EX-99.1 2 q22019ex991.htm EXHIBIT 99.1 Exhibit
EXHIBIT 99.1

q12019egalogoaa01.jpg
Pega Cloud ACV Grows 65% in the First Half of 2019
•
Total ACV of $613 million, powered by Pega Cloud Choice™
•
Pega Cloud RPO (“backlog”) up 69% to $362 million
•
Pega Cloud and Client Cloud RPO (“backlog”) up 45% to $600 million

CAMBRIDGE, Mass. — August 7, 2019 — Pegasystems Inc. (NASDAQ: PEGA), the software company empowering digital transformation at the world’s leading enterprises, released its financial results for the second quarter of 2019.
"At mid-year, I’m excited with the strong progress we’re making in our business and in our transition to cloud,” said Alan Trefler, founder and CEO, Pegasystems. “I’m pleased with how our strategy is working, and we continue to gain traction in seizing the huge opportunity in front of us."
“Pega Cloud ACV increased 65% year over year, reaching $136 million,” said Ken Stillwell, CFO, Pegasystems. “This strong ACV growth reflects solid demand worldwide for digital transformation solutions.”
Financial metrics (1) 
(Dollars in thousands, except per share amounts)
Three Months Ended  
June 30,
 
Six Months Ended  
June 30,
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Total revenue
$
205,592

 
$
196,779

 
4
 %
 
$
418,138

 
$
431,961

 
(3
)%
Subscription revenue (2)
$
125,982

 
$
117,416

 
7
 %
 
$
269,760

 
$
262,218

 
3
 %
Net (loss) income - GAAP
$
(32,296
)
 
$
(10,409
)
 
(210
)%
 
$
(61,013
)
 
$
1,791

 
*

Net (loss) income - Non-GAAP
$
(23,427
)
 
$
(2,732
)
 
(758
)%
 
$
(32,803
)
 
$
17,525

 
*

Diluted (loss) earnings per share - GAAP
$
(0.41
)
 
$
(0.13
)
 
(215
)%
 
$
(0.77
)
 
$
0.02

 
*

Diluted (loss) earnings per share - Non-GAAP
$
(0.30
)
 
$
(0.03
)
 
(900
)%
 
$
(0.42
)
 
$
0.21

 
*

* not meaningful
(1) A reconciliation of the GAAP measures to our Non-GAAP measures is contained in the financial schedules at the end of this release.
(2) Reflects client arrangements (term license, cloud, and maintenance) that are subject to renewal.
(Dollars in thousands)
Three Months Ended  
June 30,
 
Six Months Ended  
June 30,
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Cloud
$
31,699

15
%
 
$
20,201

10
%
 
$
11,498

57
 %
 
$
59,457

14
%
 
$
35,783

8
%
 
$
23,674

66
 %
Term license
24,954

12
%
 
31,309

16
%
 
(6,355
)
(20
)%
 
73,268

18
%
 
96,004

22
%
 
(22,736
)
(24
)%
Maintenance
69,329

34
%
 
65,906

34
%
 
3,423

5
 %
 
137,035

33
%
 
130,431

31
%
 
6,604

5
 %
Subscription
125,982

61
%
 
117,416

60
%
 
8,566

7
 %
 
269,760

65
%
 
262,218

61
%
 
7,542

3
 %
Perpetual license
19,320

9
%
 
13,475

7
%
 
5,845

43
 %
 
34,270

8
%
 
36,553

8
%
 
(2,283
)
(6
)%
Consulting
60,290

30
%
 
65,888

33
%
 
(5,598
)
(8
)%
 
114,108

27
%
 
133,190

31
%
 
(19,082
)
(14
)%
Total revenue
$
205,592

100
%
 
$
196,779

100
%
 
$
8,813

4
 %
 
$
418,138

100
%
 
$
431,961

100
%
 
$
(13,823
)
(3
)%

1

Annual contract value (“ACV”) (1) (2) 
The change in ACV measures the growth and predictability of future cash flows from Pega Cloud and Client Cloud committed arrangements as of the end of the particular reporting period.
q22019acvchartoscc.jpg
 
June 30,
 
Change
 
Constant Currency
Change
(Dollars in thousands)
2019
 
2018
 
 
Maintenance ACV
$
277,316

 
$
263,624

 
$
13,692

5
%
 
7
%
Term ACV
199,299

 
168,528

 
30,771

18
%
 
19
%
Client Cloud ACV
476,615

 
432,152

 
44,463

10
%
 
12
%
Pega Cloud ACV
136,074

 
82,376

 
53,698

65
%
 
67
%
Total ACV
$
612,689

 
$
514,528

 
$
98,161

19
%
 
21
%
(1) Total ACV, as of a given date, is the sum of the following two components:
•
Client Cloud: the sum of (1) the annual value of each term license contract in effect on such date, which is equal to its total license value divided by the total number of years and (2) maintenance revenue reported for the quarter ended on such date, multiplied by four. We do not provide hosting for Client Cloud arrangements.
•
Pega Cloud: the total of the annual value of each cloud contract in effect on such date, which is equal to its total value divided by the total number of years.
(2) As foreign currency exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of ACV growth rates on a constant currency basis enhances the understanding of our results and evaluation of our performance in comparison to prior periods. The percent change in constant currency is calculated by applying the applicable current period exchange rates to prior period ACV.

2

Remaining performance obligations (“RPO”)
Expected future revenue on existing contracts:
 
June 30, 2019
(Dollars in thousands)
Perpetual license

 
Term license
 
Maintenance
 
Cloud
 
Consulting
 
Total
1 year or less
$
8,429

 
$
38,080

 
$
173,421

 
$
124,134

 
$
16,259

 
$
360,323

57
%
1-2 years
915

 
4,678

 
12,530

 
98,842

 
942

 
117,907

19
%
2-3 years
1,306

 
641

 
5,801

 
75,828

 
227

 
83,803

13
%
Greater than 3 years
—

 
185

 
2,812

 
63,259

 
—

 
66,256

11
%
 
$
10,650

 
$
43,584

 
$
194,564

 
$
362,063

 
$
17,428

 
$
628,289

100
%
Change in RPO Since June 30, 2018
 
 
 
 
 
 
 
 
 
 
 

$
(36,623
)
 
$
6,640

 
$
32,273

 
$
148,253

 
$
1,086

 
$
151,629

 

(77
)%
 
18
%
 
20
%
 
69
%
 
7
%
 
32
%
 
 
June 30, 2018
(Dollars in thousands)
Perpetual license
 
Term license
 
Maintenance
 
Cloud
 
Consulting
 
Total
1 year or less
$
28,626

 
$
20,457

 
$
111,086

 
$
41,036

 
$
12,039

 
$
213,244

45
%
1-2 years
15,862

 
9,878

 
43,837

 
66,529

 
4,103

 
140,209

29
%
2-3 years
2,423

 
5,665

 
5,265

 
50,250

 
—

 
63,603

13
%
Greater than 3 years
362

 
944

 
2,103

 
55,995

 
200

 
59,604

13
%
 
$
47,273

 
$
36,944

 
$
162,291

 
$
213,810

 
$
16,342

 
$
476,660

100
%
Quarterly conference call
A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on August 7, 2019.
Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-800-289-0438 (domestic), 1-323-794-2423 (international), or via webcast 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/about/investors by clicking the earnings calls link in the investors section.
Discussion of non-GAAP financial measures
To supplement the financial results presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”), the Company provides non-GAAP measures, including in this release. Pegasystems’ management utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. The Company’s annual financial plan is prepared on both a GAAP and non-GAAP basis, and both are approved by our board of directors. In addition, because 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 stock-based compensation expense, amortization of intangible assets, and foreign currency transaction gains and losses. The Company believes these non-GAAP measures are helpful in understanding its past financial performance and its anticipated future results.
These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP.
A reconciliation of the Company’s GAAP measures to Non-GAAP measures is included in the financial schedules at the end of this release.
Forward-looking statements
Certain statements contained in this press release may be construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on current expectations, estimates, forecasts, and projections about the industry and markets in which we operate, and management’s beliefs and assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,”

3

“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.
Important factors that could cause actual future activities and results to differ materially from those expressed in such forward-looking statements include, among others, variation in demand for our products and services, reliance on third party relationships, reliance on key personnel, the inherent risks associated with international operations and the continued uncertainties in the global economy, our continued effort to market and sell both domestically and internationally, foreign currency exchange rates, the potential legal and financial liabilities and reputation damage due to cyber-attacks and security breaches, and management of our growth. These risks and other factors that could cause actual results to differ materially from those expressed in such forward-looking statements are described more completely in Part I of our Annual Report on Form 10-K for the year ended December 31, 2018, and other filings we make with the U.S. Securities and Exchange Commission (“SEC”). These documents are available on the Company’s website at www.pega.com/about/investors.
Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the results contained in such statements will be achieved. Although new information, future events, or risks may cause actual results to differ materially from future results expressed or implied by such forward-looking statements, except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events, or otherwise.
The forward-looking statements contained in this press release represent the Company’s views as of August 7, 2019.
About Pegasystems
Pegasystems Inc. is the leader in software for customer engagement and operational excellence. Pega’s adaptive, cloud-architected software - built on its unified Pega Platform™ - empowers people to rapidly deploy, and easily extend and change applications to meet strategic business needs. Over its 35-year history, Pega has delivered award-winning capabilities in CRM and digital process automation (DPA), powered by advanced artificial intelligence and robotic automation, to help the world’s leading brands achieve breakthrough business results.
For more information on Pegasystems (NASDAQ: PEGA) visit www.pega.com.
Press contact:
Lisa Pintchman                
Pegasystems Inc.                
lisa.pintchman@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.

4

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

 
Three Months Ended  
June 30,
 
Six Months Ended  
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Software license
$
44,274

 
$
44,784

 
$
107,538

 
$
132,557

Maintenance
69,329

 
65,906

 
137,035

 
130,431

Services
91,989

 
86,089

 
173,565

 
168,973

Total revenue
205,592

 
196,779

 
418,138

 
431,961

Cost of revenue
 
 
 
 
 
 
 
Software license
928

 
1,262

 
2,306

 
2,517

Maintenance
6,292

 
5,874

 
12,627

 
11,956

Services
69,860

 
66,681

 
136,584

 
134,958

Total cost of revenue
77,080

 
73,817

 
151,517

 
149,431

Gross profit
128,512

 
122,962

 
266,621

 
282,530

Operating expenses
 
 
 
 
 
 
 
Selling and marketing
116,962

 
93,972

 
225,827

 
182,355

Research and development
49,714

 
41,972

 
100,310

 
88,757

General and administrative
14,174

 
10,181

 
26,850

 
26,645

Total operating expenses
180,850

 
146,125

 
352,987

 
297,757

(Loss) from operations
(52,338
)
 
(23,163
)
 
(86,366
)
 
(15,227
)
Foreign currency transaction gain (loss)
2,105

 
1,244

 
(1,607
)
 
159

Interest income, net
544

 
629

 
1,267

 
1,393

Other income, net
55

 
—

 
55

 
363

(Loss) before (benefit from) income taxes
(49,634
)
 
(21,290
)
 
(86,651
)
 
(13,312
)
(Benefit from) income taxes
(17,338
)
 
(10,881
)
 
(25,638
)
 
(15,103
)
Net (loss) income
$
(32,296
)
 
$
(10,409
)
 
$
(61,013
)
 
$
1,791

(Loss) earnings per share
 
 
 
 
 
 
 
Basic
$
(0.41
)
 
$
(0.13
)
 
$
(0.77
)
 
$
0.02

Diluted
$
(0.41
)
 
$
(0.13
)
 
$
(0.77
)
 
$
0.02

Weighted-average number of common shares outstanding
 
 
 
 
 
 
 
Basic
78,987

 
78,635

 
78,787

 
78,436

Diluted
78,987

 
78,635

 
78,787

 
83,247



5

PEGASYSTEMS INC.
UNAUDITED RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1) 
(in thousands, except percentages and per share amounts)
 
Three Months Ended  
June 30,
 
Six Months Ended  
June 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Total revenue - GAAP and Non-GAAP
$
205,592

 
$
196,779

 
4
 %
 
$
418,138

 
$
431,961

 
(3
)%
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income - GAAP
$
(32,296
)
 
$
(10,409
)
 
(210
)%
 
$
(61,013
)
 
$
1,791

 
*

Amortization of intangible assets
1,656

 
2,836

 
 
 
4,592

 
5,673

 
 
Stock-based compensation (2)
20,047

 
16,056

 
 
 
38,397

 
31,165

 
 
Foreign currency transaction gain (loss)
(2,105
)
 
(1,244
)
 
 
 
1,607

 
(159
)
 
 
Income tax effects (3)
(10,729
)
 
(9,971
)
 
 
 
(16,386
)
 
(20,945
)
 
 
Net (loss) income - Non-GAAP
$
(23,427
)
 
$
(2,732
)
 
(758
)%
 
$
(32,803
)
 
$
17,525

 
*


 
 
 
 
 
 
 
 
 
 
 
Diluted (loss) earnings per share - GAAP
$
(0.41
)
 
$
(0.13
)
 
(215
)%
 
$
(0.77
)
 
$
0.02

 
*

Non-GAAP adjustments
0.11

 
0.10

 
 
 
0.35

 
0.19

 
 
Diluted (loss) earnings per share - Non-GAAP
$
(0.30
)
 
$
(0.03
)
 
(900
)%
 
$
(0.42
)
 
$
0.21

 
*

 
 
 
 
 
 
 
 
 
 
 
 
Diluted weighted-average number of common shares outstanding - GAAP
78,987

 
78,635

 
—
 %
 
78,787

 
83,247

 
(5
)%
Diluted weighted-average number of common shares outstanding - Non-GAAP
78,987

 
78,635

 
—
 %
 
78,787

 
83,247

 
(5
)%
* not meaningful
(1) Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
Our non-GAAP financial measures reflect adjustments based on the following items:
•
Amortization of intangible assets: We have excluded 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 our acquisitions. Investors should note that the use of intangible assets contributed to our revenues recognized during the periods presented and is expected to contribute to our future period revenues as well. Amortization of intangible assets is likely to recur in future periods.
•
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 period revenues, we continue to evaluate our business performance excluding stock-based compensation.
•
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 changes in foreign exchange market rates. Foreign currency transaction gains and losses will recur in future periods.
For additional information about our use of Non-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 “Discussion of non-GAAP financial measures” included earlier in this release and below.


6

(2) Stock-based compensation was as follows:
 
Three Months Ended  
June 30,
 
Six Months Ended  
June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Cost of revenues
$
4,911

 
$
4,257

 
$
9,430

 
$
7,958

Selling and marketing
8,364

 
6,038

 
15,738

 
10,696

Research and development
4,572

 
3,802

 
9,132

 
7,439

General and administrative
2,200

 
1,959

 
4,097

 
5,072

 
$
20,047

 
$
16,056

 
$
38,397

 
$
31,165

Income tax benefit
$
(4,056
)
 
$
(3,341
)
 
$
(7,796
)
 
$
(6,482
)
(3) Effective income tax rates were as follows:
 
Six Months Ended  
June 30,
 
2019
 
2018
GAAP
30
%
 
113
%
Non-GAAP
22
%
 
25
%
Our effective income tax rate under GAAP is subject to significant fluctuations due to a variety of factors, including excess tax benefits generated by our stock-based compensation plans, tax credits for stock-based compensation awards to research and development employees, and unfavorable foreign stock-based compensation adjustments. We determine our non-GAAP income tax rate by using applicable rates in taxing jurisdictions and assessing certain factors including our historical and forecast 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 effective income tax rate on a basis consistent with the effective income tax rate in our annual plan as established at the beginning of each year given this tax rate volatility.

7


PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Total cash, cash equivalents, and marketable securities
$
155,049

 
$
207,423

Total receivables (billed and unbilled)
422,408

 
504,765

Goodwill
79,037

 
72,858

Other assets
284,123

 
197,507

Total assets
$
940,617

 
$
982,553

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Accrued expenses, including compensation and related expenses
$
113,252

 
$
130,177

Deferred revenue, current
169,009

 
185,145

Deferred income tax liabilities
6,918

 
6,939

Other liabilities
94,151


38,761

Stockholders’ equity
557,287

 
621,531

Total liabilities and stockholders’ equity
$
940,617

 
$
982,553




PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six Months Ended  
June 30,
 
2019
 
2018
Operating activities:
 
 
 
Net (loss) income
$
(61,013
)
 
$
1,791

Adjustments to reconcile net (loss) income to cash provided by operating activities
 
 
 
Non-cash items
73,562

 
51,081

Change in operating assets and liabilities, net
(4,829
)
 
22,560

Cash provided by operating activities
7,720

 
75,432

Cash provided by (used in) investing activities
17,210

 
(46,369
)
Cash (used in) financing activities
(44,367
)
 
(45,825
)
Effect of exchange rate changes on cash and cash equivalents
515

 
(1,226
)
Net (decrease) in cash and cash equivalents
(18,922
)
 
(17,988
)
Cash and cash equivalents, beginning of period
114,422

 
162,279

Cash and cash equivalents, end of period
$
95,500

 
$
144,291




8