Pega Delivers Double-Digit ACV Growth and Record Cash Flow in Q4 2023

Published
  • Cash flow from operations and free cash flow both exceed $200 million for first time in company history
  • Annual contract value (ACV) grows 11% year over year
  • Pega Cloud gross margin jumps to 74% for 2023

CAMBRIDGE, Mass.--(BUSINESS WIRE)-- Pegasystems Inc. (NASDAQ: PEGA), the leading enterprise AI decisioning and workflow automation platform provider, released its financial results for the fourth quarter and full-year 2023.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20240214539360/en/

(Graphic: Business Wire)

(Graphic: Business Wire)

“It’s awesome to see how well our team performed in 2023,” said Alan Trefler, founder and CEO. “We delivered transformative innovation to change the way the world builds software while deepening and expanding our client relationships. I couldn’t be more excited about the incredible opportunity ahead to leverage GenAI and revolutionize the way clients use our technology to drive success in 2024 and beyond.”

“Our team did an excellent job balancing growth and profitability last year,” said Ken Stillwell, Pega COO and CFO. “We delivered double-digit ACV growth and record free cash flow by focusing on client success and by transforming our go-to-market model. As we exited 2023, we hit our Rule of 30 target, a big transformation for how we run the business. And, we’re on track to achieve the Rule of 40 as we exit 2024.”

Financial and performance metrics (1)

Reconciliation of ACV and ACV (constant currency)

(in millions, except percentages)

December 31, 2022

 

December 31, 2023

 

1-Year Change

ACV

$

1,126

 

$

1,255

 

 

11

%

Impact of changes in foreign exchange rates

 

 

 

(11

)

 

 

ACV (constant currency)

$

1,126

 

$

1,244

 

 

11

%

Note: ACV (constant currency) is calculated by applying the December 31, 2022 foreign exchange rates to all periods shown.

1 Refer to the schedules at the end of this release for additional information, including a reconciliation of GAAP and non-GAAP measures.

(Dollars in thousands,

except per share amounts)

Three Months Ended

December 31,

 

 

 

Year Ended

December 31,

 

 

 

2023

 

 

2022

 

Change

 

 

2023

 

 

2022

 

 

Change

Total revenue

$

474,233

 

$

396,470

 

20

%

 

$

1,432,616

 

$

1,317,845

 

 

9

%

Net income (loss) - GAAP

$

142,665

 

$

34,613

 

312

%

 

$

67,808

 

$

(345,582

)

 

*

Net income - non-GAAP

$

152,141

 

$

68,341

 

123

%

 

$

210,159

 

$

59,611

 

 

253

%

Diluted earnings (loss) per share - GAAP

$

1.61

 

$

0.41

 

293

%

 

$

0.73

 

$

(4.22

)

 

*

Diluted earnings per share - non-GAAP

$

1.77

 

$

0.82

 

116

%

 

$

2.48

 

$

0.72

 

 

244

%

* not meaningful

(Dollars in thousands)

Three Months Ended

December 31,

 

Change

 

Year Ended

December 31,

 

Change

2023

 

2022

 

 

2023

 

2022

 

Pega Cloud

$

120,346

25

%

 

$

103,089

26

%

 

$

17,257

 

17

%

 

$

461,328

32

%

 

$

384,271

29

%

 

$

77,057

 

20

%

Maintenance

 

86,646

18

%

 

 

81,996

21

%

 

 

4,650

 

6

%

 

 

331,856

24

%

 

 

317,564

24

%

 

 

14,292

 

5

%

Subscription services

 

206,992

43

%

 

 

185,085

47

%

 

 

21,907

 

12

%

 

 

793,184

56

%

 

 

701,835

53

%

 

 

91,349

 

13

%

Subscription license

 

207,559

44

%

 

 

155,818

39

%

 

 

51,741

 

33

%

 

 

407,625

28

%

 

 

366,063

28

%

 

 

41,562

 

11

%

Subscription

 

414,551

87

%

 

 

340,903

86

%

 

 

73,648

 

22

%

 

 

1,200,809

84

%

 

 

1,067,898

81

%

 

 

132,911

 

12

%

Perpetual license

 

5,372

1

%

 

 

364

%

 

 

5,008

 

1376

%

 

 

10,101

1

%

 

 

19,293

1

%

 

 

(9,192

)

(48

)%

Consulting

 

54,310

12

%

 

 

55,203

14

%

 

 

(893

)

(2

)%

 

 

221,706

15

%

 

 

230,654

18

%

 

 

(8,948

)

(4

)%

 

$

474,233

100

%

 

$

396,470

100

%

 

$

77,763

 

20

%

 

$

1,432,616

100

%

 

$

1,317,845

100

%

 

$

114,771

 

9

%

2024 Guidance (1)

As of February 14, 2024, we are providing the following guidance:

 

2024

Annual contract value growth

11%

 

2024

 

GAAP

 

Non-GAAP (1)

Revenue

$1.5 Billion

 

$1.5 Billion

Diluted earnings per share

$1.18

 

$2.75

 

2024

Cash provided by operating activities

$365 million

Free cash flow

$350 million

(1) A reconciliation of our GAAP and Non-GAAP guidance is contained in the financial schedules at the end of this release.

Quarterly conference call

A conference call and audio-only webcast will be conducted at 8:00 a.m. EST on Thursday, February 15, 2024. Members of the public and investors are invited to join the call and participate in the question-and-answer session by dialing 1 (888) 415-4305 (domestic), 1 (646) 960-0336 (international), or via https://events.q4inc.com/attendee/543203270 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.

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 that these measures help investors understand our core operating results and prospects, which is consistent with how management measures and forecasts our performance without the effect of often one-time charges and other items outside our 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 GAAP and 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 represent our views 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;
  • variation in demand for our products and services, including among clients in the public sector;
  • reliance on key personnel;
  • 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, 2023, 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 press release represent our views as of February 14, 2024.

About Pegasystems

Pega provides a powerful platform that empowers the world's leading organizations to unlock business-transforming outcomes with real-time optimization. Clients use our enterprise AI 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 how Pega (NASDAQ: PEGA) empowers its clients to Build for Change®, visit www.pega.com.

All trademarks are the property of their respective owners.

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Revenue

 

 

 

 

 

 

 

Subscription services

$

206,992

 

 

$

185,085

 

 

$

793,184

 

 

$

701,835

 

Subscription license

 

207,559

 

 

 

155,818

 

 

 

407,625

 

 

 

366,063

 

Consulting

 

54,310

 

 

 

55,203

 

 

 

221,706

 

 

 

230,654

 

Perpetual license

 

5,372

 

 

 

364

 

 

 

10,101

 

 

 

19,293

 

Total revenue

 

474,233

 

 

 

396,470

 

 

 

1,432,616

 

 

 

1,317,845

 

Cost of revenue

 

 

 

 

 

 

 

Subscription services

 

34,697

 

 

 

35,632

 

 

 

144,250

 

 

 

138,736

 

Subscription license

 

635

 

 

 

719

 

 

 

2,606

 

 

 

2,642

 

Consulting

 

55,298

 

 

 

55,920

 

 

 

231,560

 

 

 

227,082

 

Perpetual license

 

16

 

 

 

2

 

 

 

67

 

 

 

175

 

Total cost of revenue

 

90,646

 

 

 

92,273

 

 

 

378,483

 

 

 

368,635

 

Gross profit

 

383,587

 

 

 

304,197

 

 

 

1,054,133

 

 

 

949,210

 

Operating expenses

 

 

 

 

 

 

 

Selling and marketing

 

133,924

 

 

 

151,838

 

 

 

559,177

 

 

 

624,789

 

Research and development

 

71,250

 

 

 

73,176

 

 

 

295,512

 

 

 

294,349

 

General and administrative

 

22,850

 

 

 

23,204

 

 

 

96,743

 

 

 

117,734

 

Restructuring

 

297

 

 

 

21,743

 

 

 

21,747

 

 

 

21,743

 

Total operating expenses

 

228,321

 

 

 

269,961

 

 

 

973,179

 

 

 

1,058,615

 

Income (loss) from operations

 

155,266

 

 

 

34,236

 

 

 

80,954

 

 

 

(109,405

)

Foreign currency transaction (loss) gain

 

(1,271

)

 

 

(3,855

)

 

 

(5,242

)

 

 

4,560

 

Interest income

 

3,428

 

 

 

607

 

 

 

9,259

 

 

 

1,643

 

Interest expense

 

(1,647

)

 

 

(1,910

)

 

 

(6,876

)

 

 

(7,792

)

(Loss) on capped call transactions

 

(899

)

 

 

(1,001

)

 

 

(1,348

)

 

 

(57,382

)

Other income, net

 

25

 

 

 

82

 

 

 

18,693

 

 

 

6,579

 

Income (loss) before provision for (benefit from) income taxes

 

154,902

 

 

 

28,159

 

 

 

95,440

 

 

 

(161,797

)

Provision for (benefit from) income taxes

 

12,237

 

 

 

(6,454

)

 

 

27,632

 

 

 

183,785

 

Net income (loss)

$

142,665

 

 

$

34,613

 

 

$

67,808

 

 

$

(345,582

)

Earnings (loss) per share

 

 

 

 

 

 

 

Basic

$

1.71

 

 

$

0.42

 

 

$

0.82

 

 

$

(4.22

)

Diluted

$

1.61

 

 

$

0.41

 

 

$

0.73

 

 

$

(4.22

)

Weighted-average number of common shares outstanding

 

 

 

 

 

 

 

Basic

 

83,654

 

 

 

82,257

 

 

 

83,162

 

 

 

81,947

 

Diluted

 

89,447

 

 

 

87,339

 

 

 

84,914

 

 

 

81,947

 

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)

 

December 31, 2023

 

December 31, 2022

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

229,902

 

$

145,054

Marketable securities

 

193,436

 

 

152,167

Total cash, cash equivalents, and marketable securities

 

423,338

 

 

297,221

Accounts receivable, net

 

300,173

 

 

255,150

Unbilled receivables, net

 

237,379

 

 

213,719

Other current assets

 

68,137

 

 

80,388

Total current assets

 

1,029,027

 

 

846,478

Long-term unbilled receivables, net

 

85,402

 

 

95,806

Goodwill

 

81,611

 

 

81,399

Other long-term assets

 

314,696

 

 

333,989

Total assets

$

1,510,736

 

$

1,357,672

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

11,290

 

$

18,195

Accrued expenses

 

39,941

 

 

50,355

Accrued compensation and related expenses

 

126,640

 

 

127,728

Deferred revenue

 

377,845

 

 

325,212

Other current liabilities

 

21,343

 

 

17,450

Total current liabilities

 

577,059

 

 

538,940

Long-term convertible senior notes, net

 

499,368

 

 

593,609

Long-term operating lease liabilities

 

66,901

 

 

79,152

Other long-term liabilities

 

13,570

 

 

15,128

Total liabilities

 

1,156,898

 

 

1,226,829

Total stockholders’ equity

 

353,838

 

 

130,843

Total liabilities and stockholders’ equity

$

1,510,736

 

$

1,357,672

PEGASYSTEMS INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

 

Year Ended

December 31,

 

 

2023

 

 

 

2022

 

Net income (loss)

$

67,808

 

 

$

(345,582

)

Adjustments to reconcile net income (loss) to cash provided by operating activities

 

 

 

Non-cash items

 

227,983

 

 

 

432,270

 

Change in operating assets and liabilities, net

 

(78,006

)

 

 

(64,352

)

Cash provided by operating activities

 

217,785

 

 

 

22,336

 

Cash (used in) provided by investing activities

 

(50,750

)

 

 

13,075

 

Cash (used in) financing activities

 

(81,963

)

 

 

(46,989

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

2,701

 

 

 

(3,333

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

87,773

 

 

 

(14,911

)

Cash, cash equivalents, and restricted cash, beginning of period

 

145,054

 

 

 

159,965

 

Cash, cash equivalents, and restricted cash, end of period

$

232,827

 

 

$

145,054

 

PEGASYSTEMS INC. RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES (in thousands, except percentages and per share amounts)

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

2023

 

 

 

2022

 

 

Change

 

 

2023

 

 

 

2022

 

 

Change

Net income (loss) - GAAP

$

142,665

 

 

$

34,613

 

 

312

%

 

$

67,808

 

 

$

(345,582

)

 

*

Stock-based compensation (1)

 

33,269

 

 

 

28,909

 

 

 

 

 

143,352

 

 

 

122,210

 

 

 

Restructuring

 

297

 

 

 

21,743

 

 

 

 

 

21,747

 

 

 

21,743

 

 

 

Legal fees

 

2,817

 

 

 

2,139

 

 

 

 

 

13,883

 

 

 

34,559

 

 

 

Amortization of intangible assets

 

963

 

 

 

1,048

 

 

 

 

 

3,940

 

 

 

4,093

 

 

 

Interest on convertible senior notes

 

615

 

 

 

725

 

 

 

 

 

2,603

 

 

 

2,888

 

 

 

Capped call transactions

 

899

 

 

 

1,001

 

 

 

 

 

1,348

 

 

 

57,382

 

 

 

Repurchases of convertible senior notes

 

 

 

 

 

 

 

 

 

(7,855

)

 

 

 

 

 

Foreign currency transaction loss (gain)

 

1,271

 

 

 

3,855

 

 

 

 

 

5,242

 

 

 

(4,560

)

 

 

Other

 

19

 

 

 

37

 

 

 

 

 

(10,266

)

 

 

(94

)

 

 

Income taxes (2)

 

(30,674

)

 

 

(25,729

)

 

 

 

 

(31,643

)

 

 

166,972

 

 

 

Net income - non-GAAP

$

152,141

 

 

$

68,341

 

 

123

%

 

$

210,159

 

 

$

59,611

 

 

253

%

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share - GAAP

$

1.61

 

 

$

0.41

 

 

293

%

 

$

0.73

 

 

$

(4.22

)

 

*

non-GAAP adjustments

 

0.16

 

 

 

0.41

 

 

 

 

 

1.75

 

 

 

4.94

 

 

 

Diluted earnings per share - non-GAAP

$

1.77

 

 

$

0.82

 

 

116

%

 

$

2.48

 

 

$

0.72

 

 

244

%

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted-average number of common shares outstanding - GAAP

 

89,447

 

 

 

87,339

 

 

2

%

 

 

84,914

 

 

 

81,947

 

 

4

%

Capped call transactions

 

(3,719

)

 

 

(4,443

)

 

 

 

 

(235

)

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

1,405

 

 

 

Diluted weighted-average number of common shares outstanding - non-GAAP

 

85,728

 

 

 

82,896

 

 

3

%

 

 

84,679

 

 

 

83,352

 

 

2

%

* 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.
  • 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 these amounts 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.
  • Legal fees: 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 types of events giving rise to them are not representative of our core business operations and ongoing operational performance.
  • 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.
  • 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.
  • 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 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.
  • 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.
  • 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, expenses incurred due to the cancellation of in-person sales and marketing events, 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:
  • Capped call transactions: In periods of GAAP income, the shares that would be issued if the Company’s Convertible Senior Notes were fully converted to common shares are included in the diluted weighted-average shares outstanding. The capped call transactions are expected to reduce common stock dilution and/or offset any potential cash payments the Company must make, other than for principal and interest, upon conversion of the convertible senior notes, with such reduction and/or offset subject to a cap of $196.44. We believe that including the expected impact of the capped call transactions in our non-GAAP financial measures provides a useful comparison of our operational performance in different periods.
  • Stock-based compensation: In periods of non-GAAP income, we have 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

December 31,

 

Year Ended

December 31,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Cost of revenue

$

6,497

 

 

$

6,646

 

 

$

28,994

 

 

$

26,400

 

Selling and marketing

 

14,265

 

 

 

10,245

 

 

 

57,675

 

 

 

46,769

 

Research and development

 

6,753

 

 

 

6,841

 

 

 

31,039

 

 

 

29,266

 

General and administrative

 

5,754

 

 

 

5,177

 

 

 

25,644

 

 

 

19,775

 

 

$

33,269

 

 

$

28,909

 

 

$

143,352

 

 

$

122,210

 

Income tax benefit

$

(618

)

 

$

(376

)

 

$

(2,187

)

 

$

(1,881

)

(2) Effective income tax rates:

 

Year Ended

December 31,

 

2023

 

2022

GAAP

29

%

 

114

%

non-GAAP

22

%

 

22

%

Our GAAP effective income tax rate is subject to significant fluctuations due to several factors, including our stock-based compensation plans, research and development tax credits, gains and losses on our capped call transactions, and the valuation allowance on our deferred tax assets in the U.S. and U.K. 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.

PEGASYSTEMS INC. RECONCILIATION OF FREE CASH FLOW (1) AND OTHER METRICS (in thousands, except percentages)

 

Year Ended

December 31,

2023

 

2022

 

 

Growth

 

 

Growth

ACV (Constant Currency)

$

1,243,931

 

11

%

 

$

1,125,701

 

16

%

 

 

 

 

 

 

 

 

Margin (2)

 

 

Margin (2)

Cash provided by operating activities

$

217,785

 

15

%

 

$

22,336

 

2

%

Investment in property and equipment

 

(16,781

)

 

 

 

(35,379

)

 

Free cash flow

$

201,004

 

14

%

 

$

(13,043

)

(1

)%

 

 

 

 

 

 

Supplemental information (3)

 

 

 

 

 

Restructuring

$

29,401

 

 

 

$

 

 

Legal fees

 

14,645

 

 

 

 

41,789

 

 

Interest on convertible senior notes

 

4,134

 

 

 

 

4,500

 

 

Other

 

601

 

 

 

 

6,805

 

 

Income taxes

 

11,664

 

 

 

 

7,645

 

 

 

$

60,445

 

 

 

$

60,739

 

 

Effect of supplemental information to Rule of 40 achievement (4)

 

4

%

 

 

5

%

(1) Our non-GAAP free cash flow is defined as cash provided by operating activities less 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 provide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings. This information is not a substitute for financial measures prepared under U.S. GAAP. Starting in the third quarter of 2023, the Company calculated free cash flow as cash provided by operating activities less investments in property and equipment. To ensure comparability, previously disclosed amounts have been updated. (2) Operating and free cash flow margin are calculated by comparing the respective cash flow to total revenue. (3) The supplemental information discloses items that affect our cash flows and are considered by management not to be representative of our core business operations and ongoing operational performance.

  • Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities.
  • Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business.
  • Interest on convertible senior notes: In February 2020, we issued convertible senior notes, due March 1, 2025, in a private placement. The convertible senior notes accrue interest at an annual rate of 0.75%, payable semi-annually in arrears on March 1 and September 1.
  • Other: Fees related to capital advisory services, canceled in-person sales and marketing events, and incremental costs incurred integrating acquisitions.
  • Income taxes: Direct income taxes paid net of refunds received.

(4) Rule of 40: A performance metric calculated by adding the annual contract value (“ACV”) growth rate and the free cash flow margin. We also provide a table of supplemental information of other items that affect our cash flows and Rule of 40 achievement.

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, the Company revised its ACV methodology for maintenance and all contracts less than 12 months as its overall client renewal rate exceeds 90%. The impact of the change was $3 million or 0.3% of Total ACV or less for all quarters in 2022. Previously disclosed ACV amounts have been updated to allow for comparability. This simplification, made possible by improvements to the Company’s financial systems, ensures that ACV for all contract types and lengths is consistently calculated as the total contract value divided by the duration in years. Previously, ACV for maintenance was calculated as the maintenance revenue for the quarter then ended, multiplied by four, and ACV for contracts less than 12 months was equal to the contract’s total value. The Company believes the simplified methodology better represents the current value of its contracts and better aligns its definition with comparable companies.

 

December 31, 2023

 

December 31, 2022

 

Change

Pega Cloud

$

552,998

 

$

458,619

 

$

94,379

21

%

Maintenance

 

324,091

 

 

318,400

 

 

5,691

2

%

Subscription services

 

877,089

 

 

777,019

 

 

100,070

13

%

Subscription license

 

377,794

 

 

348,682

 

 

29,112

8

%

 

$

1,254,883

 

$

1,125,701

 

$

129,182

11

%

PEGASYSTEMS INC. BACKLOG (in thousands, except percentages)

Remaining performance obligations (“Backlog”) - Expected future revenue from existing non-cancellable contracts:

As of December 31, 2023:

 

Subscription services

 

Subscription license

 

Perpetual license

 

Consulting

 

Total

Maintenance

 

Pega Cloud

 

 

 

 

1 year or less

$

245,271

 

$

446,160

 

$

62,070

 

$

2,284

 

$

39,810

 

$

795,595

54%

1-2 years

 

67,720

 

 

279,474

 

 

9,138

 

 

443

 

 

2,020

 

 

358,795

25%

2-3 years

 

37,142

 

 

144,453

 

 

9,789

 

 

 

 

2,896

 

 

194,280

13%

Greater than 3 years

 

24,421

 

 

90,177

 

 

100

 

 

 

 

 

 

114,698

8%

 

$

374,554

 

$

960,264

 

$

81,097

 

$

2,727

 

$

44,726

 

$

1,463,368

100%

% of Total

 

25%

 

 

66%

 

 

6%

 

 

—%

 

 

3%

 

 

100%

 

Change since December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

$

23,926

 

$

74,576

 

$

9,636

 

$

(4,836)

 

$

4,334

 

$

107,636

 

 

 

7%

 

 

8%

 

 

13%

 

 

(64)%

 

 

11%

 

 

8%

 

As of December 31, 2022:

 

Subscription services

 

Subscription license

 

Perpetual license

 

Consulting

 

Total

Maintenance

 

Pega Cloud

 

 

 

 

1 year or less

$

242,073

 

$

379,648

 

$

60,668

 

$

5,310

 

$

32,374

 

$

720,073

53%

1-2 years

 

66,207

 

 

246,195

 

 

3,803

 

 

2,253

 

 

6,371

 

 

324,829

24%

2-3 years

 

26,746

 

 

143,901

 

 

1,707

 

 

 

 

1,647

 

 

174,001

13%

Greater than 3 years

 

15,602

 

 

115,944

 

 

5,283

 

 

 

 

 

 

136,829

10%

 

$

350,628

 

$

885,688

 

$

71,461

 

$

7,563

 

$

40,392

 

$

1,355,732

100%

% of Total

 

26%

 

 

65%

 

 

5%

 

 

1%

 

 

3%

 

 

100%

 

PEGASYSTEMS INC. RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG (in millions, except percentages)

 

December 31, 2022

 

December 31, 2023

 

1 Year Growth Rate

Backlog - GAAP

$

1,356

 

$

1,463

 

 

8

%

Impact of changes in foreign exchange rates

 

 

 

(16

)

 

 

Constant currency backlog

$

1,356

 

$

1,447

 

 

7

%

Note: Constant currency Backlog is calculated by applying the Q4 2022 foreign exchange rates to all periods shown.

PEGASYSTEMS INC. RECONCILIATION OF FORWARD-LOOKING GUIDANCE (in millions, except percentages and per share amounts)

 

 

2024

 

Annual contract value growth

 

11

%

 

 

Revenue (GAAP and Non-GAAP)

$

1,500

 

 

 

Net Income - GAAP

$

107

 

Stock-based compensation

 

143

 

Legal fees

 

15

 

Amortization of intangible assets

 

3

 

Interest on convertible senior notes

 

3

 

Incomes taxes

 

(32

)

Net Income - Non-GAAP

$

239

 

 

 

Diluted earnings per share - GAAP

$

1.18

 

Non-GAAP adjustments

 

1.57

 

Diluted earnings per share - non-GAAP

$

2.75

 

 

 

Diluted weighted-average number of common shares outstanding - GAAP

 

90.7

 

Non-GAAP adjustments

 

(3.7

)

Diluted weighted-average number of common shares outstanding - non-GAAP

 

87.0

 

 

2024

 

 

 

Margin (2)

Cash provided by operating activities

$

365

 

 

24

%

Investment in property and equipment

 

(15

)

 

 

Free cash flow

$

350

 

 

23

%

 

 

 

 

Supplemental information

 

 

 

Restructuring

$

7

 

 

 

Legal fees

 

15

 

 

 

Interest on convertible senior notes

 

5

 

 

 

Income taxes (1)

 

26

 

 

 

 

$

53

 

 

 

Effect of supplemental information to Rule of 40 achievement

 

 

4

%

(1) Evolving U.S. tax legislation may impact the amount of tax payments. (2) Operating and free cash flow margin are calculated by comparing the respective cash flow to total revenue.

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

Source: Pegasystems Inc.

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