Pegasystems clocks 10% fall in revenue, swings to loss, amid shift to subscription model

Enterprise software firm Pegasystems has said that its revenue for the January-March quarter fell 10% to $213 million from $235 million a year earlier. The firm swung to a loss of $28 million from a net profit of $12 million during the period.

The downward pressure on the revenue came from an ongoing shift to a cloud-based subscription model, under which sales pour in over time rather than in one go. 

Gross profit margin fell to 65% for 2019 March quarter from 68% a year earlier. The firm swung to an operating loss of $34 million from an operating profit of $8 million, thanks to rising expenses.

Pegasystems is expecting that the metrics will remain under pressure this year due to the business-model shift.

But those metrics won’t reflect rise in demand, because the shift in the business model does not allow the cash inflows to rain in one. The inflows, instead, accrue over years under the new model, hence metrics like annual contract value (ACV) and backlog (or reserved contracts that have yet to be booked) present a true picture of demand, which seems to be rising.

Pega Cloud’s ACV rose 76% year after year to $129 million for the March quarter. Backlog rose 38% to $633 million during the period.

Pega Cloud clocked 70% of new client commitments for the March quarter this year, compared with 50% a year earlier. “While this is terrific for our business, it resulted in a reduction of nearly $20 million of 2019 March quarter revenue with a commensurate increase to backlog,” said Ken Stillwell, finance chief, Pegasystems.

“We’re off to a solid start for 2019,” said Alan Trefler, founder and chief executive, Pegasystems. “We continue to see strong demand from companies engaging in digital transformation to improve customer experience and automate business processes,” he added.