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Cloud Growth Drives Pega Through $1 Billion Milestone in 2020

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Pegasystems Inc. (NASDAQ: PEGA) reported its Q4 and full-year 2020 financial results, showing a total revenue increase of 12% to $1.02 billion. Notably, Pega Cloud ACV surged 50% year-over-year, reaching $267 million, with gross margins expanding from 51% to 63%. GAAP net income for Q4 was $4 million, up from $918,000 in 2019. For 2021, the company forecasts revenues of $1.25 billion and a GAAP net loss of $115.2 million. Despite past losses, Pega aims for future profitability through growth in cloud revenue and improved margins.

Positive
  • Pega Cloud ACV increased 50% year-over-year to $267 million.
  • Gross margins improved from 51% to 63% for Pega Cloud.
  • Total revenue rose 12% year-over-year to $1.02 billion.
Negative
  • GAAP net income for the full year was a loss of $61.4 million.
  • Expected GAAP net loss for 2021 is $115.2 million.

CAMBRIDGE, Mass., Feb. 17, 2021 /PRNewswire/ -- 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).


Note: See the schedules at the end of this release for additional information.

Note: See the schedules at the end of this release for additional information.

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.

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.

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.

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


 

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.

 

(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.

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


 

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

%

 

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

85.0


 

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SOURCE Pegasystems Inc.

FAQ

What were Pegasystems' Q4 2020 financial results?

Pegasystems reported Q4 2020 total revenue of $298.6 million, an 8% increase year-over-year.

How much did Pega Cloud ACV grow in 2020?

Pega Cloud ACV grew by 50% year-over-year, reaching $267 million.

What is Pegasystems' revenue guidance for 2021?

For 2021, Pegasystems forecasts revenues of $1.25 billion.

What are the expected losses for Pegasystems in 2021?

Pegasystems expects a GAAP net loss of $115.2 million for 2021.

What are Pegasystems' gross margins for Pega Cloud?

Pega Cloud's gross margins improved from 51% to 63% in 2020.

Pegasystems Inc

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