This software company just split its stock 2-to-1, produced record revenues for its fourth quarter and analysts have recently been increasing earnings estimates.
Pegasystems (PEGA)
from The Periscope Report
Pegasystems (PEGA) sells business process management software (BPMS), aimed at streamlining business processes and workflows in order for companies to become more efficient and adapt to changing environments.
PEGA crushed earnings estimates in the 4Q and provided guidance for 2014 that was well above sell-side estimates. Despite all this good news, the stock lost 5%, where we think it’s a bargain.
Management said revenue for 2014 will be $580 million, up from $511 million in 2013, a 13% increase. On a Non-GAAP basis, net income will increase 4% to $60.8 million, or $1.56 per share. Analysts were expecting $1.47 per share.
For the 4Q ended December 2013, revenues increased 8% YoY to $155.6 million, after increasing 20% YoY in the prior quarter, and were up 28% sequentially.
The gross profit margin increased 20 basis points YoY to 73.6%, up from 73.4% a year ago, and up from 68.8% in the prior quarter.
On a Non-GAAP basis, net earnings dropped to $0.61 per share, down from $0.65 per share a year ago, but up from $0.33 per share in the prior quarter. PEGA clobbered the mean estimate for $0.47 per share, and it was the 4th quarter in a row the company has beat estimates.
In October 2013, PEGA acquired Antenna Software, which makes mobile application development platforms. Antenna had no impact on revenue in the 4Q, but it did reduce earnings by ($0.01) per share on a Non-GAAP basis. The Antenna acquisition will cause ($0.06) per share in dilution to earnings in 2014. It will become accretive in 2015.
Some improvements to sales management practices should help mitigate lumpiness. Management will continue to work to bring more balance to quarterly results in 2014, but significant lumpiness will continue until the increasing size of the business and an increasing base of recurring revenue more significantly mitigates the volatility.
During 2013, PEGA achieved a record level of license backlog by adding $58 million of license backlog in the 4Q. PEGA increased total backlog by $31 million on a YoY basis.
In 2013, the company repurchased 390,000 shares for $12.5 million.
PEGA is the leader in the BPM market and it gains market share every year because it changes and adapts along with its clients. Customers come to rely on PEGA to improve their business and this makes PEGA intractable, one of the main reasons we are recommending the company ? PEGA makes customers better and more efficient. Plus, PEGA has crushed earnings estimates five quarters in a row, and guidance for 2014 was above sell-side estimates.
Tom Byrne, The Periscope Report, 4025 Sunset Ridge Drive, Canyon Ferry Crossing, Helena, MT 59602, 406-465-4663, April 2014