Exhibit 99.1
Pegasystems Announces Financial Results for Third Quarter and First Nine Months of 2011
Anticipates FY 2012 revenue to exceed $500 million
CAMBRIDGE, Mass. – November 9, 2011 – Pegasystems Inc. (NASDAQ: PEGA) today announced financial results for the third quarter and nine months ended September 30, 2011. GAAP revenue for the third quarter of 2011 increased 6% to $95.5 million compared to the third quarter of 2010. GAAP net income for the third quarter of 2011 was $5 million, or $0.13 per diluted share, compared to GAAP net income of $3.1 million, or $0.08 per diluted share, for the third quarter of 2010. Non-GAAP net income for the third quarter of 2011 was $6 million, or $0.15 per diluted share, compared to Non-GAAP net income of $9.9 million, or $0.26 per diluted share, for the third quarter of 2010.
| SELECTED GAAP & NON-GAAP RESULTS (1) | ||||||||
| Three Months Ended September 30, | ||||||||||||||||
| 2011 | 2011 | 2010 | 2010 | |||||||||||||
| ($ in ‘000s) |
GAAP | Non-GAAP | GAAP | Non-GAAP | ||||||||||||
| Total revenue |
$ | 95,503 | $ | 96,291 | $ | 90,016 | $ | 95,433 | ||||||||
| Operating (loss) income |
$ | (2,008 | ) | $ | 4,502 | $ | 1,943 | $ | 12,282 | |||||||
| Net income |
$ | 4,959 | $ | 6,020 | $ | 3,139 | $ | 9,891 | ||||||||
| Basic earnings per share |
$ | 0.13 | $ | 0.16 | $ | 0.08 | $ | 0.27 | ||||||||
| Diluted earnings per share |
$ | 0.13 | $ | 0.15 | $ | 0.08 | $ | 0.26 | ||||||||
| Nine Months Ended September 30, | ||||||||||||||||
| 2011 | 2011 | 2010 | 2010 | |||||||||||||
| ($ in ‘000s) |
GAAP | Non-GAAP | GAAP | Non-GAAP | ||||||||||||
| Total revenue |
$ | 301,381 | $ | 304,869 | $ | 247,346 | $ | 256,356 | ||||||||
| Operating income |
$ | 6,790 | $ | 26,899 | $ | 1,365 | $ | 31,920 | ||||||||
| Net income (loss) |
$ | 11,963 | $ | 21,943 | $ | (1,198 | ) | $ | 19,854 | |||||||
| Basic earnings (loss) per share |
$ | 0.32 | $ | 0.59 | $ | (0.03 | ) | $ | 0.54 | |||||||
| Diluted earnings (loss) per share |
$ | 0.31 | $ | 0.56 | $ | (0.03 | ) | $ | 0.51 | |||||||
| (1) | See a reconciliation of our GAAP to Non-GAAP measures contained in the financial schedules at the end of this release. |
Business Perspective
“We continue to see our core value propositions resonating strongly with clients, prospects, and partners,” said Alan Trefler, Founder and CEO of Pegasystems. “Significant Q3 customer wins included a major electronics manufacturing services company, the distribution unit of a top entertainment organization, as well as increased adoption at global leaders in banking, healthcare and insurance.”
“In the third quarter, we expanded our industry-leading customer service, dynamic case management, and cloud solutions. We were also recognized as a ‘Top Service Provider’ by the leading mortgage banking publication. Premier partner organizations have significantly increased their executive-level commitment, bolstering our ability to meet client needs as well as generating significant year-over-year growth in our number of partner-sourced deals.”
1
“While our business can be lumpy from quarter to quarter, the activity level remains intense and both our direct and partner sourced pipelines are at record levels. We plan to continue to invest in sales capacity and market-leading products, with a goal of breaking through a half-billion dollars in revenue for 2012,” concluded Mr. Trefler.
Craig Dynes, Pegasystems’ CFO, added, “While license signings for Q3, 2011 were lower compared to Q3, 2010, year to date, our new license signings are up significantly from the same period last year despite the slow economy. Based on license signings to date and our pipeline, we see the license mix shifting in favor of term licenses versus perpetual licenses. Since we recognize term license revenue over the 3 to 5 year term, this shift will have the effect of deferring more revenue into future periods.”
“Accordingly, we now expect revenue for 2011 to be approximately $405 million on a GAAP basis, $410 million on a Non-GAAP basis, and to exceed $500 million on a GAAP basis for 2012. This is preliminary, revenue only, guidance for 2012 that will be refined when we are able to evaluate business conditions at the end of 2011. There should be no meaningful difference between GAAP and Non-GAAP revenue for 2012 because of small remaining Non-GAAP business combination adjustments for the acquired deferred revenue from our 2010 Chordiant acquisition. We estimate that our GAAP diluted earnings per share will be approximately $0.15 per share for 2011 and $0.61 per share on a Non-GAAP basis.”
Messrs. Trefler and Dynes will host a conference call and live Webcast associated with this announcement at 6:00 p.m. EST on November 9, 2011. Dial-in information is as follows: 1 (877) 348-9349 (domestic) or 1 (678) 809-1046 (international). To listen 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. A replay of the call will also be available on www.pega.com in the Investor Relations section Audio Archives link.
Discussion of Non-GAAP Measures
To supplement financial results presented on a GAAP basis, the Company provides Non-GAAP measures, including in this release. Pegasystems’ management utilizes a number of different financial measures, both GAAP and Non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions, and for forecasting and planning for future periods. The Company’s annual financial plan is prepared both on a GAAP and Non-GAAP basis, and the Non-GAAP annual financial plan is approved by our board of directors. In addition and as a consequence of the importance of these measures in managing the business, the Company uses Non-GAAP measures and results in the evaluation process to establish management’s compensation.
The Non-GAAP measures exclude certain business combination accounting entries and expenses related to our acquisition of Chordiant, as well as other significant expenses including stock-based compensation. The Company believes that these Non-GAAP measures are helpful in understanding our past financial performance and our anticipated future results. These Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. A reconciliation of the Company’s GAAP to Non-GAAP measures is included in the financial schedules at the end of the release.
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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 those relating to our revenue, earnings per share and the mix of term versus perpetual licenses. The words “anticipate,” “project,” “expect,” “plan,” “intend,” “believe,” “estimate,” “should”, “target,” “forecast,” “could,” “preliminary,” “guidance” and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made. 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, among others, variation in demand for our products and services and the difficulty in predicting the completion of product acceptance and other factors affecting the timing of our license revenue recognition, the mix of perpetual and term licenses and the level of term license renewals, our ability to develop new products and evolve existing ones, the ongoing consolidation in the financial services and healthcare markets, our ability to attract and retain key personnel, reliance on key third party relationships, the potential loss of vendor specific objective evidence for our professional services, and management of the Company’s growth. 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 Annual Report on Form 10-K for the year ended December 31, 2010 and other recent filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent the Company’s views as of November 9, 2011. 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 November 9, 2011.
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About Pegasystems
Pegasystems, the leader in business process management and software for customer centricity, helps organizations enhance customer loyalty, generate new business, and improve productivity. Our patented Build for Change® technology speeds the delivery of critical business solutions by directly capturing business objectives and eliminating manual programming. Pegasystems enables clients to quickly adapt to changing business conditions in order to outperform the competition. For more information, please visit us at www.pega.com.
For Information, contact:
Craig Dynes, Chief Financial Officer
617-866-6020
CDynes@pega.com
All trademarks are the property of their respective owners.
The information contained in this press release is not a commitment, promise, or legal obligation to deliver any material, code or functionality. The development, release and timing of any features or functionality described remains at the sole discretion of Pegasystems. Pegasystems specifically disclaims any liability with respect to this information.
3
Pegasystems Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Revenue: |
||||||||||||||||
| Software license |
$ | 25,346 | $ | 33,889 | $ | 93,453 | $ | 92,432 | ||||||||
| Maintenance |
29,971 | 23,418 | 85,713 | 58,892 | ||||||||||||
| Professional services |
40,186 | 32,709 | 122,215 | 96,022 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total revenue |
95,503 | 90,016 | 301,381 | 247,346 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Cost of revenue: |
||||||||||||||||
| Cost of software license |
1,637 | 1,571 | 4,942 | 2,711 | ||||||||||||
| Cost of maintenance |
2,980 | 3,187 | 9,614 | 7,839 | ||||||||||||
| Cost of professional services |
37,194 | 30,232 | 107,668 | 82,136 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total cost of revenue (1) |
41,811 | 34,990 | 122,224 | 92,686 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
53,692 | 55,026 | 179,157 | 154,660 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating expenses: |
||||||||||||||||
| Selling and marketing |
32,463 | 31,199 | 103,707 | 82,988 | ||||||||||||
| Research and development |
16,218 | 14,924 | 47,047 | 40,560 | ||||||||||||
| General and administrative |
7,222 | 6,442 | 21,193 | 18,246 | ||||||||||||
| Acquisition-related costs |
— | 111 | 482 | 5,014 | ||||||||||||
| Restructuring costs |
(203 | ) | 407 | (62 | ) | 6,487 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses (1) |
55,700 | 53,083 | 172,367 | 153,295 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (Loss) income from operations |
(2,008 | ) | 1,943 | 6,790 | 1,365 | |||||||||||
| Foreign currency transaction (loss) gain |
(1,049 | ) | 1,513 | 140 | (4,103 | ) | ||||||||||
| Interest income, net |
102 | 180 | 279 | 916 | ||||||||||||
| Other income, net |
504 | 572 | 365 | 814 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (Loss) income before (benefit) provision for income taxes |
(2,451 | ) | 4,208 | 7,574 | (1,008 | ) | ||||||||||
| (Benefit) provision for income taxes |
(7,410 | ) | 1,069 | (4,389 | ) | 190 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) |
$ | 4,959 | $ | 3,139 | $ | 11,963 | $ | (1,198 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net earnings (loss) per share: |
||||||||||||||||
| Basic |
$ | 0.13 | $ | 0.08 | $ | 0.32 | $ | (0.03 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Diluted |
$ | 0.13 | $ | 0.08 | $ | 0.31 | $ | (0.03 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Weighted-average number of common shares outstanding: |
||||||||||||||||
| Basic |
37,588 | 36,996 | 37,425 | 37,008 | ||||||||||||
| Diluted |
38,930 | 38,534 | 38,864 | 37,008 | ||||||||||||
| Dividends per share |
$ | 0.03 | $ | 0.03 | $ | 0.09 | $ | 0.09 | ||||||||
|
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|
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|
|
|||||||||
| (1) Includes stock-based compensation as follows: |
||||||||||||||||
| Cost of revenue |
$ | 659 | $ | 447 | $ | 2,009 | $ | 1,328 | ||||||||
| Operating expenses |
$ | 1,663 | $ | 1,134 | $ | 4,713 | $ | 3,885 | ||||||||
4
PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP TO NON-GAAP MEASURES (1)
($ in thousands, except per share data)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2011 | 2010 | |||||||
| TOTAL REVENUE - GAAP |
$ | 95,503 | $ | 90,016 | ||||
|
|
|
|
|
|||||
| Adjustments |
788 | 5,417 | ||||||
|
|
|
|
|
|||||
| TOTAL REVENUE - Non-GAAP |
$ | 96,291 | $ | 95,433 | ||||
| TOTAL COST OF REVENUE - GAAP |
$ | 41,811 | $ | 34,990 | ||||
| Amortization of intangible assets (2) |
(1,571 | ) | (1,550 | ) | ||||
| Stock-based compensation |
(659 | ) | (447 | ) | ||||
| Depreciation & rent (3) |
(230 | ) | — | |||||
|
|
|
|
|
|||||
| Total adjustments |
(2,460 | ) | (1,997 | ) | ||||
|
|
|
|
|
|||||
| TOTAL COST OF REVENUE - Non-GAAP |
$ | 39,351 | $ | 32,993 | ||||
| TOTAL OPERATING EXPENSES - GAAP |
$ | 55,700 | $ | 53,083 | ||||
| Amortization of intangible assets (2) |
(1,237 | ) | (1,273 | ) | ||||
| Stock-based compensation |
(1,663 | ) | (1,134 | ) | ||||
| Acquisition-related costs |
— | (111 | ) | |||||
| Restructuring costs |
203 | (407 | ) | |||||
| Depreciation & rent (3) |
(565 | ) | — | |||||
|
|
|
|
|
|||||
| Total adjustments |
(3,262 | ) | (2,925 | ) | ||||
|
|
|
|
|
|||||
| TOTAL OPERATING EXPENSES - Non-GAAP |
$ | 52,438 | $ | 50,158 | ||||
| (LOSS) INCOME FROM OPERATIONS - GAAP |
$ | (2,008 | ) | $ | 1,943 | |||
| Revenue adjustments |
788 | 5,417 | ||||||
| Cost of revenue adjustments |
2,460 | 1,997 | ||||||
| Operating expense adjustments |
3,262 | 2,925 | ||||||
|
|
|
|
|
|||||
| Total adjustments |
6,510 | 10,339 | ||||||
|
|
|
|
|
|||||
| INCOME FROM OPERATIONS - Non-GAAP |
$ | 4,502 | $ | 12,282 | ||||
| OPERATING MARGIN % - GAAP |
-2.10 | % | 2.16 | % | ||||
| OPERATING MARGIN % - Non-GAAP |
4.68 | % | 12.87 | % | ||||
| INCOME TAX EFFECTS - GAAP |
$ | (7,410 | ) | $ | 1,069 | |||
|
|
|
|
|
|||||
| Adjustments (4) |
5,449 | 3,587 | ||||||
|
|
|
|
|
|||||
| INCOME TAX EFFECTS - Non-GAAP |
$ | (1,961 | ) | $ | 4,656 | |||
| NET INCOME - GAAP |
$ | 4,959 | $ | 3,139 | ||||
|
|
|
|
|
|||||
| Adjustments |
1,061 | 6,752 | ||||||
|
|
|
|
|
|||||
| NET INCOME - Non-GAAP |
$ | 6,020 | $ | 9,891 | ||||
| NET EARNINGS PER SHARE: |
||||||||
| BASIC - GAAP |
$ | 0.13 | $ | 0.08 | ||||
| BASIC - Non-GAAP |
$ | 0.16 | $ | 0.27 | ||||
| DILUTED - GAAP |
$ | 0.13 | $ | 0.08 | ||||
| DILUTED - Non-GAAP |
$ | 0.15 | $ | 0.26 | ||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - GAAP |
||||||||
| BASIC |
37,588 | 36,996 | ||||||
| DILUTED |
38,930 | 38,534 | ||||||
5
PEGASYSTEMS INC.
RECONCILIATION OF SELECTED GAAP TO NON-GAAP MEASURES (1)
($ in thousands, except per share data)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2011 | 2010 | |||||||
| TOTAL REVENUE - GAAP |
$ | 301,381 | $ | 247,346 | ||||
|
|
|
|
|
|||||
| Adjustments |
3,488 | 9,010 | ||||||
|
|
|
|
|
|||||
| TOTAL REVENUE - Non-GAAP |
$ | 304,869 | $ | 256,356 | ||||
| TOTAL COST OF REVENUE - GAAP |
$ | 122,224 | $ | 92,686 | ||||
| Amortization of intangible assets (2) |
(4,713 | ) | (2,660 | ) | ||||
| Stock-based compensation |
(2,009 | ) | (1,328 | ) | ||||
| Depreciation & rent (3) |
(281 | ) | — | |||||
|
|
|
|
|
|||||
| Total adjustments |
(7,003 | ) | (3,988 | ) | ||||
|
|
|
|
|
|||||
| TOTAL COST OF REVENUE - Non-GAAP |
$ | 115,221 | $ | 88,698 | ||||
| TOTAL OPERATING EXPENSES - GAAP |
$ | 172,367 | $ | 153,295 | ||||
| Amortization of intangible assets (2) |
(3,794 | ) | (2,171 | ) | ||||
| Stock-based compensation |
(4,713 | ) | (3,885 | ) | ||||
| Acquisition-related costs |
(482 | ) | (5,014 | ) | ||||
| Restructuring costs |
62 | (6,487 | ) | |||||
| Depreciation & rent (3) |
(691 | ) | — | |||||
|
|
|
|
|
|||||
| Total adjustments |
(9,618 | ) | (17,557 | ) | ||||
|
|
|
|
|
|||||
| TOTAL OPERATING EXPENSES - Non-GAAP |
$ | 162,749 | $ | 135,738 | ||||
| INCOME FROM OPERATIONS - GAAP |
$ | 6,790 | $ | 1,365 | ||||
| Revenue adjustments |
3,488 | 9,010 | ||||||
| Cost of revenue adjustments |
7,003 | 3,988 | ||||||
| Operating expense adjustments |
9,618 | 17,557 | ||||||
|
|
|
|
|
|||||
| Total adjustments |
20,109 | 30,555 | ||||||
|
|
|
|
|
|||||
| INCOME FROM OPERATIONS - Non-GAAP |
$ | 26,899 | $ | 31,920 | ||||
| OPERATING MARGIN % - GAAP |
2.25 | % | 0.55 | % | ||||
| OPERATING MARGIN % - Non-GAAP |
8.82 | % | 12.45 | % | ||||
| INCOME TAX EFFECTS - GAAP |
$ | (4,389 | ) | $ | 190 | |||
|
|
|
|
|
|||||
| Adjustments (4) |
10,129 | 9,503 | ||||||
|
|
|
|
|
|||||
| INCOME TAX EFFECTS - Non-GAAP |
$ | 5,740 | $ | 9,693 | ||||
| NET INCOME (LOSS) - GAAP |
$ | 11,963 | $ | (1,198 | ) | |||
|
|
|
|
|
|||||
| Adjustments |
9,980 | 21,052 | ||||||
|
|
|
|
|
|||||
| NET INCOME - Non-GAAP |
$ | 21,943 | $ | 19,854 | ||||
| NET EARNINGS (LOSS) PER SHARE: |
||||||||
| BASIC - GAAP |
$ | 0.32 | $ | (0.03 | ) | |||
| BASIC - Non-GAAP |
$ | 0.59 | $ | 0.54 | ||||
| DILUTED - GAAP |
$ | 0.31 | $ | (0.03 | ) | |||
| DILUTED - Non-GAAP |
$ | 0.56 | $ | 0.51 | ||||
| WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
||||||||
| BASIC - GAAP |
37,425 | 37,008 | ||||||
| BASIC - Non-GAAP |
37,425 | 37,008 | ||||||
| DILUTED - GAAP |
38,864 | 37,008 | ||||||
| DILUTED - Non-GAAP (5) |
38,864 | 38,690 | ||||||
6
PEGASYSTEMS INC.
FOOTNOTES FOR RECONCILIATON OF
SELECTED GAAP MEASURES TO NON-GAAP MEASURES
| (1) | This presentation includes Non-GAAP measures. Our Non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures see disclosure under Discussion of Non-GAAP Measures included earlier in this release and below. Our Non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects: |
Revenue: Business combination accounting rules require that we determine the fair value of the deferred revenue liability for contractual obligations assumed from Chordiant. In post-acquisition reporting periods, we recognize revenue for the fair value of these contracts, when all the revenue recognition criteria are satisfied, instead of the revenue that would have been recognized by Chordiant as an independent company. We add back the effect of the deferred revenue fair value adjustment in Non-GAAP revenue to reflect the full amount of these revenues to provide a more complete comparison with the revenue of peer companies.
Amortization of intangible assets: We have excluded the effect of amortization of intangible assets acquired from Chordiant from our Non-GAAP operating expenses and net earnings measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.
Stock-based compensation expenses: We have excluded the effect of stock-based compensation expenses from our Non-GAAP operating expenses and net earnings measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expense.
Acquisition-related costs and restructuring costs: We have excluded the effect of acquisition-related costs and restructuring costs from our Non-GAAP operating expenses and net earnings measures. We incurred direct and incremental costs associated with the Chordiant acquisition. These acquisition-related costs were primarily due diligence costs, advisory and legal transaction fees, and valuation and tax consulting fees. We have also incurred restructuring costs related to the integration of the acquisition, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Restructuring costs consist of employee severance and other exit costs. We believe it is useful for investors to understand the effects of these items on our total operating expenses.
7
| (2) | Estimated future annual amortization expense related to intangible assets as of September 30, 2011 is as follows: |
| Remainder of Fiscal 2011 |
$ | 2,808 | ||
| Fiscal 2012 |
11,137 | |||
| Fiscal 2013 |
11,095 | |||
| Fiscal 2014 |
9,489 | |||
| Fiscal 2015 |
8,688 | |||
| Fiscal 2016 and thereafter |
28,960 | |||
|
|
|
|||
| Total intangible assets subject to amortization |
$ | 72,177 | ||
|
|
|
| (3) | As a result of our entering into a lease arrangement in June 2011 for our new office headquarters in Cambridge, Massachusetts, we expect to cease the use of our current offices in Cambridge, Massachusetts by the end second quarter of 2012 and abandon certain leasehold improvements and furniture and fixtures. Accordingly, in June 2011 we revised the remaining useful lives of these fixed assets and recorded incremental depreciation expense of $0.4 million during the third quarter of 2011 and $0.6 million during the first nine months of 2011 as a result of this change in estimate. We expect to record approximately $0.4 million of additional depreciation expense per quarter through the second quarter of 2012. In addition, we recorded rent expense of $0.4 million associated with our new office headquarters during the third quarter and first nine months of 2011. We believe the incremental depreciation and duplicate rent expense for existing and new office headquarters as a result of our moving our headquarters is not representative of our ongoing business. |
| (4) | We account for income taxes at each interim period using our estimated annual effective tax rate. We expect we will have an overall tax benefit for 2011. During the third quarter of 2011, we recorded a $2.4 million reduction in unrecognized tax benefits and a corresponding reduction in income tax expense related to tax positions of prior years for which the statute of limitations has expired. As a result of our estimated annual effective tax rate benefit and the $2.4 million of discrete items recorded as a reduction of tax expense in the quarter, we recorded a net tax benefit of approximately $7.4 million during the third quarter of 2011. |
The differences between our GAAP and Non-GAAP effective tax rates in the third quarter and first nine months of 2011 were primarily due to the impact of higher Non-GAAP income before taxes. The differences between our GAAP and Non-GAAP tax rates in the third quarter and first nine months of 2010 were primarily due to the impact of allowable acquisition-related deductions for income tax purposes.
| (5) | The diluted weighted-average common shares used for the calculation of Non-GAAP diluted earnings per share for the first nine months of 2010 include the dilutive effect of outstanding options, restricted stock units, and warrants, and the average market price of our common stock during the applicable periods using the treasury stock method. |
8
Pegasystems Inc.
Unaudited Condensed Consolidated Balance Sheets
| As of September 30, 2011 |
As of December 31, 2010 |
|||||||
| (in thousands) | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 51,603 | $ | 71,127 | ||||
| Marketable securities |
46,671 | 16,124 | ||||||
|
|
|
|
|
|||||
| Total cash, cash equivalents, and marketable securities |
98,274 | 87,251 | ||||||
| Trade accounts receivable, net |
79,121 | 79,896 | ||||||
| Deferred income taxes |
4,820 | 4,770 | ||||||
| Income taxes receivable |
21,272 | 9,266 | ||||||
| Other current assets |
7,680 | 7,473 | ||||||
|
|
|
|
|
|||||
| Total current assets |
211,167 | 188,656 | ||||||
| Property and equipment, net |
11,601 | 11,010 | ||||||
| Long-term deferred income taxes |
32,673 | 33,769 | ||||||
| Other assets |
1,991 | 2,905 | ||||||
| Intangible assets, net |
72,177 | 80,684 | ||||||
| Goodwill |
20,451 | 20,451 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 350,060 | $ | 337,475 | ||||
|
|
|
|
|
|||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 6,001 | $ | 6,286 | ||||
| Accrued expenses |
19,959 | 24,736 | ||||||
| Accrued compensation and related expenses |
23,243 | 27,125 | ||||||
| Deferred revenue |
67,316 | 56,903 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
116,519 | 115,050 | ||||||
| Income taxes payable |
2,380 | 5,783 | ||||||
| Long-term deferred revenue |
15,722 | 17,751 | ||||||
| Other long-term liabilities |
3,674 | 3,221 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
138,295 | 141,805 | ||||||
| Stockholders’ equity: |
211,765 | 195,670 | ||||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 350,060 | $ | 337,475 | ||||
|
|
|
|
|
|||||
9
Pegasystems Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2011 | 2010 | |||||||
| (in thousands) | ||||||||
| Operating activities: |
||||||||
| Net income (loss) |
$ | 11,963 | $ | (1,198 | ) | |||
| Adjustments to reconcile net income (loss) to cash provided by operating activities: |
||||||||
| Excess tax benefit from equity awards and deferred income taxes |
(5,536 | ) | (7,544 | ) | ||||
| Depreciation, amortization, and other non-cash items |
13,176 | 7,684 | ||||||
| Foreign currency transaction loss |
624 | 3,775 | ||||||
| Stock-based compensation expense |
6,722 | 5,213 | ||||||
| Change in operating assets and liabilities, and other, net |
(7,302 | ) | (17,436 | ) | ||||
|
|
|
|
|
|||||
| Cash provided by (used in) operating activities |
19,647 | (9,506 | ) | |||||
|
|
|
|
|
|||||
| Cash (used in) provided by investing activities |
(36,011 | ) | 8,725 | |||||
|
|
|
|
|
|||||
| Cash used in financing activities |
(3,521 | ) | (6,919 | ) | ||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on cash and cash equivalents |
361 | (3,380 | ) | |||||
|
|
|
|
|
|||||
| Net decrease in cash and cash equivalents |
(19,524 | ) | (11,080 | ) | ||||
| Cash and cash equivalents, beginning of period |
71,127 | 63,857 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of period |
$ | 51,603 | $ | 52,777 | ||||
|
|
|
|
|
|||||
10
Updated FY 2011 Reconciliation of Forward-Looking Guidance
| ($ in 000’s, except per share amounts) | Fiscal Year 2011 | |||
| Revenue Guidance - GAAP basis |
$ | 405,000 | ||
| Adjustment to exclude deferred revenue fair value adjustment |
5,000 | |||
|
|
|
|||
| Revenue Guidance - Non-GAAP basis |
$ | 410,000 | ||
|
|
|
|||
| Diluted EPS - GAAP basis |
$ | 0.15 | ||
| Adjustment to exclude deferred revenue fair value adjustment, net of tax |
0.08 | |||
| Adjustment to exclude amortization of intangible assets, net of tax |
0.18 | |||
| Adjustment to exclude stock-based compensation, net of tax |
0.16 | |||
| Adjustment to exclude acquisition-related and restructuring costs, net of tax |
0.01 | |||
| Adjustment to exclude depreciation and rent expense, net of tax |
0.03 | |||
|
|
|
|||
| Diluted EPS - Non-GAAP basis |
$ | 0.61 | ||
|
|
|
|||
11