EX-99.1 2 q32019ex991.htm EXHIBIT 99.1 Exhibit
EXHIBIT 99.1

pega_logo.jpg
Pega Cloud ACV Grows 51%** in the First Three Quarters of 2019
•
Total ACV up 20%** to $634 million, powered by Pega Cloud Choice™
•
Pega Cloud RPO (“backlog”) up 38% to $363 million
•
Pega Cloud Revenue up 63% to $95 million year to date through Q3

** Constant Currency
CAMBRIDGE, Mass. — November 7, 2019 — Pegasystems Inc. (NASDAQ: PEGA), the software company empowering digital transformation at the world’s leading enterprises, released its financial results for the third quarter of 2019.
“I’m pleased with the state of our business as we continue to make strong progress in our transition to Cloud,” said Alan Trefler, founder and CEO, Pegasystems. “It’s terrific to see the continued momentum in our traditional markets as well as enthusiasm in some of our newer industries. For example, over recent weeks we’ve engaged more than 1,000 thought leaders from our clients and prospects in the government and healthcare industries through our customer engagement roadshow.”
“Total ACV increased 20% in constant currency year over year, reaching $634 million,” said Ken Stillwell, CFO, Pegasystems. “This strong ACV growth reflects solid demand worldwide for our digital transformation solutions.”
Financial metrics (1) (2) 
(Dollars in thousands, except per share amounts)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Total revenue
$
216,703

 
$
203,263

 
7
 %
 
$
634,841

 
$
635,224

 
—
 %
Subscription revenue (3)
$
154,513

 
$
120,267

 
28
 %
 
$
424,273

 
$
382,485

 
11
 %
Net (loss) - GAAP
$
(30,338
)
 
$
(7,587
)
 
(300
)%
 
$
(91,351
)
 
$
(5,796
)
 
(1,476
)%
Net (loss) income - Non-GAAP
$
(17,961
)
 
$
2,001

 
*

 
$
(50,764
)
 
$
19,526

 
*

Diluted (loss) per share - GAAP
$
(0.38
)
 
$
(0.10
)
 
(280
)%
 
$
(1.16
)
 
$
(0.07
)
 
(1,557
)%
Diluted (loss) earnings per share - Non-GAAP
$
(0.23
)
 
$
0.02

 
*

 
$
(0.64
)
 
$
0.23

 
*

* 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) As previously discussed, our profitability and operating cash flows have declined in the short term as we transition to cloud, and our cloud business continues to grow and scale.
(3) Reflects client arrangements (term license, cloud, and maintenance) that are subject to renewal.
(Dollars in thousands)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Cloud
$
35,153

16
%
 
$
22,184

11
%
 
$
12,969

58
 %
 
$
94,610

15
%
 
$
57,967

9
%
 
$
36,643

63
 %
Term license
48,989

23
%
 
32,066

16
%
 
16,923

53
 %
 
122,257

19
%
 
128,070

20
%
 
(5,813
)
(5
)%
Maintenance
70,371

32
%
 
66,017

32
%
 
4,354

7
 %
 
207,406

33
%
 
196,448

31
%
 
10,958

6
 %
Subscription
154,513

71
%
 
120,267

59
%
 
34,246

28
 %
 
424,273

67
%
 
382,485

60
%
 
41,788

11
 %
Perpetual license
9,016

4
%
 
20,276

10
%
 
(11,260
)
(56
)%
 
43,286

7
%
 
56,829

9
%
 
(13,543
)
(24
)%
Consulting
53,174

25
%
 
62,720

31
%
 
(9,546
)
(15
)%
 
167,282

26
%
 
195,910

31
%
 
(28,628
)
(15
)%
Total revenue
$
216,703

100
%
 
$
203,263

100
%
 
$
13,440

7
 %
 
$
634,841

100
%
 
$
635,224

100
%
 
$
(383
)
—
 %

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.
acvslideq3a03.jpg
 
September 30,
 
Change
 
Constant Currency
Change
(Dollars in thousands)
2019
 
2018
 
 
Maintenance
$
281,484

 
$
264,068

 
$
17,416

7
%
 
9
%
Term
207,317

 
174,320

 
32,997

19
%
 
20
%
Client Cloud
488,801

 
438,388

 
50,413

11
%
 
13
%
Pega Cloud
145,549

 
98,373

 
47,176

48
%
 
51
%
Total ACV
$
634,350

 
$
536,761

 
$
97,589

18
%
 
20
%
(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 services for Client Cloud arrangements.
•
Pega Cloud: the sum 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.
Remaining performance obligations (“RPO”)
Expected future revenue on existing contracts:
 
September 30, 2019
(Dollars in thousands)
Perpetual license

 
Term license
 
Maintenance
 
Cloud
 
Consulting
 
Total
1 year or less
$
7,689

 
$
25,948

 
$
158,220

 
$
133,785

 
$
13,145

 
$
338,787

56
%
1-2 years
853

 
3,798

 
18,590

 
105,081

 
863

 
129,185

21
%
2-3 years
1,306

 
591

 
8,323

 
72,915

 
841

 
83,976

14
%
Greater than 3 years
—

 
85

 
4,959

 
51,591

 
—

 
56,635

9
%
 
$
9,848

 
$
30,422

 
$
190,092

 
$
363,372

 
$
14,849

 
$
608,583

100
%
Change in RPO Since September 30, 2018
 
 
 
 
 
 
 
 
 
 
 

$
(23,651
)
 
$
(25,740
)
 
$
36,959

 
$
100,272

 
$
(1,587
)
 
$
86,253

 

(71
)%
 
(46
)%
 
24
%
 
38
%
 
(10
)%
 
17
%
 

2

 
September 30, 2018
(Dollars in thousands)
Perpetual license
 
Term license
 
Maintenance
 
Cloud
 
Consulting
 
Total
1 year or less
$
25,343

 
$
44,283

 
$
140,591

 
$
88,529

 
$
14,107

 
$
312,853

60
%
1-2 years
6,490

 
10,063

 
8,877

 
70,815

 
1,830

 
98,075

19
%
2-3 years
360

 
1,598

 
2,586

 
54,646

 
449

 
59,639

11
%
Greater than 3 years
1,306

 
218

 
1,079

 
49,110

 
50

 
51,763

10
%
 
$
33,499

 
$
56,162

 
$
153,133

 
$
263,100

 
$
16,436

 
$
522,330

100
%
Quarterly conference call
A conference call and audio-only webcast will be conducted at 5:00 p.m. EDT on November 7, 2019.
Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1-877-300-8521 (domestic), 1-412-317-6026 (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”), we provide non-GAAP measures, including in this release. We utilize several 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. Our annual financial plan is prepared on both a GAAP and a 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, we use 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. We believe 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. They should be read-only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
A reconciliation of the GAAP measures to our Non-GAAP measures is contained 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,” “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.

3

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 expressly 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 November 7, 2019.
About Pegasystems
Pega is the leader in cloud software for customer engagement and operational excellence. The world’s most recognized and successful brands rely on Pega’s AI-powered software to optimize every customer interaction on any channel while ensuring their brand promises are kept. Pega’s low-code application development platform allows enterprises to quickly build and evolve apps to meet their customer and employee needs and drive digital transformation on a global scale. For more than 35 years, Pega has enabled higher customer satisfaction, lower costs, and increased customer lifetime value. 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
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Software license
$
58,005

 
$
52,342

 
$
165,543

 
$
184,899

Maintenance
70,371

 
66,017

 
207,406

 
196,448

Services
88,327

 
84,904

 
261,892

 
253,877

Total revenue
216,703

 
203,263

 
634,841

 
635,224

Cost of revenue
 
 
 
 
 
 
 
Software license
676

 
1,255

 
2,982

 
3,772

Maintenance
6,688

 
6,079

 
19,315

 
18,035

Services
73,534

 
67,089

 
210,118

 
202,047

Total cost of revenue
80,898

 
74,423

 
232,415

 
223,854

Gross profit
135,805

 
128,840

 
402,426

 
411,370

Operating expenses
 
 
 
 
 
 
 
Selling and marketing
115,237

 
87,490

 
341,064

 
269,845

Research and development
52,492

 
46,504

 
152,802

 
135,261

General and administrative
14,843

 
12,104

 
41,693

 
38,749

Total operating expenses
182,572

 
146,098

 
535,559

 
443,855

(Loss) from operations
(46,767
)
 
(17,258
)
 
(133,133
)
 
(32,485
)
Foreign currency transaction (loss) gain
(1,970
)
 
399

 
(3,577
)
 
558

Interest income, net
556

 
683

 
1,823

 
2,076

Other income, net
323

 
—

 
378

 
363

(Loss) before (benefit from) income taxes
(47,858
)
 
(16,176
)
 
(134,509
)
 
(29,488
)
(Benefit from) income taxes
(17,520
)
 
(8,589
)
 
(43,158
)
 
(23,692
)
Net (loss)
$
(30,338
)
 
$
(7,587
)
 
$
(91,351
)
 
$
(5,796
)
(Loss) per share
 
 
 
 
 
 
 
Basic
$
(0.38
)
 
$
(0.10
)
 
$
(1.16
)
 
$
(0.07
)
Diluted
$
(0.38
)
 
$
(0.10
)
 
$
(1.16
)
 
$
(0.07
)
Weighted-average number of common shares outstanding
Basic
79,200

 
78,700

 
78,928

 
78,525

Diluted
79,200

 
78,700

 
78,928

 
78,525



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
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Total revenue - GAAP and Non-GAAP
$
216,703

 
$
203,263

 
7
 %
 
$
634,841

 
$
635,224

 
—
 %
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) - GAAP
$
(30,338
)
 
$
(7,587
)
 
(300
)%
 
$
(91,351
)
 
$
(5,796
)
 
(1,476
)%
Amortization of intangible assets
1,017

 
2,835

 
 
 
5,608

 
8,508

 
 
Stock-based compensation (2)
21,846

 
16,408

 
 
 
60,242

 
47,573

 
 
Foreign currency transaction loss (gain)
1,970

 
(399
)
 
 
 
3,577

 
(558
)
 
 
Income tax effects (3)
(12,456
)
 
(9,256
)
 
 
 
(28,840
)
 
(30,201
)
 
 
Net (loss) income - Non-GAAP
$
(17,961
)
 
$
2,001

 
*

 
$
(50,764
)
 
$
19,526

 
*


 
 
 
 
 
 
 
 
 
 
 
Diluted (loss) per share - GAAP
$
(0.38
)
 
$
(0.10
)
 
(280
)%
 
$
(1.16
)
 
$
(0.07
)
 
(1,557
)%
Non-GAAP adjustments
0.15

 
0.12

 
 
 
0.52

 
0.30

 
 
Diluted (loss) earnings per share - Non-GAAP
$
(0.23
)
 
$
0.02

 
*

 
$
(0.64
)
 
$
0.23

 
*

 
 
 
 
 
 
 
 
 
 
 
 
Diluted weighted-average number of common shares outstanding - GAAP
79,200

 
78,700

 
1
 %
 
78,928

 
78,525

 
1
 %
Incremental dilutive shares for non-GAAP
—

 
4,521

 
 
 
—

 
4,714

 
 
Diluted weighted-average number of common shares outstanding - Non-GAAP
79,200

 
83,221

 
(5
)%
 
78,928

 
83,239

 
(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 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 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 loss (gain): 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:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Cost of revenues
$
4,787

 
$
4,319

 
$
14,216

 
$
12,277

Selling and marketing
8,317

 
6,198

 
24,055

 
16,895

Research and development
4,858

 
3,917

 
13,990

 
11,356

General and administrative
3,884

 
1,974

 
7,981

 
7,045

 
$
21,846

 
$
16,408

 
$
60,242

 
$
47,573

Income tax benefit
$
(4,430
)
 
$
(3,555
)
 
$
(12,226
)
 
$
(10,037
)
(3) Effective income tax rates were:
 
Nine Months Ended
September 30,
 
2019
 
2018
GAAP
32
%
 
80
%
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)
 
September 30, 2019
 
December 31, 2018
Assets
 
 
 
Total cash, cash equivalents, and marketable securities
$
112,569

 
$
207,423

Total receivables (billed and unbilled)
419,320

 
504,765

Goodwill
78,862

 
72,858

Other assets
306,273

 
197,507

Total assets
$
917,024

 
$
982,553

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Accrued expenses, including compensation and related expenses
$
129,869

 
$
130,177

Deferred revenue, current
159,849

 
185,145

Other liabilities
98,474


45,700

Stockholders’ equity
528,832

 
621,531

Total liabilities and stockholders’ equity
$
917,024

 
$
982,553




PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Nine Months Ended
September 30,
 
2019
 
2018
Net (loss)
$
(91,351
)
 
$
(5,796
)
Adjustments to reconcile net (loss) to cash (used in) provided by operating activities
 
 
 
Non-cash items
73,547

 
75,992

Change in operating assets and liabilities, net
4,342

 
(3,108
)
Cash (used in) provided by operating activities
(13,462
)
 
67,088

Cash provided by (used in) investing activities
53,448

 
(49,595
)
Cash (used in) financing activities
(61,941
)
 
(71,664
)
Effect of exchange rate changes on cash and cash equivalents
(363
)
 
(1,913
)
Net (decrease) in cash and cash equivalents
(22,318
)
 
(56,084
)
Cash and cash equivalents, beginning of period
114,422

 
162,279

Cash and cash equivalents, end of period
$
92,104

 
$
106,195




8