Shares of workflow automation company Pegasystems (NASDAQ: PEGA) soared today after the company reported second-quarter earnings and revenue that easily topped Wall Street's expectations.
Pegasystems' non-GAAP (adjusted) earnings per share of $0.52 was ahead of analysts' consensus estimate of $0.29. And the company's second-quarter sales increased 18% to $351.2 million, outpacing Wall Street's average estimate of $324.7 million.
Pegasystems' stock was up by 14.7% as of 1:41 p.m. ET.
Contract value and free cash flow on the rise
Investors tend to celebrate any time a company beats revenue and earnings estimates. But there was more to this quarter than just those impressive results.
Pegasystems' annual contract value was up 12% from the year-ago quarter to $1.3 billion and rose 13% on a constant currency basis. Additionally, the company's free cash flow (FCF) jumped 119% to $218 million in the second quarter.
Investors were likely happy to see such a significant increase in Pegasystems' FCF, which is an indicator of a company's financial health.
CEO Alan Trefler said in prepared remarks that the company's artificial intelligence offerings are a differentiator for the company and are helping to drive profitability and contract value.
A great quarter among some volatility
Pegasystems shareholders know that the company's stock has been volatile over the past couple of years. But the company's second-quarter results show it is on the right path with its free cash flow and annual contract value.
With Pegasystems' current price-to-sales ratio of 3.6, its stock isn't exactly cheap. Which means investors will need to see continual growth from the company to justify its price.
Long-term investors should take the second-quarter results for what they are -- a snapshot of the company's current financial health -- and closely watch Pegasystems' future quarterly reports for more proof that it can continue to put up impressive results.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends Pegasystems. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
