Pega Cloud Continues to Expand in Third Quarter of 2020
CAMBRIDGE, Mass., Oct. 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 third quarter of 2020.
"Our results through Q3 demonstrate our ability to forge through and succeed during a challenging time," said Alan Trefler, founder and CEO, Pegasystems. "Digital transformation is central to our clients' continued existence and prosperity, and our software is ideally suited for organizations that continue to face immediate needs today while they transform for tomorrow."
"Our subscription revenue grew 27 percent year over year in the first nine months of 2020, reflecting the impact of passing the midpoint of our cloud transition," said Ken Stillwell, CFO, Pegasystems. "This demonstrates the power of achieving ACV growth of more than 20 percent over multiple years. With over $450 million of cash and investments on the balance sheet and an impressive portfolio of enterprise clients, Pega is in a strong position to capture an even greater share of the $50+ billion market for digital transformation solutions."
Financial and performance metrics (1)
(Dollars in thousands,
Three Months Ended
Nine Months Ended
September 30,
September 30,
except per share amounts)
---
2020 2019 Change 2020 2019 Change
---
4 13
%
Total revenue $
225,951 $
216,703 $
718,917 $
634,841 %
36 28
%
Net (loss) - GAAP $
(19,267) $
(30,338) $
(65,379) $
(91,351) %
Net (loss) - Non-GAAP $
(26,701) $
(17,961) (49) $
(44,905) $
(50,764) 12
%
%
37 29
%
Diluted (loss) per share - GAAP $
(0.24) $
(0.38) $
(0.82) $
(1.16) %
Diluted (loss) per share - Non-GAAP $
(0.33) $
(0.23) (43) $
(0.56) $
(0.64) 13
%
%
(1) A reconciliation of our Non-GAAP and GAAP measures is at the end of this release.
(Dollars in thousands)
Three Months Ended Change
Nine Months Ended Change
September 30,
September 30,
---
2020 2019 2020 2019
---
Pega Cloud $
54,776 24 $
35,153 16 $
19,623 56 $
147,080 20 $
94,610 15 $
52,470 55
%
% % % % %
Maintenance 74,670 33 70,371 32 4,299 6 220,587 31 207,406 33 13,181 6
%
% % % % %
Term license 35,932 16 48,989 23 (13,057) (27) 170,455 24 122,257 19 48,198 39
% % % % % %
Subscription (2) 165,378 73 154,513 71 10,865 7 538,122 75 424,273 67 113,849 27
%
% % % % %
Perpetual license 3,852 2 9,016 4 (5,164) (57) 16,568 2 43,286 7 (26,718) (62)
% % % % % %
Consulting 56,721 25 53,174 25 3,547 7 164,227 23 167,282 26 (3,055) (2)
%
% % % % %
Total revenue $
225,951 100 $
216,703 100 $
9,248 4 $
718,917 100 $
634,841 100 $
84,076 13
%
% % % % %
(2) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).
Note: See the schedules at the
end of this release for
additional information.
Quarterly conference call
We will conduct a conference call and audio-only webcast at 5:00 p.m. EDT on October 28, 2020.
Members of the public and investors may join the call and participate in the question and answer session by dialing 1-800-289-0438 (domestic), 1-323-794-2423 (international), or via webcast (http://public.viavid.com/index.php?id=142049) 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
To supplement our GAAP financial results presented, 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. We prepare our annual financial plan on both a GAAP and a Non-GAAP basis. We use Non-GAAP measures in the evaluation process to establish management 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 from 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 from the change in the format of PegaWorld, and related income tax effects. Non-GAAP measures allow investors and others to better understand and evaluate operating results and prospects in the same manner as management, compare financial results across accounting periods, and better understand our core business's long-term performance. We also use Non-GAAP measures for purposes of determining company-wide incentive compensation.
Non-GAAP financial measures should not be considered in isolation or as a substitute for comparable GAAP measures. Our Non-GAAP financial measures should only be read in conjunction with our consolidated GAAP financial statements.
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, intends to, 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 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 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, 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 October 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 Nine Months Ended
September 30,
September 30,
---
2020 2019 2020 2019
---
Revenue
Software license $
39,784 $
58,005 $
187,023 $
165,543
Maintenance 74,670 70,371 220,587 207,406
Pega Cloud 54,776 35,153 147,080 94,610
Consulting 56,721 53,174 164,227 167,282
Total revenue 225,951 216,703 718,917 634,841
Cost of revenue
Software license 691 676 2,354 2,982
Maintenance 5,478 6,688 16,645 19,315
Pega Cloud 19,717 17,824 56,238 47,769
Consulting 51,913 55,710 158,781 162,349
Total cost of revenue 77,799 80,898 234,018 232,415
Gross profit 148,152 135,805 484,899 402,426
Operating expenses
Selling and marketing 132,053 115,237 395,684 341,064
Research and development 60,024 52,492 177,620 152,802
General and administrative 17,907 14,843 49,192 41,693
Total operating expenses 209,984 182,572 622,496 535,559
(Loss) from operations (61,832) (46,767) (137,597) (133,133)
Foreign currency transaction gain (loss) 4,236 (1,970) 2,545 (3,577)
Interest income 243 598 1,092 1,865
Interest expense (5,956) (42) (13,791) (42)
Gain on capped call transactions 18,989 19,816
Other income, net - 323 1,374 378
(Loss) before (benefit from) income taxes (44,320) (47,858) (126,561) (134,509)
(Benefit from) income taxes (25,053) (17,520) (61,182) (43,158)
Net (loss) $
(19,267) $
(30,338) $
(65,379) $
(91,351)
(Loss) per share
Basic $
(0.24) $
(0.38) $
(0.82) $
(1.16)
Diluted $
(0.24) $
(0.38) $
(0.82) $
(1.16)
Weighted-average number of common shares outstanding
Basic 80,537 79,200 80,191 78,928
Diluted 80,537 79,200 80,191 78,928
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,
---
2020 2019 Change 2020 2019 Change
Net (loss) - GAAP $
(19,267) $
(30,338) 36 $
(65,379) $
(91,351) 28
% %
Amortization of intangible assets 1,018 1,017 3,051 5,608
Stock-based compensation (2) 27,925 21,846 76,755 60,242
Foreign currency transaction (gain) loss (4,236) 1,970 (2,545) 3,577
Convertible senior notes 4,372 10,405
Capped call transactions (18,989) (19,816)
Venture investments - (1,374)
PegaWorld - 2,515
Income tax effects (3) (17,524) (12,456) (48,517) (28,840)
Net (loss) - Non-GAAP $
(26,701) $
(17,961) (49) $
(44,905) $
(50,764) 12
% %
Diluted (loss) per share - GAAP $
(0.24) $
(0.38) 37 $
(0.82) $
(1.16) 29
% %
Non-GAAP adjustments (0.09) 0.15 0.26 0.52
Diluted (loss) per share - Non-GAAP $
(0.33) $
(0.23) (43) $
(0.56) $
(0.64) 13
% %
Diluted weighted-average number of common 80,537 79,200 2 80,191 78,928 2
% %
shares outstanding - GAAP
Diluted weighted-average number of common shares 80,537 79,200 2 80,191 78,928 2
% %
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
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.
-- 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 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. 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.
-- 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 live event's cancellation from
our Non-GAAP operating expenses
and profitability measures.
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 these measures'
usefulness, see "Discussion of Non-
GAAP financial measures" included
in this release and below.
(2) Stock-based compensation was:
Three Months Ended Nine Months Ended
September 30,
September 30,
(in thousands) 2020 2019 2020 2019
Cost of revenue $
5,100 $
4,787 $
15,636 $
14,216
Selling and marketing 12,658 8,317 33,968 24,055
Research and development 5,765 4,858 17,066 13,990
General and administrative 4,402 3,884 10,085 7,981
$
27,925 $
21,846 $
76,755 $
60,242
Income tax benefit $
(5,604) $
(4,430) $
(15,293) $
(12,226)
(3) Effective income tax
rates were:
Nine Months Ended
September 30,
2020 2019
GAAP 48 32
% %
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)
September 30, 2020 December 31, 2019
---
Assets
Cash, cash equivalents, and
marketable securities $
468,028 $
68,363
Receivables (billed and
unbilled) 455,232 501,675
Goodwill 78,864 79,039
Other assets 485,203 335,735
Total assets $
1,487,327 $
984,812
Liabilities and stockholders' equity
Accrued expenses, including
compensation and related
expenses $
134,283 $
152,127
Deferred revenue, current 181,680 190,080
Convertible senior notes, net 513,794
Other liabilities 128,248 103,595
Stockholders' equity 529,322 539,010
Total liabilities and
stockholders' equity $
1,487,327 $
984,812
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
2020 2019
---
Net (loss) $
(65,379) $
(91,351)
Adjustments to reconcile net (loss) to cash (used in) operating activities
Non-cash items 72,797 73,547
Change in operating assets and liabilities, net (33,675) 4,342
Cash (used in) operating activities (26,257) (13,462)
Cash (used in) provided by investing activities (210,701) 53,448
Cash provided by (used in) financing activities 449,630 (61,941)
Effect of exchange rate changes on cash and cash equivalents 183 (363)
Net increase (decrease) in cash and cash equivalents 212,855 (22,318)
Cash and cash equivalents, beginning of period 68,363 114,422
Cash and cash equivalents, end of period $
281,218 $
92,104
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. 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. 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
September 30, 2020.
September 30, 2020 September 30, 2019 Change
Maintenance $
299 $
286 $
13 5
%
Term 246 209 37 18
%
Client Cloud 545 495 50 10
%
Pega Cloud 232 148 84 57
%
Total $
777 $
643 $
134 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 expected to be invoiced and recognized as revenue in future periods.
September 30, 2020
Perpetual license Term license Maintenance Pega Cloud Consulting Total
---
1 year or less $
8,708 $
50,788 $
170,643 $
211,661 $
14,977 $
456,777 54
%
1-2 years 1,700 5,341 40,631 157,500 2,042 207,214 25
%
2-3 years - 7,052 18,277 93,283 770 119,382 14
%
Greater than 3 years - 4 9,597 44,363 653 54,617 7
%
---
$
10,408 $
63,185 $
239,148 $
506,807 $
18,442 $
837,990 100
%
===
Change in Backlog Since September 30, 2019
---
$
560 $
32,763 $
49,056 $
143,435 $
3,593 $
229,407
6
% 108
% 26
% 39
% 24
% 38
%
September 30, 2019
Perpetual license Term license Maintenance Pega 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
%
===
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SOURCE Pegasystems Inc.
