 2011.

SELECTED FINANCIAL RESULTS Three Months Ended Year Ended December 31, December 31,($ in '000s) 2012 2011 2012 2011 ---------- --------- ---------- ----------Total revenue $ 143,830 $ 115,294 $ 461,710 $ 416,675Income from operations $ 27,790 $ 3,704 $ 31,426 $ 10,494Net income (loss) $ 20,409 $ (1,855) $ 21,868 $ 10,108Net earnings (loss) per share, basic $ 0.54 $ (0.05) $ 0.58 $ 0.27Net earnings (loss) per share, diluted $ 0.53 $ (0.05) $ 0.56 $ 0.26

Business Perspective

"We had an extraordinary finish to the year as clients turned to our Build for Change® technology to improve customer experience and drive operational efficiency," said Alan Trefler, Founder and CEO of Pegasystems. "Our uniquely unified BPM and CRM offering continued to resonate globally as we achieved record bookings in the fourth quarter from both new and existing clients who deepened and broadened their commitments to Pega. We gained important new name customers in the public sector, as well as two of the world's top five global insurance companies. In addition to the 18% license revenue growth for 2012, our deepening relationships with customers added over $45 million to our license backlog. We continue to see buyers using Pega to more effectively future-proof their existing systems and ERP investments, leveraging Pega to dramatically increase business agility as well as fuel rapid and continuous innovation."

"We anticipate our growth momentum to continue as we move into 2013, with forecasted annual revenues targeting $510 million and forecasted net income of approximately $33.2 million or $0.83 per diluted share on a GAAP basis, or $48.1 million or $1.20 per diluted share on a Non-GAAP basis. Similar to years past, we expect 2013 will be back-end loaded, and therefore revenue for the first half of 2013 is anticipated to be about 45% of annual guidance," concluded Mr. Trefler.

Mr. Trefler will host a conference call and live Webcast associated with this announcement at 6:00 p.m. EST on February 20, 2013. Dial-in information is as follows: 1 (877) 348-9349 (domestic) or 1 (678) 809-1046 (international). To listen to the Webcast log onto at least 5 minutes prior to the event's broadcast and click on the Webcast icon in the Investors section. A replay of the call will also be available on in the Investors section Audio Archives link.

Discussion of Non-GAAP Measures

To supplement financial results presented in accordance with Generally Accepted Accounting Principles in the U.S., ("GAAP"), the Company provides Non-GAAP measures, including in this release. Pegasystems' management utilizes a number of different financial measures, both GAAP and Non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. The Company's annual financial plan is prepared both on a GAAP and Non-GAAP basis, and both are approved by our board of directors. In addition and as a consequence of the importance of these measures in managing the business, the Company uses Non-GAAP measures and financial performance results in the evaluation process to establish management's compensation.

The Non-GAAP measures exclude amortization of intangible assets, stock-based compensation and relocation expenses associated with the move of our office headquarters. The Company believes that these Non-GAAP measures are helpful in understanding our past financial performance and our anticipated future results. These Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. A reconciliation of the Company's GAAP to Non-GAAP measures is included in the financial schedules at the end of this release.

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 those relating to our future financial performance, including our revenue and net income. The words "anticipate," "project," "expect," "plan," "intend," "believe," "estimate," "should", "target," "forecast," "could," "preliminary," "guidance" 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, among others, variation in demand for our products and services and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition, the ongoing uncertainty and volatility in the global financial markets related to the European sovereign debt crisis, the ongoing consolidation in the financial services and healthcare markets, reliance on third party relationships, the potential loss of vendor specific objective evidence for our professional services, and management of the Company's growth. 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 Annual Report on Form 10-K for the year ended December 31, 2012 and other recent filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company's views as of February 20, 2013. 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 February 20, 2013.

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About Pegasystems
Pegasystems revolutionizes how leading organizations optimize customer experience and automate operations. Our patented Build for Change® technology empowers business people to create and evolve their critical business systems. Pegasystems is the recognized leader in business process management and is also ranked as a leader in customer relationship management software by leading industry analysts. For more information, please visit us at

All trademarks are the property of their respective owners.

The information contained in this press release is not a commitment, promise, or legal obligation to deliver any material, code or functionality. The development, release and timing of any features or functionality described remains at the sole discretion of Pegasystems. Pegasystems specifically disclaims any liability with respect to this information.

Pegasystems Inc. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) Three Months Ended Year Ended December 31, December 31, 2012 2011 2012 2011 --------- --------- --------- ---------Revenue:Software license $ 68,389 $ 45,354 $ 163,906 $ 138,807Maintenance 35,870 31,397 133,527 117,110Professional services 39,571 38,543 164,277 160,758 --------- --------- --------- --------- Total revenue 143,830 115,294 461,710 416,675 --------- --------- --------- ---------Cost of revenue:Cost of software license 1,576 1,751 6,339 6,693Cost of maintenance 3,715 3,463 14,787 13,077Cost of professional services 32,903 37,360 136,254 145,028 --------- --------- --------- --------- Total cost of revenue (1) 38,194 42,574 157,380 164,798 --------- --------- --------- ---------Gross profit 105,636 72,720 304,330 251,877 --------- --------- --------- ---------Operating expenses:Selling and marketing 50,787 43,750 167,263 147,457Research and development 19,315 18,261 76,726 65,308General and administrative 7,744 7,005 28,915 28,198Acquisition-related costs -- -- -- 482Restructuring costs -- -- -- (62) --------- --------- --------- --------- Total operating expenses (1) 77,846 69,016 272,904 241,383 --------- --------- --------- ---------Income from operations 27,790 3,704 31,426 10,494Foreign currency transaction gain (loss) 443 (1,075) 780 (935)Interest income, net 101 119 419 398Other (expense) income, net (184) 491 (1,680) 856 --------- --------- --------- ---------Income before provision for income taxes 28,150 3,239 30,945 10,813Provision for income taxes 7,741 5,094 9,077 705 --------- --------- --------- --------- Net income (loss) $ 20,409 $ (1,855) $ 21,868 $ 10,108 ========= ========= ========= =========Earnings (loss) per share:Basic $ 0.54 $ (0.05) $ 0.58 $ 0.27 ========= ========= ========= =========Diluted $ 0.53 $ (0.05) $ 0.56 $ 0.26 ========= ========= ========= =========Weighted-average number of common shares outstanding:Basic 37,900 37,681 37,853 37,496Diluted 38,732 37,681 38,859 39,404Dividends per share $ 0.03 $ 0.03 $ 0.12 $ 0.12 ========= ========= ========= =========(1) Includes stock-based compensation as follows:Cost of revenue 945 728 3,655 2,737Operating expenses 1,939 1,578 7,851 6,291 PEGASYSTEMS INC. RECONCILIATION OF SELECTED GAAP TO NON-GAAP MEASURES (1) ($ in thousands, except per share data) Three Months Ended Year Ended December 31, 2012 December 31, 2012 --------------------- ---------------------Net Income and Diluted EPS - GAAP basis $ 20,409 $ 0.53 $ 21,868 $ 0.56Adjustment to exclude amortization of intangible assets, net of tax 1,842 0.04 7,376 0.19Adjustment to exclude stock- based compensation, net of tax 1,912 0.05 7,621 0.20Adjustment to exclude expenses for relocation of headquarters, net of tax 1,036 0.03 5,646 0.14 ---------- ---------- ---------- ----------Net Income and Diluted EPS - Non-GAAP basis $ 25,199 $ 0.65 $ 42,511 $ 1.09 ========== ========== ========== ==========Weighted-average common shares - diluted GAAP and Non-GAAP 38,732 38,859 PEGASYSTEMS INC. FOOTNOTES FOR RECONCILIATON OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(1) This presentation includes Non-GAAP measures. Our Non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures see disclosure under Discussion of Non-GAAP Measures included earlier in this release and below. Our Non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Amortization of intangible assets: We have excluded the amortization expense of intangible assets from our Non-GAAP operating expenses and net earnings measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Stock-based compensation expenses: We have excluded stock-based compensation expense from our Non-GAAP operating expenses and net earnings measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and that it will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expense.

Headquarters relocation expenses: We completed the move of our office headquarters in the third quarter of 2012 and ceased use of the former space in the fourth quarter of 2012. As a result of this planned move, we accelerated the depreciation on certain leasehold improvements and furniture and fixtures to be abandoned from our prior headquarters. We recorded duplicate rent and rent-related expenses, incremental depreciation, equipment and moving expenses of $1.6 million and $8.5 million associated with the move of our office headquarters during the fourth quarter and fiscal year 2012, respectively. We believe these incremental and duplicate expenses as a result of our moving our headquarters are not representative of our ongoing business.

PEGASYSTEMS INC. Condensed Consolidated Balance Sheets (In thousands) As of As of ------------- ------------- December 31, December 31, 2012 2011 ------------- ------------- ASSETSCurrent assets: Cash and cash equivalents $ 77,525 $ 60,353 Marketable securities 45,460 51,079 ------------- ------------- Total cash, cash equivalents, and marketable securities 122,985 111,432 Trade accounts receivable, net of allowance 134,066 98,293 Deferred income taxes 10,202 9,826 Income taxes receivable 6,261 7,545 Other current assets 5,496 4,865 ------------- ------------- Total current assets 279,010 231,961Property and equipment, net 30,827 14,458Long-term deferred income taxes 49,292 43,286Long-term other assets 1,680 2,186Intangible assets, net 58,232 69,369Goodwill 20,451 20,451 ------------- ------------- Total assets $ 439,492 $ 381,711 ============= ============= LIABILITIES AND STOCKHOLDERS'EQUITYCurrent liabilities: Accounts payable $ 3,330 10,899 Accrued expenses 15,534 18,336 Accrued compensation and related expenses 40,715 39,170 Deferred revenue 95,546 73,840 ------------- ------------- Total current liabilities 155,125 142,245Income taxes payable 13,551 9,547Long-term deferred revenue 18,719 15,367Other long-term liabilities 15,618 5,796 ------------- ------------- Total liabilities 203,013 172,955Stockholders' equity: 236,479 208,756 ------------- ------------- Total liabilities and stockholders' equity $ 439,492 $ 381,711 ============= ============= PEGASYSTEMS INC. Condensed Consolidated Statements of Cash Flows Year Ended December 31, 2012 2011 ------------ ------------ (in thousands)Operating activities: Net income $ 21,868 $ 10,108 Adjustments to reconcile net income to cash provided by operating activities: Excess tax benefit from equity awards and deferred income taxes (12,195) (21,927) Depreciation, amortization, and other non- cash items 24,228 21,037 Stock-based compensation expense 11,506 9,028 Change in operating assets and liabilities, and other, net (1,828) 21,569 ------------ ------------ Cash provided by operating activities 43,579 39,815 ------------ ------------ Cash used in investing activities (19,238) (45,388) ------------ ------------ Cash used in financing activities (8,091) (6,312) ------------ ------------Effect of exchange rate changes on cash and cash equivalents 922 1,111 ------------ ------------Net increase (decrease) in cash and cash equivalents 17,172 (10,774)Cash and cash equivalents, beginning of period 60,353 71,127 ------------ ------------Cash and cash equivalents, end of period $ 77,525 $ 60,353 ============ ============ FY 2013 Reconciliation of Forward-Looking Guidance Fiscal Year 2013 --------------------------- ($ in 000's, except per share amounts)Net Income and Diluted EPS - GAAP basis $ 33,200 $ 0.83Adjustment to exclude stock-based compensation, net of tax 8,750 0.22Adjustment to exclude amortization of intangible assets, net of tax 6,100 0.15 ------------- -------------Net Income and Diluted EPS - Non-GAAP basis $ 48,050 $ 1.20 ============= =============

Press Contacts:
Brian Callahan
Pegasystems Inc.
(617) 866-6364

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