PEGASYSTEMS INC, 10-Q filed on 28 Oct 20
v3.20.2
COVER PAGE - shares
9 Months Ended
Sep. 30, 2020
Oct. 19, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 1-11859  
Entity Registrant Name PEGASYSTEMS INC.  
Amendment Flag false  
Entity Central Index Key 0001013857  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Current Fiscal Year End Date --12-31  
Entity Incorporation, State or Country Code MA  
Entity Tax Identification Number 04-2787865  
Entity Address, Address Line One One Rogers Street  
Entity Address, City or Town Cambridge  
Entity Address, State or Province MA  
Entity Address, Postal Zip Code 02142-1209  
City Area Code 617  
Local Phone Number 374-9600  
Title of 12(b) Security Common Stock, $.01 par value per share  
Trading Symbol PEGA  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   80,697,696
v3.20.2
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 281,218 $ 68,363
Marketable securities 186,810 0
Total cash, cash equivalents, and marketable securities 468,028 68,363
Accounts receivable 137,953 199,720
Unbilled receivables 208,823 180,219
Other current assets 89,406 57,308
Total current assets 904,210 505,610
Unbilled receivables 108,456 121,736
Goodwill 78,864 79,039
Other long-term assets 395,797 278,427
Total assets 1,487,327 984,812
Current liabilities:    
Accounts payable 20,443 17,475
Accrued expenses 43,447 48,001
Accrued compensation and related expenses 90,836 104,126
Deferred revenue 181,680 190,080
Other current liabilities 19,916 18,273
Total current liabilities 356,322 377,955
Convertible senior notes, net 513,794 0
Operating lease liabilities 62,544 52,610
Other long-term liabilities 25,345 15,237
Total liabilities 958,005 445,802
Stockholders’ equity:    
Preferred stock, 1,000 shares authorized; none issued 0 0
Common stock, 200,000 shares authorized; 80,697 and 79,599 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 807 796
Additional paid-in capital 201,882 140,523
Retained earnings 338,300 410,919
Accumulated other comprehensive (loss) (11,667) (13,228)
Total stockholders’ equity 529,322 539,010
Total liabilities and stockholders’ equity $ 1,487,327 $ 984,812
v3.20.2
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares
Sep. 30, 2020
Dec. 31, 2019
Stockholders’ equity:    
Preferred stock, shares authorized (in shares) 1,000,000 1,000,000
Preferred stock, shares issued (in shares) 0 0
Common stock, shares authorized (in shares) 200,000,000 200,000,000
Common stock, shares issued (in shares) 80,697,000 79,599,000
Common stock, shares outstanding (in shares) 80,697,000 79,599,000
v3.20.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenue        
Total revenue $ 225,951 $ 216,703 $ 718,917 $ 634,841
Cost of revenue        
Total cost of revenue 77,799 80,898 234,018 232,415
Gross profit 148,152 135,805 484,899 402,426
Operating expenses        
Selling and marketing 132,053 115,237 395,684 341,064
Research and development 60,024 52,492 177,620 152,802
General and administrative 17,907 14,843 49,192 41,693
Total operating expenses 209,984 182,572 622,496 535,559
(Loss) from operations (61,832) (46,767) (137,597) (133,133)
Foreign currency transaction gain (loss) 4,236 (1,970) 2,545 (3,577)
Interest income 243 598 1,092 1,865
Interest expense (5,956) (42) (13,791) (42)
Gain on capped call transactions 18,989 0 19,816 0
Other income, net 0 323 1,374 378
(Loss) before (benefit from) income taxes (44,320) (47,858) (126,561) (134,509)
(Benefit from) income taxes (25,053) (17,520) (61,182) (43,158)
Net (loss) $ (19,267) $ (30,338) $ (65,379) $ (91,351)
(Loss) per share        
Basic (in dollars per share) $ (0.24) $ (0.38) $ (0.82) $ (1.16)
Diluted (in dollars per share) $ (0.24) $ (0.38) $ (0.82) $ (1.16)
Weighted-average number of common shares outstanding        
Basic (in shares) 80,537 79,200 80,191 78,928
Diluted (in shares) 80,537 79,200 80,191 78,928
Software license        
Revenue        
Total revenue $ 39,784 $ 58,005 $ 187,023 $ 165,543
Cost of revenue        
Total cost of revenue 691 676 2,354 2,982
Maintenance        
Revenue        
Total revenue 74,670 70,371 220,587 207,406
Cost of revenue        
Total cost of revenue 5,478 6,688 16,645 19,315
Pega Cloud        
Revenue        
Total revenue 54,776 35,153 147,080 94,610
Cost of revenue        
Total cost of revenue 19,717 17,824 56,238 47,769
Consulting        
Revenue        
Total revenue 56,721 53,174 164,227 167,282
Cost of revenue        
Total cost of revenue $ 51,913 $ 55,710 $ 158,781 $ 162,349
v3.20.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net (loss) $ (19,267) $ (30,338) $ (65,379) $ (91,351)
Other comprehensive (loss) income, net of tax        
Unrealized (loss) gain on available-for-sale securities (166) (216) (66) 396
Foreign currency translation adjustments 113 (2,201) 1,627 (983)
Total other comprehensive (loss) income, net of tax (53) (2,417) 1,561 (587)
Comprehensive (loss) $ (19,320) $ (32,755) $ (63,818) $ (91,938)
v3.20.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive (Loss)
Balance, beginning of period (in shares) at Dec. 31, 2018   78,526      
Balance, beginning of period at Dec. 31, 2018 $ 621,531 $ 785 $ 123,205 $ 510,863 $ (13,322)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Repurchase of common stock (in shares)   (144)      
Repurchase of common stock (7,587) $ (1) (7,586)    
Issuance of common stock for share-based compensation plans (in shares)   514      
Issuance of common stock for share-based compensation plans (14,838) $ 5 (14,843)    
Stock-based compensation 18,406   18,406    
Cash dividends declared ($0.03 per share) (2,367)     (2,367)  
Other comprehensive income (loss) 2,001       2,001
Net (loss) (28,717)     (28,717)  
Balance, end of period (in shares) at Mar. 31, 2019   78,896      
Balance, end of period at Mar. 31, 2019 $ 588,429 $ 789 119,182 479,779 (11,321)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividend declared (in dollars per share) $ 0.03        
Balance, beginning of period (in shares) at Dec. 31, 2018   78,526      
Balance, beginning of period at Dec. 31, 2018 $ 621,531 $ 785 123,205 510,863 (13,322)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Other comprehensive income (loss) (587)        
Net (loss) (91,351)        
Balance, end of period (in shares) at Sep. 30, 2019   79,324      
Balance, end of period at Sep. 30, 2019 528,832 $ 793 129,559 412,389 (13,909)
Balance, beginning of period (in shares) at Mar. 31, 2019   78,896      
Balance, beginning of period at Mar. 31, 2019 588,429 $ 789 119,182 479,779 (11,321)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Repurchase of common stock (in shares)   (88)      
Repurchase of common stock (6,302) $ (1) (6,301)    
Issuance of common stock for share-based compensation plans (in shares)   320      
Issuance of common stock for share-based compensation plans (11,214) $ 3 (11,217)    
Issuance of common stock under the employee stock purchase plan (in shares)   16      
Issuance of common stock under the employee stock purchase plan 1,103   1,103    
Stock-based compensation 20,113   20,113    
Cash dividends declared ($0.03 per share) (2,375)     (2,375)  
Other comprehensive income (loss) (171)       (171)
Net (loss) (32,296)     (32,296)  
Balance, end of period (in shares) at Jun. 30, 2019   79,144      
Balance, end of period at Jun. 30, 2019 $ 557,287 $ 791 122,880 445,108 (11,492)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividend declared (in dollars per share) $ 0.03        
Repurchase of common stock (in shares)   (88)      
Repurchase of common stock $ (6,397) $ (1) (6,396)    
Issuance of common stock for share-based compensation plans (in shares)   268      
Issuance of common stock for share-based compensation plans (8,801) $ 3 (8,804)    
Stock-based compensation 21,879   21,879    
Cash dividends declared ($0.03 per share) (2,381)     (2,381)  
Other comprehensive income (loss) (2,417)       (2,417)
Net (loss) (30,338)     (30,338)  
Balance, end of period (in shares) at Sep. 30, 2019   79,324      
Balance, end of period at Sep. 30, 2019 $ 528,832 $ 793 129,559 412,389 (13,909)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividend declared (in dollars per share) $ 0.03        
Balance, beginning of period (in shares) at Dec. 31, 2019 79,599 79,599      
Balance, beginning of period at Dec. 31, 2019 $ 539,010 $ 796 140,523 410,919 (13,228)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Equity component of convertible senior notes, net 61,604   61,604    
Repurchase of common stock (in shares)   (87)      
Repurchase of common stock (6,000) $ (1) (5,999)    
Issuance of common stock for share-based compensation plans (in shares)   564      
Issuance of common stock for share-based compensation plans (23,011) $ 6 (23,017)    
Stock-based compensation 23,199   23,199    
Cash dividends declared ($0.03 per share) (2,405)     (2,405)  
Other comprehensive income (loss) (414)       (414)
Net (loss) (25,372)     (25,372)  
Balance, end of period (in shares) at Mar. 31, 2020   80,076      
Balance, end of period at Mar. 31, 2020 $ 566,611 $ 801 196,310 383,142 (13,642)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividend declared (in dollars per share) $ 0.03        
Balance, beginning of period (in shares) at Dec. 31, 2019 79,599 79,599      
Balance, beginning of period at Dec. 31, 2019 $ 539,010 $ 796 140,523 410,919 (13,228)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Other comprehensive income (loss) 1,561        
Net (loss) $ (65,379)        
Balance, end of period (in shares) at Sep. 30, 2020 80,697 80,697      
Balance, end of period at Sep. 30, 2020 $ 529,322 $ 807 201,882 338,300 (11,667)
Balance, beginning of period (in shares) at Mar. 31, 2020   80,076      
Balance, beginning of period at Mar. 31, 2020 566,611 $ 801 196,310 383,142 (13,642)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Repurchase of common stock (in shares)   (23)      
Repurchase of common stock (2,199) $ 0 (2,199)    
Issuance of common stock for share-based compensation plans (in shares)   349      
Issuance of common stock for share-based compensation plans (14,082) $ 3 (14,085)    
Issuance of common stock under the employee stock purchase plan (in shares)   18      
Issuance of common stock under the employee stock purchase plan 1,403   1,403    
Stock-based compensation 25,674   25,674    
Cash dividends declared ($0.03 per share) (2,413)     (2,413)  
Other comprehensive income (loss) 2,028       2,028
Net (loss) (20,740)     (20,740)  
Balance, end of period (in shares) at Jun. 30, 2020   80,420      
Balance, end of period at Jun. 30, 2020 $ 556,282 $ 804 207,103 359,989 (11,614)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividend declared (in dollars per share) $ 0.03        
Repurchase of common stock (in shares)   (94)      
Repurchase of common stock $ (10,629) $ (1) (10,628)    
Issuance of common stock for share-based compensation plans (in shares)   371      
Issuance of common stock for share-based compensation plans (22,520) $ 4 (22,524)    
Stock-based compensation 27,931   27,931    
Cash dividends declared ($0.03 per share) (2,422)     (2,422)  
Other comprehensive income (loss) (53)       (53)
Net (loss) $ (19,267)     (19,267)  
Balance, end of period (in shares) at Sep. 30, 2020 80,697 80,697      
Balance, end of period at Sep. 30, 2020 $ 529,322 $ 807 $ 201,882 $ 338,300 $ (11,667)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cash dividend declared (in dollars per share) $ 0.03        
v3.20.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares
3 Months Ended
Sep. 30, 2020
Jun. 30, 2020
Mar. 31, 2020
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]            
Cash dividend declared (in dollars per share) $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03
v3.20.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Operating activities    
Net (loss) $ (65,379) $ (91,351)
Adjustments to reconcile net (loss) to cash (used in) operating activities    
Stock-based compensation 76,755 60,242
(Gain) on capped call transactions (19,816) 0
Deferred income taxes (43,476) (40,531)
Amortization of deferred commissions 24,922 22,372
Lease expense 11,997 10,454
Amortization of debt discount and issuance costs 10,405 0
Amortization of intangible assets and depreciation 15,677 16,998
Amortization of investments 252 798
Foreign currency transaction (gain) loss (2,545) 3,577
Other non-cash (1,374) (363)
Change in operating assets and liabilities, net (33,675) 4,342
Cash (used in) operating activities (26,257) (13,462)
Investing activities    
Purchases of investments (190,319) (11,182)
Proceeds from maturities and called investments 0 13,066
Sales of investments 1,424 68,937
Payments for acquisitions, net of cash acquired 0 (10,934)
Investment in property and equipment (21,806) (6,439)
Cash (used in) provided by investing activities (210,701) 53,448
Financing activities    
Proceeds from issuance of convertible senior notes 600,000 0
Purchase of capped calls related to convertible senior notes (51,900) 0
Payment of debt issuance costs (14,527) 0
Dividend payments to shareholders (7,206) (7,105)
Common stock repurchases (76,737) (54,836)
Cash provided by (used in) financing activities 449,630 (61,941)
Effect of exchange rate changes on cash and cash equivalents 183 (363)
Net increase (decrease) in cash and cash equivalents 212,855 (22,318)
Cash and cash equivalents, beginning of period 68,363 114,422
Cash and cash equivalents, end of period $ 281,218 $ 92,104
v3.20.2
BASIS OF PRESENTATION
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
BASIS OF PRESENTATION
1. BASIS OF PRESENTATION
Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019.
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.
All intercompany transactions and balances have been eliminated in consolidation. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2020.
v3.20.2
NEW ACCOUNTING PRONOUNCEMENTS
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
NEW ACCOUNTING PRONOUNCEMENTS
2. NEW ACCOUNTING PRONOUNCEMENTS
Convertible debt
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature. As a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Additionally, the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, the standard requires applying the if-converted method to calculate convertible instruments’ impact on diluted earnings per share (“EPS”). The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020. It can be adopted on either a full retrospective or modified retrospective basis. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and related disclosures. The Company expects to early adopt the new standard on January 1, 2021.
Financial instruments
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the asset’s amortized cost, removing the concept of “other-than-temporary” impairments. The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material effect on the Company’s financial position or results of operations.
v3.20.2
MARKETABLE SECURITIES
9 Months Ended
Sep. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
MARKETABLE SECURITIES
3. MARKETABLE SECURITIES

September 30, 2020
(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair Value
Government debt$50,987 $— $(11)$50,976 
Corporate debt136,045 (212)135,834 
$187,032 $$(223)$186,810 
As of September 30, 2020, maturities of marketable securities ranged from October 2020 to September 2023, with a weighted-average remaining maturity of approximately 1.3 years.
As of December 31, 2019, the Company did not hold any marketable securities.
v3.20.2
RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
9 Months Ended
Sep. 30, 2020
Receivables [Abstract]  
RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
4. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables
(in thousands)
September 30, 2020December 31, 2019
Accounts receivable$137,953 $199,720 
Unbilled receivables208,823 180,219 
Long-term unbilled receivables108,456 121,736 
$455,232 $501,675 
Unbilled receivables are client committed amounts for which revenue recognition precedes billing, and billing is solely subject to the passage of time.
Unbilled receivables are expected to be billed in the future as follows:
(Dollars in thousands)
September 30, 2020
1 year or less$208,823 66 %
1-2 years91,325 29 %
2-5 years17,131 %
$317,279 100 %
Unbilled receivables based upon contract effective date:
(Dollars in thousands)
September 30, 2020
2020$105,380 33 %
201999,875 32 %
201839,281 12 %
201737,824 12 %
2016 and prior34,919 11 %
$317,279 100 %
Major clients
Clients accounting for 10% or more of the Company’s receivables:
September 30, 2020December 31, 2019
Client A11 %*
* Client accounted for less than 10% of total receivables.
Contract assets and deferred revenue
(in thousands)
September 30, 2020December 31, 2019
Contract assets (1)
$8,104 $5,558 
Long-term contract assets (2)
5,579 5,420 
13,683 10,978 
Deferred revenue181,680 190,080 
Long-term deferred revenue (3)
6,673 5,407 
$188,353 $195,487 
(1) Included in other current assets. (2) Included in other long-term assets. (3) Included in other long-term liabilities.
Contract assets are client committed amounts for which revenue recognized exceeds the amount billed to the client and the right to payment is subject to conditions other than the passage of time, such as the completion of a related performance obligation. Deferred revenue consists of billings and payments received in advance of revenue recognition. Contract assets and deferred revenue are netted at the contract level for each reporting period.
The change in deferred revenue in the nine months ended September 30, 2020 was primarily due to new billings in advance of revenue recognition, and $170.5 million of revenue recognized during the period that was included in deferred revenue at December 31, 2019.
v3.20.2
DEFERRED COMMISSIONS
9 Months Ended
Sep. 30, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
DEFERRED COMMISSIONS
5. DEFERRED COMMISSIONS
(in thousands)
September 30, 2020December 31, 2019
Deferred commissions (1)
$87,992 $85,314 
(1) Included in other long-term assets.
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2020201920202019
Amortization of deferred commissions (1)
$8,861 $8,193 $24,922 $22,372 
(1) Included in selling and marketing expense.
v3.20.2
DEBT
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
DEBT
6. DEBT
Convertible senior notes and capped calls
Convertible senior notes
In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal amount of $600 million, due March 1, 2025, in a private placement. The proceeds from the Notes were used or are anticipated to be used for the Capped Call Transactions (described below), working capital, and other general corporate purposes. There are no required principal payments prior to the maturity of the Notes. 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.
Proceeds from the Notes and Capped Call Transactions:
(in thousands)Amount
Principal$600,000 
Less: issuance costs(14,527)
Less: Capped Call Transactions(51,900)
$533,573 
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 approximately $135.05 per share of common stock. The Company will settle conversions by paying or delivering, as applicable, 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 the occurrence of 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:
During any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds one hundred and thirty percent (130%) of the conversion price for each of at least twenty (20) trading days (whether or not consecutive) during the thirty (30) consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter.
During the five consecutive business days immediately after any five consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.
Upon the occurrence of certain corporate events or distributions, or if the Company calls all or any Notes for redemption, then the noteholder of any Note may convert such Note at any time before the close of business on the business day immediately before the related redemption date (or if the Company fails to pay the redemption price due on such redemption date in full, at any time until the Company pays such redemption price in full).
As of September 30, 2020, no Notes were eligible for conversion at the noteholders’ election.
Repurchase rights
On or after March 1, 2023 and on or before the 40th 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.
If certain corporate events that constitute a “Fundamental Change” (as described below) occur at any time, each noteholder will have the right, at such noteholder’s option, 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 an integral multiple of $1,000, at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. A fundamental change relates to events such as mergers, changes in control of the Company, liquidation/dissolution of the Company, or the delisting of the Company’s common stock.
Impact of the Notes
In accounting for the transaction, the Notes have been separated into liability and equity components.
The initial carrying amount of the liability component was calculated by measuring a similar debt instrument’s fair value that does not have an associated conversion feature. The excess of the Notes’ principal amount over the initial carrying amount of the liability component, the debt discount, is amortized as interest expense over the Notes’ contractual term.
The equity component was recorded as an increase to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.
The Company incurred issuance costs of $14.5 million related to the Notes, allocated between the Notes’ liability and equity components proportionate to the initial carrying amount of the liability and equity components.
Issuance costs attributable to the liability component are recorded as an offset to the Notes’ principal balance. They are amortized as interest expense using the effective interest method over the contractual term of the Notes.
Issuance costs attributable to the equity component are recorded as an offset to the equity component in additional paid-in capital and are not amortized.
Net carrying amount of the liability component:
(in thousands)September 30, 2020
Principal$600,000 
Unamortized debt discount(75,061)
Unamortized issuance costs(11,145)
$513,794 
Net carrying amount of the equity component, included in additional paid-in capital:
(in thousands)September 30, 2020
Conversion options (1)
$61,604 
(1) Net of issuance costs and taxes.
Interest expense related to the Notes:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2020201920202019
Contractual interest expense (0.75% coupon)
$1,125 $— $2,700 $— 
Amortization of debt discount (1)
3,807 — 9,060 — 
Amortization of issuance costs (1)
565 — 1,345 — 
$5,497 $— $13,105 $— 
(1) Amortized based upon an effective interest rate of 4.31%.
Future payments of principal and contractual interest:
September 30, 2020
(in thousands)PrincipalInterestTotal
2020$— $— $— 
2021— 4,500 4,500 
2022— 4,500 4,500 
2023— 4,500 4,500 
2024— 4,500 4,500 
2025600,000 1,488 601,488 
$600,000 $19,488 $619,488 
Capped call transactions
In February 2020, the Company entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions cover approximately 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of the Company’s common stock. They are generally expected to reduce potential dilution to the common stock upon any conversion of Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the Capped Call Transactions is $196.44, subject to adjustment upon the occurrence of specified extraordinary events affecting the Company, including merger events and tender offers.
The Capped Call Transactions are accounted for as derivative instruments. The Capped Call Transactions do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value of the Capped Call Transactions, calculated in accordance with the governing documents, may not represent a fair value measurement. The Capped Call Transactions are classified as “other long term assets” and remeasured to fair value at the end of each reporting period, resulting in a non-operating gain or loss.
Change in value of Capped Call Transactions:
(in thousands)Nine Months Ended
September 30, 2020
Value at issuance$51,900 
Fair value adjustment19,816 
Balance as of September 30,$71,716 
Credit facility
In November 2019, and as amended in February 2020, July 2020, and October 2020, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC”). The Company may use borrowings to finance working capital needs and for general corporate purposes. Subject to specific conditions, the Credit Facility allows the Company to increase the aggregate commitment to $200 million. The commitments expire on November 4, 2024, and any outstanding loans will be payable on such date. The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions.
The Company is also required to comply with financial covenants, including:
Beginning with the fiscal quarter ended on September 30, 2020 and ending with the fiscal quarter ended December 31, 2021 at least $200 million in cash and investments held by Pegasystems Inc.
Beginning with the quarter ended on March 31, 2022 a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up in the event of certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0.
As of September 30, 2020 and December 31, 2019, we had no outstanding borrowings under the Credit Facility.
v3.20.2
FAIR VALUE MEASUREMENTS
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
7. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis
The Company records its cash equivalents, Capped Call Transactions, and venture investments at fair value on a recurring basis. 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.
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:
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; and
Level 3 - significant unobservable inputs on which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and minimize unobservable inputs when determining fair value.
The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable. The Company applies judgment in its determination of expected volatility. The Company considers both historical and implied volatility levels of the underlying equity security and, to a lesser extent, historical peer group volatility levels. The Company’s venture investments are recorded at fair value based on valuation methods using the observable transaction price and other 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:
September 30, 2020December 31, 2019
(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents (1)
$212,917 $— $— $212,917 $— $— $— $— 
Marketable securities $— $186,810 $— $186,810 $— $— $— $— 
Capped Call Transactions (2) (3)
$— $71,716 $— $71,716 $— $— $— $— 
Venture investments (2) (4)
$— $— $7,927 $7,927 $— $— $4,871 $4,871 
(1) Investments in money market funds. (2) Included in other long-term assets. (3) See "6. Debt" for additional information. (4) Investments in privately-held companies.
Change in venture investments:
(in thousands)Nine Months Ended
September 30, 2020
December 31, 2019$4,871 
New investments3,006 
Sales of investments(1,424)
Fair value adjustment1,474 
September 30, 2020$7,927 

The carrying value of certain other financial instruments, including receivables and accounts payable, approximates fair value due to the relatively short maturity of these items.
Fair value of the Notes
The fair value of the Company’s Notes was recorded at $515.9 million upon issuance, which reflected the principal amount of the Notes less the fair value of the conversion feature. The fair value of the debt component was determined based on a discounted cash flow model. The discount rate used reflected both the time value of money and credit risk inherent in the Notes. The carrying value of the Notes will be accreted, over the remaining term to maturity, to their principal value of $600 million.
The Notes’ fair value (inclusive of the conversion feature, which is embedded in the Notes) was $680 million as of September 30, 2020. The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy. See "6. Debt" for additional information.
v3.20.2
REVENUE
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
REVENUE
8. REVENUE
Geographic revenue
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in thousands)
2020201920202019
U.S.$120,971 53 %$123,447 57 %$436,199 61 %$347,120 55 %
Other Americas10,737 %11,748 %35,009 %49,450 %
United Kingdom (“U.K.”)25,150 11 %23,034 11 %68,246 %64,269 10 %
Europe (excluding U.K.), Middle East, and Africa 39,656 18 %34,761 16 %106,472 15 %102,342 16 %
Asia-Pacific29,437 13 %23,713 11 %72,991 10 %71,660 11 %
$225,951 100 %$216,703 100 %$718,917 100 %$634,841 100 %
Revenue streams
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)
2020201920202019
Perpetual license$3,852 $9,016 $16,568 $43,286 
Term license35,932 48,989 170,455 122,257 
Revenue recognized at a point in time 39,784 58,005 187,023 165,543 
Maintenance74,670 70,371 220,587 207,406 
Pega Cloud54,776 35,153 147,080 94,610 
Consulting56,721 53,174 164,227 167,282 
Revenue recognized over time 186,167 158,698 531,894 469,298 
$225,951 $216,703 $718,917 $634,841 
(in thousands)Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Pega Cloud$54,776 $35,153 $147,080 $94,610 
Maintenance74,670 70,371 220,587 207,406 
Term license35,932 48,989 170,455 122,257 
Subscription (1)
165,378 154,513 538,122 424,273 
Perpetual license3,852 9,016 16,568 43,286 
Consulting56,721 53,174 164,227 167,282 
$225,951 $216,703 $718,917 $634,841 
(1) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).
Remaining performance obligations ("Backlog")
Expected future revenue on existing contracts:
September 30, 2020
(Dollars in thousands)
Perpetual licenseTerm licenseMaintenancePega CloudConsultingTotal
1 year or less$8,708 $50,788 $170,643 $211,661 $14,977 $456,777 54 %
1-2 years1,700 5,341 40,631 157,500 2,042 207,214 25 %
2-3 years— 7,052 18,277 93,283 770 119,382 14 %
Greater than 3 years— 9,597 44,363 653 54,617 %
$10,408 $63,185 $239,148 $506,807 $18,442 $837,990 100 %

September 30, 2019
(Dollars in thousands)
Perpetual licenseTerm licenseMaintenancePega CloudConsultingTotal
1 year or less$7,689 $25,948 $158,220 $133,785 $13,145 $338,787 56 %
1-2 years853 3,798 18,590 105,081 863 129,185 21 %
2-3 years1,306 591 8,323 72,915 841 83,976 14 %
Greater than 3 years— 85 4,959 51,591 — 56,635 %
$9,848 $30,422 $190,092 $363,372 $14,849 $608,583 100 %
v3.20.2
STOCK-BASED COMPENSATION
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION
9. STOCK-BASED COMPENSATION
Expense
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2020201920202019
Cost of revenue
$5,100 $4,787 $15,636 $14,216 
Selling and marketing
12,658 8,317 33,968 24,055 
Research and development
5,765 4,858 17,066 13,990 
General and administrative
4,402 3,884 10,085 7,981 
$27,925 $21,846 $76,755 $60,242 
Income tax benefit
$(5,604)$(4,430)$(15,293)$(12,226)
As of September 30, 2020, the Company had $115.0 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years.
Grants
The Company granted the following stock-based compensation awards:
Nine Months Ended
September 30, 2020
(in thousands)SharesTotal Fair Value
RSUs
1,026 $92,456 
Non-qualified stock options
1,886 $44,505 
Common stock$701 
v3.20.2
INCOME TAXES
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES
10. INCOME TAXES
Effective income tax rate

Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in thousands)2020201920202019
(Benefit from) income taxes$(25,053)$(17,520)$(61,182)$(43,158)
Effective income tax rate48 %32 %
During the nine months ended September 30, 2020, the Company’s effective income tax rate benefit increased primarily due to the excess tax benefits from stock-based compensation and a carryback claim benefit as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
v3.20.2
(LOSS) PER SHARE
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
(LOSS) PER SHARE
11. (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 the conversion spread of the Company’s convertible senior notes.
Calculation of the basic and diluted earnings per share:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands, except per share amounts)2020201920202019
Net (loss)$(19,267)$(30,338)$(65,379)$(91,351)
Weighted-average common shares outstanding80,537 79,200 80,191 78,928 
(Loss) per share, basic$(0.24)$(0.38)$(0.82)$(1.16)
Net (loss)$(19,267)$(30,338)$(65,379)$(91,351)
Weighted-average common shares outstanding, assuming dilution (1) (2)
80,537 79,200 80,191 78,928 
(Loss) per share, diluted$(0.24)$(0.38)$(0.82)$(1.16)
Outstanding anti-dilutive stock options and RSUs (3)
6,622 5,953 6,166 5,923 
(1) The Company expects to settle the principal amount of the Notes in cash. As a result, only the amount by which the conversion value exceeds the aggregated principal amount of the Notes is included in the diluted earnings per share computation under the treasury stock method. The conversion spread has a dilutive impact on diluted net income per share when the average market price of the Company’s common stock for a given period exceeds the initial conversion price of $135.05 per share for the Notes. In connection with the Notes’ issuance, the Company entered into Capped Call Transactions, which were not included in calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.
(2) In periods of loss, all dilutive securities are excluded as their inclusion would be anti-dilutive.
(3) Certain outstanding stock options and RSUs were excluded from the computation of diluted earnings per share because they were anti-dilutive in the period presented. These awards may be dilutive in the future.
v3.20.2
NEW ACCOUNTING PRONOUNCEMENTS (Policies)
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Basis of presentation
Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019.
In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.
All intercompany transactions and balances have been eliminated in consolidation. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2020.
Convertible debt
Convertible debt
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The standard eliminates the liability and equity separation model for convertible instruments with a cash conversion feature. As a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Additionally, the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, the standard requires applying the if-converted method to calculate convertible instruments’ impact on diluted earnings per share (“EPS”). The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020. It can be adopted on either a full retrospective or modified retrospective basis. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and related disclosures. The Company expects to early adopt the new standard on January 1, 2021.
Financial instruments
Financial instruments
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the asset’s amortized cost, removing the concept of “other-than-temporary” impairments. The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material effect on the Company’s financial position or results of operations.
Assets and liabilities measured at fair value on a recurring basis
Assets and liabilities measured at fair value on a recurring basis
The Company records its cash equivalents, Capped Call Transactions, and venture investments at fair value on a recurring basis. 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.
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:
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; and
Level 3 - significant unobservable inputs on which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and minimize unobservable inputs when determining fair value.
The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable. The Company applies judgment in its determination of expected volatility. The Company considers both historical and implied volatility levels of the underlying equity security and, to a lesser extent, historical peer group volatility levels. The Company’s venture investments are recorded at fair value based on valuation methods using the observable transaction price and other unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.
v3.20.2
MARKETABLE SECURITIES (Tables)
9 Months Ended
Sep. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Schedule of Marketable Securities
September 30, 2020
(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair Value
Government debt$50,987 $— $(11)$50,976 
Corporate debt136,045 (212)135,834 
$187,032 $$(223)$186,810 
v3.20.2
RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE (Tables)
9 Months Ended
Sep. 30, 2020
Receivables [Abstract]  
Summary of receivable
Receivables
(in thousands)
September 30, 2020December 31, 2019
Accounts receivable$137,953 $199,720 
Unbilled receivables208,823 180,219 
Long-term unbilled receivables108,456 121,736 
$455,232 $501,675 
Summary of unbilled receivables
Unbilled receivables are expected to be billed in the future as follows:
(Dollars in thousands)
September 30, 2020
1 year or less$208,823 66 %
1-2 years91,325 29 %
2-5 years17,131 %
$317,279 100 %
Summary of unbilled receivables based upon contract effective date
Unbilled receivables based upon contract effective date:
(Dollars in thousands)
September 30, 2020
2020$105,380 33 %
201999,875 32 %
201839,281 12 %
201737,824 12 %
2016 and prior34,919 11 %
$317,279 100 %
Schedules of concentration of risk, by risk factor
Major clients
Clients accounting for 10% or more of the Company’s receivables:
September 30, 2020December 31, 2019
Client A11 %*
* Client accounted for less than 10% of total receivables.
Summary of contract assets and deferred revenue
Contract assets and deferred revenue
(in thousands)
September 30, 2020December 31, 2019
Contract assets (1)
$8,104 $5,558 
Long-term contract assets (2)
5,579 5,420 
13,683 10,978 
Deferred revenue181,680 190,080 
Long-term deferred revenue (3)
6,673 5,407 
$188,353 $195,487 
(1) Included in other current assets. (2) Included in other long-term assets. (3) Included in other long-term liabilities.
v3.20.2
DEFERRED COMMISSIONS (Tables)
9 Months Ended
Sep. 30, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Schedule of impairment of deferred contract costs
(in thousands)
September 30, 2020December 31, 2019
Deferred commissions (1)
$87,992 $85,314 
(1) Included in other long-term assets.
Schedule of amortization of deferred contract costs
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2020201920202019
Amortization of deferred commissions (1)
$8,861 $8,193 $24,922 $22,372 
(1) Included in selling and marketing expense
v3.20.2
DEBT (Tables)
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Schedule of debt
Proceeds from the Notes and Capped Call Transactions:
(in thousands)Amount
Principal$600,000 
Less: issuance costs(14,527)
Less: Capped Call Transactions(51,900)
$533,573 
Contractual obligation, fiscal year maturity schedule
Net carrying amount of the liability component:
(in thousands)September 30, 2020
Principal$600,000 
Unamortized debt discount(75,061)
Unamortized issuance costs(11,145)
$513,794 
Net carrying amount of the equity component, included in additional paid-in capital:
(in thousands)September 30, 2020
Conversion options (1)
$61,604 
(1) Net of issuance costs and taxes.
Interest expense related to the Notes:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2020201920202019
Contractual interest expense (0.75% coupon)
$1,125 $— $2,700 $— 
Amortization of debt discount (1)
3,807 — 9,060 — 
Amortization of issuance costs (1)
565 — 1,345 — 
$5,497 $— $13,105 $— 
(1) Amortized based upon an effective interest rate of 4.31%.
Future payments of principal and contractual interest:
September 30, 2020
(in thousands)PrincipalInterestTotal
2020$— $— $— 
2021— 4,500 4,500 
2022— 4,500 4,500 
2023— 4,500 4,500 
2024— 4,500 4,500 
2025600,000 1,488 601,488 
$600,000 $19,488 $619,488 
Schedule of derivative instruments
Change in value of Capped Call Transactions:
(in thousands)Nine Months Ended
September 30, 2020
Value at issuance$51,900 
Fair value adjustment19,816 
Balance as of September 30,$71,716 
v3.20.2
FAIR VALUE MEASUREMENTS (Tables)
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Assets and liabilities measured at fair value
The Company’s assets and liabilities measured at fair value on a recurring basis:
September 30, 2020December 31, 2019
(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents (1)
$212,917 $— $— $212,917 $— $— $— $— 
Marketable securities $— $186,810 $— $186,810 $— $— $— $— 
Capped Call Transactions (2) (3)
$— $71,716 $— $71,716 $— $— $— $— 
Venture investments (2) (4)
$— $— $7,927 $7,927 $— $— $4,871 $4,871 
(1) Investments in money market funds. (2) Included in other long-term assets. (3) See "6. Debt" for additional information. (4) Investments in privately-held companies.
Fair value, assets measured on recurring basis, unobservable input reconciliation
Change in venture investments:
(in thousands)Nine Months Ended
September 30, 2020
December 31, 2019$4,871 
New investments3,006 
Sales of investments(1,424)
Fair value adjustment1,474 
September 30, 2020$7,927 
v3.20.2
REVENUE (Tables)
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Schedule of revenue by geographic location
Geographic revenue
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in thousands)
2020201920202019
U.S.$120,971 53 %$123,447 57 %$