The past year has not been kind to software maker Pegasystems (NASDAQ:PEGA). Over the past 12 months, the company's stock has plunged 45% in value. And while its P/E has skyrocketed, this was not the result of any increase in share price, but rather the fact that as fast as the price of Pegasystems' shares has collapsed, its earnings have collapsed even faster.

Still, just as all good things must come to an end (for example, Motley Fool Hidden Gems' endorsement of Pegasystems, which we recommended subscribers sell back in February), so too must all bad things. And judging from Pegasystems' first-quarter 2005 earnings report released last week, the bad news may finally be drying up.

Now, I'll grant that, at first glance, things look bad, bad, and worse at this company. Revenues declined year-on-year, and the $0.05 in per-share profitability that Pegasystems achieved in Q1 2004 has evaporated. This year, there was just $73,000 in profits to divvy up among 36 million shares, or just a fraction of a penny in per-share profits.

It's also worrying to see that accounts receivable have risen 40% despite the company's decline in sales since last year. This suggests that Pegasystems' weakened financial condition has made it difficult to demand that clients pay on time.

Still, look a little deeper into the company's news, and you can perhaps make out a faint light at the bottom of this well. Way down at the bottom of the press release, you'll find Pegasystems' cash flow statement, which shows that the company generated considerably more cash than its GAAP earnings might suggest -- and considerably more cash than it was producing one year ago. Whereas GAAP profits were under $100,000 this year, free cash flow came in at a healthy $11.6 million. Compare that number, too, to Q1 2004, when the company generated just $2.9 million in free cash flow, and we may be seeing evidence of the beginnings of a turnaround.

So there's still hope for the company. But one final note of caution before betting on the turnaround: In projecting the year's total operating cash flow, Pegasystems' CFO guesstimated that $12 million to $20 million was the likely range. Given that Pegasystems has already earned $12 million just in operating cash flow in Q1, however, the CFO seems to think it at least possible that the company will have zero operating earnings for the entire rest of the year. Hence the question mark in this column's title.

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Fool contributor Rich Smith has no position in Pegasystems.