# EDGAR Filing Document

**Accession Number:** 0001013857
**File Stem:** 0001013857-23-000021
**Filing Date:** 2023-2
**Character Count:** 40208
**Document Hash:** ff789dac72233a1cdcbfd8ec679f9790
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001013857-23-000021.hdr.sgml**: 20230215

**ACCESSION NUMBER**: 0001013857-23-000021

**CONFORMED SUBMISSION TYPE**: 8-K

**PUBLIC DOCUMENT COUNT**: 16

**CONFORMED PERIOD OF REPORT**: 20230215

**ITEM INFORMATION**: Results of Operations and Financial Condition

**ITEM INFORMATION**: Financial Statements and Exhibits

**FILED AS OF DATE**: 20230215

**DATE AS OF CHANGE**: 20230215

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** PEGASYSTEMS INC
- **CENTRAL INDEX KEY:** 0001013857
- **STANDARD INDUSTRIAL CLASSIFICATION:** SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374]
- **IRS NUMBER:** 042787865
- **STATE OF INCORPORATION:** MA
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 8-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-11859
- **FILM NUMBER:** 23635506

**BUSINESS ADDRESS:**
- **STREET 1:** ONE MAIN STREET
- **CITY:** CAMBRIDGE
- **STATE:** MA
- **ZIP:** 02142-1531
- **BUSINESS PHONE:** 6173749600

**MAIL ADDRESS:**
- **STREET 1:** ONE MAIN STREET
- **CITY:** CAMBRIDGE
- **STATE:** MA
- **ZIP:** 02142-1531

?xml version="1.0" ? pega-20230215

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549** 

**_________________________________**

 **FORM 8-K** 

**_________________________________**

**Current Report**

**Pursuant to Section 13 or 15(d) of the**

**Securities Exchange Act of 1934**

**Date of Report (Date of earliest event reported): February 15, 2023**

**____________________**

**PEGASYSTEMS INC.**

*(Exact name of Registrant as specified in its charter)*

**_________________________________**

---

| | | |
|:---|:---|:---|
| **Massachusetts** | **1-11859** | **04-2787865** |
| *(State or other jurisdiction of incorporation)* | *(Commission File Number)* | *(IRS Employer Identification No.)* |

---

**One Main Street, Cambridge, MA 02142** 

*(Address of principal executive offices, including zip code)*

**(617) 374-9600** 

*(Registrant's telephone number, including area code)*

**Not Applicable**

*(Former name or former address, if changed since last report)*

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

---

| | | |
|:---|:---|:---|
| **<u>Title of each class</u>** | **<u>Trading symbol(s)</u>** | **<u>Name of each exchange on which registered</u>** |
| **Common Stock, $.01 par value per share** | **PEGA** | **NASDAQ Global Select Market** |

---

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

------

**ITEM 2.02&nbsp;&nbsp;&nbsp;&nbsp;RESULTS OF OPERATIONS AND FINANCIAL CONDITION**

On February 15, 2023, Pegasystems Inc. issued a press release announcing its financial results for the fourth quarter and full-year 2022. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.

The information in this Item 2.02 and the Exhibits attached hereto shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

**ITEM 9.01&nbsp;&nbsp;&nbsp;&nbsp;FINANCIAL STATEMENTS AND EXHIBITS**

---

| | |
|:---|:---|
| **Exhibit No.** | **Description** |
| 99.1 | <u>[Press release issued by Pegasystems Inc.](q42022_ex-991.htm)</u> |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL) |

---

------

**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.** | **Pegasystems Inc.** |
| Dated: | February 15, 2023 | By: | /s/ KENNETH STILLWELL |
|  |  |  | **Kenneth Stillwell** |
|  |  |  | **Chief Operating Officer and Chief Financial Officer** |
|  |  |  | **(Principal Financial Officer)** |

---

## Exhibit 99.1

**EXHIBIT 99.1**

![q42019pegalogoa.jpg](q42019pegalogoa.jpg)

**Q4 2022 Results Highlight Improving Profitability** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***• Annual contract value (ACV) grows 16% year over year (constant currency)***

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***• Pega Cloud gross margin reaches 70%***

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***• 2023 free cash flow expected to increase to $150 million***

**CAMBRIDGE, Mass. — February 15, 2023** — Pegasystems Inc., the low-code platform provider empowering the world's leading enterprises to *Build for Change*<sup>®</sup>, released its financial results for the fourth quarter and full-year 2022.

"I'm pleased with our strong finish to 2022 and proud of our resilient team who performed so well in a year that included a number of major distractions and economic headwinds," said Alan Trefler, Pega founder and CEO. "We have a tremendous opportunity in front of us as we move into 2023. We're building a client-first business for the long-term, focused on a balance of growth and profitability."

"Surpassing $1 billion in subscription revenue is a significant milestone in our multi-year journey to transform our business," said Ken Stillwell, Pega COO and CFO. "As we complete the subscription transition in 2023, we're focused on our Rule of 40 progress, which will lead to significantly improved operating leverage and cash generation."

**Financial and performance metrics** <sup>(1)</sup>

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| *(Dollars in thousands,*<br>*except per share amounts)* | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** |  | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** |  |
| *(Dollars in thousands,*<br>*except per share amounts)* | **2022** | **2021** | **Change** | **2022** | **2021** | **Change** |
| **Total revenue** | $**396470** | $**316184** | **25%** | $**1317845** | $**1211653** | **9%** |
| **Net income (loss) - GAAP** | $**34613** | $**(37246)** | **\*** | $**(345582)** | $**(63040)** | **(448)%** |
| Net income - non-GAAP | $68341 | $3051 | 2140% | $59611 | $18812 | 217% |
| **Diluted earnings (loss) per share - GAAP** | $**0.41** | $**(0.46)** | **\*** | $**(4.22)** | $**(0.77)** | **(448)%** |
| Diluted earnings per share - non-GAAP | $0.82 | $0.04 | 1950% | $0.72 | $0.22 | 227% |

---

\* not meaningful

---

| | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| *(Dollars in thousands)* | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Change** | **Change** | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** | **Change** | **Change** |
| *(Dollars in thousands)* | **2022** | **2022** | **2021** | **2021** | **Change** | **Change** | **2022** | **2022** | **2021** | **2021** | **Change** | **Change** |
| Pega Cloud | $103089 | 26% | $81446 | 26% | $21643 | 27% | $384271 | 29% | $300966 | 25% | $83305 | 28% |
| Maintenance | 81996 | 21% | 82726 | 26% | (730) | (1)% | 317564 | 24% | 320257 | 26% | (2693) | (1)% |
| &nbsp;&nbsp;&nbsp;Subscription services | 185085 | 47% | 164172 | 52% | 20913 | 13% | 701835 | 53% | 621223 | 51% | 80612 | 13% |
| &nbsp;&nbsp;&nbsp;Subscription license | 155818 | 39% | 85022 | 27% | 70796 | 83% | 366063 | 28% | 336248 | 28% | 29815 | 9% |
| &nbsp;&nbsp;&nbsp;&nbsp;Subscription | 340903 | 86% | 249194 | 79% | 91709 | 37% | 1067898 | 81% | 957471 | 79% | 110427 | 12% |
| Perpetual license | 364 | —% | 11250 | 4% | (10886) | (97)% | 19293 | 1% | 32172 | 3% | (12879) | (40)% |
| Consulting | 55203 | 14% | 55740 | 17% | (537) | (1)% | 230654 | 18% | 222010 | 18% | 8644 | 4% |
|  | $396470 | 100% | $316184 | 100% | $80286 | 25% | $1317845 | 100% | $1211653 | 100% | $106192 | 9% |

---

&nbsp;&nbsp;&nbsp;&nbsp;<sup>(1)</sup> See the <u>[Schedules](#i1a694e4622f14ceeb77e2a43ab587d62_22)</u> at the end of this release for additional information, including a reconciliation of our non-GAAP and GAAP measures.

------

**EXHIBIT 99.1**

(continued)

![chart-25bb8c60adab4c978e6a.jpg](chart-25bb8c60adab4c978e6a.jpg)

![chart-2c49ec8a0c7e464498da.jpg](chart-2c49ec8a0c7e464498da.jpg)

Note: Constant currency measures are calculated by applying foreign exchange rates for the earliest period shown to all periods. The above constant currency measures reflect foreign exchange rates applicable as of Q4 2021.

------

**EXHIBIT 99.1**

(continued)

**2023 Guidance** <sup>(1)</sup>

As of February 15, 2023, we are providing the following guidance:

---

| | |
|:---|:---|
| | **Year Ended December 31, 2023** |
| Annual contract value growth | 11% - 13% |

---

---

| | | |
|:---|:---|:---|
| | **Year Ended December 31, 2023** | **Year Ended December 31, 2023** |
| *(in millions, except per share amounts)* | **GAAP** | **Non-GAAP** <sup>(1)</sup> |
| Revenue | $1400 | $1400 |
| Diluted earnings per share | $0.02 | $1.50 |

---

---

| | |
|:---|:---|
| *(in millions)* | **Year Ended December 31, 2023** |
| Cash provided by operating activities | $139 |
| Free cash flow | $150 |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) A reconciliation of our GAAP and Non-GAAP guidance is contained in the financial schedules at the end of this release.

**Quarterly conference call** 

A conference call and audio-only webcast will be conducted at 5:00 p.m. EST on Wednesday, February 15, 2023. Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-888-394-8218 (domestic), 1-323-994-2093 (international), or via webcast (https://viavid.webcasts.com/starthere.jsp?ei=1593309&tp_key=815b2c6ffa) by logging onto www.pega.com at least five minutes prior to the event's broadcast and clicking on the webcast icon in the Investors section.

**Discussion of non-GAAP financial measures**

We believe that non-GAAP financial 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. The supplementary non-GAAP financial measures are not meant to be superior to or a substitute for financial measures prepared under U.S. GAAP.

Reconciliations of our non-GAAP and GAAP measures are at the end of this release.

**Forward-looking statements**

Certain statements in this press release may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995.

Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, projects, forecasts, guidance, likely, and usually, or variations of such words and other similar expressions identify forward-looking statements, which 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 not limited to:

• our future financial performance and business plans;

• the adequacy of our liquidity and capital resources;

• the continued payment of our quarterly dividends;

• the timing of revenue recognition;

• management of our transition to 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 war in Ukraine;

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

• compliance with our debt obligations and covenants;

• the potential impact of our convertible senior notes and Capped Call Transactions;

• foreign currency exchange rates;

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

• security breaches and security flaws;

------

**EXHIBIT 99.1**

(continued)

• 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 our growth.

These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2022, and other filings we make with the U.S. Securities and Exchange Commission ("SEC").

Except as required by applicable law, we do not undertake and expressly disclaim any obligation to update or revise these forward-looking statements publicly, whether due to new information, future events, or otherwise.

The forward-looking statements in this press release represent our views as of February 15, 2023.

------

**EXHIBIT 99.1**

(continued)

**About Pegasystems**

Pega provides a powerful low-code platform that empowers the world's leading enterprises to *Build for Change*®. Clients use our AI-powered decisioning and workflow automation to solve their most pressing business challenges - from personalizing engagement to automating service to streamlining operations. Since 1983, we've built our scalable and flexible architecture to help enterprises meet today's customer demands while continuously transforming for tomorrow. For more information on Pegasystems (NASDAQ: PEGA), visit www.pega.com.

**Press contact:**

Lisa Pintchman

VP, Corporate Communications

lisapintchman.rogers@pega.com

617-866-6022

Twitter: @pega

**Investor contact:**

Peter Welburn

VP, Corporate Development & Investor Relations

PegaInvestorRelations@pega.com

617-498-8968

*All trademarks are the property of their respective owners.*

------

**EXHIBIT 99.1**

(continued)

**PEGASYSTEMS INC.**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except per share amounts)**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** |
|  | **2022** | **2021** | **2022** | **2021** |
| **Revenue** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Subscription services | $185085 | $164172 | $701835 | $621223 |
| &nbsp;&nbsp;&nbsp;Subscription license | 155818 | 85022 | 366063 | 336248 |
| &nbsp;&nbsp;&nbsp;Perpetual license | 364 | 11250 | 19293 | 32172 |
| &nbsp;&nbsp;&nbsp;Consulting | 55203 | 55740 | 230654 | 222010 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total revenue | 396470 | 316184 | 1317845 | 1211653 |
| **Cost of revenue** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Subscription services | 35632 | 32240 | 138736 | 120446 |
| &nbsp;&nbsp;&nbsp;Subscription license | 719 | 579 | 2642 | 2389 |
| &nbsp;&nbsp;&nbsp;Perpetual license | 2 | 77 | 175 | 229 |
| &nbsp;&nbsp;&nbsp;Consulting | 55920 | 52267 | 227082 | 213299 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total cost of revenue | 92273 | 85163 | 368635 | 336363 |
| Gross profit | 304197 | 231021 | 949210 | 875290 |
| **Operating expenses** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Selling and marketing | 151838 | 168245 | 624789 | 625886 |
| &nbsp;&nbsp;&nbsp;Research and development | 73176 | 69065 | 294349 | 260630 |
| &nbsp;&nbsp;&nbsp;General and administrative | 23204 | 25899 | 117734 | 83506 |
| &nbsp;&nbsp;&nbsp;Restructuring | 21743 |  | 21743 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 269961 | 263209 | 1058615 | 970022 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income (loss) from operations | 34236 | (32188) | (109405) | (94732) |
| Foreign currency transaction (loss) gain | (3855) | (1476) | 4560 | (6459) |
| Interest income | 607 | 149 | 1643 | 704 |
| Interest expense | (1910) | (2209) | (7792) | (7956) |
| (Loss) on capped call transactions | (1001) | (16090) | (57382) | (23633) |
| Other income (loss), net | 82 | (19) | 6579 | 89 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income (loss) before (benefit from) provision for income taxes | 28159 | (51833) | (161797) | (131987) |
| (Benefit from) provision for income taxes | (6454) | (14587) | 183785 | (68947) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) | $34613 | $(37246) | $(345582) | $(63040) |
| **Earnings (loss) per share** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $0.42 | $(0.46) | $(4.22) | $(0.77) |
| &nbsp;&nbsp;&nbsp;Diluted | $0.41 | $(0.46) | $(4.22) | $(0.77) |
| **Weighted-average number of common shares outstanding** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | 82257 | 81692 | 81947 | 81387 |
| &nbsp;&nbsp;&nbsp;Diluted | 87339 | 81692 | 81947 | 81387 |

---

------

**EXHIBIT 99.1**

(continued)

**PEGASYSTEMS INC.**

**UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS**

**(in thousands)**

---

| | | |
|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2021** |
| **Assets** | | |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $145054 | $159965 |
| &nbsp;&nbsp;&nbsp;Marketable securities | 152167 | 202814 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total cash, cash equivalents, and marketable securities | 297221 | 362779 |
| &nbsp;&nbsp;&nbsp;Accounts receivable | 255150 | 182717 |
| &nbsp;&nbsp;&nbsp;Unbilled receivables | 213719 | 226714 |
| &nbsp;&nbsp;&nbsp;Other current assets | 80388 | 68008 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 846478 | 840218 |
| Unbilled receivables | 95806 | 129789 |
| Goodwill | 81399 | 81923 |
| Other long-term assets | 333989 | 541601 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $1357672 | $1593531 |
| **Liabilities and stockholders' equity** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $18195 | $15281 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 50355 | 63890 |
| &nbsp;&nbsp;&nbsp;Accrued compensation and related expenses | 127728 | 120946 |
| &nbsp;&nbsp;&nbsp;Deferred revenue | 325212 | 275844 |
| &nbsp;&nbsp;&nbsp;Other current liabilities | 17450 | 9443 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 538940 | 485404 |
| Convertible senior notes, net | 593609 | 590722 |
| Operating lease liabilities | 79152 | 87818 |
| Other long-term liabilities | 15128 | 13499 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 1226829 | 1177443 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 130843 | 416088 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity | $1357672 | $1593531 |

---

**PEGASYSTEMS INC.**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands)**

---

| | | |
|:---|:---|:---|
| | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** |
| | **2022** | **2021** |
| Net (loss) | $(345582) | $(63040) |
| Adjustments to reconcile net (loss) to cash provided by operating activities |  |  |
| &nbsp;&nbsp;&nbsp;Non-cash items | 432270 | 161690 |
| &nbsp;&nbsp;&nbsp;Change in operating assets and liabilities, net | (64352) | (59532) |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash provided by operating activities | 22336 | 39118 |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash provided by investing activities | 13075 | 72503 |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash (used in) financing activities | (46989) | (121843) |
| Effect of exchange rate changes on cash and cash equivalents | (3333) | (1712) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net (decrease) in cash and cash equivalents | (14911) | (11934) |
| Cash and cash equivalents, beginning of period | 159965 | 171899 |
| Cash and cash equivalents, end of period | $145054 | $159965 |

---

------

**EXHIBIT 99.1**

(continued)

**PEGASYSTEMS INC.**

**RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES**

**(in thousands, except percentages and per share amounts)**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** |
| | **2022** | **2021** | **Change** | **2022** | **2021** | **Change** |
| **Net income (loss) - GAAP** | $**34613** | $**(37246)** | \* | $**(345582)** | $**(63040)** | (448)% |
| &nbsp;&nbsp;Stock-based compensation <sup>(1)</sup> | 28909 | 26463 |  | 122210 | 115947 |  |
| &nbsp;&nbsp;&nbsp;Capped call transactions | 1001 | 16090 |  | 57382 | 23633 |  |
| &nbsp;&nbsp;&nbsp;Legal fees | 2139 | 9782 |  | 34559 | 18198 |  |
| &nbsp;&nbsp;&nbsp;Restructuring | 21743 |  |  | 21743 |  |  |
| &nbsp;&nbsp;&nbsp;Interest on convertible senior notes | 725 | 952 |  | 2888 | 2977 |  |
| &nbsp;&nbsp;&nbsp;Facilities |  |  |  |  | (15111) |  |
| &nbsp;&nbsp;&nbsp;Amortization of intangible assets | 1048 | 982 |  | 4093 | 3987 |  |
| &nbsp;&nbsp;&nbsp;Foreign currency transaction loss (gain) | 3855 | 1476 |  | (4560) | 6459 |  |
| &nbsp;&nbsp;&nbsp;Other | 37 |  |  | (94) | 15 |  |
| &nbsp;&nbsp;Income tax effects <sup>(2)</sup> | (25729) | (15448) |  | 166972 | (74253) |  |
| Net income - non-GAAP | $68341 | $3051 | 2140% | $59611 | $18812 | 217% |
| **Diluted earnings (loss) per share - GAAP** | $**0.41** | $**(0.46)** | \* | $**(4.22)** | $**(0.77)** | (448)% |
| &nbsp;&nbsp;&nbsp;&nbsp;non-GAAP adjustments | 0.41 | 0.50 |  | 4.94 | 0.99 |  |
| Diluted earnings per share - non-GAAP | $0.82 | $0.04 | 1950% | $0.72 | $0.22 | 227% |
| **Diluted weighted-average number of common shares outstanding - GAAP** | **87339** | **81692** | 7% | **81947** | **81387** | 1% |
| &nbsp;&nbsp;&nbsp;Capped call transactions | (4443) |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Stock-based compensation |  | 3795 |  | 1405 | 4487 |  |
| Diluted weighted-average number of common shares outstanding - non-GAAP | 82896 | 85487 | (3)% | 83352 | 85874 | (3)% |

---

\* not meaningful

Our non-GAAP financial measures reflect the following adjustments:

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Stock-based compensation</u>: We have excluded stock-based compensation from our non-GAAP operating expenses and profitability measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to our revenues recognized during the periods presented and is expected to contribute to our future revenues, we continue to evaluate our business performance, excluding stock-based compensation.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Capped call transactions</u>: We have excluded gains and losses related to our capped call transactions held at fair value under U.S. GAAP. The capped call transactions are expected to reduce common stock dilution and/or offset any potential cash payments we must make, other than for principal and interest, upon conversion of the Notes. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operating performance.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Legal Fees</u>: Includes legal and related fees arising from proceedings outside of the ordinary course of business. We believe excluding these expenses from our non-GAAP financial measures is useful to investors as the disputes giving rise to them are not representative of our core business operations and ongoing operating performance.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Restructuring</u>: During the fourth quarter of 2022, management committed to a restructuring plan aligned with our target organization go-to-market strategy and commitment to be a Rule of 40 managed company. The plan resulted in a restructuring expense of $21.7 million in 2022, primarily associated with severance and benefits for impacted employees and expenses incurred as a result of the closure of our Salem, New Hampshire office. We believe excluding the impact from our non-GAAP financial measures is useful to investors as these amounts are not representative of our core business operations and ongoing operating performance.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Interest on convertible senior notes</u>: In February 2020, we issued convertible senior notes with an aggregate principal amount of $600 million, due March 1, 2025, in a private placement. We believe excluding the amortization of issuance costs provides a useful comparison of our operational performance in different periods.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Facilities</u>: In February 2021, we agreed to accelerate our exit from our then Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from our landlord of $18 million, which was received in October 2021. We believe excluding the impact from our non-GAAP financial measures is useful to investors as the modified lease, including the $18 million payment, is not representative of our core business operations and ongoing operating performance.

------

**EXHIBIT 99.1**

(continued)

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Amortization of intangible assets</u>: We have excluded the amortization of intangible assets from our non-GAAP operating expenses and profitability measures. Amortization of intangible assets fluctuates in amount and frequency and is significantly affected by the timing and size of acquisitions. Investors should note that intangible assets contributed to our revenues recognized during the periods presented and are expected to contribute to future revenues. Amortization of intangible assets is likely to recur in future periods. We believe excluding these amounts provides a useful comparison of our operational performance in different periods.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Foreign currency transaction loss (gain)</u>: We have excluded foreign currency transaction gains and losses from our non-GAAP profitability measures. Foreign currency transaction gains and losses fluctuate in amount and frequency and are significantly affected by foreign exchange market rates. Foreign currency transaction gains and losses are likely to recur in future periods. We believe excluding these amounts provides a useful comparison of our operational performance in different periods.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Other</u>: We have excluded gains and losses from our venture investments, capital advisory expenses, and expenses incurred due to the cancellation of in-person sales and marketing events. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operating performance.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Diluted weighted-average number of common shares outstanding</u>:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• <u>Stock-based compensation</u>: In periods of non-GAAP income, we've included the dilutive impact of stock-based compensation in our non-GAAP weighted-average shares. In periods of GAAP loss, these shares would have been excluded from our GAAP results as they would be anti-dilutive for GAAP. We believe including the dilutive effect of stock-based compensation in our non-GAAP financial measures in periods of income is helpful to investors as this provides a useful comparison of our operational performance in different periods.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• <u>Capped call transactions</u>: In periods of GAAP income, the approximately 4.4 million shares which would be issued if the Company's Convertible Senior Notes were fully converted to common shares are included in the diluted weighted-average shares 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 Convertible Senior Notes, with such reduction and/or offset subject to a cap of $196.44. We believe that including the expected impact of the Capped Call Transactions in our non-GAAP financial measures provides a useful comparison of our operational performance in different periods.

&nbsp;&nbsp;&nbsp;&nbsp;(1) Stock-based compensation:

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Three Months Ended<br>December 31,** | **Three Months Ended<br>December 31,** | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** |
| *(in thousands)* | **2022** | **2021** | **2022** | **2021** |
| Cost of revenue | $6646 | $4933 | $26400 | $21822 |
| Selling and marketing | 10245 | 12337 | 46769 | 54182 |
| Research and development | 6841 | 6070 | 29266 | 25413 |
| General and administrative | 5177 | 3123 | 19775 | 14530 |
|  | $28909 | $26463 | $122210 | $115947 |
| Income tax benefit | $(376) | $(5382) | $(1881) | $(23410) |

---

&nbsp;&nbsp;&nbsp;&nbsp;(2) Effective income tax rates:

---

| | | |
|:---|:---|:---|
| | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** |
| | **2022** | **2021** |
| GAAP | 114% | (52)% |
| non-GAAP | 22% | 22% |

---

Our GAAP effective income tax rate is subject to significant fluctuations due to several factors, including excess tax benefits generated by our stock-based compensation plans, gains and losses on our capped call transactions, tax credits for stock-based compensation awards to research and development employees, and unfavorable foreign stock-based compensation adjustments. We determine our non-GAAP income tax rate using applicable rates in taxing jurisdictions and assessing certain factors, including our historical and forecasted earnings by jurisdiction, discrete items, and our ability to realize tax assets. Under GAAP, we recorded a valuation allowance on our deferred tax assets of $192 million in the three months ended June 30, 2022. See "Note 18. Income Taxes" in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information. We believe it is beneficial for our management to review our non-GAAP results consistent with our annual plan's effective income tax rate as established at the beginning of each year, given tax rate volatility.

------

**EXHIBIT 99.1**

(continued)

**PEGASYSTEMS INC.**

**RECONCILIATION OF FREE CASH FLOW**

**(in thousands, except percentages)**

---

| | | | |
|:---|:---|:---|:---|
| *(in thousands, except percentages)* | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** |
| *(in thousands, except percentages)* | **2022** | **2021** | **Change** |
| **Cash provided by operating activities** | $**22336** | $**39118** | **(43)%** |
| Investment in property and equipment | (35379) | (10456) |  |
| Legal fees | 41789 | 11390 |  |
| Interest on convertible senior notes | 4500 | 4500 |  |
| Facilities |  | (18000) |  |
| Other | 6805 | 115 |  |
| &nbsp;&nbsp;&nbsp;Free cash flow | $40051 | $26667 | 50% |
| Total Revenue | $1317845 | $1211653 |  |
| &nbsp;&nbsp;&nbsp;Free cash flow margin | 3% | 2% |  |

---

Our non-GAAP free cash flow measures reflect the following adjustments:

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Investment in property and equipment</u>: Investment in property and equipment fluctuates in amount and frequency and is significantly affected by the timing and size of investments in our facilities. We believe excluding these amounts provides a useful comparison of our operational performance in different periods.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Legal Fees</u>: Includes legal and related fees arising from proceedings outside of the ordinary course of business. We believe excluding these expenses from our non-GAAP financial measures is useful to investors as the disputes giving rise to them are not representative of our core business operations and ongoing operating performance.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Interest on convertible senior notes</u>: In February 2020, we issued convertible senior notes with an aggregate principal amount of $600 million, due March 1, 2025, in a private placement. We believe excluding the interest payments provides a useful comparison of our operational performance in different periods.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Facilities</u>: In February 2021, we agreed to accelerate our exit from our then Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from our landlord of $18 million, which was received in October 2021. We believe excluding the impact from our non-GAAP financial measures is useful to investors as the modified lease, including the $18 million payment, is not representative of our core business operations and ongoing operating performance.

&nbsp;&nbsp;&nbsp;&nbsp;• <u>Other</u>: We have excluded capital advisory fees and fees incurred due to the cancellation of in-person sales and marketing events. We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operating performance.

**PEGASYSTEMS INC.**

**ANNUAL CONTRACT VALUE**

**(in thousands, except percentages)**

**Annual contract value ("ACV")** - ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV for subscription license and Pega Cloud contracts. Maintenance revenue for the quarter then ended is multiplied by four to calculate ACV for maintenance. ACV is a performance measure that we believe provides useful information to our management and investors, particularly during our subscription transition.

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **December 31, 2022** | **December 31, 2021** | **Change** | **Change** |
| Pega Cloud | $454567 | $363970 | $90597 | 25% |
| Maintenance | 327983 | 330904 | (2921) | (1)% |
| &nbsp;&nbsp;&nbsp;&nbsp;Subscription services | 782550 | 694874 | 87676 | 13% |
| &nbsp;&nbsp;&nbsp;&nbsp;Subscription license | 345942 | 307750 | 38192 | 12% |
|  | $1128492 | $1002624 | $125868 | 13% |

---

------

**EXHIBIT 99.1**

(continued)

**PEGASYSTEMS INC.**

**BACKLOG**

**(in thousands, except percentages)**

**Remaining performance obligations ("Backlog")** - Expected future revenue from existing non-cancellable contracts:

As of December 31, 2022:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Subscription services** | **Subscription services** | **Subscription license** | **Perpetual license** | **Consulting** | **Total** | **Total** |
| | **Maintenance** | **Pega Cloud** | **Subscription license** | **Perpetual license** | **Consulting** | **Total** | **Total** |
| 1 year or less | $242073 | $379648 | $60668 | $5310 | $32374 | $720073 | 53% |
| 1-2 years | 66207 | 246195 | 3803 | 2253 | 6371 | 324829 | 24% |
| 2-3 years | 26746 | 143901 | 1707 |  | 1647 | 174001 | 13% |
| Greater than 3 years | 15602 | 115944 | 5283 |  |  | 136829 | 10% |
|  | $350628 | $885688 | $71461 | $7563 | $40392 | $1355732 | 100% |
| % of Total | 26% | 65% | 5% | 1% | 3% | 100% |  |
| <u>Change since December 31, 2021</u> | <u>Change since December 31, 2021</u> |  |  |  |  |  |  |
|  | $(16380) | $154125 | $(100694) | $(10146) | $(16067) | $10838 |  |
|  | (4)% | 21% | (58)% | (57)% | (28)% | 1% |  |

---

As of December 31, 2021:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Subscription services** | **Subscription services** | **Subscription license** | **Perpetual license** | **Consulting** | **Total** | **Total** |
| | **Maintenance** | **Pega Cloud** | **Subscription license** | **Perpetual license** | **Consulting** | **Total** | **Total** |
| 1 year or less | $234917 | $330426 | $153467 | $10952 | $41411 | $771173 | 58% |
| 1-2 years | 65502 | 220231 | 14968 | 4505 | 8917 | 314123 | 23% |
| 2-3 years | 38432 | 124969 | 1955 | 2252 | 5512 | 173120 | 13% |
| Greater than 3 years | 28157 | 55937 | 1765 |  | 619 | 86478 | 6% |
|  | $367008 | $731563 | $172155 | $17709 | $56459 | $1344894 | 100% |
| % of Total | 28% | 54% | 13% | 1% | 4% | 100% |  |

---

**PEGASYSTEMS INC.**

**RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG**

**(in millions, except percentages)**

---

| | | |
|:---|:---|:---|
| *(in millions, except percentages)* | **Q4 2022** | **1 Year Growth Rate** |
| **Backlog - GAAP** | $**1356** | **1%** |
| &nbsp;&nbsp;&nbsp;Impact of changes in foreign exchange rates | 39 | 3% |
| Backlog - Constant Currency | $1395 | 4% |

---

Note: Constant currency Backlog is calculated by applying foreign exchange rates for the earliest period shown to all periods. The above constant currency measures reflect foreign exchange rates applicable as of Q4 2021.

------

**EXHIBIT 99.1**

(continued)

**PEGASYSTEMS INC.**

**RECONCILIATION OF FORWARD-LOOKING GUIDANCE**

**(in millions, except percentages and per share amounts)**

---

| | |
|:---|:---|
| | **Year Ended December 31, 2023** |
| **Annual contract value growth** | **11% - 13%** |
| **Revenue (GAAP and Non-GAAP)** | $**1400** |
| **Net Income - GAAP** | $**2** |
| &nbsp;&nbsp;&nbsp;Stock-based compensation | 148 |
| &nbsp;&nbsp;&nbsp;Legal fees | 5 |
| &nbsp;&nbsp;&nbsp;Interest on convertible senior notes | 3 |
| &nbsp;&nbsp;&nbsp;Amortization of intangible assets | 4 |
| &nbsp;&nbsp;&nbsp;Income tax effects | (35) |
| Net Income - Non-GAAP | $127 |
| **Diluted earnings per share - GAAP** | $**0.02** |
| &nbsp;&nbsp;&nbsp;Non-GAAP adjustments | 1.48 |
| Diluted earnings per share - non-GAAP | $1.50 |
| **Diluted weighted-average number of common shares outstanding - GAAP** | **83.0** |
| &nbsp;&nbsp;&nbsp;Non-GAAP adjustments | 1.4 |
| Diluted weighted-average number of common shares outstanding - non-GAAP | 84.4 |

---

---

| | |
|:---|:---|
| | **Year Ended December 31, 2023** |
| **Cash provided by operating activities** | $**139** |
| Investment in property and equipment | (18) |
| Legal fees | 5 |
| Restructuring | 19 |
| Interest on convertible senior notes | 5 |
| &nbsp;&nbsp;&nbsp;Free cash flow | $150 |
| Total Revenue | $1400 |
| &nbsp;&nbsp;&nbsp;Free cash flow margin | 11% |

---