Pegasystems : Pega continues strong first-half momentum through Q2 2021

CAMBRIDGE, Mass., July 28, 2021 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the software company that crushes business complexity, released its financial results for the second quarter of 2021.

"As parts of the world begin to emerge from the acute conditions of the pandemic, we continue to see digital transformation at the forefront of our clients' priorities," said Alan Trefler, Founder and CEO, Pegasystems. "Clients understand the need for agility is more important than ever if they are going to thrive in an increasingly unpredictable world. Pega's low-code platform and outcome-centric approach to workflow maximizes flexibility while delivering tremendous value."

"I'm excited that annual contract value grew 22 percent year-over-year in the first half of 2021," said COO and CFO Ken Stillwell. "Pega Cloud continued to be the biggest contributor to ACV growth for the third consecutive year. Equally exciting, we grew sequential backlog and delivered the strongest revenue quarter in the company's history."

Financial and performance metrics ⁽¹⁾

(Dollars in thousands, except per share amounts)	Three Months Ended June 30,											Six Months Ended June 30,
	2021				2020				Change			2021				2020				Change
Total revenue	$	325,702			$	227,375			43	%		$	639,201			$	492,966			30	%
Net income (loss) - GAAP	$	37,291			$	(20,740)			*			$	30,674			$	(46,112)			*
Net income (loss) - Non-GAAP	$	19,943			$	(22,236)			*			$	42,056			$	(18,204)			*
Diluted earnings (loss) per share - GAAP	$	0.43			$	(0.26)			*			$	0.36			$	(0.58)			*
Diluted earnings (loss) per share - Non-GAAP	$	0.23			$	(0.28)			*			$	0.49			$	(0.23)			*

* not meaningful.
1  For additional information, including a reconciliation of our Non-GAAP and GAAP measures, see the Schedules at the end of this release.

 

(Dollars in thousands)	Three Months Ended June 30,												Change						Six Months Ended June 30,												Change
	2021						2020												2021						2020
Pega Cloud	$	73,293		23	%		$	48,838		21	%		$	24,455		50	%		$	141,151		22	%		$	92,304		19	%		$	48,847		53	%
Client Cloud	183,078			56	%		116,488			52	%		66,590			57	%		370,148			58	%		280,440			57	%		89,708			32	%
Subscription	$	256,371		79	%		$	165,326		73	%		91,045			55	%		$	511,299		80	%		$	372,744		76	%		138,555			37	%
Perpetual license	12,596			4	%		9,057			4	%		3,539			39	%		18,048			3	%		12,716			3	%		5,332			42	%
Consulting	56,735			17	%		52,992			23	%		3,743			7	%		109,854			17	%		107,506			21	%		2,348			2	%
Total revenue	$	325,702		100	%		$	227,375		100	%		$	98,327		43	%		$	639,201		100	%		$	492,966		100	%		$	146,235		30	%

 

 

Quarterly conference call

A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on July 28, 2021.

Members of the public and investors are invited to 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=145675) 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 non-GAAP financial measures help investors understand our core operating results and prospects, consistent with how management measures and forecasts the Company's performance without the effect of often one-time charges and other items outside our normal operations. The supplementary non-GAAP financial measures are not meant to be superior to, or a substitute for, results of operations prepared under U.S. GAAP.

A reconciliation of our Non-GAAP and GAAP measures is at the end of this release.

Forward-looking statements

Certain statements 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, 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.

Forward-looking statements deal with future events and are subject to risks and uncertainties that are difficult to predict, including, but not limited to:

• our future financial performance and business plans;
• the adequacy of our liquidity and capital resources;
• the continued payment of our 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 covenants;
• the potential impact of our convertible senior notes and 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; 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, 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 update or revise these forward-looking statements publicly, whether from new information, future events, or otherwise.

The forward-looking statements in this press release represent our views as of July 28, 2021.

About Pegasystems

Pega delivers innovative software that crushes business complexity. From maximizing customer lifetime value to streamlining service to boosting efficiency, we help the world's leading brands solve problems fast and transform for tomorrow. Pega clients make better decisions and get work done with real-time AI and intelligent automation. And, since 1983, we've built our scalable architecture and low-code platform to stay ahead of rapid change. Our solutions save people time, so our clients' employees and customers can get back to what matters most. For more information on Pegasystems (NASDAQ: PEGA), visit www.pega.com.

Press contact:
Lisa Pintchman
Pegasystems Inc.
[e-mail]
[phone]       
Twitter: @pega

Investor contact:
Garo Toomajanian
ICR for Pegasystems Inc.
[e-mail]
[phone]

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,
	2021				2020				2021				2020
Revenue
Software license	$	116,892			$	53,323			$	233,853			$	147,239
Maintenance	78,782				72,222				154,343				145,917
Pega Cloud	73,293				48,838				141,151				92,304
Consulting	56,735				52,992				109,854				107,506
Total revenue	325,702				227,375				639,201				492,966
Cost of revenue
Software license	656				979				1,306				1,663
Maintenance	4,995				5,591				10,781				11,167
Pega Cloud	24,051				18,988				46,608				36,521
Consulting	54,829				51,133				108,283				106,868
Total cost of revenue	84,531				76,691				166,978				156,219
Gross profit	241,171				150,684				472,223				336,747
Operating expenses
Selling and marketing	156,423				127,607				305,162				263,631
Research and development	64,395				58,869				126,837				117,596
General and administrative	19,161				15,655				37,431				31,285
Total operating expenses	239,979				202,131				469,430				412,512
Income (loss) from operations	1,192				(51,447)				2,793				(75,765)
Foreign currency transaction (loss) gain	(403)				4,256				(5,501)				(1,691)
Interest income	236				242				389				849
Interest expense	(1,959)				(5,529)				(3,839)				(7,835)
Gain on capped call transactions	26,309				19,419				7,192				827
Other income, net	—				—				106				1,374
Income (loss) before (benefit from) income taxes	25,375				(33,059)				1,140				(82,241)
(Benefit from) income taxes	(11,916)				(12,319)				(29,534)				(36,129)
Net income (loss)	$	37,291			$	(20,740)			$	30,674			$	(46,112)
Earnings (loss) per share
Basic	$	0.46			$	(0.26)			$	0.38			$	(0.58)
Diluted	$	0.43			$	(0.26)			$	0.36			$	(0.58)
Weighted-average number of common shares outstanding
Basic	81,316				80,224				81,161				80,016
Diluted	90,320				80,224				86,006				80,016

 

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,
	2021				2020				Change			2021				2020				Change
Net income (loss) - GAAP	$	37,291			$	(20,740)			*			$	30,674			$	(46,112)			*
Stock-based compensation(2)	30,688				25,655							60,788				48,831
Capped call transactions	(26,309)				(19,419)							(7,192)				(827)
Convertible senior notes	675				4,315							1,348				6,033
Headquarters lease	(6,266)				—							(9,683)				—
Amortization of intangible assets	1,002				1,017							2,004				2,034
Foreign currency transaction loss (gain)	403				(4,256)							5,501				1,691
Other	—				(2,758)							12				1,141
Income tax effects(3)	(17,541)				(6,050)							(41,396)				(30,995)
Net income (loss) - Non-GAAP	$	19,943			$	(22,236)			*			$	42,056			$	(18,204)			*
Diluted earnings (loss) per share - GAAP	$	0.43			$	(0.26)			*			$	0.36			$	(0.58)			*
Non-GAAP adjustments	(0.20)				(0.02)							0.13				0.35
Diluted earnings (loss) per share - Non-GAAP	$	0.23			$	(0.28)			*			$	0.49			$	(0.23)			*
Diluted weighted-average number of common shares outstanding - GAAP	90,320				80,224				13	%		86,006				80,016				7	%
Non-GAAP Adjustments	(4,443)				—							—				—
Diluted weighted-average number of common shares outstanding - Non-GAAP	85,877				80,224				7	%		86,006				80,016				7	%

* not meaningful
(1)	We believe that non-GAAP financial measures help investors understand our core operating results and prospects, consistent with how management measures and forecasts the Company's performance without the effect of often one-time charges and other items outside our normal operations. The supplementary non-GAAP financial measures are not meant to be superior to, or a substitute for, results of operations prepared under U.S. GAAP.

Our Non-GAAP financial measures reflect the following adjustments:

• 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 revenues, we continue to evaluate our business performance excluding stock-based compensation.
• Capped call transactions: We have excluded gains and losses related to our capped call transactions held at fair value under U.S. GAAP. The capped call transactions are generally expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the Notes. 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. We reflect the effect of the capped call transactions on the weighted-average number of common shares outstanding in our non-GAAP financial measures as we believe it provides investors with useful information in evaluating our financial performance on a per-share basis.
• Convertible senior notes: In February 2020, we issued convertible senior notes with an aggregate principal amount of $600 million, due March 1, 2025, in a private placement. Under U.S. GAAP in 2020, the conversion feature was recorded as a reduction of the debt instrument's book value which was amortized over the debt's life. After our adoption of Accounting Standards Update 2020-06 on January 1, 2021, the conversion feature is no longer recorded as a reduction of the debt instrument's book value which is amortized over the debt's life. See "Note 2. New Accounting Pronouncements" and "Note 8. Debt" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 for additional information. In both periods, debt issuance costs reduce the debt instrument's book value and are amortized over the debt's life. We believe excluding the amortization of debt discount and issuance costs provides a useful comparison of our operational performance in different periods.
• Headquarters lease: In February 2021, the Company agreed to accelerate its exit from its Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from the Company's landlord of $18 million. We believe excluding the impact from our non-GAAP financial measures is useful to investors as the modified lease, including the $18 million payment, is not representative of our core business operations and ongoing operating performance.
• 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 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 future revenues. Amortization of intangible assets is likely to recur in future periods.
• 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 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 and incremental fees incurred due to the cancellation of in-person sales and marketing events due to the COVID-19 pandemic, including the live event portion of our 2020 PegaWorld conference. 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:
	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)	2021				2020				2021				2020
Cost of revenue	$	5,849			$	5,384			$	11,774			$	10,536
Selling and marketing	14,748				11,592				28,468				21,310
Research and development	6,343				5,805				13,113				11,302
General and administrative	3,748				2,874				7,433				5,683
	$	30,688			$	25,655			$	60,788			$	48,831
Income tax benefit	$	(6,192)			$	(5,107)			$	(12,183)			$	(9,689)

 

(3) Effective income tax rates:
	Six Months Ended June 30,
	2021			2020
GAAP	(2,591)	%		44	%
Non-GAAP	22	%		22	%

Our GAAP effective income tax rate is subject to significant fluctuations due to various factors, including excess tax benefits generated by our stock-based compensation plans, gains and losses on our capped call transactions, 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 forecasted 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, 2021				December 31, 2020
Assets
Cash, cash equivalents, and marketable securities	$	411,337			$	465,168
Accounts receivable	166,226				215,827
Unbilled receivables	236,451				207,155
Other current assets	96,215				88,760
Total current assets	910,229				976,910
Unbilled receivables	144,065				113,278
Goodwill	82,173				79,231
Other long-term assets	466,103				434,843
Total assets	$	1,602,570			$	1,604,262
Liabilities and stockholders' equity
Accounts payable	$	22,931			$	24,028
Accrued expenses, including compensation and related expenses	148,993				182,273
Deferred revenue	242,194				232,865
Other current liabilities	16,126				20,969
Total current liabilities	430,244				460,135
Convertible senior notes, net	589,092				518,203
Operating lease liabilities	42,063				59,053
Other long-term liabilities	18,703				24,699
Total liabilities	1,080,102				1,062,090
Stockholders' equity	522,468				542,172
Total liabilities and stockholders' equity	$	1,602,570			$	1,604,262

 

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Six Months Ended June 30,
	2021				2020
Net income (loss)	$	30,674			$	(46,112)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities
Non-cash items	66,038				69,969
Change in operating assets and liabilities, net	(77,302)				(45,056)
Cash provided by (used in) operating activities	19,410				(21,199)
Cash provided by (used in) investing activities	10,493				(19,404)
Cash (used in) provided by financing activities	(60,717)				485,293
Effect of exchange rate changes on cash and cash equivalents	(1,207)				(942)
Net (decrease) increase in cash and cash equivalents	(32,021)				443,748
Cash and cash equivalents, beginning of period	171,899				68,363
Cash and cash equivalents, end of period	$	139,878			$	512,111

 

PEGASYSTEMS INC.
Revenue Detail
(in thousands, except percentages)
(Dollars in thousands)	Three Months Ended June 30,												Change						Six Months Ended June 30,												Change
	2021						2020												2021						2020
Pega Cloud	$	73,293		23	%		$	48,838		21	%		$	24,455		50	%		$	141,151		22	%		$	92,304		19	%		$	48,847		53	%
Client Cloud (1)	$	183,078		56	%		$	116,488		52	%		$	66,590		57	%		$	370,148		58	%		$	280,440		57	%		$	89,708		32	%
Maintenance	78,782			24	%		72,222			33	%		6,560			9	%		154,343			24	%		145,917			30	%		8,426			6	%
Term license	104,296			32	%		44,266			19	%		60,030			136	%		215,805			34	%		134,523			27	%		81,282			60	%
Subscription (2)	$	256,371		79	%		$	165,326		73	%		91,045			55	%		$	511,299		80	%		$	372,744		76	%		138,555			37	%
Perpetual license	12,596			4	%		9,057			4	%		3,539			39	%		18,048			3	%		12,716			3	%		5,332			42	%
Consulting	56,735			17	%		52,992			23	%		3,743			7	%		109,854			17	%		107,506			21	%		2,348			2	%
	$	325,702		100	%		$	227,375		100	%		$	98,327		43	%		$	639,201		100	%		$	492,966		100	%		$	146,235		30	%

(1)	Client Cloud is composed of maintenance and term revenue.
(2)	Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).

 

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 term license ACV. ACV is a performance measure that we believe provides useful information to our management and investors, particularly during our Cloud Transition.

	June 30, 2021				June 30, 2020				Change
Pega Cloud	$	306,919			$	210,741			$	96,178		46	%
Client Cloud	$	592,516			$	527,156			$	65,360		12	%
Maintenance	315,128				288,888				26,240			9	%
Term license	277,388				238,268				39,120			16	%
Total	$	899,435			$	737,897			$	161,538		22	%

(1)	Foreign currency exchange rate changes contributed 3-4% to total ACV growth in 2021.

 

PEGASYSTEMS INC.
BACKLOG
(in thousands, except percentages)
Remaining performance obligations ("Backlog")- Backlog represents expected future revenue on existing non-cancellable contracts.
	June 30, 2021
	Perpetual license				Term license				Maintenance				Pega Cloud				Consulting				Total
1 year or less	$	6,707			$	46,146			$	214,645			$	281,793			$	17,863			$	567,154		56	%
1-2 years	234				15,708				59,164				194,841				2,675				272,622			26	%
2-3 years	—				909				36,076				88,855				762				126,602			12	%
Greater than 3 years	—				255				26,564				37,246				693				64,758			6	%
	$	6,941			$	63,018			$	336,449			$	602,735			$	21,993			$	1,031,136		100	%
Change in Backlog Since June 30, 2020
	$	(2,879)			$	(3,825)			$	78,490			$	145,344			$	(3,173)			$	213,957
	(29)		%		(6)		%		30		%		32		%		(13)		%		26		%

 

	June 30, 2020
	Perpetual license				Term license				Maintenance				Pega Cloud				Consulting				Total
1 year or less	$	8,120			$	53,550			$	186,618			$	191,187			$	21,923			$	461,398		57	%
1-2 years	1,700				6,187				40,153				140,860				1,986				190,886			23	%
2-3 years	—				6,460				20,671				88,273				631				116,035			14	%
Greater than 3 years	—				646				10,517				37,071				626				48,860			6	%
	$	9,820			$	66,843			$	257,959			$	457,391			$	25,166			$	817,179		100	%

 

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SOURCE Pegasystems Inc.