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Pegasystems (PEGA) Misses Q4 Earnings, Revenues Down Y/Y
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Pegasystems Inc. (PEGA - Free Report) reported earnings (including stock-based compensation) of 12 cents per share in fourth-quarter 2016, which missed the Zacks Consensus Estimate by 17 cents. Earnings (excluding stock-based compensation) plunged almost 46% to 20 cents in the reported quarter.
Revenues declined 2% from the year-ago quarter to $200.3 million. Unfavorable foreign currency affected revenues by 4% ($30 million).
Following the results, shares increased 8.4% to close at $43.25 on Feb 24. The upside apparently reflected positive full-year 2017 guidance based on improving revenue visibility driven by a transition to recurring revenue mix as compared with perpetual licenses. Further, this is positive for the company’s cash flow going ahead.
Pegasystems Inc. Price, Consensus and EPS Surprise
However, the transition to recurring revenue-based business model is expected to keep revenue growth under pressure in the near term. Moreover, unfavorable foreign exchange remains a concern. We believe that the 1.1% decline in share prices in the next trading session (Feb 27) displayed these headwinds.
In fiscal 2016, earnings declined almost 5% to 77 cents per share on revenues of $750.3 million, which climbed roughly 10.2%. Total recurring revenue increased 16% from the year-ago quarter to $222.3 million. Total license and cloud backlog surged 26% year over year to $528 million.
We note that Pegasystems has outperformed the Zacks Computer Software market in the last one year. While the stock gained almost 76%, the industry witnessed an advance of roughly 27%.
Segment Details
Software License revenues fell 24.2% from the year-ago quarter to $72.2 million. Maintenance revenues increased 10.1% to $57.8 million, while services surged almost 24% to $70.3 million. License & cloud bookings improved 32% from the year-ago quarter.
Pegasystems solutions continue to be selected by the likes of Ford, Edison International, Sun Life and Nestle. The company has also expanded offerings to company’s like PayPal (PYPL - Free Report) , Sprint, Standard Chartered Bank, Deutsche Bank and Express Scripts .
The company signed three customers with license and cloud commitment of greater than $10 million (Whales referred by the company) in the fourth quarter.
Management stated that clients are opting more for term license arrangements as well as the Pega Cloud, which is the company’s Software-as-a-Service (SaaS) offering.
Operating Details
Gross margin contracted 500 basis points (bps) to 69.6% in the reported quarter.
Operating expenses as percentage of revenues surged 640 bps to 61.8%, driven by higher selling & marketing (S&M), research & development (R&D) and general & administrative (G&A) expenses, which increased 330 bps, 280 bps and 70 bps, respectively.
Operating margin was 7.9% as compared with 19.3% in the year-ago quarter. Unfavorable foreign currency headwinds and mix shift towards recurring revenues impacted margins by 4% (almost $35 million).
Balance Sheet & Cash Flow
Cash, cash equivalents, and marketable securities were $133.8 million as of Dec 31, 2016. Cash flow from operating activities was $19 million in the fourth quarter.
In 2016, Pegasystems repurchased approximately 1.1 million shares for $27 million.
Guidance
For full-year 2017, revenues are projected to be approximately $860 million, up 15% over full-year 2016. Non-GAAP earnings are expected to be approximately $1.00 per share.
Management expects consulting services business to grow at a high-single to low-double digit rate in the future.
Long term growth for Check Point is currently pegged at 10%.
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Pegasystems (PEGA) Misses Q4 Earnings, Revenues Down Y/Y
Pegasystems Inc. (PEGA - Free Report) reported earnings (including stock-based compensation) of 12 cents per share in fourth-quarter 2016, which missed the Zacks Consensus Estimate by 17 cents. Earnings (excluding stock-based compensation) plunged almost 46% to 20 cents in the reported quarter.
Revenues declined 2% from the year-ago quarter to $200.3 million. Unfavorable foreign currency affected revenues by 4% ($30 million).
Following the results, shares increased 8.4% to close at $43.25 on Feb 24. The upside apparently reflected positive full-year 2017 guidance based on improving revenue visibility driven by a transition to recurring revenue mix as compared with perpetual licenses. Further, this is positive for the company’s cash flow going ahead.
Pegasystems Inc. Price, Consensus and EPS Surprise
Pegasystems Inc. Price, Consensus and EPS Surprise | Pegasystems Inc. Quote
However, the transition to recurring revenue-based business model is expected to keep revenue growth under pressure in the near term. Moreover, unfavorable foreign exchange remains a concern. We believe that the 1.1% decline in share prices in the next trading session (Feb 27) displayed these headwinds.
In fiscal 2016, earnings declined almost 5% to 77 cents per share on revenues of $750.3 million, which climbed roughly 10.2%. Total recurring revenue increased 16% from the year-ago quarter to $222.3 million. Total license and cloud backlog surged 26% year over year to $528 million.
We note that Pegasystems has outperformed the Zacks Computer Software market in the last one year. While the stock gained almost 76%, the industry witnessed an advance of roughly 27%.
Segment Details
Software License revenues fell 24.2% from the year-ago quarter to $72.2 million. Maintenance revenues increased 10.1% to $57.8 million, while services surged almost 24% to $70.3 million. License & cloud bookings improved 32% from the year-ago quarter.
Pegasystems solutions continue to be selected by the likes of Ford, Edison International, Sun Life and Nestle. The company has also expanded offerings to company’s like PayPal (PYPL - Free Report) , Sprint, Standard Chartered Bank, Deutsche Bank and Express Scripts .
The company signed three customers with license and cloud commitment of greater than $10 million (Whales referred by the company) in the fourth quarter.
Management stated that clients are opting more for term license arrangements as well as the Pega Cloud, which is the company’s Software-as-a-Service (SaaS) offering.
Operating Details
Gross margin contracted 500 basis points (bps) to 69.6% in the reported quarter.
Operating expenses as percentage of revenues surged 640 bps to 61.8%, driven by higher selling & marketing (S&M), research & development (R&D) and general & administrative (G&A) expenses, which increased 330 bps, 280 bps and 70 bps, respectively.
Operating margin was 7.9% as compared with 19.3% in the year-ago quarter. Unfavorable foreign currency headwinds and mix shift towards recurring revenues impacted margins by 4% (almost $35 million).
Balance Sheet & Cash Flow
Cash, cash equivalents, and marketable securities were $133.8 million as of Dec 31, 2016. Cash flow from operating activities was $19 million in the fourth quarter.
In 2016, Pegasystems repurchased approximately 1.1 million shares for $27 million.
Guidance
For full-year 2017, revenues are projected to be approximately $860 million, up 15% over full-year 2016. Non-GAAP earnings are expected to be approximately $1.00 per share.
Management expects consulting services business to grow at a high-single to low-double digit rate in the future.
Zacks Rank & Key Picks
Currently, Pegasystems carries a Zacks Rank #3 (Hold). Check Point Software (CHKP - Free Report) sporting a Zacks Rank #1 (Strong Buy) is a better-ranked stock in the sector. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long term growth for Check Point is currently pegged at 10%.
A Full-Blown Technological Breakthrough in the Making
Zacks’ Aggressive Growth Strategist Brian Bolan explores autonomous cars in our latest Special Report, Driverless Cars: Your Roadmap to Mega-Profits Today. In addition to who will be selling them and how the auto industry will be impacted, Brian reveals 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>