PEGA
$56.38
Pegasystems
$.45
.80%
Earnings Details
2nd Quarter June 2018
Wednesday, August 08, 2018 4:05:00 PM
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Summary

Pegasystems (PEGA) Recent Earnings

Pegasystems (PEGA) reported a 2nd Quarter June 2018 loss of $0.16 per share on revenue of $196.8 million. The consensus earnings estimate was $0.06 per share on revenue of $221.5 million. Revenue fell 0.6% compared to the same quarter a year ago.

Pegasystems Inc. develops, market, and license software and also provides implementation, consulting, training, and technical support services to help its customers maximize the business value from the use of the Company' software.

Results
Reported Earnings
($0.16)
Earnings Whisper
-
Consensus Estimate
$0.06
Reported Revenue
$196.8 Mil
Revenue Estimate
$221.5 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Pegasystems Announces Financial Results for the Second Quarter of 2018

CAMBRIDGE, Mass., Aug. 8, 2018 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the software company empowering customer engagement at the world's leading enterprises, today announced its financial results for the second quarter of 2018.

"Our unique combination of customer engagement and digital process automation software continues to provide us a competitive advantage," said Alan Trefler, founder and CEO, Pegasystems. "We're pleased to see the acceleration in our clients' move to the cloud and more recurring arrangements, which is a positive long-term trend for our business."

"As we focused on driving much higher levels of recurring contract value and further penetration into the cloud, we set aggressive goals," said Ken Stillwell, CFO and Chief Administrative Officer. "I am very pleased to see our movement into recurring and cloud happen even faster than we anticipated. In the first half of 2018, more than 50% of our new client arrangements were cloud arrangements. A natural consequence of increasing ratable cloud arrangements is a reduction in reported revenue growth for the period. At the same time, our 31% year over year growth in term and cloud ACV highlights our underlying business momentum while in this transition."

Select financial and performance metrics (1)

(Dollars in thousands, except per share amounts)

Three Months Ended
June 30,


Six Months Ended
June 30,

2018


2017


Change


2018


2017


Change

Total revenue (GAAP and Non-GAAP)

$

196,779



$

186,596



5

%


$

431,961



$

442,905



(2%)


Net (loss)/income (GAAP)

$

(10,409)



$

3,702



(381%)



$

1,791



$

56,665



(97%)


Net (loss)/income (Non-GAAP)

$

(297)



$

4,268



(107%)



$

19,955



$

58,338



(66%)


Diluted (loss)/earnings per share (GAAP)

$

(0.13)



$

0.04



(425%)



$

0.02



$

0.69



(97%)


Diluted earnings per share (Non-GAAP)

$

0.00



$

0.05



(100%)



$

0.24



$

0.71



(66%)


Cash provided by operating activities (GAAP and Non-GAAP)







$

75,432



$

85,769



(12%)


(1) A reconciliation of our Non-GAAP to GAAP measures is contained in the financial schedules at the end of this release. On January 1, 2018 we adopted the ASC 606 revenue recognition standard and have adjusted prior periods to conform.

(1) ACV, as of a given date, is the sum of the following two components: The sum of the annual value of each term and cloud contract in effect on such date, with the annual value of a term or cloud contract being equal to the total value of the contract divided by the total number of years of the contract; Maintenance revenue reported for the quarter ended on such date, multiplied by four.

Committed not yet recognized revenue

We expect to recognize revenue for existing contracts in the future as follows:


June 30,
 2018

(in thousands)

Perpetual license


Term

license


Maintenance


Cloud


Consulting and training


Total

Remainder of 2018

$

28,626



$

20,457



$

111,086



$

41,036



$

12,039



$

213,244


2019

15,862



9,878



43,837



66,529



4,103



140,209


2020

2,423



5,665



5,265



50,250





63,603


2021 and thereafter

362



944



2,103



55,995



200



59,604



$

47,273



$

36,944



$

162,291



$

213,810



$

16,342



$

476,660



Quarterly conference call

Pegasystems will host a conference call and audio-only webcast associated with this announcement at 5:00 p.m. EDT today.

A live audio webcast of the conference call, together with detailed financial information, can be accessed through the investor information page of the Company's website at www.pega.com/about/investors.

Dial-in information is as follows: (800) 263-0877 (domestic) or (646) 828-8143 (international).

To listen to the webcast, log onto www.pega.com/about/investors at least five minutes prior to the event's broadcast and click 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 section.

Discussion of non-GAAP financial measures

To supplement our 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, and as a consequence 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 certain business combination accounting entries, stock-based compensation expense, amortization of intangible assets, acquisition-related and restructuring expenses, and certain other adjustments. 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 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.

These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict.  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; our beliefs and the timing of the completion of our analysis regarding the impact of the Tax Cuts and Jobs Act of 2017, including its impact on income tax expense and deferred tax assets; 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 financial impact of any future acquisitions; 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, 2017, as well as 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.

The forward-looking statements contained in this press release represent the Company's views as of August 8, 2018. 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 subsequent events may cause our view to change, 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 statements should therefore not be relied upon as representing the Company's view as of any date subsequent to August 8, 2018.

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.
LisaPintchman.Rogers@pega.com   
(617) 866-6022
Twitter: @pega

Investor Contact: 
Garo Toomajanian
ICR for Pegasystems 
PegaInvestorRelations@pega.com  
(617) 866-6077 

All trademarks are the property of their respective owners.


 

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)
(in thousands, except per share amounts)



Three Months Ended
June 30,


Six Months Ended
June 30,


2018


2017


2018


2017

Revenue








Software license

$

44,784



$

51,150



$

132,557



$

178,158


Maintenance

65,906



59,424



130,431



118,137


Services

86,089



76,022



168,973



146,610


Total revenue

196,779



186,596



431,961



442,905


Cost of revenue








Software license

1,262



1,250



2,517



2,550


Maintenance

5,874



7,011



11,956



14,229


Services

66,681



59,614



134,958



119,186


Total cost of revenue

73,817



67,875



149,431



135,965


Gross profit

122,962



118,721



282,530



306,940


Operating expenses








Selling and marketing

93,972



75,200



182,355



144,881


Research and development

41,972



39,762



88,757



80,058


General and administrative

10,181



12,706



26,645



25,041


Total operating expenses

146,125



127,668



297,757



249,980


(Loss)/income from operations

(23,163)



(8,947)



(15,227)



56,960


Foreign currency transaction gain/(loss)

1,244



(2,242)



159



(1,497)


Interest income, net

629



202



1,393



407


Other income, net



566



363



287


(Loss)/income before (benefit) from income taxes

(21,290)



(10,421)



(13,312)



56,157


(Benefit) from income taxes

(10,881)



(14,123)



(15,103)



(508)


Net (loss)/income

$

(10,409)



$

3,702



$

1,791



$

56,665


(Loss)/earnings per share








Basic

$

(0.13)



$

0.05



$

0.02



$

0.74


Diluted

$

(0.13)



$

0.04



$

0.02



$

0.69


Weighted-average number of common shares outstanding








Basic

78,635



77,313



78,436



77,039


Diluted

78,635



82,945



83,247



82,412


Cash dividends declared per share

$

0.03



$

0.03



$

0.06



$

0.06


(1)  On January 1, 2018 we adopted the ASC 606 revenue recognition standard and have adjusted prior periods to conform.

 

PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)(4)
(in thousands, except percentages and per share amounts)



Three Months Ended
June 30,




Six Months Ended
June 30,




2018


2017


Change


2018


2017


Change

Total revenue (GAAP and Non-GAAP)

$

196,779



$

186,596



5%



$

431,961



$

442,905



(2%)














Gross profit (GAAP)

$

122,962



$

118,721



4%



$

282,530



$

306,940



(8%)


Amortization of intangible assets

1,231



1,305





2,463



2,639




Stock-based compensation(2)

4,257



3,677





7,958



7,299




Gross profit (Non-GAAP)

$

128,450



$

123,703



4%



$

292,951



$

316,878



(8%)














(Loss)/income from operations (GAAP)

$

(23,163)



$

(8,947)



159%



$

(15,227)



$

56,960



(127%)


Amortization of intangible assets

2,836



3,174





5,673



6,374




Stock-based compensation(2)

16,056



13,932





31,165



26,440




(Loss)/income from operations (Non-GAAP)

$

(4,271)



$

8,159



(152%)



$

21,611



$

89,774



(76%)














Net (loss)/income (GAAP)

$

(10,409)



$

3,702



(381%)



$

1,791



$

56,665



(97%)


Amortization of intangible assets

2,836



3,174





5,673



6,374




Stock-based compensation(2)

16,056



13,932





31,165



26,440




Income tax effects (3)

(8,780)



(16,540)





(18,674)



(31,141)




Net (loss)/income (Non-GAAP)

$

(297)



$

4,268



(107%)



$

19,955



$

58,338



(66%)














Diluted (loss)/earnings per share (GAAP)

$

(0.13)



$

0.04



(425%)



$

0.02



$

0.69



(97%)


Amortization of intangible assets

0.04



0.04





0.07



0.08




Stock-based compensation (2)

0.20



0.17





0.37



0.32




Income tax effects (3)

(0.11)



(0.20)





(0.22)



(0.38)




Diluted earnings per share (Non-GAAP)

$

0.00



$

0.05



(100%)



$

0.24



$

0.71



(66%)














Diluted weighted-average number of common shares outstanding (GAAP and Non-GAAP)

78,635



82,945



(5%)



83,247



82,412



1%


 

(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. For a detailed explanation of the adjustments made to comparable 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 disclosure under "Discussion of non-GAAP financial measures" included earlier in this release and below.

Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

  • Amortization of intangible assets: We have excluded the amortization expense of intangible assets from our non-GAAP operating expenses and profitability measures. Amortization of intangible assets is inconsistent 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 will recur in future periods.
  • Stock-based compensation: We have excluded stock-based compensation expense 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 the revenues recognized during the periods presented and will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expense.

(2) Stock-based compensation was as follows:


Three Months Ended
June 30,


Six Months Ended
June 30,

(in thousands)

2018


2017


2018


2017

Cost of revenues

$

4,257



$

3,677



$

7,958



$

7,299


Selling and marketing

6,038



4,101



10,696



7,506


Research and development

3,802



3,575



7,439



6,887


General and administrative

1,959



2,579



5,072



4,748



$

16,056



$

13,932



$

31,165



$

26,440


Income tax benefit

$

(3,341)



$

(4,287)



$

(6,482)



$

(8,102)


(3) The effective income tax rates were as follows:


Six Months Ended
June 30,


2018


2017

Effective income tax rate (GAAP)

113%



(1)%


Effective income tax rate (Non-GAAP)

15%



34%


The difference between our GAAP and non-GAAP effective income tax rates for the six months ended June 30, 2018 and 2017 primarily related to the impact of the following items on our GAAP effective income tax rate:

  • 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.

(4) On January 1, 2018 we adopted the ASC 606 revenue recognition standard and have adjusted prior periods to conform.

 

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (1)
(in thousands)



June 30,
 2018


December 31,
 2017

Assets




Total cash, cash equivalents, and marketable securities

$

243,583



$

223,748


Total receivables (billed and unbilled)

462,068



542,341


Goodwill

72,911



72,952


Other assets

194,478



172,526


Total assets

$

973,040



$

1,011,567






Liabilities and stockholders' equity




Accrued expenses, including compensation and related expenses

$

93,573



$

111,548


Short-term deferred revenue

163,525



166,297


Deferred income tax liabilities

38,208



38,463


Other liabilities

38,562



41,022


Stockholders' equity

639,172



654,237


Total liabilities and stockholders' equity

$

973,040



$

1,011,567


(1)  On January 1, 2018 we adopted the ASC 606 revenue recognition standard and have adjusted prior periods to conform.

 

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
(in thousands)



Six Months Ended
June 30,


2018


2017

Operating activities:




Net income

$

1,791



$

56,665


Adjustments to reconcile net income to cash provided by operating activities:




Change in operating assets and liabilities, net

30,158



(14,874)


Stock-based compensation expense

31,165



26,440


Depreciation and amortization of intangible assets

12,474



12,356


Other non-cash

(156)



5,182


Cash provided by operating activities

75,432



85,769


Cash used in investing activities

(46,369)



(1,159)


Cash used in financing activities

(45,825)



(34,860)


Effect of exchange rates on cash and cash equivalents

(1,226)



1,282


Net (decrease)/increase in cash and cash equivalents

$

(17,988)



$

51,032


Cash and cash equivalents, beginning of period

$

162,279



$

70,594


Cash and cash equivalents, end of period

$

144,291



$

121,626


(1)  On January 1, 2018 we adopted the ASC 606 revenue recognition standard and have adjusted prior periods to conform.

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SOURCE Pegasystems Inc.