x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2019 |
For the quarterly period ended March 31, 2018
¨ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Massachusetts | 04-2787865 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
One Rogers Street, Cambridge, MA | 02142-1209 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer | Accelerated filer | Non-accelerated filer
| Smaller reporting company | Emerging growth company |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value per share | PEGA | NASDAQ Global Select Market |
2019.
Page | ||||
PART I - FINANCIAL INFORMATION | ||||
Item 1. Unaudited Condensed Consolidated Financial Statements | ||||
Unaudited Condensed Consolidated Balance Sheets as of March 31, | ||||
2018 | ||||
2018 | ||||
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018 | ||||
2018 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | ||||
PART II - OTHER INFORMATION | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | ||||
Item 6. Exhibits | ||||
Signature | ||||
March 31, 2018 | December 31, 2017 | |||||||
| As Adjusted(1) | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 165,790 | $ | 162,279 | ||||
Marketable securities | 89,047 | 61,469 | ||||||
|
|
|
| |||||
Total cash, cash equivalents, and marketable securities | 254,837 | 223,748 | ||||||
Accounts receivable | 164,981 | 222,735 | ||||||
Unbilled receivables | 153,657 | 158,898 | ||||||
Other current assets | 50,692 | 41,135 | ||||||
|
|
|
| |||||
Total current assets | 624,167 | 646,516 | ||||||
Long-term unbilled receivables | 180,077 | 160,708 | ||||||
Goodwill | 73,017 | 72,952 | ||||||
Other long-term assets | 128,694 | 131,391 | ||||||
|
|
|
| |||||
Total assets | $ | 1,005,955 | $ | 1,011,567 | ||||
|
|
|
| |||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 12,175 | $ | 17,370 | ||||
Accrued expenses | 48,278 | 45,508 | ||||||
Accrued compensation and related expenses | 44,093 | 66,040 | ||||||
Deferred revenue | 175,586 | 166,297 | ||||||
|
|
|
| |||||
Total current liabilities | 280,132 | 295,215 | ||||||
Deferred income tax liabilities | 39,932 | 38,463 | ||||||
Other long-term liabilities | 23,768 | 23,652 | ||||||
|
|
|
| |||||
Total liabilities | 343,832 | 357,330 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, 1,000 shares authorized; no shares issued and outstanding | — | — | ||||||
Common stock, 200,000 shares authorized; 78,546 shares and 78,081 issued and outstanding at March 31, 2018 and December 31, 2017, respectively | 785 | 781 | ||||||
Additionalpaid-in capital | 145,962 | 152,097 | ||||||
Retained earnings | 517,893 | 508,051 | ||||||
Accumulated other comprehensive loss | (2,517) | (6,692) | ||||||
|
|
|
| |||||
Total stockholders’ equity | 662,123 | 654,237 | ||||||
|
|
|
| |||||
Total liabilities and stockholders’ equity | $ | 1,005,955 | $ | 1,011,567 | ||||
|
|
|
|
March 31, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 110,367 | $ | 114,422 | |||
Marketable securities | 91,804 | 93,001 | |||||
Total cash, cash equivalents, and marketable securities | 202,171 | 207,423 | |||||
Accounts receivable | 135,352 | 180,872 | |||||
Unbilled receivables | 161,480 | 172,656 | |||||
Other current assets | 63,731 | 49,684 | |||||
Total current assets | 562,734 | 610,635 | |||||
Long-term unbilled receivables | 130,494 | 151,237 | |||||
Goodwill | 72,898 | 72,858 | |||||
Other long-term assets | 190,433 | 147,823 | |||||
Total assets | $ | 956,559 | $ | 982,553 | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 11,559 | $ | 16,487 | |||
Accrued expenses | 40,947 | 45,506 | |||||
Accrued compensation and related expenses | 56,349 | 84,671 | |||||
Deferred revenue | 180,845 | 185,145 | |||||
Other current liabilities | 12,447 | — | |||||
Total current liabilities | 302,147 | 331,809 | |||||
Operating lease liabilities | 45,325 | — | |||||
Deferred income tax liabilities | 8,319 | 6,939 | |||||
Other long-term liabilities | 12,339 | 22,274 | |||||
Total liabilities | 368,130 | 361,022 | |||||
Stockholders’ equity: | |||||||
Preferred stock, 1,000 shares authorized; none issued | — | — | |||||
Common stock, 200,000 shares authorized; 78,896 and 78,526 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively | 789 | 785 | |||||
Additional paid-in capital | 119,182 | 123,205 | |||||
Retained earnings | 479,779 | 510,863 | |||||
Accumulated other comprehensive loss | (11,321 | ) | (13,322 | ) | |||
Total stockholders’ equity | 588,429 | 621,531 | |||||
Total liabilities and stockholders’ equity | $ | 956,559 | $ | 982,553 |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
| As Adjusted(1) | |||||||
Revenue | ||||||||
Software license | $ | 87,773 | $ | 127,008 | ||||
Maintenance | 64,525 | 58,713 | ||||||
Services | 82,884 | 70,588 | ||||||
|
|
|
| |||||
Total revenue | 235,182 | 256,309 | ||||||
|
|
|
| |||||
Cost of revenue | ||||||||
Software license | 1,255 | 1,300 | ||||||
Maintenance | 6,082 | 7,218 | ||||||
Services | 68,277 | 59,572 | ||||||
|
|
|
| |||||
Total cost of revenue | 75,614 | 68,090 | ||||||
|
|
|
| |||||
Gross profit | 159,568 | 188,219 | ||||||
|
|
|
| |||||
Operating expenses | ||||||||
Selling and marketing | 88,383 | 69,681 | ||||||
Research and development | 46,785 | 40,296 | ||||||
General and administrative | 16,464 | 12,335 | ||||||
|
|
|
| |||||
Total operating expenses | 151,632 | 122,312 | ||||||
|
|
|
| |||||
Income from operations | 7,936 | 65,907 | ||||||
|
|
|
| |||||
Foreign currency transaction (loss)/gain | (1,085) | 745 | ||||||
Interest income, net | 764 | 205 | ||||||
Other income/(expense), net | 363 | (279) | ||||||
|
|
|
| |||||
Income before (benefit)/provision for income taxes | 7,978 | 66,578 | ||||||
(Benefit)/provision for income taxes | (4,222) | 13,615 | ||||||
|
|
|
| |||||
Net income | $ | 12,200 | $ | 52,963 | ||||
|
|
|
| |||||
Earnings per share | ||||||||
Basic | $ | 0.16 | $ | 0.69 | ||||
Diluted | $ | 0.15 | $ | 0.65 | ||||
Weighted-average number of common shares outstanding | ||||||||
Basic | 78,236 | 76,761 | ||||||
Diluted | 83,102 | 81,875 | ||||||
Cash dividends declared per share | $ | 0.03 | $ | 0.03 |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Revenue | |||||||
Software license | $ | 63,264 | $ | 87,773 | |||
Maintenance | 67,706 | 64,525 | |||||
Services | 81,576 | 82,884 | |||||
Total revenue | 212,546 | 235,182 | |||||
Cost of revenue | |||||||
Software license | 1,378 | 1,255 | |||||
Maintenance | 6,335 | 6,082 | |||||
Services | 66,724 | 68,277 | |||||
Total cost of revenue | 74,437 | 75,614 | |||||
Gross profit | 138,109 | 159,568 | |||||
Operating expenses | |||||||
Selling and marketing | 108,865 | 88,383 | |||||
Research and development | 50,596 | 46,785 | |||||
General and administrative | 12,676 | 16,464 | |||||
Total operating expenses | 172,137 | 151,632 | |||||
(Loss) income from operations | (34,028 | ) | 7,936 | ||||
Foreign currency transaction loss | (3,712 | ) | (1,085 | ) | |||
Interest income, net | 723 | 764 | |||||
Other income, net | — | 363 | |||||
(Loss) income before benefit from income taxes | (37,017 | ) | 7,978 | ||||
Benefit from income taxes | (8,300 | ) | (4,222 | ) | |||
Net (loss) income | $ | (28,717 | ) | $ | 12,200 | ||
(Loss) earnings per share | |||||||
Basic | $ | (0.37 | ) | $ | 0.16 | ||
Diluted | $ | (0.37 | ) | $ | 0.15 | ||
Weighted-average number of common shares outstanding | |||||||
Basic | 78,584 | 78,236 | |||||
Diluted | 78,584 | 83,102 |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
| As Adjusted(1) | |||||||
Net income | $ | 12,200 | $ | 52,963 | ||||
Other comprehensive income, net of tax | ||||||||
Unrealized (loss)/gain onavailable-for-sale marketable securities, net of tax | (188) | 127 | ||||||
Foreign currency translation adjustments | 4,363 | 2,229 | ||||||
|
|
|
| |||||
Total other comprehensive income, net of tax | 4,175 | 2,356 | ||||||
|
|
|
| |||||
Comprehensive income | $ | 16,375 | $ | 55,319 | ||||
|
|
|
|
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Net (loss) income | $ | (28,717 | ) | $ | 12,200 | ||
Other comprehensive income, net of tax | |||||||
Unrealized gain (loss) on available-for-sale marketable securities, net of tax | 374 | (188 | ) | ||||
Foreign currency translation adjustments | 1,627 | 4,450 | |||||
Total other comprehensive income, net of tax | 2,001 | 4,262 | |||||
Comprehensive (loss) income | $ | (26,716 | ) | $ | 16,462 |
STOCKHOLDERS’ EQUITY
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
| As Adjusted(1) | |||||||
Operating activities: | ||||||||
Net income | $ | 12,200 | $ | 52,963 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Change in operating assets and liabilities, net | 19,591 | (47,555) | ||||||
Stock-based compensation expense | 15,109 | 12,508 | ||||||
Depreciation and amortization of intangible assets | 6,145 | 6,088 | ||||||
Othernon-cash | 2,610 | 8,440 | ||||||
|
|
|
| |||||
Cash provided by operating activities | 55,655 | 32,444 | ||||||
Investing activities: | ||||||||
Purchases of investments | (35,204) | (3,322) | ||||||
Proceeds from maturities and called investments | 5,995 | 2,300 | ||||||
Other | (2,069) | (2,705) | ||||||
|
|
|
| |||||
Cash used in investing activities | (31,278) | (3,727) | ||||||
Financing activities: | ||||||||
Dividend payments to shareholders | (2,344) | (2,298) | ||||||
Common stock repurchases | (20,708) | (13,696) | ||||||
|
|
|
| |||||
Cash used in financing activities | (23,052) | (15,994) | ||||||
Effect of exchange rates on cash and cash equivalents | 2,186 | 521 | ||||||
|
|
|
| |||||
Net increase in cash and cash equivalents | 3,511 | 13,244 | ||||||
Cash and cash equivalents, beginning of period | 162,279 | 70,594 | ||||||
|
|
|
| |||||
Cash and cash equivalents, end of period | $ | 165,790 | $ | 83,838 | ||||
|
|
|
|
thousands, except per share amounts)
Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Total Stockholders’ Equity | ||||||||||||||||||
Number of Shares | Amount | |||||||||||||||||||||
December 31, 2017 | 78,081 | $ | 781 | $ | 152,097 | $ | 509,697 | $ | (6,705 | ) | $ | 655,870 | ||||||||||
Repurchase of common stock | (101 | ) | (1 | ) | (5,688 | ) | — | — | (5,689 | ) | ||||||||||||
Issuance of common stock for share-based compensation plans | 566 | 5 | (15,556 | ) | — | — | (15,551 | ) | ||||||||||||||
Stock-based compensation | — | — | 15,109 | — | — | 15,109 | ||||||||||||||||
Cash dividends declared ($0.12 per share) | — | — | — | (2,355 | ) | — | (2,355 | ) | ||||||||||||||
Other comprehensive income | — | — | — | — | 4,262 | 4,262 | ||||||||||||||||
Net income | — | — | — | 12,200 | — | 12,200 | ||||||||||||||||
March 31, 2018 | 78,546 | $ | 785 | $ | 145,962 | $ | 519,542 | $ | (2,443 | ) | $ | 663,846 | ||||||||||
December 31, 2018 | 78,526 | 785 | 123,205 | 510,863 | (13,322 | ) | 621,531 | |||||||||||||||
Repurchase of common stock | (144 | ) | (1 | ) | (7,586 | ) | — | — | (7,587 | ) | ||||||||||||
Issuance of common stock for share-based compensation plans | 514 | 5 | (14,843 | ) | — | — | (14,838 | ) | ||||||||||||||
Stock-based compensation | — | — | 18,406 | — | — | 18,406 | ||||||||||||||||
Cash dividends declared ($0.12 per share) | — | — | — | (2,367 | ) | — | (2,367 | ) | ||||||||||||||
Other comprehensive income | — | — | — | — | 2,001 | 2,001 | ||||||||||||||||
Net loss | — | — | — | (28,717 | ) | (28,717 | ) | |||||||||||||||
March 31, 2019 | 78,896 | $ | 789 | $ | 119,182 | $ | 479,779 | $ | (11,321 | ) | $ | 588,429 |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Operating activities: | |||||||
Net (loss) income | $ | (28,717 | ) | $ | 12,200 | ||
Adjustments to reconcile net (loss) income to cash provided by operating activities: | |||||||
Stock-based compensation | 18,350 | 15,109 | |||||
Amortization and depreciation | 18,774 | 10,322 | |||||
Foreign currency transaction loss | 3,712 | 1,085 | |||||
Other non-cash | 1,471 | 1,137 | |||||
Change in operating assets and liabilities, net | 9,113 | 15,802 | |||||
Cash provided by operating activities | 22,703 | 55,655 | |||||
Investing activities: | |||||||
Purchases of investments | (7,224 | ) | (35,204 | ) | |||
Proceeds from maturities and called investments | 8,548 | 5,995 | |||||
Other | (2,790 | ) | (2,069 | ) | |||
Cash used in investing activities | (1,466 | ) | (31,278 | ) | |||
Financing activities: | |||||||
Dividend payments to shareholders | (2,363 | ) | (2,344 | ) | |||
Common stock repurchases | (23,224 | ) | (20,708 | ) | |||
Cash used in financing activities | (25,587 | ) | (23,052 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 295 | 2,186 | |||||
Net (decrease) increase in cash and cash equivalents | (4,055 | ) | 3,511 | ||||
Cash and cash equivalents, beginning of period | 114,422 | 162,279 | |||||
Cash and cash equivalents, end of period | $ | 110,367 | $ | 165,790 |
On January 1, 2018 the Company adopted Accounting Standards Update (“ASU”) ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606)” using the full retrospective method which required each prior reporting period presented to be adjusted to reflect the application of this ASU. See Note 2. “New Accounting Pronouncements” for additional information.
2018.
2019.
instruments
In February 2016, the FASB issued ASUNo. 2016-02, “Leases (Topic 842),” which requires lessees to record most leases on their balance sheets, recognizing a lease liability for the obligation to make lease payments and aright-of-use asset for the right to use the underlying asset for the lease term. The effective date for the Company will be
ASC 606 and ASC340-40
In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The Company adopted ASC 606 and ASC340-40 onunamortized lease incentives as of January 1, 2018 using the full retrospective method, which required the Company to retrospectively adjust the prior periods presented.
The most significant impacts of adopting ASC 606 and ASC340-40 were as follows:
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For additional information on the Company’s accounting policies as a result of the adoption of ASC 606 and ASC340-40 see Note 4. “Receivables, Contract Assets, and Deferred Revenue”, Note 5. “Deferred Contract Costs”, and2019.
The impact of the adoption ASC 606 and ASC340-40 on the Company’s unaudited condensed consolidated balance sheet and unaudited condensed consolidated statement of operations is:
December 31, 2017 | ||||||||||||
(in thousands) | Previously reported | Adjustments | As adjusted | |||||||||
Accounts receivable and unbilled receivables | $ | 248,331 | $ | 133,302 | $ | 381,633 | ||||||
Contract assets | — | 914 | 914 | |||||||||
Long-term unbilled receivables | — | 160,708 | 160,708 | |||||||||
Deferred income taxes | 57,127 | (42,887) | 14,240 | |||||||||
Deferred contract costs | — | 37,924 | 37,924 | |||||||||
Other assets(1) | 416,148 | — | 416,148 | |||||||||
|
|
|
|
|
| |||||||
Total Assets | 721,606 | 289,961 | 1,011,567 | |||||||||
|
|
|
|
|
| |||||||
Deferred revenue | 195,073 | (28,776) | 166,297 | |||||||||
Long-term deferred revenue | 6,591 | (2,885) | 3,706 | |||||||||
Deferred income tax liabilities | — | 38,463 | 38,463 | |||||||||
Other liabilities(2) | 148,864 | — | 148,864 | |||||||||
|
|
|
|
|
| |||||||
Total liabilities | 350,528 | 6,802 | 357,330 | |||||||||
Foreign currency translation adjustments | (3,494) | (2,966) | (6,460) | |||||||||
Retained earnings | 221,926 | 286,125 | 508,051 | |||||||||
Other equity(3) | 152,646 | — | 152,646 | |||||||||
|
|
|
|
|
| |||||||
Total stockholders’ equity | 371,078 | 283,159 | 654,237 | |||||||||
|
|
|
|
|
| |||||||
Total liabilities and stockholders’ equity | $ | 721,606 | $ | 289,961 | $ | 1,011,567 | ||||||
|
|
|
|
|
|
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended | ||||||||||||
March 31, 2017 | ||||||||||||
(in thousands, except per share amounts) | Previously reported | Adjustments | As adjusted | |||||||||
Revenue: | ||||||||||||
Software license | $ | 92,390 | $ | 34,618 | $ | 127,008 | ||||||
Maintenance | 58,965 | (252) | 58,713 | |||||||||
Services | 71,892 | (1,304) | 70,588 | |||||||||
|
|
|
|
|
| |||||||
Total revenue | 223,247 | 33,062 | 256,309 | |||||||||
|
|
|
|
|
| |||||||
Cost of revenue: | ||||||||||||
Software license | 1,300 | — | 1,300 | |||||||||
Maintenance | 7,218 | — | 7,218 | |||||||||
Services | 59,572 | — | 59,572 | |||||||||
|
|
|
|
|
| |||||||
Total cost of revenue | 68,090 | — | 68,090 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | 155,157 | 33,062 | 188,219 | |||||||||
|
|
|
|
|
| |||||||
Operating expenses: | ||||||||||||
Selling and marketing | 71,288 | (1,607 | ) | 69,681 | ||||||||
Research and development | 40,296 | — | 40,296 | |||||||||
General and administrative | 12,335 | — | 12,335 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 123,919 | (1,607 | ) | 122,312 | ||||||||
|
|
|
|
|
| |||||||
Income from operations | 31,238 | 34,669 | 65,907 | |||||||||
|
|
|
|
|
| |||||||
Foreign currency transaction gain | 676 | 69 | 745 | |||||||||
Interest income, net | 165 | 40 | 205 | |||||||||
Other expense, net | (279) | — | (279) | |||||||||
|
|
|
|
|
| |||||||
Income before provision for income taxes | 31,800 | 34,778 | 66,578 | |||||||||
Provision for income taxes | 4,779 | 8,836 | 13,615 | |||||||||
|
|
|
|
|
| |||||||
Net income | $ | 27,021 | $ | 25,942 | $ | 52,963 | ||||||
|
|
|
|
|
| |||||||
Earnings per share: | ||||||||||||
Basic | $ | 0.35 | $ | 0.69 | ||||||||
|
|
|
| |||||||||
Diluted | $ | 0.33 | $ | 0.65 | ||||||||
|
|
|
| |||||||||
Weighted-average number of common shares outstanding: | ||||||||||||
Basic | 76,761 | 76,761 | ||||||||||
Diluted | 81,875 | 81,875 |
Adoption of ASC 606 had no impact on total cash from or used in operating, financing, or investing activities in the Company’s unaudited condensed consolidated statements of cash flows“Leases” for the three months ended March 31, 2017.
additional information.
March 31, 2018 | ||||||||||||||||
(in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
Municipal bonds | $ | 50,782 | $ | — | $ | (191) | $ | 50,591 | ||||||||
Corporate bonds | 38,761 | 1 | (306) | 38,456 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 89,543 | $ | 1 | $ | (497) | $ | 89,047 | |||||||||
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||
(in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
Municipal bonds | $ | 32,996 | $ | — | $ | (148) | $ | 32,848 | ||||||||
Corporate bonds | 28,757 | 1 | (137) | 28,621 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 61,753 | $ | 1 | $ | (285) | $ | 61,469 | |||||||||
|
|
|
|
|
|
|
|
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2019 | |||||||||||||||
(in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||
Municipal bonds | $ | 42,693 | $ | 86 | $ | (20 | ) | $ | 42,759 | ||||||
Corporate bonds | 48,966 | 142 | (63 | ) | 49,045 | ||||||||||
$ | 91,659 | $ | 228 | $ | (83 | ) | $ | 91,804 |
December 31, 2018 | |||||||||||||||
(in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||
Municipal bonds | $ | 44,802 | $ | 13 | $ | (110 | ) | $ | 44,705 | ||||||
Corporate bonds | 48,499 | 23 | (226 | ) | 48,296 | ||||||||||
$ | 93,301 | $ | 36 | $ | (336 | ) | $ | 93,001 |
(in thousands)
| March 31, 2018 | December 31, 2017 | ||||||
Accounts receivable | $ | 164,981 | $ | 222,735 | ||||
Unbilled receivables | 153,657 | 158,898 | ||||||
Long-term unbilled receivables | 180,077 | 160,708 | ||||||
|
|
|
| |||||
Total receivables | $ | 498,715 | $ | 542,341 | ||||
|
|
|
|
(in thousands) | March 31, 2019 | December 31, 2018 | |||||
Accounts receivable | $ | 135,352 | $ | 180,872 | |||
Unbilled receivables | 161,480 | 172,656 | |||||
Long-term unbilled receivables | 130,494 | 151,237 | |||||
$ | 427,326 | $ | 504,765 |
Long-term unbilled
(in thousands)
| March 31, 2018 | |||
2019 | $ | 82,518 | ||
2020 | 58,433 | |||
2021 | 31,129 | |||
2022 and thereafter | 7,997 | |||
|
| |||
$ | 180,077 | |||
|
|
(Dollars in thousands) | March 31, 2019 | ||||
1 year or less | $ | 161,480 | 55 | % | |
1-2 years | 86,496 | 30 | % | ||
2-5 years | 43,998 | 15 | % | ||
$ | 291,974 | 100 | % |
(in thousands)
| March 31, 2018 | December 31, 2017 | ||||||
Contract assets(1) | $ | 788 | $ | 914 | ||||
Deferred revenue | 175,586 | 166,297 | ||||||
Long-term deferred revenue(2) | $ | 3,277 | $ | 3,706 |
(in thousands) | March 31, 2019 | December 31, 2018 | |||||
Contract assets (1) | $ | 3,380 | $ | 3,711 | |||
Long-term contract assets (2) | 1,818 | 2,543 | |||||
$ | 5,198 | $ | 6,254 | ||||
Deferred revenue | $ | 180,845 | $ | 185,145 | |||
Long-term deferred revenue (3) | 5,866 | 5,344 | |||||
$ | 186,711 | $ | 190,489 |
assets.
(2) Included in other long-termContract assets and deferred revenue are presented net at the contract level for each reporting period. other long-term liabilities.
Contract assets and deferred revenue are netted at the contract level for each reporting period.
Major clients
No client represented 10% or more2018, partially offset by new billings in advance of the Company’s total receivables as of March 31, 2018 or December 31, 2017.
revenue recognition.
Sales incentives paid by
(in thousands) | March 31, 2019 | December 31, 2018 | |||||
Deferred contract costs (1) | $ | 64,869 | $ | 64,367 |
Three Months Ended March 31, | |||||||
(in thousands) | 2019 | 2018 | |||||
Amortization of deferred contract costs (1) | $ | 8,301 | $ | 3,789 |
marketing expenses
.amortization period is one year or less. During the three months ended March 31, 2018 and 2017, impairment of deferred contract costs was not material.
(in thousands)
| March 31, 2018 | December 31, 2017 | ||
Deferred contract costs(1) | $ 39,781 | $ 37,924 | ||
(1) Included in other long-term assets in the unaudited condensed consolidated balance sheets.
Amortization of deferred contract costs was as follows: | ||||
Three Months Ended March 31, | ||||
(in thousands) | 2018 | 2017 | ||
Amortization of deferred contract costs(1) | $3,789 | $2,594 |
(1) Included in selling and marketing expenses in the unaudited condensed consolidated statement of operations.
| ||||
| ||||
| ||||
| ||||
was:
(in thousands) | Three Months Ended March 31, | ||
2019 | |||
Balance as of January 1, | $ | 72,858 | |
Currency translation adjustments | 40 | ||
Balance as of March 31, | $ | 72,898 |
March 31, 2018 | ||||||||
(in thousands) | Useful Lives | Cost | Accumulated | Net Book Value(1) | ||||
Client-related intangibles | 9-10 years | $ 63,197 | $ (46,456) | $ 16,741 | ||||
Technology | 7-10 years | 58,942 | (46,603) | 12,339 | ||||
Other intangibles | — | 5,361 | (5,361) | — | ||||
|
|
| ||||||
$ 127,500 | $ (98,420) | $ 29,080 | ||||||
|
|
| ||||||
(1) Included in other long-term assets in the unaudited condensed consolidated balance sheet. | ||||||||
December 31, 2017 | ||||||||
(in thousands) | Useful Lives | Cost | Accumulated | Net Book Value(1) | ||||
Client-related intangibles | 9-10 years | $ 63,164 | $ (44,835) | $ 18,329 | ||||
Technology | 7-10 years | 58,942 | (45,372) | 13,570 | ||||
Other intangibles | — | 5,361 | (5,361) | — | ||||
|
|
| ||||||
$ 127,467 | $ (95,568) | $ 31,899 | ||||||
|
|
|
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2019 | |||||||||||||
(in thousands) | Useful Lives | Cost | Accumulated Amortization | Net Book Value (1) | |||||||||
Client-related intangibles | 4-10 years | $ | 63,136 | $ | (52,839 | ) | $ | 10,297 | |||||
Technology | 2-10 years | 59,742 | (51,730 | ) | 8,012 | ||||||||
Other | 1 - 5 years | 5,361 | (5,361 | ) | — | ||||||||
$ | 128,239 | $ | (109,930 | ) | $ | 18,309 |
December 31, 2018 | |||||||||||||
(in thousands) | Useful Lives | Cost | Accumulated Amortization | Net Book Value (1) | |||||||||
Client-related intangibles | 4-10 years | $ | 63,115 | $ | (51,224 | ) | $ | 11,891 | |||||
Technology | 2-10 years | 59,742 | (50,398 | ) | 9,344 | ||||||||
Other | 1 - 5 years | 5,361 | (5,361 | ) | — | ||||||||
$ | 128,218 | $ | (106,983 | ) | $ | 21,235 |
Three Months Ended March 31, | ||||||||
(in thousands) | 2018 | 2017 | ||||||
Cost of revenue |
$ |
1,232 |
|
$ |
1,334 |
| ||
Selling and marketing | 1,605 | 1,866 | ||||||
|
|
|
| |||||
$ | 2,837 | $ | 3,200 | |||||
|
|
|
|
was:
(in thousands) | Three Months Ended March 31, | ||||||
2019 | 2018 | ||||||
Cost of revenue | $ | 1,332 | $ | 1,232 | |||
Selling and marketing | 1,603 | 1,605 | |||||
$ | 2,935 | $ | 2,837 |
(in thousands) | March 31, 2018 | December 31, 2017 | ||||||
Outside professional services |
$ |
15,152 |
|
$ |
14,468 |
| ||
Income and other taxes | 7,272 | 7,420 | ||||||
Marketing and sales program expenses | 8,724 | 6,444 | ||||||
Dividends payable | 2,358 | 2,344 | ||||||
Employee-related expenses | 5,091 | 4,065 | ||||||
Other | 9,681 | 10,767 | ||||||
|
|
|
| |||||
$ | 48,278 | $ | 45,508 | |||||
|
|
|
|
(in thousands) | March 31, 2019 | December 31, 2018 | |||||
Outside professional services expenses | $ | 8,815 | $ | 10,367 | |||
Income and other taxes | 7,954 | 10,387 | |||||
Marketing and sales program expenses | 8,318 | 5,860 | |||||
Dividends payable | 2,367 | 2,363 | |||||
Employee-related expenses | 5,432 | 3,536 | |||||
Other | 8,061 | 12,993 | |||||
$ | 40,947 | $ | 45,506 |
recurring basis
hierarchy.
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
2019.
March 31, 2018 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash equivalents | $ | 130 | $ | 30,072 | $ | — | $ | 30,202 | ||||||||
Marketable securities: | ||||||||||||||||
Municipal bonds | $ | — | $ | 50,591 | $ | — | $ | 50,591 | ||||||||
Corporate bonds | — | 38,456 | — | 38,456 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total marketable securities | $ | — | $ | 89,047 | $ | — | $ | 89,047 | ||||||||
Investments in privately-held companies(1) | $ | — | $ | — | $ | 2,060 | $ | 2,060 | ||||||||
(1) Included in other long-term assets in the unaudited condensed consolidated balance sheets. |
| |||||||||||||||
December 31, 2017 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash equivalents | $ | 2,720 | $ | 40,051 | $ | — | $ | 42,771 | ||||||||
Marketable securities: | ||||||||||||||||
Municipal bonds | $ | — | $ | 32,848 | $ | — | $ | 32,848 | ||||||||
Corporate bonds | — | 28,621 | — | 28,621 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total marketable securities | $ | — | $ | 61,469 | $ | — | $ | 61,469 | ||||||||
Investments in privately-held companies(1) | $ | — | $ | — | $ | 1,030 | $ | 1,030 | ||||||||
(1) Included in other long-term assets in the unaudited condensed consolidated balance sheets. |
|
were:
March 31, 2019 | |||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash equivalents | $ | 12,401 | $ | 10,062 | $ | — | $ | 22,463 | |||||||
Marketable securities: | |||||||||||||||
Municipal bonds | $ | — | $ | 42,759 | $ | — | $ | 42,759 | |||||||
Corporate bonds | — | 49,045 | — | 49,045 | |||||||||||
Total marketable securities | $ | — | $ | 91,804 | $ | — | $ | 91,804 | |||||||
Investments in privately-held companies (1) | $ | — | $ | — | $ | 3,390 | $ | 3,390 |
December 31, 2018 | |||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash equivalents | $ | 10,155 | $ | 10,000 | $ | — | $ | 20,155 | |||||||
Marketable securities: | |||||||||||||||
Municipal bonds | $ | — | $ | 44,705 | $ | — | $ | 44,705 | |||||||
Corporate bonds | — | 48,296 | — | 48,296 | |||||||||||
Total marketable securities | $ | — | $ | 93,001 | $ | — | $ | 93,001 | |||||||
Investments in privately-held companies (1) | $ | — | $ | — | $ | 3,390 | $ | 3,390 |
Assets Measured at Fair Value on a Nonrecurring Basis
Assets recorded at fair value on a nonrecurring basis, including property and equipment and intangible assets, are recognized at fair value when they are impaired. During the three months ended March 31, 2018 and 2017, the Company did not recognize any impairments of its assets recorded at fair value on a nonrecurring basis.
Revenue policy
LEASES
Contracts with multiple performance obligations
leases are operating leases. The Company’s license and cloud arrangements often contain multiple performance obligations, including maintenance, consulting, and training. For contracts with multiple performance obligations, the Company accounts for individual performance obligations separatelya contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines the initial classification and measurement of its operating right of use assets and lease liabilities at the lease commencement date and thereafter if theymodified. Fixed lease costs are distinct. The transaction price is allocated to the separate performance obligationsrecognized on a relative stand-alone selling price basis. Ifstraight-line basis over the transaction price contains discounts or expects to provide a future price concession, these elementsterm of the lease. Variable lease costs are considered when determining the transaction price prior to allocation. Variable fees within the transaction price will be estimated and recognized in revenue asthe period in which the obligation for those payments is incurred. The Company combines lease and non-lease components in the determination of lease costs for its office space leases. The lease liability includes lease payments related to options to extend or renew the lease term, if the Company satisfies its performance obligations to the extentis reasonably certain it is probable that a significant reversal of cumulative revenue recognized will exercise those options. The Company’s leases do not occur when the uncertainty associated with the variable fee is resolved. If the contract grants the client the option to acquire additional productscontain any material residual value guarantees or services, the Company assesses whether or not any discount on the products and services is in excess of levels normally available to similar clients and, if so, accounts for that discount as an additional performance obligation.
restrictive covenants.
Software licenses
Three Months Ended March 31, | |||
(in thousands) | 2019 | ||
Operating lease costs | $ | 4,300 | |
Variable lease costs (1) | 1,321 | ||
$ | 5,621 |
(in thousands) | March 31, 2019 | ||
Right of use assets (1) | $ | 46,464 | |
Lease liabilities (2) | $ | 12,447 | |
Long-term lease liabilities | $ | 45,325 |
March 31, 2019 | ||
Weighted-average remaining lease term | 4.3 years | |
Weighted-average discount rate (1) | 5.7 | % |
Term license fees are usually payable in advancelease payments on a monthly, quarterly, or annualcollateralized basis over the term of the license agreement, which is typically three to five years and may be renewed for additional termslease.
(in thousands) | March 31, 2019 | ||
Remainder of 2019 | $ | 11,324 | |
2020 | 15,784 | ||
2021 | 13,764 | ||
2022 | 12,761 | ||
2023 | 11,604 | ||
Total lease payments | 65,237 | ||
Less: imputed interest (1) | (7,465 | ) | |
$ | 57,772 |
Maintenance
Maintenance revenue includes revenue from client support and related professional services. Client support includes software upgrades on a whenASC 842 were:
(in thousands) | Operating Leases (1) | ||
2019 | $ | 15,993 | |
2020 | 14,807 | ||
2021 | 13,262 | ||
2022 | 12,279 | ||
2023 | 11,084 | ||
$ | 67,425 |
The Company has identified two separate distinct performance obligations of maintenance:
These performance obligations are distinct within the contract and, although they are not sold separately, the components are not essentialvacated pursuant to the functionality of the other components. Each of the performance obligations included in maintenance revenue is a stand-alone obligation that is recognized over the passage of the contractual term, which is typically one year. Maintenance fees are usually payable in advance on a monthly, quarterly, or annual basis over the term of the agreement.
Services
The Company’s services revenue is comprised of consulting and training, including software license implementations, training, reimbursable expenses, and cloud which is derived from sales of the Company’s hosted Pega Platform and software application environments. The Company has concluded that most services are distinct performance obligations. Consulting may be provided on a stand-alone basis or bundled with license and software maintenance services.
The stand-alone selling price for consulting in time and materials contracts is determined by observable prices in similar transactions without multiple performance obligations and recognized as revenue as the services are performed. Fees for time and materials consulting contracts are usually payable shortly after the service is provided.
The Company estimates the stand-alone selling price for fixed price services based on the estimated hours versus actual hours in similar geographies and for similar contract sizes. Revenue for fixed price services is recognized over time as the services are provided. Fees for fixed price services consulting contracts are usually payable as contract milestones are achieved.
The stand-alone selling price of cloud sales of production environments is determined based on the residual approach when sold with services and is recognized over the term of the service. The Company utilizes the residual approach as cloud performance obligations are sold for a broad range of amounts (the selling price is highly variable) and a stand-alone selling price is not discernible from past transactions or other observable evidence. The stand-alone selling price for cloud sales of development and testing environments is developed using observable prices in similar transactions without multiple performance obligations and is recognized over time over the term of the service. Cloud fees are usually payable in advance on a monthly, quarterly, or annual basis over the term of the service.
its restructuring activities.
Contract modifications
The Company sometimes enters into amendments to previously executed contracts which constitute contract modifications. The Company assesses each of these contract modifications to determine:
March 31, | ||
(in thousands) | ||
Cash paid for leases | 5,197 | |
Right of use assets recognized for new leases (non-cash) | 8,034 |
A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change
Three Months Ended March 31, | |||||||||||
(Dollars in thousands) | 2019 | 2018 | |||||||||
U.S. | $ | 103,991 | 48 | % | $ | 113,985 | 48 | % | |||
Other Americas | 28,829 | 14 | % | 17,715 | 8 | % | |||||
United Kingdom (“U.K.”) | 24,549 | 12 | % | 26,094 | 11 | % | |||||
Europe (excluding U.K.), Middle East, and Africa | 34,186 | 16 | % | 31,826 | 14 | % | |||||
Asia-Pacific | 20,991 | 10 | % | 45,562 | 19 | % | |||||
$ | 212,546 | 100 | % | $ | 235,182 | 100 | % |
Three Months Ended March 31, | |||||||
(in thousands) | 2019 | 2018 | |||||
Perpetual license | $ | 14,950 | $ | 23,078 | |||
Term license | 48,314 | 64,695 | |||||
Revenue recognized at a point in time | 63,264 | 87,773 | |||||
Maintenance | 67,706 | 64,525 | |||||
Cloud | 27,758 | 15,582 | |||||
Consulting | 53,818 | 67,302 | |||||
Revenue recognized over time | 149,282 | 147,409 | |||||
$ | 212,546 | $ | 235,182 |
(in thousands) | Three Months Ended March 31, | ||||||
2019 | 2018 | ||||||
Term license | $ | 48,314 | $ | 64,695 | |||
Cloud | 27,758 | 15,582 | |||||
Maintenance | 67,706 | 64,525 | |||||
Subscription (1) | 143,778 | 144,802 | |||||
Perpetual license | 14,950 | 23,078 | |||||
Consulting | 53,818 | 67,302 | |||||
$ | 212,546 | $ | 235,182 |
|
Geographic revenue
Three Months Ended March 31, | ||||||||||||||||
(in thousands) | 2018 | 2017 | ||||||||||||||
U.S. | $ | 113,985 | 48% | $ | 169,662 | 67% | ||||||||||
Other Americas | 17,715 | 8% | 10,406 | 4% | ||||||||||||
United Kingdom | 26,094 | 11% | 26,342 | 10% | ||||||||||||
Europe, Middle East, and Africa excluding the United Kingdom | 31,826 | 14% | 24,211 | 9% | ||||||||||||
Asia-Pacific | 45,562 | 19% | 25,688 | 10% | ||||||||||||
|
|
|
| |||||||||||||
Total Revenue | $ | 235,182 | 100% | $ | 256,309 | 100% | ||||||||||
|
|
|
|
Major products and services
Three Months Ended March 31, | ||||||||
(in thousands) | 2018 | 2017 | ||||||
Perpetual license | $ | 23,078 | $ | 37,899 | ||||
Term license | 64,695 | 89,109 | ||||||
|
|
|
| |||||
Performance obligations transferred at a point in time | 87,773 | 127,008 | ||||||
Maintenance | 64,525 | 58,713 | ||||||
Cloud | 15,582 | 10,402 | ||||||
Consulting and training | 67,302 | 60,186 | ||||||
|
|
|
| |||||
Performance obligations transferred over time | 147,409 | 129,301 | ||||||
|
|
|
| |||||
Total Revenue | $ | 235,182 | $ | 256,309 | ||||
|
|
|
|
During the three months ended March 31, 2018 and 2017, there were no material changes in the Company’s estimate of variable fees. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.
Transaction price allocated to remaining performance obligations
Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized. Transaction price on remaining performance obligations was $291 million as of March 31, 2018, of which the Company expects to recognize $198.3 million prior to January 1, 2020. Theseabove amounts do not include contracts that have an original expected duration of one year or less. For reporting periods ending prior to January 1, 2018, the date of initial adoption of ASC 606, the Company has elected the practical expedient and not compiled and disclosed the amount of the transaction price allocated to the remaining performance obligations.
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Major clients
Clients accounting for 10% or more of the Company’s total revenue were as follows:
Three Months Ended March 31, | ||||||||||||
(in thousands) | 2018 | 2017 | ||||||||||
|
| |||||||||||
Total revenue | $ 235,182 | $ | 256,309 | |||||||||
Client A | * | 14% | ||||||||||
Client B | * | 11% |
*Client accounted for less than 10% of total revenue.
10.
Three Months Ended March 31, | ||||||||
(in thousands) | 2018 | 2017 | ||||||
Cost of revenues | $ | 3,701 | $ | 3,622 | ||||
Selling and marketing | 4,658 | 3,405 | ||||||
Research and development | 3,637 | 3,312 | ||||||
General and administrative | 3,113 | 2,169 | ||||||
|
|
|
| |||||
$ | 15,109 | $ | 12,508 | |||||
|
|
|
| |||||
Income tax benefit | $ | (3,141) | $ | (3,815) |
Three Months Ended March 31, | |||||||
(in thousands) | 2019 | 2018 | |||||
Cost of revenues | $ | 4,519 | $ | 3,701 | |||
Selling and marketing | 7,374 | 4,658 | |||||
Research and development | 4,560 | 3,637 | |||||
General and administrative | 1,897 | 3,113 | |||||
$ | 18,350 | $ | 15,109 | ||||
Income tax benefit | $ | (3,740 | ) | $ | (3,141 | ) |
Three Months Ended March 31, | ||||||||
(in thousands) | Shares | Total Fair Value | ||||||
RSUs(1) | 858 | $ | 49,600 | |||||
Non-qualified stock options | 1,377 | $ | 24,700 |
Three Months Ended March 31, | ||||||
2019 | ||||||
(in thousands) | Shares | Total Fair Value | ||||
RSUs | 839 | $ | 53,184 | |||
Non-qualified stock options | 1,770 | $ | 33,344 |
11.
The Company computes its (benefit)/provision for income taxes by applying the estimated annual effective tax rate to year to date income before (benefit)/provision for income taxes and adjusts for discrete tax items recorded in the period.
Three Months Ended March 31, | ||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||
(Benefit)/provision for income taxes | $ | (4,222) | $ | 13,615 | ||||
Effective income tax rate | (53)% | 20% |
Three Months Ended March 31, | |||||||
(Dollars in thousands) | 2019 | 2018 | |||||
Benefit from income taxes | $ | (8,300 | ) | $ | (4,222 | ) | |
Effective income tax rate | 22 | % | (53 | )% |
Tax Reform Act
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Reform Act”) was enacted into law, which significantly changed U.S. tax law and included many provisions such as a reduction of the U.S. federal statutory tax rate, imposed aone-time transition tax on deemed repatriation of deferred foreign earnings, and included a provision to tax global intangiblelow-taxed income (“GILTI”) of foreign subsidiaries, a special tax deduction for foreign derived intangible income,credits, and a base erosion anti-abusedecrease in uncertain tax measure (“BEAT”) that may tax payments between a U.S. corporation and its foreign subsidiaries, among other tax changes.
Under the SEC Staff Accounting Bulletin No. 118 (“SAB 118”), the Company recognized the provisional tax impacts in the three months ended December 31, 2017 that included $20.4 million of income tax expense tore-measure its net deferred tax assets to the 21% enacted rate. However, the Company has revised its provisional amount to reflect the impact of the retrospective adoption of ASC 606 and has recognized a $12.6 million income tax benefit for the remeasurement of its net deferred tax liabilities on a retrospective basis in the three months ended December 31, 2017.
The final amounts may differ from those provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may takepositions as a result of the Tax Reform Act.
The Tax Reform Act also provided for aone-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits through December 31, 2017. However, based on the Company’s provisional analysis performed as of that date, the Company does not expect to be subject to theone-time transition tax due to the Company’s foreign subsidiaries being in a net accumulated deficit position. During the three months ended March 31, 2018, the Company recognized no significant adjustments to these estimates.
The Tax Reform Act provides the following new anti-abuse provisions beginning in 2018:
PEGASYSTEMS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
12.
Three Months Ended | ||||
(in thousands, except per share amounts) | 2018 | 2017 | ||
Basic | ||||
Net income | $ 12,200 | $ 52,963 | ||
Weighted-average common shares outstanding | 78,236 | 76,761 | ||
|
| |||
Earnings per share, basic | $ 0.16 | $ 0.69 | ||
|
| |||
Diluted | ||||
Net income | $ 12,200 | $ 52,963 | ||
Weighted-average effect of dilutive securities: | ||||
Stock options | 3,119 | 3,184 | ||
RSUs | 1,747 | 1,930 | ||
|
| |||
Effect of dilutive securities | 4,866 | 5,114 | ||
|
| |||
Weighted-average common shares outstanding, assuming dilution | 83,102 | 81,875 | ||
|
| |||
Earnings per share, diluted | $ 0.15 | $ 0.65 | ||
|
| |||
Outstanding anti-dilutive stock options and RSUs(1) | 397 | 314 |
Three Months Ended March 31, | |||||||
(in thousands, except per share amounts) | 2019 | 2018 | |||||
Basic | |||||||
Net (loss) income | $ | (28,717 | ) | $ | 12,200 | ||
Weighted-average common shares outstanding | 78,584 | 78,236 | |||||
(Loss) earnings per share, basic | $ | (0.37 | ) | $ | 0.16 | ||
Diluted | |||||||
Net (loss) income | $ | (28,717 | ) | $ | 12,200 | ||
Weighted-average effect of dilutive securities: | |||||||
Stock options | — | 3,119 | |||||
RSUs | — | 1,747 | |||||
Effect of dilutive securities | — | 4,866 | |||||
Weighted-average common shares outstanding, assuming dilution | 78,584 | 83,102 | |||||
(Loss) earnings per share, diluted | $ | (0.37 | ) | $ | 0.15 | ||
Outstanding anti-dilutive stock options and RSUs (1) | 5,563 | 397 |
2018. strategic business needs. Total revenue Net income Diluted earnings per share Cash provided by operating activities renewal. Term and Cloud ACV Maintenance ACV Total ACV and the timing of revenue recognition, and are described more completely in Part I of our Annual Report on Form10-K for the year ended December 31, 2017.These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. and the difficulty in predicting factors affecting the timing of license revenue recognition; reliance on third party relationships; our beliefs and the timing of the completion of our analysis regarding the impact of the Tax Cuts and Jobs Act of 2017, including its impactrelationships, reliance on income tax expense and deferred tax assets;key personnel, the inherent risks associated with international operations and the continued uncertainties in the global economy;economy, our continued effort to market and sell both domestically and internationally;internationally, foreign currency exchange rates; the financial impact of any future acquisitions;rates, the potential legal and financial liabilities and reputation damage due to cyber-attacks and security breaches;breaches, and management of our growth. These risks and other factors that could cause actual results to differ materially from those expressed in such forward-looking statements are described more completely in Part I of our Annual Report on Form10-K for the year ended December 31, 20172018 as well as other filings we make with the U.S. Securities and Exchange Commission (“SEC”).mattersresults contained in such statements will be achieved. Although subsequentnew information, future events, or risks may cause our viewactual results to change,differ materially from future results expressed or implied by such forward-looking statements, except as required by applicable law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events, or otherwise.customer engagement and digital process automation, in addition to licensing our Pega Platformrapid application development product forto clients that wish to build and extend their own business applications. TheOur cloud-architected portfolio of customer engagement and digital process automation applications leverages artificial intelligence (“AI”), case management, and robotic automation technology, built on our unified no-code Pega Platform, empowering businesses to quickly design, extend, and applications help connect enterprises toscale their customers in real-time across channels, streamline business operations, and adaptenterprise applications to meet changing requirements.includeare Global 3000 companiesorganizations and government agencies that seekrequire applications to manage complex enterprise systems and customer service issues with greater agility and cost-effectiveness. Our strategy is to sell a client a series of licenses, each focused on a specific purpose or area of operations in support of longer term enterprise-wide digital transformation initiatives.Our license revenue is primarily derived from sales of our applications and Pega Platform. Our cloud revenue is derived from our hosted software application and Pega Platform environments. Our consulting revenue is primarily related to new license implementations.Financial and Performance MetricsWe adopted the new revenue recognition standard (“ASC 606”) effective January 1, 2018 using the full retrospective method. See Note 2. “New Accounting Pronouncements” included in Item 1. “Unaudited Condensed Consolidated Financial Statements” for additional information.(Dollars in thousands, except per share amounts) Three Months Ended
March 31, 2018 2017 Change $ 235,182 $ 256,309 $ (21,127 ) (8)% $ 12,200 $ 52,963 $ (40,763 ) (77)% $ 0.15 $ 0.65 $ (0.50 ) (77)% $ 55,655 $ 32,444 $ 23,211 72% The decrease in total revenuedifferentiate themselves in the three months ended March 31, 2018 was primarily duemarkets they serve. Our applications achieve and facilitate differentiation by increasing business agility, driving growth, improving productivity, attracting and retaining customers, and reducing risk. We deliver applications tailored to our clients’ specific industry needs.large termnumber of different performance measures in analyzing and assessing our overall performance, making operating decisions, and forecasting and planning for future periods.Three Months Ended
March 31, Change 2019 2018 Total revenue $ 212,546 $ 235,182 $ (22,636 ) (10 )% $ 143,778 $ 144,802 $ (1,024 ) (1 )% Net (loss) income $ (28,717 ) $ 12,200 $ (40,917 ) * (Loss) earnings per share, diluted $ (0.37 ) $ 0.15 $ (0.52 ) * arrangement recognized in revenue in the three months ended March 31, 2017cloud, and a shift in client preferencesmaintenance) that are subject to cloud arrangements. Cloud arrangements are generally recognized in revenue over the term of the cloud contract, as compared to other arrangements, which are generally recognized in revenue on the contract effective date.committed term,Pega cloud and maintenanceclient cloud committed arrangements as of the end of the particular reporting period. March 31, (in thousands) 2018 2017 Change $ 236,025 $ 193,004 $ 43,021 22% 258,100 234,852 $ 23,248 10% $ 494,125 $ 427,856 $ 66,269 15% March 31, Change (Dollars in thousands) 2019 2018 Pega Cloud ACV $ 128,636 $ 72,966 $ 55,670 76 % Client Cloud ACV 462,130 421,159 40,971 10 % Total ACV $ 590,766 $ 494,125 $ 96,641 20 % TheClient Cloud: the sum of (1) the annual value of each term and cloudlicense contract in effect on such date, with the annual value of a term or cloud contract beingwhich is equal to theits total value of the contract divided by the total number of years of the contract.
March 31, 2019 | |||||||||||||||||||||||||
(Dollars in thousands) | Perpetual license | Term license | Maintenance | Cloud | Consulting | Total | |||||||||||||||||||
1 year or less | $ | 10,263 | $ | 44,404 | $ | 187,324 | $ | 115,548 | $ | 13,251 | $ | 370,790 | 58 | % | |||||||||||
1-2 years | 998 | 4,274 | 9,350 | 91,539 | 1,363 | 107,524 | 17 | % | |||||||||||||||||
2-3 years | 2,180 | 756 | 4,438 | 71,509 | 473 | 79,356 | 13 | % | |||||||||||||||||
Greater than 3 years | — | 135 | 2,008 | 72,742 | 27 | 74,912 | 12 | % | |||||||||||||||||
$ | 13,441 | $ | 49,569 | $ | 203,120 | $ | 351,338 | $ | 15,114 | $ | 632,582 | 100 | % |
March 31, 2018 | |||||||||||||||||||||||||
(Dollars in thousands) | Perpetual license | Term license | Maintenance | Cloud | Consulting | Total | |||||||||||||||||||
1 year or less | $ | 33,859 | $ | 21,087 | $ | 156,702 | $ | 47,764 | $ | 9,403 | $ | 268,815 | 59 | % | |||||||||||
1-2 years | 14,106 | 7,877 | 21,381 | 52,849 | 1,098 | 97,311 | 21 | % | |||||||||||||||||
2-3 years | 1,204 | 5,634 | 4,924 | 37,844 | — | 49,606 | 11 | % | |||||||||||||||||
Greater than 3 years | 382 | 853 | 1,825 | 40,478 | — | 43,538 | 9 | % | |||||||||||||||||
$ | 49,551 | $ | 35,451 | $ | 184,832 | $ | 178,935 | $ | 10,501 | $ | 459,270 | 100 | % |
Revenue
We account for revenue in accordance with ASC 606. Our revenue recognition policies require us to make significant judgments and estimates.
Our clients’ contracts typically contain promises to transfer multiple products and services. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. We allocate the transaction price to the distinct performance obligations based on relative stand-alone selling price. We estimate stand-alone selling price based on the prices charged to clients, or by using information such as market conditions and other observable inputs. However, the selling price of our software licenses and cloud performance obligations are highly variable. Thus, we estimate stand-alone selling price for software licenses and cloud performance obligations using the residual approach, determined based on total transaction price minus the stand-alone selling price of other performance obligations promised in the contract.
In applying our revenue recognition policy, we must determine which portions of our revenue are recognized currently and which portions must be deferred and recognized in future periods. We analyze various factors including, but not limited to, the selling price of undelivered services when sold on a stand-alone basis, our pricing policies, and contractual terms and conditions in helping us to make such judgments about revenue recognition. Changes in judgment on any of these factors could materially impact the timing and amount of revenue recognized in a given period.
Deferred Contract Costs
Sales incentives paid by us are considered incremental and recoverable costs of obtaining a contract with a client. These costs are deferred and then amortized over the period of benefit, which is on average five years. We determined the period of benefit by taking into consideration our client contracts, our technology, and other factors.
Except as described above, there have been no changes in our critical accounting policies as disclosed in our Annual Report on Form10-K for the year ended December 31, 2017.
Three Months Ended March 31, | ||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | Change | |||||||||||||
Total revenue | $ | 235,182 | $ | 256,309 | $ | (21,127 | ) | (8)% | ||||||||
Gross profit | $ | 159,568 | $ | 188,219 | $ | (28,651 | ) | (15)% | ||||||||
Income from operations | $ | 7,936 | $ | 65,907 | $ | (57,971 | ) | (88)% | ||||||||
Net income | $ | 12,200 | $ | 52,963 | $ | (40,763 | ) | (77)% |
Software
(Dollars in thousands) | Three Months Ended March 31, | Change | |||||||||||||||
2019 | 2018 | ||||||||||||||||
Term license | $ | 48,314 | 23 | % | $ | 64,695 | 28 | % | $ | (16,381 | ) | (25 | )% | ||||
Cloud | 27,758 | 13 | % | 15,582 | 7 | % | 12,176 | 78 | % | ||||||||
Maintenance | 67,706 | 32 | % | 64,525 | 27 | % | 3,181 | 5 | % | ||||||||
Subscription revenue (1) | 143,778 | 68 | % | 144,802 | 62 | % | (1,024 | ) | (1 | )% | |||||||
Perpetual license | 14,950 | 7 | % | 23,078 | 10 | % | (8,128 | ) | (35 | )% | |||||||
Consulting | 53,818 | 25 | % | 67,302 | 28 | % | (13,484 | ) | (20 | )% | |||||||
$ | 212,546 | 100 | % | $ | 235,182 | 100 | % | $ | (22,636 | ) | (10 | )% |
(Dollars in thousands) | Three Months Ended March 31, | |||||||||||||||||||||||
2018 | 2017 | Change | ||||||||||||||||||||||
Perpetual license | $ | 23,078 | 26% | $ | 37,899 | 30% | $ | (14,821 | ) | (39)% | ||||||||||||||
Term license | 64,695 | 74% | 89,109 | 70% | (24,414 | ) | (27)% | |||||||||||||||||
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Total software license | $ | 87,773 | 100% | $ | 127,008 | 100% | $ | (39,235 | ) | (31)% | ||||||||||||||
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The decrease cloud, and maintenance) that are subject to renewal.
license rights become effective.
Maintenance
Three Months Ended March 31, | ||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | Change | |||||||||||||
Maintenance | $ | 64,525 | $ | 58,713 | $ | 5,812 | 10% |
Services
Three Months Ended March 31, | ||||||||||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | Change | |||||||||||||||||||||
Cloud | $ | 15,582 | 19% | $ | 10,402 | 15% | $ | 5,180 | 50% | |||||||||||||||
Consulting and training | 67,302 | 81% | 60,186 | 85% | 7,116 | 12% | ||||||||||||||||||
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Total services | $ | 82,884 | 100% | $ | 70,588 | 100% | $ | 12,296 | 17% | |||||||||||||||
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The increase in consulting and training revenue was primarily due to higher billable hours during the three months ended March 31, 2018. 2019 reflects the shift in client preferences in favor of our cloud offerings and away from perpetual license arrangements.
The decrease in consulting revenue in the three months ended March 31, 2019 was primarily due to a decrease in billable hours.
Three Months Ended March 31, | ||||||||||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | Change | |||||||||||||||||||||
Software license | $ | 86,518 | 99% | $ | 125,708 | 99% | $ | (39,190 | ) | (31)% | ||||||||||||||
Maintenance | 58,443 | 91% | 51,495 | 88% | 6,948 | 13 % | ||||||||||||||||||
Cloud | 7,861 | 50% | 4,669 | 45% | 3,192 | 68 % | ||||||||||||||||||
Consulting and training | 6,746 | 10% | 6,347 | 11% | 399 | 6 % | ||||||||||||||||||
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Services | 14,607 | 18% | 11,016 | 16% | 3,591 | 33 % | ||||||||||||||||||
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Total gross profit | $ | 159,568 | 68% | $ | 188,219 | 73% | $ | (28,651 | ) | (15) % | ||||||||||||||
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Three Months Ended March 31, | Change | ||||||||||||||||
(Dollars in thousands) | 2019 | 2018 | |||||||||||||||
Software license | $ | 61,886 | 98 | % | $ | 86,518 | 99 | % | $ | (24,632 | ) | (28 | )% | ||||
Maintenance | 61,371 | 91 | % | 58,443 | 91 | % | 2,928 | 5 | % | ||||||||
Cloud | 14,460 | 52 | % | 7,861 | 50 | % | 6,599 | 84 | % | ||||||||
Consulting | 392 | 1 | % | 6,746 | 10 | % | (6,354 | ) | (94 | )% | |||||||
$ | 138,109 | 65 | % | $ | 159,568 | 68 | % | $ | (21,459 | ) | (13 | )% |
The increase in maintenancetotal gross profit percent in the three months ended March 31, 20182019 was driven by a $0.5 million decreaseshift in client support expenses as we transferred client support resources to supportfavor of cloud arrangements, which are lower margin than our growing cloud business.
term and perpetual license revenue streams. The increase in cloud gross profit percent in the three months ended March 31, 2018 was driven by cost efficiency gains as our cloud business continues to grow and scale, partially offset by a $0.5 million increasescale. The decrease in client support expenses as we expanded our cloud client support function to sustain our growing cloud business.
If we had transferred these resources on January 1, 2017, the change in maintenance and cloud gross profit andconsulting gross profit percent would have beenwas driven by a decrease in billable hours as follows:
Three Months Ended March 31, | Change | |||||||||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||||||||||||||||||
Maintenance | $ | 58,443 | 91% | $ | 51,995 | 89% | $ | 6,448 | 12% | |||||||||||||||
Cloud | $ | 7,861 | 50% | $ | 4,169 | 40% | $ | 3,692 | 89% |
consulting resources were transitioning to new projects after completing a large project which began in the second half of 2016 and an increase in consulting resource availability in Europe as we continue growing and leveraging our partner network.
Three Months Ended March 31, | Change | |||||||||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||||||||||
Selling and marketing | $ | 88,383 | $ | 69,681 | $ | 18,702 | 27% | |||||||||
As a percent of total revenue | 38% | 27% | ||||||||||||||
Selling and marketing headcount, end of period | 1,082 | 900 | 182 | 20% |
Selling and marketing expenses include
Three Months Ended March 31, | Change | ||||||||||||
(Dollars in thousands) | 2019 | 2018 | |||||||||||
Selling and marketing (1) | $ | 108,865 | $ | 88,383 | $ | 20,482 | 23 | % | |||||
As a percent of total revenue | 51 | % | 38 | % | |||||||||
Selling and marketing headcount, end of period | 1,282 | 1,082 | 200 | 18 | % |
commission amortization. The increase in headcount reflects our efforts to increase our sales capacity to deepen relationships with existing clients and target new accounts in existing industries, as well as to expand coverage in new industries and geographies, and to increase the number of sales opportunities.
.
Three Months Ended March 31, | Change | |||||||||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||||||||||
Research and development | $ | 46,785 | $ | 40,296 | $ | 6,489 | 16% | |||||||||
As a percent of total revenue | 20% | 16% | ||||||||||||||
Research and Development headcount, end of period | 1,602 | 1,441 | 161 | 11% |
Research and development expenses include
Three Months Ended March 31, | Change | ||||||||||||
(Dollars in thousands) | 2019 | 2018 | |||||||||||
Research and development (1) | $ | 50,596 | $ | 46,785 | $ | 3,811 | 8 | % | |||||
As a percent of total revenue | 24 | % | 20 | % | |||||||||
Research and development headcount, end of period | 1,638 | 1,602 | 36 | 2 | % |
activities.
Three Months Ended March 31, | Change | |||||||||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||||||||||
General and administrative | $ | 16,464 | $ | 12,335 | $ | 4,129 | 33 % | |||||||||
As a percent of total revenue | 7% | 5% | ||||||||||||||
General and administrative headcount, end of period | 299 | 384 | (85 | ) | (22)% |
General and administrative expenses include
Three Months Ended March 31, | Change | ||||||||||||
(Dollars in thousands) | 2019 | 2018 | |||||||||||
General and administrative (1) | $ | 12,676 | $ | 16,464 | $ | (3,788 | ) | (23 | )% | ||||
As a percent of total revenue | 6 | % | 7 | % | |||||||||
General and administrative headcount, end of period (2) | 373 | 299 | 74 | 25 | % |
Three Months Ended March 31, | Change | ||||||||||||
(Dollars in thousands) | 2019 | 2018 | |||||||||||
Cost of revenues | $ | 4,519 | $ | 3,701 | $ | 818 | 22 | % | |||||
Selling and marketing | 7,374 | 4,658 | 2,716 | 58 | % | ||||||||
Research and development | 4,560 | 3,637 | 923 | 25 | % | ||||||||
General and administrative | 1,897 | 3,113 | (1,216 | ) | (39 | )% | |||||||
$ | 18,350 | $ | 15,109 | $ | 3,241 | 21 | % | ||||||
Income tax benefit | $ | (3,740 | ) | $ | (3,141 | ) | $ | (599 | ) | 19 | % |
Stock-based compensation
Three Months Ended March 31, | Change | |||||||||||||||
(in thousands) | 2018 | 2017 | ||||||||||||||
Cost of revenues | $ | 3,701 | $ | 3,622 | $ | 79 | 2 % | |||||||||
Selling and marketing | 4,658 | 3,405 | 1,253 | 37 % | ||||||||||||
Research and development | 3,637 | 3,312 | 325 | 10 % | ||||||||||||
General and administrative | 3,113 | 2,169 | 944 | 44 % | ||||||||||||
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$ | 15,109 | $ | 12,508 | $ | 2,601 | 21 % | ||||||||||
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Income tax benefit | $ | (3,141) | $ | (3,815) | $ | 674 | (18)% |
The increase2019 was primarily due to the increased value of our annual periodic equity awards granted in March 20182019 and 2017.2018. These awards generally have a five-year vesting schedule.
Three Months Ended March 31, | Change | |||||||||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||||||||||
Foreign currency transaction (loss)/gain | $ | (1,085) | $ | 745 | $ | (1,830) | n/m | |||||||||
Interest income, net | 764 | 205 | 559 | 273 % | ||||||||||||
Other income/(expense), net | 363 | (279) | 642 | n/m | ||||||||||||
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$ | 42 | $ | 671 | $ | (629) | (94)% | ||||||||||
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n/m -
Three Months Ended March 31, | Change | ||||||||||||
(Dollars in thousands) | 2019 | 2018 | |||||||||||
Foreign currency transaction loss | $ | (3,712 | ) | $ | (1,085 | ) | $ | (2,627 | ) | 242 | % | ||
Interest income, net | 723 | 764 | (41 | ) | (5 | )% | |||||||
Other income, net | — | 363 | (363 | ) | (100 | )% | |||||||
$ | (2,989 | ) | $ | 42 | $ | (3,031 | ) | * |
(Benefit)/provision forU.S. dollar.
Three Months Ended March 31, | Change | |||||||||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||||||||||
(Benefit)/provision for income taxes | $ | (4,222) | $ | 13,615 | $ | (17,837) | n/m | |||||||||
Effective income tax rate | (53)% | 20% |
n/m - not meaningful
During the three months ended March 31, 2018, our effective tax rate changed primarily due to the following factors:
Three Months Ended March 31, | Change | ||||||||||||
(Dollars in thousands) | 2019 | 2018 | |||||||||||
Benefit from income taxes | $ | (8,300 | ) | $ | (4,222 | ) | $ | (4,078 | ) | 97 | % | ||
Effective income tax rate | 22 | % | (53 | )% |
The inclusion of excess tax benefits from stock-based compensation as a component ofin the provision for income taxes has increased the volatilityvariability of the effective tax rates in recent periods, andperiods. This fluctuation may continue to do so in future periods, as the amount of excess tax benefits from stock-based compensation awards varies depending on our future stock price in relation to the fair value of awards, the timing of RSU vestings, the exercise behavior of our stock option holders, and the total value of future grants of stock-based compensation awards.
Three Months Ended March 31, | ||||||||
(in thousands) | 2018 | 2017 | ||||||
Cash provided by (used in): | ||||||||
Operating activities | $ | 55,655 | $ | 32,444 | ||||
Investing activities | (31,278) | (3,727) | ||||||
Financing activities | (23,052) | (15,994) | ||||||
Effect of exchange rates on cash and cash equivalents | 2,186 | 521 | ||||||
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Net increase in cash and cash equivalents | $ | 3,511 | $ | 13,244 | ||||
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(in thousands) | March 31, 2018 | December 31, 2017 | ||||||
Held in U.S. entities | $ | 168,135 | $ | 136,444 | ||||
Held in foreign entities | 86,702 | 87,304 | ||||||
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Total cash, cash equivalents, and marketable securities | $ | 254,837 | $ | 223,748 | ||||
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Three Months Ended March 31, | |||||||
(in thousands) | 2019 | 2018 | |||||
Cash provided by (used in): | |||||||
Operating activities | $ | 22,703 | $ | 55,655 | |||
Investing activities | (1,466 | ) | (31,278 | ) | |||
Financing activities | (25,587 | ) | (23,052 | ) | |||
Effect of exchange rates on cash and cash equivalents | 295 | 2,186 | |||||
Net (decrease) increase in cash and cash equivalents | $ | (4,055 | ) | $ | 3,511 |
(in thousands) | March 31, 2019 | December 31, 2018 | |||||
Held by U.S. entities | $ | 141,051 | $ | 143,533 | |||
Held by foreign entities | 61,120 | 63,890 | |||||
Total cash, cash equivalents, and marketable securities | $ | 202,171 | $ | 207,423 |
The primary drivers during
license rights become effective.
billings.
During
During the three months ended March 31, 2017, we purchased investments of $3.3 million, partially offset by proceeds received from maturities of investments (including called marketable debt securities) of $2.3 million. We also invested $2.4 million primarily for leasehold improvements for the build out of additional office space at our Hyderabad, India location.
new investments.
Since 2004, our Board of Directors has approved annual
Three Months Ended March 31, | |||
(in thousands) | 2019 | ||
January 1 | $ | 6,620 | |
Authorizations (2) | 60,000 | ||
Repurchases | (7,586 | ) | |
March 31, | $ | 59,034 |
June 30, 2020.
Three Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
(in thousands) | Shares | Amount | Shares | Amount | ||||||||||||
Tax withholdings for net settlement of equity awards | 270 | $ | 15,575 | 289 | $ | 12,504 | ||||||||||
Stock repurchase program(1) | ||||||||||||||||
Repurchases paid | 89 | 4,998 | 29 | 1,260 | ||||||||||||
Repurchases unsettled at period end | 12 | 690 | 5 | 238 | ||||||||||||
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Activity in Period(2) | 371 | $ | 21,263 | 323 | $ | 14,002 | ||||||||||
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Dividends
Three Months Ended March 31, | ||||
(per share) | 2018 | 2017 | ||
Dividends declared | $ 0.03 | $ 0.03 |
Three Months Ended March 31, | |||||||||||||
2019 | 2018 | ||||||||||||
(in thousands) | Shares | Amount | Shares | Amount | |||||||||
Tax withholdings for net settlement of equity awards | 232 | $ | 14,838 | 270 | $ | 15,575 | |||||||
Stock repurchase program (1) | |||||||||||||
Repurchases paid | 141 | 7,387 | 89 | 4,998 | |||||||||
Repurchases unsettled at period end | 3 | 199 | 12 | 690 | |||||||||
Activity in period (2) | 376 | $ | 22,424 | 371 | $ | 21,263 |
Three Months Ended March 31, | |||||||
(in thousands) | 2019 | 2018 | |||||
Dividend payments to shareholders | $ | 2,363 | $ | 2,344 |
Market risk represents the risk of loss that may affect us due to adverse
See Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” and Item 1A. “Risk Factors - We are exposed2019 to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows” includedthe market risk exposure disclosed in our Annual Report on Form10-K for the year ended December 31, 2017 for a more complete discussion of our market risk exposure.
Foreign currency exposure
Translation Risk
Our international sales are usually denominated in foreign currencies. However, the operating expenses of our foreign operations are also primarily denominated in foreign currencies, which partially offset our foreign currency exposure.
A hypothetical 10% strengthening in the U.S. dollar against other currencies would result in the following impact:
Three Months Ended March 31, | ||||
2018 | 2017 | |||
Revenue | (4)% | (3)% | ||
Net Income | (13)% | (4)% |
Remeasurement Risk(1)
We have experienced and expect to continue to experience fluctuations in our results of operations as a result of transaction gains or losses related to remeasuring monetary assets and liabilities that are denominated in currencies other than the functional currency of the entities in which they are recorded. We are primarily exposed to changes in foreign currency exchange rates associated with Australian dollar, Euro, and U.S. dollar denominated cash and cash equivalents, accounts receivable, unbilled receivables, and intercompany receivables and payables held by our U.K. subsidiary, a British pound functional entity.
A hypothetical 10% strengthening in the British pound exchange rate in comparison to the Australian dollar, Euro, and U.S. dollar would result in the following impact:
(Dollars in thousands) | March 31, 2018 | December 31, 2017 | ||||||
Foreign currency transaction (loss)/gain | $ | (8,200) | $ | (5,800) |
procedures 2019 financial reportingDisclosure Controlsdisclosure controls and Procedures2018.2019. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2018.Internal Controlinternal control over Financial ReportingActAct) during the quarter ended March 31, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.ITEM 1A.RISK FACTORS
(in thousands, except per share
amounts)
| Total Number of Shares Purchased(1) | Average Price Paid | Total Number of Shares Purchased as Part | Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchase Programs(2) | ||||||||
January 1, 2018 - January 31, 2018 | 58 | $ 49.63 | 21 | $ | 33,855 | |||||||
February 1, 2018 - February 28, 2018 | 68 | 55.06 | 17 | 32,985 | ||||||||
March 1, 2018 - March 31, 2018 | 435 | 59.37 | 63 | 29,204 | ||||||||
| ||||||||||||
Total | 561 | 57.84 | ||||||||||
|
(in thousands, except per share amounts) | Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Share Repurchase Program | Approximate Dollar Value of Shares That May Yet Be Purchased at Period End Under Publicly Announced Share Repurchase Programs (2) | |||||||||
January 1, 2019 - January 31, 2019 | 153 | $ | 51.30 | 129 | $ | 18 | |||||||
February 1, 2019 - February 28, 2019 | 129 | $ | 63.81 | — | $ | 18 | |||||||
March 1, 2019 - March 31, 2019 | 285 | $ | 64.97 | 15 | $ | 59,034 | |||||||
567 | $ | 61.03 |
Exhibit No. | Description | |
| ||
| ||
31.2 | ||
32+ | ||
101.INS | XBRL Instance document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document. |
++Management contracts and compensatory plan or arrangements
| Pegasystems Inc. | ||||||||
Dated: | May 7, 2019 | By: | /s/ KENNETH STILLWELL | ||||||
Kenneth Stillwell | |||||||||
Chief Financial Officer and Chief Administrative Officer | |||||||||
(Principal Financial Officer) |
30