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Pegasystems Inc. Announces Strong Sales Growth and an Aggressive 2016 Outlook

By Demitri Kalogeropoulos - Feb 26, 2016 at 10:59AM

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Management is encouraged by what they see in the market for business software applications.

Business management software company Pegasystems (PEGA 0.57%) posted fourth-quarter earnings results on Feb. 25 that continued the company's impressive trend of booking faster sales growth throughout fiscal 2015.

Here's how the headline results stacked up against the prior year:

 

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Revenue

$204 million

$169 billion

21%

Net Income

$21 million

$20 million

4%

EPS

$0.26

$0.26

0%

Data source: Pega's financial filings.

What happened this quarter?
Sales improved by 21%, compared to 18% growth in Q3, 13% in Q2, and 8% to start off the year. For the full fiscal 2015, Pega's revenue ended up 16% higher. Other highlights of the quarter include:

  • License revenue grew 23% and cloud revenue doubled. Together, the two segments accounted for 51% of sales, up from 48% a year ago.
  • Gross profit margin ticked up from 73% to 74% of sales.
  • Expenses grew the same pace as revenue, which allowed operating margin to hold steady at 18% of sales.
  • A higher tax bill explains why net income didn't improve much from last year's $21 million.
  • Backlog, which is contracted but not yet billed sales, rose 15%, which was a better pace than last quarter's 13% uptick.
  • Cash on hand as of Dec. 31 amounted to $219 million, up 4% from the prior year.

What management had to say

Image source: Pegasystems.

"Q4 was a very strong quarter capping off a record year for Pega that included record revenue, backlog, and bookings," CEO Alan Trefler said in a press release. Management sees a long runway for growth ahead, he explained. "We continue to be very positive about how our value proposition is being received and about our long-term growth opportunities."

The market for business management applications should keep growing, especially as demands on organizations to adapt continue to rise. That's why Pega is predicting that "strategic applications to help [businesses] manage and leverage that change for competitive advantage – while gaining efficiencies and connecting their businesses from back office to front office – will continue to be in demand."

Looking forward
Pega issued an aggressive outlook for 2016 that targets $780 million of sales, or 14% above last year's result. The company is encouraged by the same industry trends that convinced Salesforce.com (CRM 0.62%) to recently raise its own 2016 guidance. The customer relationship management software titan sees revenue growth of 21% this year after a Q4 that saw its backlog rise by 30%.

Like its larger cloud and subscription software competitors, Pega expects earnings to improve at a healthy clip as high-margin, recurring revenue products outpace overall sales growth. EPS will rise 17% to $0.95 per share this year, executives projected.

Dampening that profit growth is the fact that Pega will ramp up investments on a range of initiatives including product development and sales infrastructure. The company was encouraged by the recent results of its first dip into paid advertising, and so it plans to do more of that branding in the future. Meanwhile, Trefler and his team aim to expand their addressable market in the same way they did by nabbing major clients in the financial services and telecom industries. That long list of initiatives leaves the company with a full plate of opportunities to try to execute around this year, which is a good problem for a growing software company to have.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Pegasystems and Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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