Cloud Growth Drives Pega Through $1 Billion Milestone in 2020
CAMBRIDGE, Mass., Feb. 17, 2021 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the software company that crushes business complexity, released its financial results for the fourth quarter and full-year 2020.
"The last year has made it abundantly clear that organizations need to accelerate their digital transformation to compete and thrive in a world that is constantly changing," said Alan Trefler, founder and CEO, Pegasystems. "We have never been better positioned to support this need with our scalable low code solutions."
"Pega Cloud ACV grew more than 50 percent year over year, increasing to $267 million," said Ken Stillwell, CFO, Pegasystems. "And, at the same time, Pega Cloud gross margins expanded from 51 percent to 63 percent. We expect Pega Cloud revenue growth acceleration and gross margin expansion will be key contributors to drive future Pega profitability and growth."
Financial and performance metrics (1)
(Dollars in
thousands,
Three Months Ended
Year Ended
December 31, December 31,
except per share amounts)
---
2020 2019 Change 2020 2019 Change
---
Total revenue $
298,600 $
276,542 8 $
1,017,517 $
911,383 12
% %
Net income $
4,006 $
918 336 $
(61,373) $
(90,433) 32
(loss) -GAAP
% %
Net income $
15,513 $
15,682 (1)
(loss) - Non- %
GAAP % $
(29,392) $
(35,082) 16
Diluted $
0.05 $
0.01 400 $
(0.76) $
(1.14) 33
earnings
(loss) per
share -GAAP % %
Diluted
earnings %
(loss) per %
share - Non-
GAAP $
0.18 $
0.19 (5) $
(0.37) $
(0.44) 16
(1) A reconciliation of our Non-
GAAP and GAAP measures is at the
end of this release.
(Dollars in
thousands)
Three Months Ended Change
Year Ended Change
December 31, December 31,
2020 2019 2020 2019
---
Pega Cloud $
61,188 20 $
39,136 14 $
22,052 56 $
208,268 20 $
133,746 15 $
74,522 56
%
% % % % %
Maintenance 76,122 26 73,174 27 2,948 4 296,709 30 280,580 30 16,129 6
%
% % % % %
Term license 95,897 32 77,176 28 18,721 24 266,352 26 199,433 22 66,919 34
%
% % % % %
Subscription (2) 233,207 78 189,486 69 43,721 23 771,329 76 613,759 67 157,570 26
%
% % % % %
Perpetual license 11,990 4 36,729 13 (24,739) (67) 28,558 3 80,015 9 (51,457) (64)
% % % % % %
Consulting 53,403 18 50,327 18 3,076 6 217,630 21 217,609 24
%
% % % % 21 %
Total revenue $
298,600 100 $
276,542 100 $
22,058 8 $
1,017,517 100 $
911,383 100 $
106,134 12
%
% % % % %
(2) Reflects client arrangements
subject to renewal (Pega Cloud,
maintenance, and term license).
2021 Guidance
As of February 17, 2021, we are providing the following guidance:
Year Ended December 31, 2021
(in
millions,
except per
share
amounts) GAAP Non-GAAP (1)
---
Revenue $
1,250 $
1,250
Net (loss)
income $
(115.2) $
21.5
Net (loss)
income per
share $
(1.44) $
0.25
(1) A reconciliation of our GAAP
and Non-GAAP guidance is
contained in the financial
schedules at the end of this
release.
Quarterly conference call
We will conduct a conference call and audio-only webcast at 5:00 p.m. EST on February 17, 2021.
Members of the public and investors may join the call and participate in the question and answer session by dialing 1-866-548-4713 (domestic), 1-323-794-2093 (international), or via webcast (http://public.viavid.com/index.php?id=143063) by logging onto www.pega.com at least five minutes before the event's broadcast and clicking on the webcast icon in the Investors section.
A replay of the call will also be available on www.pega.com by clicking the Earnings Calls link in the Investors section.
Discussion of Non-GAAP financial measures
We believe that supplementary non-GAAP financial measures provide useful information to allow investors to understand our core operating results and future prospects, without the effect of often-one-time charges and other items outside our normal operations, consistent with how management measures and forecasts the Company's performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to or a substitute for results of operations prepared in accordance with U.S. GAAP.
A reconciliation of our Non-GAAP and GAAP measures is at the end of this release.
Forward-looking statements
In this press release, certain statements may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995.
Words such as expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strategies, projects, forecasts, guidance, likely, and usually, or variations of such words and other similar expressions identify forward-looking statements, which are based on current expectations and assumptions.
These forward-looking statements deal with future events and are subject to various risks and uncertainties that are difficult to predict, including, but not limited to, statements about:
-- our future financial performance and business plans;
-- the adequacy of our liquidity and capital resources;
-- the continued payment of quarterly dividends;
-- the timing of revenue recognition;
-- management of our transition to a more subscription-based business
model;
-- variation in demand for our products and services, including among
clients in the public sector;
-- the impact of actual or threatened public health emergencies, such as
the Coronavirus (COVID-19);
-- reliance on third-party service providers;
-- compliance with our debt obligations and debt covenants;
-- the potential impact of our convertible senior notes and related Capped
Call Transactions;
-- reliance on key personnel;
-- the relocation of our corporate headquarters;
-- the continued uncertainties in the global economy;
-- foreign currency exchange rates;
-- the potential legal and financial liabilities and reputation damage due
to cyber-attacks;
-- security breaches and security flaws;
-- our ability to protect our intellectual property rights and costs
associated with defending such rights;
-- our client retention rate;
-- management of our growth.
These risks and others that may cause actual results to differ materially from those expressed in such forward-looking statements are described further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2020, and other filings we make with the U.S. Securities and Exchange Commission ("SEC"). Except as required by applicable law, we do not undertake and expressly disclaim any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events, or otherwise.
The forward-looking statements contained in this press release represent our views as of February 17, 2021.
About Pegasystems
Pega delivers innovative software that crushes business complexity so our clients can make better decisions and get work done. We help the world's leading brands solve their biggest business challenges: maximizing customer lifetime value, streamlining customer service, and boosting operational efficiency. Pega technology is powered by real-time AI and intelligent automation, while our scalable architecture and low-code platform help enterprises adapt to rapid change and transform for tomorrow.
Press contact:
Lisa Pintchman
Pegasystems Inc.
lisa.pintchman@pega.com
(617) 866-6022
Twitter: @pega
Investor contact:
Garo Toomajanian
ICR for Pegasystems Inc.
pegainvestorrelations@pega.com
(617) 866-6077
All trademarks are the property of their respective owners.
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
Year Ended
December 31, December 31,
---
2020 2019 2020 2019
---
Revenue
Software license $
107,887 $
113,905 $
294,910 $
279,448
Maintenance 76,122 73,174 296,709 280,580
Pega Cloud 61,188 39,136 208,268 133,746
Consulting 53,403 50,327 217,630 217,609
Total revenue 298,600 276,542 1,017,517 911,383
Cost of revenue
Software license 574 674 2,928 3,656
Maintenance 5,666 6,341 22,311 25,656
Pega Cloud 20,337 18,059 76,575 65,828
Consulting 50,318 52,533 209,099 214,882
Total cost of revenue 76,895 77,607 310,913 310,022
Gross profit 221,705 198,935 706,604 601,361
Operating expenses
Selling and marketing 150,009 133,395 545,693 474,459
Research and
development 59,366 52,408 236,986 205,210
General and
administrative 18,260 14,877 67,452 56,570
Total operating
expenses 227,635 200,680 850,131 736,239
(Loss) from operations (5,930) (1,745) (143,527) (134,878)
Foreign currency
transaction gain
(loss) 1,159 1,242 3,704 (2,335)
Interest income 131 129 1,223 2,020
Interest expense (5,565) (144) (19,356) (212)
Gain on capped call
transactions 11,881 31,697
Other (loss) income,
net (4) 181 1,370 559
Income (loss) before
(benefit from) income
taxes 1,672 (337) (124,889) (134,846)
(Benefit from) income
taxes (2,334) (1,255) (63,516) (44,413)
Net income (loss) $
4,006 $
918 $
(61,373) $
(90,433)
Earnings (loss) per share
Basic $
0.05 $
0.01 $
(0.76) $
(1.14)
Diluted $
0.05 $
0.01 $
(0.76) $
(1.14)
Weighted-average number of common
shares outstanding
Basic 80,770 79,430 80,336 79,055
Diluted 86,080 83,624 80,336 79,055
PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
(in thousands, except percentages and per share amounts)
Year Ended
Three Months Ended December 31,
December 31,
---
2020 2019 Change 2020 2019 Change
Net income (loss) -GAAP $
4,006 $
918 336 $
(61,373) $
(90,433) 32
% %
Stock-based
compensation (2) 26,313 20,666 103,068 80,909
Capped call transactions (11,881) (31,697)
Convertible debt 4,408 14,813
Amortization of
intangible assets 919 1,018 3,970 6,625
Foreign currency
transaction (gain) loss (1,159) (1,242) (3,704) 2,335
Other (384) 757
Income tax effects (3) (6,709) (5,678) (55,226) (34,518)
Net income (loss) - $
15,513 $
15,682 (1) $
(29,392) $
(35,082) 16
Non-GAAP
% %
Diluted earnings (loss) $
0.05 $
0.01 400 $
(0.76) $
(1.14) 33
per share -GAAP
% %
Non-GAAP adjustments 0.13 0.18 0.39 0.70
Diluted earnings (loss) $
0.18 $
0.19 (5) $
(0.37) $
(0.44) 16
per share - Non-GAAP
% %
Diluted weighted-
average number of
common shares % %
outstanding - GAAP 86,080 83,624 3 80,336 79,055 2
Diluted weighted-
average number of
common shares % %
outstanding - Non-
GAAP 86,080 83,624 3 80,336 79,055 2
(1) Our Non-GAAP financial measures
reflect adjustments based on the
following items:
-- Stock-based compensation: We have
excluded stock-based compensation
from our Non-GAAP operating
expenses and profitability
measures. Although stock-based
compensation is a key incentive
offered to our employees, and we
believe such compensation
contributed to our revenues
recognized during the periods
presented and is expected to
contribute to our future period
revenues, we continue to evaluate
our business performance excluding
stock-based compensation.
-- Capped call transactions: We have
excluded gains and losses from our
privately negotiated capped call
transactions entered into
concurrent with our issuance of the
convertible senior notes to reduce
potential dilution to our common
stock upon any conversion of the
convertible senior notes and/or
offset any cash payments we are
required to make in excess of the
principal amount of convertible
senior notes that may be converted,
with such reduction and/or offset
subject to a cap. We believe
excluding these amounts from our
non-GAAP financial measures is
useful to investors as the types of
events giving rise to them are not
representative of our core business
operations and ongoing operating
performance.
-- Convertible senior notes: In
February 2020, we issued $600
million of convertible senior
notes, which bear interest at an
annual fixed rate of 0.75%. A debt
discount resulting from the
conversion feature and debt
issuance costs reduced the
convertible debt instrument's
carrying value. Debt discount and
issuance costs are amortized as
interest expense over the debt's
life based upon an effective
interest rate of 4.31%. We believe
excluding these amounts provides a
more useful comparison of our
operational performance in
different periods.
-- Amortization of intangible assets:
We have excluded the amortization
of intangible assets from our Non-
GAAP operating expenses and
profitability measures.
Amortization of intangible assets
fluctuates in amount and frequency
and is significantly affected by
our acquisitions' timing and size.
Investors should note that the use
of intangible assets contributed to
our revenues recognized during the
periods presented and is expected
to contribute to our future period
revenues. Amortization of
intangible assets is likely to
recur in future periods.
-- Foreign currency transaction (gain)
loss: We have excluded foreign
currency transaction gains and
losses from our Non-GAAP
profitability measures. Foreign
currency transaction gains and
losses fluctuate in amount and
frequency and are significantly
affected by foreign exchange market
rates. Foreign currency transaction
gains and losses are likely to
recur in future periods.
-- Other: We have excluded gains and
losses on our venture investments,
incremental fees incurred due to
the cancellation of the live event
portion of our annual PegaWorld
conference due to the COVID-19
pandemic, and incremental expenses
incurred from the integration of
acquisitions. We believe excluding
these amounts from our non-GAAP
financial measures is useful to
investors as the types of events
giving rise to them are not
representative of our core business
operations and ongoing operating
performance.
(2) Stock-based compensation was:
Three Months Ended
December 31,
Year Ended
December 31,
---
(in thousands) 2020 2019 2020 2019
---
Cost of revenue $
5,160 $
4,605 $
20,796 $
18,822
Selling and
marketing 12,315 8,610 46,283 32,665
Research and
development 5,819 4,948 22,885 18,938
General and
administrative 3,019 2,503 13,104 10,484
$
26,313 $
20,666 $
103,068 $
80,909
Income tax benefit $
(5,171) $
(4,166) $
(20,464) $
(16,392)
(3) Effective income tax rates were:
Year Ended
December 31,
2020 2019
---
GAAP 51 33
% %
Non-GAAP 22 22
% %
Our effective income tax rate under GAAP is subject to significant fluctuations due to various factors, including excess tax benefits generated by our stock-based compensation plans, tax credits for stock-based compensation awards to research and development employees, and unfavorable foreign stock-based compensation adjustments. We determine our Non-GAAP income tax rate by using applicable rates in taxing jurisdictions and assessing certain factors, including our historical and forecast earnings by jurisdiction, discrete items, and our ability to realize tax assets. We believe it is beneficial for our management to review our Non-GAAP results consistent with the effective income tax rate in our annual plan as established at the beginning of each year, given this tax rate volatility.
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 2020 December 31, 2019
---
Assets
Cash, cash equivalents, and
marketable securities $
465,168 $
68,363
Receivables (billed and
unbilled) 536,260 501,675
Goodwill 79,231 79,039
Other assets 523,603 335,735
Total assets $
1,604,262 $
984,812
Liabilities and stockholders' equity
Accrued expenses, including
compensation and related
expenses $
182,273 $
152,127
Deferred revenue, current 232,865 190,080
Convertible senior notes, net 518,203
Other liabilities 128,749 103,595
Stockholders' equity 542,172 539,010
Total liabilities and
stockholders' equity $
1,604,262 $
984,812
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
December 31,
2020 2019
---
Net (loss) $
(61,373) $
(90,433)
Adjustments to reconcile net (loss) to cash
(used in) operating activities
Non-cash items 93,795 99,251
Change in operating assets
and liabilities, net (32,985) (50,983)
Cash (used in) operating
activities (563) (42,165)
Cash (used in) provided by
investing activities (321,683) 70,074
Cash provided by (used in)
financing activities 423,448 (74,258)
Effect of exchange rate
changes on cash and cash
equivalents 2,334 290
Net increase (decrease) in
cash and cash equivalents 103,536 (46,059)
Cash and cash equivalents,
beginning of period 68,363 114,422
Cash and cash equivalents,
end of period $
171,899 $
68,363
PEGASYSTEMS INC.
ANNUAL CONTRACT VALUE ("ACV")
(in thousands, except percentages)
Annual contract value ("ACV") (1) -ACV, as reported, represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its
duration in years to calculate ACV for term license and Pega Cloud contracts. Maintenance revenue for the quarter then ended is multiplied by four to calculate ACV for maintenance. Client
Cloud ACV is composed of maintenance ACV and ACV from term license contracts. ACV is a performance measure that we believe provides useful information to our management and investors,
particularly during our Cloud Transition. Reported amounts have not been adjusted for changes in foreign exchange rates.
December 31, 2020 December 31, 2019 Change
---
Maintenance $
304,488 $
292,696 $
11,792 4
%
Term 264,346 231,267 33,079 14
%
Client Cloud 568,834 523,963 44,871 9
%
Pega Cloud 266,642 169,329 97,313 57
%
Total $
835,476 $
693,292 $
142,184 21
%
(1) Foreign currency
contributed 1%-2% to ACV
growth in 2020.
PEGASYSTEMS INC.
BACKLOG
(in thousands, except percentages)
Remaining performance obligations ("Backlog") - Backlog represents contracted revenue that has not yet been recognized and includes deferred revenue and non-cancellable amounts expected to be invoiced and recognized as revenue in future periods.
December 31, 2020
Perpetual license Term license Maintenance Pega Cloud Consulting
Total
---
1 year $
11,514 $
105,920 $
227,803 $
248,223 $
19,226 $
612,686 57
or
less %
1-2 395 7,962 54,509 193,064 346 256,276 24
years
%
2-3 - 4,928 28,320 104,542 851 138,641 13
years
%
Greater - 4 19,283 44,308 1,189 64,784 6
than 3
years %
---
$
11,909 $
118,814 $
329,915 $
590,137 $
21,612 $
1,072,387 100
%
===
Change in Backlog Since December 31, 2019
---
$
7,425 $
1,981 $
61,621 $
167,967 $
(2,750) $
236,244
166
% 2
% 23
% 40
% (11)
% 28
%
December 31, 2019
Perpetual license Term license Maintenance Pega Cloud Consulting Total
1 year $
2,305 $
97,826 $
206,882 $
165,571 $
20,798 $
493,382 58
or
less %
1-2 2,179 12,014 30,291 128,109 1,439 174,032 21
years
%
2-3 3,132 17,844 84,788 132 105,896 13
years
%
Greater 3,861 13,277 43,702 1,993 62,833 8
than 3
years %
$
4,484 $
116,833 $
268,294 $
422,170 $
24,362 $
836,143 100
%
PEGASYSTEMS INC.
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
(in millions, except per share amounts)
Year Ended December 31, 2021
Revenue (GAAP and Non-
GAAP) $
1,250
Net loss (GAAP) $
(115.2)
Stock-based
compensation 125.3
Convertible debt 18.4
Amortization of
intangible assets 3.7
Foreign currency
transaction (gain)
loss (2.0)
Income tax effects (8.7)
Net Income (Non-GAAP) $
21.5
Diluted (loss) per
share -GAAP $
(1.44)
Non-GAAP adjustments 1.69
Diluted earnings per
share - Non-GAAP $
0.25
Diluted weighted-
average number of
common shares
outstanding - GAAP 80.0
Incremental dilutive
shares for Non-GAAP 5.0
Diluted weighted-
average number of
common shares
outstanding - Non-
GAAP 85.0
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SOURCE Pegasystems Inc.
