•Annual contract value (ACV) grows 16 percent in constant currency year over year
•Pega Cloud ACV grows 39 percent in constant currency year over year
•Total backlog grows 11 percent (18 percent in constant currency) year over year
CAMBRIDGE, Mass. — October 26, 2022 — Pegasystems Inc. (NASDAQ: PEGA), the low-code platform provider that builds agility into the world's leading organizations, released its financial results for the third quarter of 2022.
“Q3 2022 was by far the best quarter of the year for Pega,” said Alan Trefler, founder and CEO, Pegasystems. “We’ve prioritized our go to market efforts to promote profitable growth. The focus we’re driving is being embraced by the organization, and we’re excited about the results we’re seeing.”
"We are excited to see growth acceleration in key performance metrics despite significant foreign exchange headwinds,” said Ken Stillwell, COO and CFO, Pegasystems. “We also continue to make progress on improving operational discipline and driving profitable growth to achieve the Rule of 40 as we exit 2024.”
Financial and performance metrics (1)
(Dollars in thousands,
except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
Change
2022
2021
Change
Total revenue
$
270,731
$
256,268
6
%
$
921,375
$
895,469
3
%
Net (loss) - GAAP
$
(93,520)
$
(56,468)
(66)
%
$
(380,195)
$
(25,794)
(1374)
%
Net (loss) income - non-GAAP
$
(27,498)
$
(29,671)
7
%
$
(8,730)
$
15,761
*
Diluted (loss) per share - GAAP
$
(1.14)
$
(0.69)
(65)
%
$
(4.65)
$
(0.32)
(1353)
%
Diluted (loss) earnings per share - non-GAAP
$
(0.34)
$
(0.36)
6
%
$
(0.11)
$
0.18
*
* not meaningful
(Dollars in thousands)
Three Months Ended September 30,
Change
Nine Months Ended September 30,
Change
2022
2021
2022
2021
Pega Cloud
$
97,359
36
%
$
78,369
31
%
$
18,990
24
%
$
281,182
31
%
$
219,520
25
%
$
61,662
28
%
Maintenance
77,526
29
%
83,188
32
%
(5,662)
(7)
%
235,568
25
%
237,531
26
%
(1,963)
(1)
%
Subscription services
174,885
65
%
161,557
63
%
13,328
8
%
516,750
56
%
457,051
51
%
59,699
13
%
Subscription license
31,112
11
%
35,421
14
%
(4,309)
(12)
%
210,245
23
%
251,226
28
%
(40,981)
(16)
%
Subscription
205,997
76
%
196,978
77
%
9,019
5
%
726,995
79
%
708,277
79
%
18,718
3
%
Perpetual license
9,223
3
%
2,874
1
%
6,349
221
%
18,929
2
%
20,922
2
%
(1,993)
(10)
%
Consulting
55,511
21
%
56,416
22
%
(905)
(2)
%
175,451
19
%
166,270
19
%
9,181
6
%
$
270,731
100
%
$
256,268
100
%
$
14,463
6
%
$
921,375
100
%
$
895,469
100
%
$
25,906
3
%
(1) See the Schedules at the end of this release for additional information, including a reconciliation of our non-GAAP and GAAP measures.
1
EXHIBIT 99.1
(continued)
Note: Constant currency measures are calculated by applying foreign exchange rates for the earliest period shown to all periods. The above constant currency measures reflect foreign exchange rates applicable as of Q3 2021.
2
EXHIBIT 99.1
(continued)
Quarterly conference call
A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on Wednesday, October 26, 2022. Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-888-256-1007 (domestic), 1-323-701-0225 (international), or via webcast (https://viavid.webcasts.com/starthere.jsp?ei=1574684&tp_key=adfbdc0fb8) 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
We believe that non-GAAP financial measures help investors understand our core operating results and prospects, consistent with how management measures and forecasts our 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 financial measures prepared under U.S. GAAP.
Reconciliations of our non-GAAP and GAAP measures are 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;
•reliance on key personnel;
•global economic and political conditions and uncertainty, including continued impacts from the ongoing COVID-19 pandemic and the war in Ukraine;
•reliance on third-party service providers, including hosting providers;
•compliance with our debt obligations and covenants;
•the potential impact of our convertible senior notes and Capped Call Transactions;
•foreign currency exchange rates;
•the potential legal and financial liabilities and damage to our reputation due to cyber-attacks;
•security breaches and security flaws;
•our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us;
•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, 2021, Part II of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, 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 due to new information, future events, or otherwise.
The forward-looking statements in this press release represent our views as of October 26, 2022.
3
EXHIBIT 99.1
(continued)
About Pegasystems
Pega provides a powerful low-code platform that builds agility into the world’s leading organizations so they can adapt to 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 Pintchman
VP, Corporate Communications
lisapintchman.rogers@pega.com
617-866-6022
Twitter: @pega
Investor contact:
Peter Welburn
VP, Corporate Development & Investor Relations
PegaInvestorRelations@pega.com
617-498-8968
All trademarks are the property of their respective owners.
4
EXHIBIT 99.1
(continued)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Revenue
Subscription services
$
174,885
$
161,557
$
516,750
$
457,051
Subscription license
31,112
35,421
210,245
251,226
Perpetual license
9,223
2,874
18,929
20,922
Consulting
55,511
56,416
175,451
166,270
Total revenue
270,731
256,268
921,375
895,469
Cost of revenue
Subscription services
34,541
30,817
103,104
88,206
Subscription license
628
606
1,923
1,811
Perpetual license
103
50
173
151
Consulting
57,778
52,749
171,162
161,032
Total cost of revenue
93,050
84,222
276,362
251,200
Gross profit
177,681
172,046
645,013
644,269
Operating expenses
Selling and marketing
153,517
152,479
472,951
457,641
Research and development
75,342
64,728
221,173
191,565
General and administrative
26,043
20,176
94,530
57,607
Total operating expenses
254,902
237,383
788,654
706,813
(Loss) from operations
(77,221)
(65,337)
(143,641)
(62,544)
Foreign currency transaction gain (loss)
3,826
518
8,415
(4,983)
Interest income
520
166
1,036
555
Interest expense
(1,992)
(1,908)
(5,882)
(5,747)
(Loss) on capped call transactions
(6,876)
(14,735)
(56,381)
(7,543)
Other (loss) income, net
(29)
2
6,497
108
(Loss) before provision for (benefit from) income taxes
(81,772)
(81,294)
(189,956)
(80,154)
Provision for (benefit from) income taxes
11,748
(24,826)
190,239
(54,360)
Net (loss)
$
(93,520)
$
(56,468)
$
(380,195)
$
(25,794)
(Loss) per share
Basic
$
(1.14)
$
(0.69)
$
(4.65)
$
(0.32)
Diluted
$
(1.14)
$
(0.69)
$
(4.65)
$
(0.32)
Weighted-average number of common shares outstanding
Basic
81,996
81,526
81,842
81,284
Diluted
81,996
81,526
81,842
81,284
5
EXHIBIT 99.1
(continued)
PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(in thousands, except percentages and per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
Change
2022
2021
Change
Net (loss) - GAAP
$
(93,520)
$
(56,468)
(66)
%
$
(380,195)
$
(25,794)
(1,374)
%
Stock-based compensation (1)
33,774
28,695
93,301
89,483
Capped call transactions
6,876
14,735
56,381
7,543
Litigation
4,470
4,087
32,420
8,416
Convertible senior notes
724
677
2,163
2,025
Headquarters lease
—
(5,428)
—
(15,111)
Amortization of intangible assets
1,048
1,002
3,045
3,006
Foreign currency transaction (gain) loss
(3,826)
(518)
(8,415)
4,983
Other
3,452
3
(131)
15
Income tax effects (2)
19,504
(16,456)
192,701
(58,805)
Net (loss) income - non-GAAP
$
(27,498)
$
(29,671)
7
%
$
(8,730)
$
15,761
*
Diluted (loss) per share - GAAP
$
(1.14)
$
(0.69)
(65)
%
$
(4.65)
$
(0.32)
(1,353)
%
non-GAAP adjustments
0.80
0.33
4.54
0.50
Diluted (loss) earnings per share - non-GAAP
$
(0.34)
$
(0.36)
6
%
$
(0.11)
$
0.18
*
Diluted weighted-average number of common shares outstanding - GAAP
81,996
81,526
1
%
81,842
81,284
1
%
non-GAAP Adjustments
—
—
—
4,718
Diluted weighted-average number of common shares outstanding - non-GAAP
81,996
81,526
1
%
81,842
86,002
(5)
%
* not meaningful
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 we 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 when evaluating our financial performance on a per-share basis.
•Litigation: Includes legal fees and related expenses arising from proceedings outside of the ordinary course of business. We believe excluding these expenses from our non-GAAP financial measures is useful to investors as the disputes giving rise to them are not representative of our core business operations and ongoing operating performance.
•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. We believe excluding the amortization of debt discounts and issuance costs provides a useful comparison of our operational performance in different periods.
•Headquarters lease: In February 2021, we agreed to accelerate our exit from our then Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from our landlord of $18 million, which was received 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.
•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 intangible assets contributed to our revenues recognized during the periods presented and are 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.
6
EXHIBIT 99.1
(continued)
•Other: We have excluded gains and losses from our venture investments, capital advisory expenses, expenses incurred due to the cancellation of in-person sales and marketing events. 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.
(1) Stock-based compensation:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Cost of revenue
$
6,797
$
5,114
$
19,754
$
16,889
Selling and marketing
12,933
13,376
36,524
41,844
Research and development
7,724
6,231
22,425
19,343
General and administrative
6,320
3,974
14,598
11,407
$
33,774
$
28,695
$
93,301
$
89,483
Income tax benefit
$
(600)
$
(5,845)
$
(1,505)
$
(18,028)
(2) Effective income tax rates:
Nine Months Ended September 30,
2022
2021
GAAP
100
%
(68)
%
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 our historical and forecasted earnings by jurisdiction, discrete items, and our ability to realize tax assets. Under GAAP we recorded a valuation allowance on our deferred tax assets of $192 million in the three months ended June 30, 2022. See "Note 12. Income Taxes" in Part I, Item 1 of our Quarterly Report on Form 10-Q for the three months ended September 30, 2022 for additional information. 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.
7
EXHIBIT 99.1
(continued)
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 2022
December 31, 2021
Assets
Current assets:
Cash and cash equivalents
$
107,626
$
159,965
Marketable securities
168,085
202,814
Total cash, cash equivalents, and marketable securities
275,711
362,779
Accounts receivable
139,670
182,717
Unbilled receivables
182,403
226,714
Other current assets
62,457
68,008
Total current assets
660,241
840,218
Unbilled receivables
108,285
129,789
Goodwill
81,201
81,923
Other long-term assets
316,731
541,601
Total assets
$
1,166,458
$
1,593,531
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
13,562
$
15,281
Accrued expenses
61,012
63,890
Accrued compensation and related expenses
85,999
120,946
Deferred revenue
245,146
275,844
Other current liabilities
8,253
9,443
Total current liabilities
413,972
485,404
Convertible senior notes, net
592,884
590,722
Operating lease liabilities
82,705
87,818
Other long-term liabilities
11,936
13,499
Total liabilities
1,101,497
1,177,443
Total stockholders’ equity
64,961
416,088
Total liabilities and stockholders’ equity
$
1,166,458
$
1,593,531
PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended September 30,
2022
2021
Net (loss)
$
(380,195)
$
(25,794)
Adjustments to reconcile net (loss) to cash (used in) operating activities
Non-cash items
372,684
118,309
Change in operating assets and liabilities, net
(5,935)
(97,836)
Cash (used in) operating activities
(13,446)
(5,321)
Cash provided by investing activities
10,104
42,730
Cash (used in) financing activities
(43,484)
(91,431)
Effect of exchange rate changes on cash and cash equivalents
(5,513)
(1,466)
Net (decrease) in cash and cash equivalents
(52,339)
(55,488)
Cash and cash equivalents, beginning of period
159,965
171,899
Cash and cash equivalents, end of period
$
107,626
$
116,411
8
EXHIBIT 99.1
(continued)
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 for subscription license and Pega Cloud contracts. Maintenance revenue for the quarter then ended is multiplied by four to calculate ACV for maintenance. ACV is a performance measure that we believe provides useful information to our management and investors, particularly during our subscription transition.
RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG
(in millions, except percentages )
Q3 2022
1 Year Growth Rate
Backlog - GAAP
$
1,148
11
%
Impact of changes in foreign exchange rates
74
7
%
Backlog - Constant Currency
$
1,222
18
%
Note: Constant currency Backlog is calculated by applying foreign exchange rates for the earliest period shown to all periods. The above constant currency measures reflect foreign exchange rates applicable as of Q3 2021.
