8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): 3/06/2008

Pegasystems Inc.

(Exact name of registrant as specified in its charter)

Commission File Number: 1-11859

Massachusetts	04-2787865
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

101 Main Street, Cambridge, Massachusetts 02142

(Address of principal executive offices, including zip code)

617-374-9600

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

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

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

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

Item 2.02. Results of Operations and Financial Condition

On March 6, 2008, Pegasystems Inc. issued a press release announcing its financial results for the fourth quarter and the year ended December 31, 2007. A copy of such press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.

The information in this Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits

Press Release issued by Pegasystems Inc. on March 6, 2008.

Signature(s)

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 hereunto duly authorized.

		Pegasystems Inc.
Date: March 6, 2008	By:	/s/ Shawn Hoyt
		Shawn Hoyt
		General Counsel and Secretary

Exhibit Index

Exhibit No.	Description
EX-99.1	Press Release issued by Pegasystems Inc. on March 6, 2008.

EX-99.1

Exhibit 99.1

For Information, contact:

Craig Dynes

Chief Financial Officer

617-866-6020

CDynes@pega.com

Pegasystems Announces Record Revenues of $162 Million for 2007 and $47 Million for

Fourth Quarter

Annual Revenue Grows 29%; License Revenue Grows 44%

CAMBRIDGE, Mass. – March 6, 2008 – Pegasystems Inc. (NASDAQ: PEGA), the leader in Business Process Management (BPM), today announced financial results for the year and quarter ended December 31, 2007. Total revenue for the year ended December 31, 2007 was $161.9 million, an increase of 29%, compared to $126.0 million in 2006. License revenue for the year increased 44% to $51.1 million, compared to $35.4 million in 2006. Services revenue for the year increased 22% to $110.8 million, compared to $90.6 million in 2006.

Net income for 2007 was $6.6 million, compared to $1.8 million in 2006. During 2007, the Company generated $25.3 million in cash flow from operations and ended the year with $150.0 million in cash and short-term investments.

The following table shows selected financial information for the fourth quarter and year ended December 31, 2007 and 2006.

	Quarter				Full Year
	Q4 2007		Q4 2006		2007		2006
	(In thousands, except per share data and percentages)
License Revenue	$	14,919	$	13,082	$	51,084	$	35,424
Services Revenue		31,837		22,887		110,865		90,599
Total Revenue		46,756		35,969		161,949		126,023
Gross Profit		27,159		22,540		96,747		72,260
Income (Loss) from Operations		177		671		1,951		(7,114	)
Net income		1,418		3,422		6,595		1,842
Earnings per Share, Basic	$	0.04	$	0.10	$	0.18	$	0.05
Earnings per Share, Diluted	$	0.04	$	0.09	$	0.18	$	0.05

Business Perspective

“Throughout the year, we won business with important new customers around the world, including one of the largest commercial banks in Europe, large government agencies in the US and UK, several large insurance companies, and major pharmaceutical and life sciences companies. We also saw Business Process Outsourcing begin to develop as an important market for us in the US and Europe, as we won business with companies like Transcom, the leading customer relationship and credit management service provider in Europe. Continuing our strategy of expanding relationships across large existing customers, we won additional business with some of the world’s largest insurers and financial services companies, and continued to drive our success with healthcare insurers and government agencies,” said Alan Trefler, Pegasystems’ chairman and CEO.

“Customers are using our products to grow their businesses, retain customers, improve productivity and reduce expenses. Our business continues to be diversified and well-balanced, with continued success

from the domestic and international insurance, banking and financial services, healthcare and government sectors as well as from the CRM market,” Trefler continued. “Industry analysts position us as the leader in the expanding BPM market, and we are the BPM of choice for the top companies in each of our target industries.”

Craig Dynes, Pegasystems’ CFO, added, “This is our second consecutive year of strong revenue growth. Our 2007 revenue of $162 million represents a 29% increase over 2006 revenue, which was a 26% increase over 2005. This dramatic increase reflects strong license revenue, which grew 44% in 2007 and contributed to the $4.8 million increase in net income. Additionally, the value of term license fees which will be recognized as revenue in future periods increased from $14.2 million at the end of 2006 to $71.4 million at the end of 2007. We currently expect revenue in 2008 to surpass $200 million. However, given the instability of the current economic environment, revenue could vary by +/- 10% from our $200 million revenue guidance. We are forecasting net income in 2008 to be approximately $9 to $12 million, and cash flow from operations to be over $25 million.”

Messrs. Trefler and Dynes will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on March 7, 2008. Dial-in information is as follows: (877) 419-6603 (domestic) or (719) 325-4871 (international).

To listen to the Webcast, log onto www.pega.com at least 5 minutes prior to the event’s broadcast and click on the Webcast icon in the Investor Relations section. A replay of the call will also be available on www.pega.com in the Investor Relations section Audio Archives link.

Forward-Looking Statements

Certain statements contained in this press release may be construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, including, without limitation, our revenue, net income and cash flow from operations in 2008. The words “anticipate,” “project,” “expect,” “plan,” “intend,” “believe,” “estimate,” “target,” “forecasting,” “could” and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made.

These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause the Company’s actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include, without limitation, variation in demand and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition, the level of term license renewals, our ability to develop new products and evolve existing ones, the impact on our business of the recent credit market turmoil and of the ongoing consolidation in the financial services and healthcare markets, our ability to attract and retain key personnel, reliance on key third party relationships and management of the Company’s growth. Further information regarding these and other factors which could cause the Company’s actual results to differ materially from any forward-looking statements contained in this press release is contained in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 and other recent filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company’s views as of March 6, 2008. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause the Company’s view to change, the Company does not undertake and specifically disclaims any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise. The statements should therefore not be relied upon as representing the Company’s view as of any date subsequent to March 6, 2008.

About Pegasystems

Pegasystems (NASDAQ: PEGA), the leader in Business Process Management, provides software to drive revenue growth, productivity and agility for the world’s most sophisticated organizations. Customers use our award-winning SmartBPM^® Suite to improve customer service, reach new markets and boost operational effectiveness.

Our patented SmartBPM technology makes enterprise applications easy to build and change by directly capturing business objectives and eliminating manual programming. SmartBPM unifies business rules and processes into composite applications that leverage existing systems — empowering businesspeople and IT staff to Build for Change^®, deliver value quickly and outperform their competitors.

Pegasystems’ suite is complemented by best-practice frameworks designed for leaders in financial services, insurance, healthcare, government, life sciences, communications, manufacturing and other industries.

Headquartered in Cambridge, MA, Pegasystems has offices in North America, Europe and Asia. Visit us at www.pega.com.

All trademarks are the property of their respective owners.

Pegasystems Inc.

Condensed Consolidated Balance Sheets (Unaudited)

	As of December 31,
	2007		2006
	(in thousands)
Current Assets:
Cash and cash equivalents	$	26,710	$	26,008
Short-term investments		123,271		101,750
Total cash and short-term investments		149,981		127,758
Trade accounts receivable, net of allowance for doubtful accounts of $365 in 2007 and 2006		45,922		31,985
Short-term license installments		19,183		21,790
Other current assets		7,240		9,065
Total current assets		222,326		190,598
Long-term license installments, net of unearned interest income		8,267		17,458
Equipment and improvements, net of accumulated depreciation and amortization		3,613		2,453
Computer software for internal use, net of accumulated amortization		569		1,054
Long-term deferred income taxes and other assets		6,599		99
Goodwill		1,933		2,346
Total assets	$	243,307	$	214,008
Current liabilities:
Accounts payable	$	5,670	$	7,457
Accrued expenses		10,405		7,017
Accrued compensation and related expenses		13,526		11,770
Deferred revenue		33,178		17,062
Current portion of capital lease obligation		—		63
Total current liabilities		62,779		43,369
Long-term deferred income taxes		—		2,344
Income taxes payable		5,185		—
Other long-term liabilities		2,399		2,137
Total liabilities		70,363		47,850
Stockholders’ equity:		172,944		166,158
Total liabilities and stockholders’ equity	$	243,307	$	214,008

Pegasystems Inc.

Condensed Consolidated Statements of Income (Unaudited)

	Three Months Ended December 31,						Year Ended December 31,
	2007			2006			2007		2006
	(in thousands, except per share amounts)
Revenue:
Software license	$	14,919		$	13,082		$	51,084	$	35,424
Services		31,837			22,887			110,865		90,599
Total Revenue		46,756			35,969			161,949		126,023
Cost of revenue:
Cost of software license		—			—			—		32
Cost of services		19,597			13,429			65,202		53,731
Total cost of revenue		19,597			13,429			65,202		53,763
Gross Profit		27,159			22,540			96,747		72,260
Operating expenses:
Selling and marketing		15,527			12,335			51,743		43,938
Research and development		6,865			6,014			26,198		22,707
General and administrative		4,590			3,520			16,855		12,729
Total operating expenses		26,982			21,869			94,796		79,374
Income (loss) from operations		177			671			1,951		(7,114	)
Installment receivable interest income		395			497			1,244		1,899
Other interest income, net		1,785			1,410			6,718		5,360
Other income (expense), net		(206	)		178			29		1,042
Income before provision (benefit) for income taxes		2,151			2,756			9,942		1,187
Provision (benefit) for income taxes		733			(666	)		3,347		(655	)
Net income	$	1,418		$	3,422		$	6,595	$	1,842
Earnings per share, basic	$	0.04		$	0.10		$	0.18	$	0.05
Earnings per share, diluted	$	0.04		$	0.09		$	0.18	$	0.05
Weighted-average number of common shares outstanding, basic		36,244			35,257			35,875		35,229
Weighted-average number of common shares outstanding, diluted		37,935			37,646			37,433		37,134
Dividends per share	$	0.03		$	0.03		$	0.12	$	0.09

Pegasystems Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Year Ended December 31,
	2007			2006
	(in thousands)
Cash flows from operating activities:
Net income	$	6,595		$	1,842
Adjustments to reconcile net income to cash flows provided by operating activities:
Excess tax benefits from stock options and deferred income taxes		(2,502	)		(2,098	)
Depreciation and amortization, and other non-cash items		2,438			2,288
Stock-based compensation expense		1,618			1,468
Change in operating assets and liabilities, and other, net		17,198			16,344
Cash flows provided by operating activities		25,347			19,844
Cash flows used in investing activities		(24,847	)		(10,771	)
Cash flows used in financing activities		(251	)		(4,902	)
Effect of exchange rate on cash and cash equivalents		453			523
Net increase in cash and cash equivalents		702			4,694
Cash and cash equivalents, beginning of year		26,008			21,314
Cash and cash equivalents, end of year	$	26,710		$	26,008

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