Pega Cloud ACV Grows 65% in the First Half of 2019

Press Releases

Aug 07, 2019

CAMBRIDGE, Mass., Aug. 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 second quarter of 2019.

“At mid-year, I’m excited with the strong progress we’re making in our business and in our transition to cloud,” said Alan Trefler, founder and CEO, Pegasystems. “I’m pleased with how our strategy is working, and we continue to gain traction in seizing the huge opportunity in front of us.”

“Pega Cloud ACV increased 65% year over year, reaching $136 million,” said Ken Stillwell, CFO, Pegasystems. “This strong ACV growth reflects solid demand worldwide for digital transformation solutions.”

Financial metrics (1)

(Dollars in thousands, except per share amounts)

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

Change

2019

2018

Change

Total revenue

$

205,592

$

196,779

4

%

$

418,138

$

431,961

(3)

%

Subscription revenue (2)

$

125,982

$

117,416

7

%

$

269,760

$

262,218

3

%

Net (loss) income – GAAP

$

(32,296)

$

(10,409)

(210)

%

$

(61,013)

$

1,791

*

Net (loss) income – Non-GAAP

$

(23,427)

$

(2,732)

(758)

%

$

(32,803)

$

17,525

*

Diluted (loss) earnings per share – GAAP

$

(0.41)

$

(0.13)

(215)

%

$

(0.77)

$

0.02

*

Diluted (loss) earnings per share – Non-GAAP

$

(0.30)

$

(0.03)

(900)

%

$

(0.42)

$

0.21

*

*

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)

Reflects client arrangements (term license, cloud, and maintenance) that are subject to renewal.

 

(Dollars in thousands)

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

Change

2019

2018

Change

Cloud

$

31,699

15

%

$

20,201

10

%

$

11,498

57

%

$

59,457

14

%

$

35,783

8

%

$

23,674

66

%

Term license

24,954

12

%

31,309

16

%

(6,355)

(20)

%

73,268

18

%

96,004

22

%

(22,736)

(24)

%

Maintenance

69,329

34

%

65,906

34

%

3,423

5

%

137,035

33

%

130,431

31

%

6,604

5

%

Subscription

125,982

61

%

117,416

60

%

8,566

7

%

269,760

65

%

262,218

61

%

7,542

3

%

Perpetual license

19,320

9

%

13,475

7

%

5,845

43

%

34,270

8

%

36,553

8

%

(2,283)

(6)

%

Consulting

60,290

30

%

65,888

33

%

(5,598)

(8)

%

114,108

27

%

133,190

31

%

(19,082)

(14)

%

Total revenue

$

205,592

100

%

$

196,779

100

%

$

8,813

4

%

$

418,138

100

%

$

431,961

100

%

$

(13,823)

(3)

%

 

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.

Annual contract value (“ACV”)

 

June 30,

Change

Constant Currency
Change

(Dollars in thousands)

2019

2018

Maintenance ACV

$

277,316

$

263,624

$

13,692

5

%

7

%

Term ACV

199,299

168,528

30,771

18

%

19

%

Client Cloud ACV

476,615

432,152

44,463

10

%

12

%

Pega Cloud ACV

136,074

82,376

53,698

65

%

67

%

Total ACV

$

612,689

$

514,528

$

98,161

19

%

21

%

(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 for Client Cloud arrangements.
  • Pega Cloud: the total 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. The percent change in constant currency is calculated by applying the applicable current period exchange rates to prior period ACV.

 

Remaining performance obligations (“RPO”)

Expected future revenue on existing contracts:

June 30, 2019

(Dollars in thousands)

Perpetual license

Term license

Maintenance

Cloud

Consulting

Total

1 year or less

$

8,429

$

38,080

$

173,421

$

124,134

$

16,259

$

360,323

57

%

1-2 years

915

4,678

12,530

98,842

942

117,907

19

%

2-3 years

1,306

641

5,801

75,828

227

83,803

13

%

Greater than 3 years

185

2,812

63,259

66,256

11

%

$

10,650

$

43,584

$

194,564

$

362,063

$

17,428

$

628,289

100

%

Change in RPO Since June 30, 2018

$

(36,623)

$

6,640

$

32,273

$

148,253

$

1,086

$

151,629

(77)

%

18

%

20

%

69

%

7

%

32

%

June 30, 2018

(Dollars in thousands)

Perpetual license

Term license

Maintenance

Cloud

Consulting

Total

1 year or less

$

28,626

$

20,457

$

111,086

$

41,036

$

12,039

$

213,244

45

%

1-2 years

15,862

9,878

43,837

66,529

4,103

140,209

29

%

2-3 years

2,423

5,665

5,265

50,250

63,603

13

%

Greater than 3 years

362

944

2,103

55,995

200

59,604

13

%

$

47,273

$

36,944

$

162,291

$

213,810

$

16,342

$

476,660

100

%

 

Quarterly conference call

A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on August 7, 2019.

Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-800-289-0438 (domestic), 1-323-794-2423 (international), or via webcast by logging onto http://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 http://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”), the Company provides non-GAAP measures, including in this release. Pegasystems’ management utilizes a number of 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. The Company’s annual financial plan is prepared on both a GAAP and 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, the Company uses 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. The Company believes 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 and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP.

A reconciliation of the Company’s GAAP measures to Non-GAAP measures is included 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 specifically 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 August 7, 2019.

About Pegasystems

Pegasystems Inc. is the leader in software for customer engagement and operational excellence. Pega’s adaptive, cloud-architected software – built on its unified Pega Platform™ – empowers people to rapidly deploy, and easily extend and change applications to meet strategic business needs. Over its 35-year history, Pega has delivered award-winning capabilities in CRM and digital process automation (DPA), powered by advanced artificial intelligence and robotic automation, to help the world’s leading brands achieve breakthrough business results.

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
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Revenue

Software license

$

44,274

$

44,784

$

107,538

$

132,557

Maintenance

69,329

65,906

137,035

130,431

Services

91,989

86,089

173,565

168,973

Total revenue

205,592

196,779

418,138

431,961

Cost of revenue

Software license

928

1,262

2,306

2,517

Maintenance

6,292

5,874

12,627

11,956

Services

69,860

66,681

136,584

134,958

Total cost of revenue

77,080

73,817

151,517

149,431

Gross profit

128,512

122,962

266,621

282,530

Operating expenses

Selling and marketing

116,962

93,972

225,827

182,355

Research and development

49,714

41,972

100,310

88,757

General and administrative

14,174

10,181

26,850

26,645

Total operating expenses

180,850

146,125

352,987

297,757

(Loss) from operations

(52,338)

(23,163)

(86,366)

(15,227)

Foreign currency transaction gain (loss)

2,105

1,244

(1,607)

159

Interest income, net

544

629

1,267

1,393

Other income, net

55

55

363

(Loss) before (benefit from) income taxes

(49,634)

(21,290)

(86,651)

(13,312)

(Benefit from) income taxes

(17,338)

(10,881)

(25,638)

(15,103)

Net (loss) income

$

(32,296)

$

(10,409)

$

(61,013)

$

1,791

(Loss) earnings per share

Basic

$

(0.41)

$

(0.13)

$

(0.77)

$

0.02

Diluted

$

(0.41)

$

(0.13)

$

(0.77)

$

0.02

Weighted-average number of common shares
outstanding

Basic

78,987

78,635

78,787

78,436

Diluted

78,987

78,635

78,787

83,247

 

 

PEGASYSTEMS INC.

UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)

(in thousands, except percentages and per share amounts)

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

Change

2019

2018

Change

Total revenue – GAAP and Non-GAAP

$

205,592

$

196,779

4

%

$

418,138

$

431,961

(3)

%

Net (loss) income – GAAP

$

(32,296)

$

(10,409)

(210)

%

$

(61,013)

$

1,791

*

Amortization of intangible assets

1,656

2,836

4,592

5,673

Stock-based compensation (2)

20,047

16,056

38,397

31,165

Foreign currency transaction gain (loss)

(2,105)

(1,244)

1,607

(159)

Income tax effects (3)

(10,729)

(9,971)

(16,386)

(20,945)

Net (loss) income – Non-GAAP

$

(23,427)

$

(2,732)

(758)

%

$

(32,803)

$

17,525

*

Diluted (loss) earnings per share – GAAP

$

(0.41)

$

(0.13)

(215)

%

$

(0.77)

$

0.02

*

Non-GAAP adjustments

0.11

0.10

0.35

0.19

Diluted (loss) earnings per share – Non-GAAP

$

(0.30)

$

(0.03)

(900)

%

$

(0.42)

$

0.21

*

Diluted weighted-average number of
common shares outstanding – GAAP

78,987

78,635

%

78,787

83,247

(5)

%

Diluted weighted-average number of
common shares outstanding – Non-GAAP

78,987

78,635

%

78,787

83,247

(5)

%

*

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 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 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 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 as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,

(in thousands)

2019

2018

2019

2018

Cost of revenues

$

4,911

$

4,257

$

9,430

$

7,958

Selling and marketing

8,364

6,038

15,738

10,696

Research and development

4,572

3,802

9,132

7,439

General and administrative

2,200

1,959

4,097

5,072

$

20,047

$

16,056

$

38,397

$

31,165

Income tax benefit

$

(4,056)

$

(3,341)

$

(7,796)

$

(6,482)

(3)     Effective income tax rates were as follows:

Six Months Ended
June 30,

2019

2018

GAAP

30

%

113

%

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)

June 30, 2019

December 31, 2018

Assets

Total cash, cash equivalents, and marketable securities

$

155,049

$

207,423

Total receivables (billed and unbilled)

422,408

504,765

Goodwill

79,037

72,858

Other assets

284,123

197,507

Total assets

$

940,617

$

982,553

Liabilities and stockholders’ equity

Accrued expenses, including compensation and related expenses

$

113,252

$

130,177

Deferred revenue, current

169,009

185,145

Deferred income tax liabilities

6,918

6,939

Other liabilities

94,151

38,761

Stockholders’ equity

557,287

621,531

Total liabilities and stockholders’ equity

$

940,617

$

982,553

 

 

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Six Months Ended
June 30,

2019

2018

Operating activities:

Net (loss) income

$

(61,013)

$

1,791

Adjustments to reconcile net (loss) income to cash provided by operating activities

Non-cash items

73,562

51,081

Change in operating assets and liabilities, net

(4,829)

22,560

Cash provided by operating activities

7,720

75,432

Cash provided by (used in) investing activities

17,210

(46,369)

Cash (used in) financing activities

(44,367)

(45,825)

Effect of exchange rate changes on cash and cash equivalents

515

(1,226)

Net (decrease) in cash and cash equivalents

(18,922)

(17,988)

Cash and cash equivalents, beginning of period

114,422

162,279

Cash and cash equivalents, end of period

$

95,500

$

144,291

 

 

The corporate logo for Pega (PRNewsfoto/Pegasystems Inc.)

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SOURCE Pegasystems Inc.

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