Pegasystems Reports First Quarter Earnings of $0.19 EPS
CAMBRIDGE, Mass., Apr 28, 2003 — Pegasystems Inc. (Nasdaq: PEGA), a leading provider of rules-based, smart business process management (BPM) software, today announced its first quarter 2003 results, reporting revenues of $25.6 million, an increase of 6% from the first quarter of 2002. The Company achieved earnings per diluted share of $0.19 for the quarter ended March 31, 2003, nearly double the $.10 per share for the first quarter of 2002.
(In millions, except per share data and percentages) Q1 2003 Q1 2002 Total Revenue $ 25.6 $ 24.2 License Revenue $ 16.2 $ 16.3 % of Total Revenue 63% 67% Services Revenue $9.4 $7.9 % of Total Revenue 37% 33% Net Income $6.8 $3.4 Basic Earnings Per Share $0.20 $0.10 Diluted Earnings Per Share $0.19 $0.10
Pegasystems earned net profits of $6.8 million and generated $4.8 million in net cash flow for the quarter. Total cash and investments increased to $67.7 million at March 31, 2003, up significantly from $41.3 million at March 31, 2002.
Henry Ancona, President and COO, said, "The quarter was a resounding success — we signed three new customers, we expanded a significant customer relationship, we saw growth in services revenue and margins, and we benefited from reduced expenses.
"These three new customer wins, which are anticipated to result in services and license revenues in future quarters, included two new healthcare organizations and one financial services institution. During the first quarter, one of the larger health plans in the country selected the PegaHEALTH Claims Automation application to manage exceptions for its million-plus enrollee base. The second new healthcare customer win, Blue Cross & Blue Shield of Rhode Island, selected the PegaHEALTH Member Services application to provide an integrated service center for its 650,000 members. The third new customer, an international financial services institution, selected the PegaINTEGRATED INVESTIGATIONS suite of applications to automate payments-investigations processing.
"We are not, however, immune to the challenges of the soft IT-spending environment. In particular, while buyers continue to show interest in our new technologies, corporate purchasing decisions continue to be delayed, resulting in risk to new product revenue growth.
"The quarter's performance is also solid validation of another element of our growth strategy, that of continuing to expand our footprint within our installed base. A long-term financial services customer extended both the term and usage of their PegaINTEGRATED INVESTIGATIONS and PegaCHECK suite of services, more than doubling their users of Pegasystems' best-practices software.
"Our services revenue for the quarter reflects implementation services associated with earlier new customer signings. We also saw an improvement in services margin as a result of our focus on services productivity. Going forward, as we continue to complement our direct selling and support efforts with those of our alliance partners, we do not expect to sustain this rate of services-revenue growth."
Ancona concluded, "Although operating expenses were lower for the first quarter, we expect expenses to grow as we continue to invest in strengthening our market and technology leadership."
Chris Sullivan, CFO, commented, "We continue to execute on our strategy for long-term growth with a solid focus on operations. We offset an anticipated decline in FDR revenue with a significant extension from an existing customer; license costs decreased due to the final amortization in the fourth quarter of 2002 of previously acquired technology, and services revenue grew 19% compared with the first quarter of 2002, driven by new customer implementations. Services margin improved to 32% due to an increase in higher-margin consulting services coupled with reduced staff costs. We continue to operate on a positive cash-flow basis and generated operating cash flows of $3.8 million during the quarter.
"As noted in the past, our revenue in any given quarter is composed of a small number of large deals; and significant fluctuations, both up and down, are to be expected. We are maintaining our full-year 2003 revenue guidance which, as we have previously indicated, we believe will be in line with 2002, plus or minus 10%. We have adjusted our full-year EPS expectation upward to $0.45, plus or minus 10%, and we expect to generate between $5 million and $15 million of cash from operations in 2003."
Alan Trefler, founder and CEO, commented, "The quarter's results are testimony to the strength of our technology. Customers continue to respond to our software, which is flexible enough to incorporate change and powerful enough to improve an organization's productivity and responsiveness. New customers look to Pegasystems to integrate smart, rules-based decisioning with sophisticated, rules-based fulfillment; and existing customers are able to extend Pegasystems' best practices for even greater ROI."
The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Tuesday, April 29, 2003. Dial-in information is as follows: 888-243-0812 (domestic), 703-736-7293 (international). A digital replay of the teleconference will be available at 888-266-2081 (local), 703-925-2533 (international), with a passcode of 6483115.
If interested in listening to the Webcast, log onto www.pegasystems.com at least 5 minutes prior to the event's broadcast, and click on the Webcast icon in the "Investors" section.
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 "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. The Company does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 volatility of our quarterly operating results, difficulty in predicting the completion of product implementations and consequently the timing of our license revenue recognition, our ability to develop new products and evolve existing ones, the impact on our business of the ongoing consolidation in the financial services market, historically our core market, our ability to attract and retain key employees, reliance on certain key third-party relationships, management of the Company's growth, and other risks and uncertainties. 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 most recent report on form 10-Q or 10-K and other recent filings on file with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company's views as of April 28, 2003. 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 April 28, 2003.
Pegasystems is a registered trademark of Pegasystems Inc. Other product and company names may be trademarks of their respective owners.
PEGASYSTEMS INC. Condensed Consolidated Balance Sheets (in thousands, except share-related amounts) March 31, 2003 December 31, 2002 Assets Current Assets Cash and cash equivalents $ 62,151 $ 57,393 Trade accounts receivable, net of allowance for doubtful accounts of $506 in 2003 and $507 in 2002 12,332 4,897 Short-term license installments 31,278 32,178 Short-term investments 5,539 5,303 Prepaid expenses and other current assets 779 790 Total current assets 112,079 100,561 Long-term license installments, net of unearned interest income 49,415 48,667 Long-term investments -- 750 Equipment and improvements, net of accumulated depreciation and amortization 1,340 1,727 Acquired technology, net of accumulated amortization 992 1,079 Other assets 225 196 Goodwill 3,246 3,246 Total assets $ 167,297 $ 156,226 Liabilities and Stockholders' Equity Current liabilities Accrued payroll related expenses $ 5,670 $ 7,695 Accounts payable and accrued expenses 6,289 5,220 Deferred revenue 16,955 12,145 Total current liabilities 28,914 25,060 Other long-term liabilities 231 239 Total liabilities 29,145 25,299 Commitments and contingencies Stockholders' equity Preferred stock, $0.01 par value, 1,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, $0.01 par value, 45,000,000 shares authorized; 34,381,319 shares and 34,291,389 shares issued and outstanding in 2003 and 2002, respectively 344 343 Additional paid-in capital 113,840 113,488 Stock warrants 374 374 Retained earnings 22,858 16,054 Accumulated other comprehensive income: Net unrealized gain on investments available for sale 5 -- Foreign currency translation adjustments 731 668 Total stockholders' equity 138,152 130,927 Total liabilities and stockholders' equity $167,297 $ 156,226 PEGASYSTEMS INC. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) Three Months Ended March 31, 2003 2002 Revenue Software license $ 16,198 $ 16,266 Services 9,427 7,945 Total revenue 25,625 24,211 Cost of revenue Cost of software license 88 643 Cost of services 6,396 7,292 Total cost of revenue 6,484 7,935 Gross profit 19,141 16,276 Operating expenses Research and development 4,760 5,750 Selling and marketing 5,534 5,729 General and administrative 2,510 2,409 Total operating expenses 12,804 13,888 Income from operations 6,337 2,388 Installment receivable interest income 1,200 1,258 Other interest income, net 206 143 Other expenses, net (39) (151) Income before provision for income taxes 7,704 3,638 Provision for income taxes 900 200 Net income $ 6,804 $ 3,438 Earnings per share Basic $ 0.20 $ 0.10 Diluted $ 0.19 $ 0.10 Weighted average number of common and common equivalent shares outstanding Basic 34,353 32,799 Diluted 35,039 34,739 PEGASYSTEMS INC. Condensed Consolidated Statements of Cash Flows (in thousands) Three Months Ended March 31, 2003 2002 Cash flows from operating activities Net income $ 6,804 $ 3,438 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 474 1,184 Changes in operating assets and liabilities: Trade and installment accounts receivable (7,285) 3,044 Prepaid expenses and other current assets 7 1,325 Accounts payable and accrued expenses (964) (2,825) Deferred revenue 4,809 2,287 Net cash provided by operating activities 3,845 8,453 Cash flows from investing activities Purchase of investments (2,257) --- Maturing investments 2,771 --- Acquisition of 1mind --- (573) Purchase of equipment and improvements (6) (140) Other long-term assets and liabilities 57 59 Net cash provided by (used in) investing activities 565 (654) Cash flows from financing activities Payments under capital lease obligation --- (54) Exercise of stock options 353 620 Net cash provided by financing activities 353 566 Effect of exchange rate on cash and cash equivalents (5) (42) NET INCREASE IN CASH AND CASH EQUIVALENTS 4,758 8,323 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 57,393 33,017 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 62,151 $ 41,340
Pegasystems (NASDAQ: PEGA) develops strategic applications for marketing, sales, service, and operations. Pega’s applications streamline critical business operations, connect enterprises to their customers seamlessly in real-time across channels, and adapt to meet rapidly changing requirements. Pega’s Global 3000 customers include many of the world’s most sophisticated and successful enterprises. Pega’s applications, available in the cloud or on-premises, are built on its unified Pega 7 platform, which uses visual tools to easily extend and change applications to meet clients’ strategic business needs. Pega’s clients report that Pega gives them the fastest time to value, extremely rapid deployment, efficient re-use, and global scale. For more information, please visit us at www.pega.com.
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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.
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