PEGASYSTEMS INC - FORM 8-K - EX-99.1

Attached files

file	filename
8-K - 8-K - PEGASYSTEMS INC	d437838d8k.htm

EXHIBIT 99.1

PEGASYSTEMS ANNOUNCES SECOND QUARTER 2017 FINANCIAL RESULTS

•

License and Cloud Backlog increases 32% year over year

•

First half revenue growth of 15% coupled with operating margin expansion

•

Record operating cash flow of $86 million in first half of 2017

CAMBRIDGE, MA - August 9, 2017 - Pegasystems Inc. (NASDAQ: PEGA), the software company empowering customer engagement at the world’s leading enterprises, today announced its second quarter and first half 2017 financial results.

“The first half of 2017 has created a great foundation for the year,” said Alan Trefler, founder and CEO, Pegasystems. “We’re excited about the reception of our CRM capabilities and see a good mix of business between our applications and platform. We’re entering the second half of the year with tremendous momentum coming out of PegaWorld, our largest customer engagement and sales event to date, and we are very pleased with how the new products and partnerships we launched there are being received.”

“We’re very pleased with our first half results,” said Ken Stillwell, CFO, Pegasystems, “with revenue growth outpacing spending. In the second quarter we continued to see a higher than historical mix of recurring, which increases our longer-term visibility and predictability, and contributed to a 32% increase in license and cloud backlog compared to a year ago.”

SELECTED GAAP AND NON-GAAP FINANCIAL RESULTS ⁽¹⁾


	Three Months Ended June 30,							Six Months Ended June 30,
($ in thousands, except per share amounts and %)	2017		2016		Change			2017		2016		Change
Total Revenue (GAAP)	$	197,980	$	188,996		5	%	$	421,227	$	367,854		15	%
Total Revenue (Non-GAAP)		197,980		189,846		4	%		421,227		368,704		14	%
Net Income (GAAP)		11,406		4,536		151	%		38,427		14,936		157	%
Net Income (Non-GAAP)		12,231		14,644		(16	%)		44,171		32,447		36	%
Diluted Earnings per share (GAAP)		0.14		0.06		133	%		0.47		0.19		147	%
Diluted Earnings per share (Non-GAAP)		0.15		0.19		(21	%)		0.54		0.41		32	%

⁽¹⁾	See a reconciliation of our GAAP to Non-GAAP measures contained in the financial schedules at the end of this release.

Impact of New Revenue Standard: Historically, Recurring Revenue and License and Cloud Backlog have been our primary performance metrics. However, due to the change in the revenue recognition patterns of term license arrangements as a result of the expected implementation of the new revenue accounting standard (ASC 606 “Revenue from Contracts with Customers”) in the first quarter of 2018, we have started tracking the performance measure Annualized Contract Value (“ACV”). The change in ACV measures the growth and predictability of future cash flows from committed term license, cloud, and maintenance arrangements as of the end of the particular reporting period. Additional information about our future adoption of the new revenue standard and its impact can be found in Note 2. “New Accounting Pronouncements” contained in Item 1 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.

Recurring Revenue and Total License, Cloud, and Maintenance Revenue


	Three Months Ended June 30,							Six Months Ended June 30,
($ in thousands)	2017		2016		Change			2017		2016		Change
Term license	$	30,782	$	18,864		63	%	$	84,492	$	73,196		15	%
Cloud		12,733		11,269		13	%		23,560		19,767		19	%
Maintenance		59,590		55,161		8	%		118,555		108,136		10	%

Total recurring revenue		103,105		85,294		21	%		226,607		201,099		13	%
Perpetual license		30,255		51,807		(42	%)		68,935		65,820		5	%

Total license, cloud, and maintenance revenue	$	133,360	$	137,101		(3	%)	$	295,542	$	266,919		11	%

License and Cloud Backlog⁽¹⁾: The Company computes license and cloud backlog by adding deferred license and cloud revenue as recorded on the Company’s balance sheet and license and cloud contractual commitments, which are not yet billed and not recorded on its balance sheet.


	June 30,
($ in thousands)	2017				2016				Change
Deferred license and cloud revenue on the balance sheet:⁽²⁾
Term license and cloud	$	25,104	45	%	$	19,021	37	%		32	%
Perpetual license		30,542	55	%		32,834	63	%		(7	%)

Total deferred license and cloud revenue		55,646	100	%		51,855	100	%		7	%

License and cloud contractual commitments not on the balance sheet:⁽³⁾
Term license and cloud		422,414	91	%		309,338	91	%		37	%
Perpetual license		39,949	9	%		31,439	9	%		27	%

Total license and cloud commitments		462,363	100	%		340,777	100	%		36	%

Total license (term and perpetual) and cloud backlog	$	518,009			$	392,632				32	%

Total term license and cloud backlog		447,518	86	%		328,359	84	%		36	%

⁽¹⁾	See historical quarterly license and cloud backlog amounts in a separate schedule at the end of this release.

⁽²⁾	See Note 9. “Deferred Revenue” contained in Item 1 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.

⁽³⁾	See “Future Cash Receipts from Committed License and Cloud Arrangements “ contained in Item 2 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.

LOGO

Annualized Contract Value (ACV): The change in ACV measures the growth and predictability of future cash flows from committed term license, cloud, and maintenance arrangements as of the end of the particular reporting period.

ACV is the sum of the following two components:

•

Term and Cloud contract value divided by the number of committed contract years

•

Quarterly Maintenance revenue reported for the three months ended multiplied by 4.

LOGO

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 Company’s Website at www.pega.com/about/investors. Dial-in information is as follows: 1-877-705-6003 (domestic) or 1-201-493-6725 (international). To listen to the Webcast, log onto www.pega.com 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 by clicking the Earnings Calls link in the Investors section.

Discussion of Non-GAAP Financial Measures

To supplement 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 both on 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 acquired intangibles, acquisition-related and restructuring expenses, and certain other adjustments. The Company believes that 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

“Safe harbor” statement under the Private Securities Litigation Reform Act of 1995: 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 the Company’s 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 the Company’s products and services and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of license revenue recognition; the ongoing consolidation in the financial services, insurance, healthcare, and communications markets; reliance on third party relationships; the potential loss of vendor specific objective evidence for the Company’s consulting services; the inherent risks associated with international operations and the continued uncertainties in international economies; foreign currency exchange rates; the financial impact of the Company’s past acquisitions and any future acquisitions; the potential legal and financial liabilities and reputation damage due to cyber-attacks and security breaches; and management of the Company’s 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

These documents are available on the Company’s website at http://www.pega.com/about/investors. The forward-looking statements contained in this press release represent the Company’s views as of August 9, 2017. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause the Company’s view to change, except as required by

applicable law, the Company does not undertake and specifically disclaims 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 9, 2017.

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 30-year history, Pega has delivered award-winning capabilities in CRM and BPM, 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

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,
	2017			2016			2017			2016
Revenue:
Software license	$	61,037		$	70,671		$	153,427		$	139,016
Maintenance		59,590			55,161			118,555			108,136
Services		77,353			63,164			149,245			120,702

Total revenue		197,980			188,996			421,227			367,854

Cost of revenue:
Software license		1,250			1,312			2,550			2,333
Maintenance		7,011			6,315			14,229			12,230
Services		59,614			52,473			119,186			102,047

Total cost of revenue		67,875			60,100			135,965			116,610

Gross profit		130,105			128,896			285,262			251,244

Operating expenses:
Selling and marketing		75,887			74,016			147,175			135,094
Research and development		39,762			35,574			80,058			70,494
General and administrative		12,706			11,294			25,041			22,342
Acquisition-related		—			1,623			—			2,542
Restructuring		—			29			—			287

Total operating expenses		128,355			122,536			252,274			230,759

Income from operations		1,750			6,360			32,988			20,485
Foreign currency transaction (loss) gain		(917	)		306			(241	)		1,682
Interest income, net		161			188			326			478
Other income (expense), net		566			(1,356	)		287			(3,654	)

Income before (benefit)/provision for income taxes		1,560			5,498			33,360			18,991
(Benefit)/provision for income taxes		(9,846	)		962			(5,067	)		4,055

Net income	$	11,406		$	4,536		$	38,427		$	14,936

Earnings per share:
Basic	$	0.15		$	0.06		$	0.50		$	0.20

Diluted	$	0.14		$	0.06		$	0.47		$	0.19

Weighted-average number of common shares outstanding:
Basic		77,313			76,318			77,039			76,347
Diluted		82,945			79,422			82,412			79,329
Cash dividends declared per share	$	0.03		$	0.03		$	0.06		$	0.06

PEGASYSTEMS INC.

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

(in thousands, except per share amounts)


	Three Months Ended June 30,									Six Months Ended June 30,
	2017			2016			Change			2017			2016			Change
GAAP total revenue	$	197,980		$	188,996			5	%	$	421,227		$	367,854			15	%
Deferred revenue purchase accounting		—			850						—			850

Non-GAAP total revenue	$	197,980		$	189,846			4	%	$	421,227		$	368,704			14	%

GAAP gross profit	$	130,105		$	128,896			1	%	$	285,262		$	251,244			14	%
Deferred revenue purchase accounting		—			850						—			850
Amortization of intangible assets		1,305			1,638						2,639			2,984
Stock-based compensation ⁽²⁾		3,677			2,914						7,299			5,594

Non-GAAP gross profit	$	135,087		$	134,298			1	%	$	295,200		$	260,672			13	%

GAAP income from operations	$	1,750		$	6,360			(72	%)	$	32,988		$	20,485			61	%
Deferred revenue purchase accounting		—			850						—			850
Amortization of intangible assets		3,174			3,604						6,374			6,569
Stock-based compensation ⁽²⁾		13,932			10,881						26,440			19,816
Other adjustments		—			(220	)					—			(220	)
Acquisition-related		—			1,271						—			2,190
Restructuring		—			29						—			287

Non-GAAP income from operations	$	18,856		$	22,775			(17	%)	$	65,802		$	49,977			32	%

GAAP net income	$	11,406		$	4,536			151	%	$	38,427		$	14,936			157	%
Deferred revenue purchase accounting		—			850						—			850
Amortization of intangible assets		3,174			3,604						6,374			6,569
Stock-based compensation ⁽²⁾		13,932			10,881						26,440			19,816
Other adjustments		—			(220	)					—			(220	)
Acquisition-related		—			1,271						—			2,190
Restructuring		—			29						—			287
Income tax effects⁽³⁾		(16,281	)		(6,307	)					(27,070	)		(11,981	)

Non-GAAP net income	$	12,231		$	14,644			(16	%)	$	44,171		$	32,447			36	%

GAAP diluted earnings per share	$	0.14		$	0.06			133	%	$	0.47		$	0.19			147	%
Deferred revenue purchase accounting		—			0.01						—			0.01
Amortization of intangible assets		0.04			0.05						0.08			0.08
Stock-based compensation ⁽²⁾		0.17			0.14						0.32			0.25
Acquisition-related		—			0.02						—			0.03
Income tax effects⁽³⁾		(0.20	)		(0.09	)					(0.33	)		(0.15	)

Non-GAAP diluted earnings per share	$	0.15		$	0.19			(21	%)	$	0.54		$	0.41			32	%

GAAP and non-GAAP diluted weighted average common shares outstanding		82,945			79,422			4	%		82,412			79,329			4	%

⁽¹⁾

This presentation includes non-GAAP measures. Our non-GAAP 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:

•

Deferred revenue purchase accounting: Business combination accounting rules require that we determine the fair value of the deferred revenue liability for contractual obligations assumed primarily from our acquisition of OpenSpan in April 2016. In post-acquisition reporting periods, we recognize revenue for the fair value of these contracts, when all the revenue recognition criteria are satisfied, instead of the revenue that would have been recognized by OpenSpan as an independent company. We add back the effect of the deferred revenue fair value adjustment in non-GAAP revenue to reflect the full amount of these revenues to provide a more complete comparison of the revenue guidance to peer companies.

•

Amortization of intangible assets: We have excluded the amortization expense of intangible assets from our non-GAAP operating expenses and net earnings 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 earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

•

Stock-based compensation expense: We have excluded stock-based compensation expense from our non-GAAP operating expenses and net earnings measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned 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.

•

Acquisition-related and restructuring expenses: We have excluded the effect of acquisition-related and restructuring expenses from our non-GAAP operating expenses and net earnings measures. We incurred direct and incremental expenses associated primarily with the OpenSpan acquisition. These acquisition related expenses were primarily professional fees to affect the acquisition. We have also incurred restructuring expenses for one-time employee termination benefits related to the closure of one of our domestic offices, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. We believe it is useful for investors to understand the effects of these items on our total operating expenses.

⁽²⁾	Stock-based compensation expense (in thousands) was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of revenues	$	3,677	$	2,914	$	7,299	$	5,594
Operating expenses	$	10,255	$	7,967	$	19,141	$	14,222

Total stock-based compensation before tax	$	13,932	$	10,881	$	26,440	$	19,816

⁽³⁾

The GAAP effective tax rate was (631%) and 17% for the three months ended June 30, 2017 and 2016, respectively. The effective non-GAAP tax rate was 34% and 33% for the three months ended June 30, 2017 and 2016, respectively. The differences between our GAAP and non-GAAP effective tax rates for the three months ended June 30, 2017 and 2016 primarily relate to the impact of excess tax benefits generated by our stock compensation plans adjustments on our GAAP effective tax rate.

The GAAP effective tax rate was (15%) and 21% for the six months ended June 30, 2017 and 2016, respectively. The effective non-GAAP tax rate was 33% and 33% for the six months ended June 30, 2017 and 2016, respectively. The differences between our GAAP and non-GAAP effective tax rates for the six months ended June 30, 2017 and 2016 primarily relate to the impact of excess tax benefits generated by our stock compensation plans adjustments on our GAAP effective tax rate.

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


	June 30, 2017		December 31, 2016
Assets:
Total cash, cash equivalents, and marketable securities	$	180,040	$	133,761
Trade accounts receivable, net		217,020		265,028
Property and equipment, net		38,881		38,281
Deferred income taxes		71,096		69,898
Goodwill and Intangible assets, net		110,734		117,355
Other assets		45,201		30,333

Total assets	$	662,972	$	654,656

Liabilities and Stockholders’ Equity:
Accrued expenses, including compensation and related expenses	$	82,524	$	97,411
Deferred revenue		178,357		186,636
Other liabilities		33,456		34,720
Stockholders’ equity		368,635		335,889

Total liabilities and stockholders’ equity	$	662,972	$	654,656

PEGASYSTEMS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended June 30,
	2017			2016
Operating activities:
Net Income	$	38,427		$	14,936
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, amortization, foreign currency transaction loss, and other non-cash items		11,724			13,379
Stock-based compensation expense		26,440			19,816
Change in operating assets and liabilities, net		9,178			(36,562	)

Cash provided by operating activities		85,769			11,569

Cash used in investing activities		(1,159	)		(7,930	)

Cash used in financing activities		(34,860	)		(31,666	)

Effect of exchange rates on cash and cash equivalents		1,282			(738	)

Net increase (decrease) in cash and cash equivalents		51,032			(28,765	)
Cash and cash equivalents, beginning of period		70,594			93,026

Cash and cash equivalents, end of period	$	121,626		$	64,261

PEGASYSTEMS INC.

HISTORICAL LICENSE AND CLOUD BACKLOG

(in thousands)


	2017						2016												2015
	Q2			Q1			Q4			Q3			Q2			Q1			Q4			Q3
Deferred license and cloud revenue on the balance sheet:
Term license and cloud	$	25,104		$	29,297		$	30,725		$	19,627		$	19,021		$	18,409		$	29,929		$	14,123
Perpetual license		30,542			32,141			31,098			27,653			32,834			39,381			33,483			41,247

Total deferred license and cloud revenue		55,646			61,438			61,823			47,280			51,855			57,790			63,412			55,370
License and cloud contractual commitments not on the balance sheet:
Term license and cloud		422,414			416,088			434,323			352,804			309,338			287,926			322,844			287,863
Perpetual license		39,949			35,532			31,652			19,728			31,439			43,944			33,544			36,477

Total license and cloud commitments		462,363			451,620			465,975			372,532			340,777			331,870			356,388			324,340

Total license (term and perpetual) and cloud backlog		518,009			513,058			527,798			419,812			392,632			389,660			419,800			379,710

Total term license and cloud backlog	$	447,518		$	445,385		$	465,048		$	372,431		$	328,359		$	306,335		$	352,773		$	301,986

Term license and cloud backlog as a % of total license and cloud backlog		86	%		87	%		88	%		89	%		84	%		79	%		84	%		80	%

Attached files

Stock widget

Investing forum

PEGASYSTEMS INC Reports