What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-07-24 compared with 2024-04-24 · 154 added, 120 removed, 548 unchanged (33% of the section changed)

3 unchanged sentences

(in thousands)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Current assets:

32 unchanged sentences

85,369 and 83,840 shares issued and outstanding at

March 31, 2024 and December 31, 2023, respectively

June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 473,030 379,584

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Subscription services $ 214,430 $ 197,105 $ 426,333 $ 384,614

17 unchanged sentences

Total operating expenses 241,241 243,418 497,142 493,162

(Loss) from operations ( 20,412 ) ( 22,206 )

Foreign currency transaction (loss) ( 3,262 ) ( 2,675 )

Income (loss) from operations 12,966 ( 41,290 ) ( 7,446 ) ( 63,496 )

Foreign currency transaction gain (loss) 437 ( 3,290 ) ( 2,825 ) ( 5,965 )

Interest income 6,785 1,814 12,066 3,299

Interest expense ( 1,656 ) ( 1,778 ) ( 3,408 ) ( 3,696 )

Gain on capped call transactions 3,299 3,206

(Loss) income on capped call transactions ( 3,277 ) ( 1,361 ) 22 1,845

Other income, net — 5,702 1,684 12,285

(Loss) before (benefit from) provision for income taxes ( 15,162 ) ( 15,525 )

(Benefit from) provision for income taxes ( 3,038 ) 5,249

Net (loss) $ ( 12,124 ) $ ( 20,774 )

(Loss) per share

Income (loss) before provision for income taxes 15,255 ( 40,203 ) 93 ( 55,728 )

Provision for income taxes 8,642 6,601 5,604 11,850

Net income (loss) $ 6,613 $ ( 46,804 ) $ ( 5,511 ) $ ( 67,578 )

Earnings (loss) per share

Basic $ 0.08 $ ( 0.56 ) $ ( 0.07 ) $ ( 0.82 )

5 unchanged sentences

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Three Months Ended

Net (loss) $ ( 12,124 ) $ ( 20,774 )

June 30, Six Months Ended

2024 2023 2024 2023

Net income (loss) $ 6,613 $ ( 46,804 ) $ ( 5,511 ) $ ( 67,578 )

Other comprehensive (loss) income, net of tax

2 unchanged sentences

Total other comprehensive (loss) income, net of tax ( 2,214 ) 166 ( 6,387 ) 1,709

Comprehensive (loss) $ ( 16,297 ) $ ( 19,231 )

Comprehensive income (loss) $ 4,399 $ ( 46,638 ) $ ( 11,898 ) $ ( 65,869 )

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except per share amounts)

Common Stock Additional paid-in capital

Retained earnings (accumulated deficit)

Accumulated other comprehensive (loss) Total

stockholders’ equity

Common Stock Additional paid-in capital (Accumulated deficit) Accumulated other comprehensive (loss) Total stockholders’ equity

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

7 unchanged sentences

March 31, 2023 82,940 $ 829 $ 272,481 $ ( 97,287 ) $ ( 21,527 ) $ 154,496

Issuance of common stock for stock compensation plans 225 2 1,824 — — 1,826

Issuance of common stock under the employee stock purchase plan 47 1 1,980 — — 1,981

Stock-based compensation — — 36,227 — — 36,227

Cash dividends declared ($ 0.03 per share)

— — ( 2,496 ) — — ( 2,496 )

Other comprehensive income — — — — 166 166

Net (loss) — — — ( 46,804 ) — ( 46,804 )

June 30, 2023 83,212 $ 832 $ 310,016 $ ( 144,091 ) $ ( 21,361 ) $ 145,396

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

7 unchanged sentences

March 31, 2024 85,011 $ 850 $ 432,217 $ ( 20,829 ) $ ( 22,052 ) $ 390,186

Issuance of common stock for stock compensation plans 326 4 5,481 — — 5,485

Issuance of common stock under the employee stock purchase plan 32 — 1,669 — — 1,669

Stock-based compensation — — 36,224 — — 36,224

Cash dividends declared ($ 0.03 per share)

— — ( 2,561 ) — — ( 2,561 )

Other comprehensive (loss) — — — — ( 2,214 ) ( 2,214 )

Net income — — — 6,613 — 6,613

June 30, 2024 85,369 $ 854 $ 473,030 $ ( 14,216 ) $ ( 24,266 ) $ 435,402

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

Operating activities

16 unchanged sentences

Proceeds from maturities and called investments 83,967 88,849

Sales of investments — 10,725

Investment in property and equipment ( 1,857 ) ( 13,933 )

Cash (used in) investing activities ( 132,399 ) ( 14,413 )

Cash (used in) provided by investing activities ( 209,700 ) 15,979

Financing activities

24 unchanged sentences

MARKETABLE SECURITIES

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

2 unchanged sentences

$ 407,463 $ 1 $ ( 645 ) $ 406,819 $ 193,431 $ 233 $ ( 228 ) $ 193,436

As of March 31, 2024, marketable securities’ maturities ranged from April 2024 to January 2026, with a weighted-average remaining maturity of 0.5 years.

As of June 30, 2024, marketable securities’ maturities ranged from July 2024 to January 2026, with a weighted-average remaining maturity of 0.4 years.

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

(in thousands)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Accounts receivable, net $ 165,723 $ 300,173

8 unchanged sentences

(Dollars in thousands)

March 31, 2024

June 30, 2024

1 year or less $ 164,533 67 %

4 unchanged sentences

(Dollars in thousands)

March 31, 2024

June 30, 2024

2024 $ 58,562 24 %

6 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Major clients

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

March 31, 2024 December 31, 2023

Accounts receivable 10 % *

Unbilled receivables 12 % *

Total receivables 11 % *

* Client accounted for less than 10% of receivables.

Contract assets

1 unchanged sentence

(in thousands)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Contract assets

3 unchanged sentences

$ 35,371 $ 36,873

(1) Included in other current assets.

(2) Included in other long-term assets.

Deferred revenue

Deferred revenue consists of billings and payments received in advance of revenue recognition.

Deferred revenue consists of billings made and payments received in advance of revenue recognition.

(in thousands)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Deferred revenue $ 352,618 $ 377,845

1 unchanged sentence

$ 355,061 $ 380,323

(1) Included in other long-term liabilities.

The increase in deferred revenue in the three months ended March 31, 2024, was primarily due to new billings in advance of revenue recognized.

In the three months ended March 31, 2024, $ 168.3 million in revenue was recognized from deferred revenue as of December 31, 2023.

The decrease in deferred revenue in the six months ended June 30, 2024, was primarily due to $ 272.7 million of revenue recognized that was in deferred revenue as of December 31, 2023.

DEFERRED COMMISSIONS

(in thousands)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Deferred commissions

$ 100,490 $ 114,119

(1) Included in other long-term assets.

Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

2 unchanged sentences

(1) Included in selling and marketing.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

GOODWILL AND OTHER INTANGIBLES

Three Months Ended

Six Months Ended

(in thousands)

1 unchanged sentence

Currency translation adjustments ( 201 ) 194

March 31, $ 81,467 $ 81,434

June 30, $ 81,410 $ 81,593

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

March 31, 2024

June 30, 2024

(in thousands) Useful Lives Cost Accumulated Amortization Net Book Value

4 unchanged sentences

$ 136,478 $ ( 131,273 ) $ 5,205

(1) Included in other long-term assets.

December 31, 2023

7 unchanged sentences

$ 136,616 $ ( 129,614 ) $ 7,002

(1) Included in other long-term assets.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Future estimated amortization of intangible assets:

(in thousands)

March 31, 2024

June 30, 2024

Remainder of 2024 $ 1,399

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

Cost of revenue

$ 447 $ 621 $ 1,068 $ 1,327

Selling and marketing

342 342 685 685

$ 789 $ 963 $ 1,753 $ 2,012

OTHER ASSETS AND LIABILITIES

Other current assets

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 December 31, 2023

Income tax receivables $ 16,060 $ 4,804

1 unchanged sentence

Insurance receivable — 1,954

Indirect tax receivable 2,702 1,924

Capped call transactions 915 —

2 unchanged sentences

$ 76,323 $ 68,137

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other long-term assets

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 December 31, 2023

Deferred commissions $ 100,490 $ 114,119

9 unchanged sentences

$ 302,249 $ 314,696

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accrued expenses

(in thousands) March 31, 2024 December 31, 2023

Litigation settlements $ 35,000 $ —

(in thousands) June 30, 2024 December 31, 2023

Cloud hosting $ 15,152 $ 1,358

6 unchanged sentences

Other current liabilities

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 December 31, 2023

Operating lease liabilities $ 15,254 $ 15,000

3 unchanged sentences

Other long-term liabilities

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 December 31, 2023

Deferred revenue $ 2,443 $ 2,478

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

3 unchanged sentences

$ 7,444 $ 7,377 $ 13,858 $ 15,898

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Right of use assets and lease liabilities

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 December 31, 2023

Right of use assets

3 unchanged sentences

Long-term operating lease liabilities $ 70,202 $ 66,901

(1) Included in other long-term assets.

(2) Included in other current liabilities.

Weighted-average remaining lease term and discount rate for the Company’s leases were:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Weighted-average remaining lease term 6.4 years 6.8 years

Weighted-average discount rate (1)

(1) The rates implicit in most of the Company’s leases are not readily determinable.

(1) The rates implicit in the Company’s leases are not readily determinable.

Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.

The incremental borrowing rate represents an estimate of the interest rate the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over the lease term in a similar economic environment.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Maturities of lease liabilities:

(in thousands) March 31, 2024

(in thousands) June 30, 2024

Remainder of 2024 $ 7,954

4 unchanged sentences

Cash flow information

Three Months Ended

Six Months Ended

(in thousands) 2024 2023

6 unchanged sentences

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 the three months ended March 31, 2023, the Company recorded a gain of $ 2.8 million in other income, net from the repurchase of Notes representing $ 33 million in aggregate principal amount.

In the three and six months ended June 30, 2023, the Company recognized gains of $ 5.1 million and $ 7.9 million, respectively, in other income, net from repurchases of Notes representing $ 64.7 million and $ 97.7 million, respectively, in aggregate principal amount.

Conversion rights

4 unchanged sentences

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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

1 unchanged sentence

• 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).

As of March 31, 2024, the Notes were not eligible for conversion.

As of June 30, 2024, the Notes were not eligible for conversion.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Repurchase rights

3 unchanged sentences

Carrying value of the Notes:

(in thousands) March 31, 2024 December 31, 2023

(in thousands) June 30, 2024 December 31, 2023

Principal $ 502,270 $ 502,270

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

3 unchanged sentences

619 647 1,236 1,375

The average interest rate on the Notes in the three months ended March 31, 2024 and 2023 was 1.2 %.

$ 1,561 $ 1,644 $ 3,120 $ 3,497

The average interest rate on the Notes in the six months ended June 30, 2024 and 2023 was 1.2 %.

Future payments:

March 31, 2024

June 30, 2024

(in thousands) Principal Interest Total

5 unchanged sentences

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 March 31, 2024, Capped Call Transactions covering approximately 3.7 million shares were outstanding.

In the three and six months ended June 30, 2023, Capped Call Transactions covering approximately 0.5 million and 0.7 million shares, respectively, were settled for proceeds of $ 0.1 million and $ 0.3 million, respectively.

As of June 30, 2024, 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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 remeasured to fair value each reporting period, resulting in a non-operating gain or loss.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Change in capped call transactions:

Three Months Ended

Six Months Ended

(in thousands) 2024 2023

2 unchanged sentences

Fair value adjustment 22 1,845

March 31, $ 4,192 $ 5,600

June 30, $ 915 $ 4,086

Credit facility

3 unchanged sentences

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

On April 23, 2024, the Credit Facility was amended to extend the expiration date to February 4, 2025.The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions.

On April 23, 2024, the Credit Facility was amended to extend the expiration date to February 4, 2025.

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

Beginning with the fiscal quarter ended March 31, 2024, the Company must maintain 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.

As of March 31, 2024 and December 31, 2023, the Company had $ 27.3 million in outstanding letters of credit, reducing available borrowing capacity under the Credit Facility, but no outstanding cash borrowings.

As of June 30, 2024 and December 31, 2023, the Company had $ 27.3 million in outstanding letters of credit under the Credit Facility, reducing available borrowing capacity, but no outstanding cash borrowings.

RESTRUCTURING

6 unchanged sentences

Office space reduction December 31, 2023 $ 1,497

Office space reduction June 30, 2024 $ 1,257

Accrued employee severance and related benefits:

Change for all restructuring actions:

Three Months Ended

Six Months Ended

(in thousands) 2024 2023

3 unchanged sentences

Currency translation adjustments ( 169 ) 185

March 31, $ 5,001 $ 4,516

June 30, $ 3,836 $ 3,624

Accrued employee severance and related benefits is included in accrued compensation and related expenses.

3 unchanged sentences

Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:

1 unchanged sentence

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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

6 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

5 unchanged sentences

$ — $ — $ 21,047 $ 21,047 $ — $ — $ 19,450 $ 19,450

(1) Included in other long-term assets.

(1) Investments in privately-held companies

Changes in venture investments:

Three Months Ended

Six Months Ended

(in thousands) 2024 2023

1 unchanged sentence

New investments 350 400

Sales of investments — ( 2,773 )

Changes in foreign exchange rates ( 19 ) 119

1 unchanged sentence

included in other income, net

included in other comprehensive (loss)

included in other comprehensive income (loss)

( 362 ) ( 1,908 )

March 31, $ 20,946 $ 16,265

June 30, $ 21,047 $ 13,382

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

Fair value of the Convertible Senior Notes

The fair value of the Notes outstanding (including the embedded conversion feature) was $ 481.7 million as of March 31, 2024, and $ 466.5 million as of December 31, 2023.

The fair value of the Notes outstanding (including the embedded conversion feature) was $ 485.3 million as of June 30, 2024, and $ 466.5 million as of December 31, 2023.

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.

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

(Dollars in thousands)

2024 2023 2024 2023

$ 189,214 54 % $ 150,385 50 % $ 370,197 55 % $ 334,904 54 %

Other Americas 21,314 6 % 19,505 7 % 43,100 6 % 34,516 6 %

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands)

2024 2023 2024 2023

Subscription license $ 84,647 $ 41,197 $ 147,985 $ 125,724

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

9 unchanged sentences

Expected future revenue from existing non-cancellable contracts:

As of March 31, 2024:

As of June 30, 2024:

(Dollars in thousands) Subscription services Subscription license Perpetual license Consulting Total

7 unchanged sentences

$ 1,014,762 $ 320,906 $ 36,990 $ 2,696 $ 30,895 $ 1,406,249 100 %

As of March 31, 2023:

As of June 30, 2023:

(Dollars in thousands) Subscription services Subscription license Perpetual license Consulting Total

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

4 unchanged sentences

Research and development

7,825 7,851 15,471 16,911

General and administrative

7,743 5,853 14,418 12,777

$ 36,224 $ 36,227 $ 71,005 $ 78,784

Income tax benefit

$ ( 554 ) $ ( 581 ) $ ( 865 ) $ ( 1,253 )

As of March 31, 2024, the Company had $ 184.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.8 years.

Three Months Ended

March 31, 2024

As of June 30, 2024, the Company had $ 149.7 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.7 years.

Six Months Ended

June 30, 2024

(in thousands) Quantity

7 unchanged sentences

(2) Performance stock options allow the holder to purchase a specified number of common stock shares at an exercise price equal to or greater than the shares' fair market value at the grant date.

For the performance stock options granted in three months ended March 31, 2024, 25 % can vest on the first anniversary of the grant date, and 75 % can vest on the second anniversary of the grant date, based on the achievement of specific performance conditions.

For the performance stock options granted in the six months ended June 30, 2024, 25 % can vest on the first anniversary of the grant date, and 75 % can vest on the second anniversary of the grant date, based on the achievement of specific performance conditions.

The options expire ten years from the grant date.

Effective income tax rate

Three Months Ended

Six Months Ended

(Dollars in thousands) 2024 2023

(Benefit from) provision for income taxes $ ( 3,038 ) $ 5,249

Provision for income taxes $ 5,604 $ 11,850

Effective income tax rate * ( 21 ) %

The Company’s effective income tax rate in the three months ended March 31, 2024, was primarily driven by the valuation allowance on the Company’s deferred tax assets in the U.S.

and U.K., and forecasted taxable income, offset by an income tax benefit for discrete items in the three months ended March 31, 2024.

* not meaningful

The Company’s effective income tax rate for the six months ended June 30, 2024, is impacted by the jurisdictional mix and timing of the actual compared to projected earnings (losses).

It is also impacted by the valuation allowance on its deferred tax assets in the U.S.

and a near break-even pretax income resulting in a not meaningful high effective income tax rate.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized.

3 unchanged sentences

net deferred tax assets until sufficient evidence exists to support their realization.

(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.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Calculation of (loss) per share:

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:

Three Months Ended

June 30, Six Months Ended

(in thousands, except per share amounts) 2024 2023 2024 2023

Net (loss) $ ( 12,124 ) $ ( 20,774 )

Net income (loss) $ 6,613 $ ( 46,804 ) $ ( 5,511 ) $ ( 67,578 )

Weighted-average common shares outstanding 85,157 83,039 84,712 82,823

(Loss) per share, basic $ ( 0.14 ) $ ( 0.25 )

Net (loss) $ ( 12,124 ) $ ( 20,774 )

Earnings (loss) per share, basic $ 0.08 $ ( 0.56 ) $ ( 0.07 ) $ ( 0.82 )

Net income (loss) $ 6,613 $ ( 46,804 ) $ ( 5,511 ) $ ( 67,578 )

Numerator for diluted EPS $ 6,613 $ ( 46,804 ) $ ( 5,511 ) $ ( 67,578 )

Weighted-average effect of dilutive securities:

Stock options 2,164 — — —

RSUs 1,179 — — —

Effect of dilutive securities 3,343 — — —

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

88,500 83,039 84,712 82,823

(Loss) per share, diluted $ ( 0.14 ) $ ( 0.25 )

Earnings (loss) per share, diluted $ 0.07 $ ( 0.56 ) $ ( 0.07 ) $ ( 0.82 )

Outstanding anti-dilutive stock options and RSUs (4)

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

5 1,354 3,259 1,351

(1) All dilutive securities are excluded when 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 approximately 3.7 million shares as of March 31, 2024.

(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 March 31, 2024.

If the outstanding conversion options were fully exercised, the Company would issue approximately 3.7 million shares as of June 30, 2024.

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.

5 unchanged sentences

In addition, as the Company is a party to ongoing litigation, it is at least reasonably possible that the Company’s estimates will change in the near term, and the effect may be material.

In the three months ended March 31, 2024 the Company recorded a $ 32.4 million litigation settlement net of insurance recoveries, which is comprised of an agreed in principle $ 35 million litigation settlement reduced by $ 2.6 million of expected insurance coverage recovery.

The Company had no accrued loss for litigation as of December 31, 2023.

The Company had no accrued losses for litigation for the below matters as of June 30, 2024 and December 31, 2023.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Pegasystems Inc.

& Youyong Zou

12 unchanged sentences

The Company is unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resulting from the appellate proceedings.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

City of Fort Lauderdale Police and Firefighters’ Retirement System, Individually and on Behalf of All Others Similarly Situated v.

14 unchanged sentences

On April 23, 2024, the plaintiffs filed a motion seeking preliminary approval of the settlement.

The parties are awaiting a ruling by the court on that motion and thereafter final approval of the settlement, which will not be heard until after a notice period to the proposed class of shareholders during which they have the opportunity to object to the proposed settlement.

Although the outcome of the litigation is not certain until final disposition, the Company has recorded a $ 35 million accrued loss as of March 31, 2024, for the proposed settlement, the substantial majority of which the Company anticipates will be paid for directly by the Company and not reimbursed by insurance.

However, it is possible that actual future losses related to the litigation could exceed the accrual amount if and to the extent that the court does not approve the proposed settlement.

On May 15, 2024, the Court granted plaintiffs’ motion for preliminary approval of the settlement and scheduled a settlement hearing for September 19, 2024.

The deadline for the proposed class of shareholders to object to the proposed settlement is August 29, 2024.

In May 2024, the Company paid $ 32.4 million and the Company’s insurance carriers paid $ 2.6 million pending final approval of the settlement.

It is possible that actual future losses related to the litigation could exceed the settlement amount if and to the extent that the court does not approve the proposed settlement.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In re Pegasystems Inc., Derivative Litigation

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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.

On June 28, 2024, a lawsuit was filed against members of the Company’s board of directors, certain employees of the Company and the Company in the Business Litigation Section of the Superior Court in Suffolk County, Massachusetts, captioned John Dwyer and Ray Gerber, Plaintiffs, v.

Alan Trefler, Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, Leon Trefler, Don Schuerman, Kerim Akgonul, and Benjamin Baril, Defendants, Pegasystems Inc., Nominal Defendant (Case 2484CV01734).

The complaint generally alleges the defendants breached their fiduciary duties in connection with alleged misconduct by Company employees alleged in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, and alleges damages from the approximately $ 2 billion verdict in the litigation brought by Appian in the Circuit Court of Fairfax County, Virginia, described above, the recent class action settlement, and litigation costs from various proceedings.

On July 17, 2024, the parties filed a stipulation with the court in which they agreed to extend defendants’ time to respond to the operative complaint to 45 days following a decision from the Virginia Court of Appeals.

The Company is unable to reasonably estimate possible damages or a range of possible damages in these matters given the stage of the lawsuits and there being no specified quantum of damages sought in the complaints.

Beginning in March 2023, the U.S.

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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