10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

or

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

For the transition period from                  to                 

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)	(Zip Code)

(617) 374-9600

(Registrant’s telephone number including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

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

Large accelerated filer	x	Accelerated filer	¨	Non-accelerated filer	¨	Smaller reporting company	¨
		(Do not check if smaller reporting company)

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

There were 37,961,290 shares of the Registrant’s common stock, $.01 par value per share, outstanding on November 1, 2013.

PEGASYSTEMS INC.

Index to Form 10-Q

		Page
Part I—Financial Information
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012		3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012		4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012		5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Controls and Procedures		23
Part II—Other Information
Item 1A.	Risk Factors		24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		24
Item 6.	Exhibits		25
SIGNATURE			26

2

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	As of		As of
	September 30,   2013		December 31,   2012
ASSETS
Current assets:
Cash and cash equivalents	$	108,827	$	77,525
Marketable securities		79,618		45,460
Total cash, cash equivalents, and marketable securities		188,445		122,985
Trade accounts receivable, net of allowance of $772 and $963		90,583		134,066
Deferred income taxes		10,152		10,202
Income taxes receivable		4,199		6,261
Other current assets		6,929		5,496
Total current assets		300,308		279,010
Property and equipment, net		28,977		30,827
Long-term deferred income taxes		49,693		49,292
Long-term other assets		1,657		1,680
Intangible assets, net		49,910		58,232
Goodwill		20,451		20,451
Total assets	$	450,996	$	439,492
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,347	$	3,330
Accrued expenses		20,741		15,534
Accrued compensation and related expenses		31,925		40,715
Deferred revenue		91,758		95,546
Total current liabilities		146,771		155,125
Income taxes payable		13,748		13,551
Long-term deferred revenue		17,954		18,719
Other long-term liabilities		17,466		15,618
Total liabilities		195,939		203,013
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; no shares issued and outstanding		—		—
Common stock, 100,000 shares authorized; 37,989 shares and 37,945 shares issued and outstanding		380		379
Additional paid-in capital		138,271		138,576
Retained earnings		113,410		94,349
Accumulated other comprehensive income		2,996		3,175
Total stockholders’ equity		255,057		236,479
Total liabilities and stockholders’ equity	$	450,996	$	439,492

See notes to unaudited condensed consolidated financial statements.

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PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Three Months Ended     September 30,				Nine Months Ended     September 30,
	2013		2012		2013		2012
Revenue:
Software license	$	44,802	$	28,575	$	128,217	$	95,517
Maintenance		37,979		32,317		112,238		97,657
Professional services		39,230		40,765		115,117		124,706
Total revenue		122,011		101,657		355,572		317,880
Cost of revenue:
Software license		1,592		1,585		4,751		4,763
Maintenance		3,599		3,745		11,106		11,072
Professional services		32,907		32,335		97,772		103,351
Total cost of revenue		38,098		37,665		113,629		119,186
Gross profit		83,913		63,992		241,943		198,694
Operating expenses:
Selling and marketing		42,663		36,893		127,279		116,476
Research and development		19,786		19,506		59,123		57,411
General and administrative		7,130		7,192		21,203		21,171
Acquisition-related costs		545		—		545		—
Total operating expenses		70,124		63,591		208,150		195,058
Income from operations		13,789		401		33,793		3,636
Foreign currency transaction gain (loss)		661		438		(1,666)		337
Interest income, net		123		113		376		318
Other expense, net		(1,163)		(920)		(418)		(1,496)
Income before provision for income taxes		13,410		32		32,085		2,795
Provision for income taxes		4,700		363		9,603		1,336
Net income (loss)	$	8,710	$	(331)	$	22,482	$	1,459
Earnings (loss) per share:
Basic	$	0.23	$	(0.01)	$	0.59	$	0.04
Diluted	$	0.22	$	(0.01)	$	0.58	$	0.04
Weighted-average number of common shares outstanding
Basic		37,955		37,881		37,950		37,834
Diluted		39,079		37,881		38,872		38,897
Cash dividends declared per share	$	0.03	$	0.03	$	0.09	$	0.09

See notes to unaudited condensed consolidated financial statements.

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PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Three Months Ended     September 30,					Nine Months Ended     September 30,
	2013		2012			2013			2012
Net income (loss)	$	8,710	$	(331	)	$	22,482		$	1,459
Other comprehensive income (loss):
Unrealized gain (loss) on securities, net of tax		113		33			(32	)		80
Foreign currency translation adjustments		2,340		1,315			(147	)		1,248
Total other comprehensive income (loss)		2,453		1,348			(179	)		1,328
Comprehensive income	$	11,163	$	1,017		$	22,303		$	2,787

See notes to unaudited condensed consolidated financial statements.

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PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended         September 30,
	2013		2012
Operating activities:
Net income	$	22,482	$	1,459
Adjustments to reconcile net income to cash provided by operating activities:
Excess tax benefits from exercise or vesting of equity awards		(2,670)		(3,161)
Deferred income taxes		(537)		(511)
Depreciation and amortization		14,173		13,986
Stock-based compensation expense		9,713		8,622
Foreign currency transaction loss (gain)		1,666		(337)
Other non-cash items		2,736		4,021
Change in operating assets and liabilities:
Trade accounts receivable		42,611		18,938
Income taxes receivable and other current assets		2,599		(1,468)
Accounts payable and accrued expenses		(5,762)		(20,491)
Deferred revenue		(3,836)		2,747
Other long-term assets and liabilities		260		5,279
Cash provided by operating activities		83,435		29,084
Investing activities:
Purchase of marketable securities		(56,645)		(13,336)
Matured and called marketable securities		21,129		18,465
Investment in property and equipment		(4,158)		(21,875)
Cash used in investing activities		(39,674)		(16,746)
Financing activities:
Issuance of common stock for share-based compensation plans		970		753
Excess tax benefits from exercise or vesting of equity awards		2,670		3,161
Dividend payments to shareholders		(2,281)		(3,404)
Common stock repurchases for tax withholdings for net settlement of equity awards		(4,123)		(3,650)
Common stock repurchases under share repurchase programs		(9,178)		(3,910)
Cash used in financing activities		(11,942)		(7,050)
Effect of exchange rate on cash and cash equivalents		(517)		596
Net increase in cash and cash equivalents		31,302		5,884
Cash and cash equivalents, beginning of period		77,525		60,353
Cash and cash equivalents, end of period	$	108,827	$	66,237

See notes to unaudited condensed consolidated financial statements.

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PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       ACCOUNTING POLICIES

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 of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and 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, 2012.

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. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2013.

Acquisition-related costs

Acquisition-related costs are expensed as incurred and include costs to affect an impending or completed acquisition and direct and incremental costs associated with an acquisition. During the third quarter of 2013, acquisition-related costs of $0.5 million were primarily legal and advisory fees and due diligence costs associated with the Company’s acquisition of Antenna Software, Inc. (“Antenna”). See Note 12 “Subsequent Event”.

2.  MARKETABLE SECURITIES

(in thousands)	September 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Municipal bonds	$	47,325		60		(28)	$	47,357
Corporate bonds		29,776		56		(9)		29,823
Certificates of deposit		2,442		1		(5)		2,438
	$	79,543		117		(42)	$	79,618
(in thousands)	December 31, 2012
	Amortized Cost		Unrealized     Gains		Unrealized     Losses		Fair Value
Municipal bonds	$	30,488		48		(10)	$	30,526
Corporate bonds		14,853		83		(2)		14,934
	$	45,341		131		(12)	$	45,460

The Company considers debt securities with maturities of three months or less from the purchase date to be cash equivalents. Interest is recorded when earned. All of the Company’s investments are classified as available-for-sale and are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income, net of related income taxes.

As of September 30, 2013, remaining maturities of marketable debt securities ranged from October 2013 to February 2016, with a weighted-average remaining maturity of approximately 14 months.

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3.  DERIVATIVE INSTRUMENTS

The Company uses foreign currency forward contracts (“forward contracts”) to manage its exposure to changes in foreign currency denominated accounts receivable, intercompany payables and cash primarily held by the U.S. operating company. The Company has been primarily exposed to the fluctuation in the British pound and Euro relative to the U.S. dollar. More recently, the Company has experienced increased levels of exposure to the Australian dollar and Indian rupee, for which it began to use forward contracts in the third quarter of 2013.

The forward contracts utilized by the Company are not designated as hedging instruments and as a result, the Company records the fair value of these contracts at the end of each reporting period in its consolidated balance sheet as other current assets for unrealized gains and accrued expenses for unrealized losses, with any fluctuations in the value of these contracts recognized in other expense, net, in its consolidated statement of operations. These forward contracts have 90 day terms or less.

As of September 30, 2013 and December 31, 2012, the Company did not have any forward contracts outstanding.

During the third quarter and first nine months of 2013 and 2012, the Company entered into forward contracts with notional values as follows:

	Notional Amount
	Three Months Ended September 30,				Nine Months Ended September 30,
Foreign currency (in thousands)	2013		2012		2013		2012
Euro	€	28,500	€	21,700	€	61,000		€	48,900
British pound	£	26,000	£	16,000	£	59,500		£	39,000
Australian dollar	A$	15,500	A$	—	A$	15,500		A$	—
Indian rupee	Rs	460,000	Rs	—	Rs	460,000		Rs	—

During the third quarter and first nine months of 2013 and 2012, the total change in the fair value of the Company’s forward contracts recorded in other expense, net, was as follows:

	Change in Fair Value in USD
	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2013		2012		2013		2012
Loss included in other expense, net	$	(1,173)	$	(926)	$	(430)	$	(1,522)

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4.  FAIR VALUE MEASUREMENTS

Assets Measured 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 observable inputs that are observable either directly or indirectly; and (Level 3) significant unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company records its marketable securities at fair value.

The Company’s investments are classified within Level 1 and Level 2 of the fair value hierarchy. The Company’s investments classified within Level 1 of the fair value hierarchy are valued using quoted market prices. The Company’s investments classified within Level 2 of the fair value hierarchy are valued based on matrix pricing compiled by third party pricing vendors, using observable market inputs such as interest rates, yield curves, and credit risk.

The fair value hierarchy of the Company’s cash equivalents and marketable securities at fair value is as follows:

			Fair Value Measurements at Reporting Date Using
(in thousands)	September 30,   2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Money market funds	$	3,070	$	3,070	$	—
Marketable securities:
Municipal bonds	$	47,357	$	13,289	$	34,068
Corporate bonds		29,823		29,823		—
Certificates of deposit		2,438		—		2,438
Total marketable securities	$	79,618	$	43,112	$	36,506
			Fair Value Measurements at Reporting Date Using
(in thousands)	December 31,   2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Money market funds	$	2,873	$	2,873	$	—
Marketable securities:
Municipal bonds	$	30,526	$	11,966	$	18,560
Corporate bonds		14,934		14,934		—
Total marketable securities	$	45,460	$	26,900	$	18,560

Assets Measured at Fair Value on a Nonrecurring Basis

Assets recorded at fair value on a nonrecurring basis, such as property and equipment, and intangible assets, are recognized at fair value when they are impaired. During the first nine months of 2013 and 2012, the Company did not recognize any impairments on its assets measured at fair value on a nonrecurring basis.

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5.  TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

(in thousands)	September 30,     2013		December 31,     2012
Trade accounts receivable	$	58,037	$	112,106
Unbilled trade accounts receivable		33,318		22,923
Total accounts receivable		91,355		135,029
Allowance for sales credit memos		(772)		(963)
	$	90,583	$	134,066

Unbilled trade accounts receivable relate to services earned under time and material arrangements, and maintenance and license arrangements that had not been invoiced as of September 30, 2013 and December 31, 2012, respectively.

6.   GOODWILL AND OTHER INTANGIBLE ASSETS

There were no changes in the carrying amount of goodwill during the first nine months of 2013.

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

(in thousands)	Range of Useful Lives		Cost		Accumulated     Amortization		Net Book     Value
As of September 30, 2013
Customer related intangibles		9 years	$	44,355	$	(16,838)	$	27,517
Technology		4-9 years		43,446		(21,053)		22,393
Other intangibles		1-5 years		2,238		(2,238)		—
Total			$	90,039	$	(40,129)	$	49,910
			Cost		Accumulated Amortization		Net Book Value
As of December 31, 2012
Customer related intangibles		9 years	$	44,355	$	(13,142)	$	31,213
Technology		4-9 years		43,446		(16,431)		27,015
Other intangibles		1-5 years		2,238		(2,234)		4
Total			$	90,039	$	(31,807)	$	58,232

For the third quarter and first nine months of 2013 and 2012, amortization of intangibles was reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2013		2012		2013		2012
Cost of software license	$	1,540	$	1,541	$	4,622	$	4,649
Selling and marketing		1,232		1,232		3,696		3,696
General and administrative		—		5		4		15
Total amortization expense	$	2,772	$	2,778	$	8,322	$	8,360

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Amortization of intangibles is estimated to be recorded over their remaining useful lives as follows:

(in thousands) September 30, 2013	Future estimated amortization expense
Remainder of 2013	$	2,773
2014		9,489
2015		8,688
2016		8,688
2017		8,688
2018 & thereafter		11,584
	$	49,910

7.  ACCRUED EXPENSES

(in thousands)	September 30, 2013		December 31, 2012
Partner commissions	$	4,349	$	1,723
Other taxes		3,120		2,711
Employee reimbursable expenses		2,255		879
Dividends payable		1,140		—
Professional services contractor fees		1,660		602
Self-insurance health and dental claims		977		1,707
Professional fees		930		811
Short-term deferred rent		783		1,111
Foreign income taxes payable		649		1,167
Acquisition-related costs		482		—
Restructuring		113		441
Other		4,283		4,382
	$	20,741	$	15,534

8.  DEFERRED REVENUE

(in thousands)	September 30, 2013		December 31, 2012
Software license	$	17,206	$	24,303
Maintenance		63,342		62,144
Professional services and other		11,210		9,099
Current deferred revenue		91,758		95,546
Software license		16,690		15,407
Maintenance and professional services		1,264		3,312
Long-term deferred revenue		17,954		18,719
	$	109,712	$	114,265

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9.   STOCK-BASED COMPENSATION

For the third quarter and first nine months of 2013 and 2012, stock-based compensation expense was reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended             September 30,				Nine Months Ended         September 30,
(in thousands)	2013		2012		2013		2012
Cost of services	$	947	$	849	$	3,134	$	2,710
Operating expenses		2,053		1,935		6,579		5,912
Total stock-based compensation before tax	$	3,000	$	2,784	$	9,713	$	8,622
Income tax benefit		(893)		(915)		(2,941)		(2,781)

During the first nine months of 2013, the Company issued approximately 344,000 shares to its employees and 14,000 shares to its non-employee directors under the Company’s share-based compensation plans.

During the first nine months of 2013, the Company granted approximately 114,000 restricted stock units (“RSUs”) with a total fair value of approximately $3.3 million. Approximately 59,000 RSUs were issued in connection with the election by employees to receive 50% of their 2013 target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash. Stock-based compensation of approximately $1.7 million associated with this RSU grant will be recognized over a one-year period beginning on the grant date.

As of September 30, 2013, the Company had approximately $12.2 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to all unvested RSUs and unvested stock options that is expected to be recognized over a weighted-average period of 2.1 years.

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10.   EARNINGS PER SHARE

Basic earnings per share is computed using the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding during the applicable period, plus the dilutive effect of outstanding options, RSUs, and warrants, using the treasury stock method and the average market price of the Company’s common stock during the applicable period. Certain shares related to some of the Company’s outstanding stock options and RSUs were excluded from the computation of diluted earnings per share because they were antidilutive in the periods presented, but could be dilutive in the future.

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2013		2012		2013		2012
Basic
Net income (loss)	$	8,710	$	(331)	$	22,482	$	1,459
Weighted-average common shares outstanding		37,955		37,881		37,950		37,834
Earnings (loss) per share, basic	$	0.23	$	(0.01)	$	0.59	$	0.04
Diluted
Net income (loss)	$	8,710	$	(331)	$	22,482	$	1,459
Weighted-average common shares outstanding, basic		37,955		37,881		37,950		37,834
Weighted-average effect of dilutive securities:
Stock options and warrants		913		—		729		817
RSUs		211		—		193		246
Effect of assumed exercise of stock options, warrants and RSUs		1,124		—		922		1,063
Weighted-average common shares outstanding, diluted		39,079		37,881		38,872		38,897
Earnings (loss) per share, diluted	$	0.22	$	(0.01)	$	0.58	$	0.04
Outstanding options and RSUs excluded as impact would be antidilutive		33		1,865		146		55

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11.   GEOGRAPHIC INFORMATION AND MAJOR CLIENTS

The Company develops and licenses its rules-based software solutions and provides professional and cloud services, maintenance, and training related to its software. The Company derives substantially all of its revenue from the sale and support of one group of similar products and services – software that provides business process solutions in the enterprise applications market. To assess performance, the Company’s chief operating decision maker primarily reviews financial information on a consolidated basis. Therefore, the Company has determined it operates in one segment — Business Process Solutions.

The Company’s international revenue is from sales to clients based outside of the U.S. The Company derived its revenue from the following geographic areas:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2013			2012			2013			2012
U.S.	$	59,034	49%	$	56,475	56%	$	189,489	53%	$	173,406	55%
United Kingdom		22,115	18%		18,862	18%		58,782	17%		55,329	17%
Europe, other		24,748	20%		12,836	13%		66,012	18%		45,051	14%
Other		16,114	13%		13,484	13%		41,289	12%		44,094	14%
	$	122,011	100%	$	101,657	100%	$	355,572	100%	$	317,880	100%

Clients accounting for 10% or more of the Company’s total revenue or outstanding trade receivables, net, were as follows:

	Three Months Ended September 30,				Nine Months Ended         September 30,
(Dollars in thousands)	2013		2012		2013		2012
Total revenue	$	122,011	$	101,657	$	355,572	$	317,880
Client A		10%		—%		—%		—%

	As of       September 30,		As of       December 31,
(Dollars in thousands)	2013		2012
Trade receivables, net of allowance	$	90,583	$	134,066
Client A		13%		10%

12.   SUBSEQUENT EVENT

On October 9, 2013, the Company acquired Antenna, a leading provider of mobile application development platforms. The Company acquired all of the outstanding capital stock of Antenna in a merger for $26.3 million in cash. The Company is in the process of preparing an allocation of the purchase price to the fair value of assets acquired and liabilities assumed, but currently expects that a substantial portion of the Antenna purchase price will ultimately be allocated to intangible assets, and that such assets are likely to include acquired core technology, customer related assets and goodwill. During the third quarter of 2013, the Company incurred direct and incremental expenses associated with the transaction of $0.5 million and expects to incur an additional estimated $2.2 million of such expenses that are primarily professional fees to affect the acquisition.

The Company believes the acquisition will offer its collective clients faster time-to-market and increased flexibility in end-to-end mobile application development, powerful device management and cloud-based mobile Backend-as-a-Service.

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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 contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements about our future financial performance and business plans, the adequacy of our liquidity and capital resources, the continued payment of quarterly dividends by the Company, and the timing of recognizing revenue under existing term license agreements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management’s beliefs and assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “project,” or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Important factors that could cause actual future activities and results to differ include, among others, 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 license revenue recognition, the ongoing uncertainty and volatility in the global financial markets, the ongoing consolidation in the financial services and healthcare markets, reliance on third party relationships, the potential loss of vendor specific objective evidence for our professional services, and management of the Company’s growth. These risks are described more completely in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012 and in Item 1A of Part II of this Quarterly Report on Form 10-Q. We do not intend to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Business overview

We develop, market, license, and support software, which allows organizations to build, deploy, and change enterprise applications easily and quickly. Our unified software platform enables our clients to build enterprise applications in a fraction of the time it would take with competitive disjointed architectures, by directly capturing business objectives, automating programming, and automating work. We also provide consulting services, cloud service offerings, maintenance, and training related to our software.

We focus our sales efforts on target accounts, which are large companies or divisions within companies and typically leaders in their industry. Our strategy is to sell a series of licenses that are focused on a specific purpose or area of operations, rather than to sell a large enterprise license.

Our license revenue is primarily derived from sales of our PegaRULES Process Commander ^® (“PRPC”) software and related solution frameworks. PRPC is a comprehensive platform for building and managing Business Process Management (“BPM”) applications that unifies business rules and business processes. Our solution frameworks, built on the capabilities of PRPC, are purpose or industry-specific collections of best practice functionality, which allow organizations to quickly implement new client-facing practices and processes, bring new offerings to market, and provide customized or specialized processing. Our products are simpler, easier to use and often result in shorter implementation periods than competitive enterprise software products. PRPC and related solution frameworks can be used by a broad range of clients across markets including financial services, insurance, healthcare, communications, life sciences, energy and government.

Our solution frameworks products include customer relationship management (“CRM”) software, which enables unified predictive decisioning and analytics and optimizes the overall customer experience. Our decision management products and capabilities are designed to manage processes so that all actions optimize the outcome based on business objectives. We continue to invest in the development of new products and intend to remain a leader in BPM, CRM, and decision management.

We also offer Pega Cloud, a service offering that allows our clients to immediately build, test, and deploy their Pega applications in a secure cloud environment while minimizing their infrastructure and hardware costs. Revenue from our Pega Cloud offering is included in consulting services revenue.

We offer training for our staff, clients, and partners at our regional training facilities, at third party facilities, and at client sites. We also offer training online through Pega Academy, which provides an alternative way to learn our software in a virtual environment quickly and easily. We believe that this online training will continue to expand the number of trained experts at a faster pace.

15

On October 9, 2013, we acquired Antenna Software, Inc. (“Antenna”), a leading provider of mobile application development platforms for $26.3 million in cash. We believe the acquisition will offer our collective clients faster time-to-market and increased flexibility in end-to-end mobile application development, powerful device management and cloud-based mobile Backend-as-a-Service.

Critical accounting policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and beliefs of what could occur in the future given available information.

There have been no changes in our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012. For more information regarding our critical accounting policies, we encourage you to read the discussion contained in Item 7 under the heading “Critical Accounting Policies, Significant Judgments and Estimates” and Note 2 “Significant Accounting Policies” included in the notes to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2012.

Results of Operations

	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
(Dollars in thousands)	2013		2012					2013		2012
Total revenue	$	122,011	$	101,657	$	20,354	20%	$	355,572	$	317,880	$	37,692	12%
Gross profit	$	83,913	$	63,992	$	19,921	31%	$	241,943	$	198,694	$	43,249	22%
Total operating expenses	$	70,124	$	63,591	$	6,533	10%	$	208,150	$	195,058	$	13,092	7%
Income from operations	$	13,789	$	401	$	13,388	n/m	$	33,793	$	3,636	$	30,157	829%
Income before provision for income taxes	$	13,410	$	32	$	13,378	n/m	$	32,085	$	2,795	$	29,290	n/m

n/m - not meaningful

Revenue

	Three Months Ended September 30,						Increase (Decrease)			Nine Months Ended September 30,						Increase (Decrease)
(Dollars in thousands)	2013			2012						2013			2012
License revenue
Perpetual licenses	$	28,971	65%	$	16,999	60%	$	11,972		$	79,978	62%	$	50,448	53%	$	29,530
Term licenses		14,077	31%		9,742	34%		4,335			42,987	34%		32,650	34%		10,337
Subscription		1,754	4%		1,834	6%		(80)			5,252	4%		12,419	13%		(7,167)
Total license revenue	$	44,802	100%	$	28,575	100%	$	16,227	57%	$	128,217	100%	$	95,517	100%	$	32,700	34%

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The aggregate value of new license arrangements executed during the third quarter of 2013 nearly doubled as compared to the third quarter of 2012 due to a higher average value of license arrangements executed in the third quarter of 2013. The aggregate value of new license arrangements executed during the first nine months of 2013 was higher than in the same period in 2012 due to both a larger number and higher average value of license arrangements executed in the first nine months of 2013. The aggregate value of new license arrangements executed fluctuates quarter to quarter. During the first nine months of 2013 and 2012, approximately 72% and 68%, respectively, of the value of new license arrangements were executed with existing clients.

The mix between perpetual and term license arrangements executed in a particular period varies based on client needs. A change in the mix between perpetual and term license arrangements executed may cause our revenues to vary materially from period to period. A higher proportion of term license arrangements executed would result in more license revenue being recognized over longer periods as payments become due or earlier if prepaid. However, some of our perpetual license arrangements include extended payment terms or additional rights of use, which also result in the recognition of revenue over longer periods.

The increase in perpetual license revenue during the third quarter of 2013 compared to the same period in 2012 was primarily due to larger value perpetual arrangements executed during the third quarter of 2013 than in the third quarter of 2012. The increase in perpetual license revenue during the first nine months of 2013 compared to the same period in 2012 was primarily due to higher value perpetual arrangements executed during the first nine months of 2013 and the fourth quarter of 2012 than during the first nine months of 2012 and the fourth quarter of 2011.

The increases in term license revenue were primarily due to revenue recognized on term license arrangements executed in 2012 and 2011. The aggregate value of payments due under noncancellable term licenses grew to $203.6 million as of September 30, 2013 compared to $155.9 million as of September 30, 2012. We expect to recognize $16 million of the $203.6 million as revenue during the remainder of 2013 in addition to new term license agreements we may complete or prepayments we may receive from existing term license agreements. See the table of future cash receipts on page 22.

Subscription revenue primarily consists of the ratable recognition of license, maintenance and bundled services revenue on perpetual license arrangements that include a right to unspecified future products. Subscription revenue does not include revenue from our Pega Cloud offerings, which is included in consulting services. The timing of scheduled payments under client arrangements may limit the amount of revenue recognized in a reporting period. Consequently, our subscription revenue may vary quarter to quarter. The decrease in subscription revenue during the first nine months of 2013 compared to the same period in 2012 was primarily due to revenue recognized in the second quarter of 2012 for a large payment that became due.

	Three Months Ended     September 30,				Increase			Nine Months Ended     September 30,				Increase
(Dollars in thousands)	2013		2012					2013		2012
Maintenance revenue
Maintenance	$	37,979	$	32,317	$	5,662	18%	$	112,238	$	97,657	$	14,581	15%

The increases in maintenance revenue were primarily due to the growth in the aggregate value of the installed base of our software.

	Three Months Ended September 30,						(Decrease)			Nine Months Ended     September 30,						(Decrease)
(Dollars in thousands)	2013			2012						2013			2012
Professional services revenue
Consulting services	$	38,097	97%	$	39,549	97%	$	(1,452)	(4)%	$	111,272	97%	$	119,825	96%	$	(8,553)	(7)%
Training		1,133	3%		1,216	3%		(83)	(7)%		3,845	3%		4,881	4%		(1,036)	(21)%
Total Professional services	$	39,230	100%	$	40,765	100%	$	(1,535)	(4)%	$	115,117	100%	$	124,706	100%	$	(9,589)	(8)%

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Consulting services includes revenue from our Pega Cloud offerings. The decreases in consulting services revenue were primarily the result of more clients becoming enabled and our partners leading more implementation projects. If this trend continues, our consulting services revenue may continue to decrease in future periods. The decrease in our training revenue during the first nine months of 2013 compared to the same period in 2012 was primarily due to the increased adoption of our Pega Academy self-service online training by our partners, which has a lower average price per student.

Gross profit

	Three Months Ended September 30,				Increase (Decrease)			Nine Months Ended September 30,				Increase (Decrease)
(Dollars in thousands)	2013		2012					2013		2012
Gross Profit
Software license	$	43,210	$	26,990	$	16,220	60%	$	123,466	$	90,754	$	32,712	36%
Maintenance		34,380		28,572		5,808	20%		101,132		86,585		14,547	17%
Professional services		6,323		8,430		(2,107)	(25)%		17,345		21,355		(4,010)	(19)%
Total gross profit	$	83,913	$	63,992	$	19,921	31%	$	241,943	$	198,694	$	43,249	22%
Total gross profit %		69%		63%					68%		63%
Software license gross profit %		96%		94%					96%		95%
Maintenance gross profit %		91%		88%					90%		89%
Professional services gross profit %		16%		21%					15%		17%

The increases in gross profit were primarily due to increases in license and maintenance revenue.

The decreases in professional services gross profit percent were primarily due to lower consulting revenues, costs incurred on several projects for which the corresponding revenue will be recognized in future periods as revenue recognition criteria had not been met, and an increase in employee incentive expenses.

Operating expenses

	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
(Dollars in thousands)	2013		2012					2013		2012
Selling and marketing
Selling and marketing	$	42,663	$	36,893	$	5,770	16%	$	127,279	$	116,476	$	10,803	9%
As a percent of total revenue		35%		36%					36%		37%
Selling and marketing headcount at September 30,									538		524		14	3%

Selling and marketing expenses include compensation, benefits, and other headcount-related expenses associated with our selling and marketing personnel as well as advertising, promotions, trade shows, seminars, and other programs. Selling and marketing expenses also include the amortization of customer related intangibles.

The increase in selling and marketing expenses during the third quarter of 2013 compared to the same period in 2012 was primarily due to a $2.2 million increase in compensation expenses, a $1.4 million increase in commission expense associated with the higher value of new license arrangements executed, and a $2.7 million increase in partner commission expense.

The increase in selling and marketing expenses during the first nine months of 2013 compared to the same period in 2012 was primarily due to a $5.5 million increase in compensation expenses, a $2.2 million increase in commission expense associated with the higher value of new license arrangements executed and a $2.8 million increase in partner commission expense.

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	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
(Dollars in thousands)	2013		2012					2013		2012
Research and development
Research and development	$	19,786	$	19,506	$	280	1%	$	59,123	$	57,411	$	1,712	3%
As a percent of total revenue		16%		19%					17%		18%
Research and development headcount at September 30,									817		713		104	15%

Research and development expenses include compensation, benefits, contracted services, and other headcount-related expenses associated with research and development.

The increase in headcount reflects the growth in our India research facility as we have been replacing contractors with employees. The increase in offshore headcount lowered our average compensation expense per employee.

The increase in research and development expenses during the third quarter of 2013 compared to the same period in 2012 was primarily due to a $1.3 million increase in compensation expenses associated with higher headcount, partially offset by a $0.8 million decrease in rent and equipment-related expenses.

The increase in research and development expenses during the first nine months of 2013 compared to the same period in 2012 was primarily due to a $5.5 million increase in compensation and benefit expenses associated with higher headcount, partially offset by a $2.3 million decrease in contractor expenses associated with our hiring of employees to replace contractors, and a $1.9 million decrease in rent and equipment-related expenses.

	Three Months Ended September 30,				(Decrease)			Nine Months Ended September 30,				Increase
(Dollars in thousands)	2013		2012					2013		2012
General and administrative
General and administrative	$	7,130	$	7,192	$	(62)	(1)%	$	21,203	$	21,171	$	32	—%
As a percent of total revenue		6%		7%					6%		7%
General and administrative headcount at September 30,									248		243		5	2%

General and administrative expenses include compensation, benefits, and other headcount-related expenses associated with finance, legal, corporate governance, and other administrative headcount. It also includes accounting, legal, and other administrative fees. The general and administrative headcount includes employees in human resources, information technology and corporate services departments whose costs are allocated to our other functional departments.

Stock-based compensation

The following table summarizes stock-based compensation expense included in our unaudited condensed consolidated statements of operations:

	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
(Dollars in thousands)	2013		2012					2013		2012
Cost of services	$	947	$	849	$	98	12%	$	3,134	$	2,710	$	424	16%
Operating expenses		2,053		1,935		118	6%		6,579		5,912		667	11%
Total stock-based compensation before tax		3,000		2,784		216	8%		9,713		8,622		1,091	13%
Income tax benefit		(893)		(915)					(2,941)		(2,781)

The increases in stock-based compensation expense were primarily due to the higher value of the annual periodic equity grant, partially offset by a lower value of new hire equity awards.

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Non-operating income and expenses, net

	Three Months Ended     September 30,				Change			Nine Months Ended       September 30,				Change
(Dollars in thousands)	2013		2012					2013		2012
Foreign currency transaction gain (loss)	$	661	$	438	$	223	51%	$	(1,666)	$	337	$	(2,003)	(594)%
Interest income, net		123		113		10	9%		376		318		58	18%
Other expense, net		(1,163)		(920)		(243)	26%		(418)		(1,496)		1,078	(72)%
Non-operating loss	$	(379)	$	(369)	$	(10)	3%	$	(1,708)	$	(841)	$	(867)	103%

We use forward contracts to manage our exposure to changes in foreign currency denominated accounts receivable, intercompany payables, and cash primarily held by our U.S. operating company. We have not designated these forward contracts as hedging instruments and as a result, we record the fair value of the outstanding contracts at the end of the reporting period in our consolidated balance sheet, with any fluctuations in the value of these contracts recognized in other expense, net. The fluctuations in the value of these forward contracts recorded in other expense, net, partially offset in net income, the gains and losses from the remeasurement or settlement of the foreign currency denominated accounts receivable, intercompany payables, and cash held by the U.S. operating company recorded in foreign currency transaction loss.

We have been primarily exposed to the fluctuation in the British pound and Euro relative to the U.S. dollar. More recently, we have experienced increased levels of exposure to the Australian dollar and Indian rupee. See Note 3 “Derivative Instruments” in the notes to the accompanying unaudited condensed consolidated financial statements for discussion on our use of forward contracts.

The total change in the fair value of our forward contracts recorded in other expense, net, during the third quarter and first nine months of 2013 was a loss of $1.2 million and $0.4 million, respectively. The total change in the fair value of our foreign currency forward contracts recorded in other expense, net, during the third quarter and first nine months of 2012 was a loss of $0.9 million and $1.5 million, respectively.

Provision for income taxes

We account for income taxes at each interim period using our estimated annual effective tax rate and adjust for discrete tax items recorded in the same period. The provision for income taxes represents current and future amounts owed for federal, state, and foreign taxes. During the third quarter of 2013 and 2012, we recorded a tax provision of $4.7 million and $0.4 million, respectively. During the first nine months of 2013 and 2012, we recorded a tax provision of $9.6 million and $1.3 million, on pre-tax income of $32.1 million and $2.8 million, respectively, which resulted in an effective tax rate of 29.9% and 47.8%, respectively. Our effective tax rate for the first nine months of 2013 was below the statutory rate primarily due to the domestic production activities deduction, our foreign tax rate differential benefit, and a $0.8 million tax benefit related to our 2012 research and experimentation credit recognized in the first quarter of 2013 as a result of the American Taxpayer Relief Act of 2012 that was signed into law in January 2013. Our effective tax rate for the first nine months of 2012 was a result of low pre-tax income and certain discrete items that were recorded in 2012.

20

Liquidity and capital resources

	Nine Months Ended
	September 30,
(in thousands)	2013		2012
Cash provided by (used in):
Operating activities	$	83,435	$	29,084
Investing activities		(39,674)		(16,746)
Financing activities		(11,942)		(7,050)
Effect of exchange rate on cash		(517)		596
Net increase in cash and cash equivalents	$	31,302	$	5,884
	As of		As of
	September 30,     2013		December 31,     2012
Total cash, cash equivalents, and marketable securities	$	188,445	$	122,985

The increase in cash and cash equivalents was primarily due to the significant increase in cash provided by operating activities associated with our strong accounts receivable collections during the first nine months of 2013, which were generated from our significant arrangements executed in the fourth quarter of 2012. We believe that our current cash, cash equivalents, and cash flow from operations will be sufficient to fund our operations, our dividend payments and our share repurchase program for at least the next 12 months.

We evaluate acquisition opportunities from time to time, which if pursued, could require use of our funds. On October 9, 2013, we acquired Antenna for $26.3 million in cash. During the third quarter of 2013, we incurred direct and incremental expenses associated with the transaction of $0.5 million and expect to incur an additional estimated $2.2 million of such expenses that are primarily professional fees to affect the acquisition.

As of September 30, 2013, approximately $54.8 million of our cash and cash equivalents was held in our foreign subsidiaries. If it becomes necessary to repatriate these funds, we may be required to pay U.S. tax, net of any applicable foreign tax credits, upon repatriation. We consider the earnings of our foreign subsidiaries to be permanently reinvested and, as a result, U.S. taxes on such earnings are not provided. It is impractical to estimate the amount of U.S. tax we could have to pay upon repatriation due to the complexity of the foreign tax credit calculations and because we consider our earnings permanently reinvested. There can be no assurance that changes in our plans or other events affecting our operations will not result in materially accelerated or unexpected expenditures.

Cash provided by operating activities

The primary drivers of cash provided by operating activities during the first nine months of 2013 were net income of $22.5 million and a $42.6 million decrease in accounts receivable due to our significant collections.

The primary drivers of cash provided by operating activities during the first nine months of 2012 were net income of $1.5 million, an $18.9 million decrease in account receivable due to higher collections, and a $2.7 million increase in deferred revenue.

21

Future Cash Receipts from License Arrangements

Total contractual future cash receipts due from our existing license agreements was approximately $234.2 million as of September 30, 2013 compared to $195.2 million as of September 30, 2012. The future cash receipts due as of September 30, 2013 are summarized as follows:

As of September 30, 2013 (in thousands)	Contractual payments for term licenses not recorded   on the balance sheet (1)		Other contractual   license payments not   recorded on the balance sheet (2)		Total
Remainder of 2013	$	16,001	$	4,927	$	20,928
2014		62,844		17,514		80,358
2015		55,939		4,944		60,883
2016		45,154		3,128		48,282
2017 and thereafter		23,708		—		23,708
Total	$	203,646	$	30,513	$	234,159

(1) These amounts will be recognized as revenue in the future over the term of the agreement as payments become due or earlier if prepaid.

(2) These amounts will be recognized as revenue in future periods and relate to perpetual and subscription licenses with extended payment terms and/or additional rights of use.

Cash used in investing activities

During the first nine months of 2013, cash used in investing activities was primarily for purchases of marketable debt securities of $56.6 million, partially offset by the proceeds received from the maturities of marketable debt securities of $21.1 million.

During the first nine months of 2012, we invested $21.9 million primarily in leasehold improvements, furniture and fixtures and equipment for the build-out of our U.S. and India offices.

Cash used in financing activities

Cash used in financing activities during the first nine months of 2013 and 2012 was primarily for repurchases of our common stock and dividend payments. Since 2004, our Board of Directors has approved annual stock repurchase programs that have authorized the repurchase in the aggregate of up to $92.4 million of our common stock. Purchases under these programs have been made on the open market.

The following table is a summary of our repurchase activity under all of our repurchase programs during the first nine months of 2013 and 2012:

	Nine Months Ended September 30,
	2013					2012
(Dollars in thousands)	Shares		Amount			Shares		Amount
Prior year authorization as of January 1,			$	14,793				$	13,963
Repurchases paid		309,692		(9,102	)		125,891		(3,861	)
Repurchases unsettled		3,313		(130	)		1,692		(48	)
Authorization remaining as of September 30,			$	5,561				$	10,054

In addition to the share repurchases made under our repurchase programs, we net settled the majority of our employee stock option exercises and RSU vesting, which resulted in the withholding of shares to cover the option exercise price and the minimum statutory tax withholding obligations.

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During the first nine months of 2013 and 2012, option and RSU holders net settled stock options and vested RSUs representing the right to purchase a total of 529,000 shares and 424,000 shares, respectively, of which only 275,000 shares and 243,000 shares, respectively, were issued to the option and RSU holders and the balance of the shares were surrendered to us to pay for the exercise price and the applicable taxes. During the first nine months of 2013 and 2012, instead of receiving cash from the equity holders, we withheld shares with a value of $4.1 million and $3.6 million, respectively, for withholding taxes, and $3.9 million and $2.4 million, respectively, for the exercise price. The value of share repurchases and shares withheld for net settlement of our employee stock option exercises and vesting of RSUs offset the proceeds received under our various share-based compensation plans during the first nine months of 2013 and 2012.

Dividends

We declared a cash dividend of $0.09 per share in the first nine months of 2013 and 2012. We paid cash dividends of $2.3 million and $3.4 million in the first nine months of 2013 and 2012, respectively. Our Board of Directors authorized the acceleration of the payment of the fourth quarter 2012 dividend to be paid in December 2012 rather than in January 2013. Therefore, there was no dividend payment in the first quarter of 2013. It is our current intention to pay a quarterly cash dividend of $0.03 per share, however, the Board of Directors may terminate or modify this dividend program at any time without notice.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and rates. Our market risk exposure is primarily related to fluctuations in foreign exchange rates. We enter into foreign currency forward contracts to partially mitigate our exposure to the fluctuations in foreign exchange rates. See Note 3 “Derivative Instruments” in the notes to the accompanying unaudited condensed consolidated financial statements for further discussion.

There were no significant changes to our quantitative and qualitative disclosures about market risk during the first nine months of 2013. Please refer to Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for the year ended December 31, 2012 for a more complete discussion of our market risk exposure.

Item 4.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or 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) as of September 30, 2013. 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 September 30, 2013.

(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 Securities Exchange Act) during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II—Other Information:

Item 1A.    Risk Factors

We encourage you to carefully consider the risk factors identified in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012. These risk factors could materially affect our business, financial condition and future results and could 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 from time to time. Except as described below, there have been no material changes during the first nine months of 2013 to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

The acquisition of other businesses and technologies may present new risks. We have recently undertaken an acquisition and may continue to evaluate and consider other potential strategic transactions, including acquisitions of businesses, technologies, services, products and other assets in the future. These acquisitions, if undertaken, may involve significant new risks and uncertainties, including distraction of management attention away from our current business operations, insufficient new revenue to offset expenses, inadequate return on capital, integration challenges, new regulatory requirements, new third-party intellectual property infringement claims related to the acquired technology and/or services, and issues not discovered in our due diligence process. No assurance can be given that such acquisitions will be successful and will not adversely affect our profitability or operations.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information regarding our repurchases of our common stock during the third quarter of 2013:

Period	Total Number   of Shares Purchased		Average Price   Paid per Share		Total Number of Shares   Purchased as Part   of Publicly Announced Share Repurchase Programs (1)		Approximate Dollar Value of Shares That   May Yet Be Purchased   Under Publicly Announced Share Repurchase Programs (in thousands) (1)
7/1/2013 - 7/31/2013		24,446	$	33.84		24,446	$	6,762
8/1/2013 - 8/31/2013		24,714		37.02		24,714		5,847
9/1/2013 - 9/30/2013		7,469		38.26		7,469		5,561
Total		56,629	$	35.81

(1) Since 2004, our Board of Directors has approved stock repurchase programs that have authorized the repurchase, in the aggregate, of up to $92.4 million of our common stock. On December 18, 2012, we announced that our Board of Directors approved a $6 million increase in the remaining funds available under the program expiring on December 31, 2012, and an extension of the expiration date to December 31, 2013. Under this program, the “Current Program”, purchases may be made from time to time on the open market or in privately negotiated transactions. Shares may be repurchased in such amounts as market conditions warrant, subject to regulatory and other considerations. We have established a pre-arranged stock repurchase plan, intended to comply with the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and of Rule 10b-18 of the Exchange Act (the “10b5-1 Plan”). All share repurchases under the Current Program during closed trading window periods will be made pursuant to the 10b5-1 Plan.

24

Item 6.   Exhibits

The exhibits listed in the Exhibit Index immediately preceding such exhibits are filed or furnished, as the case may be, as part of this report and such Exhibit Index is incorporated herein by reference.

25

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.
Date:      November 12, 2013	By:	/s/ RAFEAL E. BROWN
		Rafeal E. Brown
		Chief Financial Officer, Chief Administration Officer and Senior Vice President
		(principal financial officer)

26

PEGASYSTEMS INC.

Exhibit Index

Exhibit No.	Description
31.1	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.
31.2	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.
32	Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer.
101	The following materials from Pegasystems Inc.’s Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2013 formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Comprehensive Income, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Condensed Consolidated Financial Statements.

27

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: November 12, 2013

/s/ ALAN TREFLER

Alan Trefler

Chairman and Chief Executive Officer

(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Rafeal E. Brown, 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: November 12, 2013

/s/ RAFEAL E. BROWN

Rafeal E. Brown

Chief Financial Officer, Chief Administration Officer and Senior Vice President

(principal financial officer)

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 September 30, 2013 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 Rafeal E. Brown, Chief Financial Officer, Chief Administration Officer, and Senior Vice President 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.

/s/ ALAN TREFLER

Alan Trefler

Chairman and Chief Executive Officer

(principal executive officer)

/s/ RAFEAL E. BROWN

Rafeal E. Brown

Chief Financial Officer, Chief Administration Officer and Senior Vice President

(principal financial officer)

Dated: November 12, 2013

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Geographic Information and Major Clients

9 Months Ended

Sep. 30, 2013

Geographic Information and Major Clients

11.   GEOGRAPHIC INFORMATION AND MAJOR CLIENTS

The Company develops and licenses its rules-based software solutions and provides professional and cloud services, maintenance, and training related to its software. The Company derives substantially all of its revenue from the sale and support of one group of similar products and services – software that provides business process solutions in the enterprise applications market. To assess performance, the Company’s chief operating decision maker primarily reviews financial information on a consolidated basis. Therefore, the Company has determined it operates in one segment — Business Process Solutions.

The Company’s international revenue is from sales to clients based outside of the U.S. The Company derived its revenue from the following geographic areas:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2013			2012			2013			2012
U.S.	$	59,034	49%	$	56,475	56%	$	189,489	53%	$	173,406	55%
United Kingdom		22,115	18%		18,862	18%		58,782	17%		55,329	17%
Europe, other		24,748	20%		12,836	13%		66,012	18%		45,051	14%
Other		16,114	13%		13,484	13%		41,289	12%		44,094	14%
	$	122,011	100%	$	101,657	100%	$	355,572	100%	$	317,880	100%

Clients accounting for 10% or more of the Company’s total revenue or outstanding trade receivables, net, were as follows:

	Three Months Ended September 30,				Nine Months Ended         September 30,
(Dollars in thousands)	2013		2012		2013		2012
Total revenue	$	122,011	$	101,657	$	355,572	$	317,880
Client A		10%		—%		—%		—%

	As of       September 30,		As of       December 31,
(Dollars in thousands)	2013		2012
Trade receivables, net of allowance	$	90,583	$	134,066
Client A		13%		10%

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Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenue:
Software license	$ 44,802	$ 28,575	$ 128,217	$ 95,517
Maintenance	37,979	32,317	112,238	97,657
Professional services	39,230	40,765	115,117	124,706
Total revenue	122,011	101,657	355,572	317,880
Cost of revenue:
Software license	1,592	1,585	4,751	4,763
Maintenance	3,599	3,745	11,106	11,072
Professional services	32,907	32,335	97,772	103,351
Total cost of revenue	38,098	37,665	113,629	119,186
Gross profit	83,913	63,992	241,943	198,694
Operating expenses:
Selling and marketing	42,663	36,893	127,279	116,476
Research and development	19,786	19,506	59,123	57,411
General and administrative	7,130	7,192	21,203	21,171
Acquisition-related costs	545		545
Total operating expenses	70,124	63,591	208,150	195,058
Income from operations	13,789	401	33,793	3,636
Foreign currency transaction gain (loss)	661	438	(1,666)	337
Interest income, net	123	113	376	318
Other expense, net	(1,163)	(920)	(418)	(1,496)
Income before provision for income taxes	13,410	32	32,085	2,795
Provision for income taxes	4,700	363	9,603	1,336
Net income (loss)	$ 8,710	$ (331)	$ 22,482	$ 1,459
Earnings (loss) per share:
Basic	$ 0.23	$ (0.01)	$ 0.59	$ 0.04
Diluted	$ 0.22	$ (0.01)	$ 0.58	$ 0.04
Weighted-average number of common shares outstanding
Basic	37,955	37,881	37,950	37,834
Diluted	39,079	37,881	38,872	38,897
Cash dividends declared per share	$ 0.03	$ 0.03	$ 0.09	$ 0.09

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Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Measurements

4.  FAIR VALUE MEASUREMENTS

Assets Measured 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 observable inputs that are observable either directly or indirectly; and (Level 3) significant unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company records its marketable securities at fair value.

The Company’s investments are classified within Level 1 and Level 2 of the fair value hierarchy. The Company’s investments classified within Level 1 of the fair value hierarchy are valued using quoted market prices. The Company’s investments classified within Level 2 of the fair value hierarchy are valued based on matrix pricing compiled by third party pricing vendors, using observable market inputs such as interest rates, yield curves, and credit risk.

The fair value hierarchy of the Company’s cash equivalents and marketable securities at fair value is as follows:

			Fair Value Measurements at Reporting Date Using
(in thousands)	September 30,   2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Money market funds	$	3,070	$	3,070	$	—
Marketable securities:
Municipal bonds	$	47,357	$	13,289	$	34,068
Corporate bonds		29,823		29,823		—
Certificates of deposit		2,438		—		2,438
Total marketable securities	$	79,618	$	43,112	$	36,506
			Fair Value Measurements at Reporting Date Using
(in thousands)	December 31,   2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Money market funds	$	2,873	$	2,873	$	—
Marketable securities:
Municipal bonds	$	30,526	$	11,966	$	18,560
Corporate bonds		14,934		14,934		—
Total marketable securities	$	45,460	$	26,900	$	18,560

Assets Measured at Fair Value on a Nonrecurring Basis

Assets recorded at fair value on a nonrecurring basis, such as property and equipment, and intangible assets, are recognized at fair value when they are impaired. During the first nine months of 2013 and 2012, the Company did not recognize any impairments on its assets measured at fair value on a nonrecurring basis.

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Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2013

Schedule of Accrued Expenses

(in thousands)	September 30, 2013		December 31, 2012
Partner commissions	$	4,349	$	1,723
Other taxes		3,120		2,711
Employee reimbursable expenses		2,255		879
Dividends payable		1,140		—
Professional services contractor fees		1,660		602
Self-insurance health and dental claims		977		1,707
Professional fees		930		811
Short-term deferred rent		783		1,111
Foreign income taxes payable		649		1,167
Acquisition-related costs		482		—
Restructuring		113		441
Other		4,283		4,382
	$	20,741	$	15,534

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Subsequent Event

9 Months Ended

Sep. 30, 2013

Subsequent Event

12.   SUBSEQUENT EVENT

On October 9, 2013, the Company acquired Antenna, a leading provider of mobile application development platforms. The Company acquired all of the outstanding capital stock of Antenna in a merger for $26.3 million in cash. The Company is in the process of preparing an allocation of the purchase price to the fair value of assets acquired and liabilities assumed, but currently expects that a substantial portion of the Antenna purchase price will ultimately be allocated to intangible assets, and that such assets are likely to include acquired core technology, customer related assets and goodwill. During the third quarter of 2013, the Company incurred direct and incremental expenses associated with the transaction of $0.5 million and expects to incur an additional estimated $2.2 million of such expenses that are primarily professional fees to affect the acquisition.

The Company believes the acquisition will offer its collective clients faster time-to-market and increased flexibility in end-to-end mobile application development, powerful device management and cloud-based mobile Backend-as-a-Service.

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Subsequent Event - Additional Information (Detail) (USD $)	3 Months Ended	9 Months Ended	3 Months Ended	1 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2013 Antenna	Oct. 09, 2013 Subsequent Event Antenna	Oct. 09, 2013 Subsequent Event Antenna Expected Incremental Expense
Subsequent Event [Line Items]
Purchase price of acquired company				$ 26,300,000
Acquisition-related costs	$ 545,000	$ 545,000	$ 500,000		$ 2,200,000

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Amortization Expense of Acquired Intangibles (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Acquired Finite-Lived Intangible Assets [Line Items]
Total amortization expense	$ 2,772	$ 2,778	$ 8,322	$ 8,360
Cost of software license
Acquired Finite-Lived Intangible Assets [Line Items]
Total amortization expense	1,540	1,541	4,622	4,649
Selling and marketing
Acquired Finite-Lived Intangible Assets [Line Items]
Total amortization expense	1,232	1,232	3,696	3,696
General and administrative
Acquired Finite-Lived Intangible Assets [Line Items]
Total amortization expense		$ 5	$ 4	$ 15

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2013

Summary of Basic and Diluted Earnings (Loss) per Share

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2013		2012		2013		2012
Basic
Net income (loss)	$	8,710	$	(331)	$	22,482	$	1,459
Weighted-average common shares outstanding		37,955		37,881		37,950		37,834
Earnings (loss) per share, basic	$	0.23	$	(0.01)	$	0.59	$	0.04
Diluted
Net income (loss)	$	8,710	$	(331)	$	22,482	$	1,459
Weighted-average common shares outstanding, basic		37,955		37,881		37,950		37,834
Weighted-average effect of dilutive securities:
Stock options and warrants		913		—		729		817
RSUs		211		—		193		246
Effect of assumed exercise of stock options, warrants and RSUs		1,124		—		922		1,063
Weighted-average common shares outstanding, diluted		39,079		37,881		38,872		38,897
Earnings (loss) per share, diluted	$	0.22	$	(0.01)	$	0.58	$	0.04
Outstanding options and RSUs excluded as impact would be antidilutive		33		1,865		146		55

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Stock-Based Compensation Expense Included in Consolidated Statements of Operations

For the third quarter and first nine months of 2013 and 2012, stock-based compensation expense was reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended             September 30,				Nine Months Ended         September 30,
(in thousands)	2013		2012		2013		2012
Cost of services	$	947	$	849	$	3,134	$	2,710
Operating expenses		2,053		1,935		6,579		5,912
Total stock-based compensation before tax	$	3,000	$	2,784	$	9,713	$	8,622
Income tax benefit		(893)		(915)		(2,941)		(2,781)

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Revenue from International Clients by Geographic Areas (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue	$ 122,011	$ 101,657	$ 355,572	$ 317,880
Geographic revenue percentage	100.00%	100.00%	100.00%	100.00%
U.S.
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue	59,034	56,475	189,489	173,406
Geographic revenue percentage	49.00%	56.00%	53.00%	55.00%
United Kingdom
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue	22,115	18,862	58,782	55,329
Geographic revenue percentage	18.00%	18.00%	17.00%	17.00%
Europe, Other
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue	24,748	12,836	66,012	45,051
Geographic revenue percentage	20.00%	13.00%	18.00%	14.00%
Other
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue	$ 16,114	$ 13,484	$ 41,289	$ 44,094
Geographic revenue percentage	13.00%	13.00%	12.00%	14.00%

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Change in Fair Value of Forward Contracts Recorded in Other Expense, Net (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Loss included in other expense, net	$ (1,173)	$ (926)	$ (430)	$ (1,522)

XML

Schedule of Accrued Expenses (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Accrued expenses
Partner commissions	$ 4,349	$ 1,723
Other taxes	3,120	2,711
Employee reimbursable expenses	2,255	879
Dividends payable	1,140
Professional services contractor fees	1,660	602
Self-insurance health and dental claims	977	1,707
Professional fees	930	811
Short-term deferred rent	783	1,111
Foreign income taxes payable	649	1,167
Acquisition-related costs	482
Restructuring	113	441
Other	4,283	4,382
Total accrued expenses	$ 20,741	$ 15,534

XML

Marketable Securities - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2013 M
Schedule of Available-for-sale Securities [Line Items]
Weighted-average remaining maturity period of marketable debt securities, months	14
Minimum
Schedule of Available-for-sale Securities [Line Items]
Remaining maturities of marketable debt securities	2013-10
Maximum
Schedule of Available-for-sale Securities [Line Items]
Remaining maturities of marketable debt securities	2016-02

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Stock Based Compensation - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation	$ 3,000,000	$ 2,784,000	$ 9,713,000	$ 8,622,000
RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation			1,700,000
Total stock-based compensation, period of recognition			1 year
Unrecognized stock-based compensation expense	12,200,000		12,200,000
Weighted-average period of recognition of unrecognized stock-based compensation expense (in years)			2 years 1 month 6 days
RSUs | Corporate Incentive Compensation Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units expected to vest			114,000
Restricted stock units, fair value			$ 3,300,000
Issued to employees			59,000
Compensation percentage of target incentive compensation eligible to be elected and received by employees			50.00%
Employees | Stock Compensation Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted			344,000
Non-employee directors | Stock Compensation Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted			14,000

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Deferred Revenue (Tables)

9 Months Ended

Sep. 30, 2013

Schedule of Deferred Revenue

(in thousands)	September 30, 2013		December 31, 2012
Software license	$	17,206	$	24,303
Maintenance		63,342		62,144
Professional services and other		11,210		9,099
Current deferred revenue		91,758		95,546
Software license		16,690		15,407
Maintenance and professional services		1,264		3,312
Long-term deferred revenue		17,954		18,719
	$	109,712	$	114,265

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Operating activities:
Net income	$ 22,482	$ 1,459
Adjustments to reconcile net income to cash provided by operating activities:
Excess tax benefits from exercise or vesting of equity awards	(2,670)	(3,161)
Deferred income taxes	(537)	(511)
Depreciation and amortization	14,173	13,986
Stock-based compensation expense	9,713	8,622
Foreign currency transaction loss (gain)	1,666	(337)
Other non-cash items	2,736	4,021
Change in operating assets and liabilities:
Trade accounts receivable	42,611	18,938
Income taxes receivable and other current assets	2,599	(1,468)
Accounts payable and accrued expenses	(5,762)	(20,491)
Deferred revenue	(3,836)	2,747
Other long-term assets and liabilities	260	5,279
Cash provided by operating activities	83,435	29,084
Investing activities:
Purchase of marketable securities	(56,645)	(13,336)
Matured and called marketable securities	21,129	18,465
Investment in property and equipment	(4,158)	(21,875)
Cash used in investing activities	(39,674)	(16,746)
Financing activities:
Issuance of common stock for share-based compensation plans	970	753
Excess tax benefits from exercise or vesting of equity awards	2,670	3,161
Dividend payments to shareholders	(2,281)	(3,404)
Common stock repurchases for tax withholdings for net settlement of equity awards	(4,123)	(3,650)
Common stock repurchases under share repurchase programs	(9,178)	(3,910)
Cash used in financing activities	(11,942)	(7,050)
Effect of exchange rate on cash and cash equivalents	(517)	596
Net increase in cash and cash equivalents	31,302	5,884
Cash and cash equivalents, beginning of period	77,525	60,353
Cash and cash equivalents, end of period	$ 108,827	$ 66,237

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Marketable Securities

9 Months Ended

Sep. 30, 2013

Marketable Securities

2.  MARKETABLE SECURITIES

(in thousands)	September 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Municipal bonds	$	47,325		60		(28)	$	47,357
Corporate bonds		29,776		56		(9)		29,823
Certificates of deposit		2,442		1		(5)		2,438
	$	79,543		117		(42)	$	79,618
(in thousands)	December 31, 2012
	Amortized Cost		Unrealized     Gains		Unrealized     Losses		Fair Value
Municipal bonds	$	30,488		48		(10)	$	30,526
Corporate bonds		14,853		83		(2)		14,934
	$	45,341		131		(12)	$	45,460

The Company considers debt securities with maturities of three months or less from the purchase date to be cash equivalents. Interest is recorded when earned. All of the Company’s investments are classified as available-for-sale and are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income, net of related income taxes.

As of September 30, 2013, remaining maturities of marketable debt securities ranged from October 2013 to February 2016, with a weighted-average remaining maturity of approximately 14 months.

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Trade Accounts Receivable, Net of Allowance

9 Months Ended

Sep. 30, 2013

Trade Accounts Receivable, Net of Allowance

5.  TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

(in thousands)	September 30,     2013		December 31,     2012
Trade accounts receivable	$	58,037	$	112,106
Unbilled trade accounts receivable		33,318		22,923
Total accounts receivable		91,355		135,029
Allowance for sales credit memos		(772)		(963)
	$	90,583	$	134,066

Unbilled trade accounts receivable relate to services earned under time and material arrangements, and maintenance and license arrangements that had not been invoiced as of September 30, 2013 and December 31, 2012, respectively.

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Derivative Instruments

9 Months Ended

Sep. 30, 2013

Derivative Instruments

3.  DERIVATIVE INSTRUMENTS

The Company uses foreign currency forward contracts (“forward contracts”) to manage its exposure to changes in foreign currency denominated accounts receivable, intercompany payables and cash primarily held by the U.S. operating company. The Company has been primarily exposed to the fluctuation in the British pound and Euro relative to the U.S. dollar. More recently, the Company has experienced increased levels of exposure to the Australian dollar and Indian rupee, for which it began to use forward contracts in the third quarter of 2013.

The forward contracts utilized by the Company are not designated as hedging instruments and as a result, the Company records the fair value of these contracts at the end of each reporting period in its consolidated balance sheet as other current assets for unrealized gains and accrued expenses for unrealized losses, with any fluctuations in the value of these contracts recognized in other expense, net, in its consolidated statement of operations. These forward contracts have 90 day terms or less.

As of September 30, 2013 and December 31, 2012, the Company did not have any forward contracts outstanding.

During the third quarter and first nine months of 2013 and 2012, the Company entered into forward contracts with notional values as follows:

	Notional Amount
	Three Months Ended September 30,				Nine Months Ended September 30,
Foreign currency (in thousands)	2013		2012		2013		2012
Euro	€	28,500	€	21,700	€	61,000		€	48,900
British pound	£	26,000	£	16,000	£	59,500		£	39,000
Australian dollar	A$	15,500	A$	—	A$	15,500		A$	—
Indian rupee	Rs	460,000	Rs	—	Rs	460,000		Rs	—

During the third quarter and first nine months of 2013 and 2012, the total change in the fair value of the Company’s forward contracts recorded in other expense, net, was as follows:

	Change in Fair Value in USD
	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2013		2012		2013		2012
Loss included in other expense, net	$	(1,173)	$	(926)	$	(430)	$	(1,522)

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Schedule of Deferred Revenue (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	$ 91,758	$ 95,546
Long-term deferred revenue	17,954	18,719
Total deferred revenue	109,712	114,265
Software license
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	17,206	24,303
Long-term deferred revenue	16,690	15,407
Maintenance
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	63,342	62,144
Professional services and other
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	11,210	9,099
Maintenance and professional services
Deferred Revenue Arrangement [Line Items]
Long-term deferred revenue	$ 1,264	$ 3,312

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Geographic Information and Major Clients (Tables)

9 Months Ended

Sep. 30, 2013

Revenue from International Clients by Geographic Area

The Company’s international revenue is from sales to clients based outside of the U.S. The Company derived its revenue from the following geographic areas:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2013			2012			2013			2012
U.S.	$	59,034	49%	$	56,475	56%	$	189,489	53%	$	173,406	55%
United Kingdom		22,115	18%		18,862	18%		58,782	17%		55,329	17%
Europe, other		24,748	20%		12,836	13%		66,012	18%		45,051	14%
Other		16,114	13%		13,484	13%		41,289	12%		44,094	14%
	$	122,011	100%	$	101,657	100%	$	355,572	100%	$	317,880	100%

Trade Receivables of Major Clients

Clients accounting for 10% or more of the Company’s total revenue or outstanding trade receivables, net, were as follows:

	Three Months Ended September 30,				Nine Months Ended         September 30,
(Dollars in thousands)	2013		2012		2013		2012
Total revenue	$	122,011	$	101,657	$	355,572	$	317,880
Client A		10%		—%		—%		—%

	As of       September 30,		As of       December 31,
(Dollars in thousands)	2013		2012
Trade receivables, net of allowance	$	90,583	$	134,066
Client A		13%		10%

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Derivative Instruments - Additional Information (Detail) (Foreign Exchange Forward, Maximum)	9 Months Ended
	Sep. 30, 2013
Foreign Exchange Forward | Maximum
Derivative [Line Items]
Term of derivative contracts (in days)	90 days

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Schedule of Amortizable Intangible Asset (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Finite-Lived Intangible Assets [Line Items]
Cost	$ 90,039	$ 90,039
Accumulated Amortization	(40,129)	(31,807)
Net Book Value	49,910	58,232
Customer related intangibles
Finite-Lived Intangible Assets [Line Items]
Cost	44,355	44,355
Accumulated Amortization	(16,838)	(13,142)
Net Book Value	27,517	31,213
Customer related intangibles | Maximum
Finite-Lived Intangible Assets [Line Items]
Range of Useful Lives	9 years	9 years
Technology
Finite-Lived Intangible Assets [Line Items]
Cost	43,446	43,446
Accumulated Amortization	(21,053)	(16,431)
Net Book Value	22,393	27,015
Technology | Minimum
Finite-Lived Intangible Assets [Line Items]
Range of Useful Lives	4 years	4 years
Technology | Maximum
Finite-Lived Intangible Assets [Line Items]
Range of Useful Lives	9 years	9 years
Other intangibles
Finite-Lived Intangible Assets [Line Items]
Cost	2,238	2,238
Accumulated Amortization	(2,238)	(2,234)
Net Book Value		$ 4
Other intangibles | Minimum
Finite-Lived Intangible Assets [Line Items]
Range of Useful Lives	1 year	1 year
Other intangibles | Maximum
Finite-Lived Intangible Assets [Line Items]
Range of Useful Lives	5 years	5 years

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Geographic Information and Major Clients - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2013 Segment
Geographic information and major clients
Number of reportable segments	1
Trade accounts receivable
Geographic information and major clients
Percentage of company outstanding trade receivables accounted by client	10.00%

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Allowance for sales credit memos	$ 772	$ 963
Preferred stock, shares authorized	1,000	1,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, shares authorized	100,000	100,000
Common stock, shares issued	37,989	37,945
Common stock, shares outstanding	37,989	37,945

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Deferred Revenue

9 Months Ended

Sep. 30, 2013

Deferred Revenue

8.  DEFERRED REVENUE

(in thousands)	September 30, 2013		December 31, 2012
Software license	$	17,206	$	24,303
Maintenance		63,342		62,144
Professional services and other		11,210		9,099
Current deferred revenue		91,758		95,546
Software license		16,690		15,407
Maintenance and professional services		1,264		3,312
Long-term deferred revenue		17,954		18,719
	$	109,712	$	114,265

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Condensed Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Net income (loss)	$ 8,710	$ (331)	$ 22,482	$ 1,459
Other comprehensive income (loss):
Unrealized gain (loss) on securities, net of tax	113	33	(32)	80
Foreign currency translation adjustments	2,340	1,315	(147)	1,248
Total other comprehensive income (loss)	2,453	1,348	(179)	1,328
Comprehensive income	$ 11,163	$ 1,017	$ 22,303	$ 2,787

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 108,827	$ 77,525
Marketable securities	79,618	45,460
Total cash, cash equivalents, and marketable securities	188,445	122,985
Trade accounts receivable, net of allowance of $772 and $963	90,583	134,066
Deferred income taxes	10,152	10,202
Income taxes receivable	4,199	6,261
Other current assets	6,929	5,496
Total current assets	300,308	279,010
Property and equipment, net	28,977	30,827
Long-term deferred income taxes	49,693	49,292
Long-term other assets	1,657	1,680
Intangible assets, net	49,910	58,232
Goodwill	20,451	20,451
Total assets	450,996	439,492
Current liabilities:
Accounts payable	2,347	3,330
Accrued expenses	20,741	15,534
Accrued compensation and related expenses	31,925	40,715
Deferred revenue	91,758	95,546
Total current liabilities	146,771	155,125
Income taxes payable	13,748	13,551
Long-term deferred revenue	17,954	18,719
Other long-term liabilities	17,466	15,618
Total liabilities	195,939	203,013
Stockholders' equity:
Preferred stock, 1,000 shares authorized; no shares issued and outstanding
Common stock, 100,000 shares authorized; 37,989 shares and 37,945 shares issued and outstanding	380	379
Additional paid-in capital	138,271	138,576
Retained earnings	113,410	94,349
Accumulated other comprehensive income	2,996	3,175
Total stockholders' equity	255,057	236,479
Total liabilities and stockholders' equity	$ 450,996	$ 439,492

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Accounting Policies - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013
Accounting Policies [Line Items]
Acquisition-related costs	$ 545	$ 545
Antenna
Accounting Policies [Line Items]
Acquisition-related costs	$ 500

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2013

Schedule of Amortizable Intangible Assets

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

(in thousands)	Range of Useful Lives		Cost		Accumulated     Amortization		Net Book     Value
As of September 30, 2013
Customer related intangibles		9 years	$	44,355	$	(16,838)	$	27,517
Technology		4-9 years		43,446		(21,053)		22,393
Other intangibles		1-5 years		2,238		(2,238)		—
Total			$	90,039	$	(40,129)	$	49,910
			Cost		Accumulated Amortization		Net Book Value
As of December 31, 2012
Customer related intangibles		9 years	$	44,355	$	(13,142)	$	31,213
Technology		4-9 years		43,446		(16,431)		27,015
Other intangibles		1-5 years		2,238		(2,234)		4
Total			$	90,039	$	(31,807)	$	58,232

Amortization Expense of Acquired Intangibles

For the third quarter and first nine months of 2013 and 2012, amortization of intangibles was reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2013		2012		2013		2012
Cost of software license	$	1,540	$	1,541	$	4,622	$	4,649
Selling and marketing		1,232		1,232		3,696		3,696
General and administrative		—		5		4		15
Total amortization expense	$	2,772	$	2,778	$	8,322	$	8,360

Estimated Future Amortization Expense

Amortization of intangibles is estimated to be recorded over their remaining useful lives as follows:

(in thousands) September 30, 2013	Future estimated amortization expense
Remainder of 2013	$	2,773
2014		9,489
2015		8,688
2016		8,688
2017		8,688
2018 & thereafter		11,584
	$	49,910

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Summary of Basic and Diluted Earnings Per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earning per share reconciliation
Net income (loss)	$ 8,710	$ (331)	$ 22,482	$ 1,459
Weighted-average common shares outstanding, basic	37,955	37,881	37,950	37,834
Earnings (loss) per share, basic	$ 0.23	$ (0.01)	$ 0.59	$ 0.04
Net income (loss)	$ 8,710	$ (331)	$ 22,482	$ 1,459
Weighted-average common shares outstanding, basic	37,955	37,881	37,950	37,834
Effect of assumed exercise of stock options, warrants and RSUs	1,124		922	1,063
Weighted-average common shares outstanding, diluted	39,079	37,881	38,872	38,897
Earnings (loss) per share, diluted	$ 0.22	$ (0.01)	$ 0.58	$ 0.04
Outstanding options and RSUs excluded as impact would be antidilutive	33	1,865	146	55
Stock Options
Earning per share reconciliation
Weighted-average effect of dilutive securities	913		729	817
RSUs
Earning per share reconciliation
Weighted-average effect of dilutive securities	211		193	246

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Estimated Future Amortization Expense (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Remainder of 2013	$ 2,773
2014	9,489
2015	8,688
2016	8,688
2017	8,688
2018 & thereafter	11,584
Future estimated amortization expense, total	$ 49,910

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Cash Equivalents and Marketable Securities at Fair Value (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	$ 3,070	$ 2,873
Total marketable securities	79,618	45,460
Quoted Prices In Active Markets For Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	3,070	2,873
Total marketable securities	43,112	26,900
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total marketable securities	36,506	18,560
Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total marketable securities	47,357	30,526
Municipal bonds | Quoted Prices In Active Markets For Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total marketable securities	13,289	11,966
Municipal bonds | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total marketable securities	34,068	18,560
Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total marketable securities	29,823	14,934
Corporate bonds | Quoted Prices In Active Markets For Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total marketable securities	29,823	14,934
Certificates of Deposit
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total marketable securities	2,438
Certificates of Deposit | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total marketable securities	$ 2,438

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Unbilled Trade Accounts Receivable (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	$ 91,355	$ 135,029
Allowance for sales credit memos	(772)	(963)
Total accounts receivable net	90,583	134,066
Trade accounts receivable
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	58,037	112,106
Unbilled trade accounts receivable
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	$ 33,318	$ 22,923

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Accrued Expenses

9 Months Ended

Sep. 30, 2013

Accrued Expenses

7.  ACCRUED EXPENSES

(in thousands)	September 30, 2013		December 31, 2012
Partner commissions	$	4,349	$	1,723
Other taxes		3,120		2,711
Employee reimbursable expenses		2,255		879
Dividends payable		1,140		—
Professional services contractor fees		1,660		602
Self-insurance health and dental claims		977		1,707
Professional fees		930		811
Short-term deferred rent		783		1,111
Foreign income taxes payable		649		1,167
Acquisition-related costs		482		—
Restructuring		113		441
Other		4,283		4,382
	$	20,741	$	15,534

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Schedule of Marketable Securities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 79,543	$ 45,341
Unrealized Gains	117	131
Unrealized Losses	(42)	(12)
Fair Value	79,618	45,460
Municipal bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	47,325	30,488
Unrealized Gains	60	48
Unrealized Losses	(28)	(10)
Fair Value	47,357	30,526
Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	29,776	14,853
Unrealized Gains	56	83
Unrealized Losses	(9)	(2)
Fair Value	29,823	14,934
Certificates of Deposit
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,442
Unrealized Gains	1
Unrealized Losses	(5)
Fair Value	$ 2,438

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Stock Based Compensation Expense Included in Consolidated Statements of Operations (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 3,000	$ 2,784	$ 9,713	$ 8,622
Income tax benefit	(893)	(915)	(2,941)	(2,781)
Cost of Services
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	947	849	3,134	2,710
Operating Expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 2,053	$ 1,935	$ 6,579	$ 5,912

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Earnings Per Share

9 Months Ended

Sep. 30, 2013

Earnings Per Share

10.   EARNINGS PER SHARE

Basic earnings per share is computed using the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding during the applicable period, plus the dilutive effect of outstanding options, RSUs, and warrants, using the treasury stock method and the average market price of the Company’s common stock during the applicable period. Certain shares related to some of the Company’s outstanding stock options and RSUs were excluded from the computation of diluted earnings per share because they were antidilutive in the periods presented, but could be dilutive in the future.

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2013		2012		2013		2012
Basic
Net income (loss)	$	8,710	$	(331)	$	22,482	$	1,459
Weighted-average common shares outstanding		37,955		37,881		37,950		37,834
Earnings (loss) per share, basic	$	0.23	$	(0.01)	$	0.59	$	0.04
Diluted
Net income (loss)	$	8,710	$	(331)	$	22,482	$	1,459
Weighted-average common shares outstanding, basic		37,955		37,881		37,950		37,834
Weighted-average effect of dilutive securities:
Stock options and warrants		913		—		729		817
RSUs		211		—		193		246
Effect of assumed exercise of stock options, warrants and RSUs		1,124		—		922		1,063
Weighted-average common shares outstanding, diluted		39,079		37,881		38,872		38,897
Earnings (loss) per share, diluted	$	0.22	$	(0.01)	$	0.58	$	0.04
Outstanding options and RSUs excluded as impact would be antidilutive		33		1,865		146		55

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2013

Goodwill and Other Intangible Assets

6.   GOODWILL AND OTHER INTANGIBLE ASSETS

There were no changes in the carrying amount of goodwill during the first nine months of 2013.

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

(in thousands)	Range of Useful Lives		Cost		Accumulated     Amortization		Net Book     Value
As of September 30, 2013
Customer related intangibles		9 years	$	44,355	$	(16,838)	$	27,517
Technology		4-9 years		43,446		(21,053)		22,393
Other intangibles		1-5 years		2,238		(2,238)		—
Total			$	90,039	$	(40,129)	$	49,910
			Cost		Accumulated Amortization		Net Book Value
As of December 31, 2012
Customer related intangibles		9 years	$	44,355	$	(13,142)	$	31,213
Technology		4-9 years		43,446		(16,431)		27,015
Other intangibles		1-5 years		2,238		(2,234)		4
Total			$	90,039	$	(31,807)	$	58,232

For the third quarter and first nine months of 2013 and 2012, amortization of intangibles was reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2013		2012		2013		2012
Cost of software license	$	1,540	$	1,541	$	4,622	$	4,649
Selling and marketing		1,232		1,232		3,696		3,696
General and administrative		—		5		4		15
Total amortization expense	$	2,772	$	2,778	$	8,322	$	8,360

Amortization of intangibles is estimated to be recorded over their remaining useful lives as follows:

(in thousands) September 30, 2013	Future estimated amortization expense
Remainder of 2013	$	2,773
2014		9,489
2015		8,688
2016		8,688
2017		8,688
2018 & thereafter		11,584
	$	49,910

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Acounting Policies

9 Months Ended

Sep. 30, 2013

Acounting Policies

1.       ACCOUNTING POLICIES

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 of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and 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, 2012.

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. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2013.

Acquisition-related costs

Acquisition-related costs are expensed as incurred and include costs to affect an impending or completed acquisition and direct and incremental costs associated with an acquisition. During the third quarter of 2013, acquisition-related costs of $0.5 million were primarily legal and advisory fees and due diligence costs associated with the Company’s acquisition of Antenna Software, Inc. (“Antenna”). See Note 12 “Subsequent Event”.

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Trade Receivables of Major Clients (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended			3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Sep. 30, 2013 Client A	Sep. 30, 2013 Client A	Dec. 31, 2012 Client A
Revenue, Major Customer [Line Items]
Total revenue	$ 122,011	$ 101,657	$ 355,572	$ 317,880
Major clients percentage of total revenue						10.00%
Trade receivables, net of allowance	$ 90,583		$ 90,583		$ 134,066
Major clients percentage of trade receivables							13.00%	10.00%

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Forward Contracts with Notional Values (Detail) (Forward Contracts) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended
	Sep. 30, 2013 Euro EUR (€)	Sep. 30, 2012 Euro EUR (€)	Sep. 30, 2013 Euro EUR (€)	Sep. 30, 2012 Euro EUR (€)	Sep. 30, 2013 British pound GBP (£)	Sep. 30, 2012 British pound GBP (£)	Sep. 30, 2013 British pound GBP (£)	Sep. 30, 2012 British pound GBP (£)	Sep. 30, 2013 Australian Dollar AUD	Sep. 30, 2013 Australian Dollar AUD	Sep. 30, 2013 Indian Rupees INR	Sep. 30, 2013 Indian Rupees INR
Derivative [Line Items]
Notional amount	€ 28,500	€ 21,700	€ 61,000	€ 48,900	£ 26,000	£ 16,000	£ 59,500	£ 39,000	15,500	15,500	460,000	460,000

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Marketable Securities (Tables)

9 Months Ended

Sep. 30, 2013

Schedule of Available for Sale Securities Reconciliation

(in thousands)	September 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Municipal bonds	$	47,325		60		(28)	$	47,357
Corporate bonds		29,776		56		(9)		29,823
Certificates of deposit		2,442		1		(5)		2,438
	$	79,543		117		(42)	$	79,618
(in thousands)	December 31, 2012
	Amortized Cost		Unrealized     Gains		Unrealized     Losses		Fair Value
Municipal bonds	$	30,488		48		(10)	$	30,526
Corporate bonds		14,853		83		(2)		14,934
	$	45,341		131		(12)	$	45,460

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2013

Stock-Based Compensation

9.   STOCK-BASED COMPENSATION

For the third quarter and first nine months of 2013 and 2012, stock-based compensation expense was reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended             September 30,				Nine Months Ended         September 30,
(in thousands)	2013		2012		2013		2012
Cost of services	$	947	$	849	$	3,134	$	2,710
Operating expenses		2,053		1,935		6,579		5,912
Total stock-based compensation before tax	$	3,000	$	2,784	$	9,713	$	8,622
Income tax benefit		(893)		(915)		(2,941)		(2,781)

During the first nine months of 2013, the Company issued approximately 344,000 shares to its employees and 14,000 shares to its non-employee directors under the Company’s share-based compensation plans.

During the first nine months of 2013, the Company granted approximately 114,000 restricted stock units (“RSUs”) with a total fair value of approximately $3.3 million. Approximately 59,000 RSUs were issued in connection with the election by employees to receive 50% of their 2013 target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash. Stock-based compensation of approximately $1.7 million associated with this RSU grant will be recognized over a one-year period beginning on the grant date.

As of September 30, 2013, the Company had approximately $12.2 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to all unvested RSUs and unvested stock options that is expected to be recognized over a weighted-average period of 2.1 years.

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Trade Accounts Receivable, Net of Allowance (Tables)

9 Months Ended

Sep. 30, 2013

Schedule of Unbilled Trade Accounts Receivable

(in thousands)	September 30,     2013		December 31,     2012
Trade accounts receivable	$	58,037	$	112,106
Unbilled trade accounts receivable		33,318		22,923
Total accounts receivable		91,355		135,029
Allowance for sales credit memos		(772)		(963)
	$	90,583	$	134,066

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Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2013

Forward Contracts with Notional Values

During the third quarter and first nine months of 2013 and 2012, the Company entered into forward contracts with notional values as follows:

	Notional Amount
	Three Months Ended September 30,				Nine Months Ended September 30,
Foreign currency (in thousands)	2013		2012		2013		2012
Euro	€	28,500	€	21,700	€	61,000		€	48,900
British pound	£	26,000	£	16,000	£	59,500		£	39,000
Australian dollar	A$	15,500	A$	—	A$	15,500		A$	—
Indian rupee	Rs	460,000	Rs	—	Rs	460,000		Rs	—

Change in Fair Value of Forward Contracts Recorded in Other Expense, Net

During the third quarter and first nine months of 2013 and 2012, the total change in the fair value of the Company’s forward contracts recorded in other expense, net, was as follows:

	Change in Fair Value in USD
	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2013		2012		2013		2012
Loss included in other expense, net	$	(1,173)	$	(926)	$	(430)	$	(1,522)

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Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 01, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Trading Symbol	PEGA
Entity Registrant Name	PEGASYSTEMS INC
Entity Central Index Key	0001013857
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		37,961,290

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Cash Equivalents and Marketable Securities at Fair Value

The fair value hierarchy of the Company’s cash equivalents and marketable securities at fair value is as follows:

			Fair Value Measurements at Reporting Date Using
(in thousands)	September 30,   2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Money market funds	$	3,070	$	3,070	$	—
Marketable securities:
Municipal bonds	$	47,357	$	13,289	$	34,068
Corporate bonds		29,823		29,823		—
Certificates of deposit		2,438		—		2,438
Total marketable securities	$	79,618	$	43,112	$	36,506
			Fair Value Measurements at Reporting Date Using
(in thousands)	December 31,   2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Money market funds	$	2,873	$	2,873	$	—
Marketable securities:
Municipal bonds	$	30,526	$	11,966	$	18,560
Corporate bonds		14,934		14,934		—
Total marketable securities	$	45,460	$	26,900	$	18,560