Summary
Pegasystems reported FY2021 Q2 revenue of $325.7 million, up 43.2% year over year. The quarter swung to a GAAP profit. Net income was $37.3 million, compared with a net loss a year earlier. Diluted EPS was $0.43. Operating income was $1.2 million, up from an operating loss a year earlier. Gross profit was $241.2 million, up 60.1%. Gross margin rose to 74.0%, an increase of 7.8 percentage points, and operating margin improved to 0.4%, up 23.0 percentage points. For the six months ended June 30, 2021, revenue was $639.2 million, up 29.7%. Net income was $30.7 million, and diluted EPS was $0.36. Management called it the strongest revenue quarter in the company's history.
Operationally, total ACV reached $899.4 million at June 30, 2021, up 22% from $737.9 million a year earlier. Pega Cloud ACV was $306.9 million, up 46%, and the company said Pega Cloud continued to be the biggest contributor to ACV growth for the third consecutive year. Client Cloud ACV was $592.5 million, up 12%. Maintenance ACV was $315.1 million, up 9%, and term license ACV was $277.4 million, up 16%. Total backlog, which Pega reports as remaining performance obligations, was $1.03 billion, up 26%. Deferred revenue was $248.2 million, up 22.5%. Foreign currency exchange rate changes contributed 3-4% to total ACV growth in 2021.
The profit improvement came despite higher operating costs. The MD&A points to increases in compensation and benefits across selling and marketing, research and development, and general and administrative, mostly from headcount and equity compensation. Pega also recorded a gain on capped call transactions and lower interest expense, which helped net income. The company adopted ASU 2020-06 on January 1, 2021, which changed the accounting for its convertible notes. Non-GAAP net income was $19.9 million in the quarter, compared with a non-GAAP net loss of $22.2 million, and non-GAAP diluted EPS was $0.23 versus a loss of $0.28. For the six months, non-GAAP net income was $42.1 million, compared with a non-GAAP net loss of $18.2 million, and non-GAAP diluted EPS was $0.49 versus a loss of $0.23. The company intends to pay a quarterly cash dividend of $0.03 per share.
Cash flow remained volatile. Operating cash flow was negative $2.24 million in the quarter, up 22.1% from the prior-year quarter. For the six months, operating cash flow was positive $19.41 million, up 191.6%. Capital expenditures fell 63.8% in the quarter to $2.38 million and were down 78.2% year to date to $4.16 million. The MD&A attributed the six-month operating cash flow improvement to a significant increase in client collections. Management expects the Cloud Transition to be substantially complete in 2023 and said it could keep revenue growth and operating cash flow growth lower, or cash flow negative, until then. COVID-19 has not had a material impact on results as of June 30, 2021. Named risks include foreign currency exchange rates, the convertible senior notes and capped call transactions, client retention, public sector demand, reliance on third-party service providers, cyber attacks, and the ability to protect intellectual property.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $325.7M | $313.5M | +3.9% | $227.4M | +43.2% |
| Gross profit | $241.2M | $231.1M | +4.4% | $150.7M | +60.1% |
| Gross margin | 74.0% | 73.7% | +0.3 pp | 66.3% | +7.8 pp |
| Research & development | $64.4M | $62.4M | +3.1% | $58.9M | +9.4% |
| Sales & marketing | $156.4M | $148.7M | +5.2% | $127.6M | +22.6% |
| General & administrative | $19.2M | $18.3M | +4.9% | $15.7M | +22.4% |
| Total operating expenses | $240.0M | $229.5M | +4.6% | $202.1M | +18.7% |
| Operating income (loss) | $1.2M | $1.6M | -25.5% | -$51.4M | +102.3% |
| Operating margin | 0.4% | 0.5% | -0.1 pp | -22.6% | +23.0 pp |
| Net income (loss) | $37.3M | -$6.6M | +663.6% | -$20.7M | +279.8% |
| Net margin | 11.4% | -2.1% | +13.6 pp | -9.1% | +20.6 pp |
| Diluted EPS | $0.43 | -$0.08 | +$0.51 | -$0.26 | +$0.69 |
Risks
The company is transitioning to subscription sales, primarily Pega Cloud, and expects to substantially complete the transition in 2023. MD&A warns that until then it may experience lower revenue growth and lower operating cash flow growth or negative cash flow as billings and collections shift from upfront perpetual licenses to over-term cloud, term license, and maintenance arrangements.
An increasing portion of term license contracts include multi-year committed maintenance periods, shifting value from term license revenue recognized upfront to maintenance revenue recognized over the contract term. In FY2021 Q2, multi-year committed maintenance contributed $4.3 million to maintenance revenue growth and reduced term revenue growth by $15.4 million, while year-to-date it reduced term revenue growth by $20.9 million.
Operating expense increases in FY2021 Q2 and year to date were primarily due to higher compensation and benefits from headcount growth and equity compensation, including $22.6 million in selling and marketing and $7.2 million in research and development for the quarter. The company is increasing sales capacity to deepen client relationships and target new accounts, elevating reliance on hiring and retaining key personnel.
The company has $600 million aggregate principal amount of convertible senior notes due March 1, 2025, and gains on capped call transactions fluctuate with its stock price. MD&A identifies compliance with debt obligations and the potential impact of the convertible notes and capped call transactions as forward-looking risks.
The company accelerated its exit from the Cambridge, Massachusetts headquarters to October 1, 2021 for an $18 million landlord payment and leased a new headquarters plus an 11-year Waltham office lease with first-year base rent of $6 million increasing 3% annually. These commitments may affect future facilities costs and liquidity.
SaaS KPIs
All quarters →Remaining Performance Obligations (Backlog)
Maintenance Renewal Rate
Summary, forecast, risks and KPIs are extracted from PEGASYSTEMS INC's SEC filings for Q2 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.