Pega Cloud Revenue and ACV grow by more than 50%

Rhea-AI Summary

Pegasystems Inc. (NASDAQ: PEGA) announced its Q2 2020 financial results, showcasing an 11% increase in total revenue to $227.4 million, compared to $205.6 million in Q2 2019. Subscription revenue surged 38% year over year, driven by the company’s cloud transition. The net loss improved 36% to $20.7 million, resulting in a diluted loss per share of $0.26. With over $500 million in cash, Pegasystems is positioned to capture a larger share of the $50 billion digital transformation market. The company's management expressed confidence in long-term growth prospects.

Positive

• Total revenue increased by 11% to $227.4 million in Q2 2020.
• Subscription revenue grew by 38% year over year.
• Cash on hand exceeds $500 million, providing strong financial positioning.
• Improvement in net loss by 36% compared to the previous year.

Negative

• Company reported a net loss of $20.7 million.
• Diluted loss per share remains negative at $0.26.

CAMBRIDGE, Mass., July 28, 2020 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the software company empowering digital transformation at the world's leading enterprises, released its financial results for the second quarter of 2020.

"I'm pleased with our results through the first half of the year as we continue to demonstrate resiliency in our business throughout this global pandemic," said Alan Trefler, founder and CEO, Pegasystems. "Clients and prospects continue to see value in our solutions, both for their short-term crisis related needs and their longer-term digital transformation goals, and we remain confident in our long-term opportunity."

"Our subscription revenue grew 38 percent year over year in the first half of 2020, which reflects the impact of passing the midpoint of our cloud transition," said Ken Stillwell, CFO, Pegasystems.  "This impressive result demonstrates the power of growing ACV by more than 20 percent quarter in and quarter out.  With over $500 million of cash on the balance sheet and a notable portfolio of enterprise clients, Pega is in a strong position to capture an even greater share of the more than $50 billion market for digital transformation solutions."

Financial and performance metrics (1)
(Dollars in thousands, except per share amounts)	Three Months Ended June 30,											Six Months Ended June 30,
	2020				2019				Change			2020				2019				Change
Total revenue	$	227,375			$	205,592			11	%		$	492,966			$	418,138			18	%
Net (loss) - GAAP	$	(20,740)			$	(32,296)			36	%		$	(46,112)			$	(61,013)			24	%
Net (loss) - Non-GAAP	$	(22,236)			$	(23,427)			5	%		$	(18,204)			$	(32,803)			45	%
Diluted (loss) per share - GAAP	$	(0.26)			$	(0.41)			37	%		$	(0.58)			$	(0.77)			25	%
Diluted (loss) per share - Non-GAAP	$	(0.28)			$	(0.30)			7	%		$	(0.23)			$	(0.42)			45	%

(1) A reconciliation of the GAAP measures to our Non-GAAP measures is contained in the financial schedules at the end of this release.

 

(Dollars in thousands)	Three Months Ended June 30,																		Six Months Ended June 30,												Change
	2020						2019						Change						2020						2019
Pega Cloud	$	48,838		21	%		$	31,699		15	%		$	17,139		54	%		$	92,304		19	%		$	59,457		14	%		$	32,847		55	%
Maintenance	72,222			33	%		69,329			34	%		2,893			4	%		145,917			30	%		137,035			33	%		8,882			6	%
Term license	44,266			19	%		24,954			12	%		19,312			77	%		134,523			27	%		73,268			18	%		61,255			84	%
Subscription (2)	165,326			73	%		125,982			61	%		39,344			31	%		372,744			76	%		269,760			65	%		102,984			38	%
Perpetual license	9,057			4	%		19,320			9	%		(10,263)			(53)	%		12,716			3	%		34,270			8	%		(21,554)			(63)	%
Consulting	52,992			23	%		60,290			30	%		(7,298)			(12)	%		107,506			21	%		114,108			27	%		(6,602)			(6)	%
Total revenue	$	227,375		100	%		$	205,592		100	%		$	21,783		11	%		$	492,966		100	%		$	418,138		100	%		$	74,828		18	%

(2) Reflects client arrangements (term license, Pega Cloud, and maintenance) that are subject to renewal.

Quarterly conference call

A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on July 28, 2020.

Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-888-394-8218 (domestic), 1-323-701-0225 (international), or via webcast (http://public.viavid.com/index.php?id=140614) 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

To supplement the financial results presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"), we provide Non-GAAP measures, including in this release. We utilize several different financial measures, both GAAP and Non-GAAP, to analyze and assess the business' overall performance, make operating decisions, and forecast and plan for future periods. Our annual financial plan is prepared on both a GAAP and a Non-GAAP basis. We use Non-GAAP measures in the evaluation process to establish management's compensation because of the importance of these measures in managing the business.

The Non-GAAP measures exclude the effects of stock-based compensation expense, amortization of intangible assets, foreign currency transaction gains and losses, costs arising in connection with the issuance of our convertible senior notes and the related capped call transactions, gains and losses arising from our venture investments, gains and losses from our capped call transactions, gains and losses arising in connection with the change in the format of PegaWorld, and related income tax effects. We believe these Non-GAAP measures are helpful in understanding our past financial performance and our anticipated future results.

These Non-GAAP financial measures should not be considered in isolation or as a substitute for comparable GAAP measures. They should only be read in conjunction with our consolidated financial statements prepared in accordance with GAAP.

A reconciliation of the GAAP measures to our Non-GAAP measures is contained in the financial schedules at the end of this release.

Forward-looking statements

Certain statements contained 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, intends to, projects, forecasts, guidance, likely, and usually, or variations of such words and other similar expressions are intended to 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 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, maintenance of our client retention rate, and management of our growth. These risks and other factors that could 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, 2019, and other filings we make with the U.S. Securities and Exchange Commission ("SEC"). These documents are available on our website at www.pega.com/about/investors.

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 July 28, 2020.

About Pegasystems

Pega is the leader in cloud software for customer engagement and operational excellence. The world's most recognized and successful brands rely on Pega's AI-powered software to optimize every customer interaction on any channel while ensuring their brand promises are kept. Pega's low-code application development platform allows enterprises to quickly build and evolve apps to meet their customer and employee needs and drive digital transformation on a global scale. For more than 35 years, Pega has enabled higher customer satisfaction, lower costs, and increased customer lifetime value.

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 June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
Revenue
Software license	$	53,323			$	44,274			$	147,239			$	107,538
Maintenance	72,222				69,329				145,917				137,035
Pega Cloud	48,838				31,699				92,304				59,457
Consulting	52,992				60,290				107,506				114,108
Total revenue	227,375				205,592				492,966				418,138
Cost of revenue
Software license	979				928				1,663				2,306
Maintenance	5,591				6,292				11,167				12,627
Pega Cloud	18,988				16,647				36,521				29,945
Consulting	51,133				53,213				106,868				106,639
Total cost of revenue	76,691				77,080				156,219				151,517
Gross profit	150,684				128,512				336,747				266,621
Operating expenses
Selling and marketing	127,607				116,962				263,631				225,827
Research and development	58,869				49,714				117,596				100,310
General and administrative	15,655				14,174				31,285				26,850
Total operating expenses	202,131				180,850				412,512				352,987
(Loss) from operations	(51,447)				(52,338)				(75,765)				(86,366)
Foreign currency transaction gain (loss)	4,256				2,105				(1,691)				(1,607)
Interest income	242				544				849				1,267
Interest expense	(5,529)				—				(7,835)				—
Gain on capped call transactions	19,419				—				827				—
Other income, net	—				55				1,374				55
(Loss) before (benefit from) income taxes	(33,059)				(49,634)				(82,241)				(86,651)
(Benefit from) income taxes	(12,319)				(17,338)				(36,129)				(25,638)
Net (loss)	$	(20,740)			$	(32,296)			$	(46,112)			$	(61,013)
(Loss) per share
Basic	$	(0.26)			$	(0.41)			$	(0.58)			$	(0.77)
Diluted	$	(0.26)			$	(0.41)			$	(0.58)			$	(0.77)
Weighted-average number of common shares outstanding
Basic	80,224				78,987				80,016				78,787
Diluted	80,224				78,987				80,016				78,787

 

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,
	2020				2019				Change			2020				2019				Change
Net (loss) - GAAP	$	(20,740)			$	(32,296)			36	%		$	(46,112)			$	(61,013)			24	%
Amortization of intangible assets	1,017				1,656							2,034				4,592
Stock-based compensation (2)	25,655				20,047							48,831				38,397
Foreign currency transaction (gain) loss	(4,256)				(2,105)							1,691				1,607
Convertible senior notes	4,315				—							6,033				—
Capped call transactions	(19,419)				—							(827)				—
Venture investments	—				—							(1,374)				—
PegaWorld	(2,758)				—							2,515				—
Income tax effects (3)	(6,050)				(10,729)							(30,995)				(16,386)
Net (loss) - Non-GAAP	$	(22,236)			$	(23,427)			5	%		$	(18,204)			$	(32,803)			45	%
Diluted (loss) per share - GAAP	$	(0.26)			$	(0.41)			37	%		$	(0.58)			$	(0.77)			25	%
Non-GAAP adjustments	(0.02)				0.11							0.35				0.35
Diluted (loss) per share - Non-GAAP	$	(0.28)			$	(0.30)			7	%		$	(0.23)			$	(0.42)			45	%
Diluted weighted-average number of common shares outstanding - GAAP	80,224				78,987				2	%		80,016				78,787				2	%
Diluted weighted-average number of common shares outstanding - Non-GAAP	80,224				78,987				2	%		80,016				78,787				2	%

(1)	Our Non-GAAP financial measures reflect adjustments based on the following items:
•	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 our 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.
•	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.
•	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 changes in foreign exchange market rates. Foreign currency transaction gains and losses are likely to recur in future periods.
•	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. The debt discount and issuance costs are amortized as interest expense over the life of the debt 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.
•	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.
•	Venture investments: We have excluded gains and losses from our venture investments. 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.
•	PegaWorld: Due to the global COVID-19 pandemic, to help ensure the health and safety of attendees and employees, we converted our annual PegaWorld conference from a multi-day live event to a free virtual event. We have excluded the incremental fees we incurred due to the cancellation of the live event from our Non-GAAP operating expenses and profitability measures. The three months ended June 30, 2020 include a reduction of expenses of $2.8 million due to the favorable settlement of cancellation fees owed to vendors of the live event portion.
	For additional information about our use of Non-GAAP measures, the reasons why management uses these measures, the usefulness of these measures, and the material limitations on the usefulness of these measures, see "Discussion of Non-GAAP financial measures" included earlier in this release and below.

 

(2) Stock-based compensation was:
	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)	2020				2019				2020				2019
Cost of revenues	$	5,384			$	4,911			$	10,536			$	9,430
Selling and marketing	11,592				8,364				21,310				15,738
Research and development	5,805				4,572				11,302				9,132
General and administrative	2,874				2,200				5,683				4,097
	$	25,655			$	20,047			$	48,831			$	38,397
Income tax benefit	$	(5,107)			$	(4,056)			$	(9,689)			$	(7,796)

 

(3) Effective income tax rates were:
	Six Months Ended June 30,
	2020			2019
GAAP	44	%		30	%
Non-GAAP	22	%		22	%

Our effective income tax rate under GAAP is subject to significant fluctuations due to a variety of 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)
	June 30, 2020				December 31, 2019
Assets
Cash and cash equivalents	$	512,111			$	68,363
Receivables (billed and unbilled)	489,247				501,675
Goodwill	78,675				79,039
Other assets	416,252				335,735
Total assets	$	1,496,285			$	984,812
Liabilities and stockholders' equity
Accrued expenses, including compensation and related expenses	$	123,062			$	152,127
Deferred revenue, current	195,996				190,080
Convertible senior notes, net	509,423				—
Other liabilities	111,522				103,595
Stockholders' equity	556,282				539,010
Total liabilities and stockholders' equity	$	1,496,285			$	984,812

 

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Six Months Ended June 30,
	2020				2019
Net (loss)	$	(46,112)			$	(61,013)
Adjustments to reconcile net (loss) to cash (used in) provided by operating activities
Non-cash items	69,969				73,562
Change in operating assets and liabilities, net	(45,056)				(4,829)
Cash (used in) provided by operating activities	(21,199)				7,720
Cash (used in) provided by investing activities	(19,404)				17,210
Cash provided by (used in) financing activities	485,293				(44,367)
Effect of exchange rate changes on cash and cash equivalents	(942)				515
Net increase (decrease) in cash and cash equivalents	443,748				(18,922)
Cash and cash equivalents, beginning of period	68,363				114,422
Cash and cash equivalents, end of period	$	512,111			$	95,500

 

PEGASYSTEMS INC.
ANNUAL CONTRACT VALUE ("ACV")
(in millions, except percentages)
Annual contract value ("ACV") - ACV represents the annualized value of our active contracts as of the measurement date. ACV for term license and Pega Cloud contracts is calculated by dividing the contract's total value by the duration of the contract in years. ACV for maintenance is calculated as maintenance revenue for the quarter then ended multiplied by four. Client Cloud ACV is composed of maintenance ACV and ACV from term license contracts. We believe the presentation of ACV on a constant currency basis enhances the understanding of our results, as it provides visibility into the impact of changes in foreign currency exchange rates, which are outside of our control. All periods shown reflect foreign currency exchange rates as of June 30, 2020.
	June 30, 2020				June 30, 2019			Change
Maintenance	$	289			$	277		$	12		4	%
Term	238				199			39			20	%
Client Cloud	527				476			51			11	%
Pega Cloud	211				135			76			56	%
Total	$	738			$	611		$	127		21	%

 

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 that are expected to be invoiced and recognized as revenue in future periods.
	June 30, 2020
	Perpetual license				Term license				Maintenance				Pega Cloud				Consulting				Total
1 year or less	$	8,120			$	53,550			$	186,618			$	191,187			$	21,923			$	461,398		57	%
1-2 years	1,700				6,187				40,153				140,860				1,986				190,886			23	%
2-3 years	—				6,460				20,671				88,273				631				116,035			14	%
Greater than 3 years	—				646				10,517				37,071				626				48,860			6	%
	$	9,820			$	66,843			$	257,959			$	457,391			$	25,166			$	817,179		100	%
Change in Backlog Since June 30, 2019
	$	(830)			$	23,259			$	63,395			$	95,328			$	7,738			$	188,890
	(8)		%		53		%		33		%		26		%		44		%		30		%
	June 30, 2019
	Perpetual license				Term license				Maintenance				Pega Cloud				Consulting				Total
1 year or less	$	8,429			$	38,080			$	173,421			$	124,134			$	16,259			$	360,323		57	%
1-2 years	915				4,678				12,530				98,842				942				117,907			19	%
2-3 years	1,306				641				5,801				75,828				227				83,803			13	%
Greater than 3 years	—				185				2,812				63,259				—				66,256			11	%
	$	10,650			$	43,584			$	194,564			$	362,063			$	17,428			$	628,289		100	%

 

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SOURCE Pegasystems Inc.

FAQ

What were Pegasystems' Q2 2020 total revenues?

Pegasystems reported total revenues of $227.4 million for Q2 2020, an 11% increase from Q2 2019.

How much did Pegasystems' subscription revenue grow in Q2 2020?

Subscription revenue grew by 38% year over year in Q2 2020.

What was Pegasystems' net loss for Q2 2020?

The net loss for Pegasystems in Q2 2020 was $20.7 million.

What does Pegasystems' financial position look like?

Pegasystems holds over $500 million in cash, indicating strong financial health.

What is Pegasystems' diluted loss per share in Q2 2020?

The diluted loss per share for Q2 2020 was $0.26.