Summary
Pega reported FY2021 Q4 results on February 16, 2022. Revenue for the quarter ended December 31, 2021 rose to $316.18 million, up 5.9% from the prior-year quarter. Full-year revenue reached $1.21 billion, up 19.1%. Annual contract value passed $1 billion for the first time and grew 20% year over year to $1.00 billion. Remaining performance obligations, which Pega calls backlog, were $1.34 billion, up 25.4% from the prior-year quarter. Deferred revenue was $281.50 million, up 16.4% from the prior-year quarter. Those figures point to solid demand for Pega's workflow and decisioning software.
Profitability was mixed. GAAP operating loss was $32.19 million, down from the prior-year quarter, and the loss widened. Operating margin was -10.2%, down 8.2 percentage points. Net loss was $37.25 million, down from the prior-year quarter, and the company swung to a loss from net income. For the full year, GAAP operating loss was $94.73 million, up from the prior-year period, and the loss narrowed. Full-year operating margin was -7.8%, up 6.3 percentage points. Full-year net loss was $63.04 million, down from the prior-year period, and the loss widened. Full-year diluted EPS was -$0.77, down from the prior-year period, and the loss widened. Gross profit was $231.02 million in the quarter, up 4.2%, and $875.29 million for the year, up 23.9%. Gross margin was 73.1% in the quarter, down 1.2 percentage points, and 72.2% for the year, up 2.8 percentage points. Non-GAAP net income was $3.05 million in the quarter, compared with $16.82 million. Full-year non-GAAP net income was $18.81 million, compared with a non-GAAP net loss of $26.41 million. The gap between GAAP and non-GAAP results reflects items such as stock-based compensation, litigation costs, capped call gains and losses, convertible note amortization, and foreign currency transaction gains and losses, all of which Pega excludes from non-GAAP results.
ACV growth came from all major lines. Pega Cloud ACV was $363.97 million, up 37%. Maintenance ACV was $330.90 million, up 9%. Subscription services ACV was $694.87 million, up 22%. Subscription license ACV was $307.75 million, up 16%. Total ACV was $1.00 billion, up 20%. Maintenance renewal rates stayed over 90% in 2021. Foreign currency exchange rate changes were a 1% headwind to ACV growth in 2021. Pega expects to complete its subscription transition in 2023, and management said the transition may continue to affect revenue and operating cash flow growth.
Operating cash flow was $44.44 million in the quarter, up 73% from the prior-year quarter. For the full year, operating cash flow was $39.12 million, up from the prior-year period. Capital expenditures were $3.37 million in the quarter, down 5.5% from the prior-year quarter, and $10.46 million for the year, down 58.8% from the prior-year period. Pega also received an $18 million payment from its landlord after accelerating its exit from its former Cambridge headquarters. The company has faced legal fees and related expenses from proceedings outside the ordinary course, and it expects additional expenses in 2022. The subscription transition remains a central operational risk because revenue and cash flow timing differ between subscription and perpetual license arrangements. Management said the transition may continue to affect revenue and operating cash flow growth until it is complete.
For full-year 2022, Pega guides revenue of $1.46 billion to $1.49 billion and ACV growth of 20% to 22%. Non-GAAP net income is projected at $64.7 million to $86.0 million, with non-GAAP diluted EPS of $0.75 to $1.00. The guidance applies to the full fiscal year, not the next quarter. The main risks include the subscription transition, foreign exchange, reliance on third-party hosting providers, debt obligations and covenants, convertible notes and capped call transactions, cyber attacks, and public health emergencies such as COVID-19. Pega said it aims to become a Rule of 40 business as ACV growth and profitability improve.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2021 | Q3 FY2021 | QoQ | Q4 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $316.2M | $256.3M | +23.4% | $298.6M | +5.9% |
| Gross profit | $231.0M | $172.0M | +34.3% | $221.7M | +4.2% |
| Gross margin | 73.1% | 67.1% | +5.9 pp | 74.3% | -1.2 pp |
| Research & development | $69.1M | $64.7M | +6.7% | $59.4M | +16.3% |
| Sales & marketing | $168.2M | $152.5M | +10.3% | $150.0M | +12.2% |
| General & administrative | $25.9M | $20.2M | +28.4% | $18.3M | +41.8% |
| Total operating expenses | $263.2M | $237.4M | +10.9% | $227.6M | +15.6% |
| Operating income (loss) | -$32.2M | -$65.3M | +50.7% | -$5.9M | -442.8% |
| Operating margin | -10.2% | -25.5% | +15.3 pp | -2.0% | -8.2 pp |
| Net income (loss) | -$37.2M | -$56.5M | +34.0% | $4.0M | -1029.8% |
| Net margin | -11.8% | -22.0% | +10.3 pp | 1.3% | -13.1 pp |
| Diluted EPS | -$0.46 | -$0.69 | +$0.23 | $0.05 | -$0.51 |
Risks
The company is transitioning to a subscription-based model and expects completion in 2023; MD&A states this transition has impacted revenue growth and may continue to impact revenue and operating cash flow growth. The mix between perpetual licenses, term licenses, and Pega Cloud can cause revenue and cash flow to fluctuate materially between periods.
Timing and amount of license and Pega Cloud revenue are difficult to predict, and changes in client budgets or transaction timing can cause operating results to vary considerably. MD&A reports ACV increased 20% since December 31, 2020, and backlog increased 25% since December 31, 2020.
The market is intensely competitive and includes Salesforce.com, Microsoft, Oracle, SAP, ServiceNow, and IBM, many with far greater resources. Competition for market share and pressure to reduce prices and make sales concessions is likely to increase.
MD&A highlights $14.4 million in general and administrative legal fees in 2021 from proceedings outside the ordinary course and $18.2 million in legal fees and related expenses in operating activities, with additional expenses expected in 2022. The company is party to litigation with Appian Corp. and faces intellectual property infringement claims.
As of December 31, 2021, the company had $600 million aggregate principal amount of Convertible Senior Notes due 2025, which may limit flexibility and require cash for debt service. MD&A reports a $23.6 million loss on capped call transactions in 2021 compared with a $31.7 million gain in 2020.
Factors such as clients' budget and decision-making processes, changes in the business model, and execution of sales strategies can affect both the timing and size of transactions, with only a small portion of expenses varying with revenue.
The business depends on key personnel, including the CEO who is also founder and largest stockholder, and competition for highly skilled technical, managerial, consulting, sales, and marketing personnel is intense. Remote work and shifting workforce priorities may make it difficult to maintain corporate culture and retain essential personnel.
The CEO beneficially owned approximately 49 percent of outstanding common stock as of December 31, 2021, giving him significant influence over all matters submitted to stockholders and potentially delaying or preventing a change in control.
Pega Cloud relies on third-party hosting providers, and interruptions, delays, or inability to renew agreements on commercially reasonable terms could trigger service-level credits and harm reputation and results.
Uncertainties in the global economy, including inflation, restricted credit, and COVID-19, could delay or reduce clients' technology purchases and affect collections. MD&A states COVID-19 has not had a material impact on results as of December 31, 2021, but future effects remain uncertain.
A significant portion of business is conducted outside the U.S. and international sales are usually denominated in foreign currencies. MD&A reports a foreign currency transaction loss of $6.5 million in 2021 compared with a gain of $3.7 million in 2020.
Tax liabilities are subject to audits and changing laws, including mandatory capitalization of research and experimentation expenses and global minimum tax proposals. As of December 31, 2021, $88.0 million of cash and cash equivalents were held in foreign subsidiaries, and repatriation could trigger additional taxes.
A portion of revenues comes from federal, state, local, and foreign government contracts, and factors such as decreases in government funding, changes in contracting policies, most-favored-nation pricing requirements, and payment delays could impede revenue.
The company is subject to GDPR, CCPA, CPRA, anti-bribery laws, and government contracting rules. Non-compliance could result in significant fines, including GDPR penalties of up to the higher of 20 million Euro or 4% of annual worldwide revenue, and increased compliance costs.
SaaS KPIs
All quarters →Annual Contract Value (ACV)
Pega Cloud ACV
Subscription Services ACV
Subscription License ACV
Summary, forecast, risks and KPIs are extracted from PEGASYSTEMS INC's SEC filings for Q4 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.