PEGA

PEGASYSTEMS INC

Technology | Mid Cap

$0.17

EPS Forecast

$347.7

Revenue Forecast

The company already released most recent quarter's earnings. We will publish our AI's next quarter's forecast around 2024-12-31
EX-99.1 2 q42019ex991.htm EXHIBIT 99.1 Exhibit
EXHIBIT 99.1

q42019pegalogo.jpg
Pega Cloud ACV Grows 54% in 2019
•
Total ACV up 22% to $693 million, powered by Pega Cloud Choice™
•
Pega Cloud Backlog up 41% to $422 million
•
Pega Cloud Revenue up 62% to $134 million
•
2020 Guidance: Revenue $1.1 billion

CAMBRIDGE, Mass. — February 12, 2020 — Pegasystems Inc. (NASDAQ: PEGA), the software company empowering digital transformation at the world’s leading enterprises, released its financial results for the fourth quarter and full year 2019.
“We delivered a very strong Q4, capping off a solid year, and we’re excited about our prospects in this new decade,” said Alan Trefler, founder and CEO, Pegasystems. “We have a tremendous opportunity to help our clients achieve their digital transformation goals, and I’m confident in our ability to execute.”
“Total ACV increased 22% year over year, reaching $693 million, and total Backlog increased by 33% to $836 million,” said Ken Stillwell, CFO, Pegasystems. “We expect these outstanding results to set the foundation for Pega to breakthrough $1 billion in annual revenue in 2020.”
Financial and performance metrics (1) 
(Dollars in thousands,
except per share amounts)
Three Months Ended
December 31,
 
Year Ended
December 31,
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Total revenue
$
276,542

 
$
256,357

 
8
 %
 
$
911,383

 
$
891,581

 
2
%
Subscription revenue (2)
$
189,486

 
$
142,273

 
33
 %
 
$
613,759

 
$
524,758

 
17
%
Net income (loss) - GAAP
$
918

 
$
16,413

 
(94
)%
 
$
(90,433
)
 
$
10,617

 
*

Net income (loss) - Non-GAAP
$
15,682

 
$
26,480

 
(41
)%
 
$
(35,082
)
 
$
46,006

 
*

Diluted earnings (loss) per share - GAAP
$
0.01

 
$
0.20

 
(95
)%
 
$
(1.14
)
 
$
0.13

 
*

Diluted earnings (loss) per share - Non-GAAP
$
0.19

 
$
0.32

 
(41
)%
 
$
(0.44
)
 
$
0.55

 
*

* not meaningful
(1) A reconciliation of the GAAP measures to our Non-GAAP measures is contained in the financial schedules at the end of this release.
(2) Reflects client arrangements (term license, cloud, and maintenance) that are subject to renewal.
(Dollars in thousands)
Three Months Ended
December 31,
 
Year Ended
December 31,
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Cloud
$
39,136

14
%
 
$
24,660

10
%
 
$
14,476

59
 %
 
$
133,746

15
%
 
$
82,627

9
%
 
$
51,119

62
 %
Term license
77,176

28
%
 
50,186

20
%
 
26,990

54
 %
 
199,433

22
%
 
178,256

20
%
 
21,177

12
 %
Maintenance
73,174

27
%
 
67,427

25
%
 
5,747

9
 %
 
280,580

30
%
 
263,875

30
%
 
16,705

6
 %
Subscription
189,486

69
%
 
142,273

55
%
 
47,213

33
 %
 
613,759

67
%
 
524,758

59
%
 
89,001

17
 %
Perpetual license
36,729

13
%
 
53,034

21
%
 
(16,305
)
(31
)%
 
80,015

9
%
 
109,863

12
%
 
(29,848
)
(27
)%
Consulting
50,327

18
%
 
61,050

24
%
 
(10,723
)
(18
)%
 
217,609

24
%
 
256,960

29
%
 
(39,351
)
(15
)%
Total revenue
$
276,542

100
%
 
$
256,357

100
%
 
$
20,185

8
 %
 
$
911,383

100
%
 
$
891,581

100
%
 
$
19,802

2
 %

1

Annual contract value (“ACV”) (1) 
The change in ACV measures the growth and predictability of future cash flows from committed Pega Cloud and Client Cloud arrangements as of the end of the particular reporting period.
a10kcharta02.jpg
(1) See schedules at the end of this release for additional information.
Remaining performance obligations ("Backlog")
Expected future revenue on existing contracts:
 
December 31, 2019
(Dollars in thousands)
Perpetual license

 
Term license
 
Maintenance
 
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
%
Change in Backlog Since December 31, 2018
 
 
 
 
 
 
 
 
 
 
 

$
(14,185
)
 
$
32,453

 
$
60,380

 
$
123,353

 
$
3,169

 
$
205,170

 

(76
)%
 
38
%
 
29
%
 
41
%
 
15
%
 
33
%
 
 
December 31, 2018
(Dollars in thousands)
Perpetual license
 
Term license
 
Maintenance
 
Cloud
 
Consulting
 
Total
1 year or less
$
14,665

 
$
72,378

 
$
192,274

 
$
103,354

 
$
17,235

 
$
399,906

63
%
1-2 years
2,343

 
10,355

 
10,436

 
80,214

 
2,810

 
106,158

17
%
2-3 years
1,661

 
1,414

 
3,644

 
61,906

 
940

 
69,565

11
%
Greater than 3 years
—

 
233

 
1,560

 
53,343

 
208

 
55,344

9
%
 
$
18,669

 
$
84,380

 
$
207,914

 
$
298,817

 
$
21,193

 
$
630,973

100
%

2

Guidance for 2020
As of February 12, 2020, we are providing the following guidance:
 
Year Ended
December 31, 2020
(in millions, except per share amounts)
GAAP
 
Non-GAAP (1)
Revenue
$
1,100

 
$
1,100

Net income (loss)
$
(70.5
)
 
$
16.7

Diluted earnings (loss) per share
$
(0.89
)
 
$
0.20

(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
A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on February 12, 2020.
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 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/about/investors by clicking the earnings calls link in the Investors Relations 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, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. Our annual financial plan is prepared on both a GAAP and a Non-GAAP basis. In addition, because of the importance of these measures in managing the business, we use Non-GAAP measures and financial performance results in the evaluation process to establish management’s compensation.
The Non-GAAP measures exclude the effects of stock-based compensation expense, amortization of intangible assets, and foreign currency transaction gains and losses. We believe these Non-GAAP measures are helpful in understanding our past financial performance and our anticipated future results.
These Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. They should be read only 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 construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995
These forward-looking statements are based on current expectations, estimates, forecasts, and projections about the industry and markets in which we operate and management’s beliefs and assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “strategy,” “project,” “guidance,” “likely,” “usually,” or variations of such words and similar expressions are intended to identify such forward-looking statements.
Important factors that could cause actual future activities and results to differ materially from those expressed in such forward-looking statements include, among others, management of our transition to a more subscription-based business model, variation in demand for our products and services, the adequacy of our liquidity and capital resources, compliance with our debt obligations and debt covenants, reliance on third-party relationships, reliance on key personnel, the inherent risks associated with international operations and the continued uncertainties in the global economy, our continued effort to market and sell both domestically and internationally, foreign currency exchange rates, the potential legal and financial liabilities and reputation damage due to cyber-attacks and security breaches, 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 the Company’s website at www.pega.com/about/investors.

3

Investors are cautioned not to place undue reliance on such forward-looking statements, and there are no assurances that the results contained in such statements will be achieved. Although new information, future events, or risks may cause actual results to differ materially from future results expressed or implied by such forward-looking statements, 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 the Company’s views as of February 12, 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.
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.

4

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Software license
$
113,905

 
$
103,220

 
$
279,448

 
$
288,119

Maintenance
73,174

 
67,427

 
280,580

 
263,875

Services
89,463

 
85,710

 
351,355

 
339,587

Total revenue
276,542

 
256,357

 
911,383

 
891,581

Cost of revenue
 
 
 
 
 
 
 
Software license
674

 
1,397

 
3,656

 
5,169

Maintenance
6,341

 
6,530

 
25,656

 
24,565

Services
70,592

 
69,984

 
280,710

 
272,031

Total cost of revenue
77,607

 
77,911

 
310,022

 
301,765

Gross profit
198,935

 
178,446

 
601,361

 
589,816

Operating expenses
 
 
 
 
 
 
 
Selling and marketing
133,395

 
103,650

 
474,459

 
373,495

Research and development
52,408

 
46,449

 
205,210

 
181,710

General and administrative
14,877

 
12,894

 
56,570

 
51,643

Total operating expenses
200,680

 
162,993

 
736,239

 
606,848

(Loss) income from operations
(1,745
)
 
15,453

 
(134,878
)
 
(17,032
)
Foreign currency transaction gain (loss)
1,242

 
1,863

 
(2,335
)
 
2,421

Interest (loss) income, net
(15
)
 
629

 
1,808

 
2,705

Other income, net
181

 
—

 
559

 
363

(Loss) income before (benefit from) provision for income taxes
(337
)
 
17,945

 
(134,846
)
 
(11,543
)
(Benefit from) provision for income taxes
(1,255
)
 
1,532

 
(44,413
)
 
(22,160
)
Net income (loss)
$
918

 
$
16,413

 
$
(90,433
)
 
$
10,617

Earnings (loss) per share
 
 
 
 
 
 
 
Basic
$
0.01

 
$
0.21

 
$
(1.14
)
 
$
0.14

Diluted
$
0.01

 
$
0.20

 
$
(1.14
)
 
$
0.13

Weighted-average number of common shares outstanding
Basic
79,430

 
78,680

 
79,055

 
78,564

Diluted
83,624

 
82,536

 
79,055

 
83,064



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,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Total revenue - GAAP and Non-GAAP
$
276,542

 
$
256,357

 
8
 %
 
$
911,383

 
$
891,581

 
2
 %
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) - GAAP
$
918

 
$
16,413

 
(94
)%
 
$
(90,433
)
 
$
10,617

 
*

Amortization of intangible assets
1,018

 
2,935

 
 
 
6,625

 
11,443

 
 
Stock-based compensation (2)
20,666

 
16,289

 
 
 
80,909

 
63,862

 
 
Foreign currency transaction (gain) loss
(1,242
)
 
(1,863
)
 
 
 
2,335

 
(2,421
)
 
 
Income tax effects (3)
(5,678
)
 
(7,294
)
 
 
 
(34,518
)
 
(37,495
)
 
 
Net income (loss) - Non-GAAP
$
15,682

 
$
26,480

 
(41
)%
 
$
(35,082
)
 
$
46,006

 
*


 
 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share - GAAP
$
0.01

 
$
0.20

 
(95
)%
 
$
(1.14
)
 
$
0.13

 
*

Non-GAAP adjustments
0.18

 
0.12

 
 
 
0.70

 
0.42

 
 
Diluted earnings (loss) per share - Non-GAAP
$
0.19

 
$
0.32

 
(41
)%
 
$
(0.44
)
 
$
0.55

 
*

 
 
 
 
 
 
 
 
 
 
 
 
Diluted weighted-average number of common shares outstanding - GAAP
83,624

 
82,536

 
1
 %
 
79,055

 
83,064

 
(5
)%
Incremental dilutive shares for Non-GAAP
—

 
—

 
 
 
—

 
—

 
 
Diluted weighted-average number of common shares outstanding - Non-GAAP
83,624

 
82,536

 
1
 %
 
79,055

 
83,064

 
(5
)%
* not meaningful
(1) Our Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. They should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
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 as well. 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 will recur in future periods.
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.


6

(2) Stock-based compensation was:
 
Three Months Ended
December 31,
 
Year Ended
December 31,
(in thousands)
2019
 
2018
 
2019
 
2018
Cost of revenues
$
4,605

 
$
4,585

 
$
18,822

 
$
16,862

Selling and marketing
8,610

 
6,342

 
32,665

 
23,237

Research and development
4,948

 
3,919

 
18,938

 
15,274

General and administrative
2,503

 
1,443

 
10,484

 
8,489

 
$
20,666

 
$
16,289

 
$
80,909

 
$
63,862

Income tax benefit
$
(4,166
)
 
$
(3,346
)
 
$
(16,392
)
 
$
(13,383
)
(3) Effective income tax rates were:
 
Year Ended
December 31,
 
2019
 
2018
GAAP
33
%
 
192
%
Non-GAAP
22
%
 
25
%
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 effective income tax rate on a basis 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, 2019
 
December 31, 2018
Assets
 
 
 
Cash, cash equivalents, and marketable securities
$
68,363

 
$
207,423

Receivables (billed and unbilled)
501,675

 
504,765

Goodwill
79,039

 
72,858

Other assets
335,735

 
197,507

Total assets
$
984,812

 
$
982,553

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Accrued expenses, including compensation and related expenses
$
152,127

 
$
127,814

Deferred revenue, current
190,080

 
185,145

Other liabilities
103,595


48,063

Stockholders’ equity
539,010

 
621,531

Total liabilities and stockholders’ equity
$
984,812

 
$
982,553




PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Year Ended
December 31,
 
2019
 
2018
Net (loss) income
$
(90,433
)
 
$
10,617

Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities
 
 
 
Non-cash items
99,251

 
73,027

Change in operating assets and liabilities, net
(50,983
)
 
20,712

Cash (used in) provided by operating activities
(42,165
)
 
104,356

Cash provided by (used in) investing activities
70,074

 
(48,196
)
Cash (used in) financing activities
(74,258
)
 
(101,460
)
Effect of exchange rate changes on cash and cash equivalents
290

 
(2,557
)
Net (decrease) in cash and cash equivalents
(46,059
)
 
(47,857
)
Cash and cash equivalents, beginning of period
114,422

 
162,279

Cash and cash equivalents, end of period
$
68,363

 
$
114,422


8

PEGASYSTEMS INC.
ANNUAL CONTRACT VALUE (“ACV”) (1) (2) 
(in thousands, except percentages)
 
December 31,
 
Change
 
2019
 
2018
 
Reported
 
Constant currency
Maintenance
$
292,696

 
$
269,708

 
$
22,988

9
%
 
8
%
Term
231,267

 
190,349

 
40,918

21
%
 
21
%
Client Cloud
523,963

 
460,057

 
63,906

14
%
 
14
%
Pega Cloud
169,329

 
109,973

 
59,356

54
%
 
54
%
Total ACV
$
693,292

 
$
570,030

 
$
123,262

22
%
 
22
%
(1) Total ACV, as of a given date, is the sum of the following two components:
•
Client Cloud: the sum of (1) the annual value of each term license contract in effect on such date, which is equal to its total license value divided by the total number of years and (2) maintenance revenue reported for the quarter ended on such date, multiplied by four. We do not provide hosting services for Client Cloud arrangements.
•
Pega Cloud: the sum of the annual value of each cloud contract in effect on such date, which is equal to its total value divided by the total number of years.
(2) As foreign currency exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of ACV growth rates on a constant currency basis enhances the understanding of our results and evaluation of our performance in comparison to prior periods.

9

PEGASYSTEMS INC.
RECONCILIATION OF FORWARD-LOOKING GUIDANCE
(in millions, except per share amounts)
 
Year Ended
December 31, 2020
Revenue (GAAP and Non-GAAP)
$
1,100.0

 
 
Net loss (GAAP)
$
(70.5
)
Amortization of intangible assets
4.0

Stock-based compensation
101.6

Income tax effects
(18.4
)
Net income (Non-GAAP)
$
16.7

 
 
Diluted loss per share (GAAP)
$
(0.89
)
Non-GAAP adjustments
1.09

Diluted income per share (Non-GAAP)
$
0.20

 
 
Diluted weighted-average number of common shares outstanding - GAAP
79.2

Incremental dilutive shares for Non-GAAP
5.8

Diluted weighted-average number of common shares outstanding - Non-GAAP
85.0


10