It was a bad day at the office for the low-code business process management software provider Pegasystems Inc., which delivered second-quarter earnings and revenue that fell well short of Wall Street’s expectations today.
The company reported a loss before certain costs such as stock compensation of 38 cents per share, well below Wall Street’s target of an 11-cent-per-share profit. Further, the company posted revenue of just $274.3 million, down 16% from a year earlier and some way short of the analysts consensus of $341.4 million. One year earlier, Pegasystems had posted second-quarter revenue of $325.7 million.
With sales drying up, Pegasystems delivered a net loss of $286.3 million for the quarter, a number that contrasts starkly with the $37.3 million profit it delivered one year ago. The results prompted an after-hours selloff, with Pegasystems’ stock falling almost 9% in extended trading after rising 2% earlier in the day.
Pegasystems founder and Chief Executive Alan Trefler (pictured) was not understating things when he said 2022 has proven to be an “extremely volatile business environment” for the company. He struggled to put a positive spin on the results. “The ongoing uncertainty will continue to put pressure on our clients,” Trefler added. “But this is an environment for which Pega is uniquely suited, as our low-code platform allows these same organizations to more easily adapt to change.”
Pegasystems sells low-code software that supports business operations and customer engagement by automating many manual tasks and processes. Its offerings help companies to unify business processes and customer journeys, enabling them to overcome a major pain point — the proliferation of multiple business applications and systems. By creating a configurable platform that sits above those other systems, the Pega Platform provides businesses with a single view of their customers, cases and workflows, together with all of the associated data.
Pegasystems offers capabilities around case management, workflow management, chatbots, virtual assistants and process mining. It competes with rival platforms such as those sold by UiPath Inc. and Automation Anywhere Inc., with its offering generally seen as more bespoke than those.
The company didn’t offer much by way of explanation for the alarming drop in revenue, but its performance breakdown shows that subscription license sales fell by 60% from one year ago, while perpetual license revenue declined by 80%. The 28% growth in Pega Cloud revenue and 13% growth in subscription services was most certainly welcome, but not enough to make up for the shortfall.
Holger Mueller of Constellation Research Inc. said Pegasystems’ transition from a perpetual licensing to a subscription-based business model has clearly hit a major roadblock, though it isn’t clear exactly what the problem is.
“It’s too early to tell if customers were affected by recession fears or did not want to buy, or renew their subscriptions,” the analyst said. “But if you miss by $60 million on the top line, and add $60 million to operational expenditures, that’s going to make any enterprise run into the red. That’s precisely what happened to Pegasystems.”
Pegasystems did its best to provide reasons to remain optimistic about its business, noting that its annual contract value grew 14% from a year ago, and by 19% in constant currency terms. ACV is a measure of how much a company’s customer contracts are worth, calculated by averaging and normalizing their value over one year.
The company also reported a total revenue backlog of $1.1 billion as of June 30. Revenue backlog is the sum of unrecognized revenue that a company is set to earn, based on contractual agreements with customers, so it’s a key indicator of future sales health.
Mueller said investors will be looking very closely at Pegasystems’ next quarterly results to see if it can find a way to revive revenue generation or adapt its cost base. “Customers will have to hope that whatever it does will not affect the R&D side too much, as this plays a vital role in both the transition from perpetual to subscription, as well as the very dynamic low-code space that Pegasystems operates in,” he added.
Pegasystems declined to offer guidance for the next quarter.