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Client Adoption Drives Pega Cloud to 70% of New Client Commitments in First Half of 2022

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  • Total revenue increases to $651 million in first six months of 2022

  • Annual contract value grows 14 percent (19 percent in constant currency)

  • Total backlog of $1.1 billion as of June 30, 2022

CAMBRIDGE, Mass., July 27, 2022 /PRNewswire/ -- Pegasystems Inc. (NASDAQ: PEGA), the low-code platform provider that builds agility into the world's leading organizations, released its financial results for the second quarter of 2022.

"This year has turned out to be an extremely volatile business environment," said Alan Trefler, founder and CEO, Pegasystems. "The ongoing uncertainty will continue to put pressure on our clients. But this is an environment for which Pega is uniquely suited, as our low-code platform allows these same organizations to more easily adapt to change."

"In the first half of 2022, we've grown annual contract value ("ACV") 19 percent year-over-year in constant currency while showing additional signs of improving profitability," said Ken Stillwell, COO and CFO, Pegasystems. "We're doubling down on our work to become a Rule of 40 company in 2024."

Financial and performance metrics (1)


(Dollars in thousands,

except per share amounts)

Three Months Ended

June 30,




Six Months Ended

June 30,



2022


2021


Change


2022


2021


Change

Total revenue

$             274,337


$             325,702


(16) %


$             650,644


$             639,201


2 %

Net (loss) income - GAAP

$            (286,296)


$               37,291


*


$            (286,675)


$               30,674


*

Net (loss) income - non-GAAP

$              (31,406)


$               21,792


*


$               18,768


$               45,433


(59) %

Diluted (loss) earnings per share - GAAP

$                  (3.50)


$                   0.43


*


$                  (3.51)


$                   0.36


*

Diluted (loss) earnings per share - non-GAAP

$                  (0.38)


$                   0.25


*


$                   0.22


$                   0.53


(58) %

 

(Dollars in thousands)

Three Months Ended

June 30,


Change


Six Months Ended

June 30,


Change

2022


2021



2022


2021


Pega Cloud

$     93,506

34 %


$     73,293

23 %


$     20,213

28 %


$   183,823

28 %


$   141,151

22 %


$     42,672

30 %

Maintenance

78,326

29 %


78,782

24 %


(456)

(1) %


158,042

24 %


154,343

24 %


3,699

2 %

Subscription services

171,832

63 %


152,075

47 %


19,757

13 %


341,865

52 %


295,494

46 %


46,371

16 %

Subscription license

41,600

15 %


104,296

32 %


(62,696)

(60) %


179,133

28 %


215,805

34 %


(36,672)

(17) %

Subscription

213,432

78 %


256,371

79 %


(42,939)

(17) %


520,998

80 %


511,299

80 %


9,699

2 %

Perpetual license

2,266

1 %


12,596

4 %


(10,330)

(82) %


9,706

1 %


18,048

3 %


(8,342)

(46) %

Consulting

58,639

21 %


56,735

17 %


1,904

3 %


119,940

19 %


109,854

17 %


10,086

9 %


$   274,337

100 %


$   325,702

100 %


$    (51,365)

(16) %


$   650,644

100 %


$   639,201

100 %


$     11,443

2 %



(1) 

See the Schedules at the end of this release for additional information, including a reconciliation of our non-GAAP and GAAP measures

 

1 Pega Q2 2022 ACV (in millions)
1 Pega Q2 2022 ACV (in millions)
2 Pega Q2 2022 backlog growth (in millions)
2 Pega Q2 2022 backlog growth (in millions)

Quarterly conference call

A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on Wednesday, July 27, 2022. Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-888-394-8218 (domestic), 1-323-794-2588 (international), or via webcast (https://viavid.webcasts.com/starthere.jsp?ei=1558139&tp_key=0cc6605362) 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.

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 our 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 financial measures prepared under U.S. GAAP.

Reconciliations of our non-GAAP and GAAP measures are 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;

  • reliance on key personnel;

  • global economic and political conditions and uncertainty, including continued impacts from the ongoing COVID-19 pandemic and the war in Ukraine;

  • reliance on third-party service providers, including hosting providers;

  • compliance with our debt obligations and covenants;

  • the potential impact of our convertible senior notes and Capped Call Transactions;

  • foreign currency exchange rates;

  • the potential legal and financial liabilities and damage to our reputation due to cyber-attacks;

  • • security breaches and security flaws;

  • our ability to protect our intellectual property rights, costs associated with defending such rights, intellectual property rights claims and other related claims by third parties against us, including related costs, damages, and other relief that may be granted against us;

  • 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, 2021, Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, 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 due to new information, future events, or otherwise.

The forward-looking statements in this press release represent our views as of July 27, 2022.

About Pegasystems

Pega provides a powerful low-code platform that builds agility into the world's leading organizations so they can adapt to change. Clients use our AI-powered decisioning and workflow automation to solve their most pressing business challenges – from personalizing engagement to automating service to streamlining operations. Since 1983, we've built our scalable and flexible architecture to help enterprises meet today's customer demands while continuously transforming for tomorrow. For more information on Pegasystems (NASDAQ: PEGA), visit www.pega.com.

Press contact:
Lisa Pintchman
VP, Corporate Communications
lisapintchman.rogers@pega.com
617-866-6022
Twitter: @pega

Investor contact:
Peter Welburn
VP, Corporate Development & Investor Relations
PegaInvestorRelations@pega.com
617-498-8968

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,


2022


2021


2022


2021

Revenue








Subscription services

$             171,832


$             152,075


$             341,865


$             295,494

Subscription license

41,600


104,296


179,133


215,805

Perpetual license

2,266


12,596


9,706


18,048

Consulting

58,639


56,735


119,940


109,854

Total revenue

274,337


325,702


650,644


639,201

Cost of revenue








Subscription services

36,533


29,046


68,563


57,389

Subscription license

673


585


1,295


1,205

Perpetual license

36


71


70


101

Consulting

57,873


54,829


113,384


108,283

Total cost of revenue

95,115


84,531


183,312


166,978

Gross profit

179,222


241,171


467,332


472,223

Operating expenses








Selling and marketing

157,198


156,423


319,434


305,162

Research and development

74,341


64,395


145,831


126,837

General and administrative

32,723


19,161


68,487


37,431

Total operating expenses

264,262


239,979


533,752


469,430

(Loss) income from operations

(85,040)


1,192


(66,420)


2,793

Foreign currency transaction gain (loss)

1,713


(403)


4,589


(5,501)

Interest income

309


236


516


389

Interest expense

(1,944)


(1,959)


(3,890)


(3,839)

(Loss) income on capped call transactions

(18,945)


26,309


(49,505)


7,192

Other income, net

3,785



6,526


106

(Loss) income before provision for (benefit from) income taxes

(100,122)


25,375


(108,184)


1,140

Provision for (benefit from) income taxes

186,174


(11,916)


178,491


(29,534)

Net (loss) income

$            (286,296)


$               37,291


$            (286,675)


$               30,674

(Loss) earnings per share








Basic

$                  (3.50)


$                   0.46


$                  (3.51)


$                   0.38

Diluted

$                  (3.50)


$                   0.43


$                  (3.51)


$                   0.36

Weighted-average number of common shares outstanding








Basic

81,847


81,316


81,764


81,161

Diluted

81,847


90,320


81,764


86,006

 

PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES


(in thousands, except percentages and per share amounts)

Three Months Ended

June 30,

Six Months Ended

June 30,

2022

2021

Change

2022

2021

Change

Net (loss) income - GAAP

$       (286,296)

$      37,291

*

$       (286,675)

$      30,674

*

Stock-based compensation (1)

31,300

30,688


59,527

60,788


Capped call transactions

18,945

(26,309)


49,505

(7,192)


Litigation

10,582

2,369


27,950

4,329


Convertible senior notes

720

675


1,439

1,348


Headquarters lease

(6,266)


(9,683)


Amortization of intangible assets

1,025

1,002


1,997

2,004


Foreign currency transaction (gain) loss

(1,713)

403


(4,589)

5,501


Other

(1,001)


(3,583)

12


Income tax effects (2)

195,032

(18,061)


173,197

(42,348)


Net (loss) income - non-GAAP

$          (31,406)

$       21,792

*

$           18,768

$       45,433

(59) %








Diluted (loss) earnings per share - GAAP

$             (3.50)

$           0.43

*

$             (3.51)

$           0.36

*

non-GAAP adjustments

3.12

(0.18)


3.73

0.17


Diluted (loss) earnings per share - non-GAAP

$              (0.38)

$           0.25

*

$               0.22

$           0.53

(58) %








Diluted weighted-average number of common shares
outstanding - GAAP

81,847

90,320

(9) %

81,764

86,006

(5) %

non-GAAP Adjustments

(4,443)


2,063


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

81,847

85,877

(5) %

83,827

86,006

(3) %


* not meaningful

 

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 we 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 when evaluating our financial performance on a per-share basis.

  • Litigation: Includes legal fees and related expenses arising from proceedings outside of the ordinary course of business. We believe excluding these expenses from our non-GAAP financial measures is useful to investors as the disputes giving rise to them are not representative of our core business operations and ongoing operating performance.

  • 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. We believe excluding the amortization of debt discounts and issuance costs provides a useful comparison of our operational performance in different periods.

  • Headquarters lease: In February 2021, we agreed to accelerate our exit from our then Cambridge, Massachusetts headquarters to October 1, 2021, in exchange for a one-time payment from our landlord of $18 million, which was received 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 intangible assets contributed to our revenues recognized during the periods presented and are 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 from our venture investments, capital advisory expenses, and incremental expenses incurred integrating acquisitions and evaluating potential acquisitions. In addition, incremental fees were incurred in the three and six months ended June 30, 2021 due to the cancellation of in-person sales and marketing events due to the COVID-19 pandemic. 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.

 

(1) Stock-based compensation:



Three Months Ended

June 30,


Six Months Ended

June 30,

(in thousands)

2022


2021


2022


2021

Cost of revenue

$                      6,579


$                      5,849


$                    12,957


$                  11,774

Selling and marketing

12,633


14,748


23,591


28,468

Research and development

7,355


6,343


14,701


13,113

General and administrative

4,733


3,748


8,278


7,433


$                    31,300


$                    30,688


$                    59,527


$                  60,788

Income tax benefit

$                        (543)


$                     (6,192)


$                        (905)


$                 (12,183)

 

(2) Effective income tax rates:



Six Months Ended

June 30,


2022


2021

GAAP

165 %


(2,591) %

non-GAAP

22 %


22 %

Our GAAP effective income tax rate is subject to significant fluctuations due to several 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 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. Under GAAP we recorded a valuation allowance on our deferred tax assets of $192 million in the three months ended June 30, 2022. See "Note 12. Income Taxes" in Part I, Item 1 of our Quarterly Report on Form 10-Q for the three months ended June 30, 2022 for additional information. 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 tax rate volatility.

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



June 30, 2022


December 31, 2021

Assets




Current assets:




Cash and cash equivalents

$                         109,275


$                        159,965

Marketable securities

187,613


202,814

Total cash, cash equivalents, and marketable securities

296,888


362,779

Accounts receivable

171,556


182,717

Unbilled receivables

201,130


226,714

Other current assets

70,633


68,008

Total current assets

740,207


840,218

Unbilled receivables

115,901


129,789

Goodwill

81,717


81,923

Other long-term assets

320,557


541,601

Total assets

$                      1,258,382


$                     1,593,531

Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$                           21,465


$                          15,281

Accrued expenses

63,120


63,890

Accrued compensation and related expenses

73,945


120,946

Deferred revenue

269,121


275,844

Other current liabilities

7,800


9,443

Total current liabilities

435,451


485,404

Convertible senior notes, net

592,161


590,722

Operating lease liabilities

84,170


87,818

Other long-term liabilities

12,821


13,499

Total liabilities

1,124,603


1,177,443

Total stockholders' equity

133,779


416,088

Total liabilities and stockholders' equity

$                      1,258,382


$                     1,593,531

 

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



Six Months Ended

June 30,


2022


2021

Net (loss) income

$                        (286,675)


$                          30,674

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




Non-cash items

314,231


76,906

Change in operating assets and liabilities, net

(32,625)


(88,170)

Cash (used in) provided by operating activities

(5,069)


19,410

Cash (used in) provided by investing activities

(1,523)


10,493

Cash (used in) financing activities

(41,191)


(60,717)

Effect of exchange rate changes on cash and cash equivalents

(2,907)


(1,207)

Net (decrease) in cash and cash equivalents

(50,690)


(32,021)

Cash and cash equivalents, beginning of period

159,965


171,899

Cash and cash equivalents, end of period

$                         109,275


$                        139,878

 

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


Annual contract value ("ACV") - 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 subscription license and Pega Cloud
contracts. Maintenance revenue for the quarter then ended is multiplied by four to calculate ACV for maintenance. ACV is
a performance measure that we believe provides useful information to our management and investors, particularly during
our subscription transition.



June 30, 2022


June 30, 2021


Change

Pega Cloud

$                      404,109


$                      306,919


$                        97,190

32 %

Maintenance

313,304


315,128


(1,824)

(1) %

Subscription services

717,413


622,047


95,366

15 %

Subscription license

310,139


277,388


32,751

12 %


$                    1,027,552


$                      899,435


$                      128,117

14 %

 

PEGASYSTEMS INC.
BACKLOG
(in thousands, except percentages)


Remaining performance obligations ("Backlog") - Expected future revenue from existing non-cancellable contracts:

As of June 30, 2022:



Subscription services


Subscription license


Perpetual license


Consulting


Total

Maintenance


Pega Cloud





1 year or less

$          204,974


$          320,102


$            46,810


$              6,681


$            32,159


$          610,726

54 %

1-2 years

57,862


200,135


10,711


4,505


7,919


281,132

25 %

2-3 years

28,403


96,861


2,126


2,252


2,574


132,216

12 %

Greater than 3 years

18,447


81,069


1,680



424


101,620

9 %


$          309,686


$          698,167


$            61,327


$            13,438


$            43,076


$       1,125,694

100 %

% of Total

28 %


62 %


5 %


1 %


4 %


100 %


Change since June 30, 2021













$           (26,763)


$            95,432


$             (1,691)


$              6,497


$            21,083


$            94,558



(8) %


16 %


(3) %


94 %


96 %


9 %


 

As of June 30, 2021:



Subscription services


Subscription license


Perpetual license


Consulting


Total

Maintenance


Pega Cloud





1 year or less

$          214,645


$          281,793


$            46,146


$              6,707


$            17,863


$          567,154

56 %

1-2 years

59,164


194,841


15,708


234


2,675


272,622

26 %

2-3 years

36,076


88,855


909



762


126,602

12 %

Greater than 3 years

26,564


37,246


255



693


64,758

6 %


$          336,449


$          602,735


$            63,018


$              6,941


$            21,993


$       1,031,136

100 %

% of Total

33 %


58 %


6 %


1 %


2 %


100 %


 

RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG


(in millions)

Q2 2022


1 Year Growth Rate

Backlog - GAAP

$                         1,126


9 %

Impact of changes in foreign exchange rates

57


6 %

Backlog - Constant Currency

$                         1,183


15 %

 

Note: Constant currency Backlog is calculated by applying foreign exchange rates for the earliest period shown to all periods. The above constant currency measures reflect foreign exchange rates applicable as of Q2 2021.

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SOURCE Pegasystems Inc.