PEGA(PEGA) - 2024 Q1 - Quarterly Results

Q1 2024 Earnings Release Financial Highlights Pega reported a 1% increase in total revenue to $330.1 million for Q1 2024, significantly improving profitability with a GAAP net loss narrowing to $(12.1) million from $(20.8) million year-over-year, and non-GAAP net income more than doubling to $42.2 million, alongside exceptionally strong cash flow from operations at $180.1 million and Pega Cloud gross margin expansion to 77% Q1 2024 Key Financial Results vs. Q1 2023 (in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $330.1 | $325.5 | +1% | | GAAP Net Loss | $(12.1) | $(20.8) | +42% | | Non-GAAP Net Income | $42.2 | $19.2 | +119% | | GAAP Diluted Loss Per Share | $(0.14) | $(0.25) | +44% | | Non-GAAP Diluted EPS | $0.48 | $0.23 | +109% | Q1 2024 Revenue Breakdown (in thousands) | Revenue Source | Q1 2024 (in thousands) | % of Total | Change vs Q1 2023 | | :--- | :--- | :--- | :--- | | Pega Cloud | $130,902 | 40% | +21% | | Subscription Services | $211,903 | 64% | +13% | | Subscription License | $63,338 | 19% | -25% | | Total Subscription | $275,241 | 83% | +1% | | Consulting | $54,047 | 17% | +2% | | Total Revenue | $330,147 | 100% | +1% | - Cash flow from operations and free cash flow both reached $180 million in Q1 2024[4] - Pega Cloud gross margin expanded to 77%[4] Management Commentary Management highlighted the successful launch of Pega GenAI Blueprint™, a new technology designed to accelerate digital transformation for clients, emphasizing strong financial position and robust cash generation for accelerated profitable growth - CEO Alan Trefler announced the release of Pega GenAI Blueprint™, a technology changing client engagement to re-imagine and evolve their business, with thousands of Blueprints already generated by clients and partners[2] - COO and CFO Ken Stillwell stated that the strong cash generation in Q1 demonstrates the power of a SaaS business, positioning Pega to accelerate profitable growth[2] Key Performance Metrics The company showed solid growth in its key operational metrics, with Annual Contract Value (ACV) growing 9% year-over-year to $1.27 billion, total backlog increasing by 9% to $1.42 billion, and free cash flow substantially rising to $179.5 million Annual Contract Value (ACV) Annual Contract Value (ACV) as of March 31 (in thousands) | ACV Component | 2024 (in thousands) | 2023 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Pega Cloud | $570,356 | $490,568 | +16% | | Maintenance | $313,550 | $323,760 | -3% | | Subscription Services | $883,906 | $814,328 | +9% | | Subscription License | $389,431 | $359,323 | +8% | | Total ACV | $1,273,337 | $1,173,651 | +9% | - Total ACV grew 9% year-over-year to $1.273 billion On a constant currency basis, ACV also grew 9% to $1.277 billion[5] Backlog (Remaining Performance Obligations) - Total backlog (Remaining Performance Obligations) grew 9% year-over-year to $1.425 billion as of March 31, 2024[36][37] Backlog by Revenue Recognition Timing (as of March 31, 2024) (in thousands) | Timing | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | 1 year or less | $758,954 | 53% | | 1-2 years | $370,004 | 26% | | 2-3 years | $187,435 | 13% | | Greater than 3 years | $108,349 | 8% | | Total | $1,424,742 | 100% | - Pega Cloud backlog increased by 14% YoY to $991.1 million, representing 70% of the total backlog[36] Free Cash Flow Free Cash Flow Reconciliation (Three Months Ended March 31) (in thousands) | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Cash provided by operating activities | $180,146 | $68,107 | | Investment in property and equipment | $(604) | $(11,487) | | Free cash flow | $179,542 | $56,620 | Consolidated Financial Statements (GAAP) The unaudited GAAP financial statements detail the company's performance for the first quarter ended March 31, 2024, showing total revenue of $330.1 million, a net loss of $(12.1) million, total assets of $1.51 billion, total liabilities of $1.12 billion, and a significant increase in cash provided by operating activities to $180.1 million Statements of Operations Unaudited Condensed Consolidated Statements of Operations (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total revenue | $330,147 | $325,472 | | Gross profit | $235,489 | $227,538 | | (Loss) from operations | $(20,412) | $(22,206) | | Net (loss) | $(12,124) | $(20,774) | | Diluted (loss) per share | $(0.14) | $(0.25) | Balance Sheets Unaudited Condensed Consolidated Balance Sheets (in thousands) | Line Item | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total cash, cash equivalents, and marketable securities | $618,949 | $423,338 | | Total current assets | $1,059,587 | $1,029,027 | | Total assets | $1,511,728 | $1,510,736 | | Total current liabilities | $1,044,279 | $577,059 | | Total liabilities | $1,121,542 | $1,156,898 | | Total stockholders' equity | $390,186 | $353,838 | Statements of Cash Flows Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net (loss) | $(12,124) | $(20,774) | | Cash provided by operating activities | $180,146 | $68,107 | | Cash (used in) investing activities | $(132,399) | $(14,413) | | Cash provided by (used in) financing activities | $17,899 | $(29,372) | | Net increase in cash, cash equivalents, and restricted cash | $62,843 | $25,104 | Reconciliation of GAAP to Non-GAAP Measures Pega provides non-GAAP financial measures to help investors understand core operating results by excluding certain items, with key adjustments for Q1 2024 including stock-based compensation and a litigation settlement, reconciling a GAAP Net Loss of $(12.1) million to a Non-GAAP Net Income of $42.2 million, resulting in a Non-GAAP Diluted EPS of $0.48 Reconciliation of GAAP Net Loss to Non-GAAP Net Income (Q1 2024, in thousands) | Description | Amount | | :--- | :--- | | Net (loss) - GAAP | $(12,124) | | Stock-based compensation | $34,781 | | Litigation settlement, net of recoveries | $32,403 | | Foreign currency transaction loss | $3,262 | | Other adjustments (net) | $(2,238) | | Income taxes adjustment | $(14,927) | | Net income - non-GAAP | $42,154 | - Non-GAAP measures exclude items such as stock-based compensation, restructuring, certain legal fees, litigation settlements, and amortization of intangible assets to provide a view of core business operations[10][27] - The non-GAAP effective tax rate for Q1 2024 was 22%, which management believes is more consistent for reviewing results compared to the volatile GAAP rate[28] Forward-Looking Statements and Risk Factors The report contains forward-looking statements based on current expectations, subject to various risks and uncertainties, including the ability to protect intellectual property, ongoing litigation with Appian Corp., reliance on key personnel and third-party service providers, and potential impacts from cyber-attacks - The press release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, which represent the company's views only as of April 24, 2024[11][15] - The company identifies several risks that could cause actual results to differ materially, including: * Ongoing litigation with Appian Corp * Ability to protect intellectual property rights * Reliance on key personnel and third-party service providers * Potential legal and financial liabilities from cyber-attacks and security breaches[13][15]