Exhibit 99.1
FOR IMMEDIATE RELEASE
For information, contact: | ||||
Chris Sullivan | Beth Lewis | |||
Chief Financial Officer | Director, Investor Relations | |||
Pegasystems Inc. | Pegasystems Inc. | |||
(617) 374-9600, ext. 6020 | (617) 374-9600, ext. 6077 | |||
chris.sullivan@pega.com | beth.lewis@pega.com |
Pegasystems Reports Third Quarter Results and
Announces Share Repurchase Program
CAMBRIDGE, Mass., October 28, 2004 – Pegasystems today announced its 2004 third quarter results, reporting revenue of $21.5 million, pre-tax income of $1.1 million and earnings per diluted share of $0.02.
Quarterly Financial Performance
Quarter | ||||||||||||
(In millions, except per share data and percentages)
| Q3 2004 | Q2 2004 | Q3 2003 | |||||||||
Total Revenue | $ | 21.5 | $ | 24.0 | $ | 25.1 | ||||||
License Revenue | $ | 6.9 | $ | 11.7 | $ | 13.6 | ||||||
% of Total Revenue | 32 | % | 49 | % | 54 | % | ||||||
Services Revenue | $ | 14.6 | $ | 12.4 | $ | 11.5 | ||||||
% of Total Revenue | 68 | % | 51 | % | 46 | % | ||||||
Pre-tax Income | $ | 1.1 | $ | 3.3 | $ | 5.2 | ||||||
Provision for Income Taxes | $ | 0.4 | $ | 1.2 | $ | 1.8 | ||||||
Net Income | $ | 0.7 | $ | 2.1 | $ | 3.4 | ||||||
Basic Earnings Per Share | $ | 0.02 | $ | 0.06 | $ | 0.10 | ||||||
Diluted Earnings Per Share | $ | 0.02 | $ | 0.06 | $ | 0.10 |
Henry Ancona, President and Chief Operating Officer commented, “The quarter’s revenue was down year over year, due in part to a delay in finalizing two large revenue transactions, both of which have since closed. We have continued to experience lengthy negotiations and delays in customers signing contracts. Nevertheless, there is broadening interest in the unification of a best-in-class rules engine with leading-edge business process management (BPM) technology, and we remain confident of our long-term outlook. As such, we continue to invest in our business with an emphasis on sales and sales support personnel.
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“We signed six new license customers during the quarter, including four who selected our PegaRULES Process Commander (PRPC) business process management suite as a development platform and two customers who selected Pegasystems-developed financial applications built on PegaRULES Process Commander. Those customers include: a leading hotel and leisure company using our PRPC BPM platform to optimize reservations and pricing; a global financial services firm using PegaRULES Process Commander platform in support of compliance; a state insurance agency using PRPC for underwriting and a national insurance company who will also be utilizing PRPC for underwriting. In addition, Nordea, the leading Nordic financial services group, will be using our SmartInvestigate product to automate investigations of payments processing; and a leading merchandiser has selected SmartDispute to automate credit card transaction processing.
“As we continue to shift our business strategy to leverage our smart BPM platform, we are selling to a broader array of customers and industries. Substantially all of this new business uses a perpetual license model, much of which is recognized as revenue at the time of license sale. This, together with the fact that our business is characterized by a small number of large-value transactions, results in fluctuations in quarterly revenue. Our strategy is to continue to sell with our partners who will deliver an increasing percentage of implementation services. As a result, we expect a decline in the rate of growth of our professional services revenue.”
Chris Sullivan, CFO, commented, “License revenue in the third quarter was down significantly from the prior year due in part to the anticipated $3.5 million reduction in license revenue from First Data Resources (FDR). This was exacerbated by delays in closing perpetual license transactions. Services revenue in the third quarter increased 27% year-over-year due to increased license installations and maintenance revenue growth. On a year-to-date basis, total revenue increased 7% excluding the anticipated $10.6 million reduction in revenue associated with the restructured FDR agreement. Implementation revenue increased 36% and maintenance revenue increased 42% compared to the first nine months of 2003. Historically, our mix of license and services revenue has fluctuated and we do not believe this quarter’s license and service revenue composition reflects a permanent shift in favor of services revenue.
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“We are continuing to tighten the range of our annual guidance and now expect 2004 revenues to be in the range of $95 to $103 million. Profit before tax should be between $11 and $17 million and cash flow from operations in the range of $7 to $11 million.”
Founder and CEO Alan Trefler commented, “We first recognized license revenue from PegaRULES Process Commander one year ago and it is exciting to see the market depth and penetration we have achieved to date. Through the first nine months of this year we have been selected by customers ranging from a major manufacturing systems contractor to a leading hotel and leisure company, with uses encompassing everything from full automation of a factory systems environment to “one-and-done” underwriting. It is clear there is a strong demand for providing operational efficiencies and the ability to manage complex, changing business processes.”
Share Repurchase Program
Pegasystems also announced today that its Board of Directors has authorized the repurchase of up to $10 million of Pegasystems common stock. At the company’s discretion, the purchases will be made from time to time on the open market or in privately negotiated transactions. Under the program, shares may be repurchased in such amounts as market conditions warrant, subject to regulatory and other considerations.
Trefler commented, “We believe the long-term prospects for our best-in-class business process management software are strong. The stock repurchase program enables the company to utilize its strong cash position in a manner that benefits both the company and its shareholders by enhancing earnings per share and return on equity.”
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The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Friday, October 29, 2004. Dial-in information is as follows: 800-250-4434 (domestic) or 706-634-0667 (international). A replay of the teleconference will be available through November 5 at 800-642-1687 (domestic) or 706-645-9291 (international), passcode 1398435.
If interested in listening to the Webcast, log ontowww.pega.com at least 5 minutes prior to the event’s broadcast, and click on the Webcast icon in the Investor Relations section.
About Pegasystems
Pegasystems Inc. (Nasdaq: PEGA) provides rules-based, smart business process management (BPM) software to large organizations, helping to deliver significant ROI and providing them with the flexibility and agility to respond to changing business needs. The company offers applications for the financial services, healthcare, insurance and government markets, as well as a cross-industry BPM application. Pegasystems is headquartered in Cambridge, Mass., and has regional offices in North America, Europe and the Pacific Rim. For more information, visitwww.pega.com.
Forward-Looking Statements
Certain statements contained in this press release may be construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 including without limitation our financial guidance with respect to 2004 revenue, profit before tax, cash flow from operations and future mix of license and services revenue. The words “believe,” “expect,” “hope,” “anticipate,” “plan,” “should” and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause the Company’s actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include volatility of our quarterly operating results, difficulty in predicting the completion of product implementations and consequently the timing of our license revenue recognition, our ability to develop new products and evolve existing ones, the impact on our business of the ongoing consolidation in the financial services market, historically our core market, our ability to attract and retain key employees, reliance on certain key third-party relationships, and other risks and uncertainties. Further information regarding these and other factors which could cause the Company’s actual results to differ materially from any forward-looking statements contained in this press release is contained in the Company’s most recent report on form 10-Q or 10-K and other recent filings on file with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company’s views as of October 28, 2004. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause the Company’s view to change, the Company does not undertake and specifically disclaims any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise. The statements should therefore not be relied upon as representing the Company’s view as of any date subsequent to October 28, 2004.
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PEGASYSTEMS INC.
Condensed Consolidated Balance Sheets
(in thousands, except share-related amounts)
September 30, 2004 | December 31, 2003 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and equivalents | $ | 33,492 | $ | 67,989 | ||||
Short-term investments | 62,335 | 19,946 | ||||||
Total cash and short-term investments | 95,827 | 87,935 | ||||||
Trade accounts receivable, net of allowance for doubtful accounts of $365 in 2004 and 2003 | 12,105 | 9,602 | ||||||
Short-term license installments | 31,104 | 28,565 | ||||||
Prepaid expenses and other current assets | 1,429 | 727 | ||||||
Total current assets | 140,465 | 126,829 | ||||||
Long-term license installments, net of unearned interest income | 43,432 | 53,666 | ||||||
Equipment, furniture and improvements, net of accumulated depreciation and amortization | 1,452 | 992 | ||||||
Acquired technology, net of accumulated amortization | 467 | 729 | ||||||
Other assets | 114 | 166 | ||||||
Goodwill | 2,346 | 2,346 | ||||||
Total assets | $ | 188,276 | $ | 184,728 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accrued payroll related expenses | $ | 6,308 | $ | 8,886 | ||||
Accounts payable and accrued expenses | 9,399 | 7,784 | ||||||
Deferred revenue | 9,363 | 14,180 | ||||||
Current portion of capital lease obligation | 96 | — | ||||||
Total current liabilities | 25,166 | 30,850 | ||||||
Deferred income taxes | 1,775 | 625 | ||||||
Capital lease obligation, net of current portion | 190 | — | ||||||
Other long-term liabilities | 81 | 81 | ||||||
Total liabilities | 27,212 | 31,556 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value, 1,000,000 shares authorized; no shares issued and outstanding | — | — | ||||||
Common stock, $0.01 par value, 70,000,000 shares authorized; 35,828,585 shares and 35,212,505 shares issued and outstanding in 2004 and 2003, respectively | 358 | 352 | ||||||
Additional paid-in capital | 121,054 | 117,391 | ||||||
Stock warrants | 249 | 374 | ||||||
Retained earnings | 38,340 | 33,735 | ||||||
Accumulated other comprehensive income (loss): | ||||||||
Net unrealized loss on short-term investments | (202 | ) | (9 | ) | ||||
Foreign currency translation adjustments | 1,265 | 1,329 | ||||||
Total stockholders’ equity | 161,064 | 153,172 | ||||||
Total liabilities and stockholders’ equity | $ | 188,276 | $ | 184,728 | ||||
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PEGASYSTEMS INC.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||
Revenue: | ||||||||||||||
Software license | $ | 6,883 | $ | 13,587 | $ | 28,223 | $ | 45,721 | ||||||
Services | 14,645 | 11,524 | 42,002 | 30,502 | ||||||||||
Total revenue | 21,528 | 25,111 | 70,225 | 76,223 | ||||||||||
Cost of revenue: | ||||||||||||||
Cost of software license | 88 | 87 | 262 | 262 | ||||||||||
Cost of services | 6,441 | 7,392 | 19,121 | 20,313 | ||||||||||
Total cost of revenue | 6,529 | 7,479 | 19,383 | 20,575 | ||||||||||
Gross profit | 14,999 | 17,632 | 50,842 | 55,648 | ||||||||||
Operating expenses: | ||||||||||||||
Research and development | 5,078 | 5,305 | 15,388 | 15,504 | ||||||||||
Selling and marketing | 7,243 | 5,966 | 22,900 | 17,878 | ||||||||||
General and administrative | 2,999 | 2,766 | 8,688 | 8,155 | ||||||||||
Total operating expenses | 15,320 | 14,037 | 46,976 | 41,537 | ||||||||||
(Loss) income from operations | (321 | ) | 3,595 | 3,866 | 14,111 | |||||||||
Installment receivable interest income | 856 | 1,350 | 2,243 | 3,900 | ||||||||||
Other interest income, net | 511 | 188 | 1,280 | 524 | ||||||||||
Other income (expense), net | 95 | 106 | (284 | ) | 327 | |||||||||
Income before provision for income taxes | 1,141 | 5,239 | 7,105 | 18,862 | ||||||||||
Provision for income taxes | 400 | 1,798 | 2,500 | 4,698 | ||||||||||
Net income | $ | 741 | $ | 3,441 | $ | 4,605 | $ | 14,164 | ||||||
Earnings per share: | ||||||||||||||
Basic | $ | 0.02 | $ | 0.10 | $ | 0.13 | $ | 0.41 | ||||||
Diluted | $ | 0.02 | $ | 0.10 | $ | 0.12 | $ | 0.40 | ||||||
Weighted average number of common and common equivalent shares outstanding: | ||||||||||||||
Basic | 35,786 | 34,488 | 35,610 | 34,393 | ||||||||||
Diluted | 36,723 | 36,086 | 36,941 | 35,551 | ||||||||||
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PEGASYSTEMS INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended September 30, | ||||||||
2004 | 2003 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 4,605 | $ | 14,164 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Stock option income tax benefits | 721 | 617 | ||||||
Deferred income taxes | 1,150 | 1,100 | ||||||
Depreciation and amortization | 1,053 | 1,207 | ||||||
Issuance of common stock warrants | 38 | — | ||||||
Reduction in provision for doubtful accounts receivable | — | (90 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts receivable and license installments | 5,188 | (6,582 | ) | |||||
Prepaid expenses and other current assets | (714 | ) | (114 | ) | ||||
Accounts payable and accrued expenses | (948 | ) | 4,668 | |||||
Deferred revenue | (4,817 | ) | 2,103 | |||||
Cash flows from operating activities | 6,276 | 17,073 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of investments | (71,672 | ) | (11,196 | ) | ||||
Maturing and called investments | 13,350 | 8,421 | ||||||
Sale of investments | 15,578 | — | ||||||
Purchase of equipment, furniture and improvements | (782 | ) | (346 | ) | ||||
Other long-term assets and liabilities | 49 | 59 | ||||||
Cash flows from investing activities | (43,477 | ) | (3,062 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of stock under Employee Stock Purchase Plan | 329 | 253 | ||||||
Payments on capital lease obligation | (16 | ) | — | |||||
Exercise of stock options | 2,457 | 969 | ||||||
Cash flows from financing activities | 2,770 | 1,222 | ||||||
Effect of exchange rate on cash and equivalents | (66 | ) | 508 | |||||
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS | (34,497 | ) | 15,741 | |||||
CASH AND EQUIVALENTS, BEGINNING OF PERIOD | 67,989 | 57,393 | ||||||
CASH AND EQUIVALENTS, END OF PERIOD | $ | 33,492 | $ | 73,134 | ||||
Non-cash financing activity: | ||||||||
Capital lease of computer equipment | $ | 302 | — | |||||
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