CAMBRIDGE, Mass., July 26, 2023 /PRNewswire/ -- Pegasystems Inc., the low-code platform provider empowering the world's leading enterprises to Build for Change®, released its financial results for the second quarter of 2023.
"In this uncertain and changing environment, focusing on client success is more important than ever," said Alan Trefler, founder and CEO. "Our low-code platform for AI-powered decisioning and workflow automation uniquely empowers clients to embrace emerging trends like generative AI and, at the same time, reduce costs and improve customer engagement."
"Achieving record cash flow in the first half of 2023 reflects solid execution by our team to better balance growth and free cash flow," said Ken Stillwell, COO & CFO. "This significant shift in cash flow generation is a benefit of our successful move to a subscription model. In the second half of 2023, we will be looking to further increase operating effectiveness with additional improvements in our go-to-market alignment."
Financial and performance metrics (1)
Reconciliation of ACV and Constant Currency ACV | |||||||||||
(in millions, except percentages) | Q2 22 | Q3 22 | Q4 22 | Q1 23 | Q2 23 | 1 Year Change | |||||
ACV | $ 1,026 | $ 1,040 | $ 1,126 | $ 1,174 | $ 1,164 | 13 % | |||||
Impact of changes in foreign exchange rates | $ — | $ 24 | $ (1) | $ (5) | $ (5) | ||||||
Constant Currency ACV | $ 1,026 | $ 1,064 | $ 1,125 | $ 1,169 | $ 1,159 | 13 % |
Note: Constant currency ACV and Backlog are calculated by applying the Q2 2022 foreign exchange rates to all periods shown.
(Dollars in thousands, except per share amounts) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||
2023 | 2022 | Change | 2023 | 2022 | Change | ||||||
Total revenue | $ 298,268 | $ 274,337 | 9 % | $ 623,740 | $ 650,644 | (4) % | |||||
Net (loss) - GAAP | $ (46,804) | $ (286,296) | 84 % | $ (67,578) | $ (286,675) | 76 % | |||||
Net income (loss) - non-GAAP | $ 1,203 | $ (31,406) | * | $ 20,423 | $ 18,768 | 9 % | |||||
Diluted (loss) per share - GAAP | $ (0.56) | $ (3.50) | 84 % | $ (0.82) | $ (3.51) | 77 % | |||||
Diluted earnings (loss) per share - non-GAAP | $ 0.01 | $ (0.38) | * | $ 0.24 | $ 0.22 | 9 % | |||||
* not meaningful |
(Dollars in thousands) | Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||
Pega Cloud | $ 115,063 | 39 % | $ 93,506 | 34 % | $ 21,557 | 23 % | $ 222,942 | 36 % | $ 183,823 | 28 % | $ 39,119 | 21 % | |||||
Maintenance | 82,042 | 27 % | 78,326 | 29 % | 3,716 | 5 % | 161,672 | 26 % | 158,042 | 24 % | 3,630 | 2 % | |||||
Subscription services | 197,105 | 66 % | 171,832 | 63 % | 25,273 | 15 % | 384,614 | 62 % | 341,865 | 52 % | 42,749 | 13 % | |||||
Subscription license | 41,197 | 14 % | 41,600 | 15 % | (403) | (1) % | 125,724 | 20 % | 179,133 | 28 % | (53,409) | (30) % | |||||
Subscription | 238,302 | 80 % | 213,432 | 78 % | 24,870 | 12 % | 510,338 | 82 % | 520,998 | 80 % | (10,660) | (2) % | |||||
Perpetual license | 1,579 | 1 % | 2,266 | 1 % | (687) | (30) % | 1,982 | — % | 9,706 | 1 % | (7,724) | (80) % | |||||
Consulting | 58,387 | 19 % | 58,639 | 21 % | (252) | — % | 111,420 | 18 % | 119,940 | 19 % | (8,520) | (7) % | |||||
$ 298,268 | 100 % | $ 274,337 | 100 % | $ 23,931 | 9 % | $ 623,740 | 100 % | $ 650,644 | 100 % | $ (26,904) | (4) % |
1 Refer to the schedules at the end of this release for additional information, including a reconciliation of our GAAP to non-GAAP measures.
Quarterly conference call
A conference call and audio-only webcast will be conducted the following day at 8:00 a.m. EDT on Thursday, July 27, 2023.
Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-877-407-9039 (domestic), 1-201-689-8470 (international), or via webcast (https://viavid.webcasts.com/starthere.jsp?ei=1622243&tp_key=962bdef8e2) 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.
Discussion of non-GAAP financial measures
Our non-GAAP financial measures should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe these measures help investors understand our core operating results without the effect of often one-time charges and other items outside normal operations. They are not a substitute for financial measures prepared under U.S. GAAP.
Refer to the schedules at the end of this release for additional information, including a reconciliation of our GAAP to non-GAAP measures.
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, intends to, projects, forecasts, guidance, likely, and usually or variations of such words and other similar expressions identify forward-looking statements, which speak only as of the date the statement was made and 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:
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, 2022, and other filings we make with the U.S. Securities and Exchange Commission ("SEC").
Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results included in such statements will be achieved. Although subsequent events may cause our view to change, 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.
Any forward-looking statements in this presentation represent our views as of July 26, 2023.
About Pegasystems
Pega provides a powerful low-code platform that empowers the world's leading enterprises to Build for Change®. Clients use our AI-powered decisioning and workflow automation to solve their most pressing business challenges - from personalizing engagement to automating service to streamlining operations. Since 1983, we've built our scalable and flexible architecture to help enterprises meet today's customer demands while continuously transforming for tomorrow. For more information on Pegasystems (NASDAQ: PEGA), visit www.pega.com.
Press contact:
Lisa PintchmanVP, Corporate Communicationslisapintchman.rogers@pega.com617-866-6022Twitter: @pega
Investor contact:
Peter WelburnVP, Corporate Development & Investor RelationsPegaInvestorRelations@pega.com617-498-8968
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, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Revenue | |||||||
Subscription services | $ 197,105 | $ 171,832 | $ 384,614 | $ 341,865 | |||
Subscription license | 41,197 | 41,600 | 125,724 | 179,133 | |||
Consulting | 58,387 | 58,639 | 111,420 | 119,940 | |||
Perpetual license | 1,579 | 2,266 | 1,982 | 9,706 | |||
Total revenue | 298,268 | 274,337 | 623,740 | 650,644 | |||
Cost of revenue | |||||||
Subscription services | 36,783 | 36,533 | 73,647 | 68,563 | |||
Subscription license | 623 | 673 | 1,342 | 1,295 | |||
Consulting | 58,710 | 57,873 | 119,058 | 113,384 | |||
Perpetual license | 24 | 36 | 27 | 70 | |||
Total cost of revenue | 96,140 | 95,115 | 194,074 | 183,312 | |||
Gross profit | 202,128 | 179,222 | 429,666 | 467,332 | |||
Operating expenses | |||||||
Selling and marketing | 143,858 | 157,198 | 293,655 | 319,434 | |||
Research and development | 73,931 | 74,341 | 149,307 | 145,831 | |||
General and administrative | 23,462 | 32,723 | 46,572 | 68,487 | |||
Restructuring | 2,167 | — | 3,628 | — | |||
Total operating expenses | 243,418 | 264,262 | 493,162 | 533,752 | |||
(Loss) from operations | (41,290) | (85,040) | (63,496) | (66,420) | |||
Foreign currency transaction (loss) gain | (3,290) | 1,713 | (5,965) | 4,589 | |||
Interest income | 1,814 | 309 | 3,299 | 516 | |||
Interest expense | (1,778) | (1,944) | (3,696) | (3,890) | |||
(Loss) income on capped call transactions | (1,361) | (18,945) | 1,845 | (49,505) | |||
Other income, net | 5,702 | 3,785 | 12,285 | 6,526 | |||
(Loss) before provision for income taxes | (40,203) | (100,122) | (55,728) | (108,184) | |||
Provision for income taxes | 6,601 | 186,174 | 11,850 | 178,491 | |||
Net (loss) | $ (46,804) | $ (286,296) | $ (67,578) | $ (286,675) | |||
(Loss) per share | |||||||
Basic | $ (0.56) | $ (3.50) | $ (0.82) | $ (3.51) | |||
Diluted | $ (0.56) | $ (3.50) | $ (0.82) | $ (3.51) | |||
Weighted-average number of common shares outstanding | |||||||
Basic | 83,039 | 81,847 | 82,823 | 81,764 | |||
Diluted | 83,039 | 81,847 | 82,823 | 81,764 |
PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) | |||
June 30, 2023 | December 31, 2022 | ||
Assets | |||
Current assets: | |||
Cash and cash equivalents | $ 186,874 | $ 145,054 | |
Marketable securities | 125,939 | 152,167 | |
Total cash, cash equivalents, and marketable securities | 312,813 | 297,221 | |
Accounts receivable | 163,915 | 255,150 | |
Unbilled receivables | 182,257 | 213,719 | |
Other current assets | 78,526 | 80,388 | |
Total current assets | 737,511 | 846,478 | |
Unbilled receivables | 70,486 | 95,806 | |
Goodwill | 81,593 | 81,399 | |
Other long-term assets | 302,848 | 333,989 | |
Total assets | $ 1,192,438 | $ 1,357,672 | |
Liabilities and stockholders' equity | |||
Current liabilities: | |||
Accounts payable | $ 8,438 | $ 18,195 | |
Accrued expenses | 53,110 | 50,355 | |
Accrued compensation and related expenses | 70,965 | 127,728 | |
Deferred revenue | 311,330 | 325,212 | |
Other current liabilities | 17,269 | 17,450 | |
Total current liabilities | 461,112 | 538,940 | |
Convertible senior notes, net | 498,140 | 593,609 | |
Operating lease liabilities | 72,886 | 79,152 | |
Other long-term liabilities | 14,904 | 15,128 | |
Total liabilities | 1,047,042 | 1,226,829 | |
Total stockholders' equity | 145,396 | 130,843 | |
Total liabilities and stockholders' equity | $ 1,192,438 | $ 1,357,672 |
PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) | |||
Six Months Ended June 30, | |||
2023 | 2022 | ||
Net (loss) | $ (67,578) | $ (286,675) | |
Adjustments to reconcile net (loss) to cash provided by (used in) operating activities | |||
Non-cash items | 119,371 | 314,231 | |
Change in operating assets and liabilities, net | 61,959 | (32,625) | |
Cash provided by (used in) operating activities | 113,752 | (5,069) | |
Cash provided by (used in) investing activities | 15,979 | (1,523) | |
Cash (used in) financing activities | (86,988) | (41,191) | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 1,010 | (2,907) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 43,753 | (50,690) | |
Cash, cash equivalents, and restricted cash, beginning of period | 145,054 | 159,965 | |
Cash, cash equivalents, and restricted cash, end of period | $ 188,807 | $ 109,275 |
PEGASYSTEMS INC. RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES (in thousands, except percentages and per share amounts) | |||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2023 | 2022 | Change | 2023 | 2022 | Change | ||||||
Net (loss) - GAAP | $ (46,804) | $ (286,296) | 84 % | $ (67,578) | $ (286,675) | 76 % | |||||
Stock-based compensation (1) | 36,227 | 31,300 | 78,784 | 59,527 | |||||||
Capped call transactions | 1,361 | 18,945 | (1,845) | 49,505 | |||||||
Legal fees | 2,842 | 10,582 | 4,318 | 27,950 | |||||||
Repurchases of convertible senior notes | (5,074) | — | (7,855) | — | |||||||
Restructuring | 2,167 | — | 3,628 | — | |||||||
Interest on convertible senior notes | 647 | 720 | 1,375 | 1,439 | |||||||
Amortization of intangible assets | 963 | 1,025 | 2,012 | 1,997 | |||||||
Foreign currency transaction loss (gain) | 3,290 | (1,713) | 5,965 | (4,589) | |||||||
Other | (678) | (1,001) | (4,471) | (3,583) | |||||||
Income tax effects (2) | 6,262 | 195,032 | 6,090 | 173,197 | |||||||
Net income (loss) - non-GAAP | $ 1,203 | $ (31,406) | * | $ 20,423 | $ 18,768 | 9 % | |||||
Diluted (loss) per share - GAAP | $ (0.56) | $ (3.50) | 84 % | $ (0.82) | $ (3.51) | 77 % | |||||
non-GAAP adjustments | 0.57 | 3.12 | 1.06 | 3.73 | |||||||
Diluted earnings (loss) per share - non-GAAP | $ 0.01 | $ (0.38) | * | $ 0.24 | $ 0.22 | 9 % | |||||
Diluted weighted-average number of common shares outstanding - GAAP | 83,039 | 81,847 | 1 % | 82,823 | 81,764 | 1 % | |||||
Stock-based compensation | 1,289 | — | 1,026 | 2,063 | |||||||
Diluted weighted-average number of common shares outstanding - non-GAAP | 84,328 | 81,847 | 3 % | 83,849 | 83,827 | — % | |||||
* not meaningful |
Our non-GAAP financial measures reflect the following adjustments:
(1) Stock-based compensation: | |||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Cost of revenue | $ 7,174 | $ 6,579 | $ 16,087 | $ 12,957 | |||
Selling and marketing | 15,349 | 12,633 | 33,009 | 23,591 | |||
Research and development | 7,851 | 7,355 | 16,911 | 14,701 | |||
General and administrative | 5,853 | 4,733 | 12,777 | 8,278 | |||
$ 36,227 | $ 31,300 | $ 78,784 | $ 59,527 | ||||
Income tax benefit | $ (581) | $ (543) | $ (1,253) | $ (905) |
(2) Effective income tax rates: | |||
Six Months Ended June 30, | |||
2023 | 2022 | ||
GAAP | (21) % | (165) % | |
non-GAAP | 22 % | 22 % |
Our GAAP effective income tax rate is subject to significant fluctuations due to several 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 using applicable rates in taxing jurisdictions and assessing certain factors, including historical and forecasted earnings by jurisdiction, discrete items, and ability to realize tax assets. We believe it is beneficial for our management to review our non-GAAP results consistent with our annual plan's effective income tax rate as established at the beginning of each year, given tax rate volatility.
PEGASYSTEMS INC. RECONCILIATION OF FREE CASH FLOW (in thousands, except percentages) | |||||
Six Months Ended June 30, | |||||
2023 | 2022 | Change | |||
Cash provided by (used in) operating activities | $ 113,752 | $ (5,069) | * | ||
Investment in property and equipment | (13,933) | (11,863) | |||
Legal fees | 2,950 | 26,437 | |||
Restructuring | 17,521 | — | |||
Interest on convertible senior notes | 2,250 | 2,250 | |||
Other | — | 167 | |||
Free cash flow | $ 122,540 | $ 11,922 | 928 % | ||
Total revenue | $ 623,740 | $ 650,644 | |||
Free cash flow margin | 20 % | 2 % | |||
* not meaningful |
Our non-GAAP free cash flow measures reflect the following adjustments:
PEGASYSTEMS INC. |
ANNUAL CONTRACT VALUE |
(in thousands, 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. ACV is a performance measure that we believe provides useful information to our management and investors. In 2023, we changed our ACV calculation methodology for maintenance and all contracts less than 12 months to align with other contract types. Previously disclosed ACV amounts have been updated to allow for comparability. |
June 30, 2023 | June 30, 2022 | Change | ||||
Pega Cloud | $ 498,860 | $ 408,331 | $ 90,529 | 22 % | ||
Maintenance | 315,232 | 307,223 | 8,009 | 3 % | ||
Subscription services | 814,092 | 715,554 | 98,538 | 14 % | ||
Subscription license | 349,713 | 310,431 | 39,282 | 13 % | ||
$ 1,163,805 | $ 1,025,985 | $ 137,820 | 13 % |
Reconciliation of ACV and Constant Currency ACV | |||||||||||
(in millions, except percentages) | Q2 22 | Q3 22 | Q4 22 | Q1 23 | Q2 23 | 1 Year Change | |||||
ACV | $ 1,026 | $ 1,040 | $ 1,126 | $ 1,174 | $ 1,164 | 13 % | |||||
Impact of changes in foreign exchange rates | $ — | $ 24 | $ (1) | $ (5) | $ (5) | ||||||
Constant Currency ACV | $ 1,026 | $ 1,064 | $ 1,125 | $ 1,169 | $ 1,159 | 13 % |
PEGASYSTEMS INC.BACKLOG(in thousands, except percentages) |
Remaining performance obligations ("Backlog") - Expected future revenue from existing non-cancellable contracts: |
As of June 30, 2023: | ||||||||||||
Subscription services | Subscriptionlicense | Perpetual license | Consulting | Total | ||||||||
Maintenance | Pega Cloud | |||||||||||
1 yearor less | $ 214,579 | $ 397,183 | $ 35,616 | $ 4,979 | $ 37,355 | $ 689,712 | 55 % | |||||
1-2 years | 58,551 | 238,691 | 3,026 | 2,252 | 6,772 | 309,292 | 24 % | |||||
2-3 years | 25,103 | 124,616 | 6,764 | — | 1,523 | 158,006 | 12 % | |||||
Greater than 3 years | 7,592 | 101,494 | — | — | — | 109,086 | 9 % | |||||
$ 305,825 | $ 861,984 | $ 45,406 | $ 7,231 | $ 45,650 | $ 1,266,096 | 100 % | ||||||
% of Total | 23 % | 68 % | 4 % | 1 % | 4 % | 100 % | ||||||
Change since June 30, 2022 | ||||||||||||
$ (3,861) | $ 163,817 | $ (15,921) | $ (6,207) | $ 2,574 | $ 140,402 | |||||||
(1) % | 23 % | (26) % | (46) % | 6 % | 12 % |
As of June 30, 2022: | ||||||||||||
Subscription services | Subscriptionlicense | Perpetual license | Consulting | Total | ||||||||
Maintenance | Pega Cloud | |||||||||||
1 yearor less | $ 204,974 | $ 320,102 | $ 46,810 | $ 6,681 | $ 32,159 | $ 610,726 | 54 % | |||||
1-2 years | 57,862 | 200,135 | 10,711 | 4,505 | 7,919 | 281,132 | 25 % | |||||
2-3 years | 28,403 | 96,861 | 2,126 | 2,252 | 2,574 | 132,216 | 12 % | |||||
Greater than 3 years | 18,447 | 81,069 | 1,680 | — | 424 | 101,620 | 9 % | |||||
$ 309,686 | $ 698,167 | $ 61,327 | $ 13,438 | $ 43,076 | $ 1,125,694 | 100 % | ||||||
% of Total | 28 % | 62 % | 5 % | 1 % | 4 % | 100 % |
PEGASYSTEMS INC. RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG (in millions, except percentages) | |||
Q2 2023 | 1 Year Growth Rate | ||
Backlog - GAAP | $ 1,266 | 12 % | |
Impact of changes in foreign exchange rates | (8) | — % | |
Backlog - Constant Currency | $ 1,258 | 12 % | |
Note: Constant currency Backlog is calculated by applying the Q2 2022 foreign exchange rates to all periods shown. |
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SOURCE Pegasystems Inc.