Pegasystems Announces Financial Results for First Quarter of 2017

• License, Cloud, and Maintenance combined growth of 25% highlights strong start to FY 2017
  
• Operating improvements reflected in GAAP and Non-GAAP net income

CAMBRIDGE, Mass., May 10, 2017 (GLOBE NEWSWIRE) -- Pegasystems Inc. (NASDAQ:PEGA), the software company empowering customer engagement at the world’s leading enterprises, today announced results for its first quarter ended March 31, 2017.

“We got off to a strong start in 2017,” said Alan Trefler, founder and CEO, Pegasystems, “and we’re happy with our performance globally. Most importantly we continue to see our clients achieving unprecedented business outcomes through the use of our software.”

“Our financial results for the first quarter of 2017 reflect our continued top and bottom line execution,” said Ken Stillwell, CFO, Pegasystems. “We are especially pleased with our revenue growth of 25% coupled with improvement in our operating margins.”

License and Cloud Backlog: The Company computes license and cloud backlog by adding deferred license and cloud revenue as recorded on the Company’s balance sheet and license and cloud contractual commitments, which are not yet billed and not recorded on its balance sheet.

Annualized Contract Value: Total Contract Value is the total stated term license and cloud contract price for all active contracts for the period presented net of contractually stated customer credits. Annualized Contract Value (“ACV”) is calculated by taking the Total Contract Value divided by the number of committed contract years. For contracts denominated in foreign currencies, the ACV is calculated based upon the applicable exchange rate as of the last day of the reporting period. 

An infographic accompanying this release is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/ebef72c4-139c-40e4-9817-93717a91d146

Quarterly Conference Call
Pegasystems will host a conference call and audio-only Webcast associated with this announcement at 5:00 p.m. EDT today. A live audio Webcast of the conference call, together with detailed financial information, can be accessed through the Company’s Website at www.pega.com/about/investors. Dial-in information is as follows: 1-877-705-6003 (domestic) or 1-201-493-6725 (international). To listen to the Webcast, log onto www.pega.com at least five minutes prior to the event’s broadcast and click on the Webcast icon in the Investors section. A replay of the call will also be available on http://www.pega.com/ by clicking the Earnings Calls link in the Investors section.

Discussion of Non-GAAP Financial Measures:
To supplement financial results presented in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”), the Company provides non-GAAP measures, including in this release. Pegasystems’ management utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. The Company’s annual financial plan is prepared both on a GAAP and non-GAAP basis, and both are approved by our board of directors. In addition and as a consequence of the importance of these measures in managing the business, the Company uses non-GAAP measures and financial performance results in the evaluation process to establish management’s compensation.

The non-GAAP measures exclude the effects of certain business combination accounting entries, stock-based compensation expense, amortization of acquired intangibles, acquisition-related and restructuring expenses, and certain other adjustments. The Company believes that these non-GAAP measures are helpful in understanding its past financial performance and its anticipated future results. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP. A reconciliation of the Company’s GAAP to non-GAAP measures is included in the financial schedules at the end of this release.

Forward-Looking Statements
“Safe harbor” statement under the Private Securities Litigation Reform Act of 1995: 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. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “strategy,” “is intended to,” “project,” “guidance”, “likely,” “usually,” or variations of such words and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. 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, among others, variation in demand for our products and services and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition; the ongoing consolidation in the financial services, insurance, healthcare, and communications markets; reliance on third party relationships; the potential loss of vendor specific objective evidence for our time and materials professional services arrangements; the inherent risks associated with international operations and the continued uncertainties in international economies; foreign currency exchange rates; the financial impact of the Company’s past acquisitions and any future acquisitions; the potential legal and financial liabilities and reputation damage due to cyber-attacks and security breaches; and management of the Company’s growth. 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 recent filings with the Securities and Exchange Commission. These documents are available on the Company’s website at http://www.pega.com/about/investors. The forward-looking statements contained in this press release represent the Company’s views as of May 10, 2017. 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, except as required by applicable law, 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 May 10, 2017.

About Pegasystems
Pegasystems Inc. is a leader in software that streamlines business and enhances customer engagement in Global 3000 organizations. With more than 30 years of proven innovation, Pega seamlessly connects organizations with their customers across multiple channels in real time using market-leading CRM, advanced artificial intelligence, and powerful automation. Pega’s adaptive, cloud-architected applications – built on its unified Pega® Platform – empower people with comprehensive visual tools to easily extend and change applications to meet strategic business needs. For more information on Pegasystems (NASDAQ: PEGA) visit www.pega.com.

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PEGASYSTEMS INC.
FOOTNOTES FOR RECONCILIATON OF
SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures, and the material limitations on the usefulness of these measures, see disclosure under Discussion of Non-GAAP Financial Measures included earlier in this release and below. Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Amortization of intangible assets: We have excluded the amortization expense of intangible assets from our non-GAAP operating expenses and net earnings measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Stock-based compensation expense: We have excluded stock-based compensation expense from our non-GAAP operating expenses and net earnings measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expense.

Acquisition-related and restructuring expenses: We have excluded the effect of acquisition-related and restructuring expenses from our non-GAAP operating expenses and net earnings measures. We incurred direct and incremental expenses associated primarily with the OpenSpan acquisition. These acquisition-related expenses were primarily professional fees to affect the acquisition. We have also incurred restructuring expenses for one-time employee termination benefits related to the closure of one of our domestic offices, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. We believe it is useful for investors to understand the effects of these items on our total operating expenses.

(2) Amortization of intangible assets was as follows:

Estimated future annual amortization expense related to intangible assets as of March 31, 2017 is as follows:

(3) Stock-based compensation expense was as follows:

(4) The GAAP income tax effects were calculated using an effective GAAP tax rate of 15.0% and 22.9% for the three months ended March 31, 2017 and 2016, respectively. The non-GAAP income tax effects were calculated using an effective non-GAAP tax rate of 32.8% and 33.0% for the three months ended March 31, 2017 and 2016, respectively.

The differences between our GAAP and non-GAAP effective tax rates for the three months ended March 31, 2017 and 2016 primarily relate to the impact of unfavorable foreign stock compensation adjustments on our GAAP effective tax rate.