10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2017

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  ☒    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  ☒    No  ☐

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

There were 77,624,615 shares of the Registrant’s common stock, $.01 par value per share, outstanding on July 28, 2017.

PEGASYSTEMS INC.

Index to Form 10-Q

	Page
PART I—FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June  30, 2017 and December 31, 2016		3
Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016		4
Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016		5
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016		6
Notes to Unaudited Condensed Consolidated Financial Statements		7
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		26
Item 4. Controls and Procedures		26
PART II—OTHER INFORMATION
Item 1A. Risk Factors		26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 6. Exhibits		27
Signature		28

2

PART I—FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	June 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	121,626		$	70,594
Marketable securities		58,414			63,167
Total cash, cash equivalents, and marketable securities		180,040			133,761
Trade accounts receivable, net of allowance of $5,590 and $4,126		217,020			265,028
Income taxes receivable		22,081			14,155
Other current assets		18,505			12,188
Total current assets		437,646			425,132
Property and equipment, net		38,881			38,281
Deferred income taxes		71,096			69,898
Long-term other assets		4,615			3,990
Intangible assets, net		37,844			44,191
Goodwill		72,890			73,164
Total assets	$	662,972		$	654,656
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	13,500		$	14,414
Accrued expenses		38,237			36,751
Accrued compensation and related expenses		44,287			60,660
Deferred revenue		169,926			175,647
Total current liabilities		265,950			287,472
Income taxes payable		4,438			4,263
Long-term deferred revenue		8,431			10,989
Other long-term liabilities		15,518			16,043
Total liabilities		294,337			318,767
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; no shares issued and outstanding		—			—
Common stock, 200,000 shares authorized; 77,604 shares and 76,591 shares issued and outstanding		776			766
Additional paid-in capital		140,088			143,903
Retained earnings		232,100			198,315
Accumulated other comprehensive loss		(4,329	)		(7,095	)
Total stockholders’ equity		368,635			335,889
Total liabilities and stockholders’ equity	$	662,972		$	654,656

See notes to unaudited condensed consolidated financial statements.

3

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenue:
Software license	$	61,037		$	70,671		$	153,427		$	139,016
Maintenance		59,590			55,161			118,555			108,136
Services		77,353			63,164			149,245			120,702
Total revenue		197,980			188,996			421,227			367,854
Cost of revenue:
Software license		1,250			1,312			2,550			2,333
Maintenance		7,011			6,315			14,229			12,230
Services		59,614			52,473			119,186			102,047
Total cost of revenue		67,875			60,100			135,965			116,610
Gross profit		130,105			128,896			285,262			251,244
Operating expenses:
Selling and marketing		75,887			74,016			147,175			135,094
Research and development		39,762			35,574			80,058			70,494
General and administrative		12,706			11,294			25,041			22,342
Acquisition-related		—			1,623			—			2,542
Restructuring		—			29			—			287
Total operating expenses		128,355			122,536			252,274			230,759
Income from operations		1,750			6,360			32,988			20,485
Foreign currency transaction (loss) gain		(917	)		306			(241	)		1,682
Interest income, net		161			188			326			478
Other income (expense), net		566			(1,356	)		287			(3,654	)
Income before (benefit)/provision for income taxes		1,560			5,498			33,360			18,991
(Benefit)/provision for income taxes		(9,846	)		962			(5,067	)		4,055
Net income	$	11,406		$	4,536		$	38,427		$	14,936
Earnings per share:
Basic		0.15			0.06			0.50			0.20
Diluted		0.14			0.06			0.47			0.19
Weighted-average number of common shares outstanding:
Basic		77,313			76,318			77,039			76,347
Diluted		82,945			79,422			82,412			79,329
Cash dividends declared per share	$	0.03		$	0.03		$	0.06		$	0.06

See notes to unaudited condensed consolidated financial statements.

4

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017		2016
Net income	$	11,406		$	4,536		$	38,427	$	14,936
Other comprehensive income (loss), net of tax
Unrealized (loss) gain on available-for-sale marketable securities, net of tax		(1	)		56			126		342
Foreign currency translation adjustments		1,859			(1,224	)		2,640		(1,231	)
Total other comprehensive income (loss), net of tax		1,858			(1,168	)		2,766		(889	)
Comprehensive income	$	13,264		$	3,368		$	41,193	$	14,047

See notes to unaudited condensed consolidated financial statements.

5

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2017			2016
Operating activities:
Net income	$	38,427		$	14,936
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income taxes		(465	)		(1,190	)
Depreciation and amortization		12,356			11,675
Stock-based compensation expense		26,440			19,816
Foreign currency transaction loss (gain)		241			(1,682	)
Other non-cash		(408	)		4,576
Change in operating assets and liabilities:
Trade accounts receivable		52,966			10,853
Income taxes receivable and other current assets		(14,294	)		(18,349	)
Accounts payable and accrued expenses		(17,734	)		(19,259	)
Deferred revenue		(11,890	)		(11,222	)
Other long-term assets and liabilities		130			1,415
Cash provided by operating activities		85,769			11,569
Investing activities:
Purchases of marketable securities		(16,656	)		(20,942	)
Proceeds from maturities and called marketable securities		20,824			21,139
Sales of marketable securities		—			52,483
Payments for acquisitions, net of cash acquired		(290	)		(49,113	)
Investment in property and equipment		(5,037	)		(11,497	)
Cash used in investing activities		(1,159	)		(7,930	)
Financing activities:
Dividend payments to shareholders		(4,613	)		(4,592	)
Common stock repurchases for tax withholdings for net settlement of equity awards		(27,261	)		(7,849	)
Common stock repurchases under share repurchase programs		(2,986	)		(19,225	)
Cash used in financing activities		(34,860	)		(31,666	)
Effect of exchange rates on cash and cash equivalents		1,282			(738	)
Net increase (decrease) in cash and cash equivalents		51,032			(28,765	)
Cash and cash equivalents, beginning of period		70,594			93,026
Cash and cash equivalents, end of period	$	121,626		$	64,261

See notes to unaudited condensed consolidated financial statements.

6

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all 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, 2016.

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 2017.

2. NEW ACCOUNTING PRONOUNCEMENTS

Stock-Based Compensation

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09 “Stock Compensation (Topic 718), Scope of Modification Accounting” to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The effective date for the Company will be January 1, 2018. The Company does not expect the adoption of this standard to have a material effect on its financial position or results of operations.

Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including trade accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model for credit losses. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of “other-than-temporary” impairments. The effective date for the Company will be January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and related disclosures.

Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to record most leases on their balance sheets, recognizing a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The effective date for the Company will be January 1, 2019, with early adoption permitted. The Company expects that most of its operating lease commitments will be subject to this ASU and recognized as operating lease liabilities and right-of-use assets upon adoption with no material impact to its results of operations and cash flows.

Revenue

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU amends the guidance for revenue recognition, creating the new Accounting Standards Codification Topic 606 (“ASC 606”). ASC 606 requires entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for the good or service. In addition, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company has elected the full retrospective adoption model, effective January 1, 2018. The Company’s quarterly results beginning with the quarter ending March 31, 2018 and comparative prior periods will be compliant with ASC 606. The Company’s Annual Report on Form 10-K for the year ended December 31, 2018 will be the Company’s first Annual Report that will be issued in compliance with ASC 606.

7

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company is still in the process of quantifying the implications of the adoption of ASC 606. However the Company expects the following impacts:

• Currently, the Company recognizes revenue from term licenses and perpetual licenses with extended payment terms over the term of the agreement as payments become due or earlier if prepaid, provided all other criteria for revenue recognition have been met, and any corresponding maintenance over the term of the agreement. The adoption of ASC 606 will result in revenue for performance obligations being recognized as they are satisfied. Therefore, revenue from the term and perpetual license performance obligations with extended payment terms is recognized when control is transferred to the customer. Revenue from the maintenance performance obligations is expected to be recognized on a straight-line basis over the contractual term. Due to the revenue from term and perpetual licenses with extended payment terms being recognized prior to amounts being billed to the customer, the Company expects to recognize a net contract asset on the balance sheet.

• Currently, the Company allocates revenue to licenses under the residual method when it has VSOE for the remaining undelivered elements which allocates any future credits or significant discounts entirely to the license. The adoption of ASC 606 will result in the future credits, significant discounts, and material rights under ASC 606, being allocated to all performance obligations based upon their relative selling price. Under ASC 606, additional license revenue from the reallocation of such arrangement considerations will be recognized when control is transferred to the customer.

• Currently, the Company does not have VSOE for fixed price services, time and materials services in certain geographical areas, and unspecified future products, which results in revenue being deferred in such instances until such time as VSOE exists for all undelivered elements or recognized ratably over the longest performance period. The adoption of ASC 606 eliminates the requirement for VSOE and replaces it with the concept of a stand-alone selling price. Once the transaction price is allocated to each of the performance obligations, the Company can recognize revenue as the performance obligations are delivered, either at a point in time or over time. Under ASC 606, license revenue will be recognized when control is transferred to the customer.

• Sales commissions and other third party acquisition costs resulting directly from securing contracts with customers are currently expensed when incurred. ASC 606 will require these costs to be recognized as an asset when incurred and to be expensed over the associated contract term. As a practical expedient, if the term of the contract is one year or less, the Company will expense the costs resulting directly from securing the contracts with customers as incurred. The Company expects this change to impact its multi-year cloud offerings and term and perpetual licenses with additional rights of use that extend beyond one year.

• ASC 606 provides additional accounting guidance for contract modifications whereby changes must be accounted for either as a retrospective change (creating either a catch up or deferral of past revenues), prospectively with a reallocation of revenues amongst identified performance obligations, or prospectively as separate contracts which will not require any reallocation. This may result in a difference in the timing of the recognition of revenue as compared to how current contract modifications are recognized.

• There will be a corresponding effect on tax liabilities in relation to all of the above impacts.

3. MARKETABLE SECURITIES

The Company’s marketable securities are as follows:

	June 30, 2017
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Municipal bonds	$	32,238	$	11	$	(30	)	$	32,219
Corporate bonds		26,234		3		(42	)		26,195
	$	58,472	$	14	$	(72	)	$	58,414

	December 31, 2016
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Municipal bonds	$	36,746	$	—	$	(139	)	$	36,607
Corporate bonds		26,610		1		(51	)		26,560
	$	63,356	$	1	$	(190	)	$	63,167

8

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of June 30, 2017, the Company did not hold any investments with unrealized losses that are considered to be other-than-temporary.

As of June 30, 2017, remaining maturities of marketable debt securities ranged from July 2017 to September 2020, with a weighted-average remaining maturity of approximately 15 months.

4. DERIVATIVE INSTRUMENTS

The Company has historically used foreign currency forward contracts (“forward contracts”) to hedge its exposure to fluctuations in foreign currency exchange rates associated with its foreign currency denominated cash, accounts receivable, and intercompany receivables and payables held primarily by the U.S. parent company and its United Kingdom (“U.K.”) subsidiary.

The Company is primarily exposed to foreign currency exchange rate fluctuations in the Euro relative to the U.S. dollar for the U.S. parent and in the U.S. dollar, the Euro, and the Australian dollar relative to the British pound for the Company’s U.K. subsidiary. The forward contracts are not designated as hedging instruments. As a result, the Company records the fair value of these contracts at the end of each reporting period in the accompanying unaudited condensed consolidated balance sheets 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 the accompanying unaudited condensed consolidated statements of operations. The cash flows related to these forward contracts are classified as operating activities in the accompanying unaudited condensed consolidated statements of cash flows. The Company does not enter into any forward contracts for trading or speculative purposes.

In May 2017, the Company discontinued its forward contracts program, however, it will continue to periodically evaluate its foreign exchange exposures and may re-initiate this program if it is deemed necessary. At December 31, 2016, the total notional value of the Company’s outstanding forward contracts was $128.4 million.

The fair value of the Company’s outstanding forward contracts was as follows:

	December 31, 2016
(in thousands)	Recorded In:	Fair Value
Asset Derivatives
Foreign currency forward contracts	Other current assets	$	628
Liability Derivatives
Foreign currency forward contracts	Accrued expenses	$	883

As of June 30, 2017, the Company did not have any forward contracts outstanding.

The Company had forward contracts outstanding with total notional values as of June 30, 2016 as follows:

(in thousands)
Euro	€	24,735
British pound	£	7,885
Australian dollar	A$	25,830
Indian rupee	Rs	353,500
United States dollar	$	93,460

The income statement impact of the Company’s outstanding forward contracts and foreign currency transactions was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2017			2016
Gain (loss) from the change in the fair value of forward contracts included in other income (expense), net	$	565		$	(1,421	)	$	286		$	(3,718	)
Foreign currency transaction (loss) gain from the remeasurement of foreign currency assets and liabilities	$	(917	)	$	306		$	(241	)	$	1,682
	$	(352	)	$	(1,115	)	$	45		$	(2,036	)

9

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company records its money market funds, marketable securities, and forward contracts at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability. As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows: (Level 1) observable inputs such as quoted prices in active markets for identical assets or liabilities; (Level 2) significant other inputs that are observable either directly or indirectly; and (Level 3) significant unobservable inputs on which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The Company’s money market funds are classified within Level 1 of the fair value hierarchy. The Company’s marketable securities classified within Level 2 of the fair value hierarchy are valued based on a market approach using quoted prices, when available, or matrix pricing compiled by third party pricing vendors, using observable market inputs such as interest rates, yield curves, and credit risk. The Company’s foreign currency forward contracts, which were all classified within Level 2 of the fair value hierarchy, are valued based on the notional amounts and rates under the contracts and observable market inputs such as currency exchange rates and credit risk. If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2017.

The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following:

			Fair Value Measurements at Reporting Date Using
(in thousands)	June 30, 2017		Level 1		Level 2
Fair Value Assets:
Money market funds	$	5,633	$	5,633	$	—
Marketable securities:
Municipal bonds	$	32,219	$	—	$	32,219
Corporate bonds		26,195		—		26,195
Total marketable securities	$	58,414	$	—	$	58,414
			Fair Value Measurements at Reporting Date Using
(in thousands)	December 31, 2016		Level 1		Level 2
Fair Value Assets:
Money market funds	$	458	$	458	$	—
Marketable securities:
Municipal bonds	$	36,607	$	—	$	36,607
Corporate bonds		26,560		—		26,560
Total marketable securities	$	63,167	$	—	$	63,167
Foreign currency forward contracts	$	628	$	—	$	628
Fair Value Liabilities:
Foreign currency forward contracts	$	883	$	—	$	883

10

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

For certain other financial instruments, including accounts receivable and accounts payable, the carrying value approximates their fair value due to the relatively short maturity of these items.

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 six months ended June 30, 2017 and 2016, the Company did not recognize any impairments of its assets recorded at fair value on a nonrecurring basis.

6. TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

(in thousands)	June 30, 2017			December 31, 2016
Trade accounts receivable	$	188,304		$	234,473
Unbilled trade accounts receivable		34,306			34,681
Total accounts receivable		222,610			269,154
Allowance for sales credit memos		(5,590	)		(4,126	)
	$	217,020		$	265,028

Unbilled trade accounts receivable primarily relate to services earned under time and materials arrangements and to license, maintenance, and cloud arrangements that have commenced or been delivered in excess of scheduled invoicing.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill are:

(in thousands)	2017
Balance as of January 1,	$	73,164
Purchase price adjustments to goodwill		(354	)
Currency translation adjustments		80
Balance as of June 30,	$	72,890

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

(in thousands)	Range of Remaining Useful Lives		Cost		Accumulated Amortization			Net Book Value
June 30, 2017
Customer related intangibles		4-10 years	$	63,132	$	(41,322	)	$	21,810
Technology		3-10 years		58,942		(42,908	)		16,034
Other intangibles		—		5,361		(5,361	)		—
			$	127,435	$	(89,591	)	$	37,844
December 31, 2016
Customer related intangibles		4-10 years	$	63,091	$	(37,573	)	$	25,518
Technology		3-10 years		58,942		(40,269	)		18,673
Other intangibles		—		5,361		(5,361	)		—
			$	127,394	$	(83,203	)	$	44,191

11

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Amortization expense of intangibles assets is reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2017		2016		2017		2016
Cost of revenue	$	1,305	$	1,638	$	2,639	$	2,984
Operating expenses		1,869		1,966		3,735		3,585
Total amortization expense	$	3,174	$	3,604	$	6,374	$	6,569

Future estimated amortization expense related to intangible assets as of June 30, 2017 is as follows:

(in thousands)
Remainder of 2017	$	5,953
2018		11,343
2019		5,551
2020		2,655
2021		2,631
2022 and thereafter		9,711
	$	37,844

8. ACCRUED EXPENSES

(in thousands)	June 30, 2017		December 31, 2016
Professional services contractor fees	$	7,125	$	6,550
Other taxes		5,338		9,031
Marketing and sales program expenses		5,188		1,508
Professional fees		3,276		3,654
Other		3,084		2,411
Self-insurance health and dental claims		2,523		2,182
Fixed assets in progress		2,417		855
Dividends payable		2,328		2,298
Employee reimbursable expenses		2,120		1,624
Short-term deferred rent		1,954		1,770
Partner commissions		1,748		2,199
Income taxes payable		1,038		1,391
Restructuring		98		105
Acquisition-related expenses and merger consideration		—		290
Foreign currency forward contracts		—		883
	$	38,237	$	36,751

12

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. DEFERRED REVENUE

(in thousands)	June 30, 2017		December 31, 2016
Term license	$	6,294	$	15,843
Perpetual license		24,709		23,189
Maintenance		111,759		112,397
Cloud		17,677		13,604
Services		9,487		10,614
Current deferred revenue		169,926		175,647
Term license		—		—
Perpetual license		5,833		7,909
Maintenance		1,465		1,802
Cloud		1,133		1,278
Long-term deferred revenue		8,431		10,989
	$	178,357	$	186,636

10. STOCK-BASED COMPENSATION

Stock-based compensation expense is reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2017			2016
Cost of revenues	$	3,677		$	2,914		$	7,299		$	5,594
Operating expenses	$	10,255		$	7,967		$	19,141		$	14,222
Total stock-based compensation before tax	$	13,932		$	10,881		$	26,440		$	19,816
Income tax benefit	$	(4,287	)	$	(3,085	)	$	(8,102	)	$	(5,690	)

During the six months ended June 30, 2017, the Company issued approximately 1,068,000 shares of common stock to its employees and 13,000 shares of common stock to its non-employee directors under the Company’s stock-based compensation plans.

During the six months ended June 30, 2017, the Company granted approximately 954,000 restricted stock units (“RSUs”) and 1,441,000 non-qualified stock options to its employees with total fair values of approximately $41.9 million and $19.2 million, respectively. This includes approximately 175,000 RSUs which were granted in connection with the election by employees to receive 50% of their 2017 target incentive compensation under the Company’s Corporate Incentive Compensation Plan in the form of RSUs instead of cash. Stock-based compensation of approximately $7.7 million associated with this RSU grant will be recognized over a one-year period beginning on the grant date.

The Company recognizes stock based compensation on the accelerated recognition method, treating each vesting tranche as if it were an individual grant. As of June 30, 2017, the Company had approximately $64.7 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.

13

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. 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 and RSUs, using the treasury stock method. 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 anti-dilutive in the periods presented, but could be dilutive in the future.

The calculation of the Company’s basic and diluted earnings per share is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2017		2016		2017		2016
Basic
Net income	$	11,406	$	4,536	$	38,427	$	14,936
Weighted-average common shares outstanding		77,313		76,318		77,039		76,347
Earnings per share, basic	$	0.15	$	0.06	$	0.50	$	0.20
Diluted
Net income	$	11,406	$	4,536	$	38,427	$	14,936
Weighted-average effect of dilutive securities:
Stock options		3,694		1,924		3,439		1,808
RSUs		1,938		1,180		1,934		1,174
Effect of assumed exercise of stock options and RSUs		5,632		3,104		5,373		2,982
Weighted-average common shares outstanding, assuming dilution		82,945		79,422		82,412		79,329
Earnings per share, diluted	$	0.14	$	0.06	$	0.47	$	0.19
Outstanding stock options and RSUs excluded as impact would be anti-dilutive		237		315		276		404

12. GEOGRAPHIC INFORMATION AND MAJOR CLIENTS

Geographic Information

Operating segments are defined as components of an enterprise, about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.

The Company develops and licenses software applications for customer engagement and its Pega^® Platform, and provides consulting services, maintenance, and training related to its offerings. The Company derives substantially all of its revenue from the sale and support of one group of similar products and services—software that provides case management, business process management, and real-time decisioning solutions to improve customer engagement and operational excellence in the enterprise applications market. To assess performance, the Company’s CODM, who is the chief executive officer, reviews financial information on a consolidated basis. Therefore, the Company determined it has one reportable segment—Customer Engagement Solutions and one reporting unit.

14

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2017				2016				2017				2016
U.S.	$	118,447	60	%	$	103,547	55	%	$	256,056	60	%	$	196,775	53	%
Other Americas		12,086	6	%		15,983	8	%		21,577	5	%		41,542	12	%
U.K.		19,228	10	%		31,336	17	%		49,418	12	%		55,691	15	%
Other EMEA(1)		27,395	13	%		22,391	12	%		49,241	12	%		43,658	12	%
Asia Pacific		20,824	11	%		15,739	8	%		44,935	11	%		30,188	8	%
	$	197,980	100	%	$	188,996	100	%	$	421,227	100	%	$	367,854	100	%

⁽¹⁾  Includes Europe, the Middle East and Africa, but excludes the United Kingdom.

Major Clients

No client accounted for 10% or more of the Company’s total revenue during the three and six months ended June 30, 2017 or 2016.

No client accounted for 10% or more of the Company’s total outstanding trade receivables as of June 30, 2017 or December 31, 2016.

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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 revenue recognition under existing license and cloud arrangements and are described more completely in Part I of our Annual Report on Form 10-K for the year ended December 31, 2016. 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,” “strategy,” “is intended to,” “project,” “guidance,” “likely,” “usually,” 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 materially from those expressed in such forward-looking statements 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 consolidation in the financial services, insurance, healthcare, and communications markets; reliance on third party relationships; the potential loss of vendor specific objective evidence for our consulting services; the inherent risks associated with international operations and the continued uncertainties in international economies; foreign currency exchange rates; the financial impact of the Company’s past acquisitions and any future acquisitions; the potential legal and financial liabilities and reputation damage due to cyber-attacks and security breaches; and management of the Company’s growth. These risks, and other factors that could cause actual results to differ materially from those expressed in such forward-looking statements, are described more completely in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016. We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks. New information, future events or risks may cause the forward-looking events we discuss in this report not to occur or to materially change.

Business overview

We develop, market, license, and support software applications for marketing, sales, service, and operations. In addition, we license our Pega^® Platform for clients that wish to build and extend their own applications. The Pega Platform assists our clients in building, deploying, and evolving enterprise applications, creating an environment in which business and IT can collaborate to manage back office operations, front office sales, marketing, and/or customer service needs. We also provide consulting services, maintenance, and training for our software. Our software applications and Pega Platform can be deployed on Pega, partner, or customer-managed cloud architectures.

Our clients include Global 3000 companies and government agencies that seek to manage complex enterprise systems and customer service issues with greater agility and cost-effectiveness. Our strategy is to sell a client a series of licenses, each focused on a specific purpose or area of operations in support of longer term enterprise-wide digital transformation initiatives.

Our license revenue is primarily derived from sales of our applications and our Pega Platform. Our cloud revenue is derived from the licensing of our hosted Pega Platform and software application environments. Our consulting services revenue is primarily related to new license implementations.

Financial and Performance Metrics

To provide additional insight into how management evaluates our financial performance, we have used a number of performance metrics to supplement our selected financial metrics. These performance metrics are periodically revisited to reflect any changes in our business. Historically, Recurring Revenue and License and Cloud Backlog have been our primary performance metrics. However, due to the change in the revenue recognition patterns of term license arrangements as a result of the expected implementation of the new revenue accounting standard (ASC 606 “Revenue from Contracts with Customers”) in the first quarter of 2018, we have started tracking the performance measure Annualized Contract Value (“ACV”). The change in ACV measures the growth and predictability of future cash flows from committed term license, cloud, and maintenance arrangements as of the end of the particular reporting period. Additional information about our future adoption of the new revenue standard and its impact can be found in Note 2. “New Accounting Pronouncements” contained elsewhere in this Quarterly Report on Form 10-Q.

16

Selected Financial Metrics

(Dollars in thousands, except per share amounts)	Three Months Ended June 30,						Change				Six Months Ended June 30,
	2017			2016							2017			2016			Change
Total revenue		197,980			188,996			8,984	5	%		421,227			367,854			53,373	15	%
Operating margin		1	%		3	%						8	%		6	%
Diluted earnings per share		0.14			0.06			0.08	133	%	$	0.47		$	0.19		$	0.28	147	%
Cash flow provided by operating activities												85,769			11,569			74,200	641	%

Recurring Revenue

A measure of the predictability and repeatability of our revenue.

	Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	2017			2016			Change				2017			2016			Change
Recurring revenue:
Term license		30,782			18,864							84,492			73,196
Maintenance		59,590			55,161							118,555			108,136
Cloud		12,733			11,269							23,560			19,767
Total recurring revenue		103,105			85,294		$	17,811	21	%		226,607			201,099		$	25,508	13	%
Recurring revenue as a percent of total revenue		52	%		45	%						54	%		55	%

The increase in recurring revenue was primarily driven by increased term license revenue recognized from term backlog and a large term license renewal for which the first year of the term was prepaid and recognized as revenue in the three months ended June 30, 2017. The increase in term revenue would have been greater if not for a large term deal greater than $10 million for which the license fee for the full license term was recognized in the first quarter of 2016.

License and Cloud Backlog

A measure of the continued growth of our business as a result of future contractual commitments by our clients.

It is computed by adding deferred license and cloud revenue recorded on the balance sheet (See Note 9 “Deferred Revenue”) and client license and cloud contractual commitments, which are not recorded on our balance sheet because we have not yet invoiced our clients, nor have we recognized the associated revenues (See “Future Cash Receipts from Committed License and Cloud Arrangements” which can be found in “Liquidity and Capital Resources” contained elsewhere in this Quarterly Report on Form 10-Q for additional information). License and cloud backlog may vary in any given period depending on the amount and timing of when the arrangements are executed, as well as the mix between perpetual, term, and cloud license arrangements, which may depend on our clients’ deployment preferences.

	June 30,
(Dollars in thousands)	2017				2016				Change
Deferred license and cloud revenue on the balance sheet:
Term license and cloud	$	25,104	45	%	$	19,021	37	%		32	%
Perpetual license		30,542	55	%		32,834	63	%		(7	)%
Total deferred license and cloud revenue		55,646	100	%		51,855	100	%		7	%
License and cloud contractual commitments not on the balance sheet:
Term license and cloud		422,414	91	%		309,338	91	%		37	%
Perpetual license		39,949	9	%		31,439	9	%		27	%
Total license and cloud commitments		462,363	100	%		340,777	100	%		36	%
Total license (term and perpetual) and cloud backlog	$	518,009			$	392,632				32	%
Total term license and cloud backlog		447,518	86	%		328,359	84	%		36	%

17

Annualized Contract Value (“ACV” )

The change in ACV measures the growth and predictability of future cash flows from committed term license, cloud, and maintenance arrangements as of the end of the particular reporting period.

ACV is the sum of the following two components:

• Term and Cloud contract value divided by the number of committed contract years

• Quarterly Maintenance revenue reported for the three months ended multiplied by 4.

Critical accounting policies

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

18

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, 2016. For more information regarding our critical accounting policies, we encourage you to read the discussion contained in Item 7 under the heading “Critical Accounting Estimates and Significant Judgments” 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, 2016.

Results of Operations

	Three Months Ended June 30,											Six Months Ended June 30,
(Dollars in thousands)	2017			2016			Change					2017			2016			Change
Total revenue	$	197,980		$	188,996		$	8,984		5	%	$	421,227		$	367,854		$	53,373	15	%
Gross profit	$	130,105		$	128,896		$	1,209		1	%	$	285,262		$	251,244		$	34,018	14	%
Total operating expenses	$	128,355		$	122,536		$	5,819		5	%	$	252,274		$	230,759		$	21,515	9	%
Income from operations	$	1,750		$	6,360		$	(4,610	)	(72	)%	$	32,988		$	20,485		$	12,503	61	%
Operating margin		1	%		3	%							8	%		6	%
Income before (benefit)/provision for income taxes	$	1,560		$	5,498		$	(3,938	)	(72	)%	$	33,360		$	18,991		$	14,369	76	%

Revenue

Software license revenue

	Three Months Ended June 30,													Six Months Ended June 30,
(Dollars in thousands)	2017				2016				Change					2017				2016				Change
Perpetual license	$	30,255	50	%	$	51,807	73	%	$	(21,552	)	(42	)%	$	68,935	45	%	$	65,820	47	%	$	3,115	5	%
Term license		30,782	50	%		18,864	27	%		11,918		63	%		84,492	55	%		73,196	53	%		11,296	15	%
Total license revenue	$	61,037	100	%	$	70,671	100	%	$	(9,634	)	(14	)%	$	153,427	100	%	$	139,016	100	%	$	14,411	10	%

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

The decrease in perpetual license revenue in the three months ended June 30, 2017 was primarily due to a lower percentage of perpetual arrangements executed and recognized in revenue in the current period and a decrease in the average value of perpetual arrangements executed. The increase in perpetual license revenue in the six months ended June 30, 2017 was primarily due to the higher value of perpetual arrangements executed and higher percentage of perpetual arrangements recognized in revenue during the three months ended March 31, 2017 compared to the three months ended March 31, 2016.

The increase in term license revenue in the three months ended June 30, 2017 was primarily due to an increase in revenue from term license backlog and a large term license renewal for which the first year of the term was prepaid and recognized as revenue in the three months ended June 30, 2017. The increase in term license revenue in the six months ended June 30, 2017 was primarily due to revenue from term license backlog and a term license renewal for which the first year of the term was prepaid and recognized as revenue in the three months ended June 30, 2017, partially offset by the effect of a large three year term license arrangement which was paid in advance and recognized in full in the three months ended March 31, 2016.

The aggregate value of future revenue expected to be recognized under all noncancellable perpetual licenses was $39.9 million as of June 30, 2017 compared to $31.4 million as of June 30, 2016. We expect to recognize $14.6 million of the $39.9 million as revenue during the remainder of 2017. The aggregate value of future revenue expected to be recognized under all noncancellable term and cloud licenses was $422.4 million as of June 30, 2017 compared to $309.3 million as of June 30, 2016. We expect to recognize $57.1 million of the $422.4 million as revenue during the remainder of 2017. See “Future Cash Receipts from Committed License and Cloud Arrangements” which can be found in “Liquidity and Capital Resources.”

19

Maintenance revenue

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2017		2016		Change				2017		2016		Change
Maintenance	$	59,590	$	55,161	$	4,429	8	%	$	118,555	$	108,136	$	10,419	10	%

The increases were primarily due to the continued growth in the aggregate value of the installed base of our software and continued strong renewal rates significantly in excess of 90%.

Services revenue

	Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in thousands)	2017				2016				Change				2017				2016				Change
Consulting services	$	62,660	81	%	$	50,258	79	%	$	12,402	25	%	$	121,912	82	%	$	97,434	81	%	$	24,478	25	%
Cloud		12,733	16	%		11,269	18	%		1,464	13	%		23,560	16	%		19,767	16	%		3,793	19	%
Training		1,960	3	%		1,637	3	%		323	20	%		3,773	2	%		3,501	3	%		272	8	%
Total services	$	77,353	100	%	$	63,164	100	%	$	14,189	22	%	$	149,245	100	%	$	120,702	100	%	$	28,543	24	%

Consulting services revenue is primarily generated from new license implementations. Our consulting services revenue may fluctuate in future periods depending on the mix of new implementation projects we perform as compared to those performed by our enabled clients or led by our partners.

The increases in consulting services revenue were primarily due to higher billable hours during the three and six months ended June 30, 2017 driven by a large project which began in the second half of 2016.

Cloud revenue represents revenue from our Pega Cloud offerings. The increases in cloud revenue were primarily due to continued growth of our cloud client base.

Gross profit

	Three Months Ended June 30,											Six Months Ended June 30,
(Dollars in thousands)	2017			2016			Change					2017			2016			Change
Software license	$	59,787		$	69,359		$	(9,572	)	(14	)%	$	150,877		$	136,683		$	14,194	10	%
Maintenance		52,579			48,846			3,733		8	%		104,326			95,906			8,420	9	%
Services		17,739			10,691			7,048		66	%		30,059			18,655			11,404	61	%
Total gross profit	$	130,105		$	128,896		$	1,209		1	%	$	285,262		$	251,244		$	34,018	14	%
Total gross profit %		66	%		68	%							68	%		68	%
Software license gross profit %		98	%		98	%							98	%		98	%
Maintenance gross profit %		88	%		89	%							88	%		89	%
Services gross profit %		23	%		17	%							20	%		15	%

The increase in total gross profit was primarily due to increased total revenue.

The increase in service gross profit percent was driven by a large project which began in the second half of 2016.

Operating expenses

Selling and marketing

	Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	2017			2016			Change				2017			2016			Change
Selling and marketing	$	75,887		$	74,016		$	1,871	3	%	$	147,175		$	135,094		$	12,081	9	%
As a percent of total revenue		38	%		39	%						35	%		37	%
Selling and marketing headcount at June 30												916			855			61	7	%

20

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 the three and six months ended June 30, 2017 was primarily due to increases in compensation and benefits of $3 million and $10.7 million, respectively, driven by increased head count and equity compensation partially offset by decreases in brand marketing program expenses of approximately $2.2 million in both periods.

The increase in headcount reflects our efforts to increase our sales capacity to target new accounts in existing industries, as well as to expand coverage in new industries and geographies and to increase the number of our sales opportunities.

Research and development

	Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	2017			2016			Change				2017			2016			Change
Research and development	$	39,762		$	35,574		$	4,188	12	%	$	80,058		$	70,494		$	9,564	14	%
As a percent of total revenue		20	%		19	%						19	%		19	%
Research and development headcount at June 30												1,455			1,374			81	6	%

Research and development expenses include compensation, benefits, contracted services, and other headcount-related expenses associated with the creation and development of our products, as well as enhancements and design changes to existing products and integration of acquired technologies.

The increases were due to higher compensation and benefits expense driven by increased head count and equity compensation.

General and administrative

	Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	2017			2016			Change				2017			2016			Change
General and administrative	$	12,706		$	11,294		$	1,412	13	%	$	25,041		$	22,342		$	2,699	12	%
As a percent of total revenue		6	%		6	%						6	%		6	%
General and administrative headcount at June 30												401			378			23	6	%

General and administrative expenses include compensation, benefits, and other headcount-related expenses associated with finance, legal, corporate governance, and other administrative headcount. They also include accounting, legal, and other professional consulting and administrative fees. The general and administrative headcount includes employees in human resources, information technology, and corporate services departments whose costs are partially allocated to other operating expense areas.

The increase in the three and six months ended June 30, 2017 was primarily due to increases in compensation and benefits of $1.4 million and $3.5 million, respectively, caused by increased head count and equity compensation, partially offset in six months ended June 30, 2017 by a decrease of $1.5 million in legal fees.

Stock-based compensation

	Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	2017			2016			Change				2017			2016			Change
Cost of revenues	$	3,677		$	2,914		$	763	26	%	$	7,299		$	5,594		$	1,705	30	%
Operating expenses		10,255			7,967			2,288	29	%		19,141			14,222			4,919	35	%
Total stock-based compensation before tax	$	13,932		$	10,881		$	3,051	28	%	$	26,440		$	19,816		$	6,624	33	%
Income tax benefit	$	(4,287	)	$	(3,085	)					$	(8,102	)	$	(5,690	)

The increases were primarily due to the increased value of our annual periodic equity awards granted in March 2016 and 2017. These awards generally have a five-year vesting schedule.

21

Amortization of intangibles

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands)	2017		2016		Change					2017		2016		Change
Cost of revenue	$	1,305	$	1,638	$	(333	)	(20	)%	$	2,639	$	2,984	$	(345	)	(12	)%
Operating expenses		1,869		1,966		(97	)	(5	)%		3,735		3,585		150		4	%
	$	3,174	$	3,604	$	(430	)	(12	)%	$	6,374	$	6,569	$	(195	)	(3	)%

The decrease in amortization of intangibles in the three and six months ended June 30, 2017 was due to the amortization in full of certain intangibles acquired through past acquisitions.

Non-operating income and expenses, net

	Three Months Ended June 30,											Six Months Ended June 30,
(Dollars in thousands)	2017			2016			Change					2017			2016			Change
Foreign currency transaction (loss) gain	$	(917	)	$	306		$	(1,223	)	(400	)%	$	(241	)	$	1,682		$	(1,923	)	(114	)%
Interest income, net		161			188		$	(27	)	(14	)%		326			478			(152	)	(32	)%
Other income (expense), net		566			(1,356	)	$	1,922		(142	)%		287			(3,654	)		3,941		(108	)%
Non-operating (loss) income	$	(190	)	$	(862	)	$	672		(78	)%	$	372		$	(1,494	)	$	1,866		(125	)%

In May 2017, we discontinued our forward contracts program, however, we will continue to evaluate periodically our foreign exchange exposures and may re-initiate this program if it is deemed necessary.

Historically, we have used foreign currency forward contracts (“forward contracts”) to hedge our exposure to fluctuations in foreign currency exchange rates associated with our foreign currency denominated cash, accounts receivable, and intercompany receivables and payables held by our U.S. parent company in currencies other than the U.S. dollar and by our U.K. subsidiary in currencies other than the British pound. These forward contracts were not designated as hedging instruments. 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 income (expense), net. See Note 4 “Derivative Instruments” of this Quarterly Report on Form 10-Q for discussion of our use of forward contracts.

The total change in the fair value of our foreign currency forward contracts recorded in other income (expense), net, during the three months ended June 30, 2017 and 2016 was a gain of $0.6 million and loss of $1.4 million, respectively. The total change in the fair value of our foreign currency forward contracts recorded in other income (expense), net, during the six months ended June 30, 2017 and 2016 was a gain of $0.3 million and a loss of $3.7 million.

(Benefit)/provision for income taxes

	Three Months Ended June 30,											Six Months Ended June 30,
(Dollars in thousands)	2017			2016			Change					2017			2016			Change
(Benefit)/provision for income taxes	$	(9,846	)	$	962		$	(10,808	)	(1,123	)%	$	(5,067	)	$	4,055		$	(9,122	)	(225	)%
Effective income tax rate		(631	)%		17	%							(15	)%		21	%

The (benefit)/provision for income taxes represents current and future amounts for federal, state, and foreign taxes.

The decrease in the effective income tax rate in the three months ended June 30, 2017 is primarily due to the significant increase of $10.2 million in excess tax benefits generated by our stock compensation plans on significantly lower income before (benefit)/provision for income taxes, which decreased by $3.9 million.

The decrease in the effective income tax rate in the six months ended June 30, 2017 is primarily due to the significant increase of $15.7 million in excess tax benefits generated by our stock compensation plans, partially offset by higher income before (benefit)/provision for income taxes, which increased $14.4 million.

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The inclusion of excess tax benefits as a component of the provision for income taxes may increase volatility in future effective tax rates as the amount of excess tax benefits from share-based compensation awards is dependent upon our future stock price in relation to the fair value of awards, the timing of RSU vesting and exercise behavior of our stock option holders, and future grants of share-based compensation awards.

Liquidity and capital resources

	Six Months Ended June 30,
(in thousands)	2017			2016
Cash provided by (used in):
Operating activities	$	85,769		$	11,569
Investing activities		(1,159	)		(7,930	)
Financing activities		(34,860	)		(31,666	)
Effect of exchange rate on cash		1,282			(738	)
Net increase (decrease) in cash and cash equivalents	$	51,032		$	(28,765	)
	June 30, 2017			December 31, 2016
Total cash, cash equivalents, and marketable securities	$	180,040		$	133,761

The increase in cash and cash equivalents during the six months ended June 30, 2017 was primarily due to the $74.2 million increase in cash provided by operating activities driven by the $42.1 million increase in cash provided by trade accounts receivable, largely due to the increase in cash collections and the timing of billings, and a $23.5 million increase in net income.

We believe that our current cash, cash equivalents, marketable securities, 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 April 11, 2016, we acquired OpenSpan for $48.8 million in cash, net of cash acquired. As of June 30, 2017, $7.4 million of the cash consideration remained in escrow and will act as security for the indemnification obligations of the selling shareholders through October 2017. We paid $0.3 million during both the six months ended June 30, 2017 and 2016, representing additional cash consideration to the selling shareholders of one of the three companies acquired in 2014 based on the achievement of certain performance milestones.

As of June 30, 2017, approximately $56.9 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. 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 during the six months ended June 30, 2017 were net income of $38.4 million and $53 million from trade accounts receivable, largely due to the increase in cash collections and the timing of billings.

The primary driver during the six months ended June 30, 2016 was net income of $14.9 million.

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Future Cash Receipts from Committed License and Cloud Arrangements

As of June 30, 2017, none of the amounts shown in the table below had been billed and no revenue had been recognized. The timing of cash receipts may not coincide with the timing of future expected revenue recognition.

	June 30,2017
(in thousands)	Term and cloud contracts		Perpetual contracts (1)		Total
Remainder of 2017	$	57,075	$	14,561	$	71,636
2018		141,523		18,739		160,262
2019		111,585		4,773		116,358
2020		74,300		1,521		75,821
2021		31,077		355		31,432
2022 and thereafter		6,854		—		6,854
Total	$	422,414	$	39,949	$	462,363

⁽¹⁾  These amounts are for perpetual licenses with extended payment terms and/or additional rights of use.

Total contractual future cash receipts due from our existing license and cloud arrangements were approximately $340.8 million as of June 30, 2016

.

Cash used in investing activities

During the six months ended June 30, 2017, we purchased $16.7 million of marketable debt securities and made investments of $5 million in property and equipment, partially offset by proceeds received from maturities of marketable debt securities (including called marketable debt securities) of $20.8 million.

During the six months ended June 30, 2016, we made investments of $11.5 million in internally developed software and leasehold improvements at our corporate headquarters in Cambridge, Massachusetts. We acquired OpenSpan for $48.8 million in cash, net of $1.8 million in cash acquired, which was funded through the sales of marketable debt securities of $52.5 million.

Cash used in financing activities

We used cash primarily for repurchases of our common stock, share repurchases for tax withholdings for the net settlement of our equity awards, and the payment of our quarterly dividend.

Since 2004, our Board of Directors has approved annual stock repurchase programs that have authorized the repurchase in the aggregate of up to $195 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:

	Six Months Ended June 30,
	2017					2016
(in thousands)	Shares		Amount			Shares		Amount
Authorization remaining, beginning of period			$	39,385				$	40,534
Authorizations				—					25,879
Repurchases paid		68		(2,986	)		784		(19,005	)
Repurchases unsettled		—		—			11		(297	)
Authorization remaining, end of period			$	36,399				$	47,111

In addition to the share repurchases made under our repurchase programs, we net settled the majority of our employee stock option exercises and RSU vestings, 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 six months ended June 30, 2017 and 2016, option and RSU holders net settled a total of 2 million shares and 1.1 million shares, respectively, of which only 1 million shares and 0.6 million shares, respectively, were issued to the option and RSU holders. The balance of the shares were surrendered to us to pay for the exercise price with respect to options and the applicable taxes for both options and RSUs. During the six months ended June 30, 2017 and 2016, instead of receiving cash from the equity holders, we withheld shares with a value of $27.9 million and $8.2 million, respectively, for withholding taxes, and $20.7 million and $5.8 million, respectively, for the exercise price of options.

Dividends

	Six Months Ended June 30,
(per share)	2017		2016
Dividends Declared	$	0.06	$	0.06
Dividends Paid	$	0.06	$	0.06

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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE

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.

As of June 30, 2017, we did not have any forward contracts outstanding. See Note 4 “Derivative Instruments” of this Quarterly Report on Form 10-Q for further discussion.

Other than the item discussed above, there were no significant changes to our quantitative and qualitative disclosures about market risk during the first six months ended June 30, 2017. See 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, 2016 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 June 30, 2017. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2017.

(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 June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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, 2016. 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. There have been no material changes during the six months ended June 30, 2017 to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

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 three months ended June 30, 2017:

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Programs (2) (in thousands)		Approximate Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Share Repurchase Programs (2) (in thousands)
April 1, 2017 - April 30, 2017		28,350	$	44.13		28,350	$	36,636
May 1, 2017 - May 31, 2017		5,130		46.19		5,130		36,399
June 1, 2017 - June 30, 2017		—		—		—		36,399
Total		33,480	$	44.44

1. Shares withheld to cover the option exercise price and statutory tax withholding obligations under the net settlement provisions of the company’s stock compensation awards have been excluded from the above table.

2. Since 2004, our Board of Directors has approved stock repurchase programs that have authorized the repurchase, in the aggregate, of up to $195 million of our common stock. On May 30, 2017, we announced that our Board of Directors extended the expiration date of the current stock repurchase program to June 30, 2018 (the “Current Program”). Under the Current Program, purchases may be made

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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 (the “Exchange Act”), and Rule 10b-18 under 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.

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.

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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: August 9, 2017	By:	/s/ KENNETH STILLWELL
		Kenneth Stillwell
		Chief Financial Officer and Chief Administrative Officer
		(Principal Financial Officer)

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PEGASYSTEMS INC.

EXHIBIT INDEX

Exhibit No.	Description
10.1++	First Amendment to the Pegasystems Inc. 2004 Long-Term Incentive Plan (As Amended And Restated)
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 ended June 30, 2017 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.

⁺⁺ Management contracts and compensatory plan or arrangements

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EX-10.1

EXHIBIT 10.1

FIRST AMENDMENT TO THE

PEGASYSTEMS INC.

2004 LONG-TERM INCENTIVE PLAN

(as amended and restated)

Pegasystems Inc., a Massachusetts corporation (the “Company”), previously established the Pegasystems, Inc. 2004 Long-Term Incentive Plan (the “Plan”). The Plan, as amended and restated, was approved by the Company’s stockholders at the Company’s 2016 Annual Meeting on June 10, 2016. At a duly noticed meeting held on May 23, 2017, the Board of Directors of the Company, and the Compensation Committee of the Board, approved and adopted the following amendment to the Plan.

1. Section 2(dd) is hereby amended as follows:

(dd) “Retirement” means retirement of an Employee or Director from active employment or service with any Related Company after having attained age 60, with no intention to continue to provide services, whether as an employee, director, independent contractor or otherwise, to any other person or entity and with the intention of concluding the Employee or Director’s working or professional career.

2. Sections 9(d) through (g) are hereby amended as follows:

(d) Termination of Service. If a Participant terminates Service other than by reason of the Participant’s death, Disability or Retirement, such Participant may exercise his or her Option within such period of time as is specified in the Stock Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Stock Option Agreement). In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for three months following the Participant’s termination of Service. If, on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified by the Committee in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(e) Disability of Participant. If a Participant terminates Service as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Stock Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Stock Option Agreement). In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for 24 months following the Participant’s termination of Service as the result of the Participant’s Disability. If, on the date of termination of Service, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(f) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Stock Option Agreement to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Stock Option Agreement) by the Participant’s estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for 24 months following the Participant’s termination of Service because of death. If, at the time of death, the Participant is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan on the last day of the 12th month following the date of the Participant’s death unless the Committee earlier determines that all or part of the unvested portion of the Option will become vested as of the date of the Participant’s death and/or will continue to vest following the death of the Participant, in

which case the Shares covered by the unvested portion of the Option will not revert to the Plan until the vesting of those Shares is no longer possible. If the Option is not so exercised within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(g) Retirement of Participant. If a Participant terminates Service as a result of Retirement, the Participant may exercise his or her Option within such period of time as is specified in the Stock Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Stock Option Agreement). In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for 24 months following the Participant’s termination of Service as the result of the Participant’s Retirement. If, on the date of termination of Service, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

3. Section 13(g) is hereby amended as follows:

(g) Amendment of Award. The Committee may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or different type, changing the expiration date or Exercise Price or Purchase Price, providing for continued vesting of the Award following termination of Service or converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required unless the Committee determines that the action would not materially and adversely affect the Participant.

4. Section 13(i) is hereby amended as follows:

(i) Cancellation and Forfeiture for Misconduct, Clawback Policy. Notwithstanding the terms of any Award or other provision of the Plan in the event of any Misconduct by the Participant or Purchaser (whether before or after the termination of Service), (i) all Awards granted to the Participant shall be terminated and the holder thereof shall have no further rights thereunder (ii) all Shares then held by the Participant or Purchaser (or any successor) which were acquired by the Participant or Purchaser (or any successor) pursuant to an Award under the Plan shall thereupon be (or revert to being) Restricted Shares and shall be subject to a Right of Repurchase exercisable by the Company and (iii) the Participant or Purchaser (or any successor) shall pay to the Company, within 10 business days of the Company’s request therefor, the aggregate after-tax proceeds (taking into account all amounts of tax that would be recoverable upon a claim of loss for payment of such proceeds in the year of repayment) received by the Participant or Purchaser (or any successor) upon the sale or other disposition of, or distributions in respect of, any Award under the Plan and any Shares acquired in respect thereof. The purchase price for Shares repurchased by the Company pursuant to the Right of Repurchase pursuant to this Section 13(i) shall be equal to the lesser of (i) the purchase price originally paid by the Participant or Purchaser for such Shares or (ii) the Fair Market Value of such Shares as of the date of the repurchase. The following shall constitute “Misconduct” by an Participant or Purchaser: (i) the unauthorized use or disclosure of the confidential information or trade secrets of any Related Company which use or disclosure causes material harm to the Related Company; (ii) conviction of a crime involving moral turpitude, deceit, dishonesty or fraud; (iii) gross negligence or willful misconduct of the Participant or Purchaser with respect to any Related Company; or (iv) the breach by the Participant or Purchaser of any material term of an agreement with a Related Company including covenants not to compete and not to solicit, and provisions relating to confidential information and intellectual property rights. In addition, Awards and Shares (and proceeds therefrom) obtained pursuant to or upon exercise of such Awards are subject to forfeiture, setoff, clawback, recoupment or other recovery if the Committee determines in good faith that such action is required by Applicable Law or Company policy as amended from time to time.

5. Except as amended by this First Amendment, all other terms of the Plan shall remain unmodified and in full force and effect Adopted by the Board: May 23, 2017

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: August 9, 2017

/s/ ALAN TREFLER

Alan Trefler

Chairman and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kenneth Stillwell, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Pegasystems Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 9, 2017

/s/ KENNETH STILLWELL

Kenneth Stillwell

Chief Financial Officer and Chief Administrative Officer

(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 June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Alan Trefler, Chairman and Chief Executive Officer of Pegasystems Inc., and Kenneth Stillwell, Chief Financial Officer and Chief Administrative Officer of Pegasystems Inc., each certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 9, 2017

/s/ ALAN TREFLER

Alan Trefler

Chairman and Chief Executive Officer

(Principal Executive Officer)

/s/ KENNETH STILLWELL

Kenneth Stillwell

Chief Financial Officer and Chief Administrative Officer

(Principal Financial Officer)

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Jul. 28, 2017
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
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		77,624,615

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 121,626	$ 70,594
Marketable securities	58,414	63,167
Total cash, cash equivalents, and marketable securities	180,040	133,761
Trade accounts receivable, net of allowance of $5,590 and $4,126	217,020	265,028
Income taxes receivable	22,081	14,155
Other current assets	18,505	12,188
Total current assets	437,646	425,132
Property and equipment, net	38,881	38,281
Deferred income taxes	71,096	69,898
Long-term other assets	4,615	3,990
Intangible assets, net	37,844	44,191
Goodwill	72,890	73,164
Total assets	662,972	654,656
Current liabilities:
Accounts payable	13,500	14,414
Accrued expenses	38,237	36,751
Accrued compensation and related expenses	44,287	60,660
Deferred revenue	169,926	175,647
Total current liabilities	265,950	287,472
Income taxes payable	4,438	4,263
Long-term deferred revenue	8,431	10,989
Other long-term liabilities	15,518	16,043
Total liabilities	294,337	318,767
Stockholders' equity:
Preferred stock, 1,000 shares authorized; no shares issued and outstanding
Common stock, 200,000 shares authorized; 77,604 shares and 76,591 shares issued and outstanding	776	766
Additional paid-in capital	140,088	143,903
Retained earnings	232,100	198,315
Accumulated other comprehensive loss	(4,329)	(7,095)
Total stockholders' equity	368,635	335,889
Total liabilities and stockholders' equity	$ 662,972	$ 654,656

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Allowance for sales credit memos	$ 5,590	$ 4,126
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	77,604,000	77,604,000
Common stock, shares outstanding	76,591,000	76,591,000

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenue:
Software license	$ 61,037	$ 70,671	$ 153,427	$ 139,016
Maintenance	59,590	55,161	118,555	108,136
Services	77,353	63,164	149,245	120,702
Total revenue	197,980	188,996	421,227	367,854
Cost of revenue:
Software license	1,250	1,312	2,550	2,333
Maintenance	7,011	6,315	14,229	12,230
Services	59,614	52,473	119,186	102,047
Total cost of revenue	67,875	60,100	135,965	116,610
Gross profit	130,105	128,896	285,262	251,244
Operating expenses:
Selling and marketing	75,887	74,016	147,175	135,094
Research and development	39,762	35,574	80,058	70,494
General and administrative	12,706	11,294	25,041	22,342
Acquisition-related		1,623		2,542
Restructuring		29		287
Total operating expenses	128,355	122,536	252,274	230,759
Income from operations	1,750	6,360	32,988	20,485
Foreign currency transaction (loss) gain	(917)	306	(241)	1,682
Interest income, net	161	188	326	478
Other income (expense), net	566	(1,356)	287	(3,654)
Income before (benefit)/provision for income taxes	1,560	5,498	33,360	18,991
(Benefit)/provision for income taxes	(9,846)	962	(5,067)	4,055
Net income	$ 11,406	$ 4,536	$ 38,427	$ 14,936
Earnings per share:
Basic	$ 0.15	$ 0.06	$ 0.50	$ 0.20
Diluted	$ 0.14	$ 0.06	$ 0.47	$ 0.19
Weighted-average number of common shares outstanding:
Basic	77,313	76,318	77,039	76,347
Diluted	82,945	79,422	82,412	79,329
Cash dividends declared per share	$ 0.03	$ 0.03	$ 0.06	$ 0.06

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Net income	$ 11,406	$ 4,536	$ 38,427	$ 14,936
Other comprehensive income (loss), net of tax
Unrealized (loss) gain on available-for-sale marketable securities, net of tax	(1)	56	126	342
Foreign currency translation adjustments	1,859	(1,224)	2,640	(1,231)
Total other comprehensive income (loss), net of tax	1,858	(1,168)	2,766	(889)
Comprehensive income	$ 13,264	$ 3,368	$ 41,193	$ 14,047

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Operating activities:
Net income	$ 38,427	$ 14,936
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income taxes	(465)	(1,190)
Depreciation and amortization	12,356	11,675
Stock-based compensation expense	26,440	19,816
Foreign currency transaction loss (gain)	241	(1,682)
Other non-cash	(408)	4,576
Change in operating assets and liabilities:
Trade accounts receivable	52,966	10,853
Income taxes receivable and other current assets	(14,294)	(18,349)
Accounts payable and accrued expenses	(17,734)	(19,259)
Deferred revenue	(11,890)	(11,222)
Other long-term assets and liabilities	130	1,415
Cash provided by operating activities	85,769	11,569
Investing activities:
Purchases of marketable securities	(16,656)	(20,942)
Proceeds from maturities and called marketable securities	20,824	21,139
Sales of marketable securities		52,483
Payments for acquisitions, net of cash acquired	(290)	(49,113)
Investment in property and equipment	(5,037)	(11,497)
Cash used in investing activities	(1,159)	(7,930)
Financing activities:
Dividend payments to shareholders	(4,613)	(4,592)
Common stock repurchases for tax withholdings for net settlement of equity awards	(27,261)	(7,849)
Common stock repurchases under share repurchase programs	(2,986)	(19,225)
Cash used in financing activities	(34,860)	(31,666)
Effect of exchange rates on cash and cash equivalents	1,282	(738)
Net increase (decrease) in cash and cash equivalents	51,032	(28,765)
Cash and cash equivalents, beginning of period	70,594	93,026
Cash and cash equivalents, end of period	$ 121,626	$ 64,261

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2017

BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all 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, 2016.

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 2017.

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NEW ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2017

NEW ACCOUNTING PRONOUNCEMENTS

2. NEW ACCOUNTING PRONOUNCEMENTS

Stock-Based Compensation

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09 “Stock Compensation (Topic 718), Scope of Modification Accounting” to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The effective date for the Company will be January 1, 2018. The Company does not expect the adoption of this standard to have a material effect on its financial position or results of operations.

Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including trade accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model for credit losses. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of “other-than-temporary” impairments. The effective date for the Company will be January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and related disclosures.

Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to record most leases on their balance sheets, recognizing a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The effective date for the Company will be January 1, 2019, with early adoption permitted. The Company expects that most of its operating lease commitments will be subject to this ASU and recognized as operating lease liabilities and right-of-use assets upon adoption with no material impact to its results of operations and cash flows.

Revenue

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU amends the guidance for revenue recognition, creating the new Accounting Standards Codification Topic 606 (“ASC 606”). ASC 606 requires entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for the good or service. In addition, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company has elected the full retrospective adoption model, effective January 1, 2018. The Company’s quarterly results beginning with the quarter ending March 31, 2018 and comparative prior periods will be compliant with ASC 606. The Company’s Annual Report on Form 10-K for the year ended December 31, 2018 will be the Company’s first Annual Report that will be issued in compliance with ASC 606.

The Company is still in the process of quantifying the implications of the adoption of ASC 606. However the Company expects the following impacts:

• Currently, the Company recognizes revenue from term licenses and perpetual licenses with extended payment terms over the term of the agreement as payments become due or earlier if prepaid, provided all other criteria for revenue recognition have been met, and any corresponding maintenance over the term of the agreement. The adoption of ASC 606 will result in revenue for performance obligations being recognized as they are satisfied. Therefore, revenue from the term and perpetual license performance obligations with extended payment terms is recognized when control is transferred to the customer. Revenue from the maintenance performance obligations is expected to be recognized on a straight-line basis over the contractual term. Due to the revenue from term and perpetual licenses with extended payment terms being recognized prior to amounts being billed to the customer, the Company expects to recognize a net contract asset on the balance sheet.

• Currently, the Company allocates revenue to licenses under the residual method when it has VSOE for the remaining undelivered elements which allocates any future credits or significant discounts entirely to the license. The adoption of ASC 606 will result in the future credits, significant discounts, and material rights under ASC 606, being allocated to all performance obligations based upon their relative selling price. Under ASC 606, additional license revenue from the reallocation of such arrangement considerations will be recognized when control is transferred to the customer.

• Currently, the Company does not have VSOE for fixed price services, time and materials services in certain geographical areas, and unspecified future products, which results in revenue being deferred in such instances until such time as VSOE exists for all undelivered elements or recognized ratably over the longest performance period. The adoption of ASC 606 eliminates the requirement for VSOE and replaces it with the concept of a stand-alone selling price. Once the transaction price is allocated to each of the performance obligations, the Company can recognize revenue as the performance obligations are delivered, either at a point in time or over time. Under ASC 606, license revenue will be recognized when control is transferred to the customer.

• Sales commissions and other third party acquisition costs resulting directly from securing contracts with customers are currently expensed when incurred. ASC 606 will require these costs to be recognized as an asset when incurred and to be expensed over the associated contract term. As a practical expedient, if the term of the contract is one year or less, the Company will expense the costs resulting directly from securing the contracts with customers as incurred. The Company expects this change to impact its multi-year cloud offerings and term and perpetual licenses with additional rights of use that extend beyond one year.

• ASC 606 provides additional accounting guidance for contract modifications whereby changes must be accounted for either as a retrospective change (creating either a catch up or deferral of past revenues), prospectively with a reallocation of revenues amongst identified performance obligations, or prospectively as separate contracts which will not require any reallocation. This may result in a difference in the timing of the recognition of revenue as compared to how current contract modifications are recognized.

• There will be a corresponding effect on tax liabilities in relation to all of the above impacts.

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MARKETABLE SECURITIES

6 Months Ended

Jun. 30, 2017

MARKETABLE SECURITIES

3. MARKETABLE SECURITIES

The Company’s marketable securities are as follows:

	June 30, 2017
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Municipal bonds	$	32,238	$	11	$	(30	)	$	32,219
Corporate bonds		26,234		3		(42	)		26,195
	$	58,472	$	14	$	(72	)	$	58,414

	December 31, 2016
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Municipal bonds	$	36,746	$	—	$	(139	)	$	36,607
Corporate bonds		26,610		1		(51	)		26,560
	$	63,356	$	1	$	(190	)	$	63,167

As of June 30, 2017, the Company did not hold any investments with unrealized losses that are considered to be other-than-temporary.

As of June 30, 2017, remaining maturities of marketable debt securities ranged from July 2017 to September 2020, with a weighted-average remaining maturity of approximately 15 months.

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DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2017

DERIVATIVE INSTRUMENTS

4. DERIVATIVE INSTRUMENTS

The Company has historically used foreign currency forward contracts (“forward contracts”) to hedge its exposure to fluctuations in foreign currency exchange rates associated with its foreign currency denominated cash, accounts receivable, and intercompany receivables and payables held primarily by the U.S. parent company and its United Kingdom (“U.K.”) subsidiary.

The Company is primarily exposed to foreign currency exchange rate fluctuations in the Euro relative to the U.S. dollar for the U.S. parent and in the U.S. dollar, the Euro, and the Australian dollar relative to the British pound for the Company’s U.K. subsidiary. The forward contracts are not designated as hedging instruments. As a result, the Company records the fair value of these contracts at the end of each reporting period in the accompanying unaudited condensed consolidated balance sheets 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 the accompanying unaudited condensed consolidated statements of operations. The cash flows related to these forward contracts are classified as operating activities in the accompanying unaudited condensed consolidated statements of cash flows. The Company does not enter into any forward contracts for trading or speculative purposes.

In May 2017, the Company discontinued its forward contracts program, however, it will continue to periodically evaluate its foreign exchange exposures and may re-initiate this program if it is deemed necessary. At December 31, 2016, the total notional value of the Company’s outstanding forward contracts was $128.4 million.

The fair value of the Company’s outstanding forward contracts was as follows:

	December 31, 2016
(in thousands)	Recorded In:	Fair Value
Asset Derivatives
Foreign currency forward contracts	Other current assets	$	628
Liability Derivatives
Foreign currency forward contracts	Accrued expenses	$	883

As of June 30, 2017, the Company did not have any forward contracts outstanding.

The Company had forward contracts outstanding with total notional values as of June 30, 2016 as follows:

(in thousands)
Euro	€	24,735
British pound	£	7,885
Australian dollar	A$	25,830
Indian rupee	Rs	353,500
United States dollar	$	93,460

The income statement impact of the Company’s outstanding forward contracts and foreign currency transactions was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2017			2016
Gain (loss) from the change in the fair value of forward contracts included in other income (expense), net	$	565		$	(1,421	)	$	286		$	(3,718	)
Foreign currency transaction (loss) gain from the remeasurement of foreign currency assets and liabilities	$	(917	)	$	306		$	(241	)	$	1,682
	$	(352	)	$	(1,115	)	$	45		$	(2,036	)

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2017

FAIR VALUE MEASUREMENTS

5. FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company records its money market funds, marketable securities, and forward contracts at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability. As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows: (Level 1) observable inputs such as quoted prices in active markets for identical assets or liabilities; (Level 2) significant other inputs that are observable either directly or indirectly; and (Level 3) significant unobservable inputs on which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The Company’s money market funds are classified within Level 1 of the fair value hierarchy. The Company’s marketable securities classified within Level 2 of the fair value hierarchy are valued based on a market approach using quoted prices, when available, or matrix pricing compiled by third party pricing vendors, using observable market inputs such as interest rates, yield curves, and credit risk. The Company’s foreign currency forward contracts, which were all classified within Level 2 of the fair value hierarchy, are valued based on the notional amounts and rates under the contracts and observable market inputs such as currency exchange rates and credit risk. If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2017.

The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following:

			Fair Value Measurements at Reporting Date Using
(in thousands)	June 30, 2017		Level 1		Level 2
Fair Value Assets:
Money market funds	$	5,633	$	5,633	$	—
Marketable securities:
Municipal bonds	$	32,219	$	—	$	32,219
Corporate bonds		26,195		—		26,195
Total marketable securities	$	58,414	$	—	$	58,414
			Fair Value Measurements at Reporting Date Using
(in thousands)	December 31, 2016		Level 1		Level 2
Fair Value Assets:
Money market funds	$	458	$	458	$	—
Marketable securities:
Municipal bonds	$	36,607	$	—	$	36,607
Corporate bonds		26,560		—		26,560
Total marketable securities	$	63,167	$	—	$	63,167
Foreign currency forward contracts	$	628	$	—	$	628
Fair Value Liabilities:
Foreign currency forward contracts	$	883	$	—	$	883

For certain other financial instruments, including accounts receivable and accounts payable, the carrying value approximates their fair value due to the relatively short maturity of these items.

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 six months ended June 30, 2017 and 2016, the Company did not recognize any impairments of its assets recorded at fair value on a nonrecurring basis.

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TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

6 Months Ended

Jun. 30, 2017

TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

6. TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

(in thousands)	June 30, 2017			December 31, 2016
Trade accounts receivable	$	188,304		$	234,473
Unbilled trade accounts receivable		34,306			34,681
Total accounts receivable		222,610			269,154
Allowance for sales credit memos		(5,590	)		(4,126	)
	$	217,020		$	265,028

Unbilled trade accounts receivable primarily relate to services earned under time and materials arrangements and to license, maintenance, and cloud arrangements that have commenced or been delivered in excess of scheduled invoicing.

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GOODWILL AND OTHER INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2017

GOODWILL AND OTHER INTANGIBLE ASSETS

7. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill are:

(in thousands)	2017
Balance as of January 1,	$	73,164
Purchase price adjustments to goodwill		(354	)
Currency translation adjustments		80
Balance as of June 30,	$	72,890

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

(in thousands)	Range of Remaining Useful Lives		Cost		Accumulated Amortization			Net Book Value
June 30, 2017
Customer related intangibles		4-10 years	$	63,132	$	(41,322	)	$	21,810
Technology		3-10 years		58,942		(42,908	)		16,034
Other intangibles		—		5,361		(5,361	)		—
			$	127,435	$	(89,591	)	$	37,844
December 31, 2016
Customer related intangibles		4-10 years	$	63,091	$	(37,573	)	$	25,518
Technology		3-10 years		58,942		(40,269	)		18,673
Other intangibles		—		5,361		(5,361	)		—
			$	127,394	$	(83,203	)	$	44,191

Amortization expense of intangibles assets is reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2017		2016		2017		2016
Cost of revenue	$	1,305	$	1,638	$	2,639	$	2,984
Operating expenses		1,869		1,966		3,735		3,585
Total amortization expense	$	3,174	$	3,604	$	6,374	$	6,569

Future estimated amortization expense related to intangible assets as of June 30, 2017 is as follows:

(in thousands)
Remainder of 2017	$	5,953
2018		11,343
2019		5,551
2020		2,655
2021		2,631
2022 and thereafter		9,711
	$	37,844

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ACCRUED EXPENSES

6 Months Ended

Jun. 30, 2017

ACCRUED EXPENSES

8. ACCRUED EXPENSES

(in thousands)	June 30, 2017		December 31, 2016
Professional services contractor fees	$	7,125	$	6,550
Other taxes		5,338		9,031
Marketing and sales program expenses		5,188		1,508
Professional fees		3,276		3,654
Other		3,084		2,411
Self-insurance health and dental claims		2,523		2,182
Fixed assets in progress		2,417		855
Dividends payable		2,328		2,298
Employee reimbursable expenses		2,120		1,624
Short-term deferred rent		1,954		1,770
Partner commissions		1,748		2,199
Income taxes payable		1,038		1,391
Restructuring		98		105
Acquisition-related expenses and merger consideration		—		290
Foreign currency forward contracts		—		883
	$	38,237	$	36,751

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DEFERRED REVENUE

6 Months Ended

Jun. 30, 2017

DEFERRED REVENUE

9. DEFERRED REVENUE

(in thousands)	June 30, 2017		December 31, 2016
Term license	$	6,294	$	15,843
Perpetual license		24,709		23,189
Maintenance		111,759		112,397
Cloud		17,677		13,604
Services		9,487		10,614
Current deferred revenue		169,926		175,647
Term license		—		—
Perpetual license		5,833		7,909
Maintenance		1,465		1,802
Cloud		1,133		1,278
Long-term deferred revenue		8,431		10,989
	$	178,357	$	186,636

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2017

STOCK-BASED COMPENSATION

10. STOCK-BASED COMPENSATION

Stock-based compensation expense is reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2017			2016
Cost of revenues	$	3,677		$	2,914		$	7,299		$	5,594
Operating expenses	$	10,255		$	7,967		$	19,141		$	14,222
Total stock-based compensation before tax	$	13,932		$	10,881		$	26,440		$	19,816
Income tax benefit	$	(4,287	)	$	(3,085	)	$	(8,102	)	$	(5,690	)

During the six months ended June 30, 2017, the Company issued approximately 1,068,000 shares of common stock to its employees and 13,000 shares of common stock to its non-employee directors under the Company’s stock-based compensation plans.

During the six months ended June 30, 2017, the Company granted approximately 954,000 restricted stock units (“RSUs”) and 1,441,000 non-qualified stock options to its employees with total fair values of approximately $41.9 million and $19.2 million, respectively. This includes approximately 175,000 RSUs which were granted in connection with the election by employees to receive 50% of their 2017 target incentive compensation under the Company’s Corporate Incentive Compensation Plan in the form of RSUs instead of cash. Stock-based compensation of approximately $7.7 million associated with this RSU grant will be recognized over a one-year period beginning on the grant date.

The Company recognizes stock based compensation on the accelerated recognition method, treating each vesting tranche as if it were an individual grant. As of June 30, 2017, the Company had approximately $64.7 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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EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2017

EARNINGS PER SHARE

11. 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 and RSUs, using the treasury stock method. 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 anti-dilutive in the periods presented, but could be dilutive in the future.

The calculation of the Company’s basic and diluted earnings per share is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2017		2016		2017		2016
Basic
Net income	$	11,406	$	4,536	$	38,427	$	14,936
Weighted-average common shares outstanding		77,313		76,318		77,039		76,347
Earnings per share, basic	$	0.15	$	0.06	$	0.50	$	0.20
Diluted
Net income	$	11,406	$	4,536	$	38,427	$	14,936
Weighted-average effect of dilutive securities:
Stock options		3,694		1,924		3,439		1,808
RSUs		1,938		1,180		1,934		1,174
Effect of assumed exercise of stock options and RSUs		5,632		3,104		5,373		2,982
Weighted-average common shares outstanding, assuming dilution		82,945		79,422		82,412		79,329
Earnings per share, diluted	$	0.14	$	0.06	$	0.47	$	0.19
Outstanding stock options and RSUs excluded as impact would be anti-dilutive		237		315		276		404

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GEOGRAPHIC INFORMATION AND MAJOR CLIENTS

6 Months Ended

Jun. 30, 2017

GEOGRAPHIC INFORMATION AND MAJOR CLIENTS

12. GEOGRAPHIC INFORMATION AND MAJOR CLIENTS

Geographic Information

Operating segments are defined as components of an enterprise, about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.

The Company develops and licenses software applications for customer engagement and its Pega^® Platform, and provides consulting services, maintenance, and training related to its offerings. The Company derives substantially all of its revenue from the sale and support of one group of similar products and services—software that provides case management, business process management, and real-time decisioning solutions to improve customer engagement and operational excellence in the enterprise applications market. To assess performance, the Company’s CODM, who is the chief executive officer, reviews financial information on a consolidated basis. Therefore, the Company determined it has one reportable segment—Customer Engagement Solutions and one reporting unit.

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

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2017				2016				2017				2016
U.S.	$	118,447	60	%	$	103,547	55	%	$	256,056	60	%	$	196,775	53	%
Other Americas		12,086	6	%		15,983	8	%		21,577	5	%		41,542	12	%
U.K.		19,228	10	%		31,336	17	%		49,418	12	%		55,691	15	%
Other EMEA(1)		27,395	13	%		22,391	12	%		49,241	12	%		43,658	12	%
Asia Pacific		20,824	11	%		15,739	8	%		44,935	11	%		30,188	8	%
	$	197,980	100	%	$	188,996	100	%	$	421,227	100	%	$	367,854	100	%

⁽¹⁾  Includes Europe, the Middle East and Africa, but excludes the United Kingdom.

Major Clients

No client accounted for 10% or more of the Company’s total revenue during the three and six months ended June 30, 2017 or 2016.

No client accounted for 10% or more of the Company’s total outstanding trade receivables as of June 30, 2017 or December 31, 2016.

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MARKETABLE SECURITIES (Tables)

6 Months Ended

Jun. 30, 2017

Schedule of Marketable Securities

The Company’s marketable securities are as follows:

	June 30, 2017
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Municipal bonds	$	32,238	$	11	$	(30	)	$	32,219
Corporate bonds		26,234		3		(42	)		26,195
	$	58,472	$	14	$	(72	)	$	58,414

	December 31, 2016
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Municipal bonds	$	36,746	$	—	$	(139	)	$	36,607
Corporate bonds		26,610		1		(51	)		26,560
	$	63,356	$	1	$	(190	)	$	63,167

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DERIVATIVE INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2017

Fair Value of Company Outstanding Forward Contracts

The fair value of the Company’s outstanding forward contracts was as follows:

	December 31, 2016
(in thousands)	Recorded In:	Fair Value
Asset Derivatives
Foreign currency forward contracts	Other current assets	$	628
Liability Derivatives
Foreign currency forward contracts	Accrued expenses	$	883

Forward Contracts Outstanding with Total Notional Values

The Company had forward contracts outstanding with total notional values as of June 30, 2016 as follows:

(in thousands)
Euro	€	24,735
British pound	£	7,885
Australian dollar	A$	25,830
Indian rupee	Rs	353,500
United States dollar	$	93,460

Change in Fair Value of Forward Contracts

The income statement impact of the Company’s outstanding forward contracts and foreign currency transactions was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2017			2016
Gain (loss) from the change in the fair value of forward contracts included in other income (expense), net	$	565		$	(1,421	)	$	286		$	(3,718	)
Foreign currency transaction (loss) gain from the remeasurement of foreign currency assets and liabilities	$	(917	)	$	306		$	(241	)	$	1,682
	$	(352	)	$	(1,115	)	$	45		$	(2,036	)

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2017

Assets and Liabilities Measured at Fair Value

The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following:

			Fair Value Measurements at Reporting Date Using
(in thousands)	June 30, 2017		Level 1		Level 2
Fair Value Assets:
Money market funds	$	5,633	$	5,633	$	—
Marketable securities:
Municipal bonds	$	32,219	$	—	$	32,219
Corporate bonds		26,195		—		26,195
Total marketable securities	$	58,414	$	—	$	58,414
			Fair Value Measurements at Reporting Date Using
(in thousands)	December 31, 2016		Level 1		Level 2
Fair Value Assets:
Money market funds	$	458	$	458	$	—
Marketable securities:
Municipal bonds	$	36,607	$	—	$	36,607
Corporate bonds		26,560		—		26,560
Total marketable securities	$	63,167	$	—	$	63,167
Foreign currency forward contracts	$	628	$	—	$	628
Fair Value Liabilities:
Foreign currency forward contracts	$	883	$	—	$	883

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TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE (Tables)

6 Months Ended

Jun. 30, 2017

Schedule of Trade Accounts Receivable

(in thousands)	June 30, 2017			December 31, 2016
Trade accounts receivable	$	188,304		$	234,473
Unbilled trade accounts receivable		34,306			34,681
Total accounts receivable		222,610			269,154
Allowance for sales credit memos		(5,590	)		(4,126	)
	$	217,020		$	265,028

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2017

Changes in Carrying Amount of Goodwill

The changes in the carrying amount of goodwill are:

(in thousands)	2017
Balance as of January 1,	$	73,164
Purchase price adjustments to goodwill		(354	)
Currency translation adjustments		80
Balance as of June 30,	$	72,890

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 Remaining Useful Lives		Cost		Accumulated Amortization			Net Book Value
June 30, 2017
Customer related intangibles		4-10 years	$	63,132	$	(41,322	)	$	21,810
Technology		3-10 years		58,942		(42,908	)		16,034
Other intangibles		—		5,361		(5,361	)		—
			$	127,435	$	(89,591	)	$	37,844
December 31, 2016
Customer related intangibles		4-10 years	$	63,091	$	(37,573	)	$	25,518
Technology		3-10 years		58,942		(40,269	)		18,673
Other intangibles		—		5,361		(5,361	)		—
			$	127,394	$	(83,203	)	$	44,191

Amortization Expense of Acquired Intangibles

Amortization expense of intangibles assets is reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2017		2016		2017		2016
Cost of revenue	$	1,305	$	1,638	$	2,639	$	2,984
Operating expenses		1,869		1,966		3,735		3,585
Total amortization expense	$	3,174	$	3,604	$	6,374	$	6,569

Estimated Future Amortization Expense

Future estimated amortization expense related to intangible assets as of June 30, 2017 is as follows:

(in thousands)
Remainder of 2017	$	5,953
2018		11,343
2019		5,551
2020		2,655
2021		2,631
2022 and thereafter		9,711
	$	37,844

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ACCRUED EXPENSES (Tables)

6 Months Ended

Jun. 30, 2017

Schedule of Accrued Expenses

(in thousands)	June 30, 2017		December 31, 2016
Professional services contractor fees	$	7,125	$	6,550
Other taxes		5,338		9,031
Marketing and sales program expenses		5,188		1,508
Professional fees		3,276		3,654
Other		3,084		2,411
Self-insurance health and dental claims		2,523		2,182
Fixed assets in progress		2,417		855
Dividends payable		2,328		2,298
Employee reimbursable expenses		2,120		1,624
Short-term deferred rent		1,954		1,770
Partner commissions		1,748		2,199
Income taxes payable		1,038		1,391
Restructuring		98		105
Acquisition-related expenses and merger consideration		—		290
Foreign currency forward contracts		—		883
	$	38,237	$	36,751

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DEFERRED REVENUE (Tables)

6 Months Ended

Jun. 30, 2017

Schedule of Deferred Revenue

(in thousands)	June 30, 2017		December 31, 2016
Term license	$	6,294	$	15,843
Perpetual license		24,709		23,189
Maintenance		111,759		112,397
Cloud		17,677		13,604
Services		9,487		10,614
Current deferred revenue		169,926		175,647
Term license		—		—
Perpetual license		5,833		7,909
Maintenance		1,465		1,802
Cloud		1,133		1,278
Long-term deferred revenue		8,431		10,989
	$	178,357	$	186,636

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STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2017

Stock-Based Compensation Expense Included in Consolidated Statements of Operations

Stock-based compensation expense is reflected in the Company’s unaudited condensed consolidated statements of operations as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2017			2016
Cost of revenues	$	3,677		$	2,914		$	7,299		$	5,594
Operating expenses	$	10,255		$	7,967		$	19,141		$	14,222
Total stock-based compensation before tax	$	13,932		$	10,881		$	26,440		$	19,816
Income tax benefit	$	(4,287	)	$	(3,085	)	$	(8,102	)	$	(5,690	)

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2017

Summary of Basic and Diluted Earnings Per Share

The calculation of the Company’s basic and diluted earnings per share is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2017		2016		2017		2016
Basic
Net income	$	11,406	$	4,536	$	38,427	$	14,936
Weighted-average common shares outstanding		77,313		76,318		77,039		76,347
Earnings per share, basic	$	0.15	$	0.06	$	0.50	$	0.20
Diluted
Net income	$	11,406	$	4,536	$	38,427	$	14,936
Weighted-average effect of dilutive securities:
Stock options		3,694		1,924		3,439		1,808
RSUs		1,938		1,180		1,934		1,174
Effect of assumed exercise of stock options and RSUs		5,632		3,104		5,373		2,982
Weighted-average common shares outstanding, assuming dilution		82,945		79,422		82,412		79,329
Earnings per share, diluted	$	0.14	$	0.06	$	0.47	$	0.19
Outstanding stock options and RSUs excluded as impact would be anti-dilutive		237		315		276		404

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GEOGRAPHIC INFORMATION AND MAJOR CLIENTS (Tables)

6 Months Ended

Jun. 30, 2017

Revenue by Geographic Area

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

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2017				2016				2017				2016
U.S.	$	118,447	60	%	$	103,547	55	%	$	256,056	60	%	$	196,775	53	%
Other Americas		12,086	6	%		15,983	8	%		21,577	5	%		41,542	12	%
U.K.		19,228	10	%		31,336	17	%		49,418	12	%		55,691	15	%
Other EMEA(1)		27,395	13	%		22,391	12	%		49,241	12	%		43,658	12	%
Asia Pacific		20,824	11	%		15,739	8	%		44,935	11	%		30,188	8	%
	$	197,980	100	%	$	188,996	100	%	$	421,227	100	%	$	367,854	100	%

⁽¹⁾  Includes Europe, the Middle East and Africa, but excludes the United Kingdom.

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Schedule of Marketable Securities (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 58,472	$ 63,356
Unrealized Gains	14	1
Unrealized Losses	(72)	(190)
Fair Value	58,414	63,167
Municipal bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	32,238	36,746
Unrealized Gains	11
Unrealized Losses	(30)	(139)
Fair Value	32,219	36,607
Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	26,234	26,610
Unrealized Gains	3	1
Unrealized Losses	(42)	(51)
Fair Value	$ 26,195	$ 26,560

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Marketable Securities - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2017
Schedule of Available-for-sale Securities [Line Items]
Weighted-average remaining maturity period of marketable debt securities, months	15 months
Minimum
Schedule of Available-for-sale Securities [Line Items]
Remaining maturities of marketable debt securities	2017-07
Maximum
Schedule of Available-for-sale Securities [Line Items]
Remaining maturities of marketable debt securities	2020-09

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Derivative Instruments - Additional Information (Detail) - Foreign Exchange Forward - USD ($)	Jun. 30, 2017	May 31, 2017	Dec. 31, 2016
Derivative [Line Items]
Notional value		$ 0	$ 128,400,000
Derivative outstanding	$ 0

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Fair Value of Company Outstanding Forward Contracts (Detail) - Foreign Exchange Forward $ in Thousands	Dec. 31, 2016 USD ($)
Accrued expenses
Derivative [Line Items]
Liability Derivatives	$ 883
Other current assets
Derivative [Line Items]
Asset Derivatives	$ 628

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Forward Contracts Outstanding with Total Notional Values (Detail) - Jun. 30, 2016 - Foreign Exchange Forward € in Thousands, ₨ in Thousands, £ in Thousands, AUD in Thousands, $ in Thousands	USD ($)	AUD	GBP (£)	INR (₨)	EUR (€)
Euro Member Countries, Euros
Derivative [Line Items]
Notional amount | €					€ 24,735
British Pounds
Derivative [Line Items]
Notional amount | £			£ 7,885
Australian Dollar
Derivative [Line Items]
Notional amount | AUD		AUD 25,830
Indian Rupees
Derivative [Line Items]
Notional amount | ₨				₨ 353,500
United States of America, Dollars
Derivative [Line Items]
Notional amount | $	$ 93,460

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Change in Fair Value of Forward Contracts (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Gain (loss) from the change in the fair value of forward contracts included in other income (expense), net	$ 565	$ (1,421)	$ 286	$ (3,718)
Foreign currency transaction (loss) gain from the remeasurement of foreign currency assets and liabilities	(917)	306	(241)	1,682
Net gain (loss)	$ (352)	$ (1,115)	$ 45	$ (2,036)

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Fair Value Measurements - Additional Information (Detail) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Amount of transfers between Level 1 and Level 2	$ 0		$ 0
Fair Value, Measurements, Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impairments recognized on assets	$ 0	$ 0

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Assets and Liabilities Measured at Fair Value (Detail) - Fair Value, Measurements, Recurring - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Fair Value Assets
Total marketable securities	$ 58,414	$ 63,167
Foreign currency forward contracts
Fair Value Assets
Foreign currency forward contracts		628
Fair Value Liabilities
Foreign currency forward contracts		883
Money Market Funds
Fair Value Assets
Money market funds	5,633	458
Municipal bonds
Fair Value Assets
Total marketable securities	32,219	36,607
Corporate bonds
Fair Value Assets
Total marketable securities	26,195	26,560
Level 1 | Money Market Funds
Fair Value Assets
Money market funds	5,633	458
Level 2
Fair Value Assets
Total marketable securities	58,414	63,167
Level 2 | Foreign currency forward contracts
Fair Value Assets
Foreign currency forward contracts		628
Fair Value Liabilities
Foreign currency forward contracts		883
Level 2 | Municipal bonds
Fair Value Assets
Total marketable securities	32,219	36,607
Level 2 | Corporate bonds
Fair Value Assets
Total marketable securities	$ 26,195	$ 26,560

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Schedule of Trade Accounts Receivable (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	$ 222,610	$ 269,154
Allowance for sales credit memos	(5,590)	(4,126)
Total accounts receivable net	217,020	265,028
Trade accounts receivable
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	188,304	234,473
Unbilled trade accounts receivable
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	$ 34,306	$ 34,681

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Changes in Carrying Amount of Goodwill (Detail) $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($)
Goodwill [Line Items]
Balance as of January 1,	$ 73,164
Purchase price adjustments to goodwill	(354)
Currency translation adjustments	80
Balance as of June 30,	$ 72,890

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Schedule of Amortizable Intangible Asset (Detail) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Goodwill and Other Intangible Assets [Line Items]
Cost	$ 127,435	$ 127,394
Accumulated Amortization	(89,591)	(83,203)
Net Book Value	37,844	44,191
Customer related intangibles
Goodwill and Other Intangible Assets [Line Items]
Cost	63,132	63,091
Accumulated Amortization	(41,322)	(37,573)
Net Book Value	21,810	25,518
Technology
Goodwill and Other Intangible Assets [Line Items]
Cost	58,942	58,942
Accumulated Amortization	(42,908)	(40,269)
Net Book Value	16,034	18,673
Other intangibles
Goodwill and Other Intangible Assets [Line Items]
Cost	5,361	5,361
Accumulated Amortization	$ (5,361)	$ (5,361)
Minimum | Customer related intangibles
Goodwill and Other Intangible Assets [Line Items]
Range of Useful Lives	4 years	4 years
Minimum | Technology
Goodwill and Other Intangible Assets [Line Items]
Range of Useful Lives	3 years	3 years
Maximum | Customer related intangibles
Goodwill and Other Intangible Assets [Line Items]
Range of Useful Lives	10 years	10 years
Maximum | Technology
Goodwill and Other Intangible Assets [Line Items]
Range of Useful Lives	10 years	10 years

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Amortization Expense of Acquired Intangibles (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Acquired Finite-Lived Intangible Assets [Line Items]
Total amortization expense	$ 3,174	$ 3,604	$ 6,374	$ 6,569
Cost of revenue
Acquired Finite-Lived Intangible Assets [Line Items]
Total amortization expense	1,305	1,638	2,639	2,984
Operating expenses
Acquired Finite-Lived Intangible Assets [Line Items]
Total amortization expense	$ 1,869	$ 1,966	$ 3,735	$ 3,585

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Estimated Future Amortization Expense (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Goodwill and Other Intangible Assets [Line Items]
Remainder of 2017	$ 5,953
2018	11,343
2019	5,551
2020	2,655
2021	2,631
2022 and thereafter	9,711
Net Book Value	$ 37,844	$ 44,191

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Schedule of Accrued Expenses (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Accrued expenses
Professional services contractor fees	$ 7,125	$ 6,550
Other taxes	5,338	9,031
Marketing and sales program expenses	5,188	1,508
Professional fees	3,276	3,654
Other	3,084	2,411
Self-insurance health and dental claims	2,523	2,182
Fixed assets in progress	2,417	855
Dividends payable	2,328	2,298
Employee reimbursable expenses	2,120	1,624
Short-term deferred rent	1,954	1,770
Partner commissions	1,748	2,199
Income taxes payable	1,038	1,391
Restructuring	98	105
Acquisition-related expenses and merger consideration		290
Foreign currency forward contracts		883
Total accrued expenses	$ 38,237	$ 36,751

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Schedule of Deferred Revenue (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	$ 169,926	$ 175,647
Long-term deferred revenue	8,431	10,989
Total deferred revenue	178,357	186,636
Term license
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	6,294	15,843
Perpetual license
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	24,709	23,189
Long-term deferred revenue	5,833	7,909
Maintenance
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	111,759	112,397
Long-term deferred revenue	1,465	1,802
Cloud
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	17,677	13,604
Long-term deferred revenue	1,133	1,278
Services
Deferred Revenue Arrangement [Line Items]
Current deferred revenue	$ 9,487	$ 10,614

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Stock-Based Compensation Expense Included in Consolidated Statements of Operations (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 13,932	$ 10,881	$ 26,440	$ 19,816
Income tax benefit	(4,287)	(3,085)	(8,102)	(5,690)
Cost of revenue
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	3,677	2,914	7,299	5,594
Operating expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 10,255	$ 7,967	$ 19,141	$ 14,222

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Stock-Based Compensation - Additional Information (Detail) $ in Millions	6 Months Ended
	Jun. 30, 2017 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense | $	$ 64.7
Weighted-average period of recognition of unrecognized stock-based compensation expense (in years)	2 years 1 month 6 days
Employees | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued	1,068,000
Non-employee directors | Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued	13,000
Nonqualified Stock Options | Employees
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of shares granted | $	$ 19.2
Number of shares granted, options	1,441,000
RSUs | Employees
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares granted, RSUs	954,000
Fair value of shares granted | $	$ 41.9
RSUs granted in connection with the 2016 CICP	175,000
Percentage of target incentive compensation eligible to be elected and received by employees in the form of RSUs	50.00%
Restricted stock compensation expense | $	$ 7.7
Total stock-based compensation, period of recognition	1 year

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Summary of Basic and Diluted Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Earning per share reconciliation
Net income	$ 11,406	$ 4,536	$ 38,427	$ 14,936
Weighted-average common shares outstanding	77,313	76,318	77,039	76,347
Earnings per share, basic	$ 0.15	$ 0.06	$ 0.50	$ 0.20
Net income	$ 11,406	$ 4,536	$ 38,427	$ 14,936
Effect of assumed exercise of stock options and RSUs	5,632	3,104	5,373	2,982
Weighted-average common shares outstanding, assuming dilution	82,945	79,422	82,412	79,329
Earnings per share, diluted	$ 0.14	$ 0.06	$ 0.47	$ 0.19
Outstanding stock options and RSUs excluded as impact would be anti-dilutive	237	315	276	404
Stock Options
Earning per share reconciliation
Weighted-average effect of dilutive securities	3,694	1,924	3,439	1,808
RSUs
Earning per share reconciliation
Weighted-average effect of dilutive securities	1,938	1,180	1,934	1,174

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Geographic Information and Major Clients - Additional Information (Detail)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017 Customer	Jun. 30, 2016 Customer	Jun. 30, 2017 Segment Unit Customer	Jun. 30, 2016 Customer	Dec. 31, 2016 Customer
Geographic information and major clients
Number of reportable segment, customer engagement solutions | Segment			1
Number of reporting unit | Unit			1
Number of clients representing 10% or more of Company's total revenue	0	0	0	0
Number of clients representing 10% or more of Company's total outstanding trade receivables			0		0
Clients accounting for 10% or more of total revenue or outstanding trade receivables			No client accounted for 10% or more of the Company’s total revenue during the three and six months ended June 30, 2017 and 2016. No client accounted for 10% or more of the Company’s total outstanding trade receivables as of June 30, 2017 or December 31, 2016.
Credit Concentration Risk | Total Revenue | Minimum
Geographic information and major clients
Concentration risk, percentage	10.00%	10.00%	10.00%	10.00%
Credit Concentration Risk | Trade Receivables | Minimum
Geographic information and major clients
Concentration risk, percentage			10.00%		10.00%

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Revenue from International Clients by Geographic Areas (Detail) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue		$ 197,980	$ 188,996	$ 421,227	$ 367,854
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		$ 118,447	$ 103,547	$ 256,056	$ 196,775
Geographic revenue percentage		60.00%	55.00%	60.00%	53.00%
Other Americas
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue		$ 12,086	$ 15,983	$ 21,577	$ 41,542
Geographic revenue percentage		6.00%	8.00%	5.00%	12.00%
United Kingdom
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue		$ 19,228	$ 31,336	$ 49,418	$ 55,691
Geographic revenue percentage		10.00%	17.00%	12.00%	15.00%
Other EMEA
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue	[1]	$ 27,395	$ 22,391	$ 49,241	$ 43,658
Geographic revenue percentage	[1]	13.00%	12.00%	12.00%	12.00%
Asia Pacific
Revenues from External Customers and Long-Lived Assets [Line Items]
Geographic revenue		$ 20,824	$ 15,739	$ 44,935	$ 30,188
Geographic revenue percentage		11.00%	8.00%	11.00%	8.00%

[1] Includes Europe, the Middle East and Africa, but excludes the United Kingdom.