Digital Transformation Demand Increases Pega Cloud Revenue 56 percent in Q1 2021

Rhea-AI Summary

Pegasystems Inc. (NASDAQ: PEGA) reported its Q1 2021 financial results, highlighting an 18% year-over-year revenue increase to $313.5 million and a 23% growth in subscription revenue. CEO Alan Trefler emphasized the ongoing digital transformation initiatives among clients, which are driving demand for low-code solutions. The company achieved a significant reduction in net losses of 74%, down to $6.6 million from $25.4 million previously. Non-GAAP net income soared by 448% to $22.1 million, reflecting strong performance in its cloud transition and business strategy.

Positive

• Total revenue increased by 18% year-over-year to $313.5 million.
• Subscription revenue grew by 23%, indicating a successful cloud transition.
• Non-GAAP net income surged by 448% to $22.1 million.
• Net losses decreased by 74% compared to the previous year.

Negative

• GAAP net loss of $6.6 million highlights ongoing challenges.

CAMBRIDGE, Mass., April 28, 2021 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the software company that crushes business complexity, released its financial results for the first quarter of 2021.

"The pandemic clearly reaffirmed that organizations need to accelerate their digital transformation initiatives with low-code solutions. Our clients see this as improving time-to-market, time-to-value, and overall agility," said Alan Trefler, founder and CEO, Pegasystems. "We expect clients will remain on their accelerated path, and we are well positioned to support those efforts. We're excited to showcase many of our clients' most recent digital transformation successes next week at PegaWorld."

"We've reached a point in our cloud transition where subscription revenue growth aligns with total ACV growth," said Ken Stillwell, COO and CFO, Pegasystems. "Total revenue grew 18 percent year over year and subscription revenue grew by 23 percent. This is a strong indication that our business strategy is working, and our cloud transition is progressing as planned."

Financial and performance metrics⁽¹⁾

(Dollars in thousands, except per share amounts)	Three Months Ended March 31,
	2021				2020				Change
Total revenue	$	313,499			$	265,591			18	%
Net (loss) - GAAP	$	(6,617)			$	(25,372)			74	%
Net income - Non-GAAP	$	22,113			$	4,032			448	%
Diluted (loss) per share - GAAP	$	(0.08)			$	(0.32)			75	%
Diluted earnings per share - Non-GAAP	$	0.26			$	0.05			420	%

(1) A reconciliation of our Non-GAAP and GAAP measures is at the end of this release.

(Dollars in thousands)	Three Months Ended March 31,												Change
	2021						2020
Pega Cloud	$	67,858		22	%		$	43,466		16	%		$	24,392		56	%
Maintenance	75,561			23	%		73,695			28	%		1,866			3	%
Term license	111,509			36	%		90,257			34	%		21,252			24	%
Subscription(2)	254,928			81	%		207,418			78	%		47,510			23	%
Perpetual license	5,452			2	%		3,659			1	%		1,793			49	%
Consulting	53,119			17	%		54,514			21	%		(1,395)			(3)	%
Total revenue	$	313,499		100	%		$	265,591		100	%		$	47,908		18	%

(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.

Quarterly conference call

A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on April 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=144131) 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;
• 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 as the result of new information, future events, or otherwise.

The forward-looking statements in this press release represent our views as of April 28, 2021.

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.

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
	Three Months Ended March 31,
	2021				2020
Revenue
Software license	$	116,961			$	93,916
Maintenance	75,561				73,695
Pega Cloud	67,858				43,466
Consulting	53,119				54,514
Total revenue	313,499				265,591
Cost of revenue
Software license	650				684
Maintenance	5,786				5,576
Pega Cloud	22,557				17,533
Consulting	53,454				55,735
Total cost of revenue	82,447				79,528
Gross profit	231,052				186,063
Operating expenses
Selling and marketing	148,739				136,024
Research and development	62,442				58,727
General and administrative	18,270				15,630
Total operating expenses	229,451				210,381
Income (loss) from operations	1,601				(24,318)
Foreign currency transaction (loss)	(5,098)				(5,947)
Interest income	153				607
Interest expense	(1,880)				(2,306)
(Loss) on capped call transactions	(19,117)				(18,592)
Other income, net	106				1,374
(Loss) before (benefit from) income taxes	(24,235)				(49,182)
(Benefit from) income taxes	(17,618)				(23,810)
Net (loss)	$	(6,617)			$	(25,372)
(Loss) per share
Basic	$	(0.08)			$	(0.32)
Diluted	$	(0.08)			$	(0.32)
Weighted-average number of common shares outstanding
Basic	81,004				79,808
Diluted	81,004				79,808

 

PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
(in thousands, except percentages and per share amounts)
	Three Months Ended March 31,
	2021				2020				Change
Net (loss) - GAAP	$	(6,617)			$	(25,372)			74	%
Stock-based compensation(2)	30,100				23,175
Capped call transactions	19,117				18,592
Convertible senior notes	673				1,719
Headquarters lease	(3,417)				—
Amortization of intangible assets	1,002				1,018
Foreign currency transaction loss	5,098				5,947
Other	12				3,899
Income tax effects(3)	(23,855)				(24,946)
Net income - Non-GAAP	$	22,113			$	4,032			448	%
Diluted (loss) per share - GAAP	$	(0.08)			$	(0.32)			75	%
Non-GAAP adjustments	0.34				0.37
Diluted earnings per share - Non-GAAP	$	0.26			$	0.05			420	%
Diluted weighted-average number of common shares outstanding - GAAP	81,004				79,808				1	%
Non-GAAP Adjustments	5,129				4,337
Diluted weighted-average number of common shares outstanding - Non-GAAP	86,133				84,145				2	%

(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 period 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 is required to 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 March 31, 2021 for additional information. In both periods, debt issuance costs reduce the debt instruments book value and are amortized over the debt's life. We believe excluding the debt discount amortization and issuance cost amortization 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 of the lease modification 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 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 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 as a result of the cancellation of in-person sales and marketing events due to the COVID-19 pandemic, including the live event portion of our annual PegaWorld conference in 2020. 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 March 31,
(in thousands)	2021				2020
Cost of revenue	$	5,925			$	5,152
Selling and marketing	13,720				9,718
Research and development	6,770				5,496
General and administrative	3,685				2,809
	$	30,100			$	23,175
Income tax benefit	$	(5,991)			$	(4,582)
(3) Effective income tax rates:
	Three Months Ended March 31,
	2021				2020
GAAP	73		%		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 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)
	March 31, 2021				December 31, 2020
Assets
Cash, cash equivalents, and marketable securities	$	442,358			$	465,168
Accounts receivable	159,324				215,827
Unbilled receivables	228,603				207,155
Other current assets	91,868				88,760
Total current assets	922,153				976,910
Unbilled receivables	108,048				113,278
Goodwill	82,037				79,231
Other long-term assets	416,265				434,843
Total assets	$	1,528,503			$	1,604,262
Liabilities and stockholders' equity
Accounts payable	$	24,426			$	24,028
Accrued expenses, including compensation and related expenses	119,255				182,273
Deferred revenue	244,170				232,865
Other current liabilities	16,599				20,969
Total current liabilities	404,450				460,135
Convertible senior notes, net	588,418				518,203
Operating lease liabilities	36,471				59,053
Other long-term liabilities	20,239				24,699
Total liabilities	1,049,578				1,062,090
Stockholders' equity	478,925				542,172
Total liabilities and stockholders' equity	$	1,528,503			$	1,604,262

 

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Three Months Ended March 31,
	2021				2020
Net (loss)	$	(6,617)			$	(25,372)
Adjustments to reconcile net (loss) to cash provided by (used in) operating activities
Non-cash items	58,885				56,096
Change in operating assets and liabilities, net	(30,618)				(49,047)
Cash provided by (used in) operating activities	21,650				(18,323)
Cash provided by (used in) investing activities	15,489				(12,562)
Cash (used in) provided by financing activities	(34,794)				502,174
Effect of exchange rate changes on cash and cash equivalents	(1,536)				(1,510)
Net increase in cash and cash equivalents	809				469,779
Cash and cash equivalents, beginning of period	171,899				68,363
Cash and cash equivalents, end of period	$	172,708			$	538,142

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. Reported amounts have not been adjusted for changes in foreign exchange rates.

	March 31, 2021				March 31, 2020				Change
Maintenance	$	302,244			$	294,780			$	7,464		3	%
Term	267,931				234,361				33,570			14	%
Client Cloud	570,175				529,141				41,034			8	%
Pega Cloud	282,389				182,165				100,224			55	%
Total	$	852,564			$	711,306			$	141,258		20	%

(1) Foreign currency exchange rate changes contributed 3% to total ACV growth in 2021.

 

PEGASYSTEMS INC.
BACKLOG
(in thousands, except percentages)
Remaining performance obligations ("Backlog") - Backlog represents expected future revenue on existing non-cancellable contracts.
	March 31, 2021
	Perpetual license				Term license				Maintenance				Pega Cloud				Consulting				Total
1 year or less	$	9,649			$	41,025			$	220,100			$	252,104			$	21,068			$	543,946		55	%
1-2 years	629				9,874				52,366				187,456				914				251,239			26	%
2-3 years	—				7,055				33,337				91,861				1,756				134,009			14	%
Greater than 3 years	—				377				16,834				32,895				510				50,616			5	%
	$	10,278			$	58,331			$	322,637			$	564,316			$	24,248			$	979,810		100	%
Change in Backlog Since March 31, 2020
	$	4,115			$	15,142			$	52,914			$	149,842			$	3,971			$	225,984
	67		%		35		%		20		%		36		%		20		%		30		%
	March 31, 2020
	Perpetual license				Term license				Maintenance				Pega Cloud				Consulting				Total
1 year or less	$	3,995			$	30,962			$	205,083			$	174,277			$	18,945			$	433,262		58	%
1-2 years	2,168				5,088				34,633				125,473				1,215				168,577			22	%
2-3 years	—				6,504				19,411				81,187				107				107,209			14	%
Greater than 3 years	—				635				10,596				33,537				10				44,778			6	%
	$	6,163			$	43,189			$	269,723			$	414,474			$	20,277			$	753,826		100	%

 

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SOURCE Pegasystems Inc.

FAQ

What were Pegasystems' Q1 2021 financial results?

Pegasystems reported $313.5 million in total revenue for Q1 2021, an 18% increase from Q1 2020.

How much did subscription revenue grow in Q1 2021 for Pegasystems?

Subscription revenue grew by 23% year-over-year in Q1 2021.

What is Pegasystems' stock symbol?

The stock symbol for Pegasystems is PEGA.

What was the net income for Pegasystems in Q1 2021?

Pegasystems reported a non-GAAP net income of $22.1 million for Q1 2021.

How did Pegasystems perform compared to Q1 2020?

Compared to Q1 2020, Pegasystems' total revenue rose by 18%, and non-GAAP net income increased by 448%.