- ACV grows 20 percent year over year

- Total Backlog up 25 percent year over year to $1.3 billion

- 2022 Revenue Guidance of $1.46 billion - $1.49 billion

CAMBRIDGE, Mass., Feb. 16, 2022 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the software company that crushes business complexity, released its financial results for the fourth quarter and full-year 2021.

"Robust demand for digital transformation projects in both the front and back-office resulted in continued strong growth for Pega," said Alan Trefler, founder and CEO, Pegasystems. "In 2022 and beyond, our goal is to capitalize on this demand to become the enterprise standard workflow engine, servicing backbone, and centralized brain for the largest and most demanding enterprises globally."

"As we get closer to exiting the cloud transition, I'm excited to see Pega achieve ACV of $1 billion for the first time in its history," said Ken Stillwell, COO and CFO, Pegasystems. "We're now experiencing improving profitability and cash flow that reveals the underlying power of our subscription model. This increasing profitability and accelerating ACV growth will keep us on the path to becoming a Rule of 40 business."

Financial and performance metrics (1)

2022 Guidance (1)

As of February 16, 2022, we are providing the following guidance:

Quarterly conference call

A conference call and audio-only webcast will be conducted at 5:00 p.m. EST on February 16, 2022.

Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-800-437-2398 (domestic), 1-323-994-2093 (international), or via webcast (https://viavid.webcasts.com/starthere.jsp?ei=1524699&tp_key=509709a596) by logging onto https://www.pega.com at least five minutes prior to the event's broadcast and clicking on the webcast icon in the Investors section.

Discussion of Non-GAAP financial measures

We believe that Non-GAAP financial measures help investors understand our core operating results and prospects, consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. The supplementary Non-GAAP financial measures are not meant to be superior to, or a substitute for, financial measures prepared under U.S. GAAP.

A reconciliation of our Non-GAAP and GAAP measures is at the end of this release.

Forward-looking statements

Certain statements in this press release may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995.

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

Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but not limited to:

• our future financial performance and business plans;
• the adequacy of our liquidity and capital resources;
• the continued payment of our 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;
• reliance on key personnel;
• the impact of actual or threatened public health emergencies, such as the Coronavirus ("COVID-19");
• reliance on third-party service providers, including hosting providers;
• compliance with our debt obligations and covenants;
• the potential impact of our convertible senior notes and Capped Call Transactions;
• the relocation of our corporate headquarters;
• the continued uncertainties in the global economy;
• foreign currency exchange rates;
• the potential legal and financial liabilities and damage to our reputation due to cyber-attacks;
• security breaches and security flaws;
• our ability to protect our intellectual property rights, costs associated with defending such rights, as well as intellectual property rights claims and other related claims by third parties;
• our client retention rate; and
• management of our growth.

These risks and others that may 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, 2021, 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 update or revise these forward-looking statements publicly, whether due to new information, future events, or otherwise. The forward-looking statements in this press release represent our views as of February 16, 2022.

About Pegasystems

Pega delivers innovative software that crushes business complexity. From maximizing customer lifetime value to streamlining service to boosting efficiency, we help the world's leading brands solve problems fast and transform for tomorrow. Pega clients make better decisions and get work done with real-time AI and intelligent automation. And, since 1983, we've built our scalable architecture and low-code platform to stay ahead of rapid change. Our solutions save people time, so our clients' employees and customers can get back to what matters most. For more information on Pegasystems (NASDAQ: PEGA) visit https://www.pega.com.

Press contact:Lisa PintchmanPegasystems Inc.lisapintchman.rogers@pega.com 617-866-6022 Twitter: @pega

Investor contact:Garo ToomajanianICR for Pegasystems Inc.pegainvestorrelations@pega.com617-866-6077

All trademarks are the property of their respective owners.

(1) We believe that Non-GAAP financial measures help investors understand our core operating results and prospects, consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. The supplementary Non-GAAP financial measures are not meant to be superior to, or a substitute for, financial measures prepared under U.S. GAAP.

Our Non-GAAP financial measures reflect the following adjustments:

• Stock-based compensation: We have excluded stock-based compensation from our Non-GAAP operating expenses and profitability measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to our revenues recognized during the periods presented and is expected to contribute to our future revenues, we continue to evaluate our business performance excluding stock-based compensation.
• Capped call transactions: We have excluded gains and losses related to our capped call transactions held at fair value under U.S. GAAP. The capped call transactions are expected to reduce common stock dilution and/or offset any potential cash payments we must make, other than for principal and interest, upon conversion of the Notes. We believe excluding these amounts from our Non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operating performance. In addition, we reflect the effect of the capped call transactions on the weighted-average number of common shares outstanding in our Non-GAAP financial measures as we believe it provides investors with useful information when evaluating our financial performance on a per-share basis.
• Litigation: Includes legal fees and related expenses arising from proceedings that originated outside of the ordinary course of business. We believe excluding these expenses from our Non-GAAP financial measures is useful to investors as the disputes giving rise to them are not representative of our core business operations and ongoing operating performance.
• Convertible senior notes: In February 2020, we issued convertible senior notes with an aggregate principal amount of $600 million, due March 1, 2025, in a private placement. See "Note 11. Debt" in Item 8 of this Annual Report for additional information. We believe excluding the amortization of debt discounts and issuance costs provide a useful comparison of our operational performance in different periods.
• Headquarters lease: In February 2021, we agreed to accelerate our exit from our then Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from our landlord of $18 million which was received in October 2021. We believe excluding the impact from our Non-GAAP financial measures is useful to investors as the modified lease, including the $18 million payment, is not representative of our core business operations and ongoing operating performance.
• Amortization of intangible assets: We have excluded the amortization of intangible assets from our Non-GAAP operating expenses and profitability measures. Amortization of intangible assets fluctuates in amount and frequency and is significantly affected by the timing and size of acquisitions. Investors should note that the use of intangible assets contributed to our revenues recognized during the periods presented and is expected to contribute to future revenues. Amortization of intangible assets is likely to recur in future periods.
• Foreign currency transaction loss (gain): We have excluded foreign currency transaction gains and losses from our Non-GAAP profitability measures. Foreign currency transaction gains and losses fluctuate in amount and frequency and are significantly affected by foreign exchange market rates. Foreign currency transaction gains and losses are likely to recur in future periods.
• Other: We have excluded gains and losses on our venture investments and incremental fees incurred due to the cancellation of in-person sales and marketing events due to the COVID-19 pandemic, including the live event portion of our 2020 PegaWorld conference. We believe excluding these amounts from our Non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of our core business operations and ongoing operating performance.

(2) Stock-based compensation:

(3) Effective income tax rates:

Our GAAP effective income tax rate is subject to significant fluctuations due to several factors, including excess tax benefits generated by our stock-based compensation plans, gains and losses on our capped call transactions, tax credits for stock-based compensation awards to research and development employees, and unfavorable foreign stock-based compensation adjustments. We determine our Non-GAAP income tax rate by using applicable rates in taxing jurisdictions and assessing certain factors, including our historical and forecasted earnings by jurisdiction, discrete items, and our ability to realize tax assets. We believe it is beneficial for our management to review our Non-GAAP results consistent with our annual plan's effective income tax rate as established at the beginning of each year, given tax rate volatility.

PEGASYSTEMS INC.ANNUAL CONTRACT VALUE ("ACV")(in thousands, except percentages)

Annual contract value ("ACV") - ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV for term license and Pega Cloud contracts. Maintenance revenue for the quarter then ended is multiplied by four to calculate ACV for maintenance. ACV is a performance measure that we believe provides useful information to our management and investors, particularly during our subscription transition. Foreign currency exchange rate changes were a 1% headwind to ACV growth in 2021.

PEGASYSTEMS INC.BACKLOG(in thousands, except percentages)

Remaining performance obligations ("Backlog") - Expected future revenue from existing non-cancellable contracts:

As of December 31, 2021:

As of December 31, 2020:

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SOURCE Pegasystems Inc.