Pegasystems Inc. · NASDAQ:PEGA
Pegasystems — Investor Day (June 2022)
23 slides from Pegasystems's investor day presentation, Jun 2, 2022
Slide 1: 2022 Investor Session
Exhibit 99.1 2022 Investor Session Alan Trefler | Founder & CEO Peter Welburn | VP, Investor Relations Kerim Akgonul| Chief Product Officer Leon Trefler | Chief of Clients and Markets John Higgins | Chief of Client and Partner Success Ken Stillwell | COO & CFO June 2, 2022 © 2022 Pegasystems Inc.
Slide 2: Safe Harbor Statement
Safe Harbor Statement Certain statements contained in this presentation may be construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words expects, anticipates, intends, plans, believes, will, could, should, estimates, may, targets, strateg
Slide 3: Financial Discussion
Financial Discussion Ken Stillwell | COO & CFO © 2022 Pegasystems Inc.
Slide 4: Financial Outlook
Financial Outlook Massive Market Opportunity Transition to Cloud Underway High Growth, Recurring Model Margin Expansion Opportunities 4
Slide 5: Pursuing a Massive Market Opportunity in Platform & CRM
Pursuing a Massive Market Opportunity in Platform & CRM FY 25 $110B+ FY 21 $65B+ Source: IDC Software Tracker Forecast 2020H2 5
Slide 6: Transition to Cloud Well Underway
Transition to Cloud Well Underway: While Underlying Growth is Increasing From… To… Perpetual Recurring Less Predictable More Predictable Lower Growth Progressing Toward & Margins Rule of 40 2017 CLOUD TRANSITION TIMELINE 2023 TODAY 6
Slide 7: Transition to Cloud Underway: Key Growth Metrics
Transition to Cloud Underway: Key Growth Metrics During the Transition 1. Annual Contract Value (ACV) Growth 2. Remaining Performance Obligation (RPO) – also known as Backlog 7
Slide 8: Transition to Subscription Nearly Complete: Focus on Total ACV Growth
Transition to Subscription Nearly Complete: Focus on Total ACV Growth as Leading Indicator $1,034M +20% $853M $711M $591M $494M ACV ($M) Q1 18 Q1 19 Q1 20 Q1 21 Q1 22 ACV represents the annualized value of our active contracts as of the measurement date. The contract's total value is divided by its
Slide 9: Remaining Performance Obligation / Backlog is Growing
Remaining Performance Obligation (RPO) / Backlog is Growing $1,176M $980M +27% $754M $633M $459M Total Backlog ($M) Q1 18 Q1 19 Q1 20 Q1 21 Q1 22 9
Slide 10: Example Competitor's Journey: Revenue Growth During a Cloud Transition
Example Competitor’s Journey: Revenue Growth During a Cloud Transition 25% 22% Competitor’s Growth 20% 16% 15% 11% 10% 4% 5% 2% 0% -5% -8% -10% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 10
Slide 11: Example Competitor's Journey vs Pega
Example Competitor’s Journey vs Pega: Pega’s Growth During Its Cloud Transition vs Competitor 25% 22% Competitor’s Growth 19% 20% 17% Pega’s Revenue Growth 15% 12% 16% 11% 10% 4% 5% 2% 2% 0% 0% -5% -8% -10% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 11
Slide 12: Rule of 40: Timeless Model Measurement
Rule of 40: Timeless Model Measurement ACV Growth Rule of 40 Free Cash Flow (FCF) Margin* 12 * Free Cash Flow Margin (FCF) = Cash Flow from Operations Less Investments in Property, Plant, and Equipment Divided by Total Revenue
Slide 13: Key Levers to Achieving Rule of 40
Key Levers to Achieving Rule of 40 1 Pega Cloud Gross Margin 2 Sales & Marketing OpEx 13
Slide 14: Margin Expansion Opportunities: Cloud Margin
Margin Expansion Opportunities: Cloud Margin Pega Cloud Margins Improve with Scale $220M $350 $301M $300 +64% $151M $250 +56% $208M $200 $150 $134M $79M $100 $52M $83M $51M $31M $50 $0 2017 2018 2019 2020 2021 Q1 18 Q1 19 Q1 20 Q1 21 Q1 22 Four-Year Pega Cloud Revenue % Change Pega Cloud Gross Margi
Slide 15: Financial Outlook & Model
Financial Outlook & Model As we prepare to exit the transition Near-term: • Less complicated revenue optics • Focus on Total ACV growth as leading indicator • Pega Cloud backlog growth as a confirming metric 2017 2025 Longer-term: • Increasingly predictable revenue and cash flows 15
Slide 16: Tracking to "Rule of 40"
Tracking to “Rule of 40” All financial metrics are presented as Non-GAAP 2025 Target 2017 2021 Downside Base Upside Actual Actual Case Case Case 1 ACV Growth 14% 20% 15% 19% 22% 1 Revenue Growth 17% 19% 15% 18% 21% By 2025, project Pega Cloud ACV to be larger than Client Gross Margin 71% 74% 78% 79%
Slide 17: Net ACV Add is Strongest in Q4 from 2018 to 2021
Net ACV Add is Strongest in Q4 from 2018 to 2021 ACV add in Q2 2021 was unusually strong Net ACV Add* Q4 33% 41% Q3 29% 22% ACV Growth Faces a Tough 19% Q2 28% Compare in Q2 2022 18% Q1 10% 2018 - 2020 2021 *Net ACV add equals the change in ACV from the current reported quarter versus the prior repo
Slide 18: Quarterly Revenue Historically Strongest in Q1 & Q4
Quarterly Revenue Historically Strongest in Q1 & Q4 Significant Client Cloud deal increased reported revenue by over $30M in Q2 2021 Total Revenue 2018 to 2021* Observations Q4 26% 29% • Reported revenue has often been strongest historically in Q1 and Q4 and softer in Q2 and Q3 Q3 21% 23% • Signific
Slide 19: Impact of Pega Cloud Booking Mix on Full-Year Revenue & EPS
Impact of Pega Cloud Booking Mix on Full-Year Revenue & EPS Increase in Change in Change in Change in Pega Cloud Mix 2022 Revenue 2022 GAAP EPS 2022 Non-GAAP EPS +10% ($40M) ($0.37) ($0.36) +20% ($80M) ($0.74) ($0.72) Pega Cloud was 67% of new client commitments in Q1 2022 Actively managing our cost
Slide 20: What Does this All Mean?
What Does this All Mean? Strive to build a growing, recurring business to drive increased value Sustain Through While driving To drive higher transition to margin shareholder growth recurring leverage value With a view towards: • Capitalizing on high-growth markets• Driving ACV growth• Balancing gro
Slide 21: Q&A
Q&A 21
Slide 22: Appendix
Appendix 22
Slide 23: Tracking to "Rule of 40" GAAP to Non-GAAP Reconciliation
Tracking to “Rule of 40” GAAP to Non-GAAP Reconciliation 2025 Target Downside Base Upside 2017 Actual 2021 Actual Case Case Case Gross Margin - GAAP 69% 72% 75% 76% 76% Stock-based Compensation & 2% 2% 3% 3% 3% Amortization of intangible assets Gross Margin - Non-GAAP 71% 74% 78% 79% 79% Pega Cloud