What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-10-23 compared with 2024-07-24 · 152 added, 110 removed, 592 unchanged (31% of the section changed)

3 unchanged sentences

(in thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current assets:

32 unchanged sentences

85,808 and 83,840 shares issued and outstanding at

June 30, 2024 and December 31, 2023, respectively

September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 514,173 379,584

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

18 unchanged sentences

Total operating expenses 240,005 251,696 737,147 744,858

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

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

(Loss) from operations ( 11,661 ) ( 10,816 ) ( 19,107 ) ( 74,312 )

Foreign currency transaction (loss) gain ( 4,405 ) 1,994 ( 7,230 ) ( 3,971 )

Interest income 6,769 2,532 18,835 5,831

Interest expense ( 1,639 ) ( 1,533 ) ( 5,047 ) ( 5,229 )

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

(Loss) on capped call transactions ( 689 ) ( 2,294 ) ( 667 ) ( 449 )

Other income, net — 6,383 1,684 18,668

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

(Loss) before provision for income taxes ( 11,625 ) ( 3,734 ) ( 11,532 ) ( 59,462 )

Provision for income taxes 2,765 3,545 8,369 15,395

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

Earnings (loss) per share

Net (loss) $ ( 14,390 ) $ ( 7,279 ) $ ( 19,901 ) $ ( 74,857 )

(Loss) per share

Basic $ ( 0.17 ) $ ( 0.09 ) $ ( 0.23 ) $ ( 0.90 )

5 unchanged sentences

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

(in thousands)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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

Other comprehensive (loss) income, net of tax

Unrealized (loss) on available-for-sale securities ( 72 ) ( 195 ) ( 818 ) ( 241 )

Net (loss) $ ( 14,390 ) $ ( 7,279 ) $ ( 19,901 ) $ ( 74,857 )

Other comprehensive income (loss), net of tax

Unrealized gain (loss) on available-for-sale securities 660 ( 40 ) ( 158 ) ( 281 )

Foreign currency translation adjustments 10,204 ( 3,687 ) 4,635 ( 1,737 )

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

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

Total other comprehensive income (loss), net of tax 10,864 ( 3,727 ) 4,477 ( 2,018 )

Comprehensive (loss) $ ( 3,526 ) $ ( 11,006 ) $ ( 15,424 ) $ ( 76,875 )

See notes to unaudited condensed consolidated financial statements.

20 unchanged sentences

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

Issuance of common stock for stock compensation plans 257 3 2,447 — — 2,450

Issuance of common stock under the employee stock purchase plan 54 — 2,003 — — 2,003

Stock-based compensation — — 31,299 — — 31,299

Cash dividends declared ($ 0.03 per share)

— — ( 2,506 ) — — ( 2,506 )

Other comprehensive (loss) — — — — ( 3,727 ) ( 3,727 )

Net (loss) — — — ( 7,279 ) — ( 7,279 )

September 30, 2023 83,523 $ 835 $ 343,259 $ ( 151,370 ) $ ( 25,088 ) $ 167,636

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

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

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

15 unchanged sentences

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

Repurchase of common stock ( 171 ) ( 2 ) ( 11,747 ) — — ( 11,749 )

Issuance of common stock for stock compensation plans 581 6 16,461 — — 16,467

Issuance of common stock under the employee stock purchase plan 29 — 1,789 — — 1,789

Stock-based compensation — — 37,213 — — 37,213

Cash dividends declared ($ 0.03 per share)

— — ( 2,573 ) — — ( 2,573 )

Other comprehensive income — — — — 10,864 10,864

Net (loss) — — — ( 14,390 ) — ( 14,390 )

September 30, 2024 85,808 $ 858 $ 514,173 $ ( 28,606 ) $ ( 13,402 ) $ 473,023

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

6 unchanged sentences

Foreign currency transaction loss 7,230 3,971

(Gain) on capped call transactions ( 22 ) ( 1,845 )

Loss on capped call transactions 667 449

Deferred income taxes ( 67 ) ( 188 )

9 unchanged sentences

Investment in property and equipment ( 4,921 ) ( 14,271 )

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

Cash (used in) investing activities ( 215,999 ) ( 24,176 )

Financing activities

3 unchanged sentences

Common stock repurchases for tax withholdings for net settlement of equity awards ( 2,987 ) ( 1,654 )

Common stock repurchases under stock repurchase program ( 11,249 ) —

Cash provided by (used in) financing activities 26,949 ( 85,031 )

19 unchanged sentences

MARKETABLE SECURITIES

June 30, 2024 December 31, 2023

September 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

$ 415,086 $ 279 $ ( 24 ) $ 415,341 $ 193,431 $ 233 $ ( 228 ) $ 193,436

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.

As of September 30, 2024, marketable securities’ maturities ranged from October 2024 to January 2026, with a weighted-average remaining maturity of 0.3 years.

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

(in thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Accounts receivable, net $ 173,623 $ 300,173

8 unchanged sentences

(Dollars in thousands)

June 30, 2024

September 30, 2024

1 year or less $ 157,281 67 %

4 unchanged sentences

(Dollars in thousands)

June 30, 2024

September 30, 2024

2024 $ 78,970 34 %

9 unchanged sentences

(in thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Contract assets

6 unchanged sentences

(in thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Deferred revenue $ 345,574 $ 377,845

1 unchanged sentence

$ 347,757 $ 380,323

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 revenue decreased in the nine months ended September 30, 2024, primarily due to $ 340.4 million of revenue recognized during the period included in deferred revenue as of December 31, 2023 exceeding new billings in advance of revenue recognition.

DEFERRED COMMISSIONS

(in thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Deferred commissions

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023 2024 2023

3 unchanged sentences

GOODWILL AND OTHER INTANGIBLES

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

1 unchanged sentence

Currency translation adjustments ( 43 ) 38

June 30, $ 81,410 $ 81,593

September 30, $ 81,568 $ 81,437

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

June 30, 2024

September 30, 2024

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

17 unchanged sentences

(in thousands)

June 30, 2024

September 30, 2024

Remainder of 2024 $ 823

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023 2024 2023

6 unchanged sentences

Other current assets

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

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

Income tax receivables $ 29,264 $ 4,804

7 unchanged sentences

Other long-term assets

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

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

Deferred commissions $ 98,415 $ 114,119

12 unchanged sentences

Accrued expenses

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

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

Cloud hosting $ 12,840 $ 1,358

6 unchanged sentences

Other current liabilities

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

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

Operating lease liabilities $ 14,982 $ 15,000

3 unchanged sentences

Other long-term liabilities

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

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

Deferred revenue $ 2,183 $ 2,478

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023 2024 2023

4 unchanged sentences

Right of use assets and lease liabilities

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

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

Right of use assets

4 unchanged sentences

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Weighted-average remaining lease term 6.3 years 6.8 years

6 unchanged sentences

Maturities of lease liabilities:

(in thousands) June 30, 2024

(in thousands) September 30, 2024

Remainder of 2024 $ 4,094

4 unchanged sentences

Cash flow information

Six Months Ended

Nine Months Ended

September 30,

(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 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.

In the nine months ended September 30, 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

3 unchanged sentences

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:

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

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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Repurchase rights

On or after March 1, 2023 and on or before the 40 th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the Notes at a repurchase price equal to 100 % of the principal amount, plus accrued and unpaid interest, if the last reported sale price of the Company’s common stock exceeded 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

If certain corporate events that constitute a “Fundamental Change” occur, each noteholder will have the right to require the Company to repurchase for cash all of such noteholder’s Notes, or any portion of the principal thereof that is equal to $1,000 or a multiple of $1,000, at a repurchase price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest.

1 unchanged sentence

Carrying value of the Notes:

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

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

Principal $ 502,270 $ 502,270

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023 2024 2023

4 unchanged sentences

$ 1,562 $ 1,440 $ 4,682 $ 4,937

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

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

Future payments:

June 30, 2024

September 30, 2024

(in thousands) Principal Interest Total

Remainder of 2024 $ — $ 1,883 $ 1,883

2025 $ 502,270 $ 1,884 $ 504,154

3 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 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.

In the nine months ended September 30, 2023, Capped Call Transactions covering approximately 0.7 million shares were settled for proceeds of $ 0.3 million.

As of September 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 .

5 unchanged sentences

Change in capped call transactions:

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2024 2023

2 unchanged sentences

Fair value adjustment ( 667 ) ( 449 )

June 30, $ 915 $ 4,086

September 30, $ 226 $ 1,792

Credit facility

2 unchanged sentences

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.

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

The commitments were originally scheduled to expire on November 4, 2024, and any outstanding loans would have been payable on such date.

However 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 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.

As of September 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

7 unchanged sentences

Office space reduction June 30, 2024 $ 1,257

Office space reduction

September 30, 2024 $ 2,882

Accrued employee severance and related benefits:

Change for all restructuring actions:

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2024 2023

3 unchanged sentences

Currency translation adjustments ( 93 ) ( 203 )

June 30, $ 3,836 $ 3,624

September 30, $ 3,154 $ 16,715

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

5 unchanged sentences

• Level 1 - observable inputs, such as quoted prices in active markets for identical assets or liabilities;

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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

• 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:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

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

7 unchanged sentences

Changes in venture investments:

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2024 2023

5 unchanged sentences

included in other income, net

included in other comprehensive income (loss)

included in other comprehensive (loss)

( 362 ) ( 2,261 )

June 30, $ 21,047 $ 13,382

September 30, $ 21,172 $ 19,348

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 $ 485.3 million as of June 30, 2024, and $ 466.5 million as of December 31, 2023.

The fair value of the Notes outstanding (including the embedded conversion feature) was $ 492.5 million as of September 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

September 30, Nine Months Ended

September 30,

(Dollars in thousands)

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands)

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023 2024 2023

9 unchanged sentences

Expected future revenue from existing non-cancellable contracts:

As of June 30, 2024:

As of September 30, 2024:

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

7 unchanged sentences

$ 1,064,536 $ 297,896 $ 51,009 $ 2,569 $ 59,273 $ 1,475,283 100 %

As of June 30, 2023:

As of September 30, 2023:

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

9 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

STOCKHOLDERS' EQUITY

Stock-based compensation

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023 2024 2023

10 unchanged sentences

$ ( 512 ) $ ( 316 ) $ ( 1,377 ) $ ( 1,569 )

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

As of September 30, 2024, the Company had $ 119.6 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.6 years.

Nine Months Ended

September 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 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.

For the performance stock options granted in the nine months ended September 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.

Stock repurchase program

On April 23, 2024, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2024 to June 30, 2025.

On October 22, 2024, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2025 to December 31, 2025 and increased the authorized repurchase by $ 250 million to $ 310 million as of that date.

During the nine months ended September 30, 2024, the Company repurchased 0.2 million of its common stock for $ 11.7 million at an average price per share of $ 68.84 .

All purchases under this program have been made on the open market.

As of September 30, 2024, the Company was authorized to purchase an additional $ 48.3 million of its common stock under the share repurchase program.

Effective income tax rate

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands) 2024 2023

1 unchanged sentence

Effective income tax rate ( 73 ) % ( 26 ) %

* 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).

The Company’s effective income tax rate for the nine months ended September 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.

and a near break-even year-to-date pretax loss resulting in a not meaningful 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.

1 unchanged sentence

Quarterly, the Company reassesses the need for a valuation allowance on its net deferred tax assets by weighting all available and objectively verifiable negative and positive evidence, including projected future reversals of existing taxable temporary differences, committed contractual backlog (“Backlog”), projected future taxable income, including the impact of enacted legislation, tax-planning strategies, and recent operating results.

The Company intends to maintain a valuation allowance on its U.S.

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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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:

The Company intends to maintain a valuation allowance on its U.S.

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.

Calculation of (loss) per share:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

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

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

Net (loss) $ ( 14,390 ) $ ( 7,279 ) $ ( 19,901 ) $ ( 74,857 )

Weighted-average common shares outstanding 85,625 83,336 85,018 82,996

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 — — —

(Loss) per share, basic $ ( 0.17 ) $ ( 0.09 ) $ ( 0.23 ) $ ( 0.90 )

Net (loss) $ ( 14,390 ) $ ( 7,279 ) $ ( 19,901 ) $ ( 74,857 )

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

85,625 83,336 85,018 82,996

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

(Loss) per share, diluted $ ( 0.17 ) $ ( 0.09 ) $ ( 0.23 ) $ ( 0.90 )

Outstanding anti-dilutive stock options and RSUs (4)

2 unchanged sentences

(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 June 30, 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 June 30, 2024.

If the outstanding conversion options were fully exercised, the Company would issue approximately 3.7 million shares as of September 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 earnings (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 (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.

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

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

PEGASYSTEMS INC.

11 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.

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.

A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and issued a written opinion on July 30, 2024.

The Court of Appeals reversed the judgment on Appian’s Virginia Uniform Trade Secrets Act claim and ordered a new trial on that claim.

Appian filed a petition for appeal with the Supreme Court of Virginia on August 29, 2024, and the Company filed a response to the petition on October 21, 2024.

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

17 unchanged sentences

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

On May 15, 2024, the Court granted plaintiffs’ motion for preliminary approval of the settlement.

On September 6, 2024, the Company received notice that certain shareholders, representing approximately 3% of the settlement class, would be excluded from the settlement.

On September 19, 2024, the Court approved the settlement, including an award of attorneys’ fees and the plan of allocation, and thereafter, on September 25, 2024, entered Final Judgment.

PEGASYSTEMS INC.

12 unchanged sentences

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.

On October 18, 2024 the defendants served a motion to dismiss the complaint.

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.

1 unchanged sentence

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.

By letter dated September 9, 2024, the Staff of the Division of Enforcement of the SEC (“Staff”) notified the Company that the Staff had concluded its investigation of the Company commenced March 2023 and that, based on the information that it had as of September 9, 2024, the Staff did not intend to recommend any enforcement action against the Company.

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