PEGASYSTEMS INC
For the period ended Mar 31, 2025. Filed Apr 22, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed Apr 22, 2025
PEGA$32.40-3.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-10-23.
0001013857-24-000226
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-04-22.
0001013857-25-000104
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 101 previous paragraphs and 99 current paragraphs.
67 unchanged; 24 reworded; 8 added; 10 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 15 previous and 15 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (8)
Current report
•the successful execution of investments in artificial intelligence;
Current report
ff
Current report
•The increase in selling and marketing in the three months ended March 31, 2025 was primarily due to an increase in compensation and benefits of $6.7 million attributable to increases in commissions and equity compensation.
Current report
•The increase in research and development in the three months ended March 31, 2025 was primarily due to an increase in computer hardware and software costs of $1 million and an increase in compensation and benefits of $0.5 million.
Current report
•The increase in general and administrative in the three months ended March 31, 2025 was primarily due to an increase in compensation and benefits of $4.2 million attributable to an increase in equity compensation and an increase of $4.6 million in legal fees and related expenses arising from legal proceedings outside the ordinary course of business. We expect to continue to incur additional costs for these proceedings. For additional information, see "Note 17. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.
Current report
•The decrease in interest expense in the three months ended March 31, 2025 was primarily due to the repayment of the Notes at maturity on March 3, 2025.
Current report
Provision for (benefit from) income taxes
Current report
The Organization for Economic Cooperation and Development (“OECD”) has introduced new global minimum tax regulations, known as Pillar Two, that was supported by over 130 countries worldwide. Parts of the minimum tax rules were applicable in 2024, with the remaining provisions becoming fully effective for 2025. We do not expect this legislation to have a material impact on our consolidated financial statements. We will continue to monitor and evaluate new legislation and guidance, which could change our current assessment.
Removed paragraphs (10)
Previous report
•the potential impact of our convertible senior notes and Capped Call Transactions;
Previous report
◦Litigation settlement, net of recoveries: Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See Note 15. Commitments and Contingencies in our Quarterly Report for the three months ended September 30, 2024 for additional information.
Previous report
•The decreases in selling and marketing during the three and nine months ended September 30, 2024 were primarily due to decreases in compensation and benefits of $2.4 million and $27.5 million, respectively, from reduced headcount as a result of our effort to optimize our go-to-market strategy. For additional information, see "Note 9. Restructuring" in Part I, Item 1 of this Quarterly Report.
Previous report
•The decrease in research and development for the three months ended September 30, 2024 was primarily due to a decrease in compensation and benefits of $1.1 million. The decrease in research and development for the nine months ended September 30, 2024 was primarily due to a decrease in cloud hosting expenses of $1.8 million and a decrease in compensation and benefits of $1.5 million.
Previous report
•The increases in general and administrative during the three and nine months ended September 30, 2024 were primarily due to increases in compensation and benefits of $3.1 million and $7.2 million, respectively, due to increases in incentive-based compensation.
Previous report
•The decreases in restructuring expenses during the three and nine months ended September 30, 2024 were primarily due to efforts to optimize our go-to-market organization and office space. For additional information, see "Note 9. Restructuring" in Part I, Item 1 of this Quarterly Report.
Previous report
•The increases in interest income in the three and nine months ended September 30, 2024 were primarily due to higher investment balances and higher interest rate yields.
Previous report
Provision for income taxes
Previous report
The Organization for Economic Cooperation and Development (“OECD”) has introduced new global minimum tax regulations, known as Pillar Two, that began to come into effect on January 1, 2024. We are monitoring this development and evaluating its potential impact on our tax rate and eligibility to qualify for the safe harbor provisions. For 2024, we currently anticipate meeting the transitional safe harbors in most jurisdictions, with any remaining top-up tax being immaterial.
Previous report
(1) Includes principal and interest.
Reworded paragraphs (24)
Previous wording
We develop, market, license, host, and support enterprise software that helps organizations build agility into their business so they can adapt to change. Our powerful, low-code platform for workflow automation and artificial intelligence-powered decisioning enables the world’s leading brands and government agencies to hyper-personalize customer experiences, streamline customer service, and automate mission-critical business processes and workflows. With Pega, our clients can leverage our artificial intelligence (“AI”) technology and scalable architecture to accelerate their digital transformation. In addition, our client success teams, world-class partners, and clients leverage our Pega Express™ methodology to design and deploy mission-critical applications quickly and collaboratively.
Current wording
We develop, market, license, host, and support enterprise software that helps organizations optimize decisions and processes in real-time so they can deliver outcomes that transform their business. Our powerful platform for enterprise AI decisioning and workflow automation enables the world’s leading brands and government agencies to hyper-personalize customer experiences, automate customer service, and streamline operations, mission-critical business processes, and workflows. With Pega, our clients can leverage our AI technology and scalable architecture to accelerate their digital transformation. In addition, our sales and client success teams, world-class partners, and clients are able to leverage Pega GenAI Blueprint TM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively.
Previous wording
Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored to our clients’ specific industry.
Current wording
Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored by industry.
Previous wording
Note: Constant currency ACV is calculated by applying the September 30, 2023 foreign exchange rates to all periods shown.
Current wording
Note: Constant currency ACV is calculated by applying the March 31, 2024 foreign exchange rates to current period shown.
Previous wording
◦Interest on convertible senior notes: In February 2020, we issued convertible senior notes, due March 1, 2025, in a private placement. The convertible senior notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1.
Current wording
◦Interest on convertible senior notes: In February 2020, we issued convertible senior notes (the “Notes”), due March 1, 2025, in a private placement. The Notes accrued interest at an annual rate of 0.75%, paid semi-annually in arrears on March 1 and September 1. The outstanding Notes were repaid in their entirety at maturity.
Previous wording
Note: Constant currency Backlog is calculated by applying the September 30, 2023 foreign exchange rates to all periods shown.
Current wording
Note: Constant currency Backlog is calculated by applying the March 31, 2024 foreign exchange rates to current period shown.
Previous wording
•The increases in Pega Cloud revenue for the three and nine months ended September 30, 2024 were primarily due to additional investments made by our existing clients as they continued to expand their use of Pega Cloud.
Current wording
•The increase in Pega Cloud revenue in the three months ended March 31, 2025 was primarily due to expanded adoption of Pega Cloud by our existing clients.
Previous wording
•The decreases in maintenance revenue in the three and nine months ended September 30, 2024 were primarily due to our clients’ shift to Pega Cloud-based offerings, which do not generally result in maintenance revenue.
Current wording
•The decrease in maintenance revenue in the three months ended March 31, 2025 was primarily due to our clients’ shift to Pega Cloud-based offerings, which do not generally result in maintenance revenue.
Previous wording
•The decreases in subscription license revenue in the three and nine months ended September 30, 2024 were primarily due to several large multi-year contracts recognized in revenue in the three and nine months ended September 30, 2023.
Current wording
•The increase in subscription license revenue in the three months ended March 31, 2025 was primarily due to several large multi-year contracts recognized in revenue in the three months ended March 31, 2025.
Previous wording
•The decreases in consulting revenue in the three and nine months ended September 30, 2024 were primarily due to decreases in consultant billable hours and utilization.
Current wording
•The increase in consulting revenue in the three months ended March 31, 2025 was primarily due to increases in consultant billable hours.
Previous wording
•The increases in Pega Cloud gross profit percent in the three and nine months ended September 30, 2024 were primarily due to increased cost efficiency, primarily for hosting services and employee compensation and benefits, as Pega Cloud continues to grow and scale.
Current wording
•The increase in Pega Cloud gross profit percent in the three months ended March 31, 2025 was primarily due to increased cost efficiency, primarily for hosting services and employee compensation and benefits, as Pega Cloud continues to grow and scale.
Previous wording
•The decreases in consulting gross profit percent in the three and nine months ended September 30, 2024 were primarily due to decreases in consultant utilization rates.
Current wording
•The increase in consulting gross profit percent in the three months ended March 31, 2025 was primarily due to increases in consultant utilization rates.
Previous wording
•The increase in litigation settlement, net of recoveries in the nine months ended September 30, 2024 was primarily due to the cost to settle litigation arising from proceedings outside the ordinary course of business. See "Note 15. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report and “Risk Factors” in Part I, Item 1A of our Annual Report for the year ended December 31, 2023 for additional information.
Current wording
•The decrease in litigation settlement, net of recoveries in the three months ended March 31, 2025 was primarily due to the cost to settle litigation arising from proceedings outside the ordinary course of business in the three months ended March 31, 2024. See “Note 20. Commitments and Contingencies” in Item 8 of our Annual Report filed on Form-10K for the year ended December 31, 2024 and prior filings for further information.
Previous wording
•The changes in foreign currency transaction (loss) gain in the three and nine months ended September 30, 2024 was primarily due to fluctuations in foreign currency exchange rates associated with foreign currency-denominated cash and receivables held by our subsidiary in the United Kingdom.
Current wording
•The increase in foreign currency transaction (loss) in the three months ended March 31, 2025 was primarily due to fluctuations in foreign currency exchange rates associated with foreign currency-denominated cash, receivables, and intercompany balances held by our subsidiary in the United Kingdom.
Previous wording
•The changes in (loss) on capped call transactions in the three and nine months ended September 30, 2024 were due to fair value adjustments for our capped call transactions.
Current wording
•The change in (loss) income on capped call transactions was due to the termination of the capped call transactions in the three months ended March 31, 2025.
Previous wording
•The decrease in other income, net in the three months ended September 30, 2024 was due to a gain of $6.4 million on our venture investments in the three months ended September 30, 2023. The decrease in other income, net in the nine months ended September 30, 2024 was due to a gain of $7.9 million from repurchases of our convertible senior notes and a decrease of $9.3 million in the gain from our venture investments in the nine months ended September 30, 2024. For additional information, see “Note 8. Debt” and "Note 10. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.
Current wording
•The decrease in other income, net was primarily due to lower recorded valuation gains from our venture investments portfolio. For additional information, see "Note 12. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report.
Previous wording
Our effective income tax rate for the nine months ended September 30, 2024, is impacted by the jurisdictional mix and timing of the actual compared to projected earnings (losses). It is also impacted by the valuation allowance on our deferred tax assets in the U.S. and U.K. and a near break-even year-to-date pretax loss resulting in a not meaningful effective income tax rate.
Current wording
Our effective income tax rate for the three months ended March 31, 2025, is impacted by the valuation allowance on our deferred tax assets in the U.S. and U.K. as well as the jurisdictional mix and timing of the actual compared to projected earnings.
Previous wording
We believe that our current cash, marketable securities, cash flow provided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, settlement of our convertible senior notes due on March 1, 2025, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. We may utilize available funds or seek external financing if we require additional capital resources.
Current wording
We believe that our current cash, marketable securities, cash flow provided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. We may utilize available funds or seek external financing if we require additional capital resources.
Previous wording
The change in cash provided by operating activities in the nine months ended September 30, 2024 was primarily due to growth in client collections and the impact of our cost-efficiency initiatives. For additional information, see “Note 9. Restructuring” and "Note 15. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report.
Current wording
The change in cash provided by operating activities in the three months ended March 31, 2025 was primarily due to increase in client collections.
Previous wording
The change in cash (used in) investing activities in the nine months ended September 30, 2024 was primarily due to our investments in financial instruments and reduced investment in property and equipment as we optimized our office space.
Current wording
The change in cash provided by (used in) investing activities in the three months ended March 31, 2025 was primarily due to scheduled maturities of our investments in financial instruments in anticipation of the repayment of the maturing Notes.
Previous wording
In February 2020, we issued $600 million in aggregate principal amount of convertible senior notes, which mature on March 1, 2025. As of September 30, 2024, we had $502.3 million in aggregate principal amount of convertible senior notes outstanding. For additional information, see "Note 8. Debt" in Part I, Item 1 of this Quarterly Report.
Current wording
In February 2020, we issued $600 million in aggregate principal amount of Notes, which matured on March 1, 2025. As of December 31, 2024, we had $468 million in aggregate principal amount of Notes outstanding, which were repaid in their entirety at maturity. For additional information, see "Note 10. Debt" in Part I, Item 1 of this Quarterly Report.
Previous wording
In November 2019, and as since amended, we entered into a $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. On April 23, 2024, the Credit Facility was amended to extend the expiration date to February 4, 2025. As of September 30, 2024 and December 31, 2023, we had $27.3 million in outstanding letters of credit under the Credit Facility, reducing available borrowing capacity, but no outstanding cash borrowings. For additional information, see "Note 8. Debt" in Part I, Item 1 of this Quarterly Report.
Current wording
In November 2019, and as since amended, we entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. Effective as of February 4, 2025, the Credit Facility was amended to extend the expiration date to February 4, 2027. As of March 31, 2025 and December 31, 2024, we had $27.3 million in outstanding letters of credit under the Credit Facility, reducing available borrowing capacity, but we had no outstanding cash borrowings. For additional information, see "Note 10. Debt" in Part I, Item 1 of this Quarterly Report.
Previous wording
(1) On April 23, 2024, our Board of Directors extended the expiration date of our share repurchase program from June 30, 2024 to June 30, 2025. On October 22, 2024, our Board of Directors extended the expiration date of our share repurchase program from June 30, 2025 to December 31, 2025 and increased the authorized repurchase by $250 million to $310 million as of that date.
Current wording
(2) On April 22, 2025, the Company’s Board of Directors further extended the expiration date of the share repurchase program from December 31, 2025 to June 30, 2026 and increased the authorized repurchase by $500 million.
Previous wording
In the nine months ended September 30, 2024 and 2023, instead of receiving cash from the equity holders, we withheld shares with a value of $3.3 million and $1.0 million, respectively, for the exercise price of options. These amounts are not included in the table above.
Current wording
During the three months ended March 31, 2025 and 2024, instead of receiving cash from the equity holders, we withheld shares with a value of $1.5 million and $2.8 million, respectively, for the exercise price of options. These amounts are not included in the table above.
Previous wording
(2) Represents the fixed amount owed for purchase obligations including for software licenses, hosting services, and sales and marketing programs.
Current wording
(1) Represents the fixed amount owed for purchase obligations including software licenses, hosting services, and sales and marketing programs.