Cloud Growth Drives Pega Through $1 Billion Milestone in 2020
•Pega Cloud ACV grew more than 50% to $267 million
•Total Backlog up 28% to over $1 billion
•Total Revenue Exceeds $1 billion for the first time
•2021 Revenue Guidance of $1.25 billion
CAMBRIDGE, Mass. — February 17, 2021 — Pegasystems Inc. (NASDAQ: PEGA), the software company that crushes business complexity, released its financial results for the fourth quarter and full-year 2020.
“The last year has made it abundantly clear that organizations need to accelerate their digital transformation to compete and thrive in a world that is constantly changing,” said Alan Trefler, founder and CEO, Pegasystems. “We have never been better positioned to support this need with our scalable low code solutions.“
"Pega Cloud ACV grew more than 50 percent year over year, increasing to $267 million," said Ken Stillwell, CFO, Pegasystems. "And, at the same time, Pega Cloud gross margins expanded from 51 percent to 63 percent. We expect Pega Cloud revenue growth acceleration and gross margin expansion will be key contributors to drive future Pega profitability and growth."
Financial and performance metrics (1)
(Dollars in thousands,
except per share amounts)
Three Months Ended December 31,
Year Ended December 31,
2020
2019
Change
2020
2019
Change
Total revenue
$
298,600
$
276,542
8
%
$
1,017,517
$
911,383
12
%
Net income (loss) - GAAP
$
4,006
$
918
336
%
$
(61,373)
$
(90,433)
32
%
Net income (loss) - Non-GAAP
$
15,513
$
15,682
(1)
%
$
(29,392)
$
(35,082)
16
%
Diluted earnings (loss) per share - GAAP
$
0.05
$
0.01
400
%
$
(0.76)
$
(1.14)
33
%
Diluted earnings (loss) per share - Non-GAAP
$
0.18
$
0.19
(5)
%
$
(0.37)
$
(0.44)
16
%
(1) A reconciliation of our Non-GAAP and GAAP measures is at the end of this release.
(Dollars in thousands)
Three Months Ended December 31,
Change
Year Ended December 31,
Change
2020
2019
2020
2019
Pega Cloud
$
61,188
20
%
$
39,136
14
%
$
22,052
56
%
$
208,268
20
%
$
133,746
15
%
$
74,522
56
%
Maintenance
76,122
26
%
73,174
27
%
2,948
4
%
296,709
30
%
280,580
30
%
16,129
6
%
Term license
95,897
32
%
77,176
28
%
18,721
24
%
266,352
26
%
199,433
22
%
66,919
34
%
Subscription (2)
233,207
78
%
189,486
69
%
43,721
23
%
771,329
76
%
613,759
67
%
157,570
26
%
Perpetual license
11,990
4
%
36,729
13
%
(24,739)
(67)
%
28,558
3
%
80,015
9
%
(51,457)
(64)
%
Consulting
53,403
18
%
50,327
18
%
3,076
6
%
217,630
21
%
217,609
24
%
21
—
%
Total revenue
$
298,600
100
%
$
276,542
100
%
$
22,058
8
%
$
1,017,517
100
%
$
911,383
100
%
$
106,134
12
%
(2) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).
1
Note: See the schedules at the end of this release for additional information.
2021 Guidance
As of February 17, 2021, we are providing the following guidance:
Year Ended December 31, 2021
(in millions, except per share amounts)
GAAP
Non-GAAP (1)
Revenue
$
1,250
$
1,250
Net (loss) income
$
(115.2)
$
21.5
Net (loss) income per share
$
(1.44)
$
0.25
(1) A reconciliation of our GAAP and Non-GAAP guidance is contained in the financial schedules at the end of this release.
Quarterly conference call
We will conduct a conference call and audio-only webcast at 5:00 p.m. EST on February 17, 2021.
2
Members of the public and investors may 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=143063) 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 supplementary non-GAAP financial measures provide useful information to allow investors to understand our core operating results and future prospects, without the effect of often-one-time charges and other items outside our normal operations, consistent with how management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to or a substitute for results of operations prepared in accordance with U.S. GAAP.
A reconciliation of our Non-GAAP and GAAP measures is at the end of this release.
Forward-looking statements
In this press release, certain statements 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.
These forward-looking statements deal with future events and are subject to various risks and uncertainties that are difficult to predict, including, but not limited to, statements about:
•our future financial performance and business plans;
•the adequacy of our liquidity and capital resources;
•the continued payment of 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 debt covenants;
•the potential impact of our convertible senior notes and related 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;
•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 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 our views as of February 17, 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.
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 December 31,
Year Ended December 31,
2020
2019
2020
2019
Revenue
Software license
$
107,887
$
113,905
$
294,910
$
279,448
Maintenance
76,122
73,174
296,709
280,580
Pega Cloud
61,188
39,136
208,268
133,746
Consulting
53,403
50,327
217,630
217,609
Total revenue
298,600
276,542
1,017,517
911,383
Cost of revenue
Software license
574
674
2,928
3,656
Maintenance
5,666
6,341
22,311
25,656
Pega Cloud
20,337
18,059
76,575
65,828
Consulting
50,318
52,533
209,099
214,882
Total cost of revenue
76,895
77,607
310,913
310,022
Gross profit
221,705
198,935
706,604
601,361
Operating expenses
Selling and marketing
150,009
133,395
545,693
474,459
Research and development
59,366
52,408
236,986
205,210
General and administrative
18,260
14,877
67,452
56,570
Total operating expenses
227,635
200,680
850,131
736,239
(Loss) from operations
(5,930)
(1,745)
(143,527)
(134,878)
Foreign currency transaction gain (loss)
1,159
1,242
3,704
(2,335)
Interest income
131
129
1,223
2,020
Interest expense
(5,565)
(144)
(19,356)
(212)
Gain on capped call transactions
11,881
—
31,697
—
Other (loss) income, net
(4)
181
1,370
559
Income (loss) before (benefit from) income taxes
1,672
(337)
(124,889)
(134,846)
(Benefit from) income taxes
(2,334)
(1,255)
(63,516)
(44,413)
Net income (loss)
$
4,006
$
918
$
(61,373)
$
(90,433)
Earnings (loss) per share
Basic
$
0.05
$
0.01
$
(0.76)
$
(1.14)
Diluted
$
0.05
$
0.01
$
(0.76)
$
(1.14)
Weighted-average number of common shares outstanding
Basic
80,770
79,430
80,336
79,055
Diluted
86,080
83,624
80,336
79,055
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 December 31,
Year Ended December 31,
2020
2019
Change
2020
2019
Change
Net income (loss) - GAAP
$
4,006
$
918
336
%
$
(61,373)
$
(90,433)
32
%
Stock-based compensation (2)
26,313
20,666
103,068
80,909
Capped call transactions
(11,881)
—
(31,697)
—
Convertible debt
4,408
—
14,813
—
Amortization of intangible assets
919
1,018
3,970
6,625
Foreign currency transaction (gain) loss
(1,159)
(1,242)
(3,704)
2,335
Other
(384)
—
757
—
Income tax effects (3)
(6,709)
(5,678)
(55,226)
(34,518)
Net income (loss) - Non-GAAP
$
15,513
$
15,682
(1)
%
$
(29,392)
$
(35,082)
16
%
Diluted earnings (loss) per share - GAAP
$
0.05
$
0.01
400
%
$
(0.76)
$
(1.14)
33
%
Non-GAAP adjustments
0.13
0.18
0.39
0.70
Diluted earnings (loss) per share - Non-GAAP
$
0.18
$
0.19
(5)
%
$
(0.37)
$
(0.44)
16
%
Diluted weighted-average number of common shares outstanding - GAAP
86,080
83,624
3
%
80,336
79,055
2
%
Diluted weighted-average number of common shares outstanding - Non-GAAP
86,080
83,624
3
%
80,336
79,055
2
%
(1) Our Non-GAAP financial measures reflect adjustments based on the following items:
•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.
•Capped call transactions: We have excluded gains and losses from our privately negotiated capped call transactions entered into concurrent with our issuance of the convertible senior notes to reduce potential dilution to our common stock upon any conversion of the convertible senior notes and/or offset any cash payments we are required to make in excess of the principal amount of convertible senior notes that may be converted, with such reduction and/or offset subject to a cap. 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.
•Convertible senior notes: In February 2020, we issued $600 million of convertible senior notes, which bear interest at an annual fixed rate of 0.75%. A debt discount resulting from the conversion feature and debt issuance costs reduced the convertible debt instrument's carrying value. Debt discount and issuance costs are amortized as interest expense over the debt’s life based upon an effective interest rate of 4.31%. We believe excluding these amounts provides a more useful comparison of our operational performance in different periods.
•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 our acquisitions’ timing and size. 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. 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, incremental fees incurred due to the cancellation of the live event portion of our annual PegaWorld conference due to the COVID-19 pandemic, and incremental expenses incurred from the integration of acquisitions. 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.
6
(2) Stock-based compensation was:
Three Months Ended December 31,
Year Ended December 31,
(in thousands)
2020
2019
2020
2019
Cost of revenue
$
5,160
$
4,605
$
20,796
$
18,822
Selling and marketing
12,315
8,610
46,283
32,665
Research and development
5,819
4,948
22,885
18,938
General and administrative
3,019
2,503
13,104
10,484
$
26,313
$
20,666
$
103,068
$
80,909
Income tax benefit
$
(5,171)
$
(4,166)
$
(20,464)
$
(16,392)
(3) Effective income tax rates were:
Year Ended December 31,
2020
2019
GAAP
51
%
33
%
Non-GAAP
22
%
22
%
Our effective income tax rate under GAAP is subject to significant fluctuations due to various 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 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)
December 31, 2020
December 31, 2019
Assets
Cash, cash equivalents, and marketable securities
$
465,168
$
68,363
Receivables (billed and unbilled)
536,260
501,675
Goodwill
79,231
79,039
Other assets
523,603
335,735
Total assets
$
1,604,262
$
984,812
Liabilities and stockholders’ equity
Accrued expenses, including compensation and related expenses
$
182,273
$
152,127
Deferred revenue, current
232,865
190,080
Convertible senior notes, net
518,203
—
Other liabilities
128,749
103,595
Stockholders’ equity
542,172
539,010
Total liabilities and stockholders’ equity
$
1,604,262
$
984,812
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2020
2019
Net (loss)
$
(61,373)
$
(90,433)
Adjustments to reconcile net (loss) to cash (used in) operating activities
Non-cash items
93,795
99,251
Change in operating assets and liabilities, net
(32,985)
(50,983)
Cash (used in) operating activities
(563)
(42,165)
Cash (used in) provided by investing activities
(321,683)
70,074
Cash provided by (used in) financing activities
423,448
(74,258)
Effect of exchange rate changes on cash and cash equivalents
2,334
290
Net increase (decrease) in cash and cash equivalents
103,536
(46,059)
Cash and cash equivalents, beginning of period
68,363
114,422
Cash and cash equivalents, end of period
$
171,899
$
68,363
8
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 ACV from term license contracts. ACV is a performance measure that we believe provides useful information to our management and investors, particularly during our Cloud Transition. Reported amounts have not been adjusted for changes in foreign exchange rates.
December 31, 2020
December 31, 2019
Change
Maintenance
$
304,488
$
292,696
$
11,792
4
%
Term
264,346
231,267
33,079
14
%
Client Cloud
568,834
523,963
44,871
9
%
Pega Cloud
266,642
169,329
97,313
57
%
Total
$
835,476
$
693,292
$
142,184
21
%
(1) Foreign currency contributed 1%-2% to ACV growth in 2020.
PEGASYSTEMS INC.
BACKLOG
(in thousands, except percentages)
Remaining performance obligations (“Backlog”) - Backlog represents contracted revenue that has not yet been recognized and includes deferred revenue and non-cancellable amounts expected to be invoiced and recognized as revenue in future periods.
December 31, 2020
Perpetual license
Term license
Maintenance
Pega Cloud
Consulting
Total
1 year or less
$
11,514
$
105,920
$
227,803
$
248,223
$
19,226
$
612,686
57
%
1-2 years
395
7,962
54,509
193,064
346
256,276
24
%
2-3 years
—
4,928
28,320
104,542
851
138,641
13
%
Greater than 3 years
—
4
19,283
44,308
1,189
64,784
6
%
$
11,909
$
118,814
$
329,915
$
590,137
$
21,612
$
1,072,387
100
%
Change in Backlog Since December 31, 2019
$
7,425
$
1,981
$
61,621
$
167,967
$
(2,750)
$
236,244
166
%
2
%
23
%
40
%
(11)
%
28
%
December 31, 2019
Perpetual license
Term license
Maintenance
Pega Cloud
Consulting
Total
1 year or less
$
2,305
$
97,826
$
206,882
$
165,571
$
20,798
$
493,382
58
%
1-2 years
2,179
12,014
30,291
128,109
1,439
174,032
21
%
2-3 years
—
3,132
17,844
84,788
132
105,896
13
%
Greater than 3 years
—
3,861
13,277
43,702
1,993
62,833
8
%
$
4,484
$
116,833
$
268,294
$
422,170
$
24,362
$
836,143
100
%
9
PEGASYSTEMS INC.
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
(in millions, except per share amounts)
Year Ended December 31, 2021
Revenue (GAAP and Non-GAAP)
$
1,250
Net loss (GAAP)
$
(115.2)
Stock-based compensation
125.3
Convertible debt
18.4
Amortization of intangible assets
3.7
Foreign currency transaction (gain) loss
(2.0)
Income tax effects
(8.7)
Net Income (Non-GAAP)
$
21.5
Diluted (loss) per share - GAAP
$
(1.44)
Non-GAAP adjustments
1.69
Diluted earnings per share - Non-GAAP
$
0.25
Diluted weighted-average number of common shares outstanding - GAAP
80.0
Incremental dilutive shares for Non-GAAP
5.0
Diluted weighted-average number of common shares outstanding - Non-GAAP
