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): November 6, 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 November 6, 2008, Pegasystems Inc. issued a press release announcing its financial results for the third quarter and nine months ended September 30, 2008. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.

The information in this 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

(d) Exhibits

Press Release issued by Pegasystems Inc. on November 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: November 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 November 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 Revenue for Third Quarter and First Nine Months

Total Revenue for First Nine Months of 2008 Increased 32% Compared to 2007

CAMBRIDGE, Mass. – November 6, 2008 – Pegasystems Inc. (NASDAQ: PEGA), the leader in Business Process Management (BPM) software, today announced financial results for the third quarter and first nine months of 2008. Total revenue for the third quarter of 2008 increased 25% to $52.7 million, compared to the third quarter of 2007. License revenue for the third quarter of 2008 increased 30% to $17.9 million, compared to the third quarter of 2007. Net income for the third quarter of 2008 was $2.4 million, compared to $3.5 million for the third quarter of 2007.

Total revenue for the first nine months of 2008 increased 32% to $152.3 million, compared to the same period last year. License revenue increased 42% to $51.2 million, compared to the same period last year. Net income for the first nine months of 2008 was $8.1 million, compared to $5.2 million for the same period last year. The Company generated $32.9 million in cash flow from operations in the first nine months of 2008 and ended the third quarter with $171.4 million in cash and short-term investments. The following table presents selected financial information for the third quarter and first nine months of 2008 and 2007:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
	(In thousands, except per share amounts)
Software License	$	17,910	$	13,737	$	51,214	$	36,165
Maintenance		10,045		7,760		29,027		22,161
Professional Services		24,743		20,544		72,054		56,867
Total Revenue	$	52,698	$	42,041	$	152,295	$	115,193
Gross Profit	$	32,142	$	26,320	$	91,414	$	69,588
Income from Operations	$	3,441	$	2,957	$	8,191	$	1,774
Net Income	$	2,351	$	3,510	$	8,147	$	5,177
Earnings per Share, Basic	$	0.06	$	0.10	$	0.23	$	0.14
Earnings per Share, Diluted	$	0.06	$	0.09	$	0.22	$	0.14

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Business Perspective

“I am pleased that in our 25^th year, we have set new records for revenue in every quarter. Our continued growth in today’s challenging economic times is simply because our new and existing customers are realizing a revolutionary level of business agility through our Build for Change^® technology. This was demonstrated throughout our recent PegaWORLD BPM user conference where, despite economic conditions, attendance was 35% higher than last year’s record registrations. Our customers and partners show that our Build for Change^® technology significantly reduces time to market of new products; provides the ability to attack new market segments; and increases customer loyalty while reducing operational costs,” said Alan Trefler, Pegasystems’ Chairman and CEO.

“In the quarter we also announced SmartBPM^® Platform as a Service. This is the BPM industry’s first Platform-as-a-service capability and is targeted at large corporate and public sector clients who want the benefits of cloud computing and software as a service without the risks, liabilities and limitations inherent in traditional SaaS offerings,” concluded Mr. Trefler.

Craig Dynes, Pegasystems’ CFO, added, “In spite of the current economy, license signings for the third quarter were the second highest in the Company’s history. With all the economic reports forecasting a recession, we are working hard on our Q4 pipeline to keep the momentum up into next year.”

Messrs. Trefler and Dynes will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on November 7, 2008. Dial-in information is as follows: (877) 419-6600 (domestic) or (719) 325-4879 (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.

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Forward-Looking Statements

Certain statements contained in this press release may be construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “project,” “expect,” “plan,” “intend,” “believe,” “estimate,” “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 financial crisis in the global capital markets, the negative global economic trends and 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 Annual Report on Form 10-K for the year ended December 31, 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 November 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 November 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.

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Pegasystems Inc.

Unaudited Condensed Consolidated Statements of Income

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
	(in thousands, except per share amounts)
Revenue:
Software license	$	17,910		$	13,737	$	51,214		$	36,165
Maintenance		10,045			7,760		29,027			22,161
Professional services		24,743			20,544		72,054			56,867
Total Revenue		52,698			42,041		152,295			115,193
Cost of revenue:
Cost of software license		30			—		64			—
Cost of maintenance		1,454			1,204		4,006			3,501
Cost of professional services		19,072			14,517		56,811			42,104
Total cost of revenue (1)		20,556			15,721		60,881			45,605
Gross Profit		32,142			26,320		91,414			69,588
Operating expenses:
Selling and marketing (1)		15,698			12,800		45,036			36,216
Research and development (1)		7,936			6,768		22,832			19,333
General and administrative (1)		5,067			3,795		15,355			12,265
Total operating expenses		28,701			23,363		83,223			67,814
Income from operations		3,441			2,957		8,191			1,774
Installment receivable interest income		95			291		248			849
Other interest income, net		1,151			1,749		4,104			4,933
Other income (expense), net		(1,970	)		157		(1,620	)		235
Income before provision for income taxes		2,717			5,154		10,923			7,791
Provision for income taxes		366			1,644		2,776			2,614
Net income	$	2,351		$	3,510	$	8,147		$	5,177
Earnings per share, basic	$	0.06		$	0.10	$	0.23		$	0.14
Earnings per share, diluted	$	0.06		$	0.09	$	0.22		$	0.14
Weighted-average number of common shares outstanding, basic		36,419			36,225		36,201			35,751
Weighted-average number of common shares outstanding, diluted		38,212			38,542		37,668			38,081
Dividends per share	$	0.03		$	0.03	$	0.09		$	0.09
(1) Includes stock-based compensation as follows:
Cost of revenue	$	238		$	86	$	703		$	355
Selling and marketing	$	214		$	99	$	582		$	169
Research and development	$	130		$	24	$	369		$	170
General and administrative	$	247		$	346	$	898		$	557

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Pegasystems Inc.

Unaudited Condensed Consolidated Balance Sheets

	As of September 30, 2008		As of December 31, 2007
	(in thousands)
Current Assets:
Cash and cash equivalents	$	41,177	$	26,710
Short-term investments		130,244		123,271
Total cash, cash equivalents and short-term investments		171,421		149,981
Trade accounts receivable, net		33,276		45,922
Short-term license installments		6,065		19,183
Other current assets		8,580		7,240
Total current assets		219,342		222,326
Long-term license installments, net		5,732		8,267
Property and equipment, net		5,152		4,182
Long-term deferred income taxes and other assets		8,384		6,599
Goodwill		2,141		1,933
Total assets	$	240,751	$	243,307
Current liabilities:
Accounts payable	$	4,849	$	5,670
Accrued expenses		6,949		10,405
Accrued compensation and related expenses		16,417		13,526
Deferred revenue		28,826		33,178
Total current liabilities		57,041		62,779
Income taxes payable		5,337		5,185
Other long-term liabilities		2,271		2,399
Total liabilities		64,649		70,363
Stockholders’ equity:		176,102		172,944
Total liabilities and stockholders’ equity	$	240,751	$	243,307

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Pegasystems Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
	2008			2007
	(in thousands)
Cash flows from operating activities:
Net income	$	8,147		$	5,177
Adjustments to reconcile net income to cash flows provided by operating activities:
Excess tax benefits from stock options and deferred income taxes		(4,046	)		(357	)
Depreciation and amortization, and other non-cash items		2,668			1,886
Stock-based compensation expense		2,552			1,251
Change in operating assets and liabilities, and other, net		23,550			10,185
Cash flows provided by operating activities		32,871			18,142
Cash flows used in investing activities		(12,318	)		(24,543	)
Cash flows (used in) provided by financing activities		(5,526	)		1,660
Effect of exchange rate on cash and cash equivalents		(560	)		693
Net increase (decrease) in cash and cash equivalents		14,467			(4,048	)
Cash and cash equivalents, beginning of period		26,710			26,008
Cash and cash equivalents, end of period	$	41,177		$	21,960

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Pegasystems Inc.

2007 - Expanded captions (unaudited)

(in thousands)

	Q1				Q2				Q3				Q4				YTD
	As Reported		Expanded		As Reported		Expanded		As Reported		Expanded		As Reported		Expanded		As Reported		Expanded
Revenue:
Software license	$	12,084	$	12,084	$	10,344	$	10,344	$	13,737	$	13,737	$	14,919	$	14,919	$	51,084	$	51,084
Maintenance				7,021				7,380				7,760				9,035				31,196
Professional services				18,384				17,939				20,544				22,802				79,669
Services		25,405				25,319				28,304				31,837				110,865
Total Revenue		37,489		37,489		35,663		35,663		42,041		42,041		46,756		46,756		161,949		161,949
Cost of revenue:
Cost of software license		—		—		—		—		—		—		—		—		—		—
Cost of maintenance		—		1,145		—		1,152		—		1,204		—		1,290		—		4,791
Cost of professional services		—		14,419		—		13,168		—		14,517		—		18,307		—		60,411
Cost of services		15,564		—		14,320		—		15,721		—		19,597		—		65,202		—
Total Cost of revenue		15,564		15,564		14,320		14,320		15,721		15,721		19,597		19,597		65,202		65,202
Gross Profit	$	21,925	$	21,925	$	21,343	$	21,343	$	26,320	$	26,320	$	27,159	$	27,159	$	96,747	$	96,747

As of January 1, 2008, the Company expanded the presentation of the services revenue and the associated cost of services lines in the condensed consolidated statements of income to separately disclose the amounts related to maintenance and professional services. Maintenance revenue is a significant portion of the Company’s total revenue and is directly attributable to its installed base of software licenses. Professional services revenue includes revenue from consulting services and training. The Company believes separate disclosure of the maintenance revenue and the associated direct costs is meaningful to investors and provides an important measure of the Company’s business performance. Previously reported amounts have been expanded to conform to the current year presentation and have no impact on previously reported total revenue, total cost of revenue or net income.

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