Pega Cloud ACV Grows 65% in the First Half of 2019 - WBCB: The Valley's CW |

Pega Cloud ACV Grows 65% in the First Half of 2019

SOURCE Pegasystems Inc.

- Total ACV of $613 million, powered by Pega Cloud Choice™

- Pega Cloud RPO ("backlog") up 69% to $362 million

- Pega Cloud and Client Cloud RPO ("backlog") up 45% to $600 million

CAMBRIDGE, Mass., Aug. 7, 2019 /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 2019.

"At mid-year, I'm excited with the strong progress we're making in our business and in our transition to cloud," said Alan Trefler, founder and CEO, Pegasystems. "I'm pleased with how our strategy is working, and we continue to gain traction in seizing the huge opportunity in front of us."

"Pega Cloud ACV increased 65% year over year, reaching $136 million," said Ken Stillwell, CFO, Pegasystems. "This strong ACV growth reflects solid demand worldwide for digital transformation solutions."

Financial metrics (1)

(Dollars in thousands, except per share amounts)

Three Months Ended
June 30,


Six Months Ended
June 30,

2019


2018


Change


2019


2018


Change

Total revenue

$

205,592



$

196,779



4

%


$

418,138



$

431,961



(3)

%

Subscription revenue (2)

$

125,982



$

117,416



7

%


$

269,760



$

262,218



3

%

Net (loss) income - GAAP

$

(32,296)



$

(10,409)



(210)

%


$

(61,013)



$

1,791



*


Net (loss) income - Non-GAAP

$

(23,427)



$

(2,732)



(758)

%


$

(32,803)



$

17,525



*


Diluted (loss) earnings per share - GAAP

$

(0.41)



$

(0.13)



(215)

%


$

(0.77)



$

0.02



*


Diluted (loss) earnings per share - Non-GAAP

$

(0.30)



$

(0.03)



(900)

%


$

(0.42)



$

0.21



*




*

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
June 30,


Six Months Ended
June 30,

2019


2018


Change


2019


2018


Change

Cloud

$

31,699


15

%


$

20,201


10

%


$

11,498


57

%


$

59,457


14

%


$

35,783


8

%


$

23,674


66

%

Term license

24,954


12

%


31,309


16

%


(6,355)


(20)

%


73,268


18

%


96,004


22

%


(22,736)


(24)

%

Maintenance

69,329


34

%


65,906


34

%


3,423


5

%


137,035


33

%


130,431


31

%


6,604


5

%

Subscription

125,982


61

%


117,416


60

%


8,566


7

%


269,760


65

%


262,218


61

%


7,542


3

%

Perpetual license

19,320


9

%


13,475


7

%


5,845


43

%


34,270


8

%


36,553


8

%


(2,283)


(6)

%

Consulting

60,290


30

%


65,888


33

%


(5,598)


(8)

%


114,108


27

%


133,190


31

%


(19,082)


(14)

%

Total revenue

$

205,592


100

%


$

196,779


100

%


$

8,813


4

%


$

418,138


100

%


$

431,961


100

%


$

(13,823)


(3)

%

 

Annual contract value ("ACV") (1) (2)

The change in ACV measures the growth and predictability of future cash flows from Pega Cloud and Client Cloud committed arrangements as of the end of the particular reporting period.

Annual contract value (“ACV”)

 


June 30,


Change


Constant Currency
Change

(Dollars in thousands)

2019


2018



Maintenance ACV

$

277,316



$

263,624



$

13,692


5

%


7

%

Term ACV

199,299



168,528



30,771


18

%


19

%

Client Cloud ACV

476,615



432,152



44,463


10

%


12

%

Pega Cloud ACV

136,074



82,376



53,698


65

%


67

%

Total ACV

$

612,689



$

514,528



$

98,161


19

%


21

%



(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 for Client Cloud arrangements.

  • Pega Cloud: the total 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. The percent change in constant currency is calculated by applying the applicable current period exchange rates to prior period ACV.

 

Remaining performance obligations ("RPO")

Expected future revenue on existing contracts:


June 30, 2019

(Dollars in thousands)

Perpetual license


Term license


Maintenance


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

%

Change in RPO Since June 30, 2018













$

(36,623)



$

6,640



$

32,273



$

148,253



$

1,086



$

151,629




(77)

%


18

%


20

%


69

%


7

%


32

%





June 30, 2018

(Dollars in thousands)

Perpetual license


Term license


Maintenance


Cloud


Consulting


Total

1 year or less

$

28,626



$

20,457



$

111,086



$

41,036



$

12,039



$

213,244


45

%

1-2 years

15,862



9,878



43,837



66,529



4,103



140,209


29

%

2-3 years

2,423



5,665



5,265



50,250



-



63,603


13

%

Greater than 3 years

362



944



2,103



55,995



200



59,604


13

%


$

47,273



$

36,944



$

162,291



$

213,810



$

16,342



$

476,660


100

%

 

Quarterly conference call

A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on August 7, 2019.

Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-800-289-0438 (domestic), 1-323-794-2423 (international), or via webcast by logging onto http://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 http://www.pega.com/about/investors 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"), the Company provides non-GAAP measures, including in this release. Pegasystems' management utilizes a number of 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. The Company's annual financial plan is prepared on both a GAAP and non-GAAP basis, and both are approved by our board of directors. In addition, because of the importance of these measures in managing the business, the Company uses 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. The Company believes these non-GAAP measures are helpful in understanding its past financial performance and its anticipated future results.

These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

A reconciliation of the Company's GAAP measures to Non-GAAP measures is included 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," "is intended to," "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, variation in demand for our products and services, 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 more completely in Part I of our Annual Report on Form 10-K for the year ended December 31, 2018, 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.

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 specifically 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 August 7, 2019.

About Pegasystems

Pegasystems Inc. is the leader in software for customer engagement and operational excellence. Pega's adaptive, cloud-architected software - built on its unified Pega Platform™ - empowers people to rapidly deploy, and easily extend and change applications to meet strategic business needs. Over its 35-year history, Pega has delivered award-winning capabilities in CRM and digital process automation (DPA), powered by advanced artificial intelligence and robotic automation, to help the world's leading brands achieve breakthrough business results.

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
June 30,


Six Months Ended
June 30,


2019


2018


2019


2018

Revenue








Software license

$

44,274



$

44,784



$

107,538



$

132,557


Maintenance

69,329



65,906



137,035



130,431


Services

91,989



86,089



173,565



168,973


Total revenue

205,592



196,779



418,138



431,961


Cost of revenue








Software license

928



1,262



2,306



2,517


Maintenance

6,292



5,874



12,627



11,956


Services

69,860



66,681



136,584



134,958


Total cost of revenue

77,080



73,817



151,517



149,431


Gross profit

128,512



122,962



266,621



282,530


Operating expenses








Selling and marketing

116,962



93,972



225,827



182,355


Research and development

49,714



41,972



100,310



88,757


General and administrative

14,174



10,181



26,850



26,645


Total operating expenses

180,850



146,125



352,987



297,757


(Loss) from operations

(52,338)



(23,163)



(86,366)



(15,227)


Foreign currency transaction gain (loss)

2,105



1,244



(1,607)



159


Interest income, net

544



629



1,267



1,393


Other income, net

55



-



55



363


(Loss) before (benefit from) income taxes

(49,634)



(21,290)



(86,651)



(13,312)


(Benefit from) income taxes

(17,338)



(10,881)



(25,638)



(15,103)


Net (loss) income

$

(32,296)



$

(10,409)



$

(61,013)



$

1,791


(Loss) earnings per share








Basic

$

(0.41)



$

(0.13)



$

(0.77)



$

0.02


Diluted

$

(0.41)



$

(0.13)



$

(0.77)



$

0.02


Weighted-average number of common shares
outstanding








Basic

78,987



78,635



78,787



78,436


Diluted

78,987



78,635



78,787



83,247


 

 

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,


2019


2018


Change


2019


2018


Change

Total revenue - GAAP and Non-GAAP

$

205,592



$

196,779



4

%


$

418,138



$

431,961



(3)

%













Net (loss) income - GAAP

$

(32,296)



$

(10,409)



(210)

%


$

(61,013)



$

1,791



*


Amortization of intangible assets

1,656



2,836





4,592



5,673




Stock-based compensation (2)

20,047



16,056





38,397



31,165




Foreign currency transaction gain (loss)

(2,105)



(1,244)





1,607



(159)




Income tax effects (3)

(10,729)



(9,971)





(16,386)



(20,945)




Net (loss) income - Non-GAAP

$

(23,427)



$

(2,732)



(758)

%


$

(32,803)



$

17,525



*














Diluted (loss) earnings per share - GAAP

$

(0.41)



$

(0.13)



(215)

%


$

(0.77)



$

0.02



*


Non-GAAP adjustments

0.11



0.10





0.35



0.19




Diluted (loss) earnings per share - Non-GAAP

$

(0.30)



$

(0.03)



(900)

%


$

(0.42)



$

0.21



*














Diluted weighted-average number of
common shares outstanding - GAAP

78,987



78,635



-

%


78,787



83,247



(5)

%

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

78,987



78,635



-

%


78,787



83,247



(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 and 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 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.



(2)

Stock-based compensation was as follows:



Three Months Ended
June 30,


Six Months Ended
June 30,

(in thousands)

2019


2018


2019


2018

Cost of revenues

$

4,911



$

4,257



$

9,430



$

7,958


Selling and marketing

8,364



6,038



15,738



10,696


Research and development

4,572



3,802



9,132



7,439


General and administrative

2,200



1,959



4,097



5,072



$

20,047



$

16,056



$

38,397



$

31,165


Income tax benefit

$

(4,056)



$

(3,341)



$

(7,796)



$

(6,482)



(3)     Effective income tax rates were as follows:













Six Months Ended
June 30,












2019


2018

GAAP











30

%


113

%

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.

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)




June 30, 2019


December 31, 2018

Assets




Total cash, cash equivalents, and marketable securities

$

155,049



$

207,423


Total receivables (billed and unbilled)

422,408



504,765


Goodwill

79,037



72,858


Other assets

284,123



197,507


Total assets

$

940,617



$

982,553






Liabilities and stockholders' equity




Accrued expenses, including compensation and related expenses

$

113,252



$

130,177


Deferred revenue, current

169,009



185,145


Deferred income tax liabilities

6,918



6,939


Other liabilities

94,151



38,761


Stockholders' equity

557,287



621,531


Total liabilities and stockholders' equity

$

940,617



$

982,553


 

 

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)




Six Months Ended
June 30,


2019


2018

Operating activities:




Net (loss) income

$

(61,013)



$

1,791


Adjustments to reconcile net (loss) income to cash provided by operating activities




Non-cash items

73,562



51,081


Change in operating assets and liabilities, net

(4,829)



22,560


Cash provided by operating activities

7,720



75,432


Cash provided by (used in) investing activities

17,210



(46,369)


Cash (used in) financing activities

(44,367)



(45,825)


Effect of exchange rate changes on cash and cash equivalents

515



(1,226)


Net (decrease) in cash and cash equivalents

(18,922)



(17,988)


Cash and cash equivalents, beginning of period

114,422



162,279


Cash and cash equivalents, end of period

$

95,500



$

144,291


 

 

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