- Cash flow from operations and free cash flow both reach $180
million
- Annual contract value (ACV) grows 9% year over year
- Pega Cloud gross margin expands to 77%
Pegasystems Inc. (NASDAQ: PEGA), the leading enterprise AI
decisioning and workflow automation platform provider, released its
financial results for the first quarter of 2024.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20240424708388/en/
Backlog Growth (Graphic: Business
Wire)
“In Q1, we released Pega GenAI BlueprintTM, a revolutionary
technology that massively changes the way we engage with our
clients to help them re-imagine and evolve their business,” said
Alan Trefler, founder and CEO. “Hundreds of clients and partners
have generated thousands of Blueprints, and those numbers are
increasing every day. Blueprint highlights how Pega is uniquely
leveraging GenAI to drive digital transformation for our
clients.”
“The strong cash generation in Q1 demonstrates the power of a
SaaS business,” said Ken Stillwell, Pega COO and CFO. “Given our
financial strength and differentiated GenAI capabilities, we are in
a great position to accelerate profitable growth.”
Financial and performance metrics (1)
Reconciliation of ACV and ACV (constant
currency)
(in millions, except percentages)
March 31, 2023
March 31, 2024
1-Year Change
ACV
$
1,174
$
1,273
9
%
Impact of changes in foreign exchange
rates
—
4
Constant currency ACV
$
1,174
$
1,277
9
%
Note: ACV (constant currency) is
calculated by applying the March 31, 2023 foreign exchange rates to
all periods shown.
1 Refer to the schedules at the end of this release for
additional information, including a reconciliation of GAAP and
non-GAAP measures.
(Dollars in thousands,
except per share amounts)
Three Months Ended
March 31,
2024
2023
Change
Total revenue
$
330,147
$
325,472
1
%
Net (loss) - GAAP
$
(12,124
)
$
(20,774
)
42
%
Net income - non-GAAP
$
42,154
$
19,220
119
%
Diluted (loss) per share - GAAP
$
(0.14
)
$
(0.25
)
44
%
Diluted earnings per share - non-GAAP
$
0.48
$
0.23
109
%
(Dollars in thousands)
Three Months Ended
March 31,
Change
2024
2023
Pega Cloud
$
130,902
40
%
$
107,879
33
%
$
23,023
21
%
Maintenance
81,001
24
%
79,630
25
%
1,371
2
%
Subscription services
211,903
64
%
187,509
58
%
24,394
13
%
Subscription license
63,338
19
%
84,527
26
%
(21,189
)
(25
)%
Subscription
275,241
83
%
272,036
84
%
3,205
1
%
Consulting
54,047
17
%
53,033
16
%
1,014
2
%
Perpetual license
859
—
%
403
—
%
456
113
%
$
330,147
100
%
$
325,472
100
%
$
4,675
1
%
Quarterly conference call
A conference call and audio-only webcast will be conducted at
8:00 a.m. EDT on Thursday, April 25, 2024. Members of the public
and investors are invited to join the call and participate in the
question and answer session by dialing 1 (888) 596-4144 (domestic)
or 1 (646) 968-2525 (international) and using conference ID
1559653, or via https://events.q4inc.com/attendee/436307495 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
Our non-GAAP financial measures should only be read in
conjunction with our consolidated financial statements prepared in
accordance with GAAP. We believe that these measures help investors
understand our core operating results and prospects, which is
consistent with how management measures and forecasts our
performance without the effect of often one-time charges and other
items outside our normal operations. They are not a substitute for
financial measures prepared under U.S. GAAP. Refer to the schedules
at the end of this release for additional information, including a
reconciliation of GAAP and non-GAAP measures.
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, intends
to, projects, forecasts, guidance, likely, and usually or
variations of such words and other similar expressions identify
forward-looking statements. These statements represent our views
only as of the date the statement was made and 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;
- variation in demand for our products and services, including
among clients in the public sector;
- reliance on key personnel;
- 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 ongoing litigation with Appian Corp.;
- 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, 2023, and other filings we make
with the U.S. Securities and Exchange Commission (“SEC”).
Investors are cautioned not to place undue reliance on such
forward-looking statements, and there are no assurances that the
results included in such statements will be achieved. Although
subsequent events may cause our view to change, 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.
Any forward-looking statements in this press release represent
our views as of April 24, 2024.
About Pegasystems
Pega provides a powerful platform that empowers the world's
leading organizations to unlock business-transforming outcomes with
real-time optimization. Clients use our enterprise AI 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 how Pega (NASDAQ: PEGA) empowers its clients to
Build for Change®, visit www.pega.com.
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,
2024
2023
Revenue
Subscription services
$
211,903
$
187,509
Subscription license
63,338
84,527
Consulting
54,047
53,033
Perpetual license
859
403
Total revenue
330,147
325,472
Cost of revenue
Subscription services
35,824
36,864
Subscription license
643
719
Consulting
58,182
60,348
Perpetual license
9
3
Total cost of revenue
94,658
97,934
Gross profit
235,489
227,538
Operating expenses
Selling and marketing
127,695
149,797
Research and development
72,113
75,376
General and administrative
23,527
23,110
Litigation settlement, net of
recoveries
32,403
—
Restructuring
163
1,461
Total operating expenses
255,901
249,744
(Loss) from operations
(20,412
)
(22,206
)
Foreign currency transaction (loss)
(3,262
)
(2,675
)
Interest income
5,281
1,485
Interest expense
(1,752
)
(1,918
)
Gain on capped call transactions
3,299
3,206
Other income, net
1,684
6,583
(Loss) before (benefit from) provision for
income taxes
(15,162
)
(15,525
)
(Benefit from) provision for income
taxes
(3,038
)
5,249
Net (loss)
$
(12,124
)
$
(20,774
)
(Loss) per share
Basic
$
(0.14
)
$
(0.25
)
Diluted
$
(0.14
)
$
(0.25
)
Weighted-average number of common
shares outstanding
Basic
84,266
82,604
Diluted
84,266
82,604
PEGASYSTEMS INC.
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31,
2024
December 31,
2023
Assets
Current assets:
Cash and cash equivalents
$
291,905
$
229,902
Marketable securities
327,044
193,436
Total cash, cash equivalents, and
marketable securities
618,949
423,338
Accounts receivable, net
191,987
300,173
Unbilled receivables, net
170,458
237,379
Other current assets
78,193
68,137
Total current assets
1,059,587
1,029,027
Long-term unbilled receivables, net
72,814
85,402
Goodwill
81,467
81,611
Other long-term assets
297,860
314,696
Total assets
$
1,511,728
$
1,510,736
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
6,353
$
11,290
Accrued expenses
80,642
39,941
Accrued compensation and related
expenses
55,438
126,640
Deferred revenue
382,765
377,845
Convertible senior notes, net
499,985
—
Other current liabilities
19,096
21,343
Total current liabilities
1,044,279
577,059
Long-term convertible senior notes,
net
—
499,368
Long-term operating lease liabilities
63,645
66,901
Other long-term liabilities
13,618
13,570
Total liabilities
1,121,542
1,156,898
Total stockholders’ equity
390,186
353,838
Total liabilities and stockholders’
equity
$
1,511,728
$
1,510,736
PEGASYSTEMS INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
2024
2023
Net (loss)
$
(12,124
)
$
(20,774
)
Adjustments to reconcile net (loss) to
cash provided by operating activities
Non-cash items
55,592
59,766
Change in operating assets and
liabilities, net
136,678
29,115
Cash provided by operating activities
180,146
68,107
Cash (used in) investing activities
(132,399
)
(14,413
)
Cash provided by (used in) financing
activities
17,899
(29,372
)
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
(2,803
)
782
Net increase in cash, cash equivalents,
and restricted cash
62,843
25,104
Cash, cash equivalents, and restricted
cash, beginning of period
232,827
145,054
Cash, cash equivalents, and restricted
cash, end of period
$
295,670
$
170,158
PEGASYSTEMS INC.
RECONCILIATION OF SELECTED
GAAP AND NON-GAAP MEASURES
(in thousands, except
percentages and per share amounts)
Three Months Ended
March 31,
2024
2023
Change
Net (loss) - GAAP
$
(12,124
)
$
(20,774
)
42
%
Stock-based compensation (1)
34,781
42,557
Restructuring
163
1,461
Legal fees
1,942
1,476
Litigation settlement, net of
recoveries
32,403
—
Amortization of intangible assets
964
1,049
Interest on convertible senior notes
617
728
Capped call transactions
(3,299
)
(3,206
)
Repurchases of convertible senior
notes
—
(2,781
)
Foreign currency transaction loss
3,262
2,675
Other
(1,628
)
(3,793
)
Income taxes (2)
(14,927
)
(172
)
Net income - non-GAAP
$
42,154
$
19,220
119
%
Diluted (loss) per share - GAAP
$
(0.14
)
$
(0.25
)
44
%
non-GAAP adjustments
0.62
0.48
Diluted earnings per share - non-GAAP
$
0.48
$
0.23
109
%
Diluted weighted-average number of
common shares outstanding - GAAP
84,266
82,604
2
%
Stock-based compensation
3,094
762
Diluted weighted-average number of common
shares outstanding - non-GAAP
87,360
83,366
5
%
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.
- Restructuring: We have excluded
restructuring from our non-GAAP financial measures. Restructuring
fluctuates in amount and frequency and is significantly affected by
the timing and size of our restructuring activities. We believe
excluding these amounts from our non-GAAP financial measures is
useful to investors as these amounts are not representative of our
core business operations and ongoing operational performance.
- Legal fees: Legal and related fees
arising from proceedings outside the ordinary course of business.
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 operational performance.
- Litigation settlement, net of
recoveries: Accrued loss for the estimated cost to settle
ongoing litigation arising from proceedings outside the ordinary
course of business. See Note 15. Commitments and Contingencies in
our Quarterly Report for the three months ended March 31, 2024 for
additional information. 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 operational 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. We believe
excluding these amounts provides a useful comparison of our
operational performance in different periods.
- Interest on convertible senior
notes: In February 2020, we issued convertible senior notes,
due March 1, 2025, in a private placement. We believe that
excluding the amortization of issuance costs provides a useful
comparison of our operational performance in different
periods.
- 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 convertible senior 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 operational performance.
- Repurchases of convertible senior
notes: We have excluded gains from the repurchases of
Convertible Senior 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 operational performance.
- 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. We believe excluding these amounts provides a useful
comparison of our operational performance in different
periods.
- Other: We have excluded gains and
losses from our venture investments, and incremental expenses
incurred integrating 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 operational
performance.
- Diluted weighted-average number of common
shares outstanding:
- Stock-based compensation: In
periods of non-GAAP income, we have included the dilutive impact of
stock-based compensation in our non-GAAP weighted-average shares.
In periods of GAAP loss, these shares would have been excluded from
our GAAP results as they would be anti-dilutive for GAAP. We
believe including the dilutive effect of stock-based compensation
in our non-GAAP financial measures in periods of income is helpful
to investors as this provides a useful comparison of our
operational performance in different periods.
(1) Stock-based compensation:
Three Months Ended
March 31,
2024
2023
Cost of revenue
$
6,572
$
8,912
Selling and marketing
13,888
17,661
Research and development
7,646
9,060
General and administrative
6,675
6,924
$
34,781
$
42,557
Income tax benefit
$
(311
)
$
(672
)
(2) Effective income tax rates:
Three Months Ended
March 31,
2024
2023
GAAP
20%
(34)%
non-GAAP
22%
22%
Our GAAP effective income tax rate is subject to significant
fluctuations due to several factors, including our stock-based
compensation plans, research and development tax credits, gains and
losses on our capped call transactions, and the valuation allowance
on our deferred tax assets in the U.S. and U.K. We determine our
non-GAAP income tax rate using applicable rates in taxing
jurisdictions and assessing certain factors, including historical
and forecasted earnings by jurisdiction, discrete items, and
ability to realize tax assets. 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.
PEGASYSTEMS INC.
RECONCILIATION OF FREE CASH
FLOW (1) AND OTHER METRICS
(in thousands, except
percentages)
Three Months Ended
March 31,
2024
2023
Cash provided by operating activities
$
180,146
$
68,107
Investment in property and equipment
(604
)
(11,487
)
Free cash flow
$
179,542
$
56,620
Supplemental information (2)
Restructuring
$
3,347
$
14,458
Legal fees
2,739
1,515
Interest on convertible senior notes
1,884
2,250
Income taxes
8,163
2,825
$
16,133
$
21,048
(1) Our non-GAAP free cash flow is defined as cash provided by
operating activities less investment in property and equipment.
Investment in property and equipment fluctuates in amount and
frequency and is significantly affected by the timing and size of
investments in our facilities. We provide information on free cash
flow to enable investors to assess our ability to generate cash
without incurring additional external financings. This information
is not a substitute for financial measures prepared under U.S.
GAAP.
(2) The supplemental information discloses items that affect our
cash flows and are considered by management not to be
representative of our core business operations and ongoing
operational performance.
- Restructuring: Restructuring
fluctuates in amount and frequency and is significantly affected by
the timing and size of our restructuring activities.
- Legal fees: Legal and related fees
arising from proceedings outside the ordinary course of
business.
- Interest on convertible senior
notes: In February 2020, we issued convertible senior notes,
due March 1, 2025, in a private placement. The convertible senior
notes accrue interest at an annual rate of 0.75%, payable
semi-annually in arrears on March 1 and September 1.
- Income taxes: Direct income taxes
paid net of refunds received.
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. ACV is a performance measure that we
believe provides useful information to our management and
investors.
March 31, 2024
March 31, 2023
Change
Pega Cloud
$
570,356
$
490,568
$
79,788
16
%
Maintenance
313,550
323,760
(10,210
)
(3
)%
Subscription services
883,906
814,328
69,578
9
%
Subscription license
389,431
359,323
30,108
8
%
$
1,273,337
$
1,173,651
$
99,686
9
%
PEGASYSTEMS INC. BACKLOG (in
thousands, except percentages)
Remaining performance obligations (“Backlog”) - Expected
future revenue from existing non-cancellable contracts:
As of March 31, 2024:
Subscription services
Subscription
license
Perpetual
license
Consulting
Total
Pega Cloud
Maintenance
1 year or less
$
461,928
$
225,598
$
33,985
$
2,727
$
34,716
$
758,954
53
%
1-2 years
292,787
65,605
10,008
—
1,604
370,004
26
%
2-3 years
149,797
32,307
2,903
—
2,428
187,435
13
%
Greater than 3 years
86,601
21,650
98
—
—
108,349
8
%
$
991,113
$
345,160
$
46,994
$
2,727
$
38,748
$
1,424,742
100
%
% of Total
70
%
24
%
3
%
—
%
3
%
100
%
Change since March
31, 2023
$
124,390
$
6,799
$
1,656
$
(4,787
)
$
(11,400
)
$
116,658
14
%
2
%
4
%
(64
)%
(23
)%
9
%
As of March 31, 2023:
Subscription services
Subscription
license
Perpetual
license
Consulting
Total
Pega Cloud
Maintenance
1 year or less
$
389,632
$
235,315
$
35,346
$
5,262
$
41,203
$
706,758
54
%
1-2 years
239,228
66,272
3,215
2,252
6,653
317,620
24
%
2-3 years
131,085
29,295
6,777
—
2,292
169,449
13
%
Greater than 3 years
106,778
7,479
—
—
—
114,257
9
%
$
866,723
$
338,361
$
45,338
$
7,514
$
50,148
$
1,308,084
100
%
% of Total
66
%
26
%
3
%
1
%
4
%
100
%
PEGASYSTEMS INC.
RECONCILIATION OF GAAP BACKLOG
AND CONSTANT CURRENCY BACKLOG
(in millions, except
percentages)
March 31, 2023
March 31, 2024
1 Year Growth Rate
Backlog - GAAP
$
1,308
$
1,425
9
%
Impact of changes in foreign exchange
rates
—
4
Constant currency backlog
$
1,308
$
1,429
9
%
Note: Constant currency Backlog is
calculated by applying the Q1 2023 foreign exchange rates to all
periods shown.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240424708388/en/
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
Pegasystems (NASDAQ:PEGA)
Historical Stock Chart
From May 2024 to Jun 2024
Pegasystems (NASDAQ:PEGA)
Historical Stock Chart
From Jun 2023 to Jun 2024