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What changed in PEGASYSTEMS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of PEGASYSTEMS INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+191 added−223 removedSource: 10-K (2025-02-12) vs 10-K (2024-02-14)

Top changes in PEGASYSTEMS INC's 2024 10-K

191 paragraphs added · 223 removed · 148 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur Products Pega Infinity Pega Infinity™, the latest version of our software portfolio, helps build agility into our clients’ organizations so they can work smarter, unify experiences, and adapt to meet changing requirements. 4 Our applications and low-code platform intersect with and encompass several software markets, including: • Customer Engagement, including Customer Relationship Management (“CRM”); • Digital Process Automation (“DPA”), including Business Process Management (“BPM”), Workflow, and Dynamic Case Management (“DCM”); • Low-code application development platforms (“LCAP”), including Multi-experience Development Platforms (“MXDP”); • Robotic Process Automation (“RPA”); • Business Rules Management Systems (“BRMS”); • Decision Management, including predictive and adaptive analytics; and • the Vertical-Specific Software (“VSS”) market of industry solutions and packaged applications. 1:1 Customer Engagement Our omnichannel customer engagement applications are designed to maximize the lifetime value of customers and help reduce the costs of serving customers while ensuring a consistent, unified, and personalized customer experience.
Biggest changeOur applications and low-code platform intersect with and encompass several software markets, including: • Customer Engagement, including Customer Relationship Management (“CRM”); • Digital Process Automation (“DPA”), including Business Process Management (“BPM”), Workflow, and Dynamic Case Management (“DCM”), and Business Orchestration and Automation Technologies (“BOAT”); • Low-code application development platforms (“LCAP”), including Multi-experience Development Platforms (“MXDP”); • Robotic Process Automation (“RPA”), and Task-Centric Process Automation; • Business Rules Management Systems (“BRMS”); • Decision Management, including predictive and adaptive analytics and Real-time Interaction Management (“RTIM”); and • the Vertical-Specific Software (“VSS”) market of industry solutions and packaged applications. 1:1 Customer Engagement Our omnichannel customer engagement applications are designed to maximize the lifetime value of customers and help reduce the costs of serving customers while ensuring a consistent, unified, and personalized customer experience.
To support our sales efforts, we conduct a broad range of marketing programs, including awareness advertising, client and industry-targeted solution campaigns, trade shows, including our PegaWorld ® iNspire user conference, solution seminars and webinars, industry analyst and press relations, web and digital marketing, community development, social media presence, and other direct and indirect marketing efforts.
To support our sales efforts, we conduct a broad range of marketing programs, including awareness advertising, client and industry-targeted solution campaigns, trade shows, including our PegaWorld ® user conference, solution seminars and webinars, industry analyst and press relations, web and digital marketing, community development, social media presence, and other direct and indirect marketing efforts.
Support services include cloud service reliability management, online support community management, self-service knowledge, proactive problem prevention through information and knowledge sharing, problem tracking, prioritization, escalation, diagnosis, and resolution. 6 • Pega Academy – Pega Academy offers enablement content for all Pega product implementations to ensure the success of our Clients and Partners.
Support services include cloud service reliability management, online support community management, self-service knowledge, proactive problem prevention through information and knowledge sharing, problem tracking, prioritization, escalation, diagnosis, and resolution. • Pega Academy – Pega Academy offers enablement content for all Pega product implementations to ensure the success of our Clients and Partners.
We also use third-party contractors to assist us in providing these services. • Global Client Success – Global Client Success guides our clients to maximize their investment in our technology and realize the business outcomes they are targeting.
We also use third-party contractors to assist us in providing these services. 6 • Global Client Success – Global Client Success guides our clients to maximize their investment in our technology and realize the business outcomes they are targeting.
This combination provides our platform and applications the differentiated ability to automate customer-facing and back-office operational processes from “end to end,” connecting across organizational and system silos to connect customers and employees to outcomes seamlessly and easily.
This combination provides our platform and applications the differentiated ability to automate customer-facing and back-office operational processes from “end to end,” connecting across organizational and system silos to connect customers and employees to outcomes seamlessly and efficiently.
To grow our business, we intend to: • Increase market share by developing and delivering a low-code platform for workflow automation and AI-powered decisioning for buyers in marketing, sales, service, operations, and IT that can work together seamlessly with maximum competitive differentiation; • Deepen and expand our relationships with existing clients; • Establish relationships with new clients; and • Continue to scale our marketing efforts to support how today’s buyers discover, evaluate, and choose products and services.
To grow our business, we intend to: • Increase market share by developing and delivering a platform for enterprise AI decisioning and workflow automation for buyers in marketing, sales, service, operations, and IT that can work together seamlessly with maximum competitive differentiation; • Deepen and expand our relationships with existing clients; • Establish relationships with new clients; and • Continue to scale our marketing efforts to support how today’s buyers discover, evaluate, and choose products and services.
It incorporates artificial intelligence (“AI”) in the form of predictive and machine-learning analytics and business rules and executes these decisions in real-time to evaluate the context of each customer interaction and dynamically deliver the most relevant action, offer, content, and channel. Customer Service The Pega Customer Service™ application simplifies customer service.
It incorporates AI in the form of predictive and machine-learning analytics and business rules and executes these decisions in real-time to evaluate the context of each customer interaction and dynamically deliver the most relevant action, offer, content, and channel. Customer Service The Pega Customer Service™ application simplifies customer service.
Our powerful, low-code platform for workflow automation and artificial intelligence-powered decisioning enables the world’s leading brands and government agencies to hyper-personalize customer experiences, streamline customer service, and automate mission-critical business processes and workflows. With Pega, our clients can leverage our artificial intelligence (“AI”) technology and scalable architecture to accelerate their digital transformation.
Our powerful platform for enterprise artificial intelligence (“AI”) decisioning and workflow automation enables the world’s leading brands and government agencies to hyper-personalize customer experiences, automate customer service, and streamline operations, mission-critical business processes, and workflows. With Pega, our clients can leverage our AI technology and scalable architecture to accelerate their digital transformation.
Intelligent Automation Pega Platform, our software for Intelligent Automation, boosts the efficiency of our clients’ processes and workflows. This technology allows organizations to take an end-to-end approach to transformation by using intelligence and design thinking to streamline processes and create better customer and employee experiences.
Workflow Automation Pega Platform™, our software for AI-powered workflow automation, boosts the efficiency of our clients’ processes and operational workflows. This technology allows organizations to take an end-to-end approach to transformation by using intelligence and design thinking to streamline processes and create better customer and employee experiences.
We compete in the CRM, including marketing, sales, and customer service, and DPA, including BPM, case management, decision management, robotic automation, co-browsing, social engagement, low-code application development, and mobile application development platform software markets, as well as in markets for the vertical applications we provide (e.g., Pega Know Your Customer TM for Financial Services, Pega Care Management™).
We compete in the CRM, including marketing, sales, and customer service, and DPA, including BPM, case management, decision management, robotic automation, low-code application development, and mobile application development platform software markets, as well as in markets for the vertical applications we provide (e.g., Pega Know Your Customer TM for Financial Services, Pega Smart Dispute™).
We also purchase or license technology that we incorporate into our products and services. Sales and Marketing We encourage our direct sales force and outside partners to co-market, pursue joint sales initiatives, and drive broader adoption of our technology, helping us grow our business more efficiently and focus our resources on continued innovation and enhancement of our solutions.
We also purchase or license third-party technology, including open-source software and large language models, that we incorporate into our products and services. 8 Sales and Marketing We encourage our direct sales force and outside partners to co-market, pursue joint sales initiatives, and drive broader adoption of our technology, helping us grow our business more efficiently and focus our resources on continued innovation and enhancement of our solutions.
Clients can also manage the Pega deployment themselves using the cloud architecture they prefer. This multi-cloud approach of both Pega Cloud and client-managed cloud gives our clients the ability to select and change, as needed, the best cloud architecture for the security, data access, speed-to-market, and budget requirements of each application they deploy.
This multi-cloud approach, which includes both Pega Cloud and client-managed cloud, gives our clients the ability to select and change, as needed, the best cloud architecture for the security, data access, speed-to-market, and budget requirements of each application they deploy.
Our platform enables clients to increase loyalty and wallet share, simplify experiences while accelerating revenues and processes, resolve service requests across channels more quickly with less effort, drive a faster, simpler repair experience, and boost the efficiency of 5G, fiber, and cloud processes. • Insurance – Pega’s software for AI-powered decisioning and workflow automation is used by insurance companies for Customer Engagement, Sales, Distribution, Underwriting, Policy Holder Service, and Claims.
Our platform enables clients to increase loyalty and wallet share, simplify experiences while accelerating revenues and processes, resolve service requests across channels more quickly with less effort, drive a faster, simpler repair experience, and boost the efficiency of 5G, fiber, and cloud processes. • Healthcare – Pega’s software for AI-powered decisioning and workflow automation is used by healthcare organizations for Consumer Engagement, Onboarding and Enrollment, Customer Service, Care Management Services, and Claims/Core Admin.
Our platform enables clients to improve member and patient outcomes, loyalty, and retention, simplify experiences with reduced time and effort, resolve service requests faster and easier across channels, advance efficient flexible healthcare coordination, and deliver streamlined, modern experiences for members, providers, and employees. • Communications and media – Pega’s software for AI-powered decisioning and workflow automation is used by communications and media organizations for Customer Engagement, Order Management, Customer Service, Service Assurance, Network Operations, and Shared Services.
Our platform enables clients to improve member and patient outcomes, loyalty, and retention, simplify experiences with reduced time and effort, resolve service requests faster and easier across channels, advance efficient flexible healthcare coordination, and deliver streamlined, modern experiences for members, providers, and employees. 7 • Insurance – Pega’s software for AI-powered decisioning and workflow automation is used by insurance companies for Customer Engagement, Sales, Distribution, Underwriting, Policyholder Service, and Claims.
Our Capabilities We drive better business outcomes for our clients in three ways: • 1:1 Customer Engagement : we enable clients to hyper-personalize interactions with their customers using our AI-powered decision engine, resulting in higher customer lifetime value. • Customer Service : we enable clients to streamline customer service and deliver better service experiences for their customers and employees, resulting in higher customer satisfaction and loyalty with reduced costs. • Intelligent Automation : we enable clients to automate mission-critical workflows, resulting in improved operational efficiency, faster time to value, and lower cost.
Our Capabilities We drive better business outcomes for our clients in three ways: • 1:1 Customer Engagement : we enable clients to hyper-personalize interactions with their customers using our AI-powered decision engine, resulting in higher customer lifetime value. • Customer Service : we enable clients to streamline customer service and deliver better service experiences for their customers and employees, resulting in higher customer satisfaction and loyalty with reduced costs. • Workflow Automation : we enable clients to automate mission-critical workflows, resulting in improved operational efficiency, faster time to value, and lower cost. 5 We deliver our solution through our Center-out Business® Architecture™, enabling clients to transcend channels and internal data silos to achieve quick wins and long-term transformation.
Our platform enables clients to modernize legacy systems and processes to meet the growing demands for improved constituent service, lower costs, reduced fraud, and greater transparency. • Healthcare – Pega’s software for AI-powered decisioning and workflow automation is used by healthcare organizations for Consumer Engagement, Onboarding and Enrollment, Customer Service, Care Management Services and Claims/Core Admin.
Our platform enables clients to modernize legacy systems and processes to meet the growing demands for improved constituent service, lower costs, reduced fraud, and greater transparency. • Communications and media – Pega’s software for AI-powered decisioning and workflow automation is used by communications and media organizations for Customer Engagement, Order Management, Customer Service, Service Assurance, Network Operations, and Shared Services.
Along with our partners, we deliver solutions tailored to the specific industry needs of our clients. Our clients represent many industries, including: • Financial services – Pega’s software for AI-powered decisioning and workflow automation is used by financial services organizations for Customer Engagement, Onboarding and KYC, Lending, Customer Service, Payment Exceptions, Bank Operations, and Managing Financial Crime.
Our clients represent many industries, including: • Financial services – Pega’s software for AI-powered decisioning and workflow automation is used by financial services organizations for Customer Engagement, Onboarding and KYC, Lending, Customer Service, Payment Exceptions, Bank Operations, and Managing Financial Crime.
For example, Pega Customer Decision Hub, a centralized, always-on “customer brain,” unleashes the power of predictive analytics, machine learning, and real-time decisioning across our clients’ data, systems, and touchpoints — orchestrating engagement across customer interaction channels and optimizing processes for better efficiency. 5 End-to-end workflow automation aligned with business outcomes We combine human-assisted robotic desktop automation and unattended robotic process automation with our unified workflow automation and case management capabilities.
For example, Pega Customer Decision Hub, a centralized, always-on “customer brain,” unleashes the power of predictive analytics, machine learning, and real-time decisioning across our clients’ data, systems, and touchpoints — orchestrating engagement across customer interaction channels and optimizing processes for better efficiency.
Our sales and marketing efforts are premised on the strength of our products, both as they exist currently and as they will continue to develop in the future through our research and development efforts. 8 Research and Development Our research and development organization is responsible for product architecture, core technology development, product testing, and quality assurance.
Our sales and marketing efforts are premised on the strength of our products, and the success of our clients, both as our products exist currently and as our products will continue to develop in the future through our research and development efforts.
Our platform enables clients to reduce the complexity of enterprise operations in domains like supply chain, order management, quality management, shared services, customer service, and aftermarket services, including warranty management and captive finance, while minimizing the constraints on digital transformation caused by legacy systems.
Our platform enables clients to reduce the complexity of enterprise operations in domains like supply chain, order management, quality management, shared services, customer service, and aftermarket services, including warranty management and captive finance, while minimizing the constraints on digital transformation caused by legacy systems. • Consumer services – Pega’s software for AI-powered decisioning and workflow automation is used by consumer services organizations for Customer Engagement, Supplier Onboarding, Customer Service, and Enterprise Operations in industries such as transportation, utilities, internet providers, retail, hospitality, and entertainment.
Our Partners We collaborate with global systems integrators and technology consulting firms that provide consulting services to our clients, as well as Independent Software Vendors (“ISVs”) and technology partners that extend clients’ investments with integrated solutions . In addition, Authorized Training Partners (“ATPs”) support Pega customers in local languages, while our Workforce Development Partners let clients outsource their recruiting .
Our Partners We collaborate with global systems integrators and technology consulting firms that provide consulting services to our clients, as well as Independent Software Vendors (“ISVs”), cloud hyperscalers, and technology partners that extend clients’ investments with integrated solutions .
Changes to the code are made by altering the model, and application documentation is generated directly from the model. Cloud choice Pega Cloud ® allows clients to develop, test, and deploy, on an accelerated basis, our applications and the Pega Platform using a secure, flexible internet-based infrastructure, minimizing cost while focusing on core revenue-generating competencies.
Pega Cloud Pega Cloud ® allows clients to develop, test, and deploy, on an accelerated basis, our applications and the Pega Platform using a secure, flexible internet-based infrastructure, minimizing cost while focusing on core revenue-generating competencies. Some clients will choose to manage the Pega deployment themselves using the cloud architecture they prefer.
ITEM 1. BUSINESS Our Business We develop, market, license, host, and support enterprise software that helps organizations build agility into their business so they can adapt to change.
ITEM 1. BUSINESS Our Business We develop, market, license, host, and support enterprise software that helps organizations optimize decisions and processes in real-time so they can deliver outcomes that transform their business.
Intelligent automation goes beyond traditional Business Process Management (BPM) to unify technologies such as Robotic Process Automation (“RPA”) and AI and enable organization-wide digital transformation. With its Intelligent Automation capabilities, the Pega Platform allows clients to break down silos, improve customer-centricity, add agility to legacy technology, and provide end-to-end automation to support the needs of customers and employees.
With its workflow automation capabilities, the Pega Platform allows clients to break down silos, improve customer-centricity, add agility to legacy technology, and provide end-to-end automation to support the needs of customers and employees.
Our platform enables clients to nurture and grow their book of business, increase agent sales effectiveness, power better partner performance and loyalty, automate application intake and processing with intelligence, personalize seamless policy lifecycle experiences, and improve claims handling efficiencies with more modern customer and employee experiences. • Consumer services – Pega’s software for AI-powered decisioning and workflow automation is used by consumer services organizations for Customer Engagement, Supplier Onboarding, Customer Service, and Enterprise Operations in industries such as transportation, utilities, internet providers, retail, hospitality, and entertainment.
Our platform enables clients to nurture and grow their book of business, increase agent sales effectiveness, power better partner performance and loyalty, automate application intake and processing with intelligence, personalize seamless policy lifecycle experiences, and improve claims handling efficiencies with more modern customer and employee experiences. • Manufacturing and high tech – Pega’s software for AI-powered decisioning and workflow automation is used by manufacturers to streamline their complex global operations and create more value for their customers, dealers, distributors, and suppliers while directly managing the performance, uptime, and impact of their connected products, equipment, and experiences.
Strategic partnerships with these firms are important to our sales efforts because they influence buying decisions, identify sales opportunities, and complement our software with their domain expertise, solutions, and service capabilities. These partners may deliver strategic business planning, consulting, project management, training, and implementation services to our clients.
In addition, Authorized Training Partners (“ATPs”) support Pega customers in local languages, while our Workforce Development Partners let clients outsource their recruiting . Strategic partnerships with these firms are important to our sales efforts because they influence buying decisions, identify sales opportunities, and complement our software with their domain expertise, solutions, and service capabilities.
Our platform enables clients to enable more personalized real-time next best action, accelerate onboarding with simplified experiences, automate the resolution of customer requests across channels with increased digital self-servicing, and streamline operations to rapidly reduce cost, time, and risks while increasing customer satisfaction. 7 • Manufacturing and high tech – Pega’s software for AI-powered decisioning and workflow automation is used by manufacturers to streamline their complex global operations and create more value for their customers, dealers, distributors, and suppliers while directly managing the performance, uptime, and impact of their connected products, equipment, and experiences.
Our platform enables clients to enable more personalized real-time next best action, accelerate onboarding with simplified experiences, automate the resolution of customer requests across channels with increased digital self-servicing, and streamline operations to rapidly reduce cost, time, and risks while increasing customer satisfaction.
The key aspects of this architecture are: Centrally-managed AI-powered decisioning Pega’s centrally-managed AI-powered decisioning ensures AI and business rules operate across all channels. Applications built on Pega’s low-code Platform leverage predictive and adaptive analytics to deliver personalized customer experiences and maximize business objectives.
Applications built on Pega’s low-code Platform leverage predictive and adaptive analytics to deliver personalized customer experiences and maximize business objectives.
Backlog As of December 31, 2023, we expected to recognize $1.5 billion in revenue from backlog on existing contracts in future periods. For additional information, see "Remaining Performance Obligations ("Backlog")" in Item 7 of this Annual Report.
Our goal with all products is to enhance product capabilities, implementation ease, long-term flexibility, and improve client service. Backlog As of December 31, 2024, we expected to recognize $1.6 billion in revenue from backlog on existing contracts in future periods. For additional information, see "Note 15. Revenue" in Item 8 of this Annual Report.
We also intend to maintain and extend the support for popular public and private cloud platforms, and integration options to facilitate easy and rapid deployment in diverse IT infrastructures. Our goal with all products is to enhance product capabilities, implementation ease, long-term flexibility, and improve client service.
We intend to maintain and extend the support of our existing applications, and we may choose to invest in additional strategic applications that incorporate the latest business innovations. We also intend to maintain and extend the support for popular public and private cloud platforms, and integration options to facilitate easy and rapid deployment in diverse IT infrastructures.
In addition, our client success teams, world-class partners, and clients leverage our Pega Express™ methodology to design and deploy mission-critical applications quickly and collaboratively.
In addition, our sales and client success teams, world-class partners, and clients are able to leverage Pega GenAI Blueprint TM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively.
Our Markets Target Clients Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve. Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk.
Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored by industry.
Our People As of January 31, 2024, we had 5,406 employees, of which 1,998 were based in the Americas, 1,224 were based in Europe, 1,873 were based in India, and 311 were based elsewhere in Asia-Pacific. Our people are critical to our success.
People and Culture As of January 31, 2025, we had 5,443 employees: 1,995 in the Americas, 1,223 in Europe, 1,904 in India, and 321 across Asia-Pacific. Our people are the foundation of our success. We foster an environment where employees feel valued, supported, and empowered to do their best work.
Our product development priority is to continue expanding our technology’s capabilities and ensure we deliver superior cloud-native solutions. We intend to maintain and extend the support of our existing applications, and we may choose to invest in additional strategic applications that incorporate the latest business innovations.
Research and Development Our research and development organization is responsible for product architecture, core technology development, product testing, and quality assurance. Our product development priority is to continue expanding our technology’s capabilities and ensure we deliver superior cloud-native solutions.
We deliver our solution through our Center-out Business™ Architecture, enabling clients to transcend channels and internal data silos to achieve quick wins and long-term transformation. This approach insulates business logic from back-end and front-end complexity, delivering consistent customer experiences and agility to the business.
This approach insulates business logic from back-end and front-end complexity, delivering consistent customer experiences and agility to the business. The key aspects of this architecture are: Centrally-managed AI-powered decisioning Pega’s centrally-managed AI-powered decisioning ensures AI and business rules operate across all channels.
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Pega Express™ Methodology and low code Our solutions are designed to quickly improve targeted customer outcomes with out-of-the-box functionality that connects enterprise data and systems to customer experience channels. From there, organizations can scale one customer experience at a time to realize greater value while delivering increasingly consistent and personalized customer experiences.
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Our Products Pega Infinity 4 Pega Infinity™, the latest version of our software portfolio, helps build agility into our clients’ organizations so they can work smarter, unify experiences, and adapt to meet changing requirements.
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We prescribe a “Microjourney” approach to delivery that breaks customer journeys into discrete processes that drive meaningful outcomes, such as “inquiring about a bill” or “updating an insurance policy,” allowing us to combine design-thinking and out-of-the-box functionality to deliver rapid results and ensure the ability to enhance applications in the future.
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With Blueprint, clients can leverage the power of AI to design best practice processes for any industry domain in minutes. Pega’s automation goes beyond traditional Business Process Management (“BPM”) to unify technologies such as Robotic Process Automation (“RPA”) and AI and enable organization-wide digital transformation.
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Our approach leverages low-code to improve business and IT collaboration and bypass the error-prone and time-consuming process of manually translating requirements into code. Users design software in low-code visual models that reflect the needs of the business. The software application is created and optimized automatically and directly from the model, helping to close the costly gap between vision and execution.
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End-to-end workflow automation aligned with business outcomes We combine human-assisted robotic desktop automation and unattended robotic process automation with our unified workflow automation and case management capabilities.
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Our partners include well-respected major firms, such as Accenture PLC, Amazon.com, Inc., Areteans, Capgemini SA, Coforge, Cognizant Technology Solutions Corporation, EY, Google, HCL Infosys, Merkle, PwC, Tata Consultancy Services Limited, Tech Mahindra Limited, Virtusa Corporation, and Wipro Limited.
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Rapid, AI-enabled transformation Pega's approach to digital transformation projects brings business, IT, and AI together to accelerate collaboration, development, and time-to-value. We and our customers are able to begin projects in Blueprint, which leverages generative AI to analyze business requirements and legacy documentation to generate a starting point template aligned with clients' strategic business outcomes.
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We strive to be a place where people build their career in an inclusive, equitable, and diverse culture. We believe cultivating our talent is at the heart of engaging, motivating, and retaining our workforce to support our clients, partners, and business.
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From there, Blueprint streamlines business and IT collaboration, providing guidance to teams through the end-to-end requirements gathering process – either through virtual collaboration or in a workshop setting. Through use of Blueprint, our clients are able to generate a starting point application that gives developers a head start on deep configuration and integration.
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We evolve our corporate culture through various initiatives, including global equity, inclusion, and belonging initiatives, employee engagement, pay equity, and employee development. Diversity, Equity, Inclusion, and Belonging (“DEIB”) We celebrate, welcome, and foster diverse perspectives at Pega because we believe this will accelerate our ability to deliver innovative products and services to our clients.
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Through our low-code configuration and AI-powered assistance, developers in Pega are aided in quickly building out and adapting application functionality. We refer to this process as our Pega Express™ design and implementation.
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It is critical for us to create an environment where all individuals are respected, valued, and supported, have access to opportunities, and feel that they belong. Our commitment to DEIB includes inclusion and allyship programs, amongst other investments.
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Pega Express assists in the acceleration of application build out in alignment with client success criteria, emphasizing reusable components that ensure both immediate and long-term value creation, and uses an agile approach.
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We are continuously expanding our sponsorship of formal employee resource groups and are proud to share our support for the following communities: women, veterans, Black, LGBTQIA+, Asian, LatinX, and persons with disabilities. Employee Engagement, Health, and Well-Being Our efforts to retain and attract employees include providing competitive reward packages and encouraging active and transparent communication throughout the Company.
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These partners may deliver strategic business planning, consulting, project management, training, and implementation services to our clients. Our partners are recognized through our Pega partner program, helping those organizations differentiate themselves in the market place. They do so by achieving distinctions in industries or across specific solutions areas and geographies.
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We regularly seek feedback to better understand and improve our employee experience, and we are committed to fostering an environment where everyone feels connected at Pega. We share the responsibility to preserve, strengthen, and evolve our culture while continuously reviewing the way we do things to propel us forward together.
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Pega’s largest partners include Aaseya, Accenture, Areteans, Capgemini, Coforge, Cognizant Technology Solutions, Evonsys Inc, Ernst & Young, HCL Tech, Infosys, LTIMindtree, Tata Consultancy Services, and Virtusa. Our Markets Target Clients Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve.
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In addition to our employee engagement survey and continuous feedback tools, we host regular sessions led by the executive leadership team where any employee can ask questions. We are committed to fostering an environment that supports our employees’ health and overall well-being, with an emphasis on physical, emotional, financial, and personal wellness.
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Collaboration and fresh thinking drive how we work together, ensuring that our people can contribute meaningfully while growing in their careers. We believe that when all perspectives are considered, we make better decisions and create stronger outcomes. By actively listening to our employees, and refining our people strategies, we build a workplace of connection, engagement, and performance.
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PegaUp!, our employee wellness program, includes awareness campaigns, fitness classes, guided meditation, and health and wellness offerings. In 2022, we also implemented global Wellness Days, where we encourage our people to take a break to recharge. Pay Equity We compensate our employees for what they do and how they do it, regardless of their gender, race, or other characteristics.
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Learning and Development Engaging with different perspectives strengthens learning, sharpens thinking, and enhances problem-solving across teams. We are committed to providing our people with meaningful opportunities to learn, develop skills and grow their careers. Our people are encouraged to take ownership of their professional growth, leveraging mentorship, on-demand learning, and structured development programs.
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To deliver on that commitment, we benchmark and set pay ranges based on market data and consider individual factors, such as an employee’s role and experience, location, and performance. We regularly review our compensation practices, in terms of our overall workforce and individual employees, to ensure our pay is fair and equitable against local markets.
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Total Rewards We offer a competitive and comprehensive total rewards package that drives performance, supports well-being, and emphasizes career growth. Our compensation philosophy is designed to recognize performance and align with Pega’s success, with a mix of base pay, short term cash incentives, and long-term incentives. Beyond compensation, we provide a market competitive benefits suite that promotes health and well-being.
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Talent Cultivation Talent Cultivation is at the foundation of our people strategy. It is an ongoing, dynamic process that encourages our employees to focus on performance and development goals, receive continuous feedback, and drive their future path for growth.
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We regularly assess and evolve our offerings to ensure they meet the needs of our workforce, recognizing that employees' priorities change over time. Talent Cultivation Talent Cultivation is the cornerstone of our people strategy. Our dynamic approach combines continuous feedback with development, enabling employees to thrive in an ever-evolving digital landscape.
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We invest in our employees’ career growth and progression by providing a wide range of opportunities, including formal and informal development, mentoring, sponsorship, and coaching. Pega Academy helps employees, clients, and partners gain and rapidly advance Pega software skills.
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We foster a culture of growth where every employee can navigate their career journey through our comprehensive learning and development, mentoring, and job shadowing offerings. Our approach to development prioritizes professional growth and personal well-being. Pega Academy helps accelerate skill development across our global community of employees, clients, and partners, focusing on emerging technologies and capabilities.
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A series of leadership and management development programs equip our managers with the skills and knowledge to successfully build a culture of engagement and high performance. Additionally, we provide educational resources and classes, career training, and education reimbursement programs. Corporate Information Pegasystems Inc. was incorporated in Massachusetts in 1983.
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Our leadership development programs are designed to cultivate leaders who drive high performance while fostering inclusive team environments. Our commitment to continuous learning is backed by education reimbursement programs and external partnerships, ensuring our workforce stays ahead of industry trends and technological advancements. Corporate Information Pegasystems Inc. was incorporated in Massachusetts in 1983.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

46 edited+20 added−37 removed136 unchanged
Biggest changeWe believe the principal competitive factors within our market include: • product adaptability, scalability, functionality, and performance; • proven success in delivering cost-savings and efficiency improvements; • proven success in enabling improved customer interactions; • ease-of-use for developers, business units, and end-users; • timely development and introduction of new products and product enhancements; • establishment of a significant base of reference clients; • ability to integrate with other products and technologies; • customer service and support; • product price; • vendor reputation; and • relationships with systems integrators. 13 Competition for market share and pressure to reduce prices and make sales concessions is likely to increase.
Biggest changeCompetitors may also be able to devote greater managerial and financial resources to develop, promote, and distribute products and to provide related consulting and training services. 13 We believe the principal competitive factors within our market include: • product adaptability, scalability, functionality, and performance; • proven success in delivering cost-savings and efficiency improvements; • proven success in enabling improved customer interactions; • ease-of-use for developers, business units, and end-users; • timely development and introduction of new products and product enhancements; • establishment of a significant base of reference clients; • effective and efficient integration of AI into products; • ability to integrate with other products and technologies; • customer service and support; • product price; • vendor reputation; and • relationships with systems integrators.
We encounter significant competition from: • customer engagement vendors, including Customer Relationship Management application vendors; • Digital Process Automation vendors and platforms, including Business Process Management vendors, low-code application development platforms, and service-oriented architecture middleware vendors; • case management vendors; • decision management, data science, and Artificial Intelligence vendors, as well as vendors of solutions that leverage decision making and data science in managing customer relationships and marketing; • robotic automation and workforce intelligence software providers; • companies that provide application-specific software for financial services, healthcare, insurance, and other specific markets; • mobile application platform vendors; • co-browsing software providers; • social listening, text analytics, and natural language processing vendors; • commercialized open-source vendors; • professional services organizations that develop their own products or create custom software in conjunction with rendering consulting services; and • clients’ in-house information technology departments, which may seek to modify their existing systems or develop their own proprietary systems.
We encounter significant competition from: • customer engagement vendors, including Customer Relationship Management application vendors; • Digital Process Automation vendors and platforms, including Business Process Management vendors, low-code application development platforms, and service-oriented architecture middleware vendors; • case management vendors; • decision management, data science, and AI vendors, as well as vendors of solutions that leverage decision making and data science in managing customer relationships and marketing; • robotic automation and workforce intelligence software providers; • companies that provide application-specific software for financial services, healthcare, insurance, and other specific markets; • mobile application platform vendors; • co-browsing software providers; • social listening, text analytics, and natural language processing vendors; • commercialized open-source vendors; • professional services organizations that develop their own products or create custom software in conjunction with rendering consulting services; and • clients’ in-house information technology departments, which may seek to modify their existing systems or develop their own proprietary systems.
There can be no assurance that one or more of these factors will not have a material adverse effect on our international operations and, consequently, on our business, operating results, and financial condition. Our consulting revenue is significantly dependent upon our consulting personnel implementing new license and Pega Cloud arrangements.
There can be no assurance that one or more of these factors will not have a material adverse effect on our international operations and, consequently, on our business, operating results, and financial condition. 12 Our consulting revenue is significantly dependent upon our consulting personnel implementing new license and Pega Cloud arrangements.
Further discussion of these risks is contained below under the heading “Risks Related to Our Financial Obligations and Indebtedness.” Risks Related to Information Technology Resilience and Security We face risks related to outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure.
Further discussion of these risks is contained below under the heading “Risks Related to Our Financial Obligations and Indebtedness.” 14 Risks Related to Information Technology Resilience and Security We face risks related to outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure.
Conversely, if we are unable to achieve an appropriate balance of sales and marketing personnel to meet future demand or research and development personnel to enhance our current products or develop new products, we may not be able to achieve our sales and profitability targets . 11 We rely on third-party relationships.
Conversely, if we are unable to achieve an appropriate balance of sales and marketing personnel to meet future demand or research and development personnel to enhance our current products or develop new products, we may not be able to achieve our sales and profitability targets . We rely on third-party relationships.
We may not obtain follow-on sales, or the follow-on sales may be delayed, and our future revenue could be limited. 12 We will need to acquire or develop new products, evolve existing ones, address defects or errors, and adapt to technology changes.
We may not obtain follow-on sales, or the follow-on sales may be delayed, and our future revenue could be limited. We will need to acquire or develop new products, evolve existing ones, address defects or errors, and adapt to technology changes.
We market our products and services to clients based outside of the U.S., representing 43% of our revenue over the last three years. We have established offices in the Americas, Europe, Asia, and Australia. We anticipate hiring personnel to accommodate increased international demand, and we may also enter into agreements with local distributors, representatives, or resellers.
We market our products and services to clients based outside of the U.S., representing 44% of our revenue over the last three years. We have established offices in the Americas, Europe, Asia, and Australia. We anticipate hiring personnel to accommodate increased international demand, and we may also enter into agreements with local distributors, representatives, or resellers.
All these factors could materially impact our operating results, financial condition, and cash flows. 21 The market price of our common stock has been and is likely to continue to be volatile . The market price of our common stock may be highly volatile and fluctuate due to a variety of factors, some of which are related in complex ways.
All these factors could materially impact our operating results, financial condition, and cash flows. 20 The market price of our common stock has been and is likely to continue to be volatile . The market price of our common stock may be highly volatile and fluctuate due to a variety of factors, some of which are related in complex ways.
Commitments And Contingencies" in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report. On September 15, 2022, the circuit court of Fairfax County entered judgment for Appian in the amount of $2,060,479,287 and awarding post-judgment interest.
Commitments And Contingencies" in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report. On September 15, 2022, the circuit court of Fairfax County entered judgment for Appian in the amount of $2,060,479,287 with post-judgment interest.
Similar laws and regulations exist in many other countries where we do or intend to do business. 19 Within recent years, there has been an increase in the scope and enforcement of data privacy laws in the jurisdictions in which we do business.
Similar laws and regulations exist in many other countries where we do or intend to do business. 18 Within recent years, there has been an increase in the scope and enforcement of data privacy laws in the jurisdictions in which we do business.
Foreign Corrupt Practices Act, the U.K. Bribery Act, data privacy and security laws, and similar laws and regulations. The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar foreign anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to obtain or retain business.
Foreign Corrupt Practices Act, the U.K. Bribery Act, data privacy, information security, resiliency, and AI laws, and similar laws and regulations. The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar foreign anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to obtain or retain business.
In addition, we have a standing Security Steering Group, whose members include our Chief Information Security Officer, Chief Product Officer and Chief Technical Systems Officer, and which is charged with providing strategic direction for the implementation and ongoing operation of our cyber security program.
In addition, we have a standing Security Steering Group, whose members include our Chief Information Security Officer, Chief Product Officer, and Vice President of Cloud Technology, and which is charged with providing strategic direction for the implementation and ongoing operation of our cyber security program.
Although we have not experienced any material product liability claims to date, a product liability suit or action claiming a breach of warranty, whether meritorious, could result in substantial costs and a diversion of management’s attention and our resources.
Although we have not experienced any material product liability claims to date, a product liability suit or action claiming a breach of warranty, whether meritorious, could result in substantial costs and a diversion of management’s attention and our resources. We may require additional capital in the future.
Our Chief Executive Officer is our largest stockholder and can exert significant influence over matters submitted to our stockholders, which could materially adversely affect our other stockholders. As of December 31, 2023, our Chief Executive Officer beneficially owned approximately 47 percent of our outstanding common stock.
Business" of this Annual Report. Our Chief Executive Officer is our largest stockholder and can exert significant influence over matters submitted to our stockholders, which could materially adversely affect our other stockholders. As of December 31, 2024, our Chief Executive Officer beneficially owned approximately 46 percent of our outstanding common stock.
We believe that we have the financial strength to pay these amounts if it ever becomes necessary, but it is possible that we may not be able to engage in financing activities on desirable terms, which could have a material adverse effect on our business, financial condition, and operating results.
While we believe we have the financial strength to pay the judgment and accrued interest thereon if it ever became necessary, it is possible that we may not be able to engage in financing activities on desirable terms, which could have a material adverse effect on our business, financial condition, and operating results.
We may not achieve the key elements of our strategy and grow our business as anticipated. We currently intend to grow our business by pursuing strategic initiatives consistent with becoming a Rule of 40 company, meaning a company with combined Annual Contract Value (“ACV”) growth rate and free cash flow margin of at least 40%.
We currently intend to grow our business by pursuing strategic initiatives consistent with becoming a Rule of 40 company, meaning a company with combined Annual Contract Value (“ACV”) growth rate and free cash flow margin of at least 40%.
We do not carry, nor do we currently intend to obtain, significant key-person life insurance on officers or other employees. Our success will depend on attracting and retaining qualified personnel and rapidly replacing and developing new management, as needed.
The loss of key personnel could be disruptive to our operations and materially adversely affect our financial performance. We do not carry, nor do we currently intend to obtain, significant key-person life insurance on officers or other employees. Our success will depend on attracting and retaining qualified personnel and rapidly replacing and developing new management, as needed.
If we raise funds through future issuance of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock.
However, it is possible that we may require additional capital in the future to finance our operations. If we raise funds through future issuance of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock.
Individual hackers, groups of hackers, and sophisticated organizations, including state-sponsored organizations, or nation-states themselves, may take steps that threaten our clients, suppliers, third-party technology providers, and us. 14 Although we are not aware of having experienced any prior material data breaches, regulatory non-compliance incidents or cyber security incidents, we may in the future be impacted by such an event, exposing our clients and us to a risk of someone obtaining access to our information, to information of our clients or their customers, or to our intellectual property, disabling or degrading service, or sabotaging systems or information.
Although we are not aware of having experienced any prior material data breaches, regulatory non-compliance incidents or cyber security incidents, we may in the future be impacted by such an event, exposing our clients and us to a risk of someone obtaining access to our information, to information of our clients or their customers, or to our intellectual property, disabling or degrading service, or sabotaging systems or information.
There can be no assurance that we will be able to compete successfully against current or future competitors or that the competitive pressures we face will not materially adversely affect our business, operating results, and financial condition. For additional information, see "Item 1. Business" of this Annual Report.
Competition for market share and pressure to reduce prices and make sales concessions is likely to increase. There can be no assurance that we will be able to compete successfully against current or future competitors or that the competitive pressures we face will not materially adversely affect our business, operating results, and financial condition. For additional information, see "Item 1.
Any such security breach could result in a loss of confidence in the security of our services, damage our reputation, disrupt our business, require us to incur significant costs of investigation, remediation and/or payment of a ransom, lead to legal liability, negatively impact our future sales, and result in a substantial financial loss.
Any such security breach could result in a loss of confidence in the security of our services, damage our reputation, disrupt our business, require us to incur significant costs of investigation, remediation and/or payment of a ransom, lead to legal liability, negatively impact our future sales, and result in a substantial financial loss. 15 We rely on third-party hosting providers to deliver our offerings, and any disruption or interference with our use of these services could adversely affect our business.
We rely on third-party hosting providers to deliver our offerings, and any disruption or interference with our use of these services could adversely affect our business. Our use of third-party hosting facilities requires us to rely on the functionality and availability of the third-party services and their data security, which, despite our due diligence, may be or become inadequate.
Our use of third-party hosting facilities requires us to rely on the functionality and availability of the third-party services and their data security, which, despite our due diligence, may be or become inadequate.
Investments we are making to continue to grow license and Pega Cloud arrangements may result in decreased profitability or losses and reduced or negative cash flow if we do not continue to increase the value of our license and Pega Cloud arrangements to balance our growth in expenses.
If our retention rate for those clients decreases, our business, operating results, and financial condition could be materially affected. 11 Investments we are making to continue to grow license and Pega Cloud arrangements may result in decreased profitability or losses and reduced or negative cash flow if we do not continue to increase the value of our license and Pega Cloud arrangements to balance our growth in expenses.
Any of the above circumstances or events may harm our reputation and brand, reduce our platforms’ availability or usage, and impair our ability to attract new users, which could adversely affect our business, financial condition, and results of operations. 15 We may experience significant errors or security flaws in our products and services and could face privacy, product liability, and warranty claims.
Any of the above circumstances or events may harm our reputation and brand, reduce our platforms’ availability or usage, and impair our ability to attract new users, which could adversely affect our business, financial condition, and results of operations.
Third parties have claimed and may claim in the future that we have misappropriated, misused, or infringed other parties' intellectual property rights, and, to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property claims. 18 Any litigation regarding intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations.
To the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property claims. 17 Any litigation regarding intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations.
As of December 31, 2023, $159.9 million of our cash and cash equivalents were held in our foreign subsidiaries. If it becomes necessary or desirable to repatriate foreign funds, we may have to pay federal, state, and local income taxes as well as foreign withholding taxes upon repatriation. We consider the earnings of our foreign subsidiaries to be permanently reinvested.
If it becomes necessary or desirable to repatriate foreign funds, we may have to pay federal, state, and local income taxes as well as foreign withholding taxes upon repatriation. We consider the earnings of our foreign subsidiaries to be permanently reinvested. As a result, domestic and foreign taxes on such earnings have not been provided in our financial statements.
General Risk Factors The provision in our amended and restated bylaws, requiring exclusive forum in certain courts in The Commonwealth of Massachusetts or the federal district court for the District of Massachusetts for certain types of lawsuits, may discourage lawsuits against us and our directors, officers, and employees.
It is not practical to estimate the amount of tax we would have to pay upon repatriation due to the complexity of the tax laws and other factors. 19 General Risk Factors The provision in our amended and restated bylaws, requiring exclusive forum in certain courts in The Commonwealth of Massachusetts or the federal district court for the District of Massachusetts for certain types of lawsuits, may discourage lawsuits against us and our directors, officers, and employees.
Our cloud-based subscription model also requires that we rely on third parties to host our software for our clients. We incur significant recurring third-party hosting expenses to deliver our Pega Cloud offering that we do not incur for our perpetual and term license products.
Other than in instances where clients manage Pega deployment themselves, our cloud-based subscription model also requires that we rely on third parties to host our software for our clients and incur significant recurring third-party hosting expenses.
Any future debt financing could involve restrictive covenants relating to our capital raising activities and other financial and operations matters, which may increase the risks related to our business and our ability to service and repay our indebtedness. 16 The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.
Any future debt financing could involve restrictive covenants relating to our capital raising activities and other financial and operations matters, which may increase the risks related to our business and our ability to service and repay our indebtedness. 16 We are required to comply with certain financial and operating covenants under our revolving credit facility.
Additionally, detecting and correcting any security flaws, including those introduced by our use of open-source, can be time-consuming and costly. Errors or security flaws in our software could result in the inadvertent disclosure of confidential information or personal data relating to our clients, employees, or third parties.
Errors or security flaws in our software could result in the inadvertent disclosure of confidential information or personal data relating to our clients, employees, or third parties.
Risks Related to Our Business and Industry If we fail to operate our subscription-based business model successfully, our results of operations and/or cash flows could be negatively impacted.
Risks Related to Our Business and Industry If we fail to operate our subscription-based business model successfully, our results of operations and/or cash flows could be negatively impacted. Our clients largely prefer subscription-based offerings, requiring us to have a scalable organization and make a considerable investment of technical, financial, legal, managerial, and sales resources.
If we are not able to execute these actions, our business may not grow as we anticipate, and our operating results and financial condition could be materially adversely affected. We depend on key personnel, including our Chief Executive Officer, and must attract and retain qualified personnel in the future.
If we are not able to execute these actions, our business may not grow as we anticipate, and our operating results and financial condition could be materially adversely affected. If we are not successful in executing our investments in AI, including generative AI, our business, financial condition, and results of operations may be harmed.
The European Parliament adopted the General Data Protection Regulation (“GDPR”), effective May 2018, that extended the scope of European privacy laws to any entity that controls or processes personal data of European Union residents in connection with the offer of goods or services or the monitoring of behavior and imposes new compliance obligations concerning the handling of personal data.
The EU and UK General Data Protection Regulations extend the scope of their protection to any entity that does business in those jurisdictions and controls or processes personal data of EU or UK residents in connection with the offer of goods or services or the monitoring of behavior in those jurisdictions and imposes many compliance obligations concerning the handling of personal data.
Our business is dependent on key, highly skilled technical, managerial, consulting, sales, and marketing personnel, including our Chief Executive Officer, who is also our founder and largest stockholder. The loss of key personnel could be disruptive to our operations and materially adversely affect our financial performance.
We depend on key personnel, including our Chief Executive Officer, and must attract and retain qualified personnel in the future. 10 Our business is dependent on key, highly skilled technical, managerial, consulting, sales, and marketing personnel, including our Chief Executive Officer, who is also our founder and largest stockholder.
Compliance with these varying regimes has caused and will cause us to incur additional costs, including as may result from any non-compliance or asserted non-compliance. We have developed and implemented a compliance program based on what we believe are reasonable practices, including the background checking of our current partners and prospective clients and partners.
Compliance with these varying regimes has caused and will cause us to incur additional costs, and may challenge our business and the expansion of that business, including as may result from any non-compliance or asserted non-compliance.
In 2023, Europe finalized the first-ever comprehensive legal framework for governance of the use of artificial intelligence, the European Union Artificial Intelligence Act, with an anticipated effective date in 2026, and is moving forward with finalizing applicable regulations.
Some US state data privacy laws, including the CCPA, also provide consumers with additional causes of action. In 2023, Europe finalized the first-ever comprehensive legal framework for governance of the development and use of AI, the European Union Artificial Intelligence Act, with rolling effective dates beginning in 2025, and is moving forward with finalizing applicable regulations.
The California Consumer Privacy Act (“CCPA”), effective January 2020, requires, among other things, covered companies to provide new disclosure to consumers about such companies’ data collection, use and sharing practices, provide such consumers new ways to opt-out of certain sales or transfers of personal information, and provide consumers with additional causes of action.
The California Consumer Privacy Act (as amended by the California Privacy Rights Acts, the “CCPA”) and other similar laws in a number of US states require, among other things, covered companies to provide disclosure to consumers about such companies’ data collection, use and sharing practices, provide such consumers ways to make requests about their personal information, including requests to delete their personal information, to know what information a company has about the consumer, and to opt-out of certain sales, transfers, or sharing of personal information.
If we fail to maintain and enhance our corporate culture within an environment of hybrid work, our ability to retain and recruit personnel essential to our success may be negatively affected. 10 The timing of our license and Pega Cloud revenue is difficult to predict, which may cause our operating results to vary considerably.
In addition, we believe our corporate culture has been a key contributor to our success. If we fail to maintain and enhance our corporate culture within an environment of hybrid work, our ability to retain and recruit personnel essential to our success may be negatively affected.
In the United States, this may include any changes to the currently enacted law regarding mandatory capitalization of research and experimentation expenses, effective for tax years beginning after December 31, 2021. Considering fiscal challenges in many jurisdictions, various levels of government are increasingly focused on tax reform and other legislative actions to increase tax revenue, including corporate income taxes.
Considering fiscal challenges in many jurisdictions, various levels of government are increasingly focused on tax reform and other legislative actions to increase tax revenue, including corporate income taxes.
Despite quality testing each release, our software frequently contains errors or security flaws, especially when first introduced or when new versions are released. Errors in our software could affect its ability to work with hardware or other software or delay the development or release of new products or new versions of our software.
We may experience significant errors or security flaws in our products and services and could face privacy, product liability, and warranty claims. Despite quality testing each release, our software frequently contains errors or security flaws, especially when first introduced or when new versions are released.
Our clients have no obligation to renew their subscriptions, although historically, most have elected to do so. If our retention rate for those clients decreases, our business, operating results, and financial condition could be materially affected.
Our clients have no obligation to renew their subscriptions, although historically, most have elected to do so.
We cannot guarantee, however, that we, our employees, our consultants, our partners, or our contractors are or will be compliant with all federal, state, and foreign regulations, particularly as we expand our operations outside of the U.S.
We have developed and implemented a compliance program based on what we believe are reasonable practices, including the background checking of our current partners and prospective clients and partners. We cannot guarantee, however, that we, our employees, our consultants, our partners, our vendors, or our contractors are or will be compliant with all federal, state, and foreign regulations.
These expenses may cause the gross margin we realize from our Pega Cloud sales to be lower than the gross margin we realize from our perpetual and term license products. If we are unable to meet these challenges effectively, our operating results and financial condition could be materially adversely affected.
If we are unable to meet these challenges effectively, our operating results and financial condition could be materially adversely affected. We may not achieve the key elements of our strategy and grow our business as anticipated.
The Company is continuing to evaluate the potential impact of the Pillar Two Framework on future periods, pending legislative adoption by additional individual countries. 20 If it becomes necessary or desirable to repatriate our foreign cash balances to the United States, we may be subject to increased taxes, other restrictions, and limitations.
If it becomes necessary or desirable to repatriate our foreign cash balances to the United States, we may be subject to increased taxes, other restrictions, and limitations. As of December 31, 2024, $185.6 million of our cash and cash equivalents were held in our foreign subsidiaries.
Under certain circumstances, the noteholders may convert their Notes at their option prior to the scheduled maturity at the current conversion rate of 7.4045 shares of common stock per each $1,000 principal amount of Notes or an effective conversion price of $135.05 per share.
Concurrent with maturity of the Notes, the then outstanding Capped Call Transactions we entered into with certain financial institutions in connection with the Notes’ issuance will expire by their terms. While the Notes are currently convertible, the conversion rate is 7.4045 shares of common stock per each $1,000 principal amount of Notes, or an effective conversion price of $135.05.
Although it is not possible to predict timing, this appeals process could potentially take years to complete. We believe we have strong grounds to overturn the result in the trial court.
Although it is not possible to predict timing, the entirety of the appeals process could potentially take years to complete. We continue to believe we did not misappropriate any alleged trade secrets and that sales of our products at issue were not caused by, or the result of, any alleged misappropriation of trade secrets.
Removed
We have substantially completed our transition to a more subscription-based business model, in which clients have the right to access our software in a hosted environment or use downloaded software for a specified subscription period. The shift of our clients’ preference to subscription-based offerings requires a scalable organization and a considerable investment of technical, financial, legal, managerial, and sales resources.
Added
These expenses may cause the gross margin we realize from our Pega Cloud sales to be lower than the gross margin we realize from our perpetual and term license products or in instances where clients manage Pega deployment themselves, in which cases we do not incur similar recurring third-party hosting expenses.
Removed
In addition, we believe our corporate culture has been a key contributor to our success.
Added
We are investing significantly in AI, including through our development and deployment of our Pega Customer Decision Hub TM , Pega Customer Service TM , PegaPlatfom TM , and Pega GenAI Blueprint TM .
Removed
Competitors may also be able to devote greater managerial and financial resources to develop, promote, and distribute products and to provide related consulting and training services.
Added
This investment is occurring as the legal and regulatory landscape applicable to AI is uncertain and evolving rapidly, and at the same time as our competitors are also investing in AI.
Removed
On November 15, 2023, the Court of Appeals of Virginia heard oral arguments in the appeal. After the Court issues an opinion, the non-prevailing party or, depending on the ruling of the court, parties may file a petition for rehearing with the Court of Appeals of Virginia and/or file a petition for appeal with the Supreme Court of Virginia.
Added
There are significant risks in deploying AI, and there can be no assurance that using AI in our solutions will enhance or be beneficial to our business, including our profitability.
Removed
See below under the risk factor, “We may require additional capital in the future.” In addition, if we do not satisfy the judgment within 60 days following the expiration of the right to appeal, there may be an acceleration of liabilities under our Convertible Senior Notes due 2025 (the “Notes”) and our Credit Facility.
Added
The rapid evolution of AI will require the application of resources to develop, test, and maintain our products and services to help ensure that we implement AI in a manner that minimizes any unintended, harmful impact and that maximizes our ability to provide products and services to our customers.
Removed
Threats to IT security can take a variety of forms.
Added
Other companies may develop AI enabled products that are similar to ours or adopt and implement AI more successfully or at a quicker pace than we do. If we fail to develop products in a manner that satisfies customer preferences in a timely and cost-effective manner, we may fail to retain our existing customers or increase demand for our solutions.
Removed
Risks Related to Our Financial Obligations and Indebtedness We have significant debt which may limit our business flexibility, access to capital, and/or increase our borrowing costs, which may adversely affect our operations and financial results.
Added
In addition, complying with multiple regulations from different jurisdictions related to AI could increase our cost of doing business, may influence the way that we operate in certain jurisdictions, or may impede our ability to offer certain products and services in certain jurisdictions if we are unable to comply with applicable regulations.
Removed
As of December 31, 2023, we had $502.27 million in aggregate principal indebtedness under our Notes and have outstanding letters of credit under our credit facility, including a $25 million letter of credit obtained to secure the judgment in our litigation with Appian.
Added
The timing of our license and Pega Cloud revenue is difficult to predict, which may cause our operating results to vary considerably.
Removed
Our indebtedness may: • limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, or other general 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 less leveraged competitors; • dilute existing stockholders from the issuance of common stock if the Notes are converted; and • increase our vulnerability to the impact of adverse economic and industry conditions.
Added
A panel of the Court of Appeals of Virginia heard oral arguments on November 15, 2023, and issued a written opinion on July 30, 2024. The Court of Appeals reversed the judgment on Appian’s Virginia Uniform Trade Secrets Act claim and ordered a new trial on that claim.
Removed
Our ability to pay our debt when due or 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 sufficient cash flow from operations to service our debt and make necessary investments in our business.
Added
Appian filed a petition for appeal with the Supreme Court of Virginia on August 29, 2024, and we filed a response to the petition on October 21, 2024. Under the Court’s rules, Appian is entitled to a 10-minute oral argument in support of its petition. The Supreme Court of Virginia scheduled that argument for February 11, 2025.
Removed
Our ability to refinance our indebtedness will depend on the capital market conditions 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.
Added
We are unable to reasonably estimate possible damages because of, among other things, uncertainty as to the outcome of appellate proceedings and/or any potential new trial resulting from the appellate proceedings. We believe we have strong grounds to prevail in the appeal and a potential retrial.
Removed
In turn, this could result in that and our other indebtedness becoming immediately payable in full which could materially adversely affect our financial condition, results of operation or cost of borrowing. We may require additional capital in the future. We may require additional capital in the future to finance our operations.
Added
Threats to IT security can take a variety of forms. Individual hackers, groups of hackers, and sophisticated organizations, including state-sponsored organizations, or nation-states themselves, may take steps that threaten our clients, suppliers, third-party technology providers, and us.
Removed
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.
Added
Errors in our software could affect its ability to work with hardware or other software or delay the development or release of new products or new versions of our software. Additionally, detecting and correcting any security flaws, including those introduced by our use of open-source, can be time-consuming and costly.
Removed
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.
Added
As of December 31, 2024, we had $467.9 million in aggregate principal indebtedness under our convertible senior notes due March 1, 2025 (the “Notes”). We may repay the Notes at their March 1, 2025 maturity date using available cash balances.
Removed
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.
Added
Accordingly, we do not currently expect holders of Notes to elect to convert prior to the March 1, 2025 maturity date, but there can be no assurance that holders of Notes do not elect to convert all or a portion of their Notes.
Removed
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.
Added
If we repay the Notes at maturity with current cash balances, it will reduce our current cash balances.
Removed
In addition, our ability to make payments may be limited by law, regulatory authority, or agreements governing our future indebtedness. Our failure to repurchase Notes when the Indenture requires the repurchase or to pay any cash payable on the Notes’ future conversions as required by the Indenture would constitute a default under the Indenture.
Added
We believe our current cash, marketable securities, cash flow provided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur Chief Technical Systems Officer has been with Pega for six years and has twenty-five years of technology management experience, with thirteen years of leadership roles in cloud services and related information security issues, and served in the U.S.
Biggest changeOur Vice President of Cloud Technology has been with Pega for seven years and has twenty-five years of networking and security management experience, with seventeen years of leadership roles in cloud services and related information security issues.
There can be no guarantee that our policies, standards, processes, and practices will be properly followed in every instance or that they will be effective. 22 Although we are not aware of having experienced any prior material data breaches, regulatory non-compliance incidents, or cyber security incidents, we may in the future be impacted by such an event, exposing our clients and us to the risk of someone obtaining access to our information, to the information of our clients or their customers, or to our intellectual property, disabling or degrading service, or sabotaging systems or information.
There can be no guarantee that our policies, standards, processes, and practices will be properly followed in every instance or that they will be effective. 21 Although we are not aware of having experienced any prior material data breaches, regulatory non-compliance incidents, or cyber security incidents, we may in the future be impacted by such an event, exposing our clients and us to the risk of someone obtaining access to our information, to the information of our clients or their customers, or to our intellectual property, disabling or degrading service, or sabotaging systems or information.
For systems in our corporate environment on which our cloud certifications have an operational dependency, we also maintain ISO/IEC 27001 certifications relating to overall IT processes and controls and ISO 22301 certification relating to business continuity. 23 Product Security Posture To facilitate identification of security vulnerabilities in our products, we periodically conduct third party penetration tests and participate in the independent Verified By Veracode program, as detailed on its website (https://www.veracode.com/verified/directory/pegasystemsInc) which is included as an inactive reference and the content of which is not incorporated by reference into this Annual Report .
For systems in our corporate environment where our cloud certifications have an operational dependency, we also maintain ISO/IEC 27001 certifications relating to overall IT processes and controls and ISO 22301 certification relating to business continuity. 22 Product Security Posture To facilitate identification of security vulnerabilities in our products, we periodically conduct third party penetration tests and participate in the independent Verified By Veracode program, as detailed on its website (https://www.veracode.com/verified/directory/pegasystemsInc) which is included as an inactive reference and the content of which is not incorporated by reference into this Annual Report .
Any such security breach could result in a loss of confidence in the security of our services, damage our reputation, disrupt our business, require us to incur significant costs of investigation, remediation, and/or payment of a ransom, lead to legal liability, negatively impact our future sales, and result in a substantial financial loss. For additional information, see "Item 1A.
Any such security incident could result in a loss of confidence in the security of our services, damage our reputation, disrupt our business, require us to incur significant costs of investigation, remediation, and/or payment of a ransom, lead to legal liability, negatively impact our future sales, and result in a substantial financial loss. For additional information, see "Item 1A.
Technical Safeguards We regularly assess and deploy technical safeguards designed to protect our information systems from cybersecurity threats. Such safeguards are regularly evaluated and improved based on vulnerability assessments, cybersecurity threat intelligence, and incident response experience. Incident Response and Recovery Planning We have implemented Cyber Incident Response Programs, which are in the scope of our ISO 27001 certifications.
Technical Safeguards We regularly assess and deploy technical safeguards designed to protect our information systems from cybersecurity threats. Such safeguards are regularly evaluated and improved based on vulnerability assessments, cybersecurity threat intelligence, and incident response experience. Incident Response and Recovery Planning We have implemented Cyber Incident Response Programs, which are within the scope of our ISO 27001 certifications.
In addition, all of our employee software developers are required to take additional security awareness training, currently including Secure Development. We periodically adjust the list of mandatory and optional courses. Corporate Security Posture We periodically conduct independent security assessments to assess its security posture and to inform where cyber security investments should be made.
In addition, all of our employee software developers are required to take additional security awareness training, currently including Secure Development. We periodically adjust the list of mandatory and optional courses. Corporate Security Posture We periodically conduct independent security assessments to assess our corporate environment’s security posture and inform where cyber security investments should be made.
Pega Cloud also maintains several security certifications, which are listed at http://pega.com/trust which is included as an inactive reference and the content of which is not incorporated by reference into this Annual Report. Pega Cloud for Government is rated FedRAMP Moderate and undergoes several security assessments a year as part of the FedRAMP certification process.
Pega Cloud also maintains several security certifications, which are listed at https://pega.com/trust, which is included as an inactive reference and the content of which is not incorporated by reference into this Annual Report. Pega Cloud for Government is rated FedRAMP Moderate and undergoes several security assessments a year as part of the FedRAMP certification process.
We have also implemented Business Continuity Programs, which are in the scope of our ISO 22301 certification. We have established comprehensive incident response and recovery plans and test and evaluate the effectiveness of those plans regularly. Third-Party Risk Management We have implemented a Vendor Cybersecurity Risk Management Program (“VCRMP”), which is in the scope of our ISO 27001 certifications.
We have also implemented Business Continuity Programs, which are within the scope of our ISO 22301 certification. We have established comprehensive incident response and recovery plans and test and evaluate the effectiveness of those plans regularly. Third-Party Risk Management We have implemented a Vendor Cybersecurity Risk Management Program (“VCRMP”), which is within the scope of our ISO 27001 certifications.
Risk Assessment Our cyber risk management program is designed to follow the ISO 31000 and the NIST Special Publication 800-37 frameworks and is in the scope of our ISO 27001 certifications.
Risk Assessment Our cyber risk management program is designed to follow the ISO 31000 and the NIST Special Publication 800-37 frameworks and is within the scope of our ISO 27001 certifications.
The SSG is charged with providing strategic direction for the implementation and ongoing operation of our cyber security program. The SSG meets at least quarterly. Our CISO chairs the SSG and decisions and recommendations are based on a consensus of the members. Our CISO has twenty years of professional experience, with eleven years specifically in information security roles.
The SSG is charged with providing strategic direction for the implementation and ongoing operation of our cyber security program. The SSG meets at least quarterly. Our CISO chairs the SSG and decisions and recommendations are based on a consensus of the members. Our CISO has over twenty years of professional experience, with twelve years in information security roles.
He has been with Pega for four years and has a Master of Science degree from Northwestern University. Our Chief Product Officer has been with Pega for thirty-one years, has extensive experience in software development, and has a Bachelor of Science from the Indiana University of Pennsylvania.
He has been with Pega for five years and has a Master of Science degree from Northwestern University. Our Chief Product Officer has been with Pega for thirty-two years, has extensive experience in software development, and has a Bachelor of Science from the Indiana University of Pennsylvania.
ITEM 1C. CYBERSECURITY We recognize the critical importance of maintaining the safety and security of our systems and data, and have a holistic approach for overseeing and managing cybersecurity and related risks.
ITEM 1C. CYBERSECURITY We recognize the critical importance of maintaining the safety and security of our systems and data and have a comprehensive approach to overseeing and managing cybersecurity and related risks.
Our CISO periodically meets with the Board and Audit Committee to inform and update them on our cybersecurity program. SSG and Key Personnel We have a standing SSG whose members include, among others, our CISO, Chief Product Officer, and Chief Technical Systems Officer.
Our CISO periodically meets with the Board and Audit Committee to inform and update them on our cybersecurity program. SSG and Key Personnel We have a standing SSG whose members include, among others, our CISO, Chief Product Officer, and Vice President of Cloud Technology.
A key component of this is our standing Security Steering Group (“SSG”) whose members include, among others, our Chief Information Security Officer (“CISO”), Chief Product Officer, and Chief Technical Systems Officer.
A key component of this is our standing Security Steering Group (“SSG”), whose members include, among others, our Chief Information Security Officer (“CISO”), Chief Product Officer, and Vice President of Cloud Technology.
Our Chief Technical Systems Officer reviews these assessments and provides updates to our SSG. Governance Board Oversight As part of our corporate governance process, the Board, along with the Audit Committee, oversees our risk management process, which includes cybersecurity and related risks.
Our Vice President of Cloud Technology reviews these assessments and provides updates to our SSG. Governance Board Oversight As part of our corporate governance process, the Board, along with the Audit Committee, oversee our risk management process, which includes cybersecurity and related risks.
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Navy and holds a degree in Business Administration from the College of Technology at the State University of New York – Farmingdale.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES Our principal administrative, sales, marketing, support, and research and development operations are in Cambridge, Massachusetts, Waltham, Massachusetts, and Hyderabad, India. We also maintain offices elsewhere in the Americas, Europe, and the Asia-Pacific regions. All of our properties are leased. We believe we will be able to obtain future space as needed on acceptable and commercially reasonable terms.
Biggest changeITEM 2. PROPERTIES Our principal administrative, sales, marketing, support, and research and development operations are in Cambridge, Massachusetts, our corporate headquarters, and Hyderabad, India. Effective January 1, 2025, our corporate headquarters was relocated to Waltham, Massachusetts. We also maintain offices elsewhere in the Americas, Europe, and the Asia-Pacific regions. All of our properties are leased.
For additional information, see "Note 10. Leases" in Item 8 of this Annual Report.
We believe we will be able to obtain future space as needed on acceptable and commercially reasonable terms. For additional information, see "Note 10. Leases" in Item 8 of this Annual Report.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer purchases of equity securities (1) Common stock repurchased in the three months ended December 31, 2023: (in thousands, except per share amounts) Total Number of Shares Purchased (2) Average Price Paid per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchased Programs October 1, 2023 - October 31, 2023 — $ — — $ 60,000 November 1, 2023 - November 30, 2023 3 $ 52.39 — $ 60,000 December 1, 2023 - December 31, 2023 5 $ 52.73 — $ 60,000 Total 8 $ 52.59 (1) For additional information, see "Stock Repurchase Program" in Item 7 of this Annual Report.
Biggest changeIssuer purchases of equity securities (1) Common stock repurchased in the three months ended December 31, 2024: (in thousands, except per share amounts) Total Number of Shares Purchased (2) Average Price Paid per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchased Programs October 1, 2024 - October 31, 2024 158 $ 74.01 146 $ 287,492 November 1, 2024 - November 30, 2024 237 $ 88.55 215 $ 268,356 December 1, 2024 - December 31, 2024 321 $ 95.27 293 $ 240,443 Total 716 $ 88.35 (1) For additional information, see "Stock Repurchase Program" in Item 7 of this Annual Report.
(2) 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. 25 Stock performance graph and cumulative total stockholder return (1) The following performance graph represents a comparison of the cumulative total stockholder return, assuming the reinvestment of dividends, for a $100 investment on December 31, 2018 in our common stock, the Total Return Index for the NASDAQ Composite, a broad market index, and the Standard & Poor’s (“S&P”) North American Technology Sector - Software Index™ (“S&P NA Tech Software”), a published industry index.
(2) 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. 24 Stock performance graph and cumulative total stockholder return (1) The following performance graph represents a comparison of the cumulative total stockholder return, assuming the reinvestment of dividends, for a $100 investment on December 31, 2019 in our common stock, the Total Return Index for the NASDAQ Composite, a broad market index, and the Standard & Poor’s (“S&P”) North American Technology Sector - Software Index™ (“S&P NA Tech Software”), a published industry index.
Dividends During 2023, 2022, and 2021, we paid a quarterly cash dividend of $0.03 per share of common stock. We expect to pay a quarterly cash dividend of $0.03 per share; however, the Board of Directors may terminate or modify this dividend program without prior notice.
Dividends During 2024, 2023, and 2022, we paid a quarterly cash dividend of $0.03 per share of common stock. We expect to pay a quarterly cash dividend of $0.03 per share; however, the Board of Directors may terminate or modify this dividend program without prior notice.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market information Our common stock is quoted on the NASDAQ Global Select Market under the symbol “PEGA.” Holders As of February 6, 2024, we had 49 stockholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market information Our common stock is quoted on the NASDAQ Global Select Market under the symbol “PEGA.” Holders As of January 31, 2025, we had 62 stockholders of record.
December 31, 2018 2019 2020 2021 2022 2023 Pegasystems Inc. $ 100.00 $ 166.79 $ 279.35 $ 234.61 $ 72.03 $ 103.03 NASDAQ Composite $ 100.00 $ 136.69 $ 198.10 $ 242.03 $ 163.28 $ 236.17 S&P NA Tech Software $ 100.00 $ 134.59 $ 204.44 $ 235.70 $ 150.80 $ 240.73 (1) The graph lines merely connect measurement dates and do not reflect fluctuations between those dates.
December 31, 2019 2020 2021 2022 2023 2024 Pegasystems Inc. $ 100.00 $ 167.49 $ 140.66 $ 43.19 $ 61.78 $ 117.99 NASDAQ Composite $ 100.00 $ 144.92 $ 177.06 $ 119.45 $ 172.77 $ 223.87 S&P NA Tech Software $ 100.00 $ 151.90 $ 175.13 $ 112.05 $ 178.86 $ 223.41 (1) The graph lines merely connect measurement dates and do not reflect fluctuations between those dates.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOther income and expenses (Dollars in thousands) 2023 2022 Change Foreign currency transaction (loss) gain $ (5,242) $ 4,560 $ (9,802) * Interest income 9,259 1,643 7,616 464 % Interest expense (6,876) (7,792) 916 12 % (Loss) on capped call transactions (1,348) (57,382) 56,034 98 % Other income, net 18,693 6,579 12,114 184 % $ 14,486 $ (52,392) $ 66,878 * * not meaningful • The change in foreign currency transaction (loss) gain in 2023 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with foreign currency-denominated cash and receivables held by our subsidiary in the United Kingdom. • The increase in interest income in 2023 was primarily due to an increase in market interest rates. • The decrease in interest expense in 2023 was due to our repurchases of convertible senior notes.
Biggest changeOther income and expenses (Dollars in thousands) 2024 2023 Change Foreign currency transaction (loss) gain $ (912) $ (5,242) $ 4,330 83 % Interest income 25,779 9,259 16,520 178 % Interest expense (6,835) (6,876) 41 1 % (Loss) on capped call transactions (663) (1,348) 685 51 % Other income, net 1,385 18,693 (17,308) (93) % $ 18,754 $ 14,486 $ 4,268 29 % • The change in foreign currency transaction (loss) gain in 2024 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with foreign currency-denominated cash and receivables held by our subsidiary in the United Kingdom. • The increase in interest income in 2024 was primarily due to higher investment balances and higher interest rate yields. • The change in (loss) on capped call transactions in 2024 was due to fair value adjustments for our capped call transactions. • The decrease in other income, net in 2024, was due to a reduction of $7.4 million in the gain from repurchases of our convertible senior notes and a reduction of $10 million in the gain in the value of equity securities held in our venture investments portfolio.
Performance metrics We use performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including: 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.
Performance metrics We use performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including: Annual Contract Value (“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.
In November 2019, and as since amended, we entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. As of December 31, 2023 and December 31, 2022, we had $27.3 million in outstanding letters of credit, reducing available borrowing capacity under the Credit Facility, but no outstanding cash borrowings.
In November 2019, and as since amended, we entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. As of December 31, 2024 and December 31, 2023, we had $27.3 million in outstanding letters of credit under the Credit Facility, reducing available borrowing capacity, but no outstanding cash borrowings.
(2) Represents the fixed amount owed for purchase obligations of software licenses, hosting services, and sales and marketing programs. (3) Represents the maximum funding under existing venture investment agreements. Our venture investment agreements generally allow us to withhold unpaid funds at our discretion.
(2) Represents the fixed amount owed for purchase obligations including software licenses, hosting services, and sales and marketing programs. (3) Represents the maximum funding under existing venture investment agreements. Our venture investment agreements generally allow us to withhold unpaid funds at our discretion.
Revenue" in Item 8 of this Annual Report Goodwill and intangible assets impairment Our goodwill and intangible assets arise from our previous business acquisitions. • Goodwill is tested for impairment at least annually or as circumstances indicate its value may no longer be recoverable. • We do not have any intangible assets with indefinite useful lives other than goodwill. • We perform our annual goodwill impairment test as of November 30th.
Revenue" in Item 8 of this Annual Report Goodwill impairment Our goodwill arises from our previous business acquisitions. • Goodwill is tested for impairment at least annually or as circumstances indicate its value may no longer be recoverable. • We do not have any intangible assets with indefinite useful lives other than goodwill. • We perform our annual goodwill impairment test as of November 30th.
Goodwill And Other Intangible Assets" in Item 8 of this Annual Report. Accounting for income taxes Significant judgment is required to determine our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in applying accounting principles and complex tax laws.
Significant Accounting Policies" and "Note 7. Goodwill And Other Intangible Assets" in Item 8 of this Annual Report. Accounting for income taxes Significant judgment is required to determine our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in applying accounting principles and complex tax laws.
(4) We cannot reasonably estimate the timing of this cash outflow due to uncertainties in the timing of the effective settlement of tax positions. A detailed discussion and analysis of the 2022 year-over-year changes can be found in "Item 7.
(4) We cannot reasonably estimate the timing of this cash outflow due to uncertainties in the timing of the effective settlement of tax positions. 31 A detailed discussion and analysis of the 2023 year-over-year changes can be found in "Item 7.
Judgment is required in estimating stand-alone selling prices. We maximize the use of observable inputs by maintaining pricing analyses that consider our pricing policies, historical stand-alone sales when they exist, and historical renewal prices charged to clients. We have concluded that the stand-alone selling prices of certain performance obligations, specifically software licenses and Pega Cloud arrangements, are highly variable.
We maximize the use of observable inputs by maintaining pricing analyses that consider our pricing policies, historical stand-alone sales when they exist, and historical renewal prices charged to clients. We have concluded that the stand-alone selling prices of certain performance obligations, specifically software licenses and Pega Cloud arrangements, are highly variable.
These amounts are not included in the table above. Dividends (in thousands) 2023 2022 Dividend payments to stockholders $ 9,964 $ 9,834 We intend to pay a quarterly cash dividend of $0.03 per share. However, the Board of Directors may terminate or modify the dividend program without prior notice.
These amounts are not included in the table above. Dividends (in thousands) 2024 2023 Dividend payments to stockholders $ 10,199 $ 9,964 We intend to pay a quarterly cash dividend of $0.03 per share. However, the Board of Directors may terminate or modify the dividend program without prior notice.
For additional information, see "Note 20. Commitments And Contingencies" in Item 8 of this Annual Report. • The restructuring in 2023 and 2022 was primarily due to our efforts to optimize our go-to-market organization. For additional information, see "Note 12. Restructuring" in Item 8 of this Annual Report.
Commitments And Contingencies" in Item 8 of this Annual Report. • The restructuring in 2024 and 2023 was primarily due to our efforts to optimize our go-to-market organization and office space. For additional information, see "Note 12. Restructuring" in Item 8 of this Annual Report.
Investing activities The change in cash (used in) provided by investing activities in 2023 was primarily due to our increased investments in financial instruments and reduced investment in property and equipment as we optimize our office space. 31 Financing activities Debt financing In February 2020, we issued $600 million in aggregate principal amount of convertible senior notes, which mature on March 1, 2025.
Investing activities The change in cash (used in) investing activities in 2024 was primarily due to our increased investments in financial instruments and reduced investment in property and equipment as we optimized our office space. 30 Financing activities Debt financing In February 2020, we issued $600 million in aggregate principal amount of convertible senior notes, which mature on March 1, 2025.
Our powerful, low-code platform for workflow automation and artificial intelligence-powered decisioning enables the world’s leading brands and government agencies to hyper-personalize customer experiences, streamline customer service, and automate mission-critical business processes and workflows. With Pega, our clients can leverage our artificial intelligence (“AI”) technology and scalable architecture to accelerate their digital transformation.
Our powerful platform for enterprise AI decisioning and workflow automation enables the world’s leading brands and government agencies to hyper-personalize customer experiences, automate customer service, and streamline operations, mission-critical business processes, and workflows. With Pega, our clients can leverage our AI technology and scalable architecture to accelerate their digital transformation.
Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored to the specific industry needs of our clients.
Our solutions achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. Along with our partners, we deliver solutions tailored by industry.
We typically account for contract modifications prospectively as a separate contract. The additional performance obligation(s) in our contract modifications are generally distinct and priced at their stand-alone selling price. We allocate the transaction price to the distinct performance obligations, including options in contracts determined to represent a material right, based on each performance obligation's relative stand-alone selling price.
The additional performance obligation(s) in our contract modifications are generally distinct and priced at their stand-alone selling price. We allocate the transaction price to the distinct performance obligations, including options in contracts determined to represent a material right, based on each performance obligation's relative stand-alone selling price. Judgment is required in estimating stand-alone selling prices.
As of December 31, 2023, we had $81.6 million of goodwill and $7.0 million of intangible assets. Changes in the valuation of long-lived assets could materially impact our operating results and financial position. To date, there have been no impairments of goodwill or intangible assets. For additional information see "Note 2. Significant Accounting Policies" and "Note 7.
Changes in the valuation of goodwill could materially impact our operating results and financial position. 32 As of December 31, 2024, we had $81.1 million of goodwill. Changes in the valuation of long-lived assets could materially impact our operating results and financial position. To date, there have been no impairments of goodwill. For additional information see "Note 2.
Debt", and "Note 13. Fair Value Measurements" in Item 8 of this Annual Report. 34 Loss Contingencies We are subject to various claims, including claims with customers and vendors, pending and potential legal actions for damages, investigations relating to governmental laws and regulations, and other matters arising out of the normal conduct of our business.
Loss Contingencies We are subject to various claims, including claims with customers and vendors, pending and potential legal actions for damages, investigations relating to governmental laws and regulations, and other matters arising out of the normal conduct of our business.
In the year ended December 31, 2023, we paid $89 million to repurchase $97.7 million in aggregate principal amount of convertible senior notes. As of December 31, 2023, we had $502 million in aggregate principal amount of convertible senior notes outstanding due on March 1, 2025. For additional information, see "Note 11. Debt" in Item 8 of this Annual Report.
In 2024, we paid $33.9 million to repurchase $34.4 million in aggregate principal amount of convertible senior notes. As of December 31, 2024, we had $468 million in aggregate principal amount of convertible senior notes outstanding due on March 1, 2025. For additional information, see "Note 11. Debt" in Item 8 of this Annual Report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2022. 32 CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGMENTS Management’s discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared following accounting principles generally accepted in the U.S. and the rules and regulations of the U.S.
CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGMENTS Management’s discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared following accounting principles generally accepted in the U.S. and the rules and regulations of the U.S. Securities and Exchange Commission for annual financial reporting.
LIQUIDITY AND CAPITAL RESOURCES (in thousands) 2023 2022 Cash provided by (used in) Operating activities $ 217,785 $ 22,336 Investing activities (50,750) 13,075 Financing activities (81,963) (46,989) Effect of exchange rate changes on cash, cash equivalents, and restricted cash 2,701 (3,333) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 87,773 $ (14,911) December 31, (in thousands) 2023 2022 Held in U.S. entities $ 263,453 $ 248,389 Held in foreign entities 159,885 48,832 Total cash, cash equivalents, and marketable securities 423,338 297,221 Restricted cash 2,925 — Total cash, cash equivalents, marketable securities, and restricted cash $ 426,263 $ 297,221 We believe that our current cash, marketable securities, cash flow provided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements, including our convertible senior notes due March 1, 2025.
LIQUIDITY AND CAPITAL RESOURCES (in thousands) 2024 2023 Cash provided by (used in) Operating activities $ 345,926 $ 217,785 Investing activities (202,576) (50,750) Financing activities (30,214) (81,963) Effect of exchange rate changes on cash, cash equivalents, and restricted cash (4,434) 2,701 Net increase in cash, cash equivalents, and restricted cash $ 108,702 $ 87,773 December 31, (in thousands) 2024 2023 Held in U.S. entities $ 474,509 $ 263,453 Held in foreign entities 265,464 159,885 Total cash, cash equivalents, and marketable securities 739,973 423,338 Restricted cash included in other current assets 98 — Restricted cash included in other long-term assets 4,328 2,925 Total cash, cash equivalents, marketable securities, and restricted cash $ 744,399 $ 426,263 We believe that our current cash, marketable securities, cash flow provided by operations, borrowing capacity, and ability to engage in capital market transactions will be sufficient to fund our operations, settlement of our convertible senior notes due on March 1, 2025, stock repurchases, and quarterly cash dividends for at least the next 12 months and to meet our known long-term cash requirements.
A contract modification is a legally binding change to an existing contract’s scope, price, or both. Contract modifications are reviewed to determine whether they should be accounted for as part of the original contract or as a separate contract. This determination requires significant judgment, which could impact the timing of revenue recognition.
Contract modifications are reviewed to determine whether they should be accounted for as part of the original contract or as a separate contract. This determination requires significant judgment, which could impact the timing of revenue recognition. We typically account for contract modifications prospectively as a separate contract.
For additional information, see "Note 12. Restructuring" in Item 8 of this Annual Report. • The decrease in general and administrative in 2023 was primarily due to a decrease of $20.7 million in legal fees and related expenses arising from proceedings outside the ordinary course of business. We expect to continue to incur additional costs for these proceedings.
We expect to continue to incur legal fees and related costs arising from proceedings outside the ordinary course of business. For additional information, see "Note 20. Commitments And Contingencies" in Item 8 of this Annual Report.
Significant Accounting Policies” in Item 8 of this Annual Report, the following accounting policies are most important to the portrayal of our financial condition and require the most subjective judgment. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
We believe that of our significant accounting policies, described in “Note 2. Significant Accounting Policies” in Item 8 of this Annual Report, the following accounting policies are most important to the portrayal of our financial condition and require the most subjective judgment.
We believe that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. They are not a substitute for financial measures prepared under U.S. GAAP.
We believe that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our normal operations. Management uses these measures to assess the performance of the company's operations and establish operational goals and incentives.
In addition, our client success teams, world-class partners, and clients leverage our Pega Express™ methodology to design and deploy mission-critical applications quickly and collaboratively. 26 Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve.
In addition, our sales and client success teams, world-class partners, and clients are able to leverage Pega GenAI Blueprint TM (“Blueprint”) to rapidly prototype and accelerate the development and deployment of applications quickly and collaboratively. Our target clients are Global 2000 organizations and government agencies that require solutions to distinguish themselves in the markets they serve.
The effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of countries are also implementing similar local legislation. The Company is continuing to evaluate the potential impact of the Pillar Two Framework on future periods, pending legislative adoption by additional individual countries.
The EU effective dates were January 1, 2024, and January 1, 2025, for different aspects of the directive. The impact of the Pillar Two Framework on the Company’s income tax provision in 2024 was not material. The Company is continuing to evaluate the potential impact of the Pillar Two Framework on future periods, pending legislative adoption by additional individual countries.
Also contributing to the change was: • The increase in Pega Cloud gross profit percent in 2023 was primarily due to an increase in cost efficiency, particularly for hosting services, as Pega Cloud continues to grow and scale. • The decrease in maintenance gross profit percent in 2023 was primarily due to an increase in compensation and benefits as a result of an increase in headcount. • The decrease in consulting gross profit percent in 2023 was primarily due to lower consultant billable hours outside of North America and lower realization rates in North America.
Also contributing to the change was: • The increase in Pega Cloud gross profit percent in 2024 was primarily due to increased cost efficiency, primarily for hosting services and employee compensation and benefits, as Pega Cloud continues to grow and scale. • The decrease in consulting gross profit percent in 2024 was primarily due to a decrease in utilization rates.
(3) The supplemental information discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance. • Restructuring : Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities. • Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business. • Interest on convertible senior notes : In February 2020, we issued convertible senior notes, due March 1, 2025, in a private placement.
Commitments And Contingencies" in Item 8 of this Annual Report for further information. ◦ Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business. ◦ Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities. ◦ Interest on convertible senior notes : In February 2020, we issued convertible senior notes, due March 1, 2025, in a private placement.
Accordingly, we review client contracts to identify all separate promises to transfer goods and services that would be considered performance obligations. Judgment is also required in determining whether an option to acquire additional products and services within a client contract represents a material right that the client would not receive without entering into that contract.
Judgment is also required in determining whether an option to acquire additional products and services within a client contract represents a material right that the client would not receive without entering into that contract. A contract modification is a legally binding change to an existing contract’s scope, price, or both.
A reconciliation of GAAP and non-GAAP measures is located with each non-GAAP measure. BUSINESS OVERVIEW We develop, market, license, host, and support enterprise software that helps organizations build agility into their business so they can adapt to change.
They are not a substitute for financial measures prepared under U.S. GAAP. A reconciliation of GAAP and non-GAAP measures is located with each non-GAAP measure. 25 BUSINESS OVERVIEW We develop, market, license, host, and support enterprise software that helps organizations optimize decisions and processes in real-time so they can deliver outcomes that transform their business.
Operating activities The change in cash provided by operating activities in 2023 was primarily due to growth in client collections, the impact of our cost-efficiency initiatives, and lower legal fees and related costs arising from proceedings outside the ordinary course of business. We expect to continue to incur additional costs for these proceedings. For additional information, see "Note 12.
Operating activities The change in cash provided by operating activities in 2024 was primarily due to growth in client collections and the impact of our cost-efficiency initiatives. For additional information, see "Note 12. Restructuring" in Item 8 of this Annual Report.
Stock repurchase program Changes in the remaining stock repurchase authority: (in thousands) Year Ended December 31, 2023 December 31, 2022 $ 58,075 Authorizations (1) 1,925 December 31, 2023 $ 60,000 (1) On April 25, 2023, our Board of Directors extended the expiration date of our current share repurchase program from June 30, 2023 to June 30, 2024, and the amount of stock we are authorized to repurchase was increased to $60 million.
Stock repurchase program Changes in the remaining stock repurchase authority: (in thousands) 2024 December 31, 2023 $ 60,000 Authorizations (1) 250,000 Repurchases (2) (69,557) December 31, 2024 $ 240,443 (1) On April 23, 2024, the Company’s Board of Directors extended the expiration date of the share repurchase program from June 30, 2024 to June 30, 2025.
Common stock repurchases Year Ended December 31, 2023 2022 (in thousands) Shares Amount Shares Amount Stock repurchase program — — 280 24,508 Tax withholdings for net settlement of equity awards 44 1,916 342 20,620 44 $ 1,916 622 $ 45,128 In 2023 and 2022, instead of receiving cash from the equity holders, we withheld shares with a value of $1.2 million and $14.3 million, respectively, for the exercise price of options.
Common stock repurchases 2024 2023 (in thousands) Shares Amount Shares Amount Repurchases paid 809 $ 68,057 — — Repurchases unpaid at period end 16 1,500 — — Stock repurchase program 825 69,557 — — Tax withholdings for net settlement of equity awards 75 5,435 44 1,916 900 $ 74,992 44 $ 1,916 In 2024 and 2023, instead of receiving cash from the equity holders, we withheld shares with a value of $6.3 million and $1.2 million, respectively, for the exercise price of options.
Specifically, contracts associated with Pega Platform sales and other software applications, sold as licenses to use functional intellectual property or as a cloud-based solution, typically include consulting services. Determining whether such products and services within a client contract are considered distinct performance obligations that should be accounted for separately requires significant judgment.
Revenue recognition Our client contracts typically contain promises by us to provide multiple products and services. Specifically, contracts associated with Pega Platform sales and other software applications, sold as licenses to use functional intellectual property or as a cloud-based solution, typically include consulting services.
Provision for income taxes (Dollars in thousands) 2023 2022 Provision for income taxes $ 27,632 $ 183,785 Effective income tax rate 29 % 114 % The effective income tax rate in the year ended December 31, 2023 was primarily driven by the valuation allowance on our deferred tax assets in the U.S. and U.K. and the taxable income position in the U.S and the UK., partially offset by available tax credits and losses in those jurisdictions.
Fair Value Measurements" in Item 8 of this Annual Report. 29 Provision for income taxes (Dollars in thousands) 2024 2023 Provision for income taxes $ 43,447 $ 27,632 Effective income tax rate 30 % 29 % The effective income tax rate in 2024 was primarily driven by the valuation allowance on our deferred tax assets and tax expense in the U.S. and U.K., partially offset by available tax attributes.
Operating expenses 2023 2022 Change (Dollars in thousands) % of Revenue % of Revenue Selling and marketing $ 559,177 39 % $ 624,789 47 % $ (65,612) (11) % Research and development $ 295,512 21 % $ 294,349 22 % $ 1,163 — % General and administrative $ 96,743 7 % $ 117,734 9 % $ (20,991) (18) % Restructuring $ 21,747 2 % $ 21,743 2 % $ 4 — % * not meaningful • The decrease in selling and marketing in 2023 was primarily due to a decrease in compensation and benefits of $59.5 million due to reduced headcount as we optimize our go-to-market strategy.
Operating expenses 2024 2023 Change (Dollars in thousands) % of Revenue % of Revenue Selling and marketing $ 534,780 36 % $ 559,177 39 % $ (24,397) (4) % Research and development $ 298,074 20 % $ 295,512 21 % $ 2,562 1 % General and administrative $ 112,848 8 % $ 96,743 7 % $ 16,105 17 % Litigation settlement, net of recoveries $ 32,403 2 % $ — — % $ 32,403 * Restructuring $ 4,528 — % $ 21,747 2 % $ (17,219) (79) % * not meaningful • The decrease in selling and marketing in 2024 was primarily due to a decrease in compensation and benefits of $27.8 million due to reduced headcount from the optimization of our go-to-market strategy.
We base our estimates and judgments on historical experience, knowledge of current conditions, and beliefs about what could occur in the future, given the available information. We believe that of our significant accounting policies, described in “Note 2.
Preparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and beliefs about what could occur in the future, given the available information.
For additional information, see "Note 11. Debt" and "Note 13. Fair Value Measurements" in Item 8 of this Annual Report.
For additional information, see "Note 11. Debt" and "Note 13.
ACV is a performance measure that we believe provides useful information to our management and investors. In 2023, the Company revised its ACV methodology for maintenance and all contracts less than 12 months as its overall client renewal rate exceeds 90%.
ACV is a performance measure that we believe provides useful information to our management and investors.
Contractual obligations As of December 31, 2023, our contractual obligations were: Payments due by period (in thousands) 2024 2025 2026 2027 2028 and thereafter Other Total Convertible senior notes (1) $ 3,767 $ 504,154 $ — $ — $ — $ — $ 507,921 Purchase obligations (2) 138,662 134,825 126,637 138,208 990 — 539,322 Operating lease obligations 17,971 15,602 11,164 10,114 39,549 — 94,400 Venture investment commitments (3) 1,000 — — — — — 1,000 Liability for uncertain tax positions (4) — — — — — 859 859 $ 161,400 $ 654,581 $ 137,801 $ 148,322 $ 40,539 $ 859 $ 1,143,502 (1) Includes principal and interest.
Contractual obligations As of December 31, 2024, our contractual obligations were: Payments due by period (in thousands) 2025 2026 2027 2028 2029 and thereafter Other Total Convertible senior notes (1) $ 469,618 $ — $ — $ — $ — $ — $ 469,618 Purchase obligations (2) 134,631 150,178 165,000 28,242 1,003 — 479,054 Operating lease obligations 18,106 15,404 13,972 13,367 34,277 — 95,126 Venture investment commitments (3) 500 500 — — — — 1,000 Liability for uncertain tax positions (4) — — — — — 15,956 15,956 $ 622,855 $ 166,082 $ 178,972 $ 41,609 $ 35,280 $ 15,956 $ 1,060,754 (1) Includes principal and interest.
The Notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1. • Other : Fees related to capital advisory services, canceled in-person sales and marketing events, and incremental costs incurred integrating acquisitions. • Income taxes : Direct income taxes paid net of refunds received. 28 (4) Rule of 40 : A performance metric calculated by adding the annual contract value (“ACV”) growth rate and the free cash flow margin.
The convertible senior notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1. ◦ Other: Fees related to canceled in-person sales and marketing events. ◦ Income taxes : Direct income taxes paid net of refunds received. 27 Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP) (in millions, except percentages) December 31, 2023 December 31, 2024 1-Year Growth Rate Backlog - GAAP $ 1,463 $ 1,623 11 % Impact of changes in foreign exchange rates — 39 Constant currency backlog $ 1,463 $ 1,662 14 % Note: Constant currency Backlog is calculated by applying the December 31, 2023 foreign exchange rates to all periods shown.
If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements. Revenue recognition Our client contracts typically contain promises by us to provide multiple products and services.
Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements.
Removed
The impact of the change was $3 million or 0.3% of Total ACV or less for all quarters in 2022. Previously disclosed ACV amounts have been updated to allow for comparability.
Added
(Dollars in thousands) December 31, 2024 December 31, 2023 Change Constant Currency Change Pega Cloud $ 652,443 $ 552,998 $ 99,445 18 % 21 % Maintenance 291,807 324,091 (32,284) (10) % (8) % Subscription services 944,250 877,089 67,161 8 % 10 % Subscription license 427,268 377,794 49,474 13 % 14 % $ 1,371,518 $ 1,254,883 $ 116,635 9 % 11 % Reconciliation of ACV and constant currency ACV (in millions, except percentages) December 31, 2023 December 31, 2024 1-Year Change ACV $ 1,255 $ 1,372 9 % Impact of changes in foreign exchange rates — 23 Constant currency ACV $ 1,255 $ 1,395 11 % Note: Constant currency ACV is calculated by applying the December 31, 2023 foreign exchange rates to all periods shown. 26 (Dollars in thousands) 2024 2023 Cash provided by operating activities $ 345,926 $ 217,785 59 % Investment in property and equipment (7,712) (16,781) Free cash flow (1) $ 338,214 $ 201,004 68 % Supplemental information (2) Litigation settlement, net of recoveries $ 32,403 $ — Legal fees 16,197 14,645 Restructuring 5,252 29,401 Interest on convertible senior notes 3,810 4,134 Other — 601 Income taxes 82,317 11,664 $ 139,979 $ 60,445 (1) Our non-GAAP free cash flow is defined as cash provided by operating activities less investment in property and equipment.
Removed
This simplification, made possible by improvements to the Company’s financial systems, ensures that ACV for all contract types and lengths is consistently calculated as the total contract value divided by the duration in years.
Added
(2) The supplemental information discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance. ◦ Litigation settlement, net of recoveries : Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See "Note 20.
Removed
Previously, ACV for maintenance was calculated as the maintenance revenue for the quarter then ended, multiplied by four, and ACV for contracts less than 12 months was equal to the contract’s total value. The Company believes the simplified methodology better represents the current value of its contracts and better aligns its definition with comparable companies.
Added
RESULTS OF OPERATIONS Revenue (Dollars in thousands) 2024 2023 Change Pega Cloud $ 558,734 37 % $ 461,328 32 % $ 97,406 21 % Maintenance 323,304 22 % 331,856 24 % (8,552) (3) % Subscription services 882,038 59 % 793,184 56 % 88,854 11 % Subscription license 398,102 27 % 407,625 28 % (9,523) (2) % Subscription 1,280,140 86 % 1,200,809 84 % 79,331 7 % Perpetual license 3,767 — % 10,101 1 % (6,334) (63) % Consulting 213,273 14 % 221,706 15 % (8,433) (4) % $ 1,497,180 100 % $ 1,432,616 100 % $ 64,564 5 % • The increase in Pega Cloud revenue in 2024 was primarily due to expanded adoption of Pega Cloud by our existing clients. • The decrease in maintenance revenue in 2024 was primarily due to our clients’ shift to Pega Cloud-based offerings, which do not generally result in maintenance revenue. • The decrease in subscription license revenue in 2024 was primarily due to our clients’ shift to Pega Cloud-based offerings, and several large multi-year subscription license contracts recognized in revenue in 2023. • The decrease in perpetual license revenue in 2024 reflects our strategy of promoting subscription-based arrangements. • The decrease in consulting revenue in 2024 was primarily due to decreases in consultant billable hours. 28 Gross profit 2024 2023 (Dollars in thousands) Gross Profit % Gross Profit % Change Pega Cloud $ 434,261 78 % $ 342,670 74 % $ 91,591 27 % Maintenance 297,859 92 % 306,264 92 % (8,405) (3) % Subscription services 732,120 83 % 648,934 82 % 83,186 13 % Subscription license 396,214 100 % 405,019 99 % (8,805) (2) % Subscription 1,128,334 88 % 1,053,953 88 % 74,381 7 % Perpetual license 3,750 100 % 10,034 99 % (6,284) (63) % Consulting (25,569) (12) % (9,854) (4) % (15,715) (159) % $ 1,106,515 74 % $ 1,054,133 74 % $ 52,382 5 % The gross profit change in 2024 was primarily due to a shift in the revenue mix.
Removed
Reconciliation of ACV and ACV (constant currency) (in millions, except percentages) December 31, 2022 December 31, 2023 1-Year Change ACV $ 1,126 $ 1,255 11 % Impact of changes in foreign exchange rates — (11) ACV (constant currency) $ 1,126 $ 1,244 11 % Note: ACV (constant currency) is calculated by applying the December 31, 2022 foreign exchange rates to all periods shown. 27 Cash flow Note: Starting in the third quarter of 2023, the Company calculated free cash flow as cash provided by operating activities less investments in property and equipment.
Added
For additional information, see "Note 12. Restructuring" in Item 8 of this Annual Report. • The increase in general and administrative in 2024 was primarily due to an increase of $10.7 million in compensation and benefits including $4.8 million of stock based compensation expense associated with performance stock options granted in 2023 (see "Note 16.
Removed
To ensure comparability, previously disclosed amounts have been updated. 2023 2022 Margin (2) Margin (2) Cash provided by operating activities $ 217,785 15 % $ 22,336 2 % Investment in property and equipment (16,781) (35,379) Free cash flow (1) $ 201,004 14 % $ (13,043) (1) % Supplemental information (3) Restructuring $ 29,401 $ — Legal fees 14,645 41,789 Interest on convertible senior notes 4,134 4,500 Other 601 6,805 Income taxes 11,664 7,645 $ 60,445 $ 60,739 Effect of supplemental information to Rule of 40 achievement (4) 4 % 5 % (1) Our non-GAAP free cash flow is defined as cash provided by operating activities less investment in property and equipment.
Added
Stock-Based Compensation" ) and an increase of $4.8 million in legal fees and related expenses arising from legal proceedings outside the ordinary course of business. We expect to continue to incur additional costs for these proceedings. For additional information, see "Note 20.
Removed
Starting in the third quarter of 2023, the Company calculated free cash flow as cash provided by operating activities less investments in property and equipment. To ensure comparability, previously disclosed amounts have been updated. (2) Operating and free cash flow margin are calculated by comparing the respective cash flow to total revenue.
Added
On October 22, 2024, the Company’s Board of Directors further extended the expiration date of the share repurchase program from June 30, 2025 to December 31, 2025 and increased the authorized repurchases by $250 million to $310 million as of that date . (2) All purchases under this program have been made on the open market.
Removed
We also provide a table of supplemental information of other items that affect our cash flows and Rule of 40 achievement.
Added
Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2023.
Removed
Remaining performance obligations (“Backlog”) Reconciliation of Backlog and Constant Currency Backlog (Non-GAAP) December 31, 2022 December 31, 2023 1 Year Growth Rate Backlog - GAAP $ 1,356 $ 1,463 8 % Impact of changes in foreign exchange rates — (16) Constant currency backlog $ 1,356 $ 1,447 7 % Note: Constant currency Backlog is calculated by applying the Q4 2022 foreign exchange rates to all periods shown.
Added
Determining whether such products and services within a client contract are considered distinct performance obligations that should be accounted for separately requires significant judgment. Accordingly, we review client contracts to identify all separate promises to transfer goods and services that would be considered performance obligations.
Removed
RESULTS OF OPERATIONS Revenue (Dollars in thousands) 2023 2022 Change Pega Cloud $ 461,328 32 % $ 384,271 29 % $ 77,057 20 % Maintenance 331,856 24 % 317,564 24 % 14,292 5 % Subscription services 793,184 56 % 701,835 53 % 91,349 13 % Subscription license 407,625 28 % 366,063 28 % 41,562 11 % Subscription 1,200,809 84 % 1,067,898 81 % 132,911 12 % Perpetual license 10,101 1 % 19,293 1 % (9,192) (48) % Consulting 221,706 15 % 230,654 18 % (8,948) (4) % $ 1,432,616 100 % $ 1,317,845 100 % $ 114,771 9 % • The increase in Pega Cloud revenue in 2023 was primarily due to the growth of the hosted client base as our clients continued to expand their use of Pega Cloud. • The increase in maintenance revenue in 2023 was primarily due to continued demand for our subscription license offerings, which are sold with maintenance committed for the full term of the subscription license • The increase in subscription license revenue in 2023 was primarily due to high renewal activity, resulting in an increase in license deliveries. • The decrease in perpetual license revenue in 2023 reflects our strategy of promoting subscription-based arrangements. 29 • The decrease in consulting revenue in 2023 was primarily due to lower consultant billable hours outside of North America and lower realization rates in North America.
Removed
Gross profit 2023 2022 (Dollars in thousands) Gross Profit % Gross Profit % Change Pega Cloud $ 342,670 74 % $ 267,523 70 % $ 75,147 28 % Maintenance 306,264 92 % 295,576 93 % 10,688 4 % Subscription services 648,934 82 % 563,099 80 % 85,835 15 % Subscription license 405,019 99 % 363,421 99 % 41,598 11 % Subscription 1,053,953 88 % 926,520 87 % 127,433 14 % Perpetual license 10,034 99 % 19,118 99 % (9,084) (48) % Consulting (9,854) (4) % 3,572 2 % (13,426) * $ 1,054,133 74 % $ 949,210 72 % $ 104,923 11 % * not meaningful The gross profit change in 2023 was primarily due to a shift in the revenue mix.
Removed
Debt" in Item 8 of this Annual Report. • The change in (loss) on capped call transactions in 2023 was due to fair value adjustments for our capped call transactions. 30 • The increase in other income, net in 2023, was due to a $7.9 million gain from repurchases of our convertible senior notes and a $10.9 million increase in the value of equity securities held in our venture investments portfolio.
Removed
Restructuring" and "Note 20. Commitments And Contingencies" in Item 8 of this Annual Report.
Removed
Securities and Exchange Commission for annual financial reporting. Preparing these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
Removed
Changes in the valuation of goodwill could materially impact our operating results and financial position. We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that such assets' carrying amount may not be recoverable.
Removed
When evaluating potential impairment of these assets, we specifically consider whether any indicators of impairment are present, including, but not limited to: • whether there has been a significant adverse change in the business climate that affects the value of an asset; • whether there has been a significant change in the extent or way an asset is used; and 33 • whether it is expected that the asset will be sold or disposed of before the end of its originally estimated useful life.
Removed
If indicators of impairment are present, we compare the estimated undiscounted cash flows that the asset is expected to generate to the carrying value. The key assumptions of the cash flow model involve significant subjectivity. If such assets are impaired, an impairment is measured by the amount the asset’s carrying value exceeds its fair value.
Removed
Capped call transactions As of December 31, 2023, we had $502.3 million in aggregate principal outstanding on our convertible senior notes. Additionally, we had Capped Call Transactions that covered 3.7 million shares of our common stock, the number of shares for which the Notes are convertible.
Removed
These capped call transactions are generally expected to reduce the potential dilution of our common stock upon any conversion of the Notes.
Removed
The capped call transactions are accounted for as derivative instruments and do not qualify for the Company’s own equity scope exception in ASC 815 since, in some cases of early settlement, the settlement value calculated following the governing documents may not represent a fair value measurement.
Removed
Applying the accounting framework for the Capped Call Transactions requires the exercise of judgment and the determination of the fair value of the Capped Call Transactions requires us to make significant estimates and assumptions. The fair value of the Capped Call Transactions at the end of each reporting period is determined using a Black-Scholes option-pricing model.
Removed
The valuation model uses various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield. Management applies judgment when determining expected volatility. We consider the underlying equity security’s historical and implied volatility levels.
Removed
As of December 31, 2023, a hypothetical 10% increase in our stock price would have increased the fair value of the capped call to $1.6 million, while a hypothetical 10% decrease in our stock price would have decreased the fair value of the capped call to $0.5 million. For additional information see "Note 2. Significant Accounting Policies", "Note 11.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−0 removed0 unchanged
Biggest changeA hypothetical 10% strengthening in the U.S. dollar against other currencies would have resulted in the following: 2023 2022 2021 (Decrease) in revenue (4) % (3) % (4) % (Decrease) increase in net income (8) % 2 % 1 % Remeasurement risk We incur transaction gains and losses from the remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of the entities in which they are recorded.
Biggest changeHowever, our international sales are also primarily denominated in foreign currencies, partially offsetting our foreign currency exposure. 33 A hypothetical 10% strengthening in the U.S. dollar against other currencies would have resulted in the following: 2024 2023 2022 (Decrease) in revenue (4) % (4) % (3) % (Decrease) increase in net income (9) % (8) % 2 % Remeasurement risk We incur transaction gains and losses from the remeasurement of monetary assets and liabilities 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, cash equivalents, receivables, and intercompany balances held by our U.K. subsidiary, a British pound functional entity.
We are primarily exposed to changes in foreign currency exchange rates associated with the Australian dollar, Euro, and U.S. dollar-denominated cash, cash equivalents, marketable securities, receivables, and intercompany balances held by our U.K. subsidiary, a British pound functional entity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss from adverse changes in financial market prices and rates. Foreign currency exposure Translation risk Our international operations’ operating expenses are primarily denominated in foreign currencies. However, our international sales are also primarily denominated in foreign currencies, partially offsetting our foreign currency exposure.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss from adverse changes in financial market prices and rates. Foreign currency exposure Translation risk Our international operations’ operating expenses are primarily denominated in foreign currencies.
A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would have resulted in the following impact: (in thousands) December 31, 2023 December 31, 2022 December 31, 2021 Foreign currency (loss) $ (11,892) $ (10,164) $ (8,352) 35
A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would have resulted in the following impact: (in thousands) December 31, 2024 December 31, 2023 December 31, 2022 Foreign currency (loss) $ (19,337) $ (11,892) $ (10,164) 34

Other PEGA 10-K year-over-year comparisons