10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

_____________________________________

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

For the quarterly period ended March 31, 2021

OR

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

Commission File Number: 1-11859 

____________________________

PEGASYSTEMS INC.

(Exact name of Registrant as specified in its charter) 

____________________________

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, including zip code)

(617) 374-9600

(Registrant’s telephone number, including area code)

____________________________

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No ¨            

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ 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. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 81,281,726 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on April 19, 2021.

PEGASYSTEMS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	3
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020	4
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) for the three months ended March 31, 2021 and 2020	5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020	6
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020	7
Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	25
PART II - OTHER INFORMATION
Item 1A. Risk Factors	26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6. Exhibits	26
Signature	27

2

PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	172,708	$	171,899
Marketable securities	269,650		293,269
Total cash, cash equivalents, and marketable securities	442,358		465,168
Accounts receivable	159,324		215,827
Unbilled receivables	228,603		207,155
Other current assets	91,868		88,760
Total current assets	922,153		976,910
Unbilled receivables	108,048		113,278
Goodwill	82,037		79,231
Other long-term assets	416,265		434,843
Total assets	$	1,528,503	$	1,604,262
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	24,426	$	24,028
Accrued expenses	59,765		59,261
Accrued compensation and related expenses	59,490		123,012
Deferred revenue	244,170		232,865
Other current liabilities	16,599		20,969
Total current liabilities	404,450		460,135
Convertible senior notes, net	588,418		518,203
Operating lease liabilities	36,471		59,053
Other long-term liabilities	20,239		24,699
Total liabilities	1,049,578		1,062,090
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued	—		—
Common stock, 200,000 shares authorized; 81,246 and 80,890 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	812		809
Additional paid-in capital	140,558		204,432
Retained earnings	340,223		339,879
Accumulated other comprehensive (loss)	(2,668)		(2,948)
Total stockholders’ equity	478,925		542,172
Total liabilities and stockholders’ equity	$	1,528,503	$	1,604,262

See notes to unaudited condensed consolidated financial statements.

3

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
	Three Months Ended March 31,
	2021		2020
Revenue
Software license	$	116,961	$	93,916
Maintenance	75,561		73,695
Pega Cloud	67,858		43,466
Consulting	53,119		54,514
Total revenue	313,499		265,591
Cost of revenue
Software license	650		684
Maintenance	5,786		5,576
Pega Cloud	22,557		17,533
Consulting	53,454		55,735
Total cost of revenue	82,447		79,528
Gross profit	231,052		186,063
Operating expenses
Selling and marketing	148,739		136,024
Research and development	62,442		58,727
General and administrative	18,270		15,630
Total operating expenses	229,451		210,381
Income (loss) from operations	1,601		(24,318)
Foreign currency transaction (loss)	(5,098)		(5,947)
Interest income	153		607
Interest expense	(1,880)		(2,306)
(Loss) on capped call transactions	(19,117)		(18,592)
Other income, net	106		1,374
(Loss) before (benefit from) income taxes	(24,235)		(49,182)
(Benefit from) income taxes	(17,618)		(23,810)
Net (loss)	$	(6,617)	$	(25,372)
(Loss) per share
Basic	$	(0.08)	$	(0.32)
Diluted	$	(0.08)	$	(0.32)
Weighted-average number of common shares outstanding
Basic	81,004		79,808
Diluted	81,004		79,808

See notes to unaudited condensed consolidated financial statements.

4

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) (in thousands)
	Three Months Ended March 31,
	2021		2020
Net (loss)	$	(6,617)	$	(25,372)
Other comprehensive income (loss), net of tax
Unrealized gain on available-for-sale securities	1,010		100
Foreign currency translation adjustments	(730)		(514)
Total other comprehensive income (loss), net of tax	280		(414)
Comprehensive (loss)	$	(6,337)	$	(25,786)

See notes to unaudited condensed consolidated financial statements.

5

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except per share amounts)
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Total Stockholders’ Equity
	Number of Shares	Amount
December 31, 2019	79,599	$	796	$	140,523	$	410,919	$	(13,228)	$	539,010
Equity component of convertible senior notes, net	—	—		61,604		—		—		61,604
Repurchase of common stock	(87)	(1)		(5,999)		—		—		(6,000)
Issuance of common stock for stock compensation plans	564	6		(23,017)		—		—		(23,011)
Stock-based compensation	—	—		23,199		—		—		23,199
Cash dividends declared ($0.03 per share)	—	—		—		(2,405)		—		(2,405)
Other comprehensive (loss)	—	—		—		—		(414)		(414)
Net (loss)	—	—		—		(25,372)		—		(25,372)
March 31, 2020	80,076	$	801	$	196,310	$	383,142	$	(13,642)	$	566,611
December 31, 2020	80,890	$	809	$	204,432	$	339,879	$	(2,948)	$	542,172
Cumulative-effect adjustment from adoption of ASU 2020-06, net	—	—		(61,604)		9,399		—		(52,205)
Repurchase of common stock	(70)	(1)		(9,145)		—		—		(9,146)
Issuance of common stock for stock compensation plans	402	4		(25,513)		—		—		(25,509)
Issuance of common stock under the employee stock purchase plan	24	—		2,288		—		—		2,288
Stock-based compensation	—	—		30,100		—		—		30,100
Cash dividends declared ($0.03 per share)	—	—		—		(2,438)		—		(2,438)
Other comprehensive income	—	—		—		—		280		280
Net (loss)	—	—		—		(6,617)		—		(6,617)
March 31, 2021	81,246	$	812	$	140,558	$	340,223	$	(2,668)	$	478,925

See notes to unaudited condensed consolidated financial statements.

6

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
	Three Months Ended March 31,
	2021		2020
Operating activities
Net (loss)	$	(6,617)	$	(25,372)
Adjustments to reconcile net (loss) to cash provided by (used in) operating activities
Stock-based compensation	30,100		23,175
Loss on capped call transactions	19,117		18,592
Deferred income taxes	(15,068)		(9,231)
Amortization of deferred commissions	11,496		8,497
Amortization of debt discount and issuance costs	673		1,719
Amortization of intangible assets and depreciation	7,006		4,919
Amortization of investments	1,019		—
Foreign currency transaction loss	5,098		5,947
Other non-cash	(556)		2,478
Change in operating assets and liabilities, net	(30,618)		(49,047)
Cash provided by (used in) operating activities	21,650		(18,323)
Investing activities
Purchases of investments	(21,051)		(1,490)
Proceeds from maturities and called investments	40,867		—
Sales of investments	2,450		1,424
Payments for acquisitions, net of cash acquired	(4,993)		—
Investment in property and equipment	(1,784)		(12,496)
Cash provided by (used in) investing activities	15,489		(12,562)
Financing activities
Proceeds from issuance of convertible senior notes	—		600,000
Purchase of capped calls related to convertible senior notes	—		(51,900)
Payment of debt issuance costs	—		(14,527)
Proceeds from employee stock purchase plan	2,288		—
Dividend payments to stockholders	(2,427)		(2,388)
Common stock repurchases	(34,655)		(29,011)
Cash (used in) provided by financing activities	(34,794)		502,174
Effect of exchange rate changes on cash and cash equivalents	(1,536)		(1,510)
Net increase in cash and cash equivalents	809		469,779
Cash and cash equivalents, beginning of period	171,899		68,363
Cash and cash equivalents, end of period	$	172,708	$	538,142

See notes to unaudited condensed consolidated financial statements.

7

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements. The financial statements should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.

All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2021.

NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS

Convertible debt

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature. As a result, after adoption, entities will no longer separately present in stockholders’ equity an embedded conversion feature for such debt. Additionally, the debt discount resulting from the separation of the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. The standard also requires the convertible instruments’ impact on diluted earnings per share (“EPS”) be determined using the if-converted method.

The Company adopted ASU 2020-06 using the modified retrospective approach on January 1, 2021. Upon adoption, the book value of the Company’s Convertible Senior Notes (the “Notes”) increased by $69.5 million to $587.7 million, and retained earnings increased by $9.4 million. The retained earnings adjustment reflects the tax effected difference between the value of the Notes and the embedded conversion feature before adoption and the combined convertible instrument's amortized cost after adoption.

See "Note 8. Debt" for additional information.

NOTE 3. MARKETABLE SECURITIES

	March 31, 2021								December 31, 2020
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Government debt	$	13,000	$	1	$	—	$	13,001	$	39,996	$	—	$	(8)	$	39,988
Corporate debt	257,003		15		(369)		256,649		253,345		88		(152)		253,281
	$	270,003	$	16	$	(369)	$	269,650	$	293,341	$	88	$	(160)	$	293,269

As of March 31, 2021, marketable securities’ maturities ranged from April 2021 to January 2024, with a weighted-average remaining maturity of approximately 1.4 years.

NOTE 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Receivables

(in thousands)	March 31, 2021		December 31, 2020
Accounts receivable	$	159,324	$	215,827
Unbilled receivables	228,603		207,155
Long-term unbilled receivables	108,048		113,278
	$	495,975	$	536,260

8

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unbilled receivables

Unbilled receivables are client-committed amounts for which revenue recognition precedes billing, and billing is solely subject to the passage of time.

Unbilled receivables by expected billing date:

(Dollars in thousands)	March 31, 2021
1 year or less	$	228,603	68	%
1-2 years	80,688		24	%
2-5 years	27,360		8	%
	$	336,651	100	%

Unbilled receivables by contract effective date:

(Dollars in thousands)	March 31, 2021
2021	$	46,625	14	%
2020	163,226		48	%
2019	63,600		19	%
2018	28,885		9	%
2017 and prior	34,315		10	%
	$	336,651	100	%

Major clients

No client represented 10% or more of the Company’s total receivables as of March 31, 2021 or December 31, 2020.

Contract assets

Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as completing a related performance obligation.

(in thousands)	March 31, 2021		December 31, 2020
Contract assets (1)	$	13,454	$	15,296
Long-term contract assets (2)	7,284		7,777
	$	20,738	$	23,073

(1) Included in other current assets. (2) Included in other long-term assets.

Deferred revenue

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

(in thousands)	March 31, 2021		December 31, 2020
Deferred revenue	$	244,170	$	232,865
Long-term deferred revenue (1)	7,565		8,991
	$	251,735	$	241,856

(1) Included in other long-term liabilities.

The change in deferred revenue in the three months ended March 31, 2021 was primarily due to new billings in advance of revenue recognition offset by $107.0 million of revenue recognized that was included in deferred revenue as of December 31, 2020.

NOTE 5. DEFERRED COMMISSIONS

(in thousands)	March 31, 2021		December 31, 2020
Deferred commissions (1)	$	103,474	$	108,624

(1) Included in other long-term assets.

	Three Months Ended March 31,
(in thousands)	2021		2020
Amortization of deferred commissions (1)	$	11,496	$	8,497

(1) Included in selling and marketing expense.

9

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6. GOODWILL AND OTHER INTANGIBLES

Goodwill

Change in goodwill:

	Three Months Ended March 31,
(in thousands)	2021		2020
January 1,	$	79,231	$	79,039
Acquisition	2,701		—
Currency translation adjustments	105		(541)
March 31,	$	82,037	$	78,498

Intangibles

Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.

		March 31, 2021
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,180	$	(56,260)	$	6,920
Technology	2-10 years	67,142		(57,014)		10,128
Other	1-5 years	5,361		(5,361)		—
		$	135,683	$	(118,635)	$	17,048

(1) Included in other long-term assets.

		December 31, 2020
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,168	$	(55,877)	$	7,291
Technology	2-10 years	64,843		(56,386)		8,457
Other	1-5 years	5,361		(5,361)		—
		$	133,372	$	(117,624)	$	15,748

(1) Included in other long-term assets.

Amortization of intangible assets:

	Three Months Ended March 31,
(in thousands)	2021		2020
Cost of revenue	$	629	$	647
Selling and marketing	373		371
	$	1,002	$	1,018

Future estimated intangibles assets amortization:

(in thousands)	March 31, 2021
2021	$	2,985
2022	3,886
2023	3,618
2024	2,849
2025	2,509
2026 and thereafter	1,201
	$	17,048

10

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7. LEASES

Corporate headquarters

In February 2021, the Company agreed to accelerate its exit from its Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from the Company’s landlord of $18 million. Upon modification, the Company reduced its lease liabilities by $21.1 million and accelerated depreciation of property, plant, and equipment related to the corporate headquarters.

Expense

	Three Months Ended March 31,
(in thousands)	2021		2020
Fixed lease costs	$	300	$	4,818
Short-term lease costs	459		455
Variable lease costs	1,387		1,278
	$	2,146	$	6,551

Right of use assets and lease liabilities

(in thousands)	March 31, 2021		December 31, 2020
Right of use assets (1)	$	44,330	$	67,651
Lease liabilities (2)	$	14,161	$	18,541
Long-term lease liabilities	$	36,471	$	59,053

(1) Represents the Company’s right to use the leased asset during the lease term. 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:

	March 31, 2021		December 31, 2020
Weighted-average remaining lease term	5.1 years		4.7 years
Weighted-average discount rate (1)	4.7	%	5.4	%

(1) The 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)	March 31, 2021
1 year or less	$	13,216
1-2 years	11,538
2-3 years	10,896
3-4 years	7,571
Greater than 4 years	14,274
Total lease payments	57,495
Less: imputed interest (1)	(6,863)
	$	50,632

(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

	Three Months Ended March 31,
(in thousands)	2021		2020
Cash paid for leases	$	6,716	$	5,520
Right of use assets recognized for new leases and amendments (non-cash)	$	714	$	551

11

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 required 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 on September 1, 2020.

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 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. The conversion rate will be adjusted upon certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions.

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 commencing 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 March 31, 2021, the Notes were not eligible for conversion at the noteholders’ election.

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.

Impact of the Notes

The Company adopted ASU 2020-06 using the modified retrospective approach on January 1, 2021. The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature. See "Note 2. New Accounting Pronouncements" for additional information.

Until January 1, 2021, the Notes were separated into liability and equity components.

•The initial carrying amount of the liability component was calculated by measuring a similar debt instrument’s fair value that does not have an associated conversion feature. The excess of the Notes’ principal amount over the initial carrying amount of the liability component, the debt discount, was amortized as interest expense over the Notes’ contractual term.

•The equity component was recorded as an increase to additional paid-in capital and not remeasured.

Upon adoption of ASU 2020-06, the book value of the Company’s Convertible Senior Notes (the “Notes”) increased by $69.5 million to $587.7 million, and retained earnings increased by $9.4 million. The retained earnings adjustment reflects the tax effected difference between the value of the Notes and the embedded conversion feature before adoption and the combined convertible instrument's amortized cost after adoption.

12

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Carrying value of the Notes:

(in thousands)	March 31, 2021		December 31, 2020
Principal	$	600,000	$	600,000
Unamortized debt discount	—		(71,222)
Unamortized issuance costs	(11,582)		(10,575)
Convertible senior notes, net	$	588,418	$	518,203
Conversion options	$	—	$	84,120
Issuance costs	—		(2,037)
Deferred taxes	—		(20,479)
Additional paid-in capital	$	—	$	61,604

Interest expense related to the Notes:

	Three Months Ended March 31,
(in thousands)	2021			2020
Contractual interest expense (0.75% coupon)	$	1,125		$	450
Amortization of debt discount	—			1,497
Amortization of issuance costs	673			222
	$	1,798		$	2,169
Weighted-average effective interest rate	1.2		%	4.3		%

Future payments of principal and contractual interest:

	March 31, 2021
(in thousands)	Principal		Interest		Total
2021	$	—	$	2,250	$	2,250
2022	—		4,500		4,500
2023	—		4,500		4,500
2024	—		4,500		4,500
2025	600,000		1,488		601,488
	$	600,000	$	17,238	$	617,238

Capped call transactions

In February 2020, the Company entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions cover approximately 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of the Company’s common stock. The Capped Call Transactions are generally expected to reduce common stock dilution and/or offset any potential cash payments the Company is required to 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 the occurrence of 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 of the Capped Call Transactions, calculated in accordance with 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 at the end of each reporting period, resulting in a non-operating gain or loss.

13

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Change in capped call transactions:

	Three Months Ended March 31,
(in thousands)	2021		2020
January 1,	$	83,597	$	—
Issuance	—		51,900
Fair value adjustment	(19,117)		(18,592)
March 31,	$	64,480	$	33,308

Credit facility

In November 2019, and as amended as of February 2020, July 2020, and September 2020, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC”). The Company may use borrowings to finance working capital needs and for general corporate purposes. Subject to specific conditions, the Credit Facility allows the Company to increase the aggregate commitment to $200 million. The commitments expire on November 4, 2024, and any outstanding 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 affiliate transactions.

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

•Beginning with the fiscal quarter ended on September 30, 2020 and ending with the fiscal quarter ended December 31, 2021 at least $200 million in cash and investments held by Pegasystems Inc.

•Beginning with the quarter ended on March 31, 2022 a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up in the event of certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0.

As of March 31, 2021 and December 31, 2020, the Company had no outstanding borrowings under the Credit Facility.

NOTE 9. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

The Company records its cash equivalents, marketable securities, Capped Call Transactions, and 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 - observable inputs such as quoted prices in active markets for identical assets or liabilities;

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

•Level 3 - significant unobservable inputs on which there is 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 minimize unobservable inputs when determining fair value.

The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use 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 both historical and implied volatility levels of the underlying equity security. The Company’s venture investments are recorded at fair value based on 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:

	March 31, 2021								December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents	$	26,657	$	—	$	—	$	26,657	$	42,339	$	14,000	$	—	$	56,339
Marketable securities	$	—	$	269,650	$	—	$	269,650	$	—	$	293,269	$	—	$	293,269
Capped Call Transactions (1)	$	—	$	64,480	$	—	$	64,480	$	—	$	83,597	$	—	$	83,597
Venture investments (1) (2)	$	—	$	—	$	9,756	$	9,756	$	—	$	—	$	8,345	$	8,345

(1) Included in other long-term assets. (2) Investments in privately-held companies.

14

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Change in venture investments:

	Three Months Ended March 31,
(in thousands)	2021		2020
January 1,	$	8,345	$	4,871
New investments	500		1,490
Sales of investments	(400)		(1,424)
Changes in foreign exchange rates	(9)		(73)
Changes in fair value:
included in other income	100		1,374
included in other comprehensive income	1,220		100
March 31,	$	9,756	$	6,338

The carrying value of certain other financial instruments, including receivables and accounts payable, approximates fair value due to these items’ relatively short maturity.

Fair value of the Notes

The Notes’ fair value (inclusive of the conversion feature embedded in the Notes) was $665.9 million as of March 31, 2021. 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. See "Note 8. Debt" for additional information.

NOTE 10. REVENUE

Geographic revenue

	Three Months Ended March 31,
(Dollars in thousands)	2021				2020
U.S.	$	194,568	62	%	$	172,417	65	%
Other Americas	11,901		4	%	15,342		6	%
United Kingdom (“U.K.”)	28,212		9	%	21,837		8	%
Europe (excluding U.K.), Middle East, and Africa	51,659		16	%	31,938		12	%
Asia-Pacific	27,159		9	%	24,057		9	%
	$	313,499	100	%	$	265,591	100	%

Revenue streams

	Three Months Ended March 31,
(in thousands)	2021		2020
Perpetual license	$	5,452	$	3,659
Term license	111,509		90,257
Revenue recognized at a point in time	116,961		93,916
Maintenance	75,561		73,695
Pega Cloud	67,858		43,466
Consulting	53,119		54,514
Revenue recognized over time	196,538		171,675
	$	313,499	$	265,591

15

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands)	Three Months Ended March 31,
	2021		2020
Pega Cloud	$	67,858	$	43,466
Maintenance	75,561		73,695
Term license	111,509		90,257
Subscription (1)	254,928		207,418
Perpetual license	5,452		3,659
Consulting	53,119		54,514
	$	313,499	$	265,591

(1) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).

Remaining performance obligations ("Backlog")

Expected future revenue on existing non-cancellable contracts:

	March 31, 2021
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	9,649	$	41,025	$	220,100	$	252,104	$	21,068	$	543,946	55	%
1-2 years	629		9,874		52,366		187,456		914		251,239		26	%
2-3 years	—		7,055		33,337		91,861		1,756		134,009		14	%
Greater than 3 years	—		377		16,834		32,895		510		50,616		5	%
	$	10,278	$	58,331	$	322,637	$	564,316	$	24,248	$	979,810	100	%

	March 31, 2020
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	3,995	$	30,962	$	205,083	$	174,277	$	18,945	$	433,262	58	%
1-2 years	2,168		5,088		34,633		125,473		1,215		168,577		22	%
2-3 years	—		6,504		19,411		81,187		107		107,209		14	%
Greater than 3 years	—		635		10,596		33,537		10		44,778		6	%
	$	6,163	$	43,189	$	269,723	$	414,474	$	20,277	$	753,826	100	%

NOTE 11. STOCK-BASED COMPENSATION

Expense

	Three Months Ended March 31,
(in thousands)	2021		2020
Cost of revenue	$	5,925	$	5,152
Selling and marketing	13,720		9,718
Research and development	6,770		5,496
General and administrative	3,685		2,809
	$	30,100	$	23,175
Income tax benefit	$	(5,991)	$	(4,582)

As of March 31, 2021, the Company had $183.4 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.3 years.

Grants

	Three Months Ended March 31, 2021
(in thousands)	Shares	Total Fair Value
RSUs	684	$	89,291
Non-qualified stock options	1,248	$	47,380

16

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12. INCOME TAXES

Effective income tax rate

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
(Benefit from) income taxes	$	(17,618)		$	(23,810)
Effective income tax benefit rate	73		%	48		%

The increase in the Company’s effective income tax benefit rate was primarily due to excess tax benefits from stock-based compensation and fair value adjustments for the capped call transactions, which were proportionally larger on a lower loss before income taxes.

NOTE 13. (LOSS) PER SHARE

Basic (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted (loss) per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and convertible senior notes.

Calculation of (loss) per share:

	Three Months Ended March 31,
(in thousands, except per share amounts)	2021		2020
Net (loss)	$	(6,617)	$	(25,372)
Weighted-average common shares outstanding	81,004		79,808
(Loss) per share, basic	$	(0.08)	$	(0.32)
Net (loss)	$	(6,617)	$	(25,372)
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)	81,004		79,808
(Loss) per share, diluted	$	(0.08)	$	(0.32)
Outstanding anti-dilutive stock options and RSUs (4)	6,465		5,948

(1) In periods of loss, all dilutive securities are excluded as their inclusion would be anti-dilutive.

(2) The shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period. If the outstanding conversion options were fully exercised, the Company would issue an additional 4.4 million shares.

(3) The Company’s Capped Call Transactions cover approximately 4.4 million shares of the Company’s common stock (representing the number of shares for which the Notes are initially convertible). The Capped Call Transactions are generally expected to reduce common stock dilution and/or offset any potential cash payments the Company is required to 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 Capped Call Transactions are excluded in all periods as their effect would be anti-dilutive.

(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.

17

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains or incorporates forward-looking statements within the meaning of 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;

•the impact of actual or threatened public health emergencies, such as the Coronavirus (“COVID-19”);

•reliance on third-party service providers;

•compliance with our debt obligations and covenants;

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

•reliance on key personnel;

•the relocation of our corporate headquarters;

•the continued uncertainties in the global economy;

•foreign currency exchange rates;

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

•security breaches and security flaws;

•our ability to protect our intellectual property rights and costs associated with defending such rights;

•our client retention rate;

•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, 2020, 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 as the result of new information, future events, or otherwise.

The forward-looking statements contained in this Quarterly Report represent our views as of April 28, 2021.

BUSINESS OVERVIEW

We develop, market, license, host, and support enterprise software applications that help organizations simplify business complexity. Our intelligent technology and scalable architecture enables the world’s leading brands and government agencies to solve problems quickly and transform for tomorrow. Our clients are able to make better decisions and get work done using real-time artificial intelligence (“AI”) and intelligent automation on applications built on the low-code, cloud-native Pega Platform™, enabling our clients to streamline service, increase customer lifetime value, and boost efficiency. Our consulting and client success teams, along with our world-class partners, leverage our Pega Express™ methodology and low code to allow clients to design and deploy critical applications quickly and collaboratively.

Our target clients are Global 3000 organizations and government agencies that require applications to differentiate themselves in the markets they serve. Our applications achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. We deliver applications tailored to our clients’ specific industry needs.

18

Cloud Transition

We are in the process of transitioning our business to sell software primarily through subscription arrangements, particularly Pega Cloud. Until we substantially complete our Cloud Transition, which we anticipate will occur in late 2022 or early 2023, we may experience lower revenue growth and lower operating cash flow growth or negative cash flow. Operating performance and the actual mix of revenue and new arrangements in a given period can fluctuate based on client preferences for our perpetual and subscription offerings. See the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

Coronavirus (“COVID-19”)

As of March 31, 2021, COVID-19 has not had a material impact on our results of operations or financial condition. See “Coronavirus (“COVID-19”)” in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

Performance metrics

We utilize performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including:

Annual contract value (“ACV”) | Increased 20% since March 31, 2020

•ACV, as reported, 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 term license and Pega Cloud contracts. Maintenance revenue for the quarter then ended is multiplied by four to calculate ACV for maintenance. Client Cloud ACV is composed of maintenance ACV and term license ACV. ACV is a performance measure that we believe provides useful information to our management and investors, particularly during our Cloud Transition. Reported amounts have not been adjusted for changes in foreign exchange rates. Foreign currency exchange rate changes contributed 3% to total ACV growth in 2021.

19

Remaining performance obligations (“Backlog”) | Increased 30% since March 31, 2020

•Backlog represents expected future revenue on existing non-cancellable contracts.

Year to date Pega Cloud revenue | Increased 56% since the three months ended March 31, 2020

•Pega Cloud revenue is revenue under U.S. GAAP for cloud contracts.

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 following accounting principles generally accepted in the United States and the rules and regulations of the SEC for interim financial reporting. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, 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 regarding 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, 2020:

20

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

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

There have been no significant changes other than those disclosed in “Note 2. New Accounting Pronouncements” in Item 1 of this Quarterly Report on Form 10-Q to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

RESULTS OF OPERATIONS

Revenue

Cloud Transition

We are in the process of transitioning our business to sell software primarily through subscription arrangements, particularly Pega Cloud. Revenue growth has been slower because of this transition. Revenue from Pega Cloud and maintenance arrangements is typically recognized over the contract term. In contrast, revenue from license sales is recognized when the license rights become effective, typically upfront.

(Dollars in thousands)	Three Months Ended March 31,								Change
	2021				2020
Pega Cloud	$	67,858	22	%	$	43,466	16	%	$	24,392	56	%
Maintenance	75,561		23	%	73,695		28	%	1,866		3	%
Term license	111,509		36	%	90,257		34	%	21,252		24	%
Subscription (1)	254,928		81	%	207,418		78	%	47,510		23	%
Perpetual license	5,452		2	%	3,659		1	%	1,793		49	%
Consulting	53,119		17	%	54,514		21	%	(1,395)		(3)	%
	$	313,499	100	%	$	265,591	100	%	$	47,908	18	%

(1) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).

The total revenue change in the three months ended March 31, 2021 generally reflects our Cloud Transition. Other factors impacting our revenue include:

•An increasing portion of our term license contracts include multi-year committed maintenance periods instead of annually renewable maintenance periods. Under multi-year committed maintenance arrangements, a larger portion of the total contract value is recognized as maintenance revenue over the contract term rather than as term license revenue upon the effectiveness of the license rights. In the three months ended March 31, 2021, multi-year committed maintenance contributed $3.4 million to maintenance revenue growth and reduced term revenue growth by $5.5 million.

•Maintenance renewal rates of higher than 90%.

•The decrease in consulting revenue in the three months ended March 31, 2021 was primarily due to a decrease in billable travel expenses as a result of COVID-19. As part of our long-term strategy, we intend to continue growing and leveraging our ecosystem of partners on implementation projects, potentially reducing our future consulting revenue growth.

Gross profit

	Three Months Ended March 31,								Change
(Dollars in thousands)	2021				2020
Software license	$	116,311	99	%	$	93,232	99	%	$	23,079	25	%
Maintenance	69,775		92	%	68,119		92	%	1,656		2	%
Pega Cloud	45,301		67	%	25,933		60	%	19,368		75	%
Consulting	(335)		(1)	%	(1,221)		(2)	%	886		73	%
	$	231,052	74	%	$	186,063	70	%	$	44,989	24	%

•The changes in gross profit in the three months ended March 31, 2021 were primarily due to our Cloud Transition, revenue growth, and cost-efficiency gains as Pega Cloud grows and scales.

•The increase in consulting gross profit in the three months ended March 31, 2021 was primarily due to an increase in consultant utilization. Consultant utilization is impacted by several factors, including the timing and scope of new implementation projects and the extent of our involvement compared to our consulting partners and enabled clients.

21

Operating expenses

(Dollars in thousands)	Three Months Ended March 31,								Change
	2021				2020
			% of Revenue				% of Revenue
Selling and marketing	$	148,739	47	%	$	136,024	51	%	$	12,715	9	%
Research and development	$	62,442	20	%	$	58,727	22	%	$	3,715	6	%
General and administrative	$	18,270	6	%	$	15,630	6	%	$	2,640	17	%

•The increase in selling and marketing in the three months ended March 31, 2021 was primarily due to an increase in compensation and benefits of $25.4 million, attributable to increases in headcount and equity compensation, partially offset by decreases in travel and entertainment of $6.0 million and sales and marketing events of $7.9 million due to COVID-19. The increase in headcount reflect our efforts to increase our sales capacity to deepen relationships with existing clients and target new accounts.

•The increase in research and development in the three months ended March 31, 2021 was primarily due to an increase in compensation and benefits of $4.6 million, attributable to increases in headcount and equity compensation.

•The increase in general and administrative in the three months ended March 31, 2021 was primarily due to an increase in compensation and benefits of $1.1 million, attributable to increases in headcount and equity compensation, and an increase in professional services fees of $1.6 million.

•In February 2021, we agreed to accelerate our exit from our Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from our landlord of $18 million. This agreement was the primary contributor to a decrease in facilities expense of $2.1 million in selling and marketing, $1.7 million in research and development, and $0.3 million in general and administrative in the three months ended March 31, 2021.

Other income (expense), net

(Dollars in thousands)	Three Months Ended March 31,				Change
	2021		2020
Foreign currency transaction (loss)	$	(5,098)	$	(5,947)	$	849	14	%
Interest income	153		607		(454)		(75)	%
Interest expense	(1,880)		(2,306)		426		18	%
(Loss) on capped call transactions	(19,117)		(18,592)		(525)		(3)	%
Other income, net	106		1,374		(1,268)		(92)	%
	$	(25,836)	$	(24,864)	$	(972)	(4)	%

•The change in foreign currency transaction (loss) in the three months ended March 31, 2021 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with our foreign currency-denominated cash, receivables, and intercompany balances held by our subsidiary in the United Kingdom.

•The decrease in interest income in the three months ended March 31, 2021 was primarily due to a decrease in market interest rates.

•The decrease in interest expense in the three months ended March 31, 2021 was primarily due to our adoption of ASU 2020-06 on January 1, 2021. See "Note 2. New Accounting Pronouncements" in Item 1 of this Quarterly Report for additional information.

Interest expense related to the Notes:

	Three Months Ended March 31,				Change
(in thousands)	2021		2020
Contractual interest expense (0.75% coupon)	$	1,125	$	450	$	675
Amortization of debt discount	—		1,497		(1,497)
Amortization of issuance costs	673		222		451
	$	1,798	$	2,169	$	(371)

•The increase in the (loss) on capped call transactions in the three months ended March 31, 2021 was due to fair value adjustments.

•The decrease in other income, net in the three months ended March 31, 2021 was due to an increase in the value of our venture investments portfolio in the three months ended March 31, 2020.

22

(Benefit from) income taxes

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
(Benefit from) income taxes	$	(17,618)		$	(23,810)
Effective income tax benefit rate	73		%	48		%

During the three months ended March 31, 2021, the increase in our effective income tax benefit rate was primarily due to excess tax benefits from stock-based compensation and fair value adjustments for the capped call transactions, which were proportionally larger on a lower loss before income taxes.

Stock-based compensation increases the variability of our effective tax rates. The impact of stock-based compensation on a given period depends on our profitability, the attributes of our stock compensation awards we grant, and award holders' exercise behavior.

LIQUIDITY AND CAPITAL RESOURCES

	Three Months Ended March 31,
(in thousands)	2021		2020
Cash provided by (used in):
Operating activities	$	21,650	$	(18,323)
Investing activities	15,489		(12,562)
Financing activities	(34,794)		502,174
Effect of exchange rates on cash and cash equivalents	(1,536)		(1,510)
Net increase in cash and cash equivalents	$	809	$	469,779

(in thousands)	March 31, 2021		December 31, 2020
Held by U.S. entities	$	342,016	$	399,138
Held by foreign entities	100,342		66,030
Total cash, cash equivalents, and marketable securities	$	442,358	$	465,168

We believe that our current cash, cash flow from operations, and borrowing capacity will be sufficient to fund our operations, stock repurchases, and quarterly cash dividends for at least the next 12 months. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments required to support our operations. If we require additional capital resources to grow our business, we may seek to finance our operations from available funds or additional external financing.

If it became necessary to repatriate foreign funds, we may be required to pay U.S. and foreign taxes upon repatriation. Due to the complexity of income tax laws and regulations, it is impracticable to estimate the amount of taxes we would have to pay.

Operating activities

We are in the process of transitioning our business to sell software primarily through subscription arrangements, particularly Pega Cloud. This transition has and is expected to continue to impact our billings and timing of cash collections. Pega Cloud, term license, and maintenance arrangements are generally billed and collected over the contract term, while perpetual license arrangements are generally billed and collected upfront when the license rights become effective. As client preferences shift in favor of Pega Cloud arrangements, we could experience slower operating cash flow growth, or negative cash flow, in the near term.

The change in cash provided by (used in) operating activities in the three months ended March 31, 2021 was primarily due to a significant increase in client collections. In February 2021, we agreed to accelerate our exit from our Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from our landlord of $18 million, which is expected to be paid in the last quarter of 2021. The accelerated exit from this lease reduced our future lease liabilities by $21.1 million.

Investing activities

The change in cash provided by (used in) investing activities in the three months ended March 31, 2021 was primarily driven by investments in financial instruments, an acquisition, and a decrease in office space related capital expenditures.

Financing activities

In February 2020, we issued $600 million in aggregate principal amount of convertible senior notes due March 1, 2025.

In November 2019, and as amended as of February 2020, July 2020, and September 2020, we entered into a five-year $100 million senior secured revolving credit agreement with PNC Bank, National Association. As of March 31, 2021, we had no outstanding borrowings under the Credit Facility. See "Note 8. Debt" in Item 1 of this Quarterly Report for additional information.

23

Stock repurchase program

Changes in the remaining stock repurchase authority:

(in thousands)	Three Months Ended March 31, 2021
December 31, 2020	$	37,726
Repurchases (1)	(9,146)
March 31, 2021	$	28,580

(1) Purchases under this program have been made on the open market.

Common stock repurchases

	Three Months Ended March 31,
	2021			2020
(in thousands)	Shares	Amount		Shares	Amount
Tax withholdings for net settlement of equity awards	197	$	25,509	257	$	23,011
Stock repurchase program	70	9,146		87	6,000
	267	$	34,655	344	$	29,011

During the three months ended March 31, 2021 and 2020, instead of receiving cash from the equity holders, we withheld shares with a value of $10.1 million and $15.3 million, respectively, for the exercise price of options. These amounts have been excluded from the table above.

Dividends

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

	Three Months Ended March 31,
(in thousands)	2021		2020
Dividend payments to stockholders	$	2,427	$	2,388

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss from adverse changes in financial market prices and rates.

Foreign currency exposure

Translation risk

Our foreign operations’ operating expenses are primarily denominated in foreign currencies. However, our international sales are also primarily denominated in foreign currencies, which partially offsets our foreign currency exposure.

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

	Three Months Ended March 31,
	2021		2020
(Decrease) increase in revenue	(4)	%	(3)	%
(Decrease) increase in net income	20	%	(14)	%

Remeasurement risk

We experience fluctuations in transaction gains and losses from the remeasurement of monetary assets and liabilities denominated in currencies other than the 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 and cash equivalents, receivables, and intercompany receivables and payables held by our U.K. subsidiary, a British pound functional entity.

A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would have resulted in the following impact:

	Three Months Ended March 31,
(in thousands)	2021		2020
Foreign currency gain (loss)	$	(7,522)	$	7,190

24

ITEM 4.     CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of March 31, 2021. 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 March 31, 2021.

(b) Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

25

PART II - OTHER INFORMATION

ITEM 1A.     RISK FACTORS

We encourage you to consider carefully the risk factors identified in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission. These risk factors could materially affect our business, financial condition, and future results, and may cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management.

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

Issuer purchases of equity securities

Common stock repurchased in the three months ended March 31, 2021:

(in thousands, except per share amounts)	Total Number of Shares Purchased (1) (2)	Average  Price Paid per Share (1) (2)		Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program (2)	Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchase Programs (2)
January 1, 2021 - January 31, 2021	29	$	134.92	21	$	34,877
February 1, 2021 - February 28, 2021	81	140.75		20	$	32,028
March 1, 2021 - March 31, 2021	234	125.62		29	$	28,580
	344	$	129.95	70

(1) Shares withheld to cover the option exercise price and tax withholding obligations under the net settlement provisions of our stock compensation awards have been included in these amounts.

(2) On June 15, 2020, we announced that our Board of Directors extended the current stock repurchase program’s expiration date to June 30, 2021 and increased the remaining stock repurchase authority to $60 million. See "Liquidity and Capital Resources" in Item 2 of this Quarterly Report for additional information.

ITEM 6.     EXHIBITS

Exhibit No.	Description
3.1	Restated Articles of Organization of the Registrant and Amendments thereto. (Filed as Exhibit 3.1 to the Registrant’s September 30, 2014 Form 10-Q and incorporated herein by reference.)
3.2	Amended and Restated Bylaws of Pegasystems Inc. (Filed as Exhibit 3.2 to the Registrant’s June 15, 2020 Form 8-K and incorporated herein by reference.)
31.1+	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.
31.2+	Certification pursuant to Exchange Act Rules 13a-14 and 15d-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	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.
101.SCH	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	Inline XBRL Taxonomy Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Label Linkbase Document.
101.PRE	Inline XBRL Taxonomy Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ Filed herewith.

++ Indicates that the exhibit is being furnished with this report and is not filed as a part of it.

26

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.
Dated:	April 28, 2021	By:	/s/ KENNETH STILLWELL
			Kenneth Stillwell
			Chief Operating Officer and Chief Financial Officer
			(Principal Financial Officer)

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Alan Trefler, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Pegasystems Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: April 28, 2021

/s/ ALAN TREFLER

Alan Trefler

Chairman and Chief Executive Officer

(Principal Executive Officer)

1

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Kenneth Stillwell, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Pegasystems Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: April 28, 2021

/s/ KENNETH STILLWELL

Kenneth Stillwell

Chief Operating Officer and Chief Financial Officer

(Principal Financial Officer)

1

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Pegasystems Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Alan Trefler, Chairman and Chief Executive Officer of Pegasystems Inc., and Kenneth Stillwell, Chief Operating Officer and Chief Financial Officer of Pegasystems Inc., each certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 28, 2021

/s/ ALAN TREFLER

Alan Trefler

Chairman and Chief Executive Officer

(Principal Executive Officer)

/s/ KENNETH STILLWELL

Kenneth Stillwell

Chief Operating Officer and Chief Financial Officer

(Principal Financial Officer)

1

XML

COVER PAGE - shares	3 Months Ended
	Mar. 31, 2021	Apr. 19, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2021
Document Transition Report	false
Entity File Number	1-11859
Entity Registrant Name	PEGASYSTEMS INC.
Amendment Flag	false
Entity Central Index Key	0001013857
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Incorporation, State or Country Code	MA
Entity Tax Identification Number	04-2787865
Entity Address, Address Line One	One Rogers Street
Entity Address, City or Town	Cambridge
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	02142-1209
City Area Code	617
Local Phone Number	374-9600
Title of 12(b) Security	Common Stock, $.01 par value per share
Trading Symbol	PEGA
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		81,281,726

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 172,708	$ 171,899
Marketable securities	269,650	293,269
Total cash, cash equivalents, and marketable securities	442,358	465,168
Accounts receivable	159,324	215,827
Unbilled receivables	228,603	207,155
Other current assets	91,868	88,760
Total current assets	922,153	976,910
Unbilled receivables	108,048	113,278
Goodwill	82,037	79,231
Other long-term assets	416,265	434,843
Total assets	1,528,503	1,604,262
Current liabilities:
Accounts payable	24,426	24,028
Accrued expenses	59,765	59,261
Accrued compensation and related expenses	59,490	123,012
Deferred revenue	244,170	232,865
Other current liabilities	16,599	20,969
Total current liabilities	404,450	460,135
Convertible senior notes, net	588,418	518,203
Operating lease liabilities	36,471	59,053
Other long-term liabilities	20,239	24,699
Total liabilities	1,049,578	1,062,090
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued	0	0
Common stock, 200,000 shares authorized; 81,246 and 80,890 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	812	809
Additional paid-in capital	140,558	204,432
Retained earnings	340,223	339,879
Accumulated other comprehensive (loss)	(2,668)	(2,948)
Total stockholders’ equity	478,925	542,172
Total liabilities and stockholders’ equity	$ 1,528,503	$ 1,604,262

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares	Mar. 31, 2021	Dec. 31, 2020
Stockholders’ equity:
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, shares issued (in shares)	81,246,000	80,890,000
Common stock, shares outstanding (in shares)	81,246,000	80,890,000

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenue
Total revenue	$ 313,499	$ 265,591
Cost of revenue
Total cost of revenue	82,447	79,528
Gross profit	231,052	186,063
Operating expenses
Selling and marketing	148,739	136,024
Research and development	62,442	58,727
General and administrative	18,270	15,630
Total operating expenses	229,451	210,381
Income (loss) from operations	1,601	(24,318)
Foreign currency transaction (loss)	(5,098)	(5,947)
Interest income	153	607
Interest expense	(1,880)	(2,306)
(Loss) on capped call transactions	(19,117)	(18,592)
Other income, net	106	1,374
(Loss) before (benefit from) income taxes	(24,235)	(49,182)
(Benefit from) income taxes	(17,618)	(23,810)
Net (loss)	$ (6,617)	$ (25,372)
(Loss) per share
Basic (in dollars per share)	$ (0.08)	$ (0.32)
Diluted (in dollars per share)	$ (0.08)	$ (0.32)
Weighted-average number of common shares outstanding
Basic (in shares)	81,004	79,808
Diluted (in shares)	81,004	79,808
Software license
Revenue
Total revenue	$ 116,961	$ 93,916
Cost of revenue
Total cost of revenue	650	684
Maintenance
Revenue
Total revenue	75,561	73,695
Cost of revenue
Total cost of revenue	5,786	5,576
Pega Cloud
Revenue
Total revenue	67,858	43,466
Cost of revenue
Total cost of revenue	22,557	17,533
Consulting
Revenue
Total revenue	53,119	54,514
Cost of revenue
Total cost of revenue	$ 53,454	$ 55,735

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Statement of Comprehensive Income [Abstract]
Net (loss)	$ (6,617)	$ (25,372)
Other comprehensive income (loss), net of tax
Unrealized gain on available-for-sale securities	1,010	100
Foreign currency translation adjustments	(730)	(514)
Total other comprehensive income (loss), net of tax	280	(414)
Comprehensive (loss)	$ (6,337)	$ (25,786)

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjustment	Common Stock	Additional Paid-In Capital	Additional Paid-In Capital Cumulative Effect, Period of Adoption, Adjustment	Retained Earnings	Retained Earnings Cumulative Effect, Period of Adoption, Adjustment	Accumulated Other Comprehensive (Loss)
Balance, beginning of period (in shares) at Dec. 31, 2019			79,599
Balance, beginning of period at Dec. 31, 2019	$ 539,010		$ 796	$ 140,523		$ 410,919		$ (13,228)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Equity component of convertible senior notes, net	61,604			61,604
Repurchase of common stock (in shares)			(87)
Repurchase of common stock	(6,000)		$ (1)	(5,999)
Issuance of common stock for share-based compensation plans (in shares)			564
Issuance of common stock for stock compensation plans	(23,011)		$ 6	(23,017)
Stock-based compensation	23,199			23,199
Cash dividends declared ($0.03 per share)	(2,405)					(2,405)
Other comprehensive income (loss)	(414)							(414)
Net (loss)	(25,372)					(25,372)
Balance, end of period (in shares) at Mar. 31, 2020			80,076
Balance, end of period at Mar. 31, 2020	$ 566,611		$ 801	196,310		383,142		(13,642)
Balance, beginning of period (in shares) at Dec. 31, 2020	80,890		80,890
Balance, beginning of period at Dec. 31, 2020	$ 542,172	$ (52,205)	$ 809	204,432	$ (61,604)	339,879	$ 9,399	(2,948)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Accounting standards update	Accounting Standards Update 2020-06
Repurchase of common stock (in shares)			(70)
Repurchase of common stock	$ (9,146)		$ (1)	(9,145)
Issuance of common stock for share-based compensation plans (in shares)			402
Issuance of common stock for stock compensation plans	(25,509)		$ 4	(25,513)
Issuance of common stock under the employee stock purchase plan (in shares)			24
Issuance of common stock under the employee stock purchase plan	2,288			2,288
Stock-based compensation	30,100			30,100
Cash dividends declared ($0.03 per share)	(2,438)					(2,438)
Other comprehensive income (loss)	280							280
Net (loss)	$ (6,617)					(6,617)
Balance, end of period (in shares) at Mar. 31, 2021	81,246		81,246
Balance, end of period at Mar. 31, 2021	$ 478,925		$ 812	$ 140,558		$ 340,223		$ (2,668)

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Statement of Stockholders' Equity [Abstract]
Cash dividend declared (in dollars per share)	$ 0.03	$ 0.03

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Operating activities
Net (loss)	$ (6,617)	$ (25,372)
Adjustments to reconcile net (loss) to cash provided by (used in) operating activities
Stock-based compensation	30,100	23,175
Loss on capped call transactions	19,117	18,592
Deferred income taxes	(15,068)	(9,231)
Amortization of deferred commissions	11,496	8,497
Amortization of debt discount and issuance costs	673	1,719
Amortization of intangible assets and depreciation	7,006	4,919
Amortization of investments	1,019	0
Foreign currency transaction loss	5,098	5,947
Other non-cash	(556)	2,478
Change in operating assets and liabilities, net	(30,618)	(49,047)
Cash provided by (used in) operating activities	21,650	(18,323)
Investing activities
Purchases of investments	(21,051)	(1,490)
Proceeds from maturities and called investments	40,867	0
Sales of investments	2,450	1,424
Payments for acquisitions, net of cash acquired	(4,993)	0
Investment in property and equipment	(1,784)	(12,496)
Cash provided by (used in) investing activities	15,489	(12,562)
Financing activities
Proceeds from issuance of convertible senior notes	0	600,000
Purchase of capped calls related to convertible senior notes	0	(51,900)
Payment of debt issuance costs	0	(14,527)
Proceeds from employee stock purchase plan	2,288	0
Dividend payments to stockholders	(2,427)	(2,388)
Common stock repurchases	(34,655)	(29,011)
Cash (used in) provided by financing activities	(34,794)	502,174
Effect of exchange rate changes on cash and cash equivalents	(1,536)	(1,510)
Net increase in cash and cash equivalents	809	469,779
Cash and cash equivalents, beginning of period	171,899	68,363
Cash and cash equivalents, end of period	$ 172,708	$ 538,142

XML

BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

BASIS OF PRESENTATION

NOTE 1. BASIS OF PRESENTATION

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements. The financial statements should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.

All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2021.

XML

NEW ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

NEW ACCOUNTING PRONOUNCEMENTS

NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS

Convertible debt

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature. As a result, after adoption, entities will no longer separately present in stockholders’ equity an embedded conversion feature for such debt. Additionally, the debt discount resulting from the separation of the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. The standard also requires the convertible instruments’ impact on diluted earnings per share (“EPS”) be determined using the if-converted method.

The Company adopted ASU 2020-06 using the modified retrospective approach on January 1, 2021. Upon adoption, the book value of the Company’s Convertible Senior Notes (the “Notes”) increased by $69.5 million to $587.7 million, and retained earnings increased by $9.4 million. The retained earnings adjustment reflects the tax effected difference between the value of the Notes and the embedded conversion feature before adoption and the combined convertible instrument's amortized cost after adoption.

See "Note 8. Debt" for additional information.

XML

MARKETABLE SECURITIES

3 Months Ended

Mar. 31, 2021

Investments, Debt and Equity Securities [Abstract]

MARKETABLE SECURITIES

NOTE 3. MARKETABLE SECURITIES

	March 31, 2021								December 31, 2020
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Government debt	$	13,000	$	1	$	—	$	13,001	$	39,996	$	—	$	(8)	$	39,988
Corporate debt	257,003		15		(369)		256,649		253,345		88		(152)		253,281
	$	270,003	$	16	$	(369)	$	269,650	$	293,341	$	88	$	(160)	$	293,269

As of March 31, 2021, marketable securities’ maturities ranged from April 2021 to January 2024, with a weighted-average remaining maturity of approximately 1.4 years.

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

3 Months Ended

Mar. 31, 2021

Receivables [Abstract]

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

NOTE 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Receivables

(in thousands)	March 31, 2021		December 31, 2020
Accounts receivable	$	159,324	$	215,827
Unbilled receivables	228,603		207,155
Long-term unbilled receivables	108,048		113,278
	$	495,975	$	536,260

Unbilled receivables

Unbilled receivables are client-committed amounts for which revenue recognition precedes billing, and billing is solely subject to the passage of time.

Unbilled receivables by expected billing date:

(Dollars in thousands)	March 31, 2021
1 year or less	$	228,603	68	%
1-2 years	80,688		24	%
2-5 years	27,360		8	%
	$	336,651	100	%

Unbilled receivables by contract effective date:

(Dollars in thousands)	March 31, 2021
2021	$	46,625	14	%
2020	163,226		48	%
2019	63,600		19	%
2018	28,885		9	%
2017 and prior	34,315		10	%
	$	336,651	100	%

Major clients

No client represented 10% or more of the Company’s total receivables as of March 31, 2021 or December 31, 2020.

Contract assets

Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as completing a related performance obligation.

(in thousands)	March 31, 2021		December 31, 2020
Contract assets (1)	$	13,454	$	15,296
Long-term contract assets (2)	7,284		7,777
	$	20,738	$	23,073

(1) Included in other current assets. (2) Included in other long-term assets.

Deferred revenue

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

(in thousands)	March 31, 2021		December 31, 2020
Deferred revenue	$	244,170	$	232,865
Long-term deferred revenue (1)	7,565		8,991
	$	251,735	$	241,856

(1) Included in other long-term liabilities.

The change in deferred revenue in the three months ended March 31, 2021 was primarily due to new billings in advance of revenue recognition offset by $107.0 million of revenue recognized that was included in deferred revenue as of December 31, 2020.

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DEFERRED COMMISSIONS

3 Months Ended

Mar. 31, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

DEFERRED COMMISSIONS

NOTE 5. DEFERRED COMMISSIONS

(in thousands)	March 31, 2021		December 31, 2020
Deferred commissions (1)	$	103,474	$	108,624

(1) Included in other long-term assets.

	Three Months Ended March 31,
(in thousands)	2021		2020
Amortization of deferred commissions (1)	$	11,496	$	8,497

(1) Included in selling and marketing expense.

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GOODWILL AND OTHER INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE 6. GOODWILL AND OTHER INTANGIBLES

Goodwill

Change in goodwill:

	Three Months Ended March 31,
(in thousands)	2021		2020
January 1,	$	79,231	$	79,039
Acquisition	2,701		—
Currency translation adjustments	105		(541)
March 31,	$	82,037	$	78,498

Intangibles

Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.

		March 31, 2021
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,180	$	(56,260)	$	6,920
Technology	2-10 years	67,142		(57,014)		10,128
Other	1-5 years	5,361		(5,361)		—
		$	135,683	$	(118,635)	$	17,048

(1) Included in other long-term assets.

		December 31, 2020
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,168	$	(55,877)	$	7,291
Technology	2-10 years	64,843		(56,386)		8,457
Other	1-5 years	5,361		(5,361)		—
		$	133,372	$	(117,624)	$	15,748

(1) Included in other long-term assets.

Amortization of intangible assets:

	Three Months Ended March 31,
(in thousands)	2021		2020
Cost of revenue	$	629	$	647
Selling and marketing	373		371
	$	1,002	$	1,018

Future estimated intangibles assets amortization:

(in thousands)	March 31, 2021
2021	$	2,985
2022	3,886
2023	3,618
2024	2,849
2025	2,509
2026 and thereafter	1,201
	$	17,048

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LEASES

3 Months Ended

Mar. 31, 2021

Leases [Abstract]

LEASES

NOTE 7. LEASES

Corporate headquarters

In February 2021, the Company agreed to accelerate its exit from its Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from the Company’s landlord of $18 million. Upon modification, the Company reduced its lease liabilities by $21.1 million and accelerated depreciation of property, plant, and equipment related to the corporate headquarters.

Expense

	Three Months Ended March 31,
(in thousands)	2021		2020
Fixed lease costs	$	300	$	4,818
Short-term lease costs	459		455
Variable lease costs	1,387		1,278
	$	2,146	$	6,551

Right of use assets and lease liabilities

(in thousands)	March 31, 2021		December 31, 2020
Right of use assets (1)	$	44,330	$	67,651
Lease liabilities (2)	$	14,161	$	18,541
Long-term lease liabilities	$	36,471	$	59,053

(1) Represents the Company’s right to use the leased asset during the lease term. 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:

	March 31, 2021		December 31, 2020
Weighted-average remaining lease term	5.1 years		4.7 years
Weighted-average discount rate (1)	4.7	%	5.4	%

(1) The 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)	March 31, 2021
1 year or less	$	13,216
1-2 years	11,538
2-3 years	10,896
3-4 years	7,571
Greater than 4 years	14,274
Total lease payments	57,495
Less: imputed interest (1)	(6,863)
	$	50,632

(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

	Three Months Ended March 31,
(in thousands)	2021		2020
Cash paid for leases	$	6,716	$	5,520
Right of use assets recognized for new leases and amendments (non-cash)	$	714	$	551

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DEBT

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

DEBT

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 required 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 on September 1, 2020.

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 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. The conversion rate will be adjusted upon certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions.

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 commencing 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 March 31, 2021, the Notes were not eligible for conversion at the noteholders’ election.

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.

Impact of the Notes

The Company adopted ASU 2020-06 using the modified retrospective approach on January 1, 2021. The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature. See "Note 2. New Accounting Pronouncements" for additional information.

Until January 1, 2021, the Notes were separated into liability and equity components.

•The initial carrying amount of the liability component was calculated by measuring a similar debt instrument’s fair value that does not have an associated conversion feature. The excess of the Notes’ principal amount over the initial carrying amount of the liability component, the debt discount, was amortized as interest expense over the Notes’ contractual term.

•The equity component was recorded as an increase to additional paid-in capital and not remeasured.

Upon adoption of ASU 2020-06, the book value of the Company’s Convertible Senior Notes (the “Notes”) increased by $69.5 million to $587.7 million, and retained earnings increased by $9.4 million. The retained earnings adjustment reflects the tax effected difference between the value of the Notes and the embedded conversion feature before adoption and the combined convertible instrument's amortized cost after adoption.

Carrying value of the Notes:

(in thousands)	March 31, 2021		December 31, 2020
Principal	$	600,000	$	600,000
Unamortized debt discount	—		(71,222)
Unamortized issuance costs	(11,582)		(10,575)
Convertible senior notes, net	$	588,418	$	518,203
Conversion options	$	—	$	84,120
Issuance costs	—		(2,037)
Deferred taxes	—		(20,479)
Additional paid-in capital	$	—	$	61,604

Interest expense related to the Notes:

	Three Months Ended March 31,
(in thousands)	2021			2020
Contractual interest expense (0.75% coupon)	$	1,125		$	450
Amortization of debt discount	—			1,497
Amortization of issuance costs	673			222
	$	1,798		$	2,169
Weighted-average effective interest rate	1.2		%	4.3		%

Future payments of principal and contractual interest:

	March 31, 2021
(in thousands)	Principal		Interest		Total
2021	$	—	$	2,250	$	2,250
2022	—		4,500		4,500
2023	—		4,500		4,500
2024	—		4,500		4,500
2025	600,000		1,488		601,488
	$	600,000	$	17,238	$	617,238

Capped call transactions

In February 2020, the Company entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions cover approximately 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of the Company’s common stock. The Capped Call Transactions are generally expected to reduce common stock dilution and/or offset any potential cash payments the Company is required to 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 the occurrence of 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 of the Capped Call Transactions, calculated in accordance with 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 at the end of each reporting period, resulting in a non-operating gain or loss.

Change in capped call transactions:

	Three Months Ended March 31,
(in thousands)	2021		2020
January 1,	$	83,597	$	—
Issuance	—		51,900
Fair value adjustment	(19,117)		(18,592)
March 31,	$	64,480	$	33,308

Credit facility

In November 2019, and as amended as of February 2020, July 2020, and September 2020, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC”). The Company may use borrowings to finance working capital needs and for general corporate purposes. Subject to specific conditions, the Credit Facility allows the Company to increase the aggregate commitment to $200 million. The commitments expire on November 4, 2024, and any outstanding 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 affiliate transactions.

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

•Beginning with the fiscal quarter ended on September 30, 2020 and ending with the fiscal quarter ended December 31, 2021 at least $200 million in cash and investments held by Pegasystems Inc.

•Beginning with the quarter ended on March 31, 2022 a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up in the event of certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0.

As of March 31, 2021 and December 31, 2020, the Company had no outstanding borrowings under the Credit Facility.

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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 9. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

The Company records its cash equivalents, marketable securities, Capped Call Transactions, and 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 - observable inputs such as quoted prices in active markets for identical assets or liabilities;

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

•Level 3 - significant unobservable inputs on which there is 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 minimize unobservable inputs when determining fair value.

The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use 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 both historical and implied volatility levels of the underlying equity security. The Company’s venture investments are recorded at fair value based on 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:

	March 31, 2021								December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents	$	26,657	$	—	$	—	$	26,657	$	42,339	$	14,000	$	—	$	56,339
Marketable securities	$	—	$	269,650	$	—	$	269,650	$	—	$	293,269	$	—	$	293,269
Capped Call Transactions (1)	$	—	$	64,480	$	—	$	64,480	$	—	$	83,597	$	—	$	83,597
Venture investments (1) (2)	$	—	$	—	$	9,756	$	9,756	$	—	$	—	$	8,345	$	8,345

(1) Included in other long-term assets. (2) Investments in privately-held companies.

Change in venture investments:

	Three Months Ended March 31,
(in thousands)	2021		2020
January 1,	$	8,345	$	4,871
New investments	500		1,490
Sales of investments	(400)		(1,424)
Changes in foreign exchange rates	(9)		(73)
Changes in fair value:
included in other income	100		1,374
included in other comprehensive income	1,220		100
March 31,	$	9,756	$	6,338

The carrying value of certain other financial instruments, including receivables and accounts payable, approximates fair value due to these items’ relatively short maturity.

Fair value of the Notes

The Notes’ fair value (inclusive of the conversion feature embedded in the Notes) was $665.9 million as of March 31, 2021. 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. See "Note 8. Debt" for additional information.

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REVENUE

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

REVENUE

NOTE 10. REVENUE

Geographic revenue

	Three Months Ended March 31,
(Dollars in thousands)	2021				2020
U.S.	$	194,568	62	%	$	172,417	65	%
Other Americas	11,901		4	%	15,342		6	%
United Kingdom (“U.K.”)	28,212		9	%	21,837		8	%
Europe (excluding U.K.), Middle East, and Africa	51,659		16	%	31,938		12	%
Asia-Pacific	27,159		9	%	24,057		9	%
	$	313,499	100	%	$	265,591	100	%

Revenue streams

	Three Months Ended March 31,
(in thousands)	2021		2020
Perpetual license	$	5,452	$	3,659
Term license	111,509		90,257
Revenue recognized at a point in time	116,961		93,916
Maintenance	75,561		73,695
Pega Cloud	67,858		43,466
Consulting	53,119		54,514
Revenue recognized over time	196,538		171,675
	$	313,499	$	265,591

(in thousands)	Three Months Ended March 31,
	2021		2020
Pega Cloud	$	67,858	$	43,466
Maintenance	75,561		73,695
Term license	111,509		90,257
Subscription (1)	254,928		207,418
Perpetual license	5,452		3,659
Consulting	53,119		54,514
	$	313,499	$	265,591

(1) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).

Remaining performance obligations ("Backlog")

Expected future revenue on existing non-cancellable contracts:

	March 31, 2021
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	9,649	$	41,025	$	220,100	$	252,104	$	21,068	$	543,946	55	%
1-2 years	629		9,874		52,366		187,456		914		251,239		26	%
2-3 years	—		7,055		33,337		91,861		1,756		134,009		14	%
Greater than 3 years	—		377		16,834		32,895		510		50,616		5	%
	$	10,278	$	58,331	$	322,637	$	564,316	$	24,248	$	979,810	100	%

	March 31, 2020
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	3,995	$	30,962	$	205,083	$	174,277	$	18,945	$	433,262	58	%
1-2 years	2,168		5,088		34,633		125,473		1,215		168,577		22	%
2-3 years	—		6,504		19,411		81,187		107		107,209		14	%
Greater than 3 years	—		635		10,596		33,537		10		44,778		6	%
	$	6,163	$	43,189	$	269,723	$	414,474	$	20,277	$	753,826	100	%

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STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

NOTE 11. STOCK-BASED COMPENSATION

Expense

	Three Months Ended March 31,
(in thousands)	2021		2020
Cost of revenue	$	5,925	$	5,152
Selling and marketing	13,720		9,718
Research and development	6,770		5,496
General and administrative	3,685		2,809
	$	30,100	$	23,175
Income tax benefit	$	(5,991)	$	(4,582)

As of March 31, 2021, the Company had $183.4 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.3 years.

Grants

	Three Months Ended March 31, 2021
(in thousands)	Shares	Total Fair Value
RSUs	684	$	89,291
Non-qualified stock options	1,248	$	47,380

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INCOME TAXES

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 12. INCOME TAXES

Effective income tax rate

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
(Benefit from) income taxes	$	(17,618)		$	(23,810)
Effective income tax benefit rate	73		%	48		%

The increase in the Company’s effective income tax benefit rate was primarily due to excess tax benefits from stock-based compensation and fair value adjustments for the capped call transactions, which were proportionally larger on a lower loss before income taxes.

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(LOSS) PER SHARE

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

(LOSS) PER SHARE

NOTE 13. (LOSS) PER SHARE

Basic (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted (loss) per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and convertible senior notes.

Calculation of (loss) per share:

	Three Months Ended March 31,
(in thousands, except per share amounts)	2021		2020
Net (loss)	$	(6,617)	$	(25,372)
Weighted-average common shares outstanding	81,004		79,808
(Loss) per share, basic	$	(0.08)	$	(0.32)
Net (loss)	$	(6,617)	$	(25,372)
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)	81,004		79,808
(Loss) per share, diluted	$	(0.08)	$	(0.32)
Outstanding anti-dilutive stock options and RSUs (4)	6,465		5,948

(1) In periods of loss, all dilutive securities are excluded as their inclusion would be anti-dilutive.

(2) The shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period. If the outstanding conversion options were fully exercised, the Company would issue an additional 4.4 million shares.

(3) The Company’s Capped Call Transactions cover approximately 4.4 million shares of the Company’s common stock (representing the number of shares for which the Notes are initially convertible). The Capped Call Transactions are generally expected to reduce common stock dilution and/or offset any potential cash payments the Company is required to 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 Capped Call Transactions are excluded in all periods as their effect would be anti-dilutive.

(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.

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NEW ACCOUNTING PRONOUNCEMENTS (Policies)

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Basis of presentation

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements. The financial statements should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.

All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2021.

New Accounting Pronouncements

Convertible debt

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature. As a result, after adoption, entities will no longer separately present in stockholders’ equity an embedded conversion feature for such debt. Additionally, the debt discount resulting from the separation of the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. The standard also requires the convertible instruments’ impact on diluted earnings per share (“EPS”) be determined using the if-converted method.

The Company adopted ASU 2020-06 using the modified retrospective approach on January 1, 2021. Upon adoption, the book value of the Company’s Convertible Senior Notes (the “Notes”) increased by $69.5 million to $587.7 million, and retained earnings increased by $9.4 million. The retained earnings adjustment reflects the tax effected difference between the value of the Notes and the embedded conversion feature before adoption and the combined convertible instrument's amortized cost after adoption.

Assets and liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis

The Company records its cash equivalents, marketable securities, Capped Call Transactions, and 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 - observable inputs such as quoted prices in active markets for identical assets or liabilities;

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

•Level 3 - significant unobservable inputs on which there is 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 minimize unobservable inputs when determining fair value.

The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use 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 both historical and implied volatility levels of the underlying equity security. The Company’s venture investments are recorded at fair value based on valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.

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MARKETABLE SECURITIES (Tables)

3 Months Ended

Mar. 31, 2021

Investments, Debt and Equity Securities [Abstract]

Schedule of marketable securities

	March 31, 2021								December 31, 2020
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Government debt	$	13,000	$	1	$	—	$	13,001	$	39,996	$	—	$	(8)	$	39,988
Corporate debt	257,003		15		(369)		256,649		253,345		88		(152)		253,281
	$	270,003	$	16	$	(369)	$	269,650	$	293,341	$	88	$	(160)	$	293,269

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE (Tables)

3 Months Ended

Mar. 31, 2021

Receivables [Abstract]

Summary of receivable

Receivables

(in thousands)	March 31, 2021		December 31, 2020
Accounts receivable	$	159,324	$	215,827
Unbilled receivables	228,603		207,155
Long-term unbilled receivables	108,048		113,278
	$	495,975	$	536,260

Summary of unbilled receivables

(Dollars in thousands)	March 31, 2021
1 year or less	$	228,603	68	%
1-2 years	80,688		24	%
2-5 years	27,360		8	%
	$	336,651	100	%

Summary of unbilled receivables based upon contract effective date

(Dollars in thousands)	March 31, 2021
2021	$	46,625	14	%
2020	163,226		48	%
2019	63,600		19	%
2018	28,885		9	%
2017 and prior	34,315		10	%
	$	336,651	100	%

Summary of contract assets and deferred revenue

Contract assets

Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as completing a related performance obligation.

(in thousands)	March 31, 2021		December 31, 2020
Contract assets (1)	$	13,454	$	15,296
Long-term contract assets (2)	7,284		7,777
	$	20,738	$	23,073

(1) Included in other current assets. (2) Included in other long-term assets.

Deferred revenue

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

(in thousands)	March 31, 2021		December 31, 2020
Deferred revenue	$	244,170	$	232,865
Long-term deferred revenue (1)	7,565		8,991
	$	251,735	$	241,856

(1) Included in other long-term liabilities.

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DEFERRED COMMISSIONS (Tables)

3 Months Ended

Mar. 31, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of impairment of deferred contract costs

(in thousands)	March 31, 2021		December 31, 2020
Deferred commissions (1)	$	103,474	$	108,624

(1) Included in other long-term assets.

Schedule of amortization of deferred contract costs

	Three Months Ended March 31,
(in thousands)	2021		2020
Amortization of deferred commissions (1)	$	11,496	$	8,497

(1) Included in selling and marketing expense

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in Carrying Amount of Goodwill

Change in goodwill:

	Three Months Ended March 31,
(in thousands)	2021		2020
January 1,	$	79,231	$	79,039
Acquisition	2,701		—
Currency translation adjustments	105		(541)
March 31,	$	82,037	$	78,498

Schedule of Amortizable Intangible Assets

Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.

		March 31, 2021
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,180	$	(56,260)	$	6,920
Technology	2-10 years	67,142		(57,014)		10,128
Other	1-5 years	5,361		(5,361)		—
		$	135,683	$	(118,635)	$	17,048

(1) Included in other long-term assets.

		December 31, 2020
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,168	$	(55,877)	$	7,291
Technology	2-10 years	64,843		(56,386)		8,457
Other	1-5 years	5,361		(5,361)		—
		$	133,372	$	(117,624)	$	15,748

(1) Included in other long-term assets.

Amortization Expense of Acquired Intangibles

Amortization of intangible assets:

	Three Months Ended March 31,
(in thousands)	2021		2020
Cost of revenue	$	629	$	647
Selling and marketing	373		371
	$	1,002	$	1,018

Estimated Future Amortization Expense Related to Intangible Assets

Future estimated intangibles assets amortization:

(in thousands)	March 31, 2021
2021	$	2,985
2022	3,886
2023	3,618
2024	2,849
2025	2,509
2026 and thereafter	1,201
	$	17,048

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LEASES (Tables)

3 Months Ended

Mar. 31, 2021

Leases [Abstract]

Schedule of lease expense

	Three Months Ended March 31,
(in thousands)	2021		2020
Fixed lease costs	$	300	$	4,818
Short-term lease costs	459		455
Variable lease costs	1,387		1,278
	$	2,146	$	6,551

Schedule of right of use asset and lease liabilities

(in thousands)	March 31, 2021		December 31, 2020
Right of use assets (1)	$	44,330	$	67,651
Lease liabilities (2)	$	14,161	$	18,541
Long-term lease liabilities	$	36,471	$	59,053

(1) Represents the Company’s right to use the leased asset during the lease term. Included in other long-term assets. (2) Included in other current liabilities.

Schedule of weighted average and discount rate

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

	March 31, 2021		December 31, 2020
Weighted-average remaining lease term	5.1 years		4.7 years
Weighted-average discount rate (1)	4.7	%	5.4	%

(1) The 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.

Schedule of lease maturities after adoption of 842

Maturities of lease liabilities:

(in thousands)	March 31, 2021
1 year or less	$	13,216
1-2 years	11,538
2-3 years	10,896
3-4 years	7,571
Greater than 4 years	14,274
Total lease payments	57,495
Less: imputed interest (1)	(6,863)
	$	50,632

(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.

Schedule of supplemental cash flow lease information

Cash flow information

	Three Months Ended March 31,
(in thousands)	2021		2020
Cash paid for leases	$	6,716	$	5,520
Right of use assets recognized for new leases and amendments (non-cash)	$	714	$	551

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DEBT (Tables)

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Contractual obligation, fiscal year maturity schedule

Carrying value of the Notes:

(in thousands)	March 31, 2021		December 31, 2020
Principal	$	600,000	$	600,000
Unamortized debt discount	—		(71,222)
Unamortized issuance costs	(11,582)		(10,575)
Convertible senior notes, net	$	588,418	$	518,203
Conversion options	$	—	$	84,120
Issuance costs	—		(2,037)
Deferred taxes	—		(20,479)
Additional paid-in capital	$	—	$	61,604

Interest expense related to the Notes:

	Three Months Ended March 31,
(in thousands)	2021			2020
Contractual interest expense (0.75% coupon)	$	1,125		$	450
Amortization of debt discount	—			1,497
Amortization of issuance costs	673			222
	$	1,798		$	2,169
Weighted-average effective interest rate	1.2		%	4.3		%

Future payments of principal and contractual interest:

	March 31, 2021
(in thousands)	Principal		Interest		Total
2021	$	—	$	2,250	$	2,250
2022	—		4,500		4,500
2023	—		4,500		4,500
2024	—		4,500		4,500
2025	600,000		1,488		601,488
	$	600,000	$	17,238	$	617,238

Schedule of derivative instruments

Change in capped call transactions:

	Three Months Ended March 31,
(in thousands)	2021		2020
January 1,	$	83,597	$	—
Issuance	—		51,900
Fair value adjustment	(19,117)		(18,592)
March 31,	$	64,480	$	33,308

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FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Assets and liabilities measured at fair value

Assets and liabilities measured at fair value on a recurring basis:

	March 31, 2021								December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents	$	26,657	$	—	$	—	$	26,657	$	42,339	$	14,000	$	—	$	56,339
Marketable securities	$	—	$	269,650	$	—	$	269,650	$	—	$	293,269	$	—	$	293,269
Capped Call Transactions (1)	$	—	$	64,480	$	—	$	64,480	$	—	$	83,597	$	—	$	83,597
Venture investments (1) (2)	$	—	$	—	$	9,756	$	9,756	$	—	$	—	$	8,345	$	8,345

(1) Included in other long-term assets. (2) Investments in privately-held companies.

Fair value, assets measured on recurring basis, unobservable input reconciliation

Change in venture investments:

	Three Months Ended March 31,
(in thousands)	2021		2020
January 1,	$	8,345	$	4,871
New investments	500		1,490
Sales of investments	(400)		(1,424)
Changes in foreign exchange rates	(9)		(73)
Changes in fair value:
included in other income	100		1,374
included in other comprehensive income	1,220		100
March 31,	$	9,756	$	6,338

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REVENUE (Tables)

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Schedule of revenue by geographic location

Geographic revenue

	Three Months Ended March 31,
(Dollars in thousands)	2021				2020
U.S.	$	194,568	62	%	$	172,417	65	%
Other Americas	11,901		4	%	15,342		6	%
United Kingdom (“U.K.”)	28,212		9	%	21,837		8	%
Europe (excluding U.K.), Middle East, and Africa	51,659		16	%	31,938		12	%
Asia-Pacific	27,159		9	%	24,057		9	%
	$	313,499	100	%	$	265,591	100	%

Schedule of revenue streams

Revenue streams

	Three Months Ended March 31,
(in thousands)	2021		2020
Perpetual license	$	5,452	$	3,659
Term license	111,509		90,257
Revenue recognized at a point in time	116,961		93,916
Maintenance	75,561		73,695
Pega Cloud	67,858		43,466
Consulting	53,119		54,514
Revenue recognized over time	196,538		171,675
	$	313,499	$	265,591

(in thousands)	Three Months Ended March 31,
	2021		2020
Pega Cloud	$	67,858	$	43,466
Maintenance	75,561		73,695
Term license	111,509		90,257
Subscription (1)	254,928		207,418
Perpetual license	5,452		3,659
Consulting	53,119		54,514
	$	313,499	$	265,591

(1) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).

Revenue for remaining performance obligations expected to be recognized

	March 31, 2021
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	9,649	$	41,025	$	220,100	$	252,104	$	21,068	$	543,946	55	%
1-2 years	629		9,874		52,366		187,456		914		251,239		26	%
2-3 years	—		7,055		33,337		91,861		1,756		134,009		14	%
Greater than 3 years	—		377		16,834		32,895		510		50,616		5	%
	$	10,278	$	58,331	$	322,637	$	564,316	$	24,248	$	979,810	100	%

	March 31, 2020
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	3,995	$	30,962	$	205,083	$	174,277	$	18,945	$	433,262	58	%
1-2 years	2,168		5,088		34,633		125,473		1,215		168,577		22	%
2-3 years	—		6,504		19,411		81,187		107		107,209		14	%
Greater than 3 years	—		635		10,596		33,537		10		44,778		6	%
	$	6,163	$	43,189	$	269,723	$	414,474	$	20,277	$	753,826	100	%

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STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Summary of stock based compensation expense

Expense

	Three Months Ended March 31,
(in thousands)	2021		2020
Cost of revenue	$	5,925	$	5,152
Selling and marketing	13,720		9,718
Research and development	6,770		5,496
General and administrative	3,685		2,809
	$	30,100	$	23,175
Income tax benefit	$	(5,991)	$	(4,582)

Summary of stock based compensation award granted

Grants

	Three Months Ended March 31, 2021
(in thousands)	Shares	Total Fair Value
RSUs	684	$	89,291
Non-qualified stock options	1,248	$	47,380

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INCOME TAXES (Tables)

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Summary of benefit from income taxes and discrete tax items

Effective income tax rate

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
(Benefit from) income taxes	$	(17,618)		$	(23,810)
Effective income tax benefit rate	73		%	48		%

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(LOSS) PER SHARE (Tables)

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Summary of basic and diluted earnings per share

Calculation of (loss) per share:

	Three Months Ended March 31,
(in thousands, except per share amounts)	2021		2020
Net (loss)	$	(6,617)	$	(25,372)
Weighted-average common shares outstanding	81,004		79,808
(Loss) per share, basic	$	(0.08)	$	(0.32)
Net (loss)	$	(6,617)	$	(25,372)
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)	81,004		79,808
(Loss) per share, diluted	$	(0.08)	$	(0.32)
Outstanding anti-dilutive stock options and RSUs (4)	6,465		5,948

(1) In periods of loss, all dilutive securities are excluded as their inclusion would be anti-dilutive.

(2) The shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period. If the outstanding conversion options were fully exercised, the Company would issue an additional 4.4 million shares.

(3) The Company’s Capped Call Transactions cover approximately 4.4 million shares of the Company’s common stock (representing the number of shares for which the Notes are initially convertible). The Capped Call Transactions are generally expected to reduce common stock dilution and/or offset any potential cash payments the Company is required to 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 Capped Call Transactions are excluded in all periods as their effect would be anti-dilutive.

(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.

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NEW ACCOUNTING PRONOUNCEMENTS (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Jan. 01, 2021	Dec. 31, 2020	Mar. 31, 2020	Dec. 31, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Convertible senior notes, net	$ 588,418		$ 518,203
Impact of ASU adoption	478,925		542,172	$ 566,611	$ 539,010
Accounting Standards Update 2020-06
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Convertible senior notes, net		$ 587,700
Retained Earnings
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Impact of ASU adoption	$ 340,223		339,879	$ 383,142	$ 410,919
Cumulative Effect, Period of Adoption, Adjustment
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Impact of ASU adoption			(52,205)
Cumulative Effect, Period of Adoption, Adjustment | Accounting Standards Update 2020-06
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Convertible senior notes, net		$ 69,500
Cumulative Effect, Period of Adoption, Adjustment | Retained Earnings
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Impact of ASU adoption			9,399
Cumulative Effect, Period of Adoption, Adjustment | Retained Earnings | Accounting Standards Update 2020-06
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Impact of ASU adoption			$ 9,400

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MARKETABLE SECURITIES - Schedule of Marketable Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Marketable Securities [Line Items]
Amortized Cost	$ 270,003	$ 293,341
Unrealized Gains	16	88
Unrealized Losses	(369)	(160)
Fair Value	269,650	293,269
Government debt
Marketable Securities [Line Items]
Amortized Cost	13,000	39,996
Unrealized Gains	1	0
Unrealized Losses	0	(8)
Fair Value	13,001	39,988
Corporate debt
Marketable Securities [Line Items]
Amortized Cost	257,003	253,345
Unrealized Gains	15	88
Unrealized Losses	(369)	(152)
Fair Value	$ 256,649	$ 253,281

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MARKETABLE SECURITIES - Additional Information (Details)	Mar. 31, 2021
Investments, Debt and Equity Securities [Abstract]
Marketable debt security weighted-average remaining maturity	1 year 4 months 24 days

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Receivable (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Receivables [Abstract]
Accounts receivable	$ 159,324	$ 215,827
Unbilled receivables	228,603	207,155
Long-term unbilled receivables	108,048	113,278
Total receivables	$ 495,975	$ 536,260

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Unbilled Receivables (Details) $ in Thousands	Mar. 31, 2021 USD ($)
Receivables [Abstract]
1 year or less	$ 228,603
1-2 years	80,688
2-5 years	27,360
Total	$ 336,651
Percentage of unbilled receivables, 1 year or less	68.00%
Percentage of unbilled receivables, 1-2 years	24.00%
Percentage of unbilled receivables, 2-5 years	8.00%
Total percentage of unbilled receivables	100.00%

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE- Contract Effective (Details) $ in Thousands	Mar. 31, 2021 USD ($)
Receivables [Abstract]
2021	$ 46,625
2020	163,226
2019	63,600
2018	28,885
2017 and prior	34,315
Unbilled revenue total	$ 336,651
2021	14.00%
2020	48.00%
2019	19.00%
2018	9.00%
2017 and prior	10.00%
Total percentage of unbilled revenue	100.00%

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Contract Assets and Deferred Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Receivables [Abstract]
Contract assets	$ 13,454	$ 15,296
Long-term contract assets	7,284	7,777
Total contract assets	20,738	23,073
Deferred revenue	244,170	232,865
Long-term deferred revenue	7,565	8,991
Total deferred revenue	251,735	$ 241,856
Revenue recognized during the period that was included in deferred revenue	$ 107,000

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DEFERRED COMMISSIONS - Schedule of Impairment of Deferred Commissions (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Deferred commissions	$ 103,474	$ 108,624

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DEFERRED COMMISSIONS - Schedule of Amortization of Deferred Commissions (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Amortization of deferred commissions	$ 11,496	$ 8,497

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GOODWILL AND OTHER INTANGIBLE ASSETS - Changes in Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Goodwill [Roll Forward]
Beginning balance	$ 79,231	$ 79,039
Acquisition	2,701	0
Currency translation adjustments	105	(541)
Ending balance	$ 82,037	$ 78,498

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GOODWILL AND OTHER INTANGIBLE ASSETS - Schedule of Amortizable Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Mar. 31, 2021	Sep. 30, 2020	Dec. 31, 2020
Goodwill and Other Intangible Assets [Line Items]
Cost	$ 135,683		$ 133,372
Accumulated Amortization	(118,635)		(117,624)
Total	17,048		15,748
Client-related
Goodwill and Other Intangible Assets [Line Items]
Cost	63,180		63,168
Accumulated Amortization	(56,260)		(55,877)
Total	6,920		7,291
Technology
Goodwill and Other Intangible Assets [Line Items]
Cost	67,142		64,843
Accumulated Amortization	(57,014)		(56,386)
Total	10,128		8,457
Other
Goodwill and Other Intangible Assets [Line Items]
Cost	5,361		5,361
Accumulated Amortization	(5,361)		(5,361)
Total	$ 0		$ 0
Minimum | Client-related
Goodwill and Other Intangible Assets [Line Items]
Useful Lives	4 years	4 years
Minimum | Technology
Goodwill and Other Intangible Assets [Line Items]
Useful Lives	2 years	2 years
Minimum | Other
Goodwill and Other Intangible Assets [Line Items]
Useful Lives	1 year	1 year
Maximum | Client-related
Goodwill and Other Intangible Assets [Line Items]
Useful Lives	10 years	10 years
Maximum | Technology
Goodwill and Other Intangible Assets [Line Items]
Useful Lives	10 years	10 years
Maximum | Other
Goodwill and Other Intangible Assets [Line Items]
Useful Lives	5 years	5 years

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GOODWILL AND OTHER INTANGIBLE ASSETS - Amortization Expense of Acquired Intangibles (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 1,002	$ 1,018
Cost of revenue
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	629	647
Selling and marketing
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 373	$ 371

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GOODWILL AND OTHER INTANGIBLE ASSETS - Estimated Future Amortization Expense Related to Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]
Future estimated amortization expense, 2021	$ 2,985
Future estimated amortization expense, 2022	3,886
Future estimated amortization expense, 2023	3,618
Future estimated amortization expense, 2024	2,849
Future estimated amortization expense, 2025	2,509
Future estimated amortization expense, 2026 and thereafter	1,201
Total	$ 17,048	$ 15,748

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LEASES - Narrative (Details) $ in Millions	1 Months Ended
	Feb. 28, 2021 USD ($)
Leases [Abstract]
Gain lease termination	$ 18.0
Decrease in lease liabilities	$ 21.1

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LEASES - Operating Lease Expenses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Leases [Abstract]
Fixed lease costs	$ 300	$ 4,818
Short-term lease costs	459	455
Variable lease costs	1,387	1,278
Operating lease expenses	$ 2,146	$ 6,551

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LEASES - Right of Use Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Leases [Abstract]
Right of use assets	$ 44,330	$ 67,651
Lease liabilities	14,161	18,541
Long-term lease liabilities	$ 36,471	$ 59,053

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LEASES - Remaining Lease Term (Details)	Mar. 31, 2021	Dec. 31, 2020
Leases [Abstract]
Weighted-average remaining lease term	5 years 1 month 6 days	4 years 8 months 12 days
Weighted-average discount rate	4.70%	5.40%

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LEASES - Maturities after Adoption of 842 (Details) $ in Thousands	Mar. 31, 2021 USD ($)
Leases [Abstract]
1 year or less	$ 13,216
1-2 years	11,538
2-3 years	10,896
3-4 years	7,571
Greater than 4 years	14,274
Total lease payments	57,495
Less: imputed interest	(6,863)
Total lease liability	$ 50,632

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LEASES - Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Leases [Abstract]
Cash paid for leases	$ 6,716	$ 5,520
Right of use assets recognized for new leases and amendments (non-cash)	$ 714	$ 551

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DEBT - Convertible Senior Notes Narrative (Details)	1 Months Ended
	Feb. 29, 2020 USD ($) tradingDay $ / shares	Mar. 31, 2021 USD ($)	Jan. 01, 2021 USD ($)	Dec. 31, 2020 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Debt Instrument [Line Items]
Redemption percentage	100.00%
Convertible senior notes, net		$ 588,418,000		$ 518,203,000
Impact of ASU adoption		478,925,000		542,172,000	$ 566,611,000	$ 539,010,000
Accounting Standards Update 2020-06
Debt Instrument [Line Items]
Convertible senior notes, net			$ 587,700,000
Retained Earnings
Debt Instrument [Line Items]
Impact of ASU adoption		$ 340,223,000		339,879,000	$ 383,142,000	$ 410,919,000
Cumulative Effect, Period of Adoption, Adjustment
Debt Instrument [Line Items]
Impact of ASU adoption				(52,205,000)
Cumulative Effect, Period of Adoption, Adjustment | Accounting Standards Update 2020-06
Debt Instrument [Line Items]
Convertible senior notes, net			$ 69,500,000
Cumulative Effect, Period of Adoption, Adjustment | Retained Earnings
Debt Instrument [Line Items]
Impact of ASU adoption				9,399,000
Cumulative Effect, Period of Adoption, Adjustment | Retained Earnings | Accounting Standards Update 2020-06
Debt Instrument [Line Items]
Impact of ASU adoption				$ 9,400,000
On or after March 1, 2023
Debt Instrument [Line Items]
Redemption percentage	100.00%
Convertible debt
Debt Instrument [Line Items]
Face amount	$ 600,000,000
Interest rate	0.75%
Initial conversion rate	7.4045
Debt conversion amount	$ 1,000
Initial conversion price (in dollars per share) | $ / shares	$ 135.05
Convertible debt | After the calendar quarter ending on June 30, 2020
Debt Instrument [Line Items]
Threshold percentage of stock price trigger	130.00%
Threshold trading days | tradingDay	20
Threshold consecutive trading days | tradingDay	30
Convertible debt | Measurement period
Debt Instrument [Line Items]
Threshold percentage of stock price trigger	98.00%
Threshold consecutive trading days | tradingDay	5
Threshold consecutive business days | tradingDay	5
Convertible debt | On or after March 1, 2023
Debt Instrument [Line Items]
Threshold percentage of stock price trigger	130.00%
Threshold trading days | tradingDay	20
Threshold consecutive trading days | tradingDay	30

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DEBT - Net Carrying Amount (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Additional paid-in capital	$ 140,558	$ 204,432
Convertible debt
Debt Instrument [Line Items]
Principal	600,000	600,000
Unamortized debt discount	0	(71,222)
Unamortized issuance costs	(11,582)	(10,575)
Convertible senior notes, net	588,418	518,203
Conversion options	0	84,120
Issuance costs	0	(2,037)
Deferred taxes	0	(20,479)
Additional paid-in capital	$ 0	$ 61,604

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DEBT - Interest Expense (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended
	Feb. 29, 2020	Mar. 31, 2021	Mar. 31, 2020
Debt Instrument [Line Items]
Weighted-average effective interest rate		1.20%	4.30%
Convertible debt
Debt Instrument [Line Items]
Interest rate	0.75%
Contractual interest expense (0.75% coupon)		$ 1,125	$ 450
Amortization of debt discount		0	1,497
Amortization of issuance costs		673	222
Interest expense		$ 1,798	$ 2,169

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DEBT - Future Payments of Principal and Contractual Interest (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Interest
Interest expense, total due	$ 17,238
Convertible debt
Principal
2021	0
2022	0
2023	0
2024	0
2025	600,000
Principal, total due	600,000	$ 600,000
Interest
2021	2,250
2022	4,500
2023	4,500
2024	4,500
2025	1,488
Total
2021	2,250
2022	4,500
2023	4,500
2024	4,500
2025	601,488
Principal and interest, total due	$ 617,238

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DEBT - Capped Call Transactions (Details) $ in Thousands, shares in Millions	1 Months Ended	3 Months Ended
	Feb. 29, 2020 $ / derivative shares	Mar. 31, 2021 USD ($)	Mar. 31, 2020 USD ($)
Debt Disclosure [Abstract]
Number of shares issuable upon conversion | shares	4.4
Cap price (in dollars per share) | $ / derivative	196.44
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance		$ 83,597	$ 0
Issuance		0	51,900
Fair value adjustment		(19,117)	(18,592)
Ending balance		$ 64,480	$ 33,308

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DEBT - Credit Facility (Details)	1 Months Ended
	Oct. 31, 2020 USD ($)	Dec. 31, 2020 USD ($)
Debt Instrument [Line Items]
Remaining borrowing capacity		$ 0
PNC bank, national association
Debt Instrument [Line Items]
Minimum consolidated coverage ratio	3.5
Credit agreement | PNC bank, national association
Debt Instrument [Line Items]
Minimum required cash and investments held	$ 200,000,000
Maximum consolidated net leverage ratio	3.5
Line of Credit | PNC bank, national association | Revolving credit facility
Debt Instrument [Line Items]
Revolving credit agreement term	5 years
Senior notes	$ 100,000,000
Increase in aggregate commitment amount	$ 200,000,000

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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Fair Value Assets
Marketable securities	$ 269,650	$ 293,269
Capped call transactions	64,480	83,597
Cash equivalents
Fair Value Assets
Cash equivalents	26,657	56,339
Venture investments
Fair Value Assets
Venture investments	9,756	8,345
Level 1
Fair Value Assets
Marketable securities	0	0
Capped call transactions	0	0
Level 1 | Cash equivalents
Fair Value Assets
Cash equivalents	26,657	42,339
Level 1 | Venture investments
Fair Value Assets
Venture investments	0	0
Level 2
Fair Value Assets
Marketable securities	269,650	293,269
Capped call transactions	64,480	83,597
Level 2 | Cash equivalents
Fair Value Assets
Cash equivalents	0	14,000
Level 2 | Venture investments
Fair Value Assets
Venture investments	0	0
Level 3
Fair Value Assets
Marketable securities	0	0
Capped call transactions	0	0
Level 3 | Cash equivalents
Fair Value Assets
Cash equivalents	0	0
Level 3 | Venture investments
Fair Value Assets
Venture investments	$ 9,756	$ 8,345

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FAIR VALUE MEASUREMENTS - Change in Investment in Privately Held Companies (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Convertible debt fair value	$ 665,900
Privately held investment
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	8,345	$ 4,871
New investments	500	1,490
Sales of investments	(400)	(1,424)
Changes in foreign exchange rates	(9)	(73)
Changes in fair value included in other income	100	1,374
Changes in fair value included in other comprehensive income	1,220	100
Ending balance	$ 9,756	$ 6,338

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REVENUE - Geographic Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Disaggregation of Revenue [Line Items]
Revenue	$ 313,499	$ 265,591
Percent of total revenue	100.00%	100.00%
U.S.
Disaggregation of Revenue [Line Items]
Revenue	$ 194,568	$ 172,417
Other Americas
Disaggregation of Revenue [Line Items]
Revenue	11,901	15,342
United Kingdom (“U.K.”)
Disaggregation of Revenue [Line Items]
Revenue	28,212	21,837
Europe (excluding U.K.), Middle East, and Africa
Disaggregation of Revenue [Line Items]
Revenue	51,659	31,938
Asia-Pacific
Disaggregation of Revenue [Line Items]
Revenue	$ 27,159	$ 24,057
Total revenue | U.S.
Disaggregation of Revenue [Line Items]
Percent of total revenue	62.00%	65.00%
Total revenue | Other Americas
Disaggregation of Revenue [Line Items]
Percent of total revenue	4.00%	6.00%
Total revenue | United Kingdom (“U.K.”)
Disaggregation of Revenue [Line Items]
Percent of total revenue	9.00%	8.00%
Total revenue | Europe (excluding U.K.), Middle East, and Africa
Disaggregation of Revenue [Line Items]
Percent of total revenue	16.00%	12.00%
Total revenue | Asia-Pacific
Disaggregation of Revenue [Line Items]
Percent of total revenue	9.00%	9.00%

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REVENUE - Revenue Stream (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Disaggregation of Revenue [Line Items]
Revenue	$ 313,499	$ 265,591
Revenue recognized at a point in time
Disaggregation of Revenue [Line Items]
Revenue	116,961	93,916
Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	196,538	171,675
Perpetual license | Revenue recognized at a point in time
Disaggregation of Revenue [Line Items]
Revenue	5,452	3,659
Term license | Revenue recognized at a point in time
Disaggregation of Revenue [Line Items]
Revenue	111,509	90,257
Maintenance
Disaggregation of Revenue [Line Items]
Revenue	75,561	73,695
Maintenance | Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	75,561	73,695
Pega Cloud
Disaggregation of Revenue [Line Items]
Revenue	67,858	43,466
Pega Cloud | Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	67,858	43,466
Subscription
Disaggregation of Revenue [Line Items]
Revenue	254,928	207,418
Consulting
Disaggregation of Revenue [Line Items]
Revenue	53,119	54,514
Consulting | Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	$ 53,119	$ 54,514

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REVENUE - Performance Obligations (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Mar. 31, 2020
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 979,810	$ 753,826
Revenue remaining performance obligation, percentage	100.00%	100.00%
1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 543,946	$ 433,262
Revenue remaining performance obligation, percentage	55.00%	58.00%
1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 251,239	$ 168,577
Revenue remaining performance obligation, percentage	26.00%	22.00%
2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 134,009	$ 107,209
Revenue remaining performance obligation, percentage	14.00%	14.00%
Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 50,616	$ 44,778
Revenue remaining performance obligation, percentage	5.00%	6.00%
Perpetual license
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 10,278	$ 6,163
Perpetual license | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	9,649	3,995
Perpetual license | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	629	2,168
Perpetual license | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	0	0
Perpetual license | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	0	0
Term license
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	58,331	43,189
Term license | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	41,025	30,962
Term license | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	9,874	5,088
Term license | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	7,055	6,504
Term license | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	377	635
Maintenance
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	322,637	269,723
Maintenance | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	220,100	205,083
Maintenance | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	52,366	34,633
Maintenance | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	33,337	19,411
Maintenance | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	16,834	10,596
Pega Cloud
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	564,316	414,474
Pega Cloud | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	252,104	174,277
Pega Cloud | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	187,456	125,473
Pega Cloud | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	91,861	81,187
Pega Cloud | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	32,895	33,537
Consulting
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	24,248	20,277
Consulting | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	21,068	18,945
Consulting | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	914	1,215
Consulting | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	1,756	107
Consulting | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 510	$ 10

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REVENUE - Performance Obligations - Expected Timing (Details)	Mar. 31, 2021	Mar. 31, 2020
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction		1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-04-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction		9 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-04-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	1 year	2 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction

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STOCK-BASED COMPENSATION - Summary of Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 30,100	$ 23,175
Income tax benefit	(5,991)	(4,582)
Cost of revenue
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	5,925	5,152
Selling and marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	13,720	9,718
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	6,770	5,496
General and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 3,685	$ 2,809

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STOCK-BASED COMPENSATION - Additional Information (Details) $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($)
Share-based Payment Arrangement [Abstract]
Unrecognized stock-based compensation expense	$ 183.4
Weighted-average period of recognition of unrecognized stock-based compensation expense (in years)	2 years 3 months 18 days

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STOCK-BASED COMPENSATION - Summary of Stock-Based Compensation Awards Granted (Details) - Employees $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($) shares
RSUs
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Grants in period (in shares) | shares	684,000
Total Fair Value | $	$ 89,291
Non-qualified stock options
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Options granted in period (in shares) | shares	1,248,000
Total Fair Value | $	$ 47,380

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Tax Disclosure [Abstract]
(Benefit from) income taxes	$ (17,618)	$ (23,810)
Effective income tax benefit rate	73.00%	48.00%

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(LOSS) PER SHARE (Details) $ / shares in Units, shares in Thousands, $ in Thousands	1 Months Ended	3 Months Ended
	Feb. 29, 2020 $ / derivative shares	Mar. 31, 2021 USD ($) $ / shares shares	Mar. 31, 2020 USD ($) $ / shares shares
Earnings Per Share [Abstract]
Net (loss) | $		$ (6,617)	$ (25,372)
Weighted-average common shares outstanding (in shares)		81,004	79,808
(Loss) per share, basic (in dollars per share) | $ / shares		$ (0.08)	$ (0.32)
Weighted-average common shares outstanding, assuming dilution (in shares)		81,004	79,808
(Loss) per share, diluted (in dollars per share) | $ / shares		$ (0.08)	$ (0.32)
Outstanding anti-dilutive stock options and RSUs (in shares)		6,465	5,948
Convertible debt (in shares)		4,400
Number of shares issuable upon conversion	4,400
Cap price (in dollars per share) | $ / derivative	196.44