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    Pega GenAI Excitement Accelerates Growth in Q2 2024

    7/24/24 4:05:00 PM ET
    $PEGA
    EDP Services
    Technology
    Get the next $PEGA alert in real time by email
    • Annual contract value (ACV) grows 13% year over year in constant currency
    • Cash flow from operations reaches $220 million and free cash flow hits $218 million in the first half of 2024
    • Pega Cloud backlog exceeds $1 billion for the first time

    Pegasystems Inc. (NASDAQ:PEGA), the leading enterprise AI decisioning and workflow automation platform provider, released its financial results for the second quarter of 2024.

    This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20240724234135/en/

    ACV Growth (Graphic: Business Wire)

    ACV Growth (Graphic: Business Wire)

    "Our approach to statistical AI and generative AI continues to be a significant differentiator," said Alan Trefler, founder and CEO. "The offerings we've introduced, especially Pega GenAI Blueprint™, have captured the imagination of clients, prospects, and partners, allowing them to identify new possibilities and helping us drive deeper engagement. With tens of thousands of blueprints created over the last few months, we're identifying opportunities to accelerate growth and creating additional momentum for Pega Cloud®."

    "I'm really proud to see how our team is improving profitability while driving ACV growth," said Ken Stillwell, COO and CFO. "Our strong execution and our AI innovation put us in a fantastic position to pursue the massive digital transformation opportunity in front of us."

    Financial and performance metrics (1)

    Reconciliation of ACV and Constant Currency ACV

    (in millions, except percentages)

    June 30, 2023

     

    June 30, 2024

     

    1-Year Change

    ACV

    $

    1,164

     

    $

    1,305

     

    12

    %

    Impact of changes in foreign exchange rates

     

    —

     

     

    5

     

     

    Constant currency ACV

    $

    1,164

     

    $

    1,310

     

    13

    %

    Note: Constant currency ACV is calculated by applying the June 30, 2023 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

    June 30,

     

     

     

    Six Months Ended

    June 30,

     

     

    2024

     

    2023

     

    Change

     

    2024

     

    2023

     

    Change

    Total revenue

    $

    351,153

     

    $

    298,268

     

     

    18

    %

     

    $

    681,300

     

     

    $

    623,740

     

     

    9

    %

    Net income (loss) - GAAP

    $

    6,613

     

    $

    (46,804

    )

     

    *

     

    $

    (5,511

    )

     

    $

    (67,578

    )

     

    92

    %

    Net income - non-GAAP

    $

    45,841

     

    $

    1,203

     

     

    3711

    %

     

    $

    87,995

     

     

    $

    20,423

     

     

    331

    %

    Diluted earnings (loss) per share - GAAP

    $

    0.07

     

    $

    (0.56

    )

     

    *

     

    $

    (0.07

    )

     

    $

    (0.82

    )

     

    91

    %

    Diluted earnings per share - non-GAAP

    $

    0.52

     

    $

    0.01

     

     

    5100

    %

     

    $

    1.00

     

     

    $

    0.24

     

     

    317

    %

    (Dollars in thousands)

    Three Months Ended

    June 30,

     

    Change

     

    Six Months Ended

    June 30,

     

    Change

    2024

     

    2023

     

     

    2024

     

    2023

     

    Pega Cloud

    $

    134,086

    38

    %

     

    $

    115,063

    39

    %

     

    $

    19,023

     

    17

    %

     

    $

    264,988

    39

    %

     

    $

    222,942

    36

    %

     

    $

    42,046

     

    19

    %

    Maintenance

     

    80,344

    23

    %

     

     

    82,042

    27

    %

     

     

    (1,698

    )

    (2

    )%

     

     

    161,345

    23

    %

     

     

    161,672

    26

    %

     

     

    (327

    )

    —

    %

    Subscription services

     

    214,430

    61

    %

     

     

    197,105

    66

    %

     

     

    17,325

     

    9

    %

     

     

    426,333

    62

    %

     

     

    384,614

    62

    %

     

     

    41,719

     

    11

    %

    Subscription license

     

    84,647

    24

    %

     

     

    41,197

    14

    %

     

     

    43,450

     

    105

    %

     

     

    147,985

    22

    %

     

     

    125,724

    20

    %

     

     

    22,261

     

    18

    %

    Subscription

     

    299,077

    85

    %

     

     

    238,302

    80

    %

     

     

    60,775

     

    26

    %

     

     

    574,318

    84

    %

     

     

    510,338

    82

    %

     

     

    63,980

     

    13

    %

    Consulting

     

    52,040

    15

    %

     

     

    58,387

    19

    %

     

     

    (6,347

    )

    (11

    )%

     

     

    106,087

    16

    %

     

     

    111,420

    18

    %

     

     

    (5,333

    )

    (5

    )%

    Perpetual license

     

    36

    —

    %

     

     

    1,579

    1

    %

     

     

    (1,543

    )

    (98

    )%

     

     

    895

    —

    %

     

     

    1,982

    —

    %

     

     

    (1,087

    )

    (55

    )%

     

    $

    351,153

    100

    %

     

    $

    298,268

    100

    %

     

    $

    52,885

     

    18

    %

     

    $

    681,300

    100

    %

     

    $

    623,740

    100

    %

     

    $

    57,560

     

    9

    %

    Quarterly conference call

    A conference call and audio-only webcast will be conducted at 8:00 a.m. EDT on Thursday, July 25, 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) or 1 (646) 960-0336 (international) and using Conference ID 1559653, or via https://events.q4inc.com/attendee/610142887 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. Management uses these measures to assess the performance of the company's operations and establish operational goals and incentives. 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. These statements 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;
    • potential legal and financial liabilities, as well as 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 July 24, 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®, https://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

    June 30,

     

    Six Months Ended

    June 30,

     

    2024

     

    2023

     

    2024

     

    2023

    Revenue

     

     

     

     

     

     

     

    Subscription services

    $

    214,430

     

     

    $

    197,105

     

     

    $

    426,333

     

     

    $

    384,614

     

    Subscription license

     

    84,647

     

     

     

    41,197

     

     

     

    147,985

     

     

     

    125,724

     

    Consulting

     

    52,040

     

     

     

    58,387

     

     

     

    106,087

     

     

     

    111,420

     

    Perpetual license

     

    36

     

     

     

    1,579

     

     

     

    895

     

     

     

    1,982

     

    Total revenue

     

    351,153

     

     

     

    298,268

     

     

     

    681,300

     

     

     

    623,740

     

    Cost of revenue

     

     

     

     

     

     

     

    Subscription services

     

    36,238

     

     

     

    36,783

     

     

     

    72,062

     

     

     

    73,647

     

    Subscription license

     

    477

     

     

     

    623

     

     

     

    1,120

     

     

     

    1,342

     

    Consulting

     

    60,231

     

     

     

    58,710

     

     

     

    118,413

     

     

     

    119,058

     

    Perpetual license

     

    —

     

     

     

    24

     

     

     

    9

     

     

     

    27

     

    Total cost of revenue

     

    96,946

     

     

     

    96,140

     

     

     

    191,604

     

     

     

    194,074

     

    Gross profit

     

    254,207

     

     

     

    202,128

     

     

     

    489,696

     

     

     

    429,666

     

    Operating expenses

     

     

     

     

     

     

     

    Selling and marketing

     

    139,761

     

     

     

    143,858

     

     

     

    267,456

     

     

     

    293,655

     

    Research and development

     

    75,425

     

     

     

    73,931

     

     

     

    147,538

     

     

     

    149,307

     

    General and administrative

     

    25,420

     

     

     

    23,462

     

     

     

    48,947

     

     

     

    46,572

     

    Litigation settlement, net of recoveries

     

    —

     

     

     

    —

     

     

     

    32,403

     

     

     

    —

     

    Restructuring

     

    635

     

     

     

    2,167

     

     

     

    798

     

     

     

    3,628

     

    Total operating expenses

     

    241,241

     

     

     

    243,418

     

     

     

    497,142

     

     

     

    493,162

     

    Income (loss) from operations

     

    12,966

     

     

     

    (41,290

    )

     

     

    (7,446

    )

     

     

    (63,496

    )

    Foreign currency transaction gain (loss)

     

    437

     

     

     

    (3,290

    )

     

     

    (2,825

    )

     

     

    (5,965

    )

    Interest income

     

    6,785

     

     

     

    1,814

     

     

     

    12,066

     

     

     

    3,299

     

    Interest expense

     

    (1,656

    )

     

     

    (1,778

    )

     

     

    (3,408

    )

     

     

    (3,696

    )

    (Loss) income on capped call transactions

     

    (3,277

    )

     

     

    (1,361

    )

     

     

    22

     

     

     

    1,845

     

    Other income, net

     

    —

     

     

     

    5,702

     

     

     

    1,684

     

     

     

    12,285

     

    Income (loss) before provision for income taxes

     

    15,255

     

     

     

    (40,203

    )

     

     

    93

     

     

     

    (55,728

    )

    Provision for income taxes

     

    8,642

     

     

     

    6,601

     

     

     

    5,604

     

     

     

    11,850

     

    Net income (loss)

    $

    6,613

     

     

    $

    (46,804

    )

     

    $

    (5,511

    )

     

    $

    (67,578

    )

    Earnings (loss) per share

     

     

     

     

     

     

     

    Basic

    $

    0.08

     

     

    $

    (0.56

    )

     

    $

    (0.07

    )

     

    $

    (0.82

    )

    Diluted

    $

    0.07

     

     

    $

    (0.56

    )

     

    $

    (0.07

    )

     

    $

    (0.82

    )

    Weighted-average number of common shares outstanding

     

     

     

     

     

     

     

    Basic

     

    85,157

     

     

     

    83,039

     

     

     

    84,712

     

     

     

    82,823

     

    Diluted

     

    88,500

     

     

     

    83,039

     

     

     

    84,712

     

     

     

    82,823

     

    PEGASYSTEMS INC.

    UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

    (in thousands)

     

     

    June 30, 2024

     

    December 31, 2023

    Assets

     

     

     

    Current assets:

     

     

     

    Cash and cash equivalents

    $

    258,257

     

    $

    229,902

    Marketable securities

     

    406,819

     

     

    193,436

    Total cash, cash equivalents, and marketable securities

     

    665,076

     

     

    423,338

    Accounts receivable, net

     

    165,723

     

     

    300,173

    Unbilled receivables, net

     

    164,533

     

     

    237,379

    Other current assets

     

    76,323

     

     

    68,137

    Total current assets

     

    1,071,655

     

     

    1,029,027

    Long-term unbilled receivables, net

     

    81,218

     

     

    85,402

    Goodwill

     

    81,410

     

     

    81,611

    Other long-term assets

     

    302,249

     

     

    314,696

    Total assets

    $

    1,536,532

     

    $

    1,510,736

    Liabilities and stockholders' equity

     

     

     

    Current liabilities:

     

     

     

    Accounts payable

    $

    16,682

     

    $

    11,290

    Accrued expenses

     

    44,875

     

     

    39,941

    Accrued compensation and related expenses

     

    81,110

     

     

    126,640

    Deferred revenue

     

    352,618

     

     

    377,845

    Convertible senior notes, net

     

    500,604

     

     

    —

    Other current liabilities

     

    20,677

     

     

    21,343

    Total current liabilities

     

    1,016,566

     

     

    577,059

    Long-term convertible senior notes, net

     

    —

     

     

    499,368

    Long-term operating lease liabilities

     

    70,202

     

     

    66,901

    Other long-term liabilities

     

    14,362

     

     

    13,570

    Total liabilities

     

    1,101,130

     

     

    1,156,898

    Total stockholders' equity

     

    435,402

     

     

    353,838

    Total liabilities and stockholders' equity

    $

    1,536,532

     

    $

    1,510,736

    PEGASYSTEMS INC.

    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    (in thousands)

     

     

    Six Months Ended

    June 30,

     

    2024

     

    2023

    Net (loss)

    $

    (5,511

    )

     

    $

    (67,578

    )

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

     

     

     

    Non-cash items

     

    116,288

     

     

     

    119,371

     

    Change in operating assets and liabilities, net

     

    109,466

     

     

     

    61,959

     

    Cash provided by operating activities

     

    220,243

     

     

     

    113,752

     

    Cash (used in) provided by investing activities

     

    (209,700

    )

     

     

    15,979

     

    Cash provided by (used in) financing activities

     

    22,503

     

     

     

    (86,988

    )

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

     

    (2,842

    )

     

     

    1,010

     

    Net increase in cash, cash equivalents, and restricted cash

     

    30,204

     

     

     

    43,753

     

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

     

    232,827

     

     

     

    145,054

     

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

    $

    263,031

     

     

    $

    188,807

     

    PEGASYSTEMS INC.

    RECONCILIATION OF SELECTED GAAP AND NON-GAAP MEASURES

    (in thousands, except percentages and per share amounts)

     

     

    Three Months Ended

    June 30,

     

    Six Months Ended

    June 30,

    2024

     

    2023

     

    Change

     

    2024

     

    2023

     

    Change

    Net income (loss) - GAAP

    $

    6,613

     

     

    $

    (46,804

    )

     

    *

     

    $

    (5,511

    )

     

    $

    (67,578

    )

     

    92

    %

    Stock-based compensation (1)

     

    36,224

     

     

     

    36,227

     

     

     

     

     

    71,005

     

     

     

    78,784

     

     

     

    Restructuring

     

    635

     

     

     

    2,167

     

     

     

     

     

    798

     

     

     

    3,628

     

     

     

    Legal fees

     

    2,409

     

     

     

    2,842

     

     

     

     

     

    4,351

     

     

     

    4,318

     

     

     

    Litigation settlement, net of recoveries

     

    —

     

     

     

    —

     

     

     

     

     

    32,403

     

     

     

    —

     

     

     

    Amortization of intangible assets

     

    789

     

     

     

    963

     

     

     

     

     

    1,753

     

     

     

    2,012

     

     

     

    Interest on convertible senior notes

     

    619

     

     

     

    647

     

     

     

     

     

    1,236

     

     

     

    1,375

     

     

     

    Capped call transactions

     

    3,277

     

     

     

    1,361

     

     

     

     

     

    (22

    )

     

     

    (1,845

    )

     

     

    Repurchases of convertible senior notes

     

    —

     

     

     

    (5,074

    )

     

     

     

     

    —

     

     

     

    (7,855

    )

     

     

    Foreign currency transaction (gain) loss

     

    (437

    )

     

     

    3,290

     

     

     

     

     

    2,825

     

     

     

    5,965

     

     

     

    Other

     

    —

     

     

     

    (678

    )

     

     

     

     

    (1,628

    )

     

     

    (4,471

    )

     

     

    Income taxes (2)

     

    (4,288

    )

     

     

    6,262

     

     

     

     

     

    (19,215

    )

     

     

    6,090

     

     

     

    Net income - non-GAAP

    $

    45,841

     

     

    $

    1,203

     

     

    3,711

    %

     

    $

    87,995

     

     

    $

    20,423

     

     

    331

    %

     

     

     

     

     

     

     

     

     

     

     

     

    Diluted earnings (loss) per share - GAAP

    $

    0.07

     

     

    $

    (0.56

    )

     

    *

     

    $

    (0.07

    )

     

    $

    (0.82

    )

     

    91

    %

    non-GAAP adjustments

     

    0.45

     

     

     

    0.57

     

     

     

     

     

    1.07

     

     

     

    1.06

     

     

     

    Diluted earnings per share - non-GAAP

    $

    0.52

     

     

    $

    0.01

     

     

    5,100

    %

     

    $

    1.00

     

     

    $

    0.24

     

     

    317

    %

     

     

     

     

     

     

     

     

     

     

     

     

    Diluted weighted-average number of common shares outstanding - GAAP

     

    88,500

     

     

     

    83,039

     

     

    7

    %

     

     

    84,712

     

     

     

    82,823

     

     

    2

    %

    Stock-based compensation

     

    —

     

     

     

    1,289

     

     

     

     

     

    3,218

     

     

     

    1,026

     

     

     

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

     

    88,500

     

     

     

    84,328

     

     

    5

    %

     

     

    87,930

     

     

     

    83,849

     

     

    5

    %

    * 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.
    • Litigation settlement, net of recoveries: Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See Note 15. Commitments and Contingencies in our Quarterly Report for the three months ended June 30, 2024 for additional information. 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 (gain) loss: 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, 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:
    • 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

    June 30,

     

    Six Months Ended

    June 30,

     

    2024

     

    2023

     

    2024

     

    2023

    Cost of revenue

    $

    7,092

     

     

    $

    7,174

     

     

    $

    13,664

     

     

    $

    16,087

     

    Selling and marketing

     

    13,564

     

     

     

    15,349

     

     

     

    27,452

     

     

     

    33,009

     

    Research and development

     

    7,825

     

     

     

    7,851

     

     

     

    15,471

     

     

     

    16,911

     

    General and administrative

     

    7,743

     

     

     

    5,853

     

     

     

    14,418

     

     

     

    12,777

     

     

    $

    36,224

     

     

    $

    36,227

     

     

    $

    71,005

     

     

    $

    78,784

     

    Income tax benefit

    $

    (554

    )

     

    $

    (581

    )

     

    $

    (865

    )

     

    $

    (1,253

    )

    (2) Effective income tax rates:

     

    Six Months Ended

    June 30,

     

    2024

     

    2023

    GAAP

    *

     

    (21

    )%

    non-GAAP

    22

    %

     

    22

    %

    * not meaningful.

    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. See Note 13. Income Taxes in our Quarterly Report for the three months ended June 30, 2024 for additional information.

    PEGASYSTEMS INC.

    RECONCILIATION OF FREE CASH FLOW (1) AND OTHER METRICS

    (in thousands, except percentages)

     

     

    Six Months Ended

    June 30,

     

    Change

    2024

     

    2023

     

    Cash provided by operating activities

    $

    220,243

     

     

    $

    113,752

     

     

    94

    %

    Investment in property and equipment

     

    (1,857

    )

     

     

    (13,933

    )

     

     

    Free cash flow (1)

    $

    218,386

     

     

    $

    99,819

     

     

    119

    %

     

     

     

     

     

     

    Supplemental information (2)

     

     

     

     

     

    Litigation settlement, net of recoveries

    $

    32,403

     

     

    $

    —

     

     

     

    Legal fees

     

    2,701

     

     

     

    2,950

     

     

     

    Restructuring

     

    3,852

     

     

     

    17,521

     

     

     

    Interest on convertible senior notes

     

    1,884

     

     

     

    2,250

     

     

     

    Income taxes

     

    25,560

     

     

     

    6,627

     

     

     

     

    $

    66,400

     

     

    $

    29,348

     

     

     

    (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.

    (2) 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.

    • Litigation settlement, net of recoveries: Cost to settle litigation, net of insurance recoveries, arising from proceedings outside the ordinary course of business. See Note 15. Commitments and Contingencies in our Quarterly Report for the three months ended June 30, 2024 for additional information.
    • Legal fees: Legal and related fees arising from proceedings outside the ordinary course of business.
    • Restructuring: Restructuring fluctuates in amount and frequency and is significantly affected by the timing and size of our restructuring activities.
    • 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.
    • Income taxes: Direct income taxes paid net of refunds received.

    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.

     

    June 30, 2024

     

    June 30, 2023

     

    Change

    Pega Cloud

    $

    593,752

     

    $

    498,860

     

    $

    94,892

     

    19

    %

    Maintenance

     

    310,608

     

     

    315,231

     

     

    (4,623

    )

    (1

    )%

    Subscription services

     

    904,360

     

     

    814,091

     

     

    90,269

     

    11

    %

    Subscription license

     

    400,949

     

     

    349,713

     

     

    51,236

     

    15

    %

     

    $

    1,305,309

     

    $

    1,163,804

     

    $

    141,505

     

    12

    %

    PEGASYSTEMS INC.

    BACKLOG

    (in thousands, except percentages)

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

    As of June 30, 2024:

     

    Subscription services

     

    Subscription license

     

    Perpetual license

     

    Consulting

     

    Total

    Pega Cloud

     

    Maintenance

     

     

     

     

    1 year or less

    $

    470,379

     

     

    $

    209,655

     

     

    $

    23,931

     

     

    $

    2,696

     

     

    $

    25,953

     

     

    $

    732,614

     

    52

    %

    1-2 years

     

    301,070

     

     

     

    63,266

     

     

     

    10,078

     

     

     

    —

     

     

     

    2,469

     

     

     

    376,883

     

    27

    %

    2-3 years

     

    152,839

     

     

     

    30,032

     

     

     

    2,884

     

     

     

    —

     

     

     

    2,473

     

     

     

    188,228

     

    13

    %

    Greater than 3 years

     

    90,474

     

     

     

    17,953

     

     

     

    97

     

     

     

    —

     

     

     

    —

     

     

     

    108,524

     

    8

    %

     

    $

    1,014,762

     

     

    $

    320,906

     

     

    $

    36,990

     

     

    $

    2,696

     

     

    $

    30,895

     

     

    $

    1,406,249

     

    100

    %

    % of Total

     

    72

    %

     

     

    23

    %

     

     

    3

    %

     

     

    —

    %

     

     

    2

    %

     

     

    100

    %

     

    Change since June 30, 2023

     

     

     

     

     

     

     

     

     

     

     

     

    $

    152,778

     

     

    $

    15,081

     

     

    $

    (8,416

    )

     

    $

    (4,535

    )

     

    $

    (14,755

    )

     

    $

    140,153

     

     

     

     

    18

    %

     

     

    5

    %

     

     

    (19

    )%

     

     

    (63

    )%

     

     

    (32

    )%

     

     

    11

    %

     

    As of June 30, 2023:

     

    Subscription services

     

    Subscription license

     

    Perpetual license

     

    Consulting

     

    Total

    Pega Cloud

     

    Maintenance

     

     

     

     

    1 year or less

    $

    397,183

     

     

    $

    214,579

     

     

    $

    35,616

     

     

    $

    4,979

     

     

    $

    37,355

     

     

    $

    689,712

     

    55

    %

    1-2 years

     

    238,691

     

     

     

    58,551

     

     

     

    3,026

     

     

     

    2,252

     

     

     

    6,772

     

     

     

    309,292

     

    24

    %

    2-3 years

     

    124,616

     

     

     

    25,103

     

     

     

    6,764

     

     

     

    —

     

     

     

    1,523

     

     

     

    158,006

     

    12

    %

    Greater than 3 years

     

    101,494

     

     

     

    7,592

     

     

     

    —

     

     

     

    —

     

     

     

    —

     

     

     

    109,086

     

    9

    %

     

    $

    861,984

     

     

    $

    305,825

     

     

    $

    45,406

     

     

    $

    7,231

     

     

    $

    45,650

     

     

    $

    1,266,096

     

    100

    %

    % of Total

     

    67

    %

     

     

    24

    %

     

     

    4

    %

     

     

    1

    %

     

     

    4

    %

     

     

    100

    %

     

    PEGASYSTEMS INC.

    RECONCILIATION OF GAAP BACKLOG AND CONSTANT CURRENCY BACKLOG

    (in millions, except percentages)

     

     

    June 30, 2023

     

    June 30, 2024

     

    1 Year Growth Rate

    Backlog - GAAP

    $

    1,266

     

    $

    1,406

     

    11

    %

    Impact of changes in foreign exchange rates

     

    —

     

     

    7

     

     

    Constant currency backlog

    $

    1,266

     

    $

    1,413

     

    12

    %

    Note: Constant currency Backlog is calculated by applying the June 30, 2023 foreign exchange rates to all periods shown.

     

    View source version on businesswire.com: https://www.businesswire.com/news/home/20240724234135/en/

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      Study suggests enterprises embracing a fuller set of AI tools to increase productivity and drive transformation The rapid rise of creative ‘right-brain' generative AI has opened the door to greater adoption of the more analytical ‘left-brain' AI decisioning solutions by global businesses, according to new research from Pegasystems Inc. (NASDAQ:PEGA), the leading enterprise AI decisioning and workflow automation platform provider. The study, conducted by research firm Savanta, was unveiled at PegaWorld® iNspire, the company's annual conference in Las Vegas. It surveyed more than 500 business decision makers across enterprises worldwide on their understanding and use of AI, as well as the c

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    • Edgio Announces New Board of Directors

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    • Pega GenAI Powers Accelerated Q1 2025 Results

      Operating cash flow grows to $204 million and free cash flow grows to $202 million in Q1 2025 Annual Contract Value (ACV) growth exceeds 13% year over year Pega Cloud ACV grows 23% year over year Backlog grows 21% year over year Pegasystems Inc. (NASDAQ:PEGA), the Enterprise Transformation Company ™, released its financial results for the first quarter of 2025. This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20250422973379/en/Total ACV Growth and Pega Cloud ACV Growth "Pega GenAI has dramatically transformed how we engage with our clients," said Alan Trefler, Pega founder and CEO. "Pega solutions and our approach to AI enab

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    • Pega to Announce Financial Results for the First Quarter of 2025 and Host Conference Call and Webcast

      Pegasystems Inc. (NASDAQ:PEGA), The Enterprise Transformation Company™, today announced it will report financial results for the first quarter of 2025 on Tuesday, April 22, 2025, after market close. A conference call and audio-only webcast will be conducted at 8:00 a.m. EDT on Wednesday, April 23, 2025. Members of the public and investors are invited to join the call and participate in the question and answer session by dialing 1 (800) 715-9871 (domestic) or 1 (646) 307-1963 (international) and using Conference ID 5846616, or via https://events.q4inc.com/attendee/866591284 by logging onto www.pega.com at least five minutes prior to the event's broadcast and clicking on the webcast icon in

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    • Pega Announces Quarterly Cash Dividend for Second Quarter of 2025

      Pegasystems Inc. (NASDAQ:PEGA), The Enterprise Transformation Company™, today announced a quarterly cash dividend of $0.03 per share, maintaining the company's current dividend program. The Q2 2025 dividend will be paid on April 15, 2025, to shareholders of record as of April 1, 2025. About Pega Pega is The Enterprise Transformation CompanyTM that helps organizations Build for Change® with enterprise AI decisioning and workflow automation. Many of the world's most influential businesses rely on our platform to solve their most pressing challenges, from personalizing engagement to automating service to streamlining operations. Since 1983, we've built our scalable and flexible architecture t

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