Summary
Pegasystems reported FY2021 Q3 total revenue of $256.27 million, up 13.4% from the prior-year quarter. Gross profit increased 16.1% to $172.05 million. Gross margin was 67.1%, up 1.6 percentage points. For the nine months ended September 30, 2021, revenue was $895.47 million, up 24.6%. Gross profit was $644.27 million, up 32.9%, and gross margin was 71.9%, up 4.5 percentage points. The quarter carried solid top-line growth, while the year-to-date period included a larger revenue and gross profit base.
Operational metrics show the cloud shift. Total annual contract value grew 22% since September 30, 2020, to $947.7 million. Pega Cloud ACV grew 38% to $320.7 million. Client Cloud ACV grew 15% to $627.1 million. Remaining performance obligations, or backlog, were $1.03 billion, up 23.4% from a year earlier. Management attributed the ACV gain to Pega Cloud Choice and said digital transformation remains a top priority for clients around the world. The company also reported maintenance renewal rates of higher than 90%.
Profitability was mixed. The quarter generated an operating loss of $65.34 million, and the loss widened 5.7% from the prior-year quarter. Operating margin was negative 25.5%, up 1.9 percentage points. Net loss was $56.47 million, and the loss widened 193.1%. Diluted loss per share was -$0.69, and the loss widened 187.5%. Non-GAAP net loss was $32.86 million, with non-GAAP diluted loss per share of $0.40. The nine-month trends improved. Operating loss for the year to date was $62.54 million, a 54.5% narrowing. Operating margin was negative 7.0%, up 12.2 percentage points. Net loss was $25.79 million, a 60.5% narrowing, and diluted loss per share was -$0.32, a 61.0% narrowing. Non-GAAP net income for the nine months was $9.20 million, and non-GAAP diluted earnings per share was $0.11. Stock-based compensation, capped call transactions, convertible senior notes, headquarters lease, intangible amortization, and foreign currency transaction gains and losses are the main non-GAAP adjustments.
Cash generation remained negative. Operating cash flow was negative $24.73 million for the quarter, down 388.9% from the prior-year quarter. For the nine months, operating cash flow was negative $5.32 million, up 79.7% from a year earlier. Capital expenditures were $2.93 million in the quarter, up 6.6%, and $7.09 million year to date, down 67.5%. Deferred revenue was $234.78 million, up 24.7%. Pega Cloud, term license, and maintenance arrangements are generally billed and collected over the contract term, while perpetual license arrangements are generally billed and collected upfront. The change in operating cash flow for the nine months was primarily due to a significant increase in client collections. The company intends to pay a quarterly cash dividend of $0.03 per share. Stock repurchase authority stood at $44.0 million at September 30, 2021.
Management did not provide quarterly or full-year revenue guidance in the 8-K or 10-Q. Instead, it pointed to ACV and backlog as the key forward-looking performance metrics. The Cloud Transition remains the central strategic issue. Pegasystems expects to substantially complete that transition in 2023, and it warns that the shift may bring lower revenue growth and lower operating cash flow growth or negative cash flow. Revenue growth has been slower because of the transition. Pega Cloud and maintenance revenue is recognized over the contract term, while license revenue is recognized upfront. Foreign currency exchange rate changes contributed 1-2% to total ACV growth in 2021. COVID-19 has not had a material impact on results of operations or financial condition as of September 30, 2021. The listed risks include reliance on third-party service providers, compliance with debt obligations and covenants, the convertible senior notes and capped call transactions, reliance on key personnel, the headquarters relocation, global economic uncertainty, foreign exchange rates, cyber attacks, protection of intellectual property, client retention, and management of growth. The company also lists risks around the timing of revenue recognition, management of the transition to a more subscription-based business model, variation in demand, including among public sector clients, and the impact of actual or threatened public health emergencies.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $256.3M | $325.7M | -21.3% | $226.0M | +13.4% |
| Gross profit | $172.0M | $241.2M | -28.7% | $148.2M | +16.1% |
| Gross margin | 67.1% | 74.0% | -6.9 pp | 65.6% | +1.6 pp |
| Research & development | $64.7M | $64.4M | +0.5% | $60.0M | +7.8% |
| Sales & marketing | $152.5M | $156.4M | -2.5% | $132.1M | +15.5% |
| General & administrative | $20.2M | $19.2M | +5.3% | $17.9M | +12.7% |
| Total operating expenses | $237.4M | $240.0M | -1.1% | $210.0M | +13.0% |
| Operating income (loss) | -$65.3M | $1.2M | -5581.3% | -$61.8M | -5.7% |
| Operating margin | -25.5% | 0.4% | -25.9 pp | -27.4% | +1.9 pp |
| Net income (loss) | -$56.5M | $37.3M | -251.4% | -$19.3M | -193.1% |
| Net margin | -22.0% | 11.4% | -33.5 pp | -8.5% | -13.5 pp |
| Diluted EPS | -$0.69 | $0.43 | -$1.12 | -$0.24 | -$0.45 |
Risks
The company is transitioning to sell software primarily through subscription arrangements, especially Pega Cloud, through 2023. Revenue growth has been slower because of this transition, and management warns it may experience lower revenue growth and lower operating cash flow growth or negative cash flow. Operating cash flow was negative $5.32 million year to date and negative $24.73 million in the quarter ended September 30, 2021.
An increasing portion of term license contracts include multi-year committed maintenance instead of annually renewable maintenance, shifting revenue recognition over the contract term. In the three months ended September 30, 2021, this contributed $4.8 million to maintenance revenue growth but reduced term revenue growth by $1.0 million; in the nine months ended September 30, 2021, it contributed $12.6 million and reduced term revenue growth by $22.0 million.
As part of its long-term strategy, the company intends to continue growing and leveraging ecosystem partners on implementation projects, which could reduce future consulting revenue growth. Consulting revenue changes in the three and nine months ended September 30, 2021 were primarily due to changes in billable hours.
Total cash, cash equivalents, and marketable securities decreased to $351.85 million at September 30, 2021 from $465.17 million at December 31, 2020, and net cash decreased $55.49 million for the nine months ended September 30, 2021. The company may need external financing or face taxes upon repatriation if foreign funds are needed.
The company has $600 million aggregate principal amount of convertible senior notes maturing March 1, 2025, and Capped Call Transactions whose fair value adjustments affect other income (expense), net. It also must comply with debt obligations and covenants under its credit facility, although no borrowings were outstanding as of September 30, 2021.
The company cites variation in demand for its products and services, including among clients in the public sector, as a forward-looking risk. Its client retention rate and management of growth are also identified as factors that could cause actual results to differ materially.
SaaS KPIs
All quarters →Annual Contract Value (ACV)
Pega Cloud ACV
Remaining Performance Obligations (Backlog)
Maintenance Renewal Rate
Summary, forecast, risks and KPIs are extracted from PEGASYSTEMS INC's SEC filings for Q3 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.