Pega Cloud ACV Grows 51%** in the First Three Quarters of 2019
CAMBRIDGE, Mass., Nov. 7, 2019 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the software company empowering digital transformation at the world's leading enterprises, released its financial results for the third quarter of 2019.
"I'm pleased with the state of our business as we continue to make strong progress in our transition to Cloud," said Alan Trefler, founder and CEO, Pegasystems. "It's terrific to see the continued momentum in our traditional markets as well as enthusiasm in some of our newer industries. For example, over recent weeks we've engaged more than 1,000 thought leaders from our clients and prospects in the government and healthcare industries through our customer engagement roadshow."
"Total ACV increased 20% in constant currency year over year, reaching $634 million," said Ken Stillwell, CFO, Pegasystems. "This strong ACV growth reflects solid demand worldwide for our digital transformation solutions."
Financial metrics ((1) (2))
(Dollars in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
September 30, September 30,
2019 2018 Change 2019 2018 Change
---
Total revenue $
216,703 $
203,263 7
% $
634,841 $
635,224 %
Subscription revenue (3) $
154,513 $
120,267 28 $
424,273 $
382,485 11
% %
Net (loss) - GAAP $
(30,338) $
(7,587) (300)
%
% $
(91,351) $
(5,796) (1,476)
Net (loss) income - Non-GAAP $
(17,961) $
2,001
* $
(50,764) $
19,526
*
Diluted (loss) per share - GAAP $
(0.38) $
(0.10) (280)
%
% $
(1.16) $
(0.07) (1,557)
Diluted (loss) earnings per share - Non-GAAP $
(0.23) $
0.02
* $
(0.64) $
0.23
*
* not meaningful
(1) A reconciliation of the GAAP measures to our Non-GAAP measures is contained in the financial schedules at the end of this release.
(2) As previously discussed, our profitability and operating cash flows have declined in the short term as we transition to cloud, and our cloud business continues to
grow and scale.
(3) Reflects client arrangements (term license, cloud, and maintenance) that are subject to renewal.
(Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30, September 30,
2019 2018 Change 2019 2018 Change
Cloud $
35,153 16 $
22,184 11 $
12,969 58 $
94,610 15 $
57,967 9
%
% % % % % $
36,643 63
Term license 48,989 23 32,066 16 16,923 53 122,257 19 128,070 20 (5,813) (5)
% % % % % %
Maintenance 70,371 32 66,017 32 4,354 7 207,406 33 196,448 31
%
% % % % % 10,958 6
Subscription 154,513 71 120,267 59 34,246 28 424,273 67 382,485 60
%
% % % % % 41,788 11
Perpetual license 9,016 4 20,276 10 (11,260) (56) 43,286 7 56,829 9 (13,543) (24)
% % % % % %
Consulting 53,174 25 62,720 31 (9,546) (15) 167,282 26 195,910 31 (28,628) (15)
% % % % % %
Total revenue $
216,703 100 $
203,263 100 $
13,440 7 $
634,841 100 $
635,224 100
% % % % % $
(383) %
Annual contract value ("ACV") ((1) (2))
The change in ACV measures the growth and predictability of future cash flows from Pega Cloud and Client Cloud committed arrangements as of the end of the particular reporting period.
September 30, Change Constant Currency
Change
(Dollars in thousands) 2019 2018
Maintenance $
281,484 $
264,068 $
17,416 7% 9%
Term 207,317 174,320 32,997 19% 20%
Client Cloud 488,801 438,388 50,413 11% 13%
Pega Cloud 145,549 98,373 47,176 48% 51%
Total ACV $
634,350 $
536,761 $
97,589 18% 20%
(1) Total ACV, as of a
given date, is the sum
of the following two
components:
-- Client Cloud: the sum of (1) the annual value of
each term license contract in effect on such
date, which is equal to its total license value
divided by the total number of years and (2)
maintenance revenue reported for the quarter
ended on such date, multiplied by four. We do
not provide hosting services for Client Cloud
arrangements.
-- Pega Cloud: the sum of the annual value of each
cloud contract in effect on such date, which is
equal to its total value divided by the total
number of years.
(2) As foreign currency
exchange rates are an
important factor in
understanding period
to period comparisons,
we believe the
presentation of ACV
growth rates on a
constant currency
basis enhances the
understanding of our
results and evaluation
of our performance in
comparison to prior
periods.
Remaining performance obligations ("RPO")
Expected future revenue on existing contracts:
September 30, 2019
(Dollars in thousands) Perpetual license Term license Maintenance Cloud Consulting Total
1 year or less $
7,689 $
25,948 $
158,220 $
133,785 $
13,145 $
338,787 56%
1-2 years 853 3,798 18,590 105,081 863 129,185 21%
2-3 years 1,306 591 8,323 72,915 841 83,976 14%
Greater than 3 years 85 4,959 51,591 56,635 9%
$
9,848 $
30,422 $
190,092 $
363,372 $
14,849 $
608,583 100%
Change in RPO Since September 30, 2018
---
$
(23,651) $
(25,740) $
36,959 $
100,272 $
(1,587) $
86,253
(71)% (46)% 24% 38% (10)% 17%
September 30, 2018
(Dollars in thousands) Perpetual license Term license Maintenance Cloud Consulting Total
1 year or less $
25,343 $
44,283 $
140,591 $
88,529 $
14,107 $
312,853 60%
1-2 years 6,490 10,063 8,877 70,815 1,830 98,075 19%
2-3 years 360 1,598 2,586 54,646 449 59,639 11%
Greater than 3 years 1,306 218 1,079 49,110 50 51,763 10%
$
33,499 $
56,162 $
153,133 $
263,100 $
16,436 $
522,330 100%
Quarterly conference call
A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on November 7, 2019.
Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-877-300-8521 (domestic), 1-412-317-6026 (international), or via webcast by logging onto www.pega.com at least five minutes prior to 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/about/investors by clicking the earnings calls link in the investors section.
Discussion of non-GAAP financial measures
To supplement the financial results presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"), we provide non-GAAP measures, including in this release. We utilize several different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. Our annual financial plan is prepared on both a GAAP and a non-GAAP basis, and both are approved by our board of directors. In addition, because of the importance of these measures in managing the business, we use non-GAAP measures, and financial performance results in the evaluation process to establish management's compensation.
The non-GAAP measures exclude the effects of stock-based compensation expense, amortization of intangible assets, and foreign currency transaction gains and losses. We believe these non-GAAP measures are helpful in understanding its past financial performance and its anticipated future results.
These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. They should be read-only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
A reconciliation of the GAAP measures to our Non-GAAP measures is contained in the financial schedules at the end of this release.
Forward-looking statements
Certain statements contained in this press release may be construed as "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on current expectations, estimates, forecasts, and projections about the industry and markets in which we operate and management's beliefs and assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as "expect," "anticipate," "intend," "plan," "believe," "could," "estimate," "may," "target," "strategy," "is intended to," "project," "guidance," "likely," "usually," or variations of such words and similar expressions are intended to identify such forward-looking statements.
Important factors that could cause actual future activities and results to differ materially from those expressed in such forward-looking statements include, among others, variation in demand for our products and services, reliance on third-party relationships, reliance on key personnel, the inherent risks associated with international operations and the continued uncertainties in the global economy, our continued effort to market and sell both domestically and internationally, foreign currency exchange rates, the potential legal and financial liabilities and reputation damage due to cyber-attacks and security breaches, and management of our growth. These risks and other factors that could cause actual results to differ materially from those expressed in such forward-looking statements are described more completely in Part I of our Annual Report on Form 10-K for the year ended December 31, 2018, and other filings we make with the U.S. Securities and Exchange Commission ("SEC"). These documents are available on the Company's website at www.pega.com/about/investors.
Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results contained in such statements will be achieved. Although new information, future events, or risks may cause actual results to differ materially from future results expressed or implied by such forward-looking statements, 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 the Company's views as of November 7, 2019.
About Pegasystems
Pega is the leader in cloud software for customer engagement and operational excellence. The world's most recognized and successful brands rely on Pega's AI-powered software to optimize every customer interaction on any channel while ensuring their brand promises are kept. Pega's low-code application development platform allows enterprises to quickly build and evolve apps to meet their customer and employee needs and drive digital transformation on a global scale. For more than 35 years, Pega has enabled higher customer satisfaction, lower costs, and increased customer lifetime value. For more information on Pegasystems (NASDAQ: PEGA) visit www.pega.com.
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 Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
---
Revenue
Software license $
58,005 $
52,342 $
165,543 $
184,899
Maintenance 70,371 66,017 207,406 196,448
Services 88,327 84,904 261,892 253,877
Total revenue 216,703 203,263 634,841 635,224
Cost of revenue
Software license 676 1,255 2,982 3,772
Maintenance 6,688 6,079 19,315 18,035
Services 73,534 67,089 210,118 202,047
Total cost of revenue 80,898 74,423 232,415 223,854
Gross profit 135,805 128,840 402,426 411,370
Operating expenses
Selling and marketing 115,237 87,490 341,064 269,845
Research and development 52,492 46,504 152,802 135,261
General and administrative 14,843 12,104 41,693 38,749
Total operating expenses 182,572 146,098 535,559 443,855
(Loss) from operations (46,767) (17,258) (133,133) (32,485)
Foreign currency transaction (loss) gain (1,970) 399 (3,577) 558
Interest income, net 556 683 1,823 2,076
Other income, net 323 378 363
(Loss) before (benefit from) income taxes (47,858) (16,176) (134,509) (29,488)
(Benefit from) income taxes (17,520) (8,589) (43,158) (23,692)
Net (loss) $
(30,338) $
(7,587) $
(91,351) $
(5,796)
(Loss) per share
Basic $
(0.38) $
(0.10) $
(1.16) $
(0.07)
Diluted $
(0.38) $
(0.10) $
(1.16) $
(0.07)
Weighted-average number of common shares outstanding
Basic 79,200 78,700 78,928 78,525
Diluted 79,200 78,700 78,928 78,525
PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
(in thousands, except percentages and per share amounts)
Three Months Ended
Nine Months Ended
September 30, September 30,
2019 2018 Change 2019 2018 Change
---
Total revenue - GAAP and Non-GAAP $
216,703 $
203,263 7% $
634,841 $
635,224 -%
Net (loss) - GAAP $
(30,338) $
(7,587) (300)% $
(91,351) $
(5,796) (1,476)%
Amortization of intangible assets 1,017 2,835 5,608 8,508
Stock-based compensation (2) 21,846 16,408 60,242 47,573
Foreign currency transaction loss (gain) 1,970 (399) 3,577 (558)
Income tax effects (3) (12,456) (9,256) (28,840) (30,201)
Net (loss) income - Non-GAAP $
(17,961) $
2,001 * $
(50,764) $
19,526 *
Diluted (loss) per share - GAAP $
(0.38) $
(0.10) (280)% $
(1.16) $
(0.07) (1,557)%
Non-GAAP adjustments 0.15 0.12 0.52 0.30
Diluted (loss) earnings per share - Non-GAAP $
(0.23) $
0.02 * $
(0.64) $
0.23 *
Diluted weighted-average number of 79,200 78,700 1% 78,928 78,525 1%
common shares outstanding - GAAP
Incremental dilutive shares for non-GAAP - 4,521 4,714
Diluted weighted-average number of common 79,200 83,221 (5)% 78,928 83,239 (5)%
shares outstanding - Non-GAAP
* not meaningful
(1) Our non-GAAP financial
measures are not meant to
be considered in
isolation or as a
substitute for comparable
GAAP measures and should
be read only in
conjunction with our
consolidated financial
statements prepared in
accordance with GAAP.
Our non-GAAP financial
measures reflect
adjustments based on the
following items:
-- 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 the
timing and size of
our acquisitions.
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 as well.
Amortization of
intangible assets
is likely to recur
in future periods.
-- 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.
-- Foreign currency
transaction loss
(gain): 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
changes in foreign
exchange market
rates. Foreign
currency
transaction gains
and losses will
recur in future
periods.
For additional information
about our use of Non-
GAAP measures, the
reasons why management
uses these measures, the
usefulness of these
measures, and the
material limitations on
the usefulness of these
measures, see "Discussion
of non-GAAP financial
measures" included
earlier in this release
and below.
(2) Stock-based compensation
was:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2019 2018 2019 2018
Cost of revenues $
4,787 $
4,319 $
14,216 $
12,277
Selling and marketing 8,317 6,198 24,055 16,895
Research and development 4,858 3,917 13,990 11,356
General and administrative 3,884 1,974 7,981 7,045
$
21,846 $
16,408 $
60,242 $
47,573
Income tax benefit $
(4,430) $
(3,555) $
(12,226) $
(10,037)
(3) Effective income tax rates were:
Nine Months Ended
September 30,
2019 2018
GAAP 32 80
% %
Non-GAAP 22 25
% %
Our effective income tax rate under GAAP is subject to significant fluctuations due to a variety of 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 effective income tax rate on a basis 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)
September 30, 2019 December 31, 2018
---
Assets
Total cash, cash equivalents, and marketable securities $
112,569 $
207,423
Total receivables (billed and unbilled) 419,320 504,765
Goodwill 78,862 72,858
Other assets 306,273 197,507
Total assets $
917,024 $
982,553
Liabilities and stockholders' equity
Accrued expenses, including compensation and related expenses $
129,869 $
130,177
Deferred revenue, current 159,849 185,145
Other liabilities 98,474 45,700
Stockholders' equity 528,832 621,531
Total liabilities and stockholders' equity $
917,024 $
982,553
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
2019 2018
---
Net (loss) $
(91,351) $
(5,796)
Adjustments to reconcile net (loss) to cash (used in) provided by operating
activities
Non-cash items 73,547 75,992
Change in operating assets and liabilities, net 4,342 (3,108)
Cash (used in) provided by operating activities (13,462) 67,088
Cash provided by (used in) investing activities 53,448 (49,595)
Cash (used in) financing activities (61,941) (71,664)
Effect of exchange rate changes on cash and cash equivalents (363) (1,913)
Net (decrease) in cash and cash equivalents (22,318) (56,084)
Cash and cash equivalents, beginning of period 114,422 162,279
Cash and cash equivalents, end of period $
92,104 $
106,195
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SOURCE Pegasystems Inc.
