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CAMBRIDGE, MA -- (Marketwired) -- 02/25/14 -- Pegasystems Inc. (NASDAQ: PEGA), the software company powering the digital enterprise with Better Business Software™ that helps organizations engage customers, simplify operations, and embrace change, today announced results for its fourth quarter and full year ended December 31, 2013.

"With a strong second half, Pega crossed the half-billion dollar revenue mark while also materially increasing license backlog," said Alan Trefler, Founder and CEO of Pegasystems. "Our license and maintenance revenue grew to 69% of total revenue, consistent with our strategy of expanding our partner ecosystem and providing online customer education through PegaACADEMY. Both customers and partners are showing great enthusiasm for our recently released Pega 7 Build For Change® Platform."

"We are seeing strong demand for both tactical and transformative client engagements across our industry and government verticals. Empowered customers, heightened regulation, and increased competition are driving organizations to recognize they must become digital enterprises in order to adapt and thrive. Our industry leading platform unifies the best of Business Process Management (BPM), Multi-Channel Customer Relationship Management (CRM), Business Rules, and Adaptive Analytics to uniquely meet these needs. Increasingly, the world's most sophisticated companies are relying on Pega to improve customer engagement, simplify business operations and Build For Change®," concluded Mr. Trefler.

                   SELECTED GAAP & NON-GAAP RESULTS (1)
                          Year Ended December 31,
                  ---------------------------------------   % Increase
                                                             (Decrease)
                                                          ----------------
                     2013     2013       2012      2012
($in '000s)          GAAP    Non-GAAP    GAAP    Non-GAAP  GAAP   Non-GAAP
                  --------- --------- --------- --------- ------  --------
Total Revenue     $ 508,954 $ 511,150 $ 461,710 $ 461,710     10%       11%
License Revenue   $ 191,876 $ 192,398 $ 163,906 $ 163,906     17%       17%
Net Income        $  38,043 $  58,377 $  21,868 $  42,511     74%       37%
Diluted Earnings
 per share        $    0.98 $    1.50 $    0.56 $    1.09     75%       38%

                      Three Months Ended December 31,
                  ---------------------------------------   % Increase
                                                             (Decrease)
                                                          ----------------
                     2013      2013      2012      2012
($in '000s)          GAAP    Non-GAAP    GAAP    Non-GAAP  GAAP   Non-GAAP
                  --------- --------- --------- --------- ------  --------
Total Revenue     $ 153,382 $ 155,578 $ 143,830 $ 143,830      7%        8%
License Revenue   $  63,659 $  64,181 $  68,389 $  68,389     (7%)      (6%)
Net Income        $  15,561 $  23,993 $  20,409 $  25,199    (24%)      (5%)
Diluted Earnings
 per share        $    0.40 $    0.61 $    0.53 $    0.65    (25%)      (6%)

(1) See a reconciliation of our GAAP to Non-GAAP measures contained in the
 financial schedules at the end of this release.

Cash: Total cash, cash equivalents, and marketable securities at the end of the year was $156.7 million, down from Q3 primarily as a result of the $25.6 million of net cash used to complete the acquisition of Antenna early in the quarter.

Cash generated from operations for the full year 2013 was $80.7 million, an increase of 85% on a year-over-year basis. Free Cash Flow, which we define as operating cash flow less Cap Ex, was $75 million.

License Backlog: The Company computes license backlog by adding billed deferred license revenue and off-balance sheet license commitments, which is business that is contracted, unbilled and not recorded on the Company's balance sheet.

Total billed deferred license revenue on the balance sheet as of December 31, 2013 was $61.5 million, an increase of 55% on a year-over-year basis. Off-balance sheet license commitments as of December 31, 2013 totaled $264.3 million, an increase of 4% on a year-over-year basis.

Current billed deferred license revenue on the balance sheet as of December 31, 2013 was $28.8 million, an increase of 19% on a year-over-year basis. Current off-balance sheet license commitments as of December 31, 2013 expected to be billed and realized in the next twelve months, totaled $92.2 million, an increase of 26% on a year-over-year basis.

"Our fourth quarter bookings performance showed a very high ratio of ratable license deals, which led to a significant year-over-year increase in our license backlog as of the end of 2013. Nonetheless, we had extremely strong EPS performance as a result of vigilant expense management given uncertainty around the macro economy earlier in the year," said Rafe Brown, Pegasystems' CFO. "The combination of our increased backlog, our solid pipeline of opportunities, and compelling value proposition, provides us with a strong foundation for fiscal 2014. This view is supported by our 2014 revenue guidance, which calls for total revenue growth in the low teens and assumes even faster growth in our license revenue."

Business Outlook: As of February 25, 2014, Pegasystems is initiating revenue and EPS guidance for fiscal year 2014 as follows:

Full Year 2014 Revenue: GAAP revenue for the full year 2014 is projected to be approximately $576 million. Non-GAAP revenue for the full year 2014 is projected to be approximately $580 million.

Full Year 2014 Earnings Per Share: GAAP earnings per share for the full year 2014 is expected to be approximately $1.00. Non-GAAP earnings per share for the full year 2014 is expected to be approximately $1.56.

See the reconciliation of our GAAP revenue and EPS guidance to non-GAAP revenue and EPS guidance for the full year of 2014 at the end of this release.

Quarterly Conference Call

Pegasystems will host a conference call and live Webcast associated with this announcement at 6:00 p.m. EST today. A live audio webcast of the conference call, together with detailed financial information, can be accessed through the Company's Web site by at www.pega.com/about-us/investors. Dial-in information is as follows: 1 (877) 348-9349 (domestic) or 1 (678) 809-1046 (international). To listen to the Webcast log onto www.pega.com at least 5 minutes prior to the event's broadcast and click on the Webcast icon in the Investors section. A replay of the call will also be available on www.pega.com in the Investors section Audio Archives link.

Discussion of Non-GAAP Financial Measures:

To supplement financial results presented in accordance with Generally Accepted Accounting Principles in the U.S. ("GAAP"), the Company provides non-GAAP measures, including in this release. Pegasystems' management utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. The Company's annual financial plan is prepared both on a GAAP and non-GAAP basis, and both are approved by our board of directors. In addition and as a consequence of the importance of these measures in managing the business, the Company uses non-GAAP measures and financial performance results in the evaluation process to establish management's compensation.

The non-GAAP measures exclude the effects of certain business combination accounting entries, stock-based compensation expense, amortization of acquired intangibles, acquisition-related costs, restructuring costs, and one-time expenses associated with relocation of the Company's headquarters. The Company believes that these Non-GAAP measures are helpful in understanding its past financial performance and its anticipated future results. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. A reconciliation of the Company's GAAP to non-GAAP measures is included in the financial schedules at the end of this release.

Forward-Looking Statements

"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995: Certain statements contained in this press release may be construed as "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words "anticipate," "project," "expect," "plan," "intend," "believe," "estimate," "should," "target," "forecast," "could," "preliminary," "guidance" and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. This press release contains forward-looking statements about expected GAAP and non-GAAP financial results for the full fiscal year of 2014, including revenue and EPS.

These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause the Company's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include, among others, variation in demand for our products and services and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition, the ongoing consolidation in the financial services and healthcare markets, reliance on third party relationships, the potential loss of vendor specific objective evidence for our professional services, the financial impact of the Antenna acquisition, and management of the Company's growth. Further information regarding these and other factors which could cause the Company's actual results to differ materially from any forward-looking statements contained in this press release is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 and other recent filings with the Securities and Exchange Commission. These documents are available on the Company's website at www.pega.com/about-us/investors/sec-filings. The forward-looking statements contained in this press release represent the Company's views as of February 25, 2014. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause the Company's view to change, the Company does not undertake and specifically disclaims any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise. The statements should therefore not be relied upon as representing the Company's view as of any date subsequent to February 25, 2014.

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About Pegasystems
Pegasystems Build for Change® Platform is the heart of Better Business Software™. It delivers business agility and empowers leading organizations to rapidly close execution gaps and seize new opportunities. Pegasystems leverages its recognized leadership in Business Process Management (BPM), Multi-Channel Customer Relationship Management (CRM), Business Rules, and Adaptive Analytics to uniquely give its clients the power to engage customers, simplify operations and Build For Change®. For more information, please visit us at www.pega.com.

All trademarks are the property of their respective owners.

                              Pegasystems Inc.
              Condensed Consolidated Statements of Operations
                  (In thousands, except per share amounts)

                                  Three Months Ended        Year Ended
                                     December 31,          December 31,
                                    2013       2012       2013       2012
                                 ---------  ---------  ---------  ---------
Revenue:
  Software license               $  63,659  $  68,389  $ 191,876  $ 163,906
  Maintenance                       45,071     35,870    157,309    133,527
  Services                          44,652     39,571    159,769    164,277
                                 ---------  ---------  ---------  ---------
    Total revenue                  153,382    143,830    508,954    461,710
                                 ---------  ---------  ---------  ---------
Cost of revenue:
  Software license                   1,530      1,576      6,281      6,339
  Maintenance                        4,166      3,715     15,272     14,787
  Services                          38,081     32,903    135,853    136,254
                                 ---------  ---------  ---------  ---------
    Total cost of revenue (1)       43,777     38,194    157,406    157,380
                                 ---------  ---------  ---------  ---------
Gross profit                       109,605    105,636    351,548    304,330
                                 ---------  ---------  ---------  ---------
Operating expenses:
  Selling and marketing             53,815     50,787    181,094    167,263
  Research and development          20,603     19,315     79,726     76,726
  General and administrative         8,391      7,744     29,594     28,915
  Acquisition-related costs            761          -      1,306          -
  Restructuring costs                1,731          -      1,731          -
                                 ---------  ---------  ---------  ---------
    Total operating expenses (1)    85,301     77,846    293,451    272,904
                                 ---------  ---------  ---------  ---------
Income from operations              24,304     27,790     58,097     31,426
Foreign currency transaction
 gain (loss)                            73        443     (1,593)       780
Interest income, net                   148        101        524        419
Other (expense), net                  (217)      (184)      (635)    (1,680)
                                 ---------  ---------  ---------  ---------
Income before provision for
 income taxes                       24,308     28,150     56,393     30,945
Provision for income taxes           8,747      7,741     18,350      9,077
                                 ---------  ---------  ---------  ---------
    Net income                   $  15,561  $  20,409  $  38,043  $  21,868
                                 =========  =========  =========  =========
Net earnings per share:
Basic                            $    0.41  $    0.54  $    1.00  $    0.58
                                 =========  =========  =========  =========
Diluted                          $    0.40  $    0.53  $    0.98  $    0.56
                                 =========  =========  =========  =========
Weighted-average number of
 common shares outstanding:
Basic                               38,040     37,900     37,973     37,853
Diluted                             39,332     38,732     38,987     38,859
(1) Includes stock-based
 compensation as follows:
Cost of revenue                  $     951  $     945  $   4,085  $   3,655
Operating expenses               $   2,205  $   1,939  $   8,784  $   7,851



                         PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
             ($ in thousands, except per share data)


                              Three Months Ended December 31,
                 ---------------------------------------------------------
                   2013               2013       2012               2012
                   GAAP      Adj.   Non-GAAP     GAAP      Adj.   Non-GAAP
                 --------  -------  --------   --------  -------  --------
TOTAL REVENUE    $153,382  $ 2,196  $155,578   $143,830  $     -  $143,830
  Software
   license (2)     63,659      522    64,181     68,389        -    68,389
  Maintenance (3)  45,071      435    45,506     35,870        -    35,870
  Services (4)     44,652    1,239    45,891     39,571        -    39,571

TOTAL COST OF
 REVENUE         $ 43,777  $(2,772) $ 41,005   $ 38,194  $(2,937) $ 35,257
  Amortization of
   intangible
   assets (5)       1,821   (1,821)        -      1,540   (1,540)        -
  Stock-based
   compensation       951     (951)        -        945     (945)        -
  Relocation
   expenses             -        -         -        452     (452)        -

GROSS MARGIN %         71%                74%        73%                75%

TOTAL OPERATING
 EXPENSES        $ 85,301  $(6,567) $ 78,734   $ 77,846  $(4,287) $ 73,559
  Amortization of
   intangible
   assets (5)       1,870   (1,870)        -      1,237   (1,237)        -
  Stock-based
   compensation     2,205   (2,205)        -      1,939   (1,939)        -
  Relocation
   expenses             -        -         -      1,111   (1,111)
  Acquisition-
   related costs      761     (761)        -          -        -         -
  Restructuring
   costs            1,731   (1,731)        -          -        -         -

INCOME FROM
 OPERATIONS      $ 24,304  $11,535  $ 35,839   $ 27,790  $ 7,224  $ 35,014

OPERATING MARGIN
 %                     16%                23%        19%                24%

INCOME TAX
 EFFECTS (6)     $  8,747  $ 3,103  $ 11,850   $  7,741  $ 2,434  $ 10,175

NET INCOME       $ 15,561  $ 8,432  $ 23,993   $ 20,409  $ 4,790  $ 25,199

DILUTED EARNINGS
 PER SHARE       $   0.40  $  0.21  $   0.61   $   0.53  $  0.12  $   0.65

DILUTED WEIGHTED-
 AVERAGE COMMON
 SHARES
 OUTSTANDING       39,332        -    39,332     38,732        -    38,732




                       % Increase
                       (Decrease)
                 ---------------------

                            Non-
                  GAAP      GAAP
                 -----     -----
TOTAL REVENUE        7%        8%
  Software
   license (2)      (7%)      (6%)
  Maintenance (3)   26%       27%
  Services (4)      13%       16%

TOTAL COST OF
 REVENUE            15%       16%
  Amortization of
   intangible
   assets (5)
  Stock-based
   compensation
  Relocation
   expenses

GROSS MARGIN %    (199) bp  (184)  bp

TOTAL OPERATING
 EXPENSES           10%        7%
  Amortization of
   intangible
   assets (5)
  Stock-based
   compensation
  Relocation
   expenses
  Acquisition-
   related costs
  Restructuring
   costs

INCOME FROM
 OPERATIONS        (13%)       2%

OPERATING MARGIN
 %                (348) bp  (131)  bp

INCOME TAX
 EFFECTS (6)        13%       16%

NET INCOME         (24%)      (5%)

DILUTED EARNINGS
 PER SHARE         (25%)      (6%)

DILUTED WEIGHTED-
 AVERAGE COMMON
 SHARES
 OUTSTANDING         2%        2%



                              PEGASYSTEMS INC.
      RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
                   ($ in thousands, except per share data)


                                  Year Ended December 31,
                ----------------------------------------------------------
                  2013                2013      2012                2012
                  GAAP      Adj.    Non-GAAP    GAAP      Adj.    Non-GAAP
                --------  --------  --------  --------  --------  --------
TOTAL REVENUE   $508,954  $  2,196  $511,150  $461,710  $      -  $461,710
  Software
   license (2)   191,876       522   192,398   163,906         -   163,906
  Maintenance
   (3)           157,309       435   157,744   133,527         -   133,527
  Services (4)   159,769     1,239   161,008   164,277         -   164,277

TOTAL COST OF
 REVENUE        $157,406  $(10,528) $146,878  $157,380  $(12,312) $145,068
  Amortization
   of intangible
   assets (5)      6,443    (6,443)        -     6,189    (6,189)        -
  Stock-based
   compensation    4,085    (4,085)        -     3,655    (3,655)        -
  Relocation
   expenses            -         -         -     2,468    (2,468)        -

GROSS MARGIN %        69%                 71%       66%                 69%

TOTAL OPERATING
 EXPENSES       $293,451  $(17,391) $276,060  $272,904  $(18,855) $254,049
  Amortization
   of intangible
   assets (5)      5,570    (5,570)        -     4,948    (4,948)        -
  Stock-based
   compensation    8,784    (8,784)        -     7,851    (7,851)        -
  Relocation
   expenses            -         -         -     6,056    (6,056)
  Acquisition-
   related costs   1,306    (1,306)        -         -         -         -
  Restructuring
   costs           1,731    (1,731)        -         -         -         -

INCOME FROM
 OPERATIONS     $ 58,097  $ 30,115  $ 88,212  $ 31,426  $ 31,167  $ 62,593

OPERATING MARGIN
 %                    11%                 17%        7%                 14%

INCOME TAX
 EFFECTS (6)    $ 18,350  $  9,781  $ 28,131  $  9,077  $ 10,524  $ 19,601

NET INCOME      $ 38,043  $ 20,334  $ 58,377  $ 21,868  $ 20,643  $ 42,511

DILUTED EARNINGS
 PER SHARE      $   0.98  $   0.52  $   1.50  $   0.56  $   0.53  $   1.09

DILUTED
 WEIGHTED-
 AVERAGE COMMON
 SHARES
 OUTSTANDING      38,987         -    38,987    38,859         -    38,859




                      % Increase
                      (Decrease)
                ---------------------

                            Non-
                 GAAP       GAAP
                -----      -----
TOTAL REVENUE      10%        11%
  Software
   license (2)     17%        17%
  Maintenance
   (3)             18%        18%
  Services (4)     (3%)       (2%)

TOTAL COST OF
 REVENUE            0%         1%
  Amortization
   of intangible
   assets (5)
  Stock-based
   compensation
  Relocation
   expenses

GROSS MARGIN %    316  bp    268  bp

TOTAL OPERATING
 EXPENSES           8%         9%
  Amortization
   of intangible
   assets (5)
  Stock-based
   compensation
  Relocation
   expenses
  Acquisition-
   related costs
  Restructuring
   costs

INCOME FROM
 OPERATIONS        85%        41%

OPERATING MARGIN
 %                461  bp    370  bp

INCOME TAX
 EFFECTS (6)      102%        44%

NET INCOME         74%        37%

DILUTED EARNINGS
 PER SHARE         75%        38%

DILUTED
 WEIGHTED-
 AVERAGE COMMON
 SHARES
 OUTSTANDING        0%         0%



                              PEGASYSTEMS INC.
                       FOOTNOTES FOR RECONCILIATON OF
                 SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(1) This presentation includes non-GAAP measures. Our non-GAAP measures are
    not meant to be considered in isolation or as a substitute for
    comparable GAAP measures, and should be read only in conjunction with
    our consolidated financial statements prepared in accordance with GAAP.
    For a detailed explanation of the adjustments made to comparable GAAP
    measures, the reasons why management uses these measures, the usefulness
    of these measures and the material limitations on the usefulness of
    these measures see disclosure under Discussion of non-GAAP Measures
    included earlier in this release and below. Our non-GAAP financial
    measures reflect adjustments based on the following items, as well as
    the related income tax effects:

    Revenue: Business combination accounting rules require that we determine
    the fair value of the deferred revenue liability for contractual
    obligations assumed from Antenna. In post-acquisition reporting periods,
    we recognize revenue for the fair value of these contracts, when all the
    revenue recognition criteria are satisfied, instead of the revenue that
    would have been recognized by Antenna as an independent company. We add
    back the affect of the deferred revenue fair value adjustment in non-
    GAAP revenue to reflect the full amount of these revenues to provide a
    more complete comparison of the revenue guidance to peer companies.

    Amortization of intangible assets: We have excluded the amortization
    expense of intangible assets from our non-GAAP operating expenses and
    net earnings measures. Amortization of intangible assets is inconsistent
    in amount and frequency and is significantly affected by the timing and
    size of our acquisitions. Investors should note that the use of
    intangible assets contributed to our revenues earned during the periods
    presented and will contribute to our future period revenues as well.
    Amortization of intangible assets will recur in future periods.

    Stock-based compensation expenses: We have excluded stock-based
    compensation expense from our non-GAAP operating expenses and net
    earnings measures. Although stock-based compensation is a key incentive
    offered to our employees, and we believe such compensation contributed
    to the revenues earned during the periods presented and that it will
    contribute to the generation of future period revenues, we continue to
    evaluate our business performance excluding stock-based compensation
    expense.

    Acquisition-related costs and restructuring costs: We have excluded the
    effect of acquisition-related costs and restructuring costs from our
    non-GAAP operating expenses and net earnings measures. We incurred
    direct and incremental costs associated with the Antenna acquisition.
    These acquisition-related costs were primarily professional fees to
    affect the acquisition. We have also incurred restructuring costs
    related to the integration of the acquisition, which we generally would
    not have otherwise incurred in the periods presented as a part of our
    continuing operations. Restructuring costs consist primarily of lease
    exit costs. We believe it is useful for investors to understand the
    effects of these items on our total operating expenses.

    Headquarters relocation expenses: We completed the move of our office
    headquarters in the third quarter of 2012 and ceased use of the former
    space in the fourth quarter of 2012. As a result of this planned move,
    we accelerated the depreciation on certain leasehold improvements and
    furniture and fixtures to be abandoned from our prior headquarters. We
    recorded duplicate rent and rent-related expenses, incremental
    depreciation, equipment and moving expenses of $1.6 million and $8.5
    million associated with the relocation of our office headquarters during
    the fourth quarter and fiscal year 2012, respectively. We believe these
    incremental and duplicate expenses as a result of our moving our
    headquarters are not representative of our ongoing business.

(2) As of December 31, 2013, approximately $1.6 million in estimated
    revenues related to assumed software license contracts will not be
    recognized in fiscal 2014 due to business combination accounting rules.

(3) As of December 31, 2013, approximately $0.5 million in estimated
    revenues related to assumed software support contracts will not be
    recognized in fiscal 2014 due to business combination accounting rules.

(4) As of December 31, 2013, approximately $1.4 million in estimated
    revenues related to assumed hosting and services contracts will not be
    recognized in fiscal 2014 due to business combination accounting rules.

(5) Estimated future annual amortization expense related to intangible
    assets as of December 31, 2013 is as follows:


            Fiscal 2014                              $    13,170
            Fiscal 2015                                   11,336
            Fiscal 2016                                   10,973
            Fiscal 2017                                    9,512
            Fiscal 2018 and thereafter                    11,583
                                                     -----------
            Total intangible assets subject to
             amortization                            $    56,574
                                                     ===========

(6) The income tax effects were calculated using an effective GAAP tax rate
    of 36% and 27.5% in the fourth quarter of 2013 and 2012, respectively,
    and an effective non-GAAP tax rate of 33.1% and 28.8% in the fourth
    quarter of 2013 and 2012, respectively.

    The income tax effects were calculated using an effective GAAP tax rate
    of 32.5% and 29.3% for the fiscal year 2013 and 2012, respectively, and
    an effective non-GAAP tax rate of 32.5% and 31.6% for the fiscal year
    2013 and 2012, respectively.

    The differences between our GAAP and non-GAAP effective tax rates in
    2013 primarily relates to the impact of non-deductible acquisition-
    related costs. The differences between our GAAP and non-GAAP effective
    tax rates for 2012 primarily relates to the impact of higher non-GAAP
    income subjected to tax in higher tax rate jurisdictions.



                              Pegasystems Inc.
                    Condensed Consolidated Balance Sheets

                                                            As of
                                                         December 31,
                                                      2013          2012
                                                 ------------- -------------
                                                        (in thousands)
Current Assets:
  Cash and cash equivalents                      $      80,231 $      77,525
  Marketable securities                                 76,461        45,460
                                                 ------------- -------------
    Total cash, cash equivalents, and marketable
     securities                                        156,692       122,985
  Trade accounts receivable, net                       165,594       134,066
  Deferred income taxes                                 11,106        10,202
  Income taxes receivable                                4,708         6,261
  Other current assets                                   9,117         5,496
                                                 ------------- -------------
    Total current assets                               347,217       279,010
Property and equipment, net                             28,957        30,827
Long-term deferred income taxes                         60,925        49,292
Other assets                                             2,526         1,680
Intangible assets, net                                  56,574        58,232
Goodwill                                                37,463        20,451
                                                 ------------- -------------
    Total assets                                 $     533,662 $     439,492
                                                 ============= =============

Current liabilities:
  Accounts payable                               $       3,745 $       3,330
  Accrued expenses                                      28,419        15,534
  Accrued compensation and related expenses             44,399        40,715
  Deferred revenue                                     110,882        95,546
                                                 ------------- -------------
    Total current liabilities                          187,445       155,125
Income taxes payable                                    21,392        13,551
Long-term deferred revenue                              34,196        18,719
Other long-term liabilities                             18,841        15,618
                                                 ------------- -------------
    Total liabilities                                  261,874       203,013
Stockholders' equity:                                  271,788       236,479
                                                 ------------- -------------
    Total liabilities and stockholders' equity   $     533,662 $     439,492
                                                 ============= =============



                              Pegasystems Inc.
              Condensed Consolidated Statements of Cash Flows

                                                         Year Ended
                                                        December 31,
                                                     2013          2012
                                                 ------------  ------------
                                                       (in thousands)
Operating activities:
  Net income                                     $     38,043  $     21,868
  Adjustments to reconcile net income to cash
   provided by operating activities:
    Excess tax benefit from equity awards and
     deferred income taxes                            (13,443)      (12,195)
    Depreciation, amortization, foreign currency
     transaction loss (gain), and other non-cash
     items                                             25,074        22,562
    Stock-based compensation expense                   12,869        11,506
    Change in operating assets and liabilities,
     and other, net                                    18,160          (162)
                                                 ------------  ------------
Cash provided by operating activities                  80,703        43,579
                                                 ------------  ------------
Cash used in investing activities                     (63,997)      (19,238)
                                                 ------------  ------------
Cash used in financing activities                     (14,567)       (8,091)
                                                 ------------  ------------
Effect of exchange rate changes on cash and cash
 equivalents                                              567           922
                                                 ------------  ------------
Net increase in cash and cash equivalents               2,706        17,172
Cash and cash equivalents, beginning of period         77,525        60,353
                                                 ------------  ------------
Cash and cash equivalents, end of period         $     80,231  $     77,525
                                                 ============  ============



             FY 2014 Reconciliation of Forward-Looking Guidance


                                                       Fiscal Year 2014
                                                 ---------------------------
                                                   ($ in 000's, except per
                                                        share amounts)

Revenue - GAAP basis                             $     576,480
Adjustment to include revenue fair value
 adjustment, net of tax                                  3,520
Revenue - non-GAAP basis                         $     580,000



Net Income and Diluted EPS - GAAP basis          $      38,907 $        1.00

Adjustment to include revenue fair value
 adjustment, net of tax                                  2,293          0.06
Adjustment to exclude amortization of intangible
 assets, net of tax                                      8,583          0.22
Adjustment to exclude stock-based compensation,
 net of tax                                             10,751          0.27
Adjustment, to exclude acquisition-related
 costs, net of tax                                         309          0.01

                                                 ------------- -------------
Net Income and Diluted EPS - Non-GAAP basis      $      60,843 $        1.56
                                                 ============= =============

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