PEGASYSTEMS INC - FORM 8-K/A - EX-99.4

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8-K/A - FORM 8-K AMENDMENT - PEGASYSTEMS INC	d649106d8ka.htm
EX-99.3 - EX-99.3 - PEGASYSTEMS INC	d649106dex993.htm
EX-99.2 - EX-99.2 - PEGASYSTEMS INC	d649106dex992.htm
EX-23.1 - EX-23.1 - PEGASYSTEMS INC	d649106dex231.htm

Exhibit 99.4

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

On October 9, 2013, Pegasystems Inc. (“Pegasystems” or “the Company”) acquired all of the outstanding capital stock of Antenna Software, Inc. and its subsidiaries (“Antenna”), a leading provider of mobile application development platforms, in a merger for $26.3 million in cash.

The following unaudited pro forma condensed combined balance sheet as of September 30, 2013 was prepared as if the acquisition had occurred on that date and combines the Company’s historical unaudited condensed consolidated balance sheet with the historical unaudited condensed consolidated balance sheet of Antenna as of September 30, 2013. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2012 and for the nine months ended September 30, 2013 were prepared as if the acquisition had occurred on January 1, 2012 and combine the Company’s historical condensed consolidated statements of operations with Antenna’s historical condensed consolidated statements of comprehensive loss for the year ended December 31, 2012 and for the nine months ended September 30, 2013, respectively.

The unaudited pro forma combined financial information of the Company and Antenna is based on estimates and assumptions, which have been made solely for purposes of developing such pro forma information and is not necessarily indicative of the operating results that would have occurred had the transaction been consummated as of January 1, 2012. The estimated pro forma adjustments arising from this completed acquisition are derived from the purchase consideration and preliminary purchase price allocation and do not necessarily represent the final purchase price allocation. The preliminary estimates and assumptions used to determine the preliminary purchase price allocation are subject to change during the measurement period, which is the time after the acquisition during which the acquirer obtains the information needed to identify and measure the consideration transferred, the assets acquired, the liabilities assumed, and any noncontrolling interests, not to exceed one year from the acquisition date.

The pro forma adjustments included herein reflect only those adjustments that are directly attributable to the Antenna acquisition and factually supportable, and with respect to the following unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the Company. The unaudited pro forma condensed combined financial statements do not reflect any adjustments for anticipated synergies resulting from the acquisition.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of September 30, 2013

(in thousands)


	Historical Pegasystems		Historical Antenna			Pro Forma Adjustments			Pro Forma Combined
Assets
Current Assets:
Cash and cash equivalents	$	108,827	$	1,044		$	(26,348	) (1)	$	83,523
Marketable securities		79,618		—			—			79,618

Total cash, cash equivalents, and marketable securities		188,445		1,044			(26,348	)		163,141
Trade accounts receivable, net		90,583		4,841						95,424
Deferred income taxes		10,152		—			—			10,152
Income taxes receivable and other current assets		11,128		1,411			—			12,539

Total current assets		300,308		7,296			(26,348	)		281,256
Property and equipment, net		28,977		1,650			—			30,627
Long-term deferred income taxes and other assets		51,350		639			—			51,989
Intangible assets, net		49,910		5,296			6,829	(2)		62,035
Goodwill		20,451		18,519			7,054	(4)		46,024

Total assets	$	450,996	$	33,400		$	(12,465	)	$	471,931

Liabilities, Convertible Redeemable Preferred Stock and Stockholders’ Equity
Current Liabilities:
Line of credit – bank	$	—	$	2,150		$	(2,150	) (5)	$	—
Current maturities of long-term debt		—		9,159			(9,159	) (5)		—
Accounts payable		2,347		1,656			—			4,003
Accrued expenses		20,741		2,057			1,712	(5), (6)		24,510
Accrued compensation and related expenses		31,925		1,157			—			33,082
Deferred revenue		91,758		8,369			—			100,127

Total current liabilities		146,771		24,548			(9,597	)		161,722
Income taxes payable		13,748		—			—			13,748
Deferred tax liability, long-term		—		—			4,638	(3)		4,638
Other long-term liabilities		17,466		225			(11	) (7)		17,680
Deferred revenue, long-term		17,954		3,391			—			21,345

Total liabilities		195,939		28,164			(4,970	)		219,133

Series A-1 redeemable preferred stock		—		13,003			(13,003	) (7)		—
Series B-1 redeemable preferred stock		—		13,100			(13,100	) (7)		—
Series C-1 redeemable preferred stock		—		25,346			(25,346	) (7)		—
Series D-1 redeemable preferred stock		—		96,107			(96,107	) (7)		—


Total convertible redeemable preferred stock		—		147,556			(147,556	)		—
Stockholders’ equity (deficiency):
Common stock		380		2			(2	) (7)		380
Additional paid-in-capital		138,271		—			—			138,271
Retained earnings (deficit)		113,410		(142,325	)		140,066	(6), (7)		111,151
Accumulated other comprehensive income		2,996		3			(3	) (7)		2,996

Total stockholders’ equity (deficiency)		255,057		(142,320	)		140,061			252,798

Total liabilities, convertible redeemable preferred stock and stockholders’ equity	$	450,996	$	33,400		$	(12,465	)	$	471,931

See accompanying notes

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2012

(in thousands except per share amounts)


	Historical Pegasystems			Historical Antenna			Pro Forma Adjustments			Pro Forma Combined
Revenue:
Software licenses	$	163,906		$	6,080		$	—		$	169,986
Maintenance		133,527			—			—			133,527
Services		164,277			32,049			—			196,326

Total revenue		461,710			38,129			—			499,839

Cost of revenue:
Software license		6,339			810			497	(8), (9)		7,646
Maintenance		14,787			—			—			14,787
Services		136,254			16,462			—			152,716

Total cost of revenue		157,380			17,272			497			175,149

Gross profit		304,330			20,857			(497	)		324,690

Operating expenses:
Selling and marketing		167,263			13,116			797	(9)		181,176
Research and development		76,726			8,605			—			85,331
General and administrative		28,915			9,127			1,965	(9)		40,007
Amortization of intangibles		—			1,139			(1,139	) (8)		—

Total operating expenses		272,904			31,987			1,623			306,514

Income (loss) from operations		31,426			(11,130	)		(2,120	)		18,176
Foreign currency transaction gain (loss)		780			(260	)		—			520
Interest income (expense), net		419			(866	)		775	(11) (12)		328
Other (expense) income, net		(1,680	)		87			—			(1,593	)

Income (loss) before provision (benefit) for income taxes		30,945			(12,169	)		(1,345	)		17,431
Provision (benefit) for income taxes		9,077			(222	)		(394	) (13)		8,461

Net income (loss)	$	21,868		$	(11,947	)	$	(951	)	$	8,970

Earnings per share
Basic	$	0.58								$	0.24

Diluted	$	0.56								$	0.23

Weighted-average number of common shares outstanding
Basic		37,853									37,853
Diluted		38,859									38,859
Cash dividends declared per share	$	0.12								$	0.12

See accompanying notes

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2013

(in thousands except per share amounts)


	Historical Pegasystems			Historical Antenna			Pro Forma Adjustments			Pro Forma Combined
Revenue:
Software licenses	$	128,217		$	3,878		$	—		$	132,095
Maintenance		112,238			—			—			112,238
Services		115,117			20,146			—			135,263

Total revenue		355,572			24,024			—			379,596

Cost of revenue:
Software license		4,751			575			405	(8), (9)		5,731
Maintenance		11,106			—			—			11,106
Services		97,772			10,165			—			107,937

Total cost of revenue		113,629			10,740			405			124,774

Gross profit		241,943			13,284			(405	)		254,822

Operating expenses:
Selling and marketing		127,279			5,531			598	(9)		133,408
Research and development		59,123			3,177			—			62,300
General and administrative		21,203			5,453			980	(9)		27,636
Acquisition-related costs		545			3			(548	) (10)		—
Amortization of intangibles		—			844			(844	) (8)		—

Total operating expenses		208,150			15,008			186			223,344

Income (loss) from operations		33,793			(1,724	)		(591	)		31,478
Foreign currency transaction loss		(1,666	)		(148	)		—			(1,814	)
Interest income (expense), net		376			(1,374	)		1,309	(11) (12)		311
Other (expense) income, net		(418	)		(1	)		—			(419	)

Income (loss) before provision (benefit) for income taxes		32,085			(3,247	)		718			29,556
Provision (benefit) for income taxes		9,603			(32	)		215	(13)		9,786

Net income (loss)	$	22,482		$	(3,215	)	$	503		$	19,770

Earnings per share
Basic	$	0.59								$	0.52

Diluted	$	0.58								$	0.51

Weighted-average number of common shares outstanding
Basic		37,950									37,950
Diluted		38,872									38,872
Cash dividends declared per share	$	0.09								$	0.09

See accompanying notes

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

A.	Basis of Pro Forma Presentation

The pro forma data included herein is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been consummated as of January 1, 2012. The pro forma adjustments included herein reflect only those adjustments that are directly attributable to the Antenna acquisition and factually supportable, and with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the Company. The preliminary allocations of the purchase price consideration to tangible and intangible assets acquired and liabilities assumed herein were based upon preliminary valuations and our estimates and assumptions are still subject to change.

B.	Preliminary Purchase Price Allocation

The purchase price allocation is preliminary as the Company is still gathering information to measure the assets and liabilities acquired, which it will continue to do until the measurement period is complete, not to exceed one year from the acquisition date. A summary of the preliminary purchase price allocation for the acquisition of Antenna is as follows (in thousands):


Total purchase consideration:
Cash	$	26,348

Total purchase consideration	$	26,348


Allocation of the purchase consideration:
Cash	$	1,044
Other current assets		6,252
Other assets		2,289
Identifiable intangible assets		12,125
Goodwill		25,573

Total assets acquired		47,283
Current liabilities		12,692
Deferred tax liability, long-term		4,638
Other long-term liabilities		3,605

Net assets acquired	$	26,348

The valuation of the acquired assets and assumed liabilities has not been finalized by the Company and these values are subject to change in the final purchase price allocation.

C.	Pro Forma Adjustments:

The following pro forma adjustments are included in the unaudited pro forma condensed combined balance sheet as of September 30, 2013:

Adjustment to record cash consideration paid in connection with the acquisition.

Adjustment to record fair value of intangible assets acquired as follows:


(Dollars in thousands)	Preliminary Fair Value
Customer relationships	$	5,581
Tradename		984
Technology		3,920
Non-compete agreements		1,640

	$	12,125

Adjustment to record the estimated deferred tax liability associated with acquired intangible assets.

Adjustment to record goodwill of $25.6 million as a result of purchase consideration in excess of the fair value of assets acquired and liabilities assumed and to eliminate the historical goodwill of Antenna.

Adjustment to eliminate Antenna’s debt and line of credit as it was repaid in connection with the acquisition.

Adjustment to reflect direct and incremental acquisition-related costs of approximately $2.3 million expected to be incurred in the fourth quarter of 2013 not yet reflected in the historical financial statements.

Adjustment to eliminate historical convertible redeemable preferred stock and stockholders’ equity of Antenna.

The following pro forma adjustments are included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2012 and for the nine months ended September 30, 2013:

Adjustment to eliminate historical amortization of Antenna intangible assets, which consisted of $0.8 million and $0.6 million of amortization related to Antenna’s historical developed technology intangible asset reflected in cost of software for the year ended December 31, 2012 and nine months ended September 30, 2013, respectively, and $1.1 million and $0.8 million of amortization related to the remaining Antenna historical intangible assets for the year ended December 31, 2012 and nine months ended September 30, 2013, respectively.

Adjustment to record amortization expense for the $12.1 million of acquired identifiable intangibles assets on a straight-line basis. For purposes of the pro forma adjustments presented, the Company has used an estimated weighted-average useful life of the acquired identifiable intangible assets of 4.6 years, and has assumed straight-line amortization will be used. The valuation and estimated useful life for the acquired intangibles are not finalized and may change in the final purchase price allocation.

10)

Adjustment to eliminate direct and incremental transaction costs associated with the Antenna acquisition.

11)

Adjustment to reduce interest income by applying the Company’s historical rate of return for the year ended December 31, 2012 and nine months ended September 30, 2013, respectively, to the assumed net decrease in cash used to pay for the acquisition.

12)

Adjustment to eliminate interest expense of $0.9 million and $1.4 million for the year ended December 31, 2012 and nine months ended September 30 2013, respectively, associated with Antenna’s outstanding debt and line of credit that were repaid in connection with the acquisition.

13)

Adjustment to record the income tax effect on the pro forma adjustments at the historical statutory rate in effect during the applicable periods. The pro forma combined provision for income taxes does not reflect the amounts that would have resulted had the Company and Antenna filed consolidated income tax returns during the periods presented.

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