Pega continues accelerated growth through Q3 2021

-- Total ACV grows 22 percent, powered by Pega Cloud Choice -- Pega subscription revenue grows 32 percent year over year -- Total Backlog increases 23 percent year over year

October 27, 2021 4:05 PM EDT

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CAMBRIDGE, Mass., Oct. 27, 2021 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the software company that crushes business complexity, released its financial results for the third quarter of 2021.

"Sophisticated organizations are pursuing digital transformation with great energy," said Alan Trefler, founder and CEO, Pegasystems. "Organizations know they must adapt for today's needs while preparing for the inevitable changes that will come tomorrow. In an unpredictable world, we help our clients crush business complexity with solutions built on a low-code platform and an outcome-centric approach to workflow that helps them work smarter, simpler, and faster. I'm excited about how Pega is meeting their needs with our highly differentiated offering."

"It's great to see total ACV growth of 22 percent year-over-year in Q3 2021 – once again powered by Pega Cloud Choice," said Ken Stillwell, COO and CFO, Pegasystems. "Our cumulative results through the first three quarters of this year demonstrate that digital transformation continues to be a top priority for our clients around the world."

Financial and performance metrics (1)

(Dollars in thousands,

except per share amounts)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2021

2020

Change

2021

2020

Change

Total revenue

$

256,268

$

225,951

13

%

$

895,469

$

718,917

25

%

Net (loss) - GAAP

$

(56,468)

$

(19,267)

(193)

%

$

(25,794)

$

(65,379)

61

%

Net (loss) income - Non-GAAP

$

(32,860)

$

(26,701)

(23)

%

$

9,196

$

(44,905)

*

Diluted (loss) per share - GAAP

$

(0.69)

$

(0.24)

(188)

%

$

(0.32)

$

(0.82)

61

%

Diluted (loss) earnings per share - Non-GAAP

$

(0.40)

$

(0.33)

(21)

%

$

0.11

$

(0.56)

*

* not meaningful.

(Dollars in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2021

2020

Change

2021

2020

Change

Pega Cloud

$

78,369

31

%

$

54,776

24

%

$

23,593

43

%

$

219,520

25

%

$

147,080

20

%

$

72,440

49

%

Client Cloud

118,609

46

%

110,602

49

%

8,007

7

%

488,757

54

%

391,042

55

%

97,715

25

%

Cloud subscription

$

196,978

77

%

$

165,378

73

%

$

31,600

19

%

$

708,277

79

%

$

538,122

75

%

$

170,155

32

%

Perpetual license

2,874

1

%

3,852

2

%

(978)

(25)

%

20,922

2

%

16,568

2

%

4,354

26

%

Consulting

56,416

22

%

56,721

25

%

(305)

(1)

%

166,270

19

%

164,227

23

%

2,043

1

%

Total revenue

$

256,268

100

%

$

225,951

100

%

$

30,317

13

%

$

895,469

100

%

$

718,917

100

%

$

176,552

25

%

(1) See the Schedules at the end of this release for additional information, including a reconciliation of our Non-GAAP and GAAP measures.  

Note: Foreign currency exchange rate changes contributed 1-2% to total ACV growth in 2021.

 

Pegasystems Q3 2021 backlog (in millions)

Quarterly conference call

A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on October 27, 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=146749) 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; 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, 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 from new information, future events, or otherwise.

The forward-looking statements in this press release represent our views as of October 27, 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. For more information, please visit www.pega.com.

Press contact:Lisa PintchmanPegasystems Inc.lisapintchman.rogers@pega.com (617) 866-6022        Twitter: @pega

Investor contact:Garo ToomajanianICR 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

September 30,

Nine Months Ended

September 30,

2021

2020

2021

2020

Revenue

Pega Cloud

$

78,369

$

54,776

$

219,520

$

147,080

Maintenance

83,188

74,670

237,531

220,587

Software license

38,295

39,784

272,148

187,023

Consulting

56,416

56,721

166,270

164,227

Total revenue

256,268

225,951

895,469

718,917

Cost of revenue

Pega Cloud

25,524

19,717

72,132

56,238

Maintenance

5,293

5,478

16,074

16,645

Software license

656

691

1,962

2,354

Consulting

52,749

51,913

161,032

158,781

Total cost of revenue

84,222

77,799

251,200

234,018

Gross profit

172,046

148,152

644,269

484,899

Operating expenses

Selling and marketing

152,479

132,053

457,641

395,684

Research and development

64,728

60,024

191,565

177,620

General and administrative

20,176

17,907

57,607

49,192

Total operating expenses

237,383

209,984

706,813

622,496

(Loss) from operations

(65,337)

(61,832)

(62,544)

(137,597)

Foreign currency transaction gain (loss)

518

4,236

(4,983)

2,545

Interest income

166

243

555

1,092

Interest expense

(1,908)

(5,956)

(5,747)

(13,791)

(Loss) income on capped call transactions

(14,735)

18,989

(7,543)

19,816

Other income, net

2

108

1,374

(Loss) before (benefit from) income taxes

(81,294)

(44,320)

(80,154)

(126,561)

(Benefit from) income taxes

(24,826)

(25,053)

(54,360)

(61,182)

Net (loss)

$

(56,468)

$

(19,267)

$

(25,794)

$

(65,379)

(Loss) per share

Basic

$

(0.69)

$

(0.24)

$

(0.32)

$

(0.82)

Diluted

$

(0.69)

$

(0.24)

$

(0.32)

$

(0.82)

Weighted-average number of common shares outstanding

Basic

81,526

80,537

81,284

80,191

Diluted

81,526

80,537

81,284

80,191

 

 

PEGASYSTEMS INC.

UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)

(in thousands, except percentages and per share amounts)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2021

2020

Change

2021

2020

Change

Net (loss) - GAAP

$

(56,468)

$

(19,267)

(193)

%

$

(25,794)

$

(65,379)

61

%

Stock-based compensation (2)

28,695

27,925

89,483

76,755

Capped call transactions

14,735

(18,989)

7,543

(19,816)

Convertible senior notes

677

4,372

2,025

10,405

Headquarters lease

(5,428)

(15,111)

Amortization of intangible assets

1,002

1,018

3,006

3,051

Foreign currency transaction (gain) loss

(518)

(4,236)

4,983

(2,545)

Other

3

15

1,141

Income tax effects (3)

(15,558)

(17,524)

(56,954)

(48,517)

Net (loss) income - Non-GAAP

$

(32,860)

$

(26,701)

(23)

%

$

9,196

$

(44,905)

*

Diluted (loss) per share - GAAP

$

(0.69)

$

(0.24)

(188)

%

$

(0.32)

$

(0.82)

61

%

Non-GAAP adjustments

0.29

(0.09)

0.43

0.26

Diluted (loss) earnings per share - Non-GAAP

$

(0.40)

$

(0.33)

(21)

%

$

0.11

$

(0.56)

*

Diluted weighted-average number of common shares outstanding - GAAP

81,526

80,537

1

%

81,284

80,191

1

%

Non-GAAP Adjustments

4,718

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

81,526

80,537

1

%

86,002

80,191

7

%

* not meaningful

(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 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 expected to reduce common stock dilution and/or offset any potential cash payments the Company must 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. In addition, 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 September 30, 2021 for additional information. In both periods, debt issuance costs reduce the debt instrument's book value and are amortized over the debt's life. We believe excluding the amortization of debt discount and issuance costs provide 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 which was paid in October 2021. We believe excluding the impact 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 future 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 and incremental fees incurred due to the cancellation of in-person sales and marketing events due to the COVID-19 pandemic, including the live event portion of our 2020 PegaWorld conference. 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

September 30,

Nine Months Ended

September 30,

(in thousands)

2021

2020

2021

2020

Cost of revenue

$

5,114

$

5,100

$

16,889

$

15,636

Selling and marketing

13,376

12,658

41,844

33,968

Research and development

6,231

5,765

19,343

17,066

General and administrative

3,974

4,402

11,407

10,085

$

28,695

$

27,925

$

89,483

$

76,755

Income tax benefit

$

(5,845)

$

(5,604)

$

(18,028)

$

(15,293)

(3) Effective income tax rates:

Nine Months Ended

September 30,

2021

2020

GAAP

68

%

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 our annual plan's effective income tax rate as established at the beginning of each year, given this tax rate volatility.

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30, 2021

December 31, 2020

Assets

Current assets:

Cash and cash equivalents

$

116,411

$

171,899

Marketable securities

235,437

293,269

Total cash, cash equivalents, and marketable securities

351,848

465,168

Accounts receivable

143,445

215,827

Unbilled receivables

239,774

207,155

Other current assets

93,819

88,760

Total current assets

828,886

976,910

Unbilled receivables

132,147

113,278

Goodwill

81,954

79,231

Other long-term assets

512,410

434,843

Total assets

$

1,555,397

$

1,604,262

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

25,604

$

24,028

Accrued expenses

46,583

59,261

Accrued compensation and related expenses

86,018

123,012

Deferred revenue

229,103

232,865

Other current liabilities

13,118

20,969

Total current liabilities

400,426

460,135

Convertible senior notes, net

589,769

518,203

Operating lease liabilities

87,088

59,053

Other long-term liabilities

18,482

24,699

Total liabilities

1,095,765

1,062,090

Total stockholders' equity

459,632

542,172

Total liabilities and stockholders' equity

$

1,555,397

$

1,604,262

 

 

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended

September 30,

2021

2020

Net (loss)

$

(25,794)

$

(65,379)

Adjustments to reconcile net (loss) to cash (used in) operating activities

Non-cash items

100,309

72,797

Change in operating assets and liabilities, net

(79,836)

(33,675)

Cash (used in) operating activities

(5,321)

(26,257)

Cash provided by (used in) investing activities

42,730

(210,701)

Cash (used in) provided by financing activities

(91,431)

449,630

Effect of exchange rate changes on cash and cash equivalents

(1,466)

183

Net (decrease) increase in cash and cash equivalents

(55,488)

212,855

Cash and cash equivalents, beginning of period

171,899

68,363

Cash and cash equivalents, end of period

$

116,411

$

281,218

 

 

PEGASYSTEMS INC.

REVENUE DETAIL

(in thousands, except percentages)

(Dollars in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2021

2020

Change

2021

2020

Change

Pega Cloud

$

78,369

31%

$

54,776

24%

$

23,593

43%

$

219,520

25%

$

147,080

20%

$

72,440

49%

Client Cloud (1)

$

118,609

46%

$

110,602

49%

$

8,007

7%

$

488,757

54%

$

391,042

55%

$

97,715

25%

Maintenance

83,188

32%

74,670

33%

8,518

11%

237,531

26%

220,587

31%

16,944

8%

Term license

35,421

14%

35,932

16%

(511)

(1)%

251,226

28%

170,455

24%

80,771

47%

Subscription (2)

$

196,978

77%

$

165,378

73%

$

31,600

19%

$

708,277

79%

$

538,122

75%

$

170,155

32%

Perpetual license

2,874

1%

3,852

2%

(978)

(25)%

20,922

2%

16,568

2%

4,354

26%

Consulting

56,416

22%

56,721

25%

(305)

(1)%

166,270

19%

164,227

23%

2,043

1%

$

256,268

100%

$

225,951

100%

$

30,317

13%

$

895,469

100%

$

718,917

100%

$

176,552

25%

(1) Composed of maintenance and term revenue.(2) Reflects client arrangements subject to renewal (Pega Cloud, maintenance, and term license).

PEGASYSTEMS INC.ANNUAL CONTRACT VALUE ("ACV")(in thousands, except percentages)

Annual contract value ("ACV") (1) - 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 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.

September 30, 2021

September 30, 2020

Change

Pega Cloud

$

320,653

$

232,176

$

88,477

38

%

Client Cloud

$

627,072

$

544,575

$

82,497

15

%

Total

$

947,725

$

776,751

$

170,974

22

%

(1) Foreign currency exchange rate changes contributed 1-2% to total ACV growth in 2021.

PEGASYSTEMS INC.BACKLOG(in thousands, except percentages)

Remaining performance obligations ("Backlog") - Backlog represents expected future revenue from existing non-cancellable contracts.

As of September 30, 2021:

Pega Cloud

Client Cloud

Consulting

Total

(Dollars in thousands)

Maintenance

Term license

Perpetual license

1 year or less

$

284,359

$

196,667

$

49,265

$

15,686

$

31,673

$

577,650

56

%

1-2 years

177,214

59,360

16,872

1,064

6,561

261,071

25

%

2-3 years

79,775

37,734

420

4,094

5,165

127,188

12

%

Greater than 3 years

30,113

33,935

245

2,127

1,697

68,117

7

%

$

571,461

$

327,696

$

66,802

$

22,971

$

45,096

$

1,034,026

100

%

Change in Backlog Since September 30, 2020

$

64,654

$

88,548

$

3,617

$

12,563

$

26,654

$

196,036

13

%

37

%

6

%

121

%

145

%

23

%

As of September 30, 2020:

Pega Cloud

Client Cloud

Consulting

Total

(Dollars in thousands)

Maintenance

Term license

Perpetual license

1 year or less

$

211,661

$

170,643

$

50,788

$

8,708

$

14,977

$

456,777

54

%

1-2 years

157,500

40,631

5,341

1,700

2,042

207,214

25

%

2-3 years

93,283

18,277

7,052

770

119,382

14

%

Greater than 3 years

44,363

9,597

4

653

54,617

7

%

$

506,807

$

239,148

$

63,185

$

10,408

$

18,442

$

837,990

100

%

 

Cision View original content to download multimedia:https://www.prnewswire.com/news-releases/pega-continues-accelerated-growth-through-q3-2021-301410280.html

SOURCE Pegasystems Inc.



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