Pegasystems Reports Second-Quarter Pre-Tax Profits of $5.9 Million, 22% Increase over Comparable Quarter Last Year
CAMBRIDGE, Mass., July 28 — Pegasystems Inc. (Nasdaq: PEGA), a leading provider of smart business process management (BPM) software, today announced its second quarter results, reporting revenues of $25.5 million, pre-tax profits of $5.9 million, earnings per diluted share of $0.11, and positive cash flow from operations of $6.8 million.
Second Quarter Financial Performance (In millions, except per share data and percentages) Current Qtr. Prior Qtr. Prior Yr. Q2 2003 Q1 2003 Q2 2002 Total Revenue $ 25.5 $ 25.6 $ 26.7 License Revenue $ 15.9 $ 16.2 $19.1 % of Total Revenue 63% 63% 72% Services Revenue $9.6 $9.4 $7.6 % of Total Revenue 37% 37% 28% Pre-tax Income $5.9 $7.7 $4.9 Provision for income taxes $2.0 $0.9 $0.3 Net Income $3.9 $6.8 $4.6 Basic Earnings Per Share $0.11 $0.20 $0.14 Diluted Earnings Per Share $0.11 $0.19 $0.13
Henry Ancona, President and Chief Operating Officer, commented, "Building on the first quarter's success in the healthcare market, we saw continued success in financial services in the second quarter. During the quarter, we sold our PegaCHECK Smart Adjust product to a Midwest banking organization, and we extended a relationship with a user of our PegaCARD solution. In both cases, the organizations needed a solution to ensure differentiated service to their end users, and in both cases Pegasystems offered the winning solution.
"We have had good success through the first half of the year and continue to focus on Simply Smart BPM. We have signed four new customers through the first half of the year, and renewed and expanded two existing customer relationships. Service revenues were $19 million for the first half of the year, up 22% over the first half of 2002, reflective of the additional projects underway. Service margins through the first half of the year were 32%, a significant improvement over 4% in the comparable period last year, and further validation of our focus on execution. We do not expect to continue this rate of services-revenue growth and margin improvement as we move toward our goal of complementing our direct selling and support efforts with those of our alliance partners.
Ancona concluded, "As noted last quarter, customers remain cautious in making purchasing decisions. However, because we continue to receive positive response to our new technologies, we have committed to increase our investment in research and development and marketing."
Said founder and CEO Alan Trefler, "We were delighted to see record attendance at this year's user conference. Held midway through the quarter, we attracted a broad group of customers, partners, and prospects. Based on positive feedback regarding our technology and attendees' need for agile and flexible business processes, we look forward to continuing to leverage our rules-based BPM platform."
Chris Sullivan, CFO, commented, "Total revenue of $25.5 million for the second quarter was essentially unchanged from the first quarter's $25.6 million, and down $1.2 million from the comparable quarter last year as a decrease in license revenue was only partially offset by an increase in services revenue. We reported license revenue of $15.9 million, a decrease of $3.2 million compared to the second quarter of 2002, due primarily to the anticipated decline in FDR license revenue of approximately $2.4 million. Substantially all of our license revenue continued to be from existing customers who continue to confirm their support of Pegasystems with renewals, add-ons, and extensions of existing licenses. We reported services revenue of $9.6 million, an increase of $2 million compared to the second quarter of 2002, primarily due to implementation projects associated with new-customer license signings. While we have succeeded in signing more new-customer license business in the first half of 2003, the implementation projects are not yet complete, and therefore the associated license revenue has not yet been recognized.
"We continue to operate on a positive cash-flow basis, and generated operating cash flows of $10.6 million during the first six months. Profits before taxes were $5.9 million for the second quarter, compared with $4.9 million for the comparable period last year. Net income for the second quarter, however, was negatively impacted as our effective tax rate trended higher. This trend is expected to continue, though the quarterly effective tax rate is subject to fluctuations due to a variety of factors including valuation allowance adjustments.
"We are maintaining our full-year 2003 revenue guidance in line with 2002's $97.4 million, plus or minus 10%, and are maintaining our full-year EPS expectation at $0.45, plus or minus 10%. With the continued strong cash flow performance through the second quarter, we now expect to generate between $12–$18 million of cash from operations in 2003."
The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Tuesday, July 29, 2003. Dial-in information is as follows: 800-982-3472 (domestic) or 703-871-3022 (international). A replay of the teleconference will be available at 888-266- 2081 (domestic), 703-925-2533 (international), with a passcode of 196826.
If interested in listening 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 "Investor Relations" section.
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 including without limitation our financial guidance with respect to 2003 revenue, earnings per share and cash from operations. The words "believe," "expect," "hope," "anticipate," "plan," and similar expressions, among others, 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, 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 July 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 July 28, 2003.
PEGASYSTEMS INC. Condensed Consolidated Balance Sheets (in thousands, except share-related amounts) June 30, December 31, 2003 2002 Assets Current assets Cash and cash equivalents $ 70,125 $ 57,393 Trade accounts receivable, net of allowance for doubtful accounts of $417 in 2003 and $507 in 2002 6,198 4,897 Short-term license installments 33,838 32,178 Short-term investments 4,874 5,303 Prepaid expenses and other current assets 544 790 Total current assets 115,579 100,561 Long-term license installments, net of unearned interest income 55,017 48,667 Long-term investments -- 750 Equipment and improvements, net of accumulated depreciation and amortization 1,127 1,727 Acquired technology, net of accumulated amortization 904 1,079 Other assets 227 196 Goodwill 2,346 3,246 Total assets $ 175,200 $ 156,226 Liabilities and Stockholders' Equity Current liabilities Accrued payroll related expenses $ 6,434 $ 7,695 Accounts payable and accrued expenses 8,168 5,220 Deferred revenue 17,367 12,145 Total current liabilities 31,969 25,060 Deferred income taxes 1,100 -- Other long-term liabilities 232 239 Total liabilities 33,301 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; 34,356,188 shares and 34,291,389 shares issued and outstanding in 2003 and 2002, respectively 344 343 Additional paid-in capital 113,507 113,488 Stock warrants 374 374 Retained earnings 26,776 16,054 Accumulated other comprehensive income: Net unrealized gain on investments available for sale 5 -- Foreign currency translation adjustments 893 668 Total stockholders' equity 141,899 130,927 Total liabilities and stockholders' equity $175,200 $156,226 PEGASYSTEMS INC. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 Revenue Software license $15,937 $19,105 $32,134 $35,371 Services 9,550 7,562 18,977 15,507 Total revenue 25,487 26,667 51,111 50,878 Cost of revenue Cost of software license 88 673 175 1,316 Cost of services 6,525 7,601 12,921 14,893 Total cost of revenue 6,613 8,274 13,096 16,209 Gross profit 18,874 18,393 38,015 34,669 Operating expenses Research and development 5,438 5,604 10,198 11,354 Selling and marketing 6,379 5,979 11,912 11,708 General and administrative 2,879 3,103 5,389 5,512 Total operating expenses 14,696 14,686 27,499 28,574 Income from operations 4,178 3,707 10,516 6,095 Installment receivable interest income 1,350 1,258 2,550 2,516 Other interest income, net 130 180 335 323 Other income (expense), net 260 (292) 221 (443) Income before provision for income taxes 5,918 4,853 13,622 8,491 Provision for income taxes 2,000 250 2,900 450 Net income $ 3,918 $ 4,603 $ 10,722 $ 8,041 Earnings per share Basic $ 0.11 $ 0.14 $ 0.31 $ 0.24 Diluted $ 0.11 $ 0.13 $ 0.30 $ 0.22 Weighted average number of common and common equivalent shares outstanding Basic 34,337 33,738 34,345 33,442 Diluted 35,516 36,819 35,261 35,900 PEGASYSTEMS INC. Condensed Consolidated Statements of Cash Flows (in thousands) Six Months Ended June 30, 2003 2002 Cash flows from operating activities Net income $ 10,722 $ 8,041 Adjustments to reconcile net income to net cash provided by operating activities: Stock option income tax benefits 252 --- Deferred income tax 1,100 --- Depreciation and amortization 860 2,504 Reduction in provision for doubtful accounts receivable (90) --- Changes in operating assets and liabilities: Trade and installment accounts receivable (9,222) (1,208) Prepaid expenses and other current assets 258 1,650 Accounts payable and accrued expenses 1,537 (946) Deferred revenue 5,222 2,798 Net cash provided by operating activities 10,639 12,839 Cash flows from investing activities Purchase of investments (3,620) --- Maturing investments 4,799 --- Acquisition of 1mind --- (573) Purchase of equipment and improvements (84) (291) Other long-term assets and liabilities (20) (3) Net cash provided by (used in) investing activities 1,075 (867) Cash flows from financing activities Payments under capital lease obligation --- (81) Proceeds from sale of stock under Employee Stock Purchase Plan 253 177 Exercise of stock options 419 3,631 Net cash provided by financing activities 672 3,727 Effect of exchange rate on cash and cash equivalents 346 304 NET INCREASE IN CASH AND CASH EQUIVALENTS 12,732 16,003 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 57,393 33,017 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 70,125 $ 49,020
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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