Summary
Pegasystems reported FY2021 Q1 total revenue of $313.5 million, up 18.0% from the prior-year quarter. Gross profit was $231.1 million, up 24.2%, and gross margin reached 73.7%, up 3.6 percentage points from 70.1%. The company swung to an operating profit. Operating income was $1.6 million, compared with an operating loss of $24.3 million in the prior-year quarter. Operating margin was 0.5%, up 9.7 percentage points from -9.2%. Net loss was $6.6 million, a 73.9% narrowing from a net loss of $25.4 million in the prior-year quarter. Diluted loss per share was $0.08, compared with a diluted loss per share of $0.32 in the prior-year quarter, a 75.0% narrowing. On a non-GAAP basis, net income was $22.1 million and diluted earnings per share was $0.26, compared with non-GAAP net income of $4.0 million and non-GAAP diluted earnings per share of $0.05 in the prior-year quarter.
Cash generation improved sharply. Operating cash flow was $21.7 million in the current quarter, compared with negative operating cash flow of $18.3 million in the prior-year quarter. Capital expenditures were $1.8 million, down 85.7% from $12.5 million in the prior-year quarter. Deferred revenue was $251.7 million, up 24.2% from $202.6 million in the prior-year quarter. Remaining performance obligations, or backlog, were $979.8 million, up 30.0% from $753.8 million in the prior-year quarter. Total annual contract value was $852.6 million, up 20%, and Pega Cloud annual contract value was $282.4 million, up 55%. Maintenance annual contract value was $302.2 million, up 3%; term annual contract value was $267.9 million, up 14%; and Client Cloud annual contract value was $570.2 million, up 8%.
Management tied the results to digital transformation demand. Founder and CEO Alan Trefler said the pandemic reaffirmed that organizations need to accelerate digital transformation with low-code solutions. COO and CFO Ken Stillwell said the cloud transition is at a point where subscription revenue growth aligns with total ACV growth. Total ACV reached $852.6 million, up 20%, and Pega Cloud ACV reached $282.4 million, up 55%. Those non-GAAP metrics are performance measures the company highlights during the Cloud Transition. The company also pointed to total backlog growth of 30% and said maintenance renewal rates were higher than 90%. PegaWorld was scheduled for the following week.
Guidance and risk disclosure remain centered on the multiyear Cloud Transition. The MD&A says Pegasystems expects to substantially complete the transition in late 2022 or early 2023. Until then, the company may experience lower revenue growth and lower operating cash flow growth or negative cash flow. The release did not include specific next-quarter or full-year revenue or earnings targets. The company intends to pay a quarterly cash dividend of $0.03 per share, but the board may terminate or modify the program at any time without prior notice. Named risks include the convertible senior notes and capped call transactions, foreign currency exchange rates, cyber-attacks, security breaches, client retention, public sector demand, reliance on third-party service providers, key personnel, and the relocation of the corporate headquarters. COVID-19 has not had a material impact on results of operations or financial condition as of March 31, 2021. Stock-based compensation increases the variability of the effective tax rate. The Cloud Transition remains the main source of uncertainty for revenue growth and cash flow.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $313.5M | $298.6M | +5.0% | $265.6M | +18.0% |
| Gross profit | $231.1M | $221.7M | +4.2% | $186.1M | +24.2% |
| Gross margin | 73.7% | 74.3% | -0.5 pp | 70.1% | +3.6 pp |
| Research & development | $62.4M | $59.4M | +5.2% | $58.7M | +6.3% |
| Sales & marketing | $148.7M | $150.0M | -0.8% | $136.0M | +9.3% |
| General & administrative | $18.3M | $18.3M | +0.1% | $15.6M | +16.9% |
| Total operating expenses | $229.5M | $227.6M | +0.8% | $210.4M | +9.1% |
| Operating income (loss) | $1.6M | -$5.9M | +127.0% | -$24.3M | +106.6% |
| Operating margin | 0.5% | -2.0% | +2.5 pp | -9.2% | +9.7 pp |
| Net income (loss) | -$6.6M | $4.0M | -265.2% | -$25.4M | +73.9% |
| Net margin | -2.1% | 1.3% | -3.5 pp | -9.6% | +7.4 pp |
| Diluted EPS | -$0.08 | $0.05 | -$0.13 | -$0.32 | +$0.24 |
Risks
Management states the company is still transitioning to sell software primarily through Pega Cloud subscriptions and expects this to complete only in late 2022 or early 2023. During this period it warns of lower revenue growth and lower operating cash flow growth or negative cash flow, with the revenue mix subject to client preference between perpetual and subscription offerings.
An increasing portion of term license contracts include multi-year committed maintenance periods rather than annually renewable maintenance, which shifts value out of term license revenue. In the three months ended March 31, 2021 this contributed $3.4 million to maintenance revenue growth and reduced term revenue growth by $5.5 million.
Foreign currency transaction loss was $5.1 million in the three months ended March 31, 2021, following a $5.9 million loss in the prior-year period, driven by foreign currency denominated cash, receivables and intercompany balances at the UK subsidiary. Foreign currency exchange rate changes also contributed 3% to total ACV growth against the 20% reported ACV increase since March 31, 2020, so reported growth is partly rate-driven.
Loss on capped call transactions was $19.1 million in the three months ended March 31, 2021 versus $18.6 million in the prior-year period, due to fair value adjustments, and the company carries $600 million of convertible senior notes due March 1, 2025. These items make net results and the effective tax rate volatile, with the effective income tax benefit rate at 73% in the quarter versus 48% a year earlier.
Consulting revenue declined 3% in the three months ended March 31, 2021, which management attributes primarily to a decrease in billable travel expenses as a result of COVID-19, while selling and marketing expenses benefited from $6.0 million lower travel and entertainment and $7.9 million lower sales and marketing events due to COVID-19. Ongoing pandemic conditions can distort period comparisons of revenue and expenses.
Selling and marketing expense rose 9% in the three months ended March 31, 2021, driven by a $25.4 million increase in compensation and benefits from higher headcount and equity compensation, and research and development rose 6% on a $4.6 million compensation increase. Facility expense reductions in the quarter lean on a one-time $18 million landlord payment tied to the accelerated Cambridge headquarters exit on October 1, 2021.
The company intends to pay a quarterly cash dividend of $0.03 per share, with dividend payments to stockholders of $2.4 million in the three months ended March 31, 2021, but the Board of Directors may terminate or modify the dividend program at any time without prior notice.
SaaS KPIs
All quarters →Pega Cloud ACV
Remaining Performance Obligations (Backlog)
Maintenance Renewal Rate
Summary, forecast, risks and KPIs are extracted from PEGASYSTEMS INC's SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.