Pegasystems Stock Skids on Report Misstep

Pegasystems Inc. announced it would restate its third-quarter earnings.

The Cambridge, Mass., provider of customer service software said last Monday that it is researching its income statements for discrepancies between reported and actual revenues. The company recorded gains after certain deals were signed but before it had delivered on a significant portion of its obligations, analysts said. Such an accounting practice is not allowed.

"This is very negative for them," said George Godfrey, an analyst at Raymond James & Associates in New York. "Investors do not like it when there are accounting issues raised in a company and periods of prior history have to be restated."

Pegasystems' shares lost 35% of their value Oct. 30, when the company reported disappointing third-quarter earnings. Upon the announcement of an earnings adjustment, its shares fell another $2.62, to $7.62.

Richard B. Goldman, vice president and chief financial officer of Pegasystems, said he did not know how much the adjustment would be but that "it is significant enough to make the change."

Robert Austrian, an analyst at NationsBanc Montgomery Securities in San Francisco, said, "The flow of news is as bad as it could be. So I think the stock price is as bad as it will get too."