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 9, 2010

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 9, 2010, Pegasystems Inc. issued a press release announcing its financial results for the third quarter and nine months ended September 30, 2010. 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 November 9, 2010.

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 9, 2010	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 9, 2010.

EX-99.1

Exhibit 99.1

Pegasystems Announces Thirteenth Consecutive Quarter of Record Revenue

GAAP revenue increases 39% to $90 million, Non-GAAP revenue increases 47% to $95.4 million;

GAAP net income was $3.1 million or $0.08 per share (basic), Non-GAAP net income was $9.9 million

or $0.27 per share (basic)

CAMBRIDGE, Mass. – November 9, 2010 – Pegasystems Inc. (NASDAQ: PEGA) today announced financial results for the third quarter and nine months ended September 30, 2010. These results include the operations of Chordiant Software, Inc. from the April 21, 2010 acquisition date. GAAP revenue for the third quarter of 2010 increased 39% to $90 million compared to the third quarter of 2009, and for the first nine months of 2010 increased 29% to $247 million compared to first nine months of 2009. Non-GAAP revenue for the third quarter of 2010 increased 47% to $95.4 million compared to the third quarter of 2009, and for the first nine months of 2010 increased 34% to $256.4 million compared to first nine months of 2009. GAAP net income for the third quarter of 2010 was $3.1 million or $0.08 per share (diluted), compared to GAAP net income of $6.0 million, or $0.16 per share (diluted), for the third quarter of 2009. Non-GAAP net income for the third quarter of 2010 was $9.9 million or $0.26 per share (diluted), compared to Non-GAAP net income of $6.7 million, or $0.17 per share (diluted), for the third quarter of 2009. GAAP net loss for the first nine months of 2010 was ($1.2) million, or ($0.03) per share, compared to GAAP net income of $25.9 million, or $0.68 per share (diluted) for the first nine months of 2009. Non-GAAP net income for the first nine months of 2010 was $19.9 million, or $0.51 per share (diluted), compared to Non-GAAP net income of $28.4 million, or $0.75 per share (diluted) for the first nine months of 2009.

SELECTED GAAP & NON-GAAP RESULTS (1)

	Three Months Ended September 30,								% Increase
	2010		2010		2009		2009		(Decrease)
($ in ‘000s)	GAAP		Non-GAAP		GAAP		Non-GAAP		GAAP        Non-GAAP
Total Revenue	$	90,016	$	95,433	$	64,821	$	64,821	39    %             47	%
Operating Income	$	1,943	$	12,282	$	7,465	$	8,463	(74)   %             45	%
Net Income	$	3,139	$	9,899	$	6,001	$	6,703	(48)   %             48	%
Basic Earnings per share	$	0.08	$	0.27	$	0.16	$	0.18	(50)   %             50	%
Diluted Earnings per share	$	0.08	$	0.26	$	0.16	$	0.17	(50)   %             53	%
	Nine Months Ended September 30,								% Increase
	2010		2010		2009		2009		(Decrease)
($ in ‘000s)	GAAP		Non-GAAP		GAAP		Non-GAAP		GAAP        Non-GAAP
Total Revenue	$	247,346	$	256,356	$	191,066	$	191,066	29    %             34	%
Operating Income	$	1,365	$	31,920	$	31,630	$	35,258	(96)  %              (9)	%
Net (Loss) Income	$	(1,198)	$	19,854	$	25,884	$	28,446	(105)  %            (30)	%
Basic (Loss) Earnings per share	$	(0.03)	$	0.54	$	0.72	$	0.79	(104)  %            (32)	%
Diluted (Loss) Earnings per share	$	(0.03)	$	0.51	$	0.68	$	0.75	(104)  %            (32)	%

(1) See a reconciliation of our GAAP to Non-GAAP measures contained in the financial schedules at the end of this release.

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Business Perspective

“During the third quarter of 2010, we were recognized by the two leading industry analyst firms as a market-leader in the category of business process management,” said Alan Trefler, Founder and CEO of Pegasystems. “This recognition reflects the sustained success our clients are having with our software. They have achieved rapid returns on their investments and are beginning to see transformational opportunities across their organizations. We were also pleased to be recognized by Fortune Magazine as number eight on their list of ‘Fastest-Growing Companies’ for 2010.”

“We have continued our efforts and investments to drive further innovation across a broadening portfolio of industry leading solutions. During the third quarter, we announced the latest release of our CRM solution, which is focused on helping organizations deliver a superior customer experience to their clients. We also released solutions that expanded our capabilities in the financial services and insurance industries, which provide opportunities for growth within our existing customers and fuel engagement with new clients,” concluded Mr. Trefler.

Craig Dynes, Pegasystems’ CFO, added, “During the third quarter, we set a new record for quarterly revenue with GAAP revenue totaling $90 million. Our financial results for the third quarter demonstrate that so far, 2010 is very back-end loaded. In fact, Q3 non-GAAP license revenue of $36.5 million was 25% higher than Q2, and Q3 non-GAAP net income of $9.9 million was almost equal to non-GAAP net income for the first six months of 2010. Our pipeline for Q4 and 2011 is both substantial and encouraging as we believe it reflects a continuing increase in both the BPM market and our market share.”

Messrs. Trefler and Dynes will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. EDT on November 10, 2010. Dial-in information is as follows: 1 (877) 348-9349 (domestic) or 1 (678) 809-1046 (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.

Discussion of Non-GAAP Measures

To supplement financial results presented on a GAAP basis, the Company provides non-GAAP measures included in this release, including the tables contained herein. Pegasystems’ management utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. The Company’s annual financial plan is prepared both on a GAAP and non-GAAP basis, and the non-GAAP annual financial plan is approved by our board of directors. In addition and as a consequence of the importance of these measures in managing the business, the Company uses non-GAAP measures and results in the evaluation process to establish management’s compensation.

2

These measures exclude certain business combination accounting entries and expenses related to our acquisition of Chordiant, as well as other significant expenses including stock-based compensation. The Company believes that these non-GAAP measures are helpful in understanding our past financial performance and our anticipated future results. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. A reconciliation of the Company’s GAAP measures to non-GAAP measures is included in the financial schedules at the end of the release.

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 those relating to our revenue and pipeline. The words “anticipate,” “project,” “expect,” “plan,” “intend,” “believe,” “estimate,” “target,” “forecast,” “could,” “preliminary,” “guidance” 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, among others, the Company’s ability to successfully integrate the operations of Chordiant Software, Inc., variation in demand for our products and services and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition, the mix of perpetual and term licenses and the level of term license renewals, our ability to develop new products and evolve existing ones, the weak global economy 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, the potential loss of vendor specific objective evidence for our professional services, 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, 2009 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 9, 2010. 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 9, 2010.

About Pegasystems

Pegasystems, the leader in business process management and a leading provider of CRM solutions, helps organizations enhance customer loyalty, generate new business, and improve productivity. Our patented Build for Change^® technology speeds the delivery of critical business solutions by directly capturing business objectives and eliminating manual programming. Pegasystems enables clients to quickly adapt to changing business conditions in order to outperform the competition. For more information, please visit us at www.pega.com.

For Information, contact:

Craig Dynes, Chief Financial Officer

617-866-6020

CDynes@pega.com

All trademarks are the property of their respective owners.

3

Pegasystems Inc.

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Revenue:
Software license	$	33,889	$	28,358	$	92,432	$	82,045
Maintenance		23,418		12,489		58,892		36,608
Professional services		32,709		23,974		96,022		72,413
Total revenue		90,016		64,821		247,346		191,066
Cost of revenue:
Cost of software license		1,571		28		2,711		90
Cost of maintenance		3,187		1,558		7,839		4,452
Cost of professional services		30,232		22,474		82,136		61,641
Total cost of revenue (1)		34,990		24,060		92,686		66,183
Gross profit		55,026		40,761		154,660		124,883
Operating expenses:
Selling and marketing		31,199		19,568		82,988		51,663
Research and development		14,924		9,930		40,560		28,198
General and administrative		6,442		3,798		18,246		13,392
Acquisition-related costs		111		-		5,014		-
Restructuring costs		407		-		6,487		-
Total operating expenses (1)		53,083		33,296		153,295		93,253
Income from operations		1,943		7,465		1,365		31,630
Foreign currency transaction gain (loss)		1,513		266		(4,103)		2,377
Interest income, net		129		721		761		2,404
Installment receivable interest income		51		74		155		224
Other income, net		572		-		814		17
Income (loss) before provision for income taxes		4,208		8,526		(1,008)		36,652
Provision for income taxes		1,069		2,525		190		10,768
Net income (loss)	$	3,139	$	6,001	$	(1,198)	$	25,884
Net earnings (loss) per share:
Basic	$	0.08	$	0.16	$	(0.03)	$	0.72
Diluted	$	0.08	$	0.16	$	(0.03)	$	0.68
Weighted-average number of common shares outstanding:
Basic		36,996		36,462		37,008		36,035
Diluted		38,534		38,441		37,008		37,995
Dividends per share	$	0.03	$	0.03	$	0.09	$	0.09
(1) Includes stock-based compensation as follows:
Cost of revenue	$	447	$	250	$	1,328	$	884
Operating expenses	$	1,134	$	715	$	3,885	$	2,639

4

PEGASYSTEMS INC.

RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)

($ in thousands, except per share data)

	Three Months Ended September 30,												% Increase (Decrease)
	2010     GAAP		Adj.		2010 Non-GAAP		2009 GAAP		Adj.		2009 Non-GAAP		GAAP			Non-GAAP
TOTAL REVENUE (2) (3) (4)	$	90,016	$	5,417	$	95,433	$	64,821	$	-	$	64,821		39%			47%
Software license (2)		33,889		2,605		36,494		28,358		-		28,358		20%			29%
Maintenance (3)		23,418		2,685		26,103		12,489		-		12,489		88%			109%
Professional services (4)		32,709		127		32,836		23,974		-		23,974		36%			37%
TOTAL COST OF REVENUE (5) (6)	$	34,990	$	(1,997)	$	32,993	$	24,060	$	(278)	$	23,782		45%			39%
Amortization of intangible assets (5)		1,550		(1,550)		-		28		(28)		-		n/m			0%
Stock-based compensation (6)		447		(447)		-		250		(250)		-		79%			0%
TOTAL OPERATING EXPENSES (5) (6)	$	53,083	$	(2,925)	$	50,158	$	33,296	$	(720)	$	32,576		59%			54%
Amortization of intangible assets (5)		1,273		(1,273)		-		5		(5)		-		n/m			0%
Stock-based compensation (6)		1,134		(1,134)		-		715		(715)		-		59%			0%
Acquisition-related costs		111		(111)		-		-		-		-		100%			0%
Restructuring costs		407		(407)		-		-		-		-		100%			0%
INCOME FROM OPERATIONS	$	1,943	$	10,339	$	12,282	$	7,465	$	998	$	8,463		-74%			45%
OPERATING MARGIN %		2.16%				12.87%		11.52%				13.06%		(0.0936)	bp		(0.0019)	bp
INCOME TAX EFFECTS (7)	$	1,069	$	3,579	$	4,648	$	2,525	$	296	$	2,821		-58%			65%
NET INCOME	$	3,139	$	6,760	$	9,899	$	6,001	$	702	$	6,703		-48%			48%
NET EARNINGS PER SHARE:
BASIC	$	0.08			$	0.27	$	0.16			$	0.18		-50%			50%
DILUTED	$	0.08			$	0.26	$	0.16			$	0.17		-50%			53%
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
BASIC		36,996		-		36,996		36,462		-		36,462		1%			1%
DILUTED		38,534		-		38,534		38,441		-		38,441		0%			0%
n/m - not meaningful

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PEGASYSTEMS INC.

RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)

($ in thousands, except per share data)

	Nine Months Ended September 30,												% Increase (Decrease)
	2010     GAAP		Adj.		2010 Non-GAAP		2009 GAAP		Adj.		2009 Non-GAAP		GAAP			Non-GAAP
TOTAL REVENUE (2) (3) (4)	$	247,346	$	9,010	$	256,356	$	191,066	$	-	$	191,066		29%			34%
Software license (2)		92,432		3,664		96,096		82,045		-		82,045		13%			17%
Maintenance (3)		58,892		5,107		63,999		36,608		-		36,608		61%			75%
Professional services (4)		96,022		239		96,261		72,413		-		72,413		33%			33%
TOTAL COST OF REVENUE (5) (6)	$	92,686	$	(3,988)	$	88,698	$	66,183	$	(974)	$	65,209		40%			36%
Amortization of intangible assets (5)		2,660		(2,660)		-		90		(90)		-		n/m			0%
Stock-based compensation (6)		1,328		(1,328)		-		884		(884)		-		50%			0%
TOTAL OPERATING EXPENSES (5) (6)	$	153,295	$	(17,557)	$	135,738	$	93,253	$	(2,654)	$	90,599		64%			50%
Amortization of intangible assets (5)		2,171		(2,171)		-		15		(15)		-		n/m			0%
Stock-based compensation (6)		3,885		(3,885)		-		2,639		(2,639)		-		47%			0%
Acquisition-related costs		5,014		(5,014)		-		-		-		-		100%			0%
Restructuring costs		6,487		(6,487)		-		-		-		-		100%			0%
INCOME FROM OPERATIONS	$	1,365	$	30,555	$	31,920	$	31,630	$	3,628	$	35,258		-96%			-9%
OPERATING MARGIN %		1%				12%		17%				18%		(0.1600)	bp		(0.0600)	bp
INCOME TAX EFFECTS (7)	$	190	$	9,503	$	9,693	$	10,768	$	1,066	$	11,834		-98%			-18%
NET (LOSS) INCOME	$	(1,198)	$	21,052	$	19,854	$	25,884	$	2,562	$	28,446		-105%			-30%
NET (LOSS) EARNINGS PER SHARE:
BASIC	$	(0.03)			$	0.54	$	0.72			$	0.79		-104%			-32%
DILUTED	$	(0.03)			$	0.51	$	0.68			$	0.75		-104%			-32%
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
BASIC		37,008		-		37,008		36,035		-		36,035		3%			3%
DILUTED		37,008		1,682		38,690		37,955		-		37,955		-2%			-2%
n/m - not meaningful

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PEGASYSTEMS INC.

FOOTNOTES FOR RECONCILIATION OF

SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures see disclosure under Discussion of Non-GAAP Measures included earlier in this release and below.

Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Revenue: Business combination rules require that we determine the fair value of the deferred revenue liability for contractual obligations assumed from Chordiant. The fair value represents an amount equal to the estimated costs of fulfilling the assumed contracts plus a reasonable profit margin. In post-acquisition reporting periods, we recognize revenue for the fair value of these contracts, when all the revenue recognition criteria are satisfied, instead of the revenue that would have been recognized by Chordiant as an independent company. We add back the affect of the deferred revenue fair value adjustment in non-GAAP revenue to reflect the full amount of these revenues to provide a more complete comparison of the revenue guidance to peer companies.

Amortization of intangible assets: We have excluded the effect of amortization of intangible assets acquired from Chordiant from our non-GAAP operating expenses and net earnings measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Stock-based compensation expenses: We have excluded the effect of stock-based compensation expenses from our non-GAAP operating expenses and net earnings measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expense.

Acquisition-related costs and restructuring costs: We have excluded the effect of acquisition- related costs and restructuring costs from our non-GAAP operating expenses and non-GAAP net earnings measures. We incurred direct and incremental costs associated with the Chordiant acquisition. These acquisition-related costs were primarily due diligence costs, advisory and legal transaction fees, and valuation and tax consulting fees. We have also incurred restructuring costs related to the integration of the acquisition, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Restructuring costs consist of employee severance and other exit costs. We believe it is useful for investors to understand the effects of these items on our total operating expenses.

(2) As of April 21, 2010, approximately $4.0 million, $0.6 million, $0.5 million and $0.2 million in estimated revenues related to assumed software license contracts will not be recognized for the remainder of fiscal 2010, fiscal 2011, fiscal 2012 and fiscal 2013, respectively, due to business combination accounting rules.

(3) As of April 21, 2010, approximately $7.3 million, $3.0 million and $0.5 million in estimated revenues related to assumed software support contracts will not be recognized for the remainder of fiscal 2010, fiscal 2011 and fiscal 2012, respectively, due to business combination accounting rules.

(4) As of April 21, 2010, approximately $0.3 million, $0.3 million, $0.3 million and $0.1 million in estimated revenues related to assumed software installation services contracts will not be recognized for the remainder of

7

fiscal 2010, fiscal 2011, fiscal 2012 and fiscal 2013, respectively, due to business combination accounting rules.

(5) Estimated future annual amortization expense related to intangible assets as of September 30, 2010 is as follows:

Remainder of Fiscal 2010	$      2,870
Fiscal 2011	11,315
Fiscal 2012	11,137
Fiscal 2013	11,095
Fiscal 2014	9,489
Fiscal 2015	8,688
Fiscal 2016 and thereafter	28,960
Total intangible assets subject to amortization	$    83,554

(6) Stock-based compensation is included in operating expense as follows:

	Three Months Ended							Three Months Ended
	September 30, 2010							September 30, 2009
	GAAP		Adj.			Non-GAAP		GAAP		Adj.			Non-GAAP
Cost of revenue	$	447	$	(447	)	$	-	$	250	$	(250	)	$	-
Selling and Marketing		520		(520	)		-		228		(228	)		-
Research and development		251		(251	)		-		170		(170	)		-
General and administrative		363		(363	)		-		317		(317	)		-
Total stock-based compensation	$	1,581	$	(1,581	)	$	-	$	965	$	(965	)	$	-
	Nine Months Ended							Nine Months Ended
	September 30, 2010							September 30, 2009
	GAAP		Adj.			Non-GAAP		GAAP		Adj.			Non-GAAP
Cost of revenue	$	1,328	$	(1,328	)	$	-	$	884	$	(884	)	$	-
Selling and Marketing		1,594		(1,594	)		-		579		(579	)		-
Research and development		764		(764	)		-		559		(559	)		-
General and administrative		1,527		(1,527	)		-		1,501		(1,501	)		-
Total stock-based compensation	$	5,213	$	(5,213	)	$	-	$	3,523	$	(3,523	)	$	-

(7) Income tax effects were calculated using an effective GAAP tax rate of 25.4% and 29.6% in the third quarter of 2010 and 2009, respectively, and an effective non-GAAP tax rate of 31.9% and 29.6% in the third quarter of 2010 and 2009, respectively. The difference between our GAAP and non-GAAP tax rates in the third quarter of 2010 was due to the differences in allowable acquisition-related deductions for income tax purposes.

Income tax effects were calculated using an effective GAAP tax rate of 18.8% and 29.4% in the first nine months of 2010 and 2009, respectively, and an effective non-GAAP tax rate of 32.8% and 29.4% in the first nine months of 2010 and 2009, respectively. The difference between our GAAP and non-GAAP tax rates in the first nine months of 2010 was due to the differences in allowable acquisition-related deductions for income tax purposes.

(8) The diluted weighted-average common shares used for the calculation of Non-GAAP diluted earnings per share for the first nine months of 2010 include the dilutive effect of outstanding options, restricted stock units, and warrants, and the average market price of our common stock during the first three quarters of 2010 using the treasury stock method.

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Pegasystems Inc.

Unaudited Condensed Consolidated Balance Sheets

	As of September 30, 2010	As of December 31, 2009
	(in thousands)
Current Assets:
Cash and cash equivalents	$      52,777	$      63,857
Marketable securities	16,076	138,796
Total cash, cash equivalents, and marketable securities	68,853	202,653
Trade accounts receivable, net	75,952	39,396
Short-term license installments	2,447	2,829
Deferred income taxes	6,516	2,523
Income taxes receivable and other current assets	17,010	8,840
Total current assets	170,778	256,241
Long-term license installments, net	1,383	2,976
Property and equipment, net	10,769	8,931
Long-term deferred income taxes	30,521	7,515
Other assets	2,489	1,195
Intangible assets, net	83,554	336
Goodwill	21,613	2,391
Total assets	$    321,107	$    279,585
Current liabilities:
Accounts payable	$        5,445	$        4,791
Accrued expenses	26,417	6,748
Accrued compensation and related expenses	23,746	23,280
Deferred revenue	48,773	32,870
Total current liabilities	104,381	67,689
Income taxes payable	6,134	4,828
Other long-term liabilities	5,192	1,849
Total liabilities	115,707	74,366
Stockholders’ equity:	205,400	205,219
Total liabilities and stockholders’ equity	$    321,107	$    279,585

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Pegasystems Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
	2010	2009
	(in thousands)
Operating activities:
Net (loss) income	$            (1,198)	$            25,884
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:
Excess tax benefit from equity awards and deferred income taxes	(7,544)	(15,310)
Depreciation, amortization, and other non-cash items	7,013	2,021
Foreign currency transaction loss	3,775	-
Amortization of investments and realized gain on sale of investments	671	2,963
Stock-based compensation expense	5,213	3,523
Change in operating assets and liabilities, and other, net	(17,436)	19,758
Cash (used in) provided by operating activities	(9,506)	38,839
Cash provided by (used in) investing activities	8,725	(17,650)
Cash used in financing activities	(6,919)	(2,071)
Effect of exchange rate on cash and cash equivalents	(3,380)	1,214
Net (decrease) increase in cash and cash equivalents	(11,080)	20,332
Cash and cash equivalents, beginning of period	63,857	36,087
Cash and cash equivalents, end of period	$            52,777	$            56,419

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