Pega continues strong first-half momentum through Q2 2021
•Total ACV grows 22 percent, powered by Pega Cloud Choice
•Pega Cloud ACV grows 46 percent to over 300 million dollars
•Total Backlog increases 26 percent year over year to over 1 billion dollars
CAMBRIDGE, Mass. — July 28, 2021 — 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.
(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
%
(1) For additional information, including a reconciliation of our Non-GAAP and GAAP measures, see the Schedules at the end of this release.
1
* Foreign currency exchange rate changes contributed 3-4% 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 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.
3
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.
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.
4
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
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 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.
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 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.
7
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
8
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.