SOURCE: Pegasystems

Pegasystems

November 12, 2013 16:30 ET

Pegasystems Reports YTD 2013 License Revenue Increases 34% Compared to YTD 2012

YTD 2013 Total Revenue Increases to $355.6M, Driving Significant Increase in Profit; YTD 2013 GAAP Diluted EPS of $0.58 and YTD 2013 Non-GAAP Diluted EPS of $0.88

CAMBRIDGE, MA--(Marketwired - Nov 12, 2013) -  Pegasystems Inc. (NASDAQ: PEGA), the leader in Business Process Management (BPM) and a leading provider of Customer Relationship Management (CRM) solutions, today announced financial results for the third quarter and first nine months of 2013. Revenue for the third quarter of 2013 increased 20% compared to the third quarter of 2012. Net income for the third quarter of 2013 was $8.7 million, or $0.22 per diluted share, compared to net loss of $0.3 million, or $(0.01) per diluted share, for the third quarter of 2012. Revenue for the first nine months of 2013 increased 12% to $355.6 million compared to the first nine months of 2012. Net income for the first nine months of 2013 was $22.5 million, or $0.58 per diluted share, compared to net income of $1.5 million, or $0.04 per diluted share, for the first nine months of 2012.

 
SELECTED FINANCIAL RESULTS (1)
    Three Months Ended     Nine Months Ended
    September 30,     September 30,
($ in '000s)   2013   2012     2013   2012
License revenue   $ 44,802   $ 28,575     $ 128,217   $ 95,517
Total revenue   $ 122,011   $ 101,657     $ 355,572   $ 317,880
Gross profit   $ 83,913   $ 63,992     $ 241,943   $ 198,694
Income from operations   $ 13,789   $ 401     $ 33,793   $ 3,636
Net income (loss)   $ 8,710   $ (331 )   $ 22,482   $ 1,459
Earnings (loss) per share, basic - GAAP   $ 0.23   $ (0.01 )   $ 0.59   $ 0.04
Earnings (loss) per share, diluted - GAAP   $ 0.22   $ (0.01 )   $ 0.58   $ 0.04
                           
Earnings per share, diluted - Non-GAAP   $ 0.33   $ 0.13     $ 0.88   $ 0.45
                           
(1) See a reconciliation of our GAAP to Non-GAAP measures contained in the financial schedules at the end of this release
 

Business Perspective
"Through Q3, Pegasystems showed a 34 percent year-to-date growth in software license revenue, which is significantly higher than industry growth forecasts for our segments," said Alan Trefler, Founder and CEO of Pegasystems. "Our better business software is helping leading organizations build and evolve their critical business solutions. We are delighted by the enthusiastic feedback regarding the increased capability and ease of use in our Pega 7 release. Our October acquisition of Antenna Software, a recognized industry leader in mobile application development platforms, is indicative of our ongoing commitment to market leadership. Empowering our unique, unified and fully model-driven architecture to deliver and manage omni-channel customer engagement with smart process mobile apps will further differentiate Pega from its competitors."

Rafe Brown, Pegasystems' CFO, added, "In addition to strong top-line growth, the Company delivered operating cash flow of $83.4 million year to date, up 187 percent over the same period last year. Year-to-date earnings per share jumped to $0.88 per diluted share on a Non-GAAP basis related in part to a slightly higher than expected ratio of perpetual license revenue recognized in the current quarter."

Antenna Acquisition Impact
The Company expects Antenna's fourth quarter 2013 operations will reduce the Company's earnings by approximately $0.03 - $0.05 per share on a Non-GAAP basis.

Pegasystems will host a conference call and live Webcast associated with this announcement at 6:00 p.m. EST on November 12, 2013. Dial-in information is as follows: 1 (877) 348-9349 (domestic) or 1 (678) 809-1046 (international). To listen to the Webcast log onto www.pega.com at least 5 minutes prior to the event's broadcast and click on the Webcast icon in the Investors section. A replay of the call will also be available on www.pega.com in the Investors section Audio Archives link.

Discussion of Non-GAAP Measures

To supplement 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 both on a GAAP and Non-GAAP basis, and both are approved by our board of directors. In addition and as a consequence 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 amortization of intangible assets, stock-based compensation, acquisition-related costs and relocation expenses associated with the move of our office headquarters. The Company believes that these Non-GAAP measures are helpful in understanding our past financial performance and our 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 our consolidated financial statements prepared in accordance with GAAP. A reconciliation of the Company's GAAP 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. The words "anticipate," "project," "expect," "plan," "intend," "believe," "estimate," "should," "target," "forecast," "could," "preliminary," "guidance" and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause the Company's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include, among others, variation in demand for our products and services and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition, the ongoing consolidation in the financial services and healthcare markets, reliance on third party relationships, the potential loss of vendor specific objective evidence for our professional services, the financial impact of the Antenna acquisition, and management of the Company's growth. Further information regarding these and other factors which could cause the Company's actual results to differ materially from any forward-looking statements contained in this press release is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 and other recent filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company's views as of November 12, 2013. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause the Company's view to change, the Company does not undertake and specifically disclaims any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise. The statements should therefore not be relied upon as representing the Company's view as of any date subsequent to November 12, 2013.

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About Pegasystems
Pegasystems Build for Change® technology is the heart of better business software. It delivers business agility and empowers leading organizations to rapidly close execution gaps and seize new opportunities. Pegasystems is the recognized leader in Business Process Management and is also ranked as a leader in Customer Relationship Management solutions by leading industry analysts. For more information, please visit us at www.pega.com

All trademarks are the property of their respective owners.

The information contained in this press release is not a commitment, promise, or legal obligation to deliver any material, code or functionality. The development, release and timing of any features or functionality described remains at the sole discretion of Pegasystems. Pegasystems specifically disclaims any liability with respect to this information.

   
   
Pegasystems Inc.  
Unaudited Condensed Consolidated Statements of Operations  
(In thousands, except per share amounts)  
   
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2013     2012     2013     2012  
Revenue:                                
Software license   $ 44,802     $ 28,575     $ 128,217     $ 95,517  
Maintenance     37,979       32,317       112,238       97,657  
Professional services     39,230       40,765       115,117       124,706  
  Total revenue     122,011       101,657       355,572       317,880  
Cost of revenue:                                
Software license     1,592       1,585       4,751       4,763  
Maintenance     3,599       3,745       11,106       11,072  
Professional services     32,907       32,335       97,772       103,351  
  Total cost of revenue (1)     38,098       37,665       113,629       119,186  
Gross profit     83,913       63,992       241,943       198,694  
Operating expenses:                                
Selling and marketing     42,663       36,893       127,279       116,476  
Research and development     19,786       19,506       59,123       57,411  
General and administrative     7,130       7,192       21,203       21,171  
Acquisition-related costs     545       --       545       --  
  Total operating expenses (1)     70,124       63,591       208,150       195,058  
Income from operations     13,789       401       33,793       3,636  
Foreign currency transaction gain (loss)     661       438       (1,666 )     337  
Interest income, net     123       113       376       318  
Other expense, net     (1,163 )     (920 )     (418 )     (1,496 )
Income before provision for income taxes     13,410       32       32,085       2,795  
Provision for income taxes     4,700       363       9,603       1,336  
    Net income (loss)   $ 8,710     $ (331 )   $ 22,482     $ 1,459  
Earnings (loss) per share:                                
Basic   $ 0.23     $ (0.01 )   $ 0.59     $ 0.04  
Diluted   $ 0.22     $ (0.01 )   $ 0.58     $ 0.04  
Weighted-average number of common shares outstanding:                                
Basic     37,955       37,881       37,950       37,834  
Diluted     39,079       37,881       38,872       38,897  
Dividends declared per share   $ 0.03     $ 0.03     $ 0.09     $ 0.09  
(1) Includes stock-based compensation as follows:                                
Cost of revenue     947       849       3,134       2,710  
Operating expenses     2,053       1,935       6,579       5,912  
                                 
                                 
                                 
PEGASYSTEMS INC.  
RECONCILIATION OF SELECTED GAAP TO NON-GAAP MEASURES (1)  
($ in thousands, except per share data)  
                     
    Three Months Ended  
    September 30,  
    2013   2012  
                             
Net Income (Loss) and Diluted EPS - GAAP basis   $ 8,710   $ 0.22   $ (331 )   $ (0.01 )
                             
Adjustment to exclude amortization of intangible assets, net of tax     1,861     0.05     1,889       0.05  
Adjustment to exclude stock-based compensation, net of tax     2,014     0.05     1,893       0.05  
Adjustment to exclude acquisition-related costs, net of tax     366     0.01     --       --  
Adjustment to exclude expenses for relocation of headquarters, net of tax     --     --     1,623       0.04  
Net Income and Diluted EPS - Non-GAAP basis   $ 12,951   $ 0.33   $ 5,074     $ 0.13  
                             
Weighted-average common shares - diluted GAAP     39,079           37,881          
                             
Weighted-average common shares - diluted Non-GAAP     39,079           38,833          
                             
                             
                             
PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP TO NON-GAAP MEASURES (1)
($ in thousands, except per share data)
                 
    Nine Months Ended
    September 30,
    2013   2012
                         
Net Income and Diluted EPS - GAAP basis   $ 22,482   $ 0.58   $ 1,459   $ 0.04
                         
Adjustment to exclude amortization of intangible assets, net of tax     5,331     0.14     5,535     0.14
Adjustment to exclude stock-based compensation, net of tax     6,222     0.16     5,709     0.15
Adjustment to exclude acquisition-related costs, net of tax     349     --     --     --
Adjustment to exclude expenses for relocation of headquarters, net of tax     --     --     4,609     0.12
Net Income and Diluted EPS - Non-GAAP basis   $ 34,384   $ 0.88   $ 17,312   $ 0.45
                         
Weighted-average common shares - diluted GAAP and Non-GAAP     38,872           38,897      
                         
                         
PEGASYSTEMS INC.
FOOTNOTES FOR RECONCILIATON OF
SELECTED GAAP MEASURES TO NON-GAAP MEASURES
 
(1) This presentation includes Non-GAAP measures. Our Non-GAAP 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. For a detailed explanation of the adjustments made to comparable 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 disclosure under Discussion of Non-GAAP Measures included earlier in this release and below. Our Non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:
   
  Amortization of intangible assets: We have excluded the amortization expense of intangible assets from our Non-GAAP operating expenses and net earnings measures. Amortization of intangible assets is inconsistent 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 earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.
   
  Stock-based compensation expenses: We have excluded stock-based compensation expense from our Non-GAAP operating expenses and net earnings measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and that it will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expense.
   
  Acquisition-related costs: We have excluded the effect of acquisition-related costs from our Non-GAAP operating expenses and net earnings measures. We incurred direct and incremental costs associated with the Antenna acquisition that primarily consisted of legal and advisory fees and due diligence costs. We believe it is useful for investors to understand the effect of these items on our total operating expenses.
   
  Headquarters relocation expenses: We completed the move of our office headquarters in the third quarter of 2012. As a result of this planned move, we accelerated the depreciation on certain leasehold improvements and furniture and fixtures to be abandoned from our prior headquarters. We recorded incremental depreciation expense of $0.1 million and $0.4 million during the third quarter and first nine months of 2012, respectively. In addition, we recorded rent expense of $1.4 million and $4.4 million associated with our new office headquarters during the third quarter and first nine months of 2012, respectively. Lastly, we incurred approximately $0.9 million and $2.2 million for rent-related and equipment expenses and other moving expenses in connection with our move during the third quarter and first nine months of 2012, respectively. We believe these incremental expenses for existing and new office headquarters as a result of our moving our headquarters was not representative of our ongoing business.
   
  Weighted-average common shares: The diluted weighted-average common shares used for the calculation of Non-GAAP diluted earnings per share for the third quarter of 2012 includes the dilutive effect of outstanding options, restricted stock units, and warrants, and the average market price of our common stock during the applicable period using the treasury stock method.
   
   
   
PEGASYSTEMS INC.
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
 
    As of   As of
    September 30,
2013
  December 31,
2012
ASSETS            
Current assets:            
  Cash and cash equivalents   $ 108,827   $ 77,525
  Marketable securities     79,618     45,460
    Total cash, cash equivalents, and marketable securities     188,445     122,985
  Trade accounts receivable, net of allowance     90,583     134,066
  Deferred income taxes     10,152     10,202
  Income taxes receivable     4,199     6,261
  Other current assets     6,929     5,496
      Total current assets     300,308     279,010
Property and equipment, net     28,977     30,827
Long-term deferred income taxes     49,693     49,292
Long-term other assets     1,657     1,680
Intangible assets, net     49,910     58,232
Goodwill     20,451     20,451
      Total assets   $ 450,996   $ 439,492
LIABILITIES AND STOCKHOLDERS'EQUITY            
Current liabilities:            
  Accounts payable   $ 2,347     3,330
  Accrued expenses     20,741     15,534
  Accrued compensation and related expenses     31,925     40,715
  Deferred revenue     91,758     95,546
      Total current liabilities     146,771     155,125
Income taxes payable     13,748     13,551
Long-term deferred revenue     17,954     18,719
Other long-term liabilities     17,466     15,618
      Total liabilities     195,939     203,013
Stockholders' equity:     255,057     236,479
      Total liabilities and stockholders' equity   $ 450,996   $ 439,492
                   
                   
                   
PEGASYSTEMS INC.  
Unaudited Condensed Consolidated Statements of Cash Flows  
   
    Nine Months Ended  
    September 30,  
    2013     2012  
    (in thousands)  
Operating activities:            
  Net income   $ 22,482     $ 1,459  
  Adjustments to reconcile net income to cash provided by operating activities:                
  Excess tax benefit from equity awards and deferred income taxes     (3,207 )     (3,672 )
  Depreciation, amortization, foreign currency transaction loss (gain), and other non-cash items     18,575       17,670  
  Stock-based compensation expense     9,713       8,622  
  Change in operating assets and liabilities     35,872       5,005  
  Cash provided by operating activities     83,435       29,084  
  Cash used in investing activities     (39,674 )     (16,746 )
  Cash used in financing activities     (11,942 )     (7,050 )
Effect of exchange rate changes on cash and cash equivalents     (517 )     596  
Net increase in cash and cash equivalents     31,302       5,884  
Cash and cash equivalents, beginning of period     77,525       60,353  
Cash and cash equivalents, end of period   $ 108,827     $ 66,237  

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