EX-99.1 2 q22023_ex-991.htm EX-99.1 Document
EXHIBIT 99.1
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Pega Delivers Record Cash Flow in the First Half of 2023
Operating cash flow exceeds $110 million (Free Cash Flow exceeds $120 million)
Annual contract value (ACV) grows 13% year over year
Pega Cloud gross margin expands to 73%
CAMBRIDGE, Mass. — July 26, 2023 — Pegasystems Inc., the low-code platform provider empowering the world’s leading enterprises to Build for Change®, released its financial results for the second quarter of 2023.
“In this uncertain and changing environment, focusing on client success is more important than ever,” said Alan Trefler, founder and CEO. “Our low-code platform for AI-powered decisioning and workflow automation uniquely empowers clients to embrace emerging trends like generative AI and, at the same time, reduce costs and improve customer engagement.“
Achieving record cash flow in the first half of 2023 reflects solid execution by our team to better balance growth and free cash flow,” said Ken Stillwell, COO & CFO. “This significant shift in cash flow generation is a benefit of our successful move to a subscription model. In the second half of 2023, we will be looking to further increase operating effectiveness with additional improvements in our go-to-market alignment.”
Financial and performance metrics (1)
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1 Refer to the schedules at the end of this release for additional information, including a reconciliation of our GAAP to non-GAAP measures.
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EXHIBIT 99.1
(continued)
Reconciliation of ACV and Constant Currency ACV
(in millions, except percentages)Q2 22Q3 22Q4 22Q1 23Q2 231 Year Change
ACV$1,026 $1,040 $1,126 $1,174 $1,164 13 %
Impact of changes in foreign exchange rates$— $24 $(1)$(5)$(5)
Constant Currency ACV$1,026 $1,064 $1,125 $1,169 $1,159 13 %
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EXHIBIT 99.1
(continued)
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Note: Constant currency ACV and Backlog are calculated by applying the Q2 2022 foreign exchange rates to all periods shown.
(Dollars in thousands,
except per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
20232022Change20232022Change
Total revenue$298,268 $274,337 9 %$623,740 $650,644 (4)%
Net (loss) - GAAP$(46,804)$(286,296)84 %$(67,578)$(286,675)76 %
Net income (loss) - non-GAAP$1,203 $(31,406)*$20,423 $18,768 %
Diluted (loss) per share - GAAP$(0.56)$(3.50)84 %$(0.82)$(3.51)77 %
Diluted earnings (loss) per share - non-GAAP$0.01 $(0.38)*$0.24 $0.22 %
* not meaningful
(Dollars in thousands)Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
2023202220232022
Pega Cloud$115,063 39 %$93,506 34 %$21,557 23 %$222,942 36 %$183,823 28 %$39,119 21 %
Maintenance82,042 27 %78,326 29 %3,716 %161,672 26 %158,042 24 %3,630 %
Subscription services197,105 66 %171,832 63 %25,273 15 %384,614 62 %341,865 52 %42,749 13 %
Subscription license41,197 14 %41,600 15 %(403)(1)%125,724 20 %179,133 28 %(53,409)(30)%
Subscription238,302 80 %213,432 78 %24,870 12 %510,338 82 %520,998 80 %(10,660)(2)%
Perpetual license1,579 %2,266 %(687)(30)%1,982 — %9,706 %(7,724)(80)%
Consulting58,387 19 %58,639 21 %(252)— %111,420 18 %119,940 19 %(8,520)(7)%
$298,268 100 %$274,337 100 %$23,931 %$623,740 100 %$650,644 100 %$(26,904)(4)%
Quarterly conference call
A conference call and audio-only webcast will be conducted the following day at 8:00 a.m. EDT on Thursday, July 27, 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=1622243&tp_key=962bdef8e2) 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.
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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 these measures help investors understand our core operating results without the effect of often one-time charges and other items outside 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 our GAAP to 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 presentation represent our views as of July 26, 2023.
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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.
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PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Revenue
Subscription services$197,105 $171,832 $384,614 $341,865 
Subscription license41,197 41,600 125,724 179,133 
Consulting58,387 58,639 111,420 119,940 
Perpetual license1,579 2,266 1,982 9,706 
Total revenue298,268 274,337 623,740 650,644 
Cost of revenue
Subscription services36,783 36,533 73,647 68,563 
Subscription license623 673 1,342 1,295 
Consulting58,710 57,873 119,058 113,384 
Perpetual license24 36 27 70 
Total cost of revenue96,140 95,115 194,074 183,312 
Gross profit202,128 179,222 429,666 467,332 
Operating expenses
Selling and marketing143,858 157,198 293,655 319,434 
Research and development73,931 74,341 149,307 145,831 
General and administrative23,462 32,723 46,572 68,487 
Restructuring2,167 — 3,628 — 
Total operating expenses243,418 264,262 493,162 533,752 
(Loss) from operations(41,290)(85,040)(63,496)(66,420)
Foreign currency transaction (loss) gain(3,290)1,713 (5,965)4,589 
Interest income1,814 309 3,299 516 
Interest expense(1,778)(1,944)(3,696)(3,890)
(Loss) income on capped call transactions(1,361)(18,945)1,845 (49,505)
Other income, net5,702 3,785 12,285 6,526 
(Loss) before provision for income taxes(40,203)(100,122)(55,728)(108,184)
Provision for income taxes6,601 186,174 11,850 178,491 
Net (loss)$(46,804)$(286,296)$(67,578)$(286,675)
(Loss) per share
Basic$(0.56)$(3.50)$(0.82)$(3.51)
Diluted$(0.56)$(3.50)$(0.82)$(3.51)
Weighted-average number of common shares outstanding
Basic83,039 81,847 82,823 81,764 
Diluted83,039 81,847 82,823 81,764 
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PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$186,874 $145,054 
Marketable securities125,939 152,167 
Total cash, cash equivalents, and marketable securities312,813 297,221 
Accounts receivable163,915 255,150 
Unbilled receivables182,257 213,719 
Other current assets78,526 80,388 
Total current assets737,511 846,478 
Unbilled receivables70,486 95,806 
Goodwill81,593 81,399 
Other long-term assets302,848 333,989 
Total assets$1,192,438 $1,357,672 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$8,438 $18,195 
Accrued expenses53,110 50,355 
Accrued compensation and related expenses70,965 127,728 
Deferred revenue311,330 325,212 
Other current liabilities17,269 17,450 
Total current liabilities461,112 538,940 
Convertible senior notes, net498,140 593,609 
Operating lease liabilities72,886 79,152 
Other long-term liabilities14,904 15,128 
Total liabilities1,047,042 1,226,829 
Total stockholders’ equity145,396 130,843 
Total liabilities and stockholders’ equity$1,192,438 $1,357,672 

PEGASYSTEMS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
20232022
Net (loss)$(67,578)$(286,675)
Adjustments to reconcile net (loss) to cash provided by (used in) operating activities
Non-cash items119,371 314,231 
Change in operating assets and liabilities, net61,959 (32,625)
Cash provided by (used in) operating activities113,752 (5,069)
Cash provided by (used in) investing activities15,979 (1,523)
Cash (used in) financing activities(86,988)(41,191)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash1,010 (2,907)
Net increase (decrease) in cash, cash equivalents, and restricted cash43,753 (50,690)
Cash, cash equivalents, and restricted cash, beginning of period145,054 159,965 
Cash, cash equivalents, and restricted cash, end of period$188,807 $109,275 
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PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES
(in thousands, except percentages and per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
20232022Change20232022Change
Net (loss) - GAAP$(46,804)$(286,296)84 %$(67,578)$(286,675)76 %
Stock-based compensation (1)
36,227 31,300 78,784 59,527 
Capped call transactions1,361 18,945 (1,845)49,505 
Legal fees2,842 10,582 4,318 27,950 
Repurchases of convertible senior notes(5,074)— (7,855)— 
Restructuring2,167 — 3,628 — 
Interest on convertible senior notes647 720 1,375 1,439 
Amortization of intangible assets963 1,025 2,012 1,997 
Foreign currency transaction loss (gain)3,290 (1,713)5,965 (4,589)
Other(678)(1,001)(4,471)(3,583)
Income tax effects (2)
6,262 195,032 6,090 173,197 
Net income (loss) - non-GAAP$1,203 $(31,406)*$20,423 $18,768 %
Diluted (loss) per share - GAAP$(0.56)$(3.50)84 %$(0.82)$(3.51)77 %
non-GAAP adjustments0.57 3.12 1.06 3.73 
Diluted earnings (loss) per share - non-GAAP$0.01 $(0.38)*$0.24 $0.22 %
Diluted weighted-average number of common shares outstanding - GAAP83,039 81,847 %82,823 81,764 %
Stock-based compensation1,289 — 1,026 2,063 
Diluted weighted-average number of common shares outstanding - non-GAAP84,328 81,847 %83,849 83,827 — %
* 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.
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Foreign currency transaction loss (gain): 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, 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
June 30,
Six Months Ended
June 30,
2023202220232022
Cost of revenue$7,174 $6,579 $16,087 $12,957 
Selling and marketing15,349 12,633 33,009 23,591 
Research and development7,851 7,355 16,911 14,701 
General and administrative5,853 4,733 12,777 8,278 
$36,227 $31,300 $78,784 $59,527 
Income tax benefit$(581)$(543)$(1,253)$(905)
(2) Effective income tax rates:
Six Months Ended
June 30,
20232022
GAAP(21)%(165)%
non-GAAP22 %22 %
Our GAAP effective income tax rate is subject to significant fluctuations due to several factors, including excess tax benefits generated by our stock-based compensation plans, gains and losses on our capped call transactions, tax credits for stock-based compensation awards to research and development employees, and unfavorable foreign stock-based compensation adjustments. 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.

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PEGASYSTEMS INC.
RECONCILIATION OF FREE CASH FLOW
(in thousands, except percentages)

Six Months Ended
June 30,
20232022Change
Cash provided by (used in) operating activities$113,752 $(5,069)*
Investment in property and equipment(13,933)(11,863)
Legal fees2,950 26,437 
Restructuring17,521 — 
Interest on convertible senior notes2,250 2,250 
Other— 167 
Free cash flow$122,540 $11,922 928 %
Total revenue$623,740 $650,644 
Free cash flow margin20 %%
* not meaningful
Our non-GAAP free cash flow measures reflect the following adjustments:
Investment in property and equipment: Investment in property and equipment fluctuates in amount and frequency and is significantly affected by the timing and size of investments in our facilities. We believe excluding these amounts provides a useful comparison of our operational performance in different periods.
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.
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 excluding the interest payments provides a useful comparison of our operational performance in different periods.
Other: We have excluded fees incurred due to the cancellation of in-person sales and marketing events, and incremental expenses incurred from the integration of 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 operating performance.
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, we changed our ACV calculation methodology for maintenance and all contracts less than 12 months to align with other contract types. Previously disclosed ACV amounts have been updated to allow for comparability.
June 30, 2023June 30, 2022Change
Pega Cloud$498,860 $408,331 $90,529 22 %
Maintenance
315,232 307,223 8,009 %
Subscription services
814,092 715,554 98,538 14 %
Subscription license
349,713 310,431 39,282 13 %
$1,163,805 $1,025,985 $137,820 13 %
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Reconciliation of ACV and Constant Currency ACV
(in millions, except percentages)Q2 22Q3 22Q4 22Q1 23Q2 231 Year Change
ACV$1,026 $1,040 $1,126 $1,174 $1,164 13 %
Impact of changes in foreign exchange rates$— $24 $(1)$(5)$(5)
Constant Currency ACV$1,026 $1,064 $1,125 $1,169 $1,159 13 %
PEGASYSTEMS INC.
BACKLOG
(in thousands, except percentages)

Remaining performance obligations (“Backlog”) - Expected future revenue from existing non-cancellable contracts:
As of June 30, 2023:
Subscription servicesSubscription licensePerpetual licenseConsultingTotal
MaintenancePega Cloud
1 year or less
$214,579 $397,183 $35,616 $4,979 $37,355 $689,712 55 %
1-2 years
58,551 238,691 3,026 2,252 6,772 309,292 24 %
2-3 years
25,103 124,616 6,764 — 1,523 158,006 12 %
Greater than 3 years
7,592 101,494 — — — 109,086 %
$305,825 $861,984 $45,406 $7,231 $45,650 $1,266,096 100 %
% of Total23 %68 %%%%100 %
Change since June 30, 2022
$(3,861)$163,817 $(15,921)$(6,207)$2,574 $140,402 
(1)%23 %(26)%(46)%%12 %
As of June 30, 2022:
Subscription servicesSubscription licensePerpetual licenseConsultingTotal
MaintenancePega Cloud
1 year or less
$204,974 $320,102 $46,810 $6,681 $32,159 $610,726 54 %
1-2 years
57,862 200,135 10,711 4,505 7,919 281,132 25 %
2-3 years
28,403 96,861 2,126 2,252 2,574 132,216 12 %
Greater than 3 years
18,447 81,069 1,680 — 424 101,620 %
$309,686 $698,167 $61,327 $13,438 $43,076 $1,125,694 100 %
% of Total28 %62 %%%%100 %

PEGASYSTEMS INC.
RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG
(in millions, except percentages)
Q2 20231 Year Growth Rate
Backlog - GAAP$1,266 12 %
Impact of changes in foreign exchange rates(8)— %
Backlog - Constant Currency$1,258 12 %
Note: Constant currency Backlog is calculated by applying the Q2 2022 foreign exchange rates to all periods shown.
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