Pegasystems Inc. · NASDAQ:PEGA

Pegasystems — PegaWorld 2018

22 slides from Pegasystems's conference presentation, 2018

  1. Slide 1: Pega's Path to 40

    Pega’s Path to 40 PegaWorld 2018 Ken Stillwell | Chief Administrative Officer, Chief Financial Officer, and SVP © 2018 Pegasystems Inc.

  2. Slide 2: Safe Harbor Statement; Non-GAAP Financial Measures

    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. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about

  3. Slide 3: Adoption of ASC 606

    Adoption of ASC 606 All financial information, post 2015 on an annual basis and post 2016 on a quarterly basis, has been prepared in accordance with the new revenue recognition standard (ASC 606). All previous periods shown were prepared in accordance with the legacy revenue recognition standards th

  4. Slide 4: Continuing to Execute Against a Large and Growing Market

    Continuing to Execute Against a Large and Growing Market FY 22 $50B Total Addressable Market 10 Year CAGR – 12% • Customer Service 10 Year CAGR – 14% FY 18 • Marketing 10 Year CAGR – 13% $32B • Sales 10 Year CAGR – 10% FY 16 $26B FY 13 $18B Data source: IDC Semiannual Software Tracker Publication Da

  5. Slide 5: Continuing Top Line Growth

    Continuing Top Line Growth Total GAAP Revenues (millions) $888 $950 $35 $853 $762 $683 $590 $509 $462 2012 2013 2014 2015 2016 2017* 2018… Revenue for years 2016-2018 are under ASC 606, all other periods are under ASC 605 *Includes $35M Renewal © 2018 Pegasystems Inc 5

  6. Slide 6: 2017 GAAP Revenue – Recast Under ASC 606

    2017 GAAP Revenue – Recast Under ASC 606 Term revenue represents the most significant change between 606 and 605 (In millions) Q1 Q2 Q3 Q4 FY 17 Perpetual $38 $31 $13 $51 $133 Term 89 * 20 40 57 206 Cloud 10 13 13 15 51 Maintenance 59 59 62 62 242 Consulting & Training 60 63 63 70 256 Total GAAP Rev

  7. Slide 7: Tracking with Market movement to recurring over the Next 5 Years

    Tracking with Market movement to recurring over the Next 5 Years Total Revenues (millions) ~1,600 70% 950 888 762 683 590 56% 509 56% 462 54% 50% 50% 43% 46% 30% 46% 44% 44% 54% 50% 50% 57% 2012 2013 2014 2015 2016 2017* 2018 2022 Guidance Target Recurring Non-Recurring Revenue Revenue Actual Estima

  8. Slide 8: Continuing ACV Growth – Q1 Compare

    Continuing ACV Growth – Q1 Compare In Millions ~$1,300 $850 ~$850 $494 $428 $354 $236 $193 $142 $450 ~$450 $212 $235 $258 * 1Q16 1Q17 1Q18 2022 Target Maintenance ACV Term and Cloud ACV *2016 Maintenance ACV is calculated using ASC 605 Maintenance Revenue © 2018 Pegasystems Inc. 8

  9. Slide 9: Q1 ACV Equivalent Growth

    Q1 ACV Equivalent Growth In millions Q1 17 Q1 18 YoY Change in Term and Cloud ACV $8 $20 132% Perpetual ACV Equivalent $11 $7 (39%) Growth ACV Equivalent Growth* $19 $27 36% Change in Term and Cloud ACV – For a given quarter, the increase in ACV as of the end of such quarter as compared to ACV at th

  10. Slide 10: Growing Recurring Contribution

    Growing Recurring Contribution Mix of ACV Equivalents 2014 2017 Q1 18 2022 Target 10% 25% 34% 49% 51% 66% 75% 90% Recurring Non-Recurring Recurring Non-Recurring Recurring Non-Recurring Recurring Non-Recurring Years 2016-2018 are under ASC 606, all other periods are under ASC 605 © 2018 Pegasystems

  11. Slide 11: Growing Cloud Business – Full Year and Q1 Compares

    Growing Cloud Business – Full Year and Q1 Compares Revenues (millions) $51 $41 $31 $17 $16 $10 $8 $4 $6 2014 2015 2016 2017 1Q14 1Q15 1Q16 1Q17 1Q18 Years 2016-2018, and Quarters 1Q17 and 1Q18 are under ASC 606, all other periods are under ASC 605 © 2018 Pegasystems Inc. 11

  12. Slide 12: Still Tracking to "Rule of 40"

    Still Tracking to “Rule of 40” 2022 2017 Target Revenue Growth 16% ~15-17% GAAP Operating Margin 10% Non-GAAP Operating Margin 18% ~23-25% Cloud Revenue Growth ~25% ~35% Cloud Margin ~50% ~70% Rule of 40”: Trailing Twelve Month Non-GAAP Operating Margin excluding GAAP Depreciation expense plus Trail

  13. Slide 13: New Revenue Standard (ASC 606)

    New Revenue Standard (ASC 606) Principles-based model Step Step Step Step Step 1 2 3 4 5 Identify the contract Identify the separate Determine the Allocate the Recognize revenue with the customer performance transaction price transaction price to when (or as) the obligations in the the separate enti

  14. Slide 14: Revenue and Sales Commission Treatment Comparison

    Revenue and Sales Commission Treatment Comparison ASC 605 ASC 606 Perpetual Upfront Upfront Term As Invoices Due Upfront Cloud Ratable Ratable Sales Upfront Over time Commission © 2018 Pegasystems Inc. 14

  15. Slide 15: Example: Three Year Term License

    Example: Three Year Term License – $1M per Year ASC 605 ASC 606 2017 2018 2019 2017 2018 2019 Revenue $ 1,000 $ 1,000 $ 1,000 Revenue $ 3,000 $ - $ - Billings $ 1,000 $ 1,000 $ 1,000 Billings $ 1,000 $ 1,000 $ 1,000 ACV $ 1,000 $ 1,000 $ 1,000 ACV $ 1,000 $ 1,000 $ 1,000 © 2018 Pegasystems Inc. 15

  16. Slide 16: Mix Impact Example

    Mix Impact Example Total Contract Deal values $300, assumes 3 year duration for term and cloud deals Impact of Cloud Shift 33% 50% Deal Revenue Deal Revenue Value Y1 Value Y1 Perpetual 100 100 Perpetual 50 50 Term 100 100 Term 100 100 Cloud 100 33 Cloud 150 50 Total 300 233 Total 300 200 © 2018 Pega

  17. Slide 17: Appendix

    APPENDIX © 2018 Pegasystems Inc.

  18. Slide 18: Glossary

    Glossary Recurring Revenue: Includes Term License, Maintenance and Cloud Revenue Non-Recurring Revenue: Includes Perpetual License, Consulting and Training Revenue ACV, as of a given date, is the sum of the following two components: • The sum of the annual value of each term and cloud contract in ef

  19. Slide 19: Appendix - ASC 606 Recast Results (millions)

    Appendix - ASC 606 Recast Results (millions) Three Months Ended: Previously Reported Adjustments As Adjusted Previously Reported Adjustments As Adjusted March 31, 2017 June 30, 2017 Perpetual $38,680 ($781) $37,899 $30,255 $1,042 $31,297 Term 53,710 35,399 89,109 30,782 (10,929) 19,853 Maintenance 5

  20. Slide 20: Appendix - ASC 606 Recast Results (millions)

    Appendix - ASC 606 Recast Results (millions) Twelve Months Ended: Previously Reported Adjustments As Adjusted Previously Reported Adjustments As Adjusted December 31, 2017 December 31, 2016 Perpetual $141,819 ($8,936) $132,883 $147,529 ($2,476) $145,053 Term 146,515 59,896 206,411 132,466 19,765 152

  21. Slide 21: Reconciliation of Selected GAAP Measures to Non-GAAP Measures

    Appendix - Reconciliation of Selected GAAP Measures to Non-GAAP Measures (millions) FY 2017 FY 2017 GAAP revenue $888 GAAP Revenue $888 % of Revenue Large term license renewal (35) GAAP income from operations $94 10% Revenue excluding large renewal (Non-GAAP) $853 Amortization of Intangibles 12 Stoc

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