- Operating cash flow reaches $138
million through Q3 2023 (free cash flow reaches $124 million)
- Pega Cloud gross margin
continues to improve, reaching 74% through Q3 2023
- Annual contract value grows 12% year over year (10% in
constant currency)
CAMBRIDGE, Mass., Oct. 25,
2023 /PRNewswire/ -- Pegasystems Inc., the low-code
platform provider empowering the world's leading enterprises to
Build for Change®, released its financial results
for the third quarter of 2023.
"In Q3, we launched Pega Infinity '23, with highly advanced and
practical GenAI capabilities," said Alan
Trefler, Founder and CEO. "Our ability to create
enterprise-class workflows in seconds using our GenAI capabilities
is game-changing, and clients are amazed when they see what they
can do with our technology."
"Balancing growth and free cash flow is critical to achieving
lasting value, and I'm pleased with our momentum," said
Ken Stillwell, COO and CFO. "We
drove record free cash flow in the first three quarters of 2023,
and ACV grew by double digits."
Financial and performance metrics
(1)
Reconciliation of
ACV and Constant Currency ACV
|
|
|
|
(in millions, except
percentages)
|
Q3 22
|
|
Q3 23
|
|
1-Year
Change
|
ACV
|
$
1,040
|
|
$
1,169
|
|
12 %
|
Impact of changes in
foreign exchange rates
|
—
|
|
(22)
|
|
|
Constant Currency
ACV
|
$
1,040
|
|
$
1,147
|
|
10 %
|
Note: Constant currency ACV is calculated by applying the Q3
2022 foreign exchange rates to all periods shown.
(Dollars in
thousands,
except per share
amounts)
|
Three Months
Ended
September
30,
|
|
|
|
Nine Months
Ended
September
30,
|
|
|
2023
|
|
2022
|
|
Change
|
|
2023
|
|
2022
|
|
Change
|
Total
revenue
|
$
334,643
|
|
$
270,731
|
|
24 %
|
|
$
958,383
|
|
$
921,375
|
|
4 %
|
Net (loss) -
GAAP
|
$
(7,279)
|
|
$
(93,520)
|
|
92 %
|
|
$
(74,857)
|
|
$
(380,195)
|
|
80 %
|
Net income (loss) -
non-GAAP
|
$
37,595
|
|
$
(27,498)
|
|
*
|
|
$
58,018
|
|
$
(8,730)
|
|
*
|
Diluted (loss) per
share - GAAP
|
$
(0.09)
|
|
$
(1.14)
|
|
92 %
|
|
$
(0.90)
|
|
$
(4.65)
|
|
81 %
|
Diluted earnings (loss)
per share - non-GAAP
|
$
0.44
|
|
$
(0.34)
|
|
*
|
|
$
0.69
|
|
$
(0.11)
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
* not
meaningful
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands)
|
Three Months
Ended
September
30,
|
|
Change
|
|
Nine Months
Ended
September
30,
|
|
Change
|
2023
|
|
2022
|
|
|
2023
|
|
2022
|
|
Pega Cloud
|
$ 118,040
|
35 %
|
|
$
97,359
|
36 %
|
|
$
20,681
|
21 %
|
|
$ 340,982
|
36 %
|
|
$ 281,182
|
31 %
|
|
$
59,800
|
21 %
|
Maintenance
|
83,538
|
25 %
|
|
77,526
|
29 %
|
|
6,012
|
8 %
|
|
245,210
|
25 %
|
|
235,568
|
25 %
|
|
9,642
|
4 %
|
Subscription
services
|
201,578
|
60 %
|
|
174,885
|
65 %
|
|
26,693
|
15 %
|
|
586,192
|
61 %
|
|
516,750
|
56 %
|
|
69,442
|
13 %
|
Subscription
license
|
74,342
|
22 %
|
|
31,112
|
11 %
|
|
43,230
|
139 %
|
|
200,066
|
21 %
|
|
210,245
|
23 %
|
|
(10,179)
|
(5) %
|
Subscription
|
275,920
|
82 %
|
|
205,997
|
76 %
|
|
69,923
|
34 %
|
|
786,258
|
82 %
|
|
726,995
|
79 %
|
|
59,263
|
8 %
|
Perpetual
license
|
2,747
|
1 %
|
|
9,223
|
3 %
|
|
(6,476)
|
(70) %
|
|
4,729
|
— %
|
|
18,929
|
2 %
|
|
(14,200)
|
(75) %
|
Consulting
|
55,976
|
17 %
|
|
55,511
|
21 %
|
|
465
|
1 %
|
|
167,396
|
18 %
|
|
175,451
|
19 %
|
|
(8,055)
|
(5) %
|
|
$ 334,643
|
100 %
|
|
$ 270,731
|
100 %
|
|
$
63,912
|
24 %
|
|
$ 958,383
|
100 %
|
|
$ 921,375
|
100 %
|
|
$
37,008
|
4 %
|
1 Refer to the schedules at the end of this
release for additional information, including a reconciliation of
GAAP and non-GAAP measures.
Quarterly conference call
A conference call and audio-only webcast will be conducted the
following day at 8:00 a.m. EDT on Thursday,
October 26, 2023.
Members of the public and investors are invited to join the call
and participate in the question and answer session by dialing
1-877-407-9039 (domestic), 1-201-689-8470 (international), or via
webcast
(https://viavid.webcasts.com/starthere.jsp?ei=1636774&tp_key=0bfa15da66)
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, consistent
with how management measures and forecasts our performance without
the effect of often one-time charges and other items outside our
normal operations. 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, which speak 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;
- 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 impacts from public health emergencies 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 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, 2022, 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 October 25, 2023.
About Pegasystems
Pega provides a powerful low-code platform that empowers the
world's leading enterprises to Build for 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
September
30,
|
|
Nine Months
Ended
September
30,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Revenue
|
|
|
|
|
|
|
|
Subscription
services
|
$
201,578
|
|
$
174,885
|
|
$
586,192
|
|
$
516,750
|
Subscription
license
|
74,342
|
|
31,112
|
|
200,066
|
|
210,245
|
Consulting
|
55,976
|
|
55,511
|
|
167,396
|
|
175,451
|
Perpetual
license
|
2,747
|
|
9,223
|
|
4,729
|
|
18,929
|
Total
revenue
|
334,643
|
|
270,731
|
|
958,383
|
|
921,375
|
Cost of
revenue
|
|
|
|
|
|
|
|
Subscription
services
|
35,906
|
|
34,541
|
|
109,553
|
|
103,104
|
Subscription
license
|
629
|
|
628
|
|
1,971
|
|
1,923
|
Consulting
|
57,204
|
|
57,778
|
|
176,262
|
|
171,162
|
Perpetual
license
|
24
|
|
103
|
|
51
|
|
173
|
Total cost of
revenue
|
93,763
|
|
93,050
|
|
287,837
|
|
276,362
|
Gross profit
|
240,880
|
|
177,681
|
|
670,546
|
|
645,013
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling and
marketing
|
131,598
|
|
153,517
|
|
425,253
|
|
472,951
|
Research and
development
|
74,955
|
|
75,342
|
|
224,262
|
|
221,173
|
General and
administrative
|
27,321
|
|
26,043
|
|
73,893
|
|
94,530
|
Restructuring
|
17,822
|
|
—
|
|
21,450
|
|
—
|
Total operating
expenses
|
251,696
|
|
254,902
|
|
744,858
|
|
788,654
|
(Loss) from
operations
|
(10,816)
|
|
(77,221)
|
|
(74,312)
|
|
(143,641)
|
Foreign currency
transaction gain (loss)
|
1,994
|
|
3,826
|
|
(3,971)
|
|
8,415
|
Interest
income
|
2,532
|
|
520
|
|
5,831
|
|
1,036
|
Interest
expense
|
(1,533)
|
|
(1,992)
|
|
(5,229)
|
|
(5,882)
|
(Loss) on capped call
transactions
|
(2,294)
|
|
(6,876)
|
|
(449)
|
|
(56,381)
|
Other income (loss),
net
|
6,383
|
|
(29)
|
|
18,668
|
|
6,497
|
(Loss) before
provision for income taxes
|
(3,734)
|
|
(81,772)
|
|
(59,462)
|
|
(189,956)
|
Provision for income
taxes
|
3,545
|
|
11,748
|
|
15,395
|
|
190,239
|
Net (loss)
|
$
(7,279)
|
|
$
(93,520)
|
|
$
(74,857)
|
|
$
(380,195)
|
(Loss) per
share
|
|
|
|
|
|
|
|
Basic
|
$
(0.09)
|
|
$
(1.14)
|
|
$
(0.90)
|
|
$
(4.65)
|
Diluted
|
$
(0.09)
|
|
$
(1.14)
|
|
$
(0.90)
|
|
$
(4.65)
|
Weighted-average
number of common shares outstanding
|
|
|
|
|
|
|
|
Basic
|
83,336
|
|
81,996
|
|
82,996
|
|
81,842
|
Diluted
|
83,336
|
|
81,996
|
|
82,996
|
|
81,842
|
PEGASYSTEMS
INC.
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands)
|
|
|
September 30,
2023
|
|
December 31,
2022
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
169,023
|
|
$
145,054
|
Marketable
securities
|
167,286
|
|
152,167
|
Total cash, cash
equivalents, and marketable securities
|
336,309
|
|
297,221
|
Accounts receivable,
net
|
168,795
|
|
255,150
|
Unbilled receivables,
net
|
199,948
|
|
213,719
|
Other current
assets
|
71,438
|
|
80,388
|
Total current
assets
|
776,490
|
|
846,478
|
Unbilled receivables,
net
|
73,795
|
|
95,806
|
Goodwill
|
81,437
|
|
81,399
|
Other long-term
assets
|
290,807
|
|
333,989
|
Total
assets
|
$
1,222,529
|
|
$
1,357,672
|
Liabilities and
stockholders' equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
20,541
|
|
$
18,195
|
Accrued
expenses
|
43,624
|
|
50,355
|
Accrued compensation
and related expenses
|
93,511
|
|
127,728
|
Deferred
revenue
|
297,067
|
|
325,212
|
Other current
liabilities
|
18,038
|
|
17,450
|
Total current
liabilities
|
472,781
|
|
538,940
|
Convertible senior
notes, net
|
498,753
|
|
593,609
|
Operating lease
liabilities
|
68,874
|
|
79,152
|
Other long-term
liabilities
|
14,485
|
|
15,128
|
Total
liabilities
|
1,054,893
|
|
1,226,829
|
Total
stockholders' equity
|
167,636
|
|
130,843
|
Total
liabilities and stockholders' equity
|
$
1,222,529
|
|
$
1,357,672
|
PEGASYSTEMS
INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
|
Nine Months
Ended
September
30,
|
|
2023
|
|
2022
|
Net (loss)
|
$
(74,857)
|
|
$
(380,195)
|
Adjustments to
reconcile net (loss) to cash provided by (used in) operating
activities
|
|
|
|
Non-cash
items
|
168,001
|
|
372,684
|
Change in operating
assets and liabilities, net
|
44,776
|
|
(5,935)
|
Cash provided by (used
in) operating activities
|
137,920
|
|
(13,446)
|
Cash (used in)
provided by investing activities
|
(24,176)
|
|
10,104
|
Cash (used in)
financing activities
|
(85,031)
|
|
(43,484)
|
Effect of exchange rate
changes on cash, cash equivalents, and restricted cash
|
(1,621)
|
|
(5,513)
|
Net increase
(decrease) in cash, cash equivalents, and restricted
cash
|
27,092
|
|
(52,339)
|
Cash, cash equivalents,
and restricted cash, beginning of period
|
145,054
|
|
159,965
|
Cash, cash equivalents,
and restricted cash, end of period
|
$
172,146
|
|
$
107,626
|
PEGASYSTEMS
INC.
RECONCILIATION OF
SELECTED GAAP AND NON-GAAP MEASURES
(in thousands,
except percentages and per share amounts)
|
|
|
Three Months
Ended
September
30,
|
|
Nine Months
Ended
September
30,
|
2023
|
|
2022
|
|
Change
|
|
2023
|
|
2022
|
|
Change
|
Net (loss) -
GAAP
|
$
(7,279)
|
|
$ (93,520)
|
|
92 %
|
|
$ (74,857)
|
|
$
(380,195)
|
|
80 %
|
Stock-based
compensation (1)
|
31,299
|
|
33,774
|
|
|
|
110,083
|
|
93,301
|
|
|
Capped call
transactions
|
2,294
|
|
6,876
|
|
|
|
449
|
|
56,381
|
|
|
Legal fees
|
6,748
|
|
4,470
|
|
|
|
11,066
|
|
32,420
|
|
|
Repurchases of
convertible senior notes
|
—
|
|
—
|
|
|
|
(7,855)
|
|
—
|
|
|
Restructuring
|
17,822
|
|
—
|
|
|
|
21,450
|
|
—
|
|
|
Interest on convertible
senior notes
|
613
|
|
724
|
|
|
|
1,988
|
|
2,163
|
|
|
Amortization of
intangible assets
|
965
|
|
1,048
|
|
|
|
2,977
|
|
3,045
|
|
|
Foreign currency
transaction (gain) loss
|
(1,994)
|
|
(3,826)
|
|
|
|
3,971
|
|
(8,415)
|
|
|
Other
|
(5,814)
|
|
3,452
|
|
|
|
(10,285)
|
|
(131)
|
|
|
Income tax effects
(2)
|
(7,059)
|
|
19,504
|
|
|
|
(969)
|
|
192,701
|
|
|
Net income (loss) -
non-GAAP
|
$ 37,595
|
|
$ (27,498)
|
|
*
|
|
$ 58,018
|
|
$ (8,730)
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) per
share - GAAP
|
$
(0.09)
|
|
$
(1.14)
|
|
92 %
|
|
$
(0.90)
|
|
$
(4.65)
|
|
81 %
|
non-GAAP
adjustments
|
0.53
|
|
0.80
|
|
|
|
1.59
|
|
4.54
|
|
|
Diluted earnings (loss)
per share - non-GAAP
|
$
0.44
|
|
$
(0.34)
|
|
*
|
|
$
0.69
|
|
$
(0.11)
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average number of common shares outstanding -
GAAP
|
83,336
|
|
81,996
|
|
2 %
|
|
82,996
|
|
81,842
|
|
1 %
|
Stock-based
compensation
|
1,945
|
|
—
|
|
|
|
1,332
|
|
—
|
|
|
Diluted
weighted-average number of common shares outstanding -
non-GAAP
|
85,281
|
|
81,996
|
|
4 %
|
|
84,328
|
|
81,842
|
|
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 operational performance.
- Legal fees: Includes 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 disputes 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.
- 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 the impact 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.
- 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.
- 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.
- 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, capital advisory expenses, expenses incurred due to
the cancellation of in-person sales and marketing events, 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've
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
September
30,
|
|
Nine Months
Ended
September
30,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Cost of
revenue
|
$
6,410
|
|
$
6,797
|
|
$
22,497
|
|
$
19,754
|
Selling and
marketing
|
10,401
|
|
12,933
|
|
43,410
|
|
36,524
|
Research and
development
|
7,375
|
|
7,724
|
|
24,286
|
|
22,425
|
General and
administrative
|
7,113
|
|
6,320
|
|
19,890
|
|
14,598
|
|
$
31,299
|
|
$
33,774
|
|
$
110,083
|
|
$
93,301
|
Income tax
benefit
|
$
(316)
|
|
$
(600)
|
|
$
(1,569)
|
|
$
(1,505)
|
(2) Effective income
tax rates:
|
|
|
|
|
Nine Months
Ended
September
30,
|
|
2023
|
|
2022
|
GAAP
|
(26) %
|
|
(100) %
|
non-GAAP
|
22 %
|
|
22 %
|
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.
PEGASYSTEMS
INC.
RECONCILIATION OF
FREE CASH FLOW (1)
(in thousands,
except percentages)
|
|
|
Nine Months
Ended
September
30,
|
2023
|
|
2022
|
|
2021
|
|
|
Margin
(2)
|
|
|
Margin
(2)
|
|
|
Margin
(2)
|
Cash provided by
(used in) operating activities
|
$
137,920
|
14 %
|
|
$ (13,446)
|
(1) %
|
|
$
(5,321)
|
(1) %
|
Investment in property
and equipment
|
(14,271)
|
|
|
(22,285)
|
|
|
$
(7,089)
|
|
Free cash
flow
|
$ 123,649
|
13 %
|
|
$ (35,731)
|
(4) %
|
|
$
(12,410)
|
(1) %
|
|
|
|
|
|
|
|
|
|
Additional
information (3)
|
|
|
|
|
|
|
|
|
Legal fees
|
$
5,867
|
|
|
$ 37,944
|
|
|
$
5,750
|
|
Restructuring
|
21,576
|
|
|
—
|
|
|
—
|
|
Interest on convertible
senior notes
|
4,134
|
|
|
4,500
|
|
|
4,500
|
|
Other
|
—
|
|
|
3,266
|
|
|
115
|
|
|
$
31,577
|
|
|
$ 45,710
|
|
|
$
10,365
|
|
|
Three Months
Ended
|
Nine Months
Ended
September 30,
2023
|
|
March 31,
2023
|
|
June 30,
2023
|
|
September 30,
2023
|
|
Cash provided by
operating activities
|
$
68,107
|
|
$
45,645
|
|
$
24,168
|
|
$
137,920
|
Investment in property
and equipment
|
$
(11,487)
|
|
$
(2,446)
|
|
$
(338)
|
|
$
(14,271)
|
Free cash
flow
|
$
56,620
|
|
$
43,199
|
|
$
23,830
|
|
$
123,649
|
|
|
|
|
|
|
|
|
Additional
information (3)
|
|
|
|
|
|
|
|
Legal fees
|
$
1,515
|
|
$
1,435
|
|
$
2,917
|
|
$
5,867
|
Restructuring
|
14,458
|
|
3,063
|
|
4,055
|
|
21,576
|
Interest on convertible
senior notes
|
2,250
|
|
—
|
|
1,884
|
|
4,134
|
|
$
18,223
|
|
$
4,498
|
|
$
8,856
|
|
$
31,577
|
|
|
(1)
|
Our non-GAAP free cash
flow is defined as cash provided by (used in) operating activities
less investment in property and equipment. Investment in property
and equipment fluctuates in amount and frequency and are
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.
Starting in the third quarter of 2023, the Company has calculated
free cash flow as cash provided by (used in) operating activities
less investments in property and equipment. To ensure
comparability, previously disclosed amounts have been
updated.
|
(2)
|
Operating and Free Cash
Flow Margin are calculated by comparing the respective cash flow to
Total Revenue.
|
(3)
|
The additional
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.
|
- Legal fees: Includes 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 Notes accrue interest at an annual rate of
0.75%, payable semi-annually in arrears on March 1 and September
1, beginning September 1,
2020.
- Other: Includes fees related to capital advisory services,
canceled in-person sales and marketing events, and incremental
costs incurred integrating acquisitions.
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.
In 2023, the Company revised its ACV methodology for maintenance
and all contracts less than 12 months as its overall client renewal
rate exceeds 90%. The impact of the change was $3 million and 0.3% of Total ACV or less for all
quarters in 2022. Previously disclosed ACV amounts have been
updated to allow for comparability. This simplification, made
possible by improvements to the Company's financial systems,
ensures that ACV for all contract types and lengths is consistently
calculated as the total contract value divided by the duration in
years. Previously, ACV for maintenance was calculated as the
maintenance revenue for the quarter then ended, multiplied by four,
and ACV for contracts less than 12 months was equal to the
contract's total value. The Company believes the simplified
methodology better represents the current value of its contracts
and better aligns its definition with comparable companies.
|
September 30,
2023
|
|
September 30,
2022
|
|
Change
|
Pega Cloud
|
$
494,571
|
|
$
421,577
|
|
$
72,994
|
17 %
|
Maintenance
|
319,250
|
|
302,763
|
|
16,487
|
5 %
|
Subscription
services
|
813,821
|
|
724,340
|
|
89,481
|
12 %
|
Subscription
license
|
355,055
|
|
315,241
|
|
39,814
|
13 %
|
|
$
1,168,876
|
|
$
1,039,581
|
|
$
129,295
|
12 %
|
Reconciliation of
ACV and Constant Currency ACV
|
|
(in millions, except
percentages)
|
Q3 22
|
|
Q4 22
|
|
Q1 23
|
|
Q2 23
|
|
Q3 23
|
|
1-Year
Change
|
ACV
|
$
1,040
|
|
$
1,126
|
|
$
1,174
|
|
$
1,164
|
|
$
1,169
|
|
12 %
|
Impact of changes in
foreign exchange rates
|
—
|
|
(26)
|
|
(32)
|
|
(31)
|
|
(22)
|
|
|
Constant Currency
ACV
|
$
1,040
|
|
$
1,100
|
|
$
1,142
|
|
$
1,133
|
|
$
1,147
|
|
10 %
|
PEGASYSTEMS
INC. BACKLOG (in thousands, except
percentages)
|
|
Remaining
performance obligations ("Backlog") - Expected future
revenue from existing non-cancellable contracts:
|
|
As of
September 30, 2023:
|
|
|
|
|
Subscription
services
|
|
Subscription
license
|
|
Perpetual
license
|
|
Consulting
|
|
Total
|
Maintenance
|
|
Pega
Cloud
|
|
|
|
|
1 year
or less
|
$
202,610
|
|
$
391,324
|
|
$
48,427
|
|
$
4,567
|
|
$
39,335
|
|
$
686,263
|
54 %
|
1-2 years
|
58,610
|
|
239,787
|
|
4,356
|
|
2,696
|
|
3,662
|
|
309,111
|
24 %
|
2-3 years
|
28,585
|
|
121,778
|
|
8,518
|
|
—
|
|
1,100
|
|
159,981
|
13 %
|
Greater than 3
years
|
17,478
|
|
89,870
|
|
2,664
|
|
—
|
|
—
|
|
110,012
|
9 %
|
|
$
307,283
|
|
$
842,759
|
|
$
63,965
|
|
$
7,263
|
|
$
44,097
|
|
$ 1,265,367
|
100 %
|
% of Total
|
24 %
|
|
67 %
|
|
5 %
|
|
1 %
|
|
3 %
|
|
100 %
|
|
Change since September
30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
$
20,403
|
|
$
103,121
|
|
$
(13,055)
|
|
$
(308)
|
|
$
7,274
|
|
$
117,435
|
|
|
7 %
|
|
14 %
|
|
(17) %
|
|
(4) %
|
|
20 %
|
|
10 %
|
|
|
|
As of
September 30, 2022:
|
|
|
|
|
Subscription
services
|
|
Subscription
license
|
|
Perpetual
license
|
|
Consulting
|
|
Total
|
Maintenance
|
|
Pega
Cloud
|
|
|
|
|
1 year
or less
|
$
191,045
|
|
$
328,111
|
|
$
69,753
|
|
$
814
|
|
$
27,968
|
|
$
617,691
|
53 %
|
1-2 years
|
55,141
|
|
213,304
|
|
4,113
|
|
4,505
|
|
6,699
|
|
283,762
|
25 %
|
2-3 years
|
24,496
|
|
115,416
|
|
1,420
|
|
2,252
|
|
1,648
|
|
145,232
|
13 %
|
Greater than 3
years
|
16,198
|
|
82,807
|
|
1,734
|
|
—
|
|
508
|
|
101,247
|
9 %
|
|
$
286,880
|
|
$
739,638
|
|
$
77,020
|
|
$
7,571
|
|
$
36,823
|
|
$ 1,147,932
|
100 %
|
% of Total
|
25 %
|
|
64 %
|
|
7 %
|
|
1 %
|
|
3 %
|
|
100 %
|
|
PEGASYSTEMS
INC.
RECONCILIATION OF
GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG
(in millions, except
percentages)
|
|
|
Q3 22
|
|
Q3
2023
|
|
1 Year Growth
Rate
|
Backlog -
GAAP
|
$
1,148
|
|
$
1,265
|
|
10 %
|
Impact of changes in
foreign exchange rates
|
—
|
|
(33)
|
|
|
Constant currency
backlog
|
$
1,148
|
|
$
1,232
|
|
7 %
|
Note: Constant currency
Backlog is calculated by applying the Q3 2022 foreign exchange
rates to all periods shown.
|
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SOURCE Pegasystems Inc.