Pegasystems' (PEGA) Q2 Earnings Fall Y/Y, Revenues Miss

Pegasystems Inc. (NASDAQ:PEGA) reported second-quarter 2017 earnings of 15 cents per share that declined 21% year over year. Including stock-based compensation, earnings were 14 cents per share.

The Zacks Consensus Estimate was pegged at 8 cents per share.

Non-GAAP total revenue increased 4% to $197.98 million in the reported quarter but missed the Zacks Consensus Estimate of $207 million.

Notably, Pegasystems stock has gained 44.6% year to date, substantially outperforming the 22.3% rally of the industry it belongs to.

Top-Line Details

Software License revenues decreased 13.6% from the year-ago quarter to $61 million. Maintenance revenues increased 8% to almost $59.6 million, while services advanced almost 22.5% to $77.4 million.

Total license (term and perpetual) and cloud backlog increased 32% from the year-ago quarter to $518 million. This was achieved with one Whale – customers with license and cloud commitment of greater than $10 million – in the first half of 2017.

Notably, the adoption of Pegasystems’ solutions continue with Pivotal, Microsoft (NASDAQ:MSFT) Azure and Amazon (NASDAQ:AMZN) Web Services. Management noted that almost 49% of the full-year revenue guidance has been achieved in the first half of the year, resulting in a balance between the first and second halves.

Operating Details

Gross margin decreased 250 basis points (bps) to 65.7% in the reported quarter.

Reported operating expenses as a percentage of revenues remained flat at 64.8%. The increase in sales and marketing and research and development expenses was offset by the absence of restructuring and acquisition related costs.

Operating margin decreased 250 bps from the year-ago quarter to 0.9%.

Balance Sheet & Cash Flow

Cash, cash equivalents, and marketable securities were $121.6 million as of Jun 30, 2017 compared with $64.3 million as of Jun 30, 2016.

Guidance

For full-year 2017, revenues are still projected to be approximately $860 million, up 15% over 2016 levels. Non-GAAP earnings are anticipated to be approximately $1.00 per share.

Zacks Rank and Stocks to Consider

Currently, Pegasystems has a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is Alibaba Group (NYSE:BABA) , having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Alibaba is projected to be 28.97%.

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