What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-14 compared with 2023-02-15 · 225 added, 204 removed, 911 unchanged (32% of the section changed)

4 unchanged sentences

Consolidated Statements of Operations for the years ended December 31, 2023, 2022, and 2021

Consolidated Statements of Comprehensive (Loss) for the years ended December 31, 2022, 2021, and 2020

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, 2022, and 2021

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022, and 2021

6 unchanged sentences

We have audited the accompanying consolidated balance sheets of Pegasystems Inc.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) i ssued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

61 unchanged sentences

Total cash, cash equivalents, and marketable securities 423,338 297,221

Accounts receivable 255,150 182,717

Unbilled receivables 213,719 226,714

Accounts receivable, net 300,173 255,150

Unbilled receivables, net 237,379 213,719

Other current assets 68,137 80,388

Total current assets 1,029,027 846,478

Unbilled receivables 95,806 129,789

Long-term unbilled receivables, net 85,402 95,806

Goodwill 81,611 81,399

9 unchanged sentences

Total current liabilities 577,059 538,940

Convertible senior notes, net 593,609 590,722

Operating lease liabilities 79,152 87,818

Long-term convertible senior notes, net 499,368 593,609

Long-term operating lease liabilities 66,901 79,152

Other long-term liabilities 13,570 15,128

6 unchanged sentences

Additional paid-in capital 379,584 229,602

(Accumulated deficit) retained earnings ( 76,513 ) 276,449

(Accumulated deficit) ( 8,705 ) ( 76,513 )

Accumulated other comprehensive (loss)

11 unchanged sentences

Subscription license 407,625 366,063 336,248

Perpetual license 19,293 32,172 28,558

Consulting 221,706 230,654 222,010

Perpetual license 10,101 19,293 32,172

Total revenue 1,432,616 1,317,845 1,211,653

2 unchanged sentences

Subscription license 2,606 2,642 2,389

Perpetual license 175 229 284

Consulting 231,560 227,082 213,299

Perpetual license 67 175 229

Total cost of revenue 378,483 368,635 336,363

6 unchanged sentences

Total operating expenses 973,179 1,058,615 970,022

(Loss) from operations ( 109,405 ) ( 94,732 ) ( 143,527 )

Foreign currency transaction gain (loss) 4,560 ( 6,459 ) 3,704

Income (loss) from operations 80,954 ( 109,405 ) ( 94,732 )

Foreign currency transaction (loss) gain ( 5,242 ) 4,560 ( 6,459 )

Interest income 9,259 1,643 704

Interest expense ( 6,876 ) ( 7,792 ) ( 7,956 )

(Loss) gain on capped call transactions ( 57,382 ) ( 23,633 ) 31,697

(Loss) on capped call transactions ( 1,348 ) ( 57,382 ) ( 23,633 )

Other income, net 18,693 6,579 89

(Loss) before provision for (benefit from) income taxes ( 161,797 ) ( 131,987 ) ( 124,889 )

Income (loss) before provision for (benefit from) income taxes 95,440 ( 161,797 ) ( 131,987 )

Provision for (benefit from) income taxes 27,632 183,785 ( 68,947 )

Net (loss) $ ( 345,582 ) $ ( 63,040 ) $ ( 61,373 )

(Loss) per share

Net income (loss) $ 67,808 $ ( 345,582 ) $ ( 63,040 )

Earnings (loss) per share

Basic $ 0.82 $ ( 4.22 ) $ ( 0.77 )

5 unchanged sentences

PEGASYSTEMS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

1 unchanged sentence

2023 2022 2021

Net (loss) $ ( 345,582 ) $ ( 63,040 ) $ ( 61,373 )

Other comprehensive (loss) income, net of tax

Unrealized (loss) gain on available-for-sale securities ( 169 ) 640 46

Net income (loss) $ 67,808 $ ( 345,582 ) $ ( 63,040 )

Other comprehensive income (loss), net of tax

Unrealized gain (loss) on available-for-sale securities 152 ( 169 ) 640

Foreign currency translation adjustments 5,039 ( 15,913 ) ( 4,680 )

Total other comprehensive (loss) income, net of tax ( 16,082 ) ( 4,040 ) 10,280

Comprehensive (loss) $ ( 361,664 ) $ ( 67,080 ) $ ( 51,093 )

Total other comprehensive income (loss), net of tax 5,191 ( 16,082 ) ( 4,040 )

Comprehensive income (loss) $ 72,999 $ ( 361,664 ) $ ( 67,080 )

See notes to consolidated financial statements.

7 unchanged sentences

January 1, 2021 80,890 $ 809 $ 204,432 $ 339,879 $ ( 2,948 ) $ 542,172

Equity component of convertible senior notes, net — — 61,604 — — 61,604

Cumulative-effect adjustment from adoption of ASU 2020-06, net — — ( 61,604 ) 9,399 — ( 52,205 )

Repurchase of common stock ( 432 ) ( 5 ) ( 53,605 ) — — ( 53,610 )

4 unchanged sentences

— — — ( 9,789 ) — ( 9,789 )

Other comprehensive income — — — — 10,280 10,280

Other comprehensive (loss) — — — — ( 4,040 ) ( 4,040 )

Net (loss) — — — ( 63,040 ) — ( 63,040 )

December 31, 2021 81,712 $ 817 $ 145,810 $ 276,449 $ ( 6,988 ) $ 416,088

Cumulative-effect adjustment from adoption of ASU 2020-06, net — — ( 61,604 ) 9,399 — ( 52,205 )

Repurchase of common stock ( 280 ) ( 2 ) ( 24,506 ) — — ( 24,508 )

7 unchanged sentences

December 31, 2022 82,436 $ 824 $ 229,602 $ ( 76,513 ) $ ( 23,070 ) $ 130,843

Repurchase of common stock ( 280 ) ( 2 ) ( 24,506 ) — — ( 24,508 )

Issuance of common stock for stock compensation plans 1,212 12 8,893 — — 8,905

3 unchanged sentences

— — ( 10,005 ) — — ( 10,005 )

Other comprehensive (loss) — — — — ( 16,082 ) ( 16,082 )

Net (loss) — — — ( 345,582 ) — ( 345,582 )

Other comprehensive income — — — — 5,191 5,191

Net income — — — 67,808 — 67,808

December 31, 2023 83,840 $ 838 $ 379,584 $ ( 8,705 ) $ ( 17,879 ) $ 353,838

6 unchanged sentences

Operating activities

Net (loss) $ ( 345,582 ) $ ( 63,040 ) $ ( 61,373 )

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

Net income (loss) $ 67,808 $ ( 345,582 ) $ ( 63,040 )

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

Stock-based compensation 143,352 122,210 115,947

Deferred income taxes 168,890 ( 75,336 ) ( 59,777 )

Loss (gain) on capped call transactions 57,382 23,633 ( 31,697 )

Amortization of deferred commissions 59,461 53,471 41,387

Lease expense 15,940 13,277 16,248

Amortization of intangible assets and depreciation 18,746 18,780 28,593

Foreign currency transaction (gain) loss ( 4,560 ) 6,459 ( 3,704 )

Other 157 7,730 15,007

Lease expense 15,912 15,940 13,277

Foreign currency transaction (loss) gain 5,242 ( 4,560 ) 6,459

Loss on capped call transactions 1,348 57,382 23,633

Deferred income taxes 363 168,890 ( 75,336 )

(Gain) on investments ( 10,841 ) ( 6,578 ) ( 89 )

(Gain) on repurchases of convertible senior notes ( 7,855 ) — —

Other non-cash 2,255 6,735 7,819

Change in operating assets and liabilities:

5 unchanged sentences

Other long-term assets and liabilities ( 23,581 ) ( 13,312 ) ( 15,886 )

Cash provided by (used in) operating activities 22,336 39,118 ( 563 )

Cash provided by operating activities 217,785 22,336 39,118

Investing activities

4 unchanged sentences

Investment in property and equipment ( 16,781 ) ( 35,379 ) ( 10,456 )

Cash provided by (used in) investing activities 13,075 72,503 ( 321,683 )

Cash (used in) provided by investing activities ( 50,750 ) 13,075 72,503

Financing activities

Proceeds from issuance of convertible senior notes — — 600,000

Purchase of capped calls related to convertible senior notes — — ( 51,900 )

Payment of debt issuance costs — — ( 14,527 )

Proceeds from employee stock purchase plan 9,172 10,554 3,039

Repurchases of convertible senior notes ( 88,989 ) — —

Dividend payments to stockholders ( 9,964 ) ( 9,834 ) ( 9,761 )

Proceeds from employee stock purchase plan 7,744 9,172 10,554

Proceeds from stock option exercises 10,821 — —

Common stock repurchases for tax withholdings for net settlement of equity awards ( 1,916 ) ( 20,620 ) ( 69,925 )

Common stock repurchases under stock repurchase program — ( 25,707 ) ( 52,711 )

Cash (used in) provided by financing activities ( 46,989 ) ( 121,843 ) 423,448

Effect of exchange rate changes on cash and cash equivalents ( 3,333 ) ( 1,712 ) 2,334

Net (decrease) increase in cash and cash equivalents ( 14,911 ) ( 11,934 ) 103,536

Cash and cash equivalents, beginning of period 159,965 171,899 68,363

Cash and cash equivalents, end of period $ 145,054 $ 159,965 $ 171,899

Other 341 — —

Cash (used in) financing activities ( 81,963 ) ( 46,989 ) ( 121,843 )

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 2,701 ( 3,333 ) ( 1,712 )

Net increase (decrease) in cash, cash equivalents and restricted cash 87,773 ( 14,911 ) ( 11,934 )

Cash, cash equivalents, and restricted cash, beginning of period 145,054 159,965 171,899

Cash, cash equivalents, and restricted cash, end of period $ 232,827 $ 145,054 $ 159,965

Supplemental disclosures

21 unchanged sentences

Certain prior period amounts reported in our consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation.

Such reclassifications did not affect total revenues, (loss) from operations, or net (loss).

Such reclassifications did not affect total revenues, income (loss) from operations, or net income (loss).

SIGNIFICANT ACCOUNTING POLICIES

65 unchanged sentences

A contract modification meeting both criteria is accounted for as a separate contract.

If a contract modification does not meet both criteria, it is accounted for as either:

• a prospective basis as a termination of the existing contract and the creation of a new contract;

• a cumulative catch-up basis.

If a contract modification does not meet both criteria, it is accounted for either:

• on a prospective basis as a termination of the existing contract and the creation of a new contract;

• on a cumulative catch-up basis.

Deferred commissions

16 unchanged sentences

Gains and losses on investments are calculated based on the specific investment.

For additional information see "Note 4.

Receivables, Contract Assets, And Deferred Revenue", "Note 11.

Debt", and "Note 13.

Fair Value Measurements" for additional information.

Fair Value Measurements".

Property and equipment

13 unchanged sentences

The Company accrues loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Significant judgments are required to determine the probability and the range of the outcomes, and the estimates are based only on the information available to us at the time.

Significant judgments are required to determine the probability and the range of the outcomes, and the estimates are based only on the information available to the Company at the time.

Due to the inherent uncertainties involved in claims, legal proceedings, and in estimating the losses that may arise, actual outcomes may differ from the Company’s estimates.

10 unchanged sentences

The Company has a single reporting unit.

The Company performed a qualitative assessment as of November 30, 2022, 2021, and 2020, and concluded that there was no impairment since it was not more-likely-than-not that the fair value of its reporting unit was less than its carrying value.

The Company performed a qualitative assessments as of November 30, 2023, 2022, and 2021, respectively, and concluded that there was no impairment since it was not more-likely-than-not that the fair value of its reporting unit was less than its carrying value.

Intangible and long-lived assets

33 unchanged sentences

Future realization of the Company’s deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods.

Taxable income sources include taxable income in prior carryback years, future reversals of existing taxable temporary differences, the Company’s firm contractual backlog, tax planning strategies, and projected future taxable income.

Taxable income sources include taxable income in prior carryback years, future reversals of existing taxable temporary differences, tax planning strategies, and projected future taxable income.

The Company records a valuation allowance to reduce its deferred tax assets to an amount it believes is more-likely-than-not to be realized.

21 unchanged sentences

$ 193,431 $ 233 $ ( 228 ) $ 193,436 $ 154,866 $ — $ ( 2,699 ) $ 152,167

As of December 31, 2022, marketable securities’ maturities ranged from January 2023 to November 2024, with a weighted-average remaining maturity of 0.5 years.

As of December 31, 2023, marketable securities’ maturities ranged from January 2024 to January 2026, with a weighted-average remaining maturity of 0.7 years.

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

1 unchanged sentence

December 31, 2023 December 31, 2022

Accounts receivable $ 255,150 $ 182,717

Unbilled receivables 213,719 226,714

Long-term unbilled receivables 95,806 129,789

Accounts receivable, net $ 300,173 $ 255,150

Unbilled receivables, net 237,379 213,719

Long-term unbilled receivables, net 85,402 95,806

$ 622,954 $ 564,675

Unbilled receivables

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

Unbilled receivables by expected billing date:

Unbilled receivables are client-committed amounts for which revenue recognition precedes billing.

Billing is solely subject to the passage of time.

Unbilled receivables by expected collection date:

(Dollars in thousands)

13 unchanged sentences

$ 322,781 100 %

Major clients

Clients that represented 10% or more of the Company’s total accounts receivable and unbilled receivables:

December 31, 2022 December 31, 2021

Accounts receivable * 1 %

Unbilled receivables * 15 %

Total receivables * 10 %

* Client accounted for less than 10% of receivables.

Contract assets

48 unchanged sentences

January 1, $ 81,399 $ 81,923

Acquisition — 2,701

Currency translation adjustments 212 ( 524 )

19 unchanged sentences

(1) Included in other long-term assets.

Amortization of intangible assets was:

(in thousands)

2022 2021 2020

Cost of revenue $ 2,723 $ 2,516 $ 2,487

Selling and marketing 1,370 1,471 1,483

$ 4,093 $ 3,987 $ 3,970

Future estimated intangible assets amortization:

1 unchanged sentence

December 31, 2023

SEGMENT 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 assess performance.

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, the Chief Executive Officer, reviews financial information on a consolidated basis.

Therefore, the Company determined it has one operating segment and one reporting unit.

Long-lived assets related to the Company’s U.S.

and international operations were:

(Dollars in thousands) December 31, 2022 December 31, 2021

Amortization of intangible assets:

(in thousands)

2023 2022 2021

International 4,611 8 % 6,289 23 %

Cost of revenue $ 2,570 $ 2,723 $ 2,516

Selling and marketing 1,370 1,370 1,471

$ 3,940 $ 4,093 $ 3,987

8 unchanged sentences

(in thousands) December 31, 2023 December 31, 2022

Deferred income taxes $ 4,795 $ 180,656

Deferred commissions $ 114,119 $ 130,195

Right of use assets 64,198 76,114

Capped call transactions 2,582 59,964

Property and equipment 47,279 55,056

Intangible assets 10,888 14,063

Venture investments 19,450 13,069

Contract assets 20,635 16,470

Intangible assets 7,002 10,888

Capped call transactions 893 2,582

Deferred income taxes 3,678 4,795

Restricted cash 2,925 —

Other 34,517 24,820

4 unchanged sentences

Dividends payable 2,515 2,474

Other $ 3,828 $ —

$ 21,343 $ 17,450

2 unchanged sentences

Deferred revenue $ 2,478 $ 3,552

Income taxes payable 859 3,207

Other 10,233 8,369

$ 13,570 $ 15,128

RESTRUCTURING

During the fourth quarter of 2022, management committed to a restructuring plan aligned with the Company’s target organization go-to-market strategy and commitment to be a Rule of 40 managed company.

The plan resulted in a restructuring expense of $ 21.7 million in 2022, primarily associated with severance and benefits for impacted employees and expenses incurred as a result of the closure of the Company’s Salem, New Hampshire office.

As of December 31, 2022, the Company’s employee severance and related benefits restructuring accrual was $ 18.6 million and is included in accrued compensation and related expenses.

SEGMENT INFORMATION

To assess performance, the Company’s CODM, the Chief Executive Officer, reviews financial information on a consolidated basis.

Therefore, the Company determined it has one operating segment and one reporting unit.

Long-lived assets related to the Company’s U.S.

and international operations were:

(Dollars in thousands) December 31, 2023 December 31, 2022

$ 44,414 94 % $ 50,445 92 %

International 2,865 6 % 4,611 8 %

$ 47,279 100 % $ 55,056 100 %

Corporate headquarters

46 unchanged sentences

Right of use assets recognized for new leases and amendments (non-cash) $ 1,460 $ 4,733

(1) In 2022 and 2021, the Company received tenant improvement allowances of $ 8.8 million and $ 3.0 million, respectively, as part of the lease of the Company’s new corporate headquarters in Waltham, Massachusetts.

(2) In 2021, the Company received $ 18 million as a one-time payment for the Company’s accelerated exit from its then corporate headquarters in Cambridge, Massachusetts.

This payment has been excluded from the above table.

(1) In 2022, the Company received a tenant improvement allowances of $ 8.8 million as part of the lease of the Company’s new corporate headquarters in Waltham, Massachusetts.

Convertible senior notes and capped calls

2 unchanged sentences

No principal payments are due before maturity.

The Notes accrue interest at an annual rate of 0.75 %, payable semi-annually in arrears on March 1 and September 1, beginning on September 1, 2020.

The Notes accrue interest at an annual rate of 0.75 %, payable semi-annually in arrears on March 1 and September 1, beginning September 1, 2020.

In 2023, the Company recognized a gain of $ 7.9 million in other income, net from repurchases of Notes representing $ 97.7 million in aggregate principal amount.

Conversion rights

The conversion rate is 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of $ 135.05 per share of common stock.

The Company will settle conversions by paying or delivering cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate.

The conversion rate will be adjusted upon certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions.

Beginning on September 1, 2024, noteholders may convert their Notes at any time at their election.

Before September 1, 2024, noteholders may convert their Notes in the following circumstances:

2 unchanged sentences

• Upon certain corporate events or distributions or if the Company calls any Notes for redemption, noteholders may convert 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 in full on the redemption date until the Company pays the redemption price).

Beginning on September 1, 2024, noteholders may convert their Notes at any time at their election.

As of December 31, 2023, the Notes were not eligible for conversion.

14 unchanged sentences

$ 6,494 $ 7,388

The effective interest rate for the Notes:

Weighted-average effective interest rate 1.2 % 1.3 %

The average interest rate on the Notes in 2023 and 2022 was 1.2 %.

Future payments of principal and contractual interest:

4 unchanged sentences

$ 502,270 $ 5,651 $ 507,921

$ 600,000 $ 11,250 $ 611,250

Capped call transactions

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

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

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

In 2023, Capped Call Transactions covering approximately 0.7 million shares were settled for proceeds of $ 0.3 million.

As of December 31, 2023, Capped Call Transactions covering approximately 3.7 million shares were outstanding.

The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $ 196.44 .

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

The Capped Call Transactions are accounted for as derivative instruments and 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 following 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 .

The capped call transactions are accounted for as derivative instruments and do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value calculated following 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 each reporting period, resulting in a non-operating gain or loss.

Change in capped call transactions:

1 unchanged sentence

January 1, $ 2,582 $ 59,964

Settlements ( 341 ) —

Fair value adjustment ( 1,348 ) ( 57,382 )

3 unchanged sentences

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

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

Subject to specific conditions and the agreement of the financial institutions lending the additional amount, the aggregate commitment may be increased to $ 200 million.

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

1 unchanged sentence

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

• Beginning with the fiscal quarter that ended March 31, 2022 and ending with the fiscal quarter ended December 31, 2022, Pegasystems Inc.

must maintain at least $ 200 million in cash, investments, and availability under the Revolving Credit Loan.

• Beginning with the fiscal quarter ending March 31, 2023, a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0.

As of December 31, 2022 and December 31, 2021, the Company had no outstanding cash borrowings under the Credit Facility.

As of December 31, 2022, the Company had $ 27.3 million in outstanding letters of credit which reduce the available borrowing capacity under the Credit Facility.

STOCKHOLDERS’ EQUITY

Preferred stock

The Company has 1 million authorized shares of preferred stock, $ 0.01 par value per share, of which none were issued and outstanding as of December 31, 2022.

The Board of Directors has the authority to issue the shares of preferred stock in one or more series, to establish the number of shares to be included in each series, and to determine the designation, powers, preferences, and rights of the shares of each series and the qualifications, limitations, or restrictions thereof, without any further vote or action by the stockholders.

The issuance of preferred stock could decrease the earnings and assets available for distribution to holders of common stock and may have the effect of delaying, deferring, or defeating a change in control of the Company.

The Company had no t issued any shares of preferred stock through December 31, 2022.

The Company has 200 million authorized shares of common stock, $ 0.01 par value per share, of which 82.4 million were issued and outstanding as of December 31, 2022.

Dividends declared

2022 2021 2020

Dividends declared (per share) $ 0.12 $ 0.12 $ 0.12

Dividend payments to stockholders (in thousands) $ 9,834 $ 9,761 $ 9,628

The Company paid a quarterly cash dividend of $ 0.03 per share in 2022, 2021, and 2020.

In the future, the Board of Directors may terminate or modify the dividend program without prior notice.

Stock repurchases

• Through December 31, 2023, Pegasystems Inc.

must maintain at least $ 200 million in cash, investments, and availability under the Credit Facility and the Company must maintain:

(in thousands) March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023

Minimum Consolidated EBITDA (as defined in the Credit Facility) $ 38,862 $ 59,894 $ 95,597 $ 214,590

• Beginning with the fiscal quarter ended March 31, 2024, a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0.

As of December 31, 2023 and December 31, 2022, the Company had $ 27.3 million in outstanding letters of credit, reducing available borrowing capacity under the Credit Facility, but no outstanding cash borrowings.

RESTRUCTURING

The Company has undertaken the following restructuring activities as it optimizes its go-to-market strategy and reassesses its office space needs:

(in thousands) Three months ended Expense

Employee severance and related benefits and office space reduction

December 31, 2022 $ 21,743

Office space reduction March 31, 2023 $ 1,241

Employee severance and related benefits June 30, 2023 $ 1,581

Employee severance and related benefits and office space reduction

September 30, 2023 $ 17,236

Office space reduction December 31, 2023 $ 1,497

Restructuring activity:

Accrued employee severance and related benefits:

(in thousands) 2023

Shares Amount Shares Amount Shares Amount

January 1, $ 18,573

Authorizations (1)

60,000 38,467 20,516

Repurchases (2)

( 280 ) ( 24,508 ) ( 432 ) ( 53,610 ) ( 278 ) ( 28,274 )

Costs incurred 18,721

Cash disbursements ( 29,401 )

Currency translation adjustments 202

December 31, $ 8,095

(1) On June 2, 2022, the Company announced that the Board of Directors extended the current stock repurchase program’s expiration date to June 30, 2023 and increased the remaining stock repurchase authority to $ 60 million.

(2) Purchases under this program have been made on the open market.

Included in accrued compensation and related expenses.

Office Space reductions

In 2023 and 2022, the Company incurred restructuring costs of $ 3.0 million and $ 3.2 million due to office space reductions.

FAIR VALUE MEASUREMENTS

5 unchanged sentences

• Level 2 - significant other inputs that are observable either directly or indirectly;

• Level 3 - significant unobservable inputs on which there is little or no market data, which require the Company to develop its own assumptions.

• Level 3 - significant unobservable inputs with 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 minimize unobservable inputs when determining fair value.

4 unchanged sentences

The Company’s venture investments are recorded at fair value based on multiple valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.

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

Assets and liabilities measured at fair value on a recurring basis:

December 31, 2023 December 31, 2022

7 unchanged sentences

(1) Included in other long-term assets.

(2) For additional information, see "Note 12.

(2) Investments in privately-held companies .

Change in venture investments:

Changes in venture investments:

(in thousands) 2023 2022

4 unchanged sentences

Changes in fair value:

included in other income 5,989 100

included in other comprehensive income 2,502 1,220

included in other income, net

included in other comprehensive income (loss)

( 2,261 ) 2,502

December 31, $ 19,450 $ 13,069

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

The carrying value of certain financial instruments, including receivables and accounts payable, approximates fair value due to their short maturities.

Fair value of the Notes

The Notes’ fair value (including the conversion feature embedded in the Notes) was $ 521.1 million as of December 31, 2022 and $ 642.0 million as of December 31, 2021.

The fair value of the Notes outstanding (including the embedded conversion feature) was $ 466.5 million as of December 31, 2023 and $ 521.1 million as of December 31, 2022.

In the year ended December 31, 2023 the Company repurchased Notes representing $ 97.7 million in aggregate principal amount.

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.

For additional information, see "Note 12.

In addition to receivables, the Company is potentially subject to concentrations of credit risk from the Company’s cash, cash equivalents, and marketable securities.

1 unchanged sentence

Investment policies have been implemented that limit purchases of marketable debt securities to investment-grade securities.

STOCKHOLDERS’ EQUITY

Preferred stock

The Company has 1 million authorized shares of preferred stock, $ 0.01 par value per share, of which none were issued and outstanding as of December 31, 2023.

The Company has 200 million authorized shares of common stock, $ 0.01 par value per share, of which 83.8 million were issued and outstanding as of December 31, 2023.

Dividends declared

2023 2022 2021

Dividends declared (per share) $ 0.12 $ 0.12 $ 0.12

Dividend payments to stockholders (in thousands) $ 9,964 $ 9,834 $ 9,761

The Company paid a quarterly cash dividend of $ 0.03 per share in 2023, 2022, and 2021.

In the future, the Board of Directors may terminate or modify the dividend program without prior notice.

Stock repurchases

(in thousands) 2023 2022 2021

Shares Amount Shares Amount Shares Amount

January 1, $ 58,075 $ 22,583 $ 37,726

Authorizations (1)

1,925 60,000 38,467

Repurchases (2)

— — ( 280 ) ( 24,508 ) ( 432 ) ( 53,610 )

December 31, $ 60,000 $ 58,075 $ 22,583

(1) On April 25, 2023, the Company announced that the Board of Directors extended the current stock repurchase program’s expiration date to June 30, 2024 and increased the remaining stock repurchase authority to $ 60 million.

(2) Purchases under this program have been made on the open market.

Geographic revenue

1 unchanged sentence

2023 2022 2021

$ 785,029 55 % $ 763,558 57 % $ 690,133 57 %

Other Americas 85,149 6 % 102,980 8 % 61,339 5 %

5 unchanged sentences

(in thousands)

Perpetual license $ 19,293 $ 32,172 $ 28,558

2023 2022 2021

Subscription license $ 407,625 $ 366,063 $ 336,248

Perpetual license 10,101 19,293 32,172

Revenue recognized at a point in time 417,726 385,356 368,420

Maintenance 317,564 320,257 296,709

Pega Cloud 461,328 384,271 300,966

Maintenance 331,856 317,564 320,257

Consulting 221,706 230,654 222,010

7 unchanged sentences

Subscription 1,200,809 1,067,898 957,471

Perpetual license 19,293 32,172 28,558

Consulting 221,706 230,654 222,010

Perpetual license 10,101 19,293 32,172

$ 1,432,616 $ 1,317,845 $ 1,211,653

30 unchanged sentences

The Company periodically grants employees stock options and restricted stock units (“RSUs”) and non-employee Directors common stock and stock options.

Most of the Company’s stock-based compensation arrangements vest over five years , with 20 % vesting after one year and 80 % vesting in equal quarterly installments over the remaining four years .

In 2021 and 2022, most of the Company’s stock based compensation arrangements vest over five years , with 20 % vesting after one year and the remaining 80 % vesting quarterly over the remaining four years .

Beginning in 2023, most of the Company’s stock based compensation arrangements vest over four years , with 25 % vesting after one year and the remaining 75 % vesting quarterly over the remaining three years .

The Company’s stock options have a term of ten years .

In 2023, the Company also granted 0.9 million performance stock options with a total grant date fair value of $ 18.3 million, which vest over 2 years based on the Company’s achievement of certain financial performance targets.

The Company recognizes stock-based compensation using the accelerated attribution method, treating each vesting tranche as an individual grant.

9 unchanged sentences

The Company considers vesting probable on the grant date and recognizes the associated stock-based compensation expense over the requisite service period beginning on the grant date and ending on the vesting date.

The Company grants awards that allow for the settlement of vested stock options and RSUs on a net share basis (“net settled awards”).

With net settled awards, the employee does not surrender any cash or shares upon exercise.

Instead, the Company withholds the number of shares to cover the exercise price (in the case of stock options) and the minimum statutory tax withholding obligations (in the case of stock options and RSUs) from the shares that would otherwise be issued upon exercise or settlement.

The exercise of stock options and settlement of RSUs on a net share basis results in fewer shares being issued by the Company.

Historically, the Company has granted awards that allow for the settlement of vested stock options and RSUs on a net share basis (“net settled awards”).

With net settled awards, the Company withholds shares to cover the exercise price (for stock options) and the minimum statutory tax withholding obligations (for stock options and RSUs) from the shares that would otherwise be issued upon exercise or settlement.

In 2023, the Company moved to cashless settlement for most of its awards.

Under cashless settlement, shares are automatically sold in the market at exercise (for stock options) or vest (for RSUs) to cover the exercise price (for stock options) and the minimum statutory tax withholding obligations (for stock options and RSUs).

Stock-based compensation plans

4 unchanged sentences

2006 Employee Stock Purchase Plan

In 2006, the Company adopted the 2006 Employee Stock Purchase Plan (the “2006 ESPP”) under which employees may purchase up to an aggregate of one million shares of common stock, at a price equal to at least 85 % of the fair market value of the Company’s common stock on the lesser of the commencement date or completion date for offerings under the plan, or such higher price as the Company’s Board of Directors may establish from time to time.

In 2006, the Company adopted the 2006 Employee Stock Purchase Plan (the “2006 ESPP”) under which employees may purchase common stock, at a price equal to at least 85 % of the fair market value of the Company’s common stock on the lesser of the commencement date or completion date for offerings under the plan, or such higher price as the Company’s Board of Directors may establish from time to time.

In October 2012, the Company’s Board of Directors amended the 2006 ESPP to continue until no shares remain.

Before January 1, 2021, the 2006 ESPP was non-compensatory as the Company’s Board of Directors set the purchase price at 95 % of the fair market value on the completion date of the offering period.

Commencing on January 1, 2021, the Company’s Board of Directors set the purchase price at 85 % of the fair market value on the completion date of the offering period.

In 2023, the number of shares authorized for purchase under the 2006 ESPP was increased to 2 million.

For 2023, 2022, and 2021, the Company’s Board of Directors set the purchase price at 85 % of the fair market value on the completion date of the offering period.

(in thousands) 2023 2022 2021

36 unchanged sentences

Exercisable as of December 31, 2023 6,761 $ 63.54 6.1 $ 32,594

(1) The aggregate intrinsic value of stock options as of December 31, 2023 is based on the difference between the closing price of the Company’s stock of $ 48.86 and the exercise price of the applicable stock options.

The aggregate intrinsic value of stock options exercised (i.e., the difference between the market price at exercise and the price paid by the employee at exercise) in 2023, 2022, and 2021 was $ 6.2 million, $ 15.6 million, and $ 94.3 million, respectively.

The aggregate intrinsic value of stock options outstanding and exercisable as of December 31, 2022 is based on the difference between the closing price of the Company’s stock of $ 34.24 and the exercise price of the applicable stock options.

As of December 31, 2023, the Company had unrecognized stock-based compensation expense related to the unvested portion of stock options of $ 57.8 million that is expected to be recognized as expense over a weighted-average period of 1.6 years.

23 unchanged sentences

$ 29,425 $ 30,135 $ 29,659

The components of (loss) before provision for (benefit from) income taxes are:

The components of income (loss) before provision for (benefit from) income taxes are:

(in thousands) 2023 2022 2021

7 unchanged sentences

Foreign 14,962 10,200 4,105

Total current provision for (benefit from) 14,895 6,389 ( 3,739 )

Total current provision 27,269 14,895 6,389

Federal — 149,028 ( 42,214 )

14 unchanged sentences

Non-deductible compensation 6,818 4,769 5,464

Expiration of statutes and changes in estimates 5,673 ( 2,250 ) 55

Excess tax benefits related to stock-based compensation 1,563 ( 20,697 ) ( 25,797 )

CARES Act — — ( 10,576 )

1,850 5,673 ( 2,250 )

Excess tax detriments / (benefits) related to share-based compensation

4,666 1,563 ( 20,697 )

Impact of change in tax law 1,726 ( 793 ) ( 11,811 )

13 unchanged sentences

Research and development capitalization 58,866 38,425

Other 622 1,015

Total deferred tax assets 219,132 231,450

3 unchanged sentences

Capped call transactions ( 223 ) ( 644 )

Convertible senior notes — —

Software revenue — —

Depreciation ( 4,428 ) —

Intangibles ( 11,979 ) ( 14,280 )

Other, net ( 2,782 ) —

Total deferred tax liabilities ( 19,412 ) ( 14,924 )

4 unchanged sentences

On a quarterly basis, the Company reassesses the need for a valuation allowance on its existing net deferred tax assets by tax-paying jurisdiction, weighing positive and negative evidence to assess its recoverability.

In making such a determination, the Company considers all available and objectively verifiable negative and positive evidence, including future reversals of existing taxable temporary differences, committed contractual backlog (“Backlog”), projected future taxable income inclusive of the impact of enacted legislation, tax-planning strategies, and results of recent operations.

In making such a determination, the Company considers all available and objectively verifiable negative and positive evidence, including future reversals of existing taxable temporary differences, projected future taxable income inclusive of the impact of enacted legislation, tax-planning strategies, and results of recent operations.

The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified.

As of June 30, 2022, the Company’s Backlog balance was not sufficient to recover the Company’s net deferred tax assets.

The Backlog balance and other unsettled circumstances, impacting the Company’s operations, reduced the Backlog’s weight as objectively verifiable positive evidence to generate sufficient taxable income to recover its net deferred tax assets.

These unsettled circumstances include growing and extended geopolitical turmoil, increasing inflation, and an uncertain global economic outlook.

As of June 30, 2022, the combination of the above factors caused the Company to conclude there is not sufficient objectively verifiable positive evidence to support that it is more likely than not the Company will generate sufficient future taxable income to recover the Company’s U.S.

net deferred tax assets.

The Company intends to maintain a full valuation allowance on its U.S and U.K deferred tax assets until there is sufficient evidence to support the realization of these deferred tax assets.

Accordingly, the Company recorded a valuation allowance of $ 188.3 million in income tax expense in 2022.

As of December 31, 2022, the Company’s net operating losses and credit carryforwards are:

The Company determined that the objectively and verifiable negative evidence outweighed the positive evidence and as such intends to maintain a full valuation allowance on its U.S and U.K deferred tax assets until there is sufficient evidence to support the realization of these deferred tax assets.

Accordingly, the Company recorded a valuation allowance of $ 196.9 million at December 31, 2023.

As of December 31, 2023, the Company’s U.S.

net operating losses and credit carryforwards are:

(in thousands)

9 unchanged sentences

(2) Excludes federal and state tax credits of $ 0.1 million and $ 10.7 million, respectively, that the Company expects will expire unutilized.

Carryforward losses and credits expire between 2023 and 2040, except for the 2020 and 2021 federal net operating loss of $ 119.9 million and $ 1.2 million of state credits, which both have unlimited carryforward periods.

The Company’s India subsidiary is primarily located in Special Economic Zones (“SEZs”) and is entitled to a tax holiday in India.

The tax holiday reduces or eliminates income tax in India.

The tax holiday in the Hyderabad SEZ is expected to expire in 2023.

The tax holiday in the Bengaluru SEZ is expected to expire in 2027.

The Company’s federal carryforward losses and credits expire between 2024 and 2041, except for $ 1.4 million of state credits, which has an unlimited carryforward period.

The Company’s U.K.

net operating loss carryforwards were $ 183.1 million and $ 217.3 million at December 31, 2023 and 2022, respectively, which have indefinite carryforward periods.

Uncertain tax benefits

9 unchanged sentences

$ 30,655 $ 19,746 $ 17,584

As of December 31, 2022, the Company had $ 19.7 million of total unrecognized tax benefits, which would decrease the Company’s effective tax rate if recognized.

Due to the valuation allowance on the U.S.

deferred tax assets, the Company does not expect the unrecognized tax benefits to materially impact the Company’s effective tax rate if recognized.

Tax examinations

6 unchanged sentences

The Company does not expect the results of these audits to have a material effect on the Company’s financial condition, results of operations, or cash flows.

With few exceptions, the statute of limitations remains open in all jurisdictions for all tax years since 2016 to the present.

(LOSS) PER SHARE

Basic (loss) per share is calculated using the weighted-average number of common shares outstanding during the period.

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 convertible senior notes.

Calculation of (loss) per share:

With few exceptions, the statute of limitations remains open in all jurisdictions for all tax years since 2017.

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is calculated using the weighted-average number of common shares outstanding during the period.

Diluted earnings (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 convertible senior notes.

Calculation of earnings (loss) per share:

(in thousands, except per share amounts) 2023 2022 2021

Net (loss) $ ( 345,582 ) $ ( 63,040 ) $ ( 61,373 )

Net income (loss) $ 67,808 $ ( 345,582 ) $ ( 63,040 )

Weighted-average common shares outstanding 83,162 81,947 81,387

(Loss) per share, basic $ ( 4.22 ) $ ( 0.77 ) $ ( 0.76 )

Net (loss) $ ( 345,582 ) $ ( 63,040 ) $ ( 61,373 )

Earnings (loss) per share, basic $ 0.82 $ ( 4.22 ) $ ( 0.77 )

Net income (loss) $ 67,808 $ ( 345,582 ) $ ( 63,040 )

Convertible senior notes - interest expense and settlement gains, net of tax ( 5,528 ) — —

Numerator for diluted EPS $ 62,280 $ ( 345,582 ) $ ( 63,040 )

Weighted-average effect of dilutive securities:

Convertible senior notes 235 — —

Stock options 794 — —

Effect of dilutive securities 1,752 — —

Weighted-average common shares outstanding, assuming dilution (1) (2) (3)

84,914 81,947 81,387

(Loss) per share, diluted $ ( 4.22 ) $ ( 0.77 ) $ ( 0.76 )

Earnings (loss) per share, diluted $ 0.73 $ ( 4.22 ) $ ( 0.77 )

Outstanding anti-dilutive stock options and RSUs (4)

250 3,367 5,862

(1) In periods of loss, all dilutive securities are excluded as their inclusion would be anti-dilutive.

(1) All dilutive securities are excluded in periods of loss as their inclusion would be anti-dilutive.

(2) The shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period.

If the outstanding conversion options were fully exercised, the Company would issue an additional approximately 4.4 million shares.

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

If the outstanding conversion options were fully exercised, the Company would issue approximately 3.7 million shares as of December 31, 2023.

(3) The Company’s Capped Call Transactions represent the equivalent of approximately 3.7 million shares of the Company’s common stock (representing the number of shares for which the Notes are convertible) as of December 31, 2023.

The Capped Call Transactions are excluded from weighted-average common shares outstanding, assuming dilution, in all periods as their effect would be anti-dilutive.

(4) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted (loss) per share.

(4) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted earnings (loss) per share.

These awards may be dilutive in the future.

7 unchanged sentences

Pegasystems Inc.

& Business Process Management Inc.

On July 3, 2019, the Company filed suit in Massachusetts federal court against Appian Corp.

(“Appian”) and Business Process Management, Inc.

(“BPM”) relating to a BPM “Market Report” that Appian had used to promote itself against the Company.

Pegasystems Inc.

& Business Process Management Inc., No.

1:19-cv-11461 (D.

As previously indicated in the Company’s Current Report on Form 8-K filed on November 10, 2022 with the SEC, on November 9, 2022, the Company entered into a confidential settlement agreement with Appian resolving the litigation, and the parties filed a Stipulation of Dismissal with Prejudice dismissing all claims and counterclaims in this litigation.

The Company will not contain disclosure regarding this litigation in future filings it makes with the SEC.

Pegasystems Inc.

& Youyong Zou

8 unchanged sentences

On September 29, 2022, the circuit court of Fairfax County approved a $ 25,000,000 letter of credit obtained by the Company to secure the judgment and entered an order suspending the judgment during the pendency of the Company’s appeal.

Appellate briefing is currently in process.

Although it is not possible to predict timing, this appeals process could potentially take years to complete.

Appellate briefing in the Court of Appeals of Virginia is completed.

A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and will issue a written opinion in the future.

Although it is not possible to predict timing, the entirety of the appeals process could potentially take years to complete.

The Company continues to believe that it did not misappropriate any alleged trade secrets and that its sales of the Company’s products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets.

8 unchanged sentences

On October 18, 2022, a consolidated amended complaint was filed that does not add any new parties or legal claims, is based upon the same general factual allegations as the original complaint, and now seeks unspecified damages on behalf of a class of purchasers of the Company’s securities between June 16, 2020 and May 9, 2022.

The Company believes the claims brought against the defendants are without merit and intends to defend against these claims vigorously.

The Company is unable to reasonably estimate possible damages or a range of possible damages in this matter given the stage of the lawsuit, the Company’s belief that the claims are without merit, and there being no specified quantum of damages sought in the complaint.

Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc.

Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, Larry Weber, and Kenneth Stillwell, defendants, and Pegasystems Inc., nominal defendant

The Company moved to dismiss the consolidated amended complaint on December 19, 2022.

The hearing on the Company’s motion to dismiss took place on May 17, 2023.

After hearing argument from both sides, the Court denied the Company’s motion from the bench and stated that a written opinion would follow.

On June 30, 2023, the Company filed its Answer to the complaint.

On July 24, 2023, the Court issued its written opinion denying the motion to dismiss as to the Company and Defendant Trefler but granting the motion without prejudice as to Mr.

The Company believes it has strong defenses to the claims brought against the defendants and intends to defend against these claims vigorously.

The Company is unable to reasonably estimate possible damages or a range of possible damages in this matter given the stage of the lawsuit, the Company’s belief that it has strong defenses to the claims asserted, its intent to defend against these claims, and there being no specified quantum of damages sought in the complaint.

In re Pegasystems Inc., Derivative Litigation

On November 21, 2022, a lawsuit was filed against the members of the Company’s board of directors, the Company’s chief operating and financial officer and the Company in the United States District Court for the District of Massachusetts, captioned Mary Larkin, derivatively on behalf of nominal defendant Pegasystems Inc.

1 unchanged sentence

The complaint generally alleges the defendants sold shares of the Company while in possession of material nonpublic information relating to (i) the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and (ii) alleged misconduct by Company employees alleged in that litigation.

The Company believes the claims brought against the defendants are without merit and intends to defend against these claims vigorously.

On April 28, 2023, a lawsuit was filed in the United States District Court for the District of Massachusetts by Dag Sagfors, derivatively on behalf of nominal defendant Pegasystems Inc., asserting breach of fiduciary duty and related claims relating to the Virginia Appian litigation against the same defendants as the Larkin lawsuit.

On May 17, 2023, the Larkin and Sagfors cases were consolidated and a joint motion to stay the consolidated case is pending before the Court.

The Company also has received confidential demand letters raising substantially the same allegations set forth in the foregoing derivative complaints.

On April 12, 2023, the Company’s board of directors (other than Mr.

Trefler, who recused himself), formed a committee consisting solely of independent directors, to review, analyze, and investigate the matters raised in the demands and to determine in good faith what actions (if any) are reasonably believed to be appropriate under similar circumstances and reasonably believed to be in the best interests of the Company in response to the demand letters.

The Company is unable to reasonably estimate possible damages or a range of possible damages in this matter given the stage of the lawsuit and there being no specified quantum of damages sought in the complaint.

Beginning in March 2023, the U.S.

Securities and Exchange Commission (“SEC”) has requested certain information relating to, among other things, the accounting treatment of the Company’s above-described litigation with Appian Corporation.

The Company is fully cooperating with the SEC’s requests.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data