•Total ACV grows 22 percent, powered by Pega Cloud Choice
•Pega subscription revenue grows 32 percent year over year
•Total Backlog increases 23 percent year over year
CAMBRIDGE, Mass. — October 27, 2021 — Pegasystems Inc. (NASDAQ: PEGA), the software company that crushes business complexity, released its financial results for the third quarter of 2021.
“Sophisticated organizations are pursuing digital transformation with great energy,” said Alan Trefler, founder and CEO, Pegasystems. “Organizations know they must adapt for today’s needs while preparing for the inevitable changes that will come tomorrow. In an unpredictable world, we help our clients crush business complexity with solutions built on a low-code platform and an outcome-centric approach to workflow that helps them work smarter, simpler, and faster. I’m excited about how Pega is meeting their needs with our highly differentiated offering.”
“It’s great to see total ACV growth of 22 percent year-over-year in Q3 2021 – once again powered by Pega Cloud Choice,” said Ken Stillwell, COO and CFO, Pegasystems. “Our cumulative results through the first three quarters of this year demonstrate that digital transformation continues to be a top priority for our clients around the world.”
Financial and performance metrics (1)
(Dollars in thousands,
except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
Change
2021
2020
Change
Total revenue
$
256,268
$
225,951
13
%
$
895,469
$
718,917
25
%
Net (loss) - GAAP
$
(56,468)
$
(19,267)
(193)
%
$
(25,794)
$
(65,379)
61
%
Net (loss) income - Non-GAAP
$
(32,860)
$
(26,701)
(23)
%
$
9,196
$
(44,905)
*
Diluted (loss) per share - GAAP
$
(0.69)
$
(0.24)
(188)
%
$
(0.32)
$
(0.82)
61
%
Diluted (loss) earnings per share - Non-GAAP
$
(0.40)
$
(0.33)
(21)
%
$
0.11
$
(0.56)
*
* not meaningful.
(Dollars in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
Change
2021
2020
Change
Pega Cloud
$
78,369
31
%
$
54,776
24
%
$
23,593
43
%
$
219,520
25
%
$
147,080
20
%
$
72,440
49
%
Client Cloud
118,609
46
%
110,602
49
%
8,007
7
%
488,757
54
%
391,042
55
%
97,715
25
%
Cloud subscription
$
196,978
77
%
$
165,378
73
%
$
31,600
19
%
$
708,277
79
%
$
538,122
75
%
$
170,155
32
%
Perpetual license
2,874
1
%
3,852
2
%
(978)
(25)
%
20,922
2
%
16,568
2
%
4,354
26
%
Consulting
56,416
22
%
56,721
25
%
(305)
(1)
%
166,270
19
%
164,227
23
%
2,043
1
%
Total revenue
$
256,268
100
%
$
225,951
100
%
$
30,317
13
%
$
895,469
100
%
$
718,917
100
%
$
176,552
25
%
(1) See the Schedules at the end of this release for additional information, including a reconciliation of our Non-GAAP and GAAP measures.
1
Note: Foreign currency exchange rate changes contributed 1-2% to total ACV growth in 2021.
2
Quarterly conference call
A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on October 27, 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=146749) 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
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 October 27, 2021.
3
About Pegasystems
Pega delivers innovative software that crushes business complexity so our clients can make better decisions and get work done. We help the world’s leading brands solve their biggest business challenges: maximizing customer lifetime value, streamlining customer service, and boosting operational efficiency. Pega technology is powered by real-time AI and intelligent automation, while our scalable architecture and low-code platform help enterprises adapt to rapid change and transform for tomorrow. For more information, please visit www.pega.com.
Press contact:
Lisa Pintchman
Pegasystems Inc.
lisapintchman.rogers@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.
4
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Revenue
Pega Cloud
$
78,369
$
54,776
$
219,520
$
147,080
Maintenance
83,188
74,670
237,531
220,587
Software license
38,295
39,784
272,148
187,023
Consulting
56,416
56,721
166,270
164,227
Total revenue
256,268
225,951
895,469
718,917
Cost of revenue
Pega Cloud
25,524
19,717
72,132
56,238
Maintenance
5,293
5,478
16,074
16,645
Software license
656
691
1,962
2,354
Consulting
52,749
51,913
161,032
158,781
Total cost of revenue
84,222
77,799
251,200
234,018
Gross profit
172,046
148,152
644,269
484,899
Operating expenses
Selling and marketing
152,479
132,053
457,641
395,684
Research and development
64,728
60,024
191,565
177,620
General and administrative
20,176
17,907
57,607
49,192
Total operating expenses
237,383
209,984
706,813
622,496
(Loss) from operations
(65,337)
(61,832)
(62,544)
(137,597)
Foreign currency transaction gain (loss)
518
4,236
(4,983)
2,545
Interest income
166
243
555
1,092
Interest expense
(1,908)
(5,956)
(5,747)
(13,791)
(Loss) income on capped call transactions
(14,735)
18,989
(7,543)
19,816
Other income, net
2
—
108
1,374
(Loss) before (benefit from) income taxes
(81,294)
(44,320)
(80,154)
(126,561)
(Benefit from) income taxes
(24,826)
(25,053)
(54,360)
(61,182)
Net (loss)
$
(56,468)
$
(19,267)
$
(25,794)
$
(65,379)
(Loss) per share
Basic
$
(0.69)
$
(0.24)
$
(0.32)
$
(0.82)
Diluted
$
(0.69)
$
(0.24)
$
(0.32)
$
(0.82)
Weighted-average number of common shares outstanding
Basic
81,526
80,537
81,284
80,191
Diluted
81,526
80,537
81,284
80,191
5
PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
(in thousands, except percentages and per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
Change
2021
2020
Change
Net (loss) - GAAP
$
(56,468)
$
(19,267)
(193)
%
$
(25,794)
$
(65,379)
61
%
Stock-based compensation (2)
28,695
27,925
89,483
76,755
Capped call transactions
14,735
(18,989)
7,543
(19,816)
Convertible senior notes
677
4,372
2,025
10,405
Headquarters lease
(5,428)
—
(15,111)
—
Amortization of intangible assets
1,002
1,018
3,006
3,051
Foreign currency transaction (gain) loss
(518)
(4,236)
4,983
(2,545)
Other
3
—
15
1,141
Income tax effects (3)
(15,558)
(17,524)
(56,954)
(48,517)
Net (loss) income - Non-GAAP
$
(32,860)
$
(26,701)
(23)
%
$
9,196
$
(44,905)
*
Diluted (loss) per share - GAAP
$
(0.69)
$
(0.24)
(188)
%
$
(0.32)
$
(0.82)
61
%
Non-GAAP adjustments
0.29
(0.09)
0.43
0.26
Diluted (loss) earnings per share - Non-GAAP
$
(0.40)
$
(0.33)
(21)
%
$
0.11
$
(0.56)
*
Diluted weighted-average number of common shares outstanding - GAAP
81,526
80,537
1
%
81,284
80,191
1
%
Non-GAAP Adjustments
—
—
4,718
—
Diluted weighted-average number of common shares outstanding - Non-GAAP
81,526
80,537
1
%
86,002
80,191
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 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. In addition, 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 September 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 provide 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 which was paid in October 2021. 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.
6
•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 (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.
•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 September 30,
Nine Months Ended September 30,
(in thousands)
2021
2020
2021
2020
Cost of revenue
$
5,114
$
5,100
$
16,889
$
15,636
Selling and marketing
13,376
12,658
41,844
33,968
Research and development
6,231
5,765
19,343
17,066
General and administrative
3,974
4,402
11,407
10,085
$
28,695
$
27,925
$
89,483
$
76,755
Income tax benefit
$
(5,845)
$
(5,604)
$
(18,028)
$
(15,293)
(3) Effective income tax rates:
Nine Months Ended September 30,
2021
2020
GAAP
68
%
48
%
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 our annual plan's effective income tax rate as established at the beginning of each year, given this tax rate volatility.
7
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 2021
December 31, 2020
Assets
Current assets:
Cash and cash equivalents
$
116,411
$
171,899
Marketable securities
235,437
293,269
Total cash, cash equivalents, and marketable securities
351,848
465,168
Accounts receivable
143,445
215,827
Unbilled receivables
239,774
207,155
Other current assets
93,819
88,760
Total current assets
828,886
976,910
Unbilled receivables
132,147
113,278
Goodwill
81,954
79,231
Other long-term assets
512,410
434,843
Total assets
$
1,555,397
$
1,604,262
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
25,604
$
24,028
Accrued expenses
46,583
59,261
Accrued compensation and related expenses
86,018
123,012
Deferred revenue
229,103
232,865
Other current liabilities
13,118
20,969
Total current liabilities
400,426
460,135
Convertible senior notes, net
589,769
518,203
Operating lease liabilities
87,088
59,053
Other long-term liabilities
18,482
24,699
Total liabilities
1,095,765
1,062,090
Total stockholders’ equity
459,632
542,172
Total liabilities and stockholders’ equity
$
1,555,397
$
1,604,262
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended September 30,
2021
2020
Net (loss)
$
(25,794)
$
(65,379)
Adjustments to reconcile net (loss) to cash (used in) operating activities
Non-cash items
100,309
72,797
Change in operating assets and liabilities, net
(79,836)
(33,675)
Cash (used in) operating activities
(5,321)
(26,257)
Cash provided by (used in) investing activities
42,730
(210,701)
Cash (used in) provided by financing activities
(91,431)
449,630
Effect of exchange rate changes on cash and cash equivalents
(1,466)
183
Net (decrease) increase in cash and cash equivalents
(55,488)
212,855
Cash and cash equivalents, beginning of period
171,899
68,363
Cash and cash equivalents, end of period
$
116,411
$
281,218
8
PEGASYSTEMS INC.
REVENUE DETAIL
(in thousands, except percentages)
(Dollars in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
Change
2021
2020
Change
Pega Cloud
$
78,369
31
%
$
54,776
24
%
$
23,593
43
%
$
219,520
25
%
$
147,080
20
%
$
72,440
49
%
Client Cloud (1)
$
118,609
46
%
$
110,602
49
%
$
8,007
7
%
$
488,757
54
%
$
391,042
55
%
$
97,715
25
%
Maintenance
83,188
32%
74,670
33%
8,518
11%
237,531
26%
220,587
31%
16,944
8%
Term license
35,421
14%
35,932
16%
(511)
(1)%
251,226
28%
170,455
24%
80,771
47%
Subscription (2)
$
196,978
77
%
$
165,378
73
%
$
31,600
19
%
$
708,277
79
%
$
538,122
75
%
$
170,155
32
%
Perpetual license
2,874
1
%
3,852
2
%
(978)
(25)
%
20,922
2
%
16,568
2
%
4,354
26
%
Consulting
56,416
22
%
56,721
25
%
(305)
(1)
%
166,270
19
%
164,227
23
%
2,043
1
%
$
256,268
100
%
$
225,951
100
%
$
30,317
13
%
$
895,469
100
%
$
718,917
100
%
$
176,552
25
%
(1) 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 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.
September 30, 2021
September 30, 2020
Change
Pega Cloud
$
320,653
$
232,176
$
88,477
38
%
Client Cloud
$
627,072
$
544,575
$
82,497
15
%
Total
$
947,725
$
776,751
$
170,974
22
%
(1) Foreign currency exchange rate changes contributed 1-2% to total ACV growth in 2021.
