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 June 30, 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 81,455,672 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on July 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 June 30, 2021 and December 31, 2020	3
Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020	4
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2021 and 2020	5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2021 and 2020	6
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	26
Item 4. Controls and Procedures	26
PART II - OTHER INFORMATION
Item 1A. Risk Factors	27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6. Exhibits	27
Signature	28

2

PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
	June 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	139,878	$	171,899
Marketable securities	271,459		293,269
Total cash, cash equivalents, and marketable securities	411,337		465,168
Accounts receivable	166,226		215,827
Unbilled receivables	236,451		207,155
Other current assets	96,215		88,760
Total current assets	910,229		976,910
Unbilled receivables	144,065		113,278
Goodwill	82,173		79,231
Other long-term assets	466,103		434,843
Total assets	$	1,602,570	$	1,604,262
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	22,931	$	24,028
Accrued expenses	64,093		59,261
Accrued compensation and related expenses	84,900		123,012
Deferred revenue	242,194		232,865
Other current liabilities	16,126		20,969
Total current liabilities	430,244		460,135
Convertible senior notes, net	589,092		518,203
Operating lease liabilities	42,063		59,053
Other long-term liabilities	18,703		24,699
Total liabilities	1,080,102		1,062,090
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued	—		—
Common stock, 200,000 shares authorized; 81,456 and 80,890 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	815		809
Additional paid-in capital	147,670		204,432
Retained earnings	375,069		339,879
Accumulated other comprehensive (loss)	(1,086)		(2,948)
Total stockholders’ equity	522,468		542,172
Total liabilities and stockholders’ equity	$	1,602,570	$	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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue
Software license	$	116,892	$	53,323	$	233,853	$	147,239
Maintenance	78,782		72,222		154,343		145,917
Pega Cloud	73,293		48,838		141,151		92,304
Consulting	56,735		52,992		109,854		107,506
Total revenue	325,702		227,375		639,201		492,966
Cost of revenue
Software license	656		979		1,306		1,663
Maintenance	4,995		5,591		10,781		11,167
Pega Cloud	24,051		18,988		46,608		36,521
Consulting	54,829		51,133		108,283		106,868
Total cost of revenue	84,531		76,691		166,978		156,219
Gross profit	241,171		150,684		472,223		336,747
Operating expenses
Selling and marketing	156,423		127,607		305,162		263,631
Research and development	64,395		58,869		126,837		117,596
General and administrative	19,161		15,655		37,431		31,285
Total operating expenses	239,979		202,131		469,430		412,512
Income (loss) from operations	1,192		(51,447)		2,793		(75,765)
Foreign currency transaction (loss) gain	(403)		4,256		(5,501)		(1,691)
Interest income	236		242		389		849
Interest expense	(1,959)		(5,529)		(3,839)		(7,835)
Gain on capped call transactions	26,309		19,419		7,192		827
Other income, net	—		—		106		1,374
Income (loss) before (benefit from) income taxes	25,375		(33,059)		1,140		(82,241)
(Benefit from) income taxes	(11,916)		(12,319)		(29,534)		(36,129)
Net income (loss)	$	37,291	$	(20,740)	$	30,674	$	(46,112)
Earnings (loss) per share
Basic	$	0.46	$	(0.26)	$	0.38	$	(0.58)
Diluted	$	0.43	$	(0.26)	$	0.36	$	(0.58)
Weighted-average number of common shares outstanding
Basic	81,316		80,224		81,161		80,016
Diluted	90,320		80,224		86,006		80,016

See notes to unaudited condensed consolidated financial statements.

4

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands)
	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	37,291	$	(20,740)	$	30,674	$	(46,112)
Other comprehensive income, net of tax
Unrealized gain on available-for-sale securities	121		—		1,131		100
Foreign currency translation adjustments	1,461		2,028		731		1,514
Total other comprehensive income, net of tax	$	1,582	$	2,028	$	1,862	$	1,614
Comprehensive income (loss)	$	38,873	$	(18,712)	$	32,536	$	(44,498)

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
Repurchase of common stock	(23)	—		(2,199)		—		—		(2,199)
Issuance of common stock for stock compensation plans	349	3		(14,085)		—		—		(14,082)
Issuance of common stock under the employee stock purchase plan	18	—		1,403		—		—		1,403
Stock-based compensation	—	—		25,674		—		—		25,674
Cash dividends declared ($0.03 per share)	—	—		—		(2,413)		—		(2,413)
Other comprehensive income	—	—		—		—		2,028		2,028
Net (loss)	—	—		—		(20,740)		—		(20,740)
June 30, 2020	80,420	$	804	$	207,103	$	359,989	$	(11,614)	$	556,282
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
Repurchase of common stock	(81)	(1)		(10,245)		—		—		(10,246)
Issuance of common stock for stock compensation plans	267	3		(16,199)		—		—		(16,196)
Issuance of common stock under the employee stock purchase plan	24	1		2,858		—		—		2,859
Stock-based compensation	—	—		30,698		—		—		30,698
Cash dividends declared ($0.03 per share)	—	—		—		(2,445)		—		(2,445)
Other comprehensive income	—	—		—		—		1,582		1,582
Net income	—	—		—		37,291		—		37,291
June 30, 2021	81,456	$	815	$	147,670	$	375,069	$	(1,086)	$	522,468

See notes to unaudited condensed consolidated financial statements.

6

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
	Six Months Ended June 30,
	2021		2020
Operating activities
Net income (loss)	$	30,674	$	(46,112)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities
Stock-based compensation	60,788		48,831
(Gain) on capped call transactions	(7,192)		(827)
Deferred income taxes	(28,232)		(18,399)
Amortization of deferred commissions	21,202		16,061
Amortization of debt discount and issuance costs	1,348		6,033
Amortization of intangible assets and depreciation	15,504		10,134
Amortization of investments	1,988		—
Foreign currency transaction loss	5,501		1,691
Other non-cash	(4,869)		6,445
Change in operating assets and liabilities, net	(77,302)		(45,056)
Cash provided by (used in) operating activities	19,410		(21,199)
Investing activities
Purchases of investments	(51,601)		(1,769)
Proceeds from maturities and called investments	68,798		—
Sales of investments	2,450		1,424
Payments for acquisitions, net of cash acquired	(4,993)		—
Investment in property and equipment	(4,161)		(19,059)
Cash provided by (used in) investing activities	10,493		(19,404)
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	5,146		1,403
Dividend payments to stockholders	(4,865)		(4,793)
Common stock repurchases	(60,998)		(44,890)
Cash (used in) provided by financing activities	(60,717)		485,293
Effect of exchange rate changes on cash and cash equivalents	(1,207)		(942)
Net (decrease) increase in cash and cash equivalents	(32,021)		443,748
Cash and cash equivalents, beginning of period	171,899		68,363
Cash and cash equivalents, end of period	$	139,878	$	512,111

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. These 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 separating 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

	June 30, 2021								December 31, 2020
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Government debt	$	2,000	$	—	$	—	$	2,000	$	39,996	$	—	$	(8)	$	39,988
Corporate debt	269,649		20		(210)		269,459		253,345		88		(152)		253,281
	$	271,649	$	20	$	(210)	$	271,459	$	293,341	$	88	$	(160)	$	293,269

As of June 30, 2021, marketable securities’ maturities ranged from July 2021 to May 2024, with a weighted-average remaining maturity of approximately 1.3 years.

8

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Receivables

(in thousands)	June 30, 2021		December 31, 2020
Accounts receivable	$	166,226	$	215,827
Unbilled receivables	236,451		207,155
Long-term unbilled receivables	144,065		113,278
	$	546,742	$	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)	June 30, 2021
1 year or less	$	236,451	62	%
1-2 years	88,350		23	%
2-5 years	55,715		15	%
	$	380,516	100	%

Unbilled receivables by contract effective date:

(Dollars in thousands)	June 30, 2021
2021	$	140,395	37	%
2020	131,618		34	%
2019	55,282		15	%
2018	26,688		7	%
2017 and prior	26,533		7	%
	$	380,516	100	%

Major clients

Clients accounting for 10% or more of the Company’s total receivables:

	June 30, 2021		December 31, 2020
Client A	13	%	*

* Client accounted for less than 10% of total receivables.

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)	June 30, 2021		December 31, 2020
Contract assets (1)	$	14,031	$	15,296
Long-term contract assets (2)	10,097		7,777
	$	24,128	$	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)	June 30, 2021		December 31, 2020
Deferred revenue	$	242,194	$	232,865
Long-term deferred revenue (1)	6,041		8,991
	$	248,235	$	241,856

(1) Included in other long-term liabilities.

The change in deferred revenue in the six months ended June 30, 2021 was primarily due to new billings in advance of revenue recognition, offset by $172.1 million of revenue recognized that was included in deferred revenue as of December 31, 2020.

9

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5. DEFERRED COMMISSIONS

(in thousands)	June 30, 2021		December 31, 2020
Deferred commissions (1)	$	109,803	$	108,624

(1) Included in other long-term assets.

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Amortization of deferred commissions (1)	$	9,706	$	7,564	$	21,202	$	16,061

(1) Included in selling and marketing expense.

NOTE 6. GOODWILL AND OTHER INTANGIBLES

Goodwill

Change in goodwill:

	Six Months Ended June 30,
(in thousands)	2021		2020
January 1,	$	79,231	$	79,039
Acquisition	2,701		—
Currency translation adjustments	241		(364)
June 30,	$	82,173	$	78,675

Intangibles

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

		June 30, 2021
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,186	$	(56,638)	$	6,548
Technology	2-10 years	67,142		(57,644)		9,498
Other	1-5 years	5,361		(5,361)		—
		$	135,689	$	(119,643)	$	16,046

(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.

10

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Amortization of intangible assets:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Cost of revenue	$	629	$	647	$	1,258	$	1,294
Selling and marketing	373		370		746		740
	$	1,002	$	1,017	$	2,004	$	2,034

Future estimated intangibles assets amortization:

(in thousands)	June 30, 2021
2021	$	1,983
2022	3,886
2023	3,618
2024	2,849
2025	2,509
2026 and thereafter	1,201
	$	16,046

NOTE 7. LEASES

Headquarters lease

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, which is being amortized over the remaining lease term. Upon modification, the Company reduced its lease liabilities by $21.1 million and accelerated depreciation related to its corporate headquarters.

Expense

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Fixed lease costs (1)	$	(3,972)	$	4,943	$	(3,672)	$	9,761
Short-term lease costs	515		371		974		826
Variable lease costs	1,340		969		2,727		2,247
	$	(2,117)	$	6,283	$	29	$	12,834

(1) The decrease in fixed lease costs in three and six months ended June 30, 2021 was due to the modification of the Headquarters Lease.

Right of use assets and lease liabilities

(in thousands)	June 30, 2021		December 31, 2020
Right of use assets (1)	$	51,058	$	67,651
Lease liabilities (2)	$	13,682	$	18,541
Long-term lease liabilities	$	42,063	$	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:

	June 30, 2021		December 31, 2020
Weighted-average remaining lease term	4.9 years		4.7 years
Weighted-average discount rate (1)	4.6	%	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.

11

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Maturities of lease liabilities:

(in thousands)	June 30, 2021
Remainder of 2021	$	8,783
2022	13,888
2023	13,300
2024	10,021
2025	6,913
2026	2,653
Thereafter	7,170
Total lease payments	62,728
Less: imputed interest (1)	(6,983)
	$	55,745

(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

	Six Months Ended June 30,
(in thousands)	2021		2020
Cash paid for leases	$	11,605	$	10,945
Right of use assets recognized for new leases and amendments (non-cash)	$	10,160	$	10,077

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 June 30, 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.

12

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 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)	June 30, 2021		December 31, 2020
Principal	$	600,000	$	600,000
Unamortized debt discount	—		(71,222)
Unamortized issuance costs	(10,908)		(10,575)
Convertible senior notes, net	$	589,092	$	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 June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Contractual interest expense (0.75% coupon)	$	1,125	$	1,125	$	2,250	$	1,575
Amortization of debt discount	—		3,757		—		5,253
Amortization of issuance costs	675		558		1,348		780
	$	1,800	$	5,440	$	3,598	$	7,608

13

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The effective interest rate for the Notes:

	Six Months Ended June 30,
	2021		2020
Weighted-average effective interest rate	1.2	%	4.3	%

Future payments of principal and contractual interest:

	June 30, 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 (the “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 must 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:

	Six Months Ended June 30,
(in thousands)	2021		2020
January 1,	$	83,597	$	—
Issuance	—		51,900
Fair value adjustment	7,192		827
June 30,	$	90,789	$	52,727

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. 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 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 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 June 30, 2021 and December 31, 2020, the Company had no outstanding borrowings under the Credit Facility.

14

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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:

	June 30, 2021								December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents	$	4,650	$	—	$	—	$	4,650	$	42,339	$	14,000	$	—	$	56,339
Marketable securities	$	—	$	271,459	$	—	$	271,459	$	—	$	293,269	$	—	$	293,269
Capped Call Transactions (1)	$	—	$	90,789	$	—	$	90,789	$	—	$	83,597	$	—	$	83,597
Venture investments (1) (2)	$	—	$	—	$	9,779	$	9,779	$	—	$	—	$	8,345	$	8,345

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

Changes in venture investments:

	Six Months Ended June 30,
(in thousands)	2021		2020
January 1,	$	8,345	$	4,871
New investments	500		1,769
Sales of investments	(400)		(1,424)
Changes in foreign exchange rates	14		(50)
Changes in fair value:
included in other income	100		1,374
included in other comprehensive income	1,220		100
June 30,	$	9,779	$	6,640

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 $726.2 million as of June 30, 2021 and $706.5 million as of December 31, 2020. 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.

15

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10. REVENUE

Geographic revenue

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2021				2020				2021				2020
U.S.	$	189,297	58	%	$	142,811	63	%	$	383,865	60	%	$	315,228	63	%
Other Americas	14,058		4	%	8,930		4	%	25,959		4	%	24,272		5	%
United Kingdom (“U.K.”)	32,553		10	%	21,259		9	%	60,765		10	%	43,096		9	%
Europe (excluding U.K.), Middle East, and Africa	45,798		14	%	34,878		15	%	97,457		15	%	66,816		14	%
Asia-Pacific	43,996		14	%	19,497		9	%	71,155		11	%	43,554		9	%
	$	325,702	100	%	$	227,375	100	%	$	639,201	100	%	$	492,966	100	%

Revenue streams

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Perpetual license	$	12,596	$	9,057	$	18,048	$	12,716
Term license	104,296		44,266		215,805		134,523
Revenue recognized at a point in time	116,892		53,323		233,853		147,239
Maintenance	78,782		72,222		154,343		145,917
Pega Cloud	73,293		48,838		141,151		92,304
Consulting	56,735		52,992		109,854		107,506
Revenue recognized over time	208,810		174,052		405,348		345,727
	$	325,702	$	227,375	$	639,201	$	492,966

(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Pega Cloud	$	73,293	$	48,838	$	141,151	$	92,304
Client Cloud	$	183,078	$	116,488	$	370,148	$	280,440
Maintenance	78,782		72,222		154,343		145,917
Term license	104,296		44,266		215,805		134,523
Subscription (1)	256,371		165,326		511,299		372,744
Perpetual license	12,596		9,057		18,048		12,716
Consulting	56,735		52,992		109,854		107,506
	$	325,702	$	227,375	$	639,201	$	492,966

(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:

	June 30, 2021
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	6,707	$	46,146	$	214,645	$	281,793	$	17,863	$	567,154	56	%
1-2 years	234		15,708		59,164		194,841		2,675		272,622		26	%
2-3 years	—		909		36,076		88,855		762		126,602		12	%
Greater than 3 years	—		255		26,564		37,246		693		64,758		6	%
	$	6,941	$	63,018	$	336,449	$	602,735	$	21,993	$	1,031,136	100	%

	June 30, 2020
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	8,120	$	53,550	$	186,618	$	191,187	$	21,923	$	461,398	57	%
1-2 years	1,700		6,187		40,153		140,860		1,986		190,886		23	%
2-3 years	—		6,460		20,671		88,273		631		116,035		14	%
Greater than 3 years	—		646		10,517		37,071		626		48,860		6	%
	$	9,820	$	66,843	$	257,959	$	457,391	$	25,166	$	817,179	100	%

16

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Major clients

Clients accounting for 10% or more of the Company’s total revenue:

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2021			2020		2021		2020
Total revenue	$	325,702		$	227,375	$	639,201	$	492,966
Client A	13		%	*		*		*

*Client accounted for less than 10% of total revenue.

NOTE 11. STOCK-BASED COMPENSATION

Expense

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Cost of revenue	$	5,849	$	5,384	$	11,774	$	10,536
Selling and marketing	14,748		11,592		28,468		21,310
Research and development	6,343		5,805		13,113		11,302
General and administrative	3,748		2,874		7,433		5,683
	$	30,688	$	25,655	$	60,788	$	48,831
Income tax benefit	$	(6,192)	$	(5,107)	$	(12,183)	$	(9,689)

As of June 30, 2021, the Company had $157.3 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years.

Grants

	Six Months Ended June 30, 2021
(in thousands)	Shares	Total Fair Value
RSUs	753	$	97,483
Non-qualified stock options	1,368	$	51,594

NOTE 12. INCOME TAXES

Effective income tax rate

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2021		2020		2021			2020
(Benefit from) income taxes	$	(11,916)	$	(12,319)	$	(29,534)		$	(36,129)
Effective income tax benefit rate					(2,591)		%	44		%

The change in the effective income tax benefit rate was primarily due to the impact of discrete tax items on a proportionately larger income (loss) before income taxes in the prior period. The most significant discrete items were excess tax benefits from stock-based compensation and the impact of changes in statutory tax rates applicable to our U.K.-based deferred tax assets.

NOTE 13. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted earnings (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.

17

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Calculation of earnings (loss) per share:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2021		2020		2021		2020
Net income (loss)	$	37,291	$	(20,740)	$	30,674	$	(46,112)
Weighted-average common shares outstanding	81,316		80,224		81,161		80,016
Earnings (loss) per share, basic	$	0.46	$	(0.26)	$	0.38	$	(0.58)
Net income (loss)	$	37,291	$	(20,740)	$	30,674	$	(46,112)
Interest expense associated with convertible debt instruments, net of tax	1,351		—		—		—
Numerator for diluted EPS	$	38,642	$	(20,740)	$	30,674	$	(46,112)
Weighted-average effect of dilutive securities:
Convertible debt (1)	4,443		—		—		—
Stock options	3,266		—		3,416		—
RSUs	1,295		—		1,429		—
Effect of dilutive securities (2)	9,004		—		4,845		—
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)	90,320		80,224		86,006		80,016
Earnings (loss) per share, diluted	$	0.43	$	(0.26)	$	0.36	$	(0.58)
Outstanding anti-dilutive stock options and RSUs (4)	19		5,929		22		5,939

(1) 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.

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

(3) The Company’s Capped Call Transactions convert to 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 must 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 from weighted-average common shares outstanding, assuming dilution, 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 earnings (loss) per share. These awards may be dilutive in the future.

NOTE 14. SUBSEQUENT EVENTS

On July 6, 2021, the Company entered into an office space lease (the “Lease”) for 131 thousand square feet in Waltham, Massachusetts. The lease term of approximately 11 years is expected to commence on August 1, 2021 (the “Lease Commencement Date”), subject to certain adjustments for the initial occupancy date. The annual rent equals the base rent plus the Company’s portion of building operating costs and real estate taxes for the year. Rent first becomes payable on August 1, 2022, subject to adjustment based on the Lease Commencement Date. Base rent for the first year is $6 million and will increase by 3% annually. In addition, the Company will receive an improvement allowance from the landlord of $11.8 million.

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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; and

•management of our growth.

These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 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 from new information, future events, or otherwise.

The forward-looking statements contained in this Quarterly Report represent our views as of July 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.

19

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 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 June 30, 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 22% since June 30, 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.

* Foreign currency exchange rate changes contributed 3-4% to total ACV growth in 2021.

20

Remaining performance obligations (“Backlog”) | Increased 26% since June 30, 2020

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

Year to date Pega Cloud revenue | Increased 53% since the six months ended June 30, 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:

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

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

21

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 June 30,								Change				Six Months Ended June 30,								Change
	2021				2020								2021				2020
Pega Cloud	$	73,293	23	%	$	48,838	21	%	$	24,455	50	%	$	141,151	22	%	$	92,304	19	%	$	48,847	53	%
Client Cloud	$	183,078	56	%	$	116,488	52	%	$	66,590	57	%	$	370,148	58	%	$	280,440	57	%	$	89,708	32	%
Maintenance	78,782		24	%	72,222		33	%	6,560		9	%	154,343		24	%	145,917		30	%	8,426		6	%
Term license	104,296		32	%	44,266		19	%	60,030		136	%	215,805		34	%	134,523		27	%	81,282		60	%
Subscription (1)	$	256,371	79	%	$	165,326	73	%	91,045		55	%	511,299		80	%	372,744		76	%	138,555		37	%
Perpetual license	12,596		4	%	9,057		4	%	3,539		39	%	18,048		3	%	12,716		3	%	5,332		42	%
Consulting	56,735		17	%	52,992		23	%	3,743		7	%	109,854		17	%	107,506		21	%	2,348		2	%
	$	325,702	100	%	$	227,375	100	%	$	98,327	43	%	$	639,201	100	%	$	492,966	100	%	$	146,235	30	%

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

The total revenue changes in the three and six months ended June 30, 2021 generally reflect 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. 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 June 30, 2021, multi-year committed maintenance contributed $4.3 million to maintenance revenue growth and reduced term revenue growth by $15.4 million. In the six months ended June 30, 2021, multi-year committed maintenance contributed $7.8 million to maintenance revenue growth and reduced term revenue growth by $20.9 million.

•Maintenance renewal rates of higher than 90%.

•The increases in term license revenue in the three and six months ended June 30, 2021 were driven by a large, existing customer that expanded their use of our software, renewed an existing multi-year contract, and extended the term of the agreement earlier in the year than anticipated.

•The increases in perpetual license revenue were primarily due to several large perpetual license contracts recognized in revenue in the three and six months ended June 30, 2021.

•The increases in consulting revenue in the three and six months ended June 30, 2021 were primarily due to increases in billable hours. 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 June 30,								Change				Six Months Ended June 30,								Change
(Dollars in thousands)	2021				2020								2021				2020
Software license	$	116,236	99	%	$	52,344	98	%	$	63,892	122	%	$	232,547	99	%	$	145,576	99	%	$	86,971	60	%
Maintenance	73,787		94	%	66,631		92	%	7,156		11	%	143,562		93	%	134,750		92	%	8,812		7	%
Pega Cloud	49,242		67	%	29,850		61	%	19,392		65	%	94,543		67	%	55,783		60	%	38,760		69	%
Consulting	1,906		3	%	1,859		4	%	47		3	%	1,571		1	%	638		1	%	933		146	%
	$	241,171	74	%	$	150,684	66	%	$	90,487	60	%	$	472,223	74	%	$	336,747	68	%	$	135,476	40	%

•The changes in gross profit in the three and six months ended June 30, 2021 were primarily due to our Cloud Transition, revenue growth, and cost-efficiency gains as Pega Cloud grows and scales.

22

Operating expenses

(Dollars in thousands)	Three Months Ended June 30,								Change				Six Months Ended June 30,								Change
	2021				2020								2021				2020
			% of Revenue				% of Revenue								% of Revenue				% of Revenue
Selling and marketing	$	156,423	48	%	$	127,607	56	%	$	28,816	23	%	$	305,162	48	%	$	263,631	53	%	$	41,531	16	%
Research and development	$	64,395	20	%	$	58,869	26	%	$	5,526	9	%	$	126,837	20	%	$	117,596	24	%	$	9,241	8	%
General and administrative	$	19,161	6	%	$	15,655	7	%	$	3,506	22	%	$	37,431	6	%	$	31,285	6	%	$	6,146	20	%

•The increases in selling and marketing in the three and six months ended June 30, 2021 were primarily due to increases in compensation and benefits of $22.6 million and $48.0 million, attributable to increases in headcount and equity compensation. The increase in headcount reflects our efforts to increase our sales capacity to deepen relationships with existing clients and target new accounts.

•The increases in research and development in the three and six months ended June 30, 2021 were primarily due to increases in compensation and benefits of $7.2 million and $11.8 million, attributable to increases in headcount and equity compensation.

•The increases in general and administrative in the three and six months ended June 30, 2021 were primarily due to increases in compensation and benefits of $2.2 million and $3.5 million, attributable to increases in headcount and equity compensation, and increases in professional services fees of $1.8 million and $3.4 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 decreases in facilities expenses of $2.1 million and $3.3 million in selling and marketing, $2.4 million and $3.6 million in research and development, and $1.1 million and $1.6 million in general and administrative, in the three and six months ended June 30, 2021.

Other income (expense), net

(Dollars in thousands)	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
	2021		2020						2021		2020
Foreign currency transaction (loss) gain	$	(403)	$	4,256	$	(4,659)	*		$	(5,501)	$	(1,691)	$	(3,810)	(225)	%
Interest income	236		242		(6)		(2)	%	389		849		(460)		(54)	%
Interest expense	(1,959)		(5,529)		3,570		65	%	(3,839)		(7,835)		3,996		51	%
Gain on capped call transactions	26,309		19,419		6,890		35	%	7,192		827		6,365		770	%
Other income, net	—		—		—		*		106		1,374		(1,268)		(92)	%
	$	24,183	$	18,388	$	5,795	32	%	$	(1,653)	$	(6,476)	$	4,823	74	%

* not meaningful

•The changes in foreign currency transaction (loss) gain in the three and six months ended June 30, 2021 were 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 decreases in interest income in the three and six months ended June 30, 2021 were primarily due to declines in market interest rates.

•The decreases in interest expense in the three and six months ended June 30, 2021 were 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 June 30,				Change		Six Months Ended June 30,				Change
(in thousands)	2021		2020				2021		2020
Contractual interest expense (0.75% coupon)	$	1,125	$	1,125	$	—	$	2,250	$	1,575	$	675
Amortization of debt discount	—		3,757		(3,757)		—		5,253		(5,253)
Amortization of issuance costs	675		558		117		1,348		780		568
	$	1,800	$	5,440	$	(3,640)	$	3,598	$	7,608	$	(4,010)

•The increases in the gain on capped call transactions in the three and six months ended June 30, 2021, were due to fair value adjustments driven by increases in our stock price.

•The decrease in other income, net in the six months ended June 30, 2021, was due to larger fair value adjustments on equity securities held in our venture investments portfolio in the six months ended June 30, 2020.

23

(Benefit from) income taxes

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2021		2020		2021			2020
(Benefit from) income taxes	$	(11,916)	$	(12,319)	$	(29,534)		$	(36,129)
Effective income tax benefit rate					(2,591)		%	44		%

During the six months ended June 30, 2021, the change in our effective income tax benefit rate was primarily due to the impact of discrete tax items on a proportionately larger income (loss) before income taxes in the prior period. The most significant discrete items were excess tax benefits from stock-based compensation and the impact of changes in statutory tax rates applicable to our U.K.-based deferred tax assets.

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

	Six Months Ended June 30,
(in thousands)	2021		2020
Cash provided by (used in):
Operating activities	$	19,410	$	(21,199)
Investing activities	10,493		(19,404)
Financing activities	(60,717)		485,293
Effect of exchange rates on cash and cash equivalents	(1,207)		(942)
Net (decrease) increase in cash and cash equivalents	$	(32,021)	$	443,748

(in thousands)	June 30, 2021		December 31, 2020
Held by U.S. entities	$	306,754	$	399,138
Held by foreign entities	104,583		66,030
Total cash, cash equivalents, and marketable securities	$	411,337	$	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 becomes 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 impacted and is expected to continue to impact the timing of our billings and 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 six months ended June 30, 2021 was primarily due to a significant increase in client collections.

Corporate headquarters

In February 2021, we agreed to accelerate our exit from our existing Cambridge, Massachusetts corporate 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. On March 31, 2021 we leased office space at One Main Street, Cambridge, Massachusetts, to serve as our future corporate headquarters. The approximately 4.5 year lease includes base rent of approximately $2 million per year.

New Waltham Office

On July 6, 2021, we entered into an office space lease (the “Lease”) for 131 thousand square feet in Waltham, Massachusetts. The lease term of approximately 11 years is expected to commence on August 1, 2021 (the “Lease Commencement Date”), subject to certain adjustments for the initial occupancy date. The annual rent equals the base rent plus our portion of building operating costs and real estate taxes. Rent first becomes payable on August 1, 2022, subject to adjustment based on the Lease Commencement Date. Base rent for the first year is $6 million and will increase by 3% annually. In addition, we will receive an improvement allowance from the landlord of $11.8 million.

24

Investing activities

The change in cash provided by (used in) investing activities in the six months ended June 30, 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 June 30, 2021, we had no outstanding borrowings under the Credit Facility. See "Note 8. Debt" in Item 1 of this Quarterly Report for additional information.

Stock repurchase program

Changes in the remaining stock repurchase authority:

(in thousands)	Six Months Ended June 30, 2021
December 31, 2020	$	37,726
Authorizations (1)	38,467
Repurchases (2)	(19,392)
June 30, 2021	$	56,801

(1) On June 8, 2021, we announced that our Board of Directors extended the current stock repurchase program’s expiration date to June 30, 2022 and increased the remaining common stock repurchase authority to $60 million.

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

Common stock repurchases

	Six Months Ended June 30,
	2021			2020
(in thousands)	Shares	Amount		Shares	Amount
Tax withholdings for net settlement of equity awards	328	$	41,706	411	$	37,093
Stock repurchase program	151	19,392		110	8,199
	479	$	61,098	521	$	45,292

During the six months ended June 30, 2021 and 2020, instead of receiving cash from the equity holders, we withheld shares with a value of $27.8 million and $31.2 million, respectively, for the exercise price of options. These amounts are not included in 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.

	Six Months Ended June 30,
(in thousands)	2021		2020
Dividend payments to stockholders	$	4,865	$	4,793

Contractual obligations

As of June 30, 2021, our contractual obligations were:

	Payments due by period
(in thousands)	2021		2022		2023		2024		2025		2026 and thereafter		Other		Total
Convertible senior notes (1)	$	2,250	$	4,500	$	4,500	$	4,500	$	601,488	$	—	$	—	$	617,238
Purchase obligations (2)	28,215		60,242		12,539		1,938		429		—		—		103,363
Operating lease obligations (3)	8,783		13,888		13,300		10,021		6,913		9,823		—		62,728
Liability for uncertain tax positions (4)	—		—		—		—		—		—		1,665		1,665
	$	39,248	$	78,630	$	30,339	$	16,459	$	608,830	$	9,823	$	1,665	$	784,994

(1) Includes principal and interest.

(2) Represents the fixed or minimum amounts due under purchase obligations for hosting services and sales and marketing programs

(3) Excludes the Waltham lease, which we entered into on July 6, 2021. See "Note 14. Subsequent Events" in Item 1 of this Quarterly Report for additional information.

(4) We are unable to reasonably estimate the timing of the cash outflow due to uncertainties in the timing of the effective settlement of tax positions.

25

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:

	Six Months Ended June 30,
	2021		2020
(Decrease) increase in revenue	(4)	%	(3)	%
(Decrease) increase in net income	(1)	%	(15)	%

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:

	Six Months Ended June 30,
(in thousands)	2021		2020
Foreign currency gain (loss)	$	(5,676)	$	8,932

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 June 30, 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 June 30, 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 June 30, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

26

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 U.S. 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 June 30, 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)
April 1, 2021 - April 30, 2021	53	$	125.24	25	$	25,430
May 1, 2021 - May 31, 2021	96	121.41		25	$	22,431
June 1, 2021 - June 30, 2021	204	126.99		31	$	56,801
	353	$	125.20	81

(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 8, 2021, we announced that our Board of Directors extended the current stock repurchase program’s expiration date to June 30, 2022 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	Incorporation by Reference			Filed Herewith
		Form	Exhibit	Filing Date
3.1	Restated Articles of Organization of the Registrant and Amendments thereto	10-Q	3.1	November 4, 2014
3.2	Amended and Restated Bylaws of Pegasystems Inc.	8-K	3.2	June 15, 2020
10.1	Sublease, dated March 31, 2021 for Office Space at One Main Street, Cambridge, MA				X
10.2**	Lease between Pegasystems Inc. and 275 Wyman LLC	8-K	10.1	July 9, 2021
31.1	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.				X
31.2	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.				X
32++	Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer.				X
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.				X
101.SCH	Inline XBRL Taxonomy Extension Schema Document.				X
101.CAL	Inline XBRL Taxonomy Calculation Linkbase Document.				X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.				X
101.LAB	Inline XBRL Taxonomy Label Linkbase Document.				X
101.PRE	Inline XBRL Taxonomy Presentation Linkbase Document.				X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)				X

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

** Certain portions of this exhibit are considered confidential and have been omitted as permitted under SEC rules and regulations.

27

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

EX-10.1

EXHIBIT 10.1

SUBLEASE BETWEEN

ORACLE AMERICA, INC.

AND

PEGASYSTEMS INC.

______________________________

ONE MAIN STREET,

CAMBRIDGE, MASSACHUSETTS

______________________________

Sixth (6th) Floor

EXHIBIT 10.1

SUBLEASE

THIS SUBLEASE (“Sublease”) is entered into as of March 31, 2021 (the “Effective Date”), by and between ORACLE AMERICA, INC., a Delaware corporation (“Sublandlord”), and PEGASYSTEMS INC., a Massachusetts corporation (“Subtenant”), with reference to the following facts:

A.Pursuant to that certain Lease dated as of April 12, 2006 (the “Original Lease”), as the same has been amended by that certain First Amendment to Lease dated as of May 7, 2007 (the “First Amendment”), by that certain Second Amendment to Lease dated as of December 14, 2009 (the “Second Amendment”), by that certain Third Amendment to Lease dated as of July 27, 2010 (the “Third Amendment”), by that certain Fourth Amendment to Lease dated as of October 29, 2012 (the “Fourth Amendment”), by that certain Fifth Amendment to Lease dated as of January 28, 2013 (the “Fifth Amendment”) and by that certain Sixth Amendment to Lease dated as of July 26, 2018 (the “Sixth Amendment”, and together with the Original Lease, First Amendment, Second Amendment, Third Amendment, Fourth Amendment and Fifth Amendment, the “Master Lease”) (a copy of the Master Lease is attached hereto as Schedule 1), RREEF AMERICA REIT II CORP, PPP, a Maryland corporation (“Landlord”), as Landlord, leases to Sublandlord (successor in interest to Art Technology Group, Inc.), as tenant, certain space (the “Master Lease Premises”) consisting of approximately 31,571 rentable square feet (“RSF”) on the sixth (6th) floor of the building located at One Main Street, Cambridge, Massachusetts (the “Building”).

B.Subtenant wishes to sublease from Sublandlord, and Sublandlord wishes to sublease to Subtenant, the entire Master Lease Premises, said space being more particularly identified and described on the floor plan attached hereto as Exhibit A and incorporated herein by reference (the “SubleasedPremises”).

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by the parties, Sublandlord and Subtenant hereby agree as follows:

1.Sublease. Sublandlord hereby subleases to Subtenant and Subtenant hereby subleases from Sublandlord for the term, at the rental, and upon all of the conditions set forth herein, the Subleased Premises. Subtenant shall also have the right to use the lobbies, entrances, stairways, public elevators and other public portions of the Building on the terms and conditions set forth in the Master Lease.

2.Term.

(a)    Generally. The term of this Sublease (the “Term”) shall commence on the date (the “CommencementDate”) that is the later to occur of the date that is thirty (30) days after (i) the date upon which Sublandlord delivers possession of the Subleased Premises to Subtenant in the condition required in Section 14(a) of this Sublease, which date shall be July 1, 2021, and (ii) the date upon which Sublandlord procures Landlord’s consent to this Sublease in a form reasonably satisfactory to Sublandlord and Subtenant (the “Consent”, and the date upon which Sublandlord procures the Consent being the “ConsentDate”), and end on December 15, 2025 (the “ExpirationDate”) (such thirty (30) day period prior to the Commencement Date being referred to herein as the “EarlyAccessPeriod”), unless sooner terminated pursuant to any provision hereof. If the fully executed Consent is not obtained by May 15, 2021, Sublandlord or Subtenant may terminate this Sublease, but shall not be obligated to do so, and once such Consent is obtained, there shall be no further right to terminate this Sublease on account of the Consent. Upon the determination of the Commencement Date, Sublandlord and Subtenant will enter into a letter agreement in the form of Exhibit B attached hereto.

(b)    Adjustments. Notwithstanding the provisions of Section 2(a) above:

(i)    If, as of the date that Sublandlord would otherwise deliver possession of the Subleased Premises to Subtenant as described in Section 2(a) above, Subtenant has not delivered to Sublandlord (A) the prepaid Base Rent pursuant to the provisions of Section 3(a)(i) below, (B) the Security Deposit pursuant to the provisions of Section 4 below, and (C) evidence of Subtenant’s procurement of all insurance coverage required hereunder (the conditions in (A) through (C) are collectively referred to herein as the “DeliveryConditions”), then Sublandlord will have no obligation to deliver possession of the Subleased Premises to Subtenant, but the failure on the part of Sublandlord to so deliver possession of the Subleased Premises to Subtenant in such event will not serve to delay the occurrence of the Commencement Date and the commencement of Subtenant’s obligations to pay Rent (defined below) hereunder.

1

EXHIBIT 10.1

(ii)    Early Access Period. Notwithstanding anything herein to the contrary, Sublandlord shall permit Subtenant and Subtenant’s employees, agents and contractors to enter the Subleased Premises during the Early Access Period for the sole purpose of installing Subtenant’s personal property, furniture, fixtures and equipment and otherwise preparing the Subleased Premises for Subtenant’s use and occupancy, all subject to the terms, conditions and requirements of the Master Lease, provided that (A) this Sublease is fully executed by both Sublandlord and Subtenant prior to the Early Access Period; (B) Subtenant has satisfied the Delivery Conditions; and (C) Sublandlord and Subtenant have received the Consent prior to the Early Access Period. All of the rights and obligations of the parties under this Sublease (other than Subtenant’s obligation to pay Base Rent, but expressly including without limitation Subtenant’s obligation to pay excess utility charges and carry insurance, as well as Subtenant’s indemnification obligations) shall commence upon the Early Access Date. Subtenant shall coordinate any such entry with Sublandlord. Notwithstanding the foregoing, if Subtenant commences to conduct business in the Subleased Premises during the Early Access Period, Subtenant shall be obligated to pay Base Rent as of such date.

3.Rent.

(a)    Rent Payments.

(i)    Generally. Subtenant shall pay to Sublandlord as base rent for the Subleased Premises during the Term (“BaseRent”) the following:

Period	Rate Per RSF Per Annum	Monthly Base Rent
Months 1 - 12*	$71.00	$186,795.08
Months 13 - 24	$72.78	$191,464.96
Months 25 - 36	$74.59	$196,251.58
Months 37 - 48	$76.46	$201,157.87
Months 49 - Expiration Date	$78.37	$206,186.82

* Subject to abatement pursuant to Section 3(a)(ii) below.

Base Rent shall be paid in advance on the first day of each month of the Term, except that Subtenant shall pay one (1) month’s Base Rent (i.e., $186,795.08) to Sublandlord after execution of this Sublease and within two (2) business days of delivery of the fully executed Consent; said pre-paid Base Rent will be applied to the first (1st) month’s Base Rent due and payable hereunder following the Abatement Period (defined below). If the Term does not begin on the first day of a calendar month or end on the last day of a month, the Base Rent and Additional Rent (hereinafter defined) for any partial month shall be prorated by multiplying the monthly Base Rent and Additional Rent by a fraction, the numerator of which is the number of days of the partial month included in the Term and the denominator of which is the total number of days in the full calendar month. All Rent (hereinafter defined) shall be payable in lawful money of the United States, by ACH/wire transfer to Sublandlord’s bank account and Sublandlord will provide such information to Subtenant on Rent invoices, or by regular bank check of Subtenant, to Sublandlord at the following address:

1001 Sunset Boulevard

Rocklin, California 95765

Attn: Lease Administration

or to such other persons or at such other places as Sublandlord may designate in writing.

(ii)    Abatement. Notwithstanding anything in Section 3(a)(i) above to the contrary, so long as Subtenant is not in Default (defined below) under this Sublease, Subtenant shall be entitled to an abatement of Base Rent for the first (1st) three (3) full calendar months of the Term (the “AbatementPeriod”); the Abatement Period will not include any partial calendar month immediately following the Commencement Date. The total amount of Base Rent abated during the Abatement Period in the amount of $560,385.25 is referred to herein as the “AbatedRent”. If Subtenant is in Default hereunder at any time during the Term, then (A) if such Default occurs prior to the expiration of the Abatement Period, there will be no further abatement of Base Rent pursuant to this Section 3(a)(ii), and (B) at Sublandlord’s option, if Sublandlord terminates Subtenant’s rights to possess the Subleased Premises due to the applicable Default, then all then-unamortized Abated Rent (assuming amortization of all Abated Rent on a straight-line basis over the Term) shall become due and payable within thirty (30) days following Sublandlord’s written request therefor. The payment by Subtenant of the Abated Rent in the event of a Default shall not limit or affect any of Sublandlord’s other rights, pursuant to this Sublease or at law or in equity. During the Abatement Period, only Base Rent shall be abated, and all other costs and charges specified in this Sublease shall remain as due and payable pursuant to the provisions of this Sublease

2

EXHIBIT 10.1

(b)    Operating Costs.

(i)    Definitions. For purposes of this Sublease and in addition to the terms defined elsewhere in this Sublease, the following terms shall have the meanings set forth below:

(A)“Additional Rent” shall mean the sums payable pursuant to Section 3(b)(ii) below.

(B)“Base Operating Costs” shall mean Operating Costs payable by Sublandlord to Landlord for the Master Lease Premises during the Base Year.

(C)“Base Year” shall mean the calendar year 2021.

(D)“Operating Costs” shall mean Expenses and Taxes (as each is defined in the Master Lease) charged by Landlord to Sublandlord pursuant to the Master Lease.

(E)“Electricity Costs” shall mean Tenant’s Allocable Electricity Costs (as defined in the Master Lease) charged by Landlord to Sublandlord pursuant to the Master Lease.

(F)“Rent” shall mean, collectively, Base Rent, Additional Rent, and all other sums payable by Subtenant to Sublandlord under this Sublease, whether or not expressly designated as “rent”, all of which are deemed and designated as rent pursuant to the terms of this Sublease.

(G)“Subtenant’s Percentage Share” shall mean 100%.

(ii)    Electricity Costs. As provided in Section 13.1.1 of the Original Lease, Subtenant shall pay Sublandlord monthly Electricity Costs attributable to the Subleased Premises which amount shall be determined in accordance with the Master Lease.

(iii)    Payment of Additional Rent. In addition to the Base Rent payable pursuant to Section 3(a) above, from and after the expiration of the Base Year, for each calendar year of the Term, Subtenant shall pay, as Additional Rent, Subtenant’s Percentage Share of the amount by which Operating Costs payable by Sublandlord for the then current calendar year exceed Base Operating Costs. Sublandlord shall provide Subtenant with written notice of Sublandlord’s estimate of the amount of Additional Rent per month payable pursuant to this Section 3(b)(iii) for each calendar year after the Base Year promptly following the Sublandlord’s receipt of Landlord’s estimate of the Operating Costs payable under the Master Lease. Thereafter, the Additional Rent payable pursuant to this Section 3(b)(iii) shall be determined and adjusted in accordance with the provisions of Section 3(b)(iv) below.

(iv)    Procedure. The determination and adjustment of Additional Rent payable hereunder shall be made in accordance with the following procedures:

(A)    Delivery of Estimate; Payment.    Upon receipt of a statement from Landlord specifying the estimated Operating Costs to be charged to Sublandlord under the Master Lease with respect to each calendar year, Sublandlord shall give Subtenant written notice of its estimate of Additional Rent payable under Section 3(b)(iii) for the ensuing calendar year, which estimate shall be prepared based on the estimate received from Landlord (as Landlord’s estimate may change from time to time), together with a copy of the statement received from Landlord. On or before the first day of each month during each calendar year, Subtenant shall pay to Sublandlord as Additional Rent one-twelfth (1/12th) of such estimated amount together with the Base Rent.

(B)    Sublandlord’s Failure to Deliver Estimate. In the event Sublandlord’s notice set forth in Subsection 3(b)(iv)(A) is not given on or before December of the calendar year preceding the calendar year for which Sublandlord’s notice is applicable, as the case may be, then until the calendar month after such notice is delivered by Sublandlord, Subtenant shall continue to pay to Sublandlord monthly, during the ensuing calendar year, estimated payments equal to the amounts payable hereunder during the calendar year just ended. Upon receipt of any such post-December notice Subtenant shall (i) commence as of the immediately following calendar month, and continue for the remainder of the calendar year, to pay to Sublandlord monthly such new estimated payments and (ii) if the monthly installment of the new estimate of such Additional Rent is greater than the monthly installment of the estimate for the previous calendar year, pay to Sublandlord within thirty (30) days of the receipt of such notice an amount equal to the difference of such monthly installment multiplied by the number of full and partial calendar months of such year preceding the delivery of such notice.

3

EXHIBIT 10.1

(v)    Year End Reconciliation. Following the receipt by Sublandlord of a final statement of Operating Costs from Landlord with respect to each calendar year, Sublandlord shall deliver to Subtenant a statement of the adjustment to be made pursuant to Section 3(b) above for the calendar year just ended, together with a copy of any corresponding statement received by Sublandlord from Landlord (“Sublandlord’s Annual Statement”). If on the basis of such Sublandlord’s Annual Statement Subtenant owes an amount that is less than the estimated payments actually made by Subtenant for the calendar year just ended, Sublandlord shall credit such excess to the next payments of Rent coming due or, if the term of this Sublease is about to expire, promptly refund such excess to Subtenant. If on the basis of such Sublandlord’s Annual Statement Subtenant owes an amount that is more than the estimated payments for the calendar year just ended previously made by Subtenant, Subtenant shall pay the deficiency to Sublandlord within thirty (30) days after delivery of the Sublandlord’s Annual Statement from Sublandlord to Subtenant.

(vi)    Reliance on Landlord’s Calculations. In calculating Operating Costs payable hereunder by Subtenant, Sublandlord shall have the right to rely upon the calculations of Landlord made in determining Expenses and Taxes and pursuant to the provisions of the Master Lease and as set forth in the relevant Landlord’s statement delivered to Sublandlord. Provided that Subtenant is not in Default and reasonably requests an audit of Landlord’s calculation of Expenses and/or Taxes, Sublandlord shall exercise Sublandlord’s audit right pursuant to Section 4.3 of the Original Lease, at Subtenant’s sole cost and expense, and Subtenant shall indemnify and hold Sublandlord harmless from and against any claims by Landlord related to such audit. In such case, Sublandlord shall deliver to Subtenant its pro rata share of any refunds received from Landlord after deducting audit costs to the extent Subtenant did not previously pay the initial amount to which the refund relates.

(vii)    Survival. The expiration or earlier termination of this Sublease shall not affect the obligations of Sublandlord and Subtenant pursuant to Subsection 3(b)(iv), and such obligations shall survive, remain to be performed after, any expiration or earlier termination of this Sublease.

(c)    Other Taxes Payable by Subtenant. In addition to payment of Operating Costs, Subtenant shall pay before delinquency any and all taxes levied or assessed and which become payable by subtenant (or directly or indirectly by Sublandlord) during the Term, whether or not now customary or within the contemplation of the parties hereto, which are based upon, measured by or otherwise calculated with respect to: (i) the gross or net rental income of Sublandlord under this Sublease if and to the extent Sublandlord is responsible for the same under the Master Lease, including, without limitation, any gross receipts tax levied by any taxing authority, or any other gross income tax or excise tax levied by any taxing authority with respect to the receipt of the rental payable hereunder; (ii) the value of Subtenant’s equipment, furniture, fixtures or other personal property located in the Subleased Premises; or (iii) the possession, lease, operation, management, maintenance, alteration, repair, use or occupancy by Subtenant of the Subleased Premises or any portion thereof. Notwithstanding the foregoing, in no event shall Subtenant be required to pay (1) any taxes levied or assessed against Sublandlord (except as provided in subsection (i) above and to the extent such taxes are applicable to the Subleased Premises) or (2) taxes levied or assessed against the personal property of Sublandlord (other than the FF&E (as defined below)).

4.Security Deposit. After execution of this Sublease and within two (2) business days of the delivery of the fully executed Consent, Subtenant shall deposit with Sublandlord the sum of $206,186.82 (the “SecurityDeposit”). The Security Deposit shall be held by Sublandlord as security for the faithful performance by Subtenant of all the provisions of this Sublease to be performed or observed by Subtenant. If Subtenant fails to pay Rent or other sums due hereunder, or otherwise is in breach with respect to any provisions of this Sublease, Sublandlord may use, apply or retain all or any portion of the Security Deposit for the payment of any past due sum or for the payment of any other sum to which Sublandlord may become obligated by reason of Subtenant’s breach, or to compensate Sublandlord for any loss or damage which Sublandlord may suffer thereby. If Sublandlord so uses or applies all or any portion of the Security Deposit, Subtenant shall within ten (10) days after demand therefor deposit cash with Sublandlord in an amount sufficient to restore the Security Deposit to the full amount thereof and Subtenant’s failure to do so shall be a material breach of this Sublease. If Subtenant performs all of Subtenant’s obligations hereunder, the Security Deposit, or so much thereof as has not theretofore been applied by Sublandlord, shall be returned, without interest, to Subtenant (or, at Sublandlord’s option, to the last assignee, if any, of Subtenant’s interest hereunder) within sixty (60) days following the later to occur of (a) the expiration of the Term, and (b) Subtenant’s vacation from the Subleased Premises and completion of all removal, repair and restoration obligations. No trust relationship is created herein between Sublandlord and Subtenant with respect to the Security Deposit.

5.Use and Occupancy.

4

EXHIBIT 10.1

(a)    Use. The Subleased Premises shall be used and occupied only for general office use, training room, corporate briefing room and for no other use or purpose. To Sublandlord’s actual knowledge without duty of investigation, Sublandlord represents and warrants that there are no restrictions set forth in the Master Lease and/or by applicable law restricting the number of occupants who may use the Subleased Premises.

(b)    Compliance with Master Lease. Subtenant will occupy the Subleased Premises in accordance with the terms of the Master Lease and will not suffer to be done, or omit to do, any act which may result in a violation of or a default under the Master Lease, or render Sublandlord liable for any damage, charge or expense thereunder. Subtenant will indemnify, defend, protect and hold Sublandlord harmless from and against any loss, cost, damage or liability (including attorneys’ fees) of any kind or nature arising out of, by reason of, or resulting from, Subtenant’s failure to perform or observe any of the terms and conditions of the Master Lease (specifically excluding all Sublandlord’s performance obligations prior to the Commencement Date thereunder and rental and insurance obligations of Sublandlord thereunder) or this Sublease. Any other provision in this Sublease to the contrary notwithstanding, Subtenant shall pay to Sublandlord as Rent hereunder any and all sums which Sublandlord may be required to pay the Landlord arising out of a request by Subtenant for, or the use by Subtenant of, additional or over-standard Building services from Landlord (for example, but not by way of limitation, charges associated with after-hour HVAC usage and overstandard electrical charges).

(c)    Landlord’s Obligations. Subtenant agrees that Sublandlord shall not be required to perform any of the covenants, agreements and/or obligations of Landlord under the Master Lease, including, without limitation, the services provided in Article 13 of the Original Lease, and, insofar as any of the covenants, agreements and obligations of Sublandlord hereunder are required to be performed under the Master Lease by Landlord thereunder, Subtenant acknowledges and agrees that Sublandlord shall be entitled to look to Landlord for such performance. In addition, Sublandlord shall have no obligation to perform any repairs or any other obligation of Landlord under the Master Lease, nor shall any representations or warranties made by Landlord under the Master Lease be deemed to have been made by Sublandlord. Sublandlord shall not be responsible for any failure or interruption, for any reason whatsoever, of the services or facilities that may be appurtenant to or supplied at the Building by Landlord or otherwise, including, without limitation, heat, air conditioning, ventilation, life- safety, water, electricity, elevator service and cleaning service, if any; and no failure to furnish, or interruption of, any such services or facilities shall give rise to any (i) abatement, diminution or reduction of Subtenant’s obligations under this Sublease, or (ii) liability on the part of Sublandlord. Notwithstanding the foregoing, Sublandlord shall use good faith efforts, under the circumstances, to secure such performance upon Subtenant’s request to Sublandlord to do so and shall thereafter diligently prosecute such performance on the part of Landlord; provided that in no event will this sentence be construed to require Sublandlord to commence any litigation, arbitration, judicial reference or other similar proceeding against Landlord. To the extent Sublandlord receives any abatement of Rent under the Master Lease that relates to the Subleased Premises, Subtenant’s Rent hereunder shall be abated by the same amount. With respect to services and repairs required to be effected by Landlord pursuant to the Master Lease, promptly following Sublandlord’s receipt of written notice from Subtenant identifying such repairs and/or services (“RepairNotice”), Sublandlord shall reasonably investigate Subtenant’s Repair Notice, and, if Sublandlord reasonably determines that Landlord is responsible for such repairs and/or services under the Master Lease, Sublandlord shall commence and diligently pursue to completion commercially reasonably efforts to cause Landlord to undertake appropriate corrective action. Sublandlord agrees to not unreasonably withhold its consent to any work or services requested by Subtenant of Landlord in or to the Subleased Premises, provided that Subtenant shall pay all costs and expenses with respect to such work or services to the extent payment is required under the Master Lease.

6.Master Lease and Sublease Terms.

(a)    Subject to Master Lease. This Sublease is and shall be at all times subject and subordinate to the Master Lease. Subtenant acknowledges that Subtenant has reviewed and is familiar with all of the terms, agreements, covenants and conditions of the Master Lease. Additionally, Subtenant’s rights under this Sublease shall be subject to the terms of the Consent. During the Term and for all periods subsequent thereto with respect to obligations which have arisen prior to the termination of this Sublease, Subtenant agrees to perform and comply with, for the benefit of Sublandlord and Landlord, the obligations of Sublandlord under the Master Lease which pertain to the Subleased Premises and/or this Sublease, except for those provisions of the Master Lease which are directly contradicted by this Sublease, in which event the terms of this Sublease document shall control over the Master Lease (specifically excluding Sublandlord’s performance obligations prior to the Commencement Date thereunder and all rental and insurance obligations of Sublandlord thereunder).

5

EXHIBIT 10.1

(b)    Incorporation of Terms of Master Lease. The terms, conditions and respective obligations of Sublandlord and Subtenant to each other under this Sublease shall be the terms and conditions of the Master Lease, except for those provisions of the Master Lease which are directly contradicted by this Sublease, in which event the terms of this Sublease shall control over the Master Lease. Therefore, for the purposes of this Sublease, wherever in the Master Lease the word “Landlord” is used it shall be deemed to mean Sublandlord and wherever in the Master Lease the word “Tenant” is used it shall be deemed to mean Subtenant. Additionally, wherever in the Master Lease the word “Premises” is used it shall be deemed to mean the Subleased Premises. Any non-liability, release, indemnity or hold harmless provision in the Master Lease for the benefit of Landlord that is incorporated herein by reference, shall be deemed to inure to the benefit of Sublandlord, Landlord, and any other person intended to be benefited by said provision, for the purpose of incorporation by reference in this Sublease; provided, however, Subtenant’s indemnification obligations to Sublandlord shall only be as expressly provided in this Sublease. Any right of Landlord under the Master Lease (i) of access or inspection, (ii) to do work in the Master Lease Premises or in the Building, and (iii) in respect of rules and regulations, which is incorporated herein by reference, shall be deemed to inure to the benefit of Sublandlord, Landlord, and any other person intended to be benefited by said provision, for the purpose of incorporation by reference in this Sublease.

(c)    Modifications. For the purposes of incorporation herein, the terms of the Master Lease are subject to the following additional modifications:

(i)    Approvals. In all provisions of the Master Lease (under the terms thereof and without regard to modifications thereof for purposes of incorporation into this Sublease) requiring the approval or consent of Landlord, Subtenant shall be required to obtain the approval or consent of both Sublandlord and Landlord. Sublandlord’s consent shall not be unreasonably withheld, delayed or conditioned to any request for which Landlord’s approval or consent has been obtained.

(ii)    Obligations Outside of Master Lease Premises. Sublandlord shall not be obligated to perform those obligations of Landlord which require access to areas outside of the Master Lease Premises or that are not permitted to be taken by Sublandlord pursuant to the terms of the Master Lease. For example, but not by way of limitation, Sublandlord shall not be obligated to perform Landlord’s obligations under the Master Lease to maintain the roof, foundations, slabs, structural elements, subfloors, exterior walls, drainage systems, or any electrical, plumbing, mechanical or life-safety equipment or systems, any common area or any other repair or maintenance obligations which are Landlord’s obligations under the Master Lease.

(iii)    Deliveries. In all provisions of the Master Lease requiring Sublandlord to submit, exhibit to, supply or provide Landlord with evidence, certificates, or any other matter or thing, Subtenant shall be required to submit, exhibit to, supply or provide, as the case may be, the same to both Landlord and Sublandlord.

(iv)    Damage; Condemnation. Sublandlord shall have no obligation to restore or rebuild any portion of the Subleased Premises after any destruction or taking by eminent domain. Any rights of Subtenant to abatement of Rent shall be conditioned upon Sublandlord’s ability to abate rent for the Subleased Premises under the terms of the Master Lease.

(v)    Insurance. In all provisions of the Master Lease requiring Sublandlord to designate Landlord as an additional or named insured on its insurance policy, Subtenant shall be required to so designate Landlord and Sublandlord on its insurance policy. Sublandlord shall have no obligation to maintain the insurance to be maintained by Landlord under the Master Lease.

(vi)    Representations and Warranties. Sublandlord shall not be deemed to have made or adopted as its own any representations or warranties made by Landlord in the Master Lease, except to the extent the relevant provision of the Master Lease is incorporated herein.

(vii)    Construction. Sublandlord shall have no obligation to construct or pay for any improvements unless and to the extent expressly set forth herein.

(viii)    Expansion/Extension Options. Whether or not set forth in the Master Lease, Subtenant shall have no rights to expand or reduce the RSF of the Subleased Premises, or any options to renew or extend the Term, or rights of first offer, rights of first refusal, or other preemptive rights under the Master Lease unless and to the extent expressly set forth herein.

(d)    Exclusions. Notwithstanding the terms of Section 6(b) above, Subtenant shall have no rights nor obligations under the following parts, Sections and Exhibits of the Master Lease:

6

EXHIBIT 10.1

(i)    Original Lease: Sections 2.2, 2.3, Article 5, Section 6.1, last sentence of Section 6.2, reference to Exhibit B in Section 7.1, Article 14, Article 18 (except to the extent referenced by Sections 8 and 12.2), Article 27, Article 32, Article 33, Section 39.1.7, Article 40, Article 41, Exhibit A (except for A-1, A-2), Exhibit B and Exhibit C.

(ii)    First Amendment: All.

(iii)    Second Amendment: Sections 2 and 4 through 12, Exhibit A and Exhibit B

(iv)    Third Amendment: All.

(v)    Fourth Amendment: Sections 3 through 10, Section 14, Exhibit B and Exhibit C.

(vi)    Fifth Amendment: Sections 3 through 8, Section 11 and Exhibit B.

(vii)    Sixth Amendment: Only those references to the seventh (7th) floor of the Building which are not applicable to Subtenant.

7.Assignment and Subletting. Subtenant shall not assign this Sublease or further sublet all or any part of the Subleased Premises without the prior written consent of Landlord and Sublandlord, which consent of Sublandlord will not be unreasonably withheld, conditioned or delayed. Any request by Subtenant to assign and/or sublease shall be submitted by Sublandlord to Landlord promptly upon receipt of the same from Subtenant. Sublandlord shall respond to Subtenant’s request for consent to assign this Sublease or further sublet the Subleased Premises within thirty (30) days following receipt of such written request; provided, however, Sublandlord shall not be responsible for Landlord’s failure to timely respond to any request for consent. Additionally, any such assignment or sublease, if consented to by Sublandlord and Landlord, shall be subject to and in compliance with all of the terms and conditions of the Master Lease, and Sublandlord (in addition to Landlord) shall have the same rights with respect to assignment and subleasing as Landlord has under the Master Lease. Subtenant shall pay all fees and costs payable to Landlord pursuant to the Master Lease as well as all of Sublandlord’s reasonable out- of-pocket costs relating to any proposed assignment, sublease or transfer of the Subleased Premises regardless of whether any required consent is granted, and the effectiveness of any such consent shall be conditioned upon Landlord’s and Sublandlord’s receipt of all such fees and costs.

8.Default. Except as expressly set forth herein, Subtenant shall perform all obligations in respect of the Subleased Premises that Sublandlord would be required to perform pursuant to the Master Lease. It shall constitute a “Default” hereunder if Subtenant fails to perform any obligation hereunder (including, without limitation, the obligation to pay Rent), or any obligation under the Master Lease which has been incorporated herein by reference, and, in each instance, Subtenant has not remedied such failure (a) in the case of any monetary Default, three (3) business days after delivery of written notice and (b) in the case of any other Default, ten (10) business days after delivery of written notice.

9.Remedies. In the event of any Default hereunder by Subtenant, Sublandlord shall have all remedies provided to the “Landlord” in the Master Lease as if a default had occurred thereunder and all other rights and remedies otherwise available at law and in equity. Sublandlord may resort to its remedies cumulatively or in the alternative.

10.Right to Cure Defaults. If Subtenant fails to perform any of its obligations under this Sublease after expiration of applicable grace or cure periods, then Sublandlord may, but shall not be obligated to, perform any such obligations for Subtenant’s account. All costs and expenses incurred by Sublandlord in performing any such act for the account of Subtenant shall be deemed Rent payable by Subtenant to Sublandlord upon demand, together with interest thereon at the lesser of (a) ten percent (10%) per annum or (b) the maximum rate allowable under law from the date of the expenditure until repaid. If Sublandlord undertakes to perform any of Subtenant’s obligations for the account of Subtenant pursuant hereto, the taking of such action shall not constitute a waiver of any of Sublandlord’s remedies. Subtenant hereby expressly waives its rights under any statute to make repairs at the expense of Sublandlord.

11.Consents and Approvals. In any instance when Sublandlord’s consent or approval is required under this Sublease, Sublandlord’s refusal to consent to or approve any matter or thing shall be deemed reasonable if, among other matters, such consent or approval is required under the provisions of the Master Lease incorporated herein by reference but has not been obtained from Landlord. Except as otherwise provided herein, Sublandlord shall not unreasonably withhold, or delay its consent to or approval of a matter if such consent or approval is required under the provisions of the Master Lease and Landlord has consented to or approved of such matter.

12.Sublandlord’s Liability.

7

EXHIBIT 10.1

(a)    Limitation of Liability. Notwithstanding any other term or provision of this Sublease, the liability of Sublandlord to Subtenant for any default in Sublandlord’s obligations under this Sublease shall be limited to actual, direct damages, and under no circumstances shall Subtenant, its partners, members, shareholders, directors, agents, officers, employees, contractors, sublessees, successors and/or assigns be entitled to recover from Sublandlord (or otherwise be indemnified by Sublandlord) for (i) any losses, costs, claims, causes of action, damages or other liability incurred in connection with a failure of Landlord, its partners, members, shareholders, directors, agents, officers, employees, contractors, successors and/or assigns to perform or cause to be performed Landlord’s obligations under the Master Lease, (ii) lost revenues, lost profit or other consequential, special or punitive damages arising in connection with this Sublease for any reason, or (iii) any damages or other liability arising from or incurred in connection with the condition of the Subleased Premises or suitability of the Subleased Premises for Subtenant’s intended uses. Subtenant shall, however, have the right to seek any injunctive or other equitable remedies as may be available to Subtenant under applicable law. Notwithstanding any other term or provision of this Sublease, no personal liability shall at any time be asserted or enforceable against Sublandlord’s shareholders, directors, officers, or partners on account of any of Sublandlord’s obligations or actions under this Sublease. Similarly, except in connection with any holding over in the Subleased Premises by Subtenant beyond the expiration or sooner termination of this Sublease or Subtenant’s handling, use of or release of hazardous materials in or about the Subleased Premises, the liability of Subtenant to Sublandlord shall also be limited to actual, direct damages, and under no circumstances shall Sublandlord, its partners, members, shareholders, directors, agents, officers, employees, contractors, sublessees, successors and/or assigns be entitled to recover from Subtenant (or otherwise be indemnified by Subtenant) for lost revenues, lost profit or other consequential, special or punitive damages arising in connection with this Sublease for any reason. In the event of any assignment or transfer of the Sublandlord’s interest under this Sublease, which assignment or transfer may occur at any time during the Term in Sublandlord’s sole discretion, upon assuming in writing signed by the successor to Sublandlord relieving Sublandlord of all obligations under the Master Lease, Sublandlord shall be and hereby is entirely relieved of all covenants and obligations of Sublandlord hereunder accruing subsequent to the date of the transfer and it shall be deemed and construed, without further agreement between the parties hereto, provided that any transferee has assumed and shall carry out all covenants and obligations thereafter to be performed by Sublandlord hereunder. Sublandlord may transfer and deliver any then existing Security Deposit to the transferee of Sublandlord’s interest under this Sublease, and upon acknowledgment by the transferee, Sublandlord shall be discharged from any further liability with respect thereto.

(b)    Sublandlord Default. Sublandlord shall be in default hereunder only if Sublandlord has not commenced and pursued with reasonable diligence the cure of any failure of Sublandlord to meet its obligations hereunder within twenty (20) business days after the receipt by Sublandlord of written notice from Subtenant. In no event shall Subtenant have the right to terminate or rescind this Sublease as a result of Sublandlord’s default as to any covenant or agreement contained in this Sublease. Subtenant hereby waives such remedies of termination and rescission and hereby agrees that Subtenant’s remedies for default hereunder and for breach of any promise or inducement shall be limited to a suit for damages and/or injunction.

13.Attorneys’ Fees. If Sublandlord or Subtenant brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party who recovers substantially all of the damages, equitable relief or other remedy sought in a final, unappealable action shall be entitled to receive from the other party its costs associated therewith, including, without limitation, reasonable attorneys’ fees and costs from the other party. Without limiting the generality of the foregoing, if Sublandlord utilizes the services of an attorney for the purpose of collecting any Rent due and unpaid by Subtenant or in connection with any other breach of this Sublease by Subtenant, Subtenant agrees to pay Sublandlord reasonable actual attorneys’ fees as determined by Sublandlord for such services, irrespective of whether any legal action may be commenced or filed by Sublandlord.

14.Delivery of Possession.

8

EXHIBIT 10.1

(a)    Generally. Sublandlord shall deliver, and Subtenant shall accept, possession of the Subleased Premises in broom clean condition, but otherwise in its “AS IS” condition as the Subleased Premises exists on the Effective Date. Sublandlord represents and warrants to Subtenant that to Sublandlord’s actual knowledge the Building systems (including HVAC, electrical, mechanical and plumbing) serving the Subleased Premises are in good working order and repair and have a useful life for at least the length of the Term. The current rate for overtime HVAC is $2.00 per hour per heat pump serving the Subleased Premises with a minimum of $30.00. Sublandlord shall have no obligation to furnish, render or supply any work, labor, services, materials, furniture, fixtures, equipment other than the FF&E, decorations or other items to make the Subleased Premises ready or suitable for Subtenant’s occupancy. In entering into this Sublease, Subtenant has relied solely on such investigations, examinations and inspections as Subtenant has chosen to make or has made and has not relied on any representation or warranty concerning the Subleased Premises or the Building, except as expressly set forth in this Sublease. Subtenant acknowledges that Sublandlord has afforded Subtenant the opportunity for full and complete investigations, examinations and inspections of the Subleased Premises and the common areas of the Building. Subtenant acknowledges that it is not authorized to make or do any alterations or improvements in or to the Subleased Premises except as permitted by the provisions of this Sublease and the Master Lease and that upon termination of this Sublease, Subtenant shall, subject to the terms of this Sublease, deliver the Subleased Premises to Sublandlord in the same condition as the Subleased Premises were at the commencement of the Term, reasonable wear and tear excepted and damage by casualty, Landlord and/or Sublandlord excepted. Subtenant acknowledges that Subtenant shall, at Landlord’s election, provided such election is made at the time of approval of the same if and to the extent that Landlord agrees to the same in the Consent to this Sublease, remove from the Subleased Premises some or all of the Subtenant Improvements (defined below) constructed therein by Subtenant. Additionally, at Subtenant’s cost, Subtenant will, subject to and in accordance with the terms of this Sublease, remove all new telecommunications and data cabling installed by or for the benefit of Subtenant following the Effective Date of this Sublease; provided, however, in the event that Subtenant fails to surrender possession of the Subleased Premises upon the expiration or earlier termination of this Sublease, then Subtenant shall be responsible for the removal of all telecommunications and data cabling located in the Subleased Premises if and to the extent required under the Master Lease or by Master Landlord.

(b)    Subtenant’s Improvements; Removal and Restoration.

(i)    Generally. If Subtenant desires to construct improvements within the Subleased Premises (“SubtenantImprovements”), all Subtenant Improvements shall be carried out in accordance with the applicable provisions of the Master Lease. Sublandlord will have the right to approve the plans and specifications for any proposed Subtenant Improvements, as well as any contractors whom Subtenant proposes to retain to perform such work, which approval shall not be unreasonably withheld, conditioned or delayed by Sublandlord. Subtenant will submit all such information for Sublandlord’s review and written approval prior to commencement of any such work; Sublandlord will promptly upon receipt submit such plans to Landlord for review and approval. Subtenant will be responsible for any fee or cost imposed only by Landlord and as specifically set forth in the Master Lease in connection with any review or approval of Subtenant Improvements which Subtenant proposes to construct, regardless of whether such work is approved by Landlord or Sublandlord. Sublandlord shall not charge Subtenant for any processing, supervision, oversight or management fee associated with any Subtenant Improvements, provided Subtenant will remain responsible for any similar costs and/or construction supervision/management fees imposed by Landlord. Subtenant expressly acknowledges that so long as Subtenant is not in Default only Landlord may require Subtenant to remove some or all of the Subtenant Improvements at the expiration or sooner termination of the Term in accordance with the provisions of the Master Lease as incorporated herein by reference and provided such election is made at the time of approval of the same if and to the extent that Landlord agrees to the same in the Consent to this Sublease. Promptly following the completion of any Subtenant Improvements or subsequent alterations or additions by or on behalf of Subtenant, Subtenant will deliver to Sublandlord a reproducible copy of “as built” drawings of such work together with a CAD file of the “as-built” drawings in the then-current version of AutoCad. Sublandlord is entering into this Sublease with the understanding that Subtenant intends to construct a corporate briefing center/training room within the Subleased Premises, which construction shall be in accordance with the terms and conditions of this Sublease and the Master Lease, and will consent so long as Landlord approves of the same and will use commercially reasonable efforts to work with Subtenant to obtain, prior to mutual execution of this Sublease, approval of the same by Landlord.

(ii)    Code-Required Work. If the performance of any Subtenant Improvements or other work by Subtenant within the Subleased Premises “triggers” a requirement for code-related upgrades to or improvements of any portion of the Building, Subtenant shall be responsible for the cost of such code-required upgrade or improvements.

9

EXHIBIT 10.1

(iii)    Restoration. Subtenant shall be responsible for any required removal/restoration of all Subtenant Improvements (only if and to the extent required by Landlord at the time of approval of the Subtenant Improvements if and to the extent that Landlord agrees to the same in the Consent) in accordance with the terms of the Master Lease, including without limitation those requirements set forth in Articles 7 and 26 of the Original Lease.

15.Surrender; Holding Over.

(a)    Subtenant shall be responsible for all restoration and removal obligations relating to the Subleased Premises if and to the extent required by Landlord; provided, however, that Subtenant shall not be liable or responsible for removing any alterations or improvements installed by or on behalf of Sublandlord prior to the Commencement Date. Subtenant will surrender the Subleased Premises to Sublandlord upon the expiration or sooner termination of this Sublease in accordance with the terms of the Master Lease, in broom-clean condition, free of Subtenant’s personal property, furniture, fixtures and equipment and the FF&E (subject to the terms of Section 19 below) located in the Subleased Premises, with any damage caused by Subtenant’s removal of such items repaired to Sublandlord’s reasonable satisfaction and at Subtenant’s sole cost and expense.

(b)    If Subtenant fails to surrender the Subleased Premises at the expiration or earlier termination of this Sublease, occupancy of the Subleased Premises after the termination or expiration shall be that of a tenancy at sufferance. Subtenant’s occupancy of the Subleased Premises during the holdover shall be subject to all the terms and provisions of this Sublease and Subtenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to 150% of the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover. No holdover by Subtenant or payment by Subtenant after the expiration or early termination of this Sublease shall be construed to extend the Term or prevent Sublandlord from immediate recovery of possession of the Subleased Premises by summary proceedings or otherwise. In addition to the payment of the amounts provided above, if Sublandlord is unable to deliver possession of the Subleased Premises to a new subtenant or to Landlord, as the case may be, or to perform improvements for a new subtenant, as a result of Subtenant’s holdover, Subtenant shall be liable to Sublandlord for all damages, including, without limitation, consequential damages, that Sublandlord suffers from the holdover; Subtenant expressly acknowledges that such damages may include all of the holdover rent charged by Landlord under the Master Lease as a result of Subtenant’s holdover, which Master Lease holdover rent may apply to the entire Master Lease Premises.

16.Parking. During the Term and subject to the terms of the Master Lease, Subtenant shall be allocated eighteen (18) parking spaces on a must-take basis. Subtenant shall be responsible for the costs associated with such parking spaces at the Building’s prevailing monthly rate and shall pay the same directly to Landlord. Subtenant shall have the right to directly request additional parking spaces from Landlord. The current rate for each parking space is $375.00.

17.Signage. Subject to the terms of the Master Lease and Landlord’s approval, Subtenant, at Subtenant’s sole cost, shall have the right to Building directory signage and Building standard signage at the entrance to the Subleased Premises.

18.Notices. Any notice by either party to the other required, permitted or provided for herein shall be valid only if in writing and shall be deemed to be duly given only if (a) delivered personally, or (b) sent by means of Federal Express, UPS Next Day Air or another reputable express mail delivery service guaranteeing next day delivery, or (c) sent by United States certified or registered mail, return receipt requested, addressed: (i) if to Sublandlord, at the following addresses:

Oracle America, Inc.

c/o Oracle Corporation 1001 Sunset Boulevard

Rocklin, California 95765

Attn:    Lease Administration

with a copy to:

Oracle America, Inc.

c/o Oracle Corporation 500 Oracle Parkway Box 5OP7

Redwood Shores, California 94065

Attn:    Legal Department

and (ii) if to Subtenant, at the following address:

Pegasystems Inc.

One Rogers Street

Cambridge, Massachusetts 02142

Attn:    General Counsel

10

EXHIBIT 10.1

with a copy to:

Pegasystems Inc. One Rogers Street

Cambridge, Massachusetts 02142

Attn:    Vice President of Real Estate and Facilities

or at such other address for either party as that party may designate by notice to the other. A notice shall be deemed given and effective, if delivered personally, upon hand delivery thereof (unless such delivery takes place after hours or on a holiday or weekend, in which event the notice shall be deemed given on the next succeeding business day), if sent via overnight courier, on the business day next succeeding delivery to the courier, and if mailed by United States certified or registered mail, three (3) business days following such mailing in accordance with this Section.

19.FF&E. Subject to the terms of this Section 19, effective as of the Commencement Date (the “FF&E Transfer Date”) all of Sublandlord’s right, title and interest in and to the existing fixtures, equipment and modular and office furniture located in the Subleased Premises and described in more particular detail on Exhibit C attached hereto, as well as all equipment and data cabling associated therewith (collectively, the “FF&E”), shall automatically be transferred to Subtenant. Sublandlord shall deliver the FF&E in good working order and Subtenant shall accept the FF&E in such current condition without any warranty of fitness from Sublandlord (Subtenant expressly acknowledges that no warranty is made by Sublandlord with respect to the condition of any cabling currently located in or serving the Subleased Premises). For purposes of documenting the current condition of the FF&E, Subtenant may, prior to the Commencement Date, conduct a walk-through of the Subleased Premises in order to inventory items of damage or disrepair and shall provide good faith corrective comments to the inventory attached to Exhibit C in writing to Sublandlord within fifteen (15) days following the Effective Date of this Sublease, and after the expiration of such fifteen (15) day period, Subtenant shall be deemed to have approved and accepted the FF&E. The FF&E shall be transferred to Subtenant on an “as is” basis with no representation or warranty of any kind from, and no recourse against, Sublandlord; provided, however, that Sublandlord represents and warrants as of the FF&E Transfer Date that it owns all of the FF&E free and clear of all liens and encumbrances and has the authority to so transfer the FF&E. Subtenant shall be solely responsible for the proper removal of the FF&E from the Subleased Premises and the Building in accordance with the terms and provisions of the Master Lease. The transfer of ownership of the FF&E shall occur automatically on the FF&E Transfer Date and this Sublease shall constitute a bill of sale evidencing the transfer of the FF&E on the FF&E Transfer Date. Notwithstanding the foregoing provisions of this Section 19 to the contrary, if during the Term Subtenant is in Default hereunder and if Sublandlord terminates Subtenant’s rights to possess the Subleased Premises due to the applicable Default, then at Sublandlord’s election, the prior transfer of all of Sublandlord’s right, title and interest in and to the FF&E shall be voidable by Sublandlord upon written notice to such effect delivered to Subtenant. If Sublandlord so elects to void such transfer, then Sublandlord shall provide notice of such election to Subtenant. In such event, (a) prior to or promptly following the expiration or earlier termination of this Sublease, Sublandlord shall conduct a walk-through of the Subleased Premises to catalog any items of damage, disrepair, misuse or loss among the FF&E (reasonable wear and tear excepted), and (b) Subtenant shall be responsible, at Subtenant’s sole cost and expense, for curing any such items (including, with respect to loss, replacing any lost item with a substantially similar new item reasonably acceptable to Sublandlord).

20.Brokers. Subtenant represents that it has dealt directly with and only with T3 Advisors (“Subtenant’s Broker”), as a broker in connection with this Sublease. Sublandlord represents that it has dealt directly with and only with Avison Young (“Sublandlord’s Broker”), as a broker in connection with this Sublease. Sublandlord and Subtenant shall indemnify and hold each other harmless from all claims of any brokers other than Subtenant’s Broker and Sublandlord’s Broker claiming to have represented Sublandlord or Subtenant in connection with this Sublease. Subtenant and Sublandlord agree that Subtenant’s Broker and Sublandlord’s Broker shall be paid commissions by Sublandlord in connection with this Sublease pursuant to a separate agreement.

21.Complete Agreement. There are no representations, warranties, agreements, arrangements or understandings, oral or written, between the parties or their representatives relating to the subject matter of this Sublease which are not fully expressed in this Sublease. This Sublease cannot be changed or terminated nor may any of its provisions be waived orally or in any manner other than by a written agreement executed by both parties.

22.Interpretation. Irrespective of the place of execution or performance, this Sublease shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. If any provision of this Sublease or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Sublease and the application of that provision to other persons or circumstances shall not be affected but rather shall be enforced to the extent permitted by law. The table of contents, captions, headings and titles, if any, in this Sublease are solely for convenience of reference and shall not affect its interpretation. This Sublease shall be construed without regard to any

11

EXHIBIT 10.1

presumption or other rule requiring construction against the party causing this Sublease or any part thereof to be drafted. If any words or phrases in this Sublease shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Sublease shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Sublease and no implication or inference shall be drawn from the fact that said words or phrases were so stricken out or otherwise eliminated. Each covenant, agreement, obligation or other provision of this Sublease shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making same, not dependent on any other provision of this Sublease unless otherwise expressly provided. All terms and words used in this Sublease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. The word “person” as used in this Sublease shall mean a natural person or persons, a partnership, a corporation or any other form of business or legal association or entity.

23.USA Patriot Act Disclosures. To the best of Subtenant’s knowledge, Subtenant is currently in compliance with and shall at all times during the Term remain in compliance with the regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) and any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action relating thereto. Notwithstanding anything contained herein to the contrary, for the purposes of this Section 23, such statement shall not include (x) any shareholder of Subtenant, (y) any holder of a direct or indirect interest in a publicly traded company whose shares are listed and traded on a United States national stock exchange or (z) any limited partner, unit holder or shareholder owning an interest of five percent (5%) or less in Subtenant or the holder of any direct or indirect interest in Subtenant.

24.Authority of Parties. Each party represents and warrants (a) that it is a valid existing corporation or limited liability company qualified to do business in the Commonwealth of Massachusetts and (b) that it has the power and authority to execute and deliver this Sublease and perform its obligations thereunder.

25.Time of the Essence. Time is of the essence of each provision of this Sublease.

26.Master Lease. Sublandlord is not now, and as of the Commencement Date will not be, in default or breach of any of the provisions of the Master and Sublandlord has no knowledge of any claim by Landlord that Sublandlord is in default or breach of any of the provisions of the Master Lease. Sublandlord shall comply with the terms of the Master Lease, except to the extent such non-compliance is due to the act or omissions of Subtenant or Subtenant’s default under this Sublease, and shall promptly upon receipt provide to Subtenant all notices with respect to the Subleased Premises it receives from Landlord. From and after the Effective Date, Sublandlord shall not take or permit to be taken, any action which violates any provisions of the Master Lease or would cause the Master Lease to be voluntarily canceled, terminated or forfeited. Sublandlord will not (a) terminate the Master Lease, except in connection with the casualty or condemnation provisions or in connection with any express termination right set forth in the Master Lease or (b) modify or amend the Master Lease during the Term of this Sublease in a manner that would materially and adversely affect this Sublease or Subtenant’s rights and privileges under this Sublease.

27.Covenant of Quiet Enjoyment. Sublandlord covenants that for so long as Subtenant makes timely payment of the Rent due under this Sublease and timely performs all of Subtenant’s other obligations under this Sublease, Subtenant may peaceably and quietly have, hold and enjoy the Subleased Premises without molestation or interference from Sublandlord or anyone claiming by, through or under Sublandlord throughout the Term (until and unless terminated) of this Sublease, subject to the other provisions of this Sublease and the Master Lease.

28.Counterparts. This Sublease may be executed in multiple counterparts, each of which is deemed an original but which together constitute one and the same instrument. This Sublease shall be fully executed when each party whose signature is required has signed and delivered to each of the parties at least one counterpart, even though no single counterpart contains the signatures of all of the parties hereto. This Sublease may be executed in so-called “pdf” format and each party has the right to rely upon a pdf counterpart of this Sublease signed by the other party to the same extent as if such party had received an original counterpart.

[Signatures appear on the following page(s)]

12

EXHIBIT 10.1

IN WITNESS WHEREOF, the parties hereto hereby execute this Sublease as of the Effective Date.

SUBLANDLORD:		ORACLE AMERICA, INC.,
		a Delaware corporation
By:	/s/ Michelle Myer
Print Name:	Michelle Myer
Title:	Vice President, Americas Real Estate & Facilities
SUBTENANT:		PEGASYSTEMS INC.,
		a Massachusetts corporation
By:	/s/ Ken Stillwell
Print Name:	Ken Stillwell
Title:	COO and CFO

13

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: July 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: July 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 June 30, 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: July 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	6 Months Ended
	Jun. 30, 2021	Jul. 19, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 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	Q2
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		81,455,672

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 139,878	$ 171,899
Marketable securities	271,459	293,269
Total cash, cash equivalents, and marketable securities	411,337	465,168
Accounts receivable	166,226	215,827
Unbilled receivables	236,451	207,155
Other current assets	96,215	88,760
Total current assets	910,229	976,910
Unbilled receivables	144,065	113,278
Goodwill	82,173	79,231
Other long-term assets	466,103	434,843
Total assets	1,602,570	1,604,262
Current liabilities:
Accounts payable	22,931	24,028
Accrued expenses	64,093	59,261
Accrued compensation and related expenses	84,900	123,012
Deferred revenue	242,194	232,865
Other current liabilities	16,126	20,969
Total current liabilities	430,244	460,135
Convertible senior notes, net	589,092	518,203
Operating lease liabilities	42,063	59,053
Other long-term liabilities	18,703	24,699
Total liabilities	1,080,102	1,062,090
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued	0	0
Common stock, 200,000 shares authorized; 81,456 and 80,890 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	815	809
Additional paid-in capital	147,670	204,432
Retained earnings	375,069	339,879
Accumulated other comprehensive (loss)	(1,086)	(2,948)
Total stockholders’ equity	522,468	542,172
Total liabilities and stockholders’ equity	$ 1,602,570	$ 1,604,262

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares shares in Thousands	Jun. 30, 2021	Dec. 31, 2020
Stockholders’ equity:
Preferred stock, shares authorized (in shares)	1,000	1,000
Preferred stock, shares issued (in shares)	0	0
Common stock, shares authorized (in shares)	200,000	200,000
Common stock, shares issued (in shares)	81,456	80,890
Common stock, shares outstanding (in shares)	81,456	80,890

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Revenue
Total revenue	$ 325,702	$ 227,375	$ 639,201	$ 492,966
Cost of revenue
Total cost of revenue	84,531	76,691	166,978	156,219
Gross profit	241,171	150,684	472,223	336,747
Operating expenses
Selling and marketing	156,423	127,607	305,162	263,631
Research and development	64,395	58,869	126,837	117,596
General and administrative	19,161	15,655	37,431	31,285
Total operating expenses	239,979	202,131	469,430	412,512
Income (loss) from operations	1,192	(51,447)	2,793	(75,765)
Foreign currency transaction (loss) gain	(403)	4,256	(5,501)	(1,691)
Interest income	236	242	389	849
Interest expense	(1,959)	(5,529)	(3,839)	(7,835)
Gain on capped call transactions	26,309	19,419	7,192	827
Other income, net	0	0	106	1,374
Income (loss) before (benefit from) income taxes	25,375	(33,059)	1,140	(82,241)
(Benefit from) income taxes	(11,916)	(12,319)	(29,534)	(36,129)
Net income (loss)	$ 37,291	$ (20,740)	$ 30,674	$ (46,112)
Earnings (loss) per share
Basic (in dollars per share)	$ 0.46	$ (0.26)	$ 0.38	$ (0.58)
Diluted (in dollars per share)	$ 0.43	$ (0.26)	$ 0.36	$ (0.58)
Weighted-average number of common shares outstanding
Basic (in shares)	81,316	80,224	81,161	80,016
Diluted (in shares)	90,320	80,224	86,006	80,016
Software license
Revenue
Total revenue	$ 116,892	$ 53,323	$ 233,853	$ 147,239
Cost of revenue
Total cost of revenue	656	979	1,306	1,663
Maintenance
Revenue
Total revenue	78,782	72,222	154,343	145,917
Cost of revenue
Total cost of revenue	4,995	5,591	10,781	11,167
Pega Cloud
Revenue
Total revenue	73,293	48,838	141,151	92,304
Cost of revenue
Total cost of revenue	24,051	18,988	46,608	36,521
Consulting
Revenue
Total revenue	56,735	52,992	109,854	107,506
Cost of revenue
Total cost of revenue	$ 54,829	$ 51,133	$ 108,283	$ 106,868

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 37,291	$ (20,740)	$ 30,674	$ (46,112)
Other comprehensive income, net of tax
Unrealized gain on available-for-sale securities	121	0	1,131	100
Foreign currency translation adjustments	1,461	2,028	731	1,514
Total other comprehensive income, net of tax	1,582	2,028	1,862	1,614
Comprehensive income (loss)	$ 38,873	$ (18,712)	$ 32,536	$ (44,498)

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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 income (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, 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]
Other comprehensive income (loss)	1,614
Net income (loss)	(46,112)
Balance, end of period (in shares) at Jun. 30, 2020			80,420
Balance, end of period at Jun. 30, 2020	556,282		$ 804	207,103		359,989		(11,614)
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]
Accounting standards update	Accounting Standards Update 2020-06
Balance, end of period (in shares) at Dec. 31, 2020	80,890		80,890
Balance, end of period at Dec. 31, 2020	$ 542,172	$ (52,205)	$ 809	204,432	$ (61,604)	339,879	$ 9,399	(2,948)
Balance, beginning of period (in shares) at Mar. 31, 2020			80,076
Balance, beginning of period at Mar. 31, 2020	566,611		$ 801	196,310		383,142		(13,642)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Repurchase of common stock (in shares)			(23)
Repurchase of common stock	(2,199)			(2,199)
Issuance of common stock for share-based compensation plans (in shares)			349
Issuance of common stock for stock compensation plans	(14,082)		$ 3	(14,085)
Issuance of common stock under the employee stock purchase plan (in shares)			18
Issuance of common stock under the employee stock purchase plan	1,403			1,403
Stock-based compensation	25,674			25,674
Cash dividends declared ($0.03 per share)	(2,413)					(2,413)
Other comprehensive income (loss)	2,028							2,028
Net income (loss)	(20,740)					(20,740)
Balance, end of period (in shares) at Jun. 30, 2020			80,420
Balance, end of period at Jun. 30, 2020	$ 556,282		$ 804	207,103		359,989		(11,614)
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]
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 income (loss)	(6,617)					(6,617)
Balance, end of period (in shares) at Mar. 31, 2021			81,246
Balance, end of period at Mar. 31, 2021	$ 478,925		$ 812	140,558		340,223		(2,668)
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]
Other comprehensive income (loss)	1,862
Net income (loss)	$ 30,674
Balance, end of period (in shares) at Jun. 30, 2021	81,456		81,456
Balance, end of period at Jun. 30, 2021	$ 522,468		$ 815	147,670		375,069		(1,086)
Balance, beginning of period (in shares) at Mar. 31, 2021			81,246
Balance, beginning of period at Mar. 31, 2021	478,925		$ 812	140,558		340,223		(2,668)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Repurchase of common stock (in shares)			(81)
Repurchase of common stock	(10,246)		$ (1)	(10,245)
Issuance of common stock for share-based compensation plans (in shares)			267
Issuance of common stock for stock compensation plans	(16,196)		$ 3	(16,199)
Issuance of common stock under the employee stock purchase plan (in shares)			24
Issuance of common stock under the employee stock purchase plan	2,859		$ 1	2,858
Stock-based compensation	30,698			30,698
Cash dividends declared ($0.03 per share)	(2,445)					(2,445)
Other comprehensive income (loss)	1,582							1,582
Net income (loss)	$ 37,291					37,291
Balance, end of period (in shares) at Jun. 30, 2021	81,456		81,456
Balance, end of period at Jun. 30, 2021	$ 522,468		$ 815	$ 147,670		$ 375,069		$ (1,086)

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Mar. 31, 2020
Statement of Stockholders' Equity [Abstract]
Cash dividend declared (in dollars per share)	$ 0.03	$ 0.03	$ 0.03	$ 0.03

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Operating activities
Net income (loss)	$ 30,674	$ (46,112)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities
Stock-based compensation	60,788	48,831
(Gain) on capped call transactions	(7,192)	(827)
Deferred income taxes	(28,232)	(18,399)
Amortization of deferred commissions	21,202	16,061
Amortization of debt discount and issuance costs	1,348	6,033
Amortization of intangible assets and depreciation	15,504	10,134
Amortization of investments	1,988	0
Foreign currency transaction loss	5,501	1,691
Other non-cash	(4,869)	6,445
Change in operating assets and liabilities, net	(77,302)	(45,056)
Cash provided by (used in) operating activities	19,410	(21,199)
Investing activities
Purchases of investments	(51,601)	(1,769)
Proceeds from maturities and called investments	68,798	0
Sales of investments	2,450	1,424
Payments for acquisitions, net of cash acquired	(4,993)	0
Investment in property and equipment	(4,161)	(19,059)
Cash provided by (used in) investing activities	10,493	(19,404)
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	5,146	1,403
Dividend payments to stockholders	(4,865)	(4,793)
Common stock repurchases	(60,998)	(44,890)
Cash (used in) provided by financing activities	(60,717)	485,293
Effect of exchange rate changes on cash and cash equivalents	(1,207)	(942)
Net (decrease) increase in cash and cash equivalents	(32,021)	443,748
Cash and cash equivalents, beginning of period	171,899	68,363
Cash and cash equivalents, end of period	$ 139,878	$ 512,111

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 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. These 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.

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NEW ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 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 separating 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.

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MARKETABLE SECURITIES

6 Months Ended

Jun. 30, 2021

Investments, Debt and Equity Securities [Abstract]

MARKETABLE SECURITIES

NOTE 3. MARKETABLE SECURITIES

	June 30, 2021								December 31, 2020
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Government debt	$	2,000	$	—	$	—	$	2,000	$	39,996	$	—	$	(8)	$	39,988
Corporate debt	269,649		20		(210)		269,459		253,345		88		(152)		253,281
	$	271,649	$	20	$	(210)	$	271,459	$	293,341	$	88	$	(160)	$	293,269

As of June 30, 2021, marketable securities’ maturities ranged from July 2021 to May 2024, with a weighted-average remaining maturity of approximately 1.3 years.

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

6 Months Ended

Jun. 30, 2021

Receivables [Abstract]

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

NOTE 4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Receivables

(in thousands)	June 30, 2021		December 31, 2020
Accounts receivable	$	166,226	$	215,827
Unbilled receivables	236,451		207,155
Long-term unbilled receivables	144,065		113,278
	$	546,742	$	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)	June 30, 2021
1 year or less	$	236,451	62	%
1-2 years	88,350		23	%
2-5 years	55,715		15	%
	$	380,516	100	%

Unbilled receivables by contract effective date:

(Dollars in thousands)	June 30, 2021
2021	$	140,395	37	%
2020	131,618		34	%
2019	55,282		15	%
2018	26,688		7	%
2017 and prior	26,533		7	%
	$	380,516	100	%

Major clients

Clients accounting for 10% or more of the Company’s total receivables:

	June 30, 2021		December 31, 2020
Client A	13	%	*

* Client accounted for less than 10% of total receivables.

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)	June 30, 2021		December 31, 2020
Contract assets (1)	$	14,031	$	15,296
Long-term contract assets (2)	10,097		7,777
	$	24,128	$	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)	June 30, 2021		December 31, 2020
Deferred revenue	$	242,194	$	232,865
Long-term deferred revenue (1)	6,041		8,991
	$	248,235	$	241,856

(1) Included in other long-term liabilities.

The change in deferred revenue in the six months ended June 30, 2021 was primarily due to new billings in advance of revenue recognition, offset by $172.1 million of revenue recognized that was included in deferred revenue as of December 31, 2020.

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DEFERRED COMMISSIONS

6 Months Ended

Jun. 30, 2021

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

DEFERRED COMMISSIONS

NOTE 5. DEFERRED COMMISSIONS

(in thousands)	June 30, 2021		December 31, 2020
Deferred commissions (1)	$	109,803	$	108,624

(1) Included in other long-term assets.

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Amortization of deferred commissions (1)	$	9,706	$	7,564	$	21,202	$	16,061

(1) Included in selling and marketing expense.

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GOODWILL AND OTHER INTANGIBLES

6 Months Ended

Jun. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLES

NOTE 6. GOODWILL AND OTHER INTANGIBLES

Goodwill

Change in goodwill:

	Six Months Ended June 30,
(in thousands)	2021		2020
January 1,	$	79,231	$	79,039
Acquisition	2,701		—
Currency translation adjustments	241		(364)
June 30,	$	82,173	$	78,675

Intangibles

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

		June 30, 2021
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,186	$	(56,638)	$	6,548
Technology	2-10 years	67,142		(57,644)		9,498
Other	1-5 years	5,361		(5,361)		—
		$	135,689	$	(119,643)	$	16,046

(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 June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Cost of revenue	$	629	$	647	$	1,258	$	1,294
Selling and marketing	373		370		746		740
	$	1,002	$	1,017	$	2,004	$	2,034

Future estimated intangibles assets amortization:

(in thousands)	June 30, 2021
2021	$	1,983
2022	3,886
2023	3,618
2024	2,849
2025	2,509
2026 and thereafter	1,201
	$	16,046

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LEASES

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

LEASES

NOTE 7. LEASES

Headquarters lease

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, which is being amortized over the remaining lease term. Upon modification, the Company reduced its lease liabilities by $21.1 million and accelerated depreciation related to its corporate headquarters.

Expense

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Fixed lease costs (1)	$	(3,972)	$	4,943	$	(3,672)	$	9,761
Short-term lease costs	515		371		974		826
Variable lease costs	1,340		969		2,727		2,247
	$	(2,117)	$	6,283	$	29	$	12,834

(1) The decrease in fixed lease costs in three and six months ended June 30, 2021 was due to the modification of the Headquarters Lease.

Right of use assets and lease liabilities

(in thousands)	June 30, 2021		December 31, 2020
Right of use assets (1)	$	51,058	$	67,651
Lease liabilities (2)	$	13,682	$	18,541
Long-term lease liabilities	$	42,063	$	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:

	June 30, 2021		December 31, 2020
Weighted-average remaining lease term	4.9 years		4.7 years
Weighted-average discount rate (1)	4.6	%	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)	June 30, 2021
Remainder of 2021	$	8,783
2022	13,888
2023	13,300
2024	10,021
2025	6,913
2026	2,653
Thereafter	7,170
Total lease payments	62,728
Less: imputed interest (1)	(6,983)
	$	55,745

(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

	Six Months Ended June 30,
(in thousands)	2021		2020
Cash paid for leases	$	11,605	$	10,945
Right of use assets recognized for new leases and amendments (non-cash)	$	10,160	$	10,077

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DEBT

6 Months Ended

Jun. 30, 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 June 30, 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 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)	June 30, 2021		December 31, 2020
Principal	$	600,000	$	600,000
Unamortized debt discount	—		(71,222)
Unamortized issuance costs	(10,908)		(10,575)
Convertible senior notes, net	$	589,092	$	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 June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Contractual interest expense (0.75% coupon)	$	1,125	$	1,125	$	2,250	$	1,575
Amortization of debt discount	—		3,757		—		5,253
Amortization of issuance costs	675		558		1,348		780
	$	1,800	$	5,440	$	3,598	$	7,608

The effective interest rate for the Notes:

	Six Months Ended June 30,
	2021		2020
Weighted-average effective interest rate	1.2	%	4.3	%

Future payments of principal and contractual interest:

	June 30, 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 (the “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 must 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:

	Six Months Ended June 30,
(in thousands)	2021		2020
January 1,	$	83,597	$	—
Issuance	—		51,900
Fair value adjustment	7,192		827
June 30,	$	90,789	$	52,727

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. 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 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 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 June 30, 2021 and December 31, 2020, the Company had no outstanding borrowings under the Credit Facility.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 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:

	June 30, 2021								December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents	$	4,650	$	—	$	—	$	4,650	$	42,339	$	14,000	$	—	$	56,339
Marketable securities	$	—	$	271,459	$	—	$	271,459	$	—	$	293,269	$	—	$	293,269
Capped Call Transactions (1)	$	—	$	90,789	$	—	$	90,789	$	—	$	83,597	$	—	$	83,597
Venture investments (1) (2)	$	—	$	—	$	9,779	$	9,779	$	—	$	—	$	8,345	$	8,345

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

Changes in venture investments:

	Six Months Ended June 30,
(in thousands)	2021		2020
January 1,	$	8,345	$	4,871
New investments	500		1,769
Sales of investments	(400)		(1,424)
Changes in foreign exchange rates	14		(50)
Changes in fair value:
included in other income	100		1,374
included in other comprehensive income	1,220		100
June 30,	$	9,779	$	6,640

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 $726.2 million as of June 30, 2021 and $706.5 million as of December 31, 2020. 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

6 Months Ended

Jun. 30, 2021

Revenue from Contract with Customer [Abstract]

REVENUE

NOTE 10. REVENUE

Geographic revenue

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2021				2020				2021				2020
U.S.	$	189,297	58	%	$	142,811	63	%	$	383,865	60	%	$	315,228	63	%
Other Americas	14,058		4	%	8,930		4	%	25,959		4	%	24,272		5	%
United Kingdom (“U.K.”)	32,553		10	%	21,259		9	%	60,765		10	%	43,096		9	%
Europe (excluding U.K.), Middle East, and Africa	45,798		14	%	34,878		15	%	97,457		15	%	66,816		14	%
Asia-Pacific	43,996		14	%	19,497		9	%	71,155		11	%	43,554		9	%
	$	325,702	100	%	$	227,375	100	%	$	639,201	100	%	$	492,966	100	%

Revenue streams

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Perpetual license	$	12,596	$	9,057	$	18,048	$	12,716
Term license	104,296		44,266		215,805		134,523
Revenue recognized at a point in time	116,892		53,323		233,853		147,239
Maintenance	78,782		72,222		154,343		145,917
Pega Cloud	73,293		48,838		141,151		92,304
Consulting	56,735		52,992		109,854		107,506
Revenue recognized over time	208,810		174,052		405,348		345,727
	$	325,702	$	227,375	$	639,201	$	492,966

(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Pega Cloud	$	73,293	$	48,838	$	141,151	$	92,304
Client Cloud	$	183,078	$	116,488	$	370,148	$	280,440
Maintenance	78,782		72,222		154,343		145,917
Term license	104,296		44,266		215,805		134,523
Subscription (1)	256,371		165,326		511,299		372,744
Perpetual license	12,596		9,057		18,048		12,716
Consulting	56,735		52,992		109,854		107,506
	$	325,702	$	227,375	$	639,201	$	492,966

(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:

	June 30, 2021
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	6,707	$	46,146	$	214,645	$	281,793	$	17,863	$	567,154	56	%
1-2 years	234		15,708		59,164		194,841		2,675		272,622		26	%
2-3 years	—		909		36,076		88,855		762		126,602		12	%
Greater than 3 years	—		255		26,564		37,246		693		64,758		6	%
	$	6,941	$	63,018	$	336,449	$	602,735	$	21,993	$	1,031,136	100	%

	June 30, 2020
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	8,120	$	53,550	$	186,618	$	191,187	$	21,923	$	461,398	57	%
1-2 years	1,700		6,187		40,153		140,860		1,986		190,886		23	%
2-3 years	—		6,460		20,671		88,273		631		116,035		14	%
Greater than 3 years	—		646		10,517		37,071		626		48,860		6	%
	$	9,820	$	66,843	$	257,959	$	457,391	$	25,166	$	817,179	100	%

Major clients

Clients accounting for 10% or more of the Company’s total revenue:

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2021			2020		2021		2020
Total revenue	$	325,702		$	227,375	$	639,201	$	492,966
Client A	13		%	*		*		*

*Client accounted for less than 10% of total revenue.

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

NOTE 11. STOCK-BASED COMPENSATION

Expense

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Cost of revenue	$	5,849	$	5,384	$	11,774	$	10,536
Selling and marketing	14,748		11,592		28,468		21,310
Research and development	6,343		5,805		13,113		11,302
General and administrative	3,748		2,874		7,433		5,683
	$	30,688	$	25,655	$	60,788	$	48,831
Income tax benefit	$	(6,192)	$	(5,107)	$	(12,183)	$	(9,689)

As of June 30, 2021, the Company had $157.3 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years.

Grants

	Six Months Ended June 30, 2021
(in thousands)	Shares	Total Fair Value
RSUs	753	$	97,483
Non-qualified stock options	1,368	$	51,594

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INCOME TAXES

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 12. INCOME TAXES

Effective income tax rate

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2021		2020		2021			2020
(Benefit from) income taxes	$	(11,916)	$	(12,319)	$	(29,534)		$	(36,129)
Effective income tax benefit rate					(2,591)		%	44		%

The change in the effective income tax benefit rate was primarily due to the impact of discrete tax items on a proportionately larger income (loss) before income taxes in the prior period. The most significant discrete items were excess tax benefits from stock-based compensation and the impact of changes in statutory tax rates applicable to our U.K.-based deferred tax assets.

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EARNINGS (LOSS) PER SHARE

6 Months Ended

Jun. 30, 2021

Earnings Per Share [Abstract]

EARNINGS (LOSS) PER SHARE

NOTE 13. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted earnings (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 earnings (loss) per share:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2021		2020		2021		2020
Net income (loss)	$	37,291	$	(20,740)	$	30,674	$	(46,112)
Weighted-average common shares outstanding	81,316		80,224		81,161		80,016
Earnings (loss) per share, basic	$	0.46	$	(0.26)	$	0.38	$	(0.58)
Net income (loss)	$	37,291	$	(20,740)	$	30,674	$	(46,112)
Interest expense associated with convertible debt instruments, net of tax	1,351		—		—		—
Numerator for diluted EPS	$	38,642	$	(20,740)	$	30,674	$	(46,112)
Weighted-average effect of dilutive securities:
Convertible debt (1)	4,443		—		—		—
Stock options	3,266		—		3,416		—
RSUs	1,295		—		1,429		—
Effect of dilutive securities (2)	9,004		—		4,845		—
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)	90,320		80,224		86,006		80,016
Earnings (loss) per share, diluted	$	0.43	$	(0.26)	$	0.36	$	(0.58)
Outstanding anti-dilutive stock options and RSUs (4)	19		5,929		22		5,939

(1) 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.

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

(3) The Company’s Capped Call Transactions convert to 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 must 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 from weighted-average common shares outstanding, assuming dilution, 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 earnings (loss) per share. These awards may be dilutive in the future.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2021

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 14. SUBSEQUENT EVENTS

On July 6, 2021, the Company entered into an office space lease (the “Lease”) for 131 thousand square feet in Waltham, Massachusetts. The lease term of approximately 11 years is expected to commence on August 1, 2021 (the “Lease Commencement Date”), subject to certain adjustments for the initial occupancy date. The annual rent equals the base rent plus the Company’s portion of building operating costs and real estate taxes for the year. Rent first becomes payable on August 1, 2022, subject to adjustment based on the Lease Commencement Date. Base rent for the first year is $6 million and will increase by 3% annually. In addition, the Company will receive an improvement allowance from the landlord of $11.8 million.

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NEW ACCOUNTING PRONOUNCEMENTS (Policies)

6 Months Ended

Jun. 30, 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. These 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 separating 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)

6 Months Ended

Jun. 30, 2021

Investments, Debt and Equity Securities [Abstract]

Schedule of marketable securities

	June 30, 2021								December 31, 2020
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Government debt	$	2,000	$	—	$	—	$	2,000	$	39,996	$	—	$	(8)	$	39,988
Corporate debt	269,649		20		(210)		269,459		253,345		88		(152)		253,281
	$	271,649	$	20	$	(210)	$	271,459	$	293,341	$	88	$	(160)	$	293,269

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE (Tables)

6 Months Ended

Jun. 30, 2021

Receivables [Abstract]

Summary of receivable

Receivables

(in thousands)	June 30, 2021		December 31, 2020
Accounts receivable	$	166,226	$	215,827
Unbilled receivables	236,451		207,155
Long-term unbilled receivables	144,065		113,278
	$	546,742	$	536,260

Summary of unbilled receivables

Unbilled receivables by expected billing date:

(Dollars in thousands)	June 30, 2021
1 year or less	$	236,451	62	%
1-2 years	88,350		23	%
2-5 years	55,715		15	%
	$	380,516	100	%

Summary of unbilled receivables based upon contract effective date

Unbilled receivables by contract effective date:

(Dollars in thousands)	June 30, 2021
2021	$	140,395	37	%
2020	131,618		34	%
2019	55,282		15	%
2018	26,688		7	%
2017 and prior	26,533		7	%
	$	380,516	100	%

Schedules of concentration of risk, by risk factor

Clients accounting for 10% or more of the Company’s total receivables:

	June 30, 2021		December 31, 2020
Client A	13	%	*

* Client accounted for less than 10% of total receivables.

Clients accounting for 10% or more of the Company’s total revenue:

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2021			2020		2021		2020
Total revenue	$	325,702		$	227,375	$	639,201	$	492,966
Client A	13		%	*		*		*

*Client accounted for less than 10% of total revenue.

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)	June 30, 2021		December 31, 2020
Contract assets (1)	$	14,031	$	15,296
Long-term contract assets (2)	10,097		7,777
	$	24,128	$	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)	June 30, 2021		December 31, 2020
Deferred revenue	$	242,194	$	232,865
Long-term deferred revenue (1)	6,041		8,991
	$	248,235	$	241,856

(1) Included in other long-term liabilities.

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DEFERRED COMMISSIONS (Tables)

6 Months Ended

Jun. 30, 2021

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

Schedule of impairment of deferred contract costs

(in thousands)	June 30, 2021		December 31, 2020
Deferred commissions (1)	$	109,803	$	108,624

(1) Included in other long-term assets.

Schedule of amortization of deferred contract costs

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Amortization of deferred commissions (1)	$	9,706	$	7,564	$	21,202	$	16,061

(1) Included in selling and marketing expense

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GOODWILL AND OTHER INTANGIBLES (Tables)

6 Months Ended

Jun. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in carrying amount of goodwill

Change in goodwill:

	Six Months Ended June 30,
(in thousands)	2021		2020
January 1,	$	79,231	$	79,039
Acquisition	2,701		—
Currency translation adjustments	241		(364)
June 30,	$	82,173	$	78,675

Schedule of amortizable intangible assets

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

		June 30, 2021
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,186	$	(56,638)	$	6,548
Technology	2-10 years	67,142		(57,644)		9,498
Other	1-5 years	5,361		(5,361)		—
		$	135,689	$	(119,643)	$	16,046

(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 June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Cost of revenue	$	629	$	647	$	1,258	$	1,294
Selling and marketing	373		370		746		740
	$	1,002	$	1,017	$	2,004	$	2,034

Estimated future amortization expense related to intangible assets

Future estimated intangibles assets amortization:

(in thousands)	June 30, 2021
2021	$	1,983
2022	3,886
2023	3,618
2024	2,849
2025	2,509
2026 and thereafter	1,201
	$	16,046

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LEASES (Tables)

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

Schedule of lease expense

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Fixed lease costs (1)	$	(3,972)	$	4,943	$	(3,672)	$	9,761
Short-term lease costs	515		371		974		826
Variable lease costs	1,340		969		2,727		2,247
	$	(2,117)	$	6,283	$	29	$	12,834

(1) The decrease in fixed lease costs in three and six months ended June 30, 2021 was due to the modification of the Headquarters Lease.

Schedule of right of use asset and lease liabilities

(in thousands)	June 30, 2021		December 31, 2020
Right of use assets (1)	$	51,058	$	67,651
Lease liabilities (2)	$	13,682	$	18,541
Long-term lease liabilities	$	42,063	$	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:

	June 30, 2021		December 31, 2020
Weighted-average remaining lease term	4.9 years		4.7 years
Weighted-average discount rate (1)	4.6	%	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)	June 30, 2021
Remainder of 2021	$	8,783
2022	13,888
2023	13,300
2024	10,021
2025	6,913
2026	2,653
Thereafter	7,170
Total lease payments	62,728
Less: imputed interest (1)	(6,983)
	$	55,745

(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

	Six Months Ended June 30,
(in thousands)	2021		2020
Cash paid for leases	$	11,605	$	10,945
Right of use assets recognized for new leases and amendments (non-cash)	$	10,160	$	10,077

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DEBT (Tables)

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Contractual obligation, fiscal year maturity schedule

Carrying value of the Notes:

(in thousands)	June 30, 2021		December 31, 2020
Principal	$	600,000	$	600,000
Unamortized debt discount	—		(71,222)
Unamortized issuance costs	(10,908)		(10,575)
Convertible senior notes, net	$	589,092	$	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 June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Contractual interest expense (0.75% coupon)	$	1,125	$	1,125	$	2,250	$	1,575
Amortization of debt discount	—		3,757		—		5,253
Amortization of issuance costs	675		558		1,348		780
	$	1,800	$	5,440	$	3,598	$	7,608

The effective interest rate for the Notes:

	Six Months Ended June 30,
	2021		2020
Weighted-average effective interest rate	1.2	%	4.3	%

Future payments of principal and contractual interest:

	June 30, 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:

	Six Months Ended June 30,
(in thousands)	2021		2020
January 1,	$	83,597	$	—
Issuance	—		51,900
Fair value adjustment	7,192		827
June 30,	$	90,789	$	52,727

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Assets and liabilities measured at fair value

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

	June 30, 2021								December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents	$	4,650	$	—	$	—	$	4,650	$	42,339	$	14,000	$	—	$	56,339
Marketable securities	$	—	$	271,459	$	—	$	271,459	$	—	$	293,269	$	—	$	293,269
Capped Call Transactions (1)	$	—	$	90,789	$	—	$	90,789	$	—	$	83,597	$	—	$	83,597
Venture investments (1) (2)	$	—	$	—	$	9,779	$	9,779	$	—	$	—	$	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

Changes in venture investments:

	Six Months Ended June 30,
(in thousands)	2021		2020
January 1,	$	8,345	$	4,871
New investments	500		1,769
Sales of investments	(400)		(1,424)
Changes in foreign exchange rates	14		(50)
Changes in fair value:
included in other income	100		1,374
included in other comprehensive income	1,220		100
June 30,	$	9,779	$	6,640

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REVENUE (Tables)

6 Months Ended

Jun. 30, 2021

Revenue from Contract with Customer [Abstract]

Schedule of revenue by geographic location

Geographic revenue

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2021				2020				2021				2020
U.S.	$	189,297	58	%	$	142,811	63	%	$	383,865	60	%	$	315,228	63	%
Other Americas	14,058		4	%	8,930		4	%	25,959		4	%	24,272		5	%
United Kingdom (“U.K.”)	32,553		10	%	21,259		9	%	60,765		10	%	43,096		9	%
Europe (excluding U.K.), Middle East, and Africa	45,798		14	%	34,878		15	%	97,457		15	%	66,816		14	%
Asia-Pacific	43,996		14	%	19,497		9	%	71,155		11	%	43,554		9	%
	$	325,702	100	%	$	227,375	100	%	$	639,201	100	%	$	492,966	100	%

Schedule of revenue streams

Revenue streams

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Perpetual license	$	12,596	$	9,057	$	18,048	$	12,716
Term license	104,296		44,266		215,805		134,523
Revenue recognized at a point in time	116,892		53,323		233,853		147,239
Maintenance	78,782		72,222		154,343		145,917
Pega Cloud	73,293		48,838		141,151		92,304
Consulting	56,735		52,992		109,854		107,506
Revenue recognized over time	208,810		174,052		405,348		345,727
	$	325,702	$	227,375	$	639,201	$	492,966

(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Pega Cloud	$	73,293	$	48,838	$	141,151	$	92,304
Client Cloud	$	183,078	$	116,488	$	370,148	$	280,440
Maintenance	78,782		72,222		154,343		145,917
Term license	104,296		44,266		215,805		134,523
Subscription (1)	256,371		165,326		511,299		372,744
Perpetual license	12,596		9,057		18,048		12,716
Consulting	56,735		52,992		109,854		107,506
	$	325,702	$	227,375	$	639,201	$	492,966

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

Revenue for remaining performance obligations expected to be recognized

Expected future revenue on existing non-cancellable contracts:

	June 30, 2021
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	6,707	$	46,146	$	214,645	$	281,793	$	17,863	$	567,154	56	%
1-2 years	234		15,708		59,164		194,841		2,675		272,622		26	%
2-3 years	—		909		36,076		88,855		762		126,602		12	%
Greater than 3 years	—		255		26,564		37,246		693		64,758		6	%
	$	6,941	$	63,018	$	336,449	$	602,735	$	21,993	$	1,031,136	100	%

	June 30, 2020
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	8,120	$	53,550	$	186,618	$	191,187	$	21,923	$	461,398	57	%
1-2 years	1,700		6,187		40,153		140,860		1,986		190,886		23	%
2-3 years	—		6,460		20,671		88,273		631		116,035		14	%
Greater than 3 years	—		646		10,517		37,071		626		48,860		6	%
	$	9,820	$	66,843	$	257,959	$	457,391	$	25,166	$	817,179	100	%

Schedules of concentration of risk, by risk factor

Clients accounting for 10% or more of the Company’s total receivables:

	June 30, 2021		December 31, 2020
Client A	13	%	*

* Client accounted for less than 10% of total receivables.

Clients accounting for 10% or more of the Company’s total revenue:

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2021			2020		2021		2020
Total revenue	$	325,702		$	227,375	$	639,201	$	492,966
Client A	13		%	*		*		*

*Client accounted for less than 10% of total revenue.

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STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

Summary of stock based compensation expense

Expense

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Cost of revenue	$	5,849	$	5,384	$	11,774	$	10,536
Selling and marketing	14,748		11,592		28,468		21,310
Research and development	6,343		5,805		13,113		11,302
General and administrative	3,748		2,874		7,433		5,683
	$	30,688	$	25,655	$	60,788	$	48,831
Income tax benefit	$	(6,192)	$	(5,107)	$	(12,183)	$	(9,689)

Summary of stock based compensation award granted

Grants

	Six Months Ended June 30, 2021
(in thousands)	Shares	Total Fair Value
RSUs	753	$	97,483
Non-qualified stock options	1,368	$	51,594

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INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Summary of benefit from income taxes and discrete tax items

Effective income tax rate

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2021		2020		2021			2020
(Benefit from) income taxes	$	(11,916)	$	(12,319)	$	(29,534)		$	(36,129)
Effective income tax benefit rate					(2,591)		%	44		%

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EARNINGS (LOSS) PER SHARE (Tables)

6 Months Ended

Jun. 30, 2021

Earnings Per Share [Abstract]

Summary of basic and diluted earnings per share

Calculation of earnings (loss) per share:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2021		2020		2021		2020
Net income (loss)	$	37,291	$	(20,740)	$	30,674	$	(46,112)
Weighted-average common shares outstanding	81,316		80,224		81,161		80,016
Earnings (loss) per share, basic	$	0.46	$	(0.26)	$	0.38	$	(0.58)
Net income (loss)	$	37,291	$	(20,740)	$	30,674	$	(46,112)
Interest expense associated with convertible debt instruments, net of tax	1,351		—		—		—
Numerator for diluted EPS	$	38,642	$	(20,740)	$	30,674	$	(46,112)
Weighted-average effect of dilutive securities:
Convertible debt (1)	4,443		—		—		—
Stock options	3,266		—		3,416		—
RSUs	1,295		—		1,429		—
Effect of dilutive securities (2)	9,004		—		4,845		—
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)	90,320		80,224		86,006		80,016
Earnings (loss) per share, diluted	$	0.43	$	(0.26)	$	0.36	$	(0.58)
Outstanding anti-dilutive stock options and RSUs (4)	19		5,929		22		5,939

(1) 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.

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

(3) The Company’s Capped Call Transactions convert to 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 must 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 from weighted-average common shares outstanding, assuming dilution, 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 earnings (loss) per share. These awards may be dilutive in the future.

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NEW ACCOUNTING PRONOUNCEMENTS (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Mar. 31, 2021	Jan. 01, 2021	Dec. 31, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Convertible senior notes, net	$ 589,092			$ 518,203
Impact of ASU adoption	522,468	$ 478,925		542,172	$ 556,282	$ 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	$ 375,069	$ 340,223		339,879	$ 359,989	$ 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	Jun. 30, 2021	Dec. 31, 2020
Marketable Securities [Line Items]
Amortized Cost	$ 271,649	$ 293,341
Unrealized Gains	20	88
Unrealized Losses	(210)	(160)
Fair Value	271,459	293,269
Government debt
Marketable Securities [Line Items]
Amortized Cost	2,000	39,996
Unrealized Gains	0	0
Unrealized Losses	0	(8)
Fair Value	2,000	39,988
Corporate debt
Marketable Securities [Line Items]
Amortized Cost	269,649	253,345
Unrealized Gains	20	88
Unrealized Losses	(210)	(152)
Fair Value	$ 269,459	$ 253,281

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MARKETABLE SECURITIES - Additional Information (Details)	Jun. 30, 2021
Investments, Debt and Equity Securities [Abstract]
Marketable debt security weighted-average remaining maturity	1 year 3 months 18 days

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Receivable (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Receivables [Abstract]
Accounts receivable	$ 166,226	$ 215,827
Unbilled receivables	236,451	207,155
Long-term unbilled receivables	144,065	113,278
Total receivables	$ 546,742	$ 536,260

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Unbilled Receivables (Details) $ in Thousands	Jun. 30, 2021 USD ($)
Receivables [Abstract]
1 year or less	$ 236,451
1-2 years	88,350
2-5 years	55,715
Total	$ 380,516
Percentage of unbilled receivables, 1 year or less	62.00%
Percentage of unbilled receivables, 1-2 years	23.00%
Percentage of unbilled receivables, 2-5 years	15.00%
Total percentage of unbilled receivables	100.00%

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE- Contract Effective (Details) $ in Thousands	Jun. 30, 2021 USD ($)
Receivables [Abstract]
2021	$ 140,395
2020	131,618
2019	55,282
2018	26,688
2017 and prior	26,533
Unbilled revenue total	$ 380,516
2021	37.00%
2020	34.00%
2019	15.00%
2018	7.00%
2017 and prior	7.00%
Total percentage of unbilled revenue	100.00%

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Major Clients (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Concentration Risk [Line Items]
Percent of total revenue	100.00%	100.00%	100.00%	100.00%
Client A | Credit concentration risk | Accounts receivable
Concentration Risk [Line Items]
Percent of total revenue			13.00%

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Contract Assets and Deferred Revenue (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Receivables [Abstract]
Contract assets	$ 14,031	$ 15,296
Long-term contract assets	10,097	7,777
Total contract assets	24,128	23,073
Deferred revenue	242,194	232,865
Long-term deferred revenue	6,041	8,991
Total deferred revenue	248,235	$ 241,856
Revenue recognized during the period that was included in deferred revenue	$ 172,100

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DEFERRED COMMISSIONS - Schedule of Impairment of Deferred Commissions (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Deferred commissions	$ 109,803	$ 108,624

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DEFERRED COMMISSIONS - Schedule of Amortization of Deferred Commissions (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Amortization of deferred commissions	$ 9,706	$ 7,564	$ 21,202	$ 16,061

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GOODWILL AND OTHER INTANGIBLES - Changes in Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Goodwill [Roll Forward]
Beginning balance	$ 79,231	$ 79,039
Acquisition	2,701	0
Currency translation adjustments	241	(364)
Ending balance	$ 82,173	$ 78,675

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GOODWILL AND OTHER INTANGIBLES - Schedule of Amortizable Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Goodwill and Other Intangible Assets [Line Items]
Cost	$ 135,689	$ 133,372
Accumulated Amortization	(119,643)	(117,624)
Total	16,046	15,748
Client-related
Goodwill and Other Intangible Assets [Line Items]
Cost	63,186	63,168
Accumulated Amortization	(56,638)	(55,877)
Total	6,548	7,291
Technology
Goodwill and Other Intangible Assets [Line Items]
Cost	67,142	64,843
Accumulated Amortization	(57,644)	(56,386)
Total	9,498	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 INTANGIBLES - Amortization Expense of Acquired Intangibles (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 1,002	$ 1,017	$ 2,004	$ 2,034
Cost of revenue
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	629	647	1,258	1,294
Selling and marketing
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 373	$ 370	$ 746	$ 740

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GOODWILL AND OTHER INTANGIBLES - Estimated Future Amortization Expense Related to Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]
2021	$ 1,983
2022	3,886
2023	3,618
2024	2,849
2025	2,509
2026 and thereafter	1,201
Total	$ 16,046	$ 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		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Leases [Abstract]
Fixed lease costs	$ (3,972)	$ 4,943	$ (3,672)	$ 9,761
Short-term lease costs	515	371	974	826
Variable lease costs	1,340	969	2,727	2,247
Operating lease expenses	$ (2,117)	$ 6,283	$ 29	$ 12,834

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LEASES - Right of Use Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Leases [Abstract]
Operating lease, right-of-use asset, statement of financial position	Other long-term assets	Other long-term assets
Right of use assets	$ 51,058	$ 67,651
Operating lease, liability, current, statement of financial position	Other current liabilities	Other current liabilities
Lease liabilities	$ 13,682	$ 18,541
Long-term lease liabilities	$ 42,063	$ 59,053

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LEASES - Remaining Lease Term (Details)	Jun. 30, 2021	Dec. 31, 2020
Leases [Abstract]
Weighted-average remaining lease term	4 years 10 months 24 days	4 years 8 months 12 days
Weighted-average discount rate	4.60%	5.40%

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LEASES - Maturities after Adoption of 842 (Details) $ in Thousands	Jun. 30, 2021 USD ($)
Leases [Abstract]
Remainder of 2021	$ 8,783
2022	13,888
2023	13,300
2024	10,021
2025	6,913
2026	2,653
Thereafter	7,170
Total lease payments	62,728
Less: imputed interest	(6,983)
Total lease liability	$ 55,745

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LEASES - Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Leases [Abstract]
Cash paid for leases	$ 11,605	$ 10,945
Right of use assets recognized for new leases and amendments (non-cash)	$ 10,160	$ 10,077

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DEBT - Convertible Senior Notes Narrative (Details)	1 Months Ended
	Feb. 29, 2020 USD ($) tradingDay $ / shares	Jun. 30, 2021 USD ($)	Mar. 31, 2021 USD ($)	Jan. 01, 2021 USD ($)	Dec. 31, 2020 USD ($)	Jun. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Debt Instrument [Line Items]
Redemption percentage	100.00%
Convertible senior notes, net		$ 589,092,000			$ 518,203,000
Impact of ASU adoption		522,468,000	$ 478,925,000		542,172,000	$ 556,282,000	$ 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		$ 375,069,000	$ 340,223,000		339,879,000	$ 359,989,000	$ 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	12 Months Ended
	Dec. 31, 2020	Jun. 30, 2021
Debt Instrument [Line Items]
Additional paid-in capital	$ 204,432	$ 147,670
Convertible debt
Debt Instrument [Line Items]
Principal	600,000	600,000
Unamortized debt discount	(71,222)	0
Unamortized issuance costs	(10,575)	(10,908)
Convertible senior notes, net	518,203	589,092
Conversion options	84,120
Issuance costs	(2,037)	0
Deferred taxes	(20,479)	0
Additional paid-in capital	$ 61,604	$ 0

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DEBT - Interest Expense (Details) - Convertible debt - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		6 Months Ended
	Feb. 29, 2020	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Debt Instrument [Line Items]
Interest rate	0.75%
Contractual interest expense (0.75% coupon)		$ 1,125	$ 1,125	$ 2,250	$ 1,575
Amortization of debt discount		0	3,757	0	5,253
Amortization of issuance costs		675	558	1,348	780
Interest expense		$ 1,800	$ 5,440	$ 3,598	$ 7,608
Weighted-average effective interest rate		1.20%	4.30%	1.20%	4.30%

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DEBT - Future Payments of Principal and Contractual Interest (Details) - Convertible debt - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
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
Interest expense, total due	17,238
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	6 Months Ended
	Feb. 29, 2020 $ / derivative shares	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)
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		7,192	827
Ending balance		$ 90,789	$ 52,727

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DEBT - Credit Facility (Details)	1 Months Ended
	Sep. 30, 2020 USD ($)	Jun. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
Debt Instrument [Line Items]
Remaining borrowing capacity		$ 0	$ 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	Jun. 30, 2021	Dec. 31, 2020
Fair Value Assets
Marketable securities	$ 271,459	$ 293,269
Capped Call Transactions	90,789	83,597
Cash equivalents
Fair Value Assets
Cash equivalents	4,650	56,339
Venture investments
Fair Value Assets
Venture investments	9,779	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	4,650	42,339
Level 1 | Venture investments
Fair Value Assets
Venture investments	0	0
Level 2
Fair Value Assets
Marketable securities	271,459	293,269
Capped Call Transactions	90,789	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	$ 9,779	$ 8,345

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FAIR VALUE MEASUREMENTS - Change in Investment in Privately Held Companies (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Convertible debt fair value	$ 726,200		$ 706,500
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	1,769
Sales of investments	(400)	(1,424)
Changes in foreign exchange rates	14	(50)
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	$ 9,779	$ 6,640

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REVENUE - Geographic Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Disaggregation of Revenue [Line Items]
Revenue	$ 325,702	$ 227,375	$ 639,201	$ 492,966
Percent of total revenue	100.00%	100.00%	100.00%	100.00%
U.S.
Disaggregation of Revenue [Line Items]
Revenue	$ 189,297	$ 142,811	$ 383,865	$ 315,228
Other Americas
Disaggregation of Revenue [Line Items]
Revenue	14,058	8,930	25,959	24,272
United Kingdom (“U.K.”)
Disaggregation of Revenue [Line Items]
Revenue	32,553	21,259	60,765	43,096
Europe (excluding U.K.), Middle East, and Africa
Disaggregation of Revenue [Line Items]
Revenue	45,798	34,878	97,457	66,816
Asia-Pacific
Disaggregation of Revenue [Line Items]
Revenue	$ 43,996	$ 19,497	$ 71,155	$ 43,554
Total revenue | U.S. | Geographic Concentration Risk
Disaggregation of Revenue [Line Items]
Percent of total revenue	58.00%	63.00%	60.00%	63.00%
Total revenue | Other Americas | Geographic Concentration Risk
Disaggregation of Revenue [Line Items]
Percent of total revenue	4.00%	4.00%	4.00%	5.00%
Total revenue | United Kingdom (“U.K.”) | Geographic Concentration Risk
Disaggregation of Revenue [Line Items]
Percent of total revenue	10.00%	9.00%	10.00%	9.00%
Total revenue | Europe (excluding U.K.), Middle East, and Africa | Geographic Concentration Risk
Disaggregation of Revenue [Line Items]
Percent of total revenue	14.00%	15.00%	15.00%	14.00%
Total revenue | Asia-Pacific | Geographic Concentration Risk
Disaggregation of Revenue [Line Items]
Percent of total revenue	14.00%	9.00%	11.00%	9.00%

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REVENUE - Revenue Stream (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Disaggregation of Revenue [Line Items]
Revenue	$ 325,702	$ 227,375	$ 639,201	$ 492,966
Revenue recognized at a point in time
Disaggregation of Revenue [Line Items]
Revenue	116,892	53,323	233,853	147,239
Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	208,810	174,052	405,348	345,727
Perpetual license | Revenue recognized at a point in time
Disaggregation of Revenue [Line Items]
Revenue	12,596	9,057	18,048	12,716
Client Cloud
Disaggregation of Revenue [Line Items]
Revenue	183,078	116,488	370,148	280,440
Term license | Revenue recognized at a point in time
Disaggregation of Revenue [Line Items]
Revenue	104,296	44,266	215,805	134,523
Maintenance
Disaggregation of Revenue [Line Items]
Revenue	78,782	72,222	154,343	145,917
Maintenance | Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	78,782	72,222	154,343	145,917
Pega Cloud
Disaggregation of Revenue [Line Items]
Revenue	73,293	48,838	141,151	92,304
Pega Cloud | Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	73,293	48,838	141,151	92,304
Subscription
Disaggregation of Revenue [Line Items]
Revenue	256,371	165,326	511,299	372,744
Consulting
Disaggregation of Revenue [Line Items]
Revenue	56,735	52,992	109,854	107,506
Consulting | Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	$ 56,735	$ 52,992	$ 109,854	$ 107,506

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REVENUE - Performance Obligations (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Jun. 30, 2020
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 1,031,136	$ 817,179
Revenue remaining performance obligation, percentage	100.00%	100.00%
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01
Disaggregation of Revenue [Line Items]
Expected timing of satisfaction		2 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01
Disaggregation of Revenue [Line Items]
Expected timing of satisfaction		1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Disaggregation of Revenue [Line Items]
Expected timing of satisfaction	2 years	3 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-07-01
Disaggregation of Revenue [Line Items]
Expected timing of satisfaction	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01
Disaggregation of Revenue [Line Items]
Expected timing of satisfaction	3 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01
Disaggregation of Revenue [Line Items]
Expected timing of satisfaction
1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 567,154	$ 461,398
Revenue remaining performance obligation, percentage	56.00%	57.00%
1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 272,622	$ 190,886
Revenue remaining performance obligation, percentage	26.00%	23.00%
2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 126,602	$ 116,035
Revenue remaining performance obligation, percentage	12.00%	14.00%
Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 64,758	$ 48,860
Revenue remaining performance obligation, percentage	6.00%	6.00%
Perpetual license
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 6,941	$ 9,820
Perpetual license | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	6,707	8,120
Perpetual license | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	234	1,700
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	63,018	66,843
Term license | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	46,146	53,550
Term license | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	15,708	6,187
Term license | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	909	6,460
Term license | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	255	646
Maintenance
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	336,449	257,959
Maintenance | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	214,645	186,618
Maintenance | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	59,164	40,153
Maintenance | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	36,076	20,671
Maintenance | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	26,564	10,517
Pega Cloud
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	602,735	457,391
Pega Cloud | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	281,793	191,187
Pega Cloud | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	194,841	140,860
Pega Cloud | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	88,855	88,273
Pega Cloud | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	37,246	37,071
Consulting
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	21,993	25,166
Consulting | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	17,863	21,923
Consulting | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	2,675	1,986
Consulting | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	762	631
Consulting | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 693	$ 626

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REVENUE - Performance Obligations - Expected Timing (Details)	Jun. 30, 2021	Jun. 30, 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		2 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01
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]: 2021-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	2 years	3 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-07-01
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]: 2022-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	3 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction

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REVENUE - Revenue by Major Client (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Product Information [Line Items]
Revenue	$ 325,702	$ 227,375	$ 639,201	$ 492,966
Percent of total revenue	100.00%	100.00%	100.00%	100.00%
Total revenue | Client A | Customer concentration risk
Product Information [Line Items]
Percent of total revenue	13.00%

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STOCK-BASED COMPENSATION - Summary of Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 30,688	$ 25,655	$ 60,788	$ 48,831
Income tax benefit	(6,192)	(5,107)	(12,183)	(9,689)
Cost of revenue
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	5,849	5,384	11,774	10,536
Selling and marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	14,748	11,592	28,468	21,310
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	6,343	5,805	13,113	11,302
General and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 3,748	$ 2,874	$ 7,433	$ 5,683

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STOCK-BASED COMPENSATION - Additional Information (Details) $ in Millions	6 Months Ended
	Jun. 30, 2021 USD ($)
Share-based Payment Arrangement [Abstract]
Unrecognized stock-based compensation expense	$ 157.3
Weighted-average period of recognition of unrecognized stock-based compensation expense (in years)	2 years 2 months 12 days

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STOCK-BASED COMPENSATION - Summary of Stock-Based Compensation Awards Granted (Details) - Employees $ in Thousands	6 Months Ended
	Jun. 30, 2021 USD ($) shares
RSUs
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Grants in period (in shares) | shares	753,000
Total Fair Value | $	$ 97,483
Non-qualified stock options
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Options granted in period (in shares) | shares	1,368,000
Total Fair Value | $	$ 51,594

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Income Tax Disclosure [Abstract]
(Benefit from) income taxes	$ (11,916)	$ (12,319)	$ (29,534)	$ (36,129)
Effective income tax benefit rate			(2591.00%)	44.00%

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EARNINGS (LOSS) PER SHARE (Details) $ / shares in Units, shares in Thousands, $ in Thousands	1 Months Ended	3 Months Ended				6 Months Ended
	Feb. 29, 2020 $ / derivative shares	Jun. 30, 2021 USD ($) $ / shares shares	Mar. 31, 2021 USD ($)	Jun. 30, 2020 USD ($) $ / shares shares	Mar. 31, 2020 USD ($)	Jun. 30, 2021 USD ($) $ / shares shares	Jun. 30, 2020 USD ($) $ / shares shares
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Net income (loss) | $		$ 37,291	$ (6,617)	$ (20,740)	$ (25,372)	$ 30,674	$ (46,112)
Weighted-average common shares outstanding (in shares)		81,316		80,224		81,161	80,016
Earnings per share, basic (in dollars per share) | $ / shares		$ 0.46		$ (0.26)		$ 0.38	$ (0.58)
Interest expense associated with convertible debt instruments, net of tax | $		$ 1,351		$ 0		$ 0	$ 0
Numerator for diluted EPS | $		$ 38,642		$ (20,740)		$ 30,674	$ (46,112)
Convertible debt (in shares)		4,400
Effect of dilutive securities (in shares)		9,004		0		4,845	0
Weighted-average common shares outstanding, assuming dilution (in shares)		90,320		80,224		86,006	80,016
Earnings per share, diluted (in dollars per share) | $ / shares		$ 0.43		$ (0.26)		$ 0.36	$ (0.58)
Outstanding anti-dilutive stock options and RSUs (in shares)		19		5,929		22	5,939
Number of shares issuable upon conversion	4,400
Cap price (in dollars per share) | $ / derivative	196.44
Convertible debt
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Convertible debt (in shares)		4,443		0		0	0
Stock options
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Share-based payment arrangements (in shares)		3,266		0		3,416	0
RSUs
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Share-based payment arrangements (in shares)		1,295		0		1,429	0

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SUBSEQUENT EVENTS (Details) - Subsequent Event - Building ft² in Thousands, $ in Millions	Jul. 06, 2021 USD ($) ft²
Subsequent Event [Line Items]
Area of office space lease | ft²	131
Term of contract	11 years
Base rent to be paid, year one	$ 6.0
Base rent increase percentage	0.03
Improvement allowance	$ 11.8