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Q4 2012 Earnings Call
February 20, 2013 6:00 pm ET
Craig A. Dynes - Chief Financial Officer and Senior Vice President
Alan Trefler - Founder, Chairman and Chief Executive Officer
Nathan Schneiderman - Roth Capital Partners, LLC, Research Division
Steven R. Koenig - Wedbush Securities Inc., Research Division
Raghavan Sarathy - Dougherty & Company LLC, Research Division
Kevin M. Buttigieg - Longbow Research LLC
Brian Murphy - Sidoti & Company, LLC
Edward Paul Hemmelgarn - Shaker Investments, L.L.C.
Previous Statements by PEGA
» Pegasystems Management Discusses Q3 2012 Results - Earnings Call Transcript
» Pegasystems' CEO Discusses Q2 2012 Results - Earnings Call Transcript
» Pegasystems CEO Discusses Q3 2010 Results - Earnings Call Transcript
It is now my pleasure to turn the floor over to Craig Dynes, Chief Financial Officer. Sir, please go ahead.
Craig A. Dynes
Good evening, and welcome to the Pegasystems 2012 Q4 earnings conference call. Before I introduce Alan Trefler, Pegasystems' Founder and CEO, I will start with our Safe Harbor statement and then provide my financial commentary.
Some statements contained in this presentation may be construed as forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The words anticipates, projects, expects, plans, intends, believe, estimates, targets, forecasting, could, and other similar expressions, identify forward-looking statements, which speak only as of the date the statement was made. Because such statements deal with future events, they are subject to various risks and uncertainties. Actual results for the fiscal year 2013 and beyond could differ materially from the company's current expectations.
Factors that could cause the company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q4 2012 earnings and in the company's filings with the Securities and Exchange Commission, including its report on Form 10-K for the year ended December 31, 2012, and other recent filings with the SEC. The company undertakes no obligation to revise or update forward-looking statements as a result of new information since these statements may no longer be accurate or timely.
Q4 was an outstanding finish to 2012. New license signings were off the chart, driving license revenue up 18% for the year, total revenue to a new record of $461.7 million and pushing license backlog to an all-time record level of $255 million.
The fact that we were able to set these new records in this ongoing terrible economy is a testament to the value that our customers see and are achieving with PRPC. Throughout the year, we have noted that because of the economy, customers were unable to get deals done. Unlike last year, deals were rarely lost but delayed from quarter to quarter until the end of the budget year when delays are no longer possible.
We noted in our 10-K filing that like last year, for the second time in our history, more than 50% of the year's new license signings or bookings were closed in Q4. We believe that this pattern was due to the ongoing customer concern over this uncertain economy. Europe's economy was especially bad where bookings were off 26% in 2012.
But we still beat the competitors and won the deals. Signing licenses especially term licenses, so late in the year barely impacts our near-term revenues. Selling a term license in Q1 gives us several quarters of term license revenue. But closing term licenses in Q4 results in very little incremental term license revenue hitting the P&L in the fiscal year.
However, there is a positive side. Our term license backlog has ballooned to $211.5 million at the end of the year from $161.4 million at the end of last year. This drives future license revenue. In fact, as detailed on Page 32 of our 10-K, we're already holding $55.2 million of term license revenue for 2013. This is an increase of $17.5 million, or 46.4% over where we were last year. And at the end of 2011, we held $37.7 million of 2012 term license revenue.
Our big Q4 bookings quarter will drive 2013 revenue just as last year's Q4 bookings drove 2012 term license revenue up 35% from $34.4 million in 2011 to $46.6 million in 2012.
Throughout the year, perpetual license revenue was lagging 2011. In fact, at the end of Q3 2012, perpetual license revenue was less than 2011 levels by about $9 million. As a result of our Q4 bookings, perpetual license revenue for the year was up $8 million or 9% from 2011.
Maintenance revenue was $133.5 million for 2012, an increase of $16.5 million, or 14%, for the year.
For several years, we have worked towards our objective to build a strong, robust partner organization. Our partners now lead in a majority of all engagements. As a result of our success with enabling both our partners and our customers, there were record numbers of new PRPC projects in 2012, and they were completed without us having to ramp up our Professional Services business. So we've been successful in reducing services revenue as a percentage of total revenue from 39.5% in 2010 to 38.6% in 2011 to 35.6% in 2012.
Improving our revenue mix in favor of high-margin license and maintenance revenue provides gross profit leverage to our business model. In fact, gross margins increased from 60.4% in 2011 to 65.9% in 2012. In dollars, this represents an increase of $52.5 million in gross profit from $251.9 million in 2011 to $304.3 million in 2012.