Success in Financial Services, Continued Strength in Services Revenue
CAMBRIDGE, Mass., July 28, 2003 – Pegasystems Inc. (NASDAQ: PEGA), a leading provider of smart business process management (BPM) software, today announced its second quarter results, reporting revenues of $25.5 million, pre-tax profits of $5.9 million, earnings per diluted share of $0.11 and positive cash flow from operations of $6.8 million.
Second Quarter Financial Performance (In millions, except per share data and percentages) Current Qtr. Prior Qtr. Prior Yr. Q2 2003 Q1 2003 Q2 2002 Total Revenue $ 25.5 $ 25.6 $ 26.7 License Revenue $ 15.9 $ 16.2 $ 19.1 % of Total Revenue 63% 63% 72% Services Revenue $ 9.6 $ 9.4 $ 7.6 % of Total Revenue 37% 37% 28% Pre-tax Income $ 5.9 $ 7.7 $ 4.9 Provision for income taxes $ 2.0 $ 0.9 $ 0.3 Net Income $ 3.9 $ 6.8 $ 4.6 Basic Earnings Per Share $ 0.11 $ 0.20 $ 0.14 Diluted Earnings Per Share $ 0.11 $ 0.19 $ 0.13
Henry Ancona, President and Chief Operating Officer commented, "Building on the first quarter's success in the healthcare market, we saw continued success in financial services in the second quarter. During the quarter we sold our PegaCHECK Smart Adjust product to a Midwest banking organization and we extended a relationship with a user of our PegaCARD solution. In both cases the organizations needed a solution to ensure differentiated service to their end users, and in both cases Pegasystems offered the winning solution.
"We have had good success through the first half of the year and continue to focus on Simply Smart BPM. We have signed four new customers through the first half of the year, and renewed and expanded two existing customer relationships. Service revenues were $19 million for the first half of the year, up 22% over the first half of 2002, reflective of the additional projects underway. Service margins through the first half of the year were 32%, a significant improvement over 4% in the comparable period last year, and further validation of our focus on execution. We do not expect to continue this rate of services revenue growth and margin improvement as we move toward our goal of complementing our direct selling and support efforts with those of our alliance partners.
Ancona concluded, "As noted last quarter, customers remain cautious in making purchasing decisions. However, because we continue to receive positive response to our new technologies, we have committed to increase our investment in research and development and marketing."
Said founder and CEO Alan Trefler, "We were delighted to see record attendance at this year's user conference. Held mid-way through the quarter, we attracted a broad group of customers, partners and prospects. Based on positive feedback regarding our technology and attendees' need for agile and flexible business processes, we look forward to continuing to leverage our rules-based BPM platform."
Chris Sullivan, CFO, commented, "Total revenue of $25.5 million for the second quarter was essentially unchanged from the first quarter's $25.6 million, and down $1.2 million from the comparable quarter last year as a decrease in license revenue was only partially offset by an increase in services revenue. We reported license revenue of $15.9 million, a decrease of $3.2 million compared to the second quarter of 2002, due primarily to the anticipated decline in FDR license revenue of approximately $2.4 million. Substantially all of our license revenue continued to be from existing customers who continue to confirm their support of Pegasystems with renewals, add-ons and extensions of existing licenses. We reported services revenue of $9.6 million, an increase of $2 million compared to the second quarter of 2002, primarily due to implementation projects associated with new customer license signings. While we have succeeded in signing more new customer license business in the first half of 2003, the implementation projects are not yet complete and therefore the associated license revenue has not yet been recognized.
"We continue to operate on a positive cash-flow basis and generated operating cash flows of $10.6 million during the first six months. Profits before taxes were $5.9 million for the second quarter, compared to $4.9 million for the comparable period last year. Net income for the second quarter, however, was negatively impacted as our effective tax rate trended higher. This trend is expected to continue, though the quarterly effective tax rate is subject to fluctuations due to a variety of factors including valuation allowance adjustments.
"We are maintaining our full-year 2003 revenue guidance in line with 2002's $97.4 million, plus or minus 10%, and are maintaining our full-year EPS expectation at $0.45, plus or minus 10%. With the continued strong cash flow performance through the second quarter, we now expect to generate between $12 and $18 million of cash from operations in 2003."
The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Tuesday, July 29, 2003. Dial-in information is as follows: 800-982-3472 (domestic) or 703-871-3022 (international). A replay of the teleconference will be available at 888-266-2081 (domestic), 703-925-2533 (international), with a passcode of 196826.
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.
About Pegasystems Pegasystems Inc. (Nasdaq: PEGA) provides rules-based, smart business process management (BPM) software to large organizations, helping to deliver significant ROI and providing them with the flexibility and agility to respond to changing business needs. With annualized revenues of approximately $100 million and a blue-chip customer base, the company offers applications for the financial services, healthcare, insurance and government markets, as well as a cross-industry BPM application. Pegasystems is headquartered in Cambridge, Mass., and has regional offices in North America, Europe and the Pacific Rim. For more information, visit www.pega.com.
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 2003 revenue, earnings per share and cash from operations. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. The Company does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 implementations and consequently the timing of our license revenue recognition, our ability to develop new products and evolve existing ones, the impact on our business of the ongoing consolidation in the financial services market, historically our core market, 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 on file with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company's views as of July 28, 2003. 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 July 28, 2003.
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