Pega Cloud Revenue and ACV grow by more than 50%
CAMBRIDGE, Mass., July 28, 2020 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the software company empowering digital transformation at the world's leading enterprises, released its financial results for the second quarter of 2020.
"I'm pleased with our results through the first half of the year as we continue to demonstrate resiliency in our business throughout this global pandemic," said Alan Trefler, founder and CEO, Pegasystems. "Clients and prospects continue to see value in our solutions, both for their short-term crisis related needs and their longer-term digital transformation goals, and we remain confident in our long-term opportunity."
"Our subscription revenue grew 38 percent year over year in the first half of 2020, which reflects the impact of passing the midpoint of our cloud transition," said Ken Stillwell, CFO, Pegasystems. "This impressive result demonstrates the power of growing ACV by more than 20 percent quarter in and quarter out. With over $500 million of cash on the balance sheet and a notable portfolio of enterprise clients, Pega is in a strong position to capture an even greater share of the more than $50 billion market for digital transformation solutions."
Financial and performance metrics (1)
(Dollars in
thousands,
Three Months Ended
Six Months Ended
June 30,
June 30,
except per share amounts)
2020 2019 Change 2020 2019 Change
11
%
Total revenue $
227,375 $
205,592 % $
492,966 $
418,138 18
Net (loss) - 36
GAAP
%
$
(20,740) $
(32,296) % $
(46,112) $
(61,013) 24
Net (loss) - $
(22,236) $
(23,427) 5
Non-GAAP %
% $
(18,204) $
(32,803) 45
Diluted (loss) 37
per share -
GAAP
%
$
(0.26) $
(0.41) % $
(0.58) $
(0.77) 25
Diluted (loss) $
(0.28) $
(0.30) 7
per share - %
Non-GAAP % $
(0.23) $
(0.42) 45
(1) A reconciliation of the GAAP
measures to our Non-GAAP
measures is contained in the
financial schedules at the end
of this release.
(Dollars in
thousands)
Three Months Ended
Six Months Ended Change
June 30,
June 30,
2020 2019 Change 2020 2019
Pega Cloud $
48,838 21 $
31,699 15 $
17,139 54 $
92,304 19 $
59,457 14 $
32,847 55
%
% % % % %
Maintenance 72,222 33 69,329 34 2,893 4 145,917 30 137,035 33 8,882 6
%
% % % % %
Term license 44,266 19 24,954 12 19,312 77 134,523 27 73,268 18 61,255 84
%
% % % % %
Subscription (2) 165,326 73 125,982 61 39,344 31 372,744 76 269,760 65 102,984 38
%
% % % % %
Perpetual license 9,057 4 19,320 9 (10,263) (53) 12,716 3 34,270 8 (21,554) (63)
% % % % % %
Consulting 52,992 23 60,290 30 (7,298) (12) 107,506 21 114,108 27 (6,602) (6)
% % % % % %
Total revenue $
227,375 100 $
205,592 100 $
21,783 11 $
492,966 100 $
418,138 100 $
74,828 18
%
% % % % %
(2) Reflects client arrangements
(term license, Pega Cloud, and
maintenance) that are subject to
renewal.
Quarterly conference call
A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on July 28, 2020.
Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-888-394-8218 (domestic), 1-323-701-0225 (international), or via webcast (http://public.viavid.com/index.php?id=140614) 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 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, to analyze and assess the business' overall performance, make operating decisions, and forecast and plan for future periods. Our annual financial plan is prepared on both a GAAP and a Non-GAAP basis. We use Non-GAAP measures in the evaluation process to establish management's compensation because of the importance of these measures in managing the business.
The Non-GAAP measures exclude the effects of stock-based compensation expense, amortization of intangible assets, foreign currency transaction gains and losses, costs arising in connection with the issuance of our convertible senior notes and the related capped call transactions, gains and losses arising from our venture investments, gains and losses from our capped call transactions, gains and losses arising in connection with the change in the format of PegaWorld, and related income tax effects. We believe these Non-GAAP measures are helpful in understanding our past financial performance and our anticipated future results.
These Non-GAAP financial measures should not be considered in isolation or as a substitute for comparable GAAP measures. They should only be read 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 "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, intends to, projects, forecasts, guidance, likely, and usually, or variations of such words and other similar expressions are intended to 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 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, maintenance of our client retention rate, 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 further in Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, and other filings we make with the U.S. Securities and Exchange Commission ("SEC"). These documents are available on our website at www.pega.com/about/investors.
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 July 28, 2020.
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.
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 Six Months Ended
June 30,
June 30,
2020 2019 2020 2019
Revenue
Software license $
53,323 $
44,274 $
147,239 $
107,538
Maintenance 72,222 69,329 145,917 137,035
Pega Cloud 48,838 31,699 92,304 59,457
Consulting 52,992 60,290 107,506 114,108
Total revenue 227,375 205,592 492,966 418,138
Cost of revenue
Software license 979 928 1,663 2,306
Maintenance 5,591 6,292 11,167 12,627
Pega Cloud 18,988 16,647 36,521 29,945
Consulting 51,133 53,213 106,868 106,639
Total cost of revenue 76,691 77,080 156,219 151,517
Gross profit 150,684 128,512 336,747 266,621
Operating expenses
Selling and marketing 127,607 116,962 263,631 225,827
Research and development 58,869 49,714 117,596 100,310
General and
administrative 15,655 14,174 31,285 26,850
Total operating expenses 202,131 180,850 412,512 352,987
(Loss) from operations (51,447) (52,338) (75,765) (86,366)
Foreign currency
transaction gain (loss) 4,256 2,105 (1,691) (1,607)
Interest income 242 544 849 1,267
Interest expense (5,529) (7,835)
Gain on capped call
transactions 19,419 827
Other income, net - 55 1,374 55
(Loss) before (benefit
from) income taxes (33,059) (49,634) (82,241) (86,651)
(Benefit from) income
taxes (12,319) (17,338) (36,129) (25,638)
Net (loss) $
(20,740) $
(32,296) $
(46,112) $
(61,013)
(Loss) per share
Basic $
(0.26) $
(0.41) $
(0.58) $
(0.77)
Diluted $
(0.26) $
(0.41) $
(0.58) $
(0.77)
Weighted-average number of common shares
outstanding
Basic 80,224 78,987 80,016 78,787
Diluted 80,224 78,987 80,016 78,787
PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
(in thousands, except percentages and per share amounts)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020 2019 Change 2020 2019 Change
Net (loss) -GAAP $
(20,740) $
(32,296) 36 $
(46,112) $
(61,013) 24
% %
Amortization of intangible
assets 1,017 1,656 2,034 4,592
Stock-based compensation
(2) 25,655 20,047 48,831 38,397
Foreign currency
transaction (gain) loss (4,256) (2,105) 1,691 1,607
Convertible senior notes 4,315 6,033
Capped call transactions (19,419) (827)
Venture investments - (1,374)
PegaWorld (2,758) 2,515
Income tax effects (3) (6,050) (10,729) (30,995) (16,386)
Net (loss) - Non-GAAP $
(22,236) $
(23,427) 5 $
(18,204) $
(32,803) 45
% %
Diluted (loss) per share - $
(0.26) $
(0.41) 37 $
(0.58) $
(0.77) 25
GAAP
% %
Non-GAAP adjustments (0.02) 0.11 0.35 0.35
Diluted (loss) per share - $
(0.28) $
(0.30) 7 $
(0.23) $
(0.42) 45
Non-GAAP
% %
Diluted weighted-average 80,224 78,987 2 80,016 78,787 2
number of common shares
outstanding - GAAP % %
Diluted weighted-average 80,224 78,987 2 80,016 78,787 2
number of common shares
outstanding - Non-GAAP % %
(1) 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. 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 (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 changes in foreign
exchange market rates. Foreign
currency transaction gains and
losses are likely to recur in
future periods.
-- 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. The debt discount
and issuance costs are amortized as
interest expense over the life of
the debt 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.
-- 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.
-- Venture investments: We have
excluded gains and losses from our
venture investments. 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.
-- PegaWorld: Due to the global COVID-
19 pandemic, to help ensure the
health and safety of attendees and
employees, we converted our annual
PegaWorld conference from a multi-
day live event to a free virtual
event. We have excluded the
incremental fees we incurred due to
the cancellation of the live event
from our Non-GAAP operating
expenses and profitability
measures. The three months ended
June 30, 2020 include a reduction
of expenses of $2.8 million due to
the favorable settlement of
cancellation fees owed to vendors
of the live event portion.
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 Six Months Ended
June 30,
June 30,
(in thousands) 2020 2019 2020 2019
Cost of revenues $
5,384 $
4,911 $
10,536 $
9,430
Selling and
marketing 11,592 8,364 21,310 15,738
Research and
development 5,805 4,572 11,302 9,132
General and
administrative 2,874 2,200 5,683 4,097
$
25,655 $
20,047 $
48,831 $
38,397
Income tax benefit $
(5,107) $
(4,056) $
(9,689) $
(7,796)
(3) Effective income tax rates were:
Six Months Ended
June 30,
2020 2019
GAAP 44 30
% %
Non-GAAP 22 22
% %
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 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)
June 30, 2020 December 31, 2019
Assets
Cash and cash equivalents $
512,111 $
68,363
Receivables (billed and
unbilled) 489,247 501,675
Goodwill 78,675 79,039
Other assets 416,252 335,735
Total assets $
1,496,285 $
984,812
Liabilities and stockholders' equity
Accrued expenses, including
compensation and related
expenses $
123,062 $
152,127
Deferred revenue, current 195,996 190,080
Convertible senior notes, net 509,423
Other liabilities 111,522 103,595
Stockholders' equity 556,282 539,010
Total liabilities and
stockholders' equity $
1,496,285 $
984,812
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
2020 2019
Net (loss) $
(46,112) $
(61,013)
Adjustments to reconcile net (loss) to cash
(used in) provided by operating activities
Non-cash items 69,969 73,562
Change in operating assets
and liabilities, net (45,056) (4,829)
Cash (used in) provided by
operating activities (21,199) 7,720
Cash (used in) provided by
investing activities (19,404) 17,210
Cash provided by (used in)
financing activities 485,293 (44,367)
Effect of exchange rate
changes on cash and cash
equivalents (942) 515
Net increase (decrease) in
cash and cash equivalents 443,748 (18,922)
Cash and cash equivalents,
beginning of period 68,363 114,422
Cash and cash equivalents,
end of period $
512,111 $
95,500
PEGASYSTEMS INC.
ANNUAL CONTRACT VALUE ("ACV")
(in millions, except percentages)
Annual contract value ("ACV") -ACV represents the annualized value of our active contracts as of the measurement date. ACV for term license and Pega
Cloud contracts is calculated by dividing the contract's total value by the duration of the contract in years. ACV for maintenance is calculated as
maintenance revenue for the quarter then ended multiplied by four. Client Cloud ACV is composed of maintenance ACV and ACV from term license contracts.
We believe the presentation of ACV on a constant currency basis enhances the understanding of our results, as it provides visibility into the impact of
changes in foreign currency exchange rates, which are outside of our control. All periods shown reflect foreign currency exchange rates as of June 30,
2020.
June 30, 2020 June 30, 2019 Change
Maintenance $
289 $
277 $
12 4
%
Term 238 199 39 20
%
Client Cloud 527 476 51 11
%
Pega Cloud 211 135 76 56
%
Total $
738 $
611 $
127 21
%
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 that are expected to be invoiced and recognized as revenue in future periods.
June 30, 2020
Perpetual license Term license Maintenance Pega Cloud Consulting Total
1 year $
8,120 $
53,550 $
186,618 $
191,187 $
21,923 $
461,398 57
or
less %
1-2 1,700 6,187 40,153 140,860 1,986 190,886 23
years
%
2-3 - 6,460 20,671 88,273 631 116,035 14
years
%
Greater - 646 10,517 37,071 626 48,860 6
than 3
years %
$
9,820 $
66,843 $
257,959 $
457,391 $
25,166 $
817,179 100
%
Change in Backlog Since June 30, 2019
---
$
(830) $
23,259 $
63,395 $
95,328 $
7,738 $
188,890
(8)
% 53
% 33
% 26
% 44
% 30
%
June 30, 2019
Perpetual license Term license Maintenance Pega Cloud Consulting Total
1 year $
8,429 $
38,080 $
173,421 $
124,134 $
16,259 $
360,323 57
or
less %
1-2 915 4,678 12,530 98,842 942 117,907 19
years
%
2-3 1,306 641 5,801 75,828 227 83,803 13
years
%
Greater - 185 2,812 63,259 66,256 11
than 3
years %
$
10,650 $
43,584 $
194,564 $
362,063 $
17,428 $
628,289 100
%
===
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SOURCE Pegasystems Inc.
