What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-10-28 compared with 2020-07-28 · 146 added, 81 removed, 415 unchanged (35% of the section changed)

3 unchanged sentences

(in thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

Cash and cash equivalents $ 281,218 $ 68,363

Marketable securities 186,810 —

Total cash, cash equivalents, and marketable securities 468,028 68,363

Accounts receivable 137,953 199,720

23 unchanged sentences

80,697 and 79,599 shares issued and outstanding at

June 30, 2020 and December 31, 2019, respectively

September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 201,882 140,523

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

36 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Net (loss) $ ( 19,267 ) $ ( 30,338 ) $ ( 65,379 ) $ ( 91,351 )

Other comprehensive income (loss), net of tax

Unrealized gain on available-for-sale securities — 238 100 612

Other comprehensive (loss) income, net of tax

Unrealized (loss) gain on available-for-sale securities ( 166 ) ( 216 ) ( 66 ) 396

Foreign currency translation adjustments 113 ( 2,201 ) 1,627 ( 983 )

Total other comprehensive income (loss), net of tax 2,028 ( 171 ) 1,614 1,830

Total other comprehensive (loss) income, net of tax $ ( 53 ) $ ( 2,417 ) $ 1,561 $ ( 587 )

Comprehensive (loss) $ ( 19,320 ) $ ( 32,755 ) $ ( 63,818 ) $ ( 91,938 )

24 unchanged sentences

June 30, 2019 79,144 $ 791 $ 122,880 $ 445,108 $ ( 11,492 ) $ 557,287

Repurchase of common stock ( 88 ) ( 1 ) ( 6,396 ) — — ( 6,397 )

Issuance of common stock for share-based compensation plans 268 3 ( 8,804 ) — — ( 8,801 )

Stock-based compensation — — 21,879 — — 21,879

Cash dividends declared ($ 0.03 per share)

— — — ( 2,381 ) — ( 2,381 )

Other comprehensive (loss) — — — — ( 2,417 ) ( 2,417 )

Net (loss) — — — ( 30,338 ) — ( 30,338 )

September 30, 2019 79,324 $ 793 $ 129,559 $ 412,389 $ ( 13,909 ) $ 528,832

See notes to unaudited condensed consolidated financial statements.

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss)

Stockholders’ Equity

of Shares Amount

December 31, 2019 79,599 $ 796 $ 140,523 $ 410,919 $ ( 13,228 ) $ 539,010

17 unchanged sentences

June 30, 2020 80,420 $ 804 $ 207,103 $ 359,989 $ ( 11,614 ) $ 556,282

Repurchase of common stock ( 94 ) ( 1 ) ( 10,628 ) — — ( 10,629 )

Issuance of common stock for share-based compensation plans 371 4 ( 22,524 ) — — ( 22,520 )

Stock-based compensation — — 27,931 — — 27,931

Cash dividends declared ($ 0.03 per share)

— — — ( 2,422 ) — ( 2,422 )

Other comprehensive (loss) — — — — ( 53 ) ( 53 )

Net (loss) — — — ( 19,267 ) — ( 19,267 )

September 30, 2020 80,697 $ 807 $ 201,882 $ 338,300 $ ( 11,667 ) $ 529,322

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

Net (loss) $ ( 65,379 ) $ ( 91,351 )

Adjustments to reconcile net (loss) to cash (used in) provided by operating activities

Adjustments to reconcile net (loss) to cash (used in) operating activities

Stock-based compensation 76,755 60,242

6 unchanged sentences

Amortization of investments 252 798

Foreign currency transaction loss 1,691 1,607

Foreign currency transaction (gain) loss ( 2,545 ) 3,577

Other non-cash ( 1,374 ) ( 363 )

Change in operating assets and liabilities, net ( 33,675 ) 4,342

Cash (used in) provided by operating activities ( 21,199 ) 7,720

Cash (used in) operating activities ( 26,257 ) ( 13,462 )

Investing activities

28 unchanged sentences

NEW ACCOUNTING PRONOUNCEMENTS

Convertible debt

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature.

As a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.

Additionally, the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life.

Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium.

Additionally, the standard requires applying the if-converted method to calculate convertible instruments’ impact on diluted earnings per share (“EPS”).

The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020.

It can be adopted on either a full retrospective or modified retrospective basis.

The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and related disclosures.

The Company expects to early adopt the new standard on January 1, 2021.

Financial instruments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

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 accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model.

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.

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 asset’s amortized cost, removing the concept of “other-than-temporary” impairments.

The Company adopted this standard effective January 1, 2020.

The adoption of this standard did not have a material effect on the Company’s financial position or results of operations.

MARKETABLE SECURITIES

September 30, 2020

(in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Government debt $ 50,987 $ — $ ( 11 ) $ 50,976

Corporate debt 136,045 1 ( 212 ) 135,834

$ 187,032 $ 1 $ ( 223 ) $ 186,810

As of September 30, 2020, maturities of marketable securities ranged from October 2020 to September 2023, with a weighted-average remaining maturity of approximately 1.3 years.

As of December 31, 2019, the Company did not hold any marketable securities.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

(in thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Accounts receivable $ 137,953 $ 199,720

3 unchanged sentences

Unbilled receivables are client committed amounts for which revenue recognition precedes billing, and billing is solely subject to the passage of time.

They are expected to be billed in the future as follows:

Unbilled receivables are expected to be billed in the future as follows:

(Dollars in thousands)

June 30, 2020

September 30, 2020

1 year or less $ 208,823 66 %

4 unchanged sentences

(Dollars in thousands)

June 30, 2020

September 30, 2020

2020 $ 105,380 33 %

6 unchanged sentences

Clients accounting for 10% or more of the Company’s receivables:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Client A 11 % *

* Client accounted for less than 10% of total receivables.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contract assets and deferred revenue

(in thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Contract assets (1)

11 unchanged sentences

Contract assets and deferred revenue are netted at the contract level for each reporting period.

The change in deferred revenue in the six months ended June 30, 2020 was primarily due to new billings in advance of revenue recognition, partially offset by $ 136.8 million of revenue recognized during the period that was included in deferred revenue at December 31, 2019.

The change in deferred revenue in the nine months ended September 30, 2020 was primarily due to new billings in advance of revenue recognition, and $ 170.5 million of revenue recognized during the period that was included in deferred revenue at December 31, 2019.

DEFERRED COMMISSIONS

(in thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Deferred commissions (1)

1 unchanged sentence

(1) Included in other long-term assets.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 2020 2019

1 unchanged sentence

$ 8,861 $ 8,193 $ 24,922 $ 22,372

(1) Included in selling and marketing expenses .

(1) Included in selling and marketing expense .

Convertible senior notes and capped calls

16 unchanged sentences

• During any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds one hundred and thirty percent ( 130 %) of the conversion price for each of at least twenty ( 20 ) trading days (whether or not consecutive) during the thirty ( 30 ) consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

• During the five consecutive business days immediately after any five consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.

• Upon the occurrence of certain corporate events or distributions, or if the Company calls all or any Notes for redemption, then the noteholder of any Note may convert such Note at any time before the close of business on the business day immediately before the related redemption date (or if the Company fails to pay the redemption price due on such redemption date in full, at any time until the Company pays such redemption price in full).

As of June 30, 2020, no Notes were eligible for conversion at the noteholders’ election.

As of September 30, 2020, no Notes were eligible for conversion at the noteholders’ election.

Repurchase rights

2 unchanged sentences

A fundamental change relates to events such as mergers, changes in control of the Company, liquidation/dissolution of the Company, or the delisting of the Company’s common stock.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Impact of the Notes

In accounting for the transaction, the Notes have been separated into liability and equity components.

• The initial carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated conversion feature.

The excess of the principal amount of the Notes over the initial carrying amount of the liability component, the debt discount, is amortized as interest expense over the contractual term of the Notes.

• The initial carrying amount of the liability component was calculated by measuring a similar debt instrument’s fair value that does not have an associated conversion feature.

The excess of the Notes’ principal amount over the initial carrying amount of the liability component, the debt discount, is amortized as interest expense over the Notes’ contractual term.

• The equity component was recorded as an increase to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.

The Company incurred issuance costs of $ 14.5 million related to the Notes, which were allocated between the liability and equity components of the Notes proportionate to the initial carrying amount of the liability and equity components.

• Issuance costs attributable to the liability component are recorded as an offset to the principal balance of the Notes and are amortized as interest expense using the effective interest method over the contractual term of the Notes.

The Company incurred issuance costs of $ 14.5 million related to the Notes, allocated between the Notes’ liability and equity components proportionate to the initial carrying amount of the liability and equity components.

• Issuance costs attributable to the liability component are recorded as an offset to the Notes’ principal balance.

They are amortized as interest expense using the effective interest method over the contractual term of the Notes.

• Issuance costs attributable to the equity component are recorded as an offset to the equity component in additional paid-in capital and are not amortized.

Net carrying amount of the liability component:

(in thousands) June 30, 2020

(in thousands) September 30, 2020

Principal $ 600,000

2 unchanged sentences

Net carrying amount of the equity component, included in additional paid-in capital:

(in thousands) June 30, 2020

(in thousands) September 30, 2020

Conversion options (1)

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 2020 2019

3 unchanged sentences

3,807 — 9,060 —

Amortization of issuance cost (1)

Amortization of issuance costs (1)

565 — 1,345 —

$ 5,497 $ — $ 13,105 $ —

(1) Amortized based upon an effective interest rate of 4.31 %.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Future payments of principal and contractual interest:

June 30, 2020

September 30, 2020

(in thousands) Principal Interest Total

8 unchanged sentences

In February 2020, the Company entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain financial institutions.

The Capped Call Transactions cover approximately 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of the Company’s common stock and are generally expected to reduce potential dilution to the common stock upon any conversion of Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.

The cap price of the Capped Call Transactions is $ 196.44 , subject to adjustment upon the occurrence of specified extraordinary events affecting us, including merger events and tender offers.

The Capped Call Transactions cover approximately 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of the Company’s common stock.

They are generally expected to reduce potential dilution to the common stock upon any conversion of Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.

The cap price of the Capped Call Transactions is $ 196.44 , subject to adjustment upon the occurrence of specified extraordinary events affecting the Company, including merger events and tender offers.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Capped Call Transactions are accounted for as derivative instruments.

The Capped Call Transactions do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value of the Capped Call Transactions, calculated in accordance with the governing documents, may not represent a fair value measurement.

The Capped Call Transactions are classified as “other long term assets” and remeasured to fair value at the end of each reporting period, resulting in a non-operating gain or loss.

Change in value of Capped Call Transactions:

(in thousands) Six Months Ended

June 30, 2020

(in thousands) Nine Months Ended

September 30, 2020

Value at issuance $ 51,900

Fair value adjustment 19,816

Balance as of June 30, $ 52,727

Balance as of September 30, $ 71,716

Credit facility

In November 2019, and as amended in February 2020 and July 2020, the Company entered into a five -year $ 100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC”).

In November 2019, and as amended in February 2020, July 2020, and October 2020, the Company entered into a five-year $ 100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC”).

The Company may use borrowings to finance working capital needs and for general corporate purposes.

Subject to specific conditions, the Credit Facility allows the Company to increase the aggregate commitment to $ 200 million.

The Credit Facility contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions.

The Company is also required to comply with financial covenants including a maximum net consolidated leverage ratio of 3.5 (with a step-up in the event of certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 .

The commitments expire on November 4, 2024, and any outstanding loans will be payable on such date.

As of June 30, 2020 and December 31, 2019, the Company had no outstanding borrowings under the Credit Facility.

The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions.

The Company is also required to comply with financial covenants, including:

• Beginning with the fiscal quarter ended on September 30, 2020 and ending with the fiscal quarter ended December 31, 2021 at least $ 200 million in cash and investments held by Pegasystems Inc.

• Beginning with the quarter ended on March 31, 2022 a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up in the event of certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0.

As of September 30, 2020 and December 31, 2019, we had no outstanding borrowings under the Credit Facility.

FAIR VALUE MEASUREMENTS

6 unchanged sentences

• 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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

This hierarchy requires the Company to use observable market data, when available, and minimize unobservable inputs when determining fair value.

The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model.

4 unchanged sentences

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

1 unchanged sentence

$ 212,917 $ — $ — $ 212,917 $ — $ — $ — $ —

Marketable securities $ — $ 186,810 $ — $ 186,810 $ — $ — $ — $ —

Capped Call Transactions (2) (3)

2 unchanged sentences

$ — $ — $ 7,927 $ 7,927 $ — $ — $ 4,871 $ 4,871

(1) Composed of investments in money market funds.

(1) Investments in money market funds.

(2) Included in other long-term assets.

Debt" for additional information.

(4) Composed of investments in privately-held companies.

(4) Investments in privately-held companies.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Change in venture investments:

(in thousands) Six Months Ended

June 30, 2020

(in thousands) Nine Months Ended

September 30, 2020

December 31, 2019 $ 4,871

1 unchanged sentence

Sales of investments ( 1,424 )

Changes in foreign exchange rates ( 50 )

Fair value adjustment 1,474

June 30, 2020 $ 6,640

September 30, 2020 $ 7,927

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

4 unchanged sentences

The carrying value of the Notes will be accreted, over the remaining term to maturity, to their principal value of $ 600 million.

The fair value of the Notes (inclusive of the conversion feature which is embedded in the Notes) was $ 602 million as of June 30, 2020.

The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and has been classified within Level 2 in the fair value hierarchy.

The Notes’ fair value (inclusive of the conversion feature, which is embedded in the Notes) was $ 680 million as of September 30, 2020.

The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy.

Debt" for additional information.

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in thousands)

6 unchanged sentences

$ 225,951 100 % $ 216,703 100 % $ 718,917 100 % $ 634,841 100 %

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenue streams

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands)

8 unchanged sentences

$ 225,951 $ 216,703 $ 718,917 $ 634,841

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands) Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Term license $ 44,266 $ 24,954 $ 134,523 $ 73,268

Pega Cloud $ 54,776 $ 35,153 $ 147,080 $ 94,610

Maintenance 74,670 70,371 220,587 207,406

Term license 35,932 48,989 170,455 122,257

Subscription (1)

3 unchanged sentences

$ 225,951 $ 216,703 $ 718,917 $ 634,841

(1) Reflects client arrangements (term license, Pega Cloud, and maintenance) that are subject to renewal.

(1) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).

Remaining performance obligations ("Backlog")

Expected future revenue on existing contracts:

June 30, 2020

September 30, 2020

(Dollars in thousands)

5 unchanged sentences

$ 10,408 $ 63,185 $ 239,148 $ 506,807 $ 18,442 $ 837,990 100 %

June 30, 2019

September 30, 2019

(Dollars in thousands)

5 unchanged sentences

$ 9,848 $ 30,422 $ 190,092 $ 363,372 $ 14,849 $ 608,583 100 %

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

STOCK-BASED COMPENSATION

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 2020 2019

Cost of revenues

Cost of revenue

$ 5,100 $ 4,787 $ 15,636 $ 14,216

8 unchanged sentences

$ ( 5,604 ) $ ( 4,430 ) $ ( 15,293 ) $ ( 12,226 )

As of June 30, 2020, the Company had $ 130.3 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years.

As of September 30, 2020, the Company had $ 115.0 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years.

The Company granted the following stock-based compensation awards:

Six Months Ended

June 30, 2020

Nine Months Ended

September 30, 2020

(in thousands) Shares Total Fair Value

1,026 $ 92,456

Non-qualified stock options

1,886 $ 44,505

Common stock 6 $ 701

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Effective income tax rate

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in thousands) 2020 2019 2020 2019

1 unchanged sentence

Effective income tax rate 48 % 32 %

During the six months ended June 30, 2020, the Company’s effective income tax rate benefit increased primarily due to the excess tax benefits from stock-based compensation and a carryback claim benefit as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), partially offset by Global Intangible Low-Taxed Income (“GILTI”).

During the nine months ended September 30, 2020, the Company’s effective income tax rate benefit increased primarily due to the excess tax benefits from stock-based compensation and a carryback claim benefit as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) .

(LOSS) PER SHARE

1 unchanged sentence

Diluted (loss) per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and the conversion spread of the Company’s convertible senior notes.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Calculation of the basic and diluted earnings per share:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except per share amounts) 2020 2019 2020 2019

16 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements