Pegasystems Inc. Q4 2004 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Joseph Halpern - Halpern Capital - Analyst : I just want to get maybe a better idea of your OpEx spend, if you could break that up for 2005. It sounds like you are just going to increase marketing and sales maybe pretty much compared to Q4, '04 and leave everything else relatively flat, or --?

Question: Joseph Halpern - Halpern Capital - Analyst : I think Q4 '04 looked like it was around 45 percent margins. Is that more of a consistent number to go forward with? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Joseph Halpern - Halpern Capital - Analyst : Yes.

Question: Joseph Halpern - Halpern Capital - Analyst : Okay. It seemed like -- maybe you could give me some clarity on this -- I know you were kind of building out a partnership program. I know you have a partnership with IBM and the thought was that servicing revenues might decline at some point as licensing increased, as your partners kind of took that segment. Now, just kind of looking at the BPM focus and the focus of maybe not putting together full-blown applications but working I guess more closely with some of your clients, do you expect servicing to kind of grow in line with licensing, or how do you think those two kind of mix?

Question: Joseph Halpern - Halpern Capital - Analyst : Yes, it does. Thank you. Just the last question on the sales and marketing side -- are you adding sales, or is that more push-out marketing sort of stuff or --?

Question: Andy Schopick - Nutmeg Securities - Analyst : Thank you and good morning. A few questions, if I might? I wonder if, at this time, you can give us a breakdown of the revenues by principle target markets. For example, in previous presentations, you've given out the breakouts by commercial banking, card services, healthcare, retail financial services. Those are the 4 principle ones. How did revenues break out in 2004 in those categories?

Question: Andy Schopick - Nutmeg Securities - Analyst : I was just wondering whether you could give us any kind of more specific percentage break-out.

Question: Andy Schopick - Nutmeg Securities - Analyst : Okay. With respect to channels and IBM, IBM has what's called a premier level. What has to be -- how does a company achieve premier-level status? Is it something that you're seeking to do with IBM? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Andy Schopick - Nutmeg Securities - Analyst : Alan, Chris I want to challenge you a little bit here on some prior guidance and commentary you had given us. About a year ago, you wanted us to measure the Company more on pretax income because of the distortion relating from the taxes that we have seen. However, in reality, pretax income was down 49 percent 2004 over 2003; you are signaling that it could be down 50 percent or more in 2005. Clearly, this does not appear to be the measure you really want us to use right now. Can we step back, take a look at what's happened, why the pretax income trends at the Company are what they are, and what you're going to really have to do now to reverse these margin trends?

Question: Andy Schopick - Nutmeg Securities - Analyst : Yes, and I think, again, it just raises some additional concerns about the investments that are necessary at this stage, given the outlook you are signaling for 2005 in terms of performance. So, it raises the question, in my mind, whether or not the Company is strategically looking at other related areas. For example, business service management -- I realize you have a focus, you have an expertise and that you have demonstrated, over a period of time, that you can run this company very profitably and that it is a successful company by certain measures. But in terms of a growth or consistency, that's lacking right now. Is what you are doing enough to really grow this company, or will it require expansion into new, related areas of software? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Andy Schopick - Nutmeg Securities - Analyst : Finally, I would like to ask 1 question about the expected level of insider selling pursuant to 10-B-51 (ph) and I know I've discussed this with Beth and I'd really -- because of the frequency with which we see these on almost a weekly basis, whether you can give us any guidance in terms of, under the current 10-B-51 (ph) programs that are in effect, what the range of activity is likely to be in terms of stock being offered in calendar 2005.

Question: Andy Schopick - Nutmeg Securities - Analyst : You are right.

Question: John Perra - - Analyst : Good morning. I'm just curious. Who are the competitors you run into? How often do you find yourself in competitive situations?

Question: John Perra - - Analyst : Okay, are you running into Cordiant and Epiphany a lot?

Question: John Perra - - Analyst : Thanks very much.