10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

_____________________________________

☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2020

OR

☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-11859 

____________________________

PEGASYSTEMS INC.

(Exact name of Registrant as specified in its charter) 

____________________________

Massachusetts	04-2787865
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

One Rogers Street, Cambridge, MA 02142-1209

(Address of principal executive offices, including zip code)

(617) 374-9600

(Registrant’s telephone number, including area code)

____________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	PEGA	NASDAQ Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No ¨   

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 80,415,254 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on July 14, 2020.

PEGASYSTEMS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	3
Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	4
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) for the three and six months ended June 30, 2020 and 2019	5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2020 and 2019	6
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	7
Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	22
Item 4. Controls and Procedures	23
PART II - OTHER INFORMATION
Item 1A. Risk Factors	24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6. Exhibits	28
Signature	29

2

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	June 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	512,111	$	68,363
Accounts receivable	181,686		199,720
Unbilled receivables	198,253		180,219
Other current assets	77,889		57,308
Total current assets	969,939		505,610
Unbilled receivables	109,308		121,736
Goodwill	78,675		79,039
Other long-term assets	338,363		278,427
Total assets	$	1,496,285	$	984,812
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	18,426	$	17,475
Accrued expenses	44,228		48,001
Accrued compensation and related expenses	78,834		104,126
Deferred revenue	195,996		190,080
Other current liabilities	18,613		18,273
Total current liabilities	356,097		377,955
Convertible senior notes, net	509,423		—
Operating lease liabilities	53,057		52,610
Other long-term liabilities	21,426		15,237
Total liabilities	940,003		445,802
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued	—		—
Common stock, 200,000 shares authorized; 80,420 and 79,599 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	804		796
Additional paid-in capital	207,103		140,523
Retained earnings	359,989		410,919
Accumulated other comprehensive (loss)	(11,614)		(13,228)
Total stockholders’ equity	556,282		539,010
Total liabilities and stockholders’ equity	$	1,496,285	$	984,812

See notes to unaudited condensed consolidated financial statements.

3

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue
Software license	$	53,323	$	44,274	$	147,239	$	107,538
Maintenance	72,222		69,329		145,917		137,035
Pega Cloud	48,838		31,699		92,304		59,457
Consulting	52,992		60,290		107,506		114,108
Total revenue	227,375		205,592		492,966		418,138
Cost of revenue
Software license	979		928		1,663		2,306
Maintenance	5,591		6,292		11,167		12,627
Pega Cloud	18,988		16,647		36,521		29,945
Consulting	51,133		53,213		106,868		106,639
Total cost of revenue	76,691		77,080		156,219		151,517
Gross profit	150,684		128,512		336,747		266,621
Operating expenses
Selling and marketing	127,607		116,962		263,631		225,827
Research and development	58,869		49,714		117,596		100,310
General and administrative	15,655		14,174		31,285		26,850
Total operating expenses	202,131		180,850		412,512		352,987
(Loss) from operations	(51,447)		(52,338)		(75,765)		(86,366)
Foreign currency transaction gain (loss)	4,256		2,105		(1,691)		(1,607)
Interest income	242		544		849		1,267
Interest expense	(5,529)		—		(7,835)		—
Gain on capped call transactions	19,419		—		827		—
Other income, net	—		55		1,374		55
(Loss) before (benefit from) income taxes	(33,059)		(49,634)		(82,241)		(86,651)
(Benefit from) income taxes	(12,319)		(17,338)		(36,129)		(25,638)
Net (loss)	$	(20,740)	$	(32,296)	$	(46,112)	$	(61,013)
(Loss) per share
Basic	$	(0.26)	$	(0.41)	$	(0.58)	$	(0.77)
Diluted	$	(0.26)	$	(0.41)	$	(0.58)	$	(0.77)
Weighted-average number of common shares outstanding
Basic	80,224		78,987		80,016		78,787
Diluted	80,224		78,987		80,016		78,787

See notes to unaudited condensed consolidated financial statements.

4

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net (loss)	$	(20,740)	$	(32,296)	$	(46,112)	$	(61,013)
Other comprehensive income (loss), net of tax
Unrealized gain on available-for-sale securities	—		238		100		612
Foreign currency translation adjustments	2,028		(409)		1,514		1,218
Total other comprehensive income (loss), net of tax	2,028		(171)		1,614		1,830
Comprehensive (loss)	$	(18,712)	$	(32,467)	$	(44,498)	$	(59,183)

See notes to unaudited condensed consolidated financial statements.

5

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except per share amounts)
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Total Stockholders’ Equity
	Number of Shares	Amount
December 31, 2018	78,526	$	785	$	123,205	$	510,863	$	(13,322)	$	621,531
Repurchase of common stock	(144)	(1)		(7,586)		—		—		(7,587)
Issuance of common stock for share-based compensation plans	514	5		(14,843)		—		—		(14,838)
Stock-based compensation	—	—		18,406		—		—		18,406
Cash dividends declared ($0.03 per share)	—	—		—		(2,367)		—		(2,367)
Other comprehensive income	—	—		—		—		2,001		2,001
Net (loss)	—	—		—		(28,717)		—		(28,717)
March 31, 2019	78,896	789		119,182		479,779		(11,321)		588,429
Repurchase of common stock	(88)	(1)		(6,301)		—		—		(6,302)
Issuance of common stock for share-based compensation plans	320	3		(11,217)		—		—		(11,214)
Issuance of common stock under the employee stock purchase plan	16	—		1,103		—		—		1,103
Stock-based compensation	—	—		20,113		—		—		20,113
Cash dividends declared ($0.03 per share)	—	—		—		(2,375)		—		(2,375)
Other comprehensive (loss)	—	—		—		—		(171)		(171)
Net (loss)	—	—		—		(32,296)		—		(32,296)
June 30, 2019	79,144	$	791	$	122,880	$	445,108	$	(11,492)	$	557,287
December 31, 2019	79,599	$	796	$	140,523	$	410,919	$	(13,228)	$	539,010
Equity component of convertible senior notes, net	—	—		61,604		—		—		61,604
Repurchase of common stock	(87)	(1)		(5,999)		—		—		(6,000)
Issuance of common stock for share-based compensation plans	564	6		(23,017)		—		—		(23,011)
Stock-based compensation	—	—		23,199		—		—		23,199
Cash dividends declared ($0.03 per share)	—	—		—		(2,405)		—		(2,405)
Other comprehensive (loss)	—	—		—		—		(414)		(414)
Net (loss)	—	—		—		(25,372)		—		(25,372)
March 31, 2020	80,076	801		196,310		383,142		(13,642)		566,611
Repurchase of common stock	(23)	—		(2,199)		—		—		(2,199)
Issuance of common stock for share-based compensation plans	349	3		(14,085)		—		—		(14,082)
Issuance of common stock under the employee stock purchase plan	18	—		1,403		—		—		1,403
Stock-based compensation	—	—		25,674		—		—		25,674
Cash dividends declared ($0.03 per share)	—	—		—		(2,413)		—		(2,413)
Other comprehensive income	—	—		—		—		2,028		2,028
Net (loss)	—	—		—		(20,740)		—		(20,740)
June 30, 2020	80,420	$	804	$	207,103	$	359,989	$	(11,614)	$	556,282

See notes to unaudited condensed consolidated financial statements.

6

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2020		2019
Operating activities
Net (loss)	$	(46,112)	$	(61,013)
Adjustments to reconcile net (loss) to cash (used in) provided by operating activities
Stock-based compensation	48,831		38,397
(Gain) on capped call transactions	(827)		—
Deferred income taxes	(18,399)		(190)
Amortization of deferred commissions	16,061		14,179
Lease expense	7,819		6,718
Amortization of debt discount and issuance costs	6,033		—
Amortization of intangible assets and depreciation	10,134		12,268
Amortization of investments	—		623
Foreign currency transaction loss	1,691		1,607
Other non-cash	(1,374)		(40)
Change in operating assets and liabilities, net	(45,056)		(4,829)
Cash (used in) provided by operating activities	(21,199)		7,720
Investing activities
Purchases of investments	(1,769)		(10,497)
Proceeds from maturities and called investments	—		13,545
Sales of investments	1,424		29,965
Payments for acquisitions, net of cash acquired	—		(10,921)
Investment in property and equipment	(19,059)		(4,882)
Cash (used in) provided by investing activities	(19,404)		17,210
Financing activities
Proceeds from issuance of convertible senior notes	600,000		—
Purchase of capped calls related to convertible senior notes	(51,900)		—
Payment of debt issuance costs	(14,527)		—
Dividend payments to shareholders	(4,793)		(4,730)
Common stock repurchases	(43,487)		(39,637)
Cash provided by (used in) financing activities	485,293		(44,367)
Effect of exchange rate changes on cash and cash equivalents	(942)		515
Net increase (decrease) in cash and cash equivalents	443,748		(18,922)
Cash and cash equivalents, beginning of period	68,363		114,422
Cash and cash equivalents, end of period	$	512,111	$	95,500

See notes to unaudited condensed consolidated financial statements.

7

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019.

In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.

All intercompany transactions and balances have been eliminated in consolidation. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2020.

2. NEW ACCOUNTING PRONOUNCEMENTS

Financial instruments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of “other-than-temporary” impairments. The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material effect on the Company’s financial position or results of operations.

3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Receivables

(in thousands)	June 30, 2020		December 31, 2019
Accounts receivable	$	181,686	$	199,720
Unbilled receivables	198,253		180,219
Long-term unbilled receivables	109,308		121,736
	$	489,247	$	501,675

Unbilled receivables are client committed amounts for which revenue recognition precedes billing, and billing is solely subject to the passage of time. They are expected to be billed in the future as follows:

(Dollars in thousands)	June 30, 2020
1 year or less	$	198,253	64	%
1-2 years	91,929		30	%
2-5 years	17,379		6	%
	$	307,561	100	%

Unbilled receivables based upon contract effective date:

(Dollars in thousands)	June 30, 2020
2020	$	75,893	25	%
2019	100,671		32	%
2018	46,700		15	%
2017	38,899		13	%
2016 and prior	45,398		15	%
	$	307,561	100	%

Major clients

Clients accounting for 10% or more of the Company’s receivables:

	June 30, 2020		December 31, 2019
Client A	11	%	*

* Client accounted for less than 10% of total receivables.

8

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contract assets and deferred revenue

(in thousands)	June 30, 2020		December 31, 2019
Contract assets (1)	$	5,323	$	5,558
Long-term contract assets (2)	4,903		5,420
	$	10,226	$	10,978
Deferred revenue	$	195,996	$	190,080
Long-term deferred revenue (3)	6,587		5,407
	$	202,583	$	195,487

(1) Included in other current assets. (2) Included in other long-term assets. (3) Included in other long-term liabilities.

Contract assets are client committed amounts for which revenue recognized exceeds the amount billed to the client and the right to payment is subject to conditions other than the passage of time, such as the completion of a related performance obligation. Deferred revenue consists of billings and payments received in advance of revenue recognition. Contract assets and deferred revenue are netted at the contract level for each reporting period.

The change in deferred revenue in the six months ended June 30, 2020 was primarily due to new billings in advance of revenue recognition, partially offset by $136.8 million of revenue recognized during the period that was included in deferred revenue at December 31, 2019.

4. DEFERRED COMMISSIONS

(in thousands)	June 30, 2020		December 31, 2019
Deferred commissions (1)	$	84,770	$	85,314

(1) Included in other long-term assets.

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Amortization of deferred commissions (1)	$	7,564	$	5,878	$	16,061	$	14,179

(1) Included in selling and marketing expenses.

5. DEBT

Convertible senior notes and capped calls

Convertible senior notes

In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal amount of $600 million, due March 1, 2025, in a private placement. The proceeds from the Notes were used or are anticipated to be used for the Capped Call Transactions (described below), working capital, and other general corporate purposes. There are no required principal payments prior to the maturity of the Notes. The Notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1, beginning on September 1, 2020.

Proceeds from the Notes and Capped Call Transactions:

(in thousands)	Amount
Principal	$	600,000
Less: issuance costs	(14,527)
Less: Capped Call Transactions	(51,900)
	$	533,573

Conversion rights

The conversion rate is 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of approximately $135.05 per share of common stock. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate. The conversion rate will be adjusted upon the occurrence of certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions.

Beginning on September 1, 2024, noteholders may convert their Notes at any time at their election. Before September 1, 2024, noteholders may convert their Notes in the following circumstances:

•During any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds one hundred and thirty percent (130%) of the conversion price for each of at least twenty (20) trading days (whether or not consecutive) during the thirty (30) consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter.

9

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

•During the five consecutive business days immediately after any five consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.

•Upon the occurrence of certain corporate events or distributions, or if the Company calls all or any Notes for redemption, then the noteholder of any Note may convert such Note at any time before the close of business on the business day immediately before the related redemption date (or, if the Company fails to pay the redemption price due on such redemption date in full, at any time until the Company pays such redemption price in full).

As of June 30, 2020, no Notes were eligible for conversion at the noteholders’ election.

Repurchase rights

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

If certain corporate events that constitute a “Fundamental Change” (as described below) occur at any time, each noteholder will have the right, at such noteholder’s option, to require the Company to repurchase for cash all of such noteholder’s Notes, or any portion of the principal thereof that is equal to $1,000 or an integral multiple of $1,000, at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. A fundamental change relates to events such as mergers, changes in control of the Company, liquidation/dissolution of the Company, or the delisting of the Company’s common stock.

Impact of the Notes

In accounting for the transaction, the Notes have been separated into liability and equity components.

•The initial carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated conversion feature. The excess of the principal amount of the Notes over the initial carrying amount of the liability component, the debt discount, is amortized as interest expense over the contractual term of the Notes.

•The equity component was recorded as an increase to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.

The Company incurred issuance costs of $14.5 million related to the Notes, which were allocated between the liability and equity components of the Notes proportionate to the initial carrying amount of the liability and equity components.

•Issuance costs attributable to the liability component are recorded as an offset to the principal balance of the Notes and are amortized as interest expense using the effective interest method over the contractual term of the Notes.

•Issuance costs attributable to the equity component are recorded as an offset to the equity component in additional paid-in capital and are not amortized.

Net carrying amount of the liability component:

(in thousands)	June 30, 2020
Principal	$	600,000
Unamortized debt discount	(78,867)
Unamortized issuance costs	(11,710)
	$	509,423

Net carrying amount of the equity component, included in additional paid-in capital:

(in thousands)	June 30, 2020
Conversion options (1)	$	61,604

(1) Net of issuance costs and taxes.

Interest expense related to the Notes:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Contractual interest expense (0.75% coupon)	$	1,125	$	—	$	1,575	$	—
Amortization of debt discount (1)	3,757		—		5,253		—
Amortization of issuance cost (1)	558		—		780		—
	$	5,440	$	—	$	7,608	$	—

(1) Amortized based upon an effective interest rate of 4.31%.

10

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Future payments of principal and contractual interest:

	June 30, 2020
(in thousands)	Principal		Interest		Total
2020	$	—	$	2,338	$	2,338
2021	—		4,500		4,500
2022	—		4,500		4,500
2023	—		4,500		4,500
2024	—		4,500		4,500
2025	600,000		1,488		601,488
	$	600,000	$	21,826	$	621,826

Capped call transactions

In February 2020, the Company entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions cover approximately 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of the Company’s common stock and are generally expected to reduce potential dilution to the common stock upon any conversion of Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the Capped Call Transactions is $196.44, subject to adjustment upon the occurrence of specified extraordinary events affecting us, including merger events and tender offers. The Capped Call Transactions are classified as “other long-term assets” and remeasured to fair value at the end of each reporting period, resulting in a non-operating gain or loss.

Change in value of Capped Call Transactions:

(in thousands)	Six Months Ended June 30, 2020
Value at issuance	$	51,900
Fair value adjustment	827
Balance as of June 30,	$	52,727

Credit Facility

In November 2019, and as amended in February 2020 and July 2020, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC”). The Company may use borrowings to finance working capital needs and for general corporate purposes. Subject to specific conditions, the Credit Facility allows the Company to increase the aggregate commitment to $200 million.

The Credit Facility contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. The Company is also required to comply with financial covenants including a maximum net consolidated leverage ratio of 3.5 (with a step-up in the event of certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5. The commitments expire on November 4, 2024, and any outstanding loans will be payable on such date.

As of June 30, 2020 and December 31, 2019, the Company had no outstanding borrowings under the Credit Facility.

6. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

The Company records its cash equivalents, Capped Call Transactions, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.

As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:

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

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

•Level 3 - significant unobservable inputs on which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

11

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable. The Company applies judgment in its determination of expected volatility. The Company considers both historical and implied volatility levels of the underlying equity security and to a lesser extent historical peer group volatility levels. The Company’s venture investments are recorded at fair value based on valuation methods using the observable transaction price and other unobservable inputs including the volatility, rights, and obligations of the securities the Company holds.

The Company’s assets and liabilities measured at fair value on a recurring basis:

	June 30, 2020								December 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents (1)	$	450,465	$	—	$	—	$	450,465	$	—	$	—	$	—	$	—
Capped Call Transactions (2) (3)	$	—	$	52,727	$	—	$	52,727	$	—	$	—	$	—	$	—
Venture investments (2) (4)	$	—	$	—	$	6,640	$	6,640	$	—	$	—	$	4,871	$	4,871

(1) Composed of investments in money market funds. (2) Included in other long-term assets. (3) See "5. Debt" for additional information. (4) Composed of investments in privately-held companies.

Change in venture investments:

(in thousands)	Six Months Ended June 30, 2020
December 31, 2019	$	4,871
New investments	1,769
Sales of investments	(1,424)
Changes in foreign exchange rates	(50)
Fair value adjustment	1,474
June 30, 2020	$	6,640

The carrying value of certain other financial instruments, including receivables and accounts payable, approximates fair value due to the relatively short maturity of these items.

Fair value of the Notes

The fair value of the Company’s Notes was recorded at $515.9 million upon issuance, which reflected the principal amount of the Notes less the fair value of the conversion feature. The fair value of the debt component was determined based on a discounted cash flow model. The discount rate used reflected both the time value of money and credit risk inherent in the Notes. The carrying value of the Notes will be accreted, over the remaining term to maturity, to their principal value of $600 million.

The fair value of the Notes (inclusive of the conversion feature which is embedded in the Notes) was $602 million as of June 30, 2020. The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and has been classified within Level 2 in the fair value hierarchy. See "5. Debt" for additional information.

7. REVENUE

Geographic revenue

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2020				2019				2020				2019
U.S.	$	142,811	63	%	$	119,682	59	%	$	315,228	63	%	$	223,673	54	%
Other Americas	8,930		4	%	8,873		4	%	24,272		5	%	37,702		9	%
United Kingdom (“U.K.”)	21,259		9	%	16,686		8	%	43,096		9	%	41,235		10	%
Europe (excluding U.K.), Middle East, and Africa	34,878		15	%	33,395		16	%	66,816		14	%	67,581		16	%
Asia-Pacific	19,497		9	%	26,956		13	%	43,554		9	%	47,947		11	%
	$	227,375	100	%	$	205,592	100	%	$	492,966	100	%	$	418,138	100	%

12

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenue streams

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Perpetual license	$	9,057	$	19,320	$	12,716	$	34,270
Term license	44,266		24,954		134,523		73,268
Revenue recognized at a point in time	53,323		44,274		147,239		107,538
Maintenance	72,222		69,329		145,917		137,035
Pega Cloud	48,838		31,699		92,304		59,457
Consulting	52,992		60,290		107,506		114,108
Revenue recognized over time	174,052		161,318		345,727		310,600
	$	227,375	$	205,592	$	492,966	$	418,138

(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Term license	$	44,266	$	24,954	$	134,523	$	73,268
Pega Cloud	48,838		31,699		92,304		59,457
Maintenance	72,222		69,329		145,917		137,035
Subscription (1)	165,326		125,982		372,744		269,760
Perpetual license	9,057		19,320		12,716		34,270
Consulting	52,992		60,290		107,506		114,108
	$	227,375	$	205,592	$	492,966	$	418,138

(1) Reflects client arrangements (term license, Pega Cloud, and maintenance) that are subject to renewal.

Remaining performance obligations ("Backlog")

Expected future revenue on existing contracts:

	June 30, 2020
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	8,120	$	53,550	$	186,618	$	191,187	$	21,923	$	461,398	57	%
1-2 years	1,700		6,187		40,153		140,860		1,986		190,886		23	%
2-3 years	—		6,460		20,671		88,273		631		116,035		14	%
Greater than 3 years	—		646		10,517		37,071		626		48,860		6	%
	$	9,820	$	66,843	$	257,959	$	457,391	$	25,166	$	817,179	100	%

	June 30, 2019
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	8,429	$	38,080	$	173,421	$	124,134	$	16,259	$	360,323	57	%
1-2 years	915		4,678		12,530		98,842		942		117,907		19	%
2-3 years	1,306		641		5,801		75,828		227		83,803		13	%
Greater than 3 years	—		185		2,812		63,259		—		66,256		11	%
	$	10,650	$	43,584	$	194,564	$	362,063	$	17,428	$	628,289	100	%

13

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. STOCK-BASED COMPENSATION

Expense

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Cost of revenues	$	5,384	$	4,911	$	10,536	$	9,430
Selling and marketing	11,592		8,364		21,310		15,738
Research and development	5,805		4,572		11,302		9,132
General and administrative	2,874		2,200		5,683		4,097
	$	25,655	$	20,047	$	48,831	$	38,397
Income tax benefit	$	(5,107)	$	(4,056)	$	(9,689)	$	(7,796)

As of June 30, 2020, the Company had $130.3 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years.

Grants

The Company granted the following stock-based compensation awards:

	Six Months Ended June 30, 2020
(in thousands)	Shares	Total Fair Value
RSUs	939	$	82,823
Non-qualified stock options	1,696	$	38,551

9. INCOME TAXES

Effective income tax rate

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2020		2019		2020			2019
(Benefit from) income taxes	$	(12,319)	$	(17,338)	$	(36,129)		$	(25,638)
Effective income tax rate					44		%	30		%

During the six months ended June 30, 2020, the Company’s effective income tax rate benefit increased primarily due to the excess tax benefits from stock-based compensation and a carryback claim benefit as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), partially offset by Global Intangible Low-Taxed Income (“GILTI”).

10. (LOSS) PER SHARE

Basic (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted (loss) per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and the conversion spread of the Company’s convertible senior notes.

14

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Calculation of the basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Net (loss)	$	(20,740)	$	(32,296)	$	(46,112)	$	(61,013)
Weighted-average common shares outstanding	80,224		78,987		80,016		78,787
(Loss) per share, basic	$	(0.26)	$	(0.41)	$	(0.58)	$	(0.77)
Net (loss)	$	(20,740)	$	(32,296)	$	(46,112)	$	(61,013)
Weighted-average common shares outstanding, assuming dilution (1) (2)	80,224		78,987		80,016		78,787
(Loss) per share, diluted	$	(0.26)	$	(0.41)	$	(0.58)	$	(0.77)
Outstanding anti-dilutive stock options and RSUs (3)	5,929		6,253		5,939		5,908

(1) The Company expects to settle the principal amount of the Notes in cash. As a result, only the amount by which the conversion value exceeds the aggregated principal amount of the Notes is included in the diluted earnings per share computation under the treasury stock method. The conversion spread has a dilutive impact on diluted net income per share when the average market price of the Company’s common stock for a given period exceeds the initial conversion price of $135.05 per share for the Notes. In connection with the Notes’ issuance, the Company entered into Capped Call Transactions, which were not included in calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.

(2) In periods of loss, all dilutive securities are excluded as their inclusion would be anti-dilutive.

(3) Certain outstanding stock options and RSUs were excluded from the computation of diluted earnings per share because they were anti-dilutive in the period presented. These awards may be dilutive in the future.

15

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains or incorporates forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, intends to, projects, forecasts, guidance, likely, and usually, or variations of such words and other similar expressions are intended to identify forward-looking statements, which are based on current expectations and assumptions.

These forward-looking statements deal with future events, and are subject to various risks and uncertainties that are difficult to predict, including, but not limited to, statements about our future financial performance and business plans, the adequacy of our liquidity and capital resources, the continued payment of quarterly dividends, the timing of revenue recognition, management of our transition to a more subscription-based business model, variation in demand for our products and services, including among clients in the public sector, the impact of actual or threatened public health emergencies, such as the Coronavirus (COVID-19), reliance on third-party service providers, compliance with our debt obligations and debt covenants, the potential impact of our convertible senior notes and related Capped Call Transactions, reliance on key personnel, the continued uncertainties in the global economy, foreign currency exchange rates, the potential legal and financial liabilities and reputation damage due to cyber-attacks, security breaches and security flaws, our ability to protect our intellectual property rights and costs associated with defending such rights, maintenance of our client retention rate, and management of our growth. These risks and other factors that could cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, and other filings we make with the U.S. Securities and Exchange Commission (“SEC”).

Except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events, or otherwise.

BUSINESS OVERVIEW

We develop, market, license, host, and support enterprise software applications that help organizations transform the way they engage with their customers and process work across their enterprise. We also license our low-code Pega Platform™ for rapid application development to clients that wish to build and extend their business applications. Our cloud-architected portfolio of customer engagement and digital process automation applications leverages artificial intelligence (“AI”), case management, and robotic automation technology, built on our unified low-code Pega Platform, empowering businesses to quickly design, extend, and scale their enterprise applications to meet strategic business needs.

Our target clients are Global 3000 organizations and government agencies that require applications to differentiate themselves in the markets they serve. Our applications achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. We deliver applications tailored to our clients’ specific industry needs.

COVID-19

As of June 30, 2020, COVID-19 has not had a material impact on our results of operations or financial condition.

The ultimate impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the outbreak, impact on our clients and our sales cycles, and impact on our partners, vendors, or employees, all of which are uncertain and unpredictable. Our shift towards subscription-based revenue streams, the industry mix of our clients, our product mix, the fact that many of our clients are well-known and of large size, and the critical nature of our products to our clients may reduce or delay the impact of COVID-19 on our business, however, it is not possible to estimate the ultimate impact that COVID-19 will have on our business. See “Coronavirus (“COVID-19”)” under Item 1A. Risk Factors for additional information.

Performance metrics

We utilize several performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including:

Annual contract value (“ACV”) | +21% since June 30, 2019

•ACV represents the annualized value of our active contracts as of the measurement date. ACV for term license and Pega Cloud contracts is calculated by dividing the contract’s total value by the duration of the contract in years. ACV for maintenance is calculated as maintenance revenue for the quarter then ended multiplied by four. Client Cloud ACV is composed of maintenance ACV and ACV from term license contracts. We believe the presentation of ACV on a constant currency basis enhances the understanding of our results, as it provides visibility into the impact of changes in foreign currency exchange rates, which are outside of our control. All periods shown reflect foreign currency exchange rates as of June 30, 2020.

16

Remaining performance obligations (“Backlog”) | +30% since June 30, 2019

•Backlog represents contracted revenue that has not yet been recognized and includes deferred revenue and non-cancellable amounts that are expected to be invoiced and recognized as revenue in future periods.

Year to date Pega Cloud revenue | +55% since June 30, 2019

•Pega Cloud revenue is revenue as reported under US GAAP for cloud contracts.

17

CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) and the rules and regulations of the SEC for interim financial reporting. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and expectations of what could occur in the future given the available information.

For more information regarding our critical accounting policies, we encourage you to read the discussion in the following locations in our Annual Report on Form 10-K for the year ended December 31, 2019:

•“Critical Accounting Estimates and Significant Judgments” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and

•Note 2. “Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.”

There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 other than those listed below.

Capped Call Transactions

In February 2020, we entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions cover approximately 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of our common stock and are generally expected to reduce potential dilution of our common stock upon any conversion of the Notes. The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable. Management applies judgment in its determination of expected volatility. We consider both historical and implied volatility levels of the underlying equity security and to a lesser extent historical peer group volatility levels.

The Capped Call Transactions are classified as “other long-term assets” and remeasured to fair value at the end of each reporting period, resulting in a non-operating gain or loss.

See "5. Debt" and “6. Fair Value Measurements” in Item 1 of this Quarterly Report for additional information.

RESULTS OF OPERATIONS

Revenue

Our license revenue is derived from sales of our applications and Pega Platform. Our Pega Cloud revenue is derived from our hosted Pega Platform and software applications. We expect our revenue mix to continue to shift in favor of our subscription offerings, particularly Pega Cloud arrangements, which could result in slower total revenue growth in the near term. Revenue from Pega Cloud arrangements is generally recognized over the service period, while revenue from term and perpetual license arrangements is generally recognized upfront when the license rights become effective.

(Dollars in thousands)	Three Months Ended June 30,								Change				Six Months Ended June 30,								Change
	2020				2019								2020				2019
Pega Cloud	$	48,838	21	%	$	31,699	15	%	$	17,139	54	%	$	92,304	19	%	$	59,457	14	%	$	32,847	55	%
Maintenance	72,222		33	%	69,329		34	%	2,893		4	%	145,917		30	%	137,035		33	%	8,882		6	%
Term license	44,266		19	%	24,954		12	%	19,312		77	%	134,523		27	%	73,268		18	%	61,255		84	%
Subscription (1)	165,326		73	%	125,982		61	%	39,344		31	%	372,744		76	%	269,760		65	%	102,984		38	%
Perpetual license	9,057		4	%	19,320		9	%	(10,263)		(53)	%	12,716		3	%	34,270		8	%	(21,554)		(63)	%
Consulting	52,992		23	%	60,290		30	%	(7,298)		(12)	%	107,506		21	%	114,108		27	%	(6,602)		(6)	%
Total revenue	$	227,375	100	%	$	205,592	100	%	$	21,783	11	%	$	492,966	100	%	$	418,138	100	%	$	74,828	18	%

(1) Reflects client arrangements (term license, Pega Cloud, and maintenance) that are subject to renewal.

•The increases in total revenue in the three and six months ended June 30, 2020 were primarily due to the increases in subscription revenue, partially offset by decreases in perpetual revenue, reflecting the shift in client preferences to subscription arrangements from other types of arrangements.

•An increasing portion of our term license contracts include multi-year committed maintenance periods. Under such arrangements a greater portion of the total contract value has been reflected as maintenance revenue over the term of the contract. Additionally, renewal rates in excess of 90% contributed to the increases in maintenance revenue.

•The decreases in consulting revenue in the three and six months ended June 30, 2020 were primarily due to decreases in billable hours and to a lesser extent due to reductions in billable travel expenses from reduced travel as a result of COVID-19.

18

Gross profit

	Three Months Ended June 30,								Change				Six Months Ended June 30,								Change
(Dollars in thousands)	2020				2019								2020				2019
Software license	$	52,344	98	%	$	43,346	98	%	$	8,998	21	%	$	145,576	99	%	$	105,232	98	%	$	40,344	38	%
Maintenance	66,631		92	%	63,037		91	%	3,594		6	%	134,750		92	%	124,408		91	%	10,342		8	%
Pega Cloud	29,850		61	%	15,052		47	%	14,798		98	%	55,783		60	%	29,512		50	%	26,271		89	%
Consulting	1,859		4	%	7,077		12	%	(5,218)		(74)	%	638		1	%	7,469		7	%	(6,831)		(91)	%
	$	150,684	66	%	$	128,512	63	%	$	22,172	17	%	$	336,747	68	%	$	266,621	64	%	$	70,126	26	%

The recent shift in our revenue mix toward Pega Cloud arrangements has resulted in slower total gross profit growth as Pega Cloud grows and scales. Revenue from Pega Cloud arrangements is generally recognized over the service period, while revenue from term and perpetual license arrangements is generally recognized upfront when the license rights become effective.

The increases in gross profit in the three and six months ended June 30, 2020 were primarily due to increases in term and Pega Cloud revenue, which reflects the shift in client preferences to subscription arrangements from other types of arrangements.

The increases in the three and six months ended June 30, 2020 in gross profit percent were primarily due to the:

•increases in the three and six months ended June 30, 2020 in Pega Cloud gross profit percent, driven by cost efficiency gains as Pega Cloud grows and scales, and

•decreases in the three and six months ended June 30, 2020 in consulting gross profit percent, primarily due to increases in consulting resource availability in anticipation of future projects. Our consulting resource availability is impacted by several factors, including the scope and timing of new implementation projects, and our level of involvement in implementation projects compared to our consulting partners and enabled clients. To support our long-term strategy, we intend to grow and increasingly leverage our partners and enabled clients for future implementation projects, which may reduce the future growth rate.

Operating expenses

(Dollars in thousands)	Three Months Ended June 30,								Change				Six Months Ended June 30,								Change
	2020				2019								2020				2019
			% of Revenue				% of Revenue								% of Revenue				% of Revenue
Selling and marketing	$	127,607	56	%	$	116,962	57	%	$	10,645	9	%	$	263,631	53	%	$	225,827	54	%	$	37,804	17	%
Research and development	$	58,869	26	%	$	49,714	24	%	$	9,155	18	%	$	117,596	24	%	$	100,310	24	%	$	17,286	17	%
General and administrative	$	15,655	7	%	$	14,174	7	%	$	1,481	10	%	$	31,285	6	%	$	26,850	6	%	$	4,435	17	%

•The increases in sales and marketing in the three and six months ended June 30, 2020 were primarily due to increases in compensation and benefits of $29.2 million and $51.6 million, attributable to increases in headcount and equity compensation. The increases in headcount reflect our efforts to increase our sales capacity to deepen relationships with existing clients and target new accounts. These increases were partially offset by decreases in travel and entertainment of $8.1 million and $8.9 million as a result of COVID-19 and decreases in PegaWorld costs as a result of the cancellation of the live event portion. The three months ended June 30, 2020 include a reduction of expenses of $2.8 million due to the favorable settlement of cancellation fees owed to vendors of the live event portion.

•The increases in research and development in the three and six months ended June 30, 2020 were primarily due to increases in compensation and benefits of $8.6 million and $15.7 million, attributable to increases in headcount and equity compensation.

•The increases in general and administrative in the three and six months ended June 30, 2020 were primarily due to increases in compensation and benefits of $0.8 million and $2.2 million, attributed to increases in headcount and equity compensation.

19

Other income (expense), net

(Dollars in thousands)	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
	2020		2019						2020		2019
Foreign currency transaction gain (loss)	$	4,256	$	2,105	$	2,151	102	%	$	(1,691)	$	(1,607)	$	(84)	(5)	%
Interest income	242		544		(302)		(56)	%	$	849	$	1,267	(418)		(33)	%
Interest expense	(5,529)		—		(5,529)		*		$	(7,835)	$	—	(7,835)		*
Gain on capped call transactions	19,419		—		19,419		*		827		—		827		*
Other income, net	—		55		(55)		(100)	%	$	1,374	$	55	1,319		2,398	%
	$	18,388	$	2,704	$	15,684	580	%	$	(6,476)	$	(285)	$	(6,191)	(2,172)	%

* not meaningful

•The changes in foreign currency transaction gain (loss) in the three and six months ended June 30, 2020 were primarily due to the impact of fluctuations in foreign currency exchange rates associated with our foreign currency-denominated cash, accounts receivable, and intercompany receivables and payables held by our United Kingdom (“U.K.”) subsidiary.

•The increases in the gain on capped call transactions in the three and six months ended June 30, 2020 were due to fair value adjustments on the Capped Call Transactions, entered into in connection with our issuance of the Notes. See "5. Debt" in Item 1 of this Quarterly Report for additional information.

•The decreases in interest income in the three and six months ended June 30, 2020 were due to the decreases in market interest rates.

•The increase in other income, net in the six months ended June 30, 2020 was due to a gain from our venture investments portfolio.

•The increases in interest expense in the three and six months ended June 30, 2020 were due to our issuance of $600 million in aggregate principal amount of our convertible senior notes (“Notes”) on February 24, 2020. See "5. Debt" in Item 1 of this Quarterly Report for additional information.

Interest expense related to the Notes:

	Three Months Ended June 30,				Change		Six Months Ended June 30,				Change
(in thousands)	2020		2019				2020		2019
Contractual interest expense (0.75% coupon)	$	1,125	$	—	$	1,125	$	1,575	$	—	$	1,575
Amortization of debt discount	3,757		—		$	3,757	5,253		—		$	5,253
Amortization of issuance cost	558		—		$	558	780		—		$	780
	$	5,440	$	—	$	5,440	$	7,608	$	—	$	7,608

(Benefit from) income taxes

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2020		2019		2020			2019
(Benefit from) income taxes	$	(12,319)	$	(17,338)	$	(36,129)		$	(25,638)
Effective income tax rate					44		%	30		%

The inclusion of excess tax benefits from stock-based compensation in the provision for income taxes has increased the variability of the effective tax rates in recent periods. This fluctuation may continue in future periods, depending on our future stock price in relation to the fair value of awards, the timing of the vestings of RSU awards, the exercise behavior of our stock option holders, and the total value of future grants of stock-based compensation awards.

During the six months ended June 30, 2020, our effective income tax rate benefit increased primarily due to the excess tax benefits from stock-based compensation and a carryback claim benefit as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), partially offset by Global Intangible Low-Taxed Income (“GILTI”).

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LIQUIDITY AND CAPITAL RESOURCES

	Six Months Ended June 30,
(in thousands)	2020		2019
Cash provided by (used in):
Operating activities	$	(21,199)	$	7,720
Investing activities	(19,404)		17,210
Financing activities	485,293		(44,367)
Effect of exchange rates on cash and cash equivalents	(942)		515
Net increase (decrease) in cash and cash equivalents	$	443,748	$	(18,922)

(in thousands)	June 30, 2020		December 31, 2019
Held by U.S. entities	$	468,237	$	23,437
Held by foreign entities	43,874		44,926
Total cash and cash equivalents	$	512,111	$	68,363

We believe that our current cash, cash flow from operations, and borrowing capacity will be sufficient to fund our operations and quarterly cash dividends for at least the next 12 months. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our growth, operating results, and the investments required to respond to the possible increased demand for our services. If we require additional capital resources to grow our business, we may seek to finance our operations from available funds or additional external financing.

If it became necessary to repatriate foreign funds, we may be required to pay U.S. and foreign taxes upon repatriation. Due to the complexity of income tax laws and regulations, and the effects of the Tax Reform Act, it is impracticable to estimate the amount of taxes we would have to pay.

Cash (used in) provided by operating activities

As client preferences continue to shift in favor of Pega Cloud arrangements, we could continue to experience slower operating cash flow growth, or negative cash flow, in the near term. Cash from most Pega Cloud and term arrangements is collected over an average service period of three years, while cash from most perpetual license arrangements is collected upfront, shortly after the license rights become effective.

The primary driver of the decrease in the six months ended June 30, 2020 was the recent shift in our revenue mix toward Pega Cloud arrangements and increased costs as we accelerated investments in our Pega Cloud offering and selling and marketing activities to support future growth.

In the six months ended June 30, 2020, COVID-19 did not have a material impact on our cash flows from operations. See “Coronavirus (“COVID-19”)” under Item 1A. Risk Factors for additional information.

Cash (used in) provided by investing activities

The change in cash (used in) provided by investing activities in the six months ended June 30, 2020 was primarily driven by investments in property and equipment at several of our office locations.

Cash provided by (used in) financing activities

In February 2020, we issued $600 million in aggregate principal amount of our convertible senior notes (“Notes”) due March 1, 2025, which provided proceeds as follows:

(in thousands)	Amount
Principal	$	600,000
Less: issuance costs	(14,527)
Less: Capped Call Transactions	(51,900)
	$	533,573

A portion of the proceeds of the Notes was used to fund the Capped Call Transactions with the remainder to be used for working capital and other general corporate purposes. See "5. Debt" in Item 1 of this Quarterly Report for additional information.

In November 2019, and as amended in February 2020 and July 2020, we entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC”). As of June 30, 2020 and December 31, 2019, we had no outstanding borrowings under the Credit Facility.

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Stock repurchase program ⁽¹⁾

Changes in the remaining stock repurchase authority:

(in thousands)	Six Months Ended June 30,
December 31, 2019	$	45,484
Authorizations (2)	20,516
Repurchases	(8,199)
June 30, 2020	$	57,801

⁽¹⁾ Purchases under this program have been made on the open market. ⁽²⁾ On June 15, 2020, we announced that our Board of Directors extended the expiration date of the current stock repurchase program to June 30, 2021 and increased the remaining stock repurchase authority to $60 million.

Common stock repurchases

	Six Months Ended June 30,
	2020			2019
(in thousands)	Shares	Amount		Shares	Amount
Tax withholdings for net settlement of equity awards	411	$	37,093	390	$	26,054
Stock repurchase program (1)	110	8,199		232	13,889
Activity in period (2)	521	$	45,292	622	$	39,943

⁽¹⁾ Represents activity under our stock repurchase program. ⁽²⁾ During the six months ended June 30, 2020 and 2019, instead of receiving cash from the equity holders, we withheld shares with a value of $31.2 million and $23.1 million, respectively, for the exercise price of options. These amounts have been excluded from the table above.

Dividends

	Six Months Ended June 30,
(in thousands)	2020		2019
Dividend payments to shareholders	$	4,793	$	4,730

We currently intend to pay a quarterly cash dividend of $0.03 per share, however, the Board of Directors may terminate or modify the dividend program at any time without prior notice.

Contractual obligations

As of June 30, 2020, our contractual obligations were:

	Payments due by period
(in thousands)	2020		2021		2022-2023		2024-2025		2026 and thereafter		Other		Total
Purchase obligations (1)	$	43,197	$	56,689	$	57,498	$	—	$	—	$	—	$	157,384
Investment commitments (2)	992		706		—		—		—		—		1,698
Liability for uncertain tax positions (3)	—		—		—		—		—		5,250		5,250
Operating lease obligations	9,391		20,414		37,326		7,205		1,735		—		76,071
Total	$	53,580	$	77,809	$	94,824	$	7,205	$	1,735	$	5,250	$	240,403

(1) Represents the fixed or minimum amounts due under purchase obligations for hosting services and sales and marketing programs.

(2) Represents the maximum funding that would be expected under existing venture investment agreements. Our investment agreements generally allow us to withhold unpaid committed funds at our discretion.

(3) We are unable to reasonably estimate the timing of the cash outflow due to uncertainties in the timing of the effective settlement of tax positions.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and rates.

Foreign currency exposure

Translation risk

Our foreign operations’ operating expenses are primarily denominated in foreign currencies. However, our international sales are also primarily denominated in foreign currencies, which partially offsets our foreign currency exposure.

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A hypothetical 10% strengthening in the U.S. dollar against other currencies would result in the following impact:

	Six Months Ended June 30,
	2020		2019
(Decrease) increase in revenue	(3)	%	(4)	%
(Decrease) increase in net (loss)	(15)	%	(7)	%

Remeasurement risk

We experience fluctuations in transaction gains or losses from remeasurement of monetary assets and liabilities that are denominated in currencies other than the functional currency of the entities in which they are recorded.

We are primarily exposed to changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated cash and cash equivalents, accounts receivable, unbilled receivables, and intercompany receivables and payables held by our U.K. subsidiary, a British pound functional entity.

A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would result in the following impact:

	Six Months Ended June 30,
(in millions)	2020		2019
Foreign currency gain (loss)	$	9	$	(2)

ITEM 4.  CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of June 30, 2020. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2020.

(b) Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

COVID-19

In response to COVID-19, we have undertaken measures to protect our employees, partners, and clients, including encouraging employees to work remotely. These changes have compelled us to modify some of our control procedures. However, those changes have so far not been material.

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PART II - OTHER INFORMATION

ITEM 1A.  RISK FACTORS

We encourage you to carefully consider the risk factors identified below and in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 12, 2020. These risk factors could materially affect our business, financial condition, and future results, and they could cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management.

Coronavirus (“COVID-19”)

Epidemic diseases, such as the recent global COVID-19 outbreak, could harm our business and results of operations.

The recent outbreak of a novel coronavirus disease (“COVID-19”), which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19, or other public health epidemics pose the risk that our employees, partners, and clients may be prevented from conducting business activities at full capacity for an indefinite period, including due to spread of the disease within these groups or due to shutdowns that are requested or mandated by governmental authorities. Moreover, these conditions can affect the rate of IT spending and may adversely affect our clients’ willingness to purchase our solutions, delay prospective clients’ purchasing decisions, reduce the value or duration of their contracts, request concessions including extended payment terms or better pricing, or affect attrition rates, all of which could adversely affect our future sales and operating results. The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption.

We have undertaken measures to protect our employees, partners, and clients, including by adopting a virtual-only meeting format for our annual PegaWorld conference and by encouraging employees to work remotely. There can be no assurance that these measures will be sufficient, however, or that we can implement them without adversely affecting our business operations.

We continue to monitor the situation and may adjust our policies as more information and public health guidance become available. Precautionary measures that have been adopted, or may be adopted in the future, could negatively affect our client success efforts, sales, and marketing efforts, delay and lengthen our sales cycles, or create operational or other challenges, any of which could harm our business and results of operations. In addition, COVID-19 may disrupt our clients’, vendors’, and partners’ operations for an indefinite period, including as a result of travel restrictions and/or business shutdowns, all of which could negatively impact our business and results of operations, including cash flows.

At this time, it is not possible to estimate the ultimate impact that COVID-19 could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. Furthermore, due to our shift to a renewable model, the effect of COVID-19 may not be fully reflected in our results of operations until future periods. The extent to which COVID-19 impacts our business, operations, and financial results will depend on numerous evolving factors that we may not be able to predict accurately, including:

•the duration and scope of the pandemic;

•governmental, business, and individual actions taken in response to the pandemic and the impact of those actions on global economic activity;

•the actions taken in response to economic disruption;

•the impact of business disruptions and reductions in our clients’ business and the resulting impact on their demand for our services and solutions; and

•our ability to provide our services and solutions, including as a result of our employees or our clients’ employees working remotely and/or closures of offices and facilities.

Risks related to our Convertible Senior Notes

We have a significant amount of debt that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur additional debt in the future, which may adversely affect our operations and financial results.

As of June 30, 2020, we had $600 million aggregate principal amount of indebtedness under our Convertible Senior Notes due 2025 (the “Notes”).

Our indebtedness may:

•limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, or other business purposes;

•limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;

•require us to use a substantial portion of our cash flow from operations to make debt service payments;

•limit our flexibility to plan for, or react to, changes in our business and industry;

•place us at a competitive disadvantage compared to our less leveraged competitors;

•dilute the interests of our existing stockholders as a result of issuing shares of our common stock upon the conversion of the Notes; and

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•increase our vulnerability to the impact of adverse economic and industry conditions.

Our ability to pay our debt when due or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary investments in our business. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations which could, in turn, result in that and our other indebtedness becoming immediately payable in full. In addition, we may incur additional debt to meet future financing needs. If we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

Under certain circumstances, the noteholders may convert their Notes at their option prior to the scheduled maturities. Upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion, we will be obligated to make cash payments. In addition, holders of our Notes will have the right to require us to repurchase their Notes upon the occurrence of a fundamental change (as defined in the indenture, dated as of February 24, 2020, between U.S. Bank National Association, as trustee (the “Trustee”) and us (the “Indenture”)), at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date. Although it is our intention and we currently expect to settle the conversion value of the Notes in cash up to the principal amount and any excess in shares, there is a risk that we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or Notes being converted. In addition, our ability to make payments may be limited by law, by regulatory authority, or by agreements governing our future indebtedness. Our failure to repurchase Notes when the Indenture requires the repurchase or to pay any cash payable on future conversions of the Notes as required by the Indenture would constitute a default under the Indenture. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof. In addition, even if holders of Notes do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material impact on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component is treated as debt discount for purposes of accounting for the debt component of the Notes. As a result, we will be required to record non-cash interest expense through the amortization of the excess of the face amount over the carrying amount of the expected life of the Notes. We will report larger net losses (or lower net income) in our financial results because ASC 470-20 requires interest to include both the amortization of the debt discount and the instrument’s cash coupon interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock, and the trading price of the Notes.

In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash may be accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of such Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such Notes exceeds their principal amount. Under the treasury stock method, the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, is included in the denominator to calculate diluted earnings per share. We cannot be sure that the accounting standards will continue to permit the use of the treasury stock method. If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes, then our diluted earnings per share could be adversely affected.

The Capped Call Transactions may affect the value of the Notes and our common stock.

In connection with the Notes’ issuance, we entered into Capped Call Transactions with certain financial institutions (“option counterparties”). The Capped Call Transactions are generally expected to reduce the potential dilution to our common stock upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. From time to time, the option counterparties that are parties to the Capped Call Transactions or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes. This activity could cause a decrease in the market price of our common stock.

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We are subject to counterparty risk with respect to the Capped Call Transactions.

The option counterparties are financial institutions, and we are subject to the risk that one or more of the option counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the Capped Call Transactions. Our exposure to the credit risk of the option counterparties is not secured by any collateral. Recent global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transaction. Our exposure depends on many factors but, generally, our exposure will increase if the market price or the volatility of our common stock increases. In addition, upon a default or other failure to perform, or a termination of obligations, by an option counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.

Provisions in the indenture for the Notes may deter or prevent a business combination that may be favorable to our stockholders.

If a fundamental change occurs prior to the maturity date of the Notes, holders of the Notes will have the right, at their option, to require us to repurchase all or a portion of their Notes. In addition, if a “make-whole fundamental change” (as defined in the Indenture) occurs prior to the maturity date, we will in some cases be required to increase the conversion rate of the Notes for a holder that elects to convert its Notes in connection with such make-whole fundamental change.

Furthermore, the Indenture will prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes. These and other provisions in the Indenture could deter or prevent a third party from acquiring us even when the acquisition may be favorable to our stockholders.

Conversion of the Notes may dilute the ownership interest of existing stockholders.

The conversion of some or all of the Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares of our common stock upon conversion of any of the Notes. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

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ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer purchases of equity securities

Common stock repurchased in the three months ended June 30, 2020 was:

(in thousands, except per share amounts)	Total Number of Shares Purchased (1) (2)	Average  Price Paid per Share (1) (2)		Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program (2)	Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchase Programs (2)
April 1, 2020 - April 30, 2020	16	$	73.07	—	$	39,484
May 1, 2020 - May 31, 2020	155	$	87.87	—	$	39,484
June 1, 2020 - June 30, 2020	179	$	97.43	23	$	57,801
	350	$	92.06	23

(1) Shares withheld to cover the option exercise price and tax withholding obligations under the net settlement provisions of our stock compensation awards have been included in these amounts.

(2) On June 15, 2020, we announced that our Board of Directors extended the expiration date of the current stock repurchase program to June 30, 2021 and increased the remaining stock purchase authority to $60 million. See "Liquidity and Capital Resources" in Item 2 of this Quarterly Report for additional information.

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ITEM 6.  EXHIBITS

Exhibit No.	Description
3.1	Restated Articles of Organization of the Registrant and Amendments thereto. (Filed as Exhibit 3.1 to the Registrant’s September 30, 2014 Form 10-Q and incorporated herein by reference.)
3.2	Amended and Restated Bylaws of Pegasystems Inc. (Filed as Exhibit 3.2 to the Registrant’s June 15, 2020 Form 8-K and incorporated herein by reference.)
10.1	2004 Long-Term Incentive Plan (as amended and restated). (Filed as Exhibit 10.1 to the Registrant’s June 24, 2020 Form 8-K and incorporated herein by reference.)
10.2+	Amendment 2 to Loan Documents, dated July 22, 2020, between Pegasystems Inc. and PNC Bank, National Association.
10.3+*	Offer Letter, dated April 27, 2020, between Pegasystems Inc. and Hayden Stafford.
31.1+	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.
31.2+	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.
32*	Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	Inline XBRL Taxonomy Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Label Linkbase Document.
101.PRE	Inline XBRL Taxonomy Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ Filed herewith.

++ Indicates that the exhibit is being furnished with this report and is not filed as a part of it.

* Indicates a management contract or arrangement in which an executive officer of the Company participates.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Pegasystems Inc.
Dated:	July 28, 2020	By:	/s/ KENNETH STILLWELL
			Kenneth Stillwell
			Chief Financial Officer and Chief Administrative Officer
			(Principal Financial Officer)

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EX-10.2

Second Amendment to Loan Documents

        THIS SECOND AMENDMENT TO LOAN DOCUMENTS (this “Amendment”) is made as of July 22, 2020, by and among PEGASYSTEMS INC. (the “Borrower”), the Guarantors (as such term is defined in the Credit Agreement defined in Exhibit A attached hereto and made a part hereof (the “Agreement”)) party hereto (the “Guarantors” and each, individually, a “Guarantor”; the Borrower and the Guarantors are collectively referred to herein as the “Loan Parties” and each, individually, a “Loan Party”), the Lenders (as such term is defined in the Agreement) party hereto (the “Lenders”) and PNC BANK, NATIONAL ASSOCIATION (the “Agent”), in its capacity as “Agent” (as such term is defined in the Agreement) for the Lenders.

BACKGROUND

        A. The Loan Parties have executed and delivered to the Agent and/or the Lenders one or more promissory notes, letter agreements, loan agreements, security agreements, pledge agreements, collateral assignments, and other agreements, instruments, certificates and documents, some or all of which are more fully described on Exhibit A attached hereto, which is made a part of this Amendment (collectively, as amended from time to time, the “Loan Documents”) which evidence or secure some or all of the Borrower’s Obligations.

        B. The Loan Parties, the Lenders and the Agent desire to amend the Loan Documents as provided for in this Amendment.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:

        1. Certain of the Loan Documents are amended as set forth in Exhibit A attached hereto and made a part hereof. Any and all references to any Loan Document which is amended hereby in any other Loan Document shall be deemed to refer to such Loan Document as amended by this Amendment. This Amendment is deemed incorporated into each of the Loan Documents being amended hereby. Any initially capitalized terms used in this Amendment without definition shall have the meanings assigned to those terms in the Agreement. To the extent that any term or provision of this Amendment is or may be inconsistent with any term or provision in any Loan Document, the terms and provisions of this Amendment shall control.

        2. The Borrower hereby certifies that (a) all of its representations and warranties in the Loan Documents, as amended by this Amendment, are, except as may otherwise be stated in this Amendment, (i) true and correct in all material respects (except for any representation or warranty which expressly relates to an earlier date, in which case such representation and warranty was true and correct as of such earlier date) as of the date of this Amendment, (ii) ratified and confirmed without condition as if made anew (except for any representation or warranty which expressly relates to an earlier date, in which case such representation and warranty shall be ratified and confirmed as of such earlier date), and (iii) incorporated into this Amendment by reference; (b) no Event of Default or event which, with the passage of time or the giving of notice or both, would constitute an Event of Default, exists under any Loan Document which will not be cured by the execution and effectiveness of this Amendment; (c) no consent, approval, order or authorization of, or registration or filing with, any third party is required in connection with the execution, delivery and carrying out of this Amendment or, if required, has been obtained; and (d) this Amendment has been duly authorized, executed and delivered so that it constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. The Borrower confirms that the Obligations remain outstanding without defense, set off, counterclaim, discount or charge of any kind as of the date of this Amendment.

        3. The Borrower hereby confirms that any collateral for the Obligations, including liens, security interests, mortgages, and pledges granted by the Borrower or third parties (if applicable), shall continue

unimpaired and in full force and effect, and shall cover and secure all of the Borrower’s existing and future Obligations to the Lenders, as modified by this Amendment.

        4. As a condition precedent to the effectiveness of this Amendment, the Borrower shall comply with the terms and conditions specified in Exhibit A attached hereto and made a part hereof.

        5. To induce the Agent and the Lenders to enter into this Amendment, each Loan Party reaffirms all of its indemnification obligations contained in the Loan Documents, including, without limitation, pursuant to Section 11.3.2 of the Agreement.

        6. This Amendment may be signed in any number of counterpart copies and by the parties to this Amendment on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by electronic or facsimile transmission shall be effective as delivery of a manually executed counterpart. Any party so executing this Amendment by electronic or facsimile transmission shall promptly deliver a manually executed counterpart, provided that any failure to do so shall not affect the validity of the counterpart executed by electronic or facsimile transmission, as applicable.

        7. Notwithstanding any other provision herein or in the other Loan Documents, each Loan Party agrees that this Amendment, the Note, the other Loan Documents, any other amendments thereto and any other information, notice, signature card, agreement or authorization related thereto (each, a “Communication”) may, at the Agent’s option, be in the form of an electronic record. Any Communication may, at the Agent’s option, be signed or executed using electronic signatures. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Agent of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format) for transmission, delivery and/or retention. Each Loan Party, each Lender and the Agent acknowledge and agree that the methods for delivering Communications, including notices, under the Loan Documents include electronic transmittal to any electronic address provided by either party to the other party from time to time.

        8. This Amendment will be binding upon and inure to the benefit of each Loan Party, the Agent, and the Lenders and their respective heirs, executors, administrators, successors and assigns.

        9. This Amendment has been delivered to and accepted by the Agent and the Lenders and will be deemed to be made in the State of New York. This Amendment will be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of New York, excluding its conflict of laws rules, including without limitation the Electronic Signatures and Records Act (or equivalent) in such State (or, to the extent controlling, the laws of the United States of America, including without limitation the Electronic Signatures in Global and National Commerce Act).

        10. Except as amended hereby, the terms and provisions of the Loan Documents remain unchanged, are and shall remain in full force and effect unless and until modified or amended in writing in accordance with their terms, and are hereby ratified, reaffirmed and confirmed. Except as expressly provided herein, this Amendment shall not constitute an amendment, waiver, consent or release with respect to any provision of any Loan Document, a waiver of any default or Event of Default under any Loan Document, or a waiver or release of any of the Agent’s or Lenders’ rights and remedies (all of which are hereby reserved). Each Loan Party, the Agent and the Lenders mutually expressly ratify and confirm the waiver of jury trial or arbitration provisions contained in the Loan Documents, all of which are incorporated herein by reference.

[signatures appear on following page]

WITNESS the due execution of this Amendment as of the date first written above, with the intent to be legally bound hereby.

WITNESS: By:  /s/ Jeffrey Lee            Name: Jeffrey Lee         Title: Treasury Manager	BORROWER: PEGASYSTEMS INC. By: ____/s/ Kenneth Stillwell          Name: Kenneth Stillwell         Title: Chief Financial Officer, Chief          Administrative Officer and Senior          Vice President
By:  /s/ Jeffrey Lee            Name: Jeffrey Lee         Title: Treasury Manager	GUARANTORS: PEGASYSTEMS WORLDWIDE INC. By: :___Efstathios Kouninis          Name: Efstathios Kouninis,         Title Director
By:  /s/ Jeffrey Lee            Name: Jeffrey Lee         Title: Treasury Manager	ANTENNA SOFTWARE, LLC By: PEGASYSTEMS INC., its sole member By: ____/s/ Kenneth Stillwell          Name: Kenneth Stillwell         Title: Chief Financial Officer, Chief          Administrative Officer and Senior          Vice President

PNC BANK, NATIONAL ASSOCIATION,

Individually and as Agent

              By:   /s/ T.J. O’Malley____________________

              Name:  T.J. O'Malley

              Title:  Vice President

EXHIBIT A

TO SECOND AMENDMENT TO LOAN DOCUMENTS

DATED AS OF JULY 22, 2020

A. The “Loan Documents” that are the subject of this Amendment include the following (as any of the foregoing have previously been amended, modified or otherwise supplemented):

1.Credit Agreement dated as of November 5, 2019 made by and among Pegasystems Inc., (the “Borrower”), each of the Guarantors, and the Agent (the “Agreement”).

2.Amendment to Loan Documents dated as of February 18, 2020 made by and among the Borrower, each of the Guarantors, and the Agent (the “FirstAmendment”).

3.Revolving Credit Note in the principal amount of $100,000,000.00 dated as of November 5, 2019 executed by the Borrower in favor of the Agent (the “Note”).

4.Security Agreement dated as of November 5, 2019, by and between Borrower and Agent (the “Borrower Security Agreement”).

5.Security Agreement dated as of November 5, 2019, by and among Pegasystems Worldwide, Inc., Antenna Software, LLC and Agent (the “Guarantor Security Agreement”).

6.Continuing Agreement of Guaranty and Suretyship dated as of November 5, 2019, by and among Pegasystems Worldwide, Inc., Antenna Software, LLC and Agent (the “Guaranty Agreement”).

7.Pledge Agreement dated as of November 5, 2019, by and between Borrower and Agent (the “Borrower Pledge Agreement”).

8.Pledge Agreement (Bank Deposits) dated as of November 5, 2019, by and among Borrower and Agent (the “Deposit Account Pledge Agreement”).

9.Deposit Account Control Agreement dated as of December 23, 2019, by and among Borrower, Agent and Bank of America, N.A. (the “Deposit Account Control Agreement”).

10.Patent, Trademark and Copyright Security Agreement dated as of November 5, 2019, by and between Borrower and Agent (the “Borrower PTC Agreement”).

11.Patent, Trademark and Copyright Security Agreement dated as of November 5, 2019, by and between Antenna Software, LLC and Agent (the “Guarantor PTC Agreement”).

12.All other documents, instruments, agreements, and certificates executed and delivered in connection with the Loan Documents listed in this Section A.

B. The Loan Documents are amended as follows:

1.Permitted Investments. Reference is made to Section 1.1 of the Agreement. The definition of “Permitted Investments” contained in said Section 1.1 is hereby deleted in its entirety and replaced with the following:

         “Permitted Investments shall mean any of the following types of investments, to the extent owned by the Loan Parties free and clear of all Liens (other than Liens permitted pursuant to the Agreement): (i) readily marketable obligations issued or directly and fully guaranteed or insured by the United States (provided that the full faith and credit of the United States is pledged in support thereof), any state, commonwealth or territory of the United States or any agency or instrumentality thereof, having maturities of not more than three (3) years from the date of acquisition thereof; (ii) time deposits, certificates of deposit or bankers’ acceptances of, any commercial bank that is a (a) Lender or (b) is organized under the laws of the United States, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any state thereof, the District of Columbia or the Commonwealth of Puerto Rico and is a member of the Federal Reserve System, and in either case a domestic corporation rated “A-1” (or the equivalent thereof) or better by S&P or “P-1” (or the equivalent thereof) or better by Moody’s, in each case, with maturities of not more than three (3) years from the date of acquisition thereof; (iii) senior debt obligations including but not limited to variable or fixed rate notes, bonds and commercial paper issued by a corporation rated “A-1” (or the equivalent bond rating thereof) or better by S&P or “P-1” (or the equivalent bond rating thereof) or better by Moody’s with maturities of not more than three (3) years from the date of acquisition thereof; (iv) repurchase agreements entered into by any Person with a bank or trust company (including any Lender) issued by or fully guaranteed by the United States; (v) investments, classified in accordance with GAAP as current assets of the Borrower, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions having capital of at least $250,000,000, and the portfolios of which are limited such that 95% of such investments are of the character, quality and maturity described in clauses (i), (ii), (iii), and (iv) of this definition; and (vi) investments made under cash management agreements with any of the Lenders.”

C. Conditions to Effectiveness of Amendment: The Agent’s willingness to agree to the amendments set forth in this Amendment is subject to the prior satisfaction of the following conditions:

1.Execution by all applicable parties and delivery to the Agent of this Amendment (including the attached Consent).

2.Reimbursement by the Borrower to the Agent of the fees and expenses of the Agent's outside counsel in connection with this Amendment.

3.All representations and warranties contained in the Loan Documents are true and correct in all material respects on the date hereof (except for any representation or warranty which expressly relates to an earlier date, in which case such representation and warranty was true and correct as of such earlier date).

4.No default or Event of Default shall have occurred and be continuing under the Agreement or any of the other Loan Documents.

CONSENT OF GUARANTOR

        Each of the undersigned guarantors (jointly and severally if more than one, the “Guarantors”) consent to the provisions of the foregoing Amendment, any and all documents executed in connection therewith, and all prior amendments (if any) and confirms and agrees that (a) the Guarantors’ obligations under the Guaranty shall be unimpaired by the Amendment; (b) as of the date hereof, the Guarantors have no defenses, set offs, counterclaims, discounts or charges of any kind against the Agent and/or the Lenders, their respective officers, directors, employees, agents or attorneys with respect to the Guaranty; (c) except as expressly modified by the foregoing Amendment, all of the terms, conditions and covenants in the Guaranty remain unaltered and in full force and effect and are hereby ratified and confirmed and apply to the Obligations, as modified by the Amendment; and (d) the Guarantors are bound by the terms and provisions of paragraph 5 of the Amendment. The Guarantors certify that all representations and warranties made in the Guaranty are true and correct in all material respects (except for any representation or warranty which expressly relates to an earlier date, in which case such representation and warranty was true and correct as of such earlier date).

        By signing below, the Guarantors agree that this Consent, the Guaranty, the other Loan Documents, any amendments thereto and any other information, notice, signature card, agreement or authorization related thereto (each, a “Communication”) may, at the Agent’s option, be in the form of an electronic record. Any Communication may, at the Agent’s option, be signed or executed using electronic signatures. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Agent of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format) for transmission, delivery and/or retention. The Guarantor acknowledges and agrees that the methods for delivering Communications, including notices, under the Guaranty and the other Loan Documents include electronic transmittal to any electronic address provided by any party to the other party from time to time.

        The Guarantors hereby confirm that any collateral for the Obligations, including liens, security interests, mortgages, and pledges granted by the Guarantors, shall continue unimpaired and in full force and effect, shall cover and secure all of the Guarantors’ existing and future Obligations to the Lenders, as modified by this Amendment.

        The Guarantor ratifies and confirms the indemnification (if any) and waiver of jury trial provisions contained in the Guaranty.

[signatures appear on following page]

        WITNESS the due execution of this Consent as of the date of the Amendment, intending to be legally bound hereby.

WITNESS: By:  /s/ Jeffrey Lee            Name: Jeffrey Lee         Title: Treasury Manager	GUARANTORS: PEGASYSTEMS WORLDWIDE INC. By:___Efstathios Kouninis          Name: Efstathios Kouninis,         Title Director
By:  /s/ Jeffrey Lee            Name: Jeffrey Lee         Title: Treasury Manager	ANTENNA SOFTWARE, LLC By: PEGASYSTEMS INC., its sole member By:____/s/ Kenneth Stillwell          Name: Kenneth Stillwell         Title: Chief Financial Officer, Chief          Administrative Officer and Senior          Vice President

EX-10.3

April 27, 2020

Dear Hayden Stafford,

Pegasystems is pleased to offer you the position of President of Global Client Engagement reporting directly to Alan Trefler. This offer is contingent upon the successful completion of our pre-employment process and upon your signing the enclosed Standards Letter. Your starting salary for this position will be paid at a biweekly rate of $16,538.46 at the annualized rate of $430,000. You will also be eligible to participate in our Corporate Incentive Compensation Plan (CICP), at an annualized target rate of 50% of your base salary, in accordance with the terms of the CICP in effect for each applicable year (pro-rated on the first year). Furthermore, you will also be eligible to participate in our sales commission plan, providing you the opportunity to earn annual “on target” commission payments of up to $516,000 (if you achieve 100% of annual quota). You will also be eligible for unlimited commission upside opportunity based on your performance, subject to the terms of the plan, bringing your potential on target earnings to $1,161,000.

As a demonstration of the company’s commitment to you, we will provide you with an equity grant for which Pega’s future financial statements will incur

$5,000,000 of expense stipulated on a start date on June 1, 2020. The value of this grant will be comprised of 40% stock options and 60% Restricted Stock Units (RSUs) pursuant to our Long-Term Incentive Plan and is contingent on Compensation Committee approval at the meeting following your date of hire. The number of RSUs and Options granted will be determined based on the closing price of our common stock on the first business day of the month following Compensation Committee approval. The full terms of this grant will be conveyed to you in a separate document after you become a Pegasystems employee. As a special consideration, this equity grant will begin vesting immediately on a quarterly basis following the approval of the grant date by the Compensation Committee.

Furthermore, in lieu of an annual grant award in 2021, Pega will provide you with an additional equity grant for which Pega’s future financial statements will incur

$1,500,000 of expense to be awarded in August of 2020. The value of this grant will be comprised of 50% stock options and 50% Restricted Stock Units (RSUs) pursuant to our Long-Term Incentive Plan and is contingent on Compensation Committee approval at the meeting following your date of hire. This equity grant will begin vesting immediately on a quarterly basis following the approval of the grant date by the Compensation Committee. Given the exceptional nature of the above grant value, the next eligible date for an additional grant award will be FY2022. Any and all subsequent grant awards will be governed by standard company vesting policies. Additionally, in the event of a change of control resulting in termination of your employment as President, all unvested Pega equity will accelerate.

In addition, you will receive a 600,000.00 sign-on bonus (“Sign-on Bonus”) payable in two equal installments. The first installment will be executed on your start date (June 1, 2020), and the second installment will be executed on your 90th day of employment provided you are an employee “in good standing.” If you voluntarily terminate your employment or Pegasystems terminates you for cause within 12 months of the payment date of either “Sign-on Bonus”, you agree to repay the Sign-on Bonus to the extent that it is not recouped by Pegasystems by withholding salary, variable remuneration, vacation pay, expense reimbursement or any other payments due to you upon such termination. Additionally, should you lose your anticipated May 2020 vesting from your current employer due to an early termination of employment, Pega will make you whole on those vesting amounts.

You will be eligible to participate in the benefit programs which Pegasystems makes available to similarly situated employees, providing the option to elect individual or family coverage in our medical, dental and vision plans. In addition, we offer a tuition reimbursement program, a 401(k) plan, and medical and dependent care reimbursement accounts which enable you to pay for eligible expenses with pre-tax dollars. Pega will also provide you with short-term disability, long-term disability, life insurance and long-term care insurance. You will accrue paid time-off in accordance with Pegasystems’ Paid Time-Off Policy which will provide 25 days of vacation per year. Your vacation is prorated during your first year of employment. A summary of these benefits is included for your convenience. Please note that our compensation and benefit plans are subject to change at any time.

This offer of employment is not a contract. Pegasystems is an at-will employer and either you or Pegasystems may terminate employment at any time. In the event Pegasystems terminates your employment without cause, you will be entitled to severance equal to six months of base salary, plus an additional month for each year of service with a maximum of 12 months, provided you sign a mutually acceptable form of release.

As discussed, we would like you to begin working as a full-time employee on June 1st, 2020. As a condition of employment, we require you to sign and return the enclosed Standards Letter and provide proper employment authorization. Please note that as a requirement to work in the United States, you must complete the Employment Eligibility Verification (I-9) form and bring with you the required supporting identification documentation on your first day to enable your on-boarding as efficiently as possible.

We would appreciate a written response by April 28, 2020. Please electronically sign and return both your signed Offer Letter and Standards Letter to our Cambridge office, in care of Adriana Bokel Herde. We are all delighted at the prospect of your joining our staff and working with us!

Sincerely,

/s/ Adriana Bokel Herde

Adriana Bokel Herde

Chief People Officer

I accept the terms of this offer letter and will begin work at Pegasystems on June 1^st, 2020.

/s/ Hayden Stafford28 April 2020

Hayden Stafford Date

Pegasystems Inc.

One Rogers Street

Cambridge, MA

02142-1590 USA  Phone 617.374.9600  Fax 617.374.9620  Pega.com

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Alan Trefler, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Pegasystems Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 28, 2020

/s/ ALAN TREFLER

Alan Trefler

Chairman and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Kenneth Stillwell, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Pegasystems Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 28, 2020

/s/ KENNETH STILLWELL

Kenneth Stillwell

Chief Financial Officer and Chief Administrative Officer

(Principal Financial Officer)

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Pegasystems Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Alan Trefler, Chairman and Chief Executive Officer of Pegasystems Inc., and Kenneth Stillwell, Chief Financial Officer and Chief Administrative Officer of Pegasystems Inc., each certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 28, 2020

/s/ ALAN TREFLER

Alan Trefler

Chairman and Chief Executive Officer

(Principal Executive Officer)

/s/ KENNETH STILLWELL

Kenneth Stillwell

Chief Financial Officer and Chief Administrative Officer

(Principal Financial Officer)

XML

COVER PAGE - shares	6 Months Ended
	Jun. 30, 2020	Jul. 14, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2020
Document Transition Report	false
Entity File Number	1-11859
Entity Registrant Name	PEGASYSTEMS INC.
Amendment Flag	false
Entity Central Index Key	0001013857
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Incorporation, State or Country Code	MA
Entity Tax Identification Number	04-2787865
Entity Address, Address Line One	One Rogers Street
Entity Address, City or Town	Cambridge
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	02142-1209
City Area Code	617
Local Phone Number	374-9600
Title of 12(b) Security	Common Stock, $.01 par value per share
Trading Symbol	PEGA
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		80,415,254

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) shares in Thousands, $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 512,111	$ 68,363
Accounts receivable	181,686	199,720
Unbilled receivables	198,253	180,219
Other current assets	77,889	57,308
Total current assets	969,939	505,610
Unbilled receivables	109,308	121,736
Goodwill	78,675	79,039
Other long-term assets	338,363	278,427
Total assets	1,496,285	984,812
Current liabilities:
Accounts payable	18,426	17,475
Accrued expenses	44,228	48,001
Accrued compensation and related expenses	78,834	104,126
Deferred revenue	195,996	190,080
Other current liabilities	18,613	18,273
Total current liabilities	356,097	377,955
Convertible senior notes, net	509,423	0
Operating lease liabilities	53,057	52,610
Other long-term liabilities	21,426	15,237
Total liabilities	940,003	445,802
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued	0	0
Common stock, 200,000 shares authorized; 80,420 and 79,599 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	804	796
Additional paid-in capital	207,103	140,523
Retained earnings	359,989	410,919
Accumulated other comprehensive (loss)	(11,614)	(13,228)
Total stockholders’ equity	556,282	539,010
Total liabilities and stockholders’ equity	$ 1,496,285	$ 984,812
Common stock, shares issued	80,420	79,599
Common stock, shares outstanding	80,420	79,599

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares	Jun. 30, 2020	Dec. 31, 2019
Stockholders’ equity:
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	80,420,000	79,599,000
Common stock, shares outstanding	80,420,000	79,599,000

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenue
Total revenue	$ 227,375	$ 205,592	$ 492,966	$ 418,138
Cost of revenue
Total cost of revenue	76,691	77,080	156,219	151,517
Gross profit	150,684	128,512	336,747	266,621
Operating expenses
Selling and marketing	127,607	116,962	263,631	225,827
Research and development	58,869	49,714	117,596	100,310
General and administrative	15,655	14,174	31,285	26,850
Total operating expenses	202,131	180,850	412,512	352,987
(Loss) from operations	(51,447)	(52,338)	(75,765)	(86,366)
Foreign currency transaction gain (loss)	4,256	2,105	(1,691)	(1,607)
Interest income	242	544	849	1,267
Interest expense	(5,529)	0	(7,835)	0
Gain on capped call transactions	19,419	0	827	0
Other income, net	0	55	1,374	55
(Loss) before (benefit from) income taxes	(33,059)	(49,634)	(82,241)	(86,651)
(Benefit from) income taxes	(12,319)	(17,338)	(36,129)	(25,638)
Net (loss)	$ (20,740)	$ (32,296)	$ (46,112)	$ (61,013)
(Loss) per share
Basic (in dollars per share)	$ (0.26)	$ (0.41)	$ (0.58)	$ (0.77)
Diluted (in dollars per share)	$ (0.26)	$ (0.41)	$ (0.58)	$ (0.77)
Weighted-average number of common shares outstanding
Basic (in shares)	80,224	78,987	80,016	78,787
Diluted (in shares)	80,224	78,987	80,016	78,787
Software license
Revenue
Total revenue	$ 53,323	$ 44,274	$ 147,239	$ 107,538
Cost of revenue
Total cost of revenue	979	928	1,663	2,306
Maintenance
Revenue
Total revenue	72,222	69,329	145,917	137,035
Cost of revenue
Total cost of revenue	5,591	6,292	11,167	12,627
Pega Cloud
Revenue
Total revenue	48,838	31,699	92,304	59,457
Cost of revenue
Total cost of revenue	18,988	16,647	36,521	29,945
Consulting
Revenue
Total revenue	52,992	60,290	107,506	114,108
Cost of revenue
Total cost of revenue	$ 51,133	$ 53,213	$ 106,868	$ 106,639

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement of Comprehensive Income [Abstract]
Net (loss)	$ (20,740)	$ (32,296)	$ (46,112)	$ (61,013)
Other comprehensive income (loss), net of tax
Unrealized gain on available-for-sale securities	0	238	100	612
Foreign currency translation adjustments	2,028	(409)	1,514	1,218
Total other comprehensive income (loss), net of tax	2,028	(171)	1,614	1,830
Comprehensive (loss)	$ (18,712)	$ (32,467)	$ (44,498)	$ (59,183)

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive (Loss)
Balance, beginning of period (in shares) at Dec. 31, 2018		78,526
Balance, beginning of period at Dec. 31, 2018	$ 621,531	$ 785	$ 123,205	$ 510,863	$ (13,322)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Repurchase of common stock (in shares)		(144)
Repurchase of common stock	(7,587)	$ (1)	(7,586)
Issuance of common stock for share-based compensation plans (in shares)		514
Issuance of common stock for share-based compensation plans	(14,838)	$ 5	(14,843)
Stock-based compensation	18,406		18,406
Cash dividends declared ($0.03 per share)	(2,367)			(2,367)
Other comprehensive income	2,001				2,001
Net (loss)	(28,717)			(28,717)
Balance, end of period (in shares) at Mar. 31, 2019		78,896
Balance, end of period at Mar. 31, 2019	588,429	$ 789	119,182	479,779	(11,321)
Balance, beginning of period (in shares) at Dec. 31, 2018		78,526
Balance, beginning of period at Dec. 31, 2018	621,531	$ 785	123,205	510,863	(13,322)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Other comprehensive income	1,830
Net (loss)	(61,013)
Balance, end of period (in shares) at Jun. 30, 2019		79,144
Balance, end of period at Jun. 30, 2019	557,287	$ 791	122,880	445,108	(11,492)
Balance, beginning of period (in shares) at Mar. 31, 2019		78,896
Balance, beginning of period at Mar. 31, 2019	588,429	$ 789	119,182	479,779	(11,321)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Repurchase of common stock (in shares)		(88)
Repurchase of common stock	(6,302)	$ (1)	(6,301)
Issuance of common stock for share-based compensation plans (in shares)		320
Issuance of common stock for share-based compensation plans	(11,214)	$ 3	(11,217)
Issuance of common stock under the employee stock purchase plan (in shares)		16
Issuance of common stock under the employee stock purchase plan	1,103		1,103
Stock-based compensation	20,113		20,113
Cash dividends declared ($0.03 per share)	(2,375)			(2,375)
Other comprehensive income	(171)				(171)
Net (loss)	(32,296)			(32,296)
Balance, end of period (in shares) at Jun. 30, 2019		79,144
Balance, end of period at Jun. 30, 2019	$ 557,287	$ 791	122,880	445,108	(11,492)
Balance, beginning of period (in shares) at Dec. 31, 2019	79,599	79,599
Balance, beginning of period at Dec. 31, 2019	$ 539,010	$ 796	140,523	410,919	(13,228)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Equity component of convertible senior notes, net	61,604		61,604
Repurchase of common stock (in shares)		(87)
Repurchase of common stock	(6,000)	$ (1)	(5,999)
Issuance of common stock for share-based compensation plans (in shares)		564
Issuance of common stock for share-based compensation plans	(23,011)	$ 6	(23,017)
Stock-based compensation	23,199		23,199
Cash dividends declared ($0.03 per share)	(2,405)			(2,405)
Other comprehensive income	(414)				(414)
Net (loss)	(25,372)			(25,372)
Balance, end of period (in shares) at Mar. 31, 2020		80,076
Balance, end of period at Mar. 31, 2020	$ 566,611	$ 801	196,310	383,142	(13,642)
Balance, beginning of period (in shares) at Dec. 31, 2019	79,599	79,599
Balance, beginning of period at Dec. 31, 2019	$ 539,010	$ 796	140,523	410,919	(13,228)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Other comprehensive income	1,614
Net (loss)	$ (46,112)
Balance, end of period (in shares) at Jun. 30, 2020	80,420	80,420
Balance, end of period at Jun. 30, 2020	$ 556,282	$ 804	207,103	359,989	(11,614)
Balance, beginning of period (in shares) at Mar. 31, 2020		80,076
Balance, beginning of period at Mar. 31, 2020	566,611	$ 801	196,310	383,142	(13,642)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Repurchase of common stock (in shares)		(23)
Repurchase of common stock	(2,199)	$ 0	(2,199)
Issuance of common stock for share-based compensation plans (in shares)		349
Issuance of common stock for share-based compensation plans	(14,082)	$ 3	(14,085)
Issuance of common stock under the employee stock purchase plan (in shares)		18
Issuance of common stock under the employee stock purchase plan	1,403		1,403
Stock-based compensation	25,674		25,674
Cash dividends declared ($0.03 per share)	(2,413)			(2,413)
Other comprehensive income	2,028				2,028
Net (loss)	$ (20,740)			(20,740)
Balance, end of period (in shares) at Jun. 30, 2020	80,420	80,420
Balance, end of period at Jun. 30, 2020	$ 556,282	$ 804	$ 207,103	$ 359,989	$ (11,614)

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]
Cash dividend declared (in dollars per share)	$ 0.03	$ 0.03	$ 0.03	$ 0.03

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Operating activities
Net (loss)	$ (46,112)	$ (61,013)
Adjustments to reconcile net (loss) to cash (used in) provided by operating activities
Stock-based compensation	48,831	38,397
(Gain) on capped call transactions	(827)	0
Deferred income taxes	(18,399)	(190)
Amortization of deferred commissions	16,061	14,179
Lease expense	7,819	6,718
Amortization of debt discount and issuance costs	6,033	0
Amortization of intangible assets and depreciation	10,134	12,268
Amortization of investments	0	623
Foreign currency transaction loss	1,691	1,607
Other non-cash	(1,374)	(40)
Change in operating assets and liabilities, net	(45,056)	(4,829)
Cash (used in) provided by operating activities	(21,199)	7,720
Investing activities
Purchases of investments	(1,769)	(10,497)
Proceeds from maturities and called investments	0	13,545
Sales of investments	1,424	29,965
Payments for acquisitions, net of cash acquired	0	10,921
Investment in property and equipment	(19,059)	(4,882)
Cash (used in) provided by investing activities	(19,404)	17,210
Financing activities
Proceeds from issuance of convertible senior notes	600,000	0
Purchase of capped calls related to convertible senior notes	(51,900)	0
Payment of debt issuance costs	(14,527)	0
Dividend payments to shareholders	(4,793)	(4,730)
Common stock repurchases	(43,487)	(39,637)
Cash provided by (used in) financing activities	485,293	(44,367)
Effect of exchange rate changes on cash and cash equivalents	(942)	515
Net increase (decrease) in cash and cash equivalents	443,748	(18,922)
Cash and cash equivalents, beginning of period	68,363	114,422
Cash and cash equivalents, end of period	$ 512,111	$ 95,500

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019.

In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.

All intercompany transactions and balances have been eliminated in consolidation. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2020.

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NEW ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

NEW ACCOUNTING PRONOUNCEMENTS

2. NEW ACCOUNTING PRONOUNCEMENTS

Financial instruments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of “other-than-temporary” impairments. The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material effect on the Company’s financial position or results of operations.

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Receivables

(in thousands)	June 30, 2020		December 31, 2019
Accounts receivable	$	181,686	$	199,720
Unbilled receivables	198,253		180,219
Long-term unbilled receivables	109,308		121,736
	$	489,247	$	501,675

Unbilled receivables are client committed amounts for which revenue recognition precedes billing, and billing is solely subject to the passage of time. They are expected to be billed in the future as follows:

(Dollars in thousands)	June 30, 2020
1 year or less	$	198,253	64	%
1-2 years	91,929		30	%
2-5 years	17,379		6	%
	$	307,561	100	%

Unbilled receivables based upon contract effective date:

(Dollars in thousands)	June 30, 2020
2020	$	75,893	25	%
2019	100,671		32	%
2018	46,700		15	%
2017	38,899		13	%
2016 and prior	45,398		15	%
	$	307,561	100	%

Major clients

Clients accounting for 10% or more of the Company’s receivables:

	June 30, 2020		December 31, 2019
Client A	11	%	*

* Client accounted for less than 10% of total receivables.

Contract assets and deferred revenue

(in thousands)	June 30, 2020		December 31, 2019
Contract assets (1)	$	5,323	$	5,558
Long-term contract assets (2)	4,903		5,420
	$	10,226	$	10,978
Deferred revenue	$	195,996	$	190,080
Long-term deferred revenue (3)	6,587		5,407
	$	202,583	$	195,487

(1) Included in other current assets. (2) Included in other long-term assets. (3) Included in other long-term liabilities.

Contract assets are client committed amounts for which revenue recognized exceeds the amount billed to the client and the right to payment is subject to conditions other than the passage of time, such as the completion of a related performance obligation. Deferred revenue consists of billings and payments received in advance of revenue recognition. Contract assets and deferred revenue are netted at the contract level for each reporting period.

The change in deferred revenue in the six months ended June 30, 2020 was primarily due to new billings in advance of revenue recognition, partially offset by $136.8 million of revenue recognized during the period that was included in deferred revenue at December 31, 2019.

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DEFERRED COMMISSIONS

6 Months Ended

Jun. 30, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

DEFERRED COMMISSIONS

4. DEFERRED COMMISSIONS

(in thousands)	June 30, 2020		December 31, 2019
Deferred commissions (1)	$	84,770	$	85,314

(1) Included in other long-term assets.

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Amortization of deferred commissions (1)	$	7,564	$	5,878	$	16,061	$	14,179

(1) Included in selling and marketing expenses.

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DEBT

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

DEBT

5. DEBT

Convertible senior notes and capped calls

Convertible senior notes

In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal amount of $600 million, due March 1, 2025, in a private placement. The proceeds from the Notes were used or are anticipated to be used for the Capped Call Transactions (described below), working capital, and other general corporate purposes. There are no required principal payments prior to the maturity of the Notes. The Notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1, beginning on September 1, 2020.

Proceeds from the Notes and Capped Call Transactions:

(in thousands)	Amount
Principal	$	600,000
Less: issuance costs	(14,527)
Less: Capped Call Transactions	(51,900)
	$	533,573

Conversion rights

The conversion rate is 7.4045 shares of common stock per $1,000 principal amount of the Notes, representing an initial conversion price of approximately $135.05 per share of common stock. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate. The conversion rate will be adjusted upon the occurrence of certain events, including spin-offs, tender offers, exchange offers, and certain stockholder distributions.

Beginning on September 1, 2024, noteholders may convert their Notes at any time at their election. Before September 1, 2024, noteholders may convert their Notes in the following circumstances:

•During any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds one hundred and thirty percent (130%) of the conversion price for each of at least twenty (20) trading days (whether or not consecutive) during the thirty (30) consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter.

•During the five consecutive business days immediately after any five consecutive trading day period (the “Measurement Period”), if the trading price per $1,000 principal amount of Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day.

•Upon the occurrence of certain corporate events or distributions, or if the Company calls all or any Notes for redemption, then the noteholder of any Note may convert such Note at any time before the close of business on the business day immediately before the related redemption date (or, if the Company fails to pay the redemption price due on such redemption date in full, at any time until the Company pays such redemption price in full).

As of June 30, 2020, no Notes were eligible for conversion at the noteholders’ election.

Repurchase rights

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

If certain corporate events that constitute a “Fundamental Change” (as described below) occur at any time, each noteholder will have the right, at such noteholder’s option, to require the Company to repurchase for cash all of such noteholder’s Notes, or any portion of the principal thereof that is equal to $1,000 or an integral multiple of $1,000, at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. A fundamental change relates to events such as mergers, changes in control of the Company, liquidation/dissolution of the Company, or the delisting of the Company’s common stock.

Impact of the Notes

In accounting for the transaction, the Notes have been separated into liability and equity components.

•The initial carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated conversion feature. The excess of the principal amount of the Notes over the initial carrying amount of the liability component, the debt discount, is amortized as interest expense over the contractual term of the Notes.

•The equity component was recorded as an increase to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.

The Company incurred issuance costs of $14.5 million related to the Notes, which were allocated between the liability and equity components of the Notes proportionate to the initial carrying amount of the liability and equity components.

•Issuance costs attributable to the liability component are recorded as an offset to the principal balance of the Notes and are amortized as interest expense using the effective interest method over the contractual term of the Notes.

•Issuance costs attributable to the equity component are recorded as an offset to the equity component in additional paid-in capital and are not amortized.

Net carrying amount of the liability component:

(in thousands)	June 30, 2020
Principal	$	600,000
Unamortized debt discount	(78,867)
Unamortized issuance costs	(11,710)
	$	509,423

Net carrying amount of the equity component, included in additional paid-in capital:

(in thousands)	June 30, 2020
Conversion options (1)	$	61,604

(1) Net of issuance costs and taxes.

Interest expense related to the Notes:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Contractual interest expense (0.75% coupon)	$	1,125	$	—	$	1,575	$	—
Amortization of debt discount (1)	3,757		—		5,253		—
Amortization of issuance cost (1)	558		—		780		—
	$	5,440	$	—	$	7,608	$	—

(1) Amortized based upon an effective interest rate of 4.31%.

Future payments of principal and contractual interest:

	June 30, 2020
(in thousands)	Principal		Interest		Total
2020	$	—	$	2,338	$	2,338
2021	—		4,500		4,500
2022	—		4,500		4,500
2023	—		4,500		4,500
2024	—		4,500		4,500
2025	600,000		1,488		601,488
	$	600,000	$	21,826	$	621,826

Capped call transactions

In February 2020, the Company entered into privately negotiated capped call transactions (“Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions cover approximately 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of the Company’s common stock and are generally expected to reduce potential dilution to the common stock upon any conversion of Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the Capped Call Transactions is $196.44, subject to adjustment upon the occurrence of specified extraordinary events affecting us, including merger events and tender offers. The Capped Call Transactions are classified as “other long-term assets” and remeasured to fair value at the end of each reporting period, resulting in a non-operating gain or loss.

Change in value of Capped Call Transactions:

(in thousands)	Six Months Ended June 30, 2020
Value at issuance	$	51,900
Fair value adjustment	827
Balance as of June 30,	$	52,727

Credit Facility

In November 2019, and as amended in February 2020 and July 2020, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association (“PNC”). The Company may use borrowings to finance working capital needs and for general corporate purposes. Subject to specific conditions, the Credit Facility allows the Company to increase the aggregate commitment to $200 million.

The Credit Facility contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. The Company is also required to comply with financial covenants including a maximum net consolidated leverage ratio of 3.5 (with a step-up in the event of certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5. The commitments expire on November 4, 2024, and any outstanding loans will be payable on such date.

As of June 30, 2020 and December 31, 2019, the Company had no outstanding borrowings under the Credit Facility.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

6. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

The Company records its cash equivalents, Capped Call Transactions, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.

As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:

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

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

•Level 3 - significant unobservable inputs on which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable. The Company applies judgment in its determination of expected volatility. The Company considers both historical and implied volatility levels of the underlying equity security and to a lesser extent historical peer group volatility levels. The Company’s venture investments are recorded at fair value based on valuation methods using the observable transaction price and other unobservable inputs including the volatility, rights, and obligations of the securities the Company holds.

The Company’s assets and liabilities measured at fair value on a recurring basis:

	June 30, 2020								December 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents (1)	$	450,465	$	—	$	—	$	450,465	$	—	$	—	$	—	$	—
Capped Call Transactions (2) (3)	$	—	$	52,727	$	—	$	52,727	$	—	$	—	$	—	$	—
Venture investments (2) (4)	$	—	$	—	$	6,640	$	6,640	$	—	$	—	$	4,871	$	4,871

(1) Composed of investments in money market funds. (2) Included in other long-term assets. (3) See "5. Debt" for additional information. (4) Composed of investments in privately-held companies.

Change in venture investments:

(in thousands)	Six Months Ended June 30, 2020
December 31, 2019	$	4,871
New investments	1,769
Sales of investments	(1,424)
Changes in foreign exchange rates	(50)
Fair value adjustment	1,474
June 30, 2020	$	6,640

The carrying value of certain other financial instruments, including receivables and accounts payable, approximates fair value due to the relatively short maturity of these items.

Fair value of the Notes

The fair value of the Company’s Notes was recorded at $515.9 million upon issuance, which reflected the principal amount of the Notes less the fair value of the conversion feature. The fair value of the debt component was determined based on a discounted cash flow model. The discount rate used reflected both the time value of money and credit risk inherent in the Notes. The carrying value of the Notes will be accreted, over the remaining term to maturity, to their principal value of $600 million.

The fair value of the Notes (inclusive of the conversion feature which is embedded in the Notes) was $602 million as of June 30, 2020. The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and has been classified within Level 2 in the fair value hierarchy. See "5. Debt" for additional information.

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REVENUE

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

REVENUE

7. REVENUE

Geographic revenue

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2020				2019				2020				2019
U.S.	$	142,811	63	%	$	119,682	59	%	$	315,228	63	%	$	223,673	54	%
Other Americas	8,930		4	%	8,873		4	%	24,272		5	%	37,702		9	%
United Kingdom (“U.K.”)	21,259		9	%	16,686		8	%	43,096		9	%	41,235		10	%
Europe (excluding U.K.), Middle East, and Africa	34,878		15	%	33,395		16	%	66,816		14	%	67,581		16	%
Asia-Pacific	19,497		9	%	26,956		13	%	43,554		9	%	47,947		11	%
	$	227,375	100	%	$	205,592	100	%	$	492,966	100	%	$	418,138	100	%

Revenue streams

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Perpetual license	$	9,057	$	19,320	$	12,716	$	34,270
Term license	44,266		24,954		134,523		73,268
Revenue recognized at a point in time	53,323		44,274		147,239		107,538
Maintenance	72,222		69,329		145,917		137,035
Pega Cloud	48,838		31,699		92,304		59,457
Consulting	52,992		60,290		107,506		114,108
Revenue recognized over time	174,052		161,318		345,727		310,600
	$	227,375	$	205,592	$	492,966	$	418,138

(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Term license	$	44,266	$	24,954	$	134,523	$	73,268
Pega Cloud	48,838		31,699		92,304		59,457
Maintenance	72,222		69,329		145,917		137,035
Subscription (1)	165,326		125,982		372,744		269,760
Perpetual license	9,057		19,320		12,716		34,270
Consulting	52,992		60,290		107,506		114,108
	$	227,375	$	205,592	$	492,966	$	418,138

(1) Reflects client arrangements (term license, Pega Cloud, and maintenance) that are subject to renewal.

Remaining performance obligations ("Backlog")

Expected future revenue on existing contracts:

	June 30, 2020
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	8,120	$	53,550	$	186,618	$	191,187	$	21,923	$	461,398	57	%
1-2 years	1,700		6,187		40,153		140,860		1,986		190,886		23	%
2-3 years	—		6,460		20,671		88,273		631		116,035		14	%
Greater than 3 years	—		646		10,517		37,071		626		48,860		6	%
	$	9,820	$	66,843	$	257,959	$	457,391	$	25,166	$	817,179	100	%

	June 30, 2019
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	8,429	$	38,080	$	173,421	$	124,134	$	16,259	$	360,323	57	%
1-2 years	915		4,678		12,530		98,842		942		117,907		19	%
2-3 years	1,306		641		5,801		75,828		227		83,803		13	%
Greater than 3 years	—		185		2,812		63,259		—		66,256		11	%
	$	10,650	$	43,584	$	194,564	$	362,063	$	17,428	$	628,289	100	%

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

8. STOCK-BASED COMPENSATION

Expense

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Cost of revenues	$	5,384	$	4,911	$	10,536	$	9,430
Selling and marketing	11,592		8,364		21,310		15,738
Research and development	5,805		4,572		11,302		9,132
General and administrative	2,874		2,200		5,683		4,097
	$	25,655	$	20,047	$	48,831	$	38,397
Income tax benefit	$	(5,107)	$	(4,056)	$	(9,689)	$	(7,796)

As of June 30, 2020, the Company had $130.3 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years.

Grants

The Company granted the following stock-based compensation awards:

	Six Months Ended June 30, 2020
(in thousands)	Shares	Total Fair Value
RSUs	939	$	82,823
Non-qualified stock options	1,696	$	38,551

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INCOME TAXES

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

9. INCOME TAXES

Effective income tax rate

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2020		2019		2020			2019
(Benefit from) income taxes	$	(12,319)	$	(17,338)	$	(36,129)		$	(25,638)
Effective income tax rate					44		%	30		%

During the six months ended June 30, 2020, the Company’s effective income tax rate benefit increased primarily due to the excess tax benefits from stock-based compensation and a carryback claim benefit as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), partially offset by Global Intangible Low-Taxed Income (“GILTI”).

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(LOSS) PER SHARE

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

(LOSS) PER SHARE

10. (LOSS) PER SHARE

Basic (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted (loss) per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, RSUs, and the conversion spread of the Company’s convertible senior notes.

Calculation of the basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Net (loss)	$	(20,740)	$	(32,296)	$	(46,112)	$	(61,013)
Weighted-average common shares outstanding	80,224		78,987		80,016		78,787
(Loss) per share, basic	$	(0.26)	$	(0.41)	$	(0.58)	$	(0.77)
Net (loss)	$	(20,740)	$	(32,296)	$	(46,112)	$	(61,013)
Weighted-average common shares outstanding, assuming dilution (1) (2)	80,224		78,987		80,016		78,787
(Loss) per share, diluted	$	(0.26)	$	(0.41)	$	(0.58)	$	(0.77)
Outstanding anti-dilutive stock options and RSUs (3)	5,929		6,253		5,939		5,908

(1) The Company expects to settle the principal amount of the Notes in cash. As a result, only the amount by which the conversion value exceeds the aggregated principal amount of the Notes is included in the diluted earnings per share computation under the treasury stock method. The conversion spread has a dilutive impact on diluted net income per share when the average market price of the Company’s common stock for a given period exceeds the initial conversion price of $135.05 per share for the Notes. In connection with the Notes’ issuance, the Company entered into Capped Call Transactions, which were not included in calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.

(2) In periods of loss, all dilutive securities are excluded as their inclusion would be anti-dilutive.

(3) Certain outstanding stock options and RSUs were excluded from the computation of diluted earnings per share because they were anti-dilutive in the period presented. These awards may be dilutive in the future.

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NEW ACCOUNTING PRONOUNCEMENTS (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Basis of presentation

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019.

In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented.

All intercompany transactions and balances have been eliminated in consolidation. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2020.

Financial instruments

Financial instruments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of “other-than-temporary” impairments. The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material effect on the Company’s financial position or results of operations.

Assets and liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis

The Company records its cash equivalents, Capped Call Transactions, and venture investments at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.

As a basis for classifying the fair value measurements, a three-tier fair value hierarchy, which classifies the fair value measurements based on the inputs used in measuring fair value, was established as follows:

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

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

•Level 3 - significant unobservable inputs on which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model. The valuation models use various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable. The Company applies judgment in its determination of expected volatility. The Company considers both historical and implied volatility levels of the underlying equity security and to a lesser extent historical peer group volatility levels. The Company’s venture investments are recorded at fair value based on valuation methods using the observable transaction price and other unobservable inputs including the volatility, rights, and obligations of the securities the Company holds.

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE (Tables)

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Summary of Receivable

Receivables

(in thousands)	June 30, 2020		December 31, 2019
Accounts receivable	$	181,686	$	199,720
Unbilled receivables	198,253		180,219
Long-term unbilled receivables	109,308		121,736
	$	489,247	$	501,675

Summary of Unbilled Receivables

Unbilled receivables are client committed amounts for which revenue recognition precedes billing, and billing is solely subject to the passage of time. They are expected to be billed in the future as follows:

(Dollars in thousands)	June 30, 2020
1 year or less	$	198,253	64	%
1-2 years	91,929		30	%
2-5 years	17,379		6	%
	$	307,561	100	%

Summary of Unbilled Receivables Based Upon Contract Effective Date

Unbilled receivables based upon contract effective date:

(Dollars in thousands)	June 30, 2020
2020	$	75,893	25	%
2019	100,671		32	%
2018	46,700		15	%
2017	38,899		13	%
2016 and prior	45,398		15	%
	$	307,561	100	%

Schedules of Concentration of Risk, by Risk Factor

Major clients

Clients accounting for 10% or more of the Company’s receivables:

	June 30, 2020		December 31, 2019
Client A	11	%	*

* Client accounted for less than 10% of total receivables.

Summary of Contract Assets and Deferred Revenue

Contract assets and deferred revenue

(in thousands)	June 30, 2020		December 31, 2019
Contract assets (1)	$	5,323	$	5,558
Long-term contract assets (2)	4,903		5,420
	$	10,226	$	10,978
Deferred revenue	$	195,996	$	190,080
Long-term deferred revenue (3)	6,587		5,407
	$	202,583	$	195,487

(1) Included in other current assets. (2) Included in other long-term assets. (3) Included in other long-term liabilities.

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DEFERRED COMMISSIONS (Tables)

6 Months Ended

Jun. 30, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Impairment of Deferred Contract Costs

(in thousands)	June 30, 2020		December 31, 2019
Deferred commissions (1)	$	84,770	$	85,314

(1) Included in other long-term assets.

Schedule of Amortization of Deferred Contract Costs

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Amortization of deferred commissions (1)	$	7,564	$	5,878	$	16,061	$	14,179

(1) Included in selling and marketing expenses

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DEBT (Tables)

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Schedule of Debt

Proceeds from the Notes and Capped Call Transactions:

(in thousands)	Amount
Principal	$	600,000
Less: issuance costs	(14,527)
Less: Capped Call Transactions	(51,900)
	$	533,573

Contractual Obligation, Fiscal Year Maturity Schedule

Net carrying amount of the liability component:

(in thousands)	June 30, 2020
Principal	$	600,000
Unamortized debt discount	(78,867)
Unamortized issuance costs	(11,710)
	$	509,423

Net carrying amount of the equity component, included in additional paid-in capital:

(in thousands)	June 30, 2020
Conversion options (1)	$	61,604

(1) Net of issuance costs and taxes.

Interest expense related to the Notes:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Contractual interest expense (0.75% coupon)	$	1,125	$	—	$	1,575	$	—
Amortization of debt discount (1)	3,757		—		5,253		—
Amortization of issuance cost (1)	558		—		780		—
	$	5,440	$	—	$	7,608	$	—

(1) Amortized based upon an effective interest rate of 4.31%.

Future payments of principal and contractual interest:

	June 30, 2020
(in thousands)	Principal		Interest		Total
2020	$	—	$	2,338	$	2,338
2021	—		4,500		4,500
2022	—		4,500		4,500
2023	—		4,500		4,500
2024	—		4,500		4,500
2025	600,000		1,488		601,488
	$	600,000	$	21,826	$	621,826

Schedule of Derivative Instruments

Change in value of Capped Call Transactions:

(in thousands)	Six Months Ended June 30, 2020
Value at issuance	$	51,900
Fair value adjustment	827
Balance as of June 30,	$	52,727

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value

The Company’s assets and liabilities measured at fair value on a recurring basis:

	June 30, 2020								December 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents (1)	$	450,465	$	—	$	—	$	450,465	$	—	$	—	$	—	$	—
Capped Call Transactions (2) (3)	$	—	$	52,727	$	—	$	52,727	$	—	$	—	$	—	$	—
Venture investments (2) (4)	$	—	$	—	$	6,640	$	6,640	$	—	$	—	$	4,871	$	4,871

(1) Composed of investments in money market funds. (2) Included in other long-term assets. (3) See "5. Debt" for additional information. (4) Composed of investments in privately-held companies.

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

Change in venture investments:

(in thousands)	Six Months Ended June 30, 2020
December 31, 2019	$	4,871
New investments	1,769
Sales of investments	(1,424)
Changes in foreign exchange rates	(50)
Fair value adjustment	1,474
June 30, 2020	$	6,640

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REVENUE (Tables)

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Schedule of Revenue by Geographic Location

Geographic revenue

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2020				2019				2020				2019
U.S.	$	142,811	63	%	$	119,682	59	%	$	315,228	63	%	$	223,673	54	%
Other Americas	8,930		4	%	8,873		4	%	24,272		5	%	37,702		9	%
United Kingdom (“U.K.”)	21,259		9	%	16,686		8	%	43,096		9	%	41,235		10	%
Europe (excluding U.K.), Middle East, and Africa	34,878		15	%	33,395		16	%	66,816		14	%	67,581		16	%
Asia-Pacific	19,497		9	%	26,956		13	%	43,554		9	%	47,947		11	%
	$	227,375	100	%	$	205,592	100	%	$	492,966	100	%	$	418,138	100	%

Schedule of Revenue Streams

Revenue streams

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Perpetual license	$	9,057	$	19,320	$	12,716	$	34,270
Term license	44,266		24,954		134,523		73,268
Revenue recognized at a point in time	53,323		44,274		147,239		107,538
Maintenance	72,222		69,329		145,917		137,035
Pega Cloud	48,838		31,699		92,304		59,457
Consulting	52,992		60,290		107,506		114,108
Revenue recognized over time	174,052		161,318		345,727		310,600
	$	227,375	$	205,592	$	492,966	$	418,138

(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Term license	$	44,266	$	24,954	$	134,523	$	73,268
Pega Cloud	48,838		31,699		92,304		59,457
Maintenance	72,222		69,329		145,917		137,035
Subscription (1)	165,326		125,982		372,744		269,760
Perpetual license	9,057		19,320		12,716		34,270
Consulting	52,992		60,290		107,506		114,108
	$	227,375	$	205,592	$	492,966	$	418,138

(1) Reflects client arrangements (term license, Pega Cloud, and maintenance) that are subject to renewal.

Revenue for Remaining Performance Obligations Expected to be Recognized

	June 30, 2020
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	8,120	$	53,550	$	186,618	$	191,187	$	21,923	$	461,398	57	%
1-2 years	1,700		6,187		40,153		140,860		1,986		190,886		23	%
2-3 years	—		6,460		20,671		88,273		631		116,035		14	%
Greater than 3 years	—		646		10,517		37,071		626		48,860		6	%
	$	9,820	$	66,843	$	257,959	$	457,391	$	25,166	$	817,179	100	%

	June 30, 2019
(Dollars in thousands)	Perpetual license		Term license		Maintenance		Pega Cloud		Consulting		Total
1 year or less	$	8,429	$	38,080	$	173,421	$	124,134	$	16,259	$	360,323	57	%
1-2 years	915		4,678		12,530		98,842		942		117,907		19	%
2-3 years	1,306		641		5,801		75,828		227		83,803		13	%
Greater than 3 years	—		185		2,812		63,259		—		66,256		11	%
	$	10,650	$	43,584	$	194,564	$	362,063	$	17,428	$	628,289	100	%

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STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Summary of Stock Based Compensation Expense

Expense

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Cost of revenues	$	5,384	$	4,911	$	10,536	$	9,430
Selling and marketing	11,592		8,364		21,310		15,738
Research and development	5,805		4,572		11,302		9,132
General and administrative	2,874		2,200		5,683		4,097
	$	25,655	$	20,047	$	48,831	$	38,397
Income tax benefit	$	(5,107)	$	(4,056)	$	(9,689)	$	(7,796)

Summary of Stock Based Compensation Award Granted

Grants

The Company granted the following stock-based compensation awards:

	Six Months Ended June 30, 2020
(in thousands)	Shares	Total Fair Value
RSUs	939	$	82,823
Non-qualified stock options	1,696	$	38,551

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INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Summary of Benefit from Income Taxes and Discrete Tax Items

Effective income tax rate

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2020		2019		2020			2019
(Benefit from) income taxes	$	(12,319)	$	(17,338)	$	(36,129)		$	(25,638)
Effective income tax rate					44		%	30		%

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(LOSS) PER SHARE (Tables)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Summary of Basic and Diluted Earnings Per Share

Calculation of the basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Net (loss)	$	(20,740)	$	(32,296)	$	(46,112)	$	(61,013)
Weighted-average common shares outstanding	80,224		78,987		80,016		78,787
(Loss) per share, basic	$	(0.26)	$	(0.41)	$	(0.58)	$	(0.77)
Net (loss)	$	(20,740)	$	(32,296)	$	(46,112)	$	(61,013)
Weighted-average common shares outstanding, assuming dilution (1) (2)	80,224		78,987		80,016		78,787
(Loss) per share, diluted	$	(0.26)	$	(0.41)	$	(0.58)	$	(0.77)
Outstanding anti-dilutive stock options and RSUs (3)	5,929		6,253		5,939		5,908

(1) The Company expects to settle the principal amount of the Notes in cash. As a result, only the amount by which the conversion value exceeds the aggregated principal amount of the Notes is included in the diluted earnings per share computation under the treasury stock method. The conversion spread has a dilutive impact on diluted net income per share when the average market price of the Company’s common stock for a given period exceeds the initial conversion price of $135.05 per share for the Notes. In connection with the Notes’ issuance, the Company entered into Capped Call Transactions, which were not included in calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.

(2) In periods of loss, all dilutive securities are excluded as their inclusion would be anti-dilutive.

(3) Certain outstanding stock options and RSUs were excluded from the computation of diluted earnings per share because they were anti-dilutive in the period presented. These awards may be dilutive in the future.

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Receivable (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Receivables [Abstract]
Accounts receivable	$ 181,686	$ 199,720
Unbilled receivables	198,253	180,219
Long-term unbilled receivables	109,308	121,736
Total receivables	$ 489,247	$ 501,675

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Unbilled Receivables (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Receivables [Abstract]
1 year or less	$ 198,253
1-2 years	91,929
2-5 years	17,379
Total	$ 307,561
Percentage of unbilled receivables, 1 Year or Less	64.00%
Percentage of unbilled receivables, 1-2 Years	30.00%
Percentage of unbilled receivables, 2-5 Years	6.00%
Total percentage of unbilled receivables	100.00%

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Major Clients (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Concentration Risk [Line Items]
Percent of total revenue	100.00%	100.00%	100.00%	100.00%
Client A | Credit Concentration Risk | Accounts Receivable
Concentration Risk [Line Items]
Percent of total revenue			11.00%

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE- Contract Effective (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2020 USD ($)
Receivables [Abstract]
2020	$ 75,893
2019	100,671
2018	46,700
2017	38,899
2016 and prior	45,398
Unbilled Revenue Total	$ 307,561
2020	25.00%
2019	32.00%
2018	15.00%
2017	13.00%
2016 and prior	15.00%
Total Percentage of Unbilled Revenue	100.00%
Revenue recognized during the period that was included in deferred revenue	$ 136,800

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RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE - Summary of Contract Assets and Deferred Revenue (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Receivables [Abstract]
Contract assets	$ 5,323	$ 5,558
Long-term contract assets	4,903	5,420
Total contract assets	10,226	10,978
Deferred revenue	195,996	190,080
Long-term deferred revenue	6,587	5,407
Total deferred revenue	$ 202,583	$ 195,487

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DEFERRED COMMISSIONS - Schedule of Impairment of Deferred Commissions (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Deferred contract costs	$ 84,770	$ 85,314

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DEFERRED COMMISSIONS - Schedule of Amortization of Deferred Commissions (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Amortization of deferred commissions	$ 7,564	$ 5,878	$ 16,061	$ 14,179

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DEBT - Convertible Senior Notes Narrative (Details)		1 Months Ended	6 Months Ended
	Mar. 01, 2020	Feb. 29, 2020 USD ($) $ / shares	Jun. 30, 2020 tradingDay
Debt Instrument [Line Items]
Redemption percentage	100.00%
On or after March 1, 2023
Debt Instrument [Line Items]
Redemption percentage			100.00%
Convertible Debt
Debt Instrument [Line Items]
Face amount | $		$ 600,000,000
Interest rate		0.75%
Initial conversion rate		7.4045
Debt conversion amount | $		$ 1,000
Initial conversion price (in dollars per share) | $ / shares		$ 135.05
Debt issuance costs | $		$ (14,527,000)
Convertible Debt | After the calendar quarter ending on June 30, 2020
Debt Instrument [Line Items]
Threshold percentage of stock price trigger			130.00%
Threshold trading days			20
Threshold consecutive trading days			30
Convertible Debt | Measurement Period
Debt Instrument [Line Items]
Threshold percentage of stock price trigger			98.00%
Threshold consecutive trading days			5
Threshold consecutive business days			5
Convertible Debt | On or after March 1, 2023
Debt Instrument [Line Items]
Threshold percentage of stock price trigger			130.00%
Threshold trading days			20
Threshold consecutive trading days			30

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DEBT - Net Proceeds Amount (Details) - USD ($) $ in Thousands	1 Months Ended
	Feb. 29, 2020	Jun. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Less: Capped Call Transactions		$ (52,727)	$ 0
Convertible Debt
Debt Instrument [Line Items]
Principal	$ 600,000	$ 600,000
Less: issuance costs	(14,527)
Less: Capped Call Transactions	(51,900)
Net proceeds	$ 533,573

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DEBT - Net Carrying Amount (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Feb. 29, 2020	Jun. 30, 2019
Debt Instrument [Line Items]
Effective interest rate	4.31%		4.31%
Convertible Debt
Debt Instrument [Line Items]
Principal	$ 600,000	$ 600,000
Unamortized debt discount	(78,867)
Unamortized issuance costs	(11,710)
Principal, net	509,423
Conversion options	$ 61,604

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DEBT - Interest Expense (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		6 Months Ended
	Feb. 29, 2020	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Debt Instrument [Line Items]
Effective interest rate		4.31%	4.31%	4.31%	4.31%
Convertible Debt
Debt Instrument [Line Items]
Interest rate	0.75%
Contractual interest expense (0.75% coupon)		$ 1,125	$ 0	$ 1,575	$ 0
Amortization of debt discount		3,757	0	5,253	0
Amortization of issuance cost		558	0	780	0
Interest expense		$ 5,440	$ 0	$ 7,608	$ 0

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DEBT - Future Payments of Principal and Contractual Interest (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Feb. 29, 2020
Interest
Interest expense, total due	$ 21,826
Convertible Debt
Principal
2020	0
2021	0
2022	0
2023	0
2024	0
2025	600,000
Principal, total due	600,000	$ 600,000
Interest
2020	2,338
2021	4,500
2022	4,500
2023	4,500
2024	4,500
2025	1,488
Total
2020	2,338
2021	4,500
2022	4,500
2023	4,500
2024	4,500
2025	601,488
Principal and interest, total due	$ 621,826

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DEBT - Capped Call Transactions (Details) $ in Thousands, shares in Millions	1 Months Ended	4 Months Ended
	Feb. 29, 2020 USD ($) $ / derivative shares	Jun. 30, 2020 USD ($)
Debt Disclosure [Abstract]
Number of shares issuable upon conversion | shares	4.4
Cap price | $ / derivative	196.44
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Value at issuance		$ 51,900
Fair value adjustment		827
Ending balance	$ 51,900	$ 52,727

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DEBT - Credit Facility (Details)	1 Months Ended
	Jul. 31, 2020 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Debt Instrument [Line Items]
Remaining borrowing capacity		$ 0	$ 0
PNC Bank, National Association | Subsequent Event
Debt Instrument [Line Items]
Minimum consolidated coverage ratio	3.5
Credit Agreement | PNC Bank, National Association | Subsequent Event
Debt Instrument [Line Items]
Maximum consolidated net leverage ratio	3.5
Line of Credit | PNC Bank, National Association | Revolving Credit Facility | Subsequent Event
Debt Instrument [Line Items]
Revolving credit agreement term	5 years
Senior notes	$ 100,000,000
Increase in aggregate commitment amount	$ 200,000,000

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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Fair Value Assets
Capped call transactions	$ 52,727	$ 0
Cash equivalents
Fair Value Assets
Cash equivalents	450,465	0
Venture Investments
Fair Value Assets
Venture investments	6,640	4,871
Level 1
Fair Value Assets
Capped call transactions	0	0
Level 1 | Cash equivalents
Fair Value Assets
Cash equivalents	450,465	0
Level 1 | Venture Investments
Fair Value Assets
Venture investments	0	0
Level 2
Fair Value Assets
Capped call transactions	52,727	0
Level 2 | Cash equivalents
Fair Value Assets
Cash equivalents	0	0
Level 2 | Venture Investments
Fair Value Assets
Venture investments	0	0
Level 3
Fair Value Assets
Capped call transactions	0	0
Level 3 | Cash equivalents
Fair Value Assets
Cash equivalents	0	0
Level 3 | Venture Investments
Fair Value Assets
Venture investments	$ 6,640	$ 4,871

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FAIR VALUE MEASUREMENTS - Change in Investment in Privately Held Companies (Details) - USD ($)	6 Months Ended
	Jun. 30, 2020	Feb. 29, 2020
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Convertible debt fair value	$ 602,000,000	$ 515,900,000
Convertible Debt
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Face amount		$ 600,000,000
Privately Held Investment
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	4,871,000
New investments	1,769,000
Sales of investments	(1,424,000)
Changes in foreign exchange rates	(50,000)
Fair value adjustment	1,474,000
Ending balance	$ 6,640,000

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REVENUE - Geographic Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Disaggregation of Revenue [Line Items]
Revenue	$ 227,375	$ 205,592	$ 492,966	$ 418,138
Percent of total revenue	100.00%	100.00%	100.00%	100.00%
U.S.
Disaggregation of Revenue [Line Items]
Revenue	$ 142,811	$ 119,682	$ 315,228	$ 223,673
Other Americas
Disaggregation of Revenue [Line Items]
Revenue	8,930	8,873	24,272	37,702
United Kingdom (“U.K.”)
Disaggregation of Revenue [Line Items]
Revenue	21,259	16,686	43,096	41,235
Europe (excluding U.K.), Middle East, and Africa
Disaggregation of Revenue [Line Items]
Revenue	34,878	33,395	66,816	67,581
Asia-Pacific
Disaggregation of Revenue [Line Items]
Revenue	$ 19,497	$ 26,956	$ 43,554	$ 47,947
Total revenue | U.S.
Disaggregation of Revenue [Line Items]
Percent of total revenue	63.00%	59.00%	63.00%	54.00%
Total revenue | Other Americas
Disaggregation of Revenue [Line Items]
Percent of total revenue	4.00%	4.00%	5.00%	9.00%
Total revenue | United Kingdom (“U.K.”)
Disaggregation of Revenue [Line Items]
Percent of total revenue	9.00%	8.00%	9.00%	10.00%
Total revenue | Europe (excluding U.K.), Middle East, and Africa
Disaggregation of Revenue [Line Items]
Percent of total revenue	15.00%	16.00%	14.00%	16.00%
Total revenue | Asia-Pacific
Disaggregation of Revenue [Line Items]
Percent of total revenue	9.00%	13.00%	9.00%	11.00%

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REVENUE - Revenue Stream (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Disaggregation of Revenue [Line Items]
Revenue	$ 227,375	$ 205,592	$ 492,966	$ 418,138
Revenue recognized at a point in time
Disaggregation of Revenue [Line Items]
Revenue	53,323	44,274	147,239	107,538
Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	174,052	161,318	345,727	310,600
Perpetual license | Revenue recognized at a point in time
Disaggregation of Revenue [Line Items]
Revenue	9,057	19,320	12,716	34,270
Term license | Revenue recognized at a point in time
Disaggregation of Revenue [Line Items]
Revenue	44,266	24,954	134,523	73,268
Maintenance
Disaggregation of Revenue [Line Items]
Revenue	72,222	69,329	145,917	137,035
Maintenance | Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	72,222	69,329	145,917	137,035
Subscription
Disaggregation of Revenue [Line Items]
Revenue	165,326	125,982	372,744	269,760
Pega Cloud
Disaggregation of Revenue [Line Items]
Revenue	48,838	31,699	92,304	59,457
Pega Cloud | Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	48,838	31,699	92,304	59,457
Consulting
Disaggregation of Revenue [Line Items]
Revenue	52,992	60,290	107,506	114,108
Consulting | Revenue recognized over time
Disaggregation of Revenue [Line Items]
Revenue	$ 52,992	$ 60,290	$ 107,506	$ 114,108

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REVENUE - Performance Obligations (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Jun. 30, 2019
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 817,179	$ 628,289
Revenue remaining performance obligation, percentage	100.00%	100.00%
1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 461,398	$ 360,323
Revenue remaining performance obligation, percentage	57.00%	57.00%
1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 190,886	$ 117,907
Revenue remaining performance obligation, percentage	23.00%	19.00%
2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 116,035	$ 83,803
Revenue remaining performance obligation, percentage	14.00%	13.00%
Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 48,860	$ 66,256
Revenue remaining performance obligation, percentage	6.00%	11.00%
Perpetual license
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 9,820	$ 10,650
Perpetual license | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	8,120	8,429
Perpetual license | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	1,700	915
Perpetual license | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	0	1,306
Perpetual license | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	0	0
Term license
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	66,843	43,584
Term license | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	53,550	38,080
Term license | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	6,187	4,678
Term license | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	6,460	641
Term license | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	646	185
Maintenance
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	257,959	194,564
Maintenance | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	186,618	173,421
Maintenance | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	40,153	12,530
Maintenance | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	20,671	5,801
Maintenance | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	10,517	2,812
Pega Cloud
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	457,391	362,063
Pega Cloud | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	191,187	124,134
Pega Cloud | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	140,860	98,842
Pega Cloud | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	88,273	75,828
Pega Cloud | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	37,071	63,259
Consulting
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	25,166	17,428
Consulting | 1 year or less
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	21,923	16,259
Consulting | 1-2 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	1,986	942
Consulting | 2-3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	631	227
Consulting | Greater than 3 years
Disaggregation of Revenue [Line Items]
Revenue remaining performance obligation	$ 626	$ 0

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REVENUE - Performance Obligations - Expected Timing (Details)	Jun. 30, 2020	Jun. 30, 2019
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction		6 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction		1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	6 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	1 year	2 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing of satisfaction	3 years	3 years

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STOCK-BASED COMPENSATION - Summary of Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 25,655	$ 20,047	$ 48,831	$ 38,397
Income tax benefit	(5,107)	(4,056)	(9,689)	(7,796)
Cost of revenues
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	5,384	4,911	10,536	9,430
Selling and marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	11,592	8,364	21,310	15,738
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	5,805	4,572	11,302	9,132
General and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation before tax	$ 2,874	$ 2,200	$ 5,683	$ 4,097

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STOCK-BASED COMPENSATION - Additional Information (Details) $ in Millions	6 Months Ended
	Jun. 30, 2020 USD ($)
Share-based Payment Arrangement [Abstract]
Unrecognized stock-based compensation expense	$ 130.3
Weighted-average period of recognition of unrecognized stock-based compensation expense (in years)	2 years 2 months 12 days

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STOCK-BASED COMPENSATION - Summary of Stock-Based Compensation Awards Granted (Details) - Employees $ in Thousands	6 Months Ended
	Jun. 30, 2020 USD ($) shares
RSUs
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
RSUs (in shares) | shares	939,000
Total Fair Value | $	$ 82,823
Non-qualified stock options
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Options granted (in shares) | shares	1,696,000
Total Fair Value | $	$ 38,551

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Tax Disclosure [Abstract]
(Benefit from) income taxes	$ (12,319)	$ (17,338)	$ (36,129)	$ (25,638)
Effective income tax rate			44.00%	30.00%

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(LOSS) PER SHARE PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019	Feb. 29, 2020
Earning per share reconciliation
Net (loss)	$ (20,740)	$ (25,372)	$ (32,296)	$ (28,717)	$ (46,112)	$ (61,013)
Weighted-average common shares outstanding (in shares)	80,224		78,987		80,016	78,787
(Loss) per share, basic (in dollars per share)	$ (0.26)		$ (0.41)		$ (0.58)	$ (0.77)
Weighted-average common shares outstanding, assuming dilution (in shares)	80,224		78,987		80,016	78,787
(Loss) per share, diluted (in dollars per share)	$ (0.26)		$ (0.41)		$ (0.58)	$ (0.77)
Outstanding anti-dilutive stock options and RSUs (in shares)	5,929		6,253		5,939	5,908
Convertible Debt
Earning per share reconciliation
Initial conversion price (in dollars per share)							$ 135.05