PEGASYSTEMS INC, 10-Q filed on 24 Jul 24
v3.24.2
Cover - shares
6 Months Ended
Jun. 30, 2024
Jul. 17, 2024
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2024  
Document Transition Report false  
Entity File Number 1-11859  
Entity Registrant Name PEGASYSTEMS INC.  
Entity Incorporation, State or Country Code MA  
Entity Tax Identification Number 04-2787865  
Entity Address, Address Line One One Main Street  
Entity Address, City or Town Cambridge  
Entity Address, State or Province MA  
Entity Address, Postal Zip Code 02142  
City Area Code 617  
Local Phone Number 374-9600  
Title of 12(b) Security Common Stock, $.01 par value per share  
Trading Symbol PEGA  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   85,409,645
Amendment Flag false  
Entity Central Index Key 0001013857  
Document Fiscal Year Focus 2024  
Document Fiscal Period Focus Q2  
Current Fiscal Year End Date --12-31  
v3.24.2
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 30, 2024
Dec. 31, 2023
Current assets:    
Cash and cash equivalents $ 258,257 $ 229,902
Marketable securities 406,819 193,436
Total cash, cash equivalents, and marketable securities 665,076 423,338
Accounts receivable, net 165,723 300,173
Unbilled receivables, net 164,533 237,379
Other current assets 76,323 68,137
Total current assets 1,071,655 1,029,027
Long-term unbilled receivables, net 81,218 85,402
Goodwill 81,410 81,611
Other long-term assets 302,249 314,696
Total assets 1,536,532 1,510,736
Current liabilities:    
Accounts payable 16,682 11,290
Accrued expenses 44,875 39,941
Accrued compensation and related expenses 81,110 126,640
Deferred revenue 352,618 377,845
Convertible senior notes, net 500,604  
Other current liabilities 20,677 21,343
Total current liabilities 1,016,566 577,059
Long-term convertible senior notes, net 0 499,368
Long-term operating lease liabilities 70,202 66,901
Other long-term liabilities 14,362 13,570
Total liabilities 1,101,130 1,156,898
Commitments and contingencies (Note 15)
Stockholders’ equity:    
Preferred stock, 1,000 shares authorized; none issued 0 0
Common stock, 200,000 shares authorized; 85,369 and 83,840 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively 854 838
Additional paid-in capital 473,030 379,584
(Accumulated deficit) (14,216) (8,705)
Accumulated other comprehensive (loss) (24,266) (17,879)
Total stockholders’ equity 435,402 353,838
Total liabilities and stockholders’ equity $ 1,536,532 $ 1,510,736
v3.24.2
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares
shares in Thousands
Jun. 30, 2024
Dec. 31, 2023
Stockholders’ equity:    
Preferred stock, shares authorized (in shares) 1,000 1,000
Preferred stock, shares issued (in shares) 0 0
Common stock, shares authorized (in shares) 200,000 200,000
Common stock, shares issued (in shares) 85,369 83,840
Common stock, shares outstanding (in shares) 85,369 83,840
v3.24.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Revenue        
Total revenue $ 351,153 $ 298,268 $ 681,300 $ 623,740
Cost of revenue        
Total cost of revenue 96,946 96,140 191,604 194,074
Gross profit 254,207 202,128 489,696 429,666
Operating expenses        
Selling and marketing 139,761 143,858 267,456 293,655
Research and development 75,425 73,931 147,538 149,307
General and administrative 25,420 23,462 48,947 46,572
Litigation settlement, net of recoveries 0 0 32,403 0
Restructuring 635 2,167 798 3,628
Total operating expenses 241,241 243,418 497,142 493,162
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)
(Loss) income on capped call transactions (3,277) (1,361) 22 1,845
Other income, net 0 5,702 1,684 12,285
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 (in dollars per share) $ 0.08 $ (0.56) $ (0.07) $ (0.82)
Diluted (in dollars per share) $ 0.07 $ (0.56) $ (0.07) $ (0.82)
Weighted-average number of common shares outstanding        
Basic (in shares) 85,157 83,039 84,712 82,823
Diluted (in shares) 88,500 83,039 84,712 82,823
Subscription services        
Revenue        
Total revenue $ 214,430 $ 197,105 $ 426,333 $ 384,614
Cost of revenue        
Total cost of revenue 36,238 36,783 72,062 73,647
Subscription license        
Revenue        
Total revenue 84,647 41,197 147,985 125,724
Cost of revenue        
Total cost of revenue 477 623 1,120 1,342
Consulting        
Revenue        
Total revenue 52,040 58,387 106,087 111,420
Cost of revenue        
Total cost of revenue 60,231 58,710 118,413 119,058
Perpetual license        
Revenue        
Total revenue 36 1,579 895 1,982
Cost of revenue        
Total cost of revenue $ 0 $ 24 $ 9 $ 27
v3.24.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Statement of Comprehensive Income [Abstract]        
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)
Foreign currency translation adjustments (2,142) 361 (5,569) 1,950
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)
v3.24.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional paid-in capital
(Accumulated deficit)
Accumulated other comprehensive (loss)
Balance, beginning of period (in shares) at Dec. 31, 2022   82,436      
Balance, beginning of period at Dec. 31, 2022 $ 130,843 $ 824 $ 229,602 $ (76,513) $ (23,070)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Issuance of common stock for stock compensation plans (in shares)   452      
Issuance of common stock for stock compensation plans 672 $ 4 668    
Issuance of common stock under the employee stock purchase plan (in shares)   52      
Issuance of common stock under the employee stock purchase plan 2,143 $ 1 2,142    
Stock-based compensation 42,557   42,557    
Cash dividends declared (2,488)   (2,488)    
Other comprehensive income (loss) 1,543       1,543
Net income (loss) (20,774)     (20,774)  
Balance, end of period (in shares) at Mar. 31, 2023   82,940      
Balance, end of period at Mar. 31, 2023 154,496 $ 829 272,481 (97,287) (21,527)
Balance, beginning of period (in shares) at Dec. 31, 2022   82,436      
Balance, beginning of period at Dec. 31, 2022 130,843 $ 824 229,602 (76,513) (23,070)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Other comprehensive income (loss) 1,709        
Net income (loss) (67,578)        
Balance, end of period (in shares) at Jun. 30, 2023   83,212      
Balance, end of period at Jun. 30, 2023 145,396 $ 832 310,016 (144,091) (21,361)
Balance, beginning of period (in shares) at Mar. 31, 2023   82,940      
Balance, beginning of period at Mar. 31, 2023 154,496 $ 829 272,481 (97,287) (21,527)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Issuance of common stock for stock compensation plans (in shares)   225      
Issuance of common stock for stock compensation plans 1,826 $ 2 1,824    
Issuance of common stock under the employee stock purchase plan (in shares)   47      
Issuance of common stock under the employee stock purchase plan 1,981 $ 1 1,980    
Stock-based compensation 36,227   36,227    
Cash dividends declared (2,496)   (2,496)    
Other comprehensive income (loss) 166       166
Net income (loss) (46,804)     (46,804)  
Balance, end of period (in shares) at Jun. 30, 2023   83,212      
Balance, end of period at Jun. 30, 2023 $ 145,396 $ 832 310,016 (144,091) (21,361)
Balance, beginning of period (in shares) at Dec. 31, 2023 83,840 83,840      
Balance, beginning of period at Dec. 31, 2023 $ 353,838 $ 838 379,584 (8,705) (17,879)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Issuance of common stock for stock compensation plans (in shares)   1,139      
Issuance of common stock for stock compensation plans 18,656 $ 12 18,644    
Issuance of common stock under the employee stock purchase plan (in shares)   32      
Issuance of common stock under the employee stock purchase plan 1,758   1,758    
Stock-based compensation 34,781   34,781    
Cash dividends declared (2,550)   (2,550)    
Other comprehensive income (loss) (4,173)       (4,173)
Net income (loss) (12,124)     (12,124)  
Balance, end of period (in shares) at Mar. 31, 2024   85,011      
Balance, end of period at Mar. 31, 2024 $ 390,186 $ 850 432,217 (20,829) (22,052)
Balance, beginning of period (in shares) at Dec. 31, 2023 83,840 83,840      
Balance, beginning of period at Dec. 31, 2023 $ 353,838 $ 838 379,584 (8,705) (17,879)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Other comprehensive income (loss) (6,387)        
Net income (loss) $ (5,511)        
Balance, end of period (in shares) at Jun. 30, 2024 85,369 85,369      
Balance, end of period at Jun. 30, 2024 $ 435,402 $ 854 473,030 (14,216) (24,266)
Balance, beginning of period (in shares) at Mar. 31, 2024   85,011      
Balance, beginning of period at Mar. 31, 2024 390,186 $ 850 432,217 (20,829) (22,052)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Issuance of common stock for stock compensation plans (in shares)   326      
Issuance of common stock for stock compensation plans 5,485 $ 4 5,481    
Issuance of common stock under the employee stock purchase plan (in shares)   32      
Issuance of common stock under the employee stock purchase plan 1,669   1,669    
Stock-based compensation 36,224   36,224    
Cash dividends declared (2,561)   (2,561)    
Other comprehensive income (loss) (2,214)   0   (2,214)
Net income (loss) $ 6,613     6,613  
Balance, end of period (in shares) at Jun. 30, 2024 85,369 85,369      
Balance, end of period at Jun. 30, 2024 $ 435,402 $ 854 $ 473,030 $ (14,216) $ (24,266)
v3.24.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares
3 Months Ended
Jun. 30, 2024
Mar. 31, 2024
Jun. 30, 2023
Mar. 31, 2023
Statement of Stockholders' Equity [Abstract]        
Cash dividend declared (in dollars per share) $ 0.03 $ 0.03 $ 0.03 $ 0.03
v3.24.2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Operating activities        
Net (loss) $ 6,613 $ (46,804) $ (5,511) $ (67,578)
Adjustments to reconcile net (loss) to cash provided by operating activities        
Stock-based compensation 36,224 36,227 71,005 78,784
Amortization of deferred commissions 14,994 14,750 32,276 29,027
Amortization of intangible assets and depreciation     8,812 9,553
Lease expense     7,844 8,186
Foreign currency transaction loss (437) 3,290 2,825 5,965
(Gain) on capped call transactions 3,277 1,361 (22) (1,845)
Deferred income taxes     232 (136)
(Gain) on investments     (1,628) (4,430)
(Gain) on repurchases of convertible senior notes     0 (7,855)
Other non-cash     (5,056) 2,122
Change in operating assets and liabilities, net     109,466 61,959
Cash provided by operating activities     220,243 113,752
Investing activities        
Purchases of investments     (291,810) (69,662)
Proceeds from maturities and called investments     83,967 88,849
Sales of investments     0 10,725
Investment in property and equipment     (1,857) (13,933)
Cash (used in) provided by investing activities     (209,700) 15,979
Financing activities        
Repurchases of convertible senior notes     0 (88,989)
Dividend payments to stockholders     (5,065) (4,962)
Proceeds from employee stock plans     29,928 8,044
Common stock repurchases for tax withholdings for net settlement of equity awards     (2,360) (1,422)
Other     0 341
Cash provided by (used in) financing activities     22,503 (86,988)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash     (2,842) 1,010
Net increase in cash, cash equivalents, and restricted cash     30,204 43,753
Cash, cash equivalents, and restricted cash, beginning of period     232,827 145,054
Cash, cash equivalents, and restricted cash, end of period 263,031 188,807 263,031 188,807
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents [Abstract]        
Cash and cash equivalents 258,257 186,874 258,257 186,874
Restricted cash included in other current assets 768   768  
Restricted cash included in other long-term assets 4,006 1,933 4,006 1,933
Total cash, cash equivalents, and restricted cash $ 263,031 $ 188,807 $ 263,031 $ 188,807
v3.24.2
BASIS OF PRESENTATION
6 Months Ended
Jun. 30, 2024
Accounting Policies [Abstract]  
BASIS OF PRESENTATION
NOTE 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, 2023.
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 were eliminated in consolidation. The operating results for the interim periods presented do not necessarily indicate the expected results for 2024.
v3.24.2
MARKETABLE SECURITIES
6 Months Ended
Jun. 30, 2024
Investments, Debt and Equity Securities [Abstract]  
MARKETABLE SECURITIES
NOTE 2. MARKETABLE SECURITIES
June 30, 2024December 31, 2023
(in thousands)Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value
Government debt$12,942 $— $(17)$12,925 $11,471 $33 $(1)$11,503 
Corporate debt394,521 (628)393,894 181,960 200 (227)181,933 
$407,463 $$(645)$406,819 $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.
v3.24.2
RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
6 Months Ended
Jun. 30, 2024
Receivables [Abstract]  
RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE
Receivables
(in thousands)
June 30, 2024December 31, 2023
Accounts receivable, net$165,723 $300,173 
Unbilled receivables, net164,533 237,379 
Long-term unbilled receivables, net
81,218 85,402 
$411,474 $622,954 
Unbilled receivables
Unbilled receivables are client-committed amounts for which revenue recognition precedes billing. Billing is solely subject to the passage of time.
Unbilled receivables by expected collection date:
(Dollars in thousands)
June 30, 2024
1 year or less$164,533 67 %
1-2 years58,353 24 %
2-5 years22,865 %
$245,751 100 %
Unbilled receivables by contract effective date:
(Dollars in thousands)
June 30, 2024
2024$58,562 24 %
2023130,140 53 %
202229,241 12 %
202122,830 %
2020 and prior4,978 %
$245,751 100 %
Contract assets
Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.
(in thousands)
June 30, 2024December 31, 2023
Contract assets
$15,374 $16,238 
Long-term contract assets
19,997 20,635 
$35,371 $36,873 

Deferred revenue
Deferred revenue consists of billings made and payments received in advance of revenue recognition.
(in thousands)
June 30, 2024December 31, 2023
Deferred revenue$352,618 $377,845 
Long-term deferred revenue
2,443 2,478 
$355,061 $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.
v3.24.2
DEFERRED COMMISSIONS
6 Months Ended
Jun. 30, 2024
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
DEFERRED COMMISSIONS
NOTE 4. DEFERRED COMMISSIONS
(in thousands)
June 30, 2024December 31, 2023
Deferred commissions
$100,490 $114,119 
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Amortization of deferred commissions (1)
$14,994 $14,750 $32,276 $29,027 
(1) Included in selling and marketing.
v3.24.2
GOODWILL AND OTHER INTANGIBLES
6 Months Ended
Jun. 30, 2024
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL AND OTHER INTANGIBLES
NOTE 5. GOODWILL AND OTHER INTANGIBLES
Goodwill
Six Months Ended
June 30,
(in thousands)
20242023
January 1,$81,611 $81,399 
Currency translation adjustments(201)194 
June 30,$81,410 $81,593 
Intangibles
Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.
June 30, 2024
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value
Client-related
4-10 years
$63,112 $(60,714)$2,398 
Technology
2-10 years
68,005 (65,198)2,807 
Other
1-5 years
5,361 (5,361)— 
$136,478 $(131,273)$5,205 
December 31, 2023
(in thousands)Useful LivesCostAccumulated Amortization
Net Book Value
Client-related
4-10 years
$63,117 $(60,035)$3,082 
Technology
2-10 years
68,138 (64,218)3,920 
Other
1-5 years
5,361 (5,361)— 
$136,616 $(129,614)$7,002 
Future estimated amortization of intangible assets:
(in thousands)
June 30, 2024
Remainder of 2024$1,399 
20252,605 
2026874 
2027327 
$5,205 
Amortization of intangible assets:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Cost of revenue
$447 $621 $1,068 $1,327 
Selling and marketing
342 342 685 685 
$789 $963 $1,753 $2,012 
v3.24.2
OTHER ASSETS AND LIABILITIES
6 Months Ended
Jun. 30, 2024
Other Assets and Liabilities [Abstract]  
OTHER ASSETS AND LIABILITIES
NOTE 6. OTHER ASSETS AND LIABILITIES
Other current assets
(in thousands)June 30, 2024December 31, 2023
Income tax receivables$16,060 $4,804 
Contract assets15,374 16,238 
Insurance receivable— 1,954 
Indirect tax receivable2,702 1,924 
Capped call transactions915 — 
Restricted cash768 — 
Other40,504 43,217 
$76,323 $68,137 
Other long-term assets
(in thousands)June 30, 2024December 31, 2023
Deferred commissions$100,490 $114,119 
Right of use assets68,293 64,198 
Property and equipment42,190 47,279 
Venture investments21,047 19,450 
Contract assets19,997 20,635 
Intangible assets5,205 7,002 
Capped call transactions— 893 
Deferred income taxes3,666 3,678 
Restricted cash4,006 2,925 
Other37,355 34,517 
$302,249 $314,696 
Accrued expenses
(in thousands)June 30, 2024December 31, 2023
Cloud hosting$15,152 $1,358 
Outside professional services9,539 10,419 
Marketing and sales program7,081 2,557 
Income and other taxes3,422 15,428 
Employee related4,966 4,486 
Other4,715 5,693 
$44,875 $39,941 
Other current liabilities
(in thousands)June 30, 2024December 31, 2023
Operating lease liabilities$15,254 $15,000 
Dividends payable2,561 2,515 
Other2,862 3,828 
$20,677 $21,343 
Other long-term liabilities
(in thousands)June 30, 2024December 31, 2023
Deferred revenue$2,443 $2,478 
Income taxes payable858 859 
Other11,061 10,233 
$14,362 $13,570 
v3.24.2
LEASES
6 Months Ended
Jun. 30, 2024
Leases [Abstract]  
LEASES
NOTE 7. LEASES
Expense
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Fixed lease costs$5,271 $4,495 $9,533 $10,261 
Short-term lease costs410 696 953 1,477 
Variable lease costs1,763 2,186 3,372 4,160 
$7,444 $7,377 $13,858 $15,898 
Right of use assets and lease liabilities
(in thousands)June 30, 2024December 31, 2023
Right of use assets
$68,293 $64,198 
Operating lease liabilities
$15,254 $15,000 
Long-term operating lease liabilities$70,202 $66,901 
Weighted-average remaining lease term and discount rate for the Company’s leases were:
June 30, 2024December 31, 2023
Weighted-average remaining lease term6.4 years6.8 years
Weighted-average discount rate (1)
4.6 %4.0 %
(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.
Maturities of lease liabilities:
(in thousands)June 30, 2024
Remainder of 2024$7,954 
202518,784 
202614,384 
202713,387 
202812,813 
202910,099 
Thereafter21,650 
Total lease payments99,071 
Less: imputed interest (1)
(13,615)
$85,456 
(1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated due to a lease reassessment event.
Cash flow information
Six Months Ended
June 30,
(in thousands)20242023
Cash paid for operating leases, net of tenant improvement allowances$9,493 $10,540 
Right of use assets recognized for new leases and amendments (non-cash)$12,290 $1,465 
v3.24.2
DEBT
6 Months Ended
Jun. 30, 2024
Debt Disclosure [Abstract]  
DEBT
NOTE 8. 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 of $600 million, due March 1, 2025, in a private placement. No principal payments are due before maturity. The Notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1, beginning 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.
Conversion rights
The conversion rate is 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of $135.05 per share of common stock. The conversion rate will be adjusted upon certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions. The Company will settle conversions by paying or delivering cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate.
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 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.
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 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.
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” 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. A Fundamental Change relates to mergers, changes in control of the Company, liquidation/dissolution of the Company, or the delisting of the Company’s common stock.
Carrying value of the Notes:
(in thousands)June 30, 2024December 31, 2023
Principal$502,270 $502,270 
Unamortized issuance costs(1,666)(2,902)
Convertible senior notes, net$500,604 $499,368 

Interest expense related to the Notes:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Contractual interest expense (0.75% coupon)
$942 $997 $1,884 $2,122 
Amortization of issuance costs
619 647 1,236 1,375 
$1,561 $1,644 $3,120 $3,497 
The average interest rate on the Notes in the six months ended June 30, 2024 and 2023 was 1.2%.
Future payments:
June 30, 2024
(in thousands)PrincipalInterestTotal
Remainder of 2024$— $1,883 $1,883 
2025502,270 1,884 504,154 
$502,270 $3,767 $506,037 
Capped call transactions
In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions 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.
The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The cap price of the Capped Call Transactions is subject to adjustment upon specified extraordinary events affecting the Company, including mergers and tender offers.
The Capped Call Transactions are accounted for as derivative instruments and do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value 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.
Change in capped call transactions:
Six Months Ended
June 30,
(in thousands)20242023
January 1,$893 $2,582 
Settlements— (341)
Fair value adjustment22 1,845 
June 30,$915 $4,086 
Credit facility
In November 2019, and as since amended, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. The Company may use borrowings for general corporate purposes and to finance working capital needs. 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 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.
v3.24.2
RESTRUCTURING
6 Months Ended
Jun. 30, 2024
Restructuring and Related Activities [Abstract]  
RESTRUCTURING
NOTE 9. RESTRUCTURING
The Company has undertaken the following restructuring activities as it optimizes its go-to-market strategy and reassesses its office space needs:
(in thousands)Three months endedExpense
Office space reduction March 31, 2023$1,241 
Employee severance and related benefitsJune 30, 2023$1,581 
Employee severance and related benefits and office space reduction
September 30, 2023$17,236 
Office space reductionDecember 31, 2023$1,497 
Office space reductionJune 30, 2024$1,257 
Accrued employee severance and related benefits:
Change for all restructuring actions:
Six Months Ended
June 30,
(in thousands)20242023
January 1,$8,095 $18,573 
Costs incurred(238)2,387 
Cash disbursements(3,852)(17,521)
Currency translation adjustments(169)185 
June 30,$3,836 $3,624 
Note: Accrued employee severance and related benefits is included in accrued compensation and related expenses.
v3.24.2
FAIR VALUE MEASUREMENTS
6 Months Ended
Jun. 30, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 10. FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value on a recurring basis
The Company records its cash equivalents, marketable securities, 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 with little or no market data, which require the Company to develop its own assumptions.
This hierarchy requires the Company to use observable market data when available and minimize unobservable inputs when determining fair value.
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 model uses various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield. The Company applies judgment when determining expected volatility. The Company considers the underlying equity security’s historical and implied volatility levels. The Company’s venture investments are recorded at fair value based on multiple valuation methods, including observable public companies and transaction prices and unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds.
Assets and liabilities measured at fair value on a recurring basis:
June 30, 2024December 31, 2023
(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents$18,345 $— $— $18,345 $54,357 $— $— $54,357 
Marketable securities $— $406,819 $— $406,819 $— $193,436 $— $193,436 
Capped Call Transactions
$— $915 $— $915 $— $893 $— $893 
Venture investments (1)
$— $— $21,047 $21,047 $— $— $19,450 $19,450 
(1) Investments in privately-held companies
Changes in venture investments:
Six Months Ended
June 30,
(in thousands)20242023
January 1,$19,450 $13,069 
New investments350 400 
Sales of investments— (2,773)
Changes in foreign exchange rates(19)119 
Changes in fair value:
included in other income, net
1,628 4,475 
included in other comprehensive income (loss)
(362)(1,908)
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 $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.
v3.24.2
REVENUE
6 Months Ended
Jun. 30, 2024
Revenue from Contract with Customer [Abstract]  
REVENUE
NOTE 11. REVENUE
Geographic revenue
Three Months Ended
June 30,
Six Months Ended
June 30,
(Dollars in thousands)
2024202320242023
U.S.$189,214 54 %$150,385 50 %$370,197 55 %$334,904 54 %
Other Americas21,314 %19,505 %43,100 %34,516 %
United Kingdom (“U.K.”)38,628 11 %28,892 10 %70,745 10 %71,129 11 %
Europe (excluding U.K.), Middle East, and Africa 53,360 15 %54,353 18 %115,207 17 %105,671 17 %
Asia-Pacific48,637 14 %45,133 15 %82,051 12 %77,520 12 %
$351,153 100 %$298,268 100 %$681,300 100 %$623,740 100 %
Revenue streams
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)
2024202320242023
Subscription license$84,647 $41,197 $147,985 $125,724 
Perpetual license36 1,579 895 1,982 
Revenue recognized at a point in time84,683 42,776 148,880 127,706 
Maintenance80,344 82,042 161,345 161,672 
Pega Cloud134,086 115,063 264,988 222,942 
Consulting52,040 58,387 106,087 111,420 
Revenue recognized over time266,470 255,492 532,420 496,034 
Total revenue$351,153 $298,268 $681,300 $623,740 
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Pega Cloud$134,086 $115,063 $264,988 $222,942 
Maintenance80,344 82,042 161,345 161,672 
Subscription services214,430 197,105 426,333 384,614 
Subscription license84,647 41,197 147,985 125,724 
Subscription299,077 238,302 574,318 510,338 
Consulting52,040 58,387 106,087 111,420 
Perpetual license36 1,579 895 1,982 
$351,153 $298,268 $681,300 $623,740 
Remaining performance obligations ("Backlog")
Expected future revenue from existing non-cancellable contracts:
As of June 30, 2024:
(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal
Pega CloudMaintenance
1 year or less
$470,379 $209,655 $23,931 $2,696 $25,953 $732,614 52 %
1-2 years
301,070 63,266 10,078 — 2,469 376,883 27 %
2-3 years
152,839 30,032 2,884 — 2,473 188,228 13 %
Greater than 3 years
90,474 17,953 97 — — 108,524 %
$1,014,762 $320,906 $36,990 $2,696 $30,895 $1,406,249 100 %
As of June 30, 2023:
(Dollars in thousands)Subscription servicesSubscription licensePerpetual licenseConsultingTotal
Pega CloudMaintenance
1 year or less
$397,183 $214,579 $35,616 $4,979 $37,355 $689,712 55 %
1-2 years
238,691 58,551 3,026 2,252 6,772 309,292 24 %
2-3 years
124,616 25,103 6,764 — 1,523 158,006 12 %
Greater than 3 years
101,494 7,592 — — — 109,086 %
$861,984 $305,825 $45,406 $7,231 $45,650 $1,266,096 100 %
v3.24.2
STOCK-BASED COMPENSATION
6 Months Ended
Jun. 30, 2024
Share-Based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION
NOTE 12. STOCK-BASED COMPENSATION
Expense
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Cost of revenue
$7,092 $7,174 $13,664 $16,087 
Selling and marketing
13,564 15,349 27,452 33,009 
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 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.
Grants
Six Months Ended
June 30, 2024
(in thousands)
Quantity
Total Fair Value
Restricted stock units (1)
1,266 $78,071 
Non-qualified stock options
1,738 $44,874 
Performance stock options (2)
566 $13,921 
(1) Includes units issued when employees elect to receive 50% of the employee’s target incentive compensation under the Company’s Corporate Incentive Compensation Plan (the “CICP”) in the form of RSUs instead of cash.
(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. The options expire ten years from the grant date.
v3.24.2
INCOME TAXES
6 Months Ended
Jun. 30, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES
NOTE 13. INCOME TAXES
Effective income tax rate
Six Months Ended
June 30,
(Dollars in thousands)20242023
Provision for income taxes$5,604 $11,850 
Effective income tax rate*(21)%
* 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 U.K. 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. A deferred tax valuation allowance requires significant judgment and uncertainties, including assumptions about future taxable income. 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. and U.K. net deferred tax assets until sufficient evidence exists to support their realization.
v3.24.2
EARNINGS (LOSS) PER SHARE
6 Months Ended
Jun. 30, 2024
Earnings Per Share [Abstract]  
EARNINGS (LOSS) PER SHARE
NOTE 14. 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
June 30,
(in thousands, except per share amounts)2024202320242023
Net income (loss)$6,613 $(46,804)$(5,511)$(67,578)
Weighted-average common shares outstanding85,157 83,039 84,712 82,823 
Earnings (loss) per share, basic$0.08 $(0.56)$(0.07)$(0.82)
Net income (loss)$6,613 $(46,804)$(5,511)$(67,57