Pegasystems Inc. reports 91.7% EBITDA decline in 2018 and almost no change in Revenue of 892
02/20/2019 • About Pegasystems Inc. (
$PEGA) • By InTwits
Pegasystems Inc. reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- EBITDA Margin is quite volatile: 1.1% in 2018, 13.4% in 2017, 10.1% in 2016, 13.2% in 2015, 13.0% in 2014
- Pegasystems Inc. spends a lot for Stock Based Compensation (SBC): average SBC/Revenue for 2014-2018 is 5.4%. Average EBITDA Margin for the same period was 9.8%. In 2018 SBC/Revenue was even higher: 7.2%
- Pegasystems Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.8%. At the same time it's a lot of higher than industry average of 6.1%.
- CAPEX is quite volatile: $440m in 2018, $247m in 2017, $242m in 2016, $186m in 2015, $213m in 2014
- In the last 5 years the company invested considerably less than D&A: $67m vs. $130m. In 2018 this situation was still the same: CAPEX was 12 while D&A was 27
- The company has unprofitable business model: ROIC is -2.1%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue showed almost no change in 2018. Revenue growth showed acceleration in 18Q4 - it increased 0.7% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased slightly on 1.6 pp from 20.0% to 21.7% in 2018.
Gross Margin decreased on 2.4 pp from 68.5% to 66.2% in 2018. During the last 5 years Gross Margin topped in 2015 at 68.7% and was declining since that time. SG&A as a % of Revenue increased on 8.0 pp from 39.7% to 47.7% in 2018. Stock Based Compensation (SBC) as a % of Revenue increased slightly on 1.2 pp from 6.0% to 7.2% in 2018. SBC as a % of Revenue stuck to a growing trend at 0.94 pp per annum in the last 5 years.
Net Income margin decreased on 9.9 pp from 11.1% to 1.2% in 2018.
Investments (CAPEX, working capital and M&A)
Pegasystems Inc.'s CAPEX/Revenue was 1.3% in 2018. Pegasystems Inc.'s CAPEX/Revenue showed almost no change from 2015 to 2018. Average CAPEX/Revenue for the last three years was 1.8%. The company investments to CAPEX were large: 121% of EBITDA.
Accounts receivable as a % of Revenue decreased on 4.8 pp from 25.1% to 20.3% in 2018. Accounts payable as a % of Revenue decreased slightly on 0.75 pp from 6.2% to 5.5% in 2018.
Pegasystems Inc. has spent
$1m on M&A in 2018 which accounts for 0.090% of revenue.
Return on investment
The company operates at negative ROIC (-2.1%) and low but positive ROE (1.7%). ROIC dropped on 18.9 pp from 16.8% to -2.1% in 2018. ROE dropped on 18.2 pp from 19.9% to 1.7% in 2018. During the last 5 years ROE topped in 2017 at 19.9%.
Leverage (Debt)
The company has no debt. Cash dropped on 29.5%.
Valuation and dividends
The company's trades at EV/EBITDA 508.3x and P/E 482.8x.
The company paid 84.8% of Net Income as dividends in 2018. Dividends grew on average at 5.2% per annum in the last 5 years).
Management team
Alan Trefler is a the company's CEO. Alan Trefler is a founder and has spent 36 years with the company. CEO total compensation was
$981,250 in 2018 which included
$485,000 salary. The company's CFO Kenneth Stillwell "Ken" has spent 3 years with the company.
At the end of financial year the company had 52.2% shares owned by insiders. Insider ownership didn't change in 2018.
The company has 4,650 employees. The number of employees increased on 9.7%. Average revenue per employee in 2018 was
$191,738 and it decreased on 8.6%.
Financial and operational results
FY ended 12/31/2018
Pegasystems Inc. ($PEGA) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 590.0 | 682.7 | 762.2 | 888.5 | 891.6 | 0.4% |
| Gross Profit | 404.9 | 469.2 | 523.0 | 608.8 | 589.8 | -3.1% |
| SG&A | 244.1 | 278.1 | 323.9 | 352.7 | 425.1 | 20.5% |
| EBITDA | 76.8 | 90.0 | 76.6 | 119.3 | 9.9 | -91.7% |
| EBIT | 51.5 | 64.7 | 50.6 | 93.2 | -17.0 | -118.3% |
| Tax | 14.7 | 24.2 | 10.3 | -12.3 | -22.2 | |
| Net Income | 33.3 | 36.3 | 45.0 | 98.5 | 10.6 | -89.2% |
| Stock Based Compensation | 19.2 | 30.1 | 40.8 | 53.3 | 63.9 | 19.8% |
Balance Sheet
|
|---|
| Cash | 114.6 | 93.0 | 70.6 | 162.3 | 114.4 | -29.5% |
| Accounts Receivable | 154.8 | 211.8 | 265.0 | 222.7 | 180.9 | -18.8% |
| Accounts Payable | 4.8 | 12.7 | 14.4 | 17.4 | 16.5 | -5.1% |
| Short Term Debt | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Long Term Debt | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |
Cash flow
|
|---|
| Capex | 11.5 | 11.0 | 19.1 | 13.7 | 11.9 | -13.4% |
| Dividends | 7.0 | 9.0 | 9.0 | 9.0 | 9.0 | 0.0% |
| Acquisitions | 3.9 | 1.7 | 49.1 | 0.3 | 0.8 | 169.4% |
Ratios
|
|---|
| Revenue growth | 15.9% | 15.7% | 11.7% | 16.6% | 0.4% | |
| EBITDA growth | -3.9% | 17.2% | -14.8% | 55.6% | -91.7% | |
|
|---|
| Gross Margin | 68.6% | 68.7% | 68.6% | 68.5% | 66.2% | -2.4% |
| EBITDA Margin | 13.0% | 13.2% | 10.1% | 13.4% | 1.1% | -12.3% |
| EBIT Margin | 8.7% | 9.5% | 6.6% | 10.5% | -1.9% | -12.4% |
| SG&A, % of revenue | 41.4% | 40.7% | 42.5% | 39.7% | 47.7% | 8.0% |
| SBC, % of revenue | 3.3% | 4.4% | 5.4% | 6.0% | 7.2% | 1.2% |
| Net Income Margin | 5.6% | 5.3% | 5.9% | 11.1% | 1.2% | -9.9% |
| CAPEX, % of revenue | 1.9% | 1.6% | 2.5% | 1.5% | 1.3% | -0.2% |
|
|---|
| ROIC | 18.1% | 20.2% | 16.1% | 16.8% | -2.1% | -18.9% |
| ROE | 11.7% | 11.8% | 13.7% | 19.9% | 1.7% | -18.2% |
| Net Debt/EBITDA | -1.5x | -1.0x | -0.9x | -1.4x | -11.6x | -10.2x |
People
|
|---|
| Insider ownership | 52.2% | 52.2% | 52.2% | 52.2% | 52.2% | 0.0% |
| Employees | 2,970 | 3,333 | 3,908 | 4,237 | 4,650 | 9.7% |
| Revenue/Employee, th. $ | 199 | 205 | 195 | 210 | 192 | -8.6% |
Pegasystems Inc. ($PEGA) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 235 | 197 | 203 | 256 | | -8.2% | 5.5% | 6.4% | 0.7% |
| EBITDA | 14 | -17 | -11 | 24 | | -80.4% | | -372.9% | -48.5% |
| Net Income | 12 | -10 | -8 | 16 | | -77.0% | -381.2% | -689.1% | -59.6% |
Balance Sheet
|
|---|
| Cash | 166 | 144 | 106 | 114 | | 97.8% | 18.6% | -18.7% | -29.5% |
| Short Term Debt | 0 | 0 | 0 | 0 | | | | | |
| Long Term Debt | 0 | 0 | 0 | 0 | | | | | |
Ratios
|
|---|
| Gross Margin | 67.8% | 62.5% | 63.4% | 69.6% | | -5.6% | -1.1% | -0.1% | -1.3% |
| EBITDA Margin | 6.0% | -8.6% | -5.4% | 9.2% | | -22.1% | -7.1% | -7.6% | -8.8% |
| Net Income Margin | 5.2% | -5.3% | -3.7% | 6.4% | | -15.5% | -7.3% | -4.4% | -9.5% |
Peers in Application Software
Below we provide Pegasystems Inc. benchmarking against other companies in Application Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| nFusz Inc ($FUSZ) | | | | | 433.3% |
| CloudCommerce Inc ($CLWD) | | -38.1% | 247.6% | 40.9% | 301.1% |
| Seven Stars Cloud Group, Inc. ($SSC) | | 134.7% | 663.8% | 310.3% | 161.7% |
| Aurora Mobile Limited ($JG) | | | | 304.9% | 150.8% |
| Intelligent Systems Corporation ($INS) | | 14.2% | 71.0% | 12.2% | 119.0% |
| |
|---|
| Median (151 companies) | -43.3% | 13.5% | 14.3% | 14.8% | 15.2% |
|---|
| Pegasystems Inc. ($PEGA) | | 15.7% | 11.7% | 16.6% | 0.4% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Skkynet Cloud Systems Inc ($SKKY) | 99.7% | 97.4% | 98.0% | 97.6% | 96.5% |
| hopTo Inc ($HPTO) | 91.8% | 87.8% | 95.9% | 98.2% | 95.4% |
| Aware, Inc. ($AWRE) | 75.4% | 87.2% | 90.3% | 94.6% | 92.3% |
| Alteryx, Inc. ($AYX) | 77.5% | 80.5% | 81.3% | 83.4% | 91.0% |
| Aspen Technology, Inc. ($AZPN) | 86.5% | 88.7% | 89.7% | 90.2% | 89.9% |
| |
|---|
| Median (150 companies) | 62.8% | 61.7% | 63.8% | 64.4% | 65.7% |
|---|
| Pegasystems Inc. ($PEGA) | 68.6% | 68.7% | 68.6% | 68.5% | 66.2% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Aspen Technology, Inc. ($AZPN) | 34.5% | 42.2% | 46.0% | 45.2% | 43.3% |
| ANSYS, Inc. ($ANSS) | 45.9% | 45.8% | 45.1% | 41.9% | 41.4% |
| Paycom Software, Inc. ($PAYC) | 15.1% | 19.5% | 35.1% | 34.4% | 35.9% |
| j2 Global, Inc. ($JCOM) | 41.6% | 40.6% | 41.7% | 36.5% | 35.7% |
| Adobe Inc. ($ADBE) | 17.5% | 25.9% | 31.2% | 34.2% | 35.3% |
| |
|---|
| Median (152 companies) | -10.3% | -10.7% | -5.3% | -4.2% | -3.3% |
|---|
| Pegasystems Inc. ($PEGA) | 13.0% | 13.2% | 10.1% | 13.4% | 1.1% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| TimefireVR Inc ($TFVR) | 0.0% | 350.5% | 4.3% | | 1,021.9% |
| MGT Capital Investments Inc ($MGTI) | 0.0% | 36.5% | 221.4% | 129.8% | 344.5% |
| Integrated Ventures Inc ($INTV) | | | | | 199.9% |
| ShotSpotter, Inc. ($SSTI) | | 18.3% | 28.9% | 27.1% | 24.3% |
| Ellie Mae, Inc. ($ELLI) | 12.3% | 20.6% | 16.7% | 21.1% | 19.4% |
| |
|---|
| Median (153 companies) | 2.8% | 2.7% | 3.0% | 2.3% | 2.4% |
|---|
| Pegasystems Inc. ($PEGA) | 1.9% | 1.6% | 2.5% | 1.5% | 1.3% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InsPro Technologies Corp ($ITCC) | -558.9% | | | | 127.4% |
| Manhattan Associates, Inc. ($MANH) | 64.8% | 78.7% | 99.3% | 102.5% | 80.9% |
| Intuit Inc. ($INTU) | 34.2% | 23.7% | 52.1% | 72.6% | 66.8% |
| Aspen Technology, Inc. ($AZPN) | 133.4% | | | | 58.1% |
| Paycom Software, Inc. ($PAYC) | 16.7% | 30.5% | 75.4% | 51.1% | 47.5% |
| |
|---|
| Median (179 companies) | -14.4% | -13.1% | -9.8% | -11.8% | -10.4% |
|---|
| Pegasystems Inc. ($PEGA) | 18.1% | 20.2% | 16.1% | 16.8% | -2.1% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Upland Software, Inc. ($UPLD) | | | 16.4x | 115.6x | 16.7x |
| Nuance Communications, Inc. ($NUAN) | 7.9x | 5.7x | 5.3x | 7.1x | 15.2x |
| Asure Software Inc ($ASUR) | 3.4x | 4.5x | 3.6x | 9.5x | 14.5x |
| SS&C Technologies Holdings, Inc. ($SSNC) | 1.7x | 7.3x | 4.6x | 3.1x | 8.5x |
| Avaya Holdings Corp. ($AVYA) | | | | | 7.4x |
| |
|---|
| Median (69 companies) | -1.2x | -0.9x | -0.9x | -0.8x | -0.6x |
|---|
| Pegasystems Inc. ($PEGA) | -1.5x | -1.0x | -0.9x | -1.4x | -11.6x |
