UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

_____________________________________

☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2022

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

Commission File Number: 1-11859

____________________________

PEGASYSTEMS INC.

(Exact name of Registrant as specified in its charter)

____________________________

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

One Main Street, Cambridge, MA 02142

(Address of principal executive offices, including zip code)

(617) 374-9600

(Registrant’s telephone number, including area code)

____________________________

Securities registered pursuant to Section 12(b) of the Act:Title of each classTrading symbol(s)Name of each exchange on which registeredCommon Stock, $.01 par value per sharePEGANASDAQ Global Select Market

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

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

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

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

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

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

There were 81,818,454 shares of the Registrant’s common stock, $0.01 par value per share, outstanding on April 19, 2022.

Table of Contents

PEGASYSTEMS INC.

QUARTERLY REPORT ON FORM 10-Q

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	3
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021	4
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) for the three months ended March 31, 2022 and 2021	5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021	6
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021	7
Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	25
Item 4. Controls and Procedures	26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	27
Item 1A. Risk Factors	27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 5. Other Information	28
Item 6. Exhibits	29
Signature	30

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PEGASYSTEMS INC.<br><br>UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS<br><br>(in thousands)
	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	132,771	$	159,965
Marketable securities	199,401		202,814
Total cash, cash equivalents, and marketable securities	332,172		362,779
Accounts receivable	171,181		182,717
Unbilled receivables	226,052		226,714
Other current assets	74,408		68,008
Total current assets	803,813		840,218
Unbilled receivables	135,975		129,789
Goodwill	82,031		81,923
Other long-term assets	516,661		541,601
Total assets	$	1,538,480	$	1,593,531
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	18,628	$	15,281
Accrued expenses	63,401		63,890
Accrued compensation and related expenses	54,804		120,946
Deferred revenue	290,873		275,844
Other current liabilities	7,309		9,443
Total current liabilities	435,015		485,404
Convertible senior notes, net	591,440		590,722
Operating lease liabilities	90,699		87,818
Other long-term liabilities	14,658		13,499
Total liabilities	1,131,812		1,177,443
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, 1,000 shares authorized; none issued	—		—
Common stock, 200,000 shares authorized; 81,802 and 81,712 shares issued and outstanding at<br><br>March 31, 2022 and December 31, 2021, respectively	818		817
Additional paid-in capital	141,771		145,810
Retained earnings	273,615		276,449
Accumulated other comprehensive (loss)	(9,536)		(6,988)
Total stockholders’ equity	406,668		416,088
Total liabilities and stockholders’ equity	$	1,538,480	$	1,593,531

See notes to unaudited condensed consolidated financial statements.

PEGASYSTEMS INC.<br><br>UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS<br><br>(in thousands, except per share amounts)
	Three Months Ended<br>March 31,
		2022		2021
Revenue
Subscription services		$	170,033	$	143,419
Subscription license		137,533		111,509
Perpetual license		7,440		5,452
Consulting		61,301		53,119
Total revenue		376,307		313,499
Cost of revenue
Subscription services		32,030		28,343
Subscription license		622		620
Perpetual license		34		30
Consulting		55,511		53,454
Total cost of revenue		88,197		82,447
Gross profit		288,110		231,052
Operating expenses
Selling and marketing		162,236		148,739
Research and development		71,490		62,442
General and administrative		35,764		18,270
Total operating expenses		269,490		229,451
Income from operations		18,620		1,601
Foreign currency transaction gain (loss)		2,876		(5,098)
Interest income		207		153
Interest expense		(1,946)		(1,880)
(Loss) on capped call transactions		(30,560)		(19,117)
Other income, net		2,741		106
(Loss) before (benefit from) income taxes		(8,062)		(24,235)
(Benefit from) income taxes		(7,683)		(17,618)
Net (loss)		$	(379)	$	(6,617)
(Loss) per share
Basic		$	0.00	$	(0.08)
Diluted		$	0.00	$	(0.08)
Weighted-average number of common shares outstanding
Basic		81,680		81,004
Diluted		81,680		81,004

See notes to unaudited condensed consolidated financial statements.

PEGASYSTEMS INC.<br><br>UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)<br><br>(in thousands)
	Three Months Ended<br>March 31,
		2022		2021
Net (loss)		$	(379)	$	(6,617)
Other comprehensive (loss) income, net of tax
Unrealized gain on available-for-sale securities		222		1,010
Foreign currency translation adjustments		(2,770)		(730)
Total other comprehensive (loss) income, net of tax		$	(2,548)	$	280
Comprehensive (loss)		$	(2,927)	$	(6,337)

See notes to unaudited condensed consolidated financial statements.

PEGASYSTEMS INC.<br>UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY <br>(in thousands, except per share amounts)
	Common Stock			Additional<br>Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Total <br>Stockholders’ Equity
	Number <br>of Shares	Amount
December 31, 2020	80,890	$	809	$	204,432	$	339,879	$	(2,948)	$	542,172
Cumulative-effect adjustment from adoption of ASU 2020-06, net	—	—		(61,604)		9,399		—		(52,205)
Repurchase of common stock	(70)	(1)		(9,145)		—		—		(9,146)
Issuance of common stock for stock compensation plans	402	4		(25,513)		—		—		(25,509)
Issuance of common stock under the employee stock purchase plan	24	—		2,288		—		—		2,288
Stock-based compensation	—	—		30,100		—		—		30,100
Cash dividends declared ($0.03 per share)	—	—		—		(2,438)		—		(2,438)
Other comprehensive income	—	—		—		—		280		280
Net (loss)	—	—		—		(6,617)		—		(6,617)
March 31, 2021	81,246	$	812	$	140,558	$	340,223	$	(2,668)	$	478,925
December 31, 2021	81,712	$	817	$	145,810	$	276,449	$	(6,988)	$	416,088
Repurchase of common stock	(242)	(2)		(22,581)		—		—		(22,583)
Issuance of common stock for stock compensation plans	297	3		(12,131)		—		—		(12,128)
Issuance of common stock under the employee stock purchase plan	35	—		2,446		—		—		2,446
Stock-based compensation	—	—		28,227		—		—		28,227
Cash dividends declared ($0.03 per share)	—	—		—		(2,455)		—		(2,455)
Other comprehensive (loss)	—	—		—		—		(2,548)		(2,548)
Net (loss)	—	—		—		(379)		—		(379)
March 31, 2022	81,802	$	818	$	141,771	$	273,615	$	(9,536)	$	406,668

See notes to unaudited condensed consolidated financial statements.

PEGASYSTEMS INC.<br><br>UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS<br><br>(in thousands)
	Three Months Ended<br>March 31,
	2022		2021
Operating activities
Net (loss)	$	(379)	$	(6,617)
Adjustments to reconcile net (loss) to cash provided by operating activities
Stock-based compensation	28,227		30,100
Deferred income taxes	(9,295)		(15,068)
Loss on capped call transactions	30,560		19,117
Amortization of deferred commissions	17,221		11,496
Lease expense	3,919		3,238
Amortization of intangible assets and depreciation	4,171		7,006
Foreign currency transaction (gain) loss	(2,876)		5,098
Other non-cash	(1,100)		1,634
Change in operating assets and liabilities, net	(55,332)		(34,354)
Cash provided by operating activities	15,116		21,650
Investing activities
Purchases of investments	(33,690)		(21,051)
Proceeds from maturities and called investments	20,915		40,867
Sales of investments	13,350		2,450
Payments for acquisitions, net of cash acquired	—		(4,993)
Investment in property and equipment	(6,657)		(1,784)
Cash (used in) provided by investing activities	(6,082)		15,489
Financing activities
Proceeds from employee stock purchase plan	2,446		2,288
Dividend payments to stockholders	(2,454)		(2,427)
Common stock repurchases	(35,910)		(34,655)
Cash (used in) financing activities	(35,918)		(34,794)
Effect of exchange rate changes on cash and cash equivalents	(310)		(1,536)
Net (decrease) increase in cash and cash equivalents	(27,194)		809
Cash and cash equivalents, beginning of period	159,965		171,899
Cash and cash equivalents, end of period	$	132,771	$	172,708

See notes to unaudited condensed consolidated financial statements.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Pegasystems Inc. (together with its subsidiaries, “the Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021.

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

All intercompany transactions and balances were eliminated in consolidation. The operating results for the interim periods presented do not necessarily indicate the expected results for the full year 2022.

Certain prior period amounts reported in our condensed consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation. Such reclassifications did not affect total revenues, operating income, or net income.

NOTE 2. MARKETABLE SECURITIES

	March 31, 2022								December 31, 2021
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Government debt	$	2,000	$	—	$	(47)	$	1,953	$	2,000	$	—	$	(10)	$	1,990
Corporate debt	200,371		7		(2,930)		197,448		201,659		2		(837)		200,824
	$	202,371	$	7	$	(2,977)	$	199,401	$	203,659	$	2	$	(847)	$	202,814

As of March 31, 2022, marketable securities’ maturities ranged from April 2022 to September 2024, with a weighted-average remaining maturity of 1.02 years.

NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Receivables

(in thousands)	March 31, 2022		December 31, 2021
Accounts receivable	$	171,181	$	182,717
Unbilled receivables	226,052		226,714
Long-term unbilled receivables	135,975		129,789
	$	533,208	$	539,220

Unbilled receivables

Unbilled receivables are client-committed amounts for which revenue recognition precedes billing, and billing is solely subject to the passage of time.

Unbilled receivables by expected billing date:

(Dollars in thousands)	March 31, 2022
1 year or less	$	226,052	62	%
1-2 years	88,003		25	%
2-5 years	47,972		13	%
	$	362,027	100	%

Unbilled receivables by contract effective date:

(Dollars in thousands)	March 31, 2022
2022	$	72,143	20	%
2021	163,869		45	%
2020	77,585		21	%
2019	27,163		8	%
2018 and prior	21,267		6	%
	$	362,027	100	%

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Major clients

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

	March 31, 2022		December 31, 2021
Client A
Accounts receivable	4	%	1	%
Unbilled receivables	15	%	15	%
Total receivables	11	%	10	%

Contract assets

Contract assets are client-committed amounts for which revenue recognized exceeds the amount billed to the client, and billing is subject to conditions other than the passage of time, such as the completion of a related performance obligation.

(in thousands)	March 31, 2022		December 31, 2021
Contract assets (1)	$	11,765	$	12,530
Long-term contract assets (2)	10,292		10,643
	$	22,057	$	23,173

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

Deferred revenue

Deferred revenue consists of billings and payments received in advance of revenue recognition.

(in thousands)	March 31, 2022		December 31, 2021
Deferred revenue	$	290,873	$	275,844
Long-term deferred revenue (1)	6,612		5,655
	$	297,485	$	281,499

(1) Included in other long-term liabilities.

The change in deferred revenue in the three months ended March 31, 2022 was primarily due to new billings in advance of revenue recognition and $124.9 million of revenue recognized during the period that was included in deferred revenue as of December 31, 2021.

NOTE 4. DEFERRED COMMISSIONS

(in thousands)	March 31, 2022		December 31, 2021
Deferred commissions (1)	$	125,220	$	135,911

(1) Included in other long-term assets.

	Three Months Ended<br>March 31,
(in thousands)		2022		2021
Amortization of deferred commissions (1)		$	17,221	$	11,496

(1) Included in selling and marketing expense.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5. GOODWILL AND OTHER INTANGIBLES

Goodwill

Change in goodwill:

	Three Months Ended<br>March 31,
(in thousands)	2022
January 1,	$	81,923
Acquisition	—
Currency translation adjustments	108
March 31,	$	82,031

Intangibles

Intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives.

		March 31, 2022
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,142	$	(57,662)	$	5,480
Technology	2-10 years	67,142		(59,531)		7,611
Other	1-5 years	5,361		(5,361)		—
		$	135,645	$	(122,554)	$	13,091

(1) Included in other long-term assets.

		December 31, 2021
(in thousands)	Useful Lives	Cost		Accumulated Amortization		Net Book Value (1)
Client-related	4-10 years	$	63,165	$	(57,342)	$	5,823
Technology	2-10 years	67,142		(58,902)		8,240
Other	1-5 years	5,361		(5,361)		—
		$	135,668	$	(121,605)	$	14,063

(1) Included in other long-term assets.

Amortization of intangible assets:


(in thousands)	2022		2021
Cost of revenue	$	629	$	629
Selling and marketing	343		373
	$	972	$	1,002

Future estimated intangibles assets amortization:

(in thousands)	March 31, 2022
Remainder of 2022	$	2,914
2023	3,618
2024	2,849
2025	2,509
2026	874
2027	327
	$	13,091

NOTE 6. OTHER ASSETS AND LIABILITIES

Other current assets

(in thousands)	March 31, 2022		December 31, 2021
Income tax receivables	$	27,679	$	25,691
Contract assets	11,765		12,530
Other	34,964		29,787
	$	74,408	$	68,008

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other long-term assets

(in thousands)	March 31, 2022		December 31, 2021
Deferred income taxes	$	188,155	$	180,656
Deferred commissions	125,220		135,911
Right of use assets	87,212		87,521
Capped call transactions	29,404		59,964
Property and equipment	28,603		26,837
Intangible assets	13,091		14,063
Contract assets	10,292		10,643
Other	34,684		26,006
	$	516,661	$	541,601

Other current liabilities

(in thousands)	March 31, 2022		December 31, 2021
Operating lease liabilities	$	4,855	$	6,989
Dividends payable	2,454		2,454
	$	7,309	$	9,443

Other long-term liabilities

(in thousands)	March 31, 2022		December 31, 2021
Deferred revenue	$	6,612	$	5,655
Other	8,046		7,844
	$	14,658	$	13,499

NOTE 7. LEASES

Corporate headquarters

In February 2021, the Company agreed to accelerate its exit from its previous corporate headquarters to October 1, 2021, in exchange for a one-time payment from its landlord of $18 million, which was amortized over the remaining lease term. The exit accelerated depreciation on the related leasehold improvements and reduced the Company’s future lease liabilities by $21.1 million and right of use assets by $20.3 million. On March 31, 2021 the Company leased office space at One Main Street, Cambridge, Massachusetts, to serve as its corporate headquarters. The 4.5 year lease includes a base rent of $2 million per year.

New Waltham Office

On July 6, 2021, the Company entered into an office space lease for 131 thousand square feet in Waltham, Massachusetts. The lease term of 11 years began on August 1, 2021. The annual rent equals the base rent plus a portion of building operating costs and real estate taxes. Rent first becomes payable on August 1, 2022. Base rent for the first year is approximately $6 million and will increase by 3% annually. In addition, the Company will receive an improvement allowance from the landlord of up to $11.8 million. This lease increased the Company’s lease liabilities and lease-related right of use assets by $42.1 million on August 1, 2021.

Expense


(in thousands)	2022		2021
Fixed lease costs (1)	$	5,093	$	300
Short-term lease costs	806		459
Variable lease costs	764		1,387
	$	6,663	$	2,146

(1) The lower fixed lease costs in the three months ended March 31, 2021 was due to the modification of the corporate headquarters lease.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Right of use assets and lease liabilities

(in thousands)	March 31, 2022		December 31, 2021
Right of use assets (1)	$	87,212	$	87,521
Operating lease liabilities (2)	$	4,855	$	6,989
Long-term operating lease liabilities	$	90,699	$	87,818

(1) Represents the Company’s right to use the leased asset during the lease term. Included in other long-term assets.

(2) Included in other current liabilities.

Weighted-average remaining lease term and discount rate for the Company’s leases were:

	March 31, 2022		December 31, 2021
Weighted-average remaining lease term	7.5 years		7.7 years
Weighted-average discount rate (1)	4.3	%	4.4	%

(1) The rates implicit in most of the Company’s leases are not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over the lease term in a similar economic environment.

Maturities of lease liabilities:

(in thousands)	March 31, 2022
Remainder of 2022	$	3,887
2023	20,317
2024	17,141
2025	14,352
2026	10,664
2027 and thereafter	48,381
Total lease payments	114,742
Less: imputed interest (1)	(19,188)
	$	95,554

(1) Lease liabilities are measured at the present value of the remaining lease payments using a discount rate determined at lease commencement unless the discount rate is updated due to a lease reassessment event.

Cash flow information

	Three Months Ended<br>March 31,
(in thousands)	2022		2021
Cash paid for leases	$	3,650	$	6,716
Right of use assets recognized for new leases and amendments (non-cash)	$	3,854	$	714

NOTE 8. DEBT

Convertible senior notes and capped calls

Convertible senior notes

In February 2020, the Company issued Convertible Senior Notes (the "Notes") with an aggregate principal of $600 million, due March 1, 2025, in a private placement. No principal payments are due before maturity. The Notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1, beginning on September 1, 2020.

Conversion rights

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

Beginning on September 1, 2024, noteholders may convert their Notes at any time at their election.

Before September 1, 2024, noteholders may convert their Notes in the following circumstances:

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

•Upon certain corporate events or distributions or if the Company calls any Notes for redemption, noteholders may convert before the close of business on the business day immediately before the related redemption date (or, if the Company fails to pay the redemption price in full on the redemption date, until the Company pays the redemption price).

As of March 31, 2022, the Notes were not eligible for conversion.

Repurchase rights

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

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

Carrying value of the Notes:

(in thousands)	March 31, 2022		December 31, 2021
Principal	$	600,000	$	600,000
Unamortized issuance costs	(8,560)		(9,278)
Convertible senior notes, net	$	591,440	$	590,722

Interest expense related to the Notes:


(in thousands)	2022		2021
Contractual interest expense (0.75% coupon)	$	1,125	$	1,125
Amortization of issuance costs	719		673
	$	1,844	$	1,798

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The effective interest rate for the Notes:

	Three Months Ended<br>March 31,
	2022		2021
Weighted-average effective interest rate	1.2	%	1.2	%

Future payments of principal and contractual interest:

	March 31, 2022
(in thousands)	Principal		Interest		Total
Remainder of 2022	$	—	$	2,250	$	2,250
2023	—		4,500		4,500
2024	—		4,500		4,500
2025	600,000		2,250		602,250
	$	600,000	$	13,500	$	613,500

Capped call transactions

In February 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions cover approximately 4.4 million shares (representing the number of shares for which the Notes are initially convertible) of the Company’s common stock. The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The cap price of the Capped Call Transactions is subject to adjustment upon specified extraordinary events affecting the Company, including mergers and tender offers.

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 of the Capped Call Transactions, calculated following the governing documents, may not represent a fair value measurement. The Capped Call Transactions are classified as other long-term assets and remeasured to fair value each reporting period, resulting in a non-operating gain or loss.

Change in capped call transactions:

	Three Months Ended<br>March 31,
(in thousands)	2022		2021
January 1,	$	59,964	$	83,597
Fair value adjustment	(30,560)		(19,117)
March 31,	$	29,404	$	64,480

Credit facility

In November 2019, and as since amended, the Company entered into a five-year $100 million senior secured revolving credit agreement (the “Credit Facility”) with PNC Bank, National Association. The Company may use borrowings for general corporate purposes and to finance working capital needs. Subject to specific conditions, the Credit Facility allows the Company to increase the aggregate commitment to $200 million. The commitments expire on November 4, 2024, and any outstanding loans will be payable on such date. The Credit Facility, as amended, contains customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions.

The Company is required to comply with financial covenants, including:

•Beginning with the fiscal quarter ended March 31, 2022 and ending with the fiscal quarter ended December 31, 2022, Pegasystems Inc. must maintain at least $200 million in cash, investments, and availability under the Revolving Credit Loan.

•Beginning with the quarter ended March 31, 2023, a maximum net consolidated leverage ratio of 3.5 to 1.0 (with a step-up for certain acquisitions) and a minimum consolidated interest coverage ratio of 3.5 to 1.0.

As of March 31, 2022 and December 31, 2021, the Company had no outstanding borrowings under the Credit Facility.

NOTE 9. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

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

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

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

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

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

Assets and liabilities measured at fair value on a recurring basis:

	March 31, 2022								December 31, 2021
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents	$	19,626	$	—	$	—	$	19,626	$	3,216	$	—	$	—	$	3,216
Marketable securities	$	—	$	199,401	$	—	$	199,401	$	—	$	202,814	$	—	$	202,814
Capped Call Transactions (1)	$	—	$	29,404	$	—	$	29,404	$	—	$	59,964	$	—	$	59,964
Venture investments (1) (2)	$	—	$	—	$	12,830	$	12,830	$	—	$	—	$	7,648	$	7,648

(1) Included in other long-term assets. (2) Investments in privately-held companies.

Changes in venture investments:

	Three Months Ended<br>March 31,
(in thousands)	2022		2021
January 1,	$	7,648	$	8,345
New investments	—		500
Sales of investments	—		(400)
Changes in foreign exchange rates	(61)		(9)
Changes in fair value:
included in other income	2,741		100
included in other comprehensive income	2,502		1,220
March 31,	$	12,830	$	9,756

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

Fair value of the Notes

The Notes’ fair value (including the conversion feature embedded in the Notes) was $573.0 million as of March 31, 2022 and $642.0 million as of December 31, 2021. The fair value was determined based on the Notes’ quoted price in an over-the-counter market on the last trading day of the reporting period and classified within Level 2 in the fair value hierarchy.

NOTE 10. REVENUE

Geographic revenue


(Dollars in thousands)	2022			2021
U.S.		$	217,272	58	%	$	194,568	62	%
Other Americas		45,751		12	%	11,901		4	%
United Kingdom (“U.K.”)		30,932		8	%	28,212		9	%
Europe (excluding U.K.), Middle East, and Africa		49,136		13	%	51,659		16	%
Asia-Pacific		33,216		9	%	27,159		9	%
		$	376,307	100	%	$	313,499	100	%

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenue streams

	Three Months Ended<br>March 31,
(in thousands)		2022		2021
Perpetual license		$	7,440	$	5,452
Subscription license		137,533		111,509
Revenue recognized at a point in time		144,973		116,961
Maintenance		79,716		75,561
Pega Cloud		90,317		67,858
Consulting		61,301		53,119
Revenue recognized over time		231,334		196,538
Total revenue		$	376,307	$	313,499
	Three Months Ended<br>March 31,
---	---	---	---	---
(in thousands)		2022			2021
Pega Cloud			$	90,317		$	67,858
Maintenance			79,716			75,561
Subscription services			170,033			143,419
Subscription license			137,533			111,509
Subscription			307,566			254,928
Perpetual license			7,440			5,452
Consulting			61,301			53,119
			$	376,307		$	313,499

Remaining performance obligations ("Backlog")

Expected future revenue from existing non-cancellable contracts:

As of March 31, 2022:

(Dollars in thousands)		Subscription services					Subscription<br>license		Perpetual<br>license		Consulting		Total
	Maintenance			Pega Cloud
1 year or less		$	228,984		$	329,857	$	47,428	$	7,281	$	40,661	$	654,211	55	%
1-2 years		63,870			208,875		16,111		4,505		10,955		304,316		26	%
2-3 years		33,617			106,156		2,422		2,252		3,876		148,323		13	%
Greater than 3 years		22,611			44,596		1,758		—		522		69,487		6	%
		$	349,082		$	689,484	$	67,719	$	14,038	$	56,014	$	1,176,337	100	%

As of March 31, 2021:

(Dollars in thousands)		Subscription services					Subscription<br>license		Perpetual<br>license		Consulting		Total
	Maintenance			Pega Cloud
1 year or less		$	220,100		$	252,104	$	41,025	$	9,649	$	21,068	$	543,946	55	%
1-2 years		52,366			187,456		9,874		629		914		251,239		26	%
2-3 years		33,337			91,861		7,055		—		1,756		134,009		14	%
Greater than 3 years		16,834			32,895		377		—		510		50,616		5	%
		$	322,637		$	564,316	$	58,331	$	10,278	$	24,248	$	979,810	100	%

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11. STOCK-BASED COMPENSATION

Expense


(in thousands)	2022		2021
Cost of revenue	$	6,378	$	5,925
Selling and marketing	10,958		13,720
Research and development	7,346		6,770
General and administrative	3,545		3,685
	$	28,227	$	30,100
Income tax benefit	$	(5,311)	$	(5,991)

As of March 31, 2022, the Company had $200.8 million of unrecognized stock-based compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.3 years.

Grants

	Three Months Ended<br>March 31, 2022
(in thousands)	Shares	Total Fair Value
Restricted stock units	1,096	$	94,538
Non-qualified stock options	2,212	$	60,514

NOTE 12. INCOME TAXES

Effective income tax rate


(Dollars in thousands)	2022			2021
(Benefit from) income taxes	$	(7,683)		$	(17,618)
Effective income tax benefit rate	95		%	73		%

The change in the effective income tax benefit rate was primarily due to the impact of discrete tax items which were proportionately larger on a lower loss before income taxes.

Stock-based compensation increases the variability of our effective tax rates. The impact of stock-based compensation on a given period depends on our profitability, the attributes of the stock compensation awards the Company grants, and award holders' exercise behavior.

NOTE 13. (LOSS) PER SHARE

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

Calculation of (loss) per share:


(in thousands, except per share amounts)	2022		2021
Net (loss)	$	(379)	$	(6,617)
Weighted-average common shares outstanding	81,680		81,004
(Loss) per share, basic	$	0.00	$	(0.08)
Net (loss)	$	(379)	$	(6,617)
Weighted-average common shares outstanding, assuming dilution (1) (2) (3)	81,680		81,004
(Loss) per share, diluted	$	0.00	$	(0.08)
Outstanding anti-dilutive stock options and RSUs (4)	4,178		6,465

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

(2) The shares underlying the conversion options in the Company’s Notes are included using the if-converted method, if dilutive in the period. If the outstanding conversion options were fully exercised, the Company would issue an additional approximately 4.4 million shares.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(3) The Company’s Capped Call Transactions represent the equivalent of approximately 4.4 million shares of the Company’s common stock (representing the number of shares for which the Notes are initially convertible). The Capped Call Transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes, with such reduction and/or offset subject to a cap of $196.44. The Capped Call Transactions are excluded from weighted-average common shares outstanding, assuming dilution, in all periods as their effect would be anti-dilutive.

(4) Outstanding stock options and RSUs that were anti-dilutive under the treasury stock method in the period were excluded from the computation of diluted (loss) per share. These awards may be dilutive in the future.

NOTE 14. COMMITMENTS AND CONTINGENCIES

Commitments

See "Note 7. Leases" for additional information.

Legal Proceedings

In addition to the matters below, the Company is, or may become, involved in a variety of claims, demands, suits, investigations, and proceedings that arise from time to time relating to matters incidental to the ordinary course of the Company’s business, including actions concerning contracts, intellectual property, employment, benefits, and securities matters. Regardless of the outcome, legal disputes can have a material effect on the Company because of defense and settlement costs, diversion of management resources, and other factors.

In addition, as the Company is a party to ongoing litigation, it is at least reasonably possible that our estimates will change in the near term and the effect may be material.

As of March 31, 2022 and December 31, 2021, the Company has no accrued losses for litigation.

Pegasystems Inc. v. Appian Corp. & Business Process Management Inc.

On July 3, 2019, the Company filed suit in Massachusetts federal court against Appian Corp. (“Appian”) and Business Process Management, Inc. (“BPM”) relating to a BPM “Market Report” that Appian had used to promote itself against the Company. Pegasystems Inc. v. Appian Corp. & Business Process Management Inc., No. 1:19-cv-11461 (D. Mass). On April 15, 2022, each of the parties filed motions for summary judgment with the court. The Company continues to believe the counterclaims brought by Appian against the Company are without merit, and the Company intends to vigorously pursue its claims against Appian and defend against the counterclaims brought against the Company in this matter. The Company is unable to reasonably estimate possible damages or a range of possible damages in this matter given the Company’s belief that the damages claimed by Appian fail to satisfy the required legal standard, the status of the proceeding, and due to the uncertainty as to how a jury may rule if this ultimately proceeds to trial.

Appian Corp. v. Pegasystems Inc. & Youyong Zou

As previously reported, the Company is a defendant in litigation brought by Appian that is currently being tried in Virginia (the “Court”) titled Appian Corp. v. Pegasystems Inc. & Youyong Zou, No. 2020-07216 (Fairfax Cty. Ct.). The jury trial began on March 21, 2022. On April 13, 2022, Appian withdrew its claim against the Company for tortious interference with business expectancy. On that same day, in the course of making determinations on various motions, the Court stated that if the jury finds that the Company misappropriated information that constituted Appian trade secrets and finds that the Company incorporated those trade secrets into the Company’s products or the Company’s marketing materials, the burden will then shift to the Company to prove that the sales Appian seeks as damages were not the result of the alleged misappropriation and use of the alleged trade secrets. This legal standard has not previously been adopted by the Virginia courts. The Company continues to believe that its sales of the products at issue were not caused by, or the result of, the alleged misappropriation of trade secrets, and is submitting evidence to the jury to that effect. The Company is unable to reasonably estimate possible damages because, among other things, of the uncertainty as to how a jury may decide and the parties’ existing grounds for appeal based on rulings to date in the proceeding.

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

FORWARD-LOOKING STATEMENTS

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

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

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

•our future financial performance and business plans;

•the adequacy of our liquidity and capital resources;

•the continued payment of our quarterly dividends;

•the timing of revenue recognition;

•management of our transition to a more subscription-based business model;

•variation in demand for our products and services, including among clients in the public sector;

•reliance on key personnel;

•global economic and political conditions and uncertainty, including continued impacts from the ongoing COVID-19 pandemic and the war in Ukraine;

•reliance on third-party service providers, including hosting providers;

•compliance with our debt obligations and covenants;

•the potential impact of our convertible senior notes and Capped Call Transactions;

•foreign currency exchange rates;

•the potential legal and financial liabilities and damage to our reputation due to cyber-attacks;

•security breaches and security flaws;

•our ability to protect our intellectual property rights, costs associated with defending such rights, as well as intellectual property rights claims and other related claims by third parties;

•our client retention rate; and

•management of our growth.

These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, Part II of this Quarterly Report on Form 10-Q, and other filings we make with the U.S. Securities and Exchange Commission (“SEC”).

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

The forward-looking statements in this Quarterly Report represent our views as of April 28, 2022.

BUSINESS OVERVIEW

We develop, market, license, host, and support enterprise software that helps organizations simplify business complexity. Our powerful low-code platform for workflow automation and AI-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 intelligent technology and scalable architecture to accelerate their digital transformation. In addition, our client success teams, world-class partners, and clients themselves leverage our Pega Express™ methodology to design and deploy mission-critical applications quickly and collaboratively.

Our target clients are Global 3000 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. Along with our partners, we deliver solutions tailored to our clients’ specific industry needs.

Subscription transition

We are transitioning our business to sell software primarily through subscription arrangements. Until we fully complete our subscription transition, which we expect will occur in 2023, our revenue and operating cash flow may be impacted. Operating performance and the actual mix of revenue and new arrangements in each period can fluctuate based on client preferences for our perpetual and subscription offerings. See the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information.

Coronavirus (“COVID-19”)

As of March 31, 2022, COVID-19 has not had a material impact on our results of operations or financial condition. See “Coronavirus (“COVID-19”)” in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information.

Ukraine

Our direct financial exposure to Ukraine, Russia, and Belarus is not material.

In 2021, before Russia's invasion of Ukraine, we made a business decision to stop pursuing new clients in Russia and closed our local office. For the year ended December 31, 2021 total revenue from clients located in Ukraine, Russia, and Belarus was less than $4.0 million. However, the ultimate impact of Russia’s invasion of Ukraine on our business will depend on future developments, including the duration and spread of the conflict, the impact on our people, partners, clients, and vendors in neighboring countries, and globally, all of which are uncertain and unpredictable.

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”) | Increased 21% since March 31, 2021

ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its duration in years to calculate ACV for subscription license and Pega Cloud contracts. Maintenance revenue for the quarter then ended is multiplied by four to calculate ACV for maintenance. ACV is a performance measure that we believe provides useful information to our management and investors, particularly during our subscription transition.

Foreign currency exchange rate changes were a 1% to 2% headwind to ACV growth since March 31, 2021.

Remaining performance obligations (“Backlog”) | Increased 20% since March 31, 2021

Expected future revenue from existing non-cancellable contracts:

CRITICAL ACCOUNTING POLICIES

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

For more information about our critical accounting policies, we encourage you to read the discussion in the following locations in our Annual Report on Form 10-K for the year ended December 31, 2021:

•“Critical Accounting Estimates and Significant Judgments” in Item 7; and

•“Note 2. Significant Accounting Policies” in Item 8.

There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

RESULTS OF OPERATIONS

Revenue

Subscription transition

We are transitioning our business to sell software primarily through subscription arrangements. This transition has impacted revenue growth as revenue is recognized differently for subscription services than license sales. Revenue from Pega Cloud and maintenance arrangements is typically recognized over the contract term, while revenue from license sales is recognized when the license rights become effective, typically upfront.

(Dollars in thousands)					Change
	2022	2021
Pega Cloud			$	90,317	24	%	$	67,858	22	%	$	22,459	33	%
Maintenance			79,716		21	%	75,561		23	%	4,155		5	%
Subscription services			170,033		45	%	143,419		45	%	26,614		19	%
Subscription license			137,533		37	%	111,509		36	%	26,024		23	%
Subscription			307,566		82	%	254,928		81	%	52,638		21	%
Perpetual license			7,440		2	%	5,452		2	%	1,988		36	%
Consulting			61,301		16	%	53,119		17	%	8,182		15	%
			$	376,307	100	%	$	313,499	100	%	$	62,808	20	%

The revenue changes in the three months ended March 31, 2022 generally reflect the impact of our subscription transition. Other factors impacting our revenue include:

•The increase in perpetual revenue in the three months ended March 31, 2022 was primarily due to license rights becoming effective in the three months ended March 31, 2022 related to software license contracts entered into in prior years.

•The increase in consulting revenue in the three months ended March 31, 2022 was primarily due to an increase in consultant billable hours in North America.

Gross profit

(Dollars in thousands)					Change
	2022	2021
Pega Cloud			$	63,418	70	%	$	45,301	67	%	$	18,117	40	%
Maintenance			74,585		94	%	69,775		92	%	4,810		7	%
Subscription services			138,003		81	%	115,076		80	%	22,927		20	%
Subscription license			136,911		100	%	110,889		99	%	26,022		23	%
Subscription			274,914		89	%	225,965		89	%	48,949		22	%
Perpetual license			7,406		100	%	5,422		99	%	1,984		37	%
Consulting			5,790		9	%	(335)		(1)	%	6,125		*
			$	288,110	77	%	$	231,052	74	%	$	57,058	25	%

* not meaningful

•The increases in gross profit and gross profit percent in the three months ended March 31, 2022 were primarily due to the impact of our subscription transition, revenue growth, and cost-efficiency gains as Pega Cloud grows and scales.

•The increase in consulting gross profit percent in the three months ended March 31, 2022 was due to an increase in consultant realization rates in North America.

Operating expenses

(Dollars in thousands)					Change
	2022	2021
					% of Revenue				% of Revenue
Selling and marketing			$	162,236	43	%	$	148,739	47	%	$	13,497	9	%
Research and development			$	71,490	19	%	$	62,442	20	%	$	9,048	14	%
General and administrative			$	35,764	10	%	$	18,270	6	%	$	17,494	96	%

•The increase in selling and marketing in the three months ended March 31, 2022 was primarily due to an increase in compensation and benefits of $8.9 million and an increase in employee travel and entertainment of $2.6 million.

•The increase in research and development in the three months ended March 31, 2022 was primarily due to an increase in compensation and benefits of $5.7 million, attributable to increases in headcount and incentive compensation. The increase in headcount reflects additional investments in developing our solutions, particularly for Pega Cloud.

•The increase in general and administrative in the three months ended March 31, 2022 was primarily due to an increase of $15.4 million in legal fees and related expenses arising from proceedings outside the ordinary course of business. We have incurred and expect to continue to incur additional expenses for these proceedings in 2022. See "Note 14. Commitments and Contingencies" in Part I, Item 1 and “Risk Factors” in Part II, Item 1A of this Quarterly Report for additional information.

Other income and expenses

(Dollars in thousands)
	2022	2021
Foreign currency transaction gain (loss)			$	2,876	$	(5,098)	$	7,974	*
Interest income			207		153		54		35	%
Interest expense			(1,946)		(1,880)		(66)		(4)	%
(Loss) on capped call transactions			(30,560)		(19,117)		(11,443)		(60)	%
Other income, net			2,741		106		2,635		2,486	%
			$	(26,682)	$	(25,836)	$	(846)	(3)	%

* not meaningful

•The increase in foreign currency transaction gain (loss) in the three months ended March 31, 2022 was primarily due to the impact of fluctuations in foreign currency exchange rates associated with our foreign currency-denominated cash, receivables, and intercompany balances held by our subsidiary in the United Kingdom.

•The increase in interest income in the three months ended March 31, 2022 was primarily due to increases in market interest rates.

•The increase in the (loss) on capped call transactions in the three months ended March 31, 2022, was due to fair value adjustments for our capped call transactions. See "Note 9. Fair Value Measurements" in Part I, Item 1 of this Quarterly Report for additional information.

•The increase in other income, net in the three months ended March 31, 2022, was due to fair value adjustments on equity securities held in our venture investments portfolio in the three months ended March 31, 2021.

(Benefit from) income taxes


(Dollars in thousands)	2022			2021
(Benefit from) income taxes	$	(7,683)		$	(17,618)
Effective income tax benefit rate	95		%	73		%

During the three months ended March 31, 2022, the change in our effective income tax benefit rate was primarily due to the impact of discrete tax items which were proportionately larger on a lower loss before income taxes.

Stock-based compensation increases the variability of our effective tax rates. The impact on our effective tax rate in each period depends on our profitability and the tax deductions from our stock compensation activity, which depend upon our stock price and the award holders' exercise behavior.

LIQUIDITY AND CAPITAL RESOURCES

	Three Months Ended<br>March 31,
(in thousands)	2022		2021
Cash provided by (used in):
Operating activities	$	15,116	$	21,650
Investing activities	(6,082)		15,489
Financing activities	(35,918)		(34,794)
Effect of exchange rates on cash and cash equivalents	(310)		(1,536)
Net (decrease) increase in cash and cash equivalents	$	(27,194)	$	809
(in thousands)	March 31, 2022		December 31, 2021
---	---	---	---	---
Held by U.S. entities	$	251,554	$	274,813
Held by foreign entities	80,618		87,966
Total cash, cash equivalents, and marketable securities	$	332,172	$	362,779

We believe that our current cash, cash flow from operations, and borrowing capacity 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. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our future growth, operating results, and the investments needed to support our operations. We may utilize available funds or seek additional external financing if we require additional capital resources.

If it becomes necessary to repatriate foreign funds, we may have to pay U.S. and foreign taxes upon repatriation. However, due to the complexity of income tax laws and regulations, it is impracticable to estimate the amount of taxes we would have to pay.

Operating activities

We are transitioning our business to sell software primarily through subscription arrangements. This transition has impacted and is expected to continue impacting our billings and cash collections, as the timing of billings and cash collections generally differs between our subscription and perpetual license arrangements. Subscription licenses and services are generally billed and collected over the contract term, while perpetual license arrangements usually are billed and collected upfront when the license rights become effective.

The change in cash provided by operating activities in the three months ended March 31, 2022 was primarily due to our subscription transition and increased costs as we made investments in our Pega Cloud offering and selling and marketing activities to support future growth. In addition, in the three months ended March 31, 2022 we incurred $17.4 million in legal fees and related expenses arising from proceedings that originated outside of the ordinary course of business. We expect to continue to incur additional expenses for these proceedings. See "Note 14. Commitments and Contingencies" in Part I, Item 1 of this Quarterly Report for additional information.

Investing activities

The change in cash (used in) provided by investing activities in the three months ended March 31, 2022 was primarily driven by our investments in financial instruments and an acquisition in 2021.

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.

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

In November 2019, and as since amended, we entered into a five-year $100 million senior secured revolving credit agreement with PNC Bank, National Association. As of March 31, 2022, we had no outstanding borrowings under the Credit Facility. See "Note 8. Debt" in Part I, Item 1 of this Quarterly Report for additional information.

Stock repurchase program

Changes in the remaining stock repurchase authority:

(in thousands)	Three Months Ended<br>March 31, 2022
December 31, 2021	$	22,583
Authorizations (1)	—
Repurchases (2)	(22,583)
March 31, 2022	$	—

(1) On June 8, 2021, we announced that our Board of Directors extended the current stock repurchase program’s expiration date to June 30, 2022 and increased the remaining common stock repurchase authority to $60 million.

(2) All purchases under this program have been made on the open market.

Common stock repurchases

	Three Months Ended<br>March 31,
	2022			2021
(in thousands)	Shares	Amount		Shares	Amount
Repurchases paid	242	$	22,583	67	$	8,846
Repurchases unpaid at period end	—	—		3	300
Stock repurchase program	242	22,583		70	9,146
Tax withholdings for net settlement of equity awards	141	12,128		197	25,509
	383	$	34,711	267	$	34,655

During the three months ended March 31, 2022 and 2021, instead of receiving cash from the equity holders, we withheld shares with a value of $6.1 million and $10.1 million, respectively, for the exercise price of options. These amounts are not included in the table above.

Dividends

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.

	Three Months Ended<br>March 31,
(in thousands)	2022		2021
Dividend payments to stockholders	$	2,454	$	2,427

Contractual obligations

As of March 31, 2022, our contractual obligations were:

	Payments due by period
(in thousands)	Remainder of 2022		2023		2024		2025		2026		2027 and thereafter		Other		Total
Convertible senior notes (1)	$	2,250	$	4,500	$	4,500	$	602,250	$	—	$	—	$	—	$	613,500
Purchase obligations (2)	49,936		14,311		9,198		13,072		13,750		—		—		100,267
Operating lease obligations	3,887		20,317		17,141		14,352		10,664		48,381		—		114,742
Liability for uncertain tax positions (3)	—		—		—		—		—		—		1,705		1,705
	$	56,073	$	39,128	$	30,839	$	629,674	$	24,414	$	48,381	$	1,705	$	830,214

(1) Includes principal and interest.

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk 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, which partially offsets our foreign currency exposure.

A hypothetical 10% strengthening in the U.S. dollar against other currencies would have resulted in:

	Three Months Ended<br>March 31,
	2022		2021
(Decrease) increase in revenue	(3)	%	(4)	%
Increase (decrease) in net income	186	%	20	%

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.

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:

	Three Months Ended<br>March 31,
(in thousands)	2022		2021
Foreign currency gain (loss)	$	(7,937)	$	(7,522)

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of March 31, 2022. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2022.

(b) Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 1. LEGAL PROCEEDINGS

The following information contains an update to the description of our pending legal proceedings with Appian Corp., as described in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on February 16, 2022.

Pegasystems Inc. v. Appian Corp. & Business Process Management Inc.

Appian Corp. v. Pegasystems Inc. & Youyong Zou

ITEM 1A. RISK FACTORS

The risk factors set forth below update the risk factors in our Annual Report on Form 10-K filed with the SEC on February 16, 2022.

In addition to the risk factors set forth below, we encourage you to carefully consider the risk factors identified in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission. These risk factors could materially affect our business, financial condition, and future results, and may cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management.

We face risks related to intellectual property claims or appropriation of our intellectual property rights.

We rely primarily on a combination of patent, copyright, trademark, and trade secrets laws, as well as intellectual property and confidentiality agreements to protect our proprietary rights. We also try to control access to and distribution of our technologies and other proprietary information. We have obtained patents in strategically important global markets relating to the architecture of our systems. We cannot be certain that such patents will not be challenged, invalidated, or circumvented, or that rights granted thereunder, or the claims contained therein will provide us with competitive advantages. Moreover, despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our software or to obtain the use of information that we regard as proprietary. Although we generally enter into intellectual property and confidentiality agreements with our employees and strategic partners, despite our efforts our former employees may seek employment with our business partners, clients, or competitors, and there can be no assurance that the confidential nature of our proprietary information will be maintained. In addition, the laws of some foreign countries do not protect our proprietary rights as effectively as they do in the U.S. There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology.

Other companies or individuals have obtained proprietary rights covering a variety of designs, processes, and systems. Third parties have claimed and may in the future claim that we have infringed or otherwise violated their intellectual property. We are currently party to litigation with Appian Corp. - see Part II, Item 1 “Legal Proceedings” and Note 14 in the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report, and Part I, Item 3 “Legal Proceedings” and Note 19 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of our Annual Report filed with the SEC on February 16, 2022.

Although we attempt to limit the amount and type of our contractual liability for infringement or other violation of the proprietary rights of third parties and assert ownership of work product and intellectual property rights as appropriate, there are often exceptions, and limitations may not be applicable and enforceable in all cases. Even if limitations are found to be applicable and enforceable, our liability to our clients for these types of claims could be material given the size of certain of our transactions. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment and delivery delays, require us to enter into royalty or licensing agreements, or preclude us from making and selling the infringing software, if such proprietary rights are found to be valid. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. These claims could also subject us to significant liability for damages, potentially including treble damages if we are found to have willfully infringed patents or copyrights. Even if a license were available, we could be required to pay significant royalties, which would increase our operating expenses. As a result, we may be required to develop alternative non-infringing technology, which could require substantial effort and cost. If we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop sales of our software and may be unable to compete effectively, which could have a material effect upon our business, operating results, and financial condition.

Intellectual property rights claims by third parties are extremely costly to defend, could require us to pay significant damages, and could limit our ability to use certain technologies.

Companies in the software and technology industries, including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. In addition, many of these companies can dedicate greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. The litigation may involve patent holding companies or other adverse patent owners that have no relevant product revenues and against which our patents may, therefore, provide little or no deterrence. 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. We are currently party to litigation with Appian Corp. - see Part II, Item 1 “Legal Proceedings” and Note 14 in the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report, and Part I, Item 3 “Legal Proceedings” and Note 19 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of our Annual Report filed with the SEC on February 16, 2022.

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. Significant judgments are required for the determination of probability and the range of the outcomes in any legal dispute, and the estimates are based only on the information available to us at the time. Due to the inherent uncertainties involved in claims, legal proceedings, and in estimating the losses that may arise, actual outcomes may differ from our estimates. Contingencies deemed not probable or for which losses were not estimable in one period may become probable, or losses may become estimable in later periods which may have a material impact on our results of operations and financial position. Intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from manufacturing or licensing certain of our products, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments to our customers. Any of these could seriously harm our business.

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

Issuer purchases of equity securities

Common stock repurchased in the three months ended March 31, 2022:

(in thousands, except per share amounts)	Total Number of Shares Purchased (1) (2)	Average<br><br>Price Paid<br><br>per Share (1) (2)		Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program (2)	Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchase Programs (2)
January 1, 2022 - January 31, 2022	118	$	99.46	101	$	12,584
February 1, 2022 - February 28, 2022	141	90.97		103	$	3,085
March 1, 2022 - March 31, 2022	196	82.52		38	$	—
	455	$	89.54	242

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

(2) On June 8, 2021, we announced that our Board of Directors extended the current stock repurchase program’s expiration date to June 30, 2022 and increased the remaining stock repurchase authority to $60 million. See "Liquidity and Capital Resources" in Part I, Item 2 of this Quarterly Report for additional information.

ITEM 5. OTHER INFORMATION

Effective on March 31, 2022, we entered into an amendment (the “Amendment”) to our $100 million senior secured revolving credit agreement (the “Credit Agreement”) with PNC Bank, National Association (“PNC”). The Amendment modifies the financial covenants as reflected in Note 8. Debt of Part I, Item 1 of this Quarterly Report on Form 10-Q and transitions the Credit Agreement from the U.S. dollar London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) for floating rate loan commitments under the Credit Agreement.

The description of the Credit Agreement contained herein is qualified in its entirety by reference to the Credit Agreement, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.

ITEM 6. EXHIBITS

Exhibit No.	Description		Incorporation by Reference					Filed Herewith
		Form		Exhibit		Filing Date
3.1	Restated Articles of Organization of the Registrant and Amendments thereto		10-Q		3.1		November 4, 2014
3.2	Amended and Restated Bylaws of Pegasystems Inc.		8-K		3.2		June 15, 2020
10.1**	Amendment to Loan Documents,effective March 31, 202 2 , between Pegasystems Inc. and PNC Bank, National Association.							X
31.1	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.							X
31.2	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.							X
32++	Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer and the Chief Financial Officer.							X
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.							X
101.SCH	Inline XBRL Taxonomy Extension Schema Document.							X
101.CAL	Inline XBRL Taxonomy Calculation Linkbase Document.							X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.							X
101.LAB	Inline XBRL Taxonomy Label Linkbase Document.							X
101.PRE	Inline XBRL Taxonomy Presentation Linkbase Document.							X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)							X

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

** Certain portions of this exhibit are considered confidential and have been omitted as allowed under SEC rules and regulations.

SIGNATURE

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

		Pegasystems Inc.
Dated:	April 28, 2022	By:	/s/ KENNETH STILLWELL
			Kenneth Stillwell
			Chief Operating Officer and Chief Financial Officer
			(Principal Financial Officer)

Document

EXHIBIT 10.1

Fourth Amendment to Loan Documents

THIS FOURTH AMENDMENT TO LOAN DOCUMENTS (this “Amendment”) is made as of March 31, 2022, by and among PEGASYSTEMS INC. (the “Borrower”), the Guarantors (as such term is defined in the Credit Agreement defined in Exhibit A attached hereto and made a part hereof (the “Loan Agreement”)) party hereto (the “Guarantors” and each, individually, a “Guarantor”; the Borrower and the Guarantors are collectively referred to herein as the “Loan Parties” and each, individually, a “Loan Party”), the Lenders (as such term is defined in the Loan Agreement) party hereto (the “Lenders”) and PNC BANK, NATIONAL ASSOCIATION (the “Agent”), in its capacity as “Agent” (as such term is defined in the Loan Agreement) for the Lenders.

BACKGROUND

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

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

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

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

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

3. The Borrower hereby confirms that any collateral for the Obligations, including liens, security interests, mortgages, and pledges granted by the Borrower or third parties (if applicable), shall continue unimpaired and in full force and effect, and shall cover and secure all of the Borrower’s existing and future Obligations to the Lenders, as modified by this Amendment.

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

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

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

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

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

Certain identified information contained in this document, identified by [***], has been excluded because it is both not material and is the type that Pegasystems treats as private or confidential.

EXHIBIT 10.1

(continued)

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

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

[signatures appear on following page]

EXHIBIT 10.1

(continued)

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

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

Signature Page – Loan Parties – Fourth Amendment to Loan Documents

EXHIBIT 10.1

(continued)

PNC BANK, NATIONAL ASSOCIATION,

Individually and as Agent

By: __/s/ Robert Novak______________________________

Name: Robert Novak

Title: Senior Vice President

Signature Page – PNC Bank – Fourth Amendment to Loan Documents

EXHIBIT 10.1

(continued)

EXHIBIT A

TO FOURTH AMENDMENT TO LOAN DOCUMENTS

DATED AS OF MARCH 31, 2022

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

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

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

3.Second Amendment to Loan Documents dated as of July 22, 2020 made by and among the Borrower, each of the Guarantors, and the Agent (the “Second Amendment”).

4.Third Amendment to Loan Documents dated as of September 20, 2020 made by and among the Borrower, each of the Guarantors, and the Agent (the “Third Amendment”).

5.Guarantor Joinder and Assumption Agreement made as of August 24, 2020, by Pega Government LLC in favor of Agent and Lenders (the "Guarantor Joinder").

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

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

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

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

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

11.First Amendment to Pledge Agreement dated as of August 24, 2020, by and between Borrower and Agent (the “First Amendment to Pledge Agreement”)

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

13.Deposit Account Control Agreement dated as of December 23, 2019, by and among Borrower, Agent and Bank of America, N.A. (as amended and in effect from time to time, the “Deposit Account Control Agreement”).

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

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

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

B. Amendments to Loan Documents. The Loan Documents are hereby amended and modified as follows:

1.Amendments to Loan Agreement.

1.01 Reference is hereby made to Section 1.01 of the Loan Agreement. Said Section 1.01 is hereby modified to delete the following definitions:

(a)Daily LIBOR Rate;

(b)Federal Funds Effective Rate;

(c)Federal Funds Open Rate;

(d)LIBOR Rate;

(e)LIBOR Rate Option;

(f)LIBOR Reserve Percentage;

(g)Month; and

(h)Published Rate.

Exhibit A - 1

EXHIBIT 10.1

(continued)

1.02 Reference is hereby made to Section 1.01 of the Loan Agreement. Said Section 1.01 is hereby modified to add the following new definitions in the appropriate alphabetical order:

“Adjusted Daily Simple SOFR” shall mean an interest rate per annum equal to (a) the Daily Simple SOFR, plus (b) 0.10%.

“Adjusted Term SOFR Rate” shall mean, for any Interest Period, an interest rate per annum equal to (a) the Term SOFR Rate for such Interest Period, plus (b) (i) 0.10% with respect to an Interest Period of one (1) month, (ii) 0.15% with respect to an Interest Period of three (3) months, and (iii) 0.25% with respect to an Interest Period of six (6) months.

“Administrative Questionnaire” shall mean an administrative questionnaire in a form supplied by the Administrative Agent.

“Benchmark Replacement” shall mean as is specified in Section 4.4(d) [Benchmark Replacement Setting].

“Conforming Changes” shall mean, with respect to the Term SOFR Rate or any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent decides may be appropriate to reflect the adoption and implementation of the Term SOFR Rate or such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of the Term SOFR Rate or the Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).

“Daily Simple SOFR” shall mean, for any day (a “SOFR Rate Day”), the interest rate per annum determined by the Administrative Agent by dividing (the resulting quotient rounded upwards, at the Administrative Agent’s discretion, to the nearest 1/100th of 1%) (A) SOFR for the day (the “SOFR Determination Date”) that is 2 Business Days prior to (i) such SOFR Rate Day if such SOFR Rate Day is a Business Day or (ii) the Business Day immediately preceding such SOFR Rate Day if such SOFR Rate Day is not a Business Day, by (B) a number equal to 1.00 minus the SOFR Reserve Percentage , in each case, as such SOFR is published by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate) on the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source identified by the Federal Reserve Bank of New York or its successor administrator for the secured overnight financing rate from time to time. If Daily Simple SOFR as determined above would be less than the SOFR Floor, then Daily Simple SOFR shall be deemed to be the SOFR Floor. If SOFR for any SOFR Determination Date has not been published or replaced with a Benchmark Replacement by 5:00 p.m. (Pittsburgh, Pennsylvania time) on the second Business Day immediately following such SOFR Determination Date, then SOFR for such SOFR Determination Date will be SOFR for the first Business Day preceding such SOFR Determination Date for which SOFR was published in accordance with the definition of “SOFR”; provided that SOFR determined pursuant to this sentence shall be used for purposes of calculating Daily Simple SOFR for no more than 3 consecutive SOFR Rate Days. If and when Daily Simple SOFR as determined above changes, any applicable rate of interest based on Daily Simple SOFR will change automatically without notice to the Borrower, effective on the date of any such change.

“Effective Federal Funds Rate” shall mean for any day the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1% announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Effective Federal Funds Rate” as of the date of this Agreement; provided that if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the “Effective Federal Funds Rate” for such day shall be the Effective Federal Funds Rate for the last day on which such rate was announced. Notwithstanding the foregoing, if the Effective Federal Funds Rate as determined under any method above would be less than zero percent (0.00%), such rate shall be deemed to be zero percent (0.00%) for purposes of this Agreement.

“Lending Office” shall mean, as to the Administrative Agent, the Issuing Lender or any Lender, the office or offices of such Person described as such in such Lender’s Administrative Questionnaire, or such other office or offices as such Person may from time to time notify the Borrower and the Administrative Agent.

“Overnight Bank Funding Rate” shall mean for any day, the rate comprised of both overnight federal funds and overnight eurocurrency borrowings by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the Federal Reserve Bank of New York, as set forth on its public website from time to time, and as published on the next succeeding Business Day as the overnight bank funding rate by the Federal Reserve Bank of New York (or by such other recognized electronic source (such as Bloomberg) selected by the Administrative Agent for the purpose of displaying such rate); provided, that if such day is not a Business Day, the Overnight Bank Funding Rate for such day shall be such rate on the immediately preceding Business Day; provided, further, that if such rate shall at any time, for any reason, no longer exist, a comparable replacement rate determined by PNC at such time (which determination shall be conclusive absent manifest error). If the Overnight Bank Funding Rate determined as above would be less than zero, then such rate shall be deemed to be zero. The rate of interest charged shall be adjusted as of each Business Day based on changes in the Overnight Bank Funding Rate without notice to the Borrower.

“SOFR” shall mean, for any day, a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).

“SOFR Floor” shall mean a rate of interest per annum equal to zero basis points (0.00%).

Exhibit A - 2

EXHIBIT 10.1

(continued)

“SOFR Reserve Percentage” shall mean, for any day, the maximum effective percentage in effect on such day, if any, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to SOFR funding.

“Term SOFR Administrator” shall mean CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).

“Term SOFR Rate” shall mean, with respect to any amount to which the Term SOFR Rate Option applies, for any Interest Period, the interest rate per annum determined by the Administrative Agent by dividing (the resulting quotient rounded upwards, at the Administrative Agent’s discretion, to the nearest 1/100th of 1%) (A) the Term SOFR Reference Rate for a tenor comparable to such Interest Period, as such rate is published by the Term SOFR Administrator on the day (the “Term SOFR Determination Date”) that is two (2) Business Days prior to the first day of such Interest Period, by (B) a number equal to 1.00 minus the SOFR Reserve Percentage. If the Term SOFR Reference Rate for the applicable tenor has not been published or replaced with a Benchmark Replacement by 5:00 p.m. (Pittsburgh, Pennsylvania time) on the Term SOFR Determination Date, then the Term SOFR Reference Rate, for purposes of clause (A) in the preceding sentence, shall be the Term SOFR Reference Rate for such tenor on the first Business Day preceding such Term SOFR Determination Date for which such Term SOFR Reference Rate for such tenor was published in accordance herewith, so long as such first preceding Business Day is not more than three (3) Business Days prior to such Term SOFR Determination Date. If the Term SOFR Rate, determined as provided above, would be less than the SOFR Floor, then the Term SOFR Rate shall be deemed to be the SOFR Floor. The Term SOFR Rate shall be adjusted automatically without notice to the Borrower on and as of (i) the first day of each Interest Period, and (ii) the effective date of any change in the SOFR Reserve Percentage.

“Term SOFR Rate Loan” shall mean a Revolving Credit Loan that bears interest based on Term SOFR Rate, including the Adjusted Term SOFR Rate.

“Term SOFR Rate Option” shall mean the option of the Borrower to have Revolving Credit Loans bear interest at the rate and under the terms specified in Section 4.1.1(ii) [Revolving Credit Term SOFR Rate Option].

“Term SOFR Reference Rate” shall mean the forward-looking term rate based on SOFR.

1.03 Reference is hereby made to Section 1.01 of the Loan Agreement. Said Section 1.01 is hereby modified to amend and restate the following definitions to read as follows:

“Applicable Commitment Fee Rate” shall mean, as of any relevant date of determination, the percentage rate per annum based on the Net Leverage Ratio then in effect according to the pricing grid set forth in the definition of “Applicable Margin” herein.

“Applicable Letter of Credit Fee Rate” shall mean, as of any relevant date of determination, the percentage rate per annum based on the Net Leverage Ratio then in effect according to the pricing grid set forth in the definition of “Applicable Margin” herein.

“Base Rate” shall mean, for any day, a fluctuating per annum rate of interest equal to the highest of (i) the Overnight Bank Funding Rate, plus 0.5%, (ii) the Prime Rate, and (iii) Adjusted Daily Simple SOFR, plus 1.00%, so long as Daily Simple SOFR is offered, ascertainable and not unlawful; provided, however, if the Base Rate as determined above would be less than zero, then such rate shall be deemed to be zero. Any change in the Base Rate (or any component thereof) shall take effect at the opening of business on the day such change occurs.

“Borrowing Tranche” shall mean specified portions of Revolving Credit Loans outstanding as follows: (a) any Revolving Credit Loans to which a Term SOFR Rate Option applies under the same Revolving Credit Loan Request by the Borrower and which have the same Interest Period shall constitute one Borrowing Tranche, and (b) all Revolving Credit Loans to which a Base Rate Option applies shall constitute one Borrowing Tranche.

“Business Day” shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed, or are in fact closed, for business in Pittsburgh, Pennsylvania (or, if otherwise, the Lending Office of the Administrative Agent); provided that, when used in connection with an amount that bears interest at a rate based on SOFR or any direct or indirect calculation or determination of SOFR, the term “Business Day” means any such day that is also a U.S. Government Securities Business Day.

“Interest Period” shall mean the period of time selected by the Borrower in connection with (and to apply to) any election permitted hereunder by the Borrower to have Revolving Credit Loans bear interest under the Term SOFR Rate Option. Subject to the last sentence of this definition, such period shall be, in each case, subject to the availability thereof, one month, three months, or six months. Such Interest Period shall commence on the effective date of such Term SOFR Rate Option, which shall be (i) the Borrowing Date if the Borrower is requesting new Revolving Credit Loans, or (ii) the date of renewal of or conversion to the Term SOFR Rate Option if the Borrower is renewing or converting to the Term SOFR Rate Option applicable to outstanding Revolving Credit Loans. Notwithstanding the second sentence hereof: (A) any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (B) the Borrower shall not select, convert to or renew an Interest Period for any portion of the Revolving Credit Loans that would end after the Expiration Date, and (C) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period.

“Interest Rate Option” shall mean any Term SOFR Rate Option or Base Rate Option.

Exhibit A - 3

EXHIBIT 10.1

(continued)

1.04 Reference is hereby made to Section 1.1 of the Loan Agreement. The existing defined term “Applicable Margin” in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and the following new defined term “Applicable Margin” is hereby inserted in its place and stead:

“Applicable Margin” shall mean the corresponding percentages per annum as specified under and in accordance with the terms set forth below based on the Net Leverage Ratio:

Level	Net Leverage<br>Ratio	Commitment<br>Fee	Letter of<br>Credit Fee	Revolving Credit<br>Base Rate Spread	Revolving Credit Term<br>SOFR Rate Spread
I	Less than 1.0 to 1.0	0.150%	1.00%	0.00%	1.00%
II	Greater than or equal to 1.0 to 1.0 but less than 2.0 to 1.0	0.175%	1.25%	0.25%	1.25%
III	Greater than or equal to 2.00 to 1.0 but less than 3.00 to 1.0	0.200%	1.40%	0.40%	1.40%
IV	Greater than or equal to 3.0 to 1.0	0.225%	1.55%	0.55%	1.55%

For purposes of determining the Applicable Margin, the Applicable Commitment Fee Rate and the Applicable Letter of Credit Fee Rate:

(a) The Applicable Margin, the Applicable Commitment Fee Rate and the Applicable Letter of Credit Fee Rate shall be determined on the Closing Date based on the Net Leverage Ratio computed on such date pursuant to a Compliance Certificate to be delivered on the Closing Date.

(b) The Applicable Margin, the Applicable Commitment Fee Rate and the Applicable Letter of Credit Fee Rate shall be recomputed as of the end of each fiscal quarter ending after the Closing Date based on the Net Leverage Ratio as of such quarter end. Any increase or decrease in the Applicable Margin, the Applicable Commitment Fee Rate or the Applicable Letter of Credit Fee Rate computed as of a quarter end shall be effective on the date on which the Compliance Certificate evidencing such computation is due to be delivered under Section 8.3.3 [Certificate of Borrower]. If a Compliance Certificate is not delivered when due in accordance with such Section 8.3.3, then the rates in Level IV shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered.

(c) If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason, the Borrower or the Lenders determine that (i) the Net Leverage Ratio as calculated by the Borrower as of any applicable date was inaccurate and (ii) a proper calculation of the Net Leverage Ratio would have resulted in higher pricing for such period, the Borrower shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent, any Lender or the Issuing Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This paragraph shall not limit the rights of the Administrative Agent, any Lender or the Issuing Lender, as the case may be, under Section 2.9 [Letter of Credit Subfacility] or Section 4.3 [Interest After Default] or Section 9 [Default]. The Borrower’s obligations under this paragraph shall survive the termination of the Commitments and the repayment of all other Obligations hereunder.

1.05 Reference is hereby made to Section 1.4 of the Loan Agreement. Said Section 1.4 is hereby deleted in its entirety and the following new Section 1.4 is hereby inserted in its place and stead:

“1.4 Term SOFR Notification. Section 4.4(d) [Benchmark Replacement Setting] of this Agreement provides a mechanism for determining an alternative rate of interest in the event that the Term SOFR Rate is no longer available or in certain other circumstances. The Administrative Agent does not warrant or accept any responsibility for and shall not have any liability with respect to, the administration, submission or any other matter related to the Term SOFR Rate or with respect to any alternative or successor rate thereto, or replacement rate therefor.”

1.06 Reference is hereby made to Schedule 1.1(A) of the Loan Agreement. Said Schedule 1.1(A) is hereby deleted in its entirety and replaced with the definition of “Applicable Margin”.

1.07 Reference is hereby made to Schedule 1.1(B) Part 2 of the Loan Agreement. Said Schedule 1.1(B) Part 2 is hereby amended and restated as follows:

“Part 2 - Addresses for Notices to Borrower and Guarantors:

ADMINISTRATIVE AGENT

Name: PNC Bank, National Association 100 Summer Street Boston, MA 02110 Attention: TJ O’Malley

Telephone: [***] Telecopy: [***]

Exhibit A - 4

EXHIBIT 10.1

(continued)

With a Copy To:

Agency Services, PNC Bank, National Association Mail Stop: P7-PFSC-04-I Address: 500 First Avenue Pittsburgh, PA 15219 Attention: Agency Services Telephone: [***] Telecopy: [***]

BORROWER:

Name: Pegasystems Inc. Address: One Main Street Cambridge, MA 02142 Attention: Stathi Kouninis, Chief Accounting Officer and Vice President, Finance

Telephone: [***] Email : [***]

GUARANTORS:

Name: Pegasystems Worldwide Inc. Address: One Main Street Cambridge, MA 02142 Attention: Stathi Kouninis, Chief Accounting Officer and Vice President, Finance

Telephone: [***] Email : [***]

Name: Antenna Software, LLC Address: One Main Street Cambridge, MA 02142 Attention: Stathi Kouninis, Chief Accounting Officer and Vice President, Finance

Telephone: [***] Email : [***]

Name: Pega Government LLC Address: One Main Street Cambridge, MA 02142 Attention: Stathi Kouninis, Chief Accounting Officer and Vice President, Finance

Telephone: [***] Email : [***]

1.08 Reference is hereby made to Section 2.5 of the Loan Agreement. Said Section 2.5 is hereby amended and restated as follows:

“2.5 Revolving Credit Loan Requests; Conversions and Renewals. Except as otherwise provided herein, the Borrower may from time to time prior to the Expiration Date request the Lenders to make Revolving Credit Loans, or renew or convert the Interest Rate Option applicable to existing Revolving Credit Loans pursuant to Section 4.2 [Interest Periods], by delivering to the Administrative Agent, not later than 10:00 a.m. Eastern Time, (i) three (3) Business Days prior to the proposed Borrowing Date with respect to the making of Revolving Credit Loans to which the Term SOFR Rate Option applies or the conversion to or the renewal of the Term SOFR Rate Option for any Revolving Credit Loans; and (ii) the same Business Day of the proposed Borrowing Date with respect to the making of a Revolving Credit Loan to which the Base Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Base Rate Option for any Revolving Credit Loan, of a duly completed request therefor substantially in the form of Exhibit 2.5.1 or a request by telephone immediately confirmed in writing by letter, facsimile or telex in such form (each, a “Loan Request”), it being understood that the Administrative Agent may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation. Each Loan Request shall be irrevocable and shall specify the aggregate amount of the proposed Revolving Credit Loans comprising each Borrowing Tranche, and, if applicable, the Interest Period, which amounts shall be in (x) integral multiples of $500,000 and not less than $1,000,000 for each Borrowing Tranche under the Term SOFR Rate Option, and (y) integral multiples of $100,000 and not less than $250,000 for each Borrowing Tranche under the Base Rate Option.”

1.09 Reference is hereby made to Section 4.1 of the Loan Agreement. Said Section 4.1 is hereby amended and restated as follows:

Exhibit A - 5

EXHIBIT 10.1

(continued)

“4.1 Interest Rate Options. The Borrower shall pay interest in respect of the outstanding unpaid principal amount of the Revolving Credit Loans as selected by it from the Base Rate Option or Term SOFR Rate Option set forth below applicable to the Revolving Credit Loans, it being understood that, subject to the provisions of this Agreement, the Borrower may select different Interest Rate Options and different Interest Periods to apply simultaneously to the Revolving Credit Loans comprising different Borrowing Tranches and may convert to or renew one or more Interest Rate Options with respect to all or any portion of the Revolving Credit Loans comprising any Borrowing Tranche; provided that there shall not be at any one time outstanding more than six (6) Borrowing Tranches in the aggregate among all of the Revolving Credit Loans and provided further that if an Event of Default or Potential Default exists and is continuing, the Borrower may not request, convert to, or renew the Term SOFR Rate Option for any Revolving Credit Loans and the Required Lenders may demand that all existing Borrowing Tranches bearing interest under the Term SOFR Rate Option shall be converted to the Base Rate Option, at the end of the applicable Interest Period relating thereto. If at any time the designated rate applicable to any Revolving Credit Loan made by any Lender exceeds such Lender's highest lawful rate, the rate of interest on such Lender's Revolving Credit Loan shall be limited to such Lender's highest lawful rate.

4.1.1 Revolving Credit Interest Rate Options. The Borrower shall have the right to select from the following Interest Rate Options applicable to the Revolving Credit Loans:

(i) Revolving Credit Base Rate Option: A fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate plus the Applicable Margin, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or

(ii) Revolving Credit Term SOFR Rate Option: A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the Adjusted Term SOFR Rate as determined for each applicable Interest Period plus the Applicable Margin.

4.1.2 Reserved.

4.1.3 Rate Quotations. The Borrower may call the Administrative Agent on or before the date on which a Loan Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such projection shall not be binding on the Administrative Agent or the Lenders nor affect the rate of interest which thereafter is actually in effect when the election is made.

4.1.4 Conforming Changes Relating to Term SOFR Rate. With respect to the Term SOFR Rate, the Administrative Agent may make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document; provided that, the Administrative Agent shall provide notice to the Borrower and the Lenders of each amendment implementing Conforming Changes reasonably promptly after such amendment becomes effective.”

1.10 Reference is hereby made to Section 4.4 of the Loan Agreement. Said Section 4.4 is hereby deleted in its entirety and the following new Section 4.4 is hereby inserted in its place and stead:

“4.4 Term SOFR Rate Unascertainable; Increased Costs; Illegality; Benchmark Replacement Setting.

(a)Unascertainable; Increased Costs. If, on or prior to the first day of an Interest Period:

(i)the Administrative Agent shall have determined (which determination shall be conclusive and binding absent manifest error) that (x) the Term SOFR Rate or Daily Simple SOFR cannot be determined pursuant to the definition thereof; or (y) a fundamental change has occurred with respect to the Term SOFR Rate or Daily Simple SOFR (including, without limitation, changes in national or international financial, political or economic conditions), or

(ii)Any Lender determines that for any reason in connection with any request for a Term SOFR Rate Loan or a conversion thereto or a continuation thereof that the Term SOFR Rate for any requested Interest Period with respect to a proposed Term SOFR Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Revolving Credit Loan, and such Lender has provided notice of such determination to the Administrative Agent, or

(iii)the Administrative Agent or the Required Lenders determine that for any reason in connection with any request for a Revolving Credit Loan bearing interest based on Daily Simple SOFR or a conversion thereto or a continuation thereof that the Daily Simple SOFR with respect to such proposed Revolving Credit Loan does not adequately and fairly reflect the cost to such Lenders of funding such Revolving Credit Loan,

then the Administrative Agent shall have the rights specified in Section 4.4(c) [Administrative Agent’s and Lender’s Rights].

(b)Illegality. If at any time any Lender shall have determined that the making, maintenance or funding of any Term SOFR Rate Loan or Revolving Credit Loan based on Daily Simple SOFR has been made impracticable or unlawful by compliance by such Lender in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law), then the Administrative Agent shall have the rights specified in Section 4.4(c) [Administrative Agent’s and Lender’s Rights].

Exhibit A - 6

EXHIBIT 10.1

(continued)

(c)Administrative Agent’s and Lender’s Rights. In the case of any event specified in Section 4.4(a) [Unascertainable; Increased Costs] above, the Administrative Agent shall promptly notify the Lenders and the Borrower thereof, and in the case of an event specified in Section 4.4(b) [Illegality] above, such Lender shall promptly notify the Administrative Agent and endorse a certificate to such notice as to the specific circumstances of such notice, and the Administrative Agent shall promptly send copies of such notice and certificate to the other Lenders and the Borrower. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given), the obligation of (i) the Lenders, in the case of such notice given by the Administrative Agent, or (ii) such Lender, in the case of such notice given by such Lender, to allow the Borrower to select, convert to or renew a Term SOFR Rate Loan or Revolving Credit Loan based on Daily Simple SOFR, as applicable, shall be suspended (to the extent of the affected Term SOFR Rate Loan, or Interest Periods or Revolving Credit Loan based on Daily Simple SOFR, as applicable,) until the Administrative Agent shall have later notified the Borrower, or such Lender shall have later notified the Administrative Agent, of the Administrative Agent’s or such Lender’s, as the case may be, determination that the circumstances giving rise to such previous determination no longer exist. If at any time the Administrative Agent makes a determination under Section 4.4(a) [Unascertainable; Increased Costs] and the Borrower has previously notified the Administrative Agent of its selection of, conversion to or renewal of a Term SOFR Rate Option and the Term SOFR Rate Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Base Rate Option otherwise available with respect to such Revolving Credit Loans. If any Lender notifies the Administrative Agent of a determination under Section 4.4(b) [Illegality], the Borrower shall, subject to the Borrower’s indemnification Obligations under Section 5.10 [Indemnity], as to any Revolving Credit Loan of the Lender to which a Term SOFR Rate Option applies, on the date specified in such notice either convert such Revolving Credit Loan to the Base Rate Option otherwise available with respect to such Revolving Credit Loan or prepay such Revolving Credit Loan in accordance with Section 5.6 [Voluntary Prepayments]. Absent due notice from the Borrower of conversion or prepayment, such Revolving Credit Loan shall automatically be converted to the Base Rate Option otherwise available with respect to such Revolving Credit Loan upon such specified date.

(d)Benchmark Replacement Setting.

(i)Benchmark Replacement. Notwithstanding anything to the contrary herein or in any other Loan Document (and any agreement executed in connection with an Interest Rate Hedge shall be deemed not to be a “Loan Document” for purposes of this Section titled “Benchmark Replacement Setting”), if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior to any setting of the then-current Benchmark, then (A) if a Benchmark Replacement is determined in accordance with clause (1) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (B) if a Benchmark Replacement is determined in accordance with clause (2) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders.

(ii)Benchmark Replacement Conforming Changes. In connection with the use, administration, adoption or implementation of a Benchmark Replacement, the Administrative Agent may make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.

(iii)Notices; Standards for Decisions and Determinations. The Administrative Agent will promptly notify the Borrower and the Lenders of (A) the implementation of any Benchmark Replacement, and (B) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of a Benchmark Replacement. The Administrative Agent will notify the Borrower of (x) the removal or reinstatement of any tenor of a Benchmark pursuant to paragraph (iv) below and (y) the commencement of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document except, in each case, as expressly required pursuant to this Section.

(iv)Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (A) if the then-current Benchmark is a term rate and either (I) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (II) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will not be representative, then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor; and (B) if a tenor that was removed pursuant to clause (A) above either (I) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (II) is not, or is no longer, subject to an announcement that it is not or will not be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor.

Exhibit A - 7

EXHIBIT 10.1

(continued)

(v)Benchmark Unavailability Period. Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any pending request for a Revolving Credit Loan bearing interest based on the Term SOFR Rate, conversion to or continuation of Revolving Credit Loans bearing interest based on the Term SOFR Rate to be made, converted or continued during any Benchmark Unavailability Period and, failing that, the Borrower will be deemed to have converted any such request into a request for a Revolving Credit Loan of or conversion to Revolving Credit Loans bearing interest under the Base Rate Option. During a Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of the Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of the Base Rate.

(vi)Definitions. As used in this Section:

“Available Tenor” shall mean, as of any date of determination and with respect to the then-current Benchmark, as applicable, (x) if the then-current Benchmark is a term rate or is based on a term rate, any tenor for such Benchmark that is or may be used for determining the length of an Interest Period or (y) otherwise, any payment period for interest calculated with reference to such Benchmark, as applicable, pursuant to this Agreement as of such date.

“Benchmark” shall mean, initially, the Term SOFR Rate; provided that if a Benchmark Transition Event has occurred with respect to the Term SOFR Rate or the then-current Benchmark, then “Benchmark” shall mean the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to this Section.

“Benchmark Replacement” shall mean, with respect to any Benchmark Transition Event, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:

(1)Daily Simple SOFR;

(2)the sum of (A) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower, giving due consideration to (x) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (y) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement to the then-current Benchmark for U.S. dollar-denominated syndicated credit facilities at such time and (B) the related Benchmark Replacement Adjustment;

provided that if the Benchmark Replacement as determined pursuant to clause (2) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents; and provided further, that any Benchmark Replacement shall be administratively feasible as determined by the Administrative Agent in its sole discretion.

“Benchmark Replacement Adjustment” shall mean, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement , the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower, giving due consideration to (A) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (B) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated syndicated credit facilities at such time.

“Benchmark Replacement Date” shall mean a date and time determined by the Administrative Agent, which date shall be no later than the earliest to occur of the following events with respect to the then-current Benchmark:

(1) in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (A) the date of the public statement or publication of information referenced therein and (B) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or

(2) in the case of clause (3) of the definition of “Benchmark Transition Event,” the date determined by the Administrative Agent, which date shall promptly follow the date of the public statement or publication of information referenced therein;

For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).

“Benchmark Transition Event” shall mean, the occurrence of one or more of the following events, with respect to the then-current Benchmark:

(1) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);

Exhibit A - 8

EXHIBIT 10.1

(continued)

(2) a public statement or publication of information by an Official Body having jurisdiction over the Administrative Agent, the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or

(3) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) or an Official Body having jurisdiction over the Administrative Agent announcing that all Available Tenors of such Benchmark (or such component thereof) are not, or as of a specified future date will not be, representative.

For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).

“Benchmark Unavailability Period” shall mean the period (if any) (x) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with this Section 4.4(d) titled “Benchmark Replacement Setting” and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with this Section 4.4(d) titled “Benchmark Replacement Setting”.

“Floor” shall mean the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the Term SOFR Rate or, if no floor is specified, zero.

“Relevant Governmental Body” shall mean the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or any successor thereto.

“Unadjusted Benchmark Replacement” shall mean the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.”

1.11 Reference is hereby made to Section 4.5 of the Loan Agreement. Said Section 4.5 is hereby amended and restated as follows:

“4.5 Selection of Interest Rate Options. If the Borrower fails to select a new Interest Period to apply to any Borrowing Tranche of Revolving Credit Loans under the Term SOFR Rate Option at the expiration of an existing Interest Period applicable to such Borrowing Tranche in accordance with the provisions of Section 4.2 [Interest Periods], the Borrower shall be deemed to have continued such Borrowing Tranche at the Term SOFR Rate Option with an Interest Period of one month. Any Loan Request that fails to select an Interest Rate Option shall be deemed to be a request for the Base Rate Option.”

1.12 Reference is hereby made to Section 4.6 of the Loan Agreement. The text of Section 4.6 is hereby deleted in its entirety and replaced with the word “Reserved”.

1.13 Reference is hereby made to Section 5.5 of the Loan Agreement. Said Section 5.5 is hereby revised so that the following sentence is added to the end thereof: “Interest shall be computed to, but excluding, the date payment is due.”

1.14 Reference is hereby made to Section 5.6.1 of the Loan Agreement. Said Section 5.6.1 is hereby amended and restated as follows:

“5.6.1 Right to Prepay. The Borrower shall have the right at its option from time to time to prepay the Revolving Credit Loans in whole or part without premium or penalty (except as provided in Section 5.6.2 [Replacement of a Lender] below, in Section 5.8 [Increased Costs] and Section 5.10 [Indemnity]). Whenever the Borrower desires to prepay any part of the Revolving Credit Loans, it shall provide a prepayment notice to the Administrative Agent by 1:00 p.m. Eastern Time at least one (1) Business Day prior to the date of prepayment of the Revolving Credit Loans that bear interest at the Base Rate Option and at least three (3) Business Days in the case of Revolving Credit Loans bearing interest at the Term SOFR Rate Option, setting forth the following information:

(i)the date, which shall be a Business Day, on which the proposed prepayment is to be made;

(ii) a statement indicating the application of the prepayment between the Revolving Credit Loans to which the Base Rate Option applies and Revolving Credit Loans to which the Term SOFR Rate Option applies; and

(iii) the total principal amount of such prepayment, which shall not be less than the lesser of (A) the Revolving Facility Usage or (B) $10,000,000 for any Revolving Credit Loan.

Exhibit A - 9

EXHIBIT 10.1

(continued)

All prepayment notices shall be irrevocable. The principal amount of the Revolving Credit Loans for which a prepayment notice is given, together with interest on such principal amount, shall be due and payable on the date specified in such prepayment notice as the date on which the proposed prepayment is to be made. Except as provided in Section 4.4(c) [Administrative Agent’s and Lender’s Rights], if the Borrower prepays a Revolving Credit Loan but fails to specify the applicable Borrowing Tranche which the Borrower is prepaying, the prepayment shall be applied (1) first to Revolving Credit Loans; and (2) after giving effect to the allocations in clause (1) above and in the preceding sentence, first to Revolving Credit Loans to which the Base Rate Option applies, then to Revolving Credit Loans to which the Term SOFR Rate Option applies. Any prepayment hereunder shall be subject to the Borrower’s Obligation to indemnify the Lenders under Section 5.10 [Indemnity].”

1.15 Reference is hereby made to Section 5.8.1(iii) of the Loan Agreement. Said Section 5.8.1(iii) is hereby amended and restated as follows:

“(iii) impose on any Lender, the Issuing Lender or the relevant market any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein;”

1.16 Reference is hereby made to Section 5.10 of the Loan Agreement. Said Section 5.10 is hereby amended and restated as follows:

“5.10 Indemnity. In addition to the compensation or payments required by Section 5.8 [Increased Costs] or Section 5.9 [Taxes], the Borrower shall indemnify each Lender against all liabilities, losses or expenses (including loss of anticipated profits, any foreign exchange losses and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Revolving Credit Loan, from fees payable to terminate the deposits from which such funds were obtained or from the performance of any foreign exchange contract) which such Lender sustains or incurs as a consequence of any:

(a) payment, prepayment, conversion or renewal of any Revolving Credit Loan to which a Term SOFR Rate Option applies on a day other than the last day of the corresponding Interest Period (whether or not such payment or prepayment is mandatory, voluntary or automatic and whether or not such payment or prepayment is then due); or

(b) attempt by the Borrower to revoke (expressly, by later inconsistent notices or otherwise) in whole or part any Loan Requests under Section 2.5 [Revolving Credit Loan Requests; Conversions and Renewals] or Section 4.2 [Interest Periods] or notice relating to prepayments under Section 5.6 [Voluntary Prepayments] or failure by the Borrower (for a reason other than the failure of such Lender to make a Revolving Credit Loan) to prepay, borrow, continue or convert any Revolving Credit Loan other than a Revolving Credit Loan under the Base Rate Option on the date or in the amount notified by the Borrower, or

(c) any assignment of a Revolving Credit Loan under the Term SOFR Rate Option on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 5.6.2 [Replacement of a Lender].

If any Lender sustains or incurs any such loss or expense, it shall from time to time notify the Borrower of the amount determined in good faith by such Lender (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as such Lender shall deem reasonable) to be necessary to indemnify such Lender for such loss or expense. Such notice shall specify in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrower to such Lender ten (10) Business Days after such notice is given.”

1.17 Reference is hereby made to Section 8.2.15 of the Loan Agreement. Said Section 8.2.15 is hereby amended and restated as follows:

“8.2.15 Minimum Liquidity. To and including December 31, 2022, the Loan Parties shall not, at any time, permit the aggregate amount of cash and Permitted Investments plus the availability under the Revolving Credit Loan held by the Borrower to be less than Two Hundred Million Dollars ($200,000,000).”

1.18 Reference is hereby made to Section 8.2.16 of the Loan Agreement. Said Section 8.2.16 is hereby amended and restated as follows:

“8.2.16 Maximum Net Leverage Ratio. Commencing with the calculation date of March 31, 2023, the Loan Parties shall not permit the Net Leverage Ratio, calculated as of the end of each fiscal quarter for the four (4) fiscal quarters then ended, to be more than 3.50 to 1.00; provided, that at the Borrower’s option, the maximum Net Leverage Ratio may increase to 4.00:1.00 for four (4) consecutive fiscal quarters immediately following the consummation by the Borrower, any other Loan Party or any Subsidiary thereof, of a Permitted Acquisition with a purchase price in excess of $50,000,000 (a “Material Acquisition”); provided, further that (i) the Borrower’s ability to increase the Net Leverage Ratio as described in this Section 8.2.16 shall be limited to two (2) requests during the term of this Agreement, (ii) no more than one such increase shall be in effect at any time and (iii) the Net Leverage Ratio shall revert to the then permitted ratio (without giving effect to such increase) for at least two fiscal quarters before another increase may be invoked.”

1.19 Reference is hereby made to Section 8.2.17 of the Loan Agreement. Said Section 8.2.17 is hereby amended and restated as follows:

“8.2.17 Minimum Interest Coverage Ratio. Commencing with the calculation date of March 31, 2023, the Loan Parties shall not permit the ratio of Consolidated EBITDA to Consolidated Cash Interest Expense, calculated as of the end of each fiscal quarter for the four (4) fiscal quarters then ended, to be less than 3.50 to 1.00.”

1.20 In addition to the amendments made to the Loan Agreement pursuant to this Amendment, any and all references in the Loan Agreement to:

Exhibit A - 10

EXHIBIT 10.1

(continued)

(a)“Federal Funds Effective Rate” are hereby deleted in their entirety and new references to “Effective Federal Funds Rate” are hereby inserted in their place and stead;

(b)“LIBOR Rate” are hereby deleted in their entirety and new references to “Term SOFR Rate” are hereby inserted in their place and stead; and

(c)“LIBOR Rate Option” are hereby deleted in their entirety and new references to “Term SOFR Rate Option” are hereby inserted in their place and stead.

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

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

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

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

4.Immediately after giving effect to this Amendment, no default or Event of Default shall have occurred and be continuing under the Loan Agreement or any of the other Loan Documents.

Exhibit A - 11

EXHIBIT 10.1

(continued)

CONSENT OF GUARANTOR

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

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

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

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

[signatures appear on following page]

EXHIBIT 10.1

(continued)

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

WITNESS:<br><br><br><br><br><br><br><br><br><br><br><br>By: /s/ Jeffrey Lee<br><br>Name: Jeffrey Lee<br><br>Title: Sr Treasury Manager	GUARANTORS:<br><br><br><br>PEGASYSTEMS WORLDWIDE INC.<br><br><br><br><br><br><br><br>By: /s/ Efstathios Kouninis_____<br><br>Name: Efstathios Kouninis<br><br>Title Director
By: /s/ Jeffrey Lee<br><br>Name: Jeffrey Lee<br><br>Title: Sr Treasury Manager	ANTENNA SOFTWARE, LLC<br><br><br><br>By: PEGASYSTEMS INC., its sole member<br><br><br><br><br><br><br><br>By: /s/ Ken Stillwell___________<br><br>Name: Kenneth Stillwell<br><br>Title: Chief Financial Officer, Chief <br> Administrative Officer and Senior<br><br>Vice President
By: /s/ Jeffrey Lee<br><br>Name: Jeffrey Lee<br><br>Title: Sr Treasury Manager	PEGA GOVERNMENT LLC<br><br><br><br><br><br><br><br>By: /s/ Efstathios Kouninis_____<br><br>Name: Efstathios Kouninis<br><br>Title: Manager

Signature Page – Guarantors – Fourth Amendment to Loan Documents

Document

EXHIBIT 31.1

CERTIFICATION

I, Alan Trefler, certify that:

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

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

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

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

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

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

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

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

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

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

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

Dated: April 28, 2022

/s/ ALAN TREFLER
Alan Trefler
Chairman and Chief Executive Officer
(Principal Executive Officer)

Document

EXHIBIT 31.2

CERTIFICATION

I, Kenneth Stillwell, certify that:

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

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

Dated: April 28, 2022

/s/ KENNETH STILLWELL
Kenneth Stillwell
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)

Document

EXHIBIT 32

CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Pegasystems Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Alan Trefler, Chairman and Chief Executive Officer of Pegasystems Inc., and Kenneth Stillwell, Chief Operating Officer and Chief Financial Officer of Pegasystems Inc., each certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Dated: April 28, 2022

/s/ ALAN TREFLER
Alan Trefler
Chairman and Chief Executive Officer
(Principal Executive Officer)		/s/ KENNETH STILLWELL
---
Kenneth Stillwell
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number: 1-11859

PEGASYSTEMS INC.

One Main Street, Cambridge, MA 02142

(617) 374-9600

Securities registered pursuant to Section 12(b) of the Act:Title of each classTrading symbol(s)Name of each exchange on which registeredCommon Stock, $.01 par value per sharePEGANASDAQ Global Select Market

PEGASYSTEMS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

See notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

NOTE 3. RECEIVABLES, CONTRACT ASSETS, AND DEFERRED REVENUE

Unbilled receivables

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Major clients

Contract assets

Deferred revenue

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5. GOODWILL AND OTHER INTANGIBLES

Goodwill

Intangibles

NOTE 6. OTHER ASSETS AND LIABILITIES

Other current assets

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other long-term assets

Other current liabilities

Other long-term liabilities

NOTE 7. LEASES

Corporate headquarters

New Waltham Office

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8. DEBT

Convertible senior notes and capped calls

Convertible senior notes

Conversion rights

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Repurchase rights

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Capped call transactions

Credit facility

NOTE 9. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair value of the Notes

NOTE 10. REVENUE

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Remaining performance obligations ("Backlog")

As of March 31, 2021:

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11. STOCK-BASED COMPENSATION

NOTE 12. INCOME TAXES

Effective income tax rate

NOTE 13. (LOSS) PER SHARE

PEGASYSTEMS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES

Commitments

Legal Proceedings

Pegasystems Inc. v. Appian Corp. & Business Process Management Inc.