Pegasystems to restate financials for 2001-2005 and H1 2006

Source: Pegasystems

Pegasystems (NASDAQ: PEGA), the leader in unified process and rules technology, today provided additional information regarding its previously announced review of the timing of revenue recognition for certain arrangements which include fixed-price services.

As a result of this review, on February 28, 2007, the Audit Committee of the Company's Board of Directors, upon the recommendation of the Company's management, concluded that the Company's previously issued financial statements for the years 2005, 2004, 2003, 2002 and 2001 (as well as the reports of the Company's independent registered public accounting firm for those years), the corresponding interim periods, and the first and second quarters of 2006 should no longer be relied upon. The Company will be filing an amendment to its Annual Report on Form 10-K for 2005 to restate financial statements and other financial information for the years 2005, 2004 and 2003, and financial information for the years 2002 and 2001, and for each of the quarters in the years 2005 and 2004. In addition, the Company will be filing amendments to its Quarterly Reports on Form 10-Q for the first and second quarters of 2006 to restate the financial statements for those periods.

The restatement will correct the timing of revenue recognition, which will shift revenue, expenses and operating income between quarterly and annual periods. As previously disclosed, the Company expects that not more than $2 million of revenue previously reported through June 30, 2006 will be deferred into the third quarter of 2006 or future periods. The Company's expectation regarding the maximum amount of revenue deferral is not indicative of the total impact on net income or revenue in any particular quarter or year for the periods affected by the restatement.

Craig Dynes, the Company's Chief Financial Officer, said, "This accounting review did not relate to any improprieties involving the arrangements at issue, but rather the timing of revenue recognition for these arrangements. License signings in 2006 were the highest in the Company's history, with the dollar value of total license signings in 2006 up approximately 65 percent from 2005. Our total revenue for 2006 is expected to be the highest in the Company's history and cash flow from operating activities for 2006 is expected to be approximately $20 million. The Company ended 2006 with $127 million in total cash and investments, an increase of $12 million from the end of 2005."

Alan Trefler, the Company's Chief Executive Officer, added, "In 2006, Pegasystems continued to have great success in the healthcare, financial services and insurance industries with the greatest number of new customer sales as well as the greatest number of sales to existing accounts in the Company's history. Our success was recognized by both Gartner and Forrester analysts who highlighted Pegasystems as a leader in both Business Rules Engines and Business Process Management. In addition, eWeek named our 5.1 release of PegaRULES Process Commander as a "Top Product of 2006". Lastly, in the fall, Pegasystems hosted the largest BPM customer event ever, PegaWORLD, with nearly 600 attendees from 115 companies representing 10 countries with presentations from 32 industry thought leaders."

As previously announced, the Company is currently not in compliance with NASDAQ Marketplace Rule 4310(c)(14) because it has not yet filed its Quarterly Report on Form 10-Q for the third quarter of 2006. The NASDAQ Listing Qualifications Panel has granted the Company's request for continued listing of its shares on The NASDAQ Global Select Market, subject to the condition that the Company file such report by March 16, 2007. At this time, the Company does not expect to be able to file such Form 10-Q or its Form 10-K for 2006 by the required deadline of March 16, 2007. The Company intends to request an extension of the March 16, 2007 deadline from the NASDAQ Listing Qualifications Panel in order to maintain the listing of its shares until such time as the Company can regain compliance with NASDAQ's filing requirement.

The results set forth in this press release, including expected restatement impacts, are preliminary and unaudited, and subject to change as a result of any adjustments arising from the restatement process.

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