Pegasystems Reports Third-Quarter Revenue of $25.1 Million, Year-to-Date Pre-Tax Profits of $18.9 Million — Up 38% over Prior Year
CAMBRIDGE, Mass., Oct. 23, 2003 — Pegasystems Inc. (Nasdaq: PEGA), a leader in rules-based, smart business process management (BPM) software, today announced its third-quarter results, reporting revenue of $25.1 million, pre-tax profits of $5.2 million, earnings per diluted share of $0.10, and positive cash flow from operations of $6.4 million.
Third Quarter Financial Performance Quarter Nine months ended (In millions, except per share data and percentages) Q3 2003 Q3 2002 9/30/03 9/30/02 Total Revenue $ 25.1 $ 25.6 $ 76.2 $76.4 License Revenue $ 13.6 $ 16.9 $ 45.7 $52.3 % of Total Revenue 54% 66% 60% 68% Services Revenue $ 11.5 $8.7 $ 30.5 $24.2 % of Total Revenue 46% 34% 40% 32% Pre-tax Income $5.2 $5.1 $ 18.9 $13.6 Provision for income taxes $1.8 $0.3 $4.7 $0.8 Net Income $3.4 $4.8 $ 14.2 $12.9 Basic Earnings Per Share $ 0.10 $ 0.14 $ 0.41 $0.38 Diluted Earnings Per Share $ 0.10 $ 0.13 $ 0.40 $0.35
Henry Ancona, President and Chief Operating Officer, commented, "Our focus on operational execution continues to drive results, with year-to-date pre-tax profits up 38% over the first nine months of 2002. Services revenue was up 26% over the first nine months of 2002 on the strength of new license sales and the resulting customer implementations, and our services margins have improved significantly over last year. Service margins were 33% through the first nine months of 2003, compared with 8% for the same period last year. As noted previously, the rate of services-revenue growth and margin improvement may not be sustainable as we continue to build our network of service-integration partners.
"During the quarter, we saw continued success in the financial services market. A major mutual fund manager elected to deploy the PegaRULES Process Commander platform in its call center and direct-processing environments. Working with EDS, we significantly expanded our contract with Inland Revenue to provide enhanced taxpayer services. In the insurance market, alliance partner AgencyPort sold its privately labeled solution, built in part on PegaRULES Process Commander, to two property and casualty customers."
Ancona continued, "In terms of products, we have continued the release of packaged applications built on PegaRULES Process Commander. Most recently we announced PegaPAYMENT Smart Adjust 3.1, a product that can reach beyond our traditional check market and into other payment types. We also announced the release of PegaCARD Smart Dispute, a new product that helps credit and debit card companies streamline the processing of card charge disputes."
Founder and CEO Alan Trefler commented, "We continue to focus on our brand, our product, and our ability to compete. We continue to invest in PegaRULES Process Commander to provide developers and users extended capabilities with even greater ease of use. We look forward to leveraging our successes and helping a widening circle of customers manage complex and changing business processes."
Chris Sullivan, CFO, commented, "The third quarter was the first quarter in which we recognized license revenue related to completed implementations of our PegaRULES Process Commander sales.
"With the strong results year to date and continued confidence in our ability to generate cash, we are revising our 2003 guidance for annual cash from operations upward to $15–$19 million. We are maintaining our 2003 EPS expectation at $0.45, plus or minus 10%. In addition, as previously indicated, we continue to evaluate the possible reversal of an approximate $1.8 million tax allowance which would have the effect of adding $0.05 to EPS."
The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Friday, October 24, 2003. Dial-in information is as follows: 800-250-4434 (domestic) or 706-634-0667 (international). A replay of the teleconference will be available at 800-642-1687 (domestic) or 706-645-9291 (international).
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.
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 including without limitation our financial guidance with respect to 2003 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 October 23, 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 October 23, 2003.
PEGASYSTEMS INC. Condensed Consolidated Balance Sheets (in thousands, except share-related amounts) September 30, December 31, 2003 2002 Assets Current assets Cash and cash equivalents $ 73,134 $ 57,393 Trade accounts receivable, net of allowance for doubtful accounts of $418 in 2003 and $507 in 2002 7,915 4,897 Short-term license installments 33,544 32,178 Short-term investments 8,841 5,303 Prepaid expenses and other current assets 949 790 Total current assets 124,383 100,561 Long-term license installments, net of unearned interest income 50,927 48,667 Long-term investments -- 750 Equipment and improvements, net of accumulated depreciation and amortization 1,139 1,727 Acquired technology, net of accumulated amortization 817 1,079 Other assets 151 196 Goodwill 2,346 3,246 Total assets $ 179,763 $ 156,226 Liabilities and Stockholders' Equity Current liabilities Accrued payroll related expenses $ 7,908 $ 7,695 Accounts payable and accrued expenses 9,865 5,220 Deferred revenue 14,248 12,145 Total current liabilities 32,021 25,060 Deferred income taxes 1,100 -- Other long-term liabilities 231 239 Total liabilities 33,352 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; 34,571,655 shares and 34,291,389 shares issued and outstanding in 2003 and 2002, respectively 346 343 Additional paid-in capital 114,424 113,488 Stock warrants 374 374 Retained earnings 30,218 16,054 Accumulated other comprehensive income: Net unrealized gain on investments available for sale 12 -- Foreign currency translation adjustments 1,037 668 Total stockholders' equity 146,411 130,927 Total liabilities and stockholders' equity $179,763 $ 156,226 See notes to condensed consolidated financial statements PEGASYSTEMS INC. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Revenue Software license $13,587 $16,902 $45,721 $52,273 Services 11,524 8,663 30,502 24,170 Total revenue 25,111 25,565 76,223 76,443 Cost of revenue Cost of software license 87 672 262 1,988 Cost of services 7,392 7,352 20,313 22,245 Total cost of revenue 7,479 8,024 20,575 24,233 Gross profit 17,632 17,541 55,648 52,210 Operating expenses Research and development 5,305 5,349 15,504 16,703 Selling and marketing 5,966 6,296 17,878 18,003 General and administrative 2,766 1,871 8,155 7,383 Total operating expenses 14,037 13,516 41,537 42,089 Income from operations 3,595 4,025 14,111 10,121 Installment receivable interest income 1,350 1,258 3,900 3,774 Other interest income, net 188 218 524 541 Other income (expense), net 106 (373) 327 (816) Income before provision for income taxes 5,239 5,128 18,862 13,620 Provision for income taxes 1,798 302 4,698 752 Net income $3,441 $ 4,826 $14,164 $12,868 Earnings per share Basic $ 0.10 $ 0.14 $ 0.41 $ 0.38 Diluted $ 0.10 $ 0.13 $ 0.40 $ 0.35 Weighted average number of common and common equivalent shares outstanding Basic 34,488 34,176 34,393 33,956 Diluted 36,086 36,275 35,551 36,292 See notes to condensed consolidated financial statements. PEGASYSTEMS INC. Condensed Consolidated Statements of Cash Flows (in thousands) Nine Months Ended September 30, 2003 2002 Cash flows from operating activities Net income $ 14,164 $ 12,868 Adjustments to reconcile net income to net cash provided by operating activities: Stock option income tax benefits 617 --- Deferred income tax 1,100 --- Depreciation and amortization 1,207 3,512 Reduction in provision for doubtful accounts receivable (90) --- Changes in operating assets and liabilities: Trade and installment accounts receivable (6,582) (306) Prepaid expenses and other current assets (114) 974 Accounts payable and accrued expenses 4,668 (151) Deferred revenue 2,103 3,762 Net cash provided by operating activities 17,073 20,659 Cash flows from investing activities Purchase of investments (11,196) (4,800) Maturing investments 8,421 --- Acquisition of 1mind --- (573) Purchase of equipment and improvements (346) (558) Other long-term assets and liabilities 59 (3) Net cash used in investing activities (3,062) (5,934) 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 969 3,887 Net cash provided by financing activities 1,222 3,983 Effect of exchange rate on cash and cash equivalents 508 538 NET INCREASE IN CASH AND CASH EQUIVALENTS 15,741 19,246 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 57,393 33,017 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 73,134 $ 52,263
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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