1013857--5/3/2007--PEGASYSTEMS

related topics

{customer, product, revenue}

{system, service, information}

{product, market, service}

{regulation, change, law}

{stock, price, operating}

{control, financial, internal}

{property, intellectual, protect}

{personnel, key, retain}

{competitive, industry, competition}

{operation, international, foreign}

{financial, litigation, operation}

Factors relating to our revenues In recent years, we have typically licensed our software to new customers pursuant to perpetual licenses rather than term licenses, which has the effect of decreasing the amount of future term license renewal revenue and cash flow, and could reduce our overall future license revenue and cash flow if we are unable to increase the future volume of license transactions The volume of our license signings began to increase in the second half of 2005 and in 2006, and we may not be able to sustain this increased volume of license signings unless we can provide sufficient high quality professional services, training and maintenance resources to enable our customers to realize significant business value from our software We are increasingly entering into smaller initial licenses with new customers, which could adversely affect our financial performance if we are not successful in obtaining follow-on business from these customers. Our term license revenue will decrease in the short term as we increasingly enter into term licenses with contract provisions that require the term license revenue to be recognized over the license term as license payments become due or ratably over the license term when paid in advance, or if existing customers do not renew their term licenses. Our professional services revenue is dependent to a significant extent on closing license transactions with new customers Factors relating to fluctuations in our financial results The timing of our license revenue is difficult to predict accurately, due to the uncertain timing of the completion of implementation services, product acceptance by the customer and closing of additional sales Our financial results may be adversely affected if we are required to change certain estimates, judgments and positions relative to our income taxes. Our quarterly operating results have varied considerably in the past and are likely to vary considerably in the future. We are investing heavily in sales and marketing and professional services in anticipation of a continued increase in license signings, and we may experience decreased profitability or losses if we are unsuccessful in increasing the value of license signings in the future. Factors relating to our products and markets We will need to develop new products, evolve existing ones, and adapt to technology change. The market for our offerings is increasingly and intensely competitive, rapidly changing, and highly fragmented. We have historically sold to the financial services and healthcare markets, and rapid changes or consolidation in these markets could affect the level of demand for our products. We rely on certain third-party relationships. We face risks from operations and customers based outside of the U.S. Factors relating to our internal operations and potential liabilities We depend on certain key personnel, and must be able to attract and retain qualified personnel in the future. We may experience significant errors or security flaws in our product and services, and could face product liability and warranty claims as a result. We face risks related to intellectual property claims or appropriation of our intellectual property rights. We have reported several material weaknesses in our internal control over financial reporting since the second quarter of 2005, and certain of these material weaknesses have not yet been effectively remediated. Investor confidence and share value may be adversely impacted if we are unable to promptly and effectively remediate these material weaknesses, or if we were to report additional material weaknesses in our internal control over financial reporting in the future.

Full 10-K form ▸

1013857--5/3/2007--PEGASYSTEMS_INC