CAMBRIDGE, Mass.--(BUSINESS WIRE)--Pegasystems Inc. (NASDAQ: PEGA), the leader in Business Process Management (BPM) software, today announced financial results for the second quarter and six months ended June 30, 2008. Total revenue for the second quarter of 2008 was $51.1 million, an increase of 43%, compared to $35.7 million for the second quarter of 2007. Net income for the second quarter of 2008 was $2.9 million, compared to $0.6 million for the second quarter of 2007. The Company generated $16.5 million and $30.5 million in cash flow from operations in the second quarter and six months ended June 30, 2008, respectively, and ended the quarter with $176.8 million in cash and short-term investments.

The following table presents selected financial information for the second quarter and six months ended June 30, 2008 and 2007:

			Three Months Ended June 30,							Six Months Ended June 30,
				2008			2007				2008			2007
		(In thousands, except per share amounts)
Software license			$	15,819		$	10,344			$	33,304		$	22,428
Maintenance				10,083			7,380				18,982			14,401
Professional services				25,217			17,939				47,311			36,323
Total Revenue			$	51,119		$	35,663			$	99,597		$	73,152
Gross Profit			$	30,346		$	21,343			$	59,272		$	43,268
Income (Loss) from Operations			$	2,584		$	(939	)		$	4,750		$	(1,183	)
Net income			$	2,852		$	647			$	5,796		$	1,667
Earnings per Share, Basic			$	0.08		$	0.02			$	0.16		$	0.05
Earnings per Share, Diluted			$	0.08		$	0.02			$	0.15		$	0.04

Business Perspective

“The business agility delivered by our unique Build for Change® technology and solution frameworks continues to drive our growth. Customers affirm that Pega technology creates process backbones that span organizational silos, eliminating manual handoffs and automating non-value added work. Results include increased revenue, improved customer experiences, cost-saving automation, reduced operational risk and improved compliance,” said Alan Trefler, Pegasystems’ chairman and CEO.

“Customer wins in the quarter included a large telecommunications company and multiple successes in both the Financial Services and Insurance industries. We had a record 19 systems go live in Q2, powered by our customer enablement philosophy, which teams client business and IT staff with our growing partner ecosystem to deliver iterative benefit and continuous improvement of business operations.”

“Our Q2 announcements included the release of our Internet Application Composer that facilitates multi-channel process automation and injects agile business change into preexisting customer web environments. We also deepened our Insurance Industry offerings with enhanced Customer Process Manager and Claims Servicing Backbone frameworks that improve customer experiences and reduce operational costs. Our products continue to receive strong reviews from industry experts, most recently a key CRM excellence award from Customer Interaction Solutions magazine,” concluded Mr. Trefler.

Craig Dynes, Pegasystems’ CFO, added, “We remain concerned about the uncertainties associated with the current economic times and the impact on corporate buying behaviors. To date, the value proposition of our technology is driving our growth in revenue, gross profit and net income. In addition to achieving a new record in quarterly revenue, we generated $16.5 million in cash flow from operations in the quarter and $30.5 million year-to-date.”

Messrs. Trefler and Dynes will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on August 8, 2008. Dial-in information is as follows: (877) 604-9671 (domestic) or (719) 325-4870 (international).

To listen to the Webcast log onto www.pega.com at least 5 minutes prior to the event's broadcast and click on the Webcast icon in the Investor Relations section. A replay of the call will also be available on www.pega.com in the Investor Relations section Audio Archives link.

Forward-Looking Statements

Certain statements contained in this press release may be construed as "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “project,” “expect,” “plan,” “intend,” “believe,” “estimate,” “target,” “forecasting,” “could” and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause the Company's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include, without limitation, variation in demand and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition, the level of term license renewals, our ability to develop new products and evolve existing ones, the impact on our business of the recent credit market turmoil and of the ongoing consolidation in the financial services and healthcare markets, our ability to attract and retain key personnel, reliance on key third party relationships and management of the Company's growth. Further information regarding these and other factors which could cause the Company's actual results to differ materially from any forward-looking statements contained in this press release is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2007 and other recent filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company's views as of August 7, 2008. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause the Company's view to change, the Company does not undertake and specifically disclaims any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise. The statements should therefore not be relied upon as representing the Company's view as of any date subsequent to August 7, 2008.

About Pegasystems

Pegasystems (NASDAQ: PEGA), the leader in Business Process Management, provides software to drive revenue growth, productivity and agility for the world's most sophisticated organizations. Customers use our award-winning SmartBPM^® suite to improve customer service, reach new markets and boost operational effectiveness.

Our patented SmartBPM technology makes enterprise applications easy to build and change by directly capturing business objectives and eliminating manual programming. SmartBPM unifies business rules and processes into composite applications that leverage existing systems -- empowering businesspeople and IT staff to Build for Change^®, deliver value quickly and outperform their competitors.

Pegasystems’ suite is complemented by best-practice frameworks designed for leaders in financial services, insurance, healthcare, government, life sciences, communications, manufacturing and other industries.

Headquartered in Cambridge, MA, Pegasystems has offices in North America, Europe and Asia. Visit us at www.pega.com.

All trademarks are the property of their respective owners.

Pegasystems Inc.
Unaudited Condensed Consolidated Statements of Income
			Three Months Ended June 30,							Six Months Ended June 30,
				2008			2007				2008			2007
			(in thousands, except per share amounts)
Revenue:
Software license			$	15,819		$	10,344			$	33,304		$	22,428
Maintenance				10,083			7,380				18,982			14,401
Professional services				25,217			17,939				47,311			36,323
	Total Revenue			51,119			35,663				99,597			73,152
Cost of revenue:
Cost of software license				34			-				34			-
Cost of maintenance				1,320			1,152				2,552			2,297
Cost of professional services				19,419			13,168				37,739			27,587
	Total cost of revenue (1)			20,773			14,320				40,325			29,884
Gross Profit				30,346			21,343				59,272			43,268
Operating expenses:
Selling and marketing (1)				14,657			11,647				29,338			23,416
Research and development (1)				7,874			6,380				14,896			12,565
General and administrative (1)				5,231			4,255				10,288			8,470
	Total operating expenses			27,762			22,282				54,522			44,451
Income (loss) from operations				2,584			(939	)			4,750			(1,183	)
Installment receivable interest income				78			282				153			558
Other interest income, net				1,298			1,639				2,953			3,184
Other income, net				69			98				350			78
Income before provision for income taxes				4,029			1,080				8,206			2,637
Provision for income taxes				1,177			433				2,410			970
	Net income		$	2,852		$	647			$	5,796		$	1,667
Earnings per share, basic			$	0.08		$	0.02			$	0.16		$	0.05
Earnings per share, diluted			$	0.08		$	0.02			$	0.15		$	0.04
Weighted-average number of common shares outstanding, basic				36,264			35,670				36,144			35,510
Weighted-average number of common shares outstanding, diluted				37,801			38,017				37,448			37,822
Dividends per share			$	0.03		$	0.03			$	0.06		$	0.06
(1) Includes stock-based compensation as follows:
Cost of revenue			$	261		$	107			$	465		$	269
Selling and marketing			$	208		$	108			$	368		$	210
Research and development			$	154		$	30			$	239		$	71
General and administrative			$	497		$	55			$	651		$	146

Pegasystems Inc.
Unaudited Condensed Consolidated Balance Sheets
			As of June 30,			As of December 31,
			2008			2007
			(in thousands)
Current Assets:
	Cash and cash equivalents		$	29,386		$	26,710
	Short-term investments			147,457			123,271
	Total cash, cash equivalents and short-term investments			176,843			149,981
	Trade accounts receivable, net			31,505			45,922
	Short-term license installments			9,762			19,183
	Other current assets			8,016			7,240
	Total current assets			226,126			222,326
Long-term license installments, net				7,011			8,267
Property and equipment, net				4,143			4,182
Long-term deferred income taxes and other assets				8,260			6,599
Goodwill				2,141			1,933
	Total assets		$	247,681		$	243,307
Current liabilities:
	Accounts payable		$	1,227		$	5,670
	Accrued expenses			9,406			10,405
	Accrued compensation and related expenses			10,655			13,526
	Deferred revenue			40,262			33,178
	Total current liabilities			61,550			62,779
Income taxes payable				5,597			5,185
Other long-term liabilities				2,243			2,399
	Total liabilities			69,390			70,363
Stockholders' equity:				178,291			172,944
	Total liabilities and stockholders' equity		$	247,681		$	243,307

Pegasystems Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
			Six Months Ended June 30,
				2008				2007
			(in thousands)
Cash flows from operating activities:
	Net income		$	5,796			$	1,667
	Adjustments to reconcile net income to cash flows provided by operating activities:
	Excess tax benefits from stock options and deferred income taxes			(2,561	)			(372	)
	Depreciation and amortization, and other non-cash items			1,429				1,192
	Stock-based compensation expense			1,723				696
	Change in operating assets and liabilities, and other, net			24,080				8,136
	Cash flows provided by operating activities			30,467				11,319
	Cash flows used in investing activities			(26,881	)			(27,084	)
	Cash flows (used in) provided by financing activities			(1,033	)			4,185
Effect of exchange rate on cash and cash equivalents				123				303
Net increase (decrease) in cash and cash equivalents				2,676				(11,277	)
Cash and cash equivalents, beginning of period				26,710				26,008
Cash and cash equivalents, end of period			$	29,386			$	14,731

Pegasystems Inc.

2007 - Expanded captions (unaudited)

(in thousands)

Q1

Q2

Q3

Q4

YTD

As Reported

Expanded

As Reported

Expanded

As Reported

Expanded

As Reported

Expanded

As Reported

Expanded

Revenue:

Software license

$

12,084

$

12,084

$