Shawn Hoyt Interim Chief Financial Officer and General Counsel Pegasystems Inc. (617) 866-6136 shawn.hoyt@pega.com
Beth Lewis Director, Investor and Public Relations Pegasystems Inc. (617) 866-6077 beth.lewis@pega.com
Pegasystems Reports Second Quarter Revenue of $29.6 Million
CAMBRIDGE, Mass., August 7, 2006 –Pegasystems Inc. (Nasdaq: PEGA) today announced its second quarter 2006 results, reporting revenue of $29.6 million, an increase of 25% from the second quarter of 2005. Compared to the second quarter of 2005, professional services revenue was up $6.2 million to $16.8 million, primarily due to new license implementations, maintenance revenue grew $0.7 million to $5.9 million, and license revenue decreased $1.1 million to $6.9 million. During the second quarter, the Company also signed agreements with $8.8 million in term license fees expected to be recognized as revenue in future periods as payments become due.
The Company had pre-tax income of $0.2 million in the second quarter of 2006. Cash flow from operations in the second quarter of 2006 increased significantly to $11.8 million, compared to $4.0 million in the second quarter of 2005. The Company ended the second quarter with $126.1 million in total cash and investments. Total expenses increased primarily due to continued investments to support growth in sales and professional services.
Second Quarter 2006 Financial Performance
Quarter
(In millions, except per share data and percentages)
Q2 2006
Q1 2006
Q2 2005
Total Revenue
$
29.6
$
27.1
$
23.8
License Revenue
$
6.9
$
6.9
$
8.0
% of Total Revenue
23
%
25
%
34
%
Services Revenue
$
22.7
$
20.2
$
15.8
% of Total Revenue
77
%
75
%
66
%
Pre-tax Income (Loss)
$
0.2
$
(1.6
)
$
0.5
Provision (benefit) for Income Taxes
$
(0.2
)
$
(0.2
)
$
0.1
Net Income (loss)
$
0.4
$
(1.3
)
$
0.4
Earnings Per Share, Diluted
$
0.01
$
(0.04
)
$
0.01
Alan Trefler, Chairman and CEO commented, “During the second quarter Pegasystems continued to experience success selling our BPM solutions. We were selected by thought-leading organizations to optimize critical business processes ranging from new account openings, to global call center operations to infrastructure support. These organizations understand that Pegasystems SmartBPM™ is the only unified rules-based Business Process Management (BPM) software that automates the complete suite of internal and external interaction among people, systems, policies and data.
“The number of our license signings in the first half of the year was double the number in the first half of last year. Our technology, methodology and growing ecosystem of certified partners are helping Pegasystems win business with the organizations that matter most – those who are defining the future of BPM. Our strategy going forward is to continue to expand these strategic relationships and to invest in growing our capacity to support their businesses.”
Shawn Hoyt, General Counsel and interim CFO, commented, “We continue to see strength in customer license signings, with 21 signings in the second quarter versus 14 in the same quarter a year ago and 17 in the first quarter this year. The revenue from some of these license signings will be recognized ratably over the license term. The increasing value of term license signings being recognized ratably over the license term reflects both our success in selling our new software products to existing customers at the time of renewal, and demand from new customers for term licenses.”
The Company is updating its guidance for 2006. The Company now expects revenue for the full year to be between $110 and $120 million. The increase is driven primarily by our results to date and the expectation for increased license revenue combined with continued strength in services revenue. The company’s expectation for profit (loss) before tax remains between $(3) million and $3 million, as the company continues to invest to support growth in sales and professional services. The expected results for 2006 reflect an anticipated cost of approximately $1 million associated with the expensing of stock option grants to employees under FAS123R. The Company now expects cash flow from operations in 2006 to be in the range of $14 to $22 million.
Messrs. Trefler and Hoyt will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on August 8, 2006. Dial-in information is as follows: 800-250-4434 (domestic) or 706-634-0667 (international), passcode 3906090.
If interested in listening to the Webcast, log onto www.pega.com at least 5 minutes prior to the event’s broadcast, and click on the Webcast icon in the Investor Relations section. A replay of the call will also be available on www.pega.com in the Investor Relations section, Audio Archives link.
1
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 2006 revenue, profit before tax, stock option expense and cash flow from operations, and our expectations regarding the amount of term license revenue which will be recognized ratably over the life of the contract. The words “anticipate”, “continue,” “expect,” and “will,” 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 acceptance and consequently the timing of our license revenue recognition, the level of term software license renewals, our ability to develop new products and evolve existing ones, the impact on our business of the ongoing consolidation in the financial services and healthcare markets, historically our core markets, 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 with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company’s views as of August 7, 2006. 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 August 7, 2006.
About Pegasystems Pegasystems Inc. (NASDAQ: PEGA) provides software to automate complex, changing business processes. Pegasystems, the leader in unified process and rules technology, gives business people and IT departments the ability to use best processes across the enterprise and outperform their competition.
Our new class of Business Process Management (BPM) technology makes enterprise systems easy to use and easy to change. By automating policy manuals, system specifications and lines of manual coding with dynamically responsive updates, Pegasystems powers the world’s most sophisticated organizations to Build for Change™.
Pegasystems’ award-winning, standards-based BPM suite is complemented with best-practice solution frameworks to help leaders in the financial services, insurance, healthcare, manufacturing and government markets drive growth and productivity.
Headquartered in Cambridge, MA, Pegasystems has regional offices in North America, Europe and the Pacific Rim. For more information, visit www.pega.com.
2
PEGASYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except share-related data)
June 30, 2006
December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents
$
27,862
$
21,314
Short-term investments
98,209
93,421
Total cash and short-term investments
126,071
114,735
Trade accounts receivable, net of allowance for doubtful accounts of $365 as of June 30, 2006 and December 31, 2005 .
24,720
25,486
Short-term license installments
24,228
26,537
Prepaid expenses and other current assets
3,274
1,953
Total current assets
178,293
168,711
Long-term license installments, net of unearned interest income
22,297
31,371
Equipment and improvements, net of accumulated depreciation and amortization
2,019
1,947
Computer software for internal use, net of accumulated amortization
1,255
845
Other assets
333
143
Goodwill
2,346
2,346
Total assets
$
206,543
$
205,363
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued payroll related expenses
$
6,866
$
8,197
Accounts payable and accrued expenses
13,091
10,769
Deferred revenue
22,190
18,749
Current portion of capital lease obligation
106
103
Total current liabilities
42,253
37,818
Long-term deferred income taxes
0
510
Capital lease obligation, net of current portion
9
63
Other long-term liabilities
1,543
1,171
Total liabilities
43,805
39,562
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued and outstanding
—
—
Common stock, $.01 par value, 70,000,000 shares authorized; 35,392,352 and 35,565,918 shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively
354
356
Additional paid-in capital
117,849
118,968
Stock warrants
107
107
Retained earnings
44,024
46,007
Accumulated other comprehensive income (loss):
Net unrealized loss on investments available-for-sale
(722
)
(623
)
Foreign currency translation adjustments
1,126
986
Total stockholders’ equity
162,738
165,801
Total liabilities and stockholders’ equity
$
206,543
$
205,363
3
PEGASYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts)
Three months ended
Six months ended
June 30,
June 30,
2006
2005
2006
2005
Revenue:
Software license
$
6,954
$
8,004
$
13,855
$
18,884
Services
22,669
15,784
42,885
29,134
Total revenue
29,623
23,788
56,740
48,018
Cost of revenue:
Cost of software license
1
87
32
175
Cost of services
12,356
8,045
24,994
15,592
Total cost of revenue
12,357
8,132
25,026
15,767
Gross profit
17,266
15,656
31,714
32,251
Operating expenses:
Research and development
5,682
4,876
11,083
9,903
Selling and marketing
10,173
7,920
19,949
16,853
General and administrative
3,385
2,990
6,022
6,327
Total operating expenses
19,240
15,786
37,054
33,083
Loss from operations
(1,974
)
(130
)
(5,340
)
(832
)
Installment receivable interest income
454
567
901
1,131
Other interest income, net
1,314
744
2,428
1,370
Other income (expense), net
404
(700
)
648
(1,015
)
Income (loss) before provision (benefit) for income taxes
198
481
(1,363
)
654
Provision (benefit) for income taxes
(232
)
125
(447
)
225
Net income (loss)
$
430
$
356
$
(916
)
$
429
Earnings (loss) per share, basic
$
0.01
$
0.01
$
(0.03
)
$
0.01
Earnings (loss) per share, diluted
$
0.01
$
0.01
$
(0.03
)
$
0.01
Weighted average number of common shares outstanding, basic
35,561
35,881
35,567
35,962
Weighted average number of common shares outstanding, diluted.
37,006
36,455
35,567
36,648
Dividends per share
$
0.03
—
$
0.03
—
4
PEGASYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Six months ended
June 30,
2006
2005
Cash flows from operating activities:
Net income (loss)....... ......
$
(916)
$
429
Adjustment to reconcile net income to cash flows from operating activities:
Stock option income tax benefits
(213)
51
Deferred income taxes
(797
)
13
Depreciation, amortization, and other non cash items
1,073
837
Loss on disposal of equipment
—
14
Stock-based compensation expense
835
—
Change in operating assets and liabilities:
Trade accounts receivable and license installments
12,152
12,485
Prepaid expenses and other current assets
(1,269
)
(250
)
Accounts payable and accrued expenses
227
(3,315
)
Deferred revenue
3,441
5,501
Other long-term assets and liabilities
350
193
Cash flows from operating activities
14,883
15,958
Cash flows from investing activities:
Purchase of investments
(34,534
)
(21,163
)
Maturing and called investments
29,375
4,000
Sale of investments
—
12,475
Investment in software, equipment and improvements
(1,297
)
(791
)
Cash flows from investing activities
(6,456
)
(5,479
)
Cash flows from financing activities:
Payments under capital lease obligation
(51
)
(48
)
Excess tax benefit from stock option exercises
213
—
Exercise of stock options
1,173
240
Proceeds from the sale of stock under Employee Stock Purchase Plan
102
240
Repurchase of common stock
(3,481
)
(2,353
)
Cash flows from financing activities
(2,044
)
(1,921
)
Effect of exchange rate on cash and cash equivalents
165
(348
)
Net increase in cash and cash equivalents
6,548
8,210
Cash and cash equivalents, beginning of period
21,314
20,905
Cash and cash equivalents, end of period
$
27,862
$
29,115
Supplemental disclosures of cash flow information:
Cash paid during the year to date period for:
Interest Interest
$
10
$
11
Income taxes
$
303
$
166
5
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