- Annual contract value (ACV) grows 13% year over year in
constant currency
- Cash flow from operations reaches $220 million and free cash
flow hits $218 million in the first half of 2024
- Pega Cloud backlog exceeds $1 billion for the first
time
Pegasystems Inc. (NASDAQ: PEGA), the leading enterprise AI
decisioning and workflow automation platform provider, released its
financial results for the second quarter of 2024.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20240724234135/en/
ACV Growth (Graphic: Business Wire)
“Our approach to statistical AI and generative AI continues to
be a significant differentiator,” said Alan Trefler, founder and
CEO. “The offerings we’ve introduced, especially Pega GenAI
Blueprint™, have captured the imagination of clients, prospects,
and partners, allowing them to identify new possibilities and
helping us drive deeper engagement. With tens of thousands of
blueprints created over the last few months, we’re identifying
opportunities to accelerate growth and creating additional momentum
for Pega Cloud®.”
"I'm really proud to see how our team is improving profitability
while driving ACV growth,” said Ken Stillwell, COO and CFO. “Our
strong execution and our AI innovation put us in a fantastic
position to pursue the massive digital transformation opportunity
in front of us.”
Financial and performance metrics (1)
Reconciliation of ACV and Constant
Currency ACV
(in millions, except percentages)
June 30, 2023
June 30, 2024
1-Year Change
ACV
$
1,164
$
1,305
12
%
Impact of changes in foreign exchange
rates
—
5
Constant currency ACV
$
1,164
$
1,310
13
%
Note: Constant currency ACV is calculated
by applying the June 30, 2023 foreign exchange rates to all periods
shown.
______________________________ 1 Refer to the schedules at the
end of this release for additional information, including a
reconciliation of GAAP and non-GAAP measures.
(Dollars in thousands,
except per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2024
2023
Change
2024
2023
Change
Total revenue
$
351,153
$
298,268
18
%
$
681,300
$
623,740
9
%
Net income (loss) - GAAP
$
6,613
$
(46,804
)
*
$
(5,511
)
$
(67,578
)
92
%
Net income - non-GAAP
$
45,841
$
1,203
3711
%
$
87,995
$
20,423
331
%
Diluted earnings (loss) per share -
GAAP
$
0.07
$
(0.56
)
*
$
(0.07
)
$
(0.82
)
91
%
Diluted earnings per share - non-GAAP
$
0.52
$
0.01
5100
%
$
1.00
$
0.24
317
%
(Dollars in thousands)
Three Months Ended
June 30,
Change
Six Months Ended
June 30,
Change
2024
2023
2024
2023
Pega Cloud
$
134,086
38
%
$
115,063
39
%
$
19,023
17
%
$
264,988
39
%
$
222,942
36
%
$
42,046
19
%
Maintenance
80,344
23
%
82,042
27
%
(1,698
)
(2
)%
161,345
23
%
161,672
26
%
(327
)
—
%
Subscription services
214,430
61
%
197,105
66
%
17,325
9
%
426,333
62
%
384,614
62
%
41,719
11
%
Subscription license
84,647
24
%
41,197
14
%
43,450
105
%
147,985
22
%
125,724
20
%
22,261
18
%
Subscription
299,077
85
%
238,302
80
%
60,775
26
%
574,318
84
%
510,338
82
%
63,980
13
%
Consulting
52,040
15
%
58,387
19
%
(6,347
)
(11
)%
106,087
16
%
111,420
18
%
(5,333
)
(5
)%
Perpetual license
36
—
%
1,579
1
%
(1,543
)
(98
)%
895
—
%
1,982
—
%
(1,087
)
(55
)%
$
351,153
100
%
$
298,268
100
%
$
52,885
18
%
$
681,300
100
%
$
623,740
100
%
$
57,560
9
%
Quarterly conference call
A conference call and audio-only webcast will be conducted at
8:00 a.m. EDT on Thursday, July 25, 2024.
Members of the public and investors are invited to join the call
and participate in the question and answer session by dialing 1
(888) 415-4305 (domestic) or 1 (646) 960-0336 (international) and
using Conference ID 1559653, or via
https://events.q4inc.com/attendee/610142887 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
Our non-GAAP financial measures should only be read in
conjunction with our consolidated financial statements prepared in
accordance with GAAP. We believe that these measures help investors
understand our core operating results and prospects, which is
consistent with how management measures and forecasts our
performance without the effect of often one-time charges and other
items outside our normal operations. Management uses these measures
to assess the performance of the company's operations and establish
operational goals and incentives. They are not a substitute for
financial measures prepared under U.S. GAAP. Refer to the schedules
at the end of this release for additional information, including a
reconciliation of GAAP and non-GAAP measures.
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, intends
to, projects, forecasts, guidance, likely, and usually or
variations of such words and other similar expressions identify
forward-looking statements. These statements represent our views
only as of the date the statement was made and 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;
- variation in demand for our products and services, including
among clients in the public sector;
- reliance on key personnel;
- 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;
- potential legal and financial liabilities, as well as 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 ongoing litigation with Appian Corp.;
- 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, 2023, and other filings we make
with the U.S. Securities and Exchange Commission (“SEC”).
Investors are cautioned not to place undue reliance on such
forward-looking statements, and there are no assurances that the
results included 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 expressly disclaim any
obligation to publicly update or revise these forward-looking
statements, whether as the result of new information, future
events, or otherwise.
Any forward-looking statements in this press release represent
our views as of July 24, 2024.
About Pegasystems
Pega provides a powerful platform that empowers the world's
leading organizations to unlock business-transforming outcomes with
real-time optimization. Clients use our enterprise AI 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 how Pega (NASDAQ: PEGA) empowers its clients to
Build for Change®, https://www.pega.com.
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,
2024
2023
2024
2023
Revenue
Subscription services
$
214,430
$
197,105
$
426,333
$
384,614
Subscription license
84,647
41,197
147,985
125,724
Consulting
52,040
58,387
106,087
111,420
Perpetual license
36
1,579
895
1,982
Total revenue
351,153
298,268
681,300
623,740
Cost of revenue
Subscription services
36,238
36,783
72,062
73,647
Subscription license
477
623
1,120
1,342
Consulting
60,231
58,710
118,413
119,058
Perpetual license
—
24
9
27
Total cost of revenue
96,946
96,140
191,604
194,074
Gross profit
254,207
202,128
489,696
429,666
Operating expenses
Selling and marketing
139,761
143,858
267,456
293,655
Research and development
75,425
73,931
147,538
149,307
General and administrative
25,420
23,462
48,947
46,572
Litigation settlement, net of
recoveries
—
—
32,403
—
Restructuring
635
2,167
798
3,628
Total operating expenses
241,241
243,418
497,142
493,162
Income (loss) from operations
12,966
(41,290
)
(7,446
)
(63,496
)
Foreign currency transaction gain
(loss)
437
(3,290
)
(2,825
)
(5,965
)
Interest income
6,785
1,814
12,066
3,299
Interest expense
(1,656
)
(1,778
)
(3,408
)
(3,696
)
(Loss) income on capped call
transactions
(3,277
)
(1,361
)
22
1,845
Other income, net
—
5,702
1,684
12,285
Income (loss) before provision for income
taxes
15,255
(40,203
)
93
(55,728
)
Provision for income taxes
8,642
6,601
5,604
11,850
Net income (loss)
$
6,613
$
(46,804
)
$
(5,511
)
$
(67,578
)
Earnings (loss) per share
Basic
$
0.08
$
(0.56
)
$
(0.07
)
$
(0.82
)
Diluted
$
0.07
$
(0.56
)
$
(0.07
)
$
(0.82
)
Weighted-average number of common
shares outstanding
Basic
85,157
83,039
84,712
82,823
Diluted
88,500
83,039
84,712
82,823
PEGASYSTEMS INC.
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2024
December 31, 2023
Assets
Current assets:
Cash and cash equivalents
$
258,257
$
229,902
Marketable securities
406,819
193,436
Total cash, cash equivalents, and
marketable securities
665,076
423,338
Accounts receivable, net
165,723
300,173
Unbilled receivables, net
164,533
237,379
Other current assets
76,323
68,137
Total current assets
1,071,655
1,029,027
Long-term unbilled receivables, net
81,218
85,402
Goodwill
81,410
81,611
Other long-term assets
302,249
314,696
Total assets
$
1,536,532
$
1,510,736
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
16,682
$
11,290
Accrued expenses
44,875
39,941
Accrued compensation and related
expenses
81,110
126,640
Deferred revenue
352,618
377,845
Convertible senior notes, net
500,604
—
Other current liabilities
20,677
21,343
Total current liabilities
1,016,566
577,059
Long-term convertible senior notes,
net
—
499,368
Long-term operating lease liabilities
70,202
66,901
Other long-term liabilities
14,362
13,570
Total liabilities
1,101,130
1,156,898
Total stockholders’ equity
435,402
353,838
Total liabilities and stockholders’
equity
$
1,536,532
$
1,510,736
PEGASYSTEMS INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
2024
2023
Net (loss)
$
(5,511
)
$
(67,578
)
Adjustments to reconcile net (loss) to
cash provided by operating activities
Non-cash items
116,288
119,371
Change in operating assets and
liabilities, net
109,466
61,959
Cash provided by operating activities
220,243
113,752
Cash (used in) provided by investing
activities
(209,700
)
15,979
Cash provided by (used in) financing
activities
22,503
(86,988
)
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
(2,842
)
1,010
Net increase in cash, cash equivalents,
and restricted cash
30,204
43,753
Cash, cash equivalents, and restricted
cash, beginning of period
232,827
145,054
Cash, cash equivalents, and restricted
cash, end of period
$
263,031
$
188,807
PEGASYSTEMS INC.
RECONCILIATION OF SELECTED
GAAP AND NON-GAAP MEASURES
(in thousands, except
percentages and per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2024
2023
Change
2024
2023
Change
Net income (loss) - GAAP
$
6,613
$
(46,804
)
*
$
(5,511
)
$
(67,578
)
92
%
Stock-based compensation (1)
36,224
36,227
71,005
78,784
Restructuring
635
2,167
798
3,628
Legal fees
2,409
2,842
4,351
4,318
Litigation settlement, net of
recoveries
—
—
32,403
—
Amortization of intangible assets
789
963
1,753
2,012
Interest on convertible senior notes
619
647
1,236
1,375
Capped call transactions
3,277
1,361
(22
)
(1,845
)
Repurchases of convertible senior
notes
—
(5,074
)
—
(7,855
)
Foreign currency transaction (gain)
loss
(437
)
3,290
2,825
5,965
Other
—
(678
)
(1,628
)
(4,471
)
Income taxes (2)
(4,288
)
6,262
(19,215
)
6,090
Net income - non-GAAP
$
45,841
$
1,203
3,711
%
$
87,995
$
20,423
331
%
Diluted earnings (loss) per share -
GAAP
$
0.07
$
(0.56
)
*
$
(0.07
)
$
(0.82
)
91
%
non-GAAP adjustments
0.45
0.57
1.07
1.06
Diluted earnings per share - non-GAAP
$
0.52
$
0.01
5,100
%
$
1.00
$
0.24
317
%
Diluted weighted-average number of
common shares outstanding - GAAP
88,500
83,039
7
%
84,712
82,823
2
%
Stock-based compensation
—
1,289
3,218
1,026
Diluted weighted-average number of common
shares outstanding - non-GAAP
88,500
84,328
5
%
87,930
83,849
5
%
* 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.
- Restructuring: We have excluded
restructuring from our non-GAAP financial measures. Restructuring
fluctuates in amount and frequency and is significantly affected by
the timing and size of our restructuring activities. We believe
excluding these amounts from our non-GAAP financial measures is
useful to investors as these amounts are not representative of our
core business operations and ongoing operational performance.
- Legal fees: Legal and related fees
arising from proceedings outside the ordinary course of business.
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 operational performance.
- Litigation settlement, net of
recoveries: Cost to settle litigation, net of insurance
recoveries, arising from proceedings outside the ordinary course of
business. See Note 15. Commitments and Contingencies in our
Quarterly Report for the three months ended June 30, 2024 for
additional information. 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 operational 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. We believe
excluding these amounts provides a useful comparison of our
operational performance in different periods.
- Interest on convertible senior
notes: In February 2020, we issued convertible senior notes,
due March 1, 2025, in a private placement. We believe that
excluding the amortization of issuance costs provides a useful
comparison of our operational performance in different
periods.
- 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 convertible senior 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 operational performance.
- Repurchases of convertible senior
notes: We have excluded gains from the repurchases of
Convertible Senior 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 operational performance.
- 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. We believe excluding these amounts
provides a useful comparison of our operational performance in
different periods.
- Other: We have excluded gains and
losses from our venture investments, and incremental expenses
incurred integrating acquisitions. 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 operational
performance.
- Diluted weighted-average number of common
shares outstanding:
- Stock-based compensation: In
periods of non-GAAP income, we have included the dilutive impact of
stock-based compensation in our non-GAAP weighted-average shares.
In periods of GAAP loss, these shares would have been excluded from
our GAAP results as they would be anti-dilutive for GAAP. We
believe including the dilutive effect of stock-based compensation
in our non-GAAP financial measures in periods of income is helpful
to investors as this provides a useful comparison of our
operational performance in different periods.
(1) Stock-based compensation:
Three Months Ended
June 30,
Six Months Ended
June 30,
2024
2023
2024
2023
Cost of revenue
$
7,092
$
7,174
$
13,664
$
16,087
Selling and marketing
13,564
15,349
27,452
33,009
Research and development
7,825
7,851
15,471
16,911
General and administrative
7,743
5,853
14,418
12,777
$
36,224
$
36,227
$
71,005
$
78,784
Income tax benefit
$
(554
)
$
(581
)
$
(865
)
$
(1,253
)
(2) Effective income tax rates:
Six Months Ended
June 30,
2024
2023
GAAP
*
(21
)%
non-GAAP
22
%
22
%
* not meaningful.
Our GAAP effective income tax rate is subject to significant
fluctuations due to several factors, including our stock-based
compensation plans, research and development tax credits, gains and
losses on our capped call transactions, and the valuation allowance
on our deferred tax assets in the U.S. and U.K. We determine our
non-GAAP income tax rate using applicable rates in taxing
jurisdictions and assessing certain factors, including historical
and forecasted earnings by jurisdiction, discrete items, and
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 tax rate volatility. See Note 13.
Income Taxes in our Quarterly Report for the three months ended
June 30, 2024 for additional information.
PEGASYSTEMS INC.
RECONCILIATION OF FREE CASH
FLOW (1) AND OTHER METRICS
(in thousands, except
percentages)
Six Months Ended
June 30,
Change
2024
2023
Cash provided by operating activities
$
220,243
$
113,752
94
%
Investment in property and equipment
(1,857
)
(13,933
)
Free cash flow (1)
$
218,386
$
99,819
119
%
Supplemental information (2)
Litigation settlement, net of
recoveries
$
32,403
$
—
Legal fees
2,701
2,950
Restructuring
3,852
17,521
Interest on convertible senior notes
1,884
2,250
Income taxes
25,560
6,627
$
66,400
$
29,348
(1) Our non-GAAP free cash flow is defined as cash provided by
operating activities less investment in property and equipment.
Investment in property and equipment fluctuates in amount and
frequency and is significantly affected by the timing and size of
investments in our facilities. We provide information on free cash
flow to enable investors to assess our ability to generate cash
without incurring additional external financings. This information
is not a substitute for financial measures prepared under U.S.
GAAP.
(2) The supplemental information discloses items that affect our
cash flows and are considered by management not to be
representative of our core business operations and ongoing
operational performance.
- Litigation settlement, net of
recoveries: Cost to settle litigation, net of insurance
recoveries, arising from proceedings outside the ordinary course of
business. See Note 15. Commitments and Contingencies in our
Quarterly Report for the three months ended June 30, 2024 for
additional information.
- Legal fees: Legal and related fees
arising from proceedings outside the ordinary course of
business.
- Restructuring: Restructuring
fluctuates in amount and frequency and is significantly affected by
the timing and size of our restructuring activities.
- Interest on convertible senior
notes: In February 2020, we issued convertible senior notes,
due March 1, 2025, in a private placement. The convertible senior
notes accrue interest at an annual rate of 0.75%, payable
semi-annually in arrears on March 1 and September 1.
- Income taxes: Direct income taxes
paid net of refunds received.
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. ACV is a performance measure that we
believe provides useful information to our management and
investors.
June 30, 2024
June 30, 2023
Change
Pega Cloud
$
593,752
$
498,860
$
94,892
19
%
Maintenance
310,608
315,231
(4,623
)
(1
)%
Subscription services
904,360
814,091
90,269
11
%
Subscription license
400,949
349,713
51,236
15
%
$
1,305,309
$
1,163,804
$
141,505
12
%
PEGASYSTEMS INC. BACKLOG (in
thousands, except percentages)
Remaining performance obligations (“Backlog”) - Expected
future revenue from existing non-cancellable contracts:
As of June 30, 2024:
Subscription services
Subscription license
Perpetual license
Consulting
Total
Pega Cloud
Maintenance
1 year or less
$
470,379
$
209,655
$
23,931
$
2,696
$
25,953
$
732,614
52
%
1-2 years
301,070
63,266
10,078
—
2,469
376,883
27
%
2-3 years
152,839
30,032
2,884
—
2,473
188,228
13
%
Greater than 3 years
90,474
17,953
97
—
—
108,524
8
%
$
1,014,762
$
320,906
$
36,990
$
2,696
$
30,895
$
1,406,249
100
%
% of Total
72
%
23
%
3
%
—
%
2
%
100
%
Change since June
30, 2023
$
152,778
$
15,081
$
(8,416
)
$
(4,535
)
$
(14,755
)
$
140,153
18
%
5
%
(19
)%
(63
)%
(32
)%
11
%
As of June 30, 2023:
Subscription services
Subscription license
Perpetual license
Consulting
Total
Pega Cloud
Maintenance
1 year or less
$
397,183
$
214,579
$
35,616
$
4,979
$
37,355
$
689,712
55
%
1-2 years
238,691
58,551
3,026
2,252
6,772
309,292
24
%
2-3 years
124,616
25,103
6,764
—
1,523
158,006
12
%
Greater than 3 years
101,494
7,592
—
—
—
109,086
9
%
$
861,984
$
305,825
$
45,406
$
7,231
$
45,650
$
1,266,096
100
%
% of Total
67
%
24
%
4
%
1
%
4
%
100
%
PEGASYSTEMS INC.
RECONCILIATION OF GAAP BACKLOG
AND CONSTANT CURRENCY BACKLOG
(in millions, except
percentages)
June 30, 2023
June 30, 2024
1 Year Growth Rate
Backlog - GAAP
$
1,266
$
1,406
11
%
Impact of changes in foreign exchange
rates
—
7
Constant currency backlog
$
1,266
$
1,413
12
%
Note: Constant currency Backlog is
calculated by applying the June 30, 2023 foreign exchange rates to
all periods shown.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240724234135/en/
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
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