Pegasystems Announces Eleventh Consecutive Quarter of Record Revenue; Revenue Guidance Increased as Chordiant

CAMBRIDGE, MA, Apr 22 (MARKET WIRE) --
Pegasystems Inc. (NASDAQ: PEGA), the leader in Business Process
Management (BPM) software solutions, today announced financial results
for the first quarter ended March 31, 2010. Revenue for the first quarter
of 2010 increased 20% to $75.1 million compared to the first quarter of
2009. Net income for the first quarter of 2010 was $3.9 million compared
to $8.6 million for the first quarter of 2009. The Company generated $4.8
million in cash from operations and had $202.1 million in cash, cash
equivalents, and marketable securities as of March 31, 2010. The first
quarter 2010 results do not include the operating results of Chordiant as
the acquisition was completed in April 2010.

Selected financial information:

Three Months Ended
March 31,
2010 2009
-------------- --------------
(In thousands, except per
share amounts)

Software license $ 30,343 $ 28,036
Maintenance 15,086 11,948
Professional services 29,655 22,383
-------------- --------------
Total revenue $ 75,084 $ 62,367
Gross profit $ 48,648 $ 41,836
Income from operations $ 8,562 $ 12,335
Net income $ 3,851 $ 8,642
============== ==============
Earnings per share, basic $ 0.10 $ 0.24
============== ==============
Earnings per share, diluted $ 0.10 $ 0.23
-------------- --------------

Business Perspective

"We continued to see strong demand for our patented Build for Change(R)
technology during the first quarter of 2010," said Alan Trefler, Founder
and CEO of Pegasystems. "We have seen increased adoption across industries
including insurance, financial services, healthcare, government agencies,
airport management, and warranty management. Our new SmartBPM(R) 6
software release continues to raise the bar by delivering unparalleled
power, ease of use, and collaboration. SmartBPM(R) is becoming the
unifying force that bridges the gap between business and IT, while also
bringing increased operational efficiency to our customers for rapid
returns on investment. We continue to complement SmartBPM(R) with
preconfigured industry solutions, such as the Individual Sales Process
Manager for Healthcare(TM), which coincided with the new healthcare
reform legislation in time to help insurers enroll millions of new
individual participants in health plans."

"The addition of Chordiant staff, technology, and clients strengthens our
position in the growing customer experience management market. We are
looking forward to showcasing our complementary solutions to over 1,000
Pegasystems clients and partners at our PegaWORLD conference in
Philadelphia next week. This record setting event will highlight the power
of BPM with over 30 client speakers attesting to the tremendous value that
SmartBPM(R) drives," concluded Mr. Trefler.

"We are executing well on our plan to invest in support of continued
growth. Our operating expenses reflect our investment in sales, marketing,
and R&D headcount, which made up the significant majority of the record
113 new employees in the quarter," added Craig Dynes, Pegasystems' CFO.
"With the completion of the Chordiant acquisition, we are able to
increase our 2010 revenue guidance to approximately $348 million on a
GAAP basis, or $360 million on a non-GAAP basis. We don't expect changes
in the profitability of the core Pegasystems business in 2010 and expect
the Chordiant acquisition to be accretive, but since the acquisition was
just completed yesterday, we have not finished our purchase accounting,
and thus are unable to provide updated 2010 earnings guidance. However,
the new business combination rules are already impacting our financial
statements; in Q1 we recorded $1.5 million of acquisition-related
expenses, many of which are not tax deductible and caused our effective
tax rate to jump up to almost 39%.These acquisition expenses, along with
foreign currency issues in Europe, do not reflect any change in our
business conditions, but impacted our earnings per share by about ten
cents in the quarter."

Messrs. Trefler and Dynes will be hosting a conference call and live
Webcast associated with this announcement at 9:00 a.m. ET on April 23,
2010. Dial-in information is as follows: 1 (877) 348-9349 (domestic) or 1
(678) 809-1046 (international).

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

Discussion of Non-GAAP Measure
Pegasystems provides non-GAAP revenue
guidance as additional information for investors. Chordiant recorded
deferred revenue related to past transactions for which revenue would
have been recognized in future periods as revenue recognition criteria
were satisfied. Purchase accounting for the acquisition requires the
Company to write down this acquired deferred revenue to its current fair
value. As a result, in post-acquisition reporting periods, the Company
does not recognize the full amount of this revenue that otherwise would
have been recognized by Chordiant as an independent company. The Company
will adjust for the effect of the deferred revenue write-down adjustment
in non-GAAP revenue guidance to reflect the full amount of these revenues
and provide a more complete comparison of the revenue guidance to peer
companies. The Company believes the non-GAAP revenue adjustment is useful
to management and investors as a measure of the ongoing revenue stream of
the business because while the Company cannot be certain that customers
will renew their contracts, the Company historically has experienced
strong renewal rates on maintenance and support agreements and other
customer contracts.

This non-GAAP measure is not in accordance with, or an alternative to,
generally accepted accounting principles in the United States (GAAP). Such
measure is intended to supplement GAAP and may be different from non-GAAP
measures used by other companies. The Company's non-GAAP financial measure
is not meant to be considered in isolation or as a substitute for
comparable GAAP measures and should be read only in conjunction with the
Company's consolidated financial statements and revenue guidance prepared
in accordance with GAAP. A reconciliation of the Company's GAAP revenue
guidance to non-GAAP revenue guidance is included in the table below.

Pegasystems Inc.

Reconciliation of GAAP Revenue Guidance to Non-GAAP Revenue Guidance

Year ended
December 31,
2010
--------------
(in thousands)
2010 Revenue Guidance on GAAP Basis: 348,000
Add: effect of deferred revenue write-down adjustment 12,000
--------------
2010 Revenue Guidance on Non-GAAP Basis 360,000

Forward-Looking Statements
Certain statements contained in this
press release may be construed as "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995, including those
regarding 2010 revenue and profitability. The words "anticipate,"
"project," "expect," "plan," "intend," "believe," "estimate," "target,"
"forecast," "could," "preliminary," "guidance" and similar expressions,
among others, identify forward-looking statements, which speak only as of
the date the statement was made. These statements are based on current
expectations and assumptions and involve various risks and uncertainties,
which could cause the Company's actual results to differ from those
expressed in such forward-looking statements. These risks and
uncertainties include, among others, the Company's ability to
successfully integrate the operations of Chordiant Software, Inc.,
variation in demand for our products and services and the difficulty in
predicting the completion of product acceptance and other factors
affecting the timing of our license revenue recognition, the mix of
perpetual and term licenses and the level of term license renewals, our
ability to develop new products and evolve existing ones, the weak global
economy and the ongoing consolidation in the financial services and
healthcare markets, our ability to attract and retain key personnel,
reliance on key third party relationships, the potential loss of vendor
specific objective evidence for our professional services, and management
of the Company's growth. Further information regarding these and other
factors which could cause the Company's actual results to differ
materially from any forward-looking statements contained in this press
release is contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 2009 and other recent filings with the Securities
and Exchange Commission. The forward-looking statements contained in this
press release represent the Company's views as of April 22, 2010.
Investors are cautioned not to place undue reliance on such
forward-looking statements and there are no assurances that the matters
contained in such statements will be achieved. Although subsequent events
may cause the Company's view to change, the Company does not undertake
and specifically disclaims any obligation to publicly update or revise
these forward-looking statements whether as the result of new
information, future events or otherwise. The statements should therefore
not be relied upon as representing the Company's view as of any date
subsequent to April 22, 2010.

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

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

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

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

All trademarks are the property of their respective owners.

Pegasystems Inc.
Unaudited Condensed Consolidated Statements of Income

Three Months Ended
March 31,
2010 2009
----------- -----------
(in thousands, except
per share amounts)
Revenue:
Software license $ 30,343 $ 28,036
Maintenance 15,086 11,948
Professional services 29,655 22,383
----------- -----------
Total revenue 75,084 62,367
----------- -----------
Cost of revenue:
Cost of software license 31 31
Cost of maintenance 1,937 1,437
Cost of professional services 24,468 19,063
----------- -----------
Total cost of revenue (1) 26,436 20,531
----------- -----------
Gross profit 48,648 41,836
----------- -----------
Operating expenses:
Selling and marketing 21,893 15,436
Research and development 11,626 9,119
General and administrative 5,059 4,946
Acquisition-related costs 1,508 -
----------- -----------
Total operating expenses (1) 40,086 29,501
----------- -----------
Income from operations 8,562 12,335
Foreign currency transaction loss (3,074) (812)
Interest income, net 513 802
Installment receivable interest income 52 75
Other income, net 241 10
----------- -----------
Income before provision for income taxes 6,294 12,410
Provision for income taxes 2,443 3,768
----------- -----------
Net income $ 3,851 $ 8,642
=========== ===========

Earnings per share
Basic $ 0.10 $ 0.24
=========== ===========
Diluted $ 0.10 $ 0.23
=========== ===========

Weighted-average number of common shares
outstanding
Basic 36,873 35,670
Diluted 38,702 37,421
Cash dividends declared per share $ 0.03 $ 0.03
=========== ===========

(1) Includes stock-based compensation as follows:
Cost of revenue $ 398 $ 506
Operating expenses $ 1,048 $ 1,192

Pegasystems Inc.
Unaudited Condensed Consolidated Balance Sheets

As of As of
March 31, December 31,
2010 2009
------------ ------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 201,065 $ 63,857
Marketable securities 1,000 138,796
------------ ------------
Total cash, cash equivalents, and
marketable securities 202,065 202,653
Trade accounts receivable, net 42,333 39,396
Short-term license installments 2,727 2,829
Deferred income taxes 2,481 2,523
Income taxes receivable and other current
assets 9,792 8,840
------------ ------------
Total current assets 259,398 256,241
Long-term license installments, net 2,685 2,976
Property and equipment, net 10,013 8,931
Long-term deferred income taxes and other assets 8,667 8,710
Intangible assets, net 301 336
Goodwill 2,391 2,391
------------ ------------
Total assets $ 283,455 $ 279,585
============ ============

Current liabilities:
Accounts payable $ 2,815 $ 4,791
Accrued expenses 11,452 6,748
Accrued compensation and related expenses 12,253 23,280
Deferred revenue 42,129 32,870
------------ ------------
Total current liabilities 68,649 67,689
Income taxes payable 4,930 4,828
Other long-term liabilities 1,776 1,849
------------ ------------
Total liabilities 75,355 74,366
Stockholders' equity: 208,100 205,219
------------ ------------
Total liabilities and stockholders'
equity $ 283,455 $ 279,585
============ ============

Pegasystems Inc.
Unaudited Condensed Consolidated Statements of Cash Flows

Three Months Ended
March 31,
2010 2009
----------- -----------
(in thousands)
Operating activities:
Net income $ 3,851 $ 8,642

Adjustments to reconcile net income to cash
provided by operating activities:
Excess tax benefit from equity awards
and deferred income taxes (3,783) (2,813)
Depreciation, amortization, and other
non-cash items 885 609
Amortization of investments and realized
gain on sale of investments 658 943
Stock-based compensation expense 1,446 1,698
Change in operating assets and
liabilities, and other, net 1,767 4,772
----------- -----------
Cash provided by operating activities 4,824 13,851
----------- -----------
Cash provided by (used in) investing
activities 134,471 (5,778)
----------- -----------
Cash used in financing activities (1,600) (6,137)
----------- -----------
Effect of exchange rate on cash and cash
equivalents (487) (224)
----------- -----------
Net increase in cash and cash equivalents 137,208 1,712
Cash and cash equivalents, beginning of period 63,857 36,087
----------- -----------
Cash and cash equivalents, end of period $ 201,065 $ 37,799
=========== ===========

For Information, contact:
Craig Dynes
Chief Financial Officer
617-866-6020
CDynes@pega.com

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