Enterprise workflow software provider Pegasystems (NASDAQ:PEGA) fell short of analysts' expectations in Q1 CY2024, with revenue up 1.4% year on year to $330.1 million. It made a non-GAAP profit of $0.48 per share, improving from its profit of $0.23 per share in the same quarter last year.
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Pegasystems (PEGA) Q1 CY2024 Highlights:
- Revenue: $330.1 million vs analyst estimates of $337.3 million (2.1% miss)
- ACV (annual contract value): $1.17 billion vs analyst estimates of $1.27 billion (7.2% miss)
- RPO (remaining performance obligations aka backlog): $1.42 billion vs analyst estimates of $1.46 billion (2.1% miss)
- EPS (non-GAAP): $0.48 vs analyst estimates of $0.45 (7.3% beat)
- Gross Margin (GAAP): 71.3%, up from 69.9% in the same quarter last year
- Free Cash Flow of $179.5 million, up 132% from the previous quarter
- Market Capitalization: $4.98 billion
“In Q1, we released Pega GenAI BlueprintTM, a revolutionary technology that massively changes the way we engage with our clients to help them re-imagine and evolve their business,” said Alan Trefler, founder and CEO.
Founded by Alan Trefler in 1983, Pegasystems (NASDAQ:PEGA) offers a software-as-a-service platform to automate and optimize workflows in customer service and engagement.
Automation Software
The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.
Sales Growth
As you can see below, Pegasystems's revenue growth has been unremarkable over the last three years, growing from $313.5 million in Q1 2021 to $330.1 million this quarter.
Pegasystems's quarterly revenue was only up 1.4% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $144.1 million in Q1 compared to the $139.6 million increase in Q4 CY2023. Taking a closer look we can a similar revenue decline in the same quarter last year, which could suggest that the business has seasonal elements. Regardless, this situation is worth monitoring as management is guiding for a further revenue drop in the next quarter.
Looking ahead, analysts covering the company were expecting sales to grow 6.6% over the next 12 months before the earnings results announcement.
Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Pegasystems's free cash flow came in at $179.5 million in Q1, up 217% year on year.
Pegasystems has generated $323.9 million in free cash flow over the last 12 months, an impressive 22.5% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.
Key Takeaways from Pegasystems's Q1 Results
We struggled to find many strong positives in these results. Its revenue unfortunately missed analysts' expectations and its gross margin shrunk. Also, alternate topline metrics such as ACV (annual contract value) and RPO (remaining performance obligations), which give further insight into demand, underperformed expectations. Overall, this was a mediocre quarter for Pegasystems. The company is down 3.2% on the results and currently trades at $56.97 per share.
Pegasystems may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.