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Pegasystems Announces Financial Results for First Quarter of 2013

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CAMBRIDGE, MA -- (Marketwired) -- 05/06/13 -- 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 first quarter of 2013. Revenue for the first quarter of 2013 increased 5% compared to the first quarter of 2012. Net income for the first quarter of 2013 was $9.1 million, or $0.23 per diluted share, compared to net income of $4.1 million, or $0.10 per diluted share, for the first quarter of 2012.

SELECTED FINANCIAL RESULTS Three Months Ended March 31,($ in '000s) 2013 2012 Increase --------- --------- ---------------Total revenue $ 116,246 $ 111,167 $ 5,079 5%Income from operations $ 12,951 $ 5,919 $ 7,032 119%Net income $ 9,069 $ 4,057 $ 5,012 124%Net earnings per share, basic $ 0.24 $ 0.11 $ 0.13 118%Net earnings per share, diluted $ 0.23 $ 0.10 $ 0.13 130%

Business Perspective

"Despite the global economy, in Q1 Pegasystems delivered strong increases in license revenue and earnings," said Alan Trefler, Founder and CEO of Pegasystems. "Organizations are faced with a difficult set of challenges as they must simultaneously improve customer experience across channels, increase operational effectiveness, and execute in an environment of continuous change. They know they need innovative, enterprise software to accomplish this, and are increasingly turning to Pegasystems' technology as the solution. Our continued ability to show significant business returns for our clients is a competitive strength, and our financial results are a reflection of this."

"I would like to invite our investors, customers, partners and prospects to come to PegaWORLD 2013 in Orlando, June 9-11, and see firsthand the great clients who have found a better way to solve the tough challenges of the early 21st century," concluded Mr. Trefler.

Pegasystems will host a conference call and live Webcast associated with this announcement at 6:00 p.m. EDT on May 6, 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 and stock-based compensation. 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. 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 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 May 6, 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 May 6, 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. Unaudited Condensed Consolidated Statements of Operations (In thousands, except per share amounts) Three Months Ended March 31, 2013 2012 ------------ ------------Revenue:Software license $ 43,209 $ 35,943Maintenance 36,322 30,845Professional services 36,715 44,379 ------------ ------------ Total revenue 116,246 111,167 ------------ ------------Cost of revenue:Cost of software license 1,583 1,599Cost of maintenance 3,735 3,609Cost of professional services 32,335 36,326 ------------ ------------ Total cost of revenue (1) 37,653 41,534 ------------ ------------Gross profit 78,593 69,633 ------------ ------------Operating expenses:Selling and marketing 39,270 38,395Research and development 19,576 19,004General and administrative 6,796 6,315 ------------ ------------ Total operating expenses (1) 65,642 63,714 ------------ ------------Income from operations 12,951 5,919Foreign currency transaction (loss) gain (1,890) 740Interest income, net 118 111Other income (expense), net 839 (839) ------------ ------------Income before provision for income taxes 12,018 5,931Provision for income taxes 2,949 1,874 ------------ ------------ Net income $ 9,069 $ 4,057 ============ ============Earnings per share:Basic $ 0.24 $ 0.11 ============ ============Diluted $ 0.23 $ 0.10 ============ ============Weighted-average number of common shares outstanding:Basic 37,947 37,756Diluted 38,788 38,889Dividends per share $ 0.03 $ 0.03 ============ ============(1) Includes stock-based compensation as follows:Cost of revenue 1,173 977Operating expenses 2,259 1,875 PEGASYSTEMS INC. RECONCILIATION OF SELECTED GAAP TO NON-GAAP MEASURES (1) ($ in thousands, except per share data) Three Months Ended March 31, 2013 ---------------------------Net Income and Diluted EPS - GAAP basis $ 9,069 $ 0.23Adjustment to exclude amortization of intangible assets, net of tax 1,710 0.04Adjustment to exclude stock-based compensation, net of tax 2,114 0.06 ------------- -------------Net Income and Diluted EPS - Non-GAAP basis $ 12,893 $ 0.33 ============= =============Weighted-average common shares - diluted GAAP and Non-GAAP 38,788 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.

PEGASYSTEMS INC. Unaudited Condensed Consolidated Balance Sheets (In thousands) As of As of ------------- ------------- March 31, December 31, 2013 2012 ------------- ------------- ASSETSCurrent assets: Cash and cash equivalents $ 123,731 $ 77,525 Marketable securities 57,124 45,460 ------------- ------------- Total cash, cash equivalents, and marketable securities 180,855 122,985 Trade accounts receivable, net of allowance 70,513 134,066 Deferred income taxes 10,252 10,202 Income taxes receivable 4,774 6,261 Other current assets 5,735 5,496 ------------- ------------- Total current assets 272,129 279,010Property and equipment, net 29,747 30,827Long-term deferred income taxes 49,163 49,292Long-term other assets 1,618 1,680Intangible assets, net 55,455 58,232Goodwill 20,451 20,451 ------------- ------------- Total assets $ 428,563 $ 439,492 ============= ============= LIABILITIES AND STOCKHOLDERS'EQUITYCurrent liabilities: Accounts payable $ 2,233 3,330 Accrued expenses 15,267 15,534 Accrued compensation and related expenses 18,848 40,715 Deferred revenue 104,608 95,546 ------------- ------------- Total current liabilities 140,956 155,125Income taxes payable 13,707 13,551Long-term deferred revenue 16,029 18,719Other long-term liabilities 16,482 15,618 ------------- ------------- Total liabilities 187,174 203,013Stockholders' equity: 241,389 236,479 ------------- ------------- Total liabilities and stockholders' equity $ 428,563 $ 439,492 ============= ============= PEGASYSTEMS INC. Unaudited Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2013 2012 ------------ ------------ (in thousands)Operating activities: Net income $ 9,069 $ 4,057 Adjustments to reconcile net income to cash provided by (used in) operating activities: Excess tax benefit from equity awards and deferred income taxes (669) (1,408) Depreciation, amortization, and other non-cash items 6,187 6,794 Stock-based compensation expense 3,432 2,852 Change in operating assets and liabilities, and other, net 48,027 (30,069) ------------ ------------ Cash provided by (used in) operating activities 66,046 (17,774) ------------ ------------ Cash used in investing activities (13,224) (7,966) ------------ ------------ Cash used in financing activities (4,127) (2,103) ------------ ------------Effect of exchange rate changes on cash and cash equivalents (2,489) 963 ------------ ------------Net increase (decrease) in cash and cash equivalents 46,206 (26,880)Cash and cash equivalents, beginning of period 77,525 60,353 ------------ ------------Cash and cash equivalents, end of period $ 123,731 $ 33,473 ============ ============

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

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