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PRESS RELEASE: Paid content from PR Newswire
Press release content from PR Newswire. The AP news staff was not involved in its creation.

Pega continues accelerated growth through Q3 2021

October 27, 2021 GMT
Note: Foreign currency exchange rate changes contributed 1-2% to total ACV growth in 2021.
1 of 3
Note: Foreign currency exchange rate changes contributed 1-2% to total ACV growth in 2021.
1 of 3
Note: Foreign currency exchange rate changes contributed 1-2% to total ACV growth in 2021.

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.”

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“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)

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(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.

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 Pintchman
Pegasystems Inc.
lisapintchman.rogers@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

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

%

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

SOURCE Pegasystems Inc.